Electronic commerce company Emergis Inc reported a bigger first-quarter loss on Friday, reflecting lower one-time gains, and its stock fell sharply after it announced it has been served with a lawsuit seeking more than $64 million in damages. Montreal-based Emergis was served on Wednesday with a lawsuit from MultiPlan Inc, which acquired its former US health subsidiary for $213 million in cash last year. The complaint makes a variety of claims arising from the share price agreement, Emergis said.
"Basically, they are alleging they paid too much," said chief executive Francois Cote in a conference call. "We intend to take all appropriate action to vigorously defend our position."
Emergis shares sank to a new 52-week low of C$2.52 on Friday morning before edging up to C$2.64 on the Toronto Stock Exchange, a decline of 53 Canadian cents, or 16.7 percent.
"Today's share price reaction is way overdone," said Conscius Capital analyst Kona Shio, who maintained his "buy" rating and C$5 stock target.
"I think the numbers are strong. The EPS number was a bit off, but I think that's more to do with one-time items than anything else. Look at EBITDA (earnings before interest, tax, depreciation and amortisation) - they beat (the average analyst estimate) by 14 percent."
The stock's fall could also reflect disappointment among hedge funds, which hold Emergis shares, said BMO Nesbitt Burns analyst David Wright.
"Over time they have expected a fair bit out of Emergis and I don't know if this company is meeting (their) expectations," he said. "I would say that the company is delivering what they said they'd deliver. I think the upside is hard to see in this company right now."
For its first quarter, Emergis reported a net loss of C$5.7 million ($4.5 million), or 6 Canadian cents a share, compared with a loss of C$100,000, nil per share, a year earlier. In the same period last year, Emergis reduced its loss with a C$6.3 million reversal of a C$38.2 million restructuring charge as some charges were deferred to later quarters.
In its first quarter this year, Emergis benefited from a one-time contract settlement worth C$1.2 million. Revenue fell to C$39.3 million from C$62.1 million. Analysts polled by Reuters Estimates expected a loss of 1 Canadian cent a share and revenue of C$38.6 million, on average.
"The top line actually came in a little bit better than what we were looking for, mainly on the e-health side," said Desjardins Securities analyst David Shore, who forecast sales of C$37.7 million. "E-finance was a touch better, it didn't fall quite as much as I thought it was going to."
The company's closely-watched earnings before interest, tax, depreciation and amortisation (EBITDA) of C$5.8 million came in above analysts' average forecast for C$5.07 million, said Conscius Capital in a note.
Shio also said the company appears more likely to "monazite" its e-finance unit, which processes transactions. It could either boost sales and marketing efforts internally to expand the business, or sell all or parts of it, he said. The market attributes no value to the unit presently, he said.
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