CERN
$62.15
Cerner
$.21
.34%
Earnings Details
2nd Quarter June 2016
Tuesday, August 02, 2016 4:01:08 PM
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Summary

Cerner Misses

Cerner (CERN) reported 2nd Quarter June 2016 earnings of $0.57 per share on revenue of $1.2 billion. The consensus earnings estimate was $0.57 per share on revenue of $1.2 billion. The Earnings Whisper number was $0.58 per share. Revenue grew 8.0% on a year-over-year basis.

The company said it expects third quarter non-GAAP earnings of $0.59 to $0.61 per share on revenue of $1.20 billion to $1.275 billion and continues to expect 2016 earnings of $2.30 to $2.40 per share but now expects revenue of $4.90 billion to $5.00 billion. The company's previous guidance was for 2016 revenue of $4.90 billion to $5.10 billion. The current consensus earnings estimate is $0.61 per share on revenue of $1.26 billion for the quarter ending September 30, 2016 and $2.35 per share on revenue of $4.95 billion for the year ending December 31, 2016.

Cerner Corp is a supplier of health care information technology, and offers software, professional services, medical device integration, remote hosting and employer health and wellness services.

Results
Reported Earnings
$0.57
Earnings Whisper
$0.58
Consensus Estimate
$0.57
Reported Revenue
$1.22 Bil
Revenue Estimate
$1.21 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Cerner Reports Second Quarter 2016 Results

Cerner Corporation (CERN) today announced results for the 2016 second quarter that ended July 2, 2016.

Bookings in the second quarter of 2016 were $1.40 billion, an increase of 9 percent compared to $1.29 billion in the second quarter of 2015.

Second quarter revenue was $1.216 billion, an increase of 8 percent compared to $1.126 billion in the second quarter of 2015.

On a U.S. Generally Accepted Accounting Principles (GAAP) basis, second quarter 2016 net earnings were $166.5 million and diluted earnings per share were $0.48. Second quarter 2015 GAAP net earnings were $115.0 million and diluted earnings per share were $0.33.

Adjusted Net Earnings for second quarter 2016 were $199.2 million, compared to $183.0 million of Adjusted Net Earnings in the second quarter of 2015. Adjusted Diluted Earnings Per Share were $0.58 in the second quarter of 2016, an increase of 12 percent compared to $0.52 of Adjusted Diluted Earnings Per Share in the year-ago quarter. Analysts’ consensus estimate for second quarter 2016 Adjusted Diluted Earnings Per Share was $0.57.

Adjusted Net Earnings and Adjusted Diluted Earnings Per Share are not recognized terms under GAAP. These non-GAAP financial measures should not be substituted for GAAP net earnings or GAAP diluted earnings per share, respectively, as measures of Cerner’s performance, but instead should be utilized as supplemental measures of financial performance in evaluating our business. Please see the accompanying schedule, titled "Reconciliation of GAAP Results to Non-GAAP Results," where our non-GAAP financial measures are defined and reconciled to the most comparable GAAP measures.

Other 2016 Second Quarter Highlights:

-- Second quarter operating cash flow of $254.9 million.

Second quarter free cash flow of $56.9 million. Free cash flow is a non-GAAP financial measure defined as GAAP cash flows from operating activities less capital purchases and capitalized software development costs. Please see the accompanying schedule, titled "Reconciliation of GAAP Results to Non-GAAP Results."

Second quarter days sales outstanding of 74 days, down from 81 days in the year-ago period.

-- Total backlog of $15.0 billion, up 13 percent over the year-ago quarter.

"Cerner’s strong second quarter results reflect good execution and competitiveness in the U.S. and abroad," said Zane Burke, Cerner President. "We continued to gain share in what remains an active Electronic Health Record replacement market, while also having strong sales of revenue cycle and population health solutions that help our clients navigate the rapidly evolving reimbursement landscape."

Future Period Guidance

Cerner currently expects:

-- Third quarter 2016 revenue between $1.20 billion and $1.275 billion.

-- Full year 2016 revenue between $4.9 billion and $5.0 billion.

-- Third quarter 2016 Adjusted Diluted Earnings Per Share between $0.59 and $0.61.

-- Full year 2016 Adjusted Diluted Earnings Per Share between $2.30 and $2.40.

-- Third quarter 2016 new business bookings between $1.45 billion and $1.60 billion.

Earnings Conference Call

Cerner will host an earnings conference call to provide additional detail on the Company’s results and outlook at 3:30 p.m. CT on August 2. On the call, Cerner will discuss its second quarter 2016 results and answer questions from the investment community. The call may also include discussion of Cerner developments, and forward-looking and other material information about business and financial matters. The dial-in number for the conference call is (678)-509-7542; the passcode is Cerner. Cerner recommends joining the call 15 minutes early for registration. The re-broadcast of the call will be available from 6:30 p.m. CT, August 2 through 11:59 p.m. CT, August 5. The dial-in number for the re-broadcast is (855)-859-2056; the passcode is 48082875.

An audio webcast will be available live and archived on Cerner’s website at www.cerner.com under the About Cerner section (click Investor Relations, then Presentations and Webcasts).

About Cerner

Cerner’s health information technologies connect people, information and systems at more than 20,000 facilities worldwide. Recognized for innovation, Cerner solutions assist clinicians in making care decisions and enable organizations to manage the health of populations. The company also offers an integrated clinical and financial system to help health care organizations manage revenue, as well as a wide range of services to support clients’ clinical, financial and operational needs. Cerner’s mission is to contribute to the systemic improvement of health care delivery and the health of communities. For more information about Cerner, visit cerner.com, read our blog at blogs.cerner.com, connect with us on Twitter at twitter.com/cerner and on Facebook at facebook.com/cerner. Our website, blog, Twitter account and Facebook page contain a significant amount of information about Cerner, including financial and other information for investors.

Certain trademarks, service marks and logos set forth herein are property of Cerner Corporation and/or its subsidiaries. All other non-Cerner marks are the property of their respective owners.

All statements in this press release that do not directly and exclusively relate to historical facts constitute forward-looking statements. These forward-looking statements are based on the current beliefs, expectations and assumptions of Cerner’s management with respect to future events and are subject to a number of significant risks and uncertainties. It is important to note that Cerner’s performance, and actual results, financial condition or business could differ materially from those expressed in such forward-looking statements. The words "expects", "guidance", "position", "believe", "estimate", "opportunity" or the negative of these words, variations thereof or similar expressions are intended to identify such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: the possibility of product-related liabilities; potential claims for system errors and warranties; the possibility of interruption at our data centers or client support facilities; the possibility of increased expenses, exposure to claims and regulatory actions and reputational harm associated with a cyberattack or other breach in our IT security; our proprietary technology may be subject to claims for infringement or misappropriation of intellectual property rights of others, or may be infringed or misappropriated by others; material adverse resolution of legal proceedings; risks associated with our global operations; risks associated with fluctuations in foreign currency exchange rates; the potential for tax legislation initiatives that could adversely affect our tax position and/or challenges to our tax positions in the U.S. and non-U.S. countries; risks associated with our recruitment and retention of key personnel; risks related to our dependence on third party suppliers; difficulties and operational and financial risks associated with successfully completing the integration of the Cerner Health Services (formerly Siemens Health Services) business into our business or the failure to realize the synergies and other benefits expected from the acquisition; risks inherent with business acquisitions and combinations and the integration thereof; the potential for losses resulting from asset impairment charges; risks associated with volatility and disruption resulting from global economic or market conditions; managing growth in the new markets in which we offer solutions, health care devices or services; continuing to incur significant expenses relating to the integration of the Cerner Health Services (formerly Siemens Health Services) business into Cerner; risks inherent in contracting with government clients; risks associated with our outstanding and future indebtedness, such as compliance with restrictive covenants, which may limit our flexibility to operate our business; changing political, economic, regulatory and judicial influences, which could impact the purchasing practices and operations of our clients and increase costs to deliver compliant solutions and services; government regulation; significant competition and our ability to respond to market changes and changing technologies; variations in our quarterly operating results; potential inconsistencies in our sales forecasts compared to actual sales; volatility in the trading price of our common stock and the timing and volume of market activity; and our directors’ authority to issue preferred stock and the anti-takeover provisions in our corporate governance documents. Additional discussion of these and other risks, uncertainties and factors affecting Cerner’s business is contained in Cerner’s filings with the Securities and Exchange Commission. The reader should not place undue reliance on forward-looking statements, since the statements speak only as of the date that they are made. Except as required by law, Cerner undertakes no obligation to update forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes in our business, results of operations or financial condition over time.

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CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended July 2, 2016 and July 4, 2015
(unaudited)
(In thousands, except per share data)
Three Months Ended
Six Months Ended
2016
2015
2016
2015
Revenues
System sales
$
333,104
$
315,109
$
612,458
$
574,678
Support, maintenance and services
860,751
792,827
1,700,389
1,511,197
Reimbursed travel
22,107
18,061
41,250
36,211
Total revenues
1,215,962
1,125,997
2,354,097
2,122,086
Margin
System sales
219,268
202,607
409,397
370,677
Support, maintenance and services
791,138
731,068
1,563,551
1,390,427
Total margin
1,010,406
933,675
1,972,948
1,761,104
Operating expenses
Sales and client service
520,265
463,435
1,022,092
883,617
Software development
135,164
138,451
268,696
265,722
General and administrative
90,027
135,545
180,161
230,356
Amortization of acquisition-related intangibles
23,638
24,508
45,239
42,761
Total operating expenses
769,094
761,939
1,516,188
1,422,456
Operating earnings
241,312
171,736
456,760
338,648
Other income (expense), net
2,470
(1,079
)
4,151
(871
)
Earnings before income taxes
243,782
170,657
460,911
337,777
Income taxes
(77,328
)
(55,619
)
(144,097
)
(111,805
)
Net earnings
$
166,454
$
115,038
$
316,814
$
225,972
Basic earnings per share
$
0.49
$
0.33
$
0.94
$
0.66
Basic weighted average shares outstanding
337,759
344,431
338,657
343,880
Diluted earnings per share
$
0.48
$
0.33
$
0.92
$
0.64
Diluted weighted average shares outstanding
344,026
352,450
344,984
352,162
CERNER CORPORATION AND SUBSIDIARIES
RECONCILIATION OF GAAP RESULTS TO NON-GAAP RESULTS
For the three and six months ended July 2, 2016 and July 4, 2015
(unaudited)
ADJUSTED NET EARNINGS AND ADJUSTED DILUTED EARNINGS PER SHARE
(In thousands, except per share data)
Three Months Ended
Six Months Ended
2016
2015
2016
2015
Net earnings (GAAP)
$
166,454
$ 115,038
$
316,814
$ 225,972
Pre-tax adjustments for Adjusted Net Earnings:
Share-based compensation expense
21,416
20,447
40,782
36,904
Health Services acquisition-related amortization
20,878
21,371
39,382
36,490
Acquisition-related deferred revenue adjustment
5,393
8,700
10,906
21,200
Other acquisition-related adjustments
245
8,536
3,130
33,964
Voluntary separation plan expense
--
41,697
--
41,697
After-tax adjustments for Adjusted Net Earnings:
Income tax effect of pre-tax adjustments
(15,204
)
(32,835
)
(29,432
)
(56,203
)
Adjusted Net Earnings (non-GAAP)
$
199,182
$ 182,954
$
381,582
$ 340,024
Diluted weighted average shares outstanding
344,026
352,450
344,984
352,162
Adjusted Diluted Earnings Per Share (non-GAAP)
$
0.58
$ 0.52
$
1.11
$ 0.97
FREE CASH FLOW
(In thousands)
Three Months Ended
Six Months Ended
2016
2015
2016
2015
Cash flows from operating activities (GAAP)
$
254,942
$ 108,664
$
582,025
$ 322,911
Capital purchases
(118,244 )
(84,870
)
(217,595 )
(167,134
)
Capitalized software development costs
(79,835
)
(69,797
)
(155,175 )
(132,864
)
Free Cash Flow (non-GAAP)
$
56,863
$ (46,003
)
$
209,255
$ 22,913
Cash flows from investing activities (GAAP)
$
(134,427 ) $ (224,968 )
$
(437,981 ) $ (1,230,780 )
Cash flows from financing activities (GAAP)
$
(34,835
) $ 19,920
$
(165,767 ) $ 573,104
Explanation of Non-GAAP Financial Measures
We
report our financial results in accordance with accounting principles generally accepted in the United States of America ("GAAP"). However, we supplement our GAAP results with certain non-GAAP financial measures, which we believe enable investors to better understand and evaluate our ongoing operating results and allows for greater transparency in the review and understanding of our overall financial, operational and economic performance. These non-GAAP financial measures are not meant to be considered in isolation, as a substitute for, or superior to GAAP results and investors should be aware that non-GAAP measures have inherent limitations and should be read only in conjunction with Cerner’s consolidated financial statements prepared in accordance with GAAP. These non-GAAP measures may also be different from similar non-GAAP financial measures used by other companies and may not be comparable to similarly titled captions of other companies due to potential inconsistencies in the method of calculations. We provide the measures of Adjusted Net Earnings and Adjusted Diluted Earnings Per Share as such measures are used by management, along with GAAP results, to analyze Cerner’s business, make strategic decisions, assess long-term trends on a comparable basis, and for management compensation purposes. We provide the measure of Free Cash Flow as such measure takes into account certain capital expenditures necessary to operate our business. Free Cash Flow is used by management, along with GAAP results, to analyze our earnings quality and overall cash generation of the business.
We calculate each of our non-GAAP financial measures as follows:
Adjusted Net Earnings - Consists of GAAP net earnings adjusted for: (i) share-based compensation expense, (ii) Health Services acquisition-related amortization, (iii) acquisition-related deferred revenue adjustment, (iv) other acquisition-related adjustments (v) voluntary separation plan expense, and (vi) the income tax effect of the aforementioned items.
Adjusted Diluted Earnings Per Share - Consists of Adjusted Net Earnings, as defined above, divided by diluted weighted average shares outstanding, in the applicable period.
Free Cash Flow - Consists of cash flows from operating activities, less capital purchases and capitalized software development costs.
Adjustments included in the calculation of Adjusted Net Earnings are described below:
Share-based compensation expense - Non-cash expense arising from our equity compensation and stock purchase plans available to our associates and directors. We exclude share-based compensation expense as we believe the amount of such non-cash expenses in any specific period may not directly correlate to the underlying performance of our business operations. Share-based compensation expense is included in our Condensed Consolidated Statements of Operations as follows:
(In thousands)
Three Months Ended
Six Months Ended
2016
2015
2016
2015
Sales and client service
$
10,964
$ 9,656
$
20,183
$ 18,196
Software development
4,621
4,980
8,308
7,934
General and administrative
5,831
5,811
12,291
10,774
Total share-based compensation expense
$
21,416
$ 20,447
$
40,782
$ 36,904
Health Services acquisition-related amortization - Non-cash expense consisting of the amortization of customer relationships, acquired technology, and trade name intangible assets recorded in connection with our acquisition of the Health Services business in February 2015. We exclude Health Services acquisition-related amortization as we believe the amount of such non-cash expenses in any specific period may not directly correlate to the underlying performance of our business operations. Such amount is included in our Condensed Consolidated Statements of Operations in the caption "Amortization of acquisition-related intangibles."
Acquisition-related deferred revenue adjustment - Consists of acquisition-related deferred revenue adjustments in connection with our acquisition of the Health Services business in February 2015. Accounting guidance requires that deferred revenue acquired in a business combination be written-down to an estimate of fulfillment cost, plus a normal profit margin, as a part of the allocation of purchase price to assets acquired and liabilities assumed. We add back the amount of the write-down applicable to the period as we believe such amount directly correlates to the underlying performance of our business operations.
Other acquisition-related adjustments - Consists of acquisition, employee separation, and other costs associated with our acquisition of the Health Services business in February 2015. We exclude other acquisition-related adjustments as they are non-recurring charges, and we believe the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. Such amount is included in our Condensed Consolidated Statements of Operations in the caption "General and administrative" expense.
Voluntary separation plan expense - Consists of expense associated with a voluntary separation plan available to associates for a specific time period in 2015. We exclude voluntary separation plan expense as such item is non-recurring, and we believe the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations.
Such amount is included in our Condensed Consolidated Statements of Operations in the caption "General and administrative" expense.
Income tax effect of pre-tax adjustments - The GAAP effective income tax rate for the applicable quarterly period is applied to pre-tax adjustments for Adjusted Net Earnings.
Cerner’s future period guidance in this release includes adjustments for items not indicative of our core operations, which may include without limitation share-based compensation expense and acquisition-related expenses, such as integration expenses, and may be affected by changes in ongoing assumptions and judgments relating to the Company’s acquired businesses, and may also be affected by nonrecurring, unusual or unanticipated charges, expenses or gains, all of which are excluded in the calculation of non-GAAP Adjusted Net Earnings and Adjusted Diluted Earnings Per Share as described above. The exact amount of these adjustments are not currently determinable, but may be significant. It is therefore not practicable to reconcile this non-GAAP guidance to the most comparable GAAP measures.
CERNER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of
July 2, 2016 (unaudited) and January 2, 2016
(In thousands)
2016
2015
Assets
Current assets:
Cash and cash equivalents
$ 377,582
$ 402,122
Short-term investments
252,309
111,059
Receivables, net
983,310
1,034,084
Inventory
16,694
15,788
Prepaid expenses and other
303,813
264,780
Total current assets
1,933,708
1,827,833
Property and equipment, net
1,437,825
1,309,214
Software development costs, net
652,486
562,559
Goodwill
847,939
799,182
Intangible assets, net
613,449
688,058
Long-term investments
89,930
173,073
Other assets
204,214
202,065
Total assets
$ 5,779,551
$ 5,561,984
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
$ 242,122
$ 215,510
Current installments of long-term debt and capital lease obligations
38,408
41,797
Deferred revenue
299,750
278,443
Accrued payroll and tax withholdings
175,478
184,225
Other accrued expenses
59,335
57,891
Total current liabilities
815,093
777,866
Long-term debt and capital lease obligations
546,174
563,353
Deferred income taxes and other liabilities
352,260
324,516
Deferred revenue
12,048
25,865
Total liabilities
1,725,575
1,691,600
Shareholders’ Equity:
Common stock
3,516
3,503
Additional paid-in capital
1,148,622
1,075,782
Retained earnings
3,774,657
3,457,843
Treasury stock
(790,465
)
(590,390
)
Accumulated other comprehensive loss, net
(82,354
)
(76,354
)
Total shareholders’ equity
4,053,976
3,870,384
Total liabilities and shareholders’ equity
$ 5,779,551
$ 5,561,984
Investor Contact:
Allan Kells, (816) 201-2445, akells@cerner.com
Media Contact:
Dan Smith, (913) 304-3991, dan.smith1@cerner.com
Cerner’s Internet Home Page:
www.cerner.com

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