MedQuist shares slammed on revenue worries

Medical transcription company says some clients delaying spending, focused on EHRs

Shares of MedQuist Holdings lost nearly a fifth of their value Tuesday after the medical transcription company said a number of its customers are holding back on investing in its services.

At about 2:15 p.m. Central, MedQuist's stock (Ticker: MEDH) was off about 19 percent to $8.33, a move that lopped almost $95 million from its market value. The company, which least year acquired Spheris and has since relocated its headquarters to Franklin, went public in February at $8 per share.

MedQuist said it earned $5.1 million in the second quarter, reversing a $1.5 million loss from a year ago. Revenues were flat at $108 million but gross profits rose 13 percent to $43.3 million and operating profits more than tripled to $13.3 million.

But the focus on the company's conference call this morning was on the top line. Newly installed CEO Vern Davenport and CFO Tony James discussed how some of their large customers are delaying the implementation of their MedQuist contracts as they hammer away at their electronic health records projects, which are linked to milestone reimbursement payments. James also said there is some "general softness" in the health care market.

Davenport, the former boss of Misys Healthcare Solutions, and former Spheris CFO James said their team is working to address the root causes of the issue and shuffle jobs they have in the queue.

"We have a substantial backlog of work and now we're in the process of repriotizing that work," Davenport said.

Davenport and James are sticking to their full-year forecasts for profits, which James said was due primarily to cost savings coming from MedQuist Holdings' merger with the former MedQuist Inc.

Davenport also said he's more positive about MedQuist's prospects — driven primarily by its pending acquisition of M*Modal — than he did when he was doing his due diligence on joining the company. Looking at the volume stumbles, he said "it's not totally unnatural" that there should be hiccups during the management transition the company just completed.