ResearchTime wrote: Stock down; we believe short thesis is inaccurate
This morning we became aware of a Twitter account that was created this month and
began posting a short thesis on CRHM. We have reviewed the claims in the short
thesis and after speaking with management, we believe the thesis is inaccurate. We
recommend buying on today's weakness.
Some of the claims from the Twitter account (in bold), followed by what we’ve learned in
our review, include:
1. Contracts are fixed term and will require significant cash expense to renew. We do
not believe this to be true after speaking with management. Contracts are fixed term
with durations that range from one to 10 years. However, there is no cost to renew
contracts, some of which do auto-renew. Furthermore, we note that contracts have
non-compete and liquidation damages provisions that would provide incentives for the
GI to maintain the relationship with CRHM upon contract expiration.
2. The names of most of the acquired anesthesia practices are similar, thus they
are sourced from the same seller, implying that the M&A pipeline will quickly dry
up. The names of the acquired businesses are similar because CRHM renames the
acquired practices when the NewCo is created upon acquisition. The acquisitions do
not come from a single source and we believe CRHM's pipeline is robust and should
provide a long tailwind of M&A opportunities.
3. The phone numbers listed for the acquisitions are all the same. Yes they are,
because this is the phone number for Innovative Practice Strategies, which is the
billing company for CRHM. When CRHM acquires a practice, that practice gets put on
the billing platform that CRHM uses for its acquired practices.