Bookings in the first quarter of 2020 were
First quarter 2020 revenue was
On a
Adjusted Net Earnings for first quarter 2020 were
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 Highlights:
- First quarter operating cash flow of
$284 million and Free Cash Flow of$160 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.” - First quarter days sales outstanding of 74 days, up from 72 days in the fourth quarter and down from 76 days in the year-ago quarter.
- Total backlog of
$13.47 billion .
“I am pleased with our solid first quarter results despite the initial impact of the COVID-19 pandemic,” said
Future Period Guidance
- Second quarter 2020 revenue between
$1.340 billion and$1.390 billion . - Full year 2020 revenue between
$5.550 billion and$5.700 billion , down from a prior range of$5.725 billion to$5.975 billion . - Second quarter 2020 Adjusted Diluted Earnings Per Share between
$0.60 and$0.64 .* - Full year 2020 Adjusted Diluted Earnings Per Share between
$2.78 and$2.90 , down from a prior range of$3.09 to$3.19 .* - Second quarter 2020 new business bookings between
$1.000 billion and$1.200 billion .
The future period guidance provided above reflects the Company’s current expectation that the largest impact from the COVID-19 pandemic will occur in the second quarter and that project and sales activity will begin to improve in the second half of the year assuming the impact of the pandemic and related restrictive measures subside during the second quarter. The Company currently believes project and sales activity projected before the pandemic will still occur, but it will occur over a longer period of time than originally anticipated. There is still considerable uncertainty regarding the duration and magnitude of the impact of the COVID-19 pandemic, so the Company’s forward-looking statements are subject to a higher than normal amount of risk. In particular, the pandemic and related restrictive measures have created significant economic uncertainty, the ultimate impact of which is unknown at this time, which could adversely affect the Company's future operational and financial performance.
*Future period non-GAAP guidance includes adjustments for items not indicative of our core operations, which may include, without limitation, items included in the accompanying schedule, titled “Reconciliation of GAAP Results to Non-GAAP Results.” Such adjustments may be affected by changes in ongoing assumptions and judgments, as well as nonrecurring, unusual or unanticipated charges, expenses or gains or other items that may not directly correlate to the underlying performance of our business operations. The exact amounts of these adjustments are not currently determinable but may be significant. It is therefore not practicable to provide the comparable GAAP measures or reconcile this non-GAAP guidance to the most comparable GAAP measures.
Earnings Conference Call
An audio webcast will be available live and archived on Cerner’s website at www.cerner.com under the About Us section (click Investor Relations, then Presentations and Webcasts).
About
Certain trademarks, service marks and logos set forth herein are property of
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
Investor Contact:
Media Contact:
Cerner’s Internet Home Page: www.cerner.com
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||
For the three months ended | |||||||
(unaudited) | |||||||
(In thousands, except per share data) | Three Months Ended | ||||||
2020 | 2019 | ||||||
Revenues | $ | 1,411,741 | $ | 1,389,877 | |||
Costs of revenue | 254,416 | 253,204 | |||||
Margin | 1,157,325 | 1,136,673 | |||||
Operating expenses | |||||||
Sales and client service | 636,649 | 640,187 | |||||
Software development | 185,320 | 180,361 | |||||
General and administrative | 139,852 | 96,196 | |||||
Amortization of acquisition-related intangibles | 17,128 | 21,985 | |||||
Total operating expenses | 978,949 | 938,729 | |||||
Operating earnings | 178,376 | 197,944 | |||||
Other income, net | 5,595 | 8,432 | |||||
Earnings before income taxes | 183,971 | 206,376 | |||||
Income taxes | (36,812 | ) | (40,157 | ) | |||
Net earnings | $ | 147,159 | $ | 166,219 | |||
Basic earnings per share | $ | 0.48 | $ | 0.51 | |||
Basic weighted average shares outstanding | 309,657 | 324,573 | |||||
Diluted earnings per share | $ | 0.47 | $ | 0.51 | |||
Diluted weighted average shares outstanding | 312,240 | 327,003 | |||||
Note 1: Our revenues by business model for the three months ended | |||||||
(In thousands) | Three Months Ended | ||||||
2020 | 2019 | ||||||
Licensed software | $ | 158,032 | $ | 154,477 | |||
Technology resale | 51,487 | 55,540 | |||||
Subscriptions | 94,385 | 84,291 | |||||
Professional services | 511,346 | 490,439 | |||||
Managed services | 309,354 | 304,393 | |||||
Support and maintenance | 273,681 | 276,963 | |||||
Reimbursed travel | 13,456 | 23,774 | |||||
Total revenues | $ | 1,411,741 | $ | 1,389,877 | |||
RECONCILIATION OF GAAP RESULTS TO NON-GAAP RESULTS | |||||||
For the three months ended | |||||||
(unaudited) | |||||||
ADJUSTED OPERATING EXPENSES | |||||||
(In thousands) | Three Months Ended | ||||||
2020 | 2019 | ||||||
Operating expenses (GAAP) | $ | 978,949 | $ | 938,729 | |||
Share-based compensation expense | (35,387 | ) | (21,589 | ) | |||
Acquisition-related amortization | (17,128 | ) | (21,097 | ) | |||
Organizational restructuring and other expense | (40,785 | ) | (2,392 | ) | |||
COVID-19 related expense | (1,975 | ) | — | ||||
Adjusted Operating Expenses (non-GAAP) | $ | 883,674 | $ | 893,651 | |||
ADJUSTED OPERATING EARNINGS AND ADJUSTED OPERATING MARGIN | |||||||
(In thousands) | Three Months Ended | ||||||
2020 | 2019 | ||||||
Operating earnings (GAAP) | $ | 178,376 | $ | 197,944 | |||
Share-based compensation expense | 35,387 | 21,589 | |||||
Acquisition-related amortization | 17,128 | 21,097 | |||||
Organizational restructuring and other expense | 40,785 | 2,392 | |||||
COVID-19 related expense | 1,975 | — | |||||
Adjusted Operating Earnings (non-GAAP) | $ | 273,651 | $ | 243,022 | |||
Operating Margin (GAAP) | 12.64 | % | 14.24 | % | |||
Adjusted Operating Margin (non-GAAP) | 19.38 | % | 17.49 | % | |||
ADJUSTED NET EARNINGS AND ADJUSTED DILUTED EARNINGS PER SHARE | |||||||
(In thousands, except per share data) | Three Months Ended | ||||||
2020 | 2019 | ||||||
Net earnings (GAAP) | $ | 147,159 | $ | 166,219 | |||
Pre-tax adjustments for Adjusted Net Earnings: | |||||||
Share-based compensation expense | 35,387 | 21,589 | |||||
Acquisition-related amortization | 17,128 | 21,097 | |||||
Organizational restructuring and other expense | 40,785 | 2,392 | |||||
COVID-19 related expense | 1,975 | — | |||||
Investment gains | (477 | ) | — | ||||
After-tax adjustments for Adjusted Net Earnings: | |||||||
Income tax effect of pre-tax adjustments | (17,259 | ) | (8,771 | ) | |||
Share-based compensation permanent tax items | (5,311 | ) | (3,997 | ) | |||
Valuation allowance on net operating loss carryforwards | 3,318 | — | |||||
Adjusted Net Earnings (non-GAAP) | $ | 222,705 | $ | 198,529 | |||
Diluted weighted average shares outstanding | 312,240 | 327,003 | |||||
Adjusted Diluted Earnings Per Share (non-GAAP) | $ | 0.71 | $ | 0.61 | |||
FREE CASH FLOW | |||||||
(In thousands) | Three Months Ended | ||||||
2020 | 2019 | ||||||
Cash flows from operating activities (GAAP) | $ | 283,506 | $ | 317,266 | |||
Capital purchases | (49,248 | ) | (119,261 | ) | |||
Capitalized software development costs | (73,855 | ) | (74,551 | ) | |||
Free Cash Flow (non-GAAP) | $ | 160,403 | $ | 123,454 | |||
Cash flows from investing activities (GAAP) | $ | (136,611 | ) | $ | (183,655 | ) | |
Cash flows from financing activities (GAAP) | $ | (295,961 | ) | $ | (6,991 | ) | |
Explanation of Non-GAAP Financial Measures | |||||||
We report our financial results in accordance with accounting principles generally accepted in | |||||||
We calculate each of our non-GAAP financial measures as follows: | |||||||
Adjusted Operating Expenses - Consists of GAAP operating expenses adjusted for: (i) share-based compensation expense, (ii) acquisition-related amortization, (iii) organizational restructuring and other expense, and (iv) COVID-19 related expense. | |||||||
Adjusted Operating Earnings - Consists of GAAP operating earnings adjusted for: (i) share-based compensation expense, (ii) acquisition-related amortization, (iii) organizational restructuring and other expense, and (iv) COVID-19 related expense. | |||||||
Adjusted Operating Margin - Consists of Adjusted Operating Earnings, as defined above, divided by revenues, in the applicable period; the result presented as a percentage. | |||||||
Adjusted Net Earnings - Consists of GAAP net earnings adjusted for: (i) share-based compensation expense, (ii) acquisition-related amortization, (iii) organizational restructuring and other expense, (iv) COVID-19 related expense, (v) investment gains, (vi) the income tax effect of the aforementioned items, (vii) share-based compensation permanent tax items, and (viii) a valuation allowance on net operating loss carryforwards. | |||||||
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 GAAP cash flows from operating activities, less capital purchases and capitalized software development costs. | |||||||
Adjustments included in the calculations above 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 | ||||||
2020 | 2019 | ||||||
Sales and client service | $ | 14,902 | $ | 10,671 | |||
Software development | 4,269 | 5,156 | |||||
General and administrative | 16,216 | 5,762 | |||||
Total share-based compensation expense | $ | 35,387 | $ | 21,589 | |||
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 acquisitions of the Health Services business in | |||||||
Organizational restructuring and other expense - Consists of certain charges incurred in connection with our operational improvement initiatives. Expenses in connection with these efforts may include, but are not limited to, consultant and other professional services fees, employee separation costs, contract termination costs, and other such related expenses. We exclude organizational restructuring and other expense as we believe the amount of such expense in any specific period may not directly correlate to the underlying performance of our business operations. Organizational restructuring and other expense is included in our Condensed Consolidated Statements of Operations as follows: | |||||||
(In thousands) | Three Months Ended | ||||||
2020 | 2019 | ||||||
Sales and client service | $ | 933 | $ | — | |||
General and administrative | 39,852 | 2,392 | |||||
Total organizational restructuring and other expense | $ | 40,785 | $ | 2,392 | |||
COVID-19 related expense - Consists of certain charges incurred that we can clearly and objectively attribute to the impact of the ongoing Coronavirus disease pandemic ("COVID-19"). These charges include expenses incurred related to trade shows for which we withdrew our participation and expenses associated with incremental cleaning and sanitation efforts for facility space that may have been exposed to the virus. We exclude COVID-19 related expense as we believe the amount of such expense in any specific period may not directly correlate to the underlying performance of our business operations. COVID-19 related expense is included in our Condensed Consolidated Statements of Operations as follows: | |||||||
(In thousands) | Three Months Ended | ||||||
2020 | 2019 | ||||||
Sales and client service | $ | 1,955 | $ | — | |||
General and administrative | 20 | — | |||||
Total COVID-19 related expense | $ | 1,975 | $ | — | |||
Investment gains - Consists of an unrealized gain of | |||||||
Income tax effect of pre-tax adjustments - The GAAP effective income tax rate for the applicable quarterly period, adjusted for the impact of a valuation allowance on net operating loss carryforwards of | |||||||
Share-based compensation permanent tax items - Consists of permanent items impacting the Company's income tax provision related to our share-based compensation arrangements, including net excess tax benefits recognized upon the exercise of stock options. We exclude such items as we believe the amount of such items 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 "Income taxes." | |||||||
Valuation allowance on net operating loss carryforwards - Consists of a valuation allowance recorded against certain deferred tax assets related to net operating loss carryforwards in a non- | |||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||
As of | ||||||
(unaudited) | ||||||
(In thousands) | 2020 | 2019 | ||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 285,412 | $ | 441,843 | ||
Short-term investments | 113,363 | 99,931 | ||||
Receivables, net | 1,151,028 | 1,139,595 | ||||
Inventory | 23,457 | 23,182 | ||||
Prepaid expenses and other | 390,346 | 392,073 | ||||
Total current assets | 1,963,606 | 2,096,624 | ||||
Property and equipment, net | 1,835,138 | 1,858,772 | ||||
Right-of-use assets | 128,095 | 123,155 | ||||
Software development costs, net | 954,201 | 939,859 | ||||
881,092 | 883,158 | |||||
Intangible assets, net | 350,187 | 364,439 | ||||
Long-term investments | 411,793 | 419,419 | ||||
Other assets | 212,318 | 209,196 | ||||
Total assets | $ | 6,736,430 | $ | 6,894,622 | ||
Liabilities and Shareholders’ Equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 295,950 | $ | 273,440 | ||
Deferred revenue | 316,611 | 360,025 | ||||
Accrued payroll and tax withholdings | 248,853 | 245,843 | ||||
Other current liabilities | 157,072 | 148,140 | ||||
Total current liabilities | 1,018,486 | 1,027,448 | ||||
Long-term debt | 1,338,417 | 1,038,382 | ||||
Deferred income taxes | 378,530 | 377,657 | ||||
Other liabilities | 137,918 | 133,807 | ||||
Total liabilities | 2,873,351 | 2,577,294 | ||||
Shareholders’ Equity: | ||||||
Common stock | 3,702 | 3,676 | ||||
Additional paid-in capital | 2,054,252 | 1,905,171 | ||||
Retained earnings | 6,022,256 | 5,934,909 | ||||
(4,057,768 | ) | (3,407,768 | ) | |||
Accumulated other comprehensive loss, net | (159,363 | ) | (118,660 | ) | ||
Total shareholders’ equity | 3,863,079 | 4,317,328 | ||||
Total liabilities and shareholders’ equity | $ | 6,736,430 | $ | 6,894,622 | ||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
For the three months ended | |||||||
(unaudited) | |||||||
Three Months Ended | |||||||
(In thousands) | 2020 | 2019 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net earnings | $ | 147,159 | $ | 166,219 | |||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||
Depreciation and amortization | 172,646 | 166,671 | |||||
Share-based compensation expense | 35,031 | 19,860 | |||||
Provision for deferred income taxes | 10,449 | 3,998 | |||||
Investment gains | (477 | ) | — | ||||
Changes in assets and liabilities: | |||||||
Receivables, net | (22,774 | ) | 13,789 | ||||
Inventory | (296 | ) | 928 | ||||
Prepaid expenses and other | (13,681 | ) | (13,318 | ) | |||
Accounts payable | 8,539 | (10,891 | ) | ||||
Accrued income taxes | 1,105 | 4,256 | |||||
Deferred revenue | (42,310 | ) | (61,547 | ) | |||
Other accrued liabilities | (11,885 | ) | 27,301 | ||||
Net cash provided by operating activities | 283,506 | 317,266 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Capital purchases | (49,248 | ) | (119,261 | ) | |||
Capitalized software development costs | (73,855 | ) | (74,551 | ) | |||
Purchases of investments | (39,194 | ) | (90,953 | ) | |||
Sales and maturities of investments | 36,112 | 110,104 | |||||
Purchase of other intangibles | (9,682 | ) | (8,994 | ) | |||
Acquisition of business, net of cash acquired | (744 | ) | — | ||||
Net cash used in investing activities | (136,611 | ) | (183,655 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Long-term debt issuance | 300,000 | — | |||||
Proceeds from exercise of stock options | 118,203 | 15,281 | |||||
Payments to taxing authorities in connection with shares directly withheld from associates | (4,517 | ) | (1,730 | ) | |||
(650,000 | ) | (20,542 | ) | ||||
Dividends paid | (56,047 | ) | — | ||||
Other | (3,600 | ) | — | ||||
Net cash used in financing activities | (295,961 | ) | (6,991 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | (7,365 | ) | 2,415 | ||||
Net increase (decrease) in cash and cash equivalents | (156,431 | ) | 129,035 | ||||
Cash and cash equivalents at beginning of period | 441,843 | 374,126 | |||||
Cash and cash equivalents at end of period | $ | 285,412 | $ | 503,161 | |||
Source:
2020 GlobeNewswire, Inc., source