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Cerner Delivers As Expected in the Second Quarter

Keith Speights, The Motley Fool

Cerner (NASDAQ: CERN) has done a pretty good job in recent quarters of meeting expectations. When the healthcare technology provider reported its first-quarter results in April, for example, it hit the midpoint of its revenue guidance on the nose.

Anyone wondering if Cerner could keep its track record of delivering as expected got a positive answer when the company announced its second-quarter results after the market closed on Wednesday. Here are the highlights from Cerner's latest quarterly update.

Two physicians standing beside each other with one holding a touchscreen tablet

Image source: Getty Images.

Cerner results: The raw numbers

Metric 

Q2 2019 

Q2 2018 

Year-Over-Year Change

Sales

$1.43 billion $1.37 billion

4.6%

Net income from continuing operations

$127 million $169.4 million

(25%)

Adjusted earnings per share (EPS)

$0.66 $0.62

6.5%

Data source: Cerner. 

What happened with Cerner this quarter?

Cerner expected second-quarter revenue between $1.41 billion and $1.46 billion. Once again, the company's actual result was squarely within its guidance range. 

Professional services continued to be Cerner's biggest moneymaker, with revenue in the second quarter of $485.3 million. That figure reflected a year-over-year increase of 8.5%. Managed services also remained key to the company's financial performance, with revenue rising 4.2% to $297.7 million.

Cerner posted growth in other areas as well. Licensed software revenue jumped 14.3% year over year to $197.1 million. Subscription revenue rose 8.2% to $89.8 million.

However, the company also saw revenue fall on a few fronts. Support and maintenance revenue slipped less than 1% from the prior-year period total to $276.4 million. Technology resale revenue dropped 19.3% to $60.7 million. And reimbursed travel revenue declined by 4.9% year over year to $24.1 million.

Cerner's net income on a generally accepted accounting principles (GAAP) basis plunged despite its revenue gains due to significantly higher operating expenses. The company announced big spending increases in the second quarter in sales and client service, software development, and general and administrative functions. 

Its adjusted non-GAAP adjusted EPS comparisons didn't look bad, though, for several reasons. The non-GAAP EPS figure was adjusted to add amounts that Cerner spent on organizational restructuring, a charge related to a client dispute, and a settlement with a vendor. In addition, Cerner's share buybacks reduced its number of outstanding shares, boosting its adjusted EPS. These factors enabled the company to beat its previous adjusted EPS guidance for the second quarter of $0.63 to $0.65.

What management had to say

Cerner chairman and CEO Brent Shafer said, "I am pleased with our financial results, which were in line with our expectations."

He added:

In addition to delivering solid quarterly operating results, we made good progress on the early stages of our transformation and positioning Cerner for long-term profitable growth. Cerner has played a key role in digitizing healthcare, and we believe our next era of growth will be driven by the tremendous opportunity related to helping our clients drive a higher order of benefits from this digitization.

Looking forward

Cerner projects that its third-quarter revenue will be between $1.405 billion and $1.455 billion. The company also reaffirmed its full-year 2019 revenue guidance range of $5.65 billion to $5.85 billion. Cerner expects adjusted EPS in the third quarter between $0.65 and $0.67 and full-year adjusted EPS between $2.64 and $2.72, which is consistent with its outlook provided in the previous quarter. 

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Cerner. The Motley Fool has a disclosure policy.