Cerner reports record bookings as earnings miss expectations
EHR giant Cerner reported its latest quarterly earnings on Tuesday, describing the fourth quarter as a “solid finish” with bookings up and earnings lower than expected.
“We finished the year on a mostly positive note, with record bookings and all other key metrics except for earnings in line with our expectations,” Cerner President Zane Burke said.
Bookings in the fourth quarter were $2.3 billion, the highest ever and an increase of 62 percent compared to $1.4 billion in the fourth quarter of 2016. Also, 2017 bookings for the full year came in at a record $6.3 billion, up 16 percent compared to 2016 bookings of $5.4 billion.
On a U.S. Generally Accepted Accounting Principles (GAAP) basis, fourth quarter 2017 net earnings were $336.7 million while fourth quarter 2016 GAAP net earnings were $149.7 million. For the full 2017 year GAAP net earnings were $867.0 million against 2016 $636.5 million in 2016.
As for the fourth quarter, revenue was $1.3 billion, an increase of 4 percent compared to $1.2 billion in the fourth quarter of 2016. Full-year 2017 revenue was $5.1 billion, up 7 percent compared to 2016 revenue of $4.8 billion.
Cerner signed six contracts greater than $75 million in the quarter, Burke said, including an expanded relationship with Adventist Health.
It was a good year for Cerner’s revenue cycle business, with 15 percent revenue growth and more than 50 percent bookings growth. “This was driven by the inclusion of revenue cycle in almost all new EHR deals as well as increasing penetration of revenue cycle in our base,” Burke said.
After stumbling three months ago, Cerner reported record new business bookings in the final three months of 2017 that were 62 percent higher than a year earlier.
The $2.3 billion bookings of new business in October, November and December followed a disappointing bookings number in the previous quarter that contributed to a sharp drop in Cerner’s share price.
Bookings also reached a record $6.3 billion for the entirety of 2017.
“Our bookings were at record levels across several key areas, including population health, Cerner ITWorks, and revenue cycle,” he said, adding that business outside the United States was strong and bookings of new business and potential new business still in the pipeline signal growth in 2018 and beyond.
One major contract, however, remains open: the U.S. Department of Veterans Affairs massive project to modernize its proprietary VistA EHR. The VA has yet to sign a contract as expected in the quarter, Burke said. The delay was primarily related to the VA’s decision to conduct an external validation process to ensure their interoperability requirements can be met.
“We welcomed this review as we are confident in our interoperability capabilities and believe it’s good to have the requirements clearly defined,” Burke added. “We also like that the VA is focused on pushing for interoperability across the industry, something we have long supported,” Burke said. He expects the VA will sign the contract soon, he added.
Piper Jaffrey analysts Sean Wieland and Nina Deka weighed in, asserting that the delay of the VA decision has caused Cerner to “eat upfront readiness costs on the contract.” Further delays could cause future misses, they write, while expansions could cause upside to guidance.
“The VA is pushing for interoperability across the industry and platforms, which we believe Cerner excels at, so we don't believe there is a risk of the VA changing course,” the analysts conclude.