Jefferies Global Health Care Conference

Transcription

1 Jefferies Global Health Care Conference June 3, 2014 Health care is too important to stay the same. TM Marc Naughton Executive Vice President and Chief Financial Officer

2 Safe Harbor Statement This presentation may contain forward-looking statements, including without limitation, those regarding projections of future revenues or earnings, operating margins, operating expenses, product development and new markets or prospects for the Company s solutions. Actual results may differ materially from those expressed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: (a) the possibility of product-related liabilities; (b) potential claims for system errors and warranties; (c) the possibility of interruption at our data centers or client support facilities; (d) our proprietary technology may be subject to claims for infringement or misappropriation of intellectual property rights of others, or may be infringed or misappropriated by others; (e) risks associated with our non-u.s. operations; (f) risks associated with our ability to effectively hedge exposure to fluctuations in foreign currency exchange rates; (g) the potential for tax legislation initiatives that could adversely affect our tax position and/or challenges to our tax positions in the United States and non-u.s. countries; (h) risks associated with our recruitment and retention of key personnel; (i) risks related to our dependence on third party suppliers; (j) risks inherent with business acquisitions and combinations; (k) the potential for losses resulting from asset impairment charges; (l) risks associated with volatility and disruption resulting from global economic conditions; (m) managing growth in the new markets in which we offer solutions, health care devices and services, (n) changing political, economic, regulatory and judicial influences; (o) government regulation; (p) significant competition and market changes; (q) variations in our quarterly operating results; (r) potential inconsistencies in our sales forecasts compared to actual sales; (s) volatility in the trading price of our common stock and the timing and volume of market activity; (t) our directors authority to issue preferred stock and the anti-takeover provisions in our corporate governance documents; and (u) material adverse resolution of legal proceedings. Additional discussion of these and other risks, uncertainties and factors affecting the Company's business is contained in the Company's periodic filings with the Securities and Exchange Commission. The reader should not place undue reliance on forward-looking statements, since the statements speak only as of the date that they are made. The Company undertakes no obligation to update forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial condition or business over time. A reconciliation of non-gaap financial measures discussed in this presentation can be found in the Appendix to this presentation and the Company s most recent earnings release that was furnished to the SEC and posted on the investor section of Cerner.com Cerner Corporation. All rights reserved. This document contains Cerner confidential and/or proprietary information which may not be reproduced or transmitted without the express written consent of Cerner. 2

3 Cerner at a Glance FOUNDED IN KANSAS CITY IN 1979 Largest standalone health care IT company in world Over 14,000 Associates Worldwide 14,000 client facilities in 24 countries 3,000 hospitals; 4,900 physician practices; 60,000 physicians; 590 ambulatory facilities; 3,500 extended care facilities; 150 employer sites; and 1,790 retail pharmacies. $2.9B 2013 Revenue 13% 10-year CAGR (mostly organic growth) 25% 10-year Operating Earnings CAGR $3.8B Cumulative R&D 3,000+ Person IP Org 1,800 Clinicians * Operating earnings reflects adjustments compared to results reported on a U.S. Generally Accepted Accounting Principles (GAAP) basis in our 2013 annual report on Form 10-K. Non-GAAP results should not be substituted as a measure of our performance but instead should be used along with GAAP results as a supplemental measure of financial performance. Please see the Appendix for a reconciliation of these items to GAAP results Cerner Corporation. All rights reserved. This document contains Cerner confidential and/or proprietary information which may not be reproduced or transmitted without the express written consent of Cerner. 3

4 Marketplace Trends Raining Measures and Mandates Consolidation Industry Winners and Losers Another EMR Wave Revenue Cycle Population Health Driving Focus on Quality and Costs Providers seeking scale across continuum Gap after top two widening Expect approx. half of market to evaluate options Integrated clinical / revenue cycle clearly favored Shift to at-risk model IT biggest remaining lever Cerner solutions & services align with client challenges Cerner Clients Leading Cerner trend very positive Cerner well positioned Significant Cerner Opportunity Cerner s approach: Real Time Actionable in Workflow Programmable 2014 Cerner Corporation. All rights reserved. This document contains Cerner confidential and/or proprietary information which may not be reproduced or transmitted without the express written consent of Cerner. 4

5 Raining Measures & Mandates EHR Incentive Program Readmission Reduction Program Increased Quality Metrics ICD-10 Value-Based Purchasing New Electronic Claims Submission Rules Driving focus on Quality and Costs IT biggest remaining lever 2014 Cerner Corporation. All rights reserved. This document contains Cerner confidential and/or proprietary information which may not be reproduced or transmitted without the express written consent of Cerner. 5

6 Acquired Hospitals Potential HIT impact of Hospital M&A 2013 Cumulative Year Cerner clients accounted for 61% of buying activity EMR footprint in 17 of top 30 U.S. Health Systems MEDITECH * ** *Total Acquisitions Total acquisitions by clients **Potential Losses Total acquisitions by competitors clients Source: HIMSS Analytics Cerner Corporation. All rights reserved. This document contains Cerner confidential and/or proprietary information which may not be reproduced or transmitted without the express written consent of Cerner. 6

7 EMR Waves Transition to Population Health EMR Adoption Curves (Estimated) Population Health Adoption Curve (Estimated) Greenfield and upgrades of existing EMR Multiple suppliers benefit Mostly Replacement Two suppliers share most of business Greenfield New Competitive Landscape Incumbent Advantage HITECH P.P.A.C.A MU Stage 1 Starts MU Stage 1 Rules Finalized MU Stage 2 ACO Rules Rules Finalized Released VBP & Readmissions MU Stage 2 Starts ICD-10 Transition MU Stage 3 Starts Fee-for-Service Shifts to At-Risk EMR Next Wave Drivers Replacing Outdated Technology Cost Control Health System Consolidation Choosing Supplier With Vision Cerner Corporation. All rights reserved. This document contains Cerner confidential and/or proprietary information belonging to Cerner and/or its related affiliates which may not be reproduced or transmitted in any form or by any means without the express written consent of Cerner. 7

8 Revenue Cycle Strong Growth & Operational Progress Revenue up 51% to $156M in 2013 Strength across all revenue cycle solutions and services Delivering Patient Accounting Over 900 live sites 150 hospitals; 800 clinics Significant demand for fully integrated platform RevWorks Partner with client to manage revenue cycle operations Modernize revenue cycle by innovating real time remove human intervention Focus on controlling cost to collect Preparing for future reimbursement models 2014 Cerner Corporation. All rights reserved. This document contains Cerner confidential and/or proprietary information which may not be reproduced or transmitted without the express written consent of Cerner. 8

9 Population Health Market Trends Fee-for-service models going away Providers will be accountable for health, not just care Will assume financial risk for defined population Market size estimates $10B-$50B+ Competition No comprehensive approach, most rely on latent data Similar to failed strategy of 80s and 90s clinical solutions Cerner s Approach Healthe Intent Cloud Platform Facilitate optimal care and workflow across all stakeholders Real-time, Actionable in Workflow, Programmable Partnership with Advocate Heath Care Joint development of sophisticated predictive models Automating population health workflow across ACO Foundational Offerings (~$370M revenue) Interoperability and HIE offerings Enterprise Data Warehousing & Quality solutions Patient portal platform and PHR solutions Employer, Home Health, Long-term Care, Retail Pharmacy In every briefing I had with a purported PHM solution provider I asked a simple question: What is your process map to enable a client to effectively move to a PHM model of care across the community they serve with your solution suite? Only one vendor, Cerner, was able to articulate such a process map, everyone else just sort of waved their hands about and spoke of high-level this, high-level that. -Chilmark Research 2014 Cerner Corporation. All rights reserved. This document contains Cerner confidential and/or proprietary information which may not be reproduced or transmitted without the express written consent of Cerner. 9

10 Millions Unmatched Global Experience 2,000 Associates Live and work outside the US 400+ Millennium facilities outside the USA Brazil Cerner Millennium localized in four 2013 languages: English, Spanish, French, German $400 $350 $300 $250 $200 $150 $100 $50 $0 Global Revenue '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 24 Total Countries Mexico 2012 Chile 2008 Qatar 2008 Canada 1985 Stage 7 Clients: Spain: Hospital Marina Salud de Dénia Stage 6 Clients: UAE: Al Ain Hospital //Al Rahba Hospital// Madinat Zayed - Al Gharbia Hospitals// Corniche Hospital// Tawam Hospital // Chile: Clínica las Condes France: Centre Hospitalier de Belfort Montbéliard // Centre Hospitalier de Valenciennes // Saudi Arabia: King Faisal Specialist Hospital & Research Center, Riyadh and Jeddah USA 1979 UK 1987 Aruba 2008 Morocco 2005 Singapore 1990 Egypt 2005 Australia Saudi 1991 Arabia 1991 Ireland 2005 Spain 2005 Germany 1992 Malaysia 1996 France 2005 India 2004 Austria 1999 Argentina 2000 Switzerland 2002 Cayman Islands 2002 United Arab Emirates 2004

11 Financial Highlights and Quantifying Long-Term Growth Opportunities

12 $ s in Millions Revenue ($ Millions) Financial Highlights Income statement Bookings 2013: up 20% to $3.8B Q114: up 14% to $910M Revenue 2013: up 9% to $2.9B Q114: Up 15% to $785M Adjusted Operating Margin* 2013: up 220 basis points to 25.1% Q114: 24.6% (down 10 bp YoY) Adjusted Diluted EPS* 2013: up 18% to $1.41 Q114: up 12% to $0.37 Met or exceeded guidance 56 / 57 quarters Balance Sheet and Cash Flow Q114 $1.5B cash and investments $161M debt Expect strong increase in free cash flow in 2014 Cash Deployment Investments in R&D and infrastructure $317M repurchase program Strategic Acquisitions * Adjusted operating margin, adjusted diluted earnings per share and free cash flow reflect adjustments compared to results reported on a U.S. Generally Accepted Accounting Principles (GAAP) basis in our 2013 annual report on Form 10-K and most recent Form 10-Q. Non-GAAP results should not be substituted as a measure of our performance but instead should be used along with GAAP results as a supplemental measure of financial performance. Please see the Appendix for a reconciliation of these items to GAAP results Cerner Corporation. All rights reserved. This document contains Cerner confidential and/or proprietary information which may not be reproduced or transmitted without the express written consent of Cerner. 12 $3,000 $2,700 $2,400 $2,100 $1,800 $1,500 $1,200 $900 $600 $300 $0 $800 $700 $600 $500 $400 $300 $200 $100 $0 Revenue Earnings Per Share '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Operating Cash Flow Free Cash Flow* *FCF = Operating CF less Capital Expenditures and Capitalized Software $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 EPS

13 Investing in our Future R&D continues to support physician, revenue cycle, and population health Capex will decline in 2014 but still at higher levels in support of headcount growth and cloud infrastructure * Represents Gross R&D (before capitalization and amortization) 2014 Cerner Corporation. All rights reserved. This document contains Cerner confidential and/or proprietary information which may not be reproduced or transmitted without the express written consent of Cerner. 13

14 Sales Pipeline Cerner 2013 Business Model (Dollars in Millions) Bookings $3,772 Contract Backlog $8,128 Support Contracts and Backlog $786 Revenue Streams Revenue Contribution Margin % Contribution Margin $ Licensed Software $388 89% $347 Technology Resale $263 18% $47 Subscription / Transaction $197 60% $119 Professional Services $851 31% $267 Managed Services $480 34% $162 Support & Maintenance $662 75% $497 Reimbursed Travel $70 0% $0 Totals $2,911 49% $1,439 System Sales Support, Maintenance and Services * Operating margin reflects adjustments compared to results reported on a GAAP basis in our 2013 Form 10-K. Non-GAAP results should not be substituted as a measure of our performance but instead should be used along with GAAP results as a supplemental measure of financial performance. Non-GAAP results are used by management along with GAAP results to analyze our business, make strategic decisions, assess long-term trends on a comparable basis, and for management compensation purposes. Indirect Expenses Research and Development -11% ($328) Selling, General and Administrative -13% ($380) Operating Margin* 25% $731 Net Other Income

15 Increasing Visibility and Profitability 2013 Revenue Mix Summary Recurring (47%): Managed Services, Support & Maintenance, Subscriptions Visible (30%): Professional Services Non-Recurring (23%): Licensed Software, Technology Resale Revenue Visibility Remains Strong 77% of Revenue Recurring or Visible Margin Growth and Visibility Operating Margin 9% to 25% since 2003 Source of margin from 45% visible to 73% * Operating margin reflects adjustments compared to results reported on a GAAP basis in our 2013 Form 10-K. Non-GAAP results should not be substituted as a measure of our performance but instead should be used along with GAAP results as a supplemental measure of financial performance. Non-GAAP results are used by management along with GAAP results to analyze our business, make strategic decisions, assess long-term trends on a comparable basis, and for management compensation purposes Cerner Corporation. All rights reserved. This document contains Cerner confidential and/or proprietary information which may not be reproduced or transmitted without the express written consent of Cerner. 15

16 Growth Initiatives Support Strong Growth Growth scenarios do not represent formal financial guidance Cerner Corporation. All rights reserved. This document contains Cerner confidential and/or proprietary information which may not be reproduced or transmitted without the express written consent of Cerner. 16

17 Guidance as of April 24, 2014 Metric Q Revenue $770M - $810M $3.25B - $3.4B Adjusted Diluted Earnings Per Share $ $0.40 $ $1.67 New Business Bookings $1.00B - $1.06B Share-based Compensation Expense $0.03 $ $0.12 Reg FD Disclaimer This slide reflects guidance provided in the most recent earnings press release and does not imply a reiteration or update of guidance. * Adjusted Diluted Earnings Per Share reflects adjustments compared to results reported on a U.S. Generally Accepted Accounting Principles (GAAP) basis in our 2013 annual report on Form 10-K and most recent Form 10-Q. Non-GAAP results should not be substituted as a measure of our performance but instead should be used along with GAAP results as a supplemental measure of financial performance. Please see the Appendix for a reconciliation of these items to GAAP results Cerner Corporation. All rights reserved. This document contains Cerner confidential and/or proprietary information which may not be reproduced or transmitted without the express written consent of Cerner. 17

18 Health care is too important to stay the same.tm

19 Appendix - Non-GAAP Financial Measures The presentation of Adjusted Operating Margin, Adjusted Net Earnings, Adjusted Diluted Earnings Per Share, and Free Cash Flow (together, the Non-GAAP Financial Measures), are not meant to be considered in isolation, as a substitute for, or superior to, U.S. Generally Accepted Accounting Principles (GAAP) results and investors should be aware that non-gaap financial measures have inherent limitations and should be read only in conjunction with the Company s consolidated financial statements prepared in accordance with GAAP. The Non-GAAP Financial Measures may also be different from similar non-gaap financial measures used by other companies and may not be comparable to similarly titled captions of other companies due to potential inconsistencies in the method of calculations. The Company believes that the Non-GAAP Financial Measures are important to enable investors to better understand and evaluate its ongoing operating results and allows for greater transparency in the review of its overall financial, operational and economic performance. The Company provides earnings with and without stock options expense because earnings excluding this expense is used by management along with GAAP results to analyze its business, make strategic decisions, assess long-term trends on a comparable basis, and for management compensation purposes. The Company provides cash flow with and without capital purchases and software development cost because operating cash flows excluding these expenditures takes into account the capital expenditures necessary to operate our business. Please see below and the Company s most recent earnings release that was furnished to the SEC and posted on the investor section of Cerner.com for a reconciliation of these items to GAAP results. Reconciliation of 2013 Non-GAAP Results to GAAP Results* ($ in millions except Earnings Per Share) Operating Operating Earnings Margin % GAAP Operating Earnings $ % Share-based compensation expense 49 Settlement charge 106 Adjusted Operating Earnings $ % Diluted Net Earnings Earnings Per Share GAAP Net Earnings $ 398 $ 1.13 Share-based compensation expense, net of tax Settlement charge, net of tax Adjusted Net Earnings (non-gaap) $ 497 $ 1.41 GAAP Operating Cash Flow $ 696 Capital purchases (353) Capitalized software development costs (175) Free Cash Flow (Non-GAAP) $ 168 *More detail on these adjustments and management's use of Non-GAAP results is in our 2013 annual report on Form 10-K and our current reports on Form 8-K Cerner Corporation. All rights reserved. This document contains Cerner confidential and/or proprietary information which may not be reproduced or transmitted without the express written consent of Cerner. 19