SomnoMed’s Core Business Earnings to be impacted by the Closing of its Major Customer -Simple Sleep Services

  • Mar 25, 2019 AEDT
  • Team Kalkine
SomnoMed’s Core Business Earnings to be impacted by the Closing of its Major Customer -Simple Sleep Services

SomnoMed Limited (ASX: SOM) is a healthcare company which is primarily involved in providing diagnostic and treatment solutions for Sleep-related Breathing Disorders.

In a trading update provided on 25 March 2019, the company admitted that its business earnings in the second half of the FY 2019 will be affected due to the closing down of its significant customer, Simple Sleep Services, LLC (S3) on 15th March 2019. S3 was an important customer for SomnoMed as it accounted for around 9% of SomnoMed North American revenue in the first half of FY2019. At the time of its closing Simple Sleep Services owed US$805,000 to SomnoMed.

As per the company’s legal advice, the company believes there is a reasonable likelihood it may not recover an amount of between US$400,000 and US$805,000 which will directly impact the company’s core business earnings. It is expected that the guidance of EBITDA* for the core business of $5.0 to $5.5 million will be affected by the around US$400,000 -US$805,000.

SomnoMed’s shares are down by 4.865 percent today.

While commenting on the closure of the Simple Sleep Services, SomnoMed’s Chief Executive Mr. Verdal-Austin told that S3’s closure came as a surprise to the company. Over last the six years, S3 traded successfully in the direct to consumer market in Texas and it was a significant customer of SomnoMed. According to him, S3 was majorly impacted by the regulations and reimbursement amounts introduced in Texas at the beginning of the 2019 insurance year changed which changed the economic viability of S3 business leading to its closure.

Mr. Verdal-Austin has assured that S3’s closure will not impact SomnoMed’s other dental customers and the company is not seeing any change in its receivables balances outside of S3.

SomnoMed is working closely with its Texas legal advisors to maximise collection of outstanding debts. However, a write-off seems to be unavoidable and will unfortunately have a one-off impact on its earnings in its FY 2019. Excluding the impact of this write-off the company is expecting to deliver its previous guidance of core EBITDA of $5.0 to 5.5 million.

For the half year ended 31 December 2018, SomnoMed reported revenues from its core business of $28.8 million, up 15% on previous corresponding period (pcp), driven primarily by APAC and Europe with 19% and 17% growth over prior year respectively. The company witnessed strong revenue growth in APAC region during the first half of FY 2019, dominated by Australia. In North America, the company reported revenue growth of 12% for the half year period. Further the company’s core business generated an EBITDA of $1.3 million during the period. At the end of December 2018 the company had Cash balance of $8.5 million.

In the last six months, the share price of the company increased by 1.65% as on 22 March 2019. SOM’s shares is trading at $1.760 with a market capitalization of circa $116.19 million as on 25 March 2019 (AEST 12:34 PM).


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