Leading healthcare information technology ("HCIT") solutions
) reported second-quarter 2013 earnings per share of 32 cents, up
14.3%. Results met the Zacks Consensus Estimate of 32 cents. Net
income rose 15.4% year over year to $112.9 million.
Revenues in the second quarter rose 11.0% year over year to
$707.6 million. However, it missed the Zacks Consensus Estimate
of $724 million. The sales growth was at the lower end of
Cerner's earlier assumptions due to reduced volume of tech
resale, which carries a lower margin.
Support, maintenance and services rose 14.2% to $486.6 million in
the reported quarter. On a positive note, System sales inched up
2.7% to $200.5 million. Revenues from Reimbursed Travel were up
27.5% to about $20.4 million.
Bookings and Revenue Backlog
Bookings rose 33% year over year to $935.0 million, a record high
for the company in any second quarter. Total revenue backlog was
$8.00 billion at the end of the second quarter, up 23% year over
year, including $7.24 billion of contract backlog and $756.9
million of support and maintenance backlog.
Gross margin in the quarter soared 530 basis points (bps) from
the year-ago quarter to 82.2%. Operating margin also increased
210 bps to 23.5% in the quarter.
Balance Sheet & Cash flow
Cerner ended the quarter with cash, cash equivalents and
short-term investment of $969.5 million compared with $1,036.8
million at the end of 2012. Cash flow from operations was $176.5
million and free cash flow was $47.4 million. Long-term debt and
capital lease obligations was $133.0 million, down from $136.6
million at the end of 2012.
For the third quarter of 2013, the company forecasts sales in a
band of $740 million and $770 million. The Zacks Consensus
Estimate of $770 million lies at the high-end of the guided
range. Fresh bookings for the quarter are projected between $875
million and $925 million. Earnings per share, before share based
compensation expense, are expected in the range of 35 cents to 36
cents. Cerner projects stock-based compensation costs to dilute
second quarter earnings by about 2 cents to 3 cents. The earnings
Zacks Consensus Estimate for the third quarter are pegged at 33
For 2013, the company continues to forecast sales in the region
of $2,950 million and $3,050 million. The Zacks Consensus
Estimate of $2,995 million lies within the guided range. Earnings
per share, before share based compensation expense, are forecast
in the range of $1.40 and $1.42 (earlier $1.39 and $1.42). Cerner
projects stock-based compensation costs to dilute earnings by
about 8 cents to 9 cents. The earnings Zacks Consensus Estimate
is pegged for 2013 at $1.32.
We remain on the sideline given the mixed second-quarter results
posted by Cerner. Although revenues missed the mark, a turnaround
in System sales is encouraging. We are impressed with the record
bookings, and significant improvement in margins along with
stronger bottom-line guidance in the reported quarter.
We believe long-term investors may consider Cerner, which serves
a sizeable installed hospital base that requires composite
clinically-oriented applications complying with "meaningful use"
needs, reimbursement difficulties and coding challenges. The
company has long-standing, integrated and seamless solutions for
both inpatient and ambulatory settings.
While fresh projects are shrinking in number, the replacement
market is growing. Cerner faces stiff competition from
established HCIT players, such as
Allscripts Healthcare Solutions
We currently have a Zacks Rank #3 (Hold) on the company. However,
we are more positive about other stocks such as
), which carries a Zacks Rank #1 (Strong Buy) is expected to do
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