- Health IT giant Cerner reported fourth quarter results in line with Wall Street estimates and slightly topped analyst forecasts with revenue of $1.4 billion, up 6% year over year.
- The Kansas City, Missouri-based EHR vendor plans to embark on M&A activity and divest flagging businesses in 2020 as it continues to turn away from its EHR-legacy business and more toward software-as-a-service, top executives said on an after-market call with investors Tuesday.
- On the call, CEO Brent Shafer reiterated Cerner's support for two HHS rules promoting free data sharing between health IT systems, due to be finalized any day now. Some EHR vendors, notably chief Cerner rival Epic Systems, have slammed the proposals over data privacy and implementation concerns.
Cerner's embrace of the twin rules expected any day from HHS comes in contrast to Epic, which has ramped up lobbying against them. Cerner's C-suite attempted to set the 41-year-old business apart, welcoming the regulations with open arms on Tuesday's earnings call.
"We have been a vocal proponent of the 21st Century Cures Act and look forward to continuing our work with the [Office of the National Coordinator]," which manages the nation's health IT, Shafer said. The 2016 Cures act directed the government to accelerate development of medical products and address interoperability.
"We do this because it's the right thing to do," Shafer said.
EVP of Strategic Growth Don Trigg said Cerner has positioned itself to dodge any negative impact from getting its core EHR business into compliance with the upcoming rules, and even capitalize on them.
"We're very well positioned to meet the implementation timelines that are being discussed," Trigg said on the Tuesday call. "We think there's going to be a ton of business opportunities associated with these elevated rates of data liquidity."
Cerner started on a new operating model last year, pivoting from EHRs to a platform organization focused on finding software tailored to individual client needs. Shafer told investors at the J.P. Morgan Healthcare Conference in San Francisco earlier this year the EHR vendor planned to continue strategy this year, primarily by investing heavily in client experience and advanced technology, internally and through partnerships like its R&D and cloud relationship with Amazon.
"We've been very happy with our opportunity to kind of engage with [Amazon] and to look at key strategies around approach, whether those are publicly disclosed activities around how they think about their employee population and some of the things that they're doing in concert with [J.P. Morgan] and with the Berkshire portfolio of companies or acquisitions that they've made around capabilities like PillPack," CFO Marc Noughton said.
All of Cerner's key operating metrics came in at or above the company's expectations for the fourth quarter. The company saw adjusted net earnings of $154 million for the quarter, up from $131 million in 2018.
Notably, Cerner reported bookings of $1.67 billion for the three months ending Dec. 31, surpassing internal expectations. Though that's a 15% drop from the year prior, which saw the second highest bookings in Cerner's history with $1.96 billion.
Licensed software, technology resale, subscriptions, professional services and managed services all saw year-over-year growth in the quarter. The support and maintenance business was slightly down.
Cerner wants to be more active in M&A in 2020 and is pursuing opportunities across several markets. The company also expects to divest some businesses this year.
"Some of these assets have significant value. Certainly, some of these activities on divestitures are already underway," Noughton said. "Overall, we do expect there to be several moving parts on the top line in 2020."
Cerner expects to see significant growth in its federal book of business, oiled by the completion of its $75 million acquisition of consultancy AbleVets in the fourth quarter. It plans to use AbleVets associates on its beleaguered $10 billion contract with the U.S. Department of Veteran's Affairs.
The company is working on site preparation ahead of scheduled VA go-lives in March, and expects to go live in additional initial operating capability sites in 2020, scaling up its capabilities at existing sites in upcoming quarters, according to Chief Client Officer John Peterzalek. Cerner expects its federal business to drive significant growth as the VA contract eventually ramps up to $1 billion a year in annual revenue.
As for its separate $5.5 billion contract with the U.S. Department of Defense, Cerner completed a code upgrade in the fourth quarter and kicked off two additional deployment waves for the Coast Guard, slated to be completed this year.
Cerner also reported full year 2019 results Tuesday, including revenue of $5.7 billion, up 6% from 2018; bookings of $6 billion, down 10% from 2018; and adjusted net earnings of $530 billion, down 16% from 2018.
The vendor, which saw its stock rise more than 1% in aftermarket trading on the earnings report, also previewed its full year guidance for 2020. Cerner expects revenue between $5.73 billion and $5.98 billion and earnings between $3.09 and $3.19 a share.