Cerner Earnings 2020-06-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

cern-20200630

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 0-15386

CERNER CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

43-1196944

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

2800 Rockcreek Parkway

North Kansas City,

64117

(Address of principal executive offices)

(Zip Code)

(816) 221-1024

(Registrant's telephone number, including area code)

_________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	CERN	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.


Class						Outstanding at July 22, 2020
Common Stock, $0.01 par value per share						305,381,551 shares

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CERNER CORPORATION

TABLE OF CONTENTS


Part I.	Financial Information:

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets as of June 30 , 2020 (unaudited) and December 28, 2019	1

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30 , 2020 and June 29 , 2019 (unaudited)	2

	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30 , 2020 and June 29 , 2019 (unaudited)	3

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30 , 2020 and June 29 , 2019 (unaudited)	4

	Condensed Consolidated Statements of Changes in Shareholders' Equity for the Three and Six Months Ended June 30 , 2020 and June 29 , 2019 (unaudited)	5

	Notes to Condensed Consolidated Financial Statements (unaudited)	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	34

Item 4.	Controls and Procedures	34

Part II.	Other Information:

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 6.	Exhibits	38

Signatures

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Part I. Financial Information

Item 1. Financial Statements

CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of June 30, 2020 (unaudited) and December 28, 2019


(In thousands, except share data)	2020		2019

Assets
Current assets:
Cash and cash equivalents	$	269,895	$	441,843
Short-term investments	171,123		99,931
Receivables, net	1,183,988		1,139,595
Inventory	18,525		23,182
Prepaid expenses and other	410,016		392,073
Total current assets	2,053,547		2,096,624

Property and equipment, net	1,870,779		1,858,772
Right-of-use assets	122,639		123,155
Software development costs, net	973,060		939,859
Goodwill	912,082		883,158
Intangible assets, net	346,259		364,439
Long-term investments	388,675		419,419
Other assets	212,300		209,196

Total assets	$	6,879,341	$	6,894,622

Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable	$	261,540	$	273,440
Deferred revenue	295,711		360,025
Accrued payroll and tax withholdings	267,930		245,843
Other current liabilities	181,621		148,140
Total current liabilities	1,006,802		1,027,448

Long-term debt	1,338,467		1,038,382
Deferred income taxes	381,926		377,657
Other liabilities	134,130		133,807
Total liabilities	2,861,325		2,577,294

Shareholders' Equity:
Common stock, $0.01 par value, 500,000,000 shares authorized, 371,186,776 shares issued at June 30, 2020 and 367,634,796 shares issued at December 28, 2019	3,712		3,676
Additional paid-in capital	2,120,341		1,905,171
Retained earnings	6,101,402		5,934,909
Treasury stock, 65,919,144 shares at June 30, 2020 and 56,723,546 shares at December 28, 2019	(4,057,768)		(3,407,768)
Accumulated other comprehensive loss, net	(149,671)		(118,660)
Total shareholders' equity	4,018,016		4,317,328

Total liabilities and shareholders' equity	$	6,879,341	$	6,894,622

See notes to condensed consolidated financial statements (unaudited).

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CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three and six months ended June 30, 2020 and June 29, 2019

(unaudited)


	Three Months Ended						Six Months Ended
(In thousands, except per share data)	2020		2019		2020		2019

Revenues	$	1,330,349	$	1,431,061	$	2,742,090	$	2,820,938
Costs and expenses:
Costs of revenue	211,963		268,673		466,379		521,877
Sales and client service	645,087		678,895		1,281,736		1,319,082
Software development (Includes amortization of $61,197 and $122,208 for the three and six months ended June 30, 2020, respectively; and $56,005 and $112,250 for the three and six months ended June 29, 2019, respectively)	178,955		181,047		364,275		361,408
General and administrative	134,332		149,788		274,184		245,984
Amortization of acquisition-related intangibles	13,114		21,541		30,242		43,526

Total costs and expenses	1,183,451		1,299,944		2,416,816		2,491,877

Operating earnings	146,898		131,117		325,274		329,061

Other income, net	24,632		23,006		30,227		31,438

Earnings before income taxes	171,530		154,123		355,501		360,499
Income taxes	(36,782)		(27,154)		(73,594)		(67,311)

Net earnings	$	134,748	$	126,969	$	281,907	$	293,188

Basic earnings per share	$	0.44	$	0.40	$	0.92	$	0.91
Diluted earnings per share	$	0.44	$	0.39	$	0.91	$	0.90
Basic weighted average shares outstanding	304,776		321,280		307,256		322,485
Diluted weighted average shares outstanding	306,717		324,662		309,520		325,498

See notes to condensed consolidated financial statements (unaudited).

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CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the three and six months ended June 30, 2020 and June 29, 2019

(unaudited)


	Three Months Ended						Six Months Ended
(In thousands)	2020		2019		2020		2019

Net earnings	$	134,748	$	126,969	$	281,907	$	293,188
Foreign currency translation adjustment and other (net of taxes (benefit) of $(88) and $337 for the three and six months ended June 30, 2020; and $179 and $(4) for the three and six months ended June 29, 2019, respectively)	9,197		(100)		(11,349)		2,221
Unrealized loss on cash flow hedge (net of tax benefit of $332 and $6,682 for the three and six months ended June 30, 2020; and $4,069 for both the three and six months ended June 29, 2019, respectively)	(1,007)		(12,370)		(20,315)		(12,370)
Unrealized holding gain on available-for-sale investments (net of taxes of $494 and $215 for the three and six months ended June 30, 2020; and $71 and $281 for the three and six months ended June 29, 2019, respectively)	1,502		216		653		853

Comprehensive income	$	144,440	$	114,715	$	250,896	$	283,892

See notes to condensed consolidated financial statements (unaudited).

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CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30, 2020 and June 29, 2019

(unaudited)


	Six Months Ended
(In thousands)	2020		2019

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	281,907	$	293,188
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	343,941		336,486
Share-based compensation expense	72,580		42,884
Provision for deferred income taxes	12,884		15,154
Investment gains	(26,410)		(15,509)
Changes in assets and liabilities (net of businesses acquired):
Receivables, net	(48,426)		(47,839)
Inventory	5,509		1,875
Prepaid expenses and other	(36,431)		(76,048)
Accounts payable	(31,711)		24,980
Accrued income taxes	26,358		(1,569)
Deferred revenue	(66,137)		(78,090)
Other accrued liabilities	8,032		28,564

Net cash provided by operating activities	542,096		524,076

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital purchases	(166,296)		(277,874)
Capitalized software development costs	(151,393)		(144,902)
Purchases of investments	(91,957)		(140,723)
Sales and maturities of investments	81,022		289,669
Purchase of other intangibles	(20,656)		(17,457)
Acquisition of businesses, net of cash acquired	(35,766)		—

Net cash used in investing activities	(385,046)		(291,287)

CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt issuance	300,000		600,000
Proceeds from exercise of stock options	156,908		125,000
Payments to taxing authorities in connection with shares directly withheld from associates	(14,217)		(4,860)
Treasury stock purchases	(650,000)		(620,542)
Dividends paid	(111,101)		—
Other	(4,159)		(4,450)

Net cash provided by (used in) financing activities	(322,569)		95,148

Effect of exchange rate changes on cash and cash equivalents	(6,429)		861

Net increase (decrease) in cash and cash equivalents	(171,948)		328,798
Cash and cash equivalents at beginning of period	441,843		374,126

Cash and cash equivalents at end of period	$	269,895	$	702,924

See notes to condensed consolidated financial statements (unaudited).

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CERNER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the three and six months ended June 30, 2020 and June 29, 2019

(unaudited)


	Common Stock					Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss, Net
(In thousands)	Shares	Amount

Balance at December 29, 2018	362,213	$	3,622	$	1,559,562	$	5,576,525	$	(2,107,768)	$	(103,552)

Exercise of stock options and vests of restricted shares and share units	706	7		11,716		—		—		—

Employee share-based compensation expense	—	—		19,860		—		—		—

Other comprehensive income (loss)	—	—		—		—		—		2,958

Net earnings	—	—		—		166,219		—		—

Balance at March 30, 2019	362,919	3,629		1,591,138		5,742,744		(2,107,768)		(100,594)

Exercise of stock options and vests of restricted shares and share units	1,777	18		108,045		—		—		—

Employee share-based compensation expense	—	—		23,024		—		—		—

Other comprehensive income (loss)	—	—		—		—		—		(12,254)

Treasury stock purchases	—	—		—		—		(600,000)		—

Cash dividends declared ($0.18 per share)	—	—		—		(57,682)		—		—

Net earnings	—	—		—		126,969		—		—

Balance at June 29, 2019	364,696	$	3,647	$	1,722,207	$	5,812,031	$	(2,707,768)	$	(112,848)

Balance at December 28, 2019	367,635	$	3,676	$	1,905,171	$	5,934,909	$	(3,407,768)	$	(118,660)

Exercise of stock options and vests of restricted shares and share units	2,543	26		114,050		—		—		—

Employee share-based compensation expense	—	—		35,031		—		—		—

Cumulative effect of accounting change (ASU 2016-13)	—	—		—		(4,606)		—		—

Other comprehensive income (loss)	—	—		—		—		—		(40,703)

Treasury stock purchases	—	—		—		—		(650,000)		—

Cash dividends declared ($0.18 per share)	—	—		—		(55,206)		—		—

Net earnings	—	—		—		147,159		—		—

Balance at March 31, 2020	370,178	3,702		2,054,252		6,022,256		(4,057,768)		(159,363)

Exercise of stock options and vests of restricted shares and share units	1,009	10		28,540		—		—		—

Employee share-based compensation expense	—	—		37,549		—		—		—

Other comprehensive income (loss)	—	—		—		—		—		9,692

Cash dividends declared ($0.18 per share)	—	—		—		(55,602)		—		—

Net earnings	—	—		—		134,748		—		—

Balance at June 30, 2020	371,187	$	3,712	$	2,120,341	$	6,101,402	$	(4,057,768)	$	(149,671)

See notes to condensed consolidated financial statements (unaudited).

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CERNER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) Interim Statement Presentation

Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by Cerner Corporation ("Cerner," the "Company," "we," "us" or "our") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our latest annual report on Form 10-K.

In management's opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and the results of operations and cash flows for the periods presented. Our interim results as presented in this Form 10-Q are not necessarily indicative of the operating results for the entire year.

The condensed consolidated financial statements were prepared using GAAP. These principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates.

Fiscal Period End

Prior to fiscal year 2020, our second fiscal quarter ended on the Saturday closest to June 30. The second quarter and year-to-date periods for 2019 presented herein consisted of 91 days and 182 days, respectively, and ended on June 29, 2019.

In December 2019, our Board of Directors approved the change of our fiscal year to a calendar year, commencing with fiscal year 2020. Accordingly, the second quarter and year-to-date periods for 2020 presented herein consisted of 91 days and 185 days, respectively, and ended on June 30, 2020.

All references to periods in these notes to condensed consolidated financial statements represent the respective periods described above ending on June 30, 2020 and June 29, 2019, unless otherwise noted.

Supplemental Disclosures of Cash Flow Information


	Six Months Ended
(In thousands)	2020		2019
Cash paid during the period for:
Interest (including amounts capitalized of $8,831 and $8,164, respectively)	$	16,572	$	8,907
Income taxes, net of refunds	8,690		47,877
Non-cash items:
Lease liabilities recorded upon the commencement of operating leases	22,270		22,551

Accounting Pronouncements Adopted in 2020

Credit Losses on Financial Instruments. In the first quarter of 2020, we adopted new guidance regarding impairment assessment for certain financial assets. Refer to Notes (3) and (4) for further details.

Collaborative Arrangements. In November 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies when transactions between participants in a collaborative arrangement are within the scope of the FASB's recent revenue standard (Topic 606). Such guidance clarifies revenue recognition and financial

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statement presentation for transactions between collaboration participants. We adopted ASU 2018-18 in the first quarter of 2020. Such guidance did not have an impact on our consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements

Reference Rate Reform. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional financial reporting alternatives to reduce the cost and complexity associated with the accounting for contracts and hedging relationships affected by reference rate reform, such as the upcoming discontinuance of the London Interbank Offered Rate ("LIBOR"). The accommodations within ASU 2020-04 may be applied prospectively from the beginning of our 2020 first quarter through December 31, 2022. We are currently evaluating the effect that ASU 2020-04 may have on our contracts that reference LIBOR, specifically, our Third Amended and Restated Credit Agreement (as amended, the "Credit Agreement") and related interest rate swap. As of the date of this filing, we have not elected to apply any of the provisions of this standard.

(2) Revenue Recognition

Disaggregation of Revenue

The following tables present revenues disaggregated by our business models:


	Three Months Ended
	2020									2019
(In thousands)	Domestic Segment		International Segment		Total		Domestic Segment		International Segment	Total

Licensed software	$	138,950	$	13,212	$	152,162	$	181,061

Price	68.37	EPS	2
Shares	323	P/E	44
MCap	22,108	P/FCF	25
Net Debt	543	EBIT	615
TEV	22,651	TEV/EBIT	37
TTM 2019-09-28, in MM, except price, ratios

10-Q	2020-06-30	Filed 2020-07-30
10-Q	2020-03-31	Filed 2020-04-29
10-K	2019-12-28	Filed 2020-02-10
10-Q	2019-09-28	Filed 2019-10-25
10-Q	2019-06-29	Filed 2019-07-25
10-Q	2019-03-30	Filed 2019-04-26
10-K	2018-12-29	Filed 2019-02-08
10-Q	2018-09-29	Filed 2018-10-26
10-Q	2018-06-30	Filed 2018-08-03
10-Q	2018-03-31	Filed 2018-05-03
10-K	2017-12-30	Filed 2018-02-12
10-Q	2017-09-30	Filed 2017-10-27
10-Q	2017-07-01	Filed 2017-07-28
10-Q	2017-04-01	Filed 2017-04-28
10-K	2016-12-31	Filed 2017-02-10
10-Q	2016-10-01	Filed 2016-11-02
10-Q	2016-07-02	Filed 2016-08-03
10-Q	2016-04-02	Filed 2016-05-06
10-K	2016-01-02	Filed 2016-02-17
10-Q	2015-10-03	Filed 2015-11-04
10-Q	2015-07-04	Filed 2015-08-05
10-Q	2015-04-04	Filed 2015-05-08
10-K	2015-01-03	Filed 2015-02-11
10-Q	2014-09-27	Filed 2014-10-24
10-Q	2014-06-28	Filed 2014-07-25
10-Q	2014-03-29	Filed 2014-04-25
10-K	2013-12-28	Filed 2014-02-05
10-Q	2013-09-28	Filed 2013-10-25
10-Q	2013-06-29	Filed 2013-07-26
10-Q	2013-03-30	Filed 2013-04-26
10-K	2012-12-29	Filed 2013-02-08
10-Q	2012-09-29	Filed 2012-10-26
10-Q	2012-06-30	Filed 2012-07-27
10-Q	2012-03-31	Filed 2012-04-27
10-K	2011-12-31	Filed 2012-02-15
10-Q	2011-10-01	Filed 2011-10-28
10-Q	2011-07-02	Filed 2011-08-01
10-Q	2011-04-02	Filed 2011-04-29
10-K	2011-01-01	Filed 2011-02-16
10-Q	2010-10-02	Filed 2010-10-29
10-Q	2010-07-03	Filed 2010-07-30
10-Q	2010-04-03	Filed 2010-04-30
10-K	2010-01-02	Filed 2010-02-22

8-K	2020-07-29	Earnings, Exhibits
8-K	2020-05-22
8-K	2020-05-22
8-K	2020-04-28
8-K	2020-03-20
8-K	2020-03-19
8-K	2020-03-11
8-K	2020-02-18
8-K	2020-02-05
8-K	2020-02-04
8-K	2019-12-12
8-K	2019-11-05
8-K	2019-10-30
8-K	2019-10-24
8-K	2019-09-11
8-K	2019-09-09
8-K	2019-07-30
8-K	2019-07-24
8-K	2019-05-30
8-K	2019-05-30
8-K	2019-05-06
8-K	2019-04-25
8-K	2019-04-08
8-K	2019-02-05
8-K	2019-01-14
8-K	2018-10-25
8-K	2018-09-05
8-K	2018-08-02
8-K	2018-07-09
8-K	2018-05-21
8-K	2018-05-18
8-K	2018-05-02
8-K	2018-03-01
8-K	2018-02-06
8-K	2018-01-10

EX-31.1	ex311-ceocert2q2020.htm
EX-31.2	ex312-cfocert2q2020.htm
EX-32.1	ex321-ceosec906cert2q2.htm
EX-32.2	ex322-cfosec906cert2q2.htm

CERN 10Q Quarterly Report

Cerner Earnings 2020-06-30