ExamWorks Group, Inc. (EXAM, Financial) is a business services company. Its main product line enables insurers of all sizes to schedule and obtain independent medical examiners (IMEs). IMEs are third-party doctors used by insurers objectively evaluate injury claims (for example workers compensation claims or auto accident injuries). The U.S. IME services market is worth an estimated $4 billion, and ExamWorks is the largest player in this fragmented market with an estimated $450 million of revenues this year (about 11% share). Foreign markets are an additional $1 billion in size, and ExamWorks has operations in the U.K., Canada and Australia as well. ExamWorks should have solid mid- to high-single-digit revenue growth this year, and has what we believe are nice EBITDA margins. ExamWorks also has recurring revenue and real free cash flow. EBITDA margins are now about 17%, and we expect these to increase to 20% over the next few years. Combined with the revenue growth, we expect cash flow growth in the mid-teens for years to come, yet the company trades below nine times cash flow which we believe is very reasonable. We win with this investment by maintaining the current multiple and capturing growth or by getting multiple appreciation on top of growth.
From Baron Discover Fund's fourth quarter 2015 commentary.
