Cerner Corporation (Nasdaq: CERN) today announced results for the
2019 third quarter that ended Sept. 28, 2019.
Bookings in the third quarter of 2019 were at the
high-end of the company’s expectations at $1.651 billion.
Third quarter 2019 revenue was $1.429 billion, an
increase of 7% compared to $1.340 billion in the third quarter of
2018, and in line with the company’s expectations.
On a U.S. Generally Accepted Accounting Principles
(GAAP) basis, third quarter 2019 net earnings were $81.9 million
and diluted earnings per share were $0.26. Third quarter 2018 GAAP
net earnings were $169.4 million and diluted earnings per share
were $0.51.
Adjusted Net Earnings for third quarter 2019 were
$211.7 million, compared to $209.4 million of Adjusted Net Earnings
in the third quarter of 2018. Adjusted Diluted Earnings Per Share
were $0.66 in the third quarter of 2019, in line with the company’s
expectations and up 5% compared to $0.63 of Adjusted Diluted
Earnings Per Share in the year-ago quarter.
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:
- Third quarter operating cash flow of $351.4 million and Free
Cash Flow of $174.4 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.”
- Third quarter days sales outstanding of 74 days, down from 78
days in the second quarter and 82 days in the year-ago
quarter.
- Total backlog of $13.31 billion.
“I am pleased with our execution in the third
quarter as we again delivered against the expectations we set while
also continuing to advance Cerner’s broader transformation,” said
Brent Shafer, chairman and CEO, Cerner “I believe the
balanced focus of near-term operational improvements combined with
our innovation and growth strategies position Cerner to deliver
sustainable and profitable growth.”
Future Period GuidanceCerner
currently expects:
- Fourth quarter 2019 revenue between $1.410 billion and $1.460
billion.
- Fourth quarter 2019 Adjusted Diluted Earnings Per Share between
$0.73 and $0.75. *
- Fourth quarter 2019 new business bookings between $1.450
billion and $1.650 billion.
|
*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 CallCerner will host an
earnings conference call to provide additional detail on the
company’s results and outlook at 3:30 p.m. CT on Oct. 24, 2019. On
the call, Cerner will discuss its third quarter 2019 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.
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 CernerCerner’s health technologies
connect people and information systems at more than 27,500
contracted provider facilities worldwide dedicated to creating
smarter and better care for individuals and communities. Recognized
globally for innovation, Cerner assists clinicians in making care
decisions and assists organizations in managing the health of their
populations. The company also offers an integrated clinical and
financial system to help manage day-to-day revenue functions, as
well as a wide range of services to support clinical, financial and
operational needs, focused on people. For more information, visit
Cerner.com, The Cerner Blog, The Cerner Podcast or connect on
Facebook, Instagram, LinkedIn or Twitter. Nasdaq: CERN.
Smarter Care. Better Outcomes. Healthier You.
Certain trademarks, service marks and logos set
forth herein are property of Cerner Corporation and/or its
subsidiaries.
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”, “expectations”, “plan”,
“outlook”, “future”, “approximately”, “targeted”, “intend”,
“potential”, “opportunity” or the negative of these words,
variations thereof or similar expressions are intended to identify
such forward-looking statements. For example, our forward-looking
statements include statements regarding future period
guidance. Factors that could cause or contribute to such
differences include, but are not limited to the possibility of
significant costs and reputational harm related to product-related
liabilities; potential claims for system errors and warranties; the
possibility of interruption at our data centers or client support
facilities, or those of third parties with whom we have contracted
(such as public cloud providers), that could expose us to
significant costs and reputational harm; the possibility of
increased expenses, exposure to legal claims and regulatory actions
and reputational harm associated with a cyberattack or other breach
in our IT security or the IT security of third parties on which we
rely; 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; potential
claims or other risks associated with relying on open source
software in our proprietary software solutions or
technology-enabled services; material adverse resolution of legal
proceedings or other claims; risks associated with our global
operations, including without limitation greater difficulty in
collecting accounts receivable; risks associated with fluctuations
in foreign currency exchange rates; changes in tax laws,
regulations or guidance 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 the unexpected loss or
recruitment and retention of key personnel or the failure to
successfully develop and execute succession planning to assure
transitions of key associates and their knowledge, relationships
and expertise; risks related to our dependence on strategic
relationships and third party suppliers; risks inherent with
business acquisitions and combinations and the integration thereof
into our business or relating to disputes involving such
acquisitions or combinations; risks associated with volatility and
disruption resulting from global economic or market conditions;
significant competition and our ability to quickly respond to
market changes, changing technologies and evolving pricing and
deployment methods and to bring competitive new solutions, devices,
features and services to market in a timely fashion; managing
growth in the new markets in which we offer solutions, health care
devices or services; long sales cycles for our solutions and
services; risks inherent in contracting with government clients,
including without limitation, complying with strict compliance and
disclosure obligations, navigating complex procurement rules and
processes and defending against bid protests; risks associated with
our outstanding and future indebtedness, such as compliance with
restrictive covenants, which may limit our flexibility to operate
our business; changes in accounting standards; the potential for
losses resulting from asset impairment charges; 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; non-compliance
with laws, government regulation or certain industry initiatives or
failure to deliver solutions or services that enable our clients to
comply with laws or regulations applicable to their businesses;
variations in our quarterly operating results; potential variations
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; inability to manage organizational change and
reduce expenses and costs to the extent currently anticipated;
risks that Cerner’s revenue growth may be lower than anticipated
and/or that the mix of revenue shifts to low margin revenue; risk
that our capital programs will not be fully implemented or enhance
long-term shareholder value; and risks that Cerner’s business may
be negatively affected as a result of future proxy fights or the
actions of activist shareholders. 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 or revise 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.
Investor Contact: Allan Kells, (816)
201-2445, akells@cerner.comMedia Contact:
Misti Preston, (816) 299-2037,
misti.preston@cerner.com
|
|
|
|
|
|
|
CERNER CORPORATION AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS |
For the three and nine months ended September 28, 2019 and
September 29, 2018 |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
2019 |
|
|
2018 |
|
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
1,429,428 |
|
$ |
1,340,073 |
|
|
$ |
4,250,366 |
|
$ |
4,000,661 |
|
Costs of revenue |
|
|
271,778 |
|
|
230,332 |
|
|
|
793,655 |
|
|
700,393 |
|
Margin |
|
|
1,157,650 |
|
|
1,109,741 |
|
|
|
3,456,711 |
|
|
3,300,268 |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
Sales and client service |
|
|
707,743 |
|
|
605,946 |
|
|
|
2,026,825 |
|
|
1,830,999 |
|
Software development |
|
|
187,526 |
|
|
172,297 |
|
|
|
548,934 |
|
|
502,192 |
|
General and administrative |
|
|
152,321 |
|
|
102,789 |
|
|
|
398,305 |
|
|
290,547 |
|
Amortization of acquisition-related intangibles |
|
|
21,283 |
|
|
21,553 |
|
|
|
64,809 |
|
|
65,872 |
|
Total operating expenses |
|
|
1,068,873 |
|
|
902,585 |
|
— |
|
3,038,873 |
|
|
2,689,610 |
|
|
|
|
|
|
|
|
Operating earnings |
|
|
88,777 |
|
|
207,156 |
|
|
|
417,838 |
|
|
610,658 |
|
|
|
|
|
|
|
|
Other income, net |
|
|
13,535 |
|
|
6,943 |
|
|
|
44,973 |
|
|
18,404 |
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
102,312 |
|
|
214,099 |
|
|
|
462,811 |
|
|
629,062 |
|
Income taxes |
|
|
(20,377 |
) |
|
(44,718 |
) |
|
|
(87,688 |
) |
|
(130,323 |
) |
Net earnings |
|
$ |
81,935 |
|
$ |
169,381 |
|
|
$ |
375,123 |
|
$ |
498,739 |
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.26 |
|
$ |
0.51 |
|
|
$ |
1.17 |
|
$ |
1.51 |
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
315,876 |
|
|
329,342 |
|
|
|
320,282 |
|
|
330,789 |
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.26 |
|
$ |
0.51 |
|
|
$ |
1.16 |
|
$ |
1.49 |
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding |
|
|
319,113 |
|
|
332,937 |
|
|
|
323,361 |
|
|
334,493 |
|
|
|
|
|
|
|
|
Note 1: Our revenues by business model for the
three and nine months ended September 28, 2019 and September 29,
2018 were as follows: |
|
|
|
|
|
|
|
(In thousands) |
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
2019 |
|
|
2018 |
|
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
Licensed software |
|
$ |
154,533 |
|
$ |
139,888 |
|
|
$ |
506,123 |
|
$ |
447,095 |
|
Technology resale |
|
|
70,175 |
|
|
60,378 |
|
|
|
186,450 |
|
|
199,011 |
|
Subscriptions |
|
|
91,904 |
|
|
79,115 |
|
|
|
265,965 |
|
|
238,702 |
|
Professional services |
|
|
507,455 |
|
|
456,725 |
|
|
|
1,483,201 |
|
|
1,345,311 |
|
Managed services |
|
|
302,435 |
|
|
302,000 |
|
|
|
904,479 |
|
|
855,857 |
|
Support and maintenance |
|
|
277,294 |
|
|
277,780 |
|
|
|
830,668 |
|
|
841,300 |
|
Reimbursed travel |
|
|
25,632 |
|
|
24,187 |
|
|
|
73,480 |
|
|
73,385 |
|
Total revenues |
|
$ |
1,429,428 |
|
$ |
1,340,073 |
|
|
$ |
4,250,366 |
|
$ |
4,000,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CERNER CORPORATION AND SUBSIDIARIES |
RECONCILIATION OF GAAP RESULTS TO NON-GAAP
RESULTS |
For the three and nine months ended September 28, 2019 and
September 29, 2018 |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
ADJUSTED OPERATING EXPENSES |
|
|
|
|
|
|
|
(In thousands) |
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
2019 |
|
|
2018 |
|
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
Operating expenses (GAAP) |
|
$ |
1,068,873 |
|
$ |
902,585 |
|
|
$ |
3,038,873 |
|
$ |
2,689,610 |
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
|
(31,782 |
) |
|
(26,882 |
) |
|
|
(77,651 |
) |
|
(79,620 |
) |
Health Services acquisition-related amortization |
|
|
(20,612 |
) |
|
(20,685 |
) |
|
|
(62,571 |
) |
|
(62,833 |
) |
Organizational restructuring and other expense |
|
|
(117,403 |
) |
|
(2,924 |
) |
|
|
(174,396 |
) |
|
(2,924 |
) |
Charge related to client dispute |
|
|
— |
|
|
— |
|
|
|
(20,000 |
) |
|
— |
|
Vendor settlement |
|
|
— |
|
|
— |
|
|
|
(6,791 |
) |
|
— |
|
|
|
|
|
|
|
|
Adjusted Operating Expenses (non-GAAP) |
|
$ |
899,076 |
|
$ |
852,094 |
|
|
$ |
2,697,464 |
|
$ |
2,544,233 |
|
|
|
|
|
|
|
|
ADJUSTED OPERATING EARNINGS AND ADJUSTED OPERATING
MARGIN |
|
|
|
|
|
|
|
(In thousands) |
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
2019 |
|
|
2018 |
|
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
Operating earnings (GAAP) |
|
$ |
88,777 |
|
$ |
207,156 |
|
|
$ |
417,838 |
|
$ |
610,658 |
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
|
31,782 |
|
|
26,882 |
|
|
|
77,651 |
|
|
79,620 |
|
Health Services acquisition-related amortization |
|
|
20,612 |
|
|
20,685 |
|
|
|
62,571 |
|
|
62,833 |
|
Organizational restructuring and other expense |
|
|
117,403 |
|
|
2,924 |
|
|
|
174,396 |
|
|
2,924 |
|
Charge related to client dispute |
|
|
— |
|
|
— |
|
|
|
20,000 |
|
|
— |
|
Vendor settlement |
|
|
— |
|
|
— |
|
|
|
6,791 |
|
|
— |
|
|
|
|
|
|
|
|
Adjusted Operating Earnings (non-GAAP) |
|
$ |
258,574 |
|
$ |
257,647 |
|
|
$ |
759,247 |
|
$ |
756,035 |
|
|
|
|
|
|
|
|
Operating Margin (GAAP) |
|
|
6.21 |
% |
|
15.46 |
% |
|
|
9.83 |
% |
|
15.26 |
% |
|
|
|
|
|
|
|
Adjusted Operating Margin (non-GAAP) |
|
|
18.09 |
% |
|
19.23 |
% |
|
|
17.86 |
% |
|
18.90 |
% |
|
|
|
|
|
|
|
ADJUSTED NET EARNINGS AND ADJUSTED DILUTED EARNINGS PER
SHARE |
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
2019 |
|
|
2018 |
|
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
Net earnings (GAAP) |
|
$ |
81,935 |
|
$ |
169,381 |
|
|
$ |
375,123 |
|
$ |
498,739 |
|
|
|
|
|
|
|
|
Pre-tax adjustments for Adjusted Net Earnings: |
|
|
|
|
|
|
Share-based compensation expense |
|
|
31,782 |
|
|
26,882 |
|
|
|
77,651 |
|
|
79,620 |
|
Health Services acquisition-related amortization |
|
|
20,612 |
|
|
20,685 |
|
|
|
62,571 |
|
|
62,833 |
|
Organizational restructuring and other expense |
|
|
117,403 |
|
|
2,924 |
|
|
|
174,396 |
|
|
2,924 |
|
Charge related to client dispute |
|
|
— |
|
|
— |
|
|
|
20,000 |
|
|
— |
|
Vendor settlement |
|
|
— |
|
|
— |
|
|
|
6,791 |
|
|
— |
|
Investment gains |
|
|
(8,722 |
) |
|
— |
|
|
|
(24,231 |
) |
|
— |
|
|
|
|
|
|
|
|
After-tax adjustments for Adjusted Net Earnings: |
|
|
|
|
|
|
Income tax effect of pre-tax adjustments |
|
|
(32,079 |
) |
|
(10,545 |
) |
|
|
(60,411 |
) |
|
(30,098 |
) |
Share-based compensation permanent tax items |
|
|
727 |
|
|
121 |
|
|
|
(6,961 |
) |
|
(3,615 |
) |
|
|
|
|
|
|
|
Adjusted Net Earnings (non-GAAP) |
|
$ |
211,658 |
|
$ |
209,448 |
|
|
$ |
624,929 |
|
$ |
610,403 |
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding |
|
|
319,113 |
|
|
332,937 |
|
|
|
323,361 |
|
|
334,493 |
|
|
|
|
|
|
|
|
Adjusted Diluted Earnings Per Share (non-GAAP) |
|
$ |
0.66 |
|
$ |
0.63 |
|
|
$ |
1.93 |
|
$ |
1.82 |
|
|
|
|
|
|
|
|
FREE CASH FLOW |
|
|
|
|
|
|
|
(In thousands) |
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
2019 |
|
|
2018 |
|
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
Cash flows from operating activities (GAAP) |
|
$ |
351,448 |
|
$ |
338,454 |
|
|
$ |
875,524 |
|
$ |
1,047,120 |
|
Capital purchases |
|
|
(110,714 |
) |
|
(116,957 |
) |
|
|
(388,588 |
) |
|
(305,951 |
) |
Capitalized software development costs |
|
|
(66,382 |
) |
|
(66,171 |
) |
|
|
(211,284 |
) |
|
(209,122 |
) |
Free Cash Flow (non-GAAP) |
|
$ |
174,352 |
|
$ |
155,326 |
|
|
$ |
275,652 |
|
$ |
532,047 |
|
|
|
|
|
|
|
|
Cash flows from investing activities (GAAP) |
|
$ |
(145,100 |
) |
$ |
(350,912 |
) |
|
$ |
(436,387 |
) |
$ |
(562,094 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities (GAAP) |
|
$ |
(407,953 |
) |
$ |
4,576 |
|
|
$ |
(312,805 |
) |
$ |
(345,704 |
) |
|
|
|
|
|
|
|
Explanation of Non-GAAP Financial Measures |
|
|
|
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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 Operating Expenses, Adjusted Operating
Earnings, Adjusted Operating Margin, 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, and for management compensation purposes. |
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We calculate each of our non-GAAP financial measures as
follows: |
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Adjusted Operating Expenses - Consists of GAAP
operating expenses adjusted for: (i) share-based compensation
expense, (ii) Health Services acquisition-related amortization,
(iii) organizational restructuring and other expense, (iv) a charge
related to a client dispute, and (v) a vendor settlement. |
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Adjusted Operating Earnings - Consists of GAAP
operating earnings adjusted for: (i) share-based compensation
expense, (ii) Health Services acquisition-related amortization,
(iii) organizational restructuring and other expense, (iv) a charge
related to a client dispute, and (v) a vendor settlement. |
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Adjusted Operating Margin - Consists of Adjusted
Operating Earnings, as defined above, divided by revenues, in the
applicable period; the result presented as a percentage. |
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Adjusted Net Earnings - Consists of GAAP net
earnings adjusted for: (i) share-based compensation expense, (ii)
Health Services acquisition-related amortization, (iii)
organizational restructuring and other expense, (iv) a charge
related to a client dispute, (v) a vendor settlement, (vi)
investment gains, (vii) the income tax effect of the aforementioned
items, and (viii) share-based compensation permanent tax
items. |
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Adjusted Diluted Earnings Per Share - Consists of
Adjusted Net Earnings, as defined above, divided by diluted
weighted average shares outstanding, in the applicable period. |
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Free Cash Flow - Consists of GAAP cash flows from
operating activities, less capital purchases and capitalized
software development costs. |
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Adjustments included in the calculations above are described
below: |
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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: |
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|
(In thousands) |
|
Three Months Ended |
|
Nine Months Ended |
|
|
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2019 |
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2018 |
|
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2019 |
|
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2018 |
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|
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Sales and client service |
|
$ |
14,671 |
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$ |
10,131 |
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$ |
39,019 |
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$ |
35,917 |
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Software development |
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|
4,191 |
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|
5,206 |
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|
12,769 |
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|
16,367 |
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General and administrative |
|
|
12,920 |
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|
11,545 |
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|
|
25,863 |
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|
27,336 |
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Total share-based compensation expense |
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$ |
31,782 |
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$ |
26,882 |
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$ |
77,651 |
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$ |
79,620 |
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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." |
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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: |
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(In thousands) |
|
Three Months Ended |
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Nine Months Ended |
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|
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2019 |
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2018 |
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|
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2019 |
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2018 |
|
|
|
|
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|
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Sales and client service |
|
$ |
59,602 |
|
$ |
— |
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|
$ |
59,602 |
|
$ |
— |
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General and administrative |
|
|
57,801 |
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|
2,924 |
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|
|
114,794 |
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|
2,924 |
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Total organizational restructuring and other expense |
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$ |
117,403 |
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$ |
2,924 |
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$ |
174,396 |
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$ |
2,924 |
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Charge related to client dispute - Consists of a pre-tax charge
related to a dispute with a current client. We have excluded this
charge as we believe the amount of such charge does not directly
correlate to the underlying performance of our business operations
in the period it was recorded. Such charge is included in our
Condensed Consolidated Statements of Operations in the caption
"Sales and client service" expense. |
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Vendor Settlement - Consists of a pre-tax charge to settle disputes
with a former vendor. We have excluded this charge as we believe
the amount of such charge does not directly correlate to the
underlying performance of our business operations in the period it
was recorded. Such charge is included in our Condensed Consolidated
Statements of Operations in the caption "General and
administrative" expense. |
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Investment gains - Consists of a $16 million gain recognized on the
disposition of one of our equity investments in the second quarter
of 2019, and a $9 million unrealized gain recognized in the third
quarter of 2019 on another one of our equity investments, both of
which were accounted for in accordance with Accounting Standards
Codification Topic 321, Investments-Equity Securities. We have
excluded these gains as we believe the amounts of such gains do not
directly correlate to the underlying performance of our business
operations in the periods they were recorded. Such gains are
included in our Condensed Consolidated Statements of Operations in
the caption "Other income, net." |
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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. |
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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." |
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CERNER CORPORATION AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
As of September 28, 2019 and December 29, 2018 |
(unaudited) |
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(In thousands) |
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2019 |
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2018 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ |
496,430 |
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$ |
374,126 |
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Short-term investments |
|
136,266 |
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|
401,285 |
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Receivables, net |
|
1,154,980 |
|
|
1,183,494 |
|
Inventory |
|
23,155 |
|
|
25,029 |
|
Prepaid expenses and other |
|
402,247 |
|
|
334,870 |
|
Total current assets |
|
2,213,078 |
|
|
2,318,804 |
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Property and equipment, net |
|
1,865,924 |
|
|
1,743,575 |
|
Right-of-use assets |
|
121,746 |
|
|
— |
|
Software development costs, net |
|
935,170 |
|
|
894,512 |
|
Goodwill |
|
844,926 |
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|
847,544 |
|
Intangible assets, net |
|
347,376 |
|
|
405,305 |
|
Long-term investments |
|
403,435 |
|
|
300,046 |
|
Other assets |
|
205,775 |
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|
198,850 |
|
Total assets |
$ |
6,937,430 |
|
$ |
6,708,636 |
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Liabilities and Shareholders’ Equity |
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Current liabilities: |
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Accounts payable |
$ |
275,916 |
|
$ |
293,534 |
|
Current installments of long-term debt and capital lease
obligations |
|
— |
|
|
4,914 |
|
Deferred revenue |
|
308,444 |
|
|
399,189 |
|
Accrued payroll and tax withholdings |
|
264,049 |
|
|
195,931 |
|
Other current liabilities |
|
153,187 |
|
|
69,122 |
|
Total current liabilities |
|
1,001,596 |
|
|
962,690 |
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Long-term debt |
|
1,038,567 |
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|
438,802 |
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Deferred income taxes |
|
353,711 |
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|
336,379 |
|
Other liabilities |
|
132,289 |
|
|
42,376 |
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Total liabilities |
|
2,526,163 |
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|
1,780,247 |
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Shareholders’ Equity: |
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|
Common stock |
|
3,662 |
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|
3,622 |
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Additional paid-in capital |
|
1,806,939 |
|
|
1,559,562 |
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Retained earnings |
|
5,836,984 |
|
|
5,576,525 |
|
Treasury stock |
|
(3,107,768 |
) |
|
(2,107,768 |
) |
Accumulated other comprehensive loss, net |
|
(128,550 |
) |
|
(103,552 |
) |
Total shareholders’ equity |
|
4,411,267 |
|
|
4,928,389 |
|
Total liabilities and shareholders’ equity |
$ |
6,937,430 |
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$ |
6,708,636 |
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CERNER CORPORATION AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS |
For the three and nine months ended September 28, 2019 and
September 29, 2018 |
(unaudited) |
|
|
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|
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|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
(In thousands) |
|
|
2019 |
|
|
2018 |
|
|
|
2019 |
|
|
2018 |
|
|
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CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
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Net earnings |
|
$ |
81,935 |
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$ |
169,381 |
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$ |
375,123 |
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$ |
498,739 |
|
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
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|
|
Depreciation and amortization |
|
|
173,073 |
|
|
161,103 |
|
|
|
509,559 |
|
|
473,748 |
|
Share-based compensation expense |
|
|
30,537 |
|
|
25,209 |
|
|
|
73,421 |
|
|
74,348 |
|
Provision for deferred income taxes |
|
|
7,639 |
|
|
14,676 |
|
|
|
22,793 |
|
|
16,412 |
|
Investment gains |
|
|
(8,722 |
) |
|
— |
|
|
|
(24,231 |
) |
|
— |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
Receivables, net |
|
|
72,397 |
|
|
(64,003 |
) |
|
|
24,558 |
|
|
(250,042 |
) |
Inventory |
|
|
2 |
|
|
(9,396 |
) |
|
|
1,877 |
|
|
(9,006 |
) |
Prepaid expenses and other |
|
|
857 |
|
|
(18,982 |
) |
|
|
(75,191 |
) |
|
162,053 |
|
Accounts payable |
|
|
(28,326 |
) |
|
(21,602 |
) |
|
|
(3,346 |
) |
|
21,762 |
|
Accrued income taxes |
|
|
774 |
|
|
(17,069 |
) |
|
|
(795 |
) |
|
(9,150 |
) |
Deferred revenue |
|
|
(11,310 |
) |
|
74,448 |
|
|
|
(89,400 |
) |
|
34,316 |
|
Other accrued liabilities |
|
|
32,592 |
|
|
24,689 |
|
|
|
61,156 |
|
|
33,940 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
351,448 |
|
|
338,454 |
|
|
|
875,524 |
|
|
1,047,120 |
|
|
|
|
|
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CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
Capital purchases |
|
|
(110,714 |
) |
|
(116,957 |
) |
|
|
(388,588 |
) |
|
(305,951 |
) |
Capitalized software development costs |
|
|
(66,382 |
) |
|
(66,171 |
) |
|
|
(211,284 |
) |
|
(209,122 |
) |
Purchases of investments |
|
|
(177,256 |
) |
|
(282,564 |
) |
|
|
(317,979 |
) |
|
(477,156 |
) |
Sales and maturities of investments |
|
|
217,589 |
|
|
122,711 |
|
|
|
507,258 |
|
|
454,439 |
|
Purchase of other intangibles |
|
|
(8,337 |
) |
|
(7,931 |
) |
|
|
(25,794 |
) |
|
(24,304 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(145,100 |
) |
|
(350,912 |
) |
|
|
(436,387 |
) |
|
(562,094 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
Long-term debt issuance |
|
|
— |
|
|
— |
|
|
|
600,000 |
|
|
— |
|
Repayment of long-term debt |
|
|
— |
|
|
— |
|
|
|
— |
|
|
(75,000 |
) |
Proceeds from exercise of stock options |
|
|
63,474 |
|
|
60,658 |
|
|
|
188,474 |
|
|
82,001 |
|
Payments to taxing authorities in connection with shares directly
withheld from associates |
|
|
(10,134 |
) |
|
(2,441 |
) |
|
|
(14,994 |
) |
|
(9,749 |
) |
Treasury stock purchases |
|
|
(400,000 |
) |
|
(57,586 |
) |
|
|
(1,020,542 |
) |
|
(345,210 |
) |
Dividends paid |
|
|
(57,293 |
) |
|
— |
|
|
|
(57,293 |
) |
|
— |
|
Other |
|
|
(4,000 |
) |
|
3,945 |
|
|
|
(8,450 |
) |
|
2,254 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(407,953 |
) |
|
4,576 |
|
|
|
(312,805 |
) |
|
(345,704 |
) |
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(4,889 |
) |
|
(4,472 |
) |
|
|
(4,028 |
) |
|
(11,631 |
) |
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(206,494 |
) |
|
(12,354 |
) |
|
|
122,304 |
|
|
127,691 |
|
Cash and cash equivalents at beginning of period |
|
|
702,924 |
|
|
510,968 |
|
|
|
374,126 |
|
|
370,923 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
496,430 |
|
$ |
498,614 |
|
|
$ |
496,430 |
|
$ |
498,614 |
|
|
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|
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|
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