Despite near-record bookings, Cerner's operating earnings drop 25%
Despite having rounded out 2018 with its second highest quarterly bookings in the company's history, Cerner Corp. still fell short of its own revenue expectations and saw a steep decline in operating earnings in the fourth quarter.
The Kansas City, Mo.-based health information technology company reported Tuesday that it saw $1.96 billion in bookings in the fourth quarter of 2018. Its highest ever bookings level was $2.329 billion in the fourth quarter of 2017. Full-year 2018 bookings were a record $6.721 billion, up 6% compared with 2017 bookings.
But Cerner's revenue of $1.366 billion in the fourth quarter—up 4% from the prior-year period—fell just short of the low range of its own guidance of $1.37 billion. The company did meet its full-year 2018 revenue expectations, pulling in $5.366 billion, also up 4% from 2017.
Cerner's operating earnings were also down both in the quarter and full year. Operating earnings were $164 million in the fourth quarter of 2018, down 25% from the fourth quarter of 2017, and ending the year at $774.8 million, down 19% from 2017.
"This is not something we expect to continue, and I believe the structure and process changes we are making will help make Cerner more focused and efficient, which should allow us to increase our predictability and profitability over time," Brent Shafer, who last week marked his first full year as Cerner's CEO, said on the company's earnings call Tuesday.
One of those strategies is offering buyouts to its employees, which Cerner Chief Financial Officer Marc Naughton explained will result in an added expense in the second quarter of 2019 but ultimately will help the company be more efficient. Fewer than 3% of the company's employees are expected to depart under the so-called Voluntary Separation Program, which is available to U.S. employees who meet a minimum level of combined age and tenure and excludes "certain critical roles," Naughton said.
"While a portion of these positions will be backfilled, we believe we will be able to fill many of the positions with existing associates, which should create efficiencies in the future while also creating career growth opportunities for our associates," he said.
Cerner's operating margin was 12% in the fourth quarter of 2018, compared with 16.7% in the prior-year period. Its operating margin was 14.4% in the full-year 2018, compared with 18.7% in 2017.
On the revenue front, the biggest dent was in the company's technology resale segment, which declined 42% in the fourth quarter to $46 million, well below Cerner's forecast. Naughton said that's partly because the company is beginning to see more of its third-party suppliers transition to subscription and software as a service, or SaaS, models.
In 2019, Cerner expects to draw first-quarter revenue between $1.365 billion and $1.415 billion, the midpoint of which represents 8% growth over the first quarter of 2018. Full-year revenue is expected to land between $5.65 billion and $5.85 billion, with the midpoint representing 7% growth over 2018.
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