Craneware’s January H1 trading update (see here) caused ripples of concern in the market because H1 revenue growth was ‘only’ in the low double digits rather than the 24% of the year ago period (it says a lot for a company when 13% revenue growth is seen as disappointing). Growth was impacted by temporary and timing issues that CEO Keith Neilson told us are now easing and the full results and operating detail for H1 give credence to that assertion.
As far as the numbers are concerned, revenue increased 13% to $18.8m but adjusted EDITDA was flat at $4.7m. Profit before tax was $3.8m vs $4.3m.
Altered spending priorities in the US healthcare market as it approached the December 31 deadline for Electronic Health Records Incentive Payments claims dampened Craneware’s sales during H1. Although hospital activity since the end of 2011 has retuned to more normal levels the company remains typically cautious and says it is still too early to predict if sales cycles have returned to more normal levels. However, the long term prospects for Craneware remain strong because the US is at the beginning of long and extensive investment in healthcare reform.
H1 EDITDA was negatively impacted by $0.7m following the loss of a third party contract but this has more than been made up for by a new partnership that will guarantee revenue of $7.5m between now and June 2014. Neilson says third parties are keen to integrate with Craneware and he expects to sign up to more and potentially larger partnerships. This will so a lot to stimulate additional revenue growth.
The acquired Insight product is still costing the company (the $0.7m contract that fell through was an Insight deal – without it the company would have reported an increase in EBITDA in the period of over 15%). But integration with the Craneware portfolio is 8 to 12 months ahead of schedule and set to complete in July, which will open up further revenue opportunities. Operating margins, which are running at around 25% for the company as a whole and are down largely due to Insight, are expected to start moving back up to the c28% level of the pre-acquisition days.
Neilson said the timing of the financial year end was frustrating and looking at what is happening within the business we can see that. Prospects for H2 and beyond are good, subject to some caveats ie healthcare spending has not yet been proven to be back on track and Insight proving itself once technical integration has been achieved.