Eclipsys (ECLP)

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Eclipsys Corporation (NASDAQ:ECLP) makes proprietary software for the pharmaceutical and healthcare industry used for clinical, financial, and operational management. With $519 million in total revenues in 2009, Eclipsys Corp. is one of the largest companies by revenue in the Healthcare Information Services industry. Eclipsys's software is used to manage medical records databases directly, and also integrates with electronic systems from competitors such as Cerner (CERN) or Allscripts Healthcare Solutions (MDRX). Software sales and support comprised of 96.10% of Eclipsys Corp's revenue.

Since 2005, the percentage of hospitals primarily relying on electronic medical records systems has increased by 18.4% to 28.4%, or 1620 of the roughly 5,700 hospitals.^[1][2] Ease of use and lower costs have fueled this growth of the IT-based healthcare industry, and increases in healthcare spending, safety and quality concerns, and healthcare deficiets have created a favorable environment for its expansion.

The development of IT-based healthcare management has been international, but Eclipsys's global expansion efforts have encountered limited success. The company operates in highly competitive markets with companies that have greater financial and technical resources, and competitors such as Cerner (CERN) have captured most of the foreign market share using their economies of scale, stagnating Eclipsys Corp's growth both in the U.S and international markets.

Eclipsys Corp's primary customers are hospitals, drug manufacturers, and other large medical institutions. Due to the 2008 and 2009 financial crisis, these institutions are forced to reduce immediate spending and maintain paper record databases despite the long-term savings from the adoption of IT-based healthcare. 94% of the hospitals in the United States have cut back on IT spending, while 74% of them have deferred healthcare IT spending to the future.^[3]

Corporate Overview

Eclipsys Corp. primarily operates in the United States with its management headquarters located in Atlanta, Georgia. The company provides software services to help medical institutions manage patients and finances. Eclipsys also offers HIT services to blood banks, medical libraries, laboratories, government agencies, drug manufacturers, and most institutions in the healthcare industry. As of 2009, the company provides 28 different IT-based services to large healthcare institutions.^[4]

Eclipsys Corp, along with most of the healthcare information services industry, is considered a rapidly growing and changing company. Thus, institutional investors buy company stock in aggregate in an attempt to profit from share price increases associated with rapid growth. More than 95% of Eclipsys stocks are owned by institutional investors.^[5] Therefore, Eclipsys Corp. is funded well by capital investors such as Tremblant Capital, a hedge fund that recently reported wishing to hold 6.01% of all shares outstanding^[6]

Business Financials

In 2009, Eclipsys earned total revenues of $519 million, virtually the same as the previous year's revenues of $516 million in 2008. However, the change in net income was drastic despite the tiny increase in revenues. Between 2008 and 2009, the company's net income decreased from $100 million in 2008 to just $3 million in 2009.

Business Segments

The company is officially listed as operating only in one segment, the Healthcare Information Services. However, the company has four distinct sources of revenue.

Ratable services

Ratable services include software leasing fees billed per period, software maintenance, outsourcing, and remote hosting. New sales bookings for all of the ratable services, and the general trend for hospitals in digitizing their records contributes to revenue in this segment.

Periodic

This segment earns revenue from software sales that are considered one-time in nature. Since they are not ratable, Eclipsys recognizes this revenue segment independently. From a health institution's view, a periodic purchase is a large one-time fee for licensing software provided by Eclipsys. Due to the larger cost and higher risk, uncertainty in the markets may force health institutions to shift towards ratable services. During the 2008 and 2009 Financial Crisis, this is what happened.

Professional services

Professional services refer to implementation, training, and consulting services Eclipsys Corp. provides to its clients.

Hardware revenues

Hardware revenues include the provision of computing and digital storage hardware required to run Eclipsys Corp. software. Recent increases in demand for hardware services from Eclipsys Corp is merely a reflection of the increase in new sales bookings in the ratable services segment.

Key Trends and Forces

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Institutional Investors are moving to Healthcare as a safe growth investment

Even during severe recessions, healthcare tends to perform above market. In the last 45 years, healthcare and healthcare IT have had a minimum growth rate of 5% a year.^[7] Thus, institutional investors such as hedge funds and mutual funds are buying healthcare stocks.^[8]. For example, during the 2009 financial crisis in April of 2009, a hedge fund named Tremblant Capital indicated it wished to acquire a 6.01% ownership stake in Eclipsys. Tremblant's portfolio previously had a negligible amount of healthcare stocks, and this reallocation is consistent with a trend toward safety in healthcare companies among institutional investors. ^[9]

Long-Term Movement Towards Digitizing Healthcare

As of 2009, 96.10% of Eclipsys Corp's revenue comes from the fast-growing sector of IT-based healthcare management. HIMMS, a market research unit, reports that hospitals using IT services increased by up to 10%.^[1] With 1620 out of the roughly 5700 hospitals using HIT, HIMMS analysts report that the U.S hospital IT market is nearly $33 billion in the US.^[10] Similarly, Credit Suisse analysts estimate that $30 billion dollars of opportunity exist globally for healthcare information technology services.^[11] They also report that although the 2008 and 2009 financial crisis slowed spending on IT in the short term, the migration to IT-based healthcare is inevitable.^[1] The emergence of the electronic medical record has helped hospitals manage data efficiently. Whereas transportation and human error were important factors in paper healthcare systems, digital systems are instant and accessible without error. Hospitals, insurance agents, and employers use IT services to ensure smooth performance, ease of operation, proper patient care, and financial flexibility. While the adoption of IT services to manage health institutions has been slow, there is increasing demand for permanent IT-based healthcare systems. ^[10] Eclipsys Corp and competitors that offer health information services have the opportunity to provide their services to health institutions in the long term.^[12]

Competition

Eclipsys Corp's direct competitors include:

• McKesson (MCK): is one of the world's largest corporations in the pharmaceutical distribution industry. ^[13] McKesson provides enterprise-level software services such as healthcare database management to hospitals and other healthcare organizations.^[14] McKesson competes with every aspect of software service provided by Eclipsys Corp, and has significantly higher revenue from its other venues of business. Thus, this company is the most direct competitor to Eclipsys Corp.

• Cerner (CERN) : Cerner Corporation is the second largest provider by market share of healthcare information technology (HIT) services in the healthcare industry.^{[15] [16]} Cerner's primary business involves leasing software to help medical organizations manage health records and finances electronically. Eclipsys provides software that integrates with Cerner's healthcare database platform to Cerner's equivalent database managing software.^[17] Thus, this company competes with most of the software services offered by Eclipsys Corp.

• Allscripts Healthcare Solutions (MDRX): AllScripts HealthCare Solutions provides clinical software and information services for physicians that assist in medication. While Allscripts Healthcare offers many of the same software services provided by Eclipsys, Allscripts' software stresses financial and employee management for hospitals as opposed to being patient-oriented. ^[18]

• TriZetto Group (TZIX): The TriZetto Group primarily offers healthcare-oriented financial and human resources management. Its software is geared primarily to optimize and monitor the flow of money in hospitals, but offers a few patient oriented software such as health record management. ^[19]

References

1. ↑ ^{1.0 1.1 1.2} Health Data Management: 06/30/08
2. ↑ American Hospital Association: Fast Facts
3. ↑ Healthcare IT Spending and Economic Realities, December 2008, PDF Page 2, 3
4. ↑ Eclipsys: Provided Services
5. ↑ Yahoo! Finance: ECLP Major Holders
6. ↑ MarketFolly: Bret Barakett's Tremblant Capital Files 13G on Eclipsys(ECLP), April 14, 2009
7. ↑ Hedge Pensions Review: Healthcare - A Promising Sector for Hedge Funds, 11/20/2006
8. ↑ BusinessWeek: Health Care Stocks Await a Diagnosis, 12/2/2008
9. ↑ SeekingAlpha: Hedge Fund Tracking - Tremblant Capital
10. ↑ ^{10.0 10.1} MSNBC: Severe US Recession Already Having Major Effect on the Healthcare Sector, 08/01/2009
11. ↑ InvestorPlace: Healthcare Stimulus would Boost Cerner, 12/23/2008
12. ↑ Seeking Alpha: 5 Bear Market Tech Opportunities, 12/02/2008
13. ↑ Wikinvest: McKesson
14. ↑ McKesson: About Health Care Services
15. ↑ Cerner Corporate Profile
16. ↑ Yahoo Key Statistics: CERN
17. ↑ Cerner: About Cerner
18. ↑ Allscripts Company Overview
19. ↑ TriZetto Group: Core Administration Applications