Cerner Corporation's (CERN) sales growth was unimpressive when the company reported its 2017 fourth-quarter results in February. There was a hint of better growth ahead, though, with Cerner posting record-high bookings.
That better growth appears to be still in the future, however. Cerner announced its 2018 first-quarter results after the market closed on Wednesday. Here are the highlights.
Image source: Cerner.
Cerner results: The raw numbers
| Metric |
Q1 2018 |
Q1 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Sales |
$1.29 billion | $1.26 billion |
2.6% |
|
Net income from continuing operations |
$160 million | $173.2 million |
(7.6%) |
|
Adjusted earnings per share (EPS) |
$0.58 | $0.59 |
(1.7%) |
Data source: Cerner.
What happened with Cerner this quarter?
The good news for Cerner in the first quarter was that it enjoyed solid growth in three key areas. Professional services revenue increased more than 11% year over year to $441.3 million. Managed services revenue grew 3% over the prior-year period to $268.3 million. Support and maintenance revenue climbed 8.6% year over year to $284.6 million.
However, Cerner also posted sales declines in other categories. Sales of licensed software fell 5% from the prior-year period to $134.8 million. Revenue from subscriptions plunged 32% year over year to $76.6 million. Technology resale revenue slipped 1% from the first quarter of 2017 to $63.4 million. In total, Cerner's first-quarter revenue fell below its previous guidance of $1.315 billion to $1.365 billion.
Cerner's GAAP net income was helped by U.S. corporate tax reform. The company paid nearly $30 million less in taxes than it did in the same quarter of last year. However, that wasn't enough to offset significant spending increases. Operating expenses grew 6% year over year to $866.4 million. Still, Cerner's adjusted EPS in the first quarter matched the mid-point of the guidance range the company gave in February.
Once again, Cerner recorded solid bookings, which represent the amount of prospective revenue from contracts signed but not yet implemented. First-quarter bookings were just under $1.4 billion, bringing Cerner's total backlog to $14.6 billion.
What management had to say
Cerner president Zane Burke said, "Our results in the first quarter included strong bookings and cash flow and in-line earnings, but our revenue was below expected levels." He added, "Our mixed results and revised outlook reflect the delay of a large contract and a less predictable end market. However, we remain optimistic about our long-term growth opportunities due to our strong market position and portfolio of solutions and tech-enabled services that align with the pressures healthcare stakeholders are facing."
Looking forward
Cerner expects revenue to pick up a bit in the second quarter. The company projects second-quarter revenue between $1.31 billion and $1.36 billion. However, because of the weaker-than-expected first quarter, Cerner lowered its full-year 2018 revenue outlook. The company now expects full-year revenue between $5.325 billion and $5.45 billion, down from $5.45 billion to $5.65 billion.
The company also projects second-quarter adjusted EPS between $0.59 and $0.61, which would reflect a slight year-over-year decline at the mid-point of the range. Full-year 2018 adjusted EPS is expected to be between $2.45 and $2.55, down from Cerner's previous guidance of $2.57 to $2.73.
Some of Cerner's weakness should only be temporary. As Zane Burke mentioned, the delay of a large contract weighed on the company's performance in the first quarter. The challenge for Cerner will be to convert its bookings backlog into implementations that generate solid revenue. Overall, though, the company's business continues to look sound.
