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Medidata (MDSO) Q4 Earnings Beat, Revenues Miss Estimates

Zacks Equity Research

Medidata Solutions, Inc. MDSO reported fourth-quarter 2018 adjusted earnings per share of 45 cents, which surpassed the Zacks Consensus Estimate of 37 cents. However, earnings dropped a penny from the year-ago quarter.

Revenues of $167.2 million rose 18.1% year over year. However, the figure missed the Zacks Consensus Estimate by 0.3%.

Over the past year, the Zacks Rank #3 (Hold) stock has rallied 15.2% compared with the industry’s 0.5% and the S&P 500 index’s 2% rise.

2018 at a Glance

On a full-year basis, Medidata reported revenues worth $635.7 million, which lags the Zacks Consensus Estimate of $636.4 million. Revenues rose 16.8% from 2017.

Adjusted earnings per share in 2018 came in at $1.71, which surpassed the Zacks Consensus Estimate of $1.63. Earnings shot up 20.4% from 2017.

Medidata reports through two major segments — Subscription and Professional Services .

In 2018, Subscription revenues totaled $535.7 million (24.3% of net sales) while Professional Services grossed $100 million (15.7%).

Medidata Solutions, Inc. Price, Consensus and EPS Surprise

Medidata Solutions, Inc. Price, Consensus and EPS Surprise | Medidata Solutions, Inc. Quote

Segment Details

Subscription revenues in the fourth quarter came in at $141.3 million, up 18% on a year-over-year basis.

Revenues at Professional services grossed $25.9 million, up 18.5% from the prior-year quarter, reflecting strength in platform implementations, partner enablement services and on-going support services.

Margins

In the fourth quarter, gross profit came in at $124.1 million, up 13.9% year over year. Though gross margin was an impressive 74.2%, it contracted 270 basis points (bps).

Adjusted operating income in the fourth quarter was $36.6 million, down 2.3% year over year. Adjusted operating margin in the quarter was 21.9%, down 450 bps.

Guidance

For 2019, the company expects revenues in the band of $734-$746 million, representing 16% growth at midpoint. The Zacks Consensus Estimate is pegged at $750.1 million.

Subscription revenues are expected between $619 million and $631 million, representing 17% growth at midpoint. Meanwhile, revenues from professional services are projected at approximately $115 million.

Non-GAAP operating income is projected between $175 million and $183 million.

Wrapping Up

Medidata ended the fourth quarter of 2018 on a mixed note. While earnings outpaced the Zacks Consensus Estimate, revenues lagged the same. Medidata’s strong Subscription revenues are a positive. Focus on cloud-based services is worth a mention. In fact, the company’s Medidata Cloud has witnessed developments in recent times. Management is optimistic about the recently-acquired SHYFT. The latest collaboration with Cognizant is likely to boost the company’s cloud-based platform and improve patient outcome. Furthermore, the company’s flagship RAVE genomics platform saw robust demand in the quarter.

On the negative side, Medidata’s declining gross and operating margins raise concern. The year-over-year fall in earnings is also disheartening. A string of acquisitions raises significant consolidation risks. The company’s overdependence on third parties may also be a concern over the long haul. Medidata’s cloud-based platform may lead to complexities, driving correctional costs. Stiff competition in the niche space adds to concerns.

Earnings of MedTech Majors at a Glance

Some better-ranked MedTech stocks that posted solid quarterly results are Varian Medical Systems VAR, AngioDynamics ANGO and CONMED Corporation CNMD.

Varian reported fiscal first-quarter adjusted EPS of $1.06, in line with the Zacks Consensus Estimate. Revenues of $741 million outpaced the consensus mark of $717.9 million. The stock has a Zacks Rank #2 (Buy).

AngioDynamics’ fiscal second-quarter adjusted EPS of 22 cents exceeded the Zacks Consensus Estimate by a penny. Revenues totaled $91.5 million, which surpassed the consensus estimate by 2.9%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CONMED delivered fourth-quarter adjusted EPS of 73 cents, in line with the Zacks Consensus Estimate. Revenues of $242.4 million beat the Zacks Consensus Estimate of $229.2 million. The stock carries a Zacks Rank of 2.

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