As healthcare technology company Cerner continues efforts to turn its financial picture around, the company reported revenue of $1.43 billion in the third quarter of 2019, an increase of 7% over the same quarter last year.
The Kansas City-based health IT company reported net earnings of $81.9 million for the quarter. Cerner's earnings per share, when adjusted for one-time gains and costs, came to $0.66 per share, meeting Wall Street estimates. Cerner also reported an operating cash flow of $351.4 million with a free cash flow of $174.4 million.
During an earnings call on Thursday, Cerner Chairman and CEO Brent Shafer said the third-quarter results represent "solid progress" on driving sustainable and profitable growth.
“I am pleased with our execution in the third quarter as we again delivered against the expectations we set while also continuing to advance Cerner’s broader transformation," Shafer said, noting that the company had a balanced focus on near-term operational improvements combined with innovation and growth strategies.
Cerner CFO Marc Naughton said the company remains on track to deliver it's fourth-quarter 2020 targeted adjusted operating margin of 22.5%.
New business bookings in the third quarter of 2019 were at the high end of the company’s expectations at $1.65 billion, up 4% from the third quarter in 2018.
In early October, Cerner announced a collaboration with Amazon Web Services (AWS) to launch a new cloud-based health platform to incorporate artificial intelligence to improve usability and provide predictive insights for patient care. Shafer said Cerner's transition to Amazon's cloud platform was part of the company's strategic framework focused on three key areas: software as a service, health networks, and data as a service.
Cerner’s partnership with AWS will create “advancement in the overall user experience” and will increase Cerner’s profitability, he said. The move to the cloud also represents an opportunity to reduce costs over time as part of Cerner's focus on productivity improvements.
The first Cerner solution to move to AWS will be HealthIntent in the first half of 2020.
In April, Cerner announced it had reached a settlement with activist hedge fund Starboard Value to add new directors to its board and buy back more of its shares. Cerner also agreed to take steps to improve operations and committed to hitting certain operating targets. The company is also working with consulting firm AlixPartners to review operations and costs.
The new agreement between Cerner and Starboard Value, which has a 1.2% stake in the company, was seen as welcome news by many financial analysts as a plan to increase the company's profitability. The company also recently laid 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.
Analysts viewed Cerner's earnings report for the third quarter as a positive sign as it continues to improve operational performance.
Canaccord Genuity analyst Richard Close said in a research report, "On the optimization side to drive margins, we believe that Cerner is prudent in implementing a portfolio review that includes exiting lower growth and margin offerings. On the transformation side, we are encouraged with efforts to develop next-generation offerings either through internal development, M&A, and partnerships coupled with a full transition to the cloud with AWS. Given the company's leadership position in provider-focused health tech, we continue to recommend shares at current levels."
While Cerner reported strong financials, the company's quarterly operating margin was 6.2%, down from 15.5% in the third quarter of 2018.
Cerner recently announced the acquisition of AbleVets, an engineering and IT consulting firm that gives it greater scale in the federal healthcare market. The acquisition will involve a $75 million cash consideration and will contribute $90 million to 2020 revenue, company officials said.
Cerner expects the initial sites of the VA EHR project to go live in 2020 and is kicking off its electronic health record project with the U.S. Coast Guard this quarter, company officials said.
The company said it expects revenue in the range of $1.4 billion to $1.46 billion for the fiscal fourth quarter in 2019 and full-year 2019 revenue between $5.65 billion and $5.85 billion, consistent with previous guidance. Cerner also expects fourth-quarter 2019 adjusted diluted earnings per share between $0.73 and $0.75.
The company also expects new business bookings to bring in between $1.45 billion and $1.65 billion in the fourth quarter.