Eclipsys Casting a Shadow On Disorganized Healthcare

Eclipsys Corp. (ECLP) is casting a shadow on disorganized health care. The company's software helps health care organizations manage and automate clinical, administrative, and financial functions, including patient information access, medical records and clinical documentation, prescription ordering, billing, reimbursement, and performance analysis. Its products also include tools for application integration and decision support. In addition to its software offerings, Eclipsys sells third-party hardware (including desktop and network products) and offers implementation, integration, hosting, product support, maintenance, and training services.

Eclipsys has emerged from the dark days of 2002 when the stock was selling at $3.90 a share. Of course, earnings were negative, coming in at minus 67 cents a share, followed in 2003 by another negative year, this time to the tune of $1.23. In 2004, they were in the minus column again, only this time for 70 cents a share. Then in 2005, the light broke through and a whole penny of profits was recorded. They've stayed positive since then and seem ready to continue growing.

Looking forward, analysts expect earnings to be 50 cents a share in 2007 and 60 cents a share in 2008. That's up from 32 cents a share in 2006. Revenues are also gaining, going from $309 million in 2004 to $427 million in 2006. Look for $475 million in 2007 and $530 million in 2008.

Other numbers to consider: Net profit margin was 3.9% in 2006, expect 5.4% this year and 6.2% next year. Return on equity is improving, going from .3% in 2005 to 11.5% expected this year, then to 12% in 2008. There is no debt on the books. Current assets are about 1.5 times current liabilities. Market Cap (price of the stock times the number of shares) is $950 million. There are 52.3 million shares outstanding. Three insitutional owners have 25% of the company. Valuation is rather high at 37 times earnings.

Part of the reason for the latter number is business potential. In the second half of 2006, the company signed more new contracts than the first half, indicating that its reorganization recently completed is working. Much of the revenue stream comes from recurring contracts, allowing investors to anticipate future sales and earnings, just as any subscription based contracting model would. It should be noted that ECLP's earnings do not yet show income taxes, due to tax-loss carryforwards. At some point, those will go away.

On March 2, 2007, the Company filed with the Securities and Exchange Commission a Form 12b-25 notification of late filing for its 2006 Form 10-K, stating that the Form 10-K could not be filed on time because the Company had voluntarily initiated but not completed a review of stock option grants made by the Company. This review is addressing the timing of those grants and their related accounting and tax treatment, including whether the Company properly applied Accounting Principles Board Opinion 25 - Accounting for Stock Issued to Employees, in accounting for those grants. Filing of the Form 12b-25 provided an automatic 15-day extension of the deadline for filing the Company's Form 10-K, and lapse of that extension period without filing of the Form 10-K results in the prompt issuance by Nasdaq of the Staff Determination Letter.

Nothing can be known about the outcome of this until the facts are known, but other companies have had unpleasant surprises relating to stock option grants. Keep this caveat in mind as you research this company.

Disclosure: Author has no position in ECLP