Medidata (MDSO) Tops Q2 Earnings & Revenues, Shares Up

Shares of Medidata Solutions (NASDAQ:MDSO) rallied 14.7% to close at $53.58 on Jul 20, after the company reported impressive second-quarter 2016 results. Adjusted earnings of 13 cents per sharesurged 99.7% from the year-ago quarter and beat the Zacks Consensus Estimate by 4 cents.

Medidata reported sales of $114.6 million, which also beat the Zacks Consensus Estimate of $113 million and increased 16.8% on a year-over-year basis.

Segment Details

Medidata reported impressive subscription revenue of $96.8 million, an increase of 15% from the year-ago quarter. Professional services revenues were a record $17.9 million, an increase of 26% from the same quarter last year.

Multiproduct adoption has also been a major factor behind the stellar performance of the company. The company recorded massive growth of 75% (year over year) on the basis of the total number of products adopted by its customers. Uptake of products like Medidata Rave, Image Management, Risk-Based Monitoring, Medidata Balance, Medidata CTMS and Medidata Patient Cloud was particularly strong.

Notably, the core business units of the company like Balance and CTMS continue to gain market share, accompanied by the introduction of new technologies. CSA and OPAL are the major application products of the company that gained significant customer attention.

Strong growth was driven by Medidata’s huge client base as it recorded addition of 96 new clients in the quarter. Notably, the company’s client base grew to 711 at the end of the second quarter, up 32% year over year.

Margin Details

Adjusted gross margin contracted 200 basis points (bps) to 74.6% in the quarter. The impressive upside is primarily due to a greater mix of subscription revenue, which is usually higher margin.

Notably, operating expenses as percentage of revenues decreased 660 bps to 64.9%. The decline was primarily attributed to lower general & administrative (G&A), sales & marketing (S&M) expenses, which declined 620 bps and 210 bps, respectively.

As a result, operating margin expanded 460 bps on a year-over-year basis to 9.7%.

Guidance

Medidata reaffirmed its full-year guidance. The company expects total revenue between $450.0 and $474.0 million at constant currency. For the full year, professional services revenues are likely to be in the band of $68 million to $70 million.

Non-GAAP operating income is expected in the range of $102.0 and $109.0 million. Overall gross margin for the full year is anticipated to be in line with the year-to-date second quarter figure.

Our Take

Growing adoption of products like Medidata Payment solutions, Medidata Rave, Medidata Balance and Medidata’s Risk-Based Monitoring (RBM) solutions is likely to drive revenues. The professional services and subscription revenues are also well propellant in enhancing the growth opportunities of the company. However, rising operating expenses is a potent headwind.

Zacks Rank and Key Picks

Currently, Medidata carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the medical space are Foundation Medicine Inc (NASDAQ:FMI) , Omnicell Inc (NASDAQ:OMCL) and Quality Systems Inc. (NASDAQ:QSII) . All the stocks sport a Zacks Rank #1 (Strong Buy).