Eliminating jobs, office space and products will help Cerner Corp. save money and improve margins, executives said during a phone call with investment analysts to discuss second-quarter financial results on Friday.
Cerner’s adjusted operating margin was 21% in the second quarter, up from 18% a year earlier. The Kansas City, Missouri-based medical information company reported operating income of $ 49.6 million, down 66% from $ 146.9 million in the second quarter of 2020. Cerner is targeting an adjusted operating margin of an average of 20% by 2024.
The company posted quarterly revenues of $ 1.5 billion, up 9.5% from the second quarter of last year, when Serner’s business was hit hardest by the COVID-19 pandemic, according to company executives. Cerner’s revenue in the second quarter of this year included $ 537.1 million from professional services, up 17%, and $ 320.8 million from managed services, up 4%.
Cerner is pursuing a massive cost-cutting campaign to improve its financial position.
Cerner cut its workforce by about 500 people, incurred $ 54 million in layoff costs and eliminated about 300 open positions. CFO Mark Erceg said the cuts could generate annual savings of about $ 50 million.
Cerner is disposing of office space, including a large Kansas City campus, as he transition to hybrid work… The company sold 260,000 square feet of real estate this year and plans to sell another 750,000 square feet, approximately 15% of the company’s office space. Cerner expects these sales to save $ 10 million a year.
The company is also eliminating underperforming 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 looking at potential acquisitions that will provide them with additional businesses, including cybersecurity and data, said Don Trigg, president of the company.
Two years ago, Cerner implemented a new “operating model” that aimed to improve efficiency and profitability and set the company on a path towards more adjusted operating margins. Since March, the company has been looking for a new CEO to replace Brent Schafer.
Behavioral health, consumer-centric products and data-as-a-service operations are some of the business areas that Cerner management sees as areas of strategic growth.
Cerner can offer tools to help vendors comply with federal data exchange regulations that took effect this year, Trigg said. Cerner has an edge over startups and tech giants that venture into healthcare because it has a better understanding of the complexities of the industry and the regulatory environment, he said. This competitive advantage could prove critical to the company’s growth over the next three years, he said.