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2003 Q4 PPD Production Results

Contributed by mm | January 6, 2004 7:25 PM PST

Pre-Paid Legal (PPD) announced its Q4 production results. During the quarter, it produced 153,301 new memberships and lost 155,364 memberships. This put its total membership at 1,418,997 at year close, 0.13% below that of the end of last quarter but 2.65% higher than that of the last year.

On the front of sales associates, the quarterly recruitment is 33,068 compared with last Q4's 29,555. At year end, PPD keeps 108,557 sales associates, compared with last year's 155,663.

It appears that it is a bad quarter for PPD, as the biased TheStreet.com suggests. However, to me this quarter is a pretty good one for PPD:

First, the membership attrition is well in control. I track PPD's attrition by dividing the quarterly loss of membership by the average membership during the quarterly (membership average of last quarter end and this quarter end). The reading for this quarter is 10.94%, only slightly higher than last quarter's 10.80% but is the second-best in the last six quarters.

Second, the new identity theft product line is growing very healthy. Compared to the ~40,000 subscribers as mentioned in the last earning call, PPD now has 86,602 active subscribers at the year end. This is almost equal to $2.6M quarterly revenue, which will add 3% to the top line. The continued growth of the line will be very beneficial to the company.

Third, stock buyback program is accelerating. The company almost bought back half a million shares in this quarter, bringing the number of outstanding shares to 16.8 million. This is very accretive to the EPS number and I appreciate management's determination to increase shareholder value.

My forecast model indicates that the quarterly EPS can be as high as $0.67, or 31% YOY growth on top of record-high revenue. In addition, with the slowed new recruitment, the right focus on attrition and the finish of the HQ construction, the free cash flow will recover. Admittedly quarterly PPD EPS is hard to predict due to litigation expenses among others, and I can be wrong at the forecast, but I am very positive that the fundamentals are on the right track and upcoming earnings release will be good.

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