ADAC Laboratories announced today that it plans to end its participation in the information systems market by selling its underperforming HealthCare Information Systems division. The divestiture process is already underway.
The Milpitas, CA-based vendor has signed a letter of intent to sell the cardiology systems group of ADAC HCIS to cardiac image management provider Camtronics Medical Systems. ADAC and Camtronics expect to complete their deal by November. For its part, Hartland, WI-based Camtronics plans to integrate ADAC’s CorCAAT hemodynamic and database management system for cath labs with its Vericis integrated cardiac information and image management system.
ADAC believes the divestiture of the HCIS division will allow the firm to focus more resources on its core businesses of nuclear medicine, PET, and radiation therapy products, according to ADAC CEO Andrew Eckert. In addition to its cardiac business, ADAC HCIS also offers its popular QuadRIS radiology information system, as well as Envoi, a recent entry into the PACS market.
"The market for large-scale healthcare information systems has been quite difficult for at least the last 18 months," Eckert said "Despite downsizing our (HCIS) sales organization and aggressively upgrading the product line, we continue to experience poor financial performance. The fourth quarter was a continuation of this negative trend, and we badly missed our plan in this particular business."
Although ADAC HCIS had attractive technology and a large installed base, today's market dynamics favor large IT companies with broader product portfolios, Eckert said.As a result of the cardiology systems divestiture, ADAC expects to take a non-ordinary charge of approximately $2 million in its fiscal fourth quarter (end-October 2). Completion of a potential sale of the rest of HCIS will result in another non-ordinary charge.
The poor performance of the Houston-based HCIS division was cited as a key factor in ADAC's disappointing fourth-quarter revenues, which ADAC said would be below expectations. ADAC indicated that it expected revenues of between $83 million and $86 million, and earnings per share excluding non-ordinary items ranging from 10¢ to 15¢ per share, well below consensus analyst expectations of 23 cents per share. ADAC said it would have positive operating cash flow of $8 million to $10 million during the period.
In addition to the ongoing poor performance of ADAC HCIS, the company's PET shipments were also lower than expected, despite a strong order rate, according to the company. ADAC attributed the delayed shipments to customer readiness associated with the complex logistics required to install a PET system.
"By and large, PET is a new practice area for our customers," Eckert said. "It's not a replacment market, where the necessary infrastructure such as technologists, licensing, room space, and all of the other necessary infrastructure is already in place. (PET) requires each of these logistics to be ironed out prior to the customer being ready to accept delivery of their unit."
Given the normal delays associated with the details of implementing PET, both ADAC and its customers were overly optimistic in setting installation dates, Eckert said.
"(In contrast to customers') stated intentions at the time of placing an order for a PET scanner, it was taking six to 12 months, and in some cases longer, to be ready for actual installation," he said.
In response, ADAC had made a number of organizational changes designed to help customers with their preparedness, and the company believes these changes may help ease the bottleneck, Eckert said.
By Erik L. Ridley
AuntMinnie.com staff writer
October 10, 2000
Related Reading
ADAC results surge in Q3, July 28, 2000
PET sales drive ADAC’s Q2 results, April 28, 2000
ADAC HCIS moves into cardiac PACS, March 6, 2000
Litigation charge sinks ADAC’s Q1 financials, January 28, 2000
ADAC closes books on tough 1999, January 4, 2000
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