Allscripts Healthcare Solutions, Inc. (MDRX - Analyst Report) posted adjusted earnings of 2 cents per share in the third quarter of 2014 which missed the Zacks Consensus Estimate by 3 cents. However, on a year-over-basis, earnings doubled from a penny reported in the last-year quarter.

Allscripts Healthcare Solutions, Inc - Earnings Surprise | FindTheBest

Quarter Details

Revenues (including deferred revenues) came in at $347.7 million, up 4% on a year-over-year basis. Revenues, however, fell shy of the Zacks Consensus Estimate of $354 million.

Revenues from System sales declined 18.5% year over year to $22 million owing to low levels of hardware sales during the quarter. Meanwhile, revenues from Professional services increased 8% to $55 million while the same from Transaction processing and other rose 11% to $154 million. Maintenance revenues were relatively flat with the year-ago level of approximately $118 million.

Bookings declined 5.5% year over year to $223 million. However, the year-ago quarter included a significant agreement for expanded software, services and managed services with PIH Health, which represented an excess of 50% of all bookings reported in the period. Excluding the effect of this material agreement, bookings increased approximately 16% year over year.

Bookings performance in the third quarter of 2014 was driven by new sales of Allscripts Sunrise electronic health record (“EHR") platform to new domestic and international clients, particularly in the U.K. Bookings were also driven by higher client demand for the company’s population health management solutions and managed information technology services offerings by healthcare systems, hospitals, and ambulatory markets.

Contract backlog continued to expand and grew to $3.4 billion as of Sep 30, 2014, from $3.3 billion as of Jun 30, 2014. System sales backlogs as well as transaction processing backlogs are up significantly on a year-over-year basis, while maintenance remains stable.

Adjusted gross margin fell 120 basis points (bps) year over year to 42%.

Adjusted operating margin expanded 190 bps to 3.7%, driven by lower operating expenses. The decline in operating expenses reflects initiatives to decrease corporate selling, general and administrative expenses as well as leverage from prior investments in research and development.

Allscripts Healthcare exited the third quarter with cash and cash equivalents of $37.3 million, down from $39.3 million as of Jun 30, 2014. Long-term debt (including capital lease obligations) stood at $587.2 million, higher than $558.8 million as of Jun 30, 2014.

Cash flow from operating activities decreased to $13.7 million from $17 million at the end of the previous quarter. In the first nine months of 2014, cash flow from operations totaled $52 million, which compared unfavorably with $63.3 million in the year-ago period.  

Our Take

Although Allscripts Healthcare’s earnings and revenues missed our estimates, the business continues to show progress as reflected by increased client bookings, addition of new clients globally and healthy demand for Allscripts solutions in primary end markets during the quarter. However, declining cash balance and higher debt levels continue to remain an overhang on the stock.

Currently, Allscripts Healthcare carries a Zacks Rank #3 (Hold). Better-ranked stocks include Merge Healthcare (MRGE - Analyst Report) in the medical information systems industry and GW Pharmaceuticals (GWPH - Snapshot Report) and Abaxis (ABAX - Analyst Report) in the medical products industry. While GW Pharmaceuticals sports a Zacks Rank #1 (Strong Buy), both Merge Healthcare and Abaxis carry a Zacks Rank #2 (Buy).

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