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more health insurance companies offering coverage for hearing aids and the corporate world
also adding hearing aid benefits to current or retired employees, HearUSA is poised for
growth in a business that has no shortage of consumers
1250 Northpoint Parkway
West Palm Beach, FL 33407
Paul A. Brown, M.D.
Founder and Chairman
Interview conducted by:
Walter Banks, Publisher
Published - January 18, 2007
Paul A. Brown, M.D., age 68. Dr. Brown holds an A.B. from Harvard College and an
M.D. from Tufts University School of Medicine. Dr. Brown founded HearUSA in 1986 and has
served as Chairman of the Board since that time and Chief Executive Officer until July
2002. From 1970 to 1984, Dr. Brown was Chairman of the Board and Chief Executive Officer
of MetPath Inc. (MetPath), a New Jersey-based corporation offering a full
range of clinical laboratory services to physicians and hospitals, which he founded in
1967 while a resident in pathology at Columbia Presbyterian Medical Center in New York
City. MetPath developed into the largest clinical laboratory in the world with over 3,000
employees and was listed on the American Stock Exchange prior to being sold to Corning in
1982 for $140 million. That lab is now called Quest Diagnostics (NYS-DGX) with over $5
billion in annual revenues. Dr. Brown is formerly Chairman of the Board of Overseers of
Tufts University School of Medicine, an Emeritus member of the Board of Trustees of Tufts
University, a past member of the Visiting Committee of Boston University School of
Medicine and is currently a part-time lecturer in pathology and a member of the Visiting
Committee at Columbia University College of Physicians and Surgeons.
HearUSA provides hearing care to patients primarily through its company-owned
hearing care centers, which offer a complete range of quality hearing aids, with an
emphasis on the latest digital technology. HearUSA Centers are located in California, Florida,
New York, New Jersey, Massachusetts, Ohio, Michigan, Missouri and the province of Ontario
Canada. The company also derives revenues from its HearUSA Hearing Care Network, comprised
of 1,400 affiliated audiologists in 49 states, as well as its website that enables online
purchases of hearing related products, such as batteries, hearing aid accessories and
assistive listening devices. For further information, click on investor
information at HearUSAs website www.hearusa.com.
CEOCFO: Dr. Brown, you believe your stock price
doesnt reflect the true value of your company. Why do you say that?
Dr. Brown: Other companies in our
industry are trading at 1 to 3 times annual revenues. HearUSA, at its current price of
$1.58 (with the most recent year revenues of $89 million) is trading at ½ times revenue.
Therefore, we could be trading at up to 6 times more if we were in line with the industry
leader. Certainly, if we were trading at even 1 times revenue wed be a $2.00 - $3.00
CEOCFO: In your latest revenue release, you
stated increases of 20.5% for the just completed 4th quarter. Is that correct?
Dr. Brown: Yes. Weve told our
shareholders to expect 15% to 20% growth per year. For the last fiscal year, we ended with
$88.8 million, which was an increase over 2005 of 15.8% in revenue and as you stated in
the 4th quarter, we had revenue of $22.8 million, which was up from $19 million
or an increase of 20.5%. We have given guidance for 2007 of the same expected 15% to 20%
growth rate. This would bring revenues for this year (2007) to between $102 - $107
CEOCFO: What percentage of your current
shareholders are institutions?
Dr. Brown: As you know, I started what
became Quest Diagnostics Incorporated (NYSE: DGX) almost 40 years ago which made a number
of investors a lot of money. As a result of that success, HearUSA has attracted over 9,000
retail customers and only have approximately 15% of the company held in institutional
hands. I believe that is one of the reasons that we have such a low market value. We are
very anxious to increase the institutional ownership to two-thirds. We have just been
invited to the February Roth Capital Partners conference, where the company will be making
a presentation. That will certainly be followed by one-on-one meetings, which we expect
will enhance the ownership of the company by institutions.
CEOCFO: That would be exciting. Does your
new $50 million credit facility with Siemens help or hurt the company when dealing
with the investment community?
Dr. Brown: HearUSA is in a unique
situation where we have announced that Siemens ICN (NYSE: SI) has increased our line of
credit from $26 million to $50 million. What makes it unusual is that of the $50 million,
$30 million does not ever have to be paid back nor do we have to pay interest on that
providing we purchase at least 90% of our products from Siemens. All of that
money is dedicated toward making acquisitions. The second portion of the line of credit
for $20 million at 5% interest
also for acquisitions. No investment banking firm
could have matched those fund raising terms
which may be why it is difficult to get
analyst coverage and interest from an investment banking firm.
What are you doing with the Siemens Funds?
Dr. Brown: Last year we bought $15.8
million of trailing 12 months revenue. We have already announced for 2007 that we have
letters of intent for acquisitions with trailing 12-month revenue of $3.9 million, which
we expect to close in the 1st Quarter. The company expects that of our
continued growth of 15% - 20% one-half will come from acquisitions and the balance from
organic growth. Therefore, having the funds from Siemens
and not having to pay most
of it back
will allow us not only to grow the business, but to improve our bottom
line as well.
CEOCFO: You have touched on some areas that
analysts were looking at last year, one of which was for you to redo your Siemens
agreement and you have accomplished that; what is left?
Dr. Brown: Our 2003 and 2005
financings are costing the company both interest and non-cash charges. We have told the
investment community that if we can get those eliminated that would add approximately $3
million to the bottom line. The new Siemens deal is also expected to add approximately $2
million to the bottom line from increased volume discounts and cancelled interest on debt
that we no longer have.
CEOCFO: Are you going to run out of
Dr. Brown: There is no shortage of
candidates interested in being acquired. There are 9,000 private practitioners in the United
States. Of those, there are 3,000 that are located in the 8 states where we operate. Of
those 3,000 practitioners, 20% are actually doing $½ million per year. That means that
there are 600 private practitioners doing $500 thousand per year or $300 million worth of
business. Those are our targets of opportunity for acquisitions
no shortage of
acquisition possibilities and no shortage of money to effect the acquisitions.
Is HearUSA up to the challenge of integrating and making these acquisitions profitable?
Dr. Brown: Historically, rollups have
not worked for three reasons; one is that the people doing the buying dont know what
they are buying; two, they dont have any systems to put into place to control what
theyve bought; and three, they dont have any ability to grow the business
after they make the acquisition. Well, none of those three applies to us, because
weve been in this business for 20 years and now as the third largest provider of
hearing care in the United States we know what we are buying. Secondly, we have computer
systems that go into these centers within several weeks, so we can control the purchases,
payroll and all of their expenses
giving us the ability to know what is going on.
Lastly, with our sophisticated nationwide call center and the fact that 65% of our
business comes from contracts with healthcare providers, we can begin to add business to
those centers and make them more profitable.
CEOCFO: Have you seen a change over the past
year, in the way insurance companies are responding to the needs of the hearing impaired
and has any government legislation effected that position?
Dr. Brown: I think that Part D, under
Medicare, which is covering prescription drugs, has caused a definite increase in patients
shifting from Medicare to Managed Care. Therefore, we have seen our customers like Kaiser
Permanente, Horizon Insurance, Oxford, Empire and Humana Inc. for example are signing up
more patients. As they get more patients, since they are contracted with us, we
automatically get more business. With more health insurance companies offering coverage
for hearing aids and the corporate world also adding hearing aid benefits to current or
retired employees, HearUSA is poised for growth in a business that has no shortage of
either the elderly are hearing impaired and there certainly are more
elderly people every day, or young people are destroying their hearing with IPods and
various other devices. They are going to be coming to us eventually.
Well, it is clear that there is a market for your products/services and that you have
access to enough capital to carry out the company's plans, but do you have the
right management in place?
Dr. Brown: I believe that we
have one of the most experienced and dedicated executive groups in the
field of hearing care working 24/7 to develop and execute a corporate strategy that
will clearly increase shareholder value. The experience at
HearUSA of just a few of our key individuals include; CEO...11 years;
Exec VP/CFO....6 yrs; COO...10 years; SVP-Corporate Communications-12 years; SVP-
Professional Services- 20 years, and VP-Business Integration-20 years.
In closing, could you touch on the international part of your business and address
Dr. Brown: Although we are called
HearUSA, we have $10 million of our revenue generated from the Ontario province in Canada.
Since we cant run those centers as HearUSA they are called Helix. We expect to stay
there, grow that business organically and make acquisitions up there as well. I dont
really see us going off into other international markets. I think what we have to do now
is concentrate on increasing shareholder value. That means continuing to grow our revenues
and become very profitable.
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