Cerner Corporation

Welcome to Cerner Corporation's third quarter 2021 conference call. Today's date is October 29, 2021, and this call is being recorded. I'd now like to turn the call over to your host, Alan Kels, Senior Vice President of Investor Relations. Sir, please go ahead.

Thank you. Good morning, everyone, and thank you for joining us. On the call with me today are Dr. David Feinberg, President and CEO, and Mark Persig, our Chief Financial Officer. David will begin the call with his initial observations since joining at the beginning of the month, then hand it over to Mark to discuss our results and outlook. We'll then transition to Q&A and be joined by Travis Dalton, our Chief Client and Services Officer. 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 for our discussion of operating earnings, 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 David.

Thanks, Alan. Good morning, everyone, and thank you for joining us. This morning, I'm going to start by sharing a bit about myself and why I chose to join Cerner. Then I'll provide some early observations and areas of focus. For 30 years, my career has been making healthcare more accessible, more understandable, more equitable, and more affordable. Early in my career, I developed a strong conviction that focusing on the patient is the only way to be successful. This was true at UCLA, where our focus on patient satisfaction was foundational to an operational and financial turnaround. As such, this patient-first philosophy has underpinned my approach to everything, At Geisinger, once we established the patient as being the center of everything we do, we were able to expand that focus to the entire community. Having an integrated care and payment model, we showed that healthcare can be of the highest quality and affordable. We also created the world's largest biobank of whole exome sequencing because we knew that in that DNA was information we could use to keep our community healthy. As part of extensive use of technology at Geisinger, I built an important relationship with Google, which ultimately led to an opportunity to run Google Health. I am proud of the work we did there. On Search, YouTube, Maps, we provided the world with timely and authoritative medical information, including our work on COVID, COVID symptoms, vaccines, community mobility reports, exposure notifications, and more. our YouTube COVID information page had over 500 billion impressions. We worked in partnership with Ascension to help organize disparate medical records, including Cerner's, so that nurses, doctors, and other caregivers could easily find information about their patients. Now, transitioning to Cerner, I feel that I've left an amazing tech company that was playing a role in health and joined an amazing health company that is using tech to improve people's lives. I'd like to share initial observations. Cerner and, frankly, other electronic health record companies have done a good job of automating processes and digitizing medical records for more than 40 years. By itself, that's a huge accomplishment. But it's very important that we acknowledge the fact that we haven't reached our full potential. Digitized records, for one, need to be more usable and provide actionable information. They need to be measured by how they enable caregivers to spend more time at the bedside and less time at the terminal. Improving the usability of Cerner's solution is at the top of my list of things to get done. And usability is just the beginning, not the true promise of the digital age. EHRs need to do a better job of helping patients avoid unnecessary tests and medications, of helping clinicians avoid errors and suggest what treatments may work best, allowing us to understand the health of our communities, those at risk, and what interventions are working. They also need to be predictive so we can prevent unnecessary admissions and readmissions. They need to help identify risks of conditions before they become chronic. And potentially help the world avoid or at least minimize the effects of the next pandemic. Achieving these improvements will also require industry cooperation and compliance with interoperability requirements, something Cerner has been and will remain passionate about. The pipes are laid, which is wonderful, but we must make it easier to get the right information to the right people at the right time. Cerner has made good progress at improving the flow of information, gleaning insights from data, and helping optimize the coordination of care through offerings like analytics, registries, referrals, and real-time health. These capabilities remain important to our clients' and to Cerner's growth, and we will continue to enhance them as we fortify the EHR. We also continue to believe in the potential of harnessing data to accelerate discovery and the deployment of therapies. and ultimately improve patient outcomes. We have a great opportunity to do this through Cerner and Visa, which combines the expertise of the Cerner and Cantor health teams. Something else I've heard plenty about is how important it is that Cerner make enhancements to our revenue cycle solution. We need to simplify billing for patients and providers, and that starts with making the billing more integrated and seamless. We think the Revelate patient accounting offering we announced during our health conference earlier this month will do just that. Importantly, as we work together to strengthen our solution and make them more dependable, we have an opportunity to improve job satisfaction for caregivers who are increasingly burnt out by the complexity and inefficiency inherent in today's EHRs. I know this focus will strengthen our client relationships and reduce client attrition. We are going to set reasonable expectations with our clients and meet them. This will require discipline and focus. In the past, Cerner has tried to do too many things, often by ourselves. Going forward, we're going to change that approach and only focus on a small number of important high-value areas, some of which we plan to achieve by partnering with highly capable organizations we believe can help us achieve our mission of improving the lives of others. This new approach will provide the best and most efficient path to engage clients, providers, and patients, as well as the best way for Cerner to deliver sustainable and profitable long-term growth. The current leadership team has done a lot of good work to address this ahead of my arrival, Their progress is showing up in improved performance with clients and strong financial results. For example, Jerome Labatt, our Chief Technology Officer, has made progress on platform modernization, advancing our approach to development. This is critical to driving needed R&D efficiencies, improving quality, increasing the speed at which we get capabilities to our clients, and lowering the cost of running and supporting our products. Travis Dalton, our Chief Client and Service Officer, continues to grow our federal business while simultaneously strengthening our client and services organization. Tracy Platt, our Chief Human Resource Officer, has helped Cerner navigate a period of significant change while driving improvements in compensation practices, associate satisfaction, and diversity, equity, inclusion, and belonging. And since joining earlier this year, Mark Erceg has quickly created and put in place new management reporting capabilities that are helping us make more informed decisions relative to our CapEx spending, R&D investments, product portfolio, partnership arrangements, and our operating structure. Mark has also helped us expand our adjusted operating margin and improve free cash flow. We're making better use of our balance sheet by increasing our share repurchase program. While I've been pleased to With my direct leadership team, I've also been wildly impressed by the passion and enthusiasm of my 25,000-plus Cerner associates. I've already had numerous interactions that make it clear to me that they understand our job is much bigger than digitizing records. I believe Cerner is well-positioned to better serve patients, create meaningful value across health care, and drive long-term profitable growth. All of Cerner has already taken important initial steps toward better execution and focus, and this is showing up in our business results. A big piece of that has been our success with the federal business, which Mark will now discuss before he provides his customary financial update.