Reversing four consecutive quarters of decline, health IT company Cerner’s top line jumped nearly 10% to hit $ 1.46 billion in the second quarter, up from $ 1.3 billion a year ago.
Despite revenue growth, the company’s second-quarter net income slumped 75% from a profit of $ 134.7 million during the same quarter last year to $ 32.7 million.
Cerner’s restructuring charges dragged its margin during the quarter, as the company reported an operating margin of 3.4%, falling from 11% in the second quarter of 2020. Expenses reflect impacts of employee separation costs, an impairment related to sold properties and product disposal, CFO Mark Erceg said during the call for second quarter results Friday.
The company incurred $ 54 million in employee separation costs due to a significant downsizing and $ 68 million in costs related to the sale of one of its major office campuses.
The company laid off 500 employees in the quarter and eliminated 300 job openings, resulting in $ 70 million in annualized savings, Erceg said.
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“We also spent $ 400 million on share buybacks, bringing our year-to-date purchases to $ 750 million, because we continue to believe that Cerner’s shares, at current trading levels, represent a good return on investment for our shareholders “. He said.
The company now projects its share buybacks during 2021 to reach $ 1.5 billion.
Per share, the North Kansas City, Missouri-based company said it had a net income of 11 cents. Earnings, adjusted for earnings and one-time costs, were 80 cents per share.
The results exceeded Wall Street expectations. The average estimate from 11 analysts surveyed by Zacks Investment Research was earnings of 76 cents a share. The company’s quarterly revenue also beat analysts’ expectations. Eight analysts surveyed by Zacks expected $ 1.44 billion.
The company was trading higher in the morning hours of Friday after the earnings call.
“All key metrics reflected good progress in our transformation initiatives and a strengthened market presence. Based on this progress, we have increased our earnings outlook for the year,” said Brent Shafer, president and CEO, during the earnings call.
Cerner expects full-year earnings to be $ 3.25 per share, compared with a previous outlook of more than $ 3.20 per share.
The company’s revenue forecast for the full year 2021 remains unchanged and growth is expected to be in the middle single digits.
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HCE military projects
The company is working with the Department of Defense to modernize its EHR, and that EHR is now active at 42 commands and 663 locations with 41,000 activated users. The Coast Guard deployment will be completed this year.
Shafer, who is retiring from the CEO role, told investors that ongoing challenges with Cerner’s electronic medical records project with the Department of Veterans Affairs would slightly affect the company’s revenue growth.
The VA eliminated the deployment schedule for its new Cerner EHR for at least six months to review training and troubleshoot governance and administration.
“As VA finalizes its new governance and management structure, we will continue our pre-implementation efforts, including technical development and improvements, solution preparation, and site preparation, but no more lives are expected until 2022. As As a result, we now expect another half point of impact on our revenue growth in 2021, reflected in our updated guidance for the year, “said Shafer.
Growth prospects in a post-pandemic world
On a positive note, the company experienced strong growth in reserves in the second quarter, an increase of 2% to nearly $ 1.4 billion, bringing year-to-date reserve growth to 7%.
“Importantly, we believe this represents a positive turning point as total reserves declined during fiscal 2019 and fiscal 2020,” Erceg said.
The company had 24 new customer footprints this year and 49 important lives, executives said.
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As healthcare clients recover from the COVID-19 pandemic, executives are showing increased interest in consumer strategies, real-time data strategies for capacity management and management of the value-based care workforce and business models, according to Cerner President Don Trigg.
“Volume levels are returning to pre-COVID levels, so people are feeling good about the core aspects of the business on the supplier side and how it is recovering from last year’s disruption, but I think at the same time I watch cautiously as the Delta variant plays forward, “Trigg told investors on the earnings call.
With slow growth in the medical records software market, Cerner is looking for opportunities in its data business, including in the clinical research space. The company acquired the healthcare division of Kantar Group, which provides data, analysis and research to the life sciences industry, for $ 375 million.
During JP Morgan’s annual healthcare conference in January, Cerner executives said the healthcare IT company was setting its sights on building a billion-dollar data business for the healthcare and science industries. life.
Cerner is also considering potential acquisitions that will improve its competitive position, including in areas such as cybersecurity, the technology to support provider networks operating in both value-based care and pay-for-service data and arrangements.
“This is an interesting space. We are thinking about it a lot and we see organic opportunities to drive a bigger business there,” Trigg said.