Sunday, July 01, 2007
American HomePatient (AHOM)
We start with a press release for the results for Q1 (period ending Mar 31, 2007). Revenues are down 2.7% to $76.9 million, but the reasons are interesting.
A significant portion of this revenue decrease is due to a decrease in revenues associated with non-focus product lines, such as durable medical equipment and infusion therapy. Also contributing to the decrease in revenues was the effect of Company initiatives implemented in late 2006 to improve patient co-pay collections and provide appropriate service levels to patients. The Company believes most of the revenue lost as a result of these initiatives was unprofitable. In addition, Medicare reimbursement reductions implemented in 2007 associated with the Deficit Reduction Act of 2005 resulted in a decrease in revenues in the first quarter of 2007 of approximately $0.2 million.The proof is in the Q1 net income: $1.1 million vs a $700K loss.
Operating expenses are down by 8.2% due to improved efficiencies and reduced costs.
The company subsequently sold a Florida nursing home business (accepting mostly cash, but also a promissory note). Proceeds will pay down debt. This is the last of the nursing home business.
We skip now to the 10-Q for Q1.
17.6 million shares on May 2, 2007. Roughly 3 million options on March 31, 2007. Figure 21 million totally diluted shares.
Balance sheet shows they're capital intensive and they have a huge amount of goodwill.
cash is 4.4% of assets
AR is 18% of assets
inventories are 4.3% of assets
total current assets are 30% of assets
huge amount of PP&E which is nearly all depreciated (total depreciation is about half of assets)
PP&E (net) is down to 17% of assets
goodwill is 44% of assets!
current ratio is 2
huge long term debt + capital leases which is equivalent to 91% of total assets
Revenues consist of sales and related service which provide $32 million (37% gross margin)
Rental revenue provides $45 million (23% gross margin)
Both of these declined yoy
No breakdown on the operating expenses which dropped $3.1 million (8%)
Bad debt expense dropped slightly
G&A went up by 11% (about $450K)
Interest expense is down slightly to $4.1 million (this is a big danger area)
In reality, operations are running at a significant loss. An unconsolidated joint venture is pushing them into profitability ($1.5 million in earnings, up from $1.2 million).
Operations provided $6.9 million (vs $1.1 million net income) due to depreciation and bad debt expense and $2.1 million due to unconsolidated joint ventures (net), offset by a huge drop in payables. If the unconsolidated joint venture is the only thing making a profit why do they suck up cash?
Capex is $3.2 million vs $8.2 million depreciation. I won't even guess at free cash flow.
They borrowed a net $1.7 million.
The company went Chapter 11 in 2003 and emerged the same year. The $250 million promissory note is to senior debt lenders from prior to the bankruptcy, secured by all the assets.
Principal amount of promissory note due is based on excess cash flow. ugh! None was due in 2006 or 2007. The note matues Aug 2009.
I don't want to bother looking at the 10-K for this company, but let's take a quick look:
Their offices are in Brentwood, TN. Hmmm, why Brentwood (extremely upscale neighborhood) and not Nashville? Let's quickly check the officers' salaries in the 14A. The CEO had $1.2 million in total compensation. The COO made $647K. CFO made $582K. Not ridiculous.
AHOM provides home services and products: respiratory (75%), infusion (12%), and equipment (shrinking to 13%). Typically Medicare, Medicaid, or other 3rd party payor. 249 centers in 34 states. Started in 1991.
2,454 full-time employees, 82 in Brentwood.
Looking at revenues from 2002 to 2006, they're flat. Why the hell do any top management get a bonus?
Costs in both business segments have increased every single year!
The operating expenses category has been decreasing each year except 2003.
Net income per diluted share:
2002: ($3.29) loss
2003: 74 cents
2004: 78 cents
2005: 43 cents
2006: (15 cents) loss
The stock is currently selling for $2.32, which based on my totally diluted share count of 21 million shares, corresponds to a market cap of around $49 million. Q1 had a $1.1 million profit, but don't forget the $250 million claim on free cash flow.
The $250 million debt is a killer for a business that's not growing and not very profitable. They just hired a sales and marketing guy, but what they really need is a CEO who is focused on cleaning up the business. A gut feel says the stock price is probably about right, but I wouldn't want to own it at any price, really.
Trivia question: What's the difference between sales and marketing?
Trivia answer: Sales is the company's representative to the customer ("Let me show you what our company has for solving your problems"). Marketing is the customer's representative to the company ("Let me show you what our customers' problems are").