Eliminating jobs, office space and products will help Cerner Corp. save money and strengthen its margins, company executives said on a call with investment analysts to discuss second-quarter financial results Friday.
Cerner's adjusted operating margin was 21% in the second quarter, compared to 18% a year ago. The Kansas City, Missouri-based health information company reported $49.6 million in operating earnings, down 66% from $146.9 million in the second quarter of 2020. Cerner is targeting an adjusted operating margin in the mid-20% range by 2024.
The company reported $1.5 billion in quarterly revenue, up 9.5% from $1.3 billion in last year's second quarter, the period during which Cerner's business was most affected by the COVID-19 pandemic, executives said. Cerner's second-quarter revenue this year included $537.1 million from professional services, up 17%, and $320.8 million from managed services, up 4%.
Cerner is executing a wide-ranging cost-cutting campaign to improve its financial position.
Cerner has reduced its workforce by roughly 500 people, incurring $54 million in employee separation costs, and eliminated around 300 open positions. These cuts could provide an estimated $50 million in annual savings, CFO Mark Erceg said.
Cerner has been getting rid of office space, including a major campus in Kansas City, as it shifts to hybrid work. The company sold 260,000 square feet of real estate this year and plans to divest an additional 750,000 square feet, representing roughly 15% of the company's office space. Cerner expects these sales to save $10 million a year.
The company also is eliminating under-performing products and focusing on those that drive growth, which could save $8 million to $9 million a year, Erceg said. At the same time, Cerner is eying potential acquisitions that would provide them with additional lines of business, including cybersecurity and data, said Don Trigg, the company's president.
Cerner deployed a new "operating model" two years ago that aimed to boost efficiency and profitability and put the company on a path toward a better adjusted operating margin. The company has been looking for a new CEO to succeed Brent Shafer since March.
Behavioral health, consumer-focused products and "data-as-a-service" operations are some of the lines of business Cerner executives see as strategic growth areas.
Cerner is well positioned to offer tools that help providers comply with federal data-sharing regulations that began to take effect this year, Trigg said. Cerner has a leg up on startups and on the technology giants venturing into healthcare services because it has a better understanding of the industry's complexities and regulatory environment, he said. That competitive edge could prove crucial to the company's growth over the next three years, he said.
