Prime Medical Services*
By Greg Markus (TMF Boring)
Prime Medical Services
(Nasdaq: PMSI) (N) (S)
1301 Capital of Texas Hwy, Suite C-300
Austin, TX 78476
(512) 328-2892
primemedical.com
ANN ARBOR, Mich. (Oct. 28, 1997) /FOOLWIRE/ -- Prime
Medical Services operates a fleet of 60 lithotripters in 34 states,
currently performing over 36,000 procedures annually, through
contracts with more than 400 hospitals and 255 managed care
companies. The company also operates one mobile thermotherapy
device and is currently developing additional mobile routes to provide
thermotherapy services to hospitals and surgery centers to treat benign
prostatic hyperplasia (BPH).
THIRD QUARTER RESULTS. Revenues were in line with
expectations, increasing by 8% to $26.4 million from $24.3 million for
the same period in 1996. Pretax income increased by 34% to $6.45
million from $4.81 million a year ago. Despite a near doubling of the
effective tax rate, net income increased by 13% to $4.52 million or
$0.23 per share as compared to $4.02 million or $0.21 per share in the
year ago period.
NINE MONTH RESULTS. Revenues increased by 40% to $70.5
million from $50.2 million for the year ago period. Pretax income
advanced by 117% to $15.1 million from $6.95 million in the
comparable period for 1996, which included $3.54 million in
nonrecurring financing costs. Net income for the nine month period
increased by 99% to $11.1 million, or $0.56 per share, from $5.57
million, or $0.31 per share, for the year ago period -- that despite a
higher tax rate in 1997.
FINANCIAL DETAILS. Prime will be filing its 10-Q with the SEC
later this week; full details are provided there. The company currently
owes $81 million on its bank facility and will be making a $2 million
payment in a couple of days. The average interest rate on that debt is
around 8.5%. Prime has about $50 million available on its line of
credit. The company has $3.7 million in other debt, related mainly to its
partnership obligations.
TAXES. The tax rate for the quarter was 30%, well ahead of the 24%
average projected for the year. The increase is due to Prime's revenues
exceeding earlier projections. The company now projects a tax rate of
28% for the full year, as it uses up its net operating-loss carryforwards.
LITHOTRIPSY. During the quarter, Prime's 59th lithotripter
commenced operations in Hawaii, and the company recently added its
60th lithotripter, which will service the Tennessee and Georgia
markets. That compares with 55 lithotripters in the third quarter of
1996. Going forward, Prime's plan is to grow its lithotripter base at the
rate of approximately five per year -- one or two per year from
internal development and three or so via acquisition. Every so often, a
good-sized acquisition of perhaps 15 lithotripters is possible. Coram's
acquisition by Integrated Health Services has not affected Prime's
lithotripsy business at all; Coram and Prime really don't compete in the
market. Coram maintains the majority of Prime's lithotripters.
Lithotripsy procedure pricing has been projected for some time to
decline by approximately 4.5% per year, which is approximately where
it is in 1997 year-to-date. "Same-store" procedure volume is
increasing by approximately 2.5% per year in 1997 and is expected to
increase to about 4% per year, which would largely offset the pricing
decline. Some of the pricing decline is due to Prime signing multi-year
contracts with some hospitals, which provides greater revenue stability
in exchange for some price reduction.
AK ASSOCIATES ACQUISITION. Prime acquired during the
quarter a 75% interest in AK Associates Inc., a manufacturer of mobile
trailers for major medical equipment and refurbisher of medical
equipment. AK has already been endorsed by EDAP Technomed for the
manufacture of specialty prostatherapy trailers. Prime's ten planned
mobile prostatherapy business operations will require specially
designed and manufactured trailers from AK. AK will also be getting
into the MRI refurbishment business. Prime received $401,000 in
revenues during the quarter from AK.
PROSTATHERAPY BUSINESS. Prime took a significant step
toward broadening its services to the urology community with the
start-up of its North Carolina prostatherapy partnership. This mobile
microwave thermotherapy procedure provides a new treatment option
for men suffering from BPH, which affects an estimated 7.5 million
men in the U.S. Prime currently has another eight prostatherapy
operations in various stages of development, in California (with 113
physician partners), Texas, Tennessee, Louisiana, Virginia, Arkansas,
and Florida. Over 100 private payer plans have approved prostate
thermotherapy for reimbursement, and 21 states have approved the
procedure for Medicare reimbursement, which is ahead of Prime's
expectations. In January 1998, the procedure will have its own CPT
code, which should further speed approval.
PROSTATHERAPY PROJECTIONS. Prime projects that it will
have 10 prostatherapy partnerships in operation by the end of 1998, and
this business line is projected to contribute materially to 1998 revenues.
In North Carolina, for example, an average of a bit more than eight
referrals per year from each of the 53 partners would generate 450
procedures annually. Once the procedure becomes more well-known,
referrals from nonpartners would also be probable. The procedure itself
takes only 60 to 90 minutes, so it's possible to perform perhaps 1000
procedures annually with a single machine. Revenues per procedure are
projected to be roughly in line with lithotripter revenues. Prime's
business model is based on $3600 in revenues times 450 procedures, or
$1.6 million in annual revenues per prostatherapy route. Revenues are
not expected to be significant right at the beginning, because this is a
new technology and physicians and hospitals need to be educated about
it and how to select appropriate patients so as to achieve the best results
for patients.
UROMED. Prime's urology practice management business in New
Jersey continues to develop. The company is working with urologists
there to develop responses to requests-for-proposals for case-rating
and disease management in partnership with a major HMO in that
market. |
