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Cerner Management Discusses Q2 2012 Results - Earnings Call Transcript

System sales revenue reflects 24% growth from Q2 '11. This was driven by continued strong growth in device resale, traditional hardware resale and subscriptions. Software revenue was down slightly, in part related to a lower percent of current quarter software bookings being recognized as revenue in the quarter because of contract terms that result in revenue being spread over a longer period. This is obviously a positive long-term, and the impact on this quarter was more than offset by strong services, which demonstrates the strength and diversity of our overall business model. As Zane will discuss, our pipeline and outlook for the second half of the year is very strong.

Moving to services, total services revenue was up 27% compared to Q2 of '11, with strong growth in both managed services and professional services. Support and maintenance revenue increased 9% over Q2 of '11.

Looking at revenue by geographic segment, domestic revenue increased 25% year-over-year to $562 million. Global revenue was $76 million and grew 2% compared to the year-ago period.

Moving to gross margin. Our gross margin for Q2 was 76.9%, which is up from 75.4% in Q1 and down from 81.2% in Q2 of '11. Similar to the last quarter, the year-over-year decline in our gross margin percent was driven primarily by very strong levels of device and hardware resale. While the gross margin percent for the quarter was lower, total dollars of gross profit grew 15% from the year-ago period, and total margin dollars from system sales is up 15% year-to-date.

As we have noted in the past, while revenue mix can impact our gross margin percentage in any given period, we continue to drive operating margin expansion and strong earnings growth, as I'll discuss in a moment.

Looking at operating spending, our second quarter operating expenses were $345.2 million before share-based compensation expense of $8.6 million. This is an increase of 11% compared to Q2 of '11. Sales and client service expenses increased 15% compared to Q2 '11, driven by an increase in revenue-generating associates in our services business. Sales and client service expenses were down slightly sequentially, with salary expense growing less than expected due to timing of new hires, and this growth being offset by a sequentially lower other personnel and non-personnel expense.

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