The ABCs of systemic healthcare reform - Cerner Corporation

A key point regarding our margin expansion strategy is that we are executing it while our business model is transitioning to more
visible and recurring revenue components. For example, in 2000, approximately 55% of Cerner’s revenue (before reimbursed
travel) came from what we consider visible or recurring sources such as Professional Services, Managed Services, Subscriptions/
Transactions and Support & Maintenance. In 2008, 74% of our revenue came from these sources.
Earnings Growth
With 10% top-line growth and strong margin expansion, we grew our earnings 26% in 2008. Our 3, 5 and 10-year compound
annual earnings growth rates of 29%, 34% and 23%, respectively, reflect our ability to drive long-term earnings growth. Going
forward, our top-line strategies coupled with continued focus on productivity enhancements and margin expansion position us
well for continued good earnings growth.
Generating Cash Flow
A healthy business generates cash flow. Perhaps our most significant improvement over the past few years has been in our cash
flow performance. 2008 was a record year of cash performance with $282 million of operating cash flow and $104 million of free
cash flow (operating cash flow less capital expenditures and capitalized software). The $104 million of free cash flow represents
a substantial improvement from the 2007 level of $28 million as capital expenditures decreased from 2007 levels due to the
completion of a CernerWorks data center facility and decreased spending on other office facilities. Capital expenditures in 2009
are expected to increase over 2008 levels, but we are still expecting strong free cash flow.
Stock Price
At Cerner, we manage the company, not the stock price. In the short term, the stock price can be influenced by many factors beyond
our control, but we believe in the long term it will closely reflect the quality of our decisions. We believe it is important for our
shareholders that we focus on delivering strong long-term results,
but we also understand the importance of delivering consistently
against short-term targets.
The weak broader economy impacted almost all companies and
stocks in 2008, with the NASDAQ Composite Index and S&P 500
declining 41% and 38%, respectively. And despite solid financial
results, Cerner’s stock price finished the year down 32%, which
is better than the broader market but still disappointing. When
measuring Cerner’s stock performance over the 5-, 10- and
20-year periods using compound annual growth rates, the
returns are 15%, 11% and 20%, respectively. These returns are
significantly greater than the returns over the same time frames
for the NASDAQ Composite Index (-5%, -3% and 7%) and S&P 500
(-4%, -3% and 6%).
$300
$250
$200
$150
$100
$50
$-
Operating Cash Flow
Free Cash Flow
‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08
$(50)
*FCF = Operating CF less Capital Expenditures and Capitalized Software
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