Oracle Cerner has ambitions in national public health tech as software giant reports better-than-expected Q2 results

Cerner generated $1.5 billion in revenue in the latest quarter, fueling strong growth for enterprise software giant Oracle as it topped Wall Street’s expectations for profit and revenue.

Oracle bought the health technology firm for $27 billion back in June and Cerner's strong growth helped the database technology company overcome softer demand for IT services in a challenging economy.

During an earnings call Monday, Oracle CEO Safra Catz told analysts that Cerner is performing "better than Oracle projected" five months post-acquisition.

Oracle's total quarterly revenue jumped 18% year-over-year to $12.3 billion in the period ending November 30. That's up from $10.4 billion a year ago.

"In Q2, Oracle's total revenue grew 25% in constant currency—exceeding the high end of our guidance by more than $200 million," Catz said in a statement about earnings results.

Excluding Cerner, Oracle's total revenue in the quarter grew 9% in constant currency.

"That strong overall revenue growth was powered by our infrastructure and applications cloud businesses that grew 59% and 45% respectively, in constant currency. Fusion Cloud ERP grew 28% in constant currency, NetSuite Cloud ERP grew 29% in constant currency—each and every one of our strategic businesses delivered solid revenue growth in the quarter," Catz said.

Total cloud revenue, including Cerner, grew 48% to $3.8 billion in constant currency, Catz said. Cloud revenue was up 25% without Cerner.

Excluding Cerner, total cloud revenue, SaaS plus IaaS, was up 27% in constant currency at $3.3 billion. Total cloud services and license support revenue for the quarter, including Cerner, was $8.6 billion, up 20% in constant currency.

Oracle shares gained nearly 3% in after-hours trading after the results were announced, following a 1.8% increase to $81.29 in regular trading, Market Watch reported.

The company reported fiscal second-quarter net income of $1.74 billion, or 63 cents a share, on revenue of $12.3 billion. After adjusting for stock-based compensation and other costs, Oracle reported earnings of $1.21 a share, even with the same quarter a year ago. Analysts on average expected adjusted earnings of $1.17 a share on sales of $11.96 billion, according to FactSet.

"Since the acquisition, Cerner has contributed to Oracle's growth—and Oracle has helped Cerner improve its technology," said Oracle Chairman and CTO Larry Ellison in a statement. "But we are just beginning our mission to modernize healthcare information systems."

In the wake of the COVID pandemic, there is a worldwide sense of urgency to transform and improve national healthcare systems, Ellison noted.

"Our goals are ambitious: fully automate clinical trials to shorten the time it takes to deliver lifesaving new drugs to patients, enable doctors to easily access better information leading to better patient outcomes, and provide public health professionals with an early warning system that locates and identifies new pathogens in time to prevent the next pandemic," he said. "The scale of this opportunity is unprecedented—and so is the responsibility that goes along with it."

Oracle bought Cerner to be the company's "anchor asset" to expand into healthcare with an eye toward scaling up its cloud business in the hospital and health system market. Healthcare is a $3.8 trillion market in the U.S. alone, and the company plans to expand Cerner's business into more international markets.

Oracle is known for its massive database technology, and acquiring Cerner expands the company's reach to major health systems and presents potentially lucrative cross-selling opportunities, health tech analysts said at the time of the acquisition.

The company is seeing strong growth in its cloud applications business among healthcare and life sciences companies, Ellison told analysts during the earnings call Monday.

"We're extremely strong in healthcare; Cleveland Clinic, Mayo Clinic, Mount Sinai, Providence Saint Joseph, Adventist Health, Kaiser Permanente, National Health Service in the U.K.," he said. "There's a long list of providers, that's a partial list, are using Oracle ERP supply chain and HCM applications."

Oracle also is gaining business from healthcare payers. "As we tackle healthcare in conjunction with our Cerner acquisition, we're not just automating providers, we're also automating payers," he said, noting the company's work with UnitedHealthcare, Blue Cross Blue Shield, Humana, Highmark Health, Health Care Service Corporation, Independence Blue Cross and Bright Health. 

Ellison noted Tenet Health, a 65-hospital system, went live with Oracle's HR, payroll, and recruiting cloud applications. Other "go lives" in the quarter include Cleveland Clinic, the University of Chicago Medical Center and 12 hospitals within Baptist Health Care.

He added, "We're also automating pharmaceutical companies as they do clinical trials. We're trying to automate the entire ecosystem, not just a fraction of it."

In June, after the acquisition closed, Ellison outlined a bold vision for the database giant to use the combined tech power of the two companies to make access to medical records more seamless. Oracle plans to build a national health record database that would pull data from thousands of hospital-centric EHRs, he said.

During the earnings call, Ellison expanded Oracle's ambitions in healthcare beyond hospital EHRs and outlined plans to build technology for national public health systems.

"What Cerner did primarily in competition with Epic is automated hospitals. And, yes, we want to automate hospitals and clinics and doctors' offices and do that. We certainly want to automate providers," he said. "But we're layering on top of that is we want to do national public health. We are doing national public health systems."

Several countries will be signing contracts with Oracle to build "national healthcare early warning systems to detect the next pathogen that turns into a pandemic," he noted.

He added, "The scale of this healthcare opportunity is unprecedented, but so are the responsibilities that go along with it. We, as humanity, have to do a better job of delivering healthcare to people than we have done historically. As far as I know, Oracle is the only company in the world that's trying to address this issue."

During an earnings call, Catz projected third-quarter revenue should increase 17% to 19% from last year, suggesting a quarterly total of roughly $12.3 billion to $12.5 billion, and guided for adjusted earnings of $1.17 a share to $1.21 a share.