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Strong Earnings Growth, Margin Expansion, and Cash Flow
KANSAS CITY, Mo. — Jan. 31, 2008 — Cerner Corp. (NASDAQ: CERN) today announced results for the 2007 fourth quarter that ended Dec. 29, delivering strong levels of bookings, margin expansion, earnings and cash flow.
Bookings in the fourth quarter 2007 were $406.6 million, which is up 5 percent from the fourth quarter of 2006 of $389.0 (excluding $154.2 million related to Cerner’s participation in the National Health Service’s (NHS) National Programme for IT in England). Full-year 2007 bookings were $1.51 billion (excluding $97.8 million related to National Programme for IT), up 14 percent compared to 2006 bookings of $1.32 billion (excluding $154.2 million related to National Programme for IT). Fourth quarter revenue increased 4 percent over the year-ago period to $394.5 million. Full-year 2007 revenue increased 10 percent to $1.52 billion.
On a Generally Accepted Accounting Principles (GAAP) basis, fourth quarter 2007 net earnings were $41.3 million, and diluted earnings per share were $0.49. Fourth quarter 2006 GAAP net earnings were $39.1 million, and diluted earnings per share were $0.48.
Adjusted (non-GAAP) Earnings
Adjusted fourth quarter 2007 net earnings were $43.3 million, which is 27 percent higher than the $34.0 million of adjusted net earnings in the fourth quarter of 2006. Adjusted diluted earnings per share were $0.52 in the fourth quarter of 2007 compared to $0.41 in the fourth quarter of 2006. Analysts’ consensus estimate for fourth quarter 2007 adjusted diluted earnings per share was $0.51.
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 fourth quarter 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 fourth quarter 2007 and 2006 net earnings and diluted earnings per share exclude the impact of accounting pursuant to Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment, which requires the expensing of stock options. The effect of accounting under SFAS 123R reduced fourth quarter 2007 net earnings and diluted earnings per share by $2.6 million and $0.03, respectively, and reduced fourth quarter 2006 net earnings and diluted earnings per share by $2.8 million and $0.03, respectively.
Adjusted net earnings and diluted earnings per share exclude a research and development write-off related to the RxStation medication dispensing cabinets. In connection with production and delivery of the RxStation, the Company reviewed the accounting treatment for the RxStation line of devices and determined that $8.6 million of research & development activities for the Rx Station were incorrectly capitalized and should have been expensed. The impact of this charge is a $5.4 million decrease, net of $3.2 million tax benefit, in net earnings and a decrease to diluted earnings per share of $.06 in the year ended December 29, 2007. Of the $5.4 million net write-off, $2.9 million, or $.03 of diluted earnings per share, is included in GAAP results for the three months ended December 29, 2007, and excluded from adjusted results, with $2.1 million of this excluded amount related to periods prior to 2007. The remaining $2.5 million of net write-off relates to the first nine months of 2007 and was not previously included in the results of operations for those periods. The impact of these errors is not material to the previously reported 2007 periods; however, the Company has reflected the amounts in the quarterly period in which they occurred in the accompanying schedule, titled 'Revised Presentation of 2007 Quarterly GAAP Results.'
Adjusted net earnings and diluted earnings per share also exclude a tax benefit related to the over-expensing of state income taxes. The impact of this error is an increase to net earnings of $5.4 million and to diluted earnings per share of $.06 in the year ended December 29, 2007. Of the $5.4 million tax benefit, $3.8 million, or $.04 of diluted earnings per share, is included in GAAP results for the three months ended December 29, 2007, and is excluded from adjusted results, with $3.1 million of this excluded amount related to periods prior to 2007. The remaining $1.6 million tax benefit relates to the first nine months of 2007 and was not previously included in the results of operations for those periods. The impact of these errors is not material to the previously reported 2007 periods; however, the Company has reflected the amounts in the quarterly period in which they occurred in the accompanying schedule, titled 'Revised Presentation of 2007 Quarterly GAAP Results.'
Adjusted net earnings and diluted earnings per share also exclude a tax expense that resulted primarily because the Company did not record tax expense to reduce deferred tax assets to reflect a change in a foreign tax rate resulting from a law that was enacted in the third quarter of 2007. The impact of this error is a decrease to net earnings of $4.0 million and to diluted earnings per share of $.05 in the year ended December 29, 2007. Of the $4.0 million tax expense, $.4 million, or $.01 of diluted earnings per share, is included in GAAP results for the three months ended December 29, 2007, and excluded from adjusted earnings. The remaining $3.6 million tax expense relates to the third quarter of 2007 and was not previously included in the results of operations for that period. The impact of the error is not material to the previously reported 2007 period; however, the Company has reflected the amount in the quarterly period in which it occurred in the accompanying schedule, titled 'Revised Presentation of 2007 Quarterly GAAP Results.'
Fourth quarter 2006 adjusted net earnings and diluted earnings per share exclude a $7.9 million benefit of a lower tax rate related to the extension of the Federal Research and Development Credit and the recognition of certain state, federal and foreign tax benefits. This resulted in an increase of $.10 to diluted earnings per share for the fourth quarter of 2006.
Other Fourth Quarter Highlights:
• Cash collections of $413 million and operating cash flow of $92 million.
• Days sales outstanding of 90 days compared to 87 days in the year-ago quarter.
• Total revenue backlog of $3.25 billion, up 22 percent over the year-ago quarter. This is comprised of $2.71 billion of contract backlog and $541.1 million of support and maintenance backlog.
• 339 Cerner Millennium® solution implementations were completed. Cerner has now turned on more than 7,500 Cerner Millennium solutions at more than 1,200 client facilities worldwide.
“We are pleased with our results in the fourth quarter,” said Neal Patterson, Cerner co-founder, chairman and chief executive officer. “Our focus on margin expansion and cash flow generation is reflected in the very strong earnings growth and cash flow we delivered this quarter.
“With a solid 2007 behind us, we have a good outlook going into 2008. Solid execution of our 2008 financial and operational plans should result in strong revenue and earnings growth and accelerating free cash flow. We will also continue to innovate and execute on our strategic initiatives, which will allow us to redefine our boundaries as we approach the next decade,” Patterson said.
Future Period Guidance
The company expects revenue in the first quarter of 2008 to be approximately $390 million to $400 million. For the year 2008, Cerner continues to expect revenue growth of 10 percent to 12 percent over 2007.
Cerner expects adjusted diluted earnings per share before stock options expense in the first quarter to be between $0.43 and $0.44. For the full year 2008, Cerner continues to expect adjusted diluted earnings per share before stock options expense to grow more than 20 percent and is therefore comfortable with the current consensus of $2.14 per share, which reflects 22 percent growth.
The company expects SFAS No. 123R share-based compensation expense to reduce diluted earnings per share in the first quarter and full year by approximately $0.03 and $0.14, respectively.
Cerner expects new business bookings in the first quarter of 2008 to be between $330 million and $350 million, with the high end of the range equaling the record first quarter level last year, which included $50 million of over-attainment related to Cerner’s Managed Services business. This bookings guidance represents growth of 10% - 17% compared to first quarter 2006 bookings adjusted for the Managed Services over-attainment.
Earnings Conference Call
Cerner will host an earnings conference call to provide additional detail on fourth quarter results at 3:30 p.m. CT on Jan. 31. The dial-in number for the conference call is (617) 847-8712; 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 5:30 p.m. CST, Jan. 31 through 11:59 p.m. CST, Feb. 3. The dial-in number for the re-broadcast is (617) 801-6888; the passcode is 25870487.
An audio webcast will be available live and archived on Cerner’s Web site at www.cerner.com under the About Cerner section (click Investors, then Presentations and Webcasts).
About Cerner
Cerner Corp. is taking the paper chart out of healthcare, eliminating error, variance and waste in the care process. With more than 6,000 clients worldwide, Cerner is the leading supplier of healthcare information technology. The following are trademarks of Cerner: Cerner, Cerner Millennium and Cerner's logo. (NASDAQ: CERN), www.cerner.com
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 “outlook,” “should,” “allow,” “guidance” and “expects” or 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 subjected to infringement claims or may be infringed upon; risks associated with our global operations; our potential failure to effectively hedge against foreign currency exchange rate fluctuations; risks associated with the recruitment and retention of key personnel; risks related to third party suppliers; risks inherent with business acquisitions; changing political, economic and regulatory influences; government regulation; significant competition and market changes; variations in our quarterly operating results; and, potential inconsistencies in our sales forecasts compared to actual sales. 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
CONSOLIDATED BALANCE SHEETS
(In thousands) December 29, December 30,
2007 2006 (1)
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Assets (unaudited)
Cash and cash equivalents $ 182,914 162,545
Short-term investments 161,600 146,239
Receivables, net 391,060 361,424
Inventory 10,744 18,084
Prepaid expenses and other 61,878 55,272
Deferred income taxes 10,368 2,423
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Total current assets 818,564 745,987
Property and equipment, net 462,839 357,942
Software development costs, net 200,380 187,788
Goodwill, net 143,924 128,819
Intangible assets, net 46,854 54,428
Other assets 17,395 16,426
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Total assets $ 1,689,956 1,491,390
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Liabilities
Accounts payable $ 79,812 79,735
Current installments of long-term debt 14,260 20,242
Deferred revenue 98,802 93,699
Accrued payroll and tax withholdings 65,011 77,914
Other accrued expenses 13,909 29,741
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Total current liabilities 271,794 301,331
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Long-term debt 177,606 187,391
Deferred income taxes 85,067 64,531
Deferred revenue 21,775 14,557
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Total liabilities 556,242 567,810
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Minority owners' equity interest in
subsidiary 1,286 1,286
Stockholders' Equity
Common stock 801 784
Additional paid-in capital 451,876 376,595
Retained earnings 671,440 544,315
Foreign currency translation adjustment 8,311 600
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Total stockholders' equity 1,132,428 922,294
Total liabilities and equity $ 1,689,956 1,491,390
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Note 1: Includes an adjustment to correct the amounts previously
reported for the second quarter of 2007 for a previously disclosed
out-of-period tax item relating to foreign net operation losses. The
effect of this adjustment increases tax expense for the year ended
December 29, 2007, by $4.2 million and increases January 1, 2005
Retained Earnings for the same amount. The impact of this error is
not material to the periods to which they related and is also
presented in the accompanying schedule, titled "Revised Presentation
of 2007 Quarterly GAAP Results."
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