Boring Portfolio Report
Thursday, April 25, 1996

(FOOL GLOBAL WIRE)
by Greg Markus (MF Boring)

ANN ARBOR, MI, April 25, 1996 -- Wow! Make that six consecutive record-setting days for the NASDAQ.

The Borefolio's gains haven't been as impressive as the NASDAQ's over recent sessions, but they certainly have been steady. Do you happen to remember when the Boring Portfolio had its last down day? Neither did I. I had to look it up: April 11 -- two weeks ago.

The big Borefolio-related news today was the earnings report released by Prime Medical Services this morning. So that will be the focus of tonight's update.

PMSI announced record results for its first quarter ended March 31. Revenues rose 60%, to $7,224,000. Net income increased 49% to $1,906,000, or $0.12 per share, versus $1,281,000 ($0.09 per share) for the year-ago 1Q. And that, my friends, was pretty much all there was in the company's press release -- not exactly a font of info. (By the way, do you happen to have the Info font? It's very nice -- sort of like Palatino. Uh, sorry.) Also, as you may recall, PMSI has only two analysts who cover the stock at present, and so the company doesn't hold any post-report teleconference.

One might think that 60% top-line growth and 49% bottom line growth ain't too shabby for a stock sporting a nominal p/e of 19, and one would be correct.

First Call listed $0.13 as the expected EPS, though, not $0.12. So however impressive the company's performance was over the first three months of this year, the initial impression was that PMSI missed its number and would be punished accordingly . . . which is precisely what happened earlier today.

Less than one hour into the trading session, PMSI had crumbled a full point from its open at $14 1/4 -- a 7% loss. From there on, though, the stock gradually regained most of the lost ground, to end the day at a quote of $14 1/8. (We use the bid price of $13 3/4 in figuring the Borefolio's value.)

So why did the stock rebound? Presumably because it ultimately dawned on traders (I hesitate to use the term "investors") that PMSI had missed its number in only the most literal sense. After all, of the two analysts, one had projected $0.12 and the other, $0.13. So whether or not PMSI "missed" depends upon whether one chooses to round up or round down. Get real.

Basically, PMSI's first quarter performance was right on target. The only place where analysts' estimates and today's reported numbers differed by any noticeable amount was in terms of the total number of outstanding shares. And one reason for that is because additional shares automatically come on-stream as the share price rises and employees' stock options hit their trigger prices. As we well know, PMSI's share price rose quite handsomely during this past quarter. (By the way, Dr. Crowe's recent cashing in of some of his pile of PMSI chips has no effect on the outstanding shares total, since those shares were always counted.)

I spoke with PMSI's Finance VP, Cheryl McLeod again today. She noted that the fourth and first quarters tend to be a bit slower than the mid-year, and so PMSI's revenue growth in 1Q 1996 was particularly encouraging.

We also talked a bit about net margins. If you do the math, you'll see that net profit margins declined a bit from 1Q 1995's 28.4% to this past quarter's 26.4%. A full balance sheet won't be released until the company files its 10-Q, but Ms. McLeod noted that the decline was due to a rise in interest expense, owing to the debt associated with last fall's lithotripter acquisitions.

PMSI's stated goal is to increase its total number of lithotripters by 6 to 10 each year, and McLeod noted that the company is currently exploring additional acquisitions right now. PMSI has only around $10 million left in its present credit line, so it is likely that additional acquisitions will involve at least some fraction of additional equity offering. Since this has been PMSI's strategy all along -- and quite a successful one -- this doesn't cause me any concern.

Lithotripter utilization rates continue to be quite satisfactory, I was told. The company has seen no pricing pressure, and PMSI's two main competitors -- privately-held Lithotripters, Inc., and Coram Healthcare -- do not compete in PMSI's region of 22 states.

PMSI's goal is to become the premier national provider of stone-busting services. Today's earnings report reveals nothing at all to me that would indicate that the strategy is anything other than completely on track.

Transmitted: 4/25/96