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Pre-Paid Legal Services Ponzi - Sorry,,, I Mean News Update

|Includes:Pre-Paid Legal Services Inc. (PPD)

Prepaid Legal Services, the company that I believe is a publicly traded Ponzi scheme (this is my opinion, although I believe my research backs this opinion up), released  preview of earnings as well as an update to its SEC inquiry.ppd_4-15-10.png 

From PRNewsire: ADA, Okla., April 1, 2010 /PRNewswire via COMTEX/ -- Pre-Paid Legal Services, Inc. (PPD 37.71, -2.94, -7.23%)reported new sales associates enrolled and new memberships produced for the 2010 first quarter. During the 1st quarter of 2010, new sales associates enrolled increased 58% to 37,640 from the 23,871 enrolled in the 1st quarter of 2009 and new memberships produced increased 9% to 134,181 during the 2010 quarter compared to 122,595 for the 2009 quarter.

On a sequential quarterly basis, new associates enrolled decreased 39%, new memberships produced decreased 9%, new membership fees written decreased 6% and our active membership base decreased by 22,666 memberships.

ppd_q1.png 

Our total active membership fees in force increased less than 1% during the last twelve months. Membership persistency rate (defined as the number of memberships in force at the end of a 12 month period as a percentage of the total of memberships in force at the beginning of such period, plus new memberships sold during such period) was 72.4% for the 12 month period ended March 31, 2010, a decrease from the 72.7% for the 12 month period ended March 31, 2009.

During the 2010 1st quarter, we returned $1.6 million to shareholders through the repurchase of 39,510 shares of common stock, at an average per share price of $39.70. Since April 1999, we have returned $459.4 million to shareholders through the purchase of 15.1 million shares, average price of $30.35 per share, and $17.1 million in dividends for a combined total of $476.5 million representing more than 100% of our net earnings during the same timeframe.

Hmmm!!! Ponzilicious... And a quick recap from last quarter, courtesy of "Is Breaking the Spirit of the Law as Bad as Breaking the Law Itself? Enter Prepaid Legal Services ":

Falling membership revenues and share buyback remains a key concern for the company 

Total membership revenues in 2009 declined for the first time in the last 17 years, despite an increase in average annual membership fees

Membership revenues declined to $426.4 million from $436.8 million in 2009 primarily off a decline in total memberships, partially offset by an increase in average annual membership fees to $303 from $301 in 2008. This has been done several times in an apparent effort to boost revenues in what appears to be a failing business model.

Click to enlarge...

ppd_member_revenues.png

Total memberships continue to fall despite an increase in new memberships

Though the company was able to increase total new members that joined in 2009, higher membership cancellations lead to an overall decline in total number of memberships outstanding at the end of 2009.

•·         Total memberships at the end of 2009 declined 0.7% to 1,547,585 from 1,559,154 at the end of 2008 primarily off a 1.9% increase in membership cancellations to 579,664 from 568,975 in 2008. However, the decline in total memberships was partially offset by a 2.9% increase in new memberships to 568,095 from 552,327 in 2008.

Consequently, total revenues and net income declined for 2009

Total revenues for the company declined 1.3% Y-o-Y to $458.5 million from $464.5 million in 2008 primarily off a 2.4% decline in membership revenues partially offset by a 20.5% increase in revenues from associate services.  

•·         Associate services revenues increased 20.5% to $28.4million from $23.5 million in 2008, primarily owing to an increase in associates recruited and higher average associate fee paid (charged).

ppd_membership.png

Source: Company filings

Total cost and expenses increased a meager 0.2% to $367.8 million from $367.1 million in 2008 as an increase in associate services and direct marketing expenses and commissions was offset by a decline in membership benefits, general administrative and other expenses.

Consequently, net income for the year declined 8.4% to $55.1 million from $60.2 million in 2008. However, diluted EPS per share remained constant at $5.04, as the company continued to buy back shares, thus the 8% decline in net income was netted off by 8% decline in shares outstanding (which, of course, served to deplete usable cash even more). It is here that I have a problem. Management should be investing cash into the company to either make the business model more sustainable or to alter the model, but instead are buying back shares,  a temporary stopgap at best. What happens when they get to the end of the road? Issue more shares - wash, rinse repeat?

 ppd_costs_and_expenses.png

Source: Company filings

Although continuous share buybacks have helped PPD push up its share price; actual equity returns haven't been so lucky, as reflected by a lesser gain in market capitalization reflecting the fact that the company has actually lost intrinsic value over the last few years

Pre-Paid Legal Services Announces Update on Inquiry 

ADA, Okla., April 15 /PRNewswire-FirstCall/ -- Pre-Paid Legal Services, Inc. (NYSE: PPD) announced that, as a part of an ongoing inquiry by the Division of Enforcement of the Securities and Exchange Commission ("SEC"), we received an additional subpoena from the SEC on April 13, 2010. The subpoena requests us to provide documents relating to certain membership information, member complaints about provider law firms, our efforts to achieve compliance with all payment card industry requirements, the resignation of Harland C. Stonecipher as Chief Executive Officer and President and the resignation of Tom Smith as a director.

The subpoena is part of an ongoing inquiry by the SEC. The SEC has stated that the inquiry is non-public and should not be construed as an indication by the SEC or its staff that any violation of law has occurred, nor should it be considered a reflection upon any person, entity or security.

For those who have not followed my opinio and analysis on this company over the last year or two, here 'ya go: 

Is Breaking the Spirit of the Law as Bad as Breaking the Law Itself? Enter Prepaid Legal Services

•1.     First PPD Gets SEC'd, Then it Gets FTC'd. It Seems to be a Bad Year for Ponzi Schemes.

•2.     The Flim Flam Scam gets SEC'd - I'm not going to say I told you so, again!

•3.     Flim, Flam, Scam: Would a PPD Ponzi and Pyramid scheme cause your wealth to Scram?

•4.     A Demonstration of How PPD Management is Destroying the Company

•5.     Additional Commentary on PPD

•6.     Reggie Middleton's Continued Public Service Announcement on the Flim Flam Scam

•7.     PPD 2009 First Quarter Update and Comment

•8.     A quick opinion on PPD's latest earnings release

•9.     The Latest on PrePaid Legal Services - The Story of a Publicly Traded Ponzi Scheme?

•10.   PPPPDPPW: Put Purchasing on the PPD Ponzi, Pyramid, or Whatever It's Called...



Disclosure: Often short PPD
Stocks: PPD