Third Quarter Position Earnings Updates: ACHI and HDSN

Accretive Health

I first wrote about Accretive here.

Accretive announced third quarter results last night.  If I didn’t pay attention to the stock price I would swear they knocked it out the park.  But the stock was down 10c on 10,000 shares for most of the day and ended flat.  So I guess I must be wrong.

As I wrote in my original write-up, Accretive’s GAAP accounting is a disaster but their gross customer billings, which would be revenue under any sane accounting methodology, grew from $38 million to $60 million.  My own estimate of EBITDA, which excludes stock option expense, is around $5 million, a big improvement over the last couple of quarters.

Equally important is that they retained their second largest existing customer (next to Ascension), Intermountain.  On the call they said:

The third area I’d like to highlight is our multi year renewal with Intermountain Healthcare. Intermountain is our second largest customer and we are delighted to continue to partner with them for their revenue cycle needs.

This relationship is a good example of a complementary partnership between us, Intermountain and their EHR vendor as they go through a multiyear EHR implementation process. This renewal demonstrates the important role that Accretive plays to provide focused and comprehensive RCM solutions in the face of the increasingly complex environment our customers are operating in.

Accretive is continuing to on-board the Ascension business.  Hospital count increased from 72 in the second quarter to 91.  Their physician advisory services business (PAS), while still small, is growing quickly, revenue was up to $4.2 million from $3.2 million the previous year and hospital count for the segment is up from 93 at year end to 167 today.  As the on-boarding continues revenues should continue to ramp, driving more EBITDA.  Reaffirming guidance means revenue (gross customer billings) of between $60-$80 million in the fourth quarter.

Finally, they are expecting to re-brand in 2017, not a bad idea considering that when you google the company name you get stories about patient shakedowns.  Part of the process will be a move to a real stock exchange.  This may end up as the biggest catalyst of all, as I suspect the stock doesn’t get much of a following on the OTC.

Hudson Technologies

I originally wrote about Hudson here.

Hudson had a very good third quarter, basically reaching a similar revenue level as the second quarter even as the third quarter was seasonally weaker (see below for historical perspective).

R-22 prices averaged $15 per lb in the third quarter.  This is up from $12 per lb in the second quarter.  R-22 makes up about 40% of volumes, so even with what was likely seasonally lower volumes, revenues came in at $34.9 million, so up a touch from Q2.

The company took some one-time charges around the ramp of the Department of Defense contract as well as a charge for the retirement of their former CFO.  If you remove those one-time events I get earnings of around 19c per share.

On the call Hudson said that they have yet to see any evidence of refrigerant switching.   They did say that with the continuing upward trajectory of prices that switching will eventually have an impact.  On the other hand there will be a further ramp down of virgin production next year, meaning more of a shortfall for reclaimants like Hudson to fill.

The DoD contract implementation is ramping and they expect revenues from the contract in the second quarter of 2017.   Remember that the contract is for roughly $40 million a year (its $400 million over 10 years though the company can’t say for sure how that revenue will be distributed annually). But lets just say its $40 million a year.  They already said that they expect similar margins from the new business as their existing businesses.  So 20% EBITDA margins are reasonable.  That means the DoD contract brings in $8 million of EBITDA a year.  Its probably a less volatile business than their typical reclamant business so its probably worth a higher multiple.  Maybe 10x?

If you can get comfortable with those assumptions, the DoD business is worth $80 million.  The company’s current market capitalization is $250 million and I’d say it’s arguable whether its fully pricing in the R-22 phase out.