|Shares Out. (in M):||95||P/E||0.0x||0.0x|
|Market Cap (in M):||868||P/FCF||0.0x||0.0x|
|Net Debt (in M):||-171||EBIT||0||0|
|Subject||RE: Why so long on the restatement?|
|Entry||11/13/2013 03:15 PM|
Why has the restatement taken so long?
1) Accountants charge by the hour. In my experience, restatements always take a long time - see PLUS and VISI.
2) When you restate, there are often other problems that arise.
It is my hope, and I'll emphasize the word "hope", that the new management has done proper due diligence before signing on. However, you never know.
I spoke with a provider of IT services to the industry over the weekend. He said that his people thought that the ACA was extremely complicated and that the US would be better off with a single-payer system. He indicated that there was lots of room for providers such as themselves and AH.
I generally traffic in pretty mundane securities. I felt that AH, at .7x revenues and with a new management with real creds, looked like a pretty fair bet for a large profit, or not too great a loss in the event of a sale.
We will see soon enough.
|Entry||11/13/2013 06:35 PM|
ele + raf,
Based on the $177mm cash number as of 12/31/12, and the fact that they have $220mm as of 9/30/13 and spent an additional $20mm on "other" . . . let's say $13mm after taxes . . . this means $56mm ($220mm + 13 - 177) of FCF in 9 months to 9/30/13 ($75mm annualized).
Sounds great except how much of this is simply working capital unwinding as business goes south? The question was asked on the call, and they would not answer. Do you have any way to think about this?
|Entry||11/13/2013 07:46 PM|
With $2.25 of cash, no debt, a growing busisness segment, and all of the quality people who have joined management and the Board (I can see one or two making a mistake but not six or seven), I do not see the short thesis. It seems like it may be a volatile stock but overall not a huge downside story. Even if the restated numbers are lower than expected, it seems the optionality on the upside is still significant and there is zero chance of financial distress since it has plenty of cash and generates cash. Any color on the short thesis on this one?
|Subject||Reply to All|
|Entry||11/14/2013 10:56 AM|
I am so old that I was a shareholder (and lucky seller) of Equity Funding. For those of you not around in 1973, Equity Funding was a fast-growing insurance company - and a fraud. To ascertain insurance policies in force, its auditors prepared verification letters for purported holders of the company's policies. These letters were mailed to policy holders each evening. However, the mail box employed by the auditors, a box on the street in front of the company's offices, was not an official United States Postal Service mail box. The mail box was a fake. Every evening the company's employees would wheel the mail box into their offices, open it, and make false replies to the auditors inquiries. A great scheme that, like every fraud, was eventually discovered.
So when a company has to restate its financials, I think of Equity Funding. Happily, this does not appear to be a fraud, but a restatement.
Revenues attributable to AH will be restated. Client salary costs, heretofore included in AH's revenues, will be netted out. Jamie Stockton of Wells Fargo asked "would it be accurate for us to assume that 70% to 80% of what was base fee previously is essentially going to be netted out?" AH replied that they would have to wait for the publication of the financial statements before making any comments. 70% to 80% are big numbers, so I'll use them.
If revenues , which have been soft, are now at $800 million and not at $900 million, you get the following, valueing the adjusted revenue stream at 2.5x revenues:
$800 million x 30% = $240 million x 2.5x = $600 million + $220 million cash = $820 million = $8.63 on 95 million shares - At a 3x revenue valuation = $9.89 a share
$800 million x 20% = $160 million x 2.5x = $400 million + $220 million cash = $620 million = $6.53 on 95 million shares - At a 3x revenue valuation = $7.37
Using these rough metrics, the downside is $6.53 - 28.6% off of $9.14.
$850 million x 25% = $212.5 million x 2.5x = $530 million + $220 million cash = $750 million = $7.90 a share - At a 3x revenue valuation = $9.03
I like the space.
I am impressed with the resumes of the new executive team.
The company has $220 million of cash and no debt.
If the company cannot move forward robustly, it will get sold so that the new team can move on. In general, the competition is well financed and has highly valued equities.
AH's cash balances increased from $177 million on 12/31/12 to $220 million after spending $20 million on legal and accounting - a $63 million increase. An analyst at Baird pointed out that there were $36 million of receivables due from the discontinued Minnesota business. I will bet that the Minnesota money represents a lot of that $63 million. On the other hand, and non-quantifiable, I imagine that expense levels have been elevated during this period.
The new financials are expected to be released on March 19th. Hopefully between then and now, the company will report some fundamental business progress.
|Subject||RE: Short Interest-16%|
|Entry||11/14/2013 11:08 AM|
I did not address this question as I have no idea what the short thesis is. If anyone knows it, I'd be happy to hear it.
However, the shorts have been correct in the past. Mr. Market knows.
11/14/10 - .6 million short - $9.89 stock
11/15/11 - 11.4 million short - $26.82 stock
11/15/12 - 10.5 million short - $11.07 stock
5/15/13 - 10.4 million short - $11.38 stock
10/31/13 - 7.6 million short - $8.26 stock
|Subject||RE: Reply to All|
|Entry||11/14/2013 11:46 AM|
Thanks for reply. I am new to story and trying to get up to speed quickly.
When you wrote that others in space trade at 2-4x revenue, do we now think that the revenue of "others" is really the net revenue here?
That we were really comparing apples (gross revenue) to oranges (net revenue). How did this mis-perception persist for so long? Is there any confidence that post-restatement, there is any consistency in what revenue means?
In light of these issues, "revenue" might not be the best way to value. Does NPR give us a better way to compare valuations or is that also fraught with issues?
And getting down to the bottom line, what do you think the normalized (loaded term, admittedly, but not including $20mm legal/one-time expenses) free cash flow (including capex, taxes, stock comp) is for 2013 or 2014?
I have taken a broad stab two ways . . . looking at past numbers and taking into account the lower NPR and not-so-great new contracts. and secondly, looking at cash flow production in first 9 months of 2013 and subtracting out working capital cash flow.
Both ways are very rough but both are coming to around $40mm of annualized free cash flow. Does this number make sense?
|Entry||11/14/2013 02:48 PM|
I'm having trouble getting comfortable with the way AH generates its revenues (a percentage of the savings). It creates crazy incentives for AH to do sleazy things -- which appears to be precisely what happened in MN, which resulted in them being thrown out of the state. Don't 99% of companies charge a flat, hourly, or per-user fee for a product or service and then the customer keeps whatever savings are generated???
|Subject||RE: RE: Reply to All|
|Entry||11/15/2013 12:46 PM|
I am new to the name but positive on the name and have been buying recently for the first time. With a fresh perspective I see a great space that the Company is in. A very senior very new management team and Board that are rich and successful and unlikely to put their reputations at risk and wallets at risk (via lawsuits if this were a fraud, sleazy, etc...) in a bad situation. I think it is safe to assume that some if not all of these new management and Board members have perfomed due diligence on the business and it is unlikely it is all that bad. If the Company is only doing .30 or .40 cents ltm then the stock is probably worth about $7 or $8 per share given bearish no or low growth eps multiples and 2.25 per share in cash and continues cash generation. If they can do .60 to .80 in eps in 2016 maybe you get a growth multiple of let say 17x to 22x plus cash once the trend is in place in like 2015. So call it .60eps x 17 = $10.2 + 2.25 in cash = $12.45 -// if $.80 eps x 22 = $17.6 + 2.25 in cash = $19.85. Seems like great risk/reward. Downside protected by all of the "very real" people that have joined management and the Board and the fact that it sounds management understands the restatement but just need auditors to audit it along with the 2013 numbers.
Upside events include - Audit gets done sooner, a highly regarded fund takes a big stake causing a short squeeze (seems like Loeb or Ichan type of material), new contract signings (a new management team that had every reason to be conservative was very bullish on the pipeline)
A lot of weary long term holders seems like they are creating a great opportunity for fresh money.
I would be scared staying short too long in this name given the lack of value in the market, the number of activists in the market, and the risk/reward, top quality new people, the recent detailed examination of the business model and numbers, buyback, the poetntial for upside suprise versus downside suprise.
|Subject||RE: any hope?|
|Entry||05/23/2014 11:39 AM|
I think that what is going on is pretty typical for a company which has to restate its financials. It seems pretty dismal.
1) There is radio silence. No financial reports or financial PR have been released in a long time. The market loves clarity and thrives on news. There is none here, and what there is, if not negative, is dismal.
2) I am told that Schuckenbrock wanted to work from Texas. It was decided that such a move would be be disruptive to the business, and he decided to step down. That is what I was told. I do not know whether it is true or not. So far the rest of the new executive staff, who were recruited by Schuckenbrock, are still on board. However, it would be foolish not to be concerned about the prospect of more executive turnover.
3) Steve Schulman became Board Chairman. He is an experienced health care professional. Hopefully, he will oversee the recruitment of a new CEO who is experienced in the health care field, which Schuckenbrock was not. We have to wait for the announcement of the new CEO. Who likes waiting?
4) The restatement has taken longer than originally thought. It always does, but it is still painful. In addition, the chief accounting officer has just resigned as of May 31st. Will the restatement be done by that time? Who knows? Who likes waiting?
5) The company's cash balance has increased modestly to $228 million or $2.28 per share. This is after the restatement expenses which I think are probably running at $10-$15 million a quarter. That's a positive, but it does not give an investor a lot of comfort because we do not know what the expense levels have been to bring the company's performance up to a higher level.
6) The company has lost some business as some small hospitals have been merged into larger operators. The amount of business lost has not been material in an accounting sense. I suppose that this is a positive, but it doesn't feel like it.
7) The company has not announced any new business wins. This is a negative, but frankly, if I was on the BOD of a hospital, I would not sign a contract with ACHI until it could give me audited financials and until I knew who the new CEO was. Why not wait?
8) I am told that ACHI has improved its operations and that its performance for clients is better. Great, but I cannot see it and do not know the cost of these initiatives.
9) The company was delisted. A lot of stock was held by index funds who were forced to sell based on their charters. Then Schuckenbrock stepped aside - more selling. Fabulous!
10) If the financials are ever released and the stock is relisted on the NYSE, many of those sellers will be forced to repurchase. Hurray! But when?
11) ACHI has a unique offering. They do not reduce a client's costs a little, they find additional revenues and increase a client's profits. There should be a market for a business that makes a customer money. The company need to be in position to execute. Until the financial restatement is complete and the new CEO installed, it seems to be marking time. Who likes to wait?
12) All in all, this is a "pain trade". However, the balance sheet is great, and the product is tested and in use. Perhaps, we are at that point where it is darkest before the dawn. Who knows? I continue to be a buyer.
|Subject||RE: RE: RE: any hope?|
|Entry||05/23/2014 06:42 PM|
As far as I know there is no news. Also, there is no trading volume. The move today may just represent pre-holiday illiquidity on the upside. Tuesday it maybe post-holiday renewed liquidity on the downside. I bought a small number of shares (1,000). Maybe my size did it!
Have a fine weekend.
|Subject||Accretive Health Update|
|Entry||07/10/2014 11:09 AM|
Emad Rizk, M.D. was appointed President and CEO of ACHI today, effective July 21st. Dr. Rizk had been President of McKesson Health Solutions since 2003. McKesson is a highly regarded company and Dr. Rizk's experience is complimentary to Accretive's businesses. I consider this appointment to be positive as another outsider has reviewed the company's books and prospects and has decided to join the business.
Accretive had hoped to have its audits completed by March 19. It is now July 10th, and the corrected audits have not yet been presented. Hopefully, it will not be too much longer. The company has said that the corrected reports will not diminish previously reported cash flows. It has also stated that previously capitalized software costs will be written off. Those losses will be taken in prior years. I expect that the "kitchen sink" approach to the balance sheet will be taken, and everything possible to be written off will be written off.
There is no other information public about the company's operations. I assume that the company has lost some business due to smaller hospitals merging into larger entities who do not need Accretive's services. However, the extent of these losses has not been significant enough to warrant an 8-K.
In its last public statement the company reported $228 million of cash and no debt. That is about $2.30 a share of cash or 28% of the compay's market capitalization. The company has stated that they intend to buy back $50 million of stock or 6% of the outstanding. The short position is about 6 million shares or 6% of the outstanding. When the company was delisted, many index fund and other holders were forced to sell. If the company is relisted, those former forced sellers will be forced buyers.
ACHI is still a "pain trade". With today's news, the pain is a little less severe.
|Subject||Accretive Health Update|
|Entry||11/13/2014 03:36 PM|
The Buffalo Springfield song "For What It's Worth" begins,
"Something's happening here,
What it is ain't exactly clear..."
ACHI released a NT 10-Q and an 8-K yesterday.
The NT-10-Q stated that their 10-Q for the quarter ended 9/30/14 would be delayed. Happily, the submission stated that they hoped that all of their filings would be brought up to date by the middle of December. That would be a positive as it would lead to a possible relisting, the commencement of a $50 million stock repurchase, and the purchase of shares by various index funds and ETFs.
The 8-K reported that the company would be consolidating its Physician Advisory Services and Population Health Management service offerings under the umbrella of its Revenue Cycle Management business. ACHI will take a $7.6 - $8.6 million charge in 2014 to effect the change. The company estimated that the future annual savings will be $8 - $9 million a year. Based on the numbers, this is a no-brainer.
Hopefully, 2015 will be a year of clarity and growth. Meanwhile, although the stock is higher on this news, it is still about 17% lower than when I wrote it up.
|Entry||12/22/2014 10:46 AM|
ACHI announced that the restated 10-K for 2011 and the 10-k's for 2012 and 2013 will be released after the close of business on Dec. 30th. In addition, the company will host a conference call at 4:30 EST to update investors as to the current state of the business.
The company will not be releasing 10-Q's for the first 3 quarters of 2014 on the 30th. I assume that the 10-Q's for 2014 will follow in fairly short order now that the template has been established. Once these 10-Q's have been filed, the company will be in a position to seek a relisting of its common stock.
It will be interesting to see how much money the restatements have cost the company. ACHI's reported cash balances have shown a slight improvement despite the accounting costs that the company has incurred over the past two years. Hopefully, ACHI will be able to move forward with its business now that the disruptions of the past have been put behind it.
|Entry||12/31/2014 02:32 PM|
I am surprised there are no comments today. Everyone must be too busy buying! Just kidding . . . taking my lumps too.
I am trying to figure out the positive story from here, but am not finding it. We have $1.50/shr in cash--$135mm.
Even if I give full credit for cost savings and lean towards high guidance, we have $45mm of adjusted cash EBITDA. and over half of this is stock compensation based on 2011-2013 numbers.
I guess the key question is whether Accretive is unique and has the special sauce and so will grow top line and margins strongly. Mgmt argued on call that they are unique, etc. Thoughts?
What is the correct valuation here? It is trading at $6.50, and that is at the high end of my range at this point. In order to be long here, I think you must believe that there is low-hanging fruit in terms of profits on existing revenue and easy growth opportunities.
|Entry||12/31/2014 03:52 PM|
I too am trying to find the positive story here.
1) I think that the company did itself a disservice in not providing better guidance on the state of its business and finances over the past 2 years. Volt Information did a much better job by releasing quarterly 8-K's about its revenues and finances. The result is a bad taste in my mouth.
2) Golly but there are a lot of employee expenses incurred for a modestly profitable business.
3) They seem to provide a service that is beneficial to its customers. Why can't they make some decent money doing it? Why can't they attract new business? I guess time will tell.
4) Right now, I cannot disagree with your assessment of the value of the business. For it to be worth more, it has to perform better.
5) Are they unique? I would argue that without updated financials, it was very hard, if not impossible for them to attract new business. That hurdle is now out of the way. In addition, there is now a management team in place which has relationships in the health care community. Let's hope that they produce.
6) There is a lot of hope in this situation right now. Hope is not a strategy.
|Subject||Re: Author Exit Recommendation|
|Entry||07/16/2015 05:37 PM|
Ascention Health, Accretive's largest customer representing 50% of its billings, offered to buy Accretive at a price of approximately 50% of today's closing price (about $2.70 a share). Ascension also said that they would not be renewing their contract with Accretive. This has gone badly since my write-up. It might not go any better going forward.