TruBridge (TRBG), a provider of digital solutions to healthcare providers, waited a year to change how it calculates its bad receivables allowance after a restatement due to improperly recognized revenue.

In its latest annual report, TruBridge says in 2024 it “reversed revenue from customers that was recognized improperly in the prior year” which revealed the company:

—Overstated revenue by $3.4 million, or 1% in 2023
—Understated operating loss by $3.4 million, or 7.9% in 2023

Though the company acknowledged control deficiencies associated with revenue recognition, TruBridge did not pinpoint exactly what caused the sales misstatement.

One potential culprit may be that TruBridge was recognizing revenue it knew it would never likely collect.

One year after overstating revenue— and without explanation— TruBridge changed how it calculates its bad receivables allowance.

The change—presumably aimed at better assessing the collectibility of receivables owed by its worst customers— revealed the company had previously understated its bad receivables allowance:

“During the fourth quarter of 2024, the Company refined its allowance for credit losses methodology to establish separate loss rates for a subset of the Company’s customers…This change in accounting estimate resulted in a increase of approximately $2.0 million in the allowance for credit losses in the fourth quarter of 2024.”

Recently, TruBridge signed a cooperation agreement and gave two board seats to its two largest shareholders.
Shares are up more than 200% in the past year.

With an Enterprise Value (EV) of approximately $570 million, TruBridge is priced as if it will grow annual sales to more than $1.06 billion, up from an estimated $352.6 million in 2025. To justify its current share price of $27.70 our Reverse DCF— which quantifies investor expectations embedded in the current share price— indicates TruBridge must:

—Grow sales 12% annually for the next decade, significantly faster than the company’s estimated 2025-27 sales growth of 4%, 6%, and 7.8%, respectively, and the 3-year average of 7.1%
—Increase NOPAT margin to 12%, higher than our 2024 estimate of (2.6%) and our 3-year average estimate of 1.94%
—Increase Invested Capital (IC) Turns to 1.3, up from our 2024 estimate of 0.95 and our 3-year average estimate of 0.85

Notably, the current share price also implies TruBridge increases Return on Invested Capital (ROIC) to 9.75% from our 2024 estimate of (2.46%) and 3-year average estimate of 1.49%: