MedLink International (MLKNA)

[cleverrox]

TABLE POUNDER - MLKNA - $0.92. It has been a long time since I have pounded the table. My most recent table poundings have been ZYNX, AYSI and ZAGG. All three went up 300% within a year of my pounding.

What will startle you is that even though MLKNA has increased revenue 500% in the last two quarters, they still trade for a FW P/E of 5 having earned $0.05 in the last Q and trade around $1.00 a share.

Let me tell you about MLKNA. Medlink Intl sells three basic products. Their core product EHR (electronic health records) is delivered via the web in a model we call "Software as a Service". It allows physician practices to perform scheduling, billing and to keep electronic patient records. The web delivery mechanism allows easy deployment and scale out of the platform since they don't have to install a server and client software at the physician's office. Really deployment consists of training the staff on the new system. Gross margins are very high for this product at 90%. If they can sell enough the additional revenue drops straight to EPS.

Their second and third products are built around providing interfaces between hospitals, labaratories, and physicians and health information networks. An HIN may contain the data of many physicians in a region and allow a reporting interface to the local health department to get statistics on outbreaks of influenza and other diseases. I find these products slightly confusing so I'm not going to try and describe them in detail.

A HUGE TAILWIND

The HITECH Act signed in 2009 provides a carrot and stick approach to the government pushing doctors to use EHR (electronic health records). The carrot is starting Jan 1, 2011 physicians using Medicaid and Medicare can get up to 85% of the cost of implementing an EHR paid for by Uncle Sam. The stick is in 2016(?) the government starts penalizing physicians who haven't adopted a qualifying EHR by taking a % of their Medicare / Medicaid reimbursements away.

Not only does this give huge incentives for qualifying physicians to embrace EHR, but as physicians embrace EHR it provides a much better ROI for laboratories to tie into EHR so they can ship lab results electronically. The same can be said of prescriptions and pharmacies, etc. Medlink expects to derive up to 70% of the 2011 revenue from providing integration services to labs, hospitals, etc.

For many years Medlink barely survived on revenues of a couple million a year in revenue. Then came the emergence of RHIO's where a regional authority subsidizes physicians in an area buying EHR. That has given MLKNA a kick in the pants allowing them to grow revenue from $500K a couple quarters back to $3.5M in the latest Q. I expect the HITECH act becoming effective will really provide a surge for Q1 2011 results. In the last three months Medlink has established branch offices in several states.

MANAGEMENT

Among the pro's is management uses a cutting edge investment relations firm to provide frequent press releases and to provide answers to questions. The CEO has a twitter account and at least wants to be responsive to investors. He is understandably busy in this time of rapid expansion and I found it hard to reach him for Q&A.

The quality of the 10-Q could be better with the last one containing newbie mistakes. I am pressing for a better quality release in the 10-K. The CFO is more an M&A type than an accountant and it shows in the SEC filings.

The officers have a long tenure at the company and it doesn't feel like some kind of fly by night scam to sell shares.

The CEO seems very aggressive in pushing for acquisitions to round out their product suite and to get them into new markets. The one interview I watched of him he wasn't a compelling presenter but he is very good at communicating his vision and his product and I feel he has the potential to lead this company to much higher ground.

Management is well compensated in stock options - at the clip of 4M options a year when outstanding shares are only 42M. They do have to pay a reasonable price to exercise the options so the money from the exercise provides some protection against dilution. However the company will need to grow at a good clip to outpace share printing. I haven't felt their private placement terms have been especially good for Medlink, but hopefully they are done raising money now they are profitable. They paid a high reputation fund manager named Antebi 2.6M shares for services - though he will provide the services over five years. I'm not a fan of that decision but as red flags go it isn't a deal breaker. Bottom line is they have been a bit loose with shares over the years.

ANALYSIS

I'm banking on a strong 2011 for Medlink and even if they can grow EPS just slightly the PPS could easily double to $2.

RISKS

Management owns enough shares they might could do an 'ASRG' and pay themselves crazy packages that eat into EPS.