As a result of Cerner Corporation's (CERN) weak first-quarter results, the company lowered its full-year 2018 outlook. The healthcare technology provider even projected that its second-quarter adjusted earnings could drop from the prior-year period.
This caused investors to have lower expectations for Cerner's second quarter. However, when the company announced its second-quarter results after the market close on Thursday, its performance wasn't nearly as bad as some feared it would be. Here are the highlights from Cerner's second-quarter update.
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Cerner results: The raw numbers
| Metric |
Q2 2018 |
Q2 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Sales |
$1.37 billion | $1.29 billion |
5.9% |
|
Net income from continuing operations |
$169.4 million | $179.7 million |
(5.7%) |
|
Adjusted earnings per share (EPS) |
$0.62 | $0.61 |
1.6% |
Data Source: Cerner.
What happened with Cerner this quarter?
In May, Cerner projected that its second-quarter revenue would fall between $1.31 billion and $1.36 billion. The company beat the upper end of that range thanks to solid growth in several areas. Professional services helped the most, with revenue jumping nearly 13% year over year, to $447.3 million.
Cerner also reported solid increases for managed services, with revenue of $285.6 million, up 9% from the prior-year period. Support and maintenance revenue grew by 7.5% year over year, to nearly $279 million. Licensed software sales also jumped by a healthy amount, rising 10.6%, to $172.4 million. One negative for Cerner in the second quarter came from its subscriptions revenue, which dropped 32%, to $82.9 million.
What about the decline in GAAP net income? The biggest culprit was a significant increase in spending on sales and client service to the tune of $71.7 million. Cerner also spent $25.4 million more on software development than it did in the prior-year period.
However, the company beat the upper end of the range of its second-quarter earnings projection by $0.01. This better-than-expected performance stemmed primarily from adjusting for higher share-based compensation expense and a lower impact from pre-tax adjustments.
Cerner also reported a total backlog of $14.79 billion. The company's backlog at the end of the first quarter was $14.6 billion. Cash, cash equivalents, and short-term investments as of June 30, 2017 totaled $885.6 million. Cerner's cash stockpile at the end of the first quarter was $921.4 million.
What management had to say
Cerner president Zane Burke stated:
I am pleased with our second-quarter results, which included all key metrics being at or above expected levels. Our results were solid across all of our major solution and services categories and included good contributions from U.S. and non-U.S. regions. Looking ahead, we believe our solutions and tech-enabled services are well aligned with the challenges providers and other healthcare stakeholders are facing, and we have a significant opportunity to grow as we help them with their transition to value-based care in coming years.
Looking forward
Cerner expects third-quarter revenue will be between $1.335 billion and $1.385 billion, with adjusted diluted EPS between $0.62 and $0.64. The company maintained its full-year 2018 guidance of revenue between $5.325 billion and $5.45 billion, with adjusted diluted EPS between $2.45 and $2.55.
One other thing for investors to look forward to that could impact Cerner is a potential acquisition of one of its smaller rivals, athenahealth. After the departure of founder and former CEO Jonathan Bush in June, athenahealth's board of directors stated that they were exploring strategic alternatives, including a potential sale or merger.
