CERN - Earnings call transcript Q2 2019

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Operator

Welcome to Cerner Corporation Second Quarter 2019 Conference Call. Today's date is July 24, 2019, and this call is being recorded.

The company has asked me to remind you that 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; new solution, services and offering development; capital allocation plans; cost optimization and business simplification initiatives; 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.

Please see Cerner's earnings release, which was furnished to the SEC today and posted on the Investors section of cerner.com and other filings with the SEC for information on the most significant factors that could cause actual results to differ materially from those in the forward-looking statements.

non-GAAP be discussed earnings found on of call this release reconciliation cerner.com. also can in a financial in measures earnings available Additionally, the company's except any no statements to assumes by update Cerner or obligation information as required law. forward-looking

turn like Shafer, CEO Corporation. At Cerner over and call to time, to the this of I'd Brent Chairman

Brent Shafer

ask Naughton, and Thank Good results. and everyone, spend take afternoon, you, the commentary the I'll providing on few Marc first minutes welcome the our business, you through then Daniel. to some to thoughts CFO, the call. Client strategies financial growth And Officer Peterzalek will Growth, Trigg, When asked our Strategic Cerner's I've about in commentary. marketplace adjacent John to Marc concludes, talk of EVP markets. Chief provide finally, Don some

our United implementing the some Cerner's building, time, largest decades stages share the is the XX% -- the Today, health in and care now. the that a it referring that operating EHRs term, spent I'd the of transformation. four we're it to the thoughts health secured of IT. digitize history inventing, as clients to [Cerner.next] around future has We signifies near in helped term Cerner to care X early world. on associates Internally, our like and, nearly in that States contracts Over the of for past

benefits order The platforms next been chapter for a our from the of digitized clients Cerner higher involves helping have created. drive that

emerging industry of health costs, of rising focused consolidation, reform, machine the clients Our heightened on and learning. artificial risk, role care impact pushing payment are consumerism and intelligence toward the

and analytics by data. moment recognize leverage decision issues our market with and and must this financial to able can for replicate, foundational Cerner's these clinicians strategies This we hard evolving, of impact of through in position. that the being position is to curated driven all enviable knowledge-driven actions high-quality position of platforms the address clinical

to transformative a we've drive that we operating more our operating recalibrating growth this forward, believe company company Going new efficiencies new long-term in of introducing will made in we around strategies the series earlier Since manner. realigning our drive client-centric actions model model, will be progress the profitability. a and considerable and year,

we've optimization improvements 'XX Marc expect targets to provide on margin business to these we an operating and greater business initiatives simplification established implementing that to cost operating and and Additionally, will QX margin deliver be drive expect remarks, we initiatives deliver the for his will process these identified efficiencies. QX targets -- update but we 'XX. in

health key we've affecting and framework years. refined will As next around several position, direction guide over strategic we trends the our market the embrace our care three macro areas that our

to platform First, Software for as care. deliver the Cerner health a expects Service

SaaS should greater clients for modernized fuel satisfaction. platform help significantly A can drive and disruption enhance Millennium This approach utilizing and adoption drive the and features level our innovations ability third advanced parties. even an collaboration with higher of platform digital speedier to user of

changing adjacent care. in and traditional economic, the Second, factors and premier We venues models all is The hospital political, health that outside of leading health on recognize partner environment. markets to new demographic profound pursues being as Cerner we of plan the care are care ways. convergence strategic technological

enhance and provide. predictably. These to are analytical more robust, building risks care, well retention to deliver positioned increasingly network improve intelligence is to mounts pressure Cerner value-based capabilities As patient manage that providers strategies power, and require contracting next-generation

be curated to reliant the expect data. source we Third, and for acknowledged health

rich a normalizing patient of aggregating, disseminating have data. history We and

few. biopharma, to develop we adjacent a source, plan name payers actuaries, prospects model provides to to data we monetizable access a distribution that market and legacy as client As acknowledge segments such and

approach a to health including news more senior the key cases traditional outside to of care foundation believe on will the for topic, speak significant data of other and new data big sharing curated for could Cerner's discoveries this new provide will the strategy. This strategy dedicated use clients. the leader be space. value drug Don We to

These our growth aligned believe and are our We with profitability. our create ability underpin the needs to for clients the them. long-term coupled to value increase strategies these business streamline and with strategies of well work our will

I'd also our like to Cerner associates. commend

We drive chapter next have the process believe incredible talent to growth. transformation deliver an culture pool Cerner's the and right I of the and

Marc I'm to commentary to the pleased quarter more relates comprehensive now and it with financial our on results, numbers. provide As second Marc? results a ask

Marc Naughton

Good I'm to going our and guidance. Brent. everyone. you, afternoon, Thank future cover future results

I'll of with $X.XXX our QX of in previewed which billion $X.XXX delivered the a to and range. guidance and in bookings, due we revenue start solid billion This near bookings 'XX bookings bookings, QX long-term we primarily of quarter, decline is from quarter. last earnings. end This high down

X% QX addition, orders, ended which VA of over ago. We year comparable. tough with included the backlog In it a of the up $XX.XX billion, initial 'XX a task making revenue is quarter

new under with though Recall are from standard the excludes even revenue calculation contracts that clauses clauses, our revenue termination exercised. such rarely backlog

X% the When at from backlog over the and quarter QX XX% the from visibility months. additional the our approximately was and revenue of contracts line you our not 'XX Revenue remains expected expected in revenue expectations. included revenue in $X.XXX with billion, our over combine in next backlog, up XX

QX in over QX the model and in good through traditional revenue growth both compared growth detail offerings 'XX, million, software. bookings Licensed and $XXX of year-over-year strong QX by to was 'XX. driven software up business go SaaS of now and I'll XX%

of resale X% million. year, X% to decreased the grew $XX QX. QX over million was compared revenue of Subscriptions which up last XX% $XX quarter sequentially Tech of to 'XX, and strongest

services. which And 'XX million solid QX and was finally, increased from Support driven with Professional million. Managed sequentially services $XXX revenue to flat, down our at travel line primarily million. by and $XXX X% growth potentially to X% $XX expectations. reimbursed was X% of in in maintenance basically grew services flat implementation is

at million and X% at was and year-ago last was quarter, year-over-year. mid-single billion, to was foreign the from was our non-U.S. flat by Domestic a impacted similar digit Looking Note revenue that $XXX at currency up on revenue basis. constant $X.XXX by revenue currency growth geographic of revenue segment. quarter rates international

margin. gross to Moving

Our for down driven of margin QX higher services. year-over-year, by XX.X% gross XX.X%, third-party from 'XX in XX.X% and QX is

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

and non-GAAP other that our we and and items, GAAP adjusted Adjusted compensation differences, these also and both reconciled in expenses acquisition-related compensation restructuring results. results I'll tax for provide a For share-based and GAAP permanent The or other earnings detailed exclude and adjustments, share-based VSP expense, release. discuss in moment are adjustments organizational

Looking at spending. operating

year-ago expenses up were of Our billion second million period. to compared operating XX% $X.XXX $XXX quarter in GAAP the

included our with a previously the million items, $XX to settlement results. vendor million had and dispute GAAP related expenses a In client $X been our mentioned from adjusted a to excluded that former addition charge

Note $XX non-operating that from was related also results. that adjusted vendor million excluded sale a had we the our of gain former the to our equity in also investment

operating adjusted 'XX. up to were Our expenses QX compared of X%

X% Looking in driven expense at the items for our personnel related the businesses. increase expense QX. services to line year-over-year, Sales primarily service client by increased and

decreased software. X% Software personnel year-over-year. expenses X% a by development in in increase down increased 'XX in flat a of lower and QX amortization X% driven driven part of intangibles expense slightly capitalized was GA increase X% expense. Amortization acquisition-related R&D, gross over by

margins. operating to Moving

X.X% operating GAAP million QX compared the was in to $XX.X margin period. Our in year-ago

in 'XX was down up but expectations. with and the quarter from adjusted of Our in last QX margin XX.X%, XX.X% quarter from XX.X% our line for operating

meaningful for until efforts guidance QX margins Our to of impact won't initial revenue most flat a the in QX seasonality mix QX. that to compared have fact cost-optimization normal due and reflects our QX of

QX We believe ongoing we operational deliver Further, initial with to operating remain of mix support our we our margin revenue better, XX.X%. targeted on our continues in to targeted work to XX% AlixPartners is track benefit as from the operating margin improvement operating our target adjusted QX and adjusted forecasted XXXX of our efforts. -- impact expect

business-optimization our Now are business process portfolio there a have off cost I'll provide initiatives call, opportunities and projects our list and last optimization on achieve we product our simplification. detailed In targeted created an cost optimization, efforts. XXX and improvements. management kicked Since total, update focused and of to on

over of are benefits with expected third XXXX of QX and of half wave with initiatives the beyond. wave in these drive initial to ways expected from benefits 'XX, of X XXXX a The second second the benefits middle expected the followed by in benefits by

initiatives to positively to and controlled expense and/or the of expect impact result these in expenses We reduced business lines operating our models. across all of profitability all

related QX margin extend and The simplification and expansion current benefits expected expectation and into will QX [phase that operating of is impact an aligned] our with of business is 'XX opportunities both as targets, beyond. should benefits the these initiatives have XXXX and longer-term XXXX beyond margin our 'XX adjusted

standpoint. governance are Finally, I'd approaching like a share this to we how from

our Nill; office We that have by Kimberly from leaders led Chief and Staff, Cerner's Mike created two Gerard; transformation AlixPartners. is of management COO, a

execution responsible and the and management and across the oversee for transformation The that biweekly includes This resolving issues of weekly arise. all XXX office tracking initiatives reporting a and initiatives. management will change be

and Committee Finance are Our the and Executive Strategy regularly Committee Board progress. updated of the on our

enhanced improved our executive growth pleased which the efficiency, and be value call, clients. the the while processes focus rigor will but indicated our effort. last on by profitable believe for accelerating creation better this the work, As are ongoing I am hard delivering We we I embracing team with also is

earnings EPS. Moving to net and

earnings $X.XX QX is per net were QX in in million QX from $XXX $X.XX and or diluted GAAP earnings net $X.XX in 'XX. in of adjusted Our which were EPS of $X.XX Adjusted QX to $XXX compared diluted were 'XX. share, million, down

tax for GAAP Our quarter. XX.X% the rate was

rate quarter XX%, this lower non-GAAP upside X% to Our contributed last was than EPS our which tax is quarter. and

balance from investments, We last our to sheet. up which cash $XXX with and ended million quarter. is Moving of QX short-term $XXX million

took $XXX $X.XXX debt Our shares quarter price repurchase at in quarter last $XXX by to of million on million as the $XX.XX. total debt second or billion from we million an X.X to average increased

of we under million repurchases, QX the have $XXX the program. Following current authorization remaining

quarter billion, $X.XXX at 'XX. were receivables from up the of billion the QX end $X.XXX in Total of

XX DSO QX other for XX were impacted the by 'XX million from million, software Operating QX was period. days was was capitalized organizational mentioned Our in flow XX capital days, of and QX cash is I $XX VSP and restructuring earlier. days and $XXX quarter million. and $XXX events year-ago was expenditures up the in as the which

driven by operating defined spending, capital negative and as flow, less for capital on call. a software lower flow combination the operating million last capitalized as quarter cash costs, higher flow our and development of was previewed Free quarter cash $XX purchases cash

costs continue flow the we improved cash and do restructuring spending, free by we -- rest we flow for be elevated capital impacted year. of expect expect to to do the operating While cash organizational expect and not

a cash growth flow We cash flow expect free good to capital decline operating in lead growth and to in also XXXX. expenditures

allocation. capital to Moving

still We expect of As I execute indicated, market next leaving QX, end stock we QX the the conditions repurchased and $XXX million majority to by of authorization. authorization other of during to our million repurchase factors. on subject $XXX the of year, current

a to as M&A. our cash the debt the with we continue with for operations timing purposes from and whether of debt such intend We and depending this combination other cash of amount on use funding of repurchases

officially Regarding from our quarterly during date we first dividend dividend that a of a intent XX. a approved program, with of when announced provided quarter is up the dividend. estimate first our Board initiate at payment we to we quarterly declared our our initial The $X.XX dividend July which $X.XX,

dividend our belief in activity to potential. a and Cerner's increased long-term reflects to share our initiation returning combined shareholders of repurchase with Our capital our commitment

go I'll guidance. Now through

midpoint $X.XXX be QX of billion X% We in $X.XXX and expect The this between 'XX. range of billion. over reflects revenue of to growth QX

we For billion $X.XX with growth between XXXX. the continue $X.XX X% reflecting to expect midpoint over billion a and year, revenue billion $X.XX full

share. QX The adjusted X% is per range this QX diluted be $X.XX midpoint to EPS of We to 'XX. higher expect than of $X.XX

the diluted continue to X% $X.XX, midpoint. For EPS growth reflects be full $X.XX at between year, expect to which and the adjusted we

guidance. bookings to Moving

billion We prior this $X.X to XX% billion. a third X% of midpoint third reflects XXXX, over which quarter expect of bookings revenue The in $X.X quarter. the QX to range the increase compared of increased had

as performance profitable and our and long-term, remain with growth. on the in shareholder delivering second value position improved summary, pleased Cerner for we creating solid are operating focused quarter, In we results we

I'll to John. the With turn that, call over

John Peterzalek

Thanks, business to to cover Marc. everyone. I'm and Good strategic it in provide our over federal growth. bookings turn, to a afternoon, turn discuss quick on Don our Today, then, going update

the all which of I'll from contributions end of start guidance with at bookings, with our were our solid key business. areas our high

last compared to As percent we of level QX a long-term year in compared we had projected, in bookings lower of of contracts coming from a to quarter year. XX% with long-term last at the bookings XX%

decision our long-term low-margin, of driven As level lower we is by we discussed in certain contract part be more the consider to last as bookings quarter, long-term opportunities. selective

contracts. mean disciplined the aligns IT cycle role we profitable we business to growth. pursuing being not on in focus believe with more on the our we not how and this are are contracts, services play revenue us that allow will high-quality we We does just This about structure discipline that emphasis

new XX% with to freestanding Moving with and outside installed existing We business of to system systems replace mix. a bookings their a XX our core Millennium contract investor-owned health EHR from including clinics large base, quarter coming at and X hospitals, had solid revenue cycle Cerner departments. XX emergency a

states, with are VA as and both federal projects planned. DoD In the our the progressing

go-live sites track Initial first For for DoD, the we on Capability beyond on our wave of work fall. are sites continuing this the with Operating

the on and and year with as still through on expected work the we go-live sites in to the our of VA initial this next to Similarly, our with work project planned, continued as go ramp remain remainder we year XXXX. into track the has

over With turn the that, Don. I'll call to

Donald Trigg

they John. It's at the growth about win in Brent ZIP afternoon, health systems out everyone. Thanks, which a Codes operate. the Good outset networks multiyear the core push and spoke provider to strategy. build strategic by

was advance to the it. quarter made second progress Solid in

shift the out-of-network time. as in generating is to risk for traction today health that macro such over referrals revenue part we're preparatory] they're contracting near-term overall seeing network While trend an of [are and areas value,

buying also from activity to network We regulatory and quality enterprise foundational are security seeing ranging capabilities around compliance.

first pipeline bright value clear a $XX Bookings connected reflect access meds the significant management, in desktop strong tap-and-go half XX% area growth half particular a supports year. trend. exceeded second our was a authentication security with proposition and would in million, From year-over-year. multifactor an that a Enterprise spot with persistent of we for have to

Postacute team the first home outside long-term XX of bookings driving rehab, position solid growth Millennium including of discrete with Postacute half Advanced. care base. delivered several partnership sales network with component client behavioral on was us XX% of The well Hospital focused the signed fronts, over business health, XX% includes on naviHealth occurring our sales, BPCI which another and trends health, contracts, health performance.

discuss data I'll to strategic asset. our ambitions services also grow curated our

differentiation overall research our platform share, Our natural a in with billion clinical market a global segment provide our practice, $XX-plus addressable of market. leverage significant points

labs life Chief growth collaboration as in made University has former CIO Art at a The Clinical joined Credit of our space, Cerner early not Officer Institute. leveraging Art into space, returns been is Duke have served the also HealtheIntent part with Optum. positive. We've within progress As the and our push strategic the he only data data System, sciences services the a Glasgow pharma Duke our assets Health organization. Research and of

other which is also insurance, business, HealtheHistory in cases. for There provides record good and legal traction retrievable life administrative use our

maximize an our and space our to management data business in part overall are network return health invested model seeking capital. Our investment the of both on portfolio

to example relates recently that the Another is alternative initiated A strategy. Brent targeted near-term go-to-market areas related of management to we agreement progress this portfolio GetWellNetwork. the area product signed we've with process an review of where

the of relationship, patient clients off our part engagement in-patient, Cerner solution As migrate myStation. we'll

will our be We larger Consumer our as patient beyond Loop portal to GetWell Framework space. revenue adding we to accelerate push the consumer also

We're same use to company. constantly that build entrepreneurial the striving to spirit we the embody

on accelerating a reasonable our go management. and faster. our portfolio quarter in second businesses, foundation the laying team impatient meaningful to network efforts is I made business believe for progress Our at the we always company-level advancing health data

turn With back to over that, the Brent. call I'll

Brent Shafer

Thanks, Don.

deliver efforts high-quality near-term believe position fronts. also good only and from Don, As you that on a results our financial will making around forward. process several not our We've going I cost-optimization but help targeted established us John improvement growth Marc, rigor for heard us progress and we're

good on on execution growth opportunities we're which good the demonstrated creating health progress be that to market making IT markets, growth. And core clients care execution We've our largest and results our booking industry. will projects federal our from of at history core including includes important our business, from long-term solid the emerging Cerner's ongoing in

both I'm outside significant execution and the pleased team's during occurring Cerner. with change with inside time the

call you. for turn back I'll to open Now the our and up Thank questions. operator, we'll over

Operator

first Instructions] you. Charles Thank comes Cowen. from [Operator Our question Rhyee with

open. now is line Your

Charles Rhyee

question Yes. moving just us give data science a this where -- -- Wanted be in the for you terms guys. And efforts product guess, that significantly? talk can lines guideposts services data or the color maybe we can about at more milestones expect in thanks to taking to look maybe Hey, area. I of monetize time your sense around on you'd sorry, and there. will -- when And more,

Donald Trigg

Yes.

Don. is this So

this as think, we an if strategies always the talked process. and opportunity we've in pushed then go of interest followers some Millennium when the long-term interest care into stock, I structure, design you area a an the back study the that of and store to long-time is had those of around data So insights back the space and is focus. about to This of original

I we we for strategies the with Secondly, retrieval pharma in medical around space, us there's a data starting build consent-based the life opportunity space, and like the again, with in strategies really and use did to on feel near-term the think cases. sciences and Duke leveraging work de-identified the also

excited it particular of the enablement or the we And joining and organization. brings think relates we're provider Art about network competency then competency think, research client I activation He finally, as Glasgow to space, our in about how very the base. including

I to much the we but on work script, in progress half that in we've going as a potential, we're see year. the said effort we're the about made, to optimistic of I larger continue and So cautiously think, the that back

Charles Rhyee

follow-up. a just And

the development? would you is and where lot this this acquisition increase data of the capabilities something Is should earlier And expect lab, really where area? something maybe itself. HealtheIntent obviously, an look about Or externally on a capabilities. in to make internal your this we to already sitting You're mentioned you

Donald Trigg

great question. Well, I it's think a

I really magnitude of at do think enable we'd part analysis to this want the the to year. the see that that's in the of combination build, buy of and comprehensive half certainly strategy probably and partner, is continue we back strategy the

and for But the for I'd of we strategy already described, won't here strategy, and Brent and an participate the together a as in organizations that we partnership to one real a been pretty hospitals, hasn't patients, life economics exclusive not sciences And the be and bring provider significant really particularly in opportunity like there our way that of certainly but for as is a a pharma that feature build to win opportunity us -- a allows, in community only way things historically the has been approach. case. think the research

So and in here, with traction there's a some early leader strong of positives lot a trend. got we've

Charles Rhyee

you. Thank Okay.

Operator

And you. Merrill question Thank with of Lynch. next from comes our Cherny Michael America Bank

Your is open. now line

Michael Cherny

all the about for Good comments that details afternoon. so you're process want Marc, on. some of far. focused to And thanks dive the the into enhancements I efficiency

I initiatives that said at. think you're different looking XXX you

you also them you're a and at the do top impact about to going prioritizing growth point forward how line to where the guess up and rate, starve that them business them the I and going think doing you're well? not attacking lining as make sure anything meaningfully

Marc Naughton

positive a which what the business there and of we one area for of clearly, impact be, positive we if reasons negative is we is Michael, these the cases Yes. any can to determine are be discreet going both XXX targeted each to on very impacts. a the want have

targets. why we level that's that of So have

after management, things The non-personnel layers, we've facilities, you talked of including all are improvements, the around majority go about, spans process these of normally and costs, in spaces. portfolio that these things focused things

and a to have we ourselves think not business think view that among front good us. the I a up going And we're is have definitely to business promise really screw we the relative what of and a we in opportunities

going all with, that going VA, So for we clients. clients we're commitments the deliver to going our DoD, we're to We're for those. have deliver for the of our to deliver

for on to the we're deliver, we're that choose business. And and going going actually ideally, clients, to including make things really work that we data so our the to And not portfolio decisions the management, we're going don't. that to relative value deliver in invest things things

probably start we these the P&L. because things we we underway bit so are bet. is it's get about, the So time talked driving benefits, reasoned to for And following really them to first approach a I of to benefits I'm going we goal and when QX, well-reasoned the going little see to there's going of kind get benefits the be seeing angst and QX we executing when And start a the a in trying to -- phase of with from take get to a as as to benefits QX that's start the think by we're this. writing into to

Brent Shafer

Marc. I'd is just This add to that, Brent.

be thoughtful approach really we're is of butter peanut could the not opposed to spread effect. we're and and the think across which -- to the sort across very rigorous that have deep intended very I is so very a company, as a opposite taking could line be damage item doing

a but very us. it's it's think going yield I approach, results to laborious good So for detailed,

Michael Cherny

Great. Thanks.

Operator

Thank our with from question Wells you. And Fargo. Jamie comes Stockton next

Your line open. now is

Jamie Stockton

for more comment already was a of know HealtheIntent. about web-based a comments, model, guys, have the Thanks -- there a taking you have of number you also are tools and was think And moving CommunityWorks evening. you I maybe I Good it and then to SaaS in question. I like and Brent's my that guess platform. Hey.

maybe around Just CommunityWorks that, be migrate few years? that outside into any SaaS model push going there's read we broadly to color aggressive that the be more Millennium over to a great. the would Should to of next

Marc Naughton

converting a business anytime near are Yes, Sure. to that in model This to future. SaaS the is don't -- Marc. indicate mean we didn't we

we keep for deliver most the what a I current, release. see approach for value them way SaaS getting pay by they to as recent clients think our the

XX% the of we probably is our example CommunityWorks example But clients. Our we host that. best have of

having and or of they're what is the not So to But used not about technology the they to the those are currency worry benefits a to run getting being but version. they're extent, on current elements. that SaaS great

on see model So more more our of I basis to be fewer of getting a us you of kind that. clients a releases think will and a current CommunityWorks-style

Given won't quick a There our will economics quick the cutoff be already hosted time. evolve or model, as move. over

fact, elements, even the can in do. we In as of today currency do the running many data Millennium benefits SaaS, our the of centers we

So SaaS be in the it of really SaaS term over will we've an to, to better not that's near evolution, parts a the model model, going standpoint. it's be something until picking but basically, evolved pure economic happen an the going from to

Jamie Stockton

you. then the for Marc. if maybe it's apologize if you And quick long-term deal nice bookings somewhat? we But we QX, step-up the commented one sequentially. The Thank that Okay. about does -- back it. number, into maybe I it, and read flow I guidance should one, bounce that, missed a Should

notably then businesses. about that guys anything should number? as else think walking that totally weren't John And to said VA you we that Was away contributing like from those there

Marc Naughton

isn't from QX. There large a Yes. anything that's perspective government's impacting

got very we've to pipeline. talked John think a strong I

continue to you about. the I bit, And we and why opportunities you're numbers We QX, while business. of see the tends the the seeing think to that's a impact little us are with seasonality talked there, a lot

forecast. align still our this we successful been we've forecast. having results again, We've year, do Once been rigorous that with our pretty -- in

we on So basically to on we see we the forecasting see deliver. horizon, what our are what ability

So that's the the for number. basis

to some going bit of long still the lower you're see of level term. I little think

selective. being are We

margin those We sure they deals, our targets. meet at making are looking

some result will that don't in that business we do. And

could sign you targets, and guidance. fact, number at In business. that didn't that end There top did the meet we we the we business that pursue our in look delivered not that our were of had at opportunities to QX,

higher been to and why up guidance, percentage guidance we ended we So top the weren't of And our but range, we at top over albeit long-term that's that have the of in end. could number do some end those. our a that understood going

Jamie Stockton

you. Thank

Marc Naughton

Sure.

Operator

Thank from next Sean you. comes Piper And our Wieland question Jaffray. from

open. is line Your now

Sean Wieland

Hi, thank you.

from can the a long-term financial it more what are talk there? What at a selective at little being strategic a Are perspective, of perspective? you that you you mean? perspective? when contracts, a applying Are about a you your you're from looking it on criteria us give So you looking client-specific sense just

John Peterzalek

This is those look you all aspects mentioned. John. we And that had at

client the we from higher perspective make look that is service client, So for it providing a drive can to us. a which, margins that at in highly to sure we're valued essence,

a it capability and look at targets and of talent only strategic but We those as client to to those acquisition of and may meet type type of to the things. either from meet things component workforce it relate from margin not targets

that. whether and truly for look to lens client, to forward we And we high the like kind go we it strategic a question within has parameters a and target. at Cerner on provide we we margin return some absolutely, margin we benefit if then as actually Cerner our want if then clients, value the it the don't -- And a can't of to

do, it aligned, for you for and our clients, And it for Cerner. we works works It everybody. three get ones works that when those all the of for

Sean Wieland

profile names, say naming of to of that us would course, an prior? you I you said no that would or of you kind the without, of sense -- a now mean have opportunity give yes to So could

John Peterzalek

revenue would I would but acquired a little we it perspective if do a say only margin space strategic our of from we very at bringing a workforce context that add the that truly something perspective. us revenue at client's in relationship, looking look a margin just as of from to some and workforce is on not that a

think example. a be may margin our of one the component accomplish ways And same we low for that for client us different thing bring may on to without to having be

works of our type or U.S., workforce, what of create U.S., domestic play degrees capabilities have margin at and into look we both things varying at those to will outside whether leverage for locations to our of more it's clients. ability of the Our -- more our some of value we varying our

Sean Wieland

That’s you much, helpful. Thank right. All very

Operator

comes Thank our Cantor next from Steve And Halper Fitzgerald. you. with question

open. now is line Your

Steve Halper

done and you ongoing? disclose the is but if Hi. cost-efficiency taking you're on willing on in costs? plan your possible? of I to just total do don't What out it process, when do this is much how terms Or said number, all know you're you -- think

Marc Naughton

in Yes. Marc. total speed of announcing somewhat up associates' is and to Steve, process to pace finalizing understanding our specific because, be. We're going what and relative getting are right and this obviously, the impacts in are we the

the to clearly, economics targets. $XXX think numbers, million, I think the at of pretty in get targets, margin clear it's necessary and our you just our operating to excess that and figure if look that's the can But if you at look what's I -- you

I think They to things matter the of savings, I be aren't have focus have But and is continue having that's it that initiatives get once now. that continuing those we're that forever, savings picking right a because needs that benefit to onetime.

think with I at in $XXX updates so get as we -- our gives we'll that that's think, I least what million further But is along. more But provide -- is. consistent general, a ballpark over guidance

stop end again, benefits in of the once And we as don't I XXXX. expect the to my comments, said at

we're improvements and into continue them harvest to to able especially that the be some going to XXXX get of expect to We benefits beyond. process from

Steve Halper

Sure. And one follow-up. other

on repurchase. sheet rate that put debt share new What's you on on that interest Just the debt? to the balance facilitate the

Marc Naughton

- debt X.XX%. that it's swaps, - rate a is It we variable

Steve Halper

now? right paying you're what That's

Marc Naughton

And Yes. pay of that's swap. we of debt the over will life what the the because

Steve Halper

the with attractive Great. swaps. capital. That's Yes,

Marc Naughton

Thank you.

Operator

Eric Research. question next from you. Thank And comes Nephron Percher with our

now is line Your open,

Eric Percher

for process A Thank you. you. question

a X waves give over targeted on year. little us how of X on as SG&A wave X a to bit and year activities R&D for thoughts be that next wave this what time? take will through versus those you progress you feel your relative You Can mentioned you and

Marc Naughton

Marc. This Sure. is

the of reasoning to things for the to benefits, we on be right? T&E, Certain of such ways things, suppliers, as think how as quickly will based some can the get quickly. certainly get those I we third-party types really can such

X things, tools, more think require be require things types tend investment process X. that of that the things improvements, I the are that wave things in those the to and those and the

benefits. to those to I in ability place to all of targeted on put drive So kind -- the happen in think whatever they're that's order needs based

hard benefits ways look certainly -- maybe wave look very are to portion waiting today anything save pull it. or to than at aware we that whatever value a -- those for work X.X definitely of I it at that's forward more X, dollars have think wave to accelerating that is the you'll because see in us can X years certainly are we or saved

So -- wave that between but that's we is generally those execute the on and can the the actions be investment the have place difference before or in initiatives. wave to X go X,

Eric Percher

to build? to it about to do what sounds think how needs like group organization you Alix Kim you you internalize and you are with when how you those doing some change? internally, think Mike And want about And what is responsibilities. the with the thinking about capabilities is of How

Marc Naughton

mean all want right? to to want manage obviously, Yes. set our capabilities, forward. don't set what and elements learned we over expect change, I the want those their expertise that or up We we ability of AlixPartners their business to go management be history. as the help on them we transformation We us But is here on and initiatives the key. up to help will forever, to lean office these want through they've using

think always things transformation those I have mean I has date. services, don't of and from do the an end that know really we're that types can internal there's types that can areas an certainly that be we before. capability benefit those didn't creating we that going I of to management office

still we'll context capability their we're lever with and that will be Alix, But to forward. work have going but we and doing in that once done, working that is able

Eric Percher

you. healthy. Sounds Thank

Operator

question comes Baird. you. And Matthew next Gillmor with from our Thank

is Your open. now line

Matthew Gillmor

about the question. asking the for Maybe base. client Thanks

some classified us sort You the current you to are in to portion what strategies. you some newer Millennium migrate? encourage of the sense And Can getting on give you for software of a talked have can what versions? as sort things clients of do then clients on version about being of

John Peterzalek

This is Yes. John.

actually need through driving we working into the to upgrade we're have and and current. that as going part some So this are early year regulatory next of year, components be

our our by current majority should a have next So client release, base we with release on be recent vast the of mid year. most --

current remain remain So that's certified opportunity help that with clients using right follow to that great current, our have to motivation release we regulations, a -- current. structure to we the U.S. have and have, be a now opportunity of stay the

be most of end the by on So year, release. should of mid vast the current clients our the majority next

Matthew Gillmor

probably ticked as And last normally revenue a that little it. sequential that line, this relative it for out flat up. to sequentially like of quarter service that Got guess Marc. caused think I down either or one I then quarter call follow-up decline? in was that managed The second looks line the quarter first anything in to quarter. the Was being that to there

Marc Naughton

material signings on during occur anything can business some new on period. That based have various impact elements. wasn't There that that depending

and consequential nothing few was like So it is a but or million a in pretty down was trend. that essence, creating to flat dollars

it expect a slight to year-over-year as we quarter-over-quarter, year-over-year back increase We get -- go. on

Brent Shafer

processes. Prior question, circle we capabilities going back next just is we're into with to This updating. around where to the I and our what want are

to around to we the since new transformation a charter As Medtronic. talked her from our ops, we're of direction through and with CHRO, ensure us help we want strategic leadership workforce Tracy did Marc this last the strategy point work us are where was planning addressing and and our Part in is I line our Platt, just announce joining and workforce that going. capabilities in really

week, the board thought that She'd the a I -- are now. have on her we're it's to glad we So just joining work to was important team. been just tie I part That's of back. doing and

Marc Naughton

Yes. Marc. This is

undergoing, everything to for as an I her because to our introduce I focus she's company other a that of brings in the Tracy think we'll to of -- role we're a in did HR. of things those Julie and Wilson efforts lot we're on. the lot lean experience including certainly opportunity skills, we Tracy look think appreciate transformation for all investors going leader

bringing in, as also got she's well. So very I business focus her a think

business call So sure a And I'm understand listening to she's help she and the with the and drive -- to us be the us business. help partner wants today.

So Tracy, welcome to Cerner.

Next question?

Operator

Thank you.

with Our next Blair. William question comes from Jeff Garro

line Your now is open.

Jeff Garro

mix want the and growth near- afternoon. that a for the of there. It Brent both taking I about Good like questions. a of seems to Yes. opportunities long-term of area strategic Thanks discussed. bit there's the ask

provide hoping to when of saying detail more little for expectations growth. a on contribute was could specific timing you will I opportunities those So areas

Brent Shafer

That's going want ask kind I'm Don, to... you that. do to of his address to Don area.

Donald Trigg

would Yes. view health the be business high-level happy I'd XX% towards growth through like energy work a out of X-year at to. our projections laying We the and really spent some what sustained have kind core of to a and of in pop on some as space HIMSS, basis way look it that rates time walking we XXXX.

a what And and think attain about revenue double-digit of to combination like, think the to over inorganic single-digit targets. then about high that, organic, against with to for looks we coupled need a us those partner-based growth as

So put kind we that broad we of haven't that view deviated forth in from QX.

section said that's XX% on. market I in And excess and I growth energy made As of all deliver identified spending what of my that in and CAGRs. team some in the think several keen we're progress for with we've good to working time consistently of script, we've see areas, to begin the I'm the segments

Jeff Garro

targeted level Thinking Great. helps. areas revenue as Maybe and to and a strategic little towards initiatives, areas. high a mix That higher-margin more maybe growth other that. those on bit follow-up

So wanted over how time to can the get the that of gross mix impact revenue and margins. evolution thoughts on

Marc Naughton

that's to on we what I to is standpoint of as might with pursuing Yes. us we help are as things a is This Marc. think especially Service. compared in selectively focus business revenue dependent certain today. I Certainly, have the as Software a area the we a the in forward, higher-margin move mean from on going service clearly, mix opportunities, which many strategic platform, services HealtheIntent growth

in business integral on. that going an are that margins to strong is has what part it rely So

of approach over SaaS our of especially is today business a that to software, traditional about. to is SaaS then businesses time and with replacing in lot with SaaS So converting because, of the model that's of respects a these kind we're HealtheIntent software SaaS-based once some model. talking Millennium and focus eventually platform the the again, business HealtheIntent some of supports part that a a many converting not

is should on have This costs be all those margin into go service can operating elements overall impact positive related perspective, the are So a certainly to impact third-party line positive margins. impact the and most positive to that sold of of of a cost a a margin. that the top related, goods given And from that to driving margins. gross

Donald Trigg

the only Medicaid in look if in From on amplify to space that's work of non-provider employer both using my growth businesses to Yes. to the strategy that for such enabling which again, several Marc's perspective, And HealtheIntent adjacencies as state space, the attractive. technology work we're the a MMIS of doing point, in just specific but with doing represent space think those we're services the interesting profile as go-to-market strategy the for good efforts that. you a us, at we margin of not also or

Jeff Garro

taking for Thanks Great. questions. the

Donald Trigg

Sure.

Operator

our next Goldman And Robert with question you. Sachs. Thank from comes Jones

now Your open, is line

Robert Jones

win I area. that licensed much questions. guys nice in guess you just software the quarter, in saw Thanks one Great. up X-hospital of then much the ticked I'm the some two given And came wondering the that I for how generally around that margins. just to growth sequentially obviously that, related guess you but remarks. that strength prepared not seemed the in strong pretty margins area. like from mentioned what during

Marc, step-up a I that. and just then kind as expectation there's I of for flat know of sequential margins And XQ lot relates it healthy into guess areas XQ. the into behind to pretty a then

from about XXX point what seems specific can Thanks. think Just the if we of to XQ to just sight, as some basis of maybe line that, the XQ? probably step-up areas, be wondering you highlight around

Marc Naughton

element, and software. in Sure. Yes, areas, a was think including strong SaaS I certainly, the strong traditional a software It from point. mix QX across various was

a not in the -- significant not did indicated but you manner. it So contributed single transaction

we're starting business. the of some see to we to think I in used see that the seasonality

So QX you having strengths. some see

revenue. QX on having QX little the lighter You a some see strength with bit software

flattish go that's think that's are the a look seeing what I a So bit to you relative margins you as into -- QX. little little why of bit

-- operating basically some mix be from efforts to the the you're talked, on that significantly, from expense -- the the going QX. benefits flat. seeing start revenue given relatively side really the moving Clearly, therefore, real optimization of meter we're that's going not the until really as And to not that's and QX, we've

comes strengths again, some -- When the side. once we benefits in some our see from the to see cost software our QX, in We in it start to pipeline forecast optimization.

look those -- XX% us that So that's at -- I have. in that at in give as ramp the expectation looking we that's to the QX. are some we go to the confidence And up things ability within think all

Obviously, the stronger the going to of because year going intact, still business, seasonality But quarter the is QX. we're a But me and we've that's in pretty full are in to logical the elements hit place. it's be talked other ramp-up of about go numbers the still actually to that. that,

Robert Jones

Thanks so much. great. Okay,

Marc Naughton

Sure.

Operator

comes from Goldwasser Thank Morgan you. Rivka question next Stanley. our And from

line now is open, Your

Rivka Goldwasser

'XX should margin we for the to XXXX Yes. back Do from going guiding rate your benefit Thanks. margins. Marc, into are effect impact have that XXXX? it extrapolate XQ another about to level step-up to should the in you long-term you period? XXXX 'XX an comments mean run Or on contract, and XQ that take

Marc Naughton

I but Yes. approaching should logic anything XXXX to element. sustainable this is But than if the a quarters end it, at doing increasing be way I'm that XXXX up with other I'm did and in the in point. of margin a to with I'm anything the guiding higher that QX

that be don't benefit. things are that there driven And XXXX have year in will a full

And in as give get to I year have QX to year year to I to XXXX, view of it's to we'll able so a better versus me that you XXXX. XXXX logical should full from for that of to have closer what full full year I be Relative for up benefit that margins increment full able have XXXX, that capture be that.

going in hit fully to XXXX certainly, But fully year be expect forward, roll that to aren't do hit we as XXXX. we benefits full

I numbers So without full than be for XXXX XXXX. putting operating a solid year, yes, will any it, around margin higher so think year

Rivka Goldwasser

it cash that it you call an of quantify you the and percent for highlighted release the had a impact is plan in press on the separation just then workforce? the And the flows. what total on voluntary Okay. Can as

Marc Naughton

small amount. From a percent a workforce, of total pretty it's

total item million, is that that, impact some in a personnel that's I and salary $XX then $XXX the million perspective, a from think place probably number. from

which were level So qualified that be tenure to with you was have people it, had again, with to certain company. the of voluntary in meant a once it

the have it's we're start gone But certainly, benefits pleased So certainly, successful, additional We're about very more to that. but I benefits -- pleased to optimization -- we're that. get through it's think the we're getting excited from of work. we'll our

Rivka Goldwasser

you. Thank

Marc Naughton

Sure.

Operator

Canaccord Thank from And Genuity. next Close with question Richard comes our you.

Your now line is open.

Richard Close

for Thanks Great. question. the

Just potential Software Azure is how that thoughts impact and maybe to there drill Just would transition the the that down on possibly or AWS data to Jamie's as Service curious forward? from be big going a Thinking question center of it on from aspect, an there. earlier you. your opportunity for move about and on the to stuff

Marc Naughton

at Yes. at. that's and return This we'll on capital, things one as the that and Certainly, structure capital is look invested we our go of look Marc.

fit or move think with very I number decide used still are to third-party on. that would that's -- move we But CommunityWorks as a have well release being something hosting. that's by a it limited still forward clients, our that of more a releases to and that's clearly, to model we have

or have it's I us significantly. for they them is something value the -- data good news going the it impact the get And for think wouldn't off-site our that's not it. to that from they But get clients basically, that from -- that impact in an them, hosted really service center. that nothing they're already They

that analysis on best not move the what to business we us, on at for the necessarily this to determine us overall business, certainly, new the but forward model approach But looking the and as our SaaS SaaS the all an cost doing approach we're based for options. represents approach

Richard Close

was see. opportunities one I commentary that then of Okay. you that GetWellNetwork the in and XXX the And being interested

with large partners? products how people moving If the is off other maybe certain XXX, capabilities at to guess, your or I the opportunities, of you look

Marc Naughton

Marc. is This

XXX targeted on alternatives happy line of clarify part top to of But the not That's benefits -- to want right? comment optimization Just Don, the bit you management. kind extent, if of a potentially growth I'd portfolio are that additional Those be the partnering one little basis. GetWell on is and great our... strategy initiatives a of an to

Brent Shafer

Maybe comment, if can. just bridging I

is buy. and build Brent, this management quarter make So partner about does sense at our portfolio last versus this to it discussions really is to back and an active looking process or where

sense. the solution. to, referred that's example a describe to -- a Don you model. And a in at little. well-accepted looked there's It's as maybe of we Don, It makes desirable as an win. want it, And It's

Donald Trigg

GetWell a think or partnerships set that my in of was specifically the cited I section I No, script. of to have of one alluded

I fit space; that, in work to doing mentioned would with bundled we're provider-sponsored Salesforce certainly, Lumeris with the CRM GetWell the it perspective. So relates plan and you're payments from naviHealth as doing the work MA. a

as strategic into partnerships So to very that make we have XXXX. that entered some we we've we contributions expect work to meaningful into revenue

and in of Consumer client our want to as their away Framework in that net today growth opportunities to that, our move solution, case that to create we some highly some revenue really out us think to this about around of make base drive and it engage build a piece our loop for new strategy also business. begin asset relative And part is to partnership in penetrated sense from the myStation does when to

what a and emblematic you X XXXX. and back we'll as it's multi-quarter half I those think move of into the tier partnership something to I contribution trend, half first guys relationships of So looks that the part the update for of of we been that's on think like year continue

Richard Close

Thank you.

Donald Trigg

Thank you.

Brent Shafer

Well, question. we take one more

Operator

from ISI. And Thank comes Evercore question final you. our with Muken Ross

Your now is open. line

Unidentified Analyst

for on expansion you answered, any organization's motion the fully of ask, Thank you been Susie have all thank feedback for driving in so the is color for been I margins question. clients? cost you've around can I'll It's receiving now, guess guys. the provide margin you all from My detail. with Ross. Hey, cuts for there on questions initiatives your

aggressive with the these may face the of be any you changes? maybe gotten more Or becoming organizational sense in strategy maybe that competition transforming strategies or its have your

John Peterzalek

last them the work strategically, commitments is as that client John. little initiatives our going. impact call we hit Yes. our we're impact at, where this they're that -- that the that efficiency not we efforts one the a we're a perspective, bit through we to looking do had, premises This key we at is last through And our is From do that not We all or, lens. of looking clients. of

that talked our of I've talked that clients management benefit we've we them. majority the is that comfortable to do portfolio around the around and from to The that can fact to feel the very efficiency, things we things a do can the

new types market when a those for little the coming to gets much the to things It quicker. allows they better of It to be things would more things. and because market are innovations of plan them aware

in future, with looking what be opposed impacts fine what may think clients. about on So don't that should we focused we in we're that negative forward of commitments be. long and they to that understand benefits general, we the we that more doing our our they are And -- that, worrying to as this have the we are as that we continue currently I of the fulfill -- and to some

Brent Shafer

like that, this Yes. has This is of the almost themselves. every providers, in one of just of would health Brent. large going them, delivery, add initiative I course, sort some care

suite, in in they executive they health it's know of So it care. very and it's familiar, and doing the understand business part

familiar. is So it

Unidentified Analyst

Thank in. Got it. squeezing me for you

Brent Shafer

Yes.

You bet. you Thank

Marc Naughton

look to you, being you to Thank the forward on for talking We everyone, care. call. soon. Take

Donald Trigg

all. you, Thank

Operator

you thank in today's for And may conference. have and you This day. disconnect. gentlemen, Ladies today's all program. participating a wonderful Everyone, concludes

CERNER (CERN) 24 Jul 192019 Q2 Earnings call transcript