Paul E. Stevenson spent much of his life searching for satisfying work--and coming up short.
He traded stocks, helped produce a few low-grade movies (including "The Incredible Two-Headed Transplant" with Bruce Dern) in the 1970s and helped develop a drip-irrigation system for home use. Once, when his money ran out, Stevenson drove a cab in Los Angeles for a year. He also spent several years as a lawyer, but gave it up.
"I never liked the practice of law," he said. "I have an adventurous spirit."
By 1981, he was running a now-defunct company, Paramedical, that distributed hospital equipment. Stevenson and three other Paramedical officers decided to form their own company, ATI Medical in Glendale, to rent medical equipment to hospitals. Each one chipped in $1,000 to get it started.
Their timing was prescient. Government health agencies were just beginning their now-widespread cutbacks on reimbursements to hospitals for patients' care. So hospitals' budgets for buying new equipment were cut, prompting them to increasingly rent gear as needed.
The result: ATI's business has surged. Its annual revenue has jumped an average 72% over the past four years; in its fiscal year that ended July 31, its revenue totaled $25.8 million, and in the first nine months of fiscal 1989, ATI's revenue already had reached $29 million, up another 56% from a year earlier.
More important, ATI lately has bolstered what had been its relatively low profit and profit margin. In fiscal 1988, ATI earned $571,146, a mere 2 cents per dollar of sales. But in the first nine months of fiscal 1989, ATI's profit totaled $1.51 million, or 5 cents per sales dollar.
Most of the products that ATI rents sell for less than $10,000. They include incubators for babies, blood pressure monitors, exercise equipment and intravenous products. But ATI avoids such big-ticket items as X-ray and CAT scan machines because if ATI could not consistently rent them, "you're going to be paying through the nose and I don't want to take that kind of risk," Stevenson said.
ATI has 48 branch offices nationwide, 440 employees and 3,600 customers. And Stevenson's days of hauling taxi fares are long behind him. Now 61, his 10% ownership of ATI's stock has a current market value of $5 million.
But Stevenson, as ATI's chairman, president and chief executive, still has to watch his step. To accommodate the hospitals' feverish demand for rented equipment, ATI has borrowed heavily to buy the rental equipment. "You can't rent what you don't own," he said.
As of April 30, ATI's long-term debt totaled $25 million, nearly four times bigger than its net worth--that is, its assets minus its debts--and up from less than $1 million only three years ago. A sharp rise in interest rates, or a sudden slowdown in business, might make it difficult for ATI to pay its debts.
Stevenson is unruffled. He noted that rental/leasing companies typically have debts that far exceed their net worth because they must repeatedly build their inventory of equipment to rent. (Indeed, two truck-leasing companies, RLC Corp. and Ryder System, also have high debt-to-equity ratios.) He also said ATI's interest cost on its debt is a manageable 18%-22% of its total revenue.
"It's not as risky as it would appear," he said.
It hasn't always been easy, either. A year ago, Chase Manhattan Bank made a commitment to lend $25 million to ATI, but had not yet actually turned the money over to the company. Nonetheless, ATI bought several million dollars worth of equipment. But at that last moment, Chase decided not to lend the money, leaving ATI's finances "very strained" and forcing the company to scramble for a loan elsewhere, according to ATI's 1988 annual report.
Was ATI guilty of spending what it did not have? "Sure," Stevenson said. "But we couldn't have built the company from zero to $40 or $50 million without being a little anticipatory in terms of getting equipment." In other words, without hoping for a good roll of the dice.
'Richer I Get'
Indeed, Stevenson wants ATI to keep growing a robust 50%-60% a year. Why? "When you have a growing company, everybody working there is a lot happier," he said. "Secondly, the faster it grows, obviously the richer I get, and I like that idea completely."
Stevenson, a burly, no-nonsense type, lives in Las Vegas because he tired of Southern California's crowded freeways and because Nevada has no state personal income tax.
He kept ATI in Glendale, however, because "Wall Street doesn't like companies located in Nevada because it thinks if you're in Nevada, you're going to be a Mafia company or you're a gambler, which is absurd," he said.
He commutes to Glendale about once a week, but prefers staying out of his workers' way. "My theory of managing a company is that I like to see every decision made at the lowest possible competent level," he said.
But Stevenson also has some strict work rules for his employees. "I tell people when they come to work for me that they can get fired for three things: If they kiss my ass, if they write a memo or if they rent to an individual," he said. Individuals tend to sue over problems with their equipment more than hospitals, he said, and memos are a waste of time.
Rented to Studios
After Stevenson and the others started ATI, they persuaded investor Michael Kaufman to put up $200,000 to get the company going. Kaufman, who owns 12% of the company, remains a director, and two of the other three original investors, Stephen W. Case and Lester W. Grove, are ATI vice presidents who own about 10% and 11%, respectively, of its stock, according to ATI's latest proxy statement.
Initially, ATI rented half of its equipment to Hollywood studios, which used them as props in such shows as "St. Elsewhere" and "Dynasty." But entertainment rentals now account for only 2% of ATI's revenue.
ATI sold its first stock to the public for $2 a share in 1986. The stock traded at nearly $14 before tumbling in the 1987 market crash, but this year it's been climbing again and closed Monday at $10.75 a share on the American Stock Exchange.
To keep the stock and the company growing, Stevenson has other hurdles to overcome. ATI competes against three other major rivals in the hospital equipment-rental market: Medirec in Salt Lake City and Universal Hospital Services in Bloomington, Minn., which are both privately owned, and PRN, a unit of publicly held Mediq in Pennsauken, N.J.
For years, each of those companies operated fairly close to home, thereby dividing the equipment rental market into regions that each dominated. But ATI helped change that by opening a series of branches across the country, prompting its competitors to expand as well and so creating national competition.
"Until ATI stepped into the block, there was really no head-to-head competition between any of the major players," said Dennis Tolman, Medirec's vice president of national accounts.
Yet ATI's rapid growth means that the company has had to fill its offices with lots of new employees, which jeopardizes Stevenson's ability to maintain consistent service nationwide.
"We don't have good people in every single office," Stevenson conceded. "We're not magicians. When people turn out to be not what we thought they were, we get rid of them."
All four of the major rental companies have benefited from the industrywide surge in hospitals' demand for rented products. Tolman estimates that industrywide rental revenue amounts to nearly $300 million a year and is growing by 50% or more a year.
But there's disagreement over whether ATI's growth means that the company has been snaring market share away from the other three players.
Duane Wenell, vice president of marketing for Universal Hospital Services, said: "The fact that we've continued to expand ourselves and have not been hurt or displaced by them shows their growth is in addition to ours, not at the expense of ours."
'Not Been Painful'
But Tolman conceded that ATI has taken market share from Medirec and the others, and said, "It's absurd that they could be new and only pick up brand-new clients." But with everyone enjoying growth, "it has not been painful for any of the other three competitors," he said.
In any case, ATI's growth occasionally prompts people to sound out Stevenson on whether ATI is for sale. Is Stevenson interested?
"I tell them I have two ambitions," he said. "Either I'd like to be nice and rich" if the right buyout offer came along, or "I would like to build a Fortune 500 company out of $1,000" if no offer is forthcoming.
"It's up to them," he added. "I also tell them they're not going to buy it cheap."