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Medidata (MDSO) Q4 Earnings Top, Revenues Miss, Up Y/Y

Medidata Solutions Inc.MDSO reported fourth-quarter 2015 earnings of 16 cents (including stock-based compensation) per share which managed to beat the Zacks Consensus Estimate of 12 cents. Adjusted earnings increased by a penny from the year-ago quarter.

Revenues increased almost 10.8% year over year to $98.9 million but fell short of the Zacks Consensus Estimate of $105 million.

Meanwhile, the year-over-year upside in revenues was primarily driven by increased subscription revenues (up 11.8% to $84.6 million). Meanwhile, revenues from professional services increased 5.6% year over year to $14.2 million.

Revenues in 2015 increased 17.1% on a year-over-year basis to $392.5 million.

Medidata sealed two enterprise platform deals in the quarter under review¬ - Celgene and Boehringer Ingelheim. This reflects the continuing uptake of the company's products and solutions.

Medidata added 59 new clients in the fourth quarter, adding up to 201 in 2015. The company's client base increased 26% to 611 at the end of 2015. Per management, 67% of customers subscribed to multiple Medidata products at the end of the year (up 58%).

Medidata reported total billings of $110 million in the fourth quarter (up 17% on a year-over-year basis). As of Dec 31, 2015, adjusted subscription backlog amounted to $334 million, as compared to $280 million in the previous year.

Medidata's overall revenue retention rate in 2015 stood at 99, while the same for the company's large enterprise customers remained steady at 100% over the last few years.

Gross profit increased 14.8% on a year-over-year basis to almost $77 million in the fourth quarter of 2015. Also, gross margin expanded 260 basis points (bps) year over year to 77.8%. The impressive upside is primarily due to a greater mix of subscription revenue, which is usually higher margin.

Adjusted operating margin (including stock-based compensation) contracted 150 bps to 12.7%, mainly because of higher operating costs and expenses (up 16%).

Guidance

Medidata expects revenues in 2016 between $450 million and $474 million, which reflect year-over-year growth of 21% at constant currency.

Professional services revenues are expected to be roughly $60 million.

Adjusted operating income is forecasted in the range of $102-$109 million. Reported net income is likely to lie in the band of $16.5-$21 million.

In 2016, gross margins are expected to increase 50 bps on a year-over-year basis. Management expects to invest substantially in research and development as well as sales and marketing.

Our Take

Growing adoption of products like Medidata Rave, Medidata Coder, Medidata Balance and Medidata's Risk-Based Monitoring (RBM) solutions is likely to drive revenues. However, rising operating expenses is a potent headwind.

Zacks Rank and Key Picks

Currently, Medidata has a Zacks Rank #3 (Hold). Better-ranked stocks in the medical sector are Abiomed ABMD , Exactech EXAC and Luminex LMNX . All the stocks sport a Zacks Rank #1 (Strong Buy).

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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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