• run with the bulls

    get your first month


    of hedgeye free

prev

CALL INVITE | THE SIREN SONG OF A V-BOTTOM | HEALTHCARE THEMES (1/18/17 AT 1:00PM ET)

Takeaway: We will provide a comprehensive overview of our #ACATaper/#ACA2.0 and Healthcare Deflation themes with new datasets and analysis.

CALL INVITE | THE SIREN SONG OF A V-BOTTOM | HEALTHCARE THEMES (1/18/17 AT 1:00PM ET) - Insured Population Slowing

1Q17 HEALTHCARE THEMES CONFERENCE CALL

We hope you can join us for our 1Q17 Healthcare Themes Call on Wednesday, January 18th at 1:00 PM ET.  We will provide a comprehensive update of our #ACATaper and Healthcare #Deflation themes with new datasets and analysis.  We'll also share new work that more definitively links insured medical consumers by payor, medical consumption, and employment across the US Medical Economy, and as always updates on our current longs and shorts as well as new themes and stocks we are working on for 2017.

 

The U.S. Medical Economy remains extended even after a terrible 3Q16 earnings season which stock prices seem to have completely forgotten.  While the negative tone from 3Q16 has all but evaporated following the Presidential Election followed by the improved tone at the JP Morgan Healthcare Conference this week (indicating a less-worse 4Q16 earnings season), 2017 guidance remains a sector risk.   After the largest expansion in insured medical consumers in a generation between 2014 and 2016, growth in medical consumers revert to pre-ACA levels in 2017, alongside continued deterioration in affordability, payment reforms, company leverage at 15-year highs, and multiples still near 10 year highs, is a recipe for downside.  

THE POLICY PULSE | REPEAL & REPLACE 

Emily Evans, Director of Health Policy at Hedgeye, will be joining our presentation and sharing her views on major policy initiatives including block grants, Medicaid expansion and Repeal and Replace, among other topics that will significantly impact our fundamental views.  For example, the #ACA2.0 environment so far has added more Congressional scrutiny and oversight of Medicaid eligibility and enrollment determination.  We see this as a developing risk as many states have enrolled more people into Medicaid than live at or below 138% of the poverty level.  California, for example, has 12 million Medicaid enrollees, but only 9 million people at or below 138% of the federal poverty level.  We've identified 28 states that have similarly over-enrolled at the expense of federal outlays.

CLICK HERE TO WATCH 4Q16 THEMES CALL REPLAY

 

Please contact  for further information.  An invite with dial-in instructions will be sent to subscribers ahead of the conference call.

KEY TOPICS WILL INCLUDE

#ACATaper/#ACA2.0 Update and Review

 

Data updates since our October 2016 presentation

(continue to progress in line with our expectations for slowing demand)

  • Insured consumer growth leads medical consumption and US Medical Economy Employment
  • JOLTS, HC Employment, Insured medical consumers, Hospital Employment - everything is slowing with a lot of downside from here
  • Exchange Enrollment - no evidence that consumer fears of Repeal & Replace is driving fear-based enrollment
  • Exchange disenrollment and member churn remains high
  • Premium/Deductible Affordability - HDHP hitting new highs

#Demographic Headwinds (YES HEADWINDS!)

Incremental medical spending for the US Medical Economy

(the most profitable in the world, will be sourced almost exclusively from Medicare, one of the least profitable payors with mounting deflationary pressures.)

  • Impact of Aging Population
  • Per Capita Spend by Age Cohort
  • Utilization History

#Employment Decelerating 

 

Employment affects EVERYTHING!

  • Employment vs. Privately Insured
  • Hospital Bad Debt Expense
  • Real Private Fixed Investment
  • Biotech Fundraising Cycle

#CapEx Slowdown Seems Likely

  • Impact to Hospitals and companies that sell to them
  • Healthcare IT Headwind
  • Hospital PCE

#Repeal and Replace

(Emily Evans will provide her outlook on block grants and the Repeal and Replacement of the ACA

  • Repeal and Replace Process Timing and Implications
  • The Uncertainty Ahead
  • Block and Per Capita Grant Reform for Medicaid - new money flows likely negative for Hospitals
  • Increased Congressional oversight of Medicaid enrollment and eligibility

Healthcare As A Safe Haven Looks Like Consensus...

(likely to unwind if we are right on emerging fundamental and policy headwinds)

  • Style Factor and Surprise Analysis
  • Estimate Revisions
  • Relative and Absolute Valuation
  • Position Monitor - Longs and Shorts

 

Please call or e-mail with any questions.

 

Thomas Tobin
Managing Director


@HedgeyeHC

 

Emily Evans
Managing Director


@HedgeyeEEvans

 

Andrew Freedman, CFA
Associate


@HedgeyeHIT 

 

Alexander Ross
Analyst


TODAY AT 1:00PM ET | HCA INVITE | WHAT'S SO SPECIAL ABOUT HCA? | -34% DOWNSIDE TO $48

PLEASE JOIN US FOR OUR REVIEW OF OUR HCA SHORT THESIS today AT 1PM ET

 

Please contact  for further information.

CLICK HERE TO WATCH THIS PRESENTATION LIVE

WHAT'S SO SPECIAL ABOUT HCA?

We believe there are several reasons to be cautious on Healthcare, Hospitals, and HCA specifically.  The first is what we believe will be the ongoing hangover from the #ACATaper, which we've described and embellished upon since we began publishing on the theme mid-2015.  We expect Hospital admissions and many other types of care to continue to slow and likely decline in 2017.  For HCA we'll provide data and analysis that counters the long standing consensus opinion that HCA is the "Best Operator" among hospitals.  We think there is limited upside with significant downside into the $40s given the balance sheet leverage.

 

TODAY AT 1:00PM ET | HCA INVITE | WHAT'S SO SPECIAL ABOUT HCA? | -34% DOWNSIDE TO $48 - hca matrix

TOPICS

  • Facility level detail on revenue, margins, Medicare performance scores, and the local competitive landscape
  • #ACA2.0 and the likely negative impacts of Repeal & Replace
  • Detailed demographics at the Census Bureau Statistical Area (CBSA) which shows little to no growth in commercially insured population
  • Insured Medical Consumer growth, Hospital employment, and our volume forecasting methodology

TODAY AT 1:00PM ET | HCA INVITE | WHAT'S SO SPECIAL ABOUT HCA? | -34% DOWNSIDE TO $48 - HCA Metro Hospital Employment

 

TODAY AT 1:00PM ET | HCA INVITE | WHAT'S SO SPECIAL ABOUT HCA? | -34% DOWNSIDE TO $48 - Admissions By Zip

 

Please call or e-mail with any questions.

 

Thomas Tobin
Managing Director


@HedgeyeHC

 

Andrew Freedman, CFA
Associate


@HedgeyeHIT 

 

Alexander Ross
Analyst


ATHN | INPATIENT IS REAL AND READY TO GO 2017

Takeaway: We witnessed a hospital running the majority of their clinical operations and the entirety of their business office on athenahealth

ATHN | INPATIENT IS REAL AND READY TO GO 2017 - Welcome to watertown cartoon

overview

We spent last Friday 60 miles outside Fort Worth, Texas visiting a 17-bed rural hospital that has athenahealth's inpatient system up and running, and is both a development partner and showcase client. This hospital was a RazorInsights customer prior to athenahealth's acquisition in early 2015, and has been on four different EHRs in the last five years. The purpose of the visit was to see first-hand how the system is being used on a daily basis and to determine its readiness to go mainstream in 2017.  What we witnessed was a hospital running the majority of their clinical operations and the entirety of their business office on athenahealth's solution.  The hospital staff was extremely pleased with the usability of the system, as well as the level of service from athenahealth on both the clinical and financial side. Overall, there were no major holes in the system not already being addressed that would limit athenahealth's ability to bring the > 80 hospitals in the backlog live in 2017. 

 

The production quality of the tour was top-notch, with access to the CEO, CFO, Business Office Manager and Nursing Director.  We were allowed behind-the-scenes into the business office to see how they run reports, work through claims and manage the P&L of the hospital.  With a new $30 million hospital to show off, inpatient suites rivaling that of urban peers and no shortage of technological accoutrements, we could not imagine a better showcase client for athenahealth. 

clinical development near finish line; lab jan 2017

The only clinical modules still in development were lab and radiology, with surgery currently being implemented and tested.  athenahealth has partnered with Merge for lab, which is scheduled to go-live January 2017 and will be integrated on the back-end with the rest of the clinical system.  Based on our conversation with other rural hospitals, we believe the partnership with Merge is a temporary solution until athenahealth has their own lab system developed late 2017 / early 2018.  Lab has been described to us by Healthcare IT Consultants as generating the least synergy from being on the same platform as the EHR, and because Merge is a robust stand-alone solution that is generally too expensive for small hospitals, we view this partnership as a net positive. 

 

athenahealth has the core clinical modules in place to effectively serve less complex < 50 bed facilities where inpatient revenue generally represents < 30% of hospital revenue.  The ability to scale into larger hospitals will largely be dictated by the complexity of each hospital, but from what we saw, athenahealth already has a solid and marketable foundation to build from.  We also expect the intellectual property assets acquired from BIDMC's webOMR will accelerate this process.

solid financial package; intact solves achilles heel

On the financial side, the general ledger and patient accounting system is provided by Intact, which required a separate log-in and had different look and feel than the rest of athenahealth. However, Intact is integrated on the back-end with nightly data uploads that are done automatically from athenahealth.  We don't believe the lack of front-end integration is a problem, because the only user of this system is the CFO.  All other financial modules to manage the claims process and quality reports are accessed through athenahealth. The Achilles Heel of the RazorInsights system was that it had a poor financial package and the relationship with Intact solves this problem.

 

While headcount in the billing office has remained constant since going live on athenahealth at the beginning of 2016, they have experienced a productivity increase of 2 FTEs who they have assigned to work on other tasks.  The CFO and Business Office Manager frequently emphasized the value of having access to athenahealth's expertise given that access to talent is a big problem for rural hospitals. Finally, the hospitals days in A/R have declined to low 40s from over 100 earlier in the year after going live on the new system, although it wasn't clear how much of the improvement was directly related to athenahealth.

BACKGROUND AND MOVE TO RAZORINSIGHTS

  • Hospital has been on four different EHR and financial systems in the last five years with two law suits.  Each vendor had their own clinical and financial offering, and was competing for the business of the other, which made working with them difficult.
  • CEO joined 6-years ago and the hospital had just signed a contract with an EHR vendor to work through HITECH registration.  Cost of the system was $1 million and focus was attesting for Meaningful Use.
  • Hospital hadn't sent out a bill in over 90 days mostly due to the systems weak financial package. Ultimately they switched to the financial package of the EHR vendor, which ended up not being much better.
  • Hospital's EHR vendor ended up "out kicking" their coverage due to high demand from Meaningful Use and support suffered greatly as a result.  Hospital's financial performance deteriorated further and could not get claims out due to problems with the system.
  • CEO made the decision to leave this vendor because they were not 2014 certified and would not be ready in time for attestation deadline.  Started the search for a new vendor that could get them to attest for Meaningful Use on a shortened timeline.
  • Considered MEDITECH, CPSI and Cerner, but was approached by RazorInsights and they were the only vendor that was contractually obligated to make sure the hospital would attest and hospital was successful.
  • Cerner was too expensive and the system was overly complex, which would result in a dependence on Cerner that the hospital didn't want to have.  Cerner sent out a physician to the demo, but the hospital employees were not impressed.
  • MEDITECH, CPSI and Cerner could not get them live in time to attest.  Lowest price was CPSI at $1.1 million with a 10-month implementation and Cerner was the most expensive at $2.4 million with a 12-month implementation.
  • RazorInsights cost was $150k in implementation over 4-months and then ongoing support of 12k per month with a 5-year term, and would get them live in 3-months.  It was user-friendly and basic, and the hospital already had employees who were "gun shy".
  • Transition from old vendor was a disaster, with the vendor holding the hospital's data hostage and demanding a $15k per week access fee even though the data was held on the hospital's own servers.
  • Meaningful Use deadline was fast approaching and the number of certified vendors had declined substantially since 2010.  RazorInsights was a "god-send" because no one else could get the hospital live in time to meet the deadline.
  • Signed contract with Razor in April 2014 and was live by June 2014.  RazorInsights had three people onsite for ten days, and because it is a cloud-based system they were able to do real time system adjustments and training.
  • Big problem with the RazorInsights system was in the financial package itself.  RazorInsights was open from the get-go saying that their financial package was not ready yet.  There were problems being able to reconcile accounts, generate reports and get a detailed general ledger.
  • Generally satisfied with RazorInsights on the clinical side and the problems they had were not the vendors fault.  For example, connectivity was an issue as the old hospital was using a satellite service for the main connection.

move from razornisghts to athenahealth

  • News of athenahealth's acquisition of RazorInsights gave the CEO a lot of confidence where they could "finally see the light at the end of the tunnel".  CEO had previously been aware of athenahealth, and knew they had a lot of capital to put behind the system and that it was cloud-based and had a strong outpatient offering. 
  • CEO realized that part of the reason for athenahealth's entrance into the inpatient space was due to them losing share in ambulatory to Epic and hospital acquisition of providers.
  • Important for CEO that athenahealth had skin in the game based on their percentage of collections model.
  • athenahealth moved quickly after the acquisition, and they communicated to existing customers that the plan was to move everything over to athenahealth's cloud.  CEO was willing to do alpha-beta testing with athenahealth through the process.
  • Clinic went live on athenahealth mid-2015 and made the switch to athenahealth's inpatient solution at the beginning of 2016.  athenahealth had 10 people on-site for the conversion and they were very focused on their success and learning.
  • CEO said "athena exceeded our expectations" during the transition process, emphasizing the level of service that athenahealth provided. "This is bigger than being able to bill for services" as the hospital was finishing up a $30 million project and needed access to information to provide to bankers.
  • Hospital experienced a modest negative impact in cash collection during the transition, but nothing outside of normal for an EHR implementation.  athenahealth had people at the hospital every week and the hospital staffed joked that "they should just be employees".
  • CEO signed up to be a "guinea pig" for building the product, and the staff during the demonstration said there were frequent updates beyond the two a month communicated by athenahealth.  However, these updates were not disruptive to their workflow.
  • Hospital staff would work with athenahealth programmers and athenahealth was quick to fix workflow issues and make changes to the system to make it more efficient.
  • RazorInsights financial packaged continued to be a problem, which is why they partnered with Intact for the patient accounting and general ledger side.  Hospital CFO is very pleased with Intact, the ability to run custom reports and drill down into claim level detail from financial statements. CFO was also pleased the level of service from athenahealth, noting that if she does have a problem with Intact she still calls athenahealth.
  • Hospitals days in A/R before moving to athenahealth were approximately 112 and billing process was managed by 8-10 people.  With everything live on athenahealth now the days in A/R have declined to approximately 42.  The hospital still has 8-10 people in the business office, but has seen a productivity increase of about 2 FTEs. 
  • Hospital is also experiencing rapid growth in outpatient services and is adding people in billing as a result.
  • Physicians like having one patient, one record across both care settings.  Easy to pull up outpatient record on the inpatient side and vice-versa.  Providers like the Medication Administration Record (MAR).
  • We witnessed a lot of clicking and box checking during the inpatient clinical demonstration. However, we were told that it is normal with any system, and they emphasized that athenahealth's system was much faster and easier to work with.  They showed us a snapshot of the old RazorInsights system and the interface seemed antiquated relative to athenahealth's and the response time was lagged with the "spinning wheel of death".
  • athenahealth has been moving over to the "streamlined" version of their EHR through 2016, with many of the design changes being the result of needing to have the workflows on the outpatient side work with the new inpatient EHR.  We asked if any of the providers complained about Streamlined and the response we got was, "they like Streamlined better."
  • CEO told athenahealth to not sell what they cannot implement effectively, or where the level of service will deteriorate.  
  • It has been the hospital's experience that if they have questions, they pick up the phone and get answers quickly.  CFO explained that rural hospitals have trouble finding the right talent, and that having access to the large team at athenahealth has been incredibly valuable.
  • Business Office Manager explained that athenahealth is watching their performance on the back-end, and there have been instances where they have flagged inconsistencies that could have resulted in a big collections problem well in advance.
  • CEO emphasized that new hospitals signing up for athenahealth over the last 6-9 months and today won't have to deal with the issues and frequency of updates that they had to endure during the development process.
  • Main issue staff has with the system is that they still have to do some work out of the RazorInsights platform.  However, that is scheduled to change at the beginning of 2017.
  • Both the clinical and financial system allowed users to create custom reports and templates based on user preference.

critical access hospital problems

  • CEO has heard of some hospitals having hard time with the transition over to athenahealth. Most of them are critical access hospitals (CAH) and the problems have been related to reporting requirements specific to CAH such as 340b programs, Medicare cost reports and data submission to state registries. 
  • One of the hospitals having problems called the CEO to express their frustration, which was completely counter to the reference sites experience.  The CEO invited the troubled hospital to come down and see what they were doing.
  • CEO was a "quiet mediator" and contacted athenahealth who said they were aware of the problem and working with them.  CAH get reimbursed through their cost report, which has to be filed monthly and there was an issue with how athenahealth's services were being expensed. The problem ended up not being due to athenahealth, but the accounting department and athenahealth still made them whole anyway.
  • We would note that Weems Memorial Hospital, a CAH in Florida experienced similar problems and were documented in the board meeting minutes (Click Here for Field Notes)
  • Hospital having problems spent almost 2 days onsite meeting with different departments at the reference site and seeing what they were doing differently.  At the end of the onsite visit, the CEO of the troubled hospital realized that they were at fault for much of the dysfunction, that personnel attitudes were not in the right place and there were some individuals actually looking to see the new system fail in a referendum to change.
  • Two months after the onsite, many of the problems at the hospital were resolved after some personnel changes and attitude adjustments, and relationship with athenahealth improved.

Please let us know if you have any questions.

 

Thomas Tobin
Managing Director


@HedgeyeHC

 

Andrew Freedman, CFA
Associate


@HedgeyeHIT 

 

Alexander Ross
Analyst


CALL INVITE | EARNINGS RECAP, JOLTS AND EMPLOYMENT (TOMORROW 11/8 AT 11:00 AM ET)

Takeaway: After a busy earnings season, we will provide a recap and takeaways of our top ideas and #ACATaper theme

CALL INVITE | EARNINGS RECAP, JOLTS AND EMPLOYMENT (TOMORROW 11/8 AT 11:00 AM ET) - 20161106 3Q16 Earnings Recap

3Q16 earnings recap tomorrow at 11:00 AM et

After a busy earnings season, we will provide a recap and takeaways of our top ideas. We will also discuss the most recent NFP and JOLTS report, and provide an update to our #ACATaper theme.  If you are not a Healthcare Subscriber, please contact for access to this presentation.

Click here to watch this presentation live

A replay will be available shortly after the completion of the call

 

Please call or e-mail with any questions.

 

Thomas Tobin
Managing Director


@HedgeyeHC

 

Andrew Freedman, CFA
Associate


@HedgeyeHIT 

 

Alexander Ross
Analyst


HEALTHCARE EMPLOYMENT SLOWS | #ACATAPER IN FULL EFFECT

Takeaway: Hospital employment growth of +2.9% YoY is the slowest since July of 2015, which continues to support our #ACATaper thesis and JOLTS model

HEALTHCARE EMPLOYMENT SLOWS | #ACATAPER IN FULL EFFECT - Gains

healthcare employment october 2016 +2.7% yoy

Healthcare employment growth for October 2016 was +2.7% YoY, down from its peak of +3.4% YoY in March of 2016.  This slowdown is in-line with our #ACATaper thesis and the approximate six-month lag with Healthcare Job Openings.  Hospital Employment growth was the slowest in the last 16-months at 2.9% YoY, after hitting a peak of 3.9% YoY in April 2016.  We believe hospital employment will continue slowing due to deteriorating admissions trends.  This supports our short thesis on both AHS and HCA as we continue to see further downside in both of these names.

 

Biotech employment is starting to rollover with growth of 5.8% in September compared to its peak of 7.5% in August of 2016 and consistent with recent price weakness in the IBB and XBI.  Offices of physicians employment was +2.7% in October, its slowest rate since May of 2015 and down from its peak of 3.6% in October of 2015.

 

Healthcare Job Openings (JOLTS) for September 2016 will be the next major data update related to our #ACATaper theme, and is scheduled to be released Tuesday, November 8th at 10AM.

 

HEALTHCARE EMPLOYMENT SLOWS | #ACATAPER IN FULL EFFECT - HC Emp No

HEALTHCARE EMPLOYMENT SLOWS | #ACATAPER IN FULL EFFECT - Hosp Emp

HEALTHCARE EMPLOYMENT SLOWS | #ACATAPER IN FULL EFFECT - Emp Slows

HEALTHCARE EMPLOYMENT SLOWS | #ACATAPER IN FULL EFFECT - Physicians

HEALTHCARE EMPLOYMENT SLOWS | #ACATAPER IN FULL EFFECT - Bitech

HEALTHCARE EMPLOYMENT SLOWS | #ACATAPER IN FULL EFFECT - Pharma

HEALTHCARE EMPLOYMENT SLOWS | #ACATAPER IN FULL EFFECT - Med Equip

HEALTHCARE EMPLOYMENT SLOWS | #ACATAPER IN FULL EFFECT - Vet

 

 

Please call or e-mail with any questions.

 

Thomas Tobin
Managing Director


@HedgeyeHC

 

Andrew Freedman, CFA
Associate


@HedgeyeHIT 

 

Alexander Ross
Analyst


MDRX | TWILIGHT ZONE | PRESS THE SHORT

Takeaway: Slowing organic growth, missed expectations and a litany of red flags should result in a lower stock

MDRX | TWILIGHT ZONE | PRESS THE SHORT - 20161104 MDRX OrganicBookings

organic bookings -0.7%; biggest miss since 3Q14

Allscripts (MDRX) reported 3Q16 results that missed consensus expectations across all key metrics with year-to-date organic revenue growth of +1.2%, trending well below their 3-5% guidance range given at the beginning of the year.  Total bookings were $291 million versus consensus of $315 million, representing the largest miss since 3Q14.  Organic bookings declined -0.7% YoY to $270 million, which is better than our expectation of $250 million, but below the pre-Netsmart consensus expectations of $285M (+4.8% YoY), and a material slowdown from the +15% posted 1H16.  Meanwhile, Netsmart bookings of $21 million were -52% lower sequentially and well below implied street estimate of $30 million, missing due to greater seasonality that was not properly communicated by management previously.

 

Management guided 4Q16 sales in-line to $420 - $435 million versus consensus at $426.7 million, which we believe is an overly optimistic target.  While there is precedent for such a sequential acceleration, it would be the largest since 4Q11.  We don't expect investors will place much confidence in management's forecasting ability after consistently missing their own guidance multiple times.  Despite an in-line revenue guide, guidance for EPS and EBITDA are below consensus expectations, implying weaker sequential margin performance, raising questions about the impact of recent tuck-in acquisitions that may be supporting top-line in 4Q16. 

enter the twilight zone

Despite slowing growth and missing expectations, management could not have sounded happier on the conference call pointing to robust business activity.  Enter the twilight zone.... rarely have we encountered a situation where multiple independent data sources, financial performance, SEC filings and numerous anecdotes consistently bring us to a conclusion that is entirely counter to management commentary.

 

This is in addition to the frequent changes in financial reporting, reduced transparency, and financial wizardry that appears designed to mask weakness in the core business, and in our view, is incredibly misleading to investors. The timing and structure of the Netsmart deal (JV debt is real debt) ahead of a slowdown, the consolidation of the entity despite owning < 50% (just because they have budgetary control), and inconsistent disclosure into how it impacts reported metrics, is just one extreme example.

recurring software growth negative

Consolidated non-recurring organic revenue growth was +5% and offset by continued declines in non-recurring revenue, which is not a new dynamic.  However, year-to-date recurring revenue is +3.2% and slower than the same period last year of +5.6%.  We believe slowing recurring revenue growth despite strong bookings performance in 2015 is primarily due to attrition.  The number that management didn't disclose in their prepared remarks is recurring software delivery, support and maintenance revenue. Recall that prior to management's change in financial reporting at the beginning of the year, this segment included high margin subscription and recurring transactions, as well as support and maintenance.  Based on the disclosed growth rates for the rest of the business, the implied growth rate in recurring revenue for this segment is -0.50% YoY in 3Q16 and trending -1.3% YoY year-to-date.

 

We believe this decline is due to lower support and maintenance revenue from attrition, and a reason why management stopped reporting this metric earlier this year.  If we are wrong in our view, namely that attrition continues to be a problem as we outlined in our earnings preview note, then growth should be much more robust, especially at this stage in the "turnaround story" and given recent bookings strength over the last 18 months. 

backlog decline is concerning

Organic contract backlog declined sequentially by $82 million to $3,627 million in 3Q16, which represents YoY growth of +1.8%  in 3Q16 compared to 5.3% average for 1H16. Management was quick to dismiss this concern attributing it to "...timing and mix of bookings and renewals relative to revenue recognition timing".  However, we interpret this as another sign of attrition.  Organic contract backlog has declined by $24 million year-to-date despite $840 million in organic bookings, including the Optum deal, and implies a very weak book-to-bill. We would note that contract backlog includes one-year of maintenance contracts.  

enough is enough; press the short with an $8 target

We find it incredible that management has been able to maintain credibility despite years of missed expectations and the reasons we outlined above.  While we acknowledge their turnaround efforts, growth is slowing and the market they are selling into is challenged. Ultimately we see many more risks than opportunities and believe consensus estimates for 2017 need to come down.

 

Thomas Tobin
Managing Director


@HedgeyeHC

 

Andrew Freedman, CFA
Associate


@HedgeyeHIT 

 

Alexander Ross
Analyst

 


next