Shares of MedAssets Inc. MDAS have gained 9.4% ever since it announced second-quarter 2015 results on Jul 29. In fact, the company’s better-than-expected performance and upbeat outlook helped this Zacks Rank #1 (Strong Buy) stock to gather enough momentum to hit a 52-week high of $23.90 on the following day.
This provider of technology-enabled products and services for hospitals and health systems reported adjusted earnings per share of 25 cents (including stock-based compensation expense) in the second quarter of 2015, beating the Zacks Consensus Estimate of 22 cents on the back of strong top-line growth. Notably, this marked the fourth straight quarter of positive earnings surprise at MedAssets. In the trailing four quarters, the company has outperformed the Zacks Consensus Estimate by an average of 7.7%.
However, earnings in the reported quarter remained flat on a year-over-year basis.
Where the Top Line is Trending?
Revenues increased 8.6% on a year-over-year basis to $190.4 million and steered past the Zacks Consensus Estimate of $187 million. On a sequential basis, revenues increased 2.6%. Moreover, this was the fourth consecutive quarter wherein revenues outpaced the Zacks Consensus Estimate.
Excluding Sg2 revenues, which the company acquired in Sep 2014, MedAssets generated revenue growth of 1.8% in the reported quarter.
Spend and Clinical Resource Management (SCM) revenues increased 13.2% on a year-over-year basis to $119.9 million, while the same from Revenue Cycle Management (RCM) grew 1.4% to $70.5 million.
Costs & Margins
Operating expenses spiked 9% on a year-over-year basis to $166.9 million, primarily owing to 12.2% and 15.1% growth in product development and selling & marketing expenses, respectively. Cost of revenue increased 16.8% on a year-over-year basis to $47.1 million.
Adjusted EBITDA (including stock-based compensation expense) stood at $53.7 million in the second quarter compared with $48.7 million in the year-ago quarter. The upside may be attributed to increase in revenues as well as better operating efficiency witnessed in revenue cycle services.
Adjusted EBITDA margin expanded 40 basis points (bps) on a year-over-year basis to 28.2%.
Financial Position
Cash and cash equivalents were $10.3 million as of Jun 30, 2015, compared with $19 million at the end of the previous quarter. In the first six months of 2015, cash provided by operating activities amounted to $81.2 million, as against $50.8 million in the same time frame, last year. Meanwhile, during the second quarter of 2015, MedAssets repurchased 415, 000 shares.
In the first six months of 2015, free cash flow more than doubled to $58.3 million on a year-over-year basis. The upside was primarily caused by improved working capital.
Guidance
For 2015, adjusted EPS is expected in the range of $1.20 to $1.26, compared with the earlier projection of $1.13–$1.23. The projected figure reflects a decline of 11.1% to 6.7% on a year-over-year basis.
Net revenue is projected in the range of $756–768 million, compared with the earlier forecast of $753–$767 million. The projected figure reflects an increase of 5% to 6.6% on a year-over-year basis.
SCM revenues are estimated in the range of $479–487 million, compared with the earlier guided $488 million to $496 million. The projected figure reflects an increase of 7.5% to 9.3% on a year-over-year basis. RCM revenues are expected in the band of $276–$282 million, compared with the previous guidance of $264–$272 million. The projection reflects an increase of 0.5% to 2.7% on a year-over-year basis.
Adjusted EBITDA expectation lies in the range of $232–$238 million, compared with the previous guidance of $227–237 million. The projected figure reflects a decline of 0.9% to an increase of 1.7% on a year-over-year basis.
MedAssets continues to expect performance related fees in the range of $22–$26 million for the current year.
Other Stocks
Other well-placed stocks in the medical sector include Agios Pharmaceuticals AGIO, NuVasive NUVA and Abaxis ABAX. All the stocks sport a Zacks Rank #1.
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