MEDW Initiation: High-Margin Recurring Revenues Driving Impressive Bottom Line Growth

11/24/2009

MDB issued an initiation of research today on Mediware Information Systems, Inc. (MEDW) iterating a BUY recommendation and $10.00 Price Target.

Mediware Information Systems is a best-of-breed provider of healthcare information systems with market leading products in the areas of donor blood management and medication management. The company has installed its clinical information systems at more than 1,500 customer sites, including prestigious healthcare institutions and donor centers in the United States, the United Kingdom and South Africa. Mediware has a long history of innovation and integrating successful accretive acquisitions enabling fiscal 2009 revenues to reach $40.7 million. Currently, more than 70% of revenues are coming from high margin, recurring fees from service contracts resulting in rising profits margins. With the results from the September 2009 quarter, Mediware has now delivered five quarters of sequential revenue and GAAP net income growth and we anticipate continuing growth through fiscal year 2010. The company’s impressive bottom line results are driven by:

• increasing pressure (both internal and governmental) on healthcare providers to install and utilize information technology systems as a means of reducing costs, improving patient care, staying current with regulation and eliminating medical errors;
• the recent introduction of Insight performance management software aimed at the emerging healthcare business intelligence market with a potential addressable opportunity of $100 million;
• strong acceptance of the newer products such as Biologicare, BloodSafe and the recent LifeTrak upgrade along with strong business trends in the U.K. business segment;
• the recent strategic expansion into higher growth market segments including behavioral health and home infusion; and
• a strong balance sheet with $21.9 million in cash and cash equivalents, working capital of $19.9 million and no debt.

We are impressed with Mediware’s recent financial metrics and anticipate significant growth in the coming years as governmental regulations and large federal stimulus funds drive more and more healthcare providers to adopt the use of healthcare information technology (HIT) systems. The company’s leadership position in blood management and pharmacy systems is providing the opportunity to extend its suite of products and add to its extensive customer base. With a growing high margin revenue base from recurring maintenance and support fees, we believe the company is on track to again deliver impressive gains in GAAP net income. For fiscal 2010, our earnings model anticipates revenues in excess of $44 million, operating margins of 10.7% and net income of $3.2 million or $0.40 per share. As such, we are initiating research coverage of Mediware with a Buy rating and target price of $10.00.

 Contact:  Jon Hickman  310-526-5024