Enter Helix, Stage Left: Unraveling HearUSA, part 6

HEARx entered the 21st century after a wild teenage life of excess, with lots of revenues, growing debt, a burgeoning central office, and negative profits.  HEARx was growing up and needed to get serious and find a life partner.

Meanwhile, Helix Hearing, Inc. was incorporated in Cumberland, Canada in 1996 under the direction of Steve Forget (President), Jeff Giegel (CFO/VP), and Gino Chouinard.  The Helix model{{1}}[[1]]The model was to acquire existing offices via a “sales liquidating debt” approach if offices met sales thresholds, carry a lot of debt but show a lot of equity on the books.[[1]] was similar to that of Sonus and the two were direct competitors in the acquisition of successful dispensing offices in the US and Canada.  For example, Charlie Stone, founder of ESCO, sold his practice to Helix in 1997{{2}}[[2]] Interview with Charles Stone Extended Hearing Aid Warranty, Financing, and Leasing Programs, ESCO. 4/28/2003.  http://www.audiologyonline.com/interview/interview_detail.asp?interview_id=185 [[2]] and worked with Helix for several years after the sale.  As the result of such happy acquisitions,  Helix revenues shot from $6 million to $50 million(US) from 1997-2001. It even posted positive profits for several years, while racking up huge debt.  It was young and stylin.

True to its twisty name, Helix was a complicated mass of subsidiaries, including Regional Hearing Consultants, Inc. in Canada and a holding company called Helix Hearing Care of America (U.S.A.) Corp in the US. To make things perfectly clear, the function of the latter was described thus:

“to facilitate …acquisition of hearing clinics located in the United States through wholly owned subsidiaries of Helix U.S.A.For example, [through] wholly owned indirect subsidiaries to acquire and operate clinics in [various states.]{{3}}[[3]] http://www.secinfo.com/dsvRq.31A9.htm#ujve [[3]].

Whoa — did you get that? Directly or indirectly, Helix progressed:  it went on the Toronto Stock Exchange (TSE: HCA); Helix Hearing Care of America Corp registered its trademark{{4}}[[4]]On 9/23/1999, a U.S.federal trademark registration was filed for Helix Hearing Care Center. This trademark is owned by Helix Hearing Care of America Corp., 7100 Jean-Talon East.Suite610,Montreal,Quebec,H1M 3S3. The USPTO has given the Helix Hearing Care Center trademark serial number of 75807278.[[4]] and Helix became the proud owner or manager of 129 dispensing offices in the US (Massachusetts, New York, Ohio, Michigan, Wisconsin, Minnesota, Missouri, Washington)  and Canada (Ontario and Quebec Provinces) by 2001.

Helix took a new path in 2001. Rather than acquire more offices on pay-out plans, it paid $3.5 million cash to purchase a distribution network called National Ear Care Plan (NECP), a dba of Auxiliary Health Benefits Corp.{{4}}[[4]] National Ear Care Plan sold for $3.5M. DenverBusiness Journal. 11/28/2001. http://www.bizjournals.com/denver/stories/2001/11/26/daily20.html [[4]].  NECP was a well-known and respected hearing care benefit administrator.  According to a press release{{5}}[[5]] http://www.audiologyonline.com/news/news_detail.asp?news_id=414 [[5]], NECP had “a network of 1,300 affiliated audiologists in 1,400 locations in 49 states and Puerto Rico.”

The press release itself marked a style departure for Helix, which had hitherto been a bit of a silent, albeit stylin, mover.  The press release was exuberant and grandiose, in the style of HEARx, which is no surprise because Helix and HEARx announced their engagement earlier that year{{6}}[[6]] HEARx and Helix Hearing Care Sign Letter of Intent to Combine.  5/24/2001.  http://www.audiologyonline.com/news/news_detail.asp?news_id=295 [[6]] and waxed eloquent about the coming nuptials in that same press release:

 Helix and HEARx Ltd. (AMEX:EAR) are … combining their companies. After the combination, HEARx will change its corporate name to HearUSA, Inc. Part of the combined companies’ business plan will be to operate a network of audiologists called the HearUSA Advantage Network. … The acquisition of NECP, when combined with the combined operations of Helix and HEARx, would make HearUSA Advantage Network the largest Audiology-based hearing healthcare provider and network in North America. HearUSA Advantage Network would have access to more than 1600 hearing centers (including the 200 company-owned centers), covering 49 states in the U.S., Puerto Rico, and the provinces of Quebec and Ontario in Canada.

Honestly, reading that press release makes world dominance seem just a step away. Except, even though these companies looked pretty, neither was a prize:  in 2001, both posted net profits of -$10 million, while long-term debt was $8.5 million (HEARx) and $20 million (Helix).    As the SEC document dryly noted on page 18:  “HEARx has incurred net losses in each year since its organization and its accumulated deficit at December 29, 2001 was $89,188,436.” {{7}}[[7]]http://www.secinfo.com/dsvRq.31A9.htm#ujve [[7]] Guess they didn’t have a debt ceiling.

Interestingly, it was Siemens that introduced these two, pushed for the engagement, and provided the dowry.  Stay tuned for next week’s installment, when we look at the intricacies of arranging the marriage of two very complicated but attractive companies.

 


About Holly Hosford-Dunn

Holly Hosford-Dunn, PhD, graduated with a BA and MA in Communication Disorders from New Mexico State, completed a PhD in Hearing Sciences at Stanford, and did post-docs at Max Planck Institute (Germany) and Eaton-Peabody Auditory Physiology Lab (Boston). Post-education, she directed the Stanford University Audiology Clinic; developed multi-office private practices in Arizona; authored/edited numerous text books, chapters, journals, and articles; and taught Marketing, Practice Management, Hearing Science, Auditory Electrophysiology, and Amplification in a variety of academic settings.

4 Comments

  1. Ohhh Holly – I genuinely love to read these blogs and the “long and winding road” of these 2 companies….sounds like their strategic plan has been to hype the potential without any prudent economic models that could possibly lead to profits..I know both of these companys well – wealth for a few at the top, while the investors financed a pretty nice lifestyle…despicable….thanks for your continued story – looking forward to the next installment..Terry Ross, Vice President, MedRx, Inc.

    1. Despicable yes, and yet they continue on and on, with Siemens opting to continue to finance them, forgive debt, underwrite them forever and AARP hyping them to every senior citizen in the country. What am I missing here? Angela Loavenbruck

      1. Stay tuned, Angela. Perhaps together we can figure this out. As I mentioned in the beginning, this is a cautionary tale with the hoped-for outcome of preventing future debacles of this type in our profession.

    2. I appreciate your comments Terry. Thank you for reading this series. With your indepth knowledge of these companies, I hope you’ll add additional insight as we go along.

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