Here is a response to some of your questions on PFHO:
1. Why the growth now? - PFHO was actually growing until the market crashed and then they had a contraction like everyone else. They have actually recovered nicely. Also, a big part of the growth now is due to the addition of new services.such as medical bill review, utilization review, and lien representation services.
2. Sustainability - They have been around for a long time as you point out so it isn't like they just went into business. Their guidance for continued growth starting in Q1'13 certainly also shows that they believe the business will continue to grow. They stated:“We believe revenue growth in the fourth quarter will level off and starting first quarter of 2013, we expect moderate revenues increases to be generated from new services offered by the Company to existing and new customers in the areas of MBR, clinical and non-clinical UR, and other services.”
3. PFHO size - It takes a while to grow a business. They are growing rapidly but yes they are still small. According to the 10-K, there are 14M workers eligible for the Company's services in the markets they serve. So, they have 3.2% market share going by enrollees. The amount of revenue potential that is there varies by the number of services a particular company wants. So, to ballpark things, the total market in the state of California is probably something like a $150-200M total market. If they expand to other states, the potential market grows. I will try to look further into competitors as that is a good question. Here is a link that provides insight into their customers and competitors (search for their Medex subsidiary) :
dir.ca.gov
4. Cash Flow - Cash flow is often lower than earnings in rapidly growing companies. On A/R, DSO is still 92 days so that is fine. I would be interested to know why DSO has bumped up a bit recently.
5. Subsidiaries - I suspect the number of subsidiaries is due to legal reasons but I haven't asked that question.
6. Customer concentration - Concentration is dropping as revenue grows but as with any company, the loss of a customer will have an impact. I suspect that at the end of 2012, customer concentration is lower than the numbers you cite which were as of the end of 2011. However, we will not know for sure until the 10-K is filed. |
