November 13, 2013 - 12:02pm EST by
2013 2014
Price: 9.14 EPS $0.00 $0.00
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
TEV (in $M): 697 TEV/EBIT 0.0x 0.0x

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  • Management Change
  • Hospitals
  • Insider Buying


Sometimes, you do not know the facts, but you act on what you think are the probabilities. This idea is one of those. I think that it is probable that Accretive Health (AH) will prove to be a good investment from its current level, although I do not have the numbers to prove it. When I get the numbers, the stock will not be priced where it is today. I believe that it will be higher, although, it could be lower.
AH was written by raf698 on June 6, 2012. On the date of the write-up, the shares were trading at $11.51. The write-up was a good one, and, if you have any interest in this idea, you should read it as it will tell you more about the business than this write-up will. At the close on November 12, 2013, the shares were $9.34.
In brief, AH provides hospitals with Revenue Cycle Management. They have developed programs to help hospitals bill correctly and collect the money billed. AH takes a percentage of the hospitals' improved cash flow from the use of its programs as its payment. They partner with their hospital clients. With the U S Government becoming an even larger factor in the health care business, hospital usage should climb, the management of hospitals will become even harder and more complicated, and AH should have very good business. Indeed, it has been in the past as revenues have grown from $510 million in 2009 to an estimated $950 million in 2012. While revenue growth has been good, margins have not kept up as business model causes start-up expenses to be incurred with each new client. Margins should improve as the start-up expenses are overcome.
The Company has had a some problems. The write-up by raf698 explains the problem that AH had with the State of Minnesota. AH settled with a payment of $2.5 million, ceased doing business with it client, Fairview Hospital Group, and ceased doing business in the the State. Despite the resolution of this problem for a relatively modest sum, AH's stock did not rebound sharply - it had declined from a little over $30.00 a share to the $11.51 level. Perhaps, Mr. Market knew something, or maybe he had just lost his interest in AH. Whatever the reason, Mr. Market was correct to be lukewarm towards AH. On Febuary 2, 2013, AH announced that there would be a delay in release their 10-K for the year 2012. To date it has still not been released, and, of course, no 10-Qs have been released. The last filing that the Company made was its 3rd quarter 2012 10-Q. As of that filing, AH had $196 million of cash and $353 million of total current assets versus $171 million of total liabilities. In announcing the delay of its 10-K on Febuary 27, 2013, AH stated that they had $177 million of cash after using $36.8 million to repurchase stock. On March 12, 2013, AH announced that they had won the business Salem Health in Oregon. This will relace Fairview's lost business, but will, of course, involve start-up expenses.
So why do I like AH? Because people who I believe have "insider information" like the business and are betting their time and effort on it. AH has brought in a new management team. No one wants to be associated with an unsuccessful business and you do not choose to join one unless you think that there is an opportunity. All of the new executives at AH had an opportunity, assisted by professionals, to review AH's books and records. They know, or think they know, what the current state of the business is and what its prospects are. If they thought that AH's prospects were poor, they would not have joined the Company.
Mary Tolan, who founded the Company, has stepped out of operational management and has become Chairman of the Board, although she still owns over 10 million shares. AH has brought in a new President / CEO, a new COO, a new CFO, and a new Chief Strategy Officer.
1) Stephen Schuckenbrock - President & CEO
Left his position as President of Dell Services, an $8.5 billion business to run a business. He was the 2nd highest paid officer at Dell in 2012 earning $12.7 million and $5.4 million the year before. He was also President of Dell's Large Enterprise business and its Chief Information officer. Before Dell, he was co-chief operating officer and EVP of sales and services at EDS. Before EDS, he was COO of The Feld Group, an IT consulting firm.
At AH he will have a salary of $595,000 and have options on 2,903,801 shares execiseable at $9.56.
I think that he believes that he will make some money on his options.
2) Joseph Flanagan - Chief Operating officer
Senior VP at Applied Materials. Before that he was President of Nortel Business Services which had more than 9,000 employees. At GE prior to Nortel
His salary has not been disclosed but he has options on 800,000 shares at $11.47.
I think that he believes that he will make some money on his options.
3) Sean Orr - CFO
Senior VP of Maxus Pertoleum, President & CFO of Dale & Thomas Popcorn (WTF!), EVP & CFO of Interpublic Group, Senior VP & controller of Pepsi, and EVP & CFO of Frito-Lay.
Neither his salary or his option package was not disclosed.
4) Richard A. Kimball, Jr. - Senior VP & Chief Strategy Officer
Partner of Goldman Sachs where he specialized in healthcare. Prior to that, Morgan Stanley.
His salary has not been disclosed but he has options on 1,000,000 shares at $10.54.
All of these professionals have been involved with businesses more substantial than AH. They are taking a chance on AH.
AH provides a service that is valuable to its customers. The market opportunity is large. At the current time, AH trades at about .7x revenues. Others in the space trade at 2x - 4x revenues. AH had stated in a January 8, 2013 presentation at a J.P. Morgan Global Healthcare Conference that; "Let me turn a little bit to our five-year outlook as we begin to think about where we're going as a company. We see our net revenue continue to grow in the 20% to 25% cumulative average growth rate through 2017.....We also see our adjusted EBITDA was 9.9% in 2011 and we see that margin rate expanding to the 14% to 18% range in 2017." If AH is able to achieve 50% of this, an AH investment today will be fine. If they can achieve the goal expressed, it's a home run.
I'll vote with the new management as they know the story better than me.
The company is making an investor presentaion after the market's close today. We will have better information after that than we do right now.
I do not hold a position of employment, directorship, or consultancy with the issuer.
I and/or others I advise hold a material investment in the issuer's securities.


The release of the delayed financials.
Top-line growth.
Improved margins.
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