Sights are set on rise in Pre-Paid Legal’s era
Monday, November 16th, 2009BY STEVE LACKMEYER
ADA — The economy is still in the doldrums, people are losing their jobs — and conditions couldn’t be better for Ada-based Pre-Paid Legal.
At least that’s the outlook for CEO Harland Stonecipher, whose company saw net income rise 6 percent the first half of 2009 with cash flow of $35 million, up 28 percent.
“It’s just our business model,” Stonecipher said. “We’ve reported positive net income for the past 10 years. We’re an Oklahoma company, we’ve got offices in Ada, Antlers and Duncan and we’re still rural America. You get a good work ethic, attitude and lesser cost of operations.”
Tulsa financial analyst Jake Dollarhide sees the depressed economy, however, as yet another strength for Pre-Paid Legal: people need attorneys more than ever, and the company’s “pre-paid” approach is more appealing than a hefty $2,000 retainer.
“The thing about Pre-Paid is some might consider it to be a luxury item, much like Starbucks coffee,” Dollarhide said. “But it does cater to middle income or lower income level, or anybody who finds it distasteful to pay a $2,000 retainer.”
Stonecipher agrees.
“The economic downtown has not affected our company, but it has affected our Pre-Paid members,” Stonecipher said. “They need our services more now than at any other time. Foreclosures are at record highs, and, in fact, we’re told in 2010 and 2011, more than 50 percent of mortgages will be under water. Those people will need lawyers.”
Stonecipher said Pre-Paid members are already getting good use of their service, consulting with attorneys about foreclosures and having a better shot at working out an agreement to keep their homes.
“A lot of people who get into this situation can’t afford $300 to $500 an hour,” Stonecipher said. “But with Pre-Paid, they get unlimited access.”
Pre-Paid Legal is continuing with the programs it has had for years but is adding programs designed to help small businesses deal with unions and debt collection.
“Some of these small businesses are very concerned about being unionized. They know there’s a major press in that area, but they don’t know how to respond or what to do about it,” Stonecipher said. “And our lawyers can help them with that. They can also help on debt collection — these businesses need help in tough times to collect every dollar they can.”
Dollarhide said that when the economy recovers, Pre-Paid is in good position to do even better — if it can survive a recently launched Securities and Exchange Commission investigation of Pre-Paid’s marketing practices and stock repurchase program.
Pre-Paid has had a mixed bag in its dealings with the SEC. Several years ago, the company restated its earnings steeply downward after regulators disagreed with the way it booked its sales staff’s commissions. But the last time the SEC came around Ada, the end was nothing but a hit on the stock price.
“Investors hate bad headlines,” Dollarhide said. “Obviously a subpoena casts a cloud. How dark that cloud is remains to be seen. The sooner they can get through that, the better.”
Stonecipher said he was surprised, but not shocked, by the latest investigation. He suspects the probe is related to his company’s repurchase program, in which Pre-Paid has spent $421 million buying back 14 million of 24 million shares the past several years.
“We’re a public company, and that’s the price you pay when you’re a public company. It’s not the best use of our resources, not best for shareholders. It’s only in the interest of the short-sellers. The shorts don’t like our stock buyback program.”
Stonecipher’s response makes sense to Dollarhide.
“The executive founder of a company will always put something in a good light,” Dollarhide said. “And I’m sure the short-sellers don’t like it or anything that might limit them. Some blame short-sellers for the entire crash.”
Could Pre-Paid go private?
“We don’t really need to be public anymore, we don’t need the cash,” Stonecipher said. “We’re buying back one day at a time.”
via newsok.com
