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Virtual Radiologic provides "teleradiology" services to radiology practices and hospitals throughout the U.S. that need to outsource the review of diagnostic images.
The business has been aided by a nationwide shortage of radiologists, but the second-quarter results were hurt because two large customers were able to hire additional radiologists and take in-house business that previously was directed to Virtual Radiologic.
Other customers have reduced their hours of outsourcing, wrote Shelley Gnall, an analyst with Goldman Sachs in a note to investors, while the company suffered from increased pricing pressure during the quarter, as well.
Before Monday's earnings release, which came after the market's close, the company had projected full-year revenue of $115 million to $120 million and adjusted earnings per share for the year between 80 cents and 87 cents. But Virtual Radiologic now projects revenue of $108 million to $111 million, and adjusted earnings per share between 70 cents and 74 cents.
The adjusted earnings projections exclude the impact of noncash stock compensation for employees and radiologists.
Ryan Daniels, an analyst with William Blair & Co. in Chicago, wrote in a note to investors Monday that the reduction in earnings-per-share guidance wasn't as
bad as it looked because it stemmed from nonoperational issues such as estimates for the tax rate and interest income.
"While the company's updated guidance is certainly disappointing, it is not nearly as bad as it appears on the surface," Daniels wrote.
For the quarter that ended June 30, Virtual Radiologic reported revenue of $25.9 million, up 22 percent from the year-ago quarter. Adjusted net income was $2.2 million for the quarter, compared with $1.3 million a year ago.
The revenue and earnings results fell short of analyst estimates for the quarter.
As of June 30, Virtual Radiologic had about 263 employees, the vast majority in offices in Minnetonka and Eden Prairie. At the time, the company also had contracts with 145 affiliated radiologists.
Virtual Radiologic had an initial public offering of stock in November, trading at $17 per share. As recently as Friday, shares of the company's stock closed at $14.95.
On Tuesday, the stock closed at $9.24 -- off $3.17, or 25 percent.
Christopher Snowbeck can be reached at 651-228-5479.
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