January 29, 2004.
Highlights
PMSI is the leading provider of lithotripsy in the U.S.
PMSI is affiliated with 24% of the urologists in the U.S. and performs
more than 18% of all lithotripsy procedures
PMSI is the only fully integrated specialty vehicle company in the U.S.
The company also has over 55% of the U.S. coach manufacturing market
PMSI recently signed a Definitive Merger agreement with their largest competitor
Outlook - Prime Medical Services Inc. (PMSI) is a stable, refocused, energized, diversified company operating in the lithotripsy and specialty vehicles market. While the company maintains leading positions in both business segments, they continue to have excellent long-term growth potential.
Men are afflicted with kidney stones more than twice as frequently as women, with the highest incidence occurring in men 45 to 64 years of age. The exact cause of kidney stone formation is unclear, and there is no known preventive cure in the vast majority of cases.
While there has always been a demand for mobile medical trailers, the events of September 11, have created an increased demand for mobile command & control centers and vehicles designed for law enforcement purposes.
A streamlined company, PMSI has in place a strong foundation for growth, one that has the potential to significantly impact the company’s bottom line and shareholder equity.
Business Profile - PMSI is an industry leader in providing healthcare services to the urology community, and is a market leader of specialty vehicles for use in the medical and broadcast & communication industries.
PMSI is the country’s leading provider of lithotripsy, a non-invasive therapy for kidney stone disease, typically performed on an outpatient basis. Lithotripsy remains an effective treatment alternative, costing about half that of invasive procedures.
Each year PMSI performs approximately 38,000 of these procedures, (which is more than 18% of the U.S lithotripsy market) through a network of approximately 360 hospitals and surgery centers in 34 states.
Through its wholly owned subsidiary AK Specialty Vehicles, PMSI is also a global leader in the design, engineering, and manufacturing of specialty vehicles for the transport of high technology medical, command & control, and broadcast & communication equipment.
This is an important segment as the specialty vehicle business has been explosive. Federal, state and municipal governments have a need to maintain a fleet of command and control vehicles for homeland security. Moreover, orders for specialty vehicles are expected to increase as those damaged or used in the Iraq war are replaced.
PMSI has an installed base of 1,800 specialty medical units; as the life of a unit is approximately 5 years, this should lead to a large recurring revenue stream of replacement units. In addition, PMSI has an installed base of about 1,700 broadcast units.
Fundamental Analysis - On November 11, PMSI announced its financial results for the third quarter ended September 30, 2003. Total revenue for the third quarter was $39.6 million, compared with $43.4 million for the same quarter a year ago. Net income for the period was $1.8 million, or $0.11 per share, compared with $3.2 million, or $0.19 per share, in the third quarter of 2002.
PMSI’s President & CEO, Brad A. Hummel, commented, "Operating results, while improved sequentially from last quarter's...continued to be affected by the weakness we have experienced in the medical imaging segment of our specialty vehicle manufacturing division. Lithotripsy operations improved sequentially, as procedure volume increased with seasonal demand and we made further progress in reducing operating costs."
"We reduced the outstanding balance under our senior credit line by $5.0 million during the quarter, from $18.0 million to $13.0 million. Subsequent to September 30, 2003, we paid down an additional $5.0 million, resulting in an outstanding balance of $8.0 million out of an available $50.0 million."
Mr. Hummel continued, "Following an intensive three-year effort, we are nearing the end of the lithotripsy re-engineering process. We renegotiated 240 hospital contracts, consolidated numerous partnerships and divested interest in three we did not manage."
"As a result of these efforts, the business is increasingly more stable. Steady pricing, more predictable procedure volume and minority interest expense add to our confidence that we can project our baseline economics and begin moving forward."
"We are evaluating several expansion partnerships and, as evidenced by today's announcement of our pending acquisition of Medstone International, we plan to broaden the products and services we can bring to the urology market."
Recent News - On November 11, PMSI and Medstone International, Inc. announced the execution of a definitive Merger Agreement pursuant to which PMSI will acquire Medstone for stock. Upon completion of the merger, Medstone will become a wholly owned subsidiary of PMSI.
Medstone, based in Aliso Viejo, California, is a leading manufacturer of lithotripsy systems and urology tables and a prominent provider of fee-per-procedure lithotripsy services. Medstone's was the first FDA approved device to treat both kidney stones and gallstones. With more than 130 lithotripters in operation worldwide, and more than 325 urology and patient handling tables in use, the Medstone devices are well established in the urology office and hospital market. For the year ended December 31, 2002, Medstone had revenues of $23 million.
CEO, Brad A. Hummel, stated, "This combination is an important step in broadening our urology platform and maintaining our prominence in the urology market. As we near completion of a three year process of re-engineering our lithotripsy operations, we see a Prime / Medstone combination as a catalyst for growth."
Mr. Hummel concluded, "Upon completion of the merger, we plan to rapidly integrate Medstone's service business into our existing operations in order to capitalize on strategic opportunities... The transaction is accretive to Prime's earnings, and adds considerable balance sheet benefits. Medstone has no long-term debt and net working capital of $16.5 million, including more than $7 million in cash as of September 30, 2003."
Conclusion - PMSI is a strong, energized, diversified company operating in the lithotripsy and specialty vehicles market. While the company maintains leading positions in both business segments, there is still plenty of room for additional growth.
Even though PMSI performs more than 18% of the lithotripsy procedures executed each year in the U.S., new contracts with hospitals and ambulatory surgery centers, coupled with additional physicians joining the joint ventures could help drive the company’s growth in this business.
Looking ahead, the Medstone acquisition, once completed, will be immediately accretive to earnings and substantially expand the landscape of PMSI’s urology business. Moreover, a significant R&D investment by Medstone over the past several years is culminating in the introduction of two new products which are slated to reach the market in early 2004.
The company’s manufacturing segment is also well positioned to capitalize on new opportunities, especially in light of the ongoing military activity in Iraq, and increase in federal grant monies to government agencies and municipalities for spending on homeland security.
As of their last fiscal report, PMSI’s Command & Control group had a backlog of $10.8 million, with an additional $2.4 million under letter of intent. The Homeland Security market remains brisk, and the Broadcast unit's backlog was $12.1 million.
A refocused company, PMSI has in place a strong foundation for excellent long-term growth, one that has the potential to significantly impact the company’s bottom line and shareholder equity.
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PMSI
Prime Medical Services Inc.
January 29th Market: Nasdaq
Profile Price: $5.16
Web | Quote | Chart | News Buy Opinion: 4.75 - 5.25
Short-term Sell: 7.80 - 8.65
Long-term Sell: 8.65 - 9.40
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