Fed by Boom in Health Imaging, InSight Reports Doubling of Profits, Hint of Sale
InSight Health Services Corp., benefiting from booming demand for MRIs, CAT scans and other diagnostic imaging services, said Thursday its quarterly profits doubled. But the company also disclosed that it may be putting itself on the block.
InSight said it has hired a financial advisor to help explore a possible sale, merger or other options. The Newport Beach company’s stock has climbed nearly 80% over the last year, and executives have made no secret that investors might be willing to unload the business at the right price.
The company decided to test the waters because of the general strength of the health-care sector, coupled with the company’s own strong financial performance, Chief Executive Steven T. Plochocki said.
“The board believes it’s a great opportunity to explore how best to maximize shareholder value,” he said.
General Electric Co. and the Carlyle Group, a venture capital firm, own 67% of InSight’s shares.
Wall Street reacted favorably to InSight’s announcement. The company’s stock hit a 52-week high of $12.13 cents a share before closing at $11.44, up 94 cents in Nasdaq trading.
Despite the stock’s run-up over the last year, analysts say the company hasn’t received proper recognition in the market.
Indeed, the stock should climb to at least $17 over the next year, said Edward R. Vanacore, an analyst at Tucker Anthony Sutro Capital Markets in New York. He rates the shares a strong buy.
For the fiscal second quarter, InSight earned nearly $3 million, or 31 cents a share, up from $1.3 million, or 14 cents a share, a year ago. Revenue for the three months ended Dec. 31 rose 12% to $51.8 million.
Plochocki declined to speculate on potential buyers or strategic partners, although he did say Asian or European suitors could materialize.
InSight nearly changed hands in mid-1999, when Carlyle and another investors group offered $10 a share for the remaining stock. The bid was withdrawn after a group of shareholders filed suit, saying the price was too low.
The company, which has 1,500 employees, operates 149 imaging centers, both fixed and mobile, in 32 states. The majority of the company’s business comes from hospitals referring patients to its facilities.
InSight is profiting from the growing popularity of imaging services, a market generating up to $90 billion in revenue a year and growing at a double-digit rate. The aging American population and falling prices for the procedures have increased the use of MRI, or magnetic resonance imaging, and CAT, or computerized axial tomography.
At the same time, medical imaging devices are being used to identify more ailments. MRI, a commonly used procedure for spine, brain and bone imaging, is now being used by some doctors to look for blockages in heart arteries. CAT scans, powered by supercomputers, can detect calcium deposits in coronary arteries, which some doctors consider a red flag for heart disease.
In a fragmented industry, InSight and Alliance Imaging Inc., a closely held Anaheim firm with about $370 million in annual sales, have emerged as major players.
Plochocki, a former president of Apria Healthcare Group Inc. in Costa Mesa, came to InSight in November 1999 with a mandate to turn around a company that was adrift and experiencing slipping profits.
He has won kudos with such strategies as slashing costs and establishing companywide incentive programs. He eliminated company credit cards, cut back the number of cell phones issued to employees and banned first-class air travel, saving $2 million.
His incentive programs reward schedulers and technicians for reducing cancellations and boosting imaging procedures. Technicians, for example, call customers two days before appointments to answer questions and allay fears. The result: Cancellations have fallen from a daily average of 2.4 per center to 1.1.
Each imaging procedure brings the company about $550.
Even if the business changes hands, Plochocki said he wants to stay on, hoping to boost annual revenue to $500 million over the next couple of years.
