Personal Finance

Cerner Corporation Beats Expectations in the 2nd Quarter

A patient lies in bed in the background, while two physicians are in the foreground, with one holding a tablet computer.

As a result of Cerner Corporation 's (NASDAQ: 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.

A patient lies in bed in the background, while two physicians are in the foreground, with one holding a tablet computer.

Image source: Getty Images.

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.

10 stocks we like better than Cerner

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Cerner wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of June 4, 2018

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

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

CERN EPS

Other Topics

Stocks

Latest Personal Finance Videos

    #TradeTalks: The Changing E-Commerce Landscape

    e-Commerce Consultant James Thomson joins Jill Malandrino on Nasdaq #TradeTalks to discuss the changing e-commerce landscape, what consumers should prepare for as we head into shopping season and why you shouldn’t do last minute shipping.

    2 days ago

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More