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Allscripts (MDRX) Meets Q2 Earnings Estimates, View Upbeat

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Allscripts Healthcare Solutions, Inc. (MDRX - Free Report) reported second-quarter 2017 adjusted earnings of 11 cents per share, in line with the Zacks Consensus Estimate. The figure edged past the year-ago earnings of 10 cents per share.

Adjusted revenues, which exclude acquisition-related deferred revenues (Netsmart) grew 8% to $428 million. Adjusted revenues surpassed the Zacks Consensus Estimate of $424.2 million. Without the adjustments, Allscripts reported revenues of $426.1 million, which also outpaced our estimates.

The stock has a Zacks Rank #4 (Sell).

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 second quarter. Furthermore, increased demand for CareInMotion solution in the health plan market and multiple global clients across the U.K. and the Asia-Pacific region drove revenues. Allscripts’ cloud-based precision medicine platform 2bPrecise announced a technology license agreement and collaboration with Mayo Clinic in the quarter.

Bookings: Bookings in the second quarter were $407 million (highest till date), up 12% on a year-over-year basis. 50% of net bookings emerged from software delivery unit, while the remaining were related to client services.

Solid growth in bookings was fueled by double-digit growth in the Payer and Life Sciences business. Furthermore, Netsmart registered record bookings in the quarter, with the majority registered from new clients. 

Software Delivery, Support and Maintenance Revenues: This segment consists of all software, hardware, subscription, other transactions and support and maintenance revenues. According to management, adjusted revenues at the segment increased 9% to $283 million in the quarter.

Client Services Revenues: This segment consists of recurring managed services and other project-based client services revenues. Client service revenues were up 6% on a year-over-year basis to $148 million.

Recurring Revenues: This segment consists of subscriptions, recurring transactions, support and maintenance and recurring managed services. Adjusted recurring revenues increased 8% on a year-over-year basis.

Non-recurring Revenues: This segment comprises systems sales and other project-based client service revenues. Adjusted non-recurring revenues increased 8% on a year-over-year basis.

Allscripts Healthcare Solutions, Inc. Price, Consensus and EPS Surprise

 

Margin Details

As a percentage of revenues, Allscripts registered adjusted gross margin of 48% in the second quarter compared with 48.1% in the year-ago quarter. Margins contracted 10 basis points (bps) on a year-over-year basis.

Software gross margin, as a percentage of revenues, decreased 260 bps on a year-over-year basis. However, Client service margins in the second quarter increased almost 410 bps to 18% of revenues, compared to 13.9% for the same period last year. Margin expansion was on the back of gains in efficiencies and scale within the company’s managed services business.

Adjusted operating expenses in the quarter totaled $141 million, reflecting a 6% year-over-year increase.

Guidance

For full-year 2017, the company expects revenues between $1.79 billion and $1.82 billion, up from the previously issued range of $1.71 billion to $1.74 billion.  Adjusted earnings per share are expected to grow in the band of 10% to 15%. Adjusted EBITDA is expected in the band of $345 million and $365 million.

For 2018 to 2020, Allscripts raised its adjusted revenue growth guidance. The company expects adjusted revenue growth in the band of 9% to 11%, up from the previously issued range of 6% to 8%. Adjusted earnings per share are expected to increase in the band of 17%--20%, up from the previously issued range of 12%--15%.

Most importantly, Allscripts announced the acquisition of the hospital and health system business of McKesson Corporation (MCK - Free Report) , which is estimated to close early in the fourth quarter of 2017. The deal is worth $185 million in cash.

Our Take

Allscripts exited the second quarter on a favorable note, wherein adjusted earnings were in line with the Zacks Consensus Estimate, while revenues beat the same. A solid guidance for full-year 2017 and a strong long-term outlook are the key highlights of the moment. Allscripts announced plans to takeover the hospital and health system business of McKesson Corporation, which is expected to close by the fourth quarter. 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. Adding to the woes, the company expects a modest increase in operating expense during the second half of the year to support business growth.

Key Picks

Better-ranked stocks in the broader medical sector are Edwards Lifesciences Corporation (EW - Free Report) and Abiomed Inc. (ABMD - Free Report) .

Notably, Edwards Lifesciences sports a Zacks Rank #1 (Strong Buy), while Abiomed has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. Notably, the stock has a return of 3% over the last three months.

Abiomed yielded a strong return of 21.8% over the last one year. The stock has a long-term expected earnings growth rate of 30.5%.

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