Cerner Delivers Strong Revenue and Earnings Growth; New Business Bookings a First Quarter Record
On a GAAP basis, first quarter 2006 net earnings were $20.1 million, and diluted earnings per share were $0.25. First quarter 2005 GAAP net earnings were $12.5 million and diluted earnings per share were $0.16. First quarter 2006 net earnings and diluted earnings per share reflect the impact of adopting Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment, which requires the expensing of stock options. Adoption of SFAS 123R reduced first quarter 2006 net earnings and diluted earnings per share by $2.9 million and $0.03, respectively. First quarter of 2005 included a charge for the write-off of acquired in-process research and development related to the acquisition of the medical division of VitalWorks, Inc. This charge impacted first quarter 2005 net earnings by $3.9 million and diluted earnings per share by $0.05.
“Cerner's first quarter also included progress at advancing several strategic initiatives”
Adjusting for these items, first quarter 2006 net earnings were $23.1 million, which is 40 percent higher than the $16.5 million of adjusted net earnings in the first quarter of 2005. Adjusted diluted earnings per share were $0.28 in the first quarter of 2006 and $0.21 in the first quarter of 2005. Analysts' consensus estimate for first quarter 2006 for diluted earnings per share before stock options expense was $0.27.
Other First Quarter Highlights:
-- Strong cash collections of $341.5 million.
-- Operating cash flow of $51.2 million compared to $44.3 million in the first quarter of 2005.
-- Days sales outstanding of 91 days compared to 99 days in the year-ago quarter and 89 days in the fourth quarter of 2005.
-- Total revenue backlog of $2.18 billion, up 36 percent over the year-ago quarter. This is comprised of $1.75 billion of contract backlog and $430.5 million of support and maintenance backlog.
-- 303 Cerner Millennium(R) solution implementations were completed. Cerner has now turned on more than 5,100 Cerner Millennium solutions at more than 950 client facilities worldwide.
"Our strong results in the first quarter represent a very good start to the year," said Neal Patterson, Cerner's co-founder, chairman and chief executive officer. "After a record 2005 in the U.S. and abroad, our first quarter results again included strong contribution from both our U.S. and global businesses, strengthening our position as a worldwide healthcare IT leader. With systems installed in 17 countries and offices in 13 countries, no other healthcare IT company has a comparable global presence.
"Cerner's first quarter also included progress at advancing several strategic initiatives," added Patterson. "By advancing new models for delivering regional health information networks, rolling out a new approach to delivering physician practice solutions, expanding condition management systems, and unveiling innovative medication dispensing devices, Cerner continued its role of leveraging our key strategies and using innovation to make healthcare safer, more efficient and of higher quality."
Future Period Guidance
The company expects revenue in the second quarter of 2006 to be approximately $320 million to $330 million. Cerner expects diluted earnings per share excluding stock options expense in the second quarter to be between $0.31 and $0.32. The company expects SFAS No. 123R share-based compensation expense to reduce diluted earnings per share in the second quarter by approximately $0.04, leading to expected diluted earnings per share between $0.27 and $0.28.
Cerner expects new business bookings in the second quarter to be between $305 million and $320 million, which reflects double-digit growth over the record bookings reported in the second quarter of 2005.
For the year 2006, Cerner expects diluted earnings per share of $1.35 to $1.36 before stock options expense, which reflects growth of approximately 24 percent over 2005 and is 1 cent higher than the company's prior guidance. The company expects SFAS No. 123R share-based compensation expense to reduce diluted earnings per share for 2006 by approximately $0.16, leading to expected diluted earnings per share of approximately $1.19 to $1.20. Cerner expects 2006 revenue to be between $1.31 billion and $1.35 billion, which is $10 million higher than the company's prior guidance.
Earnings Conference Call
Cerner will host an earnings conference call to provide additional detail on first quarter results at 3:30 p.m. CDT on April 20. The dial-in number for the call is 617-597-5324 with a pass code of Cerner. The replay number is 617-801-6888 (Pass code: 82773116). The rebroadcast of the call will be available from approximately 6:30 p.m. CDT, April 20, through 6:30 p.m. CDT, April 23.
An audio webcast will be available both live and archived on Cerner's Web site at www.cerner.com under the About Cerner section (click Investors, then Presentations and Webcasts). A copy of the script used during the call will also be available at the same section of www.cerner.com.
Cerner Corp. is taking the paper chart out of healthcare, eliminating error, variance and waste in the care process. With more than 1,500 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 "guidance" and "expects" 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 subjected to infringement claims or may be infringed upon; risks associated with our global operations; 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 the 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 STATEMENT OF EARNINGS
Three Months Three Months
Ended Ended
April 1, April 2,
(In thousands, except per share data) 2006 (1) 2005(2)
------------- ---------------
Revenue
System sales $ 116,850 99,942
Support, maintenance and services 195,585 156,001
Reimbursed travel 8,789 6,591
------------- ---------------
Total revenue 321,224 262,534
Margin
System sales 70,685 63,908
Support, maintenance and services 182,521 143,218
------------- ---------------
Total margin 253,206 207,126
------------- ---------------
Operating expenses
Sales and client service 139,524 110,840
Software development 59,017 49,329
General and administrative 22,671 17,922
Write-off of in process research and
development - 6,382
------------- ---------------
Total operating expenses 221,212 184,473
------------- ---------------
Operating earnings 31,994 22,653
Interest income 2,589 884
Interest expense (3,282) (2,626)
Other income 2,125 30
------------- ---------------
Non-operating income
(expense), net 1,432 (1,712)
Earnings before income taxes 33,426 20,941
Income taxes (13,282) (8,421)
------------- ---------------
Net earnings $ 20,144 12,520
============= ===============
Basic earnings per share $ 0.26 0.17
============= ===============
Basic weighted average shares
outstanding 77,156 73,480
Diluted earnings per share $ 0.25 0.16
============= ===============
Diluted weighted average shares
outstanding 81,406 76,588
Note 1: Operating expenses include share-based compensation expense.
The impact of this expense is $2.9 million, net of $1.8 million tax
benefit, in net earnings and a decrease to diluted earnings per share
of $.03 for 2006. The allocation of shared-based compensation expense
is $2.8 to Sales and client service, $1.1 to Software development, and
$.8 to General and administrative.
Note 2: Includes a charge for the write off of acquired in process
research and development related to the acquisition of the medical
business division of VitalWorks, Inc. The impact of this charge is a
$3.9 million decrease, net of $2.4 million tax benefit, in net
earnings and a decrease to diluted earnings per share of $.05 for
2005.
CERNER CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands) April 1, December 31,
2006 2005
----------- ------------
Assets
Cash and cash equivalents $ 103,890 113,057
Short-term investments 174,929 161,230
Receivables, net 320,439 316,965
Inventory 12,297 9,585
Prepaid expenses and other 49,844 42,685
Deferred income taxes 7,338 8,109
----------- ------------
Total current assets 668,737 651,631
Property and equipment, net 309,313 292,608
Software development costs, net 177,047 172,548
Goodwill, net 118,143 116,142
Intangible assets, net 58,842 60,448
Other assets 10,710 10,252
----------- ------------
Total assets $ 1,342,792 1,303,629
=========== ============
Liabilities
Accounts payable $ 58,065 65,377
Current installments of long-term debt 28,569 28,743
Deferred revenue 87,711 79,890
Accrued payroll and tax withholdings 65,939 66,002
Other accrued expenses 20,777 20,078
----------- ------------
Total current liabilities 261,061 260,090
----------- ------------
Long-term debt 191,555 194,265
Deferred income taxes 74,668 72,922
Deferred revenue 16,415 14,533
----------- ------------
Total liabilities 543,699 541,810
----------- ------------
Minority owners' equity interest in
subsidiary 1,286 1,286
Stockholders' Equity
Common stock 774 770
Additional paid-in capital 341,396 325,134
Retained earnings 450,406 430,262
Foreign currency translation adjustment 5,231 4,367
----------- ------------
Total stockholders' equity 797,807 760,533
Total liabilities and equity $ 1,342,792 1,303,629
=========== ============
CERNER CORPORATION
NON-GAAP
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Three Months
Ended Ended
April 1, April 2,
(In thousands, except per share data) 2006 2005
------------- -------------
Revenue
System sales $ 116,850 99,942
Support, maintenance and services 195,585 156,001
Reimbursed travel 8,789 6,591
------------- -------------
Total revenue 321,224 262,534
Margin
System sales 70,685 63,908
Support, maintenance and services 182,521 143,218
------------- -------------
Total margin 253,206 207,126
------------- -------------
Operating expenses
Sales and client service 136,713 110,840
Software development 57,886 49,329
General and administrative 21,898 17,922
------------- -------------
Total operating expenses 216,497 178,091
------------- -------------
Operating earnings 36,709 29,035
Interest income 2,589 884
Interest expense (3,282) (2,626)
Other income 2,125 30
------------- -------------
Non-operating income (expense),
net 1,432 (1,712)
Earnings before income taxes 38,141 27,323
Income taxes (15,085) (10,862)
------------- -------------
Net earnings $ 23,056 16,461
============= =============
Basic earnings per share $ 0.30 0.22
============= =============
Basic weighted average shares outstanding 77,156 73,480
Diluted earnings per share $ 0.28 0.21
============= =============
Diluted weighted average shares
outstanding 81,406 76,588
RECONCILIATION OF NON-GAAP
TO GAAP CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Three Months
Ended Ended
April 1, April 2,
(In thousands, except per share data) 2006 2005
------------- -------------
Non-GAAP net income $ 23,056 16,461
Share-based compensation expense (4,715) -
Income tax benefit 1,803 -
Write off of acquired in process research
and development - (6,382)
Income tax benefit - 2,441
------------- -------------
GAAP net income $ 20,144 12,520
============= =============
Basic earnings per share $ 0.26 0.17
============= =============
Basic weighted average shares outstanding 77,156 73,480
Diluted earnings per share $ 0.25 0.16
============= =============
Diluted weighted average shares
outstanding 81,406 76,588
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