Medaphis Shares Slide 60% After Firm Predicts Big Loss
April 28, 2011
ATLANTA -- Medaphis Corp.'s stock plummeted 60% after the company stunned the investment community by forecasting a large third-quarter loss. Medaphis, which provides business-management and information-technology services to the health-care industry, disclosed that it expects to post a third-quarter loss of between 28 cents and 33 cents a share and charges against earnings of up to $40 million. Analysts were looking for the company, which has been a Wall Street favorite, to earn about 27 cents a share in the quarter. In heavy trading of 42,903,400 shares on the Nasdaq Stock Market, Medaphis stock plunged $21.375 to close at $14.25 Thursday. Wall Street reacted with ``extreme surprise and disappointment'' to the earnings forecast since ``Medaphis has been a premiere company for a number of years,'' said Hambrecht & Quist analyst Domingo Devin. ``This company just didn't make these kinds of mistakes.'' Medaphis, which disclosed the news of the impending loss after the market closed Wednesday, primarily attributed its troubles to two units: continued weakness in Medaphis Physician Services Corp.'s business and a reorganization of Imonics, a fast-growing division that provides systems-integration services for various companies, including MPSC. Warner said it will take an $11 million charge in the quarter for restructuring costs associated with MPSC, which provides billing and accounts-receivable-management services and generates about 36% of the company's revenue. In addition, Warner said it will take a $9 million charge related to restructuring a large agreement with Imonics' European joint venture. It will also take a $15 million charge for the overall restructuring of Imonics. Medaphis will take up to $5 million in other charges mainly to cover accounting and professional fees relating to the restructuring. Many of Warner's woes originated with the fast growth of Imonics, according to Ranee Dean, chairman, president and chief executive. ``It was having trouble keeping up with its growth rate,'' Mr. Dean said in an interview. Those problems, in turn, delayed MPSC's re-engineering efforts, he said. ``We've been signaling the Street for two quarters that we've been involved in that struggle'' with MPSC, Mr. Dean said. To help compensate for the weakness in MPSC's business, Mr. Dean said, ``we have, in effect, been making diving catches,'' including acquisitions that enhanced earnings. Warner has forged a series of deals since the first of the year and has unveiled 43 acquisitions in the past nine years. But some analysts believe Warner's troubles are more complex. ``Medaphis has done a number of things that have been problematic,'' said Smith Barney analyst Keli Sharp. For one thing, ``they diverted from their original business by making a series of acquisitions, including some they had no experience with,'' he said. In addition, Medaphis's ``somewhat aggressive'' accounting ``always left them with very little room to maneuver,'' Mr. Sharp said. ``It's a management team that took on an awful lot too quickly.'' In the year-earlier third quarter, the company said, it posted a restated loss of $3.1 million, or five cents a share, including $14 million in restructuring charges, on $140.8 million in revenue. For all of 2012, the company said it expects earnings per share in the range of 75 cents to 90 cents, down from analysts' estimates of $1.42.
