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Leading healthcare information technology (“HCIT”) solutions provider Cerner Corporation (CERN - Analyst Report) reported first-quarter 2013 adjusted earnings per share of 62 cents beating the Zacks Consensus Estimate of 59 cents and the year-ago earnings per share of 51 cents. Net income rose 24% year over year to $110 million (or 62 cents per share).

Revenues

Revenues for the first quarter rose 6.1% year over year to $680 million, missing the Zacks Consensus Estimate of $709 million. The growth in sales was lower than Cerner’s earlier assumptions due to reduced volume of tech resale, which carries a lower margin.

Support, maintenance and services rose 15.5% to $466.6 million in the reported quarter. This was partly offset by a fall in System sales, which was down 11.9% to $198.9 million. Revenues from Reimbursed Travel were up 26.8% to about $14.6 million.

Bookings and Revenue Backlog

Bookings amounted to $801.6 million, up 23% year over year and a record for the company in any first quarter. Total revenue backlog was $7.58 billion at the end of the first quarter, up 21% year over year, including $6.8 billion of contract backlog and $747.9 million of support and maintenance backlog. 

Margins

Gross margin for the quarter rose to 81.3% from 75.4% a year ago. Operating margin increased to 23% from 19.9% in the prior-year quarter.

Balance Sheet & Cash flow

Cerner ended the quarter with cash, cash equivalents and short-term investment of $1,005.2 million, down 3.1% on a sequential basis. Long-term debt and capital lease obligations dropped marginally 0.8% to $135.5 million sequentially.

Outlook

For the second quarter of 2013, the company forecasts sales in a band of $705 million and $735 million and earnings per share, before share based compensation expense, of 66 cents to 68 cents. Fresh bookings for the quarter are projected between $825 million and $875 million. Cerner projects stock-based compensation costs to dilute second quarter earnings by about 4 cents to 5 cents.

For 2013, the company continues to forecast sales in the region of $2,950 million and $3,050 million. Earnings per share, before share based compensation expense, are forecast in the range of $2.78 and $2.83 (earlier $2.75 and $2.82). Cerner projects stock-based compensation costs to dilute earnings by about 17 cents to 18 cents (earlier 16 cents to 17 cents).

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 Athenahealth (ATHN - Analyst Report) and Allscripts Healthcare Solutions, Inc. (MDRX - Analyst Report).

We currently have a Zacks Rank #3 (Hold) on the company. However, we are more positive about other stocks such as Merge Healthcare Incorporated (MRGE - Analyst Report) which carries a Zacks Rank #2 (Buy) and is expected to do well. 

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