Although it seems that just about every earnings report this quarter has included some combination of a revenue/earnings miss and reduced guidance (or all the above), companies do exist that have done just the opposite - beat and raise. One that definitely merits mention is a small cap company called American CareSource (ANCI).
This aggregator of ancillary care providers reported EPS of $0.06 on revenues of $16.1 million for the quarter. The revenue figure was in line with a positive revenue-only pre-announcement a couple weeks ago, while EPS beat by 2 cents. Furthermore, ANCI upped its guidance for full year 2008 revenue from $50m - $55m to $55m - $57m. When pressed on the conference call, management reiterated its opinion that their guidance is "conservative".
So, why is this company performing so well? Simply put, they satisfy a definitive need while also helping clients lower their costs. ANCI maintains a national network of ancillary care providers such as MRI clinics, dialysis centers, and surgical facilities. The vast majority of health care spending in the US (~ 70%) goes to hospitals and primary care physicians, leaving payors such as Unions, PPOs and TPAs with less incentive to focus on constructing the ancillary care portion of their networks. This is where ANCI comes in. By partnering with ANCI, these insurers can typically save roughly 10-15% on their claims right out of the gate while also benefitting from increased network density, which is good for their plan members. As the insurer and ANCI work together, network overlap becomes seamless, saving the insurer even more, while also routing more patients to ANCI's providers, resulting in increased revenues for ANCI.
ANCI has announced the signing of 6 new clients this year as revenues have grown to $16.1m in Q3 2008 versus $7m in Q3 2007. Notbaly, revenues have increased on a sequential basis for the last 7 quarters and show no signs of breaking that trend. Management believes the model supports 15% organic growth and also notes a policy of announcing new contracts only when implemented. In one recent contract, full implementation (and thus announcement) was delayed due to a merger on the client side and its effect on IT rollover. Given management's policy here, it would appear possible, if not probable, that additional client(s) are in the process of coming online and thus additional announcements may be forthcoming.
ANCI appears on track to exit 2008 with a revenue run rate of $65m - $70m. Assuming organic growth of 15%, that leaves 2009 revenues approaching $80m assuming no new business wins. At $80m, the resulting EV/Sales ratio of 1.16x is clearly compelling given year over year revenue growth well in excess of 100%. In light of ANCI's track record, it appears safe to assume new business wins will occur. Particularly in a recessionary environment where cost savings are crucial, ANCI offers a value proposition that is very compelling both in terms of reduced claims costs and reduced overhead on the part of the insurer. ANCI's business model also provides operating leverage as more and more claims flow through its relatively fixed-cost IT platform. Margins have continued to tick up and appear set to continue doing so.
The chief complaint with respect to ANCI is that its stock can be illiquid at times, giving way to wide intra-day trading ranges. However, with Q3 now in the books, management is doing its part to get the word out as it hits the investor conference circuit. Next up is a presentation on Tuesday November 18 with a webcast available on ANCI's website, which I highly recommend listening to.
Disclosure: Author holds a long position in ANCI