Cerner Corporation

Welcome to Cerner Corporation's second quarter 2021 conference call. Today's date is July 30th, 2021, and this call is being recorded. I'd now like to turn the call over to your host, Alan Kells, Senior Vice President, Investor Relations.

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 Chief Financial Officer, Don Trigg, our President, and Travis Dalton, our Chief Client and Services Officer. Brent will begin the call with observations on our business and marketplace, then hand it over to Mark to provide more detail on our results and outlook. 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 and 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 to 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 margin, earnings per share, and free cash flow. A reconciliation of non-GAAP financial measures to GAAP financial measures can be found in our earnings release. These non-GAAP financial measures are not meant to be a substitute for or superior to financial measures prepared in accordance with GAAP. With that, I'll turn the call over to Brent.

Brent Cullinan Allen, thanks very much, and good morning, everyone. On our last call, we talked about our sharpened focus and increased sense of urgency to deliver value to our clients and shareholders. And as Mark will discuss, this increased focus and urgency helped us deliver very solid results in the second quarter. All key metrics reflected good progress on our transformation initiatives and a strengthening market presence. And based on this progress, we have increased our earnings outlook for the year again. What pleases me most is that as we undergo our transformation, we're maintaining an unwavering focus on client success, which is truly our North Star. Our key initiatives, which include product rationalization, driving operating efficiencies, and continuing to refine our operating structure, all revolve around creating client value through accelerated innovation. And we expect these same efforts to also drive sustainable and profitable growth that should create value for our shareholders. I'd like to share some examples of progress we're making. Through improved focus and structure in our client organization, Travis and his team have grown our sales funnel and improved sales and client relationship management, resulting in 24 new client footprints so far this year while reducing client attrition. They've also improved our overall net promoter score by five points and have delivered 49 major client go-lives. Don and his team have made meaningful progress on several fronts as well, including advancing our product rationalization work which is creating better focus and freeing investment dollars for products that create the most value for clients, and driving good sales and go-live activity in key areas, such as real-time health, behavioral health, consumer, health network, and data, with the progress in data space including a successful onboarding of Kantar Health during the second quarter. Now, in our technology organization, Jerome Labatt, who is our CTO, has made good progress on solution and platform modernization, including being ahead of schedule on migrating CareAware to the cloud, also improving our ambulatory solution and increasing the scale of community works, all while maintaining 99.99% or four nines of incident-free time for our clients. He's also advanced our digital factory, which is a set of capabilities and services that power the product lifecycle from initial requirements to building, delivering, and running our products. This important work should drive R&D efficiencies, improve quality, increase innovation velocity and speed to market, and lower costs of running and supporting our products. These leaders have made this progress while also delivering cost savings through restructuring and flattening their organizations, centralizing functions, and also implementing tools to increase efficiency and improve the way we are running our business. And further, Tracy Platt, our Chief Human Resources Officer, has helped us navigate these changes while staying focused on culture and ensuring Cerner remains a great place to work. Now, this is reflected in being named one of the world's best employers by Forbes, and we've also just recently received recognition by Forbes as one of the top 60 best employers for diversity and also for being among the best employers for women. In summary, we continue to make very good progress both inside Cerner and in the marketplace. Our products and services are well aligned with our clients' needs as they face pressure to control operating costs, address provider burnout, meet increasing consumer demands, expand service lines, and also to build networks to improve performance in the evolving reimbursement environment. Now I'd like to provide an update on our federal business. The Department of Defense continues to move at full speed with deploying MHS Genesis, their Cerner-powered EHR. In late April, DOD went live with Wave Carson, which included 25 military treatment commands, 148 physical locations across 11 states and two time zones. In total, the DoD is now live at 42 commands, 663 locations, with more than 41,000 activated users, demonstrating that the system can be deployed at scale and on schedule. And later this year, DoD plans to go live at facilities in Hawaii, and the U.S. Coast Guard has planned go-lives for both their Pacific and Atlantic ways. which will complete the Coast Guard deployment as planned. Moving to the Department of Veterans Affairs, the VA recently completed their strategic review, which we strongly supported, and issued a comprehensive report. Importantly, these finales were generally not technology-related. Instead, they were more focused on governance, training, and site readiness, and were consistent, highly consistent, with the findings of our own internal assessments conducted earlier this year. We're working very closely with the VA on the project plan and ensuring we properly address all identified issues so we can deliver a lifetime of seamless care for our veterans. Secretary of Veterans Affairs Dennis McDonough has reiterated his commitment to the program and to Cerner. And in return, Cerner has reiterated our commitment to the VA and our nation's veterans. And while the VA finalizes their new governance and management structure, we will continue to our pre-deployment efforts, including technical development and enhancements, solution readiness, and site preparation, but no further go-lives are expected until 2022. And as a result, we now expect another half point of impact on our 2021 revenue growth, which is reflected in our updated guidance for the year. Now, before turning the call over to Marv, I'd like to quickly comment on the status of my transition in the search for a new CEO. The search process has been very active since we announced it last quarter, and as you can imagine, it is difficult to provide an exact timeline given the sensitivity and importance of the search, but I believe the board is making very good progress. I personally remain actively engaged and believe the team has been executing very well So I'm confident we will continue to advance our key initiatives as the search continues, and as a result, I believe my successor will step into the role with Cerner well-positioned for success. In summary, I'm very pleased with Cerner's progress so far this year. We have demonstrated the ability to execute on near-term deliverables while also driving meaningful organizational change that is positioning Cerner to realize our potential and to have a much bigger impact on healthcare. Mark, I'll turn it over to you.