Moody’s Investor Service recently upgraded its outlook for private equity-backed imaging group US Radiology Specialists amid improved operating performance.
Credit analysts switched their forecast from “negative” to “stable,” highlighting both higher patient volumes and revenue per unit. Stronger performance has allowed US Radiology Specialists to trim its debt-to-earnings ratio, which fell to 6.3x as of July 1.
“The company's rating is supported by good business diversity as it has both outpatient imaging and radiology physician services integrated in many of its markets,” analysts Kailash Chhaya and Ola Hannoun-Costa wrote Nov. 30. “The rating is also supported by the alignment of management and physician incentives through a high level of physician ownership and a physician compensation structure that is highly variable.”
Based in Raleigh, North Carolina, US Radiology operates a total of 180 outpatient imaging centers across 14 states, including 86 held through hospital joint ventures. Meanwhile, its radiology services business consists of more than 400 physicians and advanced practice providers. Altogether, US Radiology logged revenues of roughly $819 million for the 12 months ending Sept. 30.
Moody’s cautioned that the company is hampered by moderate scale, high financial leverage and potential execution risk tied to its debt-funded acquisition strategy. It’s also heavily concentrated in Texas, North Carolina and Georgia, representing over 70% of consolidated revenues. And US Radiology faced some business challenges in 2022, including lower revenue per unit (due to a change in payer mix), high labor costs and “significant” one-off expenses.
On the plus side, the business boasts strong liquidity with upward of $20 million in annual free cash flow anticipated over the next year and a half. US Radiology had roughly $7.5 million in the bank as of Sept. 30 and $165 million available from its revolving credit line. Currently, the company’s term loan has a balance of about $12 million in mandatory annual amortization.
“As a provider of radiology physician services, USRS is exposed to social risks particularly to sourcing and maintaining a qualified pool of radiologists,” analysts noted. “The company is also exposed to changes in reimbursement rates by its payers…as well as a push towards reducing overall healthcare costs.”
Through a spokesperson, US Radiology Specialists declined to comment on the analysis Tuesday. Charlotte Radiology founded USRS alongside Welsh, Carson, Anderson & Stowe five years ago.
Marty Stempniak has covered healthcare since 2012, with his byline appearing in the American Hospital Association's member magazine, Modern Healthcare and McKnight's. Prior to that, he wrote about village government and local business for his hometown newspaper in Oak Park, Illinois. He won a Peter Lisagor and Gold EXCEL awards in 2017 for his coverage of the opioid epidemic.