MDAS Loses Despite Earnings Beat - Analyst Blog

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Shares of MedAsets, Inc. ( MDAS ) have demonstrated a declining trend following the Oct 30 release of its third-quarter 2013 results and a weak outlook for the rest of the year. The company's adjusted earnings of 27 cents per share declined 6.9% from 29 cents per share reported in the year-ago period. However, adjusted earnings beat the Zacks Consensus Estimate by a penny.

On a reported basis, net earnings surged 26.3% to $6.9 million or 11 cents per share, from $5.5 million or 9 cents in the year-ago period.

Revenues in the quarter inched up 1.8% to $166.4 million but slightly missed the Zacks Consensus Estimate of $167 million. Revenues from the Spend and Clinical Resource Mgmt (SCM) segment grew 4.2% to $103.2 million. The year-over-year growth was driven by higher consulting and other service fees as well as group purchasing net administrative fees, partially offset by a drop in performance-related fees.

On the other hand, revenues from the smaller Revenue Cycle Management (RCM) segment declined 1.8% to $63.1 million due to 15.8% fall in service-related revenues, partially offset by 5.3% gain in technology-related revenues.

Adjusted selling and marketing expenses dipped 6.1% to $11.9 million, while adjusted general and administrative charges increased 6.2% to $56.7 million. MDAS' adjusted operating margin was 36.3% in the third quarter, 255 basis points lower than the year-ago figure of 38.8%.

Balance Sheet

MedAssets exited the third quarter of 2013 with nil cash and cash equivalents against $9.8 million at the end of 2012. As of Sep 30, 2013, the company's balance sheet included $793.4 million in total bank and bond debt, net of cash and cash equivalents.

Cash provided by operating activities in the first nine months of 2013 was $109.8 million versus $13.7 million at the end of 2012. Adjusted free cash flow (operating cash flow less purchases of property, equipment and software and capitalized software development costs) declined 2.3% to $63.4 million for the first nine months of 2013 versus $64.9 million generated in the year-ago comparable period.


MDAS tweaked its guidance for 2013, as management expects performance-related fees to decline further and also incur higher expenses related to IT, infrastructure and other related investments in the fourth quarter. The company has reduced expected sales for the full year to the band of $671.0-$677.0 million from $673.0-$683.0 million guided earlier. The Zacks Consensus Estimate for 2013 revenues of $676 million lies within the guided range.

The decline is mainly on account of soft revenue anticipation from the RCM segment, which is now expected in the range of $253.0-$257.0 million compared to the earlier guidance of $255.0.0-$261.0 million. However, on a positive note, management raised its outlook for the SCM segment to $417.0-$421.0 million from the earlier guided range of $416.0-$424.0 million.

Reported net earnings are forecast in the range of 39 cents to 43 cents versus the earlier guidance of 38 cents to 44 cents. Adjusted earnings are now anticipated in the range of $1.27 to $1.31, narrower than the earlier guided range of $1.26 to $1.32 for the year. The Zacks Consensus Estimate for 2013 adjusted earnings of $1.15 lies below the guided range.

Our Take

We remain on the sidelines regarding the mixed third-quarter results posted by MedAssets. Although the company's bottom line beat the Zacks Consensus Estimate, management's bleak outlook for the rest of the year raises concerns regarding the company's future performance. Moreover, higher expenses are likely to keep margins under pressure going forward.

Shares of this provider of web-based workflow technology for the healthcare industry have been declining ever since it reported its third quarter results. Following the earnings release, shares dropped a whopping 13.6% to close at $22.52 on Nov 1.

MDAS currently has a Zacks Rank #3 (Hold). While we choose to remain on the sidelines regarding the future trend of this company, other stocks from the medical services industry include Charles River Laboratories International, Inc. ( CRL ), Covance Inc. ( CVD ) and ICON Public Limited Company ( ICLR ). All these stocks carry a Zacks Rank #2 (Buy).

CHARLES RVR LAB (CRL): Free Stock Analysis Report

COVANCE INC (CVD): Free Stock Analysis Report

ICON PLC (ICLR): Free Stock Analysis Report

MEDASSETS INC (MDAS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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