ADAT has 37 cents per share in cash, yet it is not currently profitable. Management expects to achieve cash flow breakeven in the near-term. Although ADAT has been putting up double-digit revenue growth, the slow pace of industry modernization has made achieving Authentidate’s potential elusive. I believe the new telehealth business aspect coupled with government spending and reform will accelerate the pace of revenue traction. My previous ADAT articles are here.

Company Description: (from ADAT 10-k):

Authentidate Holding Corp. (Authentidate or the company) is a worldwide provider of secure workflow management software and web- based services. Authentidate and its subsidiaries provide software applications and web-based services that address a variety of business needs for our customers, including increasing revenues, reducing costs, raising service levels, improving productivity, providing automated audit trails, enhancing compliance with regulatory requirements and reducing paper based processes. Our scalable offerings are primarily targeted at enterprises and office professionals and incorporate security technologies such as rules based electronic forms, intelligent routing and transaction management, electronic signing, content authentication, identity credentialing and verification and web and fax-based communication capabilities to electronically facilitate secure and trusted workflows. Authentidate currently operates its business in the United States and Germany with technology and service offerings that address emerging growth opportunities based on the regulatory and legal requirements specific to each market. In the United States the business is engaged in the development and sale of web-based services largely based on our Inscrybe™ platform and related capabilities. In the United States, we offer our patent pending content authentication technology in the form of the United States Postal Service ® Electronic Postmark ® (EPM). In Germany the business is engaged in the development and sale of software applications that provide electronic signature and time stamping capabilities for a variety of corporate processes including electronic billing and archiving solutions. Our web-based services and software applications are compliant with applicable digital signature rules and guidelines. We sell our web-based services and software applications through a direct sales effort and reseller arrangements. See USPS EPM.

Company & Industry Background:
Authentidate has struggled to gain revenue traction primarily due to the glacial pace of modernizing the IT infrastructure within the healthcare industry. The industry can be characterized as one with excessive “paper pushing” which swells the overall cost of healthcare. Evolving to an electronic document workflow paradigm would significantly reduce costs, errors, and turn-around times. The reason that healthcare has slow to move away from paper records and postal delivery is because the primary players haven’t been appropriately incentivized. HMOs experience the greatest benefits by reducing labor costs and working capital needs, yet those savings hinge on physicians converting to e-document platforms. Doctors have been hesitant to implement technology since the benefits to physicians haven’t been adequately communicated. In addition, physician thinking tends to be revenue-oriented, as opposed to cost oriented, generally solving high or increasing overhead costs with higher billings. Essentially, the thinking focuses on boosting revenue by “how do I charge more,” instead or focusing on boosting the bottom line by reducing expenses. Since patients, or rather customers, only pay a very small portion of their medical bills coupled with the absence fee comparisons and the inelastic nature of demand for healthcare treatment, medical practitioners have considerable pricing power. An individual’s cost for healthcare is pushed off on HMOs, insurance companies, and Medicare, which in turn spread those costs among its base of participants.

Instead of increasing efficiency and eliminating unnecessary costs, doctors can maintain profits with higher and/or additional fees that ultimately raise everyone’s cost of healthcare. As a result, HMOs and insurers have implemented fee caps for certain services and treatments, which essentially eliminates pricing power. However, some medical practitioners will choose not to accept specific types of medical coverage (or insurers chose not to cover specific physicians), or physicians will abandon treatments/services with unfavorable fee reimbursement caps. Even with restrictive fee caps, a physician could increase his/her bottom line from greater cost efficiency/productivity by migrating to an electronic document platform. Not only can overhead costs be reduced, time and other resources can be freed up and deployed for new revenue opportunities. Some doctors spend considerable time attending to office visits based primarily on paperwork issues for approvals and signatures, etc.

In my opinion, the catalyst for widespread migration to modern information technology is the Obama administration.