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Accretive Health Inc (OTCMKTS:ACHI) Making A Comeback

Accretive Health Inc (OTCMKTS:ACHI) Making A Comeback
Written by
Alex Carlson
Published on
June 2, 2016
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Shares of Accretive Health Inc (OTCMKTS:ACHI) are making a nice comeback after investors reassess its recent management shakeup and the company's latest earnings report. After being beaten down for quite sometime, we believe Accretive Health is making a comeback and a worthwhile look for investors. After all, it's not often we find a $200 million market cap company on the OTC Markets with real revenues that has the potential to turn into a microcap runner.Accretive Health is a leading provider of revenue cycle services and Physician Advisory Services to healthcare providers. Accretive Health’s mission is to help healthcare providers strengthen their financial stability so they can deliver better care at a more affordable cost to the communities they serve, increasing healthcare access for all. Accretive Health’s distinctive operating model includes people, processes, and sophisticated integrated technology/analytics that help customers realize sustainable improvements in their operating margins and improve the satisfaction of their patients, physicians, and staff. Accretive Health’s customers typically are multi-hospital systems, including faith-based or community healthcare systems, academic medical centers and independent ambulatory clinics, and their affiliated physician practice groups.The biggest change taking place at ACHI has been a management shakeup in the corner suite. Dr Emad Rizk is out the door as CEO and board member. In his place is Joseph Flanagan, who has moved up from President and COO to CEO. Chairman Steve Shulman said:

“The Board is positioning Accretive Health to maximize growth and value by building on a strong operational foundation that includes great talent, an unparalleled technology platform, a strong financial position with resources to invest in growth and value generation, and unique operational capabilities to deliver upon and extend beyond our substantial committed growth with Ascension. Joe Flanagan is an action-oriented, world-class operations expert who takes a performance-based approach and demands accountability, making him the perfect leader to leverage Accretive’s strong position to generate greater growth and value.”

The company's first quarter results were good, but could have been better and is one of the reasons Dr Emad Rizk was shown the door. The bright spot was that the company closed the transaction with Ascension and TowerBrook Capital Partners in the first quarter. GAAP net services revenue of $352.2 million, compared to $11.0 million for the first quarter of 2015. GAAP net income of $167.4 million, compared to a net loss of $30.4 million for the first quarter of 2015. Gross cash generated from customer contracting activities of $40.9 million, compared to $54.9 million for the first quarter of 2015. Net cash generated from customer contracting activities of negative $12.6 million, compared to $2.3 million for the first quarter of 2015. On the earnings call, Dr Emad Rizk laid out why the numbers weren't better.

2016 is shaping up to be a challenging year. The two main reasons are, first, we lost customers in late 2015 and also though NPR associated with these customers was relatively small, they are having a disproportionate affect on 2016, because they were mature customers. Our business models is such that customer contract generally have higher margins as our contracts mature. Some of these customer losses were due to M&A activity among providers. Second, the fully outsourced nature of the new attention contract requires upfront investments and deployment cost. And we do not anticipate generating meaningful incremental revenue from the contract until late in the year. We will right size our cost structure to ensure we are organized in a way that aligns with our current revenue and also prepare for the on-boarding of Ascension business. Once we have completed this initiative, we will be in a better position to provide you with our full-year views and guidance for 2016.

Currently trading with a market cap of $200 million, ACHI is in the midst of a turnaround under new CEO Joe Flanagan. We think he's the right man for the job and can overcome the mistakes made by his predecessor. ACHI is also looking at getting compliant and off the OTC Markets, which would go a long way to restoring investor confidence. With $283 million in cash on its balance sheet, ACHI is poised for a strong comeback. We will be updating Insider Financial as soon as we know more. For continuing coverage on ACHI, sign up for our free newsletter today and get our next hot stock pick!Disclosure: We have no position in ACHI and have not been compensated for this article.

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