Tuesday after the market closed, QCOR pre-announced a Q1 that shit all over analyst numbers as if every analyst were from Off Wall Street (though as Money McBags types this, perhaps Mr. Roberts is furiously penning his mea culpa to run in tomorrow’s Barron’s where he apologizes for being more wrong than Donald Rumsfeld and more of an assclown than this) and made shorts tremble so much that their doctors prescribed them acthar to calm the shakes down.  The stock jumped 20%+ on the news to >$18 and remember Money McBags has been pimping this stock for over a year (and it is only up 3x since he first wrote about it, so um, that sound you hear is jizzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz), he wrote a scathing take down of the aforementioned Barron’s hatchet job on QCOR where he dropped more logic and vituperations than a pissed off Socrates (“beauty is a short-lived tyranny, bitchez“), and then last Q he raised some questions about their real growth rate because every analyst should be constantly making sure they understand WTF is going on with their companies and QCOR’s revenue has been a bit more opaque than the quantitative definition of opaque (and Money McBags is calling that a definitional onomatopoeia).

Before we get to what Money McBags uncovered when digging in to QCOR’s revenues (and shout out to CEO Don Bailey for spending ~30 minutes with Money McBags on two separate occasions to dig through the minutiae and make the seemingly nonsensical numbers make sense), Money McBags wants to look at their announcement.  Below are the important facts:

1.  MS new scripts were up >100% to >500, so um, boofuckingyah.  This is what is going to drive the business for the next year or two and it is fucktastic to see that the recent doubling of the sales force seems to be starting off on the right foot (and the foot was so right that even Rex Ryan got a stiffy from it).  New scripts were also up 40% sequentially and you know what goes up 40% sequentially?  Brooklyn Decker‘s awesomeness and nothing else.  So yeah, pretty good.

2.  19 NS scripts were written, which is still tiny, but if this takes off, that will be a ginormous step function up for QCOR.  It is wayyyyyyy to early to forecast NS as real, but a growing NS business would be like the icing on the cake or an extra thin glass table for a Belgian Biscuit.

3.  Gross revenue is going to be up ~43% in Q1 to $48MM and net revenue is going going to be up ~40% to $36MM (more on that difference later) and that is well above analyst guesses and well above even Money McBags’ guess.  Though to be fair, Money McBags didn’t really have a guess because 1. he doesn’t really forecast this company quarterly (though Money McBags does now in his super duper new QCOR model which would make Warren Buffett’s shriveled heart a bit less curmudgeonly) and 2. not even CEO Don Bailey has any idea WTF sales are going to be like since they doubled the sales force, so right now guesses are really just that.  Sales are either going to be up slightly, or up whatever the opposite of slightly is (perhaps a shit ton), so all one can do is try to put bounds on the numbers.  QCOR can grow 20% or they can grow 100% and until this pre-announcement, neither one would have surprised Money McBags, but now the only 20% growth scenario seems less likely to happen than Susan Burns going again to the Gaugin exhibit (and please tell Money McBags you got that pun).

4.  They continue to repurchase shares, this time buying back another ~900k which leaves them with 61.7MM shares outstanding, 4.3MM shares left on their current buyback program, and $122MM in cash (the equivalent of 6.1MM lap dances, also known as a Tuesday night for the Cincinnati Bengals) which Money McBags would wager is not going to just sit on their fucking balance sheet and earn .00042% but will eventually make its way back to shareholders either through additional buybacks or a special dividend.

5.  There is an actual person named Ram Amandeep. This has nothing to do with QCOR, but it is a fact.  And interestingly enough, Ram Amandeep is also the alias Larry Craig used on the campaign trail.

6.  They should earn ~$.17 per share in Q1 based on $36MM net revenues, 94% gross margins, $18MM operating costs, some interest income, a 37% tax rate, and 61.7MM shares, so um, not bad.  Obviously they had a huge jump in operating costs so they are still growing in to their new P&L, and they may still tread water earningswise for a few Qs as they potentially build out more of a sales force for NS, but if they can continue to write MS scripts at their current pace, they will eventually earn the fuck out of shares.

7.  Not all was good as MS unpaid as a % of paid was likely up.  Last year, ~94% of MS scripts were fully paid and not reimbursed by Medicaid.  This Q, it was somewhere around 86.5% as they had >500 paid and 79 unpaid (so depending on how much the >500 paid really was, that ratio will vary).  The point is, the more Medicaid business they do, the less profitable they are, so while a one quarter drop in the paid % doesn’t worry Money McBags too much (in 2009 it was actually ~90%), it is just something of which to be aware (just like this is something of which to be aware).

So what do we do from here?  Can we just annualize their $.17 eps or do we throw on a 40% growth rate, lever up, buy the shit out of QCOR, and then hobble over to our local Rick’s Cabaret to spread around our winnings?  Well, before we do anything, we need to really understand their revenue in order to get a good forecast and as Money McBags pointed out last time, their revenue just didn’t seem to add up.  In 2010, QCOR’s net revenue grew 30%, while their vials only grew 12%, even as new scripts grew 58%.   Plus MS was said to have grown 110% to ~60% of revenues and ask yourself this, if the majority of a company’s revenues grew >100%, shouldn’t revenue growth be a lot fucking greater than just 30%?  The problem is there are more moving parts in net revenue than in Jamie Lee Curtis’ pants which on the surface causes the above numbers to be more confusing than a William Burroughs novel or the Fed’s insistence on using “core inflation.”

So while Money McBags is proud to be the preeminent dick joke writer in the world, he is also a damn fine equity analyst and the award winning When Genius Prevailed would not work if that weren’t the case.  And it is for that reason that Money McBags reached out to CEO Don Bailey to try to solve the above conundrum.  As you all know, Money McBags frequently talks to CEOs and most of the time they contact him as they have either read his analysis somewhere on the interwebs, had a shareholder forward them Money McBags’ analysis, or had one of their lady friends simply scream out “fuck me like Money McBags fucks small cap stocks” mid-coitus.  So there is a steady stream of information that comes Money McBags’ way, but in this case, Money McBags sent the first email because he really wanted to make sure he understood what the fuck was going on since he feels a duty to his readers (which makes him the homonym-esque stock market proctologist) to get shit right.

Interestingly enough, CEO Don Bailey had read some of Money McBags’ analysis (no joke) so knew who he was and was happy to try to explain QCOR’s revenue over two delightful phone calls (because that is how detailed Money McBags goes, he doesn’t just graze the surface of the numbers, he makes sweet love to them as if they were Kate Upton doing the Dougie). All Money McBags wanted to do was understand how many vials QCOR sells per Q per segment so he could build estimates off of that and to make the numbers work, there are really three main drivers of which you have to be aware (or four if you count this driver).

1.  Fewer MS patients are on Medicare or Medcaid than IS patients as last year 6% of MS scripts were unpaid while 42% of IS scripts were unpaid.  Of course Money McBags knew this (and has written about it several times) and it explains much of the reason for net sales to have outpaced the growth of vials because as MS becomes a bigger portion of sales, QCOR simply doesn’t have to reserve as much on average per vial.  It doesn’t take Henri Poincare to correctly conjecture about that.  So that is one big reason why net sales grew faster than vials because the reduction from gross to net is coming down.  But that doesn’t quite get Money McBags to how many actual vials of MS vs. non-MS they sold.

2.  IS patients use on average more than twice as many vials per script than MS patients do (another fact about which Money McBags has talked, though not as much as he has talked about the fact that Alice Eve is dreamy), so while MS was ~60% of net revenues, it was only ~45% of vials since IS patients used ~5.5 vials per script and MS patients used just over 2.  To get the numbers to work, this is what has to be true (assumptions in grey).

So hoofuckingray, we solved this bitch, right?  We know the vials so we can forecast off of that, right?  Well slow the fuck down because if we assume the numbers above are correct (and Money McBags thinks they are as close to the ballpark as Morganna on payday in the 1970s) and backsolve for 2009 numbers as a way to verify what we did is right, we get an answer that looks more fucked than Carmen Kinsley in Beyond the Call of Booty.

Since we know MS vials grew 110% in 2010, if we backsolve to build 2009 revenue the same way to make sure our numbers are right, that would mean that in 2009 there were 1,440 vials for MS and with total vials of 5,973, that implies there were 4,533 non-MS vials.  But from above we can see that in 2010 there were 3,672 non-MS vials so if Money McBags’ numbers are right (and again he is pretty sure they are), that means there was a ~30% drop in non-MS between 2010 and 2009 which is completely inconsistent with the growth story (especially as non-MS scripts were up 6%) and is more head scratching than a lice ridden Barry Bonds (that is Barry Bonds after he started taking the roids).  Money McBags showed the above conundrum to Don Bailey and his response at first was, “yeah that looks fucked” (ok, he said nothing of the sort but he agreed the optics looked odd), and then he brought up the third and most critical point…

3.  Overall vials per script are coming down as insurance companies are being stricter and want patients to try acthar one or two vials at a time (though this has now seemingly stabilized).  According to Don, MS vials went from a bit above 2 to about 2 per script while IS went from like 6ish to 5ish (Don was using rough numbers with Money McBags because the data is obviously not perfect, but Money McBags didn’t require precision).  Anyway this explained the fuck out of what was going on and it is backed up by the actual data because if you use Money McBags’ numbers, you will see vials per script for non-MS went from ~7 to ~5.5 while MS stays flat in the low 2s (and Money McBags knows this is a lot to digest, but are you still with him here or did he lose you at Kate Upton?). The point is, Money McBags now has confidence in his baseline revenue numbers, what the drivers are, and that the growth story holds up and QCOR isn’t just growing net revenues because they are simply reserving less and that competition isn’t eating away at their core business like Gabourey Sidibe at a Sizzler.

So you must be asking, what was the fucking point of all that and when is there going to be another hot chick picture?  The point is Money McBags can now forecast the shit out of QCOR and below shows that as he took the scripts data from their pre-announcement and came up with pretty much the same revenue and vial numbers as QCOR announced, so eat a dick sell side (and feel free to hire Money McBags, buy side).

Ok, so now that we have proved Money McBags is a real analyst (though he will never lower himself to a DCF model, but he will gladly lower himself to this model) and he understands QCOR’s revenue better than Siberians understand Yetis or Tim Geithner understands perception, we can try to make a guess at earnings for 2011.  Money McBags is going to assume IS will remain flat for the year, NS vials will grow 10% sequentially per Q (essentially 2 to 3 more scripts per Q, so he could be way underselling this), and MS vials will grow 25% sequentially per Q from here (which would be a rindonkulous 87% growth for the year, but again, it was up >100% in Q1).  Assuming that, QCOR will earn ~$1.06 and that is with Money McBags bumping up operating costs to $20MM a Q which may be too high.  So QCOR is trading at ~18x that but has ~$2 of cash on the balance sheet and is growing like a motherfucker (to get overly technical) with little competition and a new market opening up, so an 18x multiple, while high, may actually be low.  Shit, if they grow MS 40% sequentially a Q (sounds almost impossible, but again, they have doubled their sales force), that would be 130% growth for the year in MS and would get them to ~$1.40 eps which would make the stock stupid cheap.

Numbers aside (and Money McBags favorite number to put on its side is 69). one can put whatever estimate they want for MS growth but the results so far show that QCOR is penetrating that market more furiously than Bristol Palin penetrated the abstinence market (or the anti-abstinence market both literally and figuratively penetrated her).  With that market still being ginormous and NS still untapped, QCOR can do what Money McBags likes to refer to as “earn the shit out of some numbers” over the next few years.  So while Money McBags just went through that detailed analysis and while there may be some rocky quarters as they continue to ramp up, the numbers don’t necessarily tell the whole story and with their increased sales force and with the efficacy of their drug, over the next few years QCOR should continue to grow and should continue to be a core holding.


And note to readers:  The headline is a pun on this great freestyle rap by Shaquille O’Neal.

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