Solid First Quarter Results Despite Initial Impact from COVID-19 Pandemic
Cerner Corporation (Nasdaq: CERN) today announced results for the 2020 first quarter that ended March 31, 2020.
Bookings in the first quarter of 2020 were $1.09 billion, at the low end of the Company’s expectations as the outbreak of the COVID-19 pandemic in mid-March caused the volume of contracts to be lower than normal in the last two weeks of the quarter.
First quarter 2020 revenue was $1.41 billion, an increase of 2 percent compared to $1.39 billion in the first quarter of 2019 and slightly below the company’s expectations due to the lower level of bookings in the quarter as well as travel restrictions implemented by the company in response to the pandemic.
On a U.S. Generally Accepted Accounting Principles (GAAP) basis, first quarter 2020 net earnings were $147 million and diluted earnings per share were $0.47. First quarter 2019 GAAP net earnings were $166 million and diluted earnings per share were $0.51.
Adjusted Net Earnings for first quarter 2020 were $223 million, compared to $199 million of Adjusted Net Earnings in the first quarter of 2019. Adjusted Diluted Earnings Per Share were $0.71 in the first quarter of 2020, in line with the Company’s expectations and up 16 percent compared to $0.61 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.
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 Brent Shafer, Chairman and CEO. “More importantly, I am proud of the efforts of Cerner associates as they quickly adapted to the challenges presented by the pandemic while maintaining an unwavering focus on supporting our clients on the frontlines. While we expect the pandemic to continue affecting our results, we currently believe that the largest impact will occur in second quarter 2020 and expect resiliency in our future financial performance.”
Future Period Guidance
Cerner currently expects:
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
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 April 28, 2020. On the call, Cerner will discuss its first quarter 2020 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).
Cerner’s health technologies connect people and information systems in thousands of worldwide facilities 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”, “target”, “opportunity”, “projections”, “aim”, “think” 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 and service-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; material adverse resolution of legal proceedings or other claims or reputational harm stemming from negative publicity related to such claims or legal proceedings; 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, including any impact to the business of such suppliers resulting from the COVID-19 pandemic; risks inherent with business acquisitions or strategic investments and the failure to achieve projected synergies; risks associated with volatility and disruption resulting from global economic or market conditions, including any impact thereon resulting from events such as the COVID-19 pandemic; significant competition and our ability to anticipate or respond quickly 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; 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; inability to achieve expected operating efficiencies and sustain or improve operating expense reductions; risks that Cerner’s revenue growth may be lower than anticipated and/or that the mix of revenue shifts to low margin revenue; and risk that our capital allocation strategy will not be fully implemented or enhance long-term shareholder value; and the extent to which the COVID-19 pandemic and measures taken in response thereto could adversely affect our financial condition, future bookings and results of operations, including risks associated with the impact of the COVID-19 pandemic on collecting accounts receivable. 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.