Clarus Research on Nightingale Q1

The Clarus Securities research dept. put this report out on Wellington Financial Fund III portfolio co. Nightingale Informatix (NGH:TSXV):

Q1/08 Results In-Line

HIGHLIGHTS

1. Q1/08 Results

Last week, Nightingale reported Q1/08 revenue of $6.1m, up ~79% sequentially, and in-line with our $6.2m forecast. This included ~12% q/q growth in Canada and two months inclusion of VantageMed. In the quarter, recurring revenue was 65% of the total, compared to 74% last quarter. Improved gross margins of 79%, versus 68% last quarter, on higher license and maintenance revenue and one month of cost synergies drove EBITDA of $0.1m, up from the ($1.6m) reported last quarter. On the bottom line, EPS FD came in at ($0.02), versus our estimate of ($0.01)/sh.

2. Canadian Side Up ~122% Year-Over-Year

Largely driven by continued physician sign-ups in Ontario, Canadian sourced revenue grew 12% sequentially in Q1 to $1.4m, slightly ahead of our $1.2m estimate. We have adjusted our FY08 estimate to reflect these results and the previously announced NWT contract, resulting in revenue of $6.3m (was $5.7m).

3. US Side Benefited From Acquisition

US-based revenue was $4.7m, up 116% sequentially and slightly below our $5.0m estimate. US Revenues were negatively impacted by the ~3.6% y/y US$ decline. Q1/08 marked the first quarter to include two months of VantageMed, which management noted on its conference call added less than ~$2.0m in recurring revenue. We believe the acquisition contributed ~$2.3m in total. Given these results, we have slightly lowered our US estimates to $25.0m (was $25.3m) for FY08.

4. FY08 Estimates; Introducing FY09

Given these results, we are slightly changing our FY08 estimates. We are now looking for $31.3m in revenue (was $31.0m), EBITDA of $2.8m (was $2.9m) and ($0.04) (was ($0.03)) in EPS FD. At this time, we are introducing our FY09 estimates of $35m in revenue and EBITDA of $4.5m.

Conclusion and Recommendation

Over the next few quarters, we await signs of increasing cross-sales of the Company’s EMR solution into the acquired VantageMed client base of 6,000, as well as building sales traction with the hosted EMR/PM solution in the broader US healthcare provider market. We are maintaining our SPECULATIVE BUY recommendation and target price of $1.10 per share, which is based on a 2.5x EV/S applied to our FY08 estimate.

MRM
(disclosure – Fund III holds warrants in NGH)