Cerner eyes opportunities in clinical research, population health as it builds data business

Cerner CEO Brent Shafer giving keynote speech on a stage
"Cerner's fourth-quarter results reflect a very solid finish to the year," said Brent Shafer, chairman and CEO of Cerner. (Cerner)

With slowing growth in the medical records software market, Cerner is eyeing opportunities in its data business, including in the clinical research space.

Cerner announced plans in December to acquire the health division of Kantar Group, which provides data, analytics and research to the life sciences industry, for $375 million.

The addition of Kantar Health is a strong complement to Cerner's existing data-as-a-service business and represents a meaningful entrance into the pharmaceutical market, said Cerner Chief Financial Officer Marc Naughton during the company's fourth-quarter and full-year 2020 earnings call.

During the annual J.P. Morgan healthcare conference in January, Cerner executives said the health IT company was setting its sights on building a $1 billion data business for the healthcare and life sciences industries.

Electronic health record companies are expanding their capabilities into real-world data and analytics as they branch out from their traditional, core EHR businesses.

Cerner is looking to create a leading data insights and clinical research platform and wants to harness data to improve the safety, efficiency and efficacy of clinical research across life sciences, pharmaceuticals and healthcare at large

Real-world evidence is starting to disrupt clinical trials and the pandemic has accelerated this shift, said Don Trigg, Cerner's president, during the earnings call Wednesday.

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Data analytics and research have been a strong focus for Cerner in the past 18 months. The company launched its Learning Health Network in 2019 to offer member health systems free access to a network of standardized, de-identified data and resources to support research efforts.

"We have the opportunity to fundamentally reimagine this market," Trigg said.

Cerner executives expect the Kantar Health business to generate $150 million in annual revenue.

Trigg's comments came as the health IT giant posted net earnings of $780 million in 2020, up 47% compared to a profit of $529 million in 2019.

While some business segments saw strong growth, Cerner's overall annual revenue dipped 3% from $5.7 billion to $5.5 billion as the company felt the impact of the COVID-19 pandemic.

Fourth-quarter revenue came to $1.39 million, also down 3% from $1.4 million in the fourth quarter of 2019. The result met Wall Street expectations.

In the fourth quarter, Cerner reported profits of $142 million or 46 cents per share. That is down 8% compared to $154 million, or 49 cents per share, in the fourth quarter of 2019.

Cerner's fourth-quarter earnings per share, when adjusted for onetime gains and costs, came to 78 cents per share, up 4% compared to 75 cents a year ago, which also met Wall Street estimates.

Bookings for the year came to $5.6 billion compared to 2019 bookings of almost $6 billion. The decline primarily was driven by the impact of the COVID-19 pandemic and the sale of Cerner's revenue cycle management arm RevWorks for $30 million and other divestitures in the third quarter, Naughton said.

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Bookings in the fourth quarter totaled $1.7 billion, within the company's expected range.

The company reported fourth-quarter operating cash flow of $512 million and free cash flow of $396 million. The company has a total backlog of about $13 billion.

Cerner remains on track with its planned cost optimization efforts as it works to improve its operating performance, executives said. The company has achieved $3 million in annualized cost reductions in the past two years.

The company achieved a fourth-quarter adjusted operating margin of 21.5% compared to 20.3% in the same quarter a year ago. Full-year 2020 adjusted operating margin was 19.9% compared to 18.5% in 2019.

"Cerner's fourth-quarter results reflect a very solid finish to the year," said Brent Shafer, chairman and CEO of Cerner. "I'm pleased with Cerner's execution and commitment to supporting our clients in a challenging environment. Despite these challenges, Cerner delivered on financial goals, continued to make operational improvements, and further refined our growth strategies. As a result of our progress in 2020, we enter 2021 well-positioned to deliver increased value to our clients while also driving profitable growth for shareholders."

The health giant reported strong bookings growth in its health network business, including its population health management platform HealtheIntent.

"We are looking to grow our share of the health network wallet and expand into new geographies," Trigg said.

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Cerner also reported strong bookings growth for its health enterprise solutions, up 85% in 2020, while its consumer business, such as patient communications tools, grew 150% year over year, Trigg said.

Officials also noted it was a milestone year for its federal health IT business. Cerner is working to implement EHR systems at the Department of Veterans Affairs (VA), the Department of Defense (DOD) and the U.S. Coast Guard.

In August, the Coast Guard launched MHS Genesis at four pilot sites, becoming the first federal agency to join the DOD in deploying the same EHR solution, officials said. MHS Genesis is now live at 202 DOD sites. The VA deployed the Cerner EHR system in its first site in late October, with several more sites planned to go live in 2021.

Cerner projects first-quarter 2021 revenue in the range of $1.37 billion and $1.42 billion and adjusted diluted earnings per share in the quarter to between 72 cents and 76 cents.

The company also expects first-quarter 2021 new business bookings between $1.15 billion and $1.35 billion. Cerner projects full-year 2021 revenue between $5.75 billion and $5.95 billion.

Naughton plans to leave the company at the end of the first quarter, and Cerner announced in January that Mark Erceg will step in as CFO and executive vice president.