The ABCs of systemic healthcare reform - Cerner Corporation

To Cerner’s Shareholders, Clients and Associates:
Every year, this letter provides an opportunity to report Cerner’s annual progress and provide updates of material events that took
place during the year. On most occasions, I also use this letter to reflect on the major trends we believe have affected our company.
In summary, the year 2008 was one in which Cerner delivered solid performance despite a very challenging environment. Below
are highlights of Cerner’s 2008 performance, with 3-, 5- and 10-year compound annual growth rates for many of the financial
metrics included to provide a longer-term perspective.
• Revenue grew 10% to $1.68 billion, with long-term growth rates of 13%, 15% and 18%.
• Our operating margin 1 increased 150 basis points to 16.6%, up from 12.6% and 9.3% three and five years ago.
• Net earnings 1 grew 26% to $183 million, with long-term growth rates of 29%, 34% and 23%.
• Earnings per share 1 grew 25% to $2.19, with long-term growth rates of 26%, 30% and 20%.
• Bookings grew 2% to $1.54 billion, with long-term growth rates of 11%, 14%, and 16%. In 2008, 29% of bookings came
from clients without a Cerner Millennium ® footprint, reflecting strong competitiveness.
• Revenue backlog grew 7% to $3.49 billion, with long-term growth rates of 18%, 23% and 22%.
• Cash flow from operations grew 3% to $282 million, with long-term growth rates of 7%, 16% and 47%. Free cash flow,
defined as operating cash flow less capital expenditures and capitalized software, was an all-time high of $104 million, an
$80 million increase from 2007 free cash flow of $24 million.
• Despite solid financial results, Cerner’s stock price ended the year at $38.45, declining 32% in 2008, which was better than
the broader market (NASDAQ Composite Index and S&P 500 down 41% and 38%, respectively), but still disappointing. The
3-, 5- and 10- year compound annual growth rates for Cerner’s stock are -5%, 15% and 11%, respectively. These returns are
significantly greater than the returns over the same time frames for the NASDAQ Composite Index (-11%, -5%, -3%) and S&P
500 (-10%, -4%, -3%).
Operationally, we had a very productive year creating value for healthcare organizations around the globe by implementing new
Cerner ® solutions, upgrading existing solutions to the newest releases and improving operational performance. Our suite of
information solutions and services is the broadest and deepest in healthcare, and we have the largest and most diverse group of
clients, including leading health systems, hospitals, clinics, physician practices, laboratories, pharmacies, home health agencies,
employers and consumers.
1 Operating margin, net earnings and earnings per share reflect adjustments compared to results reported on a Generally Accepted Accounting Principles
(GAAP) basis in our 10-K. Non-GAAP results should not be substituted as a measure of our performance but instead should be used along with GAAP results as
a supplemental measure of financial performance. Non-GAAP results are used by management along with GAAP results to analyze our business, make strategic
decisions, assess long-term trends on a comparable basis and for management compensation purposes. Please see the appendix to this letter for a reconciliation of
these items to GAAP results.
1979
1982
1983
1984
1986
1987
Neal Patterson, Paul Gorup,
and Cliff Illig leave Arthur
Andersen & Co. to form their
own company
PathNet ® is installed in
the lab at St. John Medical
Center in Tulsa, Oklahoma
29 associates
Cerner secures $1.5 million
venture capital funding
from First Chicago Capital
Corporation
Cerner goes public on
NASDAQ (CERN)
$17 million of revenue
149 associates
Cerner listed as one of Inc.
magazine’s 100 fastestgrowing
companies
6