3Q Results 2014

Cerner released third quarter results a few days back. Just as a refresher here is a copy paste from the about section on their website.

"At Cerner, we're continuously building on our foundation of intelligent solutions for the health care industry. Our technologies connect people and systems at more than 14,000 facilities worldwide, and our wide range of services support the clinical, financial and operational needs of organizations of every size.

By designing leading-edge health information technology, we offer strategies that empower organizations to know, manage and engage their populations. Our applications are developed with physicians in mind so they can focus on people, not technology. And providers can manage their day-to-day revenue functions with our integrated clinical and financial systems. These helpful tools are designed to work for today and think for tomorrow."

I like their catch line, "Health care is too important to stay the same."

The results were received well, the share has just crested an all time high reached in February of this year. Because this company sells software and has gross margins of 83.3% it attracts a very high multiple and trades quite closely to the likes of Facebook, Netflix or Tesla. Basically it is a revolutionary business with high expectations.

Ok let's delve into the numbers. Bookings for the quarter came in 19% higher than the previous year at $1.1bn. This represents sales to future locked in clients. Third quarter revenues came in at $840 million which showed an increase of 15%. Revenues are broken up into 2 segments. System sales accounted for $224 million while Support, maintenance and services brought in $593 Million worth of sales. Essentially this is a services business, once they sell the software to a client (a hospital, Doctors practice or physio) they lock the client in for servicing the software. As you can imagine gross margins for the services segment are nearly 100%!

Net earnings came in at $129 million which equated to 37c per share. Earnings for the full year are expected to come in at $1.65 (up 17% from last year) which equates to 37 times the share price of $62. For a business with such strong cash flows, more cash than debt and strong growth rates you can see why.

Cerner is still very much a US business, the room to grow internationally is huge. They are the biggest software business in the healthcare space and are very well established. They recently concluded a deal to buy Siemens' health information technology business unit for $1.3bn which was well received by the market and will increase their global footprint. As I've said many times, the sector is one you have to invest in and Cerner is one of the leaders in their specific realm. They are making healthcare more efficient, a sector where efficiency is vital. We continue to add.