Knobias Clip Report (10-29-2007)

Submitted By Knobias ClipReport

SCOM: Flu Season Could Provide Revenue Opportunity

Monday’s session was met with optimism regarding Wednesday’s Federal Reserve meeting scheduling. Many were expecting a cut of 25 basis points on the interest rate but as much as many would want lobby against it, a 50 basis point cut is not out of the realm of possibility.

Many feel the need for an aggressive stance especially with the Fed in a position to thwart a worst case scenario. The housing sector is now at the root of three distinct but related problems: (1) a sharp decline in house prices and the related fall in home building; (2) a subprime mortgage problem that has triggered a substantial widening of all credit spreads and the freezing of much of the credit markets; and (3) a decline in home equity loans and mortgage refinancing that could cause greater declines in consumer spending. Each of these could by itself be powerful enough to cause an economic downturn.

In any event, it is something to watch going into the Wednesday session. In the small cap space, one name recently released earnings which caused a few investors to take notice.

Sharps Compliance Corp. (SCOM), headquartered in Houston, Texas, is a leading provider of cost-effective medical waste disposal solutions for industry and consumers.

The Company's flagship product, the Sharps Disposal by Mail System(R), is a cost-effective and easy-to-use solution to dispose of medical waste such as hypodermic needles, lancets and any other medical device or objects used to puncture or lacerate the skin (referred to as "sharps").

The Company also offers a number of products specifically designed for the home healthcare market. Sharps Compliance focuses on targeted growth markets such as the pharmaceutical, retail, healthcare, commercial, professional and hospitality markets, as well as serving a variety of additional markets. The Company is a leading proponent and participant in the development of public awareness and solutions for the safe disposal of needles, syringes and other sharps in the community setting.

On October 23rd, the Company reported that first quarter fiscal 2008 revenue grew to a record $3.4 million, an increase of 13% from revenue of $3.0 million in the same period the prior fiscal year, and up 17% sequentially compared with revenue of $2.9 million in the fourth quarter of fiscal 2007. Customer billings, which the Company believes is an appropriate measure of performance and progress of the business, also increased to a record level of $3.6 million for the fiscal 2008 first quarter, up 14% compared with the prior fiscal year's first quarter billings of $3.1 million. On a sequential basis, customer billings increased 21%, from $ 3.0 million, in the fourth quarter of fiscal 2007.

The Company noted that the customer billing increase was derived from growth in the hospitality and healthcare sectors as well as the start of the flu shot season around the country. The Company did note an increase of SG&A expense of 21% to $1.15 million for the first quarter of fiscal 2008 compared with $0.95 million in the same period of the prior fiscal year but essentially flat from the fourth quarter of fiscal 2007. The increase in SG&A expense over the prior year period is a result of increased sales and marketing related expenses, non-cash stock-based compensation expense, recruiting fees and facilities rent expense.

The numbers culminated in an EPS of 2c versus 3c per share for the same period the prior year. The reduction in diluted earnings per share year-over-year was noted as being a result of a 2.5 million, or 23%, increase in the diluted shares outstanding due to stock options exercised and a higher stock price.

If the Company can capitalize on the growth of the healthcare sector as well as the current flu season while containing SG&A expenses and dilutionary financing activities, the name is certainly one to follow over the coming quarters. Investors would be wise to watch.



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