Quindell plc is outperforming its two closest alternative business structure (ABS) comparators – Slater & Gordon (S&G) and NewLaw Solicitors – the AIM-listed company has told the market.
Quindell also revealed that its fee-earners have 360 open RTA portal cases at any one time, and insisted that its model complies with the referral fee ban.
In its detailed response to allegations about the operation of the business – which last week led to a big fall in its share price – Quindell rejected Gotham City Research’s claim that its EBITDA (earnings before interest, tax, depreciation and amortisation) margin of 35% in 2013 is anomalous since it is similar to Google and Microsoft and higher than a range of 10 named insurance specialist peers – which ranged from 6% to 19%.
A comparison with Google and Microsoft was “irrelevant”, Quindell said, naming S&G and NewLaw as “the best two peers for comparison” with its services division. Both have EBITDA margins of nearly 25%, higher than the insurance businesses cited by Gotham, it said.
The statement explained: “Neither… have the same economies of scale as Quindell, nor the financial advantage of owning its own technology solutions which are being used as the core for Quindell’s own outsourcing platform.
“Furthermore, these competitors are not part of a consolidated business that includes a solutions division, which further enhances the overall margins of the group. It is these factors, which in combination have enabled Quindell to deliver Adjusted EBITDA margins of 35% in 2013 and 40% in Q1 2014 with guidance that these margins are sustainable in the long term.”
Quindell said further evidence of its “market-leading level of performance” came from the improvement in RTA portal case handling. When it acquired its core legal services business in 2012, fee-earners had an average of 180 open cases. This has now doubled to 360, with a target of 400.
“This has been achieved by a combination of: reducing the time to settlement, the use of Quindell’s own Challenger process re-engineering techniques, the broader implementation of Quindell technology, improved staff training and the full integration with Quindell’s own health services business.
“This final point of integration within Quindell’s own supply chain creates a ‘waterfall effect’ of work from one part of the division to the next, reducing the group’s own cost of acquisition per customer, thereby increasing efficiency, effectiveness and improving margin.”
Quindell’s annual results revealed recently that it is paying up to £800 per case as its ‘cost of acquisition’, amounting to around £144m a year on its current caseload.
Responding to Gotham’s questions about compliance with the referral fee ban, the statement said it had discussed its model with the Solicitors Regulation Authority (SRA) several times, and no issues had been raised as a result.
It said: “The group’s intended operating model post LASPO was reviewed by the regulator before Quindell was even granted an ABS licence. Furthermore, as an SRA-regulated entity, Quindell participates in regular relationship management meetings with its SRA supervisory team with the agenda looking across all areas of compliance including in relation to the contractual structures that it has in place with its various business partners.
“It should be noted that Quindell is the UK’s largest and first public company ABS and has therefore undergone a rigorous regulatory approval process through every stage of its formation and every stage has been successfully completed.”
It pointed readers to slides from an ‘investor teach-in’ last summer (see slides 21 and 22 here) which indicate that because consumers make contact with Quindell through a ‘first notification of loss’ reporting line provided by their insurer – rather than the insurer passing over the consumer’s data – it is compliant with the ban.
“A more transparent and clear explanation could not possibly have been given with regards to how the business complies with the Lord [Justice] Jackson reforms, the referral fee ban and why Quindell’s model is ethical and is demonstrably driving down the cost of claims,” the statement said.
Quindell said “the vast majority” of its competitors, as well as “a number of the UK’s major insurers who themselves own law firms in an ABS”, have adopted the same model. “Quindell, through its understanding of the market and clearly defined strategy, gained a significant first mover advantage winning circa £1bn per annum of business in the last 18 months across all areas of its outsourcing business.”
It added: “Other variants of this model, including marketing agreements and other structures used within a consumer channel, are also used by Quindell. These models are now widely adopted by the market and are understood by the SRA as being models that enable firms to have arrangements that involve the introduction of personal injury work without being in breach of LASPO.”
Quindell’s share price continued to struggle today, hovering around the 21/22p mark, having been nearly 40p before the Gotham City note was published last Tuesday.