The company has an enterprise sales force that it utilizes to target new Fortune 1,000 companies, and it also uses various channel brokers such as insurance agents, payroll companies, benefits consultants and major insurance carriers. In total, WageWorks serves more than 2 million employee participants from 5,000 different employers.

Revenues remain diversified: No single client is responsible for more than 3% of total revenue, and the top 10 clients represent just 14.4%. A number of acquisitions of small third-party administrators (TPAs) over the past couple of years, as well as organic growth, have resulted in revenue climbing 25% from $109 million in 2009 to $136 million last year. Additionally, for each of the past three years, the company has had a 90% retention rate on revenue from existing customers.

The market for CDBs is quite competitive and highly fragmented, with CDB specialists, health insurance carriers, human-resource consulting firms and even commercial banks operating within the segment. WageWorks' technology patent, footprint into the largest firms in the U.S. and history of integrating smaller acquisitions into the fold keep it well positioned.

WageWorks went public on May 10 at $9.00, generating nearly $60 million in public proceeds for the $300 million company. Shares up above 40% since the IPO, and interest remains strong, so look for dips to get into this early growth story.
Jon Markman is editor of the independent investment newsletter The Daily Advantage.

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