Breathing must be getting easier at UK-based but US-centric Craneware these days, with more evidence that the shift in spending priorities that hit its growth over the past year has washed through and business is building back towards the goal of double digit growth and 20% adjusted EDITDA. But it is too early to say when it will fulfil those goals.
The company suffered when its US healthcare provider customer base shifted its budget to electronic health records with the net result that it issued a profits warning in the middle of 2012 (see here). But with a 7% revenue uplift in the bag for H1 (to December 31 2012) taking it to $20.1m and adjusted EBITDA up 15% to $5.4m, the worst is past. PBT was $4.5m, up from $3.8m. Although the company delivered a 12% revenue increase in the year ago period (see here), it was due to an acquisition so organic growth was virtually zero. This time around the 7% is all organic.
Increased sales activity is now delivering revenue, its Insight Audit product is emerging as a gatekeeper product opening up additional business within existing customers as well as helping attract new ones, and it has 80%+ revenue visibility into H2, so confidence levels are increasing in this company which is renowned for its conservative outlook. CEO Keith Neilson told us SaaS (which represents the vast majority of the business) is delivering profits - at an EDITDA margin of around 27% - and attributes this to an early move to the model back in 2005, its pre-existing annuity (rather than monthly) model which creates better cash flow, and a higher price point i.e. it has avoided the commodity SaaS price trap. He is happy to trade lower margins (compared to upfront licence and maintenance fees) for better visibility.
We get the sense that there is a no shortage of activity within the company and it looks like Craneware is taking customers from prime competitor MedAssets as their contracts come up for renewal. So there everything to work for.