For Medicus Systems Corp. Chairman and Chief Executive Officer Richard C. Jelinek, it's deja vu all over again.
At about this time last year, Jelinek was trying to explain away a sudden 14% downturn in Medicus' stock price to about $10. The drop occurred when analysts downgraded their 1995 earnings outlook for the Evanston, Ill.-based company, citing its restructuring and expectations of flaccid sales of its software, which allows hospitals to track and manage clinical expenses and resources.
At the time, Jelinek insisted, "We feel we're entering 1995 very strong, because business is good."
But this year, with software sales flat and Medicus shares hovering around $8.75, Jelinek again finds himself explaining lackluster performance.
And he may be in the same situation next year, if Medicus doesn't get a better handle on operating costs and expenses related to late introduction of new products.
"They've had delays, product disappointments, terminations-the kind of thing the Street hates," says Satish K. Tyagi in New York, an analyst with Los Angeles-based brokerage Jefferies & Co. "Unfortunately, the bets they made didn't pay off."
For the fourth quarter ended May 31, Medicus' revenues rose 4% to $8.9 million. But net income plunged 52% to $645,000, or 10 cents per share. For the year, revenues increased 16% to $33.8 million, while earnings slumped 9% to $3.5 million, or 52 cents per share.
During a recent conference call with analysts, a chastened Jelinek conceded, "We didn't anticipate the weakness."
Disappointing results for 1995 were tied directly to the company's software business, rather than its consulting or outsourcing lines, and to increased costs.
"Our forecasting model on expenses leaves something to be desired," Jelinek told the analysts. In fact, unanticipated costs totaled $846,000 last year, he said, mainly in fees for outside technical consultants and travel.
As a remedy, Medicus is launching a campaign to trim expenses. "We are in the process of completing our cost-cutting, which will amount to $1 million or more," he said. "The mistake was that we should have begun this earlier.....We just got fat, without realizing it."
Company officials note that software sales could rebound. In the last quarter, Medicus added 43 new software customers.
But taking a machete to costs won't yield results immediately.
"It'll probably take the better part of the first two quarters (in fiscal 1996) to flush out all the expense," Jelinek said.
Tyagi said he's willing to give Medicus two more quarters to get its act together. "The bad news is already in the stock price," he said.
Jelinek doesn't seem eager to go out on a limb, however. "We're somewhat gun-shy at this point to make too many promises to you," he told the analysts.