Cerner laying off 255 U.S. employees as part of efforts to cut costs, boost operating margins

Cerner's headquarters are in Kansas City, Missouri
Electronic health records firm Cerner is laying off 255 of its U.S. employees as part of a wider cost-cutting effort. (Cerner)

Health IT giant Cerner is laying off 255 of its U.S. employees as part of its previously announced efforts to boost operating margins to 20% by the end of the year.

About half of the layoffs, which were announced Wednesday, will occur at the company's Kansas City-area offices, according to the Kansas City Business Journal.

“As mentioned in our earnings call earlier this year, we’re looking to identify organizational efficiencies as we implement our new operating model. Part of that strategy includes a realignment of resources focused on key growth areas across the company," Misti Preston, a Cerner spokeswoman, said in an emailed statement.

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Even with this week's reductions, the company plans to continue to grow. Cerner has hired nearly 3,000 associates this year and will continue to hire hundreds more throughout 2019, many of those in Kansas City, Preston said in her statement. Impacted associates are eligible for those opportunities, the company said.

The 255 employees represent less than 1% of the company's global workforce of nearly 30,000, with 14,000 Kansas City-area employees.

In April, Cerner announced it had reached a settlement with activist hedge fund Starboard Value to add new directors to its board and also authorized a $1.2 billion stock buyback. As part of the agreement with Starboard, Cerner increased its margin targets.

RELATED: Cerner Q2 revenue misses Wall Street estimates 3 months after activist investor steps in

The agreement between Cerner and activist investor Starboard was seen as welcome news by many financial analysts as a plan to increase the company's profitability. The news almost immediately buoyed Cerner's stock to jump 10.3% on April 9 when the changes were announced.

At the time, some analysts questioned whether the changes and activist involvement would be enough to improve the electronic health record giant's operating performance and address "structural problems."

Cerner earned $5.36 billion in total revenue in 2018, up 4% compared to the year prior. The company's second-quarter 2019 reported revenue of $1.43 billion fell short of Wall Street estimates of $1.44 billion. Second-quarter revenue was up 5% compared to $1.36 billion in the second quarter of 2018. Cerner's earnings per share, adjusted for one-time gains and costs, came to $0.66 per share in the second quarter, beating Wall Street estimates.

RELATED: As activist investor steps in, analysts remain uncertain about Cerner's future

During the second-quarter earnings call in July, Cerner Chief Financial Officer Marc Naughton said the company remains on track to deliver its targeted 20% adjusted operating margin in the fourth quarter of 2019.

"Our forecasted revenue mix is better, and we expect to benefit from the initial impact of our operational improvement efforts. Further, our ongoing work with AlixPartners continues to support our targeted Q4 2020 targeted adjusted operating margin of 22.5%," Naughton said.

The company is investing in 165 business optimization initiatives focused on cost optimization, portfolio and product management, and business simplification, Naughton said. He added the company is looking to cut more than $200 million in expenses. 

RELATED: Following agreement with activist investor, Cerner reports slight Q1 revenue, earnings growth

The company also recently completed a buyout program, which offered a payout and benefits to certain tenured employees who agreed to voluntarily leave. Naughton told investors during the second-quarter earnings call the company spent about $40 million on that effort.

Cerner has offices across the Kansas City metro area including a world headquarters campus in North Kansas City, an office complex near the Kansas Speedway in Kansas City, Kansas, and a sprawling Innovations Campus, which occupied the former Bannister Mall site in south Kansas City, the Kansas City Star reported.

A 10-year development plan calls for the Innovations Campus to grow into a $4.45 billion complex with 16 buildings housing 16,000 Cerner workers. The site was redeveloped after a commitment of about $1.76 billion in taxpayer subsidies. Those incentives require the company to meet certain hiring thresholds, the Kansas City Star reported.

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