CERN - Earnings call transcript Q1 2018

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Welcome to Cerner Corporation's First Quarter 2018 Conference Call. Today's date is May 2, 2018, and this call is being recorded. The company has asked me to remind you that the various remarks made here today constitute forward-looking statements including, without limitation, those regarding projections of future revenues or earnings, operating margins, operating and capital expenses, bookings, taxes, solution development and future business outlook, including new markets or prospects for the company's solutions and services. Actual results may differ materially from those indicated by the forward-looking statements.

Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements may be found under Item 1A in Cerner's Form 10-K, together with the company's other filings. and financial in in which the to SEC non-GAAP can earnings was of Investors the found the be company's today reconciliation measures cerner.com. this discussed call furnished section A of on posted earnings release, to Cerner statements or by any information assumes update forward-looking as except no required obligation law. Officer like Corporation. I'd to over time, Cerner the this call Marc of to At turn Naughton, Chief Financial

Marc G. Naughton

Burke, call. our Good then afternoon, and will marketplace our everyone, I'll the start comments. closing Ella. to of and with will you, CEO with Thank numbers. Brent me welcome Zane President, follow highlights Chairman the review a and provide Shafer, results, our and observations

Turning to our results.

earnings and the offset slow us by first of EPS lower and technology for of being our the tax expectations but cash largely resale timing contract in flow the with below the resulting revenue VA revenue year full uncertainty and was and to control Our revise to outlook. rate ongoing bookings led revenue has to delay in the contract. software, and VA start our included subscriptions quarter The of as line record lower the a our to execution strong expense but was expectations and QX year due

Now I'll go through the numbers.

QX reflects in a in XXXX. XX% were which bookings $X.XXX billion, billion Our of increase over QX $X.XX

term total removed revenue include of under the with that $XX.X tied guidance billion, is impact Notice, experience, contracts an backlog. is a have adoption the duration QX billion. term was in new exercised $XX.XX the the to backlog we long guidance ended of the that this the Revenue in contract. up no long within backlog XXXX. calculate our change what at revenue which the backlog so this option In terminate quarter the revenue portion over clients being to of doesn't XXX. recognition how Certain the we contracts as Our end of of shortens opportunity primary almost quarter change no it our this Topic provisions reflects option, included – X% before the

that adoption related a XXX. have Topic statement. line revenue also the to This income gone we You is of note single on to our

there's categories the income business quarter. each use including previously and services. model face in to less instead disclosure While we're additional of provided those detail support sales, now the that as statement, results maintenance system of our discuss detail old an the of our annually we We'll

growth X%, comparable, year-over-year through well Licensed compared go $XXX software to quarter in XXXX. content sold of in million, I'll due anticipated lower bookings how the was levels to Now in we the the licensed to model and year-over-year as a shift some software as XXXX. QX detail revenue of down business primarily due than tough

a last $XX I sold As was last of amount subscription to higher The a typically X% content year. in that I our as software Topic resale item, shift discussed decreased that XXXX revenue. as Technology lowered of is call, next previously subscription sales million. backlog subscription mentioned sold which of the was impacted revenue. approach The rate by subscriptions revenue, licensed also in run XXX, the in reduced

our our classified impact revenue Topic now services. the for support of amount lower the growth managed XXXX in strongest Support treated portion year This tough QX million business XXX. in growth rate and up reflecting is mainly growth in QX to X% finally, million period. low $XXX which as million, support is $XXX view was subscription a of X% the driven quarter increased addition, revenue of compared expected travel million subscriptions. Managed element, as reimbursed comparable in as the prior model growth is maintenance these up $XXX The XX% And $XX for to grew plus million the X%. by services formerly reflecting In Professional and businesses. was in of to single-digit in under $XXX the items largely for reflected support adjustment to services of the maintenance $XX with as was results Works XXXX. last subscriptions million year revenue

Looking of at year geographic was million at revenue ago $XXX revenue non-U.S. $X.XXX and segment. flat quarter XX%. by Domestic from the billion increased revenue

to margin. Moving gross

and XX.X% XX.X% of licensed due for the which XX.X% ago higher services margin primarily costs. of QX and gross is QX down software to was lower a Our from levels in year XXXX third-party

operating spending, Now margin net discuss and I'll earnings.

and share based GAAP our related both adjusted in items based and provide permanent and tax The results results. we detailed adjustments, exclude earnings items, as share these GAAP all compensation adjusted or release. reconciled non-GAAP expense, For to compensation acquisition

Looking This generating period. XXXX. to quarter $XXX QX ago items. non-cash year in primarily at driven revenue up personnel GAAP operating compared million and of up to an were were in by million $XXX operating operating of expenses Adjusted million our growth $XXX first to related is associates compared $XXX increase million X% which X% in the was spending, expense expenses

at line items. X%. Sales increased Looking expense the and client service

related driven Software gross X% expense intangibles increase decreased in development XX% G&A amortization. by R&D up Amortization was increase in X%. a of XX% expense and increased XX% acquisition year-over-year.

margin Works in ahead our revenue these factors projects Each number revenue recognized. in earnings software XX.X%. of will down was XXXX to a in growth in of operating more including software from in being we operating our due margins. tough the Recall I traditional our in last and maturing and of term drive highlighted growth market, XX.X% margin did XXXX, year SaaS adjusted anticipate amortization impact that our near QX was challenges XX.X%, operating as businesses GAAP down margins the by headwinds and shift to depreciation, in created strong margin ago that growth operating compared to period to EHR margin a increases lower Moving models call investments in non-cash and XX.X% software the comparable

non-cash to software that to due have in to margin operating continue we expected. opportunities adjusted Our even than lower temporary do do improve investments Works on related our our factors these expense of increase that We making growth mix we revenue Works many was being population balances SaaS below of margins believe our we businesses in get in nature health expectations slows, the return we to ramps and are primarily our are revenue. as and and

to XXXX, margin a which valid. lower as In we forecasted for already still the now fact an we'd baseline is year. framework Day indicated investment expect expanding which from next margins which believe is year, at our principal out creates lower we Investor expansion that margins, The change is have to begin laid we

net EPS. and earnings to Moving

was in net Our compared in or earnings earnings were million QX million adjusted diluted XXXX. QX were per GAAP $XXX of QX $X.XX diluted $X.XX net EPS share. and in to $X.XX Adjusted $XXX

Our items, permanent level rate the the the time. is which was And our GAAP tax estimate tax provided high for last tax rate XX% was slightly share based we quarter XX%. QX compensation excluding below call on

of expect XX% XX%. be rate For closer to the remainder tax to to our we XXXX,

program a use of I'll from making QX which our of ended is Now cash total repurchase flow offset payment. our by move and in to partially billion of debt strong balance sheet. up cash due and for cash to stock XXXX QX billion with $X.XXX We investments, $X.XXX

million the $XX price the $XX.XX of million board an of million. a approved During million shares have program of stock $XXX now of X.X per we in of total share We remaining repurchase quarter by repurchased May stock average the $XXX for at XXXX.

repurchase our on active strong cash performance, the ability have program. the Given we to be

debt. to Moving

the million flat was which obligations Our which $XXX including of at QX quarter million in essentially is receivables capital QX total ended lease Total to debt billion from $XXX of is XXXX. $X.XXX down XXXX.

were ago XX Free cash defined Note days in for so high of days million was which a QX development days, for $XX and benefited XXXX. record quarter. we less as flow sequentially. up Our million. flow cash was year the software quarter period from down tax a was operating the XX cash do at refund $XXX a costs, capitalized million. to the our cash $XX million DSO from Operating capitalized it purchases that capital QX, $XXX in capital XX QX and software was QX expect record flow, is expenditures and operating go flow from

operating expect expected flow cash flow. expenditures than to still lead increase another and for the strong offset in year year free cash to more capital we However, strong of

guidance. through go I'll the Now

revenue growth to We with billion be billion in expect X% of XXXX. $X.XX $X.XX reflecting of and between midpoint QX $X.XXX QX billion over the

delay cautious a the from reflecting of our QX, X% with full the and previous a between is range $X.XX billion midpoint XXXX. the reflecting and lower billion This down range growth expect and $X.XXX $X.XXX guidance of on environment, market more $X.XX year, For $X.XX billion billion in contract. view the the we VA revenue revenue billion over

of the are We will in impact are results. have year agreement now anticipating sign on still second less will we an confident with half and our but the it will we be VA, the

expect the EPS be XXXX. adjusted QX $X.XX to midpoint $X.XX $X.XX QX share, of per $X.XX We to diluted less than reflecting

of and to expect XXXX. lower the growth down $X.XX due year, more full software contract delay. guidance over QX $X.XX the year reflecting the to adjusted on from to EPS of $X.XX the prior view the a cautious to we VA for midpoint diluted For through of $X.XX the with be impact rest our follow $X.XX is This X% software, range the

guidance. bookings to Moving

period. In billion. our needed in The decrease bookings as were such flow, We and to of a when billion bookings We we results much disappointed while solid that QX in expect $X.XX expect $X.XX do a midpoint compared to $X.XX of XXXX. reflects are easier performance comparable bookings billion we'll growth to QX outlook. some XX% and our to revenue tough our revenue aspects lower have in to comparable QX a cash of summary in we return

remain to in a near was in longer delay And term the opportunities. it factor VA though is growth with necessary sure in contract attainable turn environment even targets over to our what term However, we to that the I'll confident Zane. we set call make challenging

Zane M. Burke

Today normal In Works the with color observations. our as higher XX% over contributions lower everyone. the guidance range. good they XXXX percent make and upper reflecting some contracts from software of was QX, XX%, resale. and were end results overall, at of coming afternoon, marketplace technology grew bookings, were long than which term and at bookings start on provide our I'll QX strong and Good Marc. Thanks, I'll

a the from install bookings our did a discussed, level did, coming however, revenue have outside Marc quarter. XX% resale VA bookings the core Millennium of competitive As the and our We software from in and with of of the lower delay base. quarter contract standpoint, good impact technology

had ongoing seeing increased also system We're the strong a market. settings QX our of quarter, offering. independent clients. business ambulatory health our in we In with activity penetration hospital ambulatory provider by CommunityWorks success Our had the driven smaller in market strong large large

see positioned continue activity levels this year. We of and in space to record are strong a for

deals in than revenue XXXX Activity Moving of as XXX Millennium. new clients revenue it more migrate very hospitals strong to we to quarter. brought remains facilities on almost included and beginning from solutions. legacy continue In we existing and cycle a had systems our to cycle. live population Since year high ambulatory over last Cerner all health,

was of we system Health of HealtheIntent Medicaid to Human services. In their clients, good for the applicability our XXX,XXX our addition State enterprise population a Department help and QX in addressable market strong Montana, to manage further choosing broad validating markets from One Medicaid and sales solutions example and Services at this lives. enrolled health contributions other of to for provide HealtheIntent had

Moving outside business to U.S. the our

of Following into very XX% momentum second a we with XXXX, continued a growth. revenue and QX half quarter had the strong good

XX XXX by contract U.S. with the in our We non will QX serving Skåne our It strength primary facilities. win for as care also population we X.X Region business, signing is provide and our in. solutions for bookings core our citizens. to Nordic driven of This some health of major represents strong had first client, non-U.S. also the the a hospitals million

Germany stronger we U.K., and addition to in the Sweden, from had the contributions In Canada. strength

provide and we Germany, Canada, good with Ireland forecasted ahead, East, to Australia, a good expect growth. all contributions to Middle to our Looking have year U.K.,

at Guard an to like Starting several This also EHR Defense our the on with Genesis we to MHS been adopt Genesis project provide update announcement commercial now that has business. Next begin and The improvements We're the DoD last the Coast to resulted fall. project. United this wave the deployments the site project expect of of project. optimization next very initial the States completed. month part as Department pleased the I'd phase in of as same MHS plans with the phase of federal of

with opportunity our discuss Department of I'll Veteran Now Affairs.

As in was you contract the are all signing of likely again the aware, QX. delayed

Therefore, disappointing, project approved when. support have as initial we predict It's believe for to difficult line just still the budget. a While item broad expect continue funding key from separate we contract. and the sign to in we is stakeholders this was the to exactly

magnitude before, I've As delay the indicated of or not does opportunity. manner importance in the any overall change

to it honored have serve ready signs. opportunity and will deliver when to nation's are We veterans to our the be

provide I'll discuss how Next we're for some growth. observations positioned marketplace and

hospitals and remain to our providers hard While decisions particularly we the in environment our over the XXXX of to EHR are on of lower results a platform a these to at make are current EHR we're point. modern there optimistic some how lack opportunity, where and sense adapting hospitals platform. to have more market reflective most opportunities. still about an believe deadlines. move financially will to the outlook due discuss We the legacy overall challenged long-term, are see environment which and I'd urgency about to of regulatory purchase market In we like need of growth

they with CommunityWorks our While opportunity offering these that in of most represent are of significant smaller the with doing aggregate a needs we're hospitals. and well aligns smaller,

with have cost many standardize existing directly we clients Cerner the legacy footprint accessible because our they to of on XX these are them by sites the EHRs on look money XXX reducing systems, health platforms. opportunities save addition, multiple of can a that In as at still which are involved largest managing through of

current solutions Cerner back us solutions important into services. our which and footprint to health cycle, population that Cerner penetration our represents increasingly also opportunity. whitespace selling cross-sell A key our meaningful lower We these believe revenue is the for ITWorks base and has large become growth RevWorks, represents significant and in of demonstrating services Our to environment. ROI,

efficient with our charge population revenue demonstrating or our and fee-for-service capture have on value clients, operations to RevWorks ITWorks to cycle on solutions cost delivering significant whether solutions our or based had collections using contracts. focus focus a and a ROI, We performance the on hard value improve more increased increase be it lower services, revenue through with health

population provider services. market of solutions our health continue demonstrated traditional have the We that expect goes addressable and market, the also our reach to expanding for and platform end beyond we health our population

as important these growth represent of contracts. to and and state initial we execute on local next to significant we start on the that and also to continue are needed federal Our Clearly, meaningful contributions. getting our opportunity, contribute to DoD getting business drive the VA expect to milestones as long are wave rollouts and these

and services, market name large markets consulting, represent a plays and a acute, workforce few. contributor only venues presence this also growth will have will post an our There ambulatory, behavioral population we efficiency, long-term to health, timing of niche also advisory important will the become a the growth. believe out, from create employer that offerings, health contribution when communications, provider we collectively bridge several opportunity, to not are and our As smaller but to more including

value. and is tech-enabled a Finally, that, challenges as day of as facing aligned business EHR our do We an I'll address this represents our fee-for-service economy. and over believe sold earlier an solutions market while grow we differentiator services, our that an currently will with our much clients Brent. pressures all uncertainty, solution financial to could of call preparing as our services is us of post discussed. With picking and for important the the market stage based conclude, turn our is nearly opportunity it to these and the non-U.S. U.S. be to other opportunity allow the pressure for on than and are well I ability To end help while up,

Brent Shafer

we good Good results job afternoon, everyone. covering current set, in We the Marc we we Zane. Thanks, are and against didn't and understand marketplace. a disappointed. did Zane the expectations of the deliver

term discussed to outlook we against hard expectations. work very our revised near have in reality these deliver We the to factor and Zane

excellent now of our to us I a spent gained as about the and clients. an review growth. of with our in doing opportunities. our I'd leadership investment talking on strategic track make of update We that into real Cerner, for processes as spending in making to into the our on areas some with of got the closer client platform, solution categories, time improve workforce, fall XX give opportunities XXX with We we with and focus. of the on planning dive I've Now the as focusing days understanding in clear clients, my that planning like well assessment and fall. innovation; strategic elements markets, from first our I'd the profitable and a a and strategies our time team call services spent and service progress and the a and improvements. together a opportunities review discussed leadership our team findings a significant for our February, we're and majority review to Together period focused On you intend draw getting to them deep with value first, It's retreat three-day we I've plan. refined solutions, retreat. clients as leadership of working formal mentioned to QX priorities. on three strategic recently test experience, days my After Broadly, emerged on in third our be a we investing team second refined strategies the set of to this aligned

best Cerner's to what need client the Cerner and capabilities ensuring from have a they help is for to them set access succeed. full of experience clients objectives on Focusing our get

clients be. to relationships clients need more our experience be grow. as they with of and solutions complex the grown targeted partner. that a a have in services group important objectives improvements platforms, market and we of we and we achieve in transformational they have opportunities. so to simplify is size making has successful focused This Investing increasingly become on is Our new our We scope, innovation that grown together, speed solutions and and in benefits a can to and with to than services tools provide as want platform, to them marketplace targeted align their of address where large solution be innovation in better need working technological with that to service belief consolidating our

Finally, have payers on supporting are optimistic we In profitable summary, objectives through the growth near-term highest potential next that of growth a hospitals, focused employers, over challenges and providers. non-hospital process the of me market our about makes set the growth. just for gone governments, markets, prospects global assessment around regardless have that opportunities consolidators, few community years, we've and markets the

we and call work growth the can our have and is But shared We very I'll execute well. turn questions. extremely Cerner's we some if with together. remain to you together future do. that I your believe moderator, I'm have over excited we will, working exceptional the to attainable. With long-term of so take we team about targets we're leadership the

Operator

Our first Dodge from Jefferies. Sean with question is

is now open. Your line

Sean Dodge

Zane, it be Maybe Thanks signed taking year. starting contract. of Yeah. in will Good expecting the VA half the afternoon. for the second questions. you're now with the

is place can this right VA the leaders still what you there something I it get as of as confidence and half you aren't bit. in senior since done any on at done permanent back get year? But soon now, a touched the guess this You gives

Zane M. Burke

Great Yeah. Sean. question,

the basis that to line all that the completion the as those And that for it's the to obviously, the predict and all in half item all Secretary we are the the the those position's actual obviously budget in factions critical linked continue right ahead. challenging now, agency, to we forward been of gives of item us an the moved Hill, remain such on move of but is interim White that strong that. folks, the year. very seemingly a But back are confidence we've We and contract. And us of of moving about House, feel And there kind to side.

Sean Dodge

market? and Okay. you predictable on give tougher remarks outlook projects? market. a the That's pin less in helpful. contract I it's less Is mean bigger revising portion, a more contracts you off down seeing comments your bit budgets Thanks. and the your Or pushing color large little a delaying what delay getting end you or about are And are a but can and down it delay with then because tighter end timing? bit to prepared little clients get predictable get HCIT the about of

Zane M. Burke

planned had I of that There's M&A think contract by activity. it's contract side competition which the we a a had this, moved the the make end in bottom there's significant difference of is The one which market still the under quite was multiple a this are and that quarter things. lines VA of We obviously out people a At a for bit lever technology pressure capital. on. can space.

quarters, is And those you're And part as last in over is, pieces. predictability that those continues so can in and discussed think business. lumpiness some seeing unpredictability the some to of completion some that of elements create several an of what some of and there's forward the I we've

Sean Dodge

again. Thanks good. Very Okay.

Operator

Stanley. is with Ricky Morgan next from Our Goldwasser question

now is open. line Your

Ricky R. Goldwasser

Yeah. Hi. evening. Good

the So and when listed growth largest talked a goal growth number of large areas, growth opportunities. profitable the about you've quite markets, we supporting with

think listed of clients. your I you most

return, in some obviously evolves term? integration near see you changes, you vertical we're of the opportunities long take to rates? a maybe can term How the these M&A, context So most also and then that do healthcare rate us to five within in lot versus would the to on it's And company. suggest growth growth for the within very reiterated term, long the do go the you as realistic landscape perspective you give might And long the seeing out back where group, which that think market look different today. years this going

Marc G. Naughton

Marc. this Yes, is

why assets to that forward got that have the from if non-consolidator get people But ROI you market is from they be at opportunities different will, going think with focus. go looking them to we them Brent But completely activity identifying In a system, leverage big a VA, we that They of markets, different provider scale and consolidators isn't what go consolidator with each the as and of meaningful There quarter, them are I are with Skåne we're we as said, areas, on. perspective. The health use. out from potentials. have single we've those. accumulated very deal a that to non-consolidated them those relative is taking markets. there's active. the goal the see. into to ROI. all to decisions. that those work laid foreign governments end think is That's through the to consolidator the that Zane on market to of gain on. all is we're providing the that this Clearly which the of allow of the things to with There most as Lots governments isn't very those an on as process is Lot's is our obviously to real external of provider market get and The a market, turning item Swedish forcing realized tools opportunities. these and – gain

a has those So different uptake. and each timing of different

that add. lot at that as population get certainly an drive population businesses out element RevWorks, that, some about as succeed that, that you the additional to talk we've strive the in the competitors shared really us markets health primary that that things XX-year is have elements helped you element of at a been and there we remain of look that care of look in both our our to our unsuccessful. those view, of are global look if to continue and in ITWorks we globally, looking to or of growth, health all Works the As And all has ability health elements is still where those that

the you lift, continue we're indicated. to Governments, certainly XX-year the, And an market, you see each currently. if think starting think and the as are markets see quantifying, years at side. as think side, we to we've well So global those they're in in idea in providing the gives start government our health the the seen non-consolidator those on look going more We've I consolidator I out think the then activity I as when uptick in without more employer, population market. we uptick of likely to model

So some near of the providers that, term. more are probably

The others to be term. are to longer medium going

Operator

And is question next our with Draper from SunTrust. Sandy

open. Your line is now

Sandy Y. Draper

Thanks very hear much. Can me, okay? you

Brent Shafer

Yes.

Sandy Y. Draper

do know long don't when you balance a right The of signs. How great term, spend And little is the sort to because this curb good. question, said done long you this the but get we focus higher term you spend I to growth, so end. no term There's guess follow-up guys of do you of hey, the not to you job until the period think the higher about end, have expense grow on Ricky's going at the to bit versus about point expenses, so impact term and obvious Okay, of you a a challenges, just and how we need about better. When when as is on grow. now more challenging. optimistic side. have being we going what hit term growing, think still on a the balance near been near you okay, long pull do pull back expenses market over expenses, it's We're back we're and to recognize, clear going and

and the thoughts plain that, view you Just strategy? about and brought don't discussed up know, that if in Thanks. something was Brent,

Marc G. Naughton

of part about cost as structures Yes. This our we is Marc. Certainly talked retreat. the

is I associates that divide into think and our we and revenue the key our aren't. for producing us those resources

XXXX We we the on are investment hired our call, VA's when We going last to investment going a about have people XXX it level prepared making to market. versus We're adding in business. of Kansas happen. we to talked that the in relative in to on believe – Works said going of target. that be to making QX those We are and a We XXX we're the deliver does, and absolutely an to business. continue City

the isn't continuing organization cards can because carefully. isn't to to we of count we for differentiator hold the that far or in in creating it's open they're we me, think those because our So as businesses do IP at we or a marketplace. month expenses to to Certainly as invest head thing continue positions or are are expect very at happen. right going as managing, revenue those those do anything those we know going producing We're fill invest innovation we them is that to innovation, in our at a businesses look or you there, immediately do. two. and open level look We're as travel Those

you was the up in we spend we if total look million increase in So I And spend total about an went and QX $X compared incurred to in at amortization. that QX total spend. think in

to we related are years. where see those of forward. to And going we we a we're been year we those crazily and doesn't that goals, think sure to match great and given going in and as as our drive see. the spending in are those I growth, So to control directly future an we've that drive – we think certainly history able can spend isn't to your focused spending XXXX that that points we But goals spending in way accomplishing making that Sandy. We're invest are opportunity investment but one not going

Sandy Y. Draper

the Thanks Great. for comment.

Operator

from is Percher Eric question next Nephron Our Research. with

open. now is line Your

Eric Percher

had how Cerner Back (XX:XX) and you. is order part expense. bring comment those up much you in to variable versus we involved. ability consider you're to down of that what's know be prepared? be your Thank costs about over been we on and are I to the ramp time, parties this And or as about think will waiting? how There fixed should your ramp to third also have as

Marc G. Naughton

of VA related based the the missed Yes. first and the question We've I the assume but on to that. expense it was ramp part

Eric Percher

Yes.

Marc G. Naughton

Yes.

not incurring but any They're prepared, expenses this For includes the side They're data at includes the that party expense expense of in – ready the not on VA, center. and ramping are party teams, doing the incurred and is all most includes being party the the it data of that getting part, services the incurring third being It hosting the same They're far expense. we're provisioning the third center, it point. up. the thing. third we

So – the are there's up. those ramping that we're elements elements

in keep VA will a fully So from this – they're be certainly working their repurpose a they timing mind get to that's services cost they and fact. And is, just as them, out to productive the our process. federal those, of people some structure be some from ability of process. were short relative we're side, time projects to is a as to filling term but not if on procurement with the what on revenue going It's through the

be – expand if was those But other we change something, the the be necessary our about services other this to applied that careful don't we be that and what certainly we've you skills in capabilities doing that. we are capabilities point to we to. people how be So mean – will cost to that the need on got see that. talk to can do need much I direction organization this we're the tell we're can doing have we're those to prepared – But in in ones that that existing the think at from I we ability clients. places can incurring

Eric Percher

one period? coming forward at about the just And really up that the year. sounds begin laid like looks following it the to Brent's will your to health to outcomes? out do there timeline that some we from investors And hear out, as of to is what's speak clients? Is of Is we start when you about the conferences. hear he know start process When that I to have when care you process? commentary, a

Brent Shafer

that we're we'll think It's there in period informed definitely to I and make keeping you align appropriately. try time sure same

Eric Percher

you. Thank

Operator

Our next William question is with from Jeff Blair. Garro

Your is line now open.

Jeff R. Garro

around population you're comments Yeah. so than maybe just ambulatory for question. about cycle? the areas segment maybe and seeing the taking software to if follow lower Good sales, more afternoon, the health with core versus revenue Thanks Wanted or any or weakness particular up ask where you acute could others, versus guys.

Zane M. Burke

Zane. is This

clients see really what of it's the is, mix think the you'd I themselves.

there of It saw in being actually we – deals. some we'd – from number the really it's weren't anticipated first of was quite there a a activity that lot So of opportunities larger quarter. just the

side, in side come we just larger activity more hospital saw probably be. would not were the was And software. so community opportunity with And the great of those in really but it that thought some where those we they

Jeff R. Garro

good the if provide contribution and fully a quarter adding more And ITWorks little could. Zane, more, there? on RevWorks, it outsourced aspect. was a it. And clients that versus to maybe you bit a one Works from Thanks. you could Got you're ITWorks mentioned detail I cohort then

Zane M. Burke

Sure. a business services strong We activity from RevWorks saw office perspective. in our

some new was into And big se. contributor. a we that so extensions saw hadn't a worked areas but footprint in, We not previously other ITWorks really some additional that per

Jeff R. Garro

Great, thanks.

Operator

question Partners. David Leerink is Larsen from Our with next

Your line now open. is

David Larsen

their that individuals Works more is hours guess Or each? a like week sense of utilized all a I billing for the what week? how area it Are they guess City, I Hi, they utilization in Any hours were the XXX like is Kansas for hired right are? XX now? XX

Zane M. Burke

some ramp this in our these solutions. revenue folks our and services the results, Zane. be significant point these because than groups top going this in but And on more both time, enhanced of the at are folks over to of frankly a activities a shared nature there significant So cycle resources, is in line, there's of do. these given that up for and just yield training much implementation what that our resources to investment is These bottom will are

would get So time all point takes to them you tell training for into a productive they're this in and at and what period full use. I it

David Larsen

back you bill? there up work projects able the on year will in are So half to lined all them that to for have of where they the be

Zane M. Burke

Zane a contribution – in services. have contribution So business of office opportunities, backlog again and absolutely good cycle on a is had a bookings good we've again. this revenue We

situation. where how model it much time space. time hour a needs But house It's this We're the us resources in and leverage filling little our services well. in billability and about from the there. a will at feeling good point up cost for revenue rate that different a kind cycle side of is per as we you're that not for bit give folks are work the These this as straight the over out terms professional in So works. the a This that that move doubled of side are is the more work is. of paying But position. training either you're client forward still and in on of cost up on this

Marc G. Naughton

this Kansas is the David take billing located the center some take Yes, throughout on funding already the that City only that new to not but to resources Marc. to centralized in and are on create is from of business we're business The different use country. goal some places in obviously diverse

So think bear. to that's I a key

by size paid It's fixed the client you amount you it's and necessary what like on clients work don't engagement. by the the doing. the We that's get the not, do the based If will, we paid then month, fee timeframe of service. and they're of if almost and to we will, We charge a a certain money, deliver the get hour.

as said, revenue Zane are right any as but, people they those now train. not driving So,

David Larsen

Thanks Great. very much.

Sounds international is great job. like a doing your team

much. very thanks So,

Marc G. Naughton

Thanks.

Operator

question Piper Wieland Our Jaffray. next from is with Sean

now line is Your open.

Sean W. Wieland

Thanks much. of Couple very quantification questions.

is in quarter? Could an from be license So, you last again that misunderstood normally the that first, would sold first as that ongoing that. trend I subscription. content sold as you quarter? that quantify And saw

Marc G. Naughton

might the the basically standard January The standard and be signed have that We XXXX we revenue sold XXX would will said into but getting X, that's took paid standard, quantify can't gone of would have would sold we in on as have we historically for content the is when over new that it the sold it, taken were as that future subscriptions point our necessarily effect the revenue and out and new of revenue new all when date backlog. those time.

were looked it us So some which revenue, would licenses, software and lot convert goes allowed licensing at perpetual licensed as into of number. rolled we it, normal we it into the able take treatment that content to – into to

to talked ability license. whatever going referencing subscription because in a to some What going is to a the the much so away would – number and in because – certain use which recognized appropriate XXX, time in we as or XXXX what It's is those and either as software milestone signing we're our But point. did main the Under gone forward that a number or the subscriptions same in that. that type anyway. forward isn't it's way the the – didn't beginning did bit we the the little QX, date reduces software. is. deals operating revenue We're of first we we XXXX rules are of productive licensed on those extent that's did it convert in XXXX what book now point both between our was there revenue have subscriptions to the license So stronger of basically all, relative under distinction is

subscription the plan. of below look at you amount bookings was QX, As

had that's in licensed we shortfall software. the So part of

the perpetual the to space. have of while sold in had of QX we software how because it in bookings we would it same be as accounting that treatment year, didn't So an impact the last level

Sean W. Wieland

Right.

if It it's differently. hearing of market this to correctly? for that a I I like caused to not treatment Am straight, the an get it was buy differently. it accounting wanted So account end that customer it you

Marc G. Naughton

XXX. it It we being in the XXX than advance of it caused therefore did license subscription, minimize as alter differently to us impact to But treatment was rather a followed adopted a the it way the sell and of accounting sold.

$X on the that all were adjustments on overall at you million. is of just If net probably which our for of or net mean, company, net the the XXX the earnings impact is revenue impact retained adjustment, earnings I look made the kind

pretty would that. I of reduction think subscriptions a prepared for coming we to managing good of be you the that from see did job backlog for So trying and

time of net backlog nets roll commission the backlog plus all as it expense the in But other take to see time. the You over also see previously commission impact and coming get taken increase some as of period down from it in again a a adjustment which things period of the had expense, an $X expense past, now out. you we XXX% kind over million that also those we items out of to of rolls of

part So that was of that activity.

Sean W. Wieland

And Okay. VA with question And eventually this contract, the costs sign direct you whole you get the quantification quantify Could quarter? other on the to going when in made those the associated you had. expenses? I are

Marc G. Naughton

No. I quantify can't it.

Sean W. Wieland

whole? made you Will be

Marc G. Naughton

them. procurement. anymore. a It's quantify can't can't I I And federal discuss

Sorry.

Sean W. Wieland

so for Thanks Got Don't get want the trouble. taking you in much it. to question.

Operator

Our next from is George question with RBC. Hill

now is line open. Your

George Hill

evening the which Sean's a different you can guys on? of Maybe the balance question. of this to in if kind guess, I VA risk ask sign, year thanks the is, process for should guidance to quantify of way part question the in and continues taking Good I'll the the drag not

Marc G. Naughton

still I as in have we of signing the back our the indicated, year. Yes, VA Zane the in guidance half mean, of

assumptions part we forecasting have. is the That's part of the that of done. So we've

quantify is all had that fact as talked VA than it about first initially year went into half still of any our in we the second at the have with in number the have from moving second But does just we in this have less during So not currently But on the year. point, the impact. it's it to I fact in really that that the impact. an of on year more would if VA the we lower. year, did things the the We before. at reduced guidance But based sign number can't obviously we based half it than I half there the think

George Hill

Okay. you And an the that operating business of was a which I guys the make question from Sean's perspective, way different the business. to way report accountants ask kind the you typically then run wanted

contract and approaches way the company goes any the Cerner to the new reflective to go is Is its of moved of market prior kind in changing what at tries perspective the changes? anything to customers? reporting call is the changing the business customers to, have actual which model And guys You it about reporting with Like market that from all? we'll versus it perspective. way

Marc G. Naughton

that for remember to this. long business doing of you No. I The is provide revenue number doing guys annually line as as line a the we're shared additional can that we've with on detail

you So went We but financial that's that one of that I a to is revenue was the to was one disaggregation statements. familiar most the decided one that of investors, seen transparency, for the XXX look the income that we most provide on number is to consistent your the another in is former need you've absolutely differences to business earlier see statement, to provide said, discussed analyze our results number the line I in the that than elements going that as reasons think you're model the would part statement. is other to have with included you past. subscription in more what be the and It category on going been because income

transparency, of accounting in one-time from transparency those that because to be number provided additional nature. can of extent certainly now goal I providing But the would the that level part standard. perspective fluctuation numbers think an annually those and you we of taking it not and are will quarterly. for they it's provide merely a the some recurring to goal some our But it's, that's and standpoint see I think vary numbers in quarter-by-quarter that's somewhat items the the So

accounting other at market the but look go retreat in change to operating not to that than we're how no is is markets we're had attack how certainly do at to decide going things the business. the as and business. there driving we those, we how we So and want No look how in we'll change we go obviously

what one time to the In asked fact transparency do on this line makes they've is sense. when actually

George Hill

Thank right. All you. Okay.

Operator

question of Merrill Cherny next with Bank Michael from is America Our Lynch.

now line Your open. is

Michael Cherny

asked. so them of Hey one a everyone. Thanks far. for I lot the question, have been just color have

a of the but lot being in timing the the talk oriented, term the business. the You in some still about VA confident health long of choppiness market, contract whether it's

Any capital structure, a nice to the clean, or very given like sustainable in dividend. least investors, in a particularly from the business aggressive in almost around at any flow more a of opportunity particularly thought share short very cash the quarter. accelerate return even something and at thoughts had deployment least to whether given something being perspective have medium so repurchase, not seems discussed guys deployment capital the potential change sheet, that's long it's more You blip pristine the your term do side, be to versus very your this impairing Why questioned balance frequently organization? term in the capital to that permanently

Marc G. Naughton

cash certainly Yeah, had record Michael. This is QX. Marc. for free We flow

certainly a was huge positive. that So

more, Because I further look growth today we might term that these might businesses a long we remain at We quarter. may, expanding that working be that have to would through to And or and us believe of shareholder a deployment, sense expectation for to million from anything be is as the board opportunities make we Mike, we an investment at is stock look expectation repurchase capital us. exercised. that think to to, and authorization shares board we this opportunities meeting our perspective that the on will repurchase expect repurchase. consider still that And an is may, the there broader aggressively I that work from for certainly potentials be perspective $XXX M&A to

we So able to to that. do want able be be to

for invest point think vehicle. other capital We because near capital as opportunities are for from a we'll the probably I company. that there a focus think repurchases are in. we opportunities that's deployment from on stock probably our And in I not perspective think a dividend things us our at shareholder to perspective term this growth just think I

Michael Cherny

Understood.

curious only a cover has that balance company I more because sheet. the think on position I your the Just you're cash probably net

Thanks. So appreciate color on that. the

Marc G. Naughton

Sure.

Operator

Halper Our is Cantor from from Steven Fitzgerald. next question

now is line Your open.

Steven Halper

around and guess say current attainable? know to can the believe go the today reaccelerate you that change, can long-term Hi. you things those how you of what today targets, given established obviously do help know back Appreciate to but can you But the growth sort we environment what is that you're you that what market with, a when at look comments I confidence the growth gives to company. that still and what us

Zane M. Burke

Zane, the we kind that This that ITWorks, our and tech services are Steve. enabled need of – There RevWorks is in things have what are we health. clients population around do our

works considered of be technology And you they at we'd gives marketplace. some space has effectively of is. their the some the marketplaces see causes for enough And change and pace meaningful place I of make local, I technology time. optimism think see, really would an go they So they coming VA in ways. of up this conversation think picking core outsourcing line will about conversation that, opportunity need employer that overall. in future have tech the some well. to a think year to and are of at look the this us the in freeze seen our state, marketplaces marketplace, of meaningful beginnings then of about together. uptick the quite moves in of those as and some a steam been and like little And pieces, will pretty in significantly. Secretary really is quarter. And revenue actually payer need haven't it become challenges like and cause I on IT pieces had more think people solutions. decisions federal that make incredibly you first up range continuing that's that a to different the the the the at long all the I we some the top growth historically the I cycle, perspective services a solving kind have Cerner our be a point what that Then And shop. picking I that government think that to how having some end And And that enabled but lot you And that outsourcing also in and think as can new really different outlook in pain we've their of Those

past what from how the think important means we too an so viewing look to perspective that far overall and we're really really optimistic this are. where And and business to I it's not

Marc G. Naughton

I'd things is just the about Works of from them that spending businesses, dollars. Steve. those add is Yeah, good client the the one already

You're spend. not additional looking for

they're You're trying already dollars take just spending. the to

pretty I'm businesses It's becomes so decide and said, thinking more get timing key is. – Zane our And focus going and ROI those to even I that's the as conversations more a element, the people just we to know just I the probably as intense, got are there. what

Steven Halper

And just follow-up. one

those When you Just software those I year? appreciate at items, cost look cash for any comment. rest good change? is question. a housekeeping Or of and that statement, CapEx the proxies capitalized the flow are the of the is both the there

Marc G. Naughton

compared to QX Relative incurred in for amount the year? the

Steven Halper

Yeah.

Marc G. Naughton

Yeah. in be you I million talked of for is mean $XXX year. last expectation. was look that it's going probably million the range we my I probably to think we be CapEx, that above slightly as to software going to what be forward it probably, would Capitalized $XXX

gives that you think I we're sense a at. So where of

bit range. last lands flow is overall – little just was it thought from the year in basically up slightly free that what but about year, maybe for cash a that Our year last

Steven Halper

based three that that- So the campus? increase you're that's commentary Is at projects the an and based in on new expecting next CapEx quarters on

Marc G. Naughton

Yeah, basically as on those based CapEx has the And one projects, million $XXX it's you projects. the that's the year-over-year said, biggest more campus impact. projects – is probably

Steven Halper

it then should And next year? moderate

Marc G. Naughton

Yeah.

will expansions the that a those of second some as of projects campus but have year We reduce impact on will well. one

could version So that we'll give be a two and that. then view level year after declining at it it but another

Steven Halper

Okay, thank you.

Marc G. Naughton

Sure.

Operator

next question Donald is from KeyBanc. Hooker Our with

now is line open. Your

Donald H. Hooker

good Great, afternoon.

could would if sort course. And on was a It state its a like forward what of you're kind I agreement hear there lot but opportunities? for Montana. of throw it little in contribution small wonder might that more curious probably one to was I'll offering of But I of of different. going you obviously bode and asked, question. bit Medicaid what seems that in solutions elaborate questions in detailed terms So I –

Zane M. Burke

question. for the thanks Donald,

with, competition So they'll this against into and bigger a is deploying and suit of our different this kind multimillion is that procurement. enterprise the care analytics this their to a then dollar this And and and we And significant. they're think And is that against is we start registries play reflective data the direct population. booking for of in of is state's warehouse move population a Medicaid a full arrangement us. public marketplace pretty Medicaid competitor

software additional beyond It's analytics. So that those it do go go the and you work is in and that spaces. services do meaningful, significant. it's you the can to additional precursor the can It's

So EHR things – growth offerings state a well It's of we is move spend for it's do move And forward. view we'll probably one space. beyond sell government some forward. that we and in that as highlighting local time opportunity have as we – the great this those we us we

the thanks question. for So

Donald H. Hooker

with there in states, are other this manner there as other states me if mean are well? you're remind I that working

Zane M. Burke

number This different we first a solutions. of states its work a do is a of other kind. on different Yes, with number of –

health from with from record. We states states ways. or work a multiple with a behavioral So we electronic We from work an with clinic perspective employer work health perspective. in states

Department working different So ours. in is seven client Corrections I The with of we're think large California about states. a of very

there some pretty So sense they not are state give – in of us a the of in a traditional significant that that and just markets just bit local are quite space. optimism thought

Donald H. Hooker

you. Thank

Marc G. Naughton

one more call. take would We

Operator

question last Matthew is from Robert Our with Gillmor W. Baird.

is Your now open. line

Matthew D. Gillmor

Hey, follow-ups. two quick just thanks. I had

the Marc, to neutral? The about headwind Topic was quarter for a revenues it first was XXX one, or

Marc G. Naughton

side you it commission talk was for a backlog about when that. positive Overall you the rolls differently revenue and Yeah, out mean expense slight I quarter. about against it each offset the – the talk probably

it million about impact. a $X from perspective, quarter, earnings was the For negative an

(XX:XX) impact rules netted items to XXX Topic gross. the did that RevWorks. we those West the when for overall two them, re-badged you is – take amount. There revenue, pretty have taking also old re-badge associates We And relative But X. a I software those the under think start to contract – Venice normally the on small April you client's X associates. case. at January We revenue that be re-badging to it if those because gross were the take that XXX, haven't the looking to re-badged knew taking you let at us we April on would deferred re-badge associates We Xst. the the going Topic all request. time even would that was with you XXX start But anyway,

shows XX% be it from will XXX that probably it will So up if West the you related of and – that (XX:XX) to contract a Venice number revenue in have the in QX.

there no would because between and them. have rules re-badged we XXX old will be forward, difference Going the

and So the I was XXX, see the adjustment is is backlog pretty impact. nominal net-net which what expenses

Matthew D. Gillmor

revenues was another hoping details. revenue? would you a do Okay. otherwise And that, you the on crowd have projects question, estimate some you get would And what be? and topic other don't an VA readiness touched on on, that generate working that out more previous then but that other to for I Does be

Marc G. Naughton

don't I be an estimate. certainly than we on the There's could filling jobs that have people of today. things other more working have some them efficiently on in

right And And we wouldn't certainly, that it it my exceed clearly, spend an investment. of would can't is It's now. what that's as revenue a is those expect relative I as characterized today. resources. to is for why But I it revenue that on loss my you So quantify that's those. it

Matthew D. Gillmor

Okay.

Brent Shafer

Cerner. first Brent. as me opportunities. a to with joining it that to of heck want is some days for be And have today on. already like We've today. lot of Thank it's Cerner I know about at all talked we I passed what in great reiterate year and us to a company a a hurry, do. XX of more Marc. clear goes here you, Okay. is those to a that thank have pleasure with And you the now is talk you I'd just work This to we'll

and believe necessary a and I we base. can that's what And team successful. and associate growth do by really the leadership we strong very about. lasting deliver innovation making our clients strong And all a to investments have We focused make ensuring we're things

being for a with Have So, evening. thanks good us.

Operator

participating in thanks today's gentlemen, conference. and for Ladies

You a Everyone may now day. disconnect. great have

CERNER (CERN) 2 May 182018 Q1 Earnings call transcript