Cerner : Q121 Speaker Script

Cerner Corporation

First Quarter 2021

Earnings Conference Call

May 5, 2021

Operator

Welcome to Cerner Corporation's first quarter 2021 conference call. Today's date is May 5, 2021, and this call is being recorded. I'd now like to turn the call over to your host, Allan Kells, SVP, Investor Relations.

Allan Kells

Good morning everyone and thank you for joining us. On the call with me today are Brent Shafer, Chairman and CEO; Mark Erceg, our new Chief Financial Officer; Don Trigg, our President, and Travis Dalton, our Chief Client and Services Officer. Brent will start off the call with observations on our business and the marketplace, then hand it over to Mark to provide more detail on our results, outlook, and capital allocation plans. We'll then transition to Q&A and be joined by Don and Travis.

Before we start, I'd like to remind you that our comments will contain forward-looking statements, including projections for our business and other statements about future events. These comments are based on our current expectations and assumptions that are subject to risks and uncertainties. Our actual results could differ materially from those indicated by our forward-looking statements due to those factors identified in our earnings release which is posted to the investor section of cerner.com and other filings with the SEC. Cerner assumes no obligation to update forward-looking statements or information except as required by law.

We will also be referring to Adjusted, or non-GAAP, financial measures on this call for our discussion of Operating Margins, Earnings Per Share, and Free Cash Flow. A reconciliation of non-GAAP financial measures to GAAP financial measures can be found in our earnings release. These non-GAAP financial measures are not meant to be a substitute for, or superior to, financial measures prepared in accordance with GAAP.

With that, I'll turn the call over to Brent.

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Brent Shafer

Thank you, Allan. Good morning everyone and thanks for joining us.

We are now a year into the pandemic, and I remain impressed by the resilience of our clients on the frontlines and the efforts of our associates supporting them. As we have moved past the worst of the pandemic in most regions, an increasing portion of our role in assisting clients has been related to vaccine distribution. We have helped over 175 organizations with our mass vaccination solution, allowing clients to deploy and track vaccinations, document and report any reactions, and communicate with patients. We have also continued supporting our community, in partnership with local providers, and have now delivered over 90,000 COVID vaccinations as part of the Operation Safe initiative I mentioned on our last call.

As we've discussed throughout the past year, the pandemic accelerated many trends in healthcare that Cerner has been actively monitoring (and building out capabilities to support) for years. Among these is that providers face increasing pressure on cost and revenue, heightened consumer expectations, and shifts in care venues. We continue to believe we are well positioned to help our clients navigate these challenges while also enabling them to deliver improved clinical outcomes.

For example, our Real-Time Health System offerings bring near real-time enterprise transparency to help health systems perform at their peak efficiency, streamline operations, and improve care delivery. In addition, our Health Network capabilities enable our clients to coordinate care across multiple organizations regardless of the core EMR and help them optimize both fee for service and value-based payment models. And our enhanced consumer engagement solutions help providers meet the growing expectations by patients for a seamless digital experience.

We also continue to demonstrate our ability to bring innovation to the provider workflow to save time and address the very real issue of physician burnout. An example of this is a recent successful pilot of our AI- powered Chart AssistTM which abstracts data from a patient's chart and helps ensure the correct diagnosis and documentation. This replaces a process of having to do manual queries days after the patient was seen to capture a missing or incomplete diagnosis.

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In summary, our ability to provide data-driven insights to providers and patients is at the core of the value we are providing. As a result, our clients are increasingly seeing value in our industry-leading ability to aggregate and normalize data so that meaningful insights can be gleaned.

We are also excited about the opportunity to use insights from data to play a role in improving the safety, efficiency, and efficacy of clinical research. Consistent with this, we took a major step towards this goal with our recent acquisition of Kantar Health. We are pleased to welcome their highly experienced team that brings a deep understanding of the needs of the pharmaceutical industry. We believe this is an important step as we partner with our network of provider clients to fundamentally change the time and cost of clinical trials.

I also wanted to comment on the information blocking rules that went into effect last month and the broader interoperability rules in the 21st Century Cures Act. As you know, we have been fully supportive of these rules as we believe they are an important step towards the healthcare industry finally realizing the potential of broad digitization, which should lead to improved outcomes, lower costs, and a better patient experience. Up to this point, the industry has spent billions of dollars on a base level of digitization, but the absence of broad interoperability has limited the return on this investment. As interoperability and secure access to data improves in coming years, we expect our proven ability to derive insights from data and push them to the right place at the right time will remain a key differentiator.

Now I'd like to provide a quick update on our Federal business. The Department of Defense continues to move full speed ahead with deploying MHS GENESIS, their Cerner-powered EHR. At the end of February, they went live at Naval Medical Center San Diego, which was their largest and most complex go-live to date. DoD officials said this was their smoothest go-live since the program began. In late April, DoD went live with Wave Carson across 12 states, two time zones and more than doubled the number of DoD commands now live.

Moving to Veterans Affairs. As most of you know, VA Secretary Dennis McDonough recently launched a strategic review of the VA's EHRM program while at the same time making it clear he is committed to Cerner and this program. We believe this review is analogous to the steps taken by the DoD during their initial go live. We welcome (and strongly support) this review because it allows us to bring new VA leadership up to speed on both the successes and challenges of the program, capture their input and then move forward together as we continue providing seamless care for our nation's Veterans. We expect to exit this review

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stronger and ready to push forward with deployments at additional sites this year. During this review, we expect the impact on our results will be largely mitigated since "work on the ground" continues as we prepare for go-lives at future sites. However, the review could shave up to one point off our projected revenue growth rate this year versus what we had originally expected.

Moving to our results, we had a solid first quarter. And, as Mark will share, we now expect to deliver stronger earnings than our prior outlook despite slightly lower top line growth (due to the VA's strategic review). This is possible because we have sharpened our focus and are moving forward with a renewed sense of urgency to continue delivering value to our clients and shareholders. Specifically, we are going faster on efficiency initiatives already being actioned by our Transformation Office, continuing (and broadening) our product and business portfolio reviews, and adjusting our organizational design to centralize key functions. These actions all have a common goal-to tighten our strategic focus so we can more effectively deliver value to our clients while also contributing to sustainable long-term profitable growth for our shareholders.

You'll hear from Mark Erceg in a moment, but I'd like to say that in the two months he has been our CFO, he has been invaluable in helping us identify additional opportunities to improve our business and providing enhanced management reporting that is enabling better-informed decisions. We are delighted to have him as part of the Cerner family.

I also would like to comment on the recent passing of Linda Dillman, a longstanding member of the Cerner Board. She spent over 10 years on the Cerner Board and was a trusted advisor to many on the leadership team, including wise counsel to me as I was joining Cerner. She will be tough to replace, but we are actively seeking qualified candidates. Linda will be deeply missed.

Before turning the call over to Mark, I'd like to comment on the news about my expected departure. As noted in the press release, the board and I have started a process to identify Cerner's next CEO. Once the Board has named a successor, I plan to serve as an advisor to ensure a smooth transition. It has been an honor to be a part of Cerner the past three years. I connected to Cerner's mission from the beginning, and the dedication of our associates and clients inspires me every day. I am proud that Cerner is in such a strong position and that we have made good progress towards improving our operating model and strengthening our leadership team.

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Because of this progress, I believe my successor will take the reins at a time Cerner is poised to accelerate its impact on healthcare.

With that, I'll turn the call over to Mark.

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