Prime Medical Services*
By Greg Markus (TMF Boring)

Prime Medical Services
(Nasdaq: PMSI)
1301 Capital of Texas Hwy, Suite C-300
Austin, TX 78476
(512) 328-2892

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.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.

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