Lab Mergers/Acquisitions

Aurora Diagnostics Acquires Pathology Groups, Posts Loss

Even as one of the nation’s largest pathology firms buys more groups, it reports significant losses

ONE OF THE MORE CURIOUS SITUATIONS IN THE LAB INDUSTRY TODAY is the story of Aurora Diagnostics of Palm Beach Gardens, Fla. Even as it loses money, it continues to acquire pathology group practices.

Aurora recently issued its earnings report. For 2016, it disclosed a net loss of $29 million, with revenue of $284 million. This continues a multi-year losing streak of net losses of $83 million in 2015, $55 million in 2014, $73 million in 2013, and $161 million in 2012. Thus, in the five years of 2012 to 2016, the company has collectively lost $401 million.

Meanwhile, Aurora Diagnostics continues to scoop up private pathology groups. On April 3, the company announced that it would acquire University Pathologists, in Warwick, R.I., followed by another announcement on April 18 that it would purchase Pathology Associates of Princeton, N.J.

Additional Disclosures

In its annual 10-K filing with the SEC, the company said it expected to continue to operate as a going concern, that it had outstanding debt of $200 million of senior notes maturing on Jan. 15, 2018, and that it owed $197 million under its senior secured credit facility.

In addition, Aurora warned that, management believes it has enough cash and funds in a revolving credit facility to fund working capital requirements for 12 months. This belief assumes that the company will be able to conduct and close a proposed debt exchange offer and therefore avoid acceleration of the maturity date of the senior secured credit facility.

Financial Agreement

In its 10-K filing, Aurora Diagnostics also said that, in March, it amended a financing agreement for the sixth time with Cerebus Business Finance. The agreement was initiated on July 31, 2014, and has since been amended. Basically the amendment would have increased the applicable margin on the loan to 7.125% or 8.125% if Aurora Diagnostics failed to deliver audited financial statements within a specified time. By delivering the statements on March 31, the company did not expect to pay the increased rate.

Aurora Diagnostics said it owns “27 community-based pathology laboratory practices with more than 200 board-certified pathologists.” Founded in 2006 it is one of the larger pathology companies in the United States.

The curious element in this story is why private practice pathologists are will- ing to sell their groups to a national pathology company that has, in the past five years, reported losses approaching one-half billion dollars. If this story turns out well, it will justify the optimism of the pathologists who sold their groups to Aurora in recent years.

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