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Allscripts (MDRX) Q3 Earnings Meet, Revenues Beat Estimates

Allscripts Healthcare Solutions, Inc. MDRX reported third-quarter 2017 adjusted earnings of 16 cents per share, in line with the Zacks Consensus Estimate. The figure surpassed year-ago earnings of 14 cents.

Adjusted revenues, which exclude acquisition-related deferred revenues (Netsmart), grew 11.7% to $451.2 million and surpassed the Zacks Consensus Estimate of $430 million.

Further, the company completed the acquisition of McKesson Corporation's hospital and health system IT business, known as the Enterprise Information Solutions (EIS) business, on Oct 2.

 

 

Quarter Details

Key Highlights: Solid growth in U.S. Core Solutions and Services, fueled by Sunrise electronic health record (EHR) platform and Allscripts Revenue Cycle Management Services, buoyed optimism in the third quarter. The company also inked a new partnership to develop and deploy preauthorization solutions for medical procedures at the point of care. Moreover, the company expanded its international client roster in the quarter.

Bookings: Bookings in the third quarter were $304 million (highest to date), up 4% on a year-over-year basis. Notably, 50% of net bookings was generated by the software delivery unit, while the remaining came from client services.

Software Delivery, Support and Maintenance Revenues: This segment comprises all software, hardware, subscription, other transactions and support and maintenance revenues. Revenues at the segment increased 12% to $295 million in the quarter.

Client Services Revenues: This segment takes care of recurring managed services and other project-based client services. Client service revenues were up 10% on a year-over-year basis to $156 million.

Recurring Revenues: This segment covers subscriptions, recurring transactions, support and maintenance and recurring managed services. Adjusted recurring revenues increased 11% on a year-over-year basis.

Non-recurring Revenues: This segment comprises systems sales and other project-based client services. Adjusted non-recurring revenues at the segment increased 9% on a year-over-year basis.

Margin Details

Gross margin expanded 262 basis points (bps) to 44.9% in the third quarter. As a percentage of revenues, Allscripts registered adjusted gross margin of 48.4% in the third quarter, compared with 47.6% in the year-ago quarter.

Software gross margin, as a percentage of revenues, increased 150 bps on a year-over-year basis. However, Client service margin in the third quarter came in at 15.6% of revenues, compared to 16.8% in the same period last year.

According to the company, adjusted operating expenses in the quarter totaled $148 million, reflecting an 11% year-over-year increase.

Selling, general & administrative expenses increased 18.8% to $117.4 million and research and development expenses rose 13.1% to $51.1 million from a year ago.

Guidance

For 2017, the company expects revenues at the high end of the earlier provided range of $1.79 billion to $1.82 billion.  The adjusted earnings per share growth guidance has been reaffirmed at the band of 10% to 15%. Adjusted EBITDA is expected at the high end of the previously provided range of $345 million to $365 million.

Per management, Allscripts’ 2017 guidance includes three months of financial contribution from the EIS acquisition in the fourth quarter of 2017. Moreover, the company anticipates to incur nearly $50 million in severance and transaction costs related to the EIS transaction starting from the fourth quarter of 2017, which are expected to be recognized quarterly until no later than the fourth quarter of 2018.

Our Take

Allscripts exited the third quarter on a favorable note. A solid guidance for 2017 and an encouraging long-term outlook are the key highlights of the quarter. Also, expansion in margin is encouraging. We look forward to the takeover of the hospital and health system business of McKesson Corporation. Allscripts’ continued reliance on mergers and acquisition activities poses substantial integration risks. Furthermore, intensifying competition is a major dampener. The company’s products have a long sales cycle which involves intensive decision-making at different managerial levels.

Zacks Rank & Key Picks

Allscripts has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical sector are PetMed Express, Inc. PETS, Luminex Corporation LMNX and Intuitive Surgical, Inc. ISRG. Notably, PetMed and Luminex sport a Zacks Rank #1 (Strong Buy), while Intuitive Surgical carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed reported earnings per share of 43 cents in the second quarter of fiscal 2018, up 79.2% from the year-ago quarter’s 24 cents. Also, gross margin expanded 548 bps year over year to 35.2% in the reported quarter.

Luminex reported adjusted earnings per share of 19 cents in the third quarter of 2017, up 216.7% year over year. Revenues in the quarter increased almost 4.1% year over year to $74.1 million.

Intuitive Surgical posted adjusted earnings of $2.77 per share in the third quarter of 2017, up 34.5% year over year. Revenues increased 18% year over year to $806.1 million.

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