Cerner Earnings Call Insights: Tenet Engagement and Population Health

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

Tenet Engagement

Charles Rhyee – Cowen & Co.: Marc, you know you are obviously taking advantage of being a consolidator in the market – your customers are being consolidators in the market. You mentioned Tenet recently here. Can you kind of – I know this is a contract that you kind of took over the entire think a couple of years ago. Can you maybe give us a sense on where you are actually with that client? And if I’m not mistaken, I think you already serve some of the Vanguard system. Can you talk about the next steps for you and sort of if that that kind of transitions all over, when would you kind of think about discussions with Tenet about that?

Zane Burke – EVP, Client Organization: Charles, this Zane. Just couple of comments. We are still engaged in the middle of that rollout, very successful rollout of the Tenet engagement. They’ve rolled out to a number of their facilities. They are in the 30s in terms of their facility counts, the overall turnout, so that’s a active engagement that’s still ongoing and there’s a lot of work to do there. Obviously the Vanguard transaction hasn’t been completed by Tenet and we haven’t had excessive dialog about what that means for us, but that’s a positive sign on that. They are about eight of the 20 – I believe 28 facilities of

Charles Rhyee – Cowen & Co.: Then maybe follow-up I mean, talking about the opportunities you have within your expanding relationships in your base here. But thinking more broadly as the hospitals are getting impacted by sequestration and stuff, and I think a couple of days ago one of the IT service providers and which I think also implements some Cerner (indiscernible) as well, kind of talked about sequestration having some delays on some systems development. Have you seen like this is really having an impact on you but maybe you can kind of help us understand where some of the differences might be what some of these service providers are seeing versus I mean what you are seeing?

Marc Naughton – EVP and CFO: This is Marc. The only one that I am aware of that talked about the lack of market I think others reporting indicated that anybody they were laying off they would be happy to hire. So I think that was a very targeted view of the market. We continue to hire kids off campus and experienced people too for our implementation teams. Our business is as active as it has ever been, our backlog of those projects is the biggest than it has ever been. So we are certainly not seeing any lack of demand for those services due to anything that the government is putting out there. In fact the more things the government puts there, the more we see an interest in systems given their ability to reduce costs while meeting all these new requirements.

Population Health

David Windley – Jeffries: I wanted to ask a couple of questions around population health. So, your Advocate partnership, I believe, is moving very rapidly towards the system completion on that by the end of this year. So, I’m curious about one, the commercialization opportunity of that system or something akin to it and would those 144, who attended your summit be the likely target for that? And then on the cost side of things, would we see R&D tail off after that’s complete?

Marc Naughton – EVP and CFO: Yeah. Jeff, I’ll let you maybe answer some of the Advocate question from a financial side. We clearly are focusing on getting a lot done in a short period of time relative to population health. It is part of our overall investment in IP that you’re seeing hitting us on the capital side. That’s not just limited to population health. Obviously, doing physicians and revenue cycle, which is a huge market potential for us going forward are all things that we are working on, but those that really big push to get those projects out, do tail off as we hit kind of the middle of 2014. So, as we talked about it my script the CapEx should reduce as we – in 2014. But Jeff, you have any comments relative to the summit in Advocate.

Jeffrey Townsend – EVP and Chief of Staff: Yes. On Advocate, the way we somewhat broadly look at it is, they are one or two areas ahead or cycles ahead of most of the marketplace. So, the solution set that they are taking forward as I outlined with dozens of data sources and 16 registries, the rest – if I’m summarizing the attendees to that conference, all have initiatives at various stages whether they are shared savings program, they are attempting member engagement or they are just building data warehouses. So, the advantage of Advocate is the ability for them to see what it looks like when you put this entire staff together and begin to coordinate comprehensively versus at a component base level. So, we see them – those other organizations as they continue to change their reimbursement contracts and take on more risk or launch a broader ACO initiatives, we’ll then fall in line and somewhat replicate or copy that Advocate roadmap.

David Windley – Jeffries: If I could ask one follow-up, Marc, on your new build out, when those are complete and you’re moving people into those buildings, should we anticipate a spike in operating costs or the combination of operating cost and depreciation in the income statement, when would that hit if we should?

Marc Naughton – EVP and CFO: We are building the first building of the two building complex. Campus is complete and people are moving in there as we speak. The cost of moving is very low because it’s all basically taking people from Kansas City facility to moving them just to a new facility. So, for the for the most part the expense isn’t very high and many times it’s for the cost of the couple of cardboard boxes for them to put in their trunk to take over to the new building, not that we’re low cost movers. But that is an approach that many of them take. So, you won’t see any big cost. When the buildings are complete, they will depreciating, but that will be over a 50 year life. So, it’s not a material impact.

A Closer Look: Cerner Corporation Earnings Cheat Sheet>>