Dive Brief:
- EHR giant Cerner beat Wall Street expectations on earnings but missed on revenue during the second quarter of 2020, with revenue down 7% year over year at $ 1.33 billion.
- Following the financial results issued Wednesday afternoon, the Kansas City, Missouri-based vendor lowered its full-year 2020 guidance, expecting revenue between $ 5.45 billion and $ 5.55 billion, down from a prior range of $ 5.5 billion to $ 5.7 billion.
- Analysts called the quarter mixed, noting bookings of $ 1.34 billion were better than expected amid a challenging financial environment for health systems and other would-be buyers of Cerner’s software. Cerner’s stock was down slightly in aftermarket trading on the results.
Dive Insight:
Cerner’s first quarter earnings missed expectations due to lower-than-expected bookings as its health system clients, facing financial woes themselves, were less likely to start reinvesting in software. In the second quarter, bookings of $ 1.34 billion were down 6% year over year but higher, however, than many analysts expected, and at the high end of Cerner’s own guidance.
“While [management] had set a lower bar, we still thought closing deals in a COVID-distracted environment could prove challenging,” Jefferies analysts said in a note.
CEO Brent Shafer said during a Wednesday call with investors that provider relief funds given to support those health systems will continue playing a key role for Cerner going forward. Congress allocated $ 175 billion in relief funds for providers, though hospitals and health systems are pleading for more after taking hits from the loss of many non-emergency services.
Cost control initiatives and better-than-expected bookings caused Cerner to outperform on earnings. The vendor reported net income of $ 134.7 million in the quarter, up 6% year over year.
The only revenue lines that grew in the quarter were subscriptions revenue and managed services, which both grew 3% to $ 92 million and $ 307 million, respectively.
Professional service revenue of $ 461 million, down 5% year over year, was in-line with Cerner’s expectations but better than Wall Street expected due to Cerner’s quick pivot to virtual and progress in its federal book of business, Jefferies analysts said.
Licensed software revenue was $ 152 million, down 23% from a record high in the second quarter last year. Technology resale revenue of $ 42 million was down 31% year over year, support and maintenance was down 1% to $ 274 million and reimbursed travel was down a whopping 93% to just $ 1.7 million amid ongoing COVID-19 travel restrictions.
The pandemic created another delay in the multibillion-dollar project to implement a new EHR system for the U.S. Department of Veteran’s Affairs and Department of Defense, executives said. Cerner is continuing background work on the projects and making plans to be onsite in the near future as it works on updating the implementation schedule upended by the pandemic. Exact go-live dates have been proposed, but not yet made public.
“We should be hearing something sometime in the near future more publicly about when those go-lives occur,” John Peterzalek, Cerner’s chief clients and services officer, said, noting the DOD has activations scheduled in the coming months, including a Coast Guard pilot site.
Cerner shifted its business strategy away from its EHR legacy business and toward software as a service last year, and plans to continue pursuing mergers and acquisitions in strategic growth areas while divesting flagging businesses. In June, it sold its underperforming revenue cycle management arm RevWorks to provider RCM player R1 for $ 30 million, in a transaction expected to close in the third quarter this year.
In the second quarter, Cerner also acquired a cybersecurity company for $ 35 million to build out capabilities in security space, though the name of the company was not disclosed and executives attempted to downplay the purchase.
“It’s not really something that we can talk about a lot, but it’s enhancing our capabilities inside the security space,” CFO Marc Naughton said.
Cerner also announced in July that nonprofit Banner Health, with 28 hospitals and clinics in six states, will start using its revenue cycle management products.