Cerner Corp. (CERN), a leading provider of healthcare information technology (HCIT) services, announced better-than-expected second-quarter results with adjusted earnings per share of 69 cents, topping the Zacks Consensus Estimate of 64 cents and the year-ago earnings of 55 cents.

Adjusted earnings exclude stock-based compensation expenses of $3.6 million (or 4 cents per share). Net income soared 27% year-over-year to $55.5 million (or 65 cents a share). The results were driven by higher revenues and healthy booking growth.

Revenues

Revenues climbed 13% year-over-year to $456 million, beating the Zacks Consensus Estimate of $450 million, on the back of incremental revenues across all segments. System sales rose 19% to $135.9 million, driven by healthy license software sales which more than offset depressed hardware revenues. Revenues from Support, Maintenance and Services leapt 11% to $311.6 million while Reimbursed Travel sales grew roughly 6% to $8.5 million.

Bookings

New client additions and the federal Stimulus package drove bookings in the quarter, which grew 19% year-over-year to $467.8 million. Bookings from new footprints, which include several hospitals, were strong in the quarter.

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. The recently released “meaningful use” rule that enables hospitals to qualify for federal incentive program will boost business opportunities for Cerner in the long-run.

Margins

Gross margin dipped 60 basis points (bps) year-over-year to 82.8% in the quarter, attributable to lower system sales margin (resulting from weak hardware margins). Operating margin (excluding stock-based compensation) came in at 20.2%, up 290 bps year-over-year.

Balance Sheet & Cash Flow
 
Cerner ended first-half fiscal 2010 with cash and cash equivalents of $255.8 million, down 28% year-over-year. Total debt declined 22% year-over-year to $116.3 million. The company posted record cash flows from operation in the quarter which surged 62% year-over-year to $110.2 million. This has led to solid growth in free cash flows, which more than doubled year-over-year to $65.6 million.

Outlook
 
Cerner expects third quarter revenues between $455 million and $470 million and adjusted earnings in the range of 71 cents to 76 cents per share. New business booking for the quarter is expected between $450 million and $480 million.

The company has lifted its revenues and earnings guidance for fiscal 2010. It now anticipates revenues in the range of $1.83 billion and $1.875 billion, up from the earlier projection of $1.80 billion to $1.875 billion. Likewise, adjusted earnings guidance has been raised to $2.85 – $2.92 from $2.80 – $2.90. 

Cerner expects stock-based compensation costs to dilute third quarter and fiscal 2010 earnings by roughly 4 cents to 5 cents and 17 cents to 18 cents, respectively. The company remains confident of achieving its full year operating margin target of 20%.

Missouri-based Cerner is a leader in HCIT solutions, serving hospitals and healthcare 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 healthcare marketplace.
 
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