Cerner rides high with DoD deal

'We are honored, humbled and excited'
By Bernie Monegain
07:59 AM
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Pentagon

Topping off what Cerner executives detailed during the company's earnings call Tuesday as a highly successful Quarter 2, in spite of profits falling, was the icing on the cake: the Defense Healthcare Management System Modernization project.

"We are pleased that last week the Department of Defense announced its decision to award the contract to Leidos," said Cerner President Zane Burke, pointing out that Cerner is the core EHR supplier. "We are honored, humbled and excited to be a part of the team that won what we believe was the most objective and comprehensive evaluation of technology platforms and solutions ever conducted."

Cerner's suite will replace the DoD's legacy health IT system in its 55 hospitals and more than 350 clinics, as well as in ships, submarines and other locations in the theater of military operations. 

In addition to Leidos, Cerner also aligned with Accenture, Henry Schein and a number of small business partners to serve the Military Health System and its 9.6 million beneficiaries. Intermountain Healthcare is also a strategic partner providing clinical governance of solutions and workflow.

Intermountain is in the midst of a sweeping rollout of Cerner technology at all 22 of its hospitals and hundreds of clinics in Salt Lake City and the surrounding area.

[See also: DoD EHR modernization to rock marketplace.]

Cerner also announced on Tuesday that Baptist Health in South Florida had selected Cerner to roll out its EHR system across the health systems seven hospitals, physician practices and outpatient locations. Cerner will support Baptist Health's rapid expansion across its region, including the Caribbean and Latin America.

Burke said during the earnings call Tuesday that Cerner is fully prepared to meet the staffing requirements of the DoD project.

He also addressed questions raised about whether the massive DoD project would mean other projects might be placed on the back burner.

"We believe this is a positive development for our clients, and they should have confidence that Cerner will continue to execute to meet all of our current and future commitments, he said. "We do not expect this to have a material impact on bookings, revenue, or earnings in the near term since the project will have several phases and will start with a small initial rollout. 

"The Department of Defense (contract) is big and complex and hard, but it's not new to Cerner to do big and complex and hard projects," Burke said in an interview on Tuesday with the Kansas City Star, Cerner's home-town newspaper.

Finally, Burke referenced the  $11 billion figure cited in regard to the contract before it was announced. 

"This estimate is now approximately $9 billion and represents the total estimated program costs over 18 years, not the value of the contract awarded," he noted.

In response to an analyst's question of when Cerner might be able to provide more details about how the DoD contract would affect Cerner's financial picture, he replied that the DoD was still in procurement stage, and added it might be 30 to 90 days before Cerner could offer more details.

Cerner reported higher revenue for this year compared with last year, but higher offset costs. For the quarter, the company  projected profit of 54 cents to 55 cents on revenue of $1.15 billion to $1.2 billion.

Piper Jaffrey analyst Sean Wieland pointed out in a brief he released after the earnings call that Cerner missed on revenues for the second consecutive quarter. He attributed the misses to Cener working to fold the Siemens business into the core Cerner business.

"Integration challenges should not be unexpected," he wrote. "The good news is the cross-selling efforts are succeeding and cost synergies are running ahead of plan."

Bookings in the Q2 were $1.29 billion, an all-time high and an increase of 20 percent compared to $1.08 billion in second quarter 2014.

Second quarter revenue was $1.126 billion, an increase of 32 percent compared to $851.8 million in the year-ago period. Second quarter revenue was below guidance provided by the Company. However, the lower revenue did not have a material impact on profitability, and Cerner's adjusted earnings were in-line with guidance.

"Cerner's second quarter results were solid, with lower than expected revenue largely overshadowed by solid earnings and record bookings," said Neal Patterson, Cerner chairman, CEO and co-founder, in a news release. "Our bookings included a record number of new clients joining Cerner, reflecting our strong position in the marketplace. The quarter also included good progress with our Health Services acquisition and ongoing success at migrating acquired clients to Cerner Millennium® solutions."

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