CERN Cerner Corporation

Leading healthcare information technology (“HCIT”) solutions provider Cerner Corp (CERN) reported first quarter fiscal 2011 earnings per share of 75 cents, beating the Zacks Consensus Estimate of 72 cents and exceeding the year-ago earnings of 59 cents per share. Net income surged 28.4% year over year to $64.6 million due to solid bookings.

Revenues

Revenues for the first quarter rose 14% year over year to $491.7 million, and beat the Zacks Consensus Estimate of $486 million. Higher revenue from Support, Maintenance and Services (up 11.1% to $341 million) was supported by growth in System sales (up 20% to $140.4 million). Revenues from Reimbursed Travel climbed 40.2% to roughly $10.3 million.

Bookings and Revenue Backlog

Bookings came in at $524.9 million, up 30% year over year. Total revenue backlog was $5.13 billion at the end of the reported quarter, up 19% year over year, comprising $4.46 billion of contract backlog and $665.7 million of support and maintenance backlog. 

Margins

Gross margin for the quarter fell to 81.6% from 84.2% a year ago on account of lower system sales margin, among other factors. Operating margin improved to 19.1% from 17.5% in the earlier year quarter.

Balance Sheet & Cash flow

Cerner ended the quarter with cash, cash equivalents and short-term investment of $610.9 million, virtually flat on a year-over-year basis. Total debt declined 18.2% year-over-year to roughly $74.3 million.

Cash flow from operation for the first quarter was $126.5 million (up 19.9%). Free cash flows catapulted 60.1% year over year to a record $84.7 million.

Outlook

Cerner has raised its financial forecasts for fiscal 2011. The company now expects revenues in a higher band of $2.07 billion to $2.12 billion (earlier $2.05 billion to $2.10 billion) and adjusted earnings per share between $3.55 and $3.62 (earlier $3.50 to $3.60) for the year.

For the second quarter, it anticipates revenues in a range of $505 million to $520 million and adjusted earnings per share, before share based compensation expense, of 83 cents to 87 cents. New business bookings for the quarter have been projected between $540 million and $570 million.

Cerner expects stock-based compensation costs to dilute second quarter and full year earnings by roughly 5 to 6 cents and 21 to 23 cents, respectively. The current Zacks Consensus Estimate for the second quarter earnings per share is 80 cents while that for the whole year is $3.38.

Missouri-based Cerner is a leader in HCIT solutions, serving hospitals and health care providers, primarily in the U.S. Its 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. Cerner competes with Allscripts Healthcare Solutions (MDRX) among others.

Cerner is well placed to benefit from higher HCIT spending levels as it already enjoys a large customer base and a broad product offering. Its international operations help provide a more diversified revenue stream. Cerner boasts of a large installed hospital base that requires more integrated clinically-focused applications complying with “meaningful use” requirements, reimbursement challenges and complex coding requirements. Of late, the company has targeted smaller hospitals as clients.  

 
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