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Cerner Corporation. Raymond James Institutional Investors Conference. March 7, 2005. Marc Naughton Senior Vice President and Chief Financial Officer. Safe Harbor Statement.

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March 7, 2005

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March 7 2005

Cerner Corporation

Raymond James Institutional Investors Conference

March 7, 2005

Marc Naughton

Senior Vice President and

Chief Financial Officer


Safe harbor statement

Safe Harbor Statement

This presentation may contain forward-looking statements that involve a number of risks and uncertainties. It is important to note that the Company’s performance, and actual results, financial condition or business could 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: quarterly operating results may vary, stock price may be volatile, market risk of investments, potential impairment of goodwill, changes in the healthcare industry, significant competition, the Company's proprietary technology may be subjected to infringement claims or may be infringed upon, regulation of the Company's software by the U.S. Food and Drug Administration or other government regulation, the possibility of product-related liabilities, possible system errors or failures or defects in the performance of the Company's software, risks associated with the Company’s global operations and the recruitment and retention of key personnel. Additional discussion of these and other factors affecting the Company's business is contained in the Company's periodic filings with the Securities and Exchange Commission. 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.


Cerner at a glance

Cerner at a Glance

  • Largest company focused on clinical information and transformational solutions for healthcare

    • Founded in 1979; founders still actively leading company

    • Most comprehensive suite of solutions on single architecture (Cerner Millennium)

    • 2005E Revenues of $1.08B - $1.1B

      • 10-year CAGR of 20% (mostly organic growth)

    • Over 5,800 Associates Worldwide (including recent acquisition of VitalWorks Medical Div.)

      • 1,600member Services Organization; 1,800 person Intellectual Property (IP) Organization

  • Why is CERN a compelling investment opportunity?

    • Market leader in a strong market

    • Expanding addressable markets by leveraging R&D investments

    • Strengthening Business Model

      • Strong cash flow and margin expansion

      • Increasing levels of recurring and more visible revenue


U s healthcare it market

U.S. Healthcare IT Market

Cerner is well-positioned

  • Proven performance on Choose and Book national transaction system in England

  • Reach additional 3,500 physician offices through VitalWorks Medical Division acq.

    • Now reach 130,000 physicians

    • $4B ambulatory market opportunity

  • Cerner providing PHR’s to 1.3M children with juvenile diabetes

  • Cerner co-sponsored a RAND study that will make compelling economic case for IT investments in healthcare

Washington is engaged

  • Increased efforts to formalize a national architecture (Brailer)

    • Series of interconnected regional health information networks

  • Physician offices have become focal point

  • President Bush has called for PHR for each American in 10 years

  • Looking for ROI proof points


Market leadership delivering cpoe

Market Leadership: Delivering CPOE

  • Accelerated delivery of CPOE in 2004

    • 378 live locations

      • 65 acute care (more than double 2003 levels)

      • 313 physician office/clinic

  • KLAS Recognition

    • Cerner Millennium PowerChart highest rated solution in the CDR, Orders, & Charting category

      • ‘Primary/Detail indicators’, January 2005

    • Top CPOE choice for third year in a row when respondents asked first choice if they could ‘start fresh today’


Cpoe acute care market share

CPOE: Acute Care Market Share

Currently Marketed Platforms*

(Top 7 Suppliers)

All Existing Platforms*

(Includes currently marketed and old platforms)

  • Cerner has strong market share lead, particularly vs. currently marketed platforms

  • CPOE Market still has room for growth

    • HIMSS Analytics estimates only 9% have CPOE installed & another 11% have contracted to do so

    • KLAS estimates less than 3% penetration of ‘real’ CPOE (over 50% of orders electronic)

*Source: HIMSS Analytics Database, January 2005

(Based on survey of 3,989 acute care hospitals)


Global healthcare it market

Global Healthcare IT Market

  • Global represents large opportunity

    • Over half of world healthcare IT spending is outside U.S.

    • Cerner has a presence in 70% of global clinical IT markets

      • United Kingdom, Germany, Austria, Canada, Australia, Malaysia, Singapore, Saudi Arabia, UAE, Grand Cayman

  • United Kingdom

    • Cerner continues to meet all milestone on England’s Choose and Book project

    • Delivering value at Newham Healthcare & Homerton University Hospital

    • Our performance to date could create additional opportunities

  • Other areas of opportunity

    • France, Australia, Malaysia, Germany, Ireland, UAE


March 7 2005

R&D investments have lead to leadership position

  • Investing heavily in R&D has lead to unmatched depth and breadth and strong growth

    • $1B of R&D in past 10 years

    • Over 55 Major Solution Categories

    • Expanded Delivery Platforms and New Markets

      • Remote Hosting, Community Hospitals, Global

  • Cerner leading way in new Millennium

    • Grew almost as much as combined growth of competitors between 2000 and 2004

      • $3.4B of Bookings, >30% from new clients

      • Millennium ready at the right time

        • Only single, comprehensive healthcare architecture

      • Strong execution delivering solutions

        • More than 3,700 Millennium solutions at nearly 750 facilities

*Estimate


Focus for 2005 and beyond

Focus for 2005 and Beyond

  • Continue evolving architecture & broadening service offerings

    • Guaranty reliability; support of real-time evidenced-based medicine; native Web

    • Broaden Managed Services: Hosting, Application Management Services, Help Desk

    • Pharmaceutical / Data, Clinical Trials

  • Enhance Client Value from our Solutions

    • Significantly reduce implementation and operating costs – ‘Bedrock’

    • Consulting practice focused on improving clinical processes using data-driven best practices – ‘Lighthouse’

  • ‘Grid Services’ will extend platform beyond large providers & significantly increase market opportunity

    • Physician and Metro Grid to offer hosted solutions to physician offices

    • State & Regional Grid to drive RHIO (Regional Health Information Organization) strategy

      • Governments, Employers & Payers become potential clients

      • Also includes Population Surveillance: BioSentry / HealthSentry

    • Condition & Disease Grid to drive condition management strategy (PHR)

    • Transactional Services Grid will create a ‘new transaction’ that reduces waste and friction


March 7 2005

Cerner Corporation

Financial Snapshot &

Business Model


Financial snapshot income statement

Financial Snapshot – Income Statement

  • 2004 revenue of $926M; 2005E $1.08B-$1.1B

  • Long-term history of profitability

    • Profitable every quarter since going public in 1986

    • Met or exceeded expectations 20 of last 21 quarters

  • Sharpened focus on productivity

    • Driving strong margin expansion (9% OM 2003; 12% OM 2004)

  • Improving revenue quality and visibility

    • Backlog up 23% YoY in 2004 to $1.5 billion

    • Recurring/Visible components 64% of revenue in 2004 compared to 61% in 2003 and 57% in 2002 revenue

      • Strong Managed Services Business is enhancing visibility

      • VitalWorks’ Medical Division also adds to visibility

  • Maintain long-term goal of 20% operating margins


Financial snapshot balance sheet cash flow

Financial Snapshot – Balance Sheet & Cash Flow

  • $190M Cash & $131M Debt (as of Q404)

  • Decreasing DSO and Improving Cash Flow

    • 2004 Operating Cash Flow of $168M vs. $134M in 2003 and $68M in 2002

    • 2004 Free Cash Flow of $53M vs. ($8M) in 2003

    • Full-year 2004 DSO of 105 vs. 110 in 2003

      • Improvements driven by strong execution delivering solutions to clients

        • Industrial strength IP creates more predictable and successful projects and lower DSOs

*FCF = Operating CF less Capital Expenditures and Capitalized Software


March 7 2005

Margin Expansion Update

  • 2004 Progress

    • Increased operating margins 310 basis points in 2004 (9.3% to 12.4%)

      • Ahead of plan on Professional Services Margins in 2004

        • 23% contribution margin in 2004 vs. 15% in 2003

      • Strong leverage in Support & Maintenance (margins 57% in 2004 vs. 53% in 2003)

      • R&D and SG&A leverage

        • R&D leverage expected to accelerate in 2006 and 2007 as amortization of software capitalization moderates

        • SG&A leverage will be limited in 2005 due to non-cash expense related to Vitalworks acquisition

  • Still target 20% by 2007

    • Management Target – 20% for full year 2007

    • External ‘guidance’ – 20% in at least one quarter during 2007

    • 2005 will have less margin expansion due to Vitalworks’ acquisition

      • $70M of revenue and minimal GAAP earnings (is Cash earnings accretive)

      • Still driving >20% EPS growth in 2005


March 7 2005

Sales Pipeline

Support Contracts

New Contract Bookings

Contract Backlog

Support Backlog

Total 2004 Revenue = $926M

System Sales

Services, Maintenance & Support

Professional Services

$251M

Subscriptions

$26M

Managed Services

$50M

Licensed Software

$213M

Technology Resale

$113M

Support & Maintenance

$241M

x88%

x12%

x20%

x57%

x23%

x20%

$187M

$23M

$3M

$58M

$10M

$137M

Total 2004 Contribution Margin=

$418M (45% of Revenue)

Contribution Margin %

Contribution Margin $

Less:

Indirect Costs

R&D

19% of revenue

($172M)

SG&A

14% of revenue

($131M)

($303M)

D&A

EBITDA

Operating Margin

+

=

Note: Total Revenue includes $32M of reimbursed travel revenue.

$115M, 12%

$91M

$206M, 22%


March 7 2005

Sales Pipeline

Support Contracts

New Contract Bookings

Contract Backlog

Support Backlog

Total 2004 Revenue = $926M

System Sales

Services, Maintenance & Support

Professional Services

$251M

Subscriptions

$26M

Managed Services

$50M

Licensed Software

$213M

Technology Resale

$113M

Support & Maintenance

$241M

$188M

$16M

$34M

$210M

$233M

$129M

x88%

x12%

x20%

x57%

x23%

x20%

89%

10%

18%

53%

15%

17%

$187M

$23M

$3M

$58M

$10M

$137M

2003 Revenue & Contribution Margins

Total 2004 Contribution Margin=

$418M (45% of Revenue)

Contribution Margin %

Contribution Margin $

Less:

Indirect Costs

R&D

19% of revenue

($172M)

SG&A

14% of revenue

($131M)

($303M)

D&A

EBITDA

Operating Margin

+

=

Note: Total Revenue includes $32M of reimbursed travel revenue.

$115M, 12%

$91M

$206M, 22%


March 7 2005

Margin Expansion

  • Path to 20% operating margins by 2007

    • Improving consulting margins from 23% to 32% expected to add 160 basis points

    • Leveraging R&D expected to add 190 basis points

    • Leveraging SG&A expected to add 120 basis points

    • Growth & margin expansion in managed services and subscription business expected to contribute 100 basis points

    • Growth and margin expansion in Support expected to contribute 150 basis points

  • Key Assumptions

  • Organic revenue growth of ~10% per year

  • Contribution margins for licensed sales and technology resale flat for duration (similar to historical experience)


March 7 2005

Evolving Business Model

  • Revenue mix shifting

    • 70% of revenue from highly visible or recurring sources by 2007 versus 56% in 2001 and 64% in 2004

      • Industrial strength software and strong Professional Services driving Support & Maintenance growth

      • Strong Managed Services business creates recurring revenue and reduces non-recurring hardware sales

      • Future business models to be more visible & recurring

        • VitalWorks’ Medical Division adds >$50M of Recurring Rev.

        • Transaction processing

        • Employer/payer market

    • 3-year Backlog CAGR of 25%

Recurring and Visible Revenue

System Sales

Support, Maintenance, & Services


Guidance as of february 5 2005

Guidance as of February 5, 2005

Revenue $250M – $255M

EPS $0.41 – $0.42

Bookings$215M – $230M

Q105

2005

Revenue $1.08B – $1.1B

EPS $2.07 – $2.12


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