QHR restructuring gets thumbs up at Paradigm

A shakeup at QHR (QHR Technologies Stock Quote, Chart, News: TSXV:QHR) is getting the thumbs up from Paradigm Capital analyst Christopher Lam.

Yesterday, QHR announced that long-time exec Mike Checkley would assume the role of President and the company followed up on a product strategy review it initiated last month.

“I’m very pleased to announce Mike Checkley’s appointment as president,” said outgoing CEO Al Hildebrandt. “Mike has been involved with our core EMR products and strategy since 2004, when we acquired the Accuro EMR product, and has provided inspired leadership in all areas of our business, including product development, sales and customer service. Mike is very committed and a proven operator who will help QHR build on the strengths of our core Canadian business.”

QHR announced it will look to sell or wind down its lagging billing services, clearing-house, Tradelink EDI and related services products (RCM assets), which have been a drain on profitability. The company the restructuring cost to do this should fall between $1.6 to $2.0-million, plus a non-cash impairment charge for intangibles and goodwill that would max out at $2.6-million, minus any potential income from the sale of the RCM asset.

Lam says he likes the renewed focus on the company’s core electronic medical records business.

“Although the RCM division has been a source of strong revenue growth, profitability has been consistently moving in the wrong direction and dragging down QHR’s overall EBITDA margin,” said Lam. “As such, we believe the restructuring plan represents a much-needed change for the company. For shareholders, the loss in revenue could be more than offset by the potential adjusted EBITDA margin expansion from 13% in 2014 to >20%. As a pure-play Canadian EMR provider, management will be able to focus on a market that it already knows where to play and how to win. Additionally, we believe the leaner company should make QHR more attractive to potential acquirers (i.e., TELUS or a U.S. firm).”

In a research update to clients today, Lam maintained his “Buy” rating and one year target price of $1.80 on QHR, implying a return of 25% at the time of publication.

Disclosure: Cantech Letter founder and editor Nick Waddell owns shares of QHR.

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