OREANDA-NEWS. August 03, 2016. Cerner Corporation (Nasdaq: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