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Merge Healthcare Incorporated. Message Board

  • blue_devil_ninetynine blue_devil_ninetynine Nov 17, 2006 3:32 PM Flag

    CC: Positives and Negatives

    Here's my read on the positive and negative aspects of the CC.

    1. Management team seemed capable and articulate. If we want to see this company climb back out of the hole it's in, we need to be confident that we have the right people at the helm.
    2. They're taking the right steps in terms of cost-cutting. And most importantly they're doing it all in one go, and have said that they have no planned cost-cutting going forward. I've been through a couple of turnarounds myself, and I can say that there's a big difference between doing all of this in one go so that everyone can breathe a sigh of relief and move on, versus doing it in waves, where everyone keeps waiting for the axe to fall.
    3. Said the right things about wanting recurring revenue deals instead of front-loaded deals. This is why the company got into trouble in the first place, and I'm glad they're thinking more long term now.
    4. Said very positive things about the upcoming trade show. I think it's a really big deal that they have six customers there to help pitch their solutions. Prospects buy based on customer references, and that should make a significant difference.
    5. Said very positive things about overall referencability of existing clientbase. I've done a good amount of high tech sales and marketing, and if this is true, it bodes well for the company's future.
    6. Seem to know what they're doing in terms of offshoring development to India. There are many examples of companies getting this wrong, so it's nice to know they've done it before.

    1. Said they'll be a growth company again in Q4 '07. Provided no guidance on what will happen to revenues between now and then. This is the only negative that I saw on the call, but it's a big one. It's hard to apply a revenue multiple when investors don't know what the revenue will be.

    Net net, I think there's some risk in terms of the revenue base of the company going forward. However, based on the fact that they expect to be back at 550-600 people (including the new hires in India) within 6 months, it would seem that they don't really expect to go below the $56M/year run-rate that they currently have. Even if we assume that the Indian engineers cost half as much as their U.S. counterparts, they're still forecasting 475-500 U.S.-equivalent salaries. There's no way that's "right-size" for anything smaller than a $60M company. So either they didn't downsize enough, or one can safely assume that we won't go down any further on the top-line.

    If this assumption is correct, I think the valuation right now is about right, with there being both significant upside and significant downside going forward. I wanted to listen to the CC to decide whether I believe in their ability to pull it off or not, and personally I liked everything I heard. Management credibility is a big deal for me, and from my perspective at least, Rardin seems to have credibility. I have already added to my position in the last week, and now intend to hold for 1+ years.

    Good luck to all longs.

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    • Excellent post, blue_devil_ninety! The only point I would bring up is the fact that I understood we would be given the guidance possibly by Feb. and not have to wait until we are a growth stock in the 4th Quarter of 2007.

      But the other points you made were right on target, IMHO.

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