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Change Healthcare (CHNG) Q1 Earnings & Revenues Miss Estimates

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Change Healthcare Inc. (CHNG - Free Report) reported first-quarter fiscal 2023 adjusted earnings per share (EPS) of 38 cents, which missed the Zacks Consensus Estimate of 39 cents by 2.6%. The bottom line declined 7.3% on a year-over-year basis.

Net loss per share was 7 cents in the quarter compared with the year-ago quarter’s net loss per share of 1 cent.

Revenue Details

Revenues rose 1.9% from the prior-year period to $884.5 million in the reported quarter. However, the top line missed the Zacks Consensus Estimate by 0.7%.

Segmental Analysis

Change Healthcare did some portfolio rejig and, beginning the first quarter of fiscal 2023, started reporting in four reportable segments, namely, Software and Analytics, Network Solutions, Enterprise Imaging and Technology-Enabled Services. The company established Enterprise Imaging as a standalone segment, which was earlier reported as part of the Software and Analytics segment. The company also shifted responsibility for certain products among its reportable segments, which are expected to impact all segment-related figures, except the new one.

Software and Analytics

Revenues at this segment totaled $334.9 million, up 2.1% on a year-over-year basis.

Network Solutions

Revenues at this segment were $223.3 million, up 2.3% year over year.

Technology-Enabled Services

Revenues at this segment were $213.2 million, down 1.7% on a year-over-year basis.

Enterprise Imaging

Revenues at this segment were $83.1 million, up 0.8% on a year-over-year basis.

Postage and Eliminations

Revenues at this segment totaled $20 million, up 17.3% year over year.

Change Healthcare Inc. Price, Consensus and EPS Surprise

Change Healthcare Inc. Price, Consensus and EPS Surprise

Change Healthcare Inc. price-consensus-eps-surprise-chart | Change Healthcare Inc. Quote

Margin Analysis

Total operating expenses were $857.2 million, up 4.1% from the prior-year quarter.

In the quarter under review, Change Healthcare reported an operating income of $27.3 million compared with $44.1 million in the year-ago quarter.

Financial Position

The company exited the quarter with cash and cash equivalents of $94 million, compared with $252.3 million in the preceding quarter.

Cumulative net cash provided by operating activities at the end of the fiscal first quarter amounted to $83.3 million compared with $110.1 million in the year-ago period.

Guidance

Given the proposed merger agreement (with OptumInsight), Change Healthcare will not be issuing financial guidance going forward.

Please note that the merger is currently under trial as the Department of Justice (“DOJ”) and certain other parties had commenced litigation to block the merger in February. The trial started on Aug 1. In case, the merger does not happen due to the trial outcome, OptumInsight will have to pay a $650 million fee to Change Healthcare.

Wrapping Up

Change Healthcare exited the first-quarter fiscal 2023 on a dismal note, wherein both earnings and revenues missed the Zacks Consensus Estimate. The company exhibited positive performance across all its segments in the quarter under review, except Technology-Enabled Services. The strategic collaboration with Luma Health was one of the business highlights in the quarter.

However, cut-throat competition remains a headwind. Deterioration in the bottom line is disappointing. Higher operating expenses are concerning.

Zacks Rank and Stocks to Consider

Currently, Change Healthcare carries a Zacks Rank #4 (Sell).

Some better-ranked stocks from the pharma/biotech sector include Lantheus (LNTH - Free Report) , ShockWave Medical (SWAV - Free Report) and Alkermes (ALKS - Free Report) . While Lantheus and ShockWave Medical sport a Zacks Rank #1 (Strong Buy), Alkermes carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Estimates for Lantheus have improved from earnings of $3.04 to $3.08 for 2022 and $3.33 to $3.62 for 2023 in the past 60 days. LNTH stock has surged 146.6% so far this year.

Lantheus delivered an earnings surprise of 77.82%, on average, in the last four quarters.

ShockWave Medical’s earnings per share estimates have improved from $1.84 to $2.02 for 2022 and from $2.82 to $2.95 for 2023 in the past 60 days. SWAV has gained 23% so far this year.

ShockWave Medical delivered an earnings surprise of 189.99%, on average, in the last four quarters.

Alkermes’ earnings per share estimates have improved from loss of 17 cents to earnings of 20 cents for 2022 and from 31 cents to 33 cents for 2023 in the past 60 days. ALKS has gained 11.4% so far this year.

Alkermes delivered an earnings surprise of 325.48%, on average, in the last four quarters.