- Health software giant Cerner is banking that the worst of COVID-19's impact is behind it, calculating project and sales activity will only increase in 2021 following strong bookings growth in the fourth quarter.
- The hope is that hospital budgets will continue to recover from the pandemic, allowing clients to reinvest in core health IT while Cerner also expands its data-as-a-service offerings, including in the clinical trials space, to make up for slowing growth in its core EHR business. But historic volatility has not yet abated, resulting in mixed 2021 expectations for the company in fourth quarter financial results released Wednesday afternoon.
- The Missouri-based IT company reported full-year 2020 revenue of $5.5 billion, down 3% year over year among COVID-19 headwinds. Shares in Cerner were down modestly Wednesday aftermarket on the results.
Cerner's 2021 guidance implies management is expecting the majority of revenue in the back half of the year, reflecting a more conservative assumption of when business will return closer to normal. But the guidance was optimistic, given depressed sales in 2020 as Cerner's core provider clients shored up resources to fight COVID-19, foregoing IT projects.
Cerner expects revenue this year between $5.75 billion and $5.95 billion, in line with Wall Street expectations with the midpoint representing a 6% increase over 2020's topline.
Cerner's adjusted earnings were lower than analysts expected, though still a 11% jump over the year prior.
"While we expect that the shares will take a mild breather given the mixed print and slower margin expansion arc, we are incrementally more confident in Cerner's ability to play catch-up and maintain the market pace of digital health evolution" following the results, SVB Leerink analyst Stephanie Davis wrote in a Thursday morning note.
Cerner expects strong bookings between $1.15 million and $1.35 million in the first quarter as hospitals recover from a large surge in COVID-19 patients in the back half of 2020 that seems to be deflating. The midpoint of that guidance implies a 15% year-over-year growth.
Cerner expects its 2021 topline will be driven by its federal and strategic growth businesses and augmented by acquisitions, CFO Marc Naughton said on a Wednesday afternoon call with investors.
Naughton is departing Cerner at the end of the first quarter after almost 30 years at the company, and will be replaced by Mark Erceg, previously CFO at Tiffany & Co.
Cerner executives highlighted the four-decade-old vendor's increasing focus on its higher growth data businesses, arguing the pivot away from traditional IT sales is supported by its extensive provider client list and data assets encompassing 100 million patients and more than 500 million patient encounters.
The addition of data analytics company Kantar Health, which Cerner snapped up in December for $375 million in cash, is a key building block for this data monetization strategy.
Naughton argued Kantar is a "strong complement to our existing data-as-a-service efforts and represents a meaningful entry to the pharmaceutical market."
Cerner executives expect the Kantar business to eventually generate $150 million in annual revenue, and hinted industry could expect additional M&A to round out its data capabilities. The company's goal is to grow into a $1 billion data business for the health and life sciences industries, executives said during J.P. Morgan's healthcare conference in January.
Cerner's federal business is also a key growth area. For the first time in history, the Department of Defense, Department of Veterans Affairs and the Coast Guard are all using the same EHR, following the first go-live of Cerner's EHR at a VA site in October.
The EHR is now live at 20 DOD commands and four Coast Guard sites, along with the VA's Mann-Grandstaff Medical Center in Spokane, Washington, and its four outpatient clinics. Mann-Grandstaff was the first go-live for the embattled $16 billion project, which has been dogged by delays, management turnover, snowballing spending and operational issues since it launched in 2018 — but now seems to have picked up some momentum.
"VA and Cerner are actively moving forward in preparing for multiple site deployments planned for 2021," Travis Dalton, Cerner's chief client and services officer and president of government services, said.
In the fourth quarter, Cerner reported revenue of $1.4 billion, down 3% year over year due to divestitures but higher than Wall Street expectations. Excluding the divestitures, revenue would be up 1%, management said.
Cerner reported net earnings of $142 million in the quarter, down more than 8% year over year.