Cerner Corporation

Welcome to Cerner's Corporation First Quarter 2021 Conference Call. Today's date is May 5th, 2021, and this call is being recorded. I'll now like to turn the call over to your host, Alan Kells, SVP, Investor Relations.

Thank you. Thank you. Good morning, everyone, and thank you for joining us. On the call with me today are Brent Schaefer, Chairman and CEO, Mark Ersig, our new Chief Financial Officer, Don Trigg, our President, and Travis Dalton, our Chief Client and Services Officer. Brent will start off the call with observations on our business and the marketplace, then hand it over to Mark to provide more detail on our results, outlook, and capital allocation plans. We'll then transition to Q&A and be joined by Don and Travis. Before we start, I'd like to remind you that our comments will contain forward-looking statements, including projections for our business and other statements about future events. These comments are based on our current expectations and assumptions that are subject to risk and uncertainties. Our actual results could differ materially from those indicated by our forward-looking statements due to those factors identified in our earnings release, which is posted in the investor section of Cerner.com and other filings with the SEC. Cerner assumes no obligation to update forward-looking statements or information except as required by law. We will also be referring to adjusted or non-GAAP financial measures on this call for our discussion of operating margins, earnings per share, and free cash flow. A reconciliation of non-GAAP financial measures to GAAP financial measures can be found on our earnings release. These non-GAAP financial measures are not meant as a substitute for or superior to financial measures prepared in accordance with GAAP. With that, I'll turn the call over to Brent.

Thanks, Alan. Good morning, everyone. Thank you for joining us. Well, as we all know, we're now a year into the pandemic, and I personally, I remain so impressed by the resilience of our clients on the front lines and the efforts of our associates around the world supporting them. And as we move past the worst of the pandemic, hopefully in most regions, an increasing portion of our role in assisting clients has been related to vaccine distribution. We've helped over 175 organizations with our mass vaccination solution, allowing clients to deploy and track vaccinations, document and report reactions, and communicate with patients. We've also continued supporting our community in partnership with local providers, and very proud to say we've now delivered over 90,000 COVID vaccinations as part of the Operation Safe initiative I mentioned on our last call. Excuse me. As we've discussed throughout the year, the pandemic accelerated many trends in healthcare that Cerner has been actively monitoring and building out capabilities to support for years. Among these is that providers face increasing pressure on cost and revenue, heightened consumer expectation, and shifts in care venues. We continue to believe that we're well positioned to help our clients navigate these challenges while also enabling them to deliver improved clinical outcomes. Now, for example, our real-time health system offerings bring near real-time enterprise transparency to help health systems perform at their peak efficiency and streamline operations and improve care delivery. In addition, our health network capabilities enable our clients to coordinate care across multiple organizations regardless of the core EMR and help them optimize for either a fee-for-service or value-based payment model. Our enhanced consumer engagement solutions help providers meet the growing expectations by patients who are a seamless digital experience. We also continue to demonstrate our ability to bring innovation to the provider workflow to save time and address the very real issue of physician burnout. An example of this is our current and recently successful pilot of our AI-powered chart assist, which abstracts data from the patient's chart and helps ensure correct diagnosis and documentation. This replaces the process of having to do manual queries days after the patient has been seen to capture missing or often an incomplete diagnosis. In summary, our ability to provide data-driven insights to providers and patients is at the core of the value we're providing. As a result, our clients are increasingly seeing value in our industry-leading ability to aggregate and normalize data so that meaningful insights can be gleaned. We're also excited about the opportunity to use insights from data to play a role in improving the safety, efficiency, and efficacy of clinical research. Consistent with this, we took a major step toward this goal with our recent acquisition of Kantar Health. And we're really pleased to welcome their highly experienced management team that brings a deep understanding of the needs of the pharmaceutical industry. We believe this is an important step as we partner with our network of provider clients to fundamentally change the time and cost of clinical trials. I also wanted to comment on the information blocking rules that went into effect last month and the broader interoperability rules in the 21st Century Cures Act. As you know, we've been fully supportive of these rules and we believe they're an important step toward the healthcare industry finally realizing the potential of broad digitization. which should lead to improved outcomes, lower costs, and a better patient experience. Now up to this point, as you know, the industry has spent billions of dollars on a base level of digitization, but the absence of broad interoperability has limited the return on this investment. So as interoperability and secure access to data improves in the coming years, we expect our proven ability to derive insights from data and to push them to the right place at the right time will remain a key differentiator. Now I'd like to provide a quick update on our federal business. The Department of Defense continues to move at full speed ahead with deploying MHS Genesis, their center-powered EHR. At the end of February, they went live at Naval Medical Center in San Diego, which was their largest and most complex go-live to date. And DoD officials said this was their smoothest go-live since the program began. In late April, DOD went live with Wave Carson across 12 states, two time zones, and more than doubled the number of DOD commands now live. Now, moving to Veterans Affairs, as most of you know, VA Secretary Dennis McDonough recently launched a strategic review of the VA's EHRM program, while at the same time making it clear he's committed to Cerner and the program. Now, we believe this review is analogous to steps taken by the DOD during their initial go-live. We welcome and strongly support this review because it allows us to bring new VA leadership up to speed on both the successes and the challenges of the program to capture their input and move forward together as we continue providing seamless care for our nation's veterans. We expect to exit this review stronger and ready to push forward with deployments at additional sites this year. During the review, we expect impact on our results will largely be mitigated since work on the ground continues as we prepare for go-lives at future sites. However, the review could shave up to one point off our projected revenue growth this year versus what we had originally expected. Moving to our results, we had a solid first quarter. As Mark will share, we now expect to deliver stronger earnings than our prior outlook, despite slightly lower top-line growth due to the VA's strategic review. This is possible because we've sharpened our focus and are moving forward with a renewed sense of urgency to continue delivering value to our clients and shareholders. Specifically, we're going faster on efficiency initiatives already being in action by our transformation office, continuing and broadening our product and business portfolio reviews, and adjusting our organizational design to centralize key functions. These actions all have a common goal, and that's to tighten our strategic focus so we can more effectively deliver value to our clients, while also contributing sustainable, long-term, profitable growth to our shareholders. You'll hear Marcus in a moment, but I'd like to say that in the two months he's been our CFO, he has just been invaluable in helping us identify additional opportunities to improve our business, and he's done a terrific job of providing enhanced management reporting that is enabling much better informed decisions, and we're delighted to have him as part of the Cerner family. I'd also like to comment on the recent passing of Linda Dillman, a longstanding member of the Cerner board. She spent 10 years on our board and was a trusted advisor to many on the leadership team, and great, wise counsel provided to all of us, including me, especially as I joined the company. While there's no direct replacement for Linda as a person, we do have an open search and are actively seeking qualified candidates, and Linda is deeply missed by all of us. Before I turn the call over to Mark, I'd like to comment on news about my expected departure. As noted in the press release, the Board and I have started a process to identify Cerner's next CEO. And once the Board has named a successor, I plan to serve as an advisor to ensure a smooth transition. It's been an honor to be part of Cerner these past three years, and I can tell you I connected with Cerner's mission from the very beginning, and the dedication of our associates and clients just inspires me every day. And I'm proud that Cerner is in such a strong position and that we've made good progress towards improving our operating model and strengthening our leadership team. Because of this progress, I believe my successor will take the reins at a time when Cerner is poised to accelerate its impact on health care. Mark? I'll turn it over to you.