Cerner Earnings Call Insights: Changing End Market Environment and Q4 Bookings

Cerner Corporation (NASDAQ:CERN) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Changing End Market Environment

Ryan Daniels – William Blair: A lot of conversation tonight about population health and kind of the changing end market environment and how that positions you competitively. Can you talk about as you look at the pipeline if that’s manifesting solely in higher win rate today on new accounts or if you’re actually starting to see some competitive displacements enter that pipeline at this point?

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Zane Burke – EVP, Client Organization: This is Zane, Ryan. What we’re seeing is a bit of both of that and what it is, it’s the vision for population health as we talked about the full operating system for a population health model and we have a robust business today in the population health space, but in terms of HIV in terms of some of the analytics that we do today. But it’s really the vision that we’re taking them on and we’re seeing that in the win rates increasing as well as we see that manifesting in the pipeline itself.

Ryan Daniels – William Blair: Given the investments that some of these larger systems have made with your primary competitor, is there anything you can do to make it more (palpable) to switch over or is it certain – just going to be the urgency of the need for better platforms and more data liquid in the future that forces that move even if they sunk a lot of money in to the system?

Zane Burke – EVP, Client Organization: The short answer is there is never going to be a great time to switch, but there is not an opportunity to stand fast either because they’re forced to make changes because of the penalties are so great I’m not really speaking about the meaningful use penalties as much as I think about the changes in their reimbursement environment from a quality perspective and otherwise the cost of these systems are insignificant in relation to the challenges they are faced from a reimbursement perspective overall around quality.

Q4 Bookings

Lisa Gill – JPMorgan: Marc, I was wondering if maybe you could just give us a little bit more color on some of the bookings in the fourth quarter, I think you talked 10 deals being greater $17 million and I think you specifically called out the LA Department of Health. Can you give us maybe just a little more around relationship and do you see other opportunities similar to that with other government type relationships?

Zane Burke – EVP, Client Organization: This is Zane, so I’ll answer, Lisa. Obviously, the LA Department of Health relationship is – we’ve got a very strong client footprint in Southern California and a very active network there and have had a lot of success in that marketplace overall and that’s been an opportunity we’re working on for several years. There is the public health overall has the same challenges and needs that overall healthcare has, they have got to go and solve these broader problems around manage the population and in fact, they have the bigger impetus. So, I think there is a bigger marketplace both in the local marketplace, as well as the state and federal levels for the types of technologies that we deliver on offer to provide value and we see that as a market opportunity for us moving forward.

Lisa Gill – JPMorgan: Just a follow-up on that. Is there another technology that’s in there today, and so you’re coming in and you are replacing it and that’s going to the opportunity for Cerner or is it that when you think about these public health entities, they have no technology at all today and it’s a matter of convincing them to move in that direction as the world changes and evolve?

Marc Naughton – EVP and CFO: It is combination of both, Lisa. It’s in the case of LA County. There has a lot of replacement technology engaged in that situation. At the state level, they are in need of technology. They are in need of thinking about solving the problems they are facing in a different way. And I would say that also applies at the federal government level. So, those are net new technology areas.

Lisa Gill – JPMorgan: I think it started out by saying, this was clearly part of one of the larger deals that you signed. Can you give us any other incremental color on some of the larger deals that you signed in your bookings in the fourth quarter and I’ll stop there?

Marc Naughton – EVP and CFO: Lisa, this is Marc. Basically, we had some good segmentation of larger deals as we said, the numbers were similar to what you would have seen in the year ago quarter, we probably have four of them that were over $40 million and so we had some significant transactions. The interesting thing to me was we had very strong representation in our hosting business. So, something that we’ve kind of taken for granted that makes up one of the components of our long-term bookings in a quarter where we didn’t have any RevWorks or ITWorks we still deliver strong longer term bookings because of some of these new relationships also adopting hosting as part of the overall view of operating Cerner solution. So, I think, that’s probably the color I would add