Clarus research on Nightingale Informatix
Nightingale reported Q4/07 revenue of $3.4m and EPS FD of ($0.05). This compares with our forecast for $3.8m in revenue and ($0.02) in EPS FD. License revenues were driven by sales in Ontario in Canada and the Northeast region in the US. In terms of margins, the revenue mix led to gross margins of 68% and higher than expected expenses drove an EBITDA loss of ($1.6m).
2. Canadian Business Ramping Up
In the quarter, Canadian sourced revenue improved by 11% sequentially to $1.2m, slightly ahead of our $1.0m estimate. License deals were largely based in Ontario but also included other provinces. In FY08, we are modeling $5.7m in revenue based on continued doctor sign-ups led by adoption in Ontario.
3. US Side Lower Than Expected
On the US side, revenue was $2.2m, below our estimate of $2.8m. Revenue was down ~29% sequentially mostly due to a large-sized EMR contract in NY in Q3. For the year, the US represented ~71% of total revenue, versus 19% last year, primarily due to the inclusion of its first two US acquisitions, IHPS and HealtheNet. Nightingale’s Q1/08 will include 2 months of VantageMed, adding to sequential growth.
4. FY08 Estimates
We are leaving our FY08 estimates essentially unchanged at $31m in revenue (was $31.3m), EBITDA of $2.9m and ($0.03) in EPS FD.
On a valuation basis, US comparables Quality Systems (QSII-Q) and Allscripts (MDRX-Q) are trading at 5.2x EV/S on FY08e (ending Mar-08) and 4.3x FY07e, respectively. Consensus estimates have the two organically growing at ~30% y/y on larger-sized hospital wins. We view NGH’s current valuation favorably at 1.0x EV/S on our FY08 estimate which includes US organic growth of ~18% y/y (82% of total revenue) and ~39% y/y in Canada.
Conclusion and Recommendation
Over the next few quarters, we await signs of building sales traction with the hosted EMR/PM solution in the US market as well as increasing sales of the EMR solution into the acquired VantageMed client base of 6,000. We apply a 2.5x EV/S multiple to our FY08 forecast of $31m to get our target price of $1.10 per share. We maintain our SPECULATIVE BUY recommendation.”