A company in an interesting sector that could benefit from the age old theory of supply and demand is Crdentia Corporation (CRDE). “Crdentia is the latin word for trust,” said CEO Jim Durham when asked about the peculiar spelling of the company’s name. The demand for nurses is exponentially rising as the supply of qualified nurses dwindles everyday. There’s a critical shortage of this occupation in the US and the retirement of the “baby boomers” is not helping the situation. Also hindering the supply is the fact that many schools are limited because of the number of the lack of accredited faculty. Many qualified prospective students have to be turned down because of the limited amount of teachers able to educate pupils on the profession. Many entities have proposed pay raises to this sector to entice those in the industry, especially the public sector. But as many know, legislators will debate every basis of salary increases in their respective states’ budget, ignoring the relevant facts and statistics available. Until changes are made, CRDE looks to help fill the gaps where shortages appear.
The company is a provider of healthcare staffing services, focusing on the areas of travel nursing, per diem staffing, contractual clinical services, and private duty home care. Their travel nurses are recruited domestically as well as internationally and placed on temporary assignments at healthcare facilities across the United States. CRDE’s contractual clinical services group provides complete clinical management and staffing for healthcare facilities, while the company’s private duty home care group provides nursing case management and staffing for skilled and non-skilled care in the home. “Companies in this space are primarily divided into 2 traditional types of business models. The Per Diem or one nurse- one shift type and the travel model which involves placement of the nurses in longer relationships,” said Durham, “The public companies focus primarily on either the Per Diem or the Travel model, we feel like it is essential to do both.”
The company has enacted an acquisition strategy to cope with the growing demand. They have completed nine acquisitions in the healthcare staffing field and anticipate continuing a plan to acquire additional specialized private companies in the healthcare staffing field. The company’s theory is that private companies, because of their smaller size, will find it difficult to compete for the limited funding, public exposure that is provided by critical mass. “The rapid consolidation of my industry is moving faster than I expected when we started this company,” noted Durham. An attractive part of being acquired is the fact that local owners say they get fed up with the cash management challenge. Durham adds, “If I talked to 100 companies in this industry, without exception, they would all see the need and benefit of consolidation.”
Some have urged the strategy is actually a competitive advantage since there is a portion of local owners that are willing to exit the industry for various reasons leaving a propitious acquisition for CRDE and similar companies. This model has been compared to the classic consolidation stories of the waste management firm in the 1990’s.
The company is destined for some top line growth. Yearly, it has shown impressive increases in revenue since its inception with this year being no exception. But, the balance sheet could be in need of a mini make over. The latest 10-Q report showed an Accounts Receivable balance of $4.8M dollars, an increase of almost $2M from the same quarter in 2004.
Even though sales displayed the same type of growth, the inability to collect may be having an effect on cash flows. Hospitals are notoriously slow payers. This is one of the prime reasons local owners are motivated to out source this cash management challenge. Clearly stated in the prospectus (as with all microcap companies) is the need for additional capital. As evident by the private placement deal recently announced, an accounts receivable financing deal may be better for shareholders in place of a dilutive stock deal. Also displayed on the 10-Q was a drop in the Selling, General, and Administrative Expense balance, a good sign, though, when coupled with a higher Non-cash Stock Based Compensation balance year over year, it becomes neutral.
In any small business execution and gaining market share is the key to success. The industry can be rocked by changes in regulation as some can remember when the “Hillary” effect took place after the election of her husband. The industry remains on guard and will no doubt be watching the upcoming elections.
In any event, 30 states were estimated to have shortages of registered nurses in the year 2000. The shortage is projected to intensify over the next two decades to 44 states and the District of Columbia, with the latest projections from the U.S. Bureau of Labor Statistics conveying that more than one million new and replacement nurses will be needed by 2012. If costs can be controlled and margins maintained in the 20% area, a very decent bottom line number will ensue which could be enticing to some investors in this growth area.
Let us hear your thoughts below:
