Wednesday, 13 February 2008

LMS Medical Increases Revenue + Cuts Costs in Q3

LMS Medical Systems (LMZ - TSX & AMEX)

LMS re-affirmed in its news release discussing Q3Fiscal2008 (Dec. 31) results that "we anticipate reaching a cash flow break even point for the last quarter of the current fiscal year" based on rising revenues and cost cutting measures introduced in early F08.

Highlights include:

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  • Revenues in Q3F08 increased by 88% to $952 thousand from $506 thousand in Q3F07.
  • Revenues for the nine-month period of F08 rose 87% to $2.649 million from $1.414 million for the nine-month period of F07. Revenues in F07 were $2.85 million.

  • Recurring maintenance and technical revenues increased by 70% to $355 thousand in Q3F08 from $209 thousand in the corresponding quarter of the previous fiscal year.
  • For the nine-month period of F08 recurring revenues increased 46% to $1.058 million from $726 thousand for the comparative period of F07.

  • Operating expenses were reduced by $906 thousand to just over $2 million in Q3F08 from $2.99 million in Q3F07.

  • Year-to-date operating costs fell by $1.389 million to $7.379 million from $8.768 million for the nine months of F07. The reduction is mainly attributable to a decrease in research and development expenses of $405 thousand, lower selling marketing product management expenses of $193 thousand and lower administrative expenses of $272 thousand. Included in operating expenses are non-cash, stock-based compensation expenses of $305 thousand for Q3F08 and $870 thousand on a year-to-date basis.
  • The loss for the first nine months of F08 was just over $5 million compared to $7.45 million for the comparative period of F07.
  • The backlog of signed contracts and identified sales opportunities were maintained at $4.6 million and $25 million respectively.
  • Six new hospitals were added to the client base as well as four insurance contracts during Q3F08.

LMS stated that it expected to reach the number of 100 committed clients by the end of the current fiscal year (March 31).

To read the news release click here.

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In a research update, Paradigm Capital analyst Claude Camire maintained his one year $1.25 target price with the note that Q3F08 revenues were lower than he expected ($1.3 million) but "there were signs of progress". He reduced his F08 revenue estimate to $3.8 from $4.8 million, which means he's looking for $1.2 million in Q4F07 sales.

As an editor's note: Q4 is traditionally the strongest for LMS. Exceeding Mr. Camire's revised and perhaps original target as well would be a pleasant surprise for the market.

However, we won't know this for several months as it's our expectation that towards mid-May, LMS will be able to provide preliminary F08 and Q4F08 numbers.

An important point was made in LMS' MD&A (Management Discussion & Analysis) that "LMS will require additional financing to fund its operations and sales activities" even with its reduced burn rate.

Those who are watching the company should keep an eye open for news on a successful financing as this should bring a certain sense of stability to the market that LMS has an operating cushion in keeping with the growth of the business.

What the market should be watching for are the following:

  • Securing additional working capital.

  • Better than expected (analyst) revenues in Q4F08.

  • Breakeven achieved in that quarter.

  • Do F08 sales exceed analyst's projections?

  • Continued recurring revenue growth.

  • Did LMS hit or come close to the 100 number of committed clients at the end of F08.

  • Guidance for Fiscal 2009.

It's also interesting to look at LMS' stock chart as the extended downward decline has leveled out, which suggests the market is waiting for indicators on the above points. Could LMS' stock be poised for an upswing?

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