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(Former
name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon
Stock, $0.01 par value per share
iCERN
iThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive
Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of "large accelerated filer,""accelerated filer,""smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge Accelerated Filer☒ Accelerated Filer ☐ Non-accelerated Filer ☐ Smaller Reporting Company i☐ Emerging
Growth Company i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common stock, $i0.01 par value, i500,000,000
shares authorized, i381,357,862 shares issued at March 31, 2022 and i380,232,975 shares issued at December
31, 2021
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) iInterim
Statement Presentation
Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by Cerner Corporation ("Cerner," the "Company,""we,""us" or "our") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our latest annual report on Form
10-K.
In management's opinion, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and the results of operations and cash flows for the periods presented. Our interim results as presented in this quarterly report on Form 10-Q are not necessarily indicative of the operating results for the entire year.
iThe condensed
consolidated financial statements were prepared using GAAP. iThese principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates.
All references to quarters or three month periods ended 2022 and 2021 in these notes to condensed consolidated financial statements refer to the respective three month periods ended March 31, 2022 and March
31, 2021, unless otherwise noted.
Oracle Merger Agreement
iOn December 20, 2021, we entered into an Agreement and Plan of Merger (as it may be amended or supplemented from time to time, the "Merger Agreement") with Cedar Acquisition Corporation ("Merger Subsidiary"), which is a wholly owned subsidiary of OC Acquisition LLC ("Parent"), Parent, which is
a wholly owned subsidiary of Oracle Corporation ("Oracle"), and (solely with respect to performance of its obligations set forth in certain specified sections thereof) Oracle. Pursuant to the Merger Agreement, on January 19, 2022, Oracle commenced a cash tender offer (the "Offer") to acquire all of the issued and outstanding shares of our common stock for a purchase price of $95.00 per share, net to the holders thereof in cash, without interest and subject to any required tax withholding. If the Offer is completed, Merger Subsidiary will merge with and into Cerner (the "Merger") and we will become a wholly owned indirect subsidiary of Oracle. As a result of the Merger, the shares of our common stock will cease to be publicly held. Completion of the Merger remains subject to certain closing conditions, including receipt of certain regulatory approvals, shareholders holding a majority of the outstanding
shares of our common stock tendering their shares in the Offer, and other customary closing conditions. We have agreed to various customary covenants and agreements in the Merger Agreement, including with respect to the operation of our business prior to the closing of the transaction, such as restrictions on making certain acquisitions and divestitures, entering into certain contracts, incurring certain indebtedness and making certain capital expenditures, paying dividends in excess of our regular quarterly dividend, issuing or repurchasing stock and taking other specified actions.
Interest (including amounts capitalized of $i2,763
and $i2,692, respectively)
$
i21,667
$
i15,549
Income
taxes, net of refunds
(i2,063)
i19,216
Non-cash
items:
Lease liabilities recorded upon the commencement of operating leases
i292
i7,745
Financed
capital purchases
i—
i1,361
/
Recently
Issued Accounting Pronouncements
i
Reference Rate Reform. The Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting in March 2020 and ASU 2021-01, Reference Rate Reform (Topic 848): Scope in January
2021. Such guidance provides optional financial reporting alternatives to reduce the cost and complexity associated with the accounting for contracts and hedging relationships affected by reference rate reform, such as the upcoming discontinuance of the London Interbank Offered Rate ("LIBOR"). The accommodations within this guidance may be applied prospectively from the beginning of our 2020 first quarter through December 31, 2022. We are currently evaluating the effect that this guidance may have on our contracts that reference LIBOR, specifically, our Fourth Amended and Restated Credit Agreement (the "Credit Agreement") and related interest rate swap. As of the date of this filing, we have not elected to apply any of the provisions
of this guidance.
Business Combinations. The FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers in October 2021. Such guidance amends the recognition and measurement principles that apply to business combinations to require that an entity recognize and measure contract assets and contract
liabilities acquired in a business combination in accordance with Topic 606. ASU 2021-08 is effective for the Company in the first quarter of 2023, with early adoption permitted. The standard requires prospective application to business combinations occurring on or after the date of adoption. As of the date of this filing, we have not determined if we will early adopt.
(2) iRevenue
Recognition
i
Disaggregation of Revenue
The following table presents revenues disaggregated by our business models:
The following table presents our revenues disaggregated by timing of revenue recognition:
Three Months Ended
2022
2021
(In
thousands)
Domestic Segment
International Segment
Total
Domestic Segment
International Segment
Total
Revenue recognized over time
$
i1,182,210
$
i160,615
$
i1,342,825
$
i1,152,849
$
i153,868
$
i1,306,717
Revenue
recognized at a point in time
i76,246
i10,730
i86,976
i69,143
i11,918
i81,061
Total
revenues
$
i1,258,456
$
i171,345
$
i1,429,801
$
i1,221,992
$
i165,786
$
i1,387,778
Transaction
Price Allocated to Remaining Performance Obligations
As of March 31, 2022, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed contracts approximates $i13.21 billion of which iwe
expect to recognize approximately 31% of the revenue over the next 12 months and the remainder thereafter.
Customer payments received in advance of satisfaction of the related performance obligations are deferred as contract liabilities. Such amounts are classified in our condensed consolidated balance sheets as "Deferred revenue". During the three months ended March 31, 2022, we recognized $i151
million of revenues that were included in our contract liability balance at the beginning of such period.
Significant Customers
iRevenues attributable to our relationships (as the prime contractor or a subcontractor) with U.S. government agencies, within our Domestic segment, comprised 20% of our consolidated revenues for the first three months of both 2022 and 2021. Amounts due in connection with
these relationships comprised 15% of client receivables as of both March 31, 2022 and December 31, 2021.
In
addition to the client receivables presented above, at March 31, 2022 and December 31, 2021, we had $i12 million and $i16 million,
respectively, of non-current net client receivables, which are presented in "Other assets" in our condensed consolidated balance sheets.
i
A reconciliation of the beginning and ending amount of our provision for expected credit losses is as follows:
Our estimates of expected credit losses for client receivables at both March 31, 2022 and December 31, 2021, were primarily based on historical credit loss experience and adjustments for certain asset-specific risk characteristics (i.e. known client financial hardship or bankruptcy). Exposure to credit losses may increase if our clients are adversely affected by changes in healthcare laws; changes in reimbursement or payor models; economic pressures or uncertainty associated with local or global economic recessions; disruption associated with the COVID-19 pandemic; or other client-specific factors. Although we have historically not experienced significant credit losses, it is possible that there could be an adverse impact from potential adjustments to the carrying amount of client receivables as clients'
cash flows are impacted by the COVID-19 pandemic and related economic uncertainty, which may be material.
During the first three months of 2022 and 2021, we received total client cash collections of $i1.40 billion and $i1.44
billion, respectively.
(4) iInvestments
i
Available-for-sale
investments at March 31, 2022 were as follows:
Available-for-sale investments at December 31, 2021 were as follows:
(In thousands)
Adjusted Cost
Gross
Unrealized Gains
Gross Unrealized Losses
Fair Value
Cash equivalents:
Money market funds
$
i149,429
$
—
$
—
$
i149,429
Time
deposits
i35,342
—
—
i35,342
Commercial
Paper
i77,850
—
—
i77,850
Government
and corporate bonds
i5,000
i—
i—
i5,000
Total
cash equivalents
i267,621
—
—
i267,621
Short-term
investments:
Time deposits
i25,598
—
—
i25,598
Commercial
Paper
i57,000
—
(i14)
i56,986
Government
and corporate bonds
i170,123
i18
(i103)
i170,038
Total
short-term investments
i252,721
i18
(i117)
i252,622
Long-term
investments:
Government and corporate bonds
i31,167
—
(i149)
i31,018
Total
available-for-sale investments
$
i551,509
$
i18
$
(i266)
$
i551,261
We
sold available-for-sale investments for proceeds of $i133 million during the three months ended March 31, 2022, resulting in insignificant losses in the period.
Other Investments
At both March 31, 2022 and December 31,
2021, we had investments in equity securities that do not have readily determinable fair values of $i406 million, accounted for in accordance with Accounting Standards Codification Topic ("ASC") 321, Investments-Equity Securities. Such investments are included in "Long-term investments" in our condensed consolidated balance sheets. We did not record any changes in the measurement of such investments during the three months ended March 31,
2022 and March 31, 2021, respectively.
At March 31, 2022 and December 31, 2021, we had investments in equity securities reported under the equity method of accounting of $i31 million and $i25 million,
respectively. Such investments are included in "Long-term investments" in our condensed consolidated balance sheets.
As of March 31, 2022, the interest rate on revolving credit loans outstanding under our Credit Agreement was i1.14% based on LIBOR plus the applicable spread.
iWe
are exposed to market risk from fluctuations in the variable interest rates on outstanding indebtedness under our Credit Agreement. In order to manage this exposure, we have entered into an interest rate swap agreement to hedge the variability of cash flows associated with such interest obligations. The interest rate swap is designated as a cash flow hedge, which effectively fixes the interest rate on the hedged indebtedness under our Credit Agreement at 3.06%. At March 31, 2022 and December 31, 2021, this swap was in a net liability position with an aggregate fair value of $i1 million
and $i17 million, respectively; which is presented in our condensed consolidated balance sheets in "Other current liabilities".
We
determine fair value measurements used in our consolidated financial statements based upon the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
•Level
1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
•Level 2 – Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
•Level 3 – Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
i
The
following table details our investments in available-for-sale debt securities measured and recorded at fair value on a recurring basis at March 31, 2022:
(In thousands)
Fair Value Measurements Using
Description
Balance
Sheet Classification
Level 1
Level 2
Level 3
Money market funds
Cash equivalents
$
i63,290
$
—
$
i—
Time
deposits
Cash equivalents
—
i45,501
i—
Commercial
paper
Cash equivalents
—
i115,500
—
Time deposits
Short-term
investments
—
i19,994
i—
Commercial
paper
Short-term investments
—
i33,990
i—
Government
and corporate bonds
Short-term investments
—
i117,196
i—
Government
and corporate bonds
Long-term investments
—
i19,281
i—
The
following table details our investments in available-for-sale debt securities measured and recorded at fair value on a recurring basis at December 31, 2021:
(In thousands)
Fair
Value Measurements Using
Description
Balance Sheet Classification
Level 1
Level 2
Level 3
Money market funds
Cash equivalents
$
i149,429
$
—
$
i—
Time
deposits
Cash equivalents
—
i35,342
i—
Commercial
paper
Cash equivalents
—
i77,850
—
Government and corporate bonds
Cash
equivalents
i—
i5,000
i—
Time
deposits
Short-term investments
—
i25,598
i—
Commercial
paper
Short-term investments
—
i56,986
—
Government and corporate bonds
Short-term
investments
—
i170,038
i—
Government
and corporate bonds
Long-term investments
—
i31,018
i—
/
Our
interest rate swap agreement is measured and recorded at fair value on a recurring basis using a Level 2 valuation. The fair value of such agreement is based on the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves. Since these inputs are
observable in active markets over the terms that the instrument is held, the derivative is classified as Level 2 in the hierarchy.
iiWe
estimate the fair value of our long-term, fixed rate debt using a Level 3 discounted cash flow analysis based on current borrowing rates for debt with similar maturities. We estimate the fair value of our long-term, variable rate debt using a Level 3 discounted cash flow analysis based on LIBOR rate forward curves./ The fair value of our long-term debt at March 31, 2022 and December 31, 2021 was approximately $i1.59
billion and $i1.87 billion, respectively. The carrying amount of such debt at March 31, 2022 and December 31, 2021 was $i1.60
billion and $i1.83 billion, respectively.
(7) iIncome
Taxes
We determine the tax provision for interim periods using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment. Our effective tax rate was i18.2% and i21.4%
for the first three months of 2022 and 2021, respectively. The decrease in the effective tax rate in the first quarter of 2022 is primarily due to favorability of permanent book-tax differences for share-based compensation in 2022 compared to 2021.
(8) iEarnings Per Share
i
A
reconciliation of the numerators and the denominators of the basic and diluted per share computations are as follows:
Three Months Ended
2022
2021
Earnings
Shares
Per-Share
Earnings
Shares
Per-Share
(In thousands, except per share data)
(Numerator)
(Denominator)
Amount
(Numerator)
(Denominator)
Amount
Basic
earnings per share:
Income available to common shareholders
$
i206,129
i293,412
$
i0.70
$
i172,252
i304,731
$
i0.57
Effect
of dilutive securities:
Stock options, non-vested shares and share units
—
i2,924
—
i3,300
Diluted
earnings per share:
Income available to common shareholders including assumed conversions
$
i206,129
i296,336
$
i0.70
$
i172,252
i308,031
$
i0.56
/
For
the three months ended March 31, 2021, options to purchase i1.1 million shares of common stock at per share prices ranging from $i52.32
to $i76.49, were outstanding but were not included in the computation of diluted earnings per share because they were anti-dilutive. For the three months ended March 31, 2022, an inconsequential number of outstanding securities were not included in the computation of diluted earnings per share because they were anti-dilutive.
As
of March 31, 2022, there was $i10 million of total unrecognized compensation cost related to stock options granted under all plans. That cost is expected to be recognized over a weighted-average period of i1.05
years.
Non-vested Shares and Share Units
i
Non-vested share and share unit activity for the three months ended March 31, 2022 was as follows:
As
of March 31, 2022, there was $i340 million of total unrecognized compensation cost related to non-vested share and share unit awards granted under all plans. That cost is expected to be recognized over a weighted-average period of i2.40
years.
Share-Based Compensation Cost
i
The following table presents total compensation expense recognized with respect to stock options, non-vested shares and share units, and our associate stock purchase plan:
Three
Months Ended
(In thousands)
2022
2021
Stock option and non-vested share and share unit compensation expense
$
i33,332
$
i47,950
Associate
stock purchase plan expense
i1,477
i1,548
Amounts
capitalized in software development costs, net of amortization
(i90)
(i1,663)
Amounts
charged against earnings, before income tax benefit
$
i34,719
$
i47,835
Amount
of related income tax benefit recognized in earnings
On iMarch 14, 2022, our Board of Directors declared a cash dividend of $i0.27
per share on our issued and outstanding common stock, which was paid on iApril 19, 2022 to shareholders of record as of iMarch
28, 2022. In connection with the declaration of such dividend, our non-vested shares and share units are entitled to dividend equivalents, which will be payable to the holder subject to, and upon vesting of, the underlying awards. Our outstanding stock options are not entitled to dividend or dividend equivalents. At both March 31, 2022 and December 31, 2021, our condensed consolidated balance sheets included liabilities for dividends payable of $i81 million,
which are included in "Other current liabilities".
Accumulated Other Comprehensive Loss, Net (AOCI)
i
The components of AOCI, net of tax, were as follows:
Foreign
currency translation adjustment and other
Unrealized loss on cash flow hedge
Unrealized holding gain (loss) on available-for-sale investments
We accrue estimates for resolution of any legal and other contingencies when losses are probable and reasonably estimable in accordance with ASC 450, Contingencies ("ASC 450"). No less than quarterly, and as facts and circumstances change, we review the status of each significant matter underlying a legal proceeding or claim and assess our potential
financial exposure. We accrue a liability for an estimated loss if the potential loss from any legal proceeding or claim is considered probable and the amount can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable, and accruals are based only on the information available to our management at the time the judgment is made, which may prove to be incomplete or inaccurate or unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions. Furthermore, the outcome of legal proceedings is inherently uncertain, and we may incur substantial defense costs and expenses defending any of these matters. Should any one or a combination of more than one of these proceedings be successful, or should we determine to settle any one or a combination of these matters, we may be required to pay substantial sums,
become subject to the entry of an injunction or be forced to change the manner in which we operate our business, which could have a material adverse impact on our business, results of operations, cash flows or financial condition.
iiOn
May 16, 2019, Steward Health Care System LLC ("Steward") filed a lawsuit in the Chancery Court for Davidson County, Tennessee against the Company. The Company believes Steward's allegations arise out of Steward's disinterest in following the contract between the Company and Steward's predecessor for clinical and financial software and services after Steward closed on its acquisition of the predecessor. The Company has filed a counterclaim against Steward seeking recovery of more than $42
million in unpaid invoices owed to the Company. The Company believes the dispute is in the ordinary course of business and the damages Steward asserts lack both factual and causal support. Steward has recently asserted that its damages are $300 million and advised the Company that it will seek to treble the damages. We have not concluded that a material loss related to the Steward allegations is probable, nor have we accrued a liability related to these claims. Although we believe a loss could be reasonably possible (as defined in ASC 450), we do not have sufficient information to determine the amount or range of reasonably possible loss with respect to the potential damages given that the dispute is in the discovery
process. We will continue to vigorously defend against these claims, and we continue to believe that we have valid grounds for recovery of the disputed client receivables. However, there can be no assurances as to the outcome of the dispute./
iOn March 22, 2021, Astria Health ("Astria") filed an adversary proceeding in the United States Bankruptcy
Court, Eastern District of Washington against the Company. Astria's allegations largely arise out of the Company's provision of revenue cycle services in 2018 and 2019. The Company believes the dispute is in the ordinary course of business and the factual allegations and the damages asserted lack both factual and causal support. Astria has recently claimed damages of $96 million. We have not concluded that a material loss related to the Astria allegations is probable, nor have we accrued a liability related to these claims beyond reserving certain bankruptcy-related outstanding invoices. Although we believe a loss could be reasonably possible (as defined in ASC 450), we do not have sufficient information to determine
the amount or range of reasonably possible loss with respect to the potential damages given that expert discovery is not yet complete. We will continue to vigorously defend against this claim. However, there can be no assurances as to the outcome of the dispute.
The terms of our agreements with our clients generally provide for limited indemnification of such clients against losses, expenses and liabilities arising from third party or other claims based on, among other things, alleged infringement by our solutions of an intellectual property right of third parties or damages caused by data privacy breaches or system interruptions. The terms of such indemnification often limit the scope of and remedies for such indemnification obligations and generally include, as applicable, a right to replace or modify an infringing solution. For several reasons, including
the lack of a sufficient number of prior indemnification claims relating to intellectual property infringement, data privacy breaches or system interruptions, the inherent uncertainty stemming from such claims, and the lack of a monetary liability limit for such claims under the terms of the corresponding agreements with our clients, we cannot determine the maximum amount of potential future payments, if any, related to such indemnification provisions.
In addition to commitments and obligations in the ordinary course of business, we are involved in various other legal proceedings and claims that arise in the ordinary course of business, including for example, employment and client disputes and litigation alleging solution and implementation defects, personal injury, intellectual property infringement, violations of law, breaches of contract
and warranties, and compliance audits by various government agencies. Many of these proceedings are at preliminary stages and many seek an indeterminate amount of damages. At this time, we do not believe the range of potential losses under any claims to be material to our condensed consolidated financial statements.
We have two operating segments, Domestic and International. Revenues are derived primarily from the sale of clinical, financial and administrative information solutions and services. The cost of revenues includes the cost of third-party consulting services, computer hardware, devices and sublicensed software purchased from manufacturers for delivery to clients. It also includes the cost of hardware maintenance and sublicensed software support subcontracted to the manufacturers. Operating expenses incurred by the geographic business segments consist of sales and client service expenses including salaries of sales and client service personnel, expenses associated with our managed services business, marketing expenses, communications expenses and unreimbursed travel expenses. "Other" includes expenses that have not been allocated to the operating segments, such as
software development, general and administrative expenses, certain organizational restructuring and other expense, share-based compensation expense, and certain amortization and depreciation. Performance of the segments is assessed at the operating earnings level by our chief operating decision maker, who is our Chief Executive Officer. Items such as interest, income taxes, capital expenditures and total assets are managed at the consolidated level and thus are not included in our operating segment disclosures. Accounting policies for each of the reportable segments are the same as those used on a consolidated basis.
i
The
following table presents a summary of our operating segments and other expense for the three months endedMarch 31, 2022 and March 31, 2021:
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management Discussion and Analysis ("MD&A") is intended to help the reader understand the results of operations and financial condition of Cerner Corporation ("Cerner," the "Company,""we,""us" or "our"). This MD&A is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the accompanying notes to condensed consolidated financial statements ("Notes") found above. Certain statements in this quarterly report on Form 10-Q contain forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995, as amended, regarding our future plans, objectives, beliefs, expectations,
representations and projections. See the end of this MD&A for more information on our forward-looking statements, including a discussion of the most significant factors that could cause actual results to differ materially from those in the forward-looking statements.
All references to quarters or the three month periods ended 2022 and 2021 in this MD&A represent the respective three month periods ended March 31, 2022 and March 31, 2021, unless otherwise noted.
Management Overview
Our revenues are primarily derived by selling, implementing, operating and supporting software solutions, clinical content, hardware, devices and services that give healthcare
providers and other stakeholders secure access to clinical, administrative and financial data in real or near-real time, helping them to improve quality, safety and efficiency in the delivery of healthcare.
Our core strategy is to create organic growth by investing in research and development to create solutions and tech-enabled services for the healthcare industry. We expect to also supplement organic growth with acquisitions or strategic investments and collaborations.
Cerner's long history of growth has created an important strategic footprint in healthcare, with Cerner holding approximately 25 percent market share in the U.S. acute care electronic health record ("EHR") market and a leading market share in several non-U.S. regions. Foundational to our growth going forward is delivering value
to this core client base, including executing effectively on our large U.S. federal contracts and cross-selling key solutions and services in areas such as revenue cycle. We are also investing in platform modernization, with a focus on delivering a software as a service platform that we expect to lower total cost of ownership, improve clinician experience and patient outcomes, and enable clients to accelerate adoption of new functionality and better leverage third-party innovations.
We also expect to continue driving growth by leveraging our HealtheIntent® platform, which is the foundation for established and new offerings for both provider and non-provider markets. The EHR-agnostic HealtheIntent
platform enables Cerner to become a strategic partner with healthcare stakeholders and help them improve performance under both fee-for-service and value-based contracting. The platform, along with our CareAware® platform, also supports offerings in areas such as long-term care, home care and hospice, rehabilitation, behavioral health, community care, care team communications, health systems operations, consumer and employer, and data-as-a-service.
Beyond our strategy for driving revenue growth, we are also focused on earnings growth. After several years of margin compression related to slowing revenue growth, increased mix of low-margin services, and lower software demand due to the end of direct government incentives for EHR adoption, Cerner implemented a new operating structure and introduced other initiatives
focused on cost optimization and process improvement. We have made good progress since we kicked off our transformation in 2019 and expect this progress to be reflected in improved profitability going forward. We are focused on ongoing identification of opportunities to operate more efficiently and on achieving the efficiencies without impacting the quality of our solutions and services and commitments to our clients.
We are also focused on delivering strong levels of cash flow, which we expect to accomplish by continuing to grow earnings and prudently managing capital expenditures.
Oracle Merger Agreement
On December 20, 2021, we entered into the Merger Agreement with
Oracle and certain of its wholly owned subsidiaries. Pursuant to the Merger Agreement, on January 19, 2022, Oracle commenced a cash tender offer to acquire all of the issued and outstanding shares of our common stock for a purchase price of $95.00 per share, net to the holders thereof in cash, without interest and subject to any required tax withholding. If the Offer is completed, Merger Subsidiary will merge
with and into Cerner and we will become a wholly owned indirect subsidiary of Oracle. As a result of the Merger,
the shares of our common stock will cease to be publicly held. We have agreed to various customary covenants and agreements in the Merger Agreement, including with respect to the operation of our business prior to the closing of the transaction, such as restrictions on making certain acquisitions and divestitures, entering into certain contracts, incurring certain indebtedness and making certain capital expenditures, paying dividends in excess of our regular quarterly dividend, issuing or repurchasing stock and taking other specified actions. We do not believe these restrictions will prevent us from meeting our debt service obligations, ongoing costs of operations, working capital needs, or capital expenditure requirements. If the Merger Agreement is terminated under certain specified circumstances, we will be required to pay Parent a termination fee of $950 million. The completion
of the Merger remains subject to customary closing conditions, including receipt of certain regulatory approvals and other customary closing conditions. The Merger is expected to close in calendar year 2022.
For additional information related to the proposed transaction, please refer to the Schedule 14D-9, as amended, previously filed with the SEC and other relevant materials related to the transaction that we will file with the SEC.
The following table presents a summary of our operating information for the first quarters of 2022 and 2021:
(In
thousands)
2022
% of Revenue
2021
% of Revenue
% Change
Revenues
$
1,429,801
100
%
$
1,387,778
100
%
3
%
Costs
of revenue
243,848
17
%
230,656
17
%
6
%
Margin
1,185,953
83
%
1,157,122
83
%
2
%
Operating
expenses
Sales and client service
612,997
43
%
622,176
45
%
(1)
%
Software
development
195,091
14
%
192,327
14
%
1
%
General and administrative
109,279
8
%
112,365
8
%
(3)
%
Amortization
of acquisition-related intangibles
16,602
1
%
12,196
1
%
36
%
Total
operating expenses
933,969
65
%
939,064
68
%
(1)
%
Total
costs and expenses
1,177,817
82
%
1,169,720
84
%
1
%
Operating
earnings
251,984
18
%
218,058
16
%
16
%
Other income,
net
26
1,206
Income taxes
(45,881)
(47,012)
Net
earnings
$
206,129
$
172,252
20
%
Revenues & Backlog
Revenues increased 3% to $1.43 billion in the first quarter of 2022, as compared to $1.39 billion in the same period of 2021. The first quarter of 2022 includes a $47 million increase in revenues due to contributions from our April
1, 2021 acquisition of the Kantar Health business. Refer to Note (2) of the Notes for further information regarding revenues disaggregated by our business models.
Backlog, which reflects contracted revenue that has not yet been recognized as revenue, was $13.21 billion at March 31, 2022, compared to $13.26 billion at December 31, 2021. We expect to recognize 31% of our backlog as revenue over the next 12 months.
We believe that backlog may not necessarily be a comprehensive indicator of future revenue as certain of our arrangements may be canceled (or conversely renewed) at our clients' option; thus contract
consideration related to such cancellable periods has been excluded from our calculation of backlog. However, historically our experience has been that
such cancellation provisions are rarely exercised. We expect to recognize approximately $993 million of revenue over the next 12 months under currently executed contracts related to such cancellable periods, which is not included in our calculation of backlog.
Costs of Revenue
Costs
of revenue as a percent of revenues were 17% in the first quarter of both 2022 and 2021.
Costs of revenue include the cost of reimbursed travel expense, sales commissions, third-party consulting services and subscription content and computer hardware, devices and sublicensed software purchased from manufacturers for delivery to clients. It also includes the cost of hardware maintenance and sublicensed software support subcontracted to the manufacturers. Such costs, as a percent of revenues, typically have varied as the mix of revenue (software, hardware, devices, maintenance, support, and services) carrying different margin rates changes from period to period. Costs of revenue does not include the costs of our client service personnel who are responsible for delivering our service offerings. Such costs are included in sales and client service expense.
Operating
Expenses
Total operating expenses decreased 1% to $934 million in the first quarter of 2022, compared to $939 million in the same period of 2021.
•Sales and client service expenses as a percent of revenues were 43% in the first quarter of 2022, compared to 45% in the same period of 2021. These expenses decreased 1% to $613 million in the first quarter of 2022, from $622 million in the same period of 2021. Sales and client service expenses include salaries and benefits of sales, marketing, support, and services personnel, depreciation and other expenses associated with our managed services business, expenses for expected credit losses on client receivables, communications expenses, unreimbursed travel expenses, expense for share-based payments, and trade show and advertising costs.
The decrease in sales and client service expenses was primarily driven by reductions in non-personnel costs.
•Software development expenses as a percent of revenues were 14% in the first quarter of both 2022 and 2021. Expenditures for software development include ongoing development and enhancement of the Cerner Millennium® and HealtheIntent platforms, as well as other key initiatives such as platform modernization, with a focus on development of a software as a service platform. A summary of our total software development expense in the first quarters of 2022 and 2021 is as follows:
Three
Months Ended
(In thousands)
2022
2021
Software development costs
$
186,185
$
211,027
Capitalized software costs
(55,163)
(81,155)
Capitalized
costs related to share-based payments
(1,137)
(2,395)
Amortization of capitalized software costs
65,206
64,850
Total software development expense
$
195,091
$
192,327
•General
and administrative expenses as a percent of revenues were 8% in the first quarter of both 2022 and 2021. These expenses decreased 3% to $109 million in the first quarter of 2022, from $112 million in the same period of 2021. General and administrative expenses include salaries and benefits for corporate, financial and administrative staffs, utilities, communications expenses, professional fees, depreciation and amortization, transaction gains or losses on foreign currency, expense for share-based payments, certain organizational restructuring and other expense. The decrease in general and administrative expenses was primarily driven by a reduction in employee separation costs.
•Amortization of acquisition-related intangibles as a percent of revenues was 1% in the first quarter of both 2022 and 2021. These expenses increased 36% to $17 million in the first quarter
of 2022, from $12 million in the same period in 2021. Amortization of acquisition-related intangibles includes the amortization of customer relationships, acquired technology, trade names, and non-compete agreements recorded in connection with our business
acquisitions. The increase in amortization of acquisition-related intangibles is primarily due to amortization of intangibles acquired in our April 1, 2021 acquisition of the Kantar Health business.
Non-Operating Items
•Other
income, net was less than $1 million in the first quarter of 2022, compared to $1 million in the same period of 2021. Other income, net for the periods presented is primarily comprised of investment earnings, offset by interest expense on our outstanding indebtedness.
•Our effective tax rate was 18.2% for the first quarter of 2022, compared to 21.4% for the same period of 2021. The decrease in the effective tax rate in the first quarter of 2022 is primarily due to favorability of permanent book-tax differences for share-based compensation in 2022 compared to 2021. Refer to Note (7) of the Notes for further discussion regarding our effective tax rate.
Operations by Segment
We have two operating segments:
Domestic and International. The Domestic segment includes revenue contributions and expenditures associated with business activity in the United States. The International segment includes revenue contributions and expenditures linked to business activity outside the United States, primarily from Australia, Canada, Europe, and the Middle East. Refer to Note (11) of the Notes for further information regarding our reportable segments.
The following table presents a summary of our operating segment information for the first quarters of 2022 and 2021:
(In
thousands)
2022
% of Revenue
2021
% of Revenue
% Change
Domestic Segment
Revenues
$
1,258,456
100%
$
1,221,992
100%
3%
Costs
of revenue
215,241
17%
205,694
17%
5%
Operating expenses
541,575
43%
560,562
46%
(3)%
Total
costs and expenses
756,816
60%
766,256
63%
(1)%
Domestic operating earnings
501,640
40%
455,736
37%
10%
International
Segment
Revenues
171,345
100%
165,786
100%
3%
Costs
of revenue
28,607
17%
24,962
15%
15%
Operating expenses
71,422
42%
61,614
37%
16%
Total
costs and expenses
100,029
58%
86,576
52%
16%
International operating earnings
71,316
42%
79,210
48%
(10)%
Other
costs and expenses, net
(320,972)
(316,888)
1%
Consolidated operating earnings
$
251,984
$
218,058
16%
Domestic
Segment
•Revenues increased 3% to $1.26 billion in the first quarter of 2022, from $1.22 billion in the same period of 2021. The first quarter of 2022 includes a $23 million increase in revenues due to contributions from our April 1, 2021 acquisition of the Kantar Health business. The remaining increase is primarily attributable to increased implementation activity during the first quarter of 2022 within our federal business, inclusive of ongoing projects with the U.S. Department of Defense and the U.S. Department of Veterans Affairs. In the first quarter of both 2022 and 2021, 20% of our consolidated revenues were attributable to our relationships (as the prime contractor or a subcontractor) with U.S. government agencies. Refer to Note (2) of the Notes for further information regarding revenues disaggregated by
our business models.
•Costs of revenue as a percent of revenues were 17% in the first quarter of both 2022 and 2021.
•Operating expenses as a percent of revenues were 43% in the first quarter of 2022, compared to 46% in the same period of 2021. These expenses decreased 3% to $542 million in the first quarter of 2022, from $561 million in the same period of 2021. The decrease in operating expenses was primarily driven by reductions in non-personnel costs.
International
Segment
•Revenues increased 3% to $171 million in the first quarter of 2022, from $166 million in the same period of 2021. The first quarter of 2022 includes a $24 million increase in revenues due to contributions from our April 1, 2021 acquisition of the Kantar Health business. This increase was partially offset by a reduction in revenues in the first quarter of 2022 attributable to project delays in certain regions in Europe. Refer to Note (2) of the Notes for further information regarding revenues disaggregated by our business models.
•Costs of revenue as a percent of revenues were 17% in the first quarter of 2022, compared to 15% in the same period of 2021. The higher costs of revenue as a percent of
revenues was primarily driven by the impact of the Kantar Health business acquired on April 1, 2021.
•Operating expenses as a percent of revenues were 42% in the first quarter of 2022, compared to 37% in the same period of 2021. These expenses increased 16% to $71 million in the first quarter of 2022, from $62 million in the same period of 2021. The increase in operating expenses is primarily due to the April 1, 2021 acquisition of the Kantar Health business.
Other Costs and Expenses, Net
Operating costs and expenses not attributed to an operating segment include expenses such as software development,
general and administrative expenses, share-based compensation expense, certain amortization and depreciation, certain organizational restructuring and other expense. These expenses increased 1% to $321 million in the first quarter of 2022, from $317 million in the same period of 2021. The increase is primarily due to a reduction in capitalized software costs in the first quarter of 2022.
Liquidity and Capital Resources
Our liquidity is influenced by many factors, including the amount and timing of our revenues, our cash collections from our clients and the amount we invest in software development, acquisitions, collaborations, capital expenditures, and our share repurchase and dividend programs. We have agreed to various customary
covenants and agreements in the Merger Agreement, including with respect to the operation of our business prior to the closing of the transaction, such as restrictions on making certain acquisitions and divestitures, entering into certain contracts, incurring certain indebtedness and making certain capital expenditures, paying dividends in excess of our regular quarterly dividend, issuing or repurchasing stock and taking other specified actions.We do not believe these restrictions will prevent us from meeting our debt service obligations, ongoing costs of operations, working capital needs, or capital expenditure requirements.
Our principal sources of liquidity are our cash, cash equivalents (which primarily consist of money market funds, time deposits and commercial paper with original
maturities of less than 90 days), short-term investments, borrowings under our Credit Agreement and other sources of debt financing. At March 31, 2022, we had cash and cash equivalents of $710 million and short-term investments of $171 million, as compared to cash and cash equivalents of $590 million and short-term investments of $253 million at December 31, 2021.
We have entered into a Credit Agreement with a syndicate of lenders that provides for an unsecured $1.225 billion revolving credit loan facility, along with a letter of credit facility up to $200 million (which is a sub-facility of the $1.225 billion revolving credit loan facility). We have the ability to increase the maximum capacity to $1.725 billion at any time during the Credit Agreement's term, subject to lender participation
and the satisfaction of specified conditions. The Credit Agreement expires in December 2026, with two one-year extension options that are subject to lender approval. As of March 31, 2022, we had outstanding revolving credit loans and letters of credit of $600 million and $16 million, respectively; which reduced our available borrowing capacity to $609 million under the Credit Agreement.
We have also entered into note purchase agreements pursuant to which we may issue and sell unsecured senior promissory notes to those purchasers electing to purchase.
We believe that our present cash position, together with cash generated from operations, short-term investments and, as appropriate, remaining availability under our Credit Agreement and other sources of debt financing, will be sufficient to meet anticipated cash requirements for the next 12 months.
The following table summarizes our cash flows in the first three months of 2022 and 2021:
Three Months Ended
(In thousands)
2022
2021
Cash
flows from operating activities
$
375,063
$
450,434
Cash flows from investing activities
(12,197)
(182,185)
Cash flows from financing activities
(241,334)
117,115
Effect of exchange rate changes on cash
(1,847)
(3,118)
Total
change in cash and cash equivalents
119,685
382,246
Cash and cash equivalents at beginning of period
589,847
615,615
Cash and cash equivalents at end of period
$
709,532
$
997,861
Free
cash flow (non-GAAP)
$
276,370
$
290,959
Cash from Operating Activities
Three Months Ended
(In thousands)
2022
2021
Cash
collections from clients
$
1,399,577
$
1,439,319
Cash paid to employees and suppliers and other
(1,004,910)
(954,120)
Cash paid for interest
(21,667)
(15,549)
Cash paid for taxes, net of refunds
2,063
(19,216)
Total
cash from operations
$
375,063
$
450,434
Cash flows from operations decreased $75 million in the first three months of 2022 when compared to the same period of 2021, due primarily to an increase in cash used to fund working capital requirements. Days sales outstanding was 75 days in the first quarter of 2022, compared to 73 days for the fourth quarter of 2021 and 77 days for the first quarter of 2021.
Cash from Investing
Activities
Three Months Ended
(In thousands)
2022
2021
Capital purchases
$
(42,393)
$
(75,925)
Capitalized
software development costs
(56,300)
(83,550)
Sales and maturities of investments, net of purchases
91,199
(14,735)
Purchases of other intangibles
(4,703)
(7,975)
Total
cash flows from investing activities
$
(12,197)
$
(182,185)
Cash flows from investing activities consist primarily of capital spending and investment activities.
Our capital spending in the first threemonths of 2022 was driven by capitalized equipment purchases primarily to support our managed services business and capitalized spending to support our ongoing software development initiatives. We expect the aggregate of capital purchases and capitalized software development costs to approximate 2021
levels for the remainder of 2022.
Short-term investment activity historically consists of the investment of cash generated by our business in excess of what is necessary to fund operations. 2022 and 2021 activity is impacted by excess cash primarily being used to execute on
our capital allocation strategy, including the share repurchases in the 2021 period and cash dividends in both the 2021 and 2022 periods as discussed below.
Cash from Financing Activities
Three
Months Ended
(In thousands)
2022
2021
Long-term debt issuance
$
—
$
500,000
Repayment of long-term debt
(225,000)
—
Cash
from option exercises (net of taxes paid in connection with shares surrendered by associates)
61,811
31,617
Treasury stock purchases
—
(341,715)
Dividends paid
(79,183)
(67,477)
Other
1,038
(5,310)
Total
cash flows from financing activities
$
(241,334)
$
117,115
In March 2021, we issued $100 million aggregate principal amount of Series 2021-A Notes and $400 million aggregate principal amount of Series 2021-B Notes.
We do not expect to incur additional
indebtedness in the near-term.
Cash inflows from stock option exercises are dependent on a number of factors, including the price of our common stock, grant activity under our stock option and equity plans, and overall market volatility. We expect net cash inflows from stock option exercises to continue, based on the number of exercisable options as of March 31, 2022 and our current stock price.
During the first three months of 2021, we repurchased 4.9 million shares of our common stock for total consideration of $350 million. As of March 31, 2022, $3.18 billion remains available for repurchase under our share repurchase program. We do not expect to repurchase additional shares in the near-term as the
Merger Agreement prohibits us from repurchasing additional shares without Parent's consent.
During the first three months of both 2022 and 2021, we declared and paid quarterly cash dividends. Subject to declaration by our Board of Directors, we expect to continue paying quarterly cash dividends as a part of our current capital allocation strategy. Future dividends will be subject to the determination, declaration and discretion of our Board of Directors, including considering the timing of the expected closing of the Oracle transaction, and compliance with covenants under our outstanding debt agreements. The source of funds for such dividends may include cash generated from operations, liquidation of investment holdings and other dispositions of assets.
Free Cash Flow (Non-GAAP)
Three
Months Ended
(In thousands)
2022
2021
Cash flows from operating activities (GAAP)
$
375,063
$
450,434
Capital purchases
(42,393)
(75,925)
Capitalized
software development costs
(56,300)
(83,550)
Free cash flow (non-GAAP)
$
276,370
$
290,959
Free cash flow decreased $15 million in the first threemonths of 2022 compared to the same period in 2021, primarily due to a reduction in cash from operations, partially offset by a reduction in capital spending. Free cash flow is a non-GAAP financial measure used by management, along with GAAP results, to analyze our earnings quality and overall cash generation of the business, and for management compensation purposes. We define free cash flow as cash flows from operating activities reduced by capital purchases and capitalized software development costs. The table above sets forth a reconciliation of free cash flow to cash flows from operating activities, which we believe is the GAAP financial measure
most
directly comparable to free cash flow. The presentation of free cash flow is not meant to be considered in isolation, nor as a substitute for, or superior to, GAAP results, and investors should be aware that non-GAAP measures have inherent limitations and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Free cash flow may also be different from similar non-GAAP financial measures used by other companies and may not be comparable to similarly titled captions of other companies due to potential inconsistencies in the method of calculation. We believe free cash flow is important to enable investors to better understand and evaluate our ongoing operating results and allows for greater transparency in the review and understanding of our overall financial, operational and economic performance, because free cash flow takes into account certain capital expenditures necessary to operate our business.
Forward
Looking Statements
All statements contained in this quarterly report on Form 10-Q that do not directly and exclusively relate to historical facts constitute forward-looking statements. Forward-looking statements are based on the current beliefs, expectations and assumptions of Cerner's management with respect to future events and are subject to a number of significant risks and uncertainties. It is important to note that Cerner's performance, and actual results, financial condition or business could differ materially from those expressed in such forward-looking statements. The words "will,"“current,”"believe,""plans,""may,""expect,""expected,""anticipated,""strategy,""opportunities,""future,""estimated,""objectives", or the negative of these words, variations thereof or similar expressions
are intended to identify such forward-looking statements. For example, our forward-looking statements include statements regarding our expectations, opportunities or plans for growth; the proposed acquisition of us by Oracle and its affiliates; our operational improvement initiatives and the results expected to be realized from those initiatives; our expectations with respect to realizing revenue from backlog; our anticipated expenses, cash requirements and sources of liquidity; the expected revenue contributions of acquired businesses; and our capital allocation strategies and plans. Factors that could cause or contribute to actual results differing materially, include but are not limited to: potential disruptions to our business caused by the proposed acquisition of us by Oracle; the possibility that the proposed acquisition will not close or that the closing may be delayed; stockholder litigation could prevent or delay the closing of the transaction or otherwise impact
our business, operating results and financial condition; the impact of the COVID-19 pandemic on how Cerner and its customers are operating their businesses and the duration and extent to which the pandemic will impact Cerner's future results of operations; the possibility of interruption at our data centers or client support facilities, or those of third parties with whom we have contracted (such as public cloud providers), that could expose us to significant costs and reputational harm and interrupt clients' access to their data; the possibility of increased expenses, exposure to legal claims and regulatory actions and reputational harm associated with a security breach; potential claims for system errors and warranties or significant costs and reputational harm related to product and service-related liabilities; our proprietary technology may be subject to claims for infringement or misappropriation of intellectual property rights of others, or may be infringed or
misappropriated by others, or subject to claims related to open source licenses; material adverse resolution of legal proceedings or other claims or reputational harm stemming from negative publicity related to such claims or legal proceedings; the possibility that Cerner may be adversely affected by other economic, business, and/or competitive factors, including our ability to anticipate or respond quickly to market changes, changing technologies and evolving pricing and deployment methods and to bring competitive new solutions, devices, features and services to market in a timely fashion; risks inherent with business acquisitions, strategic investments, collaborations and the failure to achieve projected synergies, or divestitures; managing growth in the new markets in which we offer solutions, healthcare devices or services; long sales cycles for our solutions and services; risks related to our dependence on strategic relationships and third party suppliers; risks
associated with the loss or recruitment and retention of key personnel or the failure to successfully develop and execute succession planning to assure transitions of key associates and their knowledge, relationships and expertise; inability to achieve expected operating efficiencies and sustain or improve operating expense reductions or business disruptions or adverse tax consequences associated with restructuring, realignment and cost reduction activities; changing political, economic and regulatory influences, which could impact the purchasing practices and operations of our clients and increase costs to deliver compliant solutions and services; non-compliance with laws, regulations or certain industry initiatives or failure to deliver solutions or services that enable our clients to comply with laws or regulations applicable to their businesses; risks inherent in contracting with government clients, including without limitation, complying with strict compliance and
disclosure obligations, navigating complex procurement rules and processes, and defending against bid protests; volatility and disruption resulting from global economic or market conditions; risks associated with our outstanding and future indebtedness, such as compliance with restrictive covenants, which may limit our flexibility to operate our business; risk that our capital allocation strategy will not be fully implemented or enhance long-term shareholder value; changes in tax laws, regulations or guidance that could adversely affect our tax position and/or challenges to our tax positions in the U.S. and non-U.S. countries; our strategy to transition to a subscription based recurring revenue model and continued modernization of our technology may adversely affect our near-term revenue growth and results of operations; the
potential for losses resulting from asset impairment charges; potential variations in our sales forecasts compared to actual sales; risks that our revenue growth may be lower than anticipated and/or that the mix of revenue shifts to low margin revenue; variations in our quarterly operating results; volatility in the trading price of our common stock and the timing and volume of market activity; and risks associated with fluctuations in foreign currency exchange rates. Additional discussion of these and other risks, uncertainties and factors affecting Cerner's business is contained in our filings with the Securities and Exchange Commission, including those under the caption "Risk Factors" in our latest annual report on Form 10-K, or in materials incorporated herein or therein by reference. Forward-looking statements are not guarantees of future performance or results. The reader should not place
undue reliance on forward-looking statements since the statements speak only as of the date that they are made. Except as required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in our business, results of operations or financial condition over time.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
No material changes.
Item 4. Controls and Procedures
a)Evaluation
of Disclosure Controls and Procedures.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of our disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report on Form 10-Q (the "Evaluation Date"). Based upon that evaluation, our CEO and CFO have concluded that, as of the Evaluation Date, our disclosure controls and procedures were designed, and were effective, to provide reasonable assurance that the information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified in SEC rules and forms and is accumulated and communicated
to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.
b)Changes in Internal Control over Financial Reporting.
There were no changes in our internal controls over financial reporting during the fiscal quarter ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
c)Limitations on Controls.
Our management can provide no assurance that our disclosure controls and procedures or our internal control over
financial reporting can prevent all errors and all fraud under all circumstances. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been or will be detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over
time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Part II. Other Information
Item 1. Legal Proceedings
From time to time, we are involved in litigation which is incidental to our business. There have been no material developments to the legal proceedings previously reported in our 2021 annual report on Form 10-K.
In our opinion, no
litigation to which we are currently a party is likely to have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.
Inline
XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
