Cerner Reports Second Quarter 2010 Results
July 28 2010 - 4:01PM
Cerner Corporation (Nasdaq:CERN) today announced results for the
2010 second quarter that ended July 3, 2010, delivering strong
levels of bookings, revenue, earnings and cash flow.
Bookings in the second quarter of 2010 were $467.8 million, up
19 percent from $394.0 million in the second quarter of 2009.
Second quarter revenue was $456.0 million, up 13 percent compared
to $403.8 million in the year-ago period.
On a Generally Accepted Accounting Principles (GAAP) basis,
second quarter 2010 net earnings were $55.5 million, and diluted
earnings per share were $0.65. Second quarter 2009 GAAP net
earnings were $43.8 million, and diluted earnings per share were
$0.52.
Adjusted (non-GAAP) Earnings
Adjusted second quarter 2010 net earnings were $59.1 million, an
increase of 29 percent compared to $46.0 million of adjusted net
earnings in the second quarter of 2009. Adjusted diluted earnings
per share were $0.69 in the second quarter of 2010 compared to
$0.55 of adjusted diluted earnings per share in the second quarter
of 2009. Analysts' consensus estimate for second quarter 2010
adjusted diluted earnings per share was $0.68.
Adjusted Net Earnings is not a recognized term under GAAP and
should not be substituted for net earnings as a measure of the
Company's performance but instead should be utilized as a
supplemental measure of financial performance in evaluating our
business. Following is a description of adjustments made to
net earnings. For more detail, please see the accompanying
schedule, titled "Reconciliation of Adjusted Net Earnings and
Adjusted Diluted Earnings Per Share to GAAP Net Earnings and
Diluted Earnings Per Share."
Adjusted second quarter 2010 and 2009 net earnings and diluted
earnings per share exclude share based compensation expense, which
reduced second quarter 2010 net earnings and diluted earnings per
share by $3.6 million and $0.04, respectively, and reduced second
quarter 2009 net earnings and diluted earnings per share by $2.2
million and $0.03, respectively.
Other Second Quarter Highlights:
- Second quarter cash collections of $447.0 million and operating
cash flow of $110.2 million.
- Free cash flow of $65.6 million. Free cash flow is a
non-GAAP financial measure defined as operating cash flow less
capital expenditures and capitalized software. For more detail,
please see the accompanying schedule, titled "Reconciliation of
GAAP Operating Cash Flow to non-GAAP Free Cash Flow."
- Days sales outstanding of 88 days compared to 89 days in the
first quarter of 2010 and 100 days in the year-ago quarter.
- Total revenue backlog of $4.48 billion, up 21 percent over the
year-ago quarter. This is comprised of $3.85 billion of
contract backlog and $637 million of support and maintenance
backlog.
"Our second quarter results were very solid across nearly all
key metrics, including record cash flow and strong bookings,
revenue and earnings," said Neal Patterson, Cerner chairman, CEO,
president and co-founder. "Our strong bookings, highlighted by
several new client relationships, included demand associated with
the healthcare information technology provisions in the American
Recovery and Reinvestment Act of 2009 (ARRA). Cerner remains
very well positioned to continue benefiting from this demand due to
the depth and breadth of our proven solutions and differentiated
services capabilities," Patterson said.
Future Period Guidance
Cerner currently expects:
- Third quarter 2010 revenue between $455 million and $470
million.
- Third quarter 2010 adjusted diluted earnings per share before
share based compensation expense between $0.71 and
$0.76.
- Third quarter 2010 new business bookings between $450 million
and $480 million.
- Full-year 2010 revenue between $1.83 billion and $1.875
billion, which is up from a prior range of $1.80 billion and $1.875
billion.
- Full-year 2010 adjusted diluted earnings per share before share
based compensation expense between $2.85 and $2.92, which is up
from a prior range of $2.80 and $2.90.
- Share based compensation expense to reduce diluted earnings per
share by approximately $0.04 to $0.05 in the third quarter of 2010
and between $0.17 and $0.18 for the year.
Earnings Conference Call
Cerner will host an earnings conference call to provide
additional detail on second quarter results at 3:30 p.m. CT on July
28. The dial-in number for the conference call is
(617) 213 8831; the passcode is Cerner. The
company recommends joining the call 15 minutes early for
registration. The re-broadcast of the call will be available from
6:30 p.m. CT, July 28 through 11:59 p.m. CT, August 2. The dial-in
number for the re-broadcast is (888) 286-8010; the passcode is
98583016.
An audio webcast will be available live and archived on Cerner's
website at www.cerner.com under the About Cerner section (click
Investors, then Presentations and Webcasts).
About Cerner
Cerner is transforming healthcare by eliminating error, variance
and waste for healthcare providers and consumers around the world.
Cerner® solutions optimize processes for healthcare organizations
ranging in size from single-doctor practices, to health systems, to
entire countries, for the pharmaceutical and medical device
industries, employer health and wellness services industry and for
the healthcare commerce system. These solutions are licensed by
more than 8,500 facilities around the world, including
approximately 2,300 hospitals; 3,400 physician practices covering
more than 30,000 physicians; 600 ambulatory facilities, such as
laboratories, ambulatory centers, cardiac facilities, radiology
clinics and surgery centers; 700 home-health facilities; and 1,500
retail pharmacies. The trademarks, service marks and logos
(collectively, the "Marks") set forth herein are registered and
unregistered trademarks and/or service marks owned by Cerner
Corporation and/or its subsidiaries in the United States and
certain other countries throughout the world. (Nasdaq:CERN). For
more information about Cerner, please visit www.cerner.com,Twitter,
Facebook, and YouTube .
This release contains forward-looking statements that involve a
number of risks and uncertainties. It is important to note
that the Company's performance, and actual results, financial
condition or business could differ materially from those expressed
in such forward-looking statements. The words "positioned",
"continue", "guidance" and "expects" 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; 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; risks associated with
our non-U.S. operations; risks associated with our ability to
effectively hedge exposure to 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 United States and non-U.S. countries; risks
associated with our recruitment and retention of key personnel;
risks related to our reliance on third party suppliers; risks
inherent with business acquisitions; changing political, economic
and regulatory influences; government regulation; significant
competition and market changes; risks associated with the ongoing
adverse financial market environment and uncertainty in global
economic conditions; variations in our quarterly operating results;
potential inconsistencies in our sales forecasts compared to actual
sales; the volatility in the trading price of our common stock;
and, our directors' authority to issue preferred stock and the
anti-takeover provisions in our corporate governance documents.
Additional discussion of these and other factors affecting the
Company's business is contained in the Company's periodic filings
with the Securities and Exchange Commission. The Company undertakes
no obligation to update forward-looking statements to reflect
changed assumptions, the occurrence of unanticipated events or
changes in future operating results, financial condition or
business over time.
CERNER CORPORATION AND
SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS For the three and six months ended July 3, 2010
and July 4, 2009 (unaudited) |
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
Three Months
Ended |
Six Months
Ended |
|
2010 (1) |
2009 (1) |
2010 (1) |
2009 (1) |
Revenues |
|
|
|
|
System sales |
$ 135,902 |
$ 114,302 |
$ 252,853 |
$ 214,491 |
Support, maintenance and
services |
311,575 |
281,444 |
618,620 |
565,272 |
Reimbursed travel |
8,524 |
8,060 |
15,865 |
16,365 |
Total revenues |
456,001 |
403,806 |
887,338 |
796,128 |
|
|
|
|
|
Margin |
|
|
|
|
System sales |
83,039 |
71,673 |
155,162 |
130,298 |
Support, maintenance and
services |
294,751 |
265,244 |
585,881 |
533,410 |
Total margin |
377,790 |
336,917 |
741,043 |
663,708 |
|
|
|
|
|
Operating expenses |
|
|
|
|
Sales and client
service |
190,030 |
171,633 |
377,623 |
344,986 |
Software development |
67,988 |
65,090 |
134,767 |
129,826 |
General and administrative |
33,420 |
34,038 |
66,645 |
60,760 |
Total operating
expenses |
291,438 |
270,761 |
579,035 |
535,572 |
|
|
|
|
|
Operating earnings |
86,352 |
66,156 |
162,008 |
128,136 |
|
|
|
|
|
Interest income |
2,147 |
1,953 |
5,804 |
3,686 |
Interest expense |
(1,726) |
(2,099) |
(3,600) |
(4,153) |
Other income (expense),
net |
(495) |
213 |
(571) |
417 |
Total other income
(expense), net |
(74) |
67 |
1,633 |
(50) |
|
|
|
|
|
Earnings before income taxes |
86,278 |
66,223 |
163,641 |
128,086 |
Income taxes |
(30,801) |
(22,478) |
(57,878) |
(43,511) |
Net earnings |
$ 55,477 |
$ 43,745 |
$ 105,763 |
$ 84,575 |
|
|
|
|
|
Basic earnings per share |
$ 0.67 |
$ 0.54 |
$ 1.29 |
$ 1.05 |
|
|
|
|
|
Basic weighted average shares
outstanding |
82,334 |
80,691 |
82,146 |
80,512 |
|
|
|
|
|
Diluted earnings per share |
$ 0.65 |
$ 0.52 |
$ 1.24 |
$ 1.02 |
|
|
|
|
|
Diluted weighted average shares
outstanding |
85,336 |
83,590 |
85,224 |
83,258 |
|
|
|
|
|
Note
1: Operating expenses for the three and six months
ended July 3, 2010 and July 4, 2009 include share-based
compensation expense. The impact of this expense on net
earnings is presented below: |
|
|
|
|
|
|
Three Months
Ended |
Six Months
Ended |
|
2010 |
2009 |
2010 |
2009 |
|
|
|
|
|
Sales and client service |
$ 2,411 |
$ 1,377 |
$ 4,779 |
$ 3,086 |
Software development |
1,636 |
851 |
3,042 |
2,002 |
General and administrative |
1,799 |
1,358 |
3,532 |
2,418 |
Total share based
compensation |
5,846 |
3,586 |
11,353 |
7,506 |
Amount of related income tax benefit |
(2,178) |
(1,336) |
(4,229) |
(2,796) |
Net impact on net earnings |
$ 3,668 |
$ 2,250 |
$ 7,124 |
$ 4,710 |
|
|
|
|
|
Decrease to diluted earnings per share |
$ 0.04 |
$ 0.03 |
$ 0.08 |
$ 0.05 |
|
|
|
|
CERNER CORPORATION AND
SUBSIDIARIES RECONCILIATION OF GAAP RESULTS TO NON-GAAP RESULTS
1 For the three and six months ended July 3, 2010 and July
4, 2009 (unaudited) |
|
|
|
|
|
|
|
|
RECONCILIATION OF
ADJUSTED NET EARNINGS AND ADJUSTED DILUTED EARNINGS PER SHARE
TO GAAP NET EARNINGS AND DILUTED EARNINGS PER SHARE 1 |
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
Three Months
Ended |
Six Months
Ended |
Net Earnings |
2010 |
2009 |
2010 |
2009 |
|
|
|
|
|
Net earnings |
$ 55,477 |
$ 43,745 |
$ 105,763 |
$ 84,575 |
Share-based compensation expense2 |
5,846 |
3,586 |
11,353 |
7,506 |
Income tax benefit of share-based
compensation2 |
(2,178) |
(1,336) |
(4,229) |
(2,796) |
Adjusted net earnings (non-GAAP) |
$ 59,145 |
$ 45,995 |
$ 112,887 |
$ 89,285 |
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
Six Months
Ended |
|
2010 |
2009 |
2010 |
2009 |
Diluted Earnings Per
Share |
|
|
|
|
Diluted earnings per share2 |
$ 0.65 |
$ 0.52 |
$ 1.24 |
$ 1.02 |
Share-based compensation expense (net of
tax)2 |
0.04 |
0.03 |
0.08 |
0.05 |
Adjusted diluted earnings per share
(non-GAAP) |
$ 0.69 |
$ 0.55 |
$ 1.32 |
$ 1.07 |
|
|
|
|
|
|
|
|
RECONCILIATION OF GAAP
OPERATING CASH FLOW TO NON-GAAP FREE CASH FLOW 1 |
|
|
|
|
|
(In thousands) |
Three Months
Ended |
Six Months
Ended |
|
2010 |
2009 |
2010 |
2009 |
Cash flows from operating activities |
$ 110,238 |
$ 67,930 |
$ 215,741 |
$ 165,756 |
Capital purchases 3 |
(23,903) |
(22,550) |
(56,011) |
(65,723) |
Capitalized software development costs 3 |
(20,732) |
(20,300) |
(41,248) |
(38,588) |
Free cash flow (non-GAAP) |
$ 65,603 |
$ 25,080 |
$ 118,482 |
$ 61,445 |
|
|
|
|
|
Note 1: The
presentation of Adjusted Net Earnings and Free Cash Flow, non-GAAP
financial measures, are not meant to be considered in isolation, as
a substitute for, or superior to, Generally Accepted Accounting
Principles (GAAP) results and investors should be aware that
non-GAAP measures have inherent limitations and should be read only
in conjunction with the Company's consolidated financial statements
prepared in accordance with GAAP. Adjusted Net Earnings and
Free Cash Flow 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. The
Company believes that Adjusted Net Earnings and Free Cash Flow are
important to enable investors to better understand and evaluate its
ongoing operating results and allows for greater transparency in
the review of its overall financial, operational and economic
performance. |
Note 2: The
Company provides earnings with and without stock options expense
because earnings excluding this expense is used by management along
with GAAP results to analyze its business, make strategic decisions
and for management compensation purposes. |
Note 3: The
Company provides cash flow with and without capital purchases and
software development cost because operating cash flows excluding
these expenditures is used by management along with GAAP results to
analyze its earnings quality and overall cash generation of the
business. |
|
|
|
|
CERNER CORPORATION AND
SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS As of
July 3, 2010 (unaudited) and January 2, 2010 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
2010 |
2009 |
Assets |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ 255,795 |
$ 241,723 |
Short-term investments |
|
376,712 |
317,113 |
Receivables, net |
|
441,567 |
461,411 |
Inventory |
|
9,176 |
11,242 |
Prepaid expenses and other |
|
94,755 |
106,791 |
Deferred income taxes |
|
7,985 |
8,055 |
|
|
|
|
Total current assets |
|
1,185,990 |
1,146,335 |
|
|
|
|
Property and equipment, net |
|
507,045 |
509,178 |
Software development costs, net |
|
241,351 |
233,265 |
Goodwill |
|
160,401 |
151,479 |
Intangible assets, net |
|
38,315 |
33,719 |
Long-term investments |
|
45,129 |
-- |
Other assets |
|
67,444 |
74,591 |
|
|
|
|
Total assets |
|
$ 2,245,675 |
$ 2,148,567 |
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
Accounts payable |
|
$ 47,485 |
$ 36,893 |
Current installments of long-term debt |
|
25,638 |
25,014 |
Deferred revenue |
|
111,420 |
137,095 |
Accrued payroll and tax withholdings |
|
78,113 |
80,093 |
Other accrued expenses |
|
60,815 |
79,008 |
|
|
|
|
Total current
liabilities |
|
323,471 |
358,103 |
|
|
|
|
Long-term debt |
|
90,665 |
95,506 |
Deferred income taxes and other
liabilities |
|
104,840 |
98,372 |
Deferred revenue |
|
18,974 |
15,788 |
|
|
|
|
Total liabilities |
|
537,950 |
567,769 |
|
|
|
|
Stockholders' Equity |
|
|
|
|
|
|
|
Common stock |
|
833 |
826 |
Additional paid-in capital |
|
597,385 |
557,545 |
Retained earnings |
|
1,159,326 |
1,053,563 |
Treasury stock |
|
(28,002) |
(28,002) |
Accumulated other comprehensive loss,
net |
|
(21,937) |
(3,254) |
Total Cerner Corporation
stockholders' equity |
|
1,707,605 |
1,580,678 |
Noncontrolling interest |
|
120 |
120 |
|
|
|
|
Total stockholders'
equity |
|
1,707,725 |
1,580,798 |
|
|
|
|
Total liabilities and stockholders'
equity |
|
$ 2,245,675 |
$ 2,148,567 |
CONTACT: Cerner Corporation
Investor Contact:
Allan Kells
(816) 201-2445
akells@cerner.com
Media Contact:
Kelli Christman
(816) 885-4342
kelli.christman@cerner.com
www.cerner.com
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