FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

US Diagnostic Labs, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: USDL)") else Response.Write("(NASDAQ: USDL)") end if %>
777 S. Flagler Drive, Suite 1104 West
West Palm Beach, FL 33401
(407) 832-0006

UNION CITY, Ca., November 10, 1996/FOOLWIRE/ --- US Diagnostic Labs released their third quarter 1996 results on November 8th. Actual net revenues for the third quarter were $29,906,569 with income from operations of $6,699,659. Third quarter net income was $2,519,897, which included a $536,000 non-cash charge related to the sale of the company's clinical laboratory business during this quarter. Earnings per share on a primary basis for the quarter ended Sept. 30 were $0.13 on a weighted average number of shares outstanding of 19,587,521. Fully diluted earnings per share were $0.13 on 26,999,843 fully diluted weighted average shares outstanding. In addition, the pro forma results for the quarter showed $0.24 per share primary and $0.21 per share fully diluted which again significantly passed Street estimates of $0.06 per share. Pro forma revenues were $49,180,000 with net income of $4,683,000.

Excluding the non-cash charge, their operating margin for the quarter was $7,236,000 or 24%. Their EBITDA for the quarter without the charge was $9,866,000 or 33%. Going forward they think that 15% is a good number to use as a pre-tax margin number.

GROWTH. Internal growth, before acquisitions for the quarter was 6%. The marketing they did with the centers the acquired produced significant volume. Reimbursement has started to trend upward in many markets, but it has really been more of a volume-driven equation than reimbursement.

BALANCE SHEET ITEMS. For the third quarter, depreciation and amortization was $3,133,000. G&A, excluding the Havertown Clinical Lab $536,000 charge, was $19,538,000. Interest expense for the three months was $2,387,000. Interest income was $393,000. Minority interest was $503,000. Taxes were $1,683,000.

WARRANTS CONVERTED. Another significant operation highlight for the quarter which made it so critical was the fact that they converted their "A" warrants in June, however the proceeds were not received until June 30th. In addition, the "B" warrants were converted for an additional $63 million and the proceeds were received at the end of July. Currently the company has approximately $80 million of the convertible money they took in from these warrants and most of the acquisitions have taken place after the third quarter.

THIRD QUARTER ACQUISITIONS. There were some significant acquisitions in the third quarter. They increased the number of centers in the third quarter by 28. As such, the third quarter had an implementation of larger multi-facility companies that historically they usually had 30 days to implement on single center transitions, and the larger companies have taken them 90 days. The improved margins from cost savings and consolidation of those transitions will show up in the future. The third quarter is not indicative of that as the 90 day period was not fully transitioned. They will have, in the fourth quarter, similar circumstances for other large acquisitions that have closed or are pending to close such as Lee Imaging and Dayton.

PHYCOR. Another highlight is the Phycor relationship that was implemented July 1, 1996 as well and effective on that date there was a transition of 3 facilities in a very complex relationship and partnership consisting of many different management and related agreements. In addition to that they had a new facility that they constructed in Riverside/Jacksonville that opened this week. They also announced the acquisition called First Coast in Jacksonville (2 additional facilities). So they expect to have 7 facilities by the first quarter 1997 open in that market where they are approaching managed care companies now looking to obtain exclusive contracts for imaging on an outpatient basis. They are in talks now to expand the Phycor relationship. The company is, as a long term goal, looking towards expanding into other geographic areas with other physician practice management companies as well as other dominant radiology companies as well as hospitals that are dominant in their market in order to obtain some new business preference by managed care providers.

HIRING TO MANAGE GROWTH. Another highlight that is very important to them is the addition of key employees in the third quarter to ensure everyone that as they continue to make acquisitions that they have the internal controls and are able to manage the rapid growth. They have added key employees in their Southeast region for operations, in the Northeast region, their South Central region, including Senior Vice President of Operations that have had years of experience putting together regional centers and the overall structure of their internal management. They have added significant accounting department acquisitions and switched to Arthur Anderson as their auditor, they have added Vice Presidents of Managed Care, MNA, MIS, and other middle management layers as well.

MIS INVESTMENTS. Most importantly they started in the third quarter to roll out their computer systems which is a wide area network that will provide them with live online data that will be used for reporting and managing their facilites and, of course, setting managed care outcome results that will be an integral part of their company's ability to obtain exclusive managed care contracts. They anticipate having 100 facilities online by the second quarter 1997. That computer system, they feel, is the best in the industry. They took four months together with outside counsel and consultants and analyzed over 30 different computer companies to come up with the best radiology information front-end system as well as billing, collection, and managed care modules.

COMPUTER SYSTEM DETAILS. They have put together a combination of a radiology information system on the front end that will let them track outcomes for all of the patients. All of the centers by the end of the second quarter will all be online realtime and they will be able to assemble that data. Most of the managed care companies do not have good utilization review data and statistics on their covered lives and USDL will be able to start building that database in the centers where they operate. But that is something that will take a long time to really get enough information to start basing capitated rates and things like that on a going forward basis. They will be able to generate a significant amount of information by center that prior to those applications being available to centers they are able to track things like referral patterns. So there will be a lot of information that they can gather by modality that not only assists them in their marketing efforts but assists them in being able to obtain more managed care contracts. The computer system will track all of the managed care contracts by modality, by center. So they will have up-to-date, real-time information of the entire payor mix including managed care.

PAYOR MIX. Managed care as a percentage of their business on a company-wide basis (and it varies greatly by state) is approximately 30%. The payor mix hasn't really changed significantly from what it was in 1995. They did see a slight increase in managed care from approximately 21% to about 30% currently, and that is really more indicative of where they have made acquisitions than the penetration of managed care into their existing payor mix.

MANAGED CARE. Managed care is still a very regional and city-specific business, it is not a national or even state-wide business at the present time. In every one of their markets they have dedicated personnel by center and then by region to go after and get any and every managed care contract that is available. There is not really anything significant other than in the state of Florida with respect to their Phycor joint venture and in the state of Florida in general they are working on a couple of RFPs for state-wide Worker's Comp contracts, but nationally they have in excess of several thousand managed care contracts and they work on that every day. But capitation is not something that is very significant in any one of their markets.

FOURTH QUARTER UPDATE. They are a rapidly growing company and as of today they have well surpassed even the number of facilities acquired in the third quarter. Including what they have announced and is still pending to close they will have 112 centers with approximate pro forma revenues of $200 million.

ACQUISITION OPPORTUNITIES GOOD. The backlog of acquisitions or the deal flow is as significant as it has always been historically. The industry itself is very fragmented and there are 2200 outpatient facilities in the country so they haven't even begun to touch the surface. Most of those facilities (40%) are owned by single radiologists. They are highlighting on the larger faciities and they will continue to do that as well as some of the smaller ones as they can find them to implement and add to their geograhic dominance in certain markets. But, they can't see the pace of the acquisitions slowing down at all. They do see them to continue to make large acquisitions as well as small acquisitions and they have begun to be very cognitive of the dilution and, as always, the acretion of acquititions. And the MICA transaction which will close hopefully next week, for example, is $36 million in cash. Some of their recent acquisitions like Re-Imaging, a lot of them are going to be cash and note.

MICA ACQUISITION. With regard to the MICA acquisition, the MICA shareholder meeting for approval was only on Wednesday of this week. As they announced, there was a lawsuit that was filed against them and one of their centers in Orlando regarding a non-compete issue which is something that USDL hopes to have resolved in the next week or so. They can still go ahead and close on that transaction as soon as they get a few other things -- a few legal opinions and what not -- in place. So they do anticipate being in a position to close that next week. So it hasn't really been delayed because they didn't anticipate closing it until after the shareholder's meeting. MICA said that the injunction that was filed to stop the merger was denied by the court.

LEE IMAGING MERGER. Regarding the merger with Lee Imaging, it is a very profitable operation and as part of that, Larry Lee is going to be assisting them in rolling out the same type of marketing programs that he's used very successfully in the New York market and many of their other markets. Nuclear medicine is a modality in particular that has a high operating margin and marketed properly has great profitability potential and is one that they do not have in many of the centers they operate. So, they see it as a real upside potential for additional revenues to existing same-store sales. The internal growth there now is at 6% and any additional modalities that they can put into the existing center is going to increase that number significantly. Lee Imaging has one of the largest cardiac networks in the country and they are hoping to use his talent and expertise to duplicate that in many of the other markets.

* 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.