Cerner Reports First Quarter 2008 Results

KANSAS CITY, Mo.--(BUSINESS WIRE)--Cerner Corp. (NASDAQ: CERN) today announced results for the 2008 first quarter that ended March 29, delivering strong levels of bookings, margin expansion, earnings, and cash flow.

Bookings in the first quarter of 2008 were $346.6 million. First quarter 2007 bookings were $353.0 million, including $50 million of higher than expected bookings from managed services contracts. First quarter 2008 bookings are 14 percent higher than adjusted first quarter 2007 bookings of $303.0 million. First quarter revenue increased 5 percent over the year-ago period to $384.8 million, with good growth in software, managed services, and support revenue being somewhat offset by declines in hardware revenue.

On a Generally Accepted Accounting Principles (GAAP) basis, first quarter 2008 net earnings were $36.8 million, and diluted earnings per share were $0.44. First quarter 2007 GAAP net earnings were $27.7 million, and diluted earnings per share were $0.34.

Adjusted (Non-GAAP) Earnings

Adjusted first quarter 2008 net earnings were $39.1 million, which is 30 percent higher than the $30.1 million of adjusted net earnings in the first quarter of 2007. Adjusted diluted earnings per share were $0.47 in the first quarter of 2008 compared to $0.36 in the first quarter of 2007. Analysts’ consensus estimate for first quarter 2008 adjusted diluted earnings per share was $0.44.

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 first quarter 2008 and 2007 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 first quarter 2008 net earnings and diluted earnings per share by $2.2 million and $0.03, respectively, and reduced first quarter 2007 net earnings and diluted earnings per share by $2.4 million and $0.03, respectively.

Other First Quarter Highlights:

• Cash collections of $427 million and operating cash flow of $51 million, up from $42 million in the first quarter of 2007.
• Days sales outstanding of 92 days compared to 89 days in the year-ago quarter.
• Total revenue backlog of $3.35 billion, up 21 percent over the year-ago quarter. This is comprised of $2.79 billion of contract backlog and $555.7 million of support and maintenance backlog.
• Completed 394 Cerner Millennium^® solution conversions. Cerner has now turned on nearly 8,000 Cerner Millennium solutions at nearly 1,300 client facilities worldwide.

“We are pleased with our results in the first quarter,” said Neal Patterson, Cerner co-founder, chairman and chief executive officer. “While declines in revenue from hardware sales, a non-core element of our business, continue to impact our overall revenue growth, our fundamentals remain sound, as evidenced by the strong margin expansion, earnings growth and cash flow growth we delivered this quarter.

“We believe Cerner offers a significant value proposition to healthcare, the largest segment of our economy. And the substantial value of the large and strategic client base we have built over the past 29 years, coupled with our strategic initiatives that are expanding our boundaries to address a much bigger portion of healthcare, position Cerner for another wave of strong growth,” Patterson said.

Future Period Guidance

The company expects revenue in the second quarter of 2008 to be approximately $390 million to $405 million. For the year 2008, Cerner expects revenue growth of approximately 10 percent over 2007.

Cerner expects adjusted diluted earnings per share before stock options expense in the second quarter to be between $0.50 and $0.51. For the 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 previous consensus of $2.14 per share plus the $0.03 cent over attainment in the first quarter, resulting in a full-year estimate of $2.17.

The company expects SFAS No. 123R share-based compensation expense to reduce diluted earnings per share in the second quarter and full year by approximately $0.03 and $0.12 to $0.13, respectively.

Cerner expects new business bookings in the second quarter of 2008 to be between $370 million and $400 million.

Share Repurchase Program

Cerner also announced today that its board of directors has approved a stock repurchase program, authorizing the repurchase of up to $45 million of common stock. At current prices, the Company believes the repurchase of stock is a good use of funds. The Company plans to execute this program by repurchasing shares from time to time in the open market, by block purchase, or possibly through other transactions managed by broker-dealers. Based on today’s closing price, approximately 1.1 million shares could be repurchased if the repurchase program is fully exercised.

Earnings Conference Call

Cerner will host an earnings conference call to provide additional detail on first quarter results at 3:30 p.m. CT, April 22. The dial-in number for the conference call is 617-213-8834; 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. CT, April 22 through 11:59 p.m. CT, April 25. The dial-in number for the re-broadcast is 617-801-6888; the passcode is 95203537. 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 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 “believe,” “positions,” “guidance,” “expects,” and “comfortable”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; 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; risks associated with our global operations; risks associated with our ability to effectively hedge exposure to fluctuations in foreign currency exchange rates; risks associated with our recruitment and retention of key personnel; risks related to our reliance on 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; potential inconsistencies in our sales forecasts compared to actual sales; and the volatility in the trading price of our common stock. 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 STATEMENT OF EARNINGS (unaudited)
			Three Months Ended March 29, 20081			Three Months Ended March 31, 20071
(In thousands, except per share data)
Revenue
System sales		$	116,231			122,870
Support, maintenance and services			259,794			233,889
Reimbursed travel			8,740			9,093
Total revenue			384,765			365,852
Margin
System sales			76,049			75,870
Support, maintenance and services			244,342			217,519
Total margin			320,391			293,389
Operating expenses
Sales and client service			171,082			157,158
Software development (Includes amortization of software development costs of $11,017 and $13,331, respectively.)			69,164			66,598
General and administrative			23,679			26,455
Total operating expenses			263,925			250,211
Operating earnings			56,466			43,178
Interest income			3,829			3,129
Interest expense			(2,799	)		(3,009	)
Other income			(213	)		(322	)
Non-operating income (expense), net			817			(202	)
Earnings before income taxes			57,283			42,976
Income taxes			(20,467	)		(15,265	)
Net earnings		$	36,817			27,711
Basic earnings per share		$	0.46			0.35
Basic weighted average shares outstanding			80,382			78,771
Diluted earnings per share		$	0.44			0.34
Diluted weighted average shares outstanding			83,529			82,648
Note 1: Operating expenses for the three months ended March 29, 2008 and March 31, 2007 include share-based compensation expense. The impact of this expense on net earnings is presented below:
			Three Months Ended March 29, 2008			Three Months Ended March 31, 2007
Sales and client service			$ 1,835			$ 2,358
Software development			776			767
General and administrative			951			686
Amount of related income tax benefit			(1,327	)		(1,458	)
Net impact on net earnings			$ 2,235			$ 2,353
Decrease to diluted earnings per share			$ 0.03			$ 0.03

CERNER CORPORATION
Reconciliation of Adjusted Net Earnings and Adjusted Diluted Earnings Per Share to GAAP Net Earnings and Diluted Earnings Per Share1
(unaudited)
		Three Months Ended			Three Months Ended
Net Earnings		March 29, 2008			March 31, 2007
(In thousands)
Net earnings		$ 36,817			$ 27,711
Share-based compensation expense2		3,562			3,811
Income tax benefit of share-based compensation2		(1,327	)		(1,458	)
Adjusted net earnings (non-GAAP)		$ 39,052			$ 30,064
Diluted Earnings Per Share
Diluted earnings per share2		$ 0.44			$ 0.34
Share-based compensation expense (net of tax)2		0.03			0.03
Adjusted diluted earnings per share (non-GAAP)		$ 0.47			0.36
Note 1: The presentation of Adjusted Net Earnings, a Non-GAAP financial measure, is not meant to be considered in isolation, as a substitute for, or superior to, Generally Accepted Accounting Principles (GAAP) results and investors should be aware that non-GAAP measures have inherent limitations and should be read only in conjunction with the Company’s consolidated financial statements prepared in accordance with GAAP. Adjusted Net Earnings 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 calculation. The Company believes that Adjusted Net Earnings is important to enable investors to better understand and evaluate its ongoing operating results and allows for greater transparency in the review of its overall financial, operational and economic performance.
Note 2: The Company provides earnings with and without stock options expense because earnings excluding this expense are used by management along with GAAP results to analyze our business, make strategic decisions and for management compensation purposes.

CERNER CORPORATION CONSOLIDATED BALANCE SHEETS
(In thousands)			March 29,		December 29,
			2008		2007
Assets			(unaudited)
Cash and cash equivalents		$	250,509		182,914
Short-term investments			545		161,600
Receivables, net			388,257		391,060
Inventory			12,253		10,744
Prepaid expenses and other			69,250		61,878
Deferred income taxes			10,318		10,368
Total current assets			731,132		818,564
Property and equipment, net			479,872		462,839
Software development costs, net			207,386		200,380
Goodwill, net			145,370		143,924
Intangible assets, net			43,095		46,854
Long-term investments			101,311		-
Other assets			17,045		17,395
Total assets		$	1,725,211		1,689,956
Liabilities
Accounts payable		$	76,727		79,812
Current installments of long-term debt			14,105		14,260
Deferred revenue			102,964		98,802
Accrued payroll and tax withholdings			67,337		65,011
Other accrued expenses			20,389		30,238
Total current liabilities			281,522		288,123
Long-term debt			177,454		177,606
Deferred income taxes			70,183		68,738
Deferred revenue			17,788		21,775
Total liabilities			546,947		556,242
Minority owners' equity interest in subsidiary			1,286		1,286
Stockholders' Equity
Common stock			805		801
Additional paid-in capital			465,474		451,876
Retained earnings			708,257		671,440
Foreign currency translation adjustment			2,442		8,311
Total stockholders' equity			1,176,978		1,132,428
Total liabilities and equity		$	1,725,211		1,689,956