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Hear in the USA and beyond
1250 North Point Parkway
West Palm Beach, FL 35407
Dr. Paul A. Brown
Interview Conducted By:
Diane Reynolds, Co Publisher
Bio of Paul A. Brown, M.D.
Paul A. Brown is Chairman of HearUSA, Inc. He
is a physician by training but a businessman by instinct.
His medical background is that he is a fully trained pathologist. He discovered early on in his career that his
patients had flat electrocardiograms and rarely talked back to him. So he decided to go into business and borrowed
$500.00 to set up a medical laboratory business in New York City in 1969. It grew into the worlds largest clinical
laboratory and was acquired by Corning in 1982 for approximately $140 million. The stock increased from $.40 cents to $40.00
during a 12-year period. He tried
semi-retirement and went stark raving mad, having gone from 3600 employees in three
countries to one employee living with him in Ridgewood, NJ who didnt think she was
an employee. In 1987, he decided to go back
into business and found another segment in the healthcare field to change--hearing care. Dr. Brown was attracted to hearing care for the
same four reasons he was attracted to the laboratory business. One: It
was a large, highly fragmented industry with annual revenues of approximately $2.5 billion
a year. There are currently 11,000 providers,
down from 14,000 when the company started. It
meets the criteria of what people call a cottage industry.
Two: It is an unregulated business. To go into this business in some
states you just have to be able to spell hearing aid and you can open your practice. There are no federal or state inspections of
hearing care facilities anywhere in the United States.
Three: Fraud and abuse. The
industry has long had a reputation of being a cross between aluminum siding and used car
dealers. Four: As a result of the
fraud and abuse, the healthcare industry refused to reimburse a patient for a hearing aid
or reimburse a dispenser of hearing aids for a portion of the cost of a patients
hearing aid. Those were exactly the same four
areas that got Dr. Brown excited about the clinical lab business when he was in training
at Columbia Presbyterian. So, having changed
the lab business with his first company now called Quest Diagnostics (DGX) trading on the
NYSE with annual revenues in excess of $4 billion, he decided to change another field that
had the same problems.
tell my readers a little bit about the company and how it stands today.
Well, about a year ago, we discovered that a $50 million dollar company was not getting
much attention on Wall Street and our facilities were limited to four states, which
precluded us from national contracts. We
decided if we could combine with the number three player in the industry we would end up
being an $80 million dollar company. Large
enough to begin to get some attention on Wall Street and at the same time be able to
service the entire country. So, in July of
this year we combined acquired Helix Hearing Care and changed our name to HearUSA, Inc. We now have 200 company owned or managed centers
in 11 states and 2 Canadian provinces and 2,000 affiliated providers in 49 states. With the combination of the affiliated providers
and the company owned stores, we are the number three player in Hearing Care in the U.S. The first is Miracle Ear owned by an Italian
Company, the second is Beltone owned by a Danish Company and then HearUSA, Inc. followed
by 9,000 small independent providers.
CEOCFOinterviews: As far as the ticker symbol and stock exchange,
did that stay the same?
Yes, that stayed the same. The Stock
Exchange is still the American Stock Exchange and the symbol is still EAR.
CEOCFOinterviews: How has the merger affected the management team?
This was a merger of two different strategies, corporate cultures, and languages. In any transaction like this, a
few key people stay while others go their own way for whatever reason.
CEOCFOinterviews: With everything, there is two of everything, how
does that address your budget or the finances of the company?
We currently have three priorities in our goal to shift from being market driven to being
profit driven. The first is to
consolidate the two companies and complete the entire integration process, most of which
should be completed in our third quarter with the balance by year-end. This obviously is a rather aggressive target
considering the merger just, took place July 11th. At this point, we are fairly comfortable that by
October 1st all of their U.S. based centers will be completely converted to the
HearUSA, Inc. West Palm Beach, Florida information technology system. We will thus have complete control over all center
operations in the United States. At the same
time, we will begin converting the Ontario centers and finally the Quebec centers (where
the computer system has to be rewritten in French for the Quebec Province). The Second is that we have a $25
million dollar line of credit that is available to us to make acquisitions from Siemens. Our acquisitions are going to be
roll-ins not roll
ups. We are looking at making
acquisitions within an eight to ten mile radius of an existing center and then have
patients serviced out of our centers creating a very high profit margin (approaching 40%).
What makes our Siemens money so exciting is that our deal with the manufacturer is
that there is no principal payment or interest payment provided we buy 90% of our products
from them. With the current economy, we have
a number of individuals who are looking to be acquired.
The third priority is that I have been given the responsibility to increase
our contracting with healthcare providers now that we have a nationwide network. In other words, profitability of the company is
going to be derived from completing the consolidation phase, starting the acquisition
program and additional healthcare provider contracting.
CEOCFOinterviews: I think the biggest thing was before when we
talked was the insurance coverage, Medicare only covered the visits not the physicians,
some covered the actual hearing aids themselves. There
are all different types, so you are trying to round everything off where they will cover
all aspects of this?
What is happening is very interesting. As the
hearing-impaired population gets younger, there is an increasing demand for hearing care
coverage. Fifteen percent of the college age
children now have a hearing loss equivalent to their parents and thats beginning to
get legislative attention. In fact,
Connecticut is now mandating hearing aid coverage of $1,000 every two years provided the
patient is under age 16. We understand there
is legislation pending that is similar to that in the state of New Jersey. As the working population becomes hearing impaired
there will be coverage from health insurance on a much broader base. As far as the retired population, who is
definitely hearing impaired, Medicare pays nothing for hearing care. If a Medicare patient belongs to a managed care
company, there is partial coverage depending on which company is covering the insurance. Also getting interest from the managed care and
the regular insurance companies are value added programs which would give
their members discounts toward hearing aids at no cost to the insurance company. When the company started, the first time hearing
aid wearer was age 78; now our first time hearing aid wearer is age 68. That number is going to drop in the next decade to
58 and then finally into the 40s. People
will be getting hearing aids the same time they get their reading glasses
want to stay in touch. By then I predict it
will be completely covered by insurance companies.
CEOCFOinterviews: Why do they account for the hearing age loss to
be at such a younger age?
Dr. Brown: This is a result of walkmans, cell
phones, boom boxes and more environmental trauma than ever before. If you are wearing a CD
player with a headset you have absolutely no idea what the decibel level that is being
delivered to the inner ear is. There have
been some interesting studies of people driving from Manhattan to Long Island. At the end of the ride, they have turned the radio
up louder and louder as they get closer to home. When
they get into the car in the morning, the radio is on blasting and they want to know which
one of the kids turned up the radio. Well,
the ear had become desensitized during the commute and during that period of time they
were damaging their hearing.
CEOCFOinterviews: Hearing aids used to wrap around the ear and it
was visible. Now there is a digital hearing aid?
Dr. Brown: Well, there are two technological
advances. One is that hearing aids are smaller. In fact, they are so small that they can
be hidden behind an aspirin. At the same
time, hearing aids have become digital. I
have just received my first hearing aid
a Siemens Triano. It fits behind the ear, but is so small it is
barely visible and very comfortable. We went
out to a restaurant that had a band playing eight feet away from our table and a bar
behind us with a normal Friday night crowd I had no problem hearing at the table. Digital technology can separate out those sounds,
which are not the spoken word and control the direction of sounds you want to amplify. It is only the behind the ear technology that
gives you the three different microphone direction capability.
CEOCFOinterviews: It does work better if you get the hearing aid
that goes behind the ear instead of inside?
Ive tried several models and I told our
staff that I wanted the following: a. for it
to work and b. for it to be comfortable. This
is the same thing our patients are looking for. Unfortunately,
the American population is very concerned about vanity.
If you are hearing impaired and you keep asking everyone to keep repeating
themselves, they know you cant hear and a hearing aid will make that go away, not
accentuate your disability.
CEOCFOinterviews: That is a good sign that you have the opportunity
to try them out. As a patient comes into you,
you still want to give the same quality and attention to each patient you encounter. Are you still able to give your patients the same
quality as you expand?
There are three things that make our company
unique. The first thing is we are the only
accredited preferred provider organization in hearing care in the United States. The Joint Commission on Accreditation of
Healthcare Organizations (JCAHO) accredits hospitals and nursing homes, etc. The second thing is that we have 170 contracts
with healthcare providers and are getting capitation payments for over a million people
per month (whether they buy a hearing aid or not). Insurance
companies are signing up with us because of that accreditation. The third is the relationship we have with
Siemens. They have agreed to put up to $70
million dollars for the expansion of the company. They
are not getting any shares of the company, nor are they getting a seat on the board, nor a
first right of refusal to acquire the company. Of
the first $50 million dollars in debt, $40 million dollars does not have to be paid back
as long as we buy 90% of our hearing aids from them.
The remaining $30 million or so is earned by our helping the Siemens
customers improve their business.
CEOCFOinterviews: Now, if another acquisition of this size were to
come along, would you take it or do you feel more comfortable with the smaller ones to
expand in that way?
Well, there arent any other large acquisitions of this size. There are now 9,000 small individuals with
revenues of $250,000 to $300,000/center. These
are the acquisitions we would like to make, providing they are in the neighborhood of our
CEOCFOinterviews: It isnt always acquiring the large
companies but acquiring a lot of smaller ones to make one very good large one.
We are considering anyone within an 8 to 10 mile radius as a potential target. We have told our shareholders that our revenue
target for next year is $100 million dollars of which a portion of that will certainly
come from acquisitions. We have a stock that
is currently trading at .2x this years sales. Something
is wrong with the picture. This stock has to
CEOCFOinterviews: To a potential investor looking at this company,
what would you say to get him/her excited about the company?
Dr. Brown: Well, you have a two and half billion-dollar existing
market today that the Federal government says is going to grow over the next few years to
a ten billion dollar business. It is not unreasonable that some company is going to
have a billion dollars in sales. Reason number one--the size of the market.
Reason number two--is the availability of capital to execute the
planmoney available from our strategic financing partner. Reason number
three--is the experience of the management. The first business that I started
with $500 is going to do over $4 billion dollars in the clinical laboratory field. I
changed the clinical lab field I am determined to change the hearing aid industry.
Our CEO, Steve Hansbrough, who has been with the company nine years is the former CEO of
the Dart Group. While there, he was responsible for over 220 retail outlets with
more than 5,000 employees. Reason Number Four--we are clearly
undervalued. The market value of this company is $12 million dollars for a company
with a running rate close to $70 million dollars a year indicates it is an incredible time
to go ahead and buy this stock.
CEOCFOinterviews: Do you feel that youre growing too fast, or
is it at a pace you can keep up with?
Dr. Brown: Well, the only thing that I can tell you is that we were
able to implement our computer system into 60 some odd stores in a 90-day period.
All we need now are patients in the door. The staff is there. The systems are
there. Growth is not going to be from starting new stores but from attracting more
CEOCFOinterviews: Do you have any closing comments?
Dr. Brown: Anyone who would like to talk to me in more detail
can call me at 1-800-323-3277 ext. 123, I would be glad to answer any of their questions. We have thousands of individual shareholders many
of whom turned out to be satisfied customers. There
are only a few institutional shareholders. Over
the next few years, we hope to be able to change that, but in the interim, I will take the
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