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.