1 Sleeper HealthTech Stock Ready to Awaken?

As the health sector embraces technology more and more with each passing year, healthtech companies like Veradigm Inc. (OTC:MDRX) stand to benefit from secular tailwinds.

Previously known as Allscripts Healthcare Solution, Veradigm offers IT solutions to health institutions and its AI focus has caught attention of investors who see its vision for solutions to doctor burnout.

Although MDRX share price has disappointed for some time, the prospects going forward may be much brighter.

What’s Going on With Veradigm?

The bad news for Veradigm didn’t necessarily begin when it got delisted from Nasdaq, an event that took effect on May 6.

The company was non-compliant with the Nasdaq Listing Rule 5250(c)(1) because of not filing its fiscal 2022 annual report and the subsequent quarterly reports for the periods ended March, June, and September of 2023.

Furthermore, the company stated a few more of its reports, going as far back as 2021, are unreliable because of certain internal control failures regarding its reported revenue.

Previously, the company had assessed that the cost of control failures would cumulatively amount to $40 million and not exceed 5% of annual revenues from continuing operations for either 2021 or 2022. Now, the impact is expected to be approximately $20 million and not exceed 3%.

So, while a lower margin of error was reported, the restated financial report are needed to engender more confidence in shareholders.

Growth In Spite of NASDAQ Delisting

Immediately after the company’s change of name from Allscripts to Veradigm last year, management announced an investment in Holmusk, a part of its $45 million series B financing round. Holmusk is regarded as having expertise in the area of behavioral health.

In the same month, Veradigm’s payer business reported seeing a 26% rise in new business for the fiscal year by adding 6 net-new regional and national payer clients in Q4 2022.

The growth in the existing client business was worth “millions of dollars” in total annual contract value. In its provider segment, the company reported 200% client growth following the addition of 30 revenue cycle management clients.

Veradigm’s flag-bearing payer segment kept momentum alive and underwent further footprint expansion. In the first half of 2023, 6 net new regional payers, national payers, and aggregator clients were signed.

The company ended last year with the launch of a new solution, a financial communications and payment solution bundle called Veradigm Intelligent Payments. It helps increase payment rates and run a more efficient payment structure if we consider the time factor.

Acquisitions and Balance Sheet Bode Well

This year revealed a big acquisition worth $140 million, an all cash deal of ScienceIO, an AI platform provider for the healthcare ecosystem. By incorporating ScienceIO’s large language model and Veradigm’s dataset, a potential synergy exists that has the potential to be a meaningful growth lever.

This also posits a conundrum: As of September 30, 2022, the last earnings release on record, the company had $493.90 million in cash, cash equivalents, and restricted cash. This is not a bad number by any means, and may well have grown since then. But, the acquisition’s installments might put a dent in the cash pile.

Yet, the company’s outlook doesn’t look as weak as some may think. Veradigm is expecting fiscal 2024 revenue in the range of $620-$635 million. Analysts, on the other hand, expect a $616.9 million top line, lower than the guided range.

Will Veradigm Stock Recover?

Veradigm’s NASDAQ delisting means the stock is unlikely to recover until formal financial statements have been announced.

However, the company’s improvements operationally are a source of optimism. For skeptics, the lack of data at this point creates too much uncertainty to get enthusiastic.

For now, the stock is trading at 9.33x forward non-GAAP earnings, lower than the industry peers as you might expect given the bearish news. The price-to-cash flow stands at 7.52x.

While these numbers are not that stretched, considering the stock has dropped 23% this year alone, some caution should be mustered before venturing into it.

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