Conmed Healthcare Management (OTC:BB: CMHM, Stock Forum)

Profile Price: $2.25

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Buy Opinion: 2.00 - 2.20
Short-Term Sell: 2.75 - 2.95
Long-Term Sell: 3.10 - 3.35

Highlights

• Provider of correctional healthcare services
• $8.2 million in cash and no long-term debt
• Q3 revenues up 66%; year-to-date revenues jump 53%
• Swung to third quarter profitability
• Recent acquisition forms new healthcare subsidiary

Outlook - A leading provider of correctional healthcare service, Conmed Healthcare Management, Inc. (CMHM) is a profitable, debt-free company with improved operations and excellent long-term growth potential. The company recently reported strong double digit revenue growth for the third quarter and year-to-date. In addition, CMHM announced the completion of a new acquisition, forming a new national Mental Healthcare subsidiary.

The 1971 uprisings at Attica Correctional Facility in rural New York brought national attention to poor conditions and human rights abuses within prisons and jails. Under the Eighth Amendment to the United States Constitution, it has been determined that prisoners (or inmates) have a constitutional right to adequate health care.

In fact, inmates are the only Americans with a guaranteed right to adequate health care as a result of a 1976 U.S. Supreme Court ruling in the Texas case, Estelle v. Gamble. Overall healthcare spending in the United States is approximately $10.31 per inmate per day on an annualized basis.

Business Profile - Conmed Healthcare provides an array of correctional healthcare services for inmates in county detention centers in the United States. CMHM has provided correctional healthcare services since 1984 and currently services county detention centers and facilities in 32 counties and nine states.

The contracts are multiple year, fixed-cost contracts with annual escalations, caps on out-of-facility healthcare and catastrophic expenses that limit maximum financial exposure, and contain adjustments on a per diem basis for changes in population served.

Its correctional healthcare services include general healthcare services, acute care services, surgical services, laboratory services, IV therapy, EKG’s, and diagnostic imaging/radiology. CMHM also provides dialysis services, durable medical equipment, hospital services, mental health services, pharmacy, physical and occupational therapy, and dental services.

The industries in which the company operates are subject to federal, state and local regulations and/or orders of judicial authorities, including healthcare, pharmaceutical and safety regulations and judicial orders, decrees and judgments.

Fundamental Analysis- On November 13, CMHM announced its financial results for the third quarter ended September 30, 2008. The company reported third-quarter revenue of $11.5 million, a 66% increase over the $7.0 million recorded in the same prior-year period.

CMHM reported third quarter earnings of $108,000, or $0.01 per, compared to a (loss) of ($606,000), or $(0.05) per share in the third quarter of fiscal 2007.

"We continue to achieve new milestones, as we scale the business and position ourselves for long-term future growth,” commented Richard Turner, Chairman and CEO. “Our improved operating results reflect operational efficiencies that are resulting from careful management of our cost structure and efficient allocation of our resources.”

“We generated operating cash flow of $1.1 million, an increase of approximately $854,000, or 374%, from the second quarter. This was a very exciting quarter, in a year of substantial growth for Conmed.”

For the first nine months, CMHM reported revenue of $28.4 million, a 53.4% increase over the $18.5 million recorded in 2007. CMHM reported a year-to-date net (loss) of ($937,844), or $(0.08) per share; during the same period last year CMHM reported a (loss) of ($1.36 million), or $(0.14) per share.

Recent News- On November 6, CMHM announced that it acquired Maryland-based Correctional Mental Health Services, LLC (CMHS) for $2.2 million. CMHS provides behavioral health services to 13 counties in Maryland.

CMHS currently employs or contracts with 24 professionals. For the 12 months ended June 30, 2008, CMHS had revenue of $2.2 million.

“This acquisition accelerates the expansion of our national behavioral healthcare strategy by creating a preeminent platform in our home region,” commented Richard W. Turner, PhD, President, Chairman and CEO.

“As a result of this acquisition we will immediately obtain the needed additional clinical infrastructure required to provide behavioral health services to our current Maryland contracts. To further our growth strategy of both professional service lines we will continue to look for opportunistic acquisitions in our major operating regions as well as strategic acquisitions in new regions.”

Conclusion- A leading provider of correctional healthcare service, CMHM is a profitable, debt-free company with improved operations and excellent long-term growth potential. The company recently reported strong double-digit revenue growth for the third quarter and year-to-date. In addition, CMHM announced that it completed a new acquisition, forming a new national Mental Healthcare subsidiary.

On November 13, CMHM announced that third-quarter revenue jumped 66% year-over-year to $11.5 million. The company posted third quarter earnings of approximately $108,000; representing a positive swing in profit of approximately $714,000.

Richard Turner, Chairman and CEO noted, “This was our first profitable quarter since becoming a public company in January 2007, and we believe it represents a validation of the strategy we launched, which was to transform the company from a small localized business into a publicly traded, nationally focused, and professionally managed company.”

During the third quarter, CMHM finalized a contract with Pima County, Arizona to deliver a broad range of services. Over the next 20 months the contract is expected to generate over $19 million in revenue. Further, CMHM finalized a one-year contract with four one-year renewal periods with Caroline County, Maryland.

CMHM also announced an expanded five-year contract in Charles County, Maryland that is expected to generate approximately $8.8 million over the life of the contract.

Learn more about CMHM, and get updated buy and sell opinions. Start your two-week free trial at www.PeterLeeds.com.