Leading health care information technology (HCIT) solutions provider Cerner Corp. (CERN) reported third quarter earnings per share of 71 cents, edging past the Zacks Consensus Estimate by a penny and exceeding the year-ago earnings of 57 cents. Net income sailed 25.8% year over year to $60.9 million, driven by higher revenues and healthy booking growth.

Revenues

Revenues leapt 13% year over year to $462.7 million, but fell short of the Zacks Consensus Estimate of $466 million. Sales were driven by incremental revenues across all segments. System sales rose 13% to $133.4 million, driven by healthy license software and hardware sales. Revenues from Support, Maintenance and Services climbed 13% to $321.3 million while Reimbursed Travel sales grew 15% to roughly $8 million.

Bookings

The federal Stimulus package continues to drive bookings which grew 17% year over year to $495.7 million. Bookings from new footprints were strong in the quarter. The U.S. was the principal driver of booking growth as international markets continue to be pressed by a soft economy.

Optimism about the growth prospects of HCIT service providers has improved under the Obama Administration, which passed the Stimulus package in May 2009, aimed at increasing the use of electronic health record (EHR) systems by medical practitioners. Moreover, the “meaningful use” rule that enables hospitals to qualify for the federal incentive program will boost business opportunities for Cerner in the long run.

Margins

Gross margin dipped 10 basis points (bps) year over year to 82.9% in the quarter, attributable to lower system sales margin (resulting from weak hardware and sub-licensed software margins). Operating margin (excluding stock-based compensation) came in at 21.7%, up 330 bps year over year. 

Balance Sheet & Cash Flow

Cerner ended the quarter with a healthy balance sheet. Cash, cash equivalents and short-term investment increased 30% year over year to $565 million while total debt declined 17% year over year to $119 million. The company posted record cash flows from operation in the quarter, which surged 62% year over year to $119 million. This has led to a robust growth in free cash flows, which nearly tripled year over year to $79.1 million (also a record).

Outlook

Cerner anticipates fourth quarter fiscal 2010 revenues in the range of $490 million and $510 million and adjusted earnings between 80 cents to 85 cents per share. New business bookings for the quarter are expected between $490 million and $530 million. Cerner expects stock-based compensation costs to dilute fourth quarter earnings by roughly 5 cents. The current Zacks Consensus Estimates for fourth quarter revenue and EPS are $506 million and 78 cents, respectively.

Missouri-based Cerner is a leading supplier of HCIT solutions, serving both hospitals and health care providers primarily in the U.S. These solutions, which can be implemented as standalone, combined, or enterprise-wide systems, are created to provide clinical, financial and information management tools for the health care marketplace.

 
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