Q3 2020 Cerner Corp Earnings Call

[music].

So not corporation third quarter 2020 conference call.

Today's date is October 28, 2020, and this call is being recorded.

The company has asked me to remind you that various remarks made here today constitute forward looking statements.

Who do without limitation, those regarding projections of future revenues or earnings.

Operating margins.

Operating and capital expenses.

Bookings, new solutions services, and offering development and capital allocation plan.

Cost optimization and operational improvement initiatives.

Is your business outlook expected benefits of our acquisition.

The church or other collaboration and the expected impact of the COVID-19 pandemic.

Actual results may differ materially from those indicated by the forward looking statements.

Please please during its earnings release, which was furnished to the FCC today and posted to the Investor section of <unk> Dot com and other filings with the FCC for information concerning factors that could cause actual results to differ materially from those in the forward looking statement.

Oh reconciliation of non-GAAP financial measures discussed in this earnings call can also be found in the company's earnings release.

Cerner assumes no obligation to update any forward looking statements or information, except as required by law.

At this time I'd like to turn the call over to Brent Shaver, Chairman and CEO of Ciena Corporation. Please proceed.

Thank you good luck.

Hi, everyone and thank you very much for joining the call.

I'll spend a few minutes just to provide some thoughts on the business in the current environment.

Now I'll hand, the call over to CFO Mark.

Sure.

Mrs Officer, and President Don true for more on the numbers and some of the Mark.

Well its probably continues to disrupt global health care. It's also underscore the value health care profitability.

Connected information systems.

Access to timely population level.

And for all the damage that it has caused.

Pandemic is actually sharpen cerners intense focus on supporting our clients.

Managing through code with with our clients has enabled cerner to strengthen and extend relationships and to help our partners manage the response plan to recovery and in many cases reimagine new business models, the leverage emerging comprehensive data network strategies.

Earlier this month, we hosted our 35th.

Mr held conference, which was also a first virtual CHC.

Yeah, it's exceeded.

The way beyond our expectations more than 22000 registered for the man.

And claim attendance was up 125% with participation from non us clients up over 300%.

A key topic at the conference without Cerner clients are using data driven insights to improve care quality and also the experiences of clinicians and patients.

Other fees included Sooners commitment to supporting the clinical operational and financial successes of our clients.

Improving our core products and platforms.

Eliminating health care in equities around the world.

One additional topic was the importance of inter operable health Records and health information exchanges that seamlessly connect patients and their healthcare providers across geographies and all that in the entire continuum of healthcare.

Such connectivity enables patients and all their providers to be aligned to the support consistent health plan.

As John will discuss in more detail, we've made meaningful meaningful progress in our work with the federal government.

Including expanding to drop stability.

Those capabilities that are foundational to the success of the V.A. integrity programs.

Using interoperability to close gaps in health care and the goal of providers around the world.

And in partnership with one London another of the world's largest health information exchanges, we've built a digital infrastructure. The covers 7 billion in London Paris.

When combined with centers other British exchanges, we now cover 20 million people across England, that's about 35% of the country's entire population.

Also as underscoring the importance of interoperability and data analytics with the announcement of two new brands.

Cerner unite.

And Cerner discover.

Sir you night is our portfolio of inter operability products sooner discover is our portfolio of intelligence integrated products together.

Together nine discover liberty elements crucial to effective value based care strategy.

Including improving data quality simplifying data reconciliation.

And seamlessly integrated integrating data driven insights into workflows.

On any health platform.

Before CHC I was also pleased to announce the hiring of will commence as our chief strategy Officer.

The Wolverine strong entrepreneurial background and deep healthcare experience to the role.

His responsibilities include identifying and developing new business opportunities and coordinating strategic planning processes across our entire business.

Now I'd like to recognize one of our longest tenured associates, who.

As announced this afternoon will be leaving the company in 2021.

As Chief Financial Officer, Martin Mountain has worked with many of you through the years.

He joined Cerner in 1992, and soon assumed leadership of Cerners mergers acquisitions and financing activities.

He served as the director of finance for two years, just two years before being promoted to CFO and 1995.

Mark has been one of the key players and Cerners legacy of success supporting more than a 50 fold increase in revenue and earnings during his career.

We are conducting a global search in March plans to stay very engaged ensure a smooth transition through this process.

And I'm very proud to call him a colleague friend, a wonderful business partner and happy to turn the call over to Mark now four to review our results. Thank you mark thank.

Thanks, Brent now let me dry the tears in my eyes for a second.

But I do want to say good afternoon, everyone I.

I'm going to cover our Q3 results and future guidance, but first I have a brief housekeeping item you may have noticed that our release went out a little early today as he advisory release.

Was inadvertently posted to our website prior to the scheduled time.

I do promise to figure out which button to push next time, so with that let me go onto our results.

This quarter, we have delivered all key metrics in line with our expectations.

Art with bookings, which were $1.47 billion above the midpoint of our guidance range. We ended the quarter with a revenue backlog of 13.01 billion, which is down 2% from a year ago due primarily to the impact of divestitures.

Our backlog revenue combined with other contracted revenue that is excluded from the A.C. six so six backlog definition still provide visibility to more than 85% of our expected revenue over the next 12 months.

Revenue in the quarter of 1.37 billion was in our guidance range and reflects impacts from closing the divestitures of noncore assets in Germany, and Spain as well as the remainder of our commercial real work services business run.

Revenue in Q3 related to the sale of the commercial rental rates business was impacted more than expected as we close the sale earlier in the quarter than anticipated and also had some revenue impact as we transitioned client contracts are one as a result of these two items. The Red works transaction have 10 million more impact on revenue in Q3, and we factored into our guy.

Since making the total impact on Q3 revenue about 20 million instead of 10 million.

Now I'll go through the business model detailed year over year growth compared to Q3 of 19.

Lets the software revenue in Q3 was $172 million up 11% year over year, driven by strong growth in our SaaS offerings.

Technology resale in Q3 was down 33% year over year to $47 million slightly below the anticipated primarily driven by tough overall environment for tech resale and a few anticipated deals pushing out of the quarter.

Subscription revenue grew 2% in Q3, the $93 million with growth in domestic subscriptions being partially offset by the portion of our global divestiture that was subscription.

Professional services revenue was down 5% in Q3 to 480 million due primarily to the impact of divestitures in Q3, the termination of our large rub works agreement in 2019, and lower third party services.

The declines driven by these factors were partially offset by continued strength in federal professional services man.

Managed services was up 3% in Q3 to 312 million support.

Support and maintenance of 260 million was down 6% year over year due to the impact of divestitures attrition and reduced hardware maintenance revenue and finally reimbursed travel a $5 million was down 82% in Q3 due to continued spend pandemic that driven travel restrictions.

Looking at revenue by geographic segment domestic revenue was down 3% from the year ago quarter $1.23 billion and non us revenue $138 million was down 16% from the year ago quarter, primarily due to the divestiture of assets in Germany and Spain.

Moving to gross margin our gross margin for Q3 was 83.1%. This is up about 200 basis points from a year ago, reflecting improved revenue mix due to less outsourcing deals.

Technology resale and reimbursed travel.

Now, we'll discuss spending operating margin and net earnings for these items, we provide both GAAP and adjusted or non-GAAP results. The adjusted results exclude share based compensation expense acquisition related adjustments organizational restructuring and other expenses COVID-19 related expenses gains on the sale of businesses.

And other adjustments that are detailed and reconciled to GAAP in our earnings release.

Looking at our operating spending.

Our third quarter GAAP operating expenses of $942 million were down 12% compared to $1.07 billion in the year ago period.

Our adjusted operating expenses were down 5% compared to Q3 of 19, primarily due to our continued cost optimization efforts divestitures and lower travel expense.

Looking at the line as for Q3 sales and client service expense decreased 5% year over year, driven by lower Nonpersonnel expenses divestitures software development expenses decreased 1% from Q3 of 19 with basically flat gross R&D and a slight increase in net capitalized software gene.

DNA expenses in Q3 was down 11% driven by decline in both personnel Nonpersonnel expenses.

Moving to operating margins, our GAAP operating margin in Q3 was 30.1% compared to 6.2% in the year ago period as GAAP operating earnings included $217 million in gains on our divestitures, which you'll see we broke out on a separate line on our income statement.

Our adjusted operating margin for the quarter was 20.4% up from 18.1% in Q3 of 19, and 18.4% last quarter, reflecting the impact of our cost optimization efforts and improved revenue mix.

Our results and outlook keep us on track for our full year adjusted operating margin to be around 20%. This.

This will be approximately 150 basis points to full year margin expansion, which we view as impressive given the circumstances.

For Q4, we still expect our operating margin to be within 50 to 100 basis points of our original 22.5% target. This would reflect strong margin expansion of more than 100 basis points compared to Q4 of 19.

We also believe the fame framework for ongoing margin expansion, we shared at our Investor day remains valid and we expect to continue improving margins beyond this year as we implement additional optimization efforts and aim to realize a longer term benefit from platform modernization.

Moving to net earnings and EPS, our GAAP net earnings in Q3 were $357 million or $1.16 per diluted share, which is up from 26 cents in Q3, 19 and reflects the impact of gains from our divestitures in the quarter.

Adjusted net earnings in Q3 were 222 million and adjusted diluted EPS was 72 cents up 9% compared to 66 cents in Q3 of 19.

Our GAAP tax rate for the quarter was 22% and our non-GAAP tax rate was 20% with a higher GAAP tax rate, reflecting the impact of higher taxes on the gains on our divestitures.

Moving to our balance sheet, we remain in a solid position. We ended Q3 with 892 million of cash and short term investments driven by strong free cash flow groceries proceeds from our divestitures and the sale of an equity stake in a partner.

Our receivables ended the quarter at $1.22 billion up $35 million from last quarter. Our Q3, Dsos 81 days, which is flat to Q2 of 20 and up from 74 days in the year ago period looking forward, we expect dsos to return to the seventies in Q4 and beyond.

Operating cash flow in Q3 was strong at 382 million capital expenditures were $72 million and capitalized software was 73 million free cash flow was $237 million for the quarter.

Our debt remained at $1.34 billion at the end of Q3 note that we recently increased the amount available under our shelf agreement by 750 million, bringing the total agreement from $1.1 billion to $1.8 billion of which only $300 million has been drawn this.

This coupled with our strength.

Strengthening free cash flow.

Because it positions us to execute our capital allocation strategy, including continuing our dividend share repurchases and M&A.

Moving to guidance, we previously as we've previously discussed the uncertain progression to the pandemic makes it challenging to quantify the exact impact on our business, but we continue to feel is important to provide investors with our current outlook for the business.

Given the current environment, especially the uncertainty around how large of an impact colder weather and the flu state season will have on the pandemic. We continue to caution that our guidance remain subject to a higher than normal amount of risk now.

I'll now walk through the guidance for the fourth quarter.

For Q4, we expect revenue to be between 1.365 $1.415 billion. As a reminder, Q4 19 includes about $60 million of revenue from our commercial rubber works and global divested businesses, which is not included in Q4 20 revenue there.

1.39 billion midpoint of this range represents roughly 1% growth from Q4 of 19 after adjusting for divestitures and will bring full year 2020 revenue to 5.5, a $1 billion, which is consistent with prior guidance and also reflects approximately 1% growth from 2019 after adjusting for divestitures.

We continue believe these portfolio management actions position us for solid growth when the pandemic impact subsides and the divested revenue is out of our comparable periods. The remaining headwind from the divestitures is approximately 40 million per quarter in Q1, and Q2 21 and about $10 million in Q3 of two.

Anyone.

Moving to EPS, we expect Q4 to adjusted diluted EPS to be 676 to 80 cents per share the midpoint of this range represents 4% growth over Q4 of 19. It would bring full year 2020, adjusted diluted EPS to $2.84, which is consistent with our prior guidance and reflects six.

Rent growth over 2019.

The expected EPS growth in Q4 and for the full year continues to reflect our ability to offset the impact of lower revenues from coated and the lost earnings from divested businesses through our cost optimization initiatives.

Moving to bookings guidance, we expect bookings revenue in Q4 of $1.55 billion to $1.75 billion. The 1.65 billion midpoint of this range represents a nice sequential increase over Q3 and is consistent with our prior statements. So we expect activity will continue to ramp as we move through the year, but.

The Q4 midpoint would bring full year 2020 bookings to 5.551 billion down 7% from 2019, driven by the impact of pandemic and divestitures.

We expect to provide our outlook for 2021 on our Q4 call.

While there is some uncertainty about the duration of the Pandemics impact we believe the framework we shared at our Investor day for mid single digit revenue growth at an average of 100 basis points of margin expansion remains reasonable.

Our outlook for next year will be dependent on how we finished this year and what our updated pipeline and backlog look like but we think theres potential for it to drive more than 100 basis points of margin expansion in 2021.

In summary, we are pleased with our solid results in the third quarter given the circumstances. We are focused on executing to finish 2020 on a strong note and building on that in 2021.

Before turning the call over to John I'd like to comment on the news about my departure.

At the 20 years at Cerner I'll be leaving next year as Brian indicated we are seeking a successor and sitting considering internal and external candidates. Once we've named his successor I plan to serve as an advisor to ensure a smooth transition.

It's been an incredible honor to be a part of Cerner. During the time when we grew revenue from $100 million to over $5 billion, all while pursuing a noble mission those personal to every cerner associate.

During this time, we've had countless reasons to celebrate along with facing several challenges. This has definitely made for an exciting and fulfilling career.

The past few years have included important transformational work to position Cerner for our next wave of profitable growth. This has been both challenging gratifying were.

We are delivering on a margin expansion despite facing a 100 year pandemic, we have organized around creating client value and delivering on commitments and we create a more focused growth strategy to deliver on the opportunities we see in healthcare technology.

It is important for me to stay at Cerner, while we advance is transformational work and allow new members of our leadership team to get acclimated.

I believe Brent and the team are now well positioned to begin an era during which cerner as impact on health care can be greater than ever.

Finally, I'd like to thank each of you in the investment community for your part in making my time as CFO great experience I've always appreciated your perspective, you acknowledged our successes, but also challenged us when we needed to do better I look forward to catching up with many of you before I leave with that I will turn the call over to John.

Thanks Mark.

Good afternoon, everyone. Today I will provide hot result highlights and an update on our federal business I'll start with bookings we had another solid quarter in what remains a challenging environment delivered bookings above the midpoint of our guidance range. The mix of bookings. This quarter included 25% from long term bookings compared to 29%.

A year ago.

Consistent with our plans and guidance our federal group business had a very good quarter with strong contributions to bookings and substantial operational progress, which I'll discuss in a moment.

Beyond that are all our ability to continue delivering solid bookings. Despite the challenges created by the pad that dentek is made possible by the strategic nature of our client relationships. Our clients remain focused on executing their strategic plans and Cerner solutions and services are important elements of these plants served.

His ability to align strategically with our clients will allow us to expand our strategic growth offerings as well as other large addressable opportunities such as revenue cycle.

The strong relationship alignment creates a receptive environment for advancing business through mostly virtual interactions for contracting activities demos open houses and road mapping sessions their willingness to engage virtually was also evident at our Cerner Health Conference, which had record client act attendance as the.

Virtual format enabled broader participation across our clients' teams.

Operationally, we made good progress in Q3, our professional service organization delivered strong sequential growth in implementation revenue as they continue to advancing projects with a hybrid model that uses limited on site presence combined with a larger virtual workforce our clients remain open to this approach and we believe.

Elements of it will become standard beyond a pandemic, which should benefit both cerner and our clients.

While shifting to a hybrid implementation model. We have also made progress on new implementation and training framework designed to deliver more predictable and higher quality Activations. This framework applies to clinical and revenue cycle implementations and is an important part of our efforts to drive client success and improve satisfaction.

Early indications are very positive as we've seen 20% higher client satisfaction when comparing the new approach to our prior approach.

Moving to a federal update despite the challenges presented by the pandemic, we continue to make significant progress on both the FDA and the DRD.

On August 24th the VA announced the successful go live of their new centralized scheduling solution at the VA Central Ohio Health care system in Columbus, replacing ethics scheduling system in September the DLD and the Leidos partnership for defense health of which which Cerner is a core partner depuy.

The MHS Genesis to 10 additional sites as part of weight Dallas, bringing the total number of deal decides to 18.

The US Coast Guard had a successful go live of NHS Genesis to four sites wait Pendleton, which includes an additional four sites in Alaska and California is scheduled to begin in October 31.

On October 13, the federal electronic health record monetization office announced that deal de da and the US Coast Guard have joined Commonwell Health Alliance, adding an additional 15000 private sector providers into the joint health information exchange that was launched.

In April.

And preparation for our first VA DHR go live at Man Grandstaff, we successfully migrated to clinical and demographic health information data for approximately 88000 veterans and tested to 73 interfaces required for system integration for our first set of capabilities.

Finally, the VA recently announced the historic and successful deployment of the new DHR at NAND Grandstaff, The medical center and its for community based outpatient clinics across Montana, Idaho, and Washington, as well as the West consolidated patient account centre a VA bill.

Business operations facility in Las Vegas.

This is a significant milestone and it positions us to proceed with the broader deployment plans as we head into the next year.

In summary, I am pleased with our execution in the third quarter and I believe we are well positioned for a solid finish to the year with that I will turn the call over to Don.

Thanks, John.

There is no better leading indicator of where provider healthcare has headed than our annual Turner helicopter.

It is the coming together I would contend of the most entrepreneurial and innovative provider client base in the world.

As our leaders engage in virtual education sessions and online client dialogue three macro trends of our times were clear.

First within the hospital clients are looking for technology enabled strategy tackling costs and drive down total cost of care, our real time health system capabilities have been a central to Covance surge response us provider revenue recovery and now the strategic rethink around what it looks like to make money and government Ray.

Thanks.

Second outside the hospital the pandemic is driving providers to think beyond the scope of their traditional brick and mortar enterprise.

Plans are striving to deliver clinical operational financial results at the health network level.

The business models of these health network center on managing outcome, they necessitate core capabilities and data competencies that can span physical and digital venues diverse payer types and heterogeneous it systems.

There is a shift to value based payment advances, we expect these health network strategies to take on heightened strategic urgency.

The American Hospital associations Republic noted in a 2020 election panel that I moderated value based payment will be a meaningful piece of provider economics and the decade ahead and I believe for my part of the shift away from fee for service to set to accelerate in the coming 117 Congress. The next presidential term.

Finally, perhaps no area of emphasis received more positive client reaction and our data strategies. When you digitize the content of an industry that has a big second and third order impacts and while we're at the end of the beginning of this early market Bell curve server is clear eyed about the organic and inorganic strategies need.

Good for us to meaningfully this route and innovate in the quarters to come.

And the opening keynote Dr., Eric Peterson from do challenge to Cerner client base to be part of a collective strategy fundamentally accelerate the pace and reduce the cost of drug discovery. This comments were followed over the next two days for the collection of educational sessions, featuring a set of almost.

50 serve our clients working to rethink clinical trial candidate identification and participation.

The entrepreneurial opportunity is massive one.

In addition to allowing our clients to learn about best practices and understand emerging trends.

Our health Conference also is an opportunity for our clients payer from us.

The one that has a rich history as a launch point for new products and partnerships.

2020 was no exception that.

That cerner, our products and our larger platform vision always begin with the person the.

The pandemic has accelerated the shift towards whole person capabilities and are always changing role as patient member caregiver where consumer.

Our consumer businesses benefited from revenue expected to double on a full year basis.

At the center of our digital front door strategy is our consumer framework that allows providers to seamlessly combine natively develop functionality and third party partners within the patient portal. A good example is our new collaboration with tonic, which enable virtual intake and check in and signed its first clients in the third quarter.

Peter.

A unified communication strategy also in the Central building block to consumer engagement, we announced our new unified communications offering at our Cerner consumer former forum early are today. The pre release client feedback has been exceptional as providers look to reduce delay emails bulk use and this call.

It gives the consumer team confidence that their 2020 business momentum will accelerate in 2021.

At the enterprise level, our real time health system strategy also was a significant area of client excitement the market trend towards near real time data inside that can trigger caregiver actions for high quality low cost care is clear it can be seen in our key HF is booked revenue growth of almost 40% year over year.

Sure and compelling stories, such as event itself and Sacramento.

They've coded wildfires and rolling blackouts at Ventas deployed our capacity management solution enterprise wide in just two weeks to better direct intra health system patient management, and importantly to accelerate their strategies around hospital at home.

Our clients also heard about advancements in our ongoing push to deliver unified inpatient and outpatient provider experience.

Our latest functional capabilities are designed to make the provider workload more natural and predictable, we're pushing to make documentation easier and also similar to the solar by other care members to include the patient volume.

The momentum of our chart as the solution tells a piece of that story, leveraging cerners natural language processing to facilitate administrative requirements and delivered a potential of millions of dollars of annualized savings to our large IDN clients.

In addition, we also updated clients on important progress on revenue cycle management plans detailed there improved experienced with our hardened implementation methodologies and existing clients talked about solid financial returns from the adoption of best practice optimization in areas ranging from denial reduction to our improvement.

I have also heard from partners, such as Baptist Health, South, Florida about our new registration scheduling offered engage in access includes investments such as our enhanced financial clearance workflows with on plan a timing.

Importantly, it also reflects our view that theres massive strategic leverage in the revenue cycle front end as clients look to decrease downstream cost to collect.

Finally at the health network level, our MRF agnostic Healtheintent continues to be at the center of our push for the active health network strategies and every MSC, causing.

Causing our health told the story of Healtheintent is their foundational first mile data platform across our owned and affiliated assets and they also framed our efforts to push contextual insights backend to the last power at the right time and the right place to drive the right outcome.

Healtheintent data aggregation and normalization strength also are powering CRM campaigns across our client base. The tool set allowed for a data driven approach to enact health systems with our customers in areas ranging from elective surgery rescheduling to gaps in care closure.

Announced new healthy CRM SCO Turner Health Conference. These enhancements give users both at the network level consumer profile and the central last mile integration in areas, such as scheduling provider messaging and prescription refill.

In the coming quarters, we believe the solutions with the greatest market traction will deliver financial and operational returns under fee for service and fee for value. Our just launched healthy referral solution perfectly reflects that value proposition how the referrals allows providers to manage their referrals at the health network level.

As they seek to better align consumer demand with provider supply.

At the Cerner Health Conference Executive Summit I frame the idea that the last decade saw three major forces of change and ongoing demographic shifts as the first boomers turn 65, the passage of Democratic reform as the Affordable Care Act that the policy Foundation for the decade ahead, and most importantly, the firm.

Time digitization of healthcare.

As the Covent pandemic place forward to 2020 is our setting up to be equally dynamic.

And as our clients deal with these accelerating forces of change their collective voice to US and recent days was clear we're counting on cerner to help us navigate the business model shift ahead across person enterprise and health network, we're counting on cerner to define and lead in the decade ahead.

With that I'll turn it over to the operator for questions.

Thank you.

Ask the question you need to press Star then one on good telephone so let's draw. Your question. Please press the pound coal.

We ask that you please limit yourself to one question and one follow up.

Our first question comes from the line of Robert Jones with Goldman Sachs. Your line is now open.

Great. Thanks for the question, Yes, I guess I'll be the first start off what am I imagine will be a parade of congratulations and nice to work with you Mark Good luck in the next steps it's been it's been a lot of fun.

Yes, I guess just to get into the question looking at.

The bookings guidance for next quarter, clearly, calling for the biggest bookings range of the year.

Ranges from down a little to up 5% year over year was hoping maybe you could just talk a little bit about the factors that are driving that improvement and specifically what areas are you seeing or categories are you seeing momentum in.

As we exit threeq into Fourq and thinking about even.

For Q into 2021.

Yes. This is this is John and what we're seeing from a bookings perspective is.

Aligns with what we said in the comments, which is we're very aligned with the strategic strategic priorities of our clients.

And in many cases and in all cases, those haven't changed in many cases they have accelerated so what we're seeing on the other bookings front is that.

Is that desire to keep things moving forward strategically and in some cases accelerating them you see a lot of expansion capability.

Capability throughout our client base of our existing solutions you see the growth of our strategic growth opportunities out there and growing you see the impact of revenue cycle efforts that we have come through it. So it's a broad mix of things that's driving that bookings and while there is always there are always a wildcard is particularly.

In today's world what the pandemic.

We continued to show a very robust pipeline, we continue to see a visible and solid forecast and we've been converting those into real opportunities and real business for cerner in helping our clients drive their strategy forward. So that's all very very positive from my point of view and what's what's driving our favorable bookings outlook as we look at.

Q4.

Thank you.

Our next question comes from the line of Dave Windley with Jefferies. Your line is now open.

Oh, thanks so.

In keeping with with thinking about where clients are going some some discussion and debate in the market about.

The cobot experience pushing providers to look at Capitated.

Capitated or risk bearing agreements because if for no other reason there.

There is stability or or reliability of cash flow for the provider and I.

I think things like that were.

I have been have been positioned as drivers for demand for your population health solutions are you seeing providers.

Move in that direction more rapidly and is that driving more discussion and interest around healtheintent.

Yes, David This is Don that's a great question I think you're through our reflection on market sentiment is exactly right and I think as we've kind of progressed through the the 25 year over the course of 2020.

A lot of focus on surge capacity in response than a lot of focus on elective surgery recovery I think as those strategies play through into Q3, both John and I started having significant and higher levels of conversation in the marketplace around rethink a business model.

And the role of value based care and first dollar risk strategies.

And providers five year plan and so there is no question that weve seen increase.

Increasing penta intensity of conversation meaningful increase and the weighted bookings pipeline and as we look out on a five year basis. We think the market has now readying for capabilities that we're quite well suited to provide inclusive of the investments we've made on a multi core.

Her basis around Medicare advantage and the provider sponsored plans space. So as I said I think this is going to be a big area of focus I think providers recognize that they want to take control of their topline revenue and make that part of their strategy going forward and they're thinking through people process and technology strategies required.

Right.

Thank you on so we've also seen.

One follow up so also seen.

A couple of high level hires.

Particularly around federal programs and.

A chief strategy.

And and wondering if that happened it appears to us that they havent come from Leidos and wondered if that was an indicator of some blossoming opportunities to take more business in the federal I mean, you've obviously kind of alluded to this but I'm wondering if you could be more specific about potential opportunities in the federal market.

David This is Don I'll, just I'll, just talk you're alluding to the hiring decision around momentum in particular I think back to my comments I just made I will have a really interesting skill set mix.

Inclusive of significant experience in the payer space.

So as we started to think about macro business trend not only within the provider market segment, but also opportunity set beyond it that.

That was a big piece of his CV and has profile that we reacted very favorably him.

Got it Mark I hope you have a teach on everyday congratulations.

Thank you.

Okay.

Thank you. Our next question comes from the line of Michael Cherny with Bank of America. Your line is now open.

Hi, Good afternoon, Mark Best of luck in what comes next.

Rent and team best of luck in finding a new CFO, because many corny jokes as mark likes to layout share it will be.

A key part of the process.

[laughter].

One point of clarification, Mark I know you weren't attempting to guide for 21, but just to make sure I understand the Delta you said you talked about the long term framework still being in place that inclusive or exclusive of the divestitures in terms of what you see right now.

Yeah. Michael This is Weve talked 2020 is kind of a reset year for thrive is you do we.

We still have some impact as I indicated in my comments that.

Through Q3 of next year, we will still get a little bit of impact from.

From the divestitures and a year over year comparison.

But for the most part.

We should be we should be on.

Going back to our what we perceive as a growth opportunities for the company as we've laid them out of our last Investor day, that's mid single digit growth certainly part of it.

Organic you can be increased by some of the.

Some opportunities for in the inorganic space and that is something we are absolutely pursuing and continue to look at we're going to leverage the strength of our balance sheet in that space. We are being very selective in doing our diligence extremely well in my opinion and so we're going to make really good decisions in that space. So it's not.

It may not be progressing this fast externally as people might have expected, but it is it is a pace within the company I think from a from a leverage standpoint, we continue to to see opportunities from from optimization in the continue continuation of those efforts.

And that's why there's been conversations in Hay in 21 is going to have a big catch up but because as we've talked to most feel that you're not going to see a big catch up of 20 revenue that's going to also inflow into 21. In addition to all the 21 revenue and Thats why the topline is is pretty consistent with our longer term view I'd.

Do you think when you look at the operating margin line that we've looked at being able to drive.

Consistent hundred basis point improvement in operating margins at 21, probably is the year that we can do better than that.

As you said, we're not providing guidance so I can't really give more detail than that.

But I do think you see the opportunity for us to to be better than that as we work to go through our work we still have to do our plan work, we still have to do.

Finish out the year and all that but but the early returns would be that there is more leverage opportunity than just what we would need to see from a normalized view that we presented to investors a year ago.

No. That's helpful. Mark and then just just to build on that a bit maybe turning to your relationship with Amazon can you talk a little bit about the mileposts over the next 12 18 24 months, we should be looking to both in terms of some of the platform redevelopment that you're working on and doors some of the consumer application than others, some announcements intra quarter, but what should we be looking forward.

Should we be expecting how should we be judging you on your success.

This is Don I think.

First and foremost we feel very good about the progress we've made around migration of Healtheintent to AAMC.

Public cloud.

And.

Happy with that both in terms of.

The market positioning around at receptivity of clients and the performance benefits associated with doing so.

Our next platform focuses our care where platform also HR agnostic and introduces some really interesting opportunities for us around that our DHS portfolio that I think has traction and trend associated with co that.

And then as we have been very clear the timeframes around millennium or more elongated and playing forward. So that that's a way to think about the staging process that we put forward and how we're thinking about the migration path for the platforms on the Pan Amazon and and certain non aimed at the left side of the relationship.

And you're correct, we've done some things around the Halo device and integration had some interesting conversations with them around their strategies in the employer space inclusive of the work with their own associates.

As well as we think some interesting assets like that Hell pass that on that play into larger trends and strategies around the pharmacy space. So we're going to continue to have those conversations it absolutely was a dimensional aspect.

How we thought about the overall partnership and Thats why David Bradshaw, who runs our consumer team is as you know.

Running point on big dimensions of how we thought about that dialogue with.

Pregnancy App.

Great. Thanks, so much.

Thank you. Our next question comes from the line of Eric Percher with Snap on research. Your line is now thanks.

Thank you and Mark will add our congrats to the long list.

Good question, a financial question to begin.

Can you help me understand that impact on maintenance and support how much of that is divestitures versus.

Business Thats moving away versus Kelvin.

Yes.

We've had a trend.

Over the little bit of time, where weve seen maintenance on equipment.

Reducing and lot of that has been.

Some of that has been busy just because we continue to add more and more of our clients to our hosting.

Environment to that means they don't need to go buy a bunch of equipment. So they don't buy the maintenance contracts that go with it but I think once you know once you kind of factor that in most of the recent that you are seeing relative to support is related to the divestitures theres not a lot of other elements, it's primarily the divestiture impact.

Okay. That's helpful and then relative to the conference now that your virtual do you have a read on what areas where most.

Most subscribers and I'm curious if you spent much time on virtual health in the strategy there.

And Greg Great question, I think one of the virtues of.

Being in a more virtual posture as you can have a very data driven Yale out of how I can either spending time and energy and thinking about a topic.

Topical focus and I think one of the things that felt very good.

Validating as in highly correlated to areas of significant focus and investment, particularly on the strategic growth side.

Our business portfolio. So a lot of interest in what we're doing from a real time hospital real time health system perspective, thinking about our workforce management thinking about hospital operations thinking about communications a lot focus.

In the consumer space.

John's point, not just consumer on a standalone basis, but critical integration points at the enterprise and at the network level.

Earlier on things like front end rent schedule.

And then and then finally to the earlier question and my comment a big focus on.

Business model and business model innovation strategies, some of that can be reflected in heavy attendance and participation and 2020 election dialogue than implications. Some of that can be reflected in drilldown session content around things that were doing like our Limerick partnership around M&A strategies.

Around bundled payments.

And other pieces of healthcare finance that they're anticipating are going to be significant pieces of business model go forward, Yes, and I would add a couple that were I think incredibly positive as well we had a lot of interaction and our solutions gallery, which of those of you who have attended before was the ability to walk through and due to essentially see demos of.

Of our solutions I worked really well from a virtual standpoint, and the ability to to be to address large groups of people in that solutions gallery, virtually so that I think worked really well a lot of interest in the data as a service component.

That we have out there and the interest in that from our clients and then finally I would add there was a great deal of interest in our progress at da RV as the progress there in terms of the implementation to go live.

Health information exchange the scheduling all of those lift all boats within our within our client base. So there was a lot of interest in the progress and success, we had with the VA as well.

Thank you.

Thank you. Our next question comes from the line of Charles Rhyee with Cowen. Your line is now open.

Hi, its actually James on for Charles.

Based on your comments this quarter and last it seems like the data business is doing particularly well can you speak to them into what's driving the strong performance and how it's performing relative to internal expectations and then perhaps is coping maybe accelerating.

Maybe the growth and interest in the segment.

Yes, it's a great question James.

Let's talk about the the kind of component part of the data business style first and foremost we've talked a lot about what we're doing in the release of information consent based use cases for the Eagle life insurance and Workman's comp and there is no question that as those businesses have moved into a virtual upon.

Cost care their propensity to want to leverage things like our ROI tool cat has been.

Strengthened by that there has been a little bit of a disruption and the AMDR and legal space has some of the court dockets have moved around but the trend level. This is a this is a business that has being accelerated by Kobe.

And then secondly, we've we've had a big focus and emphasis on the learning health network and it was.

Really exciting piece.

Cerner Health conference, we have 47 clients lined up to participate in the learning health network year to date, that's on a full year goal for any for this business is way ahead of where we anticipated it would be and really what its dealing as it's introducing the opportunity for.

Non traditional particularly non AMC based participants and clinical trial identification and participation south creates opportunities for regional I'd ads.

And and for community hospitals to be a part.

That strategy and that space in a way that hasn't historically been the case and then finally in our traditional provider.

Around absolutely data assets, particularly this movement of data from the enterprise to the health network space.

Is that a lot of traction and trend associated with that how can I begin to think about the strategies required for more effective supply and demand strategies within my market and importantly to the earlier question on virtual health across a combination of physical and digital environments to include.

The home. So there is no question that coal that we said back in April that one of our kind of theories of the case was that the first order impact of a crisis as it accelerates things that are already playing out that that's on data and the positioning that we've done and the investments we've made there.

Our super relevant and we absolutely saw that reflected in discussions with clients at Turner How conference.

Thank you.

Our next question comes from the line of Steven Valiquette with Barclays. Your line is now open.

Great. Thanks, Mark I also just wanted to say I also enjoy their interactions over the years.

The question I have is around a subscription revenue last quarter, you guys talked about 3% growth and that being slightly below expectations due to lower transaction processing revenue, which volume base impacted by lower ambulatory visits.

In this quarter, you had 2% subscription revenue growth was skewed by divestitures. So im just curious to get a little more color just on the underlying improvement on the growth on.

Some of your volume based revenue streams.

And also just from your market intelligence are you seeing in the market that ambulatory patient volumes are now back to pre cobot baselines or do you think we're not quite there yet.

Yes.

Okay.

The other comment on what they're seeing the able tourist space I.

I mean, that's it's.

It's still hard to measure I think for most of our clients. They are adapting to the new normal to some extent. So there is some increase in their ambulatory, but I think most of that a lot of the new normal is relative to elective surgeries and having figured out how you can have both coded cases and elective surgeries.

And basically allow them both to go on.

So I think thats at least prolia a larger.

Impact at least in my mind I don't know if that's similar to what you guys are so I'll, let I'll add a couple of things. This is John So if you look at the inventory side. There is there there's been a little bit of a rationalization between virtual and tend to traditional in person.

Hello toward where the numbers of.

Virtual visits have come back a little bit, but still exponentially higher than they were before so we may be seeing a near new normal there as as both consume.

Consumers and caregivers gets get much more comfortable in a virtual world and it seems to be working very well still little not quite at that I would say pre koeppen levels with the results to surgery with the with the UN aspects to elected surgeries, but getting closer to that as the population is getting better.

Suited towards how you had to deal with these things in a coping world. We know a lot more about how to interact caregivers know a lot more about how to interact consumers know a lot more about how to interact so you've seen those volumes start to pick up.

The one question you have relative.

Relative to subscriptions.

More tactically the most of the.

There is an impact on divestitures the decreased it.

We still are seeing a little bit of an impact on EBITDA, it's still not up to the levels. So from our transaction and is it would tell you that the ambulatory balances have not completely have not recovered to to previous levels and we do see that in the subscription but.

Having having having slightly improved growth in that space given the impact of divestitures was it was a good result for the quarter.

Yes, okay, great. Thanks.

Okay.

Thank you. Our next question comes from the line of Stephanie Davis with SVB Leerink. Your line is now open.

Hi, Mike on the Echo everyone else, who Paul Congratulations and then thinking about at that time.

Yes, hi.

Quick line on Capex search for someone to sell your machines and the ones that are the key.

Yeah and.

Internal versus external what.

Are you going to so we look we'll be in the health care our key vertical.

Sure if you're going to look more out of the box into other industries, where could you be looking for all right. Okay.

Well since since you announced this an hour and a half ago.

[laughter].

Well.

Yes.

In my humble opinion. This is the best job in America. So you are on the health care field you in the technology field, you make a difference everyday in the health of the populations that we serve so.

Yes, I don't think were going to limit ourselves relative to industry experience. So I think there is a lot of qualities that that someone that would be good in this role.

Could have been relative to experiences and.

SaaS and transformation and all sorts of things, including health care in some form or fashion. So.

We're.

We're not going to limit ourselves to a small universe, we're going to we're going to two.

Believe cast a relatively broad net look for the obviously the best and the brightest.

And see if somebody can meet might the lofty standards to assess that and economic meaning it yet obviously there'll be a standup element to the interview that we'll have to pull in.

Anytime she's the sale.

A quick one on the federal opportunity looking beyond DMD.

Talk a little bit by the opportunities and other areas or just I guess, what kind of timeline in scale should we think.

Steve that you thought that that are all pieces.

Yes. This is John while I won't necessarily speak to the timeline is scale I will speak to a couple of things first of all I just want to.

Reiterate and make it clear that we are focused on delivering on our VVA in DMD commits we still have a lot of work to do there and.

And it was a 10 year endeavor. When we started to have we've got a lot of work to do there. So our primary focus is going to be on.

On completing what we started successfully in the da which again, we're off to a great start and Weve gotten four ways behind us and the deal and more to come. So that's that's going to be focused as we looked into other things within the federal government absolutely were looking at adjacent sees we're looking at where we can leverage some of our capabilities.

And and whether its Indian health services, which were already quite active in any way prior to our our engagement on the VA and DRG. We're looking at ways that we can use data proactively with different.

With different branches of the government. So there is opportunity there that we're exploring we're looking at.

And I would expect us to do more business with the government as long as it meets our profile around margins as long as that Leverages, what we've already done and long. So we can see adjacent sees with our current capabilities.

All right Super helpful. That's again.

Thanks.

Thank you. Our next question comes from the line of Jeff Garro with William Blair. Your line is now open.

Yeah, good afternoon, and thanks for taking the questions.

Thank you Mark for all the interactions throughout the years and best of luck on your next steps. So I wanted to ask about new products and Don went through a great list I guess I want to ask further on the two that Brent mentioned, certainly unite answered discover so I guess two parts to it is should we view them as related to the.

The intent platform given that it sounds like they are cloud based HR agnostic and what's the revenue model associated with those products our products and how should we think about the total addressable market.

Yes, so I think I think United discover fit into.

Concepts that we've talked to you about a lot about how do you start thinking about what we call the first mile strategy across.

Millennium care aware and Healtheintent to really start to aggregate data and for our provider clients really be able to do that in a way that allows them to put together analytic insights around business strategies that they are advancing within their markets you.

Unite really then is that seamless exchanger seamless interoperability capability within the last mile provider workflow, where we really have to differentiate ourselves in terms of our ability not not only to push analytic insights back into how our chart, but our ability to really do that in an HR.

Not that way across the diversity of ours that makeup a hub network and so this is really a way to think about that from a sub brand in a packaging perspective in a way that makes that more consumable for our clients.

And so it really is multi product multi platform, although two year to your question Healtheintent certainly plays a starring role in those data aggregation capabilities and in the normalization strategies that we can use to pushback insights into the workflow itself.

Great and then again just to follow up anything that you can share on the the revenue model and the total opportunity or maybe to put another way.

Okay.

Examples of early traction outside of the millennium base, but the us offerings I know they just launched but maybe you have some.

Beta or other ports with early customers.

We're absolutely doing early solution testing activity around seamless exchange feedback has been favorable.

I think we'll we'll use that as a way to make sure that clay.

Clients don't feel like they're being barraged with skews, our part numbers in terms of when they feel like they need to do to actually put together enterprise and network level strategies.

And from US on San Tan perspective. These are these are the big swing opportunities that we frame up for you around health networks and around the data business.

And these are enabling strategies around both of those things.

Got it very helpful. Thanks again guys.

Thank you. Our next question comes from the line of Sean Dodge with RBC capital markets. Your line is now open.

Hey, good afternoon. This toms color on for Shaun is first.

First off congratulations Mark.

Thanks for taking the questions.

I guess touch on margins a bit earlier, but if we kind of think about the 100 or so basis points expansion. Thanks for taking my next year.

Can you give some more detail on some of the buckets that you're looking at for that are there more facilities to close or re platforming.

Or is that next wave of expansion going to come from.

Yes. This is mark there certainly there are elements that we've put in place that weve harvested some of the benefit during.

2020 that will fully impact 2021.

So there's just a natural increase in in.

In each of those actions that has wasnt fully burdened in 2020, which was which was much of it.

We continue to look at other opportunities certainly.

We've significantly reduced our least footprint right, we probably gone from 32 facilities to 12 facilities when we.

Look around certainly the view us in global and so there are other opportunities from location perspective.

We think that from a margin perspective that.

The learnings, we're having relative to projects in the virtual world can be applied to.

Potentially enhance the margins from some of our projects. It is conceivable that we can lower the cost to implement and increase the margins that we make from those implementations. So.

So all of those are elements I don't think that.

Obviously at this point, we haven't given guidance, so being too much more detailed and give you line items, where I think that that's going to come from is probably for our next call.

So at this point there certainly.

Our line of sight to the improvements that given the level of confidence that for 2021 that I think we can we can do better than the 100 basis point target that we would normally see put over over overtime.

Okay, Great and then on.

Monday you also you are kind of actively looking at companies and seen a couple of deals here and there.

It is also considering things a little bit more called transformative, saying kind of so any idea sort them adequately, which which end market are part of the business I would most likely be centered on.

Yes. This is Don.

I think Pat.

Radically we've been very clear what our areas of focus are.

We're very focused on enabling strategies in the health network space.

So that would include things like value based care strategy capable.

Capabilities around care coordination and care management associated with taking first dollar risk.

And associated.

I'll call them.

Consumer related capabilities specific to member use cases so.

Network is a big area of focus and then to the earlier frame and discussion around traction in trend from the data space.

In particular, some of the things that we're doing around our learning health network and disruptive strategies around drug discovery, we think thats a huge.

Addressable market opportunity as a.

Strategies around real World evidence continue to grain traction in trend. So I think were highly.

We've been very that fine in terms of what we want that to look like and what the areas of emphasis and focus our and and we will continue to be smart in terms of how we deploy capital in a way that make sure that those acquisitions are accelerating or larger strategy.

Okay, great. Thanks, guys.

Sure.

Thank you our next.

Question comes from the line of George Hill with Deutsche Bank. Your line is now open.

Hi, Good evening guys. Thanks for squeezing me in and Mark I'll add my congrats on the fine career and I'm happy I'm here and how do we get in this one more around before sundown so to speak.

A follow up question on M&A I know inorganic growth has been an important contributor to the medium term growth plan and.

And I guess can you guys talk about your ability to execute upon M&A in the current crisis do you feel like it's made assets more expensive less expensive harder to access more access.

Probably more a question for you as opposed to Mark, but happy to hear anybody's comments.

Yes, it's a great question and it's kind of the landscape that we're operating and George right and so I think Juan.

How valuations have been interesting to look out we're going to be smart in terms of how we deploy capital and.

Evaluation, certainly haven't come down as co that started.

So we might have speculated on that are created allow car dynamic around that.

Hang around premium for assets and that factors into our thinking relative to approach.

Secondly on.

You know I was pretty clear in terms of what the thematic focus looks like and obviously post acquisition integration will be a meaningful dimension of what success looks like in terms of some of the larger and impactful five year pro forma impacts were looking to have so.

We're going to be opportunistic I think we're having a lot of conversations in the marketplace, we see a lot of interesting assets and.

And again, we're I'm confused about how they fit into the planned organic and inorganic growth that we're going to try to help.

Thank you.

When we take one more question.

Thank you our last question comes from the line of Steve Halper with Cantor Fitzgerald Your line.

Now.

Hi.

Mark Congrats I remember when you were named CFO. So it's been a long time.

So I wanted to ask about capital deployment priorities as we think about 21, we spent a lot of time talking about.

Potential acquisitions, but how does how does the company.

Ill about.

Acquisitions versus share repurchase and then also in terms of capital spend for next year as well should we take Q3.

As sort of a run rate.

For next year, so that's sort of a multifaceted capital deployment question.

Yes. This is mark I think from a.

From a capital deployment perspective.

We've always got a focus.

Dividend funding first thing we.

Sure.

Share repurchases is still part of part of our approach certainly.

Certainly in Q2 and Q3, given the dynamics Weve just do shied away. It's my expectation that we still have $1 billion worth of authorization. It's my expectation that in Q4, we will start.

Reengaging that particularly with the proceeds we receive from from the sale of investment in our than the divestiture of our global assets. We are well positioned from a cash standpoint. So I think we have certainly look the same.

The near term liquidity to do that at the same time being prepared to invest in an M&A strategy that has been is core to our strategic growth growth initiatives.

Okay relative to putting.

That structures in place that we basically can access and the 1 billion five more debt.

And when we need to so.

Given the cash position given our balance sheet I think we're going to continue executing our our capital.

Allocation approach as we have but.

But we are we would look to return for bigger rate the share repurchase component based on where we're at.

And we'll look to 21 to be an opportunity where we can start investing.

That capital in assets. So there is going to prove to produce.

Profitable growth.

As we continue to move forward, so I think thats it relative to.

The capex.

For any quarter I think if you look at kind of you know.

19 over 20, clearly we had a benefit on capex.

From finishing up the work we were doing relative to our campuses.

I think as you kind of roll forward.

We should see another sequential increase in free cash flow as you look to 21.

Probably will be somewhere in the neighborhood of what we might expect to drive.

He is going to be a solid growth.

Likely in 2020, we should continue to be able to improve cash flow in 2021, I know at one time, we probably talked.

Pre co. It about 2021 could be a billion dollars of free cash flow. Obviously cobot is taken that down relative to two certainly our expectations prior to co. Good.

But could we.

Can we be.

And a 50 to 900 million range or someplace and that will depend on the capital needs of the business, which we were still working on.

That doesn't feel unreasonable for kind of a 21 view and we might be able to exceed that just once again.

Thats the level of guidance and the level of accuracy I'll need to get through our planning process and identify the needs for the business for 21 before we can be more precise.

That's great. So just to go back to the M&A and share repurchase comment. So the takeaway is you're going to do more acquisitions, but it doesnt take away you are the company's desire or ability to do share.

Share repurchase given the flexibility you have now on the balance sheet correct David.

That is correct.

Thank you Albert However, this has not let me just say quickly.

That we've never been more excited about whats playing out the intersection of healthcare Ita.

A lot of the big bets that we've made around value based care and Healtheintent. We thing play out on a go forward multi quarter basis, and we're super excited about second order and third order disruption around data. So there's every reason to be excited about putting capital to work.

And and we are really well positioned to do it.

Great. Thanks.

Well. Thank you all for your time today.

Have a great one and I look forward to speaking to each and every one of you bye. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

[music].

[music].

[music].

Welcome to Cerner Corporation's third quarter 2020 conference call.

Today's date October 28, 2020, and this call is being recorded.

The company has asked me to remind you that various remarks late here today constitute forward looking statements.

Without limitation, those regarding projections of future revenues or earnings.

Operating margins.

Operator any capital expenses.

Yes, new solutions services, and offering development and capital allocation plans.

Cost optimization and operational improvement initiatives future business outlook, we expect the benefits of our acquisitions divestitures or other collaboration.

The expected impact of the cold and I'd say pandemic.

Actual results may differ materially from those indicated other forward looking statements.

Please they started its earnings release, which was furnished to the SFC today and posted to the Investor section I'm, sorry that call and other filings with the S.J.C. for information concerning factors that could cause actual results to differ materially from those in the.

Forward looking statements.

A reconciliation of non-GAAP financial measures discussed in this article and also be found in the company's sounds funny.

Service has no obligation to update any forward looking statements or information, except as required by law.

At this time I'd like to turn the call over to Brett Shaver, Chairman and C. O Sonic Corporation. Please proceed sir.

Thank you good afternoon, everyone and thank you very much for joining the call.

I'll spend a few minutes just start providing some thoughts on the business for the current environment and then I'll hand, the call over to CFO Mark.

She client services officer Choppiness out there.

President Don true for more on the numbers.

In the marketplace.

Well its cobot continues to disrupt global health care. It's also underscore the value of health care drop ability.

Connected information systems access to timely population level.

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And for all the damage that it has caused the goal pandemic is actually sharpen cerners intense focus on supporting our clients.

Managing through covered with our clients has enabled cerner to strengthen and extend relationships and to help our partners manage their response plan their recovery.

In many cases reimagine new business models, the leverage emerging comprehensive data network strategies.

Earlier this month, we hosted our 30 Fiveth annual Cerner Health Conference.

Which was also a first virtual CHC.

Yeah, it's exceeded really way beyond our expectations more than 22000 registered for the event and.

Quite attendance was up 125% with participation from non U.S. clients up over 300%.

A key topic at the conference, which helps our clients are using data driven insights to improve care quality and also the experiences of clinicians and patients.

Other fees included centers commitment to supporting the clinical operational and financial successes of our class.

Improving our core products and platforms.

Eliminating health care and equities around the world.

An additional topic was the importance of inter operable health Records and health information exchanges that seamlessly connect patients and their health care providers across geographies and all that in the entire continuum of healthcare.

Such connectivity enables patients and all that requires to be on wind in the support consistent health plan.

As John will discuss in more detail, we've made meeting meaningful progress in our work with the federal government.

Including expanding interoperability.

Capabilities that are foundational to the success of the V.A. giotti programs.

Using interoperability to close gaps in health care and the goal of providers around the world.

And in partnership with one London another of the world's largest health information exchanges, we've built a digital infrastructure. The covers 7 billion Londoners.

When combined with senators other British exchanges, we now cover 20 million people cross anyway, that's about 35% of the country's entire population.

Also in the underscoring the importance of inter Operability and data analytics was the announcement of two new brands.

Sorry, good night.

Cerner discover.

Sorry, unite is our portfolio to inter operatively products.

Her discover is our portfolio of intelligence integrated products.

Together nine discovered liberty elements crucial to effective value based care strategy.

Including improving data quality simplifying data reconciliation.

And seamlessly integrated.

Integrating data driven insights into workflows.

Any health platform.

Before CHC I was also pleased to announced the hiring of we'll Miss as our Chief strategy Officer.

Well very strong entrepreneurial background and deep healthcare experience to the role.

His responsibilities include identifying and developing new business opportunities and coordinating strategic planning processes across our entire business.

Now I'd like to recognize one of our longest tenured associates, who.

As announced this afternoon will be leaving the company in 2021.

As Chief Financial Officer, Mark has worked with many of you through the years.

Joining cerner in 1992, and soon assumed leadership of Cerners mergers acquisitions and financing activities.

Served as a director of finance for two years, just two years before being promoted to CFO 1995.

Mark has been one of the key players and Cerners legacy of success supporting more than a 50 fold increase in revenue and earnings during his career.

We are conducting a global search and Mark plans to stay very engaged to ensure a smooth transition through this process.

And I'm very proud to call him a colleague a friend and a wonderful business partner and happy to turn the call over to Mark now.

Or to review our results. Thank you mark thank.

Thanks, Brad let me dry the tears in my eyes for a second.

I do want to say good afternoon, everyone.

I'm going to cover our Q3 results and future guidance, but first I have a brief housekeeping item you may have noticed that our release went out a little early today as the advisory release.

Was inadvertently posted to our website prior to the scheduled time.

I do promise to figure out which button to push next time, so with that let me go onto our results.

This quarter, we have delivered all key metrics in line with our expectations I'll start with bookings, which were 1.47 billion above the midpoint of our guidance range. We ended the quarter with a revenue backlog of 13.01 billion, which is down 2% from a year ago due primarily to the impact of divestitures.

Our backlog revenue combined with other contracted revenue that is excluded from the A.S.C. six a six backlog definition still provides visibility to more than 85% of our expected revenue over the next 12 months.

Revenue in the quarter of 1.37 billion within our guidance range and reflects impacts from closing the divestitures of noncore assets in Germany, and Spain as well as the remainder of our commercial real work services business.

Revenue in Q3 related to the sale of the commercial reports business was impacted more than expected as we closed the sale earlier in the quarter than anticipated. We also had some revenue impact. So we transitioned client contracts are one as a result of these two items. The rubber works transaction had 10 million more impact on revenue in Q3, and we factored into our.

Since making the total impact on Q3 revenue about 20 million instead of 10 million.

Now I'll go through the business model detail in year over year growth compared to Q3 of 19 lighting.

The software revenue in Q3 was $172 million up 11% year over year, driven by strong growth in our SaaS offerings technology.

Technology resale in Q3 was down 33% year over year to 47 million slightly below the anticipated primarily driven by.

Tough overall environment for tech resale and a few anticipated deals pushing out of the quarter.

Subscription revenue grew 2% in Q3, the $93 million with growth in domestic subscriptions being partially offset by the portion of our global divestiture that was subscription.

Professional services revenue was down 5% in Q3 to $480 million due primarily to the impact of divestitures in Q3, the termination of our large rub works agreement in 2019, and lower third party services.

The declines driven by these factors were partially offset by continued strength in federal professional services man.

Managed services was up 3% in Q3 to $312 million.

Support maintenance of 260 million was down 6% year over year due to the impact of divestitures attrition and reduced hardware maintenance revenue and finally reimbursed travel a $5 million down 82% in Q3 due to continued spend pandemic driven travel restrictions.

Looking at revenue by geographic segment domestic revenue was down 3% from the year ago quarter, 1.23 billion and non us revenue $138 million was down 16% from the year ago quarter, primarily due to the divestiture of assets in Germany and Spain.

Moving to gross margin our gross margin for Q3 was 83.1%. This is up about 200 basis points from a year ago, reflecting improved revenue mix due to less outsourcing deals.

Technology resale and reimbursed travel.

Now, we'll discuss spending operating margin and net earnings for these items, we provide both GAAP and adjusted or non-GAAP results. The adjusted results exclude share based compensation expense acquisition related adjustments organizational restructuring and other expenses COVID-19 related expenses gains on the sale of businesses.

And other adjustments that are detailed and reconciled to GAAP in our earnings release.

Looking at our operating spending our.

Third quarter GAAP operating expenses of $942 million were down 12% compared to 1.07 billion in the year ago period.

Our adjusted operating expenses were down 5% compared to Q3 of 19, primarily due to our continued cost optimization efforts divestitures and lower travel expenses.

One of the light as for Q3 sales and client service expense decreased 5% year over year, driven by lower Nonpersonnel expenses divestitures software development expenses decreased 1% from Q3 of 19 with basically flat gross R&D and a slight increase in net capitalized software DNA.

DNA expense in Q3 was down 11% driven by decline in both personnel and non personnel expenses.

Moving to operating margins, our GAAP operating margin in Q3 was 30.1% compared to 6.2% in the year ago period as GAAP operating earnings included $217 million in gains on our divestitures, which you'll see we broke out on a separate line on our income statement.

Our adjusted operating margin for the quarter was 20.4% up from 18.1% in Q3 of 19, and 18.4% last quarter, reflecting the impact of our cost optimization efforts and improved revenue mix.

Our results and outlook keep us on track for our full year adjusted operating margin to be around 20%.

This will be approximately 150 basis points to full year margin expansion, which we view as impressive given the circumstances.

For Q4, we still expect our operating margin to be within 50 to 100 basis points of our original 22.5% target. This would reflect strong margin expansion of more than 100 basis points compared to Q4 of 19.

We also believe the fame framework for ongoing margin expansion, we shared at our Investor day remains valid and we expect to continue improving margins beyond this year, we implement additional optimization efforts and aim to realize a longer term benefit from platform modernization.

Moving to net earnings and EPS, our GAAP net earnings in Q3 were $357 million or $1.16 per diluted share, which is up from 26 cents in Q3, 19 and reflects the impact of gains from our divestitures in the quarter.

Adjusted net earnings in Q3 were 222 million and adjusted diluted EPS was 72 cents up 9% compared to 66 cents in Q3 of 19.

Our GAAP tax rate for the quarter was 22% and our non-GAAP tax rate was 20% with the higher GAAP tax rate, reflecting the impact of higher taxes on the gains on our divestitures.

Moving to our balance sheet, we remain in a solid position. We ended Q3 with 892 million of cash and short term investments driven by strong free cash flow groceries proceeds from our divestitures and the sale of an equity stake in a partner.

Our receivables ended the quarter at $1.22 billion up $35 million from last quarter. Our Q3, Dsos 81 days, which is flat to Q2 of 20 and up from 74 days in the year ago period.

Looking forward, we expect Dsos to return to the seventies in Q4 and beyond.

Operating cash flow in Q3 was strong at 382 million capital expenditures were $72 million and capitalized software was $73 million free cash flow was $237 million for the quarter.

Our debt remained at $1.34 billion at the end of Q3 that we recently increased the amount available under our shelf agreement by 750 million, bringing the total agreement from $1.1 billion to 1.8 billion of which only 300 million has been drawn this.

This coupled with our strength.

Strengthening of free cash flow.

Because it positions us to execute our capital allocation strategy, including continuing our dividend share repurchases and M&A.

Moving to guidance, we previously as we've previously discussed the answered and progression to the pandemic makes it challenging to quantify the exact impact on our business, but we continue to feel as important to provide investors with our current outlook for the business.

Given the current environment, especially the uncertainty around how large of an impact colder weather and the flu season will have on the pandemic. We continue to caution that our guidance remain subject to a higher than normal amount of risk now.

Now I'll walk through the guidance for the fourth quarter.

For Q4, we expect revenue to be between 1.365 $1.415 billion. As a reminder, Q4 19 includes about $60 million of revenue from our commercial rubber works and global divested businesses, which is not included in Q4 20 revenue.

1.39 billion midpoint of this range represents roughly 1% growth from Q4 of 19 after adjusting for divestitures and will bring full year 2020 revenue to 5.5, a 1 billion, which is consistent with prior guidance and also reflects approximately 1% growth from 2019 after adjusting for divestitures.

We continue believe these portfolio management actions position us for solid growth when the pandemic impact subsides and the divested revenue is out of our comparable periods. The remaining headwind from the divestitures is approximately 40 million per quarter in Q1, and Q2 of 21 and about $10 million in Q3 of two.

Anyone.

Moving to EPS, we expect Q4 to adjusted diluted EPS to be 676 to 80 cents per share the midpoint of this range represents 4% growth over Q4 of 19. It would bring full year 2020, adjusted diluted EPS to $2.84, which is consistent with our prior guidance and reflect six per.

And growth over 2019.

The expected EPS growth in Q4 for the full year continues to reflect our ability to offset the impact of lower revenues from coated and the lost earnings from divested businesses through our cost optimization initiatives.

Moving to bookings guidance, we expect bookings revenue in Q4 of $1.55 billion to $1.75 billion to 1.65 billion midpoint of this range represents a nice sequential increase over Q3 and is consistent with our prior statements that we expect activity will continue to ramp as we move through the year, but.

The Q4 midpoint would bring full year 2020 bookings to 5.551 billion down 7% from 2019, driven by the impact of pandemic and divestitures.

We expect to provide our outlook for 2021 on our Q4 call.

While there is some uncertainty about the duration of the Pandemics impact we believe the framework we shared at our Investor day for mid single digit revenue growth at an average of 100 basis points of margin expansion remains reasonable.

Our outlook for next year will be dependent on how we finished this year and what our updated pipeline and backlog look like but we think theres potential for it to drive more than 100 basis points of margin expansion in 2021.

In summary, we are pleased with our solid results in the third quarter given the circumstances. We are focused on executing to finished 2020 on a strong note and building on that from 2021.

Before turning the call over to John I'd like to comment on the news about my departure.

Of the 28 years at Cerner I'll be leaving next year as Brian indicated we are seeking a successor and setting considering internal and external candidates. Once we've named the successor I plan to serve as an advisor to ensure a smooth transition.

It's been an incredible honor to be a part of Cerner. During the time when we grew revenue from $100 million to over $5 billion, all while pursuing a noble mission those personal to every cerner associate.

During this time, we've had countless reasons to celebrate along with facing several challenges. This has definitely made for an exciting the fulfilling career.

The past few years have included important transformational work to position Cerner for our next wave of profitable growth. This has been both challenging and gratifying were.

We are delivering on a margin expansion despite facing a 100 year pandemic, we have organized around creating client value and delivering on commitments.

We create a more focused growth strategy to deliver on the opportunities we see in health care technology.

It is important for me to stay at Cerner, while we advance this transformational work and allow new members of our leadership team to get acclimated.

I believe Brent and the team are now well positioned to begin an era during which serves impact on health care can be greater than ever.

Finally, I'd like to thank each of you in the investment community for your part in making my time as CFO great experience I've always appreciated your perspective, you acknowledged our successes, but also challenged us when we needed to do better I look forward to catching up with many of you before I leave with that I will turn the call over to John.

Thanks Mark.

Good afternoon, everyone. Today, I will provide hot results highlights and an update on our federal business I'll start with bookings we had another solid quarter in what remains a challenging environment delivered bookings above the midpoint of our guidance range. The mix of bookings. This quarter included 25% from long term bookings compared to 29%.

A year ago.

Consistent with our plans and guidance our federal business had a very good quarter with strong contributions to bookings and substantial operational progress, which I'll discuss in a moment.

The aucs that are all our ability to continue delivering solid bookings. Despite the challenges created by that pad that dentek is made possible by the strategic nature of our client relationships. Our clients remain focused on executing their strategic plans and Cerner solutions and services are important elements of these plants. So.

His ability to align strategically with our clients while allow us to expand our strategic growth offerings as well as other large addressable opportunities such as revenue cycle.

The strong relationship alignment creates a receptive environment for advancing business through mostly virtual interactions for contracting activities demos open houses and road mapping sessions their willingness to engage virtually was also evident at our Cerner Health conference, which had record client attendance as the.

Virtual format enable broader participation across our clients' teams.

Operationally, we made good progress in Q3, our professional service organization delivered strong sequential growth in implementation revenue as they continue to advancing projects with a hybrid model that uses limited on site presence combined with a larger virtual workforce our clients remain open to this approach and we believe.

Elements of it will become standard beyond a pandemic, which should benefit both cerner and our clients.

While shifting to a hybrid implementation model. We have also made progress on new implementation and training framework designed to deliver more predictable and higher quality Activations. This framework applies to clinical and revenue cycle implementations and is an important part of our efforts to drive client success and improve satisfaction.

Early indications are very positive as we've seen 20% higher client satisfaction when comparing the new approach to our prior approach.

Moving to a federal update despite the challenges presented by the pandemic, we continue to make significant progress on both the BA and the DRD.

On August 24th the VA announced the successful go live out their new centralized scheduling solution at the BA Central Ohio Health care system in Columbus, replacing ethics scheduling system.

In September the LTE and the Leidos partnership for defense Hell of which which Cerner is a core partner deployed MHS Genesis to 10 additional sites as part of White Dallas, bringing the total number of deals these sites to 18.

The Us Coast Guard at a successful go live of NHS Genesis to four sites waste Pendleton, which includes an additional four sites at Alaska and California is scheduled to begin in October 30 Onest.

On October 13, the federal electronic health record monetization office announced that the V.A. and the US Coast Guard have joint Commonwell Health Alliance, adding an additional 15000 private sector providers into the joint health information exchange that was launched.

In April.

In preparation for our first VA HR go live that man Grandstaff, we successfully migrated clinical and demographic health information data for approximately 88000 veterans and tested the 73 interfaces required for system integration for our first set of capabilities finally.

The FDA recently allows the historic and successful deployment of the new DHR NAND Grandstaff, the medical center and its for community based outpatient clinics across Montana, Idaho, and Washington, as well as the West consolidated patient accounts Center a da business on.

Operations facility in Las Vegas.

This is a significant milestone and it positions us to proceed with the broader deployment plans as we head into the next year.

In summary, I am pleased with our execution in the third quarter and I believe we are well positioned for a solid finish to the year with that I will turn the call over to Don.

Thanks, John.

There is no better leading indicator of where provider health care has had that our annual summer helicopter.

It is a coming together I wouldnt content of the most entrepreneurial an innovative provider client base in the world.

As our leader is engaged in virtual education sessions and online client dialogue three macro trends of our times were clear.

First within the hospital clients are looking for technology enabled strategy to tackling unit costs and drive down total cost of care, our real time health system capabilities have been essential to Covance Searchers Frost us provider revenue recovery and now the strategic rethink around what it looks like to make money at government Ray.

Thanks.

Second outside the hospital the pandemic at driving providers to think beyond the scope of their traditional brick and mortar enterprise.

Hi, its are striving to deliver clinical operational financial results at the health network level.

The business model of these health networks that are on managing outcome. They necessitate core capabilities and data competencies that can span physical and digital venues diverse payer types and heterogeneous IP systems.

As the shift to value based payment advances, we expect these health network strategies to take on heightened strategic urgency.

The American Hospital associations Republic noted in a 2020 election panel that I moderated value based payment will be a meaningful piece of provider in the.

In the decade ahead, and I believe for my part of the shift away from fee for service to set to accelerate in the coming hundred 17 Congress. The next presidential term.

Finally, perhaps no area of emphasis receive more positive client reaction and our data strategies. When you digitize the content of an industry that has a big second and third order impacts and lower at the end of the beginning of this early market Bellkor server is clear eyed about the organic and inorganic strategy is needed.

The meaningfully this route and innovate in the quarters to come.

And the opening keynote Dr. Eric Peterson.

Challenge to Cerner client base to be part of a collective strategy fundamentally accelerate the pace and reduce the cost of drug discovery.

This comment or followed over the next few days for the collection of educational sessions, featuring a set of almost 50 serve our clients working to rethink clinical trial candidate identification and participation.

The entrepreneurial opportunity is a map of one.

In addition to allowing our clients to learn about best practices and understand emerging trend Cerner Health Conference also is an opportunity for our clients here from us.

If that has a rich history as a launch point for new products and partnerships.

20 was no exception.

Let's start our our products that are larger platform vision always begin with the person.

The pandemic has accelerated the shift towards whole person capabilities and are always changing role as patient member caregiver or consumer.

Our consumer businesses benefited from revenue effective double on a full year basis.

At the center of our digital front door strategy is our consumer framework that allows providers to seamlessly combine natively developed functionality and third party partners within the patient portal. A good example is our new collaboration with product, which enable virtual intake and check in and signed its first client and the third quarter.

Sure.

A unified communication strategy also in the Central building block to consumer engagement, we announced our new unified communications offering at our consumer farmer for early earlier today. The pre release client feedback has been exceptional as providers look to reduce delay emails calc use and this call.

It gives the consumer team confidence that their 2020 business momentum will accelerate in 2021.

At the enterprise level, our real time health system strategy also was a significant area of client excitement the market trend towards near real time data inside that can trigger caregiver actions for high quality low cost care is clear it can be seen in our key Hs as both revenue growth of almost 40% year over year.

Year, and compelling stories, such as event to sell and Sacramento.

Mid Con Ed wildfires, and rolling blackouts at Ventas deployed our capacity management solution enterprise wide and just two weeks to better direct intra health system patient management, and importantly to accelerate their strategies around hospital at home.

Our clients also heard about advancements in our ongoing push to deliver unified inpatient and outpatient provider experience. Our latest functional capabilities are designed to make the provider workload more natural unpredictable, we're pushing to make documentation easier and also similar to absorb by other care members to include the patient.

Momentum of our chart as a solution sell the piece of that story, leveraging cerners natural language processing to facilitate administrative requirements and deliver a potential of millions of dollars of annualized savings to our large IDN clients.

In addition, we also updated clients on important progress on revenue cycle management.

As detailed there improved experience with our ardent implementation methodologies and existing clients talked about solid financial returns from the adoption of best practice optimization in areas ranging from denial reduction to our improvement.

Hi, It's also heard from partners, such as Baptist Health, South, Florida about our new registration and scheduling offer engage in access.

Includes investments such as our enhanced financial clearance workflows with on the planet.

Importantly, it also reflects our view that there is massive strategic leverage in the revenue cycle front end as clients look to decrease downstream cost to collect.

Finally at the health network level, our MRF agnostic Healtheintent continues to be at the center of our push for the active health network strategies and every time I say.

Causing our health told the story of Healtheintent is their foundational first mile data platform across our owned and affiliated assets and they also framed our efforts to push contextual insights backend to the last of our low.

At the right time, and the right place to drive the right outcome.

The intense data aggregation and normalization strength also our powering CRM campaigns across our client base.

Tools that allow for a data driven approach to connect health systems with our customers in areas ranging from elective surgery rescheduling to gaps in care closure, we announced new healthy CRM SCO Turner helicopter.

These enhancements give users both at the network level consumer profile and the central last mile integration in areas such as scheduling prior messaging and prescription refill.

In the coming quarters, we believe the solutions with the greatest market traction will deliver financial and operational returns under fee for service and fee for value. Our just launched healthy referral solution perfectly reflect that value proposition.

The referrals allows providers to manage their referrals at the health network level as they seek to better align with consumer demand with provider supply.

That's a Cerner health conference Executive Summit I framed the idea that the last decade thought three major forces of change and ongoing demographic shift as the first boomers turn 65, the passage of Democratic reform at the Affordable Care Act that the policy Foundation for the decade ahead, and most importantly, the firm.

First time Digitization of healthcare.

As the covet pandemic place forward. The 2000 twentys are setting up to be equally dynamic.

And as our clients deal with these accelerating forces of change their collective voice to us in recent days was clear we're counting on cerner to help us navigate the business model shift ahead across person enterprise and health network, we're counting on sarner to define and lead in the decade ahead.

With that I'll turn it over to the operator for questions.

Thank you.

Ask the question you need to press Star then one on good telephone so let's draw your question. Please from the powerful.

Yes that you please limit yourself to one question and one follow up.

Our first question comes from the line of Robert Jones with Goldman Sachs. Your line is now open.

Great. Thanks for the question, Yes, I guess I'll be the first start off what I imagine will be a parade of congratulations and nice to work with you Mark Good luck in the next steps it's been it's been a lot of fun.

Yes, I guess just to get into the question looking at.

The bookings guidance for next quarter, clearly, calling for the biggest bookings range of the year.

Ranges from down a little to up 5% year over year I was hoping maybe you could just talk a little bit about the factors that are driving that improvement specifically what areas are you seeing or categories are you seeing momentum in.

As we exit Threeq into Fourq, and then thinking about even.

For Q into 2021.

Yes. This is this is John and what we're seeing from a bookings perspective is.

Aligns with what we said in the comments, which is we're very aligned with the strategic strategic priorities of our clients.

And in many cases and all cases those haven't changed in many cases they have accelerated so what we're seeing on the on the bookings front does that.

Is that desire to keep things moving forward strategically and in some cases accelerating them you see a lot of expansion capability.

Capability throughout our client base of our existing solutions you see the growth of our strategic growth opportunities out there and growing you see the impact of revenue cycle efforts that we have come through it. So it's a broad mix of things thats driving that bookings and while there is always there are always a wildcard is particularly.

In today's world what the pandemic.

We continue to show a very robust pipeline, we continue to see a visible and solid forecast and we've been converting those into a real opportunity and real business for cerner in helping our clients drive their strategy forward. So that's all very very positive from my point of view and what's what's driving our favorable bookings outlook as we looked at.

Q4.

Thank you.

Our next question comes from the line of Dave Windley with Jefferies. Your line is now open.

Oh, thanks so.

In keeping with we're thinking about where clients are going some some discussion and debate and market about.

The cobot experienced pushing providers to look at Capitated.

Capitated or risk bearing agreements because if for no. Other reason, there, there's stability or or reliability of cash flow for the provider.

And I think things like that were.

I have been have been positioned as drivers for demand for your population health solutions are you seeing providers.

Move in that direction more rapidly and is that driving more discussion and interest around healtheintent.

Yes, David This is Don that's a great question I think your are reflection on market sentiment is exactly right.

I think as we kind of progress through the the 20, obviously year over the course of 2020.

Got to focus on search capacity in response, but a lot of focus on elective surgery recovery I think those strategies play through into Q3, both John and I started having significant and higher levels of conversation in the marketplace around rethink a business model and.

The roll out value based care and first dollar risk strategies.

And providers five year plan and so there is no question that we've seen increasing density and intensity of conversation meaningful increase and the weighted bookings pipeline and as we look out on a five year basis, we think the market now we're adding four capabilities that were.

Quite well suited to provide inclusive of the investments we've made on a multi quarter basis around Medicare advantage and the provider sponsored plans space. So as I said I think this is going to be a big area of focus I think providers recognize that.

Want to take control of their top line revenue and make that part of their strategy going forward and our thinking breo people process and technology strategies required to do it.

Thank you. So we've also seen for the follow up will also seeing.

A couple of high level hires.

Particularly around federal programs and.

Chief strategy.

And wondering if that happened.

It appears to us that they havent come from Leidos and wondered if that was an indicator of some blossoming opportunities to take more business.

In the federal I mean, you, obviously kind of alluded to this but I'm wondering if you could be more specific about potential opportunities in the federal market.

David This is Don I'll, just I'll, just talk you're alluding to the hiring decision around romance in particular, I think back to my comment Digest may.

We'll have a really interesting skill set mix inclusive.

I'd never again experienced in the payer space.

So at least started to think about macro business trends not only within the provider market segment, but also opportunity thats beyond it that.

That was a big piece of has CV and has profile that we reacted very favorably.

Got it Mark I hope you have a teach on everyday congratulations.

Thank you.

[music].

Thank you. Our next question comes from the line of Michael Cherny with Bank of America. Your line is now open.

Hi, Good afternoon, Mark Best of luck in what comes next.

Rent and team best of luck in finding a new CFO, because many corny jokes as mark likes to lay out so it will be.

A key part of the process.

[laughter].

One point of clarification, Mark I know you weren't attempting to guide for 21, but just to make sure I understand the Delta you said you talked about the long term framework still being in place that inclusive or exclusive of the divestitures in terms of what you see right now.

Yeah, Michael as we've talked 2020 is kind of a reset year for thrive is you do we.

We still have some impact as I indicated in my comments that.

Through Q3 of next year, we will still get a little bit of impact from.

From the divestitures and a year over year comparison.

But for the most part.

We should be we should be on.

Come back to our what we perceive as a growth opportunities for the company as we've laid them out of our last Investor day, that's mid single digit growth certainly part of it.

Organic it can be increased by some of the.

Some opportunities for in the inorganic space and that is something we are absolutely pursuing and continue to look at we're going to leverage the strength of our balance sheet in that space. We are being very selective in doing our diligence extremely well in my opinion and so we're going to make really good decisions in that space. So it's not new.

It may not be progressing this fast externally as people might have expected, but it is it is a pace within the company I think from a from a leverage standpoint, we continue to to see opportunities from from optimization in the continue continuation of those efforts.

And that's why there's.

There's been conversations in Hay in 21 is going to have a big catch up but because as we've talked to most feel that you're not going to see a big catch up of 20 revenue that's going to also inflow into 21. In addition to all the 21 revenue and Thats why the topline is is pretty consistent with our longer term view I do think when you look at the operating margin.

In line that we've looked at being able to drive consistent hundred basis point.

Prudent and operating margins at 21, probably is the year that we can do better than that.

Outlet as you said, we're not providing guidance so I can't really give more detail than that.

But I do think you see the opportunity for us to to be better than that as we work to go through our work we still have to do our plan work, we still have to do.

Finish out the year and all that but.

The early returns would be that there is more leverage opportunity than just what we would see from a normalized view that we presented to investors a year ago.

No Thats helpful. Mark and then just I guess to build on that a bit maybe turning to your relationship with Amazon can you talk a little bit about the mileposts over the next 12 18 24 months, we should be looking to both in terms of some of the platform redevelopment that you're working on and doors some of the consumer application than others, some announcements intra quarter, but what should we be looking for.

So what should we be expecting how should we be judging you on your success.

This is Don.

I think first.

First and foremost we feel very good about the progress we've made around migration of Healtheintent to public cloud.

And.

Happy with that in terms of.

The market positioning around that receptivity of clients and the performance benefits associated with doing so.

Our next platform focus as our care where platform also HR OPEC and introduces some really interesting opportunities for us around that our DHS portfolio that I think has traction and trend associated with co that.

And then as we've been very clear the timeframes around millennium or more elongated and playing forward. So that that's a way to think about the.

Staging process that we put forward at how were thinking about the migration path to the platforms on the path to Amazon and and certain non eight had the left side of the relationship and you're correct. We've done some things around the Halo device and integration had some interesting conversations with them around their strategies.

In the employer space inclusive of the work with their own associates.

Well as we think's, an interesting assets like APAC asset on that play into larger trends and strategies around the pharmacy space. So we're going to continue to have those conversations it absolutely was a dimensional aspect.

How we thought about the overall partnership and Thats why David Bradshaw, who runs our consumer team is running.

Running point on day dimensions of how we thought about that dialogue with.

Our pregnancy App.

Great. Thanks, so much.

Thank you. Our next question comes from the line of Eric Percher with net Pharma research. Your line is now open.

Thank you and Mark will add our congrats to the long list.

Good question, a financial question to begin.

Can you help me understand that impact on maintenance and support like how much of that is divestitures versus.

Business Thats moving away versus Kelvin.

Yes.

We've had a trend.

Over the little bit of time, where weve seen maintenance on equipment.

Reducing and lot of that has been.

Some of that has been busy just because we continue to add more and more of our clients to our hosting.

Environment to that means they don't need to go buy a bunch of equipment and so they don't buy the the maintenance contracts that go with it but I think once once you kind of factor that in.

Most of the recent that you are seeing relative to support is related to the divestitures theres not a lot of other elements, it's primarily the divestiture impact.

Okay. That's helpful and then relative to the conference now that your virtual do you have a read on what areas where most.

Most subscribers and I'm curious if you spent much time on virtual health and the strategy there.

Okay, Great Great question, I think one of the virtues of.

Being in a more virtual posture as you can have a very data driven Yale how can either spending time and energy and thinking about topic.

Topical focus and I think one of the things that felt very good.

Validating as highly correlated to areas of significant focus and investment, particularly on the strategic growth side.

Our business portfolio, so a lot of interest and what we're doing from a real time hospital real time health system perspective, thinking about out workforce management thinking about hospital operations thinking about communications a lot focus.

In the consumer space.

John's point, not just consumer on a standalone basis, but critical integration points at the enterprise and at the network level.

Earlier on things like front end Red sketch.

And then and then finally to the earlier question and my comment a big focus on.

Business model and business model innovation strategies, some of that can be reflected as heavy attendance and participation and 2020 election dialogue that implications. Some of that can be reflected in drilldown session content around things that were doing like on the merits partnership around M&A strategies.

Around bundled payments.

And other pieces of healthcare finance that they're anticipating are going to be significant pieces of business model go forward, Yes, and I would add a couple that were I think incredibly positive as well we had a lot of interaction that our solutions gallery, which of those of you who have attended before was the ability to walk through and due to essentially see demos of.

Of our solutions I worked really well from a virtual standpoint, and the ability to to meet to address large groups of people in that solutions gallery, virtually so that I think worked really well a lot of interest in the data as a service component.

That we have out there and the interest in that from our clients and then finally I would add there was a great deal of interest and our progress at da RV as the progress there in terms of the implementation to go live.

Health information exchange the scheduling all of those lift all boats within our within our client base. So there was a lot of interest and the progress and success, we had with the VA as well.

Thank you.

Thank you. Our next question comes from the line of Charles Rhyee with Cowen. Your line is now open.

Hi, its actually James on for Charles.

Based on your comments this quarter and last it seems like the data business is doing particularly well can you speak to maybe what's driving this strong performance and how it's performing relative to internal expectations and then perhaps is coping maybe accelerating.

Maybe the growth and interest in the segment.

Yes, it's a great question Jay.

Let's talk about the the kind of component part of that data business style first and foremost we've talked a lot about what we're doing in the release of information. So consent based use cases for legal life insurance and workman's comp and there is no question that as those businesses have moved into a virtual upon.

Take care of their propensity to want to elaborate things like our ROI to our cat has been.

Strengthened by that Theres been a little bit of a disruption and the AMD.

MDR and legal space as some of the court dockets have moved around but the trend level. This is.

Business that has been accelerated by Kobe.

And then secondly, we've we've had a big focus and emphasis on the learning health network and it was.

Really exciting piece.

Our House conference, we have 47 clients lined up to participate in the learning health network year to date, that's on a full year goal of 40. So this business is way ahead of where we anticipated it would be and really what its dealing as it's introducing the opportunity for now.

Non traditional particularly non AMC days per case that adds and clinical trial identification and participation so great opportunities for regional I'd as I.

And and for our community hospitals to be a part.

That strategy and that space in a way that hasn't historically been the case and then finally in our traditional provider right.

Brown, absolutely data assets, particularly this movement of data from the enterprise to the health network space.

Is that a lot of traction in trend associated with that how can I began to think about the strategies required for more effective supply and demand strategies within my market and partly to the earlier question on virtual health across a combination of physical and digital environments to him.

The home. So there is no question that co that we said back in April that one of our kind of theories of the case was that the first order impact of a crisis as it accelerates things that are already playing out that that's on data and the positioning that we've done and the investments we've made there.

Our super relevant and we absolutely saw that reflected in discussions with our clients that turnaround conference.

Thank you.

Our next question comes from the line of Steven Valiquette with Barclays. Your line is now open.

Great. Thanks, Mark I also just wanted to say I also enjoy their interactions over the years.

The question I have is around subscription revenue last quarter, you guys talked about 3% growth and that being slightly below expectations due to lower transaction processing revenue, which volume base impacted by lower ambulatory visits.

In this quarter, you had 2% subscription revenue growth.

By divestitures.

Just curious you have a little more color just on the underlying improvement on the growth.

Of your volume based revenue streams and.

And also just from your market intelligence are you seeing in the market that ambulatory patient volumes are now back to pre cobot baselines or do you think we're not quite there yet.

Yes.

Okay.

The others comment on what they're seeing the able tourist space I.

I mean thats still.

It's still hard to measure I think for most of our clients. They are adapting to the new normal to some extent. So there is some increase in their ambulatory, but I think most of that a lot of the new normal is relative to elective surgeries and having figured out how you can have both coded cases and elective surgeries and.

And basically allow them both to go on.

So I think thats at least.

Earlier a larger.

Impact at least in my mind I don't know if that's similar to what you guys are all that I'll add a couple of things. This is John So if you look at the inventory side Theres there, there's been a little bit of a rationalization between virtual and tend to traditional in person.

Hello toward where the numbers of.

Virtual visits have come back a little bit, but still exponentially higher than they were before so we may be seeing a near new normal there as as both consume.

Consumers and caregivers gets we get much more comfortable in a virtual world and it seems to be working very well still little not quite at that I would say pre koeppen levels with the results to surgery with the with the UN aspects to elective surgeries, but getting closer to that as the population is getting better.

Suited towards.

How you had to deal with these things at coping World, We know a lot more about how to interact caregivers and a lot more about how to interact consumers know a lot more about how it interacts are you seeing those volumes start to pick up.

The will of course, you have relative to subscription.

Subscriptions.

More tactically the most of the.

There is an impact on divestitures the decreased it.

We still are seeing a little bit of an impact on EBITDA, it's still not up to the levels. So from our transaction and is it would tell you that the ambulatory balances have not completely if not recover to to previous levels and we do see that in the subscription but.

Having having having slightly improved growth in that space given the impact of divestitures was it was a good result for the quarter.

Yes, okay, great. Thanks.

Okay.

Thank you. Our next question comes from the line of separately, David Let SVB Leerink. Your line is now open.

Hi, Mike on the ACO, everyone, who Paul congratulations and thank all the time.

Yes, hi.

Quick one on Capex search for someone to sell your shoes on the one about the federal.

Yes and.

Internal versus external what.

Are you going to so we look within the health care vertical or if you're going to look more out of the box into other industries, where could you be looking to partner with us today.

Well since since we announced this an hour and a half ago.

[laughter].

Okay.

Yes.

In my humble opinion. This is the best job in America. So you are on the health care field you in the technology field, you make a difference everyday in the health of the populations that we serve so.

Yes, I don't think were going to limit ourselves relative to industry experience. So I think there is a lot of qualities that that someone that would be good in this role.

Could have been relative to experiences and.

SaaS and transformation and all sorts of things, including health care in some form or fashion. So we're.

We're not going to limit ourselves to a small universe, we're going to we're going to two.

Believe cast a relatively broad net look for the obviously the best and brightest.

And see if somebody can meet might the lofty standards did I Miss that.

Yes, obviously there'll be a standup element to the interview that we'll have to pull in.

And you touched on that Bill.

A quick one on the federal opportunity looking beyond DMD.

Probably a little bit by the opportunities and other areas or did I just.

Kind of timeline in scale should we think.

Got it that are all pieces.

Yes. This is John while I won't necessarily speak to the timeline is scale I will speak to a couple of things first of all I just want to.

Reiterate and make it clear that we are focused on delivering on our VVA in DMD commits we still have a lot of work to do there.

And it was a 10 year endeavor. When we started to have we've got a lot of work to do there. So our primary focus is going to be on.

On completing what we started successfully in the VA, which again, we're off to a great start and Weve gotten four ways behind us and the DRD and more to come. So that's that's going to be focused as we looked at the other things within the federal government absolutely were looking at adjacent sees we're looking at where we can leverage some of our capabilities.

And and whether its Indian health services, which were already quite active in any way prior to our our engagement on the VA and DRG. We're looking at ways that we can use data proactively with different.

With different branches of the government. So there is opportunity there that we're exploring we're looking at.

And I would expect us to do more business with the government as long as it meets our profile around margins as long as it leverages, what we've already done and long. So we can see adjacent sees with our current capabilities.

All right Super helpful. Congrats again.

Thanks.

Thank you. Our next question comes from the line of Jeff with William Blair. Your line is now open.

Yes, good afternoon, and thanks for taking the questions. Thank you Mark for all the interactions throughout the years and best of luck on your next steps. So I wanted to ask about new products and Don went through a great list.

Yes, I want to ask further on the two that Brett mentioned, certainly unite and Cerner discover so I guess two parts to it it should we view them as related to the Healtheintent platform given that it sounds like they are cloud based DHR agnostic and what's the revenue model associated with those products. Our product said, how should we think about the total.

Addressable market.

Yes, so I think I think United discover fit into.

Concepts that we've talked to you about a lot about how you start thinking about what we call the first mile strategy across.

Millennium care aware and Healtheintent to really start to aggregate data and for our provider is really be able to do that in a way that allows them to put together analytic insights around our business strategies that they are advancing within their markets you.

Unite really then is that seem with exchange or seamless interoperability capability within the last mile provider work, where we really have to differentiate ourselves in terms of our ability not not only to push analytic.