Foolish Forecast: Ventiv's Checkup

2005 has ended, and you know what that means: it's time for medical "solutions" outsourcer Ventiv Health (Nasdaq: VTIV  ) to come in for a Q4 and full-year checkup. The company, which helps medical products companies commercialize their goods and services, reports on its progress tomorrow morning.

Wall Street Wisdom:

• General consensus. Five analysts follow Ventiv; five analysts say you should buy it.
• Revenues. Quarterly sales are expected to climb 26% to $148.2 million.
• Earnings. Profits growth should be a bit slower. The analysts are projecting 22% growth to $0.28 per share. Don't be surprised if there's an upside surprise, however -- Ventiv has beaten analyst estimates in every quarter since Q4 2002.

Margin watch:
It's not just Ventiv's sales that are growing. Its margins are on the upswing, too. Rolling gross margins have improved by 300 basis points over the past 18 months. And although little of the company's growth has found its way down into the operating margins, fortuitously timed tax credits have given the net margin a boost.

Margins %	6/04	9/04	12/04	3/05	6/05	9/05
Gross	20.3	20.2	20.6	21.2	22.3	23.3
Op.	10.1	10.3	9.6	9.6	10	10.4
Net	7.3	9.3	8.8	8.8	8.5	9.8

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish lookout:
If you think all the above is a bit too good to be true and are searching for red flags, I'd focus on two areas. First, accounts receivable have outpaced revenue growth for two quarters running now -- up 104% year over year in Q2 and 66% in Q3 (compared to revenue growth of 75% and 44%.) Second, while accounting profits are rising, free cash flow declined this year in comparison to the first three quarters of 2004. Ventiv generated $24 million in FCF through Q3 2005, versus $43.2 million through Q3 2004. All while GAAP (or accounting) profits more than doubled.

Meanwhile, profits per diluted share rose more slowly: up 78% as a result of the company's diluted share count, rising 11% over the past year. Speaking of which, look for that share count to keep on rising as a result of last month's acquisition of patient-education specialist Adheris, the payment for which included 550,000 new shares of Ventiv. You won't see those show up on the income statement until Q1 2006, however.

Competitors:
Ventiv's closest publicly traded competitors are IMS Health (NYSE: RX  ) and PDI (Nasdaq: PDII  ) .

Fool contributor Rich Smith does not own shares of any company named above.