Cerner this week announced robust financial results for the second quarter, reporting strong bookings, revenue, earnings and cash flow.
“Our second quarter results were very solid across nearly all key metrics, including record cash flow and strong bookings, revenue and earnings,” said Neal Patterson, Cerner chairman, CEO, president and co-founder. “Our strong bookings, highlighted by several new client relationships, included demand associated with the healthcare information technology provisions in the American Recovery and Reinvestment Act of 2009 (ARRA). Cerner remains very well positioned to continue benefiting from this demand due to the depth and breadth of our proven solutions and differentiated services capabilities."
Bookings in the second quarter of 2010 were $467.8 million, up 19 percent from $394.0 million from the second quarter last year. Second quarter revenue was $456 million, up 13 percent compared to $403.8 million in the year-ago period.
On a Generally Accepted Accounting Principles (GAAP) basis, second quarter 2010 net earnings were $55.5 million, and diluted earnings per share were $0.65. That's compared to second quarter 2009 GAAP net earnings were $43.8 million, and diluted earnings per share were $0.52.
Adjusted second quarter 2010 net earnings were $59.1 million, an increase of 29 percent compared to $46.0 million of adjusted net earnings in the second quarter of 2009. Adjusted diluted earnings per share were $0.69 in the second quarter of 2010 compared to $0.55 of adjusted diluted earnings per share in the second quarter of 2009. Analysts’ consensus estimate for second quarter 2010 adjusted diluted earnings per share was $0.68.
Piper Jaffray analysts Sean W. Wieland and Mohan A. Naidu were impressed by Cerner's "strong results across the board" and ability to beat estimates.
Specifically, they were bullish on Cerner's RevWorks RCM service, which is based on an integrated clinical and patient accounting suite and has "the potential to unseat pure play vendors" in the market.
"Progress on the RevWorks strategy improves competitive positioning," they noted, "and is a threat to entrenched RCM players. We believe the strategy is first and foremost to be ready for the oncoming Accountable Care Organizations, which will require a more complex accounting process aided by information from the clinical chart."
Wieland and Naidu added that "RevWorks closes the competitive gap with privately held Epic, which also has an integrated clinical/RCM solution."
Other Q2 highlights from Cerner – as well as the company's future expectations – can be found on the next page.
Other second quarter highlights from Cerner:
- Second quarter cash collections of $447.0 million and operating cash flow of $110.2 million.
- Free cash flow of $65.6 million. Free cash flow is a non-GAAP financial measure defined as operating cash flow less capital expenditures and capitalized software. For more detail, please see the accompanying schedule, titled “Reconciliation of GAAP Operating Cash Flow to non-GAAP Free Cash Flow.”
- Days sales outstanding of 88 days compared to 89 days in the first quarter of 2010 and 100 days in the year-ago quarter.
- Total revenue backlog of $4.48 billion, up 21 percent over the year-ago quarter. This is comprised of $3.85 billion of contract backlog and $637 million of support and maintenance backlog.
Future Period Guidance; Cerner currently expects:
- Third quarter 2010 revenue between $455 million and $470 million.
- Third quarter 2010 adjusted diluted earnings per share before share based compensation expense between $0.71 and $0.76.
- Third quarter 2010 new business bookings between $450 million and $480 million.
- Full-year 2010 revenue between $1.83 billion and $1.875 billion, which is up from a prior range of $1.80 billion and $1.875 billion.
- Full-year 2010 adjusted diluted earnings per share before share based compensation expense between $2.85 and $2.92, which is up from a prior range of $2.80 and $2.90.
- Share based compensation expense to reduce diluted earnings per share by approximately $0.04 to $0.05 in the third quarter of 2010 and between $0.17 and $0.18 for the year.
