Cerner Corporation (CERN) posted an 11.4% year-over-year rise in earnings per share to 39 cents for the third quarter of 2014 from 35 cents in the comparable quarter of 2013 and met the Zacks Consensus Estimate. Net earnings rose 12.0% to $134.9 million from $123.6 million in the third quarter of 2013.
Revenues
Revenues in the quarter grew 15.4% to $840.1 million but missed the Zacks Consensus Estimate of $852 million. The increase can be attributed to stronger revenues from all the businesses.
Revenues from System sales rose 10.7% to $224.3 million, Support, maintenance and services went up 16.6% to $593.1 million, and Reimbursed Travel escalated 36.3% to $22.7 million.
Third quarter days sales outstanding were 67 days, up from 66 days in the comparable quarter of 2013.
Bookings
Bookings revenues grew 19% to all-time high of $1.1 billion. Cerner’s bookings performance led to a 21% increase in total backlog to $10.2 billion. Total backlog comprised of $9.34 billion in contract revenue backlog and $814.0 million in support and maintenance backlog.
Financial Status
Cerner had cash and cash equivalents of $496.5 million as of Sep 27, 2014, more than doubled from $202.3 million as of Dec 28, 2013. Total long-term debt and capital lease obligations declined 11.5% to $146.8 million as of Sep 27, 2014 compared with $165.8 million as of Dec 28, 2013.
In the first nine months of the year, cash flow from operating activities improved 12.5% to $623.6 million from $554.4 million in the same period of 2013. Capital expenditure slid 8.3% to $200.4 million compared with $218.4 million in the year-ago period. As a result, free cash flow rose 39.2% to $292.4 million from $210.0 million in the 2013-period.
Outlook
For the fourth quarter of 2014, Cerner anticipates revenues between $880 and $915 million. Adjusted earnings are expected between 46 and 47 cents per share. These compared with the Zacks Consensus Estimates of $905 million 43 cents for revenues and earnings per share, respectively for the quarter.
The leading healthcare information technology (“HCIT”) solutions provider also expects 2014-fourth quarter new business bookings between $1.15 and $1.25 billion.
Our Take
Currently, Cerner retains a Zacks Rank #3 (Hold). 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.
However, competition is fierce with well reputed names such as Allscripts Healthcare Solutions (MDRX), athenahealth (ATHN), Quality Systems (QSII). The intensity of competition may pressure both pricing and margin. Stringent hospital budgets place further pressure on pricing.
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