Craneware Plc saw its shares slide sharply on Friday, falling as much as 23% to an intraday low of 988 pence - the lowest trading level for the stock since November 28, 2016. The move followed a trading update in which the AIM-listed healthcare financial software provider warned that full-year revenue and core profit will come in below current market expectations.
In the update the board set out revised guidance for the year ended June 30, saying it now expects revenue of $205 million to $208 million and adjusted EBITDA of $65 million to $67 million. Both ranges sit under prevailing analyst forecasts and were cited by management as the reason for the market reaction.
Management said the principal driver of the shortfall was the timing of eligible activity under the U.S. 340B drug discount program, together with the deferral of certain contracts into the next financial year. Craneware noted that the final results remain subject to confirmation of eligible 340B activity that is recognized before the financial year-end close.
Throughout the reporting period, the company said customer retention, demand and cash generation had remained strong. However, it added that the closing weeks of the year were "materially impacted by a slower than anticipated" conversion of identified opportunities into revenue that could be recognized within the financial year.
Craneware explained that pharmaceutical manufacturers had further extended and operationalized restrictions on the distribution of discount-eligible medicines. The company recognizes a significant proportion of related revenue only when a customer completes the purchase of eligible 340B drugs, rather than at the point when opportunities are identified. Management said the scale of the conversion shortfall only became clear once the actual volume of 340B drugs shipped became apparent.
Despite the guidance downgrade, the board described the issue as principally one of timing and pointed to an evolving customer demand profile that increasingly encompasses operational transformation work in addition to software and analytics. That work is aimed at helping healthcare providers realize the savings identified through Craneware's platform.
Chief executive Keith Neilson commented on the update, saying, "Naturally we are disappointed not to have delivered the growth that we expected." He added that "the short-term complexity in the pharmacy market has impacted the year, the long-term opportunity remains intact."
Neilson said the update "reinforces our strategy of expanding beyond software and analytics into technology-enabled operational transformation that helps customers realise the opportunities identified by the Group's platform," calling this "a continuing area of focus for our innovation efforts." He also said the company continues to benefit from "high levels of customer retention."
The company's revised guidance and the explanation of the timing-related revenue impact underscore the sensitivity of recognized revenue to the operational flow of 340B-eligible medicines and the timing of customer purchases. As noted by the board, confirmation of eligible 340B activity before the year-end close will determine the exact scale of the shortfall in reported results for the period.