Allscripts Healthcare Solutions ( MDRX - Analyst Report ) , a leading player in the health care information technology (HCIT) market, reported third quarter adjusted (excluding one-time items other than stock-based compensation expense) earnings per share of 19 cents, beating the Zacks Consensus Estimate by a penny.

Reported net income dipped 50.8% year over year to $9.4 million in the quarter (or 5 cents per share).

Revenues

Revenues were $360.7 million, down 0.8% year over year in the third quarter, trailing the Zacks Consensus Estimate of $376 million. Adjusted revenues came in at $361 million, down 1.4% on a year-over-year basis.

Backlog was $2.83 billion in the third quarter. Allscripts inked one new Sunrise Clinical Manager agreement in the quarter and also expanded its footprint with other clients.

Bookings in the quarter were $161.9 million, a decrease of 39.3%. Year-over-year decline in bookings was caused by delay in purchase decisions as consumers awaited product launches. Another issue was uncertainty regarding the company’s future autonomy.

Segment-wise Data

Total revenues consisted of System Sales ($35.2 million), Professional Services ($62.7 million), Maintenance ($119.3 million) and Transaction Processing ($143.5 million), which constituted 9.8%, 17.4%, 33.1% and 39.8% respectively, of total revenues in the third quarter.

Margin

Adjusted gross margin decreased to 43.6% of sales in the reported quarter, lower than 44.9% in the prior-year quarter. Selling, general and administrative expenses were $90.4 million, down almost 2% year over year while research and development expenditure came to $37.8 million, up 45.4%. Adjusted operating margin was 13.8% of sales, lower than 19.7% in the year-ago quarter.

Balance Sheet

Allscripts exited the third quarter with cash and cash equivalents of $93.7 million, up 10.5% on a year-over-year basis. The company had long term debt of $386.8 million, up 14.6%. Cash flow from operations was $31.1 million, down 25.8%.

Outlook

Allscripts retracted its guidance for 2012 as the Board assesses strategic alternatives due to the considerable interest expressed by third parties. The stock climbed 6.85% in after-hours trading to close at $13.10 on November 8.

The health care information technology market is competitive and price sensitive. Among others, Allscripts faces strong competition from Cerner Corp. ( CERN - Analyst Report ) , Quality Systems ( QSII - Analyst Report ) and Athenahealth ( ATHN - Analyst Report ) .

However, optimism about the growth prospects of select HCIT service providers remains high under the Obama administration, which passed a Stimulus package in May 2009. The Stimulus package was aimed at increasing the use of electronic health record (EHR) systems by medical practitioners.

As a potential takeover target, Allscripts presents a lucrative opportunity for firms seeking entry into the HCIT industry. It has a wide user base and enjoys many greenfield opportunities vis-à-vis its peers. Its mergers with Misys and Eclipsys has expanded opportunities and reach in practice management (PM) and in electronic health record (EHR) markets substantially with increased cross-selling opportunities. We believe that Allscripts is well positioned in the fast growing business of selling EHR/EMR to physician practices as well as inpatient settings.

We have a long-term ‘Neutral’ recommendation on Allscripts. The stock carries a Zacks #4 Rank, which translates into a short-term Sell rating.