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Change Healthcare (CHNG) Q3 Earnings Top Estimates, Down Y/Y

Zacks Equity Research

Change Healthcare Inc. CHNG reported third-quarter fiscal 2020 adjusted earnings per share of 33 cents, which beat the Zacks Consensus Estimate by 10%. However, the bottom line declined 13.2% year over year.

Revenues decreased 1.7% to $808.2 million in the reported quarter. The top line also missed the Zacks Consensus Estimate by 0.9%.

Segmental Analysis

Change Healthcare operates through three segments — Software and Analytics, Network Solutions and Technology-Enabled Services.

Software and Analytics

Revenues at this segment totaled $387.3 million, improving 0.5% on a year-over-year basis.

Network Solutions

Revenues at this segment came in at $150.7 million, up 5% year over year.

Technology-Enabled Services

Revenues at this segment came in at $241.5 million, down 5.9% year over year.

Change Healthcare Inc. Price, Consensus and EPS Surprise

 

Change Healthcare Inc. Price, Consensus and EPS Surprise

Change Healthcare Inc. price-consensus-eps-surprise-chart | Change Healthcare Inc. Quote

Margin Analysis

In the quarter under review, Change Healthcare reported operating income of $76 million against year-ago quarter’s operating loss of $126 million.

Financial Position

As of Dec 31, 2019, cash and cash equivalents amounted to $74.2 million, up 1.6% sequentially.

Cumulative cash flow from operating activities at the end of the third-quarter fiscal 2020 came in at $400.9 million, compared with $248.8 million in the year-ago quarter.

Guidance

For fourth-quarter fiscal 2020, the company projects Solutions revenues between $775 million and $785 million. Adjusted EBITDA is estimated to be in the range of $260-$270 million while adjusted net income is expected in the band of $115-$125 million.

For full year fiscal 2020, the company continues to anticipate revenue growth between 1% and 2%. This projected range excludes revenues from the sale of its extended care business in fiscal year 2019 and also the effect of planned contract exits.

Moreover, adjusted EBITDA growth is expected in the range of 6-8% for full-year fiscal 2020, while adjusted net income is estimated in the band of 9-11%.

For full year fiscal 2021, the company continues to expect Solutions revenue growth of 4% to 6%. Adjusted EBITDA is estimated to grow in the range of 6-8%.

Wrapping Up
 
Change Healthcare exited the third-quarter fiscal 2020 on a mixed note, wherein earnings beat the Zacks Consensus Estimate while revenues missed the same. Solid performance across the segments – Software and Analytics and Network Solutions was witnessed in the quarter. Strong guidance also instills investor optimism in the stock.
 
During the quarter under review, the company introduced Provider-Payer Data Exchange Solution, which is touted as the industry’s first nationwide solution that will help providers submit documents and data electronically to all payers in both the Medical and Workers’ Compensation market segments. Further, the company’s InterQual Connect Medical Review Service and InterQual AutoReview were integrated into Cerner’s Acute Case Management (ACM) solution and electronic health record (EHR). Driven by the efficient workflow offered by such capabilities, Cerner’s clients are likely to help case managers in prioritizing patients’ needs more efficiently.

Apart from this, the company launched API & Services Connection, which is a marketplace for open, standards-based application programming interface (API) products powered by the AWS Marketplace. This marketplace will enable any healthcare organization to leverage the same capabilities, which power the company's industry-leading healthcare financial, clinical, and engagement solutions. Additionally, Change Healthcare announced four leading providers as development partners to create and implement its cloud-native Enterprise Imaging Network on the Google Cloud Platform.

These developments have impacted the company’s overall performance and are likely to accelerate its growth in the near term.

Meanwhile, cut-throat competition continues to remain a concern. Also, decline in revenues on a year-over-year basis is a woe.
 
Zacks Rank

 
Currently, Change Healthcare carries a Zacks Rank of 2 (Buy).

Earnings of Other MedTech Majors at a Glance

Some other top-ranked stocks which reported solid results this earning season are Stryker Corporation SYK, Accuray Incorporated ARAY and IDEXX Laboratories, Inc. IDXX. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker delivered fourth-quarter 2019 adjusted EPS of $2.49, outpacing the Zacks Consensus Estimate by 1.2%. Fourth-quarter reported revenues of $4.13 billion surpassed the Zacks Consensus Estimate by 0.7%. The company carries a Zacks Rank #2.

Accuray reported third-quarter fiscal 2020 adjusted earnings per share (EPS) of a penny, beating the Zacks Consensus Estimate of a loss of 7 cents. Net revenues of $98.8 million outpaced the Zacks Consensus Estimate by 0.3%. The company sports a Zacks Rank #1.

IDEXX Laboratories reported fourth-quarter 2019 adjusted EPS of $1.04, which beat the Zacks Consensus Estimate of 91 cents by 14.3%. Revenues were $605.4 million, surpassing the Zacks Consensus Estimate by 0.9%. The company carries a Zacks Rank of 2.

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