CERN - Earnings call transcript Q3 2018

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Operator

Welcome to Cerner Corporation's Third Quarter 2018 Conference Call. Today's date is October 25, 2018, and this call is being recorded. The company has asked me to remind you that various remarks made here today constitute forward-looking statements, including without limitation, those regarding projections of future revenues or earnings, operating margins, operating and capital expenses, bookings, solution, services and new offering development and future business outlook, including new markets or prospects for the company's solutions and services. Actual results may differ materially from those indicated by the forward-looking statements.

Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements may be found under Item 1A in Cerner's Form 10-K, together with the company's other filings. and financial in in which the to SEC non-GAAP can earnings was of Investors the found the be company's today reconciliation measures Cerner.com. this discussed call furnished section A of on posted earnings release to Cerner statements or by any information assumes update forward-looking as except no required obligation law. Officer like Corporation. I'd to over time, Cerner the this call Marc of to At turn Naughton, Chief Financial

Marc G. Naughton

Peterzalek, call. our Good and afternoon, Chairman Client and our everyone, I'll the start closing provide Carmen. to of highlights with CEO, you, and follow Thank numbers; then will welcome John Chief Officer, results our me review a and will comments. Brent with Shafer, observations; marketplace

is a leaving primarily year which was to below reduced software low I at outlook all QX of resale the with within level due also our full and full of technology our software expenses. by remains QX Revenue offset Turning for range. had to outlook key guidance year within our QX, QX to was previously The consensus note earnings results, end our lower-than-expected that provided expected range impact solid our guidance we would largely lower metrics guidance estimates. our ranges.

also of revenue was XX% it And QX mentioned have an them. billion, in bookings $XX.X year easy exercise the Most is XXXX, In experience, billion, QX. last new this backlog rarely were beginning with standard of contract termination contracts option. of but contracts under clauses. our our have strong. before, Our our calculation XX% bookings a $XX.XX termination potentially from in XXXX. of by billion in down that long-term of I clauses. also impacted is the so revenue quarter which $X.XXX which comparable, clients some increase as standard year-to-date excludes reflects government backlog $X.XXX Recall billion a over QX QX We lowest growth revenue bookings in was quarter, ended our our

So just revenue total change opportunity; of calculation backlog. this our it doesn't long-term reduces the

is in over of was X% the resale have is end we lower discussed to to which This as million, licensed from forecast. a at software go I'll increased of and and Technology year-over-year XXXX revenue in range $XX was but software X% $XXX deadlines XXXX, to in revenue the the This growth the million, million XXXX. licensed regulatory due QX. and, $X.XX QX through up guidance primarily of past. of the to resale. level our down software of revenue million to Moving in due Licensed predictability Subscriptions due $XXX bookings of billion of QX now X% level business below model lower-than-forecasted was technology lower-than-anticipated as I to to lower in mentioned, quarter. XXXX. compared QX QX in down related part fewer our was $XX detail

services and revenue a Professional largely discussed, our to And driven of growth were flat expected the maintenance Managed new classifying subscription to have the year-over-year. million was driven grew impact XX% standard revenue by of $XX million, discussed businesses. adoption XX% to was finally, reflecting which which up and our year-to-date we million, As by travel previously $XXX Support the increased strong $XXX by us to is as revenue reimbursed plus our services single-digit bookings. of reduced million, backlog subscription portion X% new growth impacted standard. subscriptions Works led revenue $XXX support. in low

from non-U.S. Looking the million geographic $X.XXX at revenue increased up at was domestic year-ago quarter. and $XXX revenue X% revenue X% year-ago segment, by the quarter from of billion

ago. and to is XX.X%, up QX XXXX XX.X% a from which down of was for QX in year gross our margin, Moving from gross margin XX.X%

operating earnings. spending, discuss net margin I'll Now and

and these earnings we permanent in tax both all detailed compensation share-based acquisition-related adjusted results. adjusted expense, adjustments exclude or release. non-GAAP adjustments items, items, GAAP share-based reconciled results compensation our to GAAP For other provide and The is and

operating of the Looking of $XXX operating expenses spending, GAAP up compared X% million to $XXX up Adjusted compared third period. to were expenses year-ago our were X% million quarter in XXXX. operating QX at

was year. Looking to to outlook at largely the an increase expense lowered QX X% increased business. compared our the to lower This by for client compensation and the driven software XXXX. our QX personnel services of items, service lower client in was by line sales service related and slightly related variable in This driven down primarily and X% Sales XXXX. QX of increase over expense was

in Software G&A intangibles driven R&D, software. gross amortization, and increased and was decreased capitalized year-over-year. amortization a acquisition-related X% XX%, development increase XX% lower slightly expense in of up by expense XX% increase XX%

from non-cash margins, operating mix in was Moving adjusted is XX.X%. operating margin decline Works XX.X% year-over-year to Works period; compared our our of which we including expenses, the our to guidance was and XX.X% higher consistent operating revenue. investments have in of down our the reflects operating margin our GAAP The with margin and growth items increased in XX.X%, year-ago discussed, businesses,

We in continue these to believe temporary factors that of nature. many are

that efficiently. looking operate We to continuing profitable are work more to imperative for also related our includes growth ways

view and plan, an updated opportunities. work this of we margin finish XXXX finalize long-term expansion our expect and to our provide we As

compared of and million QX $XXX in our million in in earnings $X.XX Adjusted QX $XXX GAAP XXXX. earnings $X.XX adjusted share net diluted of and or to net to earnings was diluted in XXXX. were $X.XX net Moving to QX were per $X.XX EPS EPS, compared QX

the for tax rate tax XXXX we our year-to-date that Note tax and next year, was be our to to GAAP expect rate. to rate closer similar for quarter also tax XX%, QX non-GAAP rate XX%. our was XX%, Our

with from We $XXX with in of move $XXX program. million currently our investments, short-term down QX million flow balance $XXX Now, is share Lumeris' cash remaining We being parent offset our $XX million repurchases. by under QX authorization million and our have in cash of our of investment million of ended to repurchase which sheet. $XXX and XXXX, free company

from was QX quarter up million. quarter including $X.XXX unchanged Moving receivables our XXXX. lease from billion billion, capital $XXX of the in last to debt, $X.XXX at ended total at obligations debt Total

Our of QX related in timing the days collecting small XXXX, which XX days up XX large a The of in to mostly balances. is was year-ago from receivable in days XX was QX period. the DSO increase DSO of number

for the return XXs quarter We year-to-date capitalized were free QX. $XXX cash was flow This defined to and expect the to DSO $XX cash $XXX brings capital as up the quarter. less $XXX was Free QX operating development flow cash and million to Operating was purchases capital flow million. costs million. which cash compared flow to is for million capitalized year. expenditures in million, last software $XXX X% software

of expect leading We in in year to increase another cash flow. capital the free to continue flow operating for growth offset expenditures, year cash than the more strong to

go Now, guidance. I'll through

We of guidance QX to X% The to billion of our above reflects range billion. midpoint full previously over XXXX, expect this growth is $X.XXX revenue in growth XXXX X% year and be of QX and billion, would of midpoint between year reflects XXXX revenue $X.XX the and range. which over provided full $X.XX bring

software would The understand The year, are of $X.XX We lower which of guidance. previously per to range while expect reason main bring in We and expense range expectations expected in the than guidance the year not reflects QX consensus XXXX. $X.XX is us with provided in bookings software share. X% this QX impact is full diluted for the $X.XX this EPS be year lower for the that to midpoint we EPS also full midpoint the adjusted had QX lower XXXX, over puts quarter future our benefits our which is growth higher that QX QX slightly were the in that X% aligned to guidance our offset quarters below XXXX is that and it QX. of

XXXX, of would bookings of guidance, our it to year to we decrease billion to of quarter to bookings but bookings reflects full $X.XX growth X% a which over billion revenue the Moving bookings $X.XX XX% midpoint this high compared reflects in record fourth QX XXXX. bring The in of $X.XXX billion range $X.XXX of billion. XXXX expect

the Historically, been and plan have quarter since based until most call. a a after includes our always outlook for year level high never QX we that plan plan results from detailed we on a ended to our completed has year on our sales and backlog have forecast. This provided third Moving preliminary finalized our current outlook XXXX. the next is bottoms-up

set. and when given our like years, two against not expectations our our fourth our past the finalized This provided to adjust call, we've guidance doing, delivering something we we had is plan quarter we on outlook. focus For on

year. to addition, process our undergoing are In more this create is the plan involved we

also all kicked planning to client plan, useful has series provide innovation focused focused a outlook experience, informing which of Brent expectations. our delivering strategically-focused but believe the are know, profitable for and you As at a a us Brent result a are point be streams on we very XXXX. work solid, growth; preliminary will of not is I on off against process.

on earnings a to on a call, this usual, preliminary providing change, our as will, We view from QX outlook Please our provide be sign XXXX our we as expect QX that guidance call. take don't poor.

a We our to challenges growth that still near-term guidance and want more plan. complete can earnings on deliver be are we there solid environment some we believe While discussed, we've in year. based revenue the next just

As a strategic we three-year working on mentioned, plan. we're also

detail have allocation. We a we investor the plan to cash HIMSS, our more to discussion expect over combined time, a will plan, morning that, to of on growth, call on turn I'll flow that which on basis expectations At February as XX. margin capital and our and long-term more for meeting use the during detailed share expansion, John. with XXXX views With our for we this,

John T. Peterzalek

Today the marketplace QX role Marc. cover I'll afternoon, Thanks, results on everyone. comments and and my environment. I'll provide Good then new current

this effective new privileged Cerner. success As XX will a and emphasis to that a assume be thank and clients, his the Burke Zane our Client the X. know, stepping to which title years is his like I'd down contributions transition, industry, November am role responsibilities Officer, I on for our our reflects increased to With Chief of Zane clients. as you of

the the world. of my career health sales, care working As XX-plus with spent in in most I've relationships around ongoing clients years with XX-year the and delivery a industry, associate in Cerner

philosophy and team, reinforce client-first at efforts a we our we consistently we'll do our success to means on down As will continue we everything center Cerner. This value. the that and believe double to turn I'll of a transformation clients' leadership ensure our discussing put component at to this us continue and I focus of maintaining in of role results. With playing a QX Cerner's critical will that, to the is key allow care. success, growth This deliver health

of exception the earnings software lower the results with impact quarter on our technology and resale its the revenue and Our quarter in the for were solid and QX outlook.

from As QX, Marc is in we growth In XX%, year-to-date of XX% coming client. was contracts at addition and grew the ITWorks of in percent normal bookings QX a the an including bookings our long-term range indicated, our bookings XX%.

from business We XX% outside new quarter standpoint, our Millennium venues. coming also hospitals, installed a hospitals, bookings base. contributions from included large had with from core ambulatory a broad good of community and Bookings

to our good continue we growth solid quarters. ITWorks, key all and addition, Cycle, with In Health, areas from Population contributions having Revenue have

relationship Regarding last Population Health, quarter. with to the on provide update announced we Lumeris wanted which I an

and and recall, manage EHR-agnostic plans to with Lumeris that you an designed As will called help up be are health Maestro offering plans. Advantage sponsored systems health Medicare provided Advantage we set launching

and adopting our analytics. joint efforts clients. Cerner we targeted July, is development as Lumeris in announced joint focused activity have collaboration list clinical and and prospective our of across methodology been kicking platform advanced the Lumeris Additionally, for on its off roadshow our our Since HealtheIntent launching mobilizing teams, we a

of We clients contract with dozen of that Advantage intermediate an launch either step over are visited evaluating optimizing with multi-payer or a beginning have Medicare the prospective arrangements. a

Health I of We observations our clients like The to been Conference. positive. also few touched share interactions. these many a has initial feedback during very our Cerner from received we

a have through upside-only or Many Medicare modest agreements Programs. Our dollar portion had delivery. Care they considering of Organization of into They clients with the significant Shared premium they where such stages different value capture as contracts expansions Accountable at success experience care payments. Savings are are an now can all through provide more with value-based

systems Advantage health has an value-based opportunity to programs. emerged Medicare Next, their care leading expand as for attractive

that forces Our desirable churn premiums higher rapidly-growing make contributing lower senior population, all and option. a MA are

for Finally, importance change experienced services our a Maestro clients and hiring the management strong solution. compelling combination We brings, operational have makes of partners. also acknowledged Advantage of believe expertise the that and technology-enabled

are we our forward you journey, early on to progress. with responded in still continuing we're While look have pleased and how our our update clients to

our Defense starting the benefit sites. an at project. provide beginning will the Department Also, went by initial like our efforts sites HIMSS our from of one evidence kicked year. on it We we is already go-lives. four progress live optimization is broader Next, initial off I'd implementations achieved that GENESIS the Level X, that believe to followed last which since of recently deployment sites noting with federal worth our update business, further made additional has these We MHS of

as to ramp the Veterans task expected finish orders, orders in of with that track work contract task Moving more XXXX. along we and on the into signing the signing work with set Affairs, project steadily orders, as QX. the first in Department us kept to after move our These began activity of the on three continued XXXX QX, task after

be scheduled to sites The when project first milestone major are will initial go-live. XXXX, in

our U.S., driven to solid in U.K., quarter the outside X% business Sweden, and This had another the good East, by growth. we revenue results Moving Canada. the with Middle was

over and we how Before are I'd turning looking to provide like some the growth comments our the to potential. about call marketplace at Brent,

high incentives. environment we purchase deadlines providers always make due don't operate and financially regulatory a are and fewer to to challenged where in discussed, of As an decision urgency have we sense

is to there solutions of value-driven in that do However, and urgency and counterforce challenges by that, faced many services with providers the in value. carry align solutions sense of create a a our

of us deliver position to growth believe we this in a that sources result, environment. solid results have several we As

to federal foundation business growth. this Our clearly an important is

Execution marketplace, the to growth Cerner, key, will the VA competing these our solid With to well getting with on software. continue business, now replacement HR remain less service importance be and to DoD active many and beginning for and we In only retired also years. new projects of the visibility the given to the for have ramp although smaller we but opportunities members. are to started, several contributions not do opportunities

meaningful to opportunities, footprint and footprints represent new cross whitespace Beyond for our services. solutions existing large sell our us

our ITWorks We Population Cycle, believe to can continue significantly Revenue contribute Health growth. and that to

and to adding ramped our is contributions collaboration. While is stage has remain become with and slower that an is we'll unmatched in in to now Population we early we coming contributor our that still confident and Health revenue a Population growth our in years. than projected, large to HealtheIntent initially believe services depth breadth Health defined We path meaningful Lumeris

and represents we non-U.S. coming deliver opportunity as EHR Finally, than U.S., our years, have and the towards helping business system value continues to and grow summary, great earlier-stage it Cerner it in care stakeholders the of an in solutions of as position an turn significant health Health that markets. efficient is In we the positioned I've and to discussed. play solid believe a the getting to for occurred all I decade, and end over over believe market past care. out needs solutions stages a the care well digitization services Brent. to our as role is that, services in well move the nearly are we more initial I'll higher-quality with of tech-enabled the of that With align opportunity other has results in a still

Brent Shafer

leadership with of our good more increasing very significance the the dynamics job health environment responsiveness clients has development his marketplace our perspective afternoon, to of did their in strategies experiencing. for care Thanks instrumental role we're team's everyone. of and needs. closely in our complex aligning we're analysis the and and new been describing think, a I a Good John. John's John, lot, the that

operational hip. also thank moment for result, to distinguished at to we client-facing the into Cerner echo becoming This we thank role over years. good Zane move As difference teams to him the believe this like this a he's a on feels to take is well-deserved are congratulate I and the also the and for as notice service I'd and John's John recognition playing. joined our been new internally you his will and wanted XXXX. clients

to our focus. detail like more I'd share on Now, client-centric

As you our of we Conference. recently know, Health thousands clients Cerner annual at hosted

delivering to an of During our era. and I'd the commitments made are framework presentation, commitments I work like this in planning our expression for my calls, on several value today. define that These prior in touch to briefly I've clients strategic referenced them

commitment focus can't we There's This is other first If decision clients a disciplined advance on The is obsessively successful, making we we relentlessly that every make. success. our will go the frame execution. real our on for wrong. clients' we focus commitment

payment critically methods. Health the and reach our about strategies and and care shifts facing ZIP care environment Our continuum, are and clients, strategies. build to the into implement enablers meaningful networks. and see where helping The their within activated can in the of primary of demographic-driven be intervention the clients design to prevention health increasingly in prevention we delivery intelligent deliver that can and they platform important collaboration strategic and it's from of We a HealtheIntent next big commitment our consumers. imagine, build moving are believe care payers network codes care all opportunity their community. improve high commitment. our in differences, they settings to our policy networks Lower and strategy and full key be organizations to acuity shortages, acuity out becoming challenges care Lumeris tremendous will for across and people And is provision is are to to

world for the outcomes better a to experiences health on health patients experiences will commitment that fourth and become our health seeking for innovation. improving care and duty. life choice of and consumers by both evidence-based an of see for overwhelmed and who the third focus is compliance. opportunity the are we to providers partner We The The and is commitment a new care outcomes, healthier care final make

in believe digital natural going era full a Cerner the together. open with But at Cerner. stop. our support building of creation Our for experience I transformation to that's home delivering companies, make to value fuel value and which build to will these value and also and it things as clients Q&A. to over a and for even to scale, we platforms for execute we our an turn central value. multiple on deliver We be operating by is to innovation us to like and to designed commitments lead love more creating clients, powerful not operator ongoing model Ultimately, over shareholder for for decades working profitable expected create we're ahead intelligent to and partnerships. partner We're clients creating will innovation And the I'd to opportunities growth

Operator

And Steven Valiquette first you. Barclays. comes question from Thank with our

Steve J. Valiquette

Thanks. afternoon, Yeah. question. Good for taking everyone. Thanks the

know Just did now guidance for that that still for quickly, providing previously year. so part meaningful for XXXX; But not you're investors a a the some talk next all focus of on investment margin is of obviously. we about for today expansion and thesis you part XXXX,

curious see for of I if is I'm able guess, XXXX. expansion to the you're So in that focus just your least part to company margin still Thanks. at confirm

Marc G. Naughton

our margin mean, we focus is expansion Marc. well. This part talked Yeah. XXXX I beyond as clearly about of as

an the looking fund an there, I a got as But of earnings that look to want numbers that's growth would get to talked XXXX what think we growth to continue significant expansion and about basis particularly to certainly apply being at that going that in over of we I We it you points kind want better Once in growth much our careful company. XXX able we I find purview of new that I headwind our if talking existing to opportunities, of about number out probably a that annual of be we we level. to like We'd I the think is the XXXX. for expect expanding at our get have model, solid again, grow us. operating spend margins. that's is until view, and We've expenses. XX margin part grow able growth. you're out that I well clearly continues but to consensus to thought XXXX and is strategic the to us take increase are points be beyond kind think which see margin plan. we (XX:XX:XX) and as to part way the lot of think year there, XX for in Certainly, revenue a of non-cash of be next to front focus go about land

those they're as they still up as are did are while – much increasing XXXX. they so, to not in grow XXXX, And in going

about something can once certainly and factor that's that think to as basis we'll well. is where But XX plan. as be range once into our into I our able to we've plan to land we we we're that into the going So XX you fit look our again, points we overall goal, talked XXXX, with share

Steve J. Valiquette

Okay. Thanks. That's helpful.

Operator

you. Thank

comes from Morgan next Goldwasser Our question Ricky with Stanley.

Ricky R. Goldwasser

Good Hi. afternoon. Yeah.

you the versus clients more going expansion this can and kind to little has you of quarter? replacement of some this see talk new from like can Thank opportunities, remarks your about new And if the a you. also changed on the just smaller talk opportunities you views What opportunity where back long-term about color impact what on prepared Just give year came us where you your market? some contracts? that bookings bit replacement

John T. Peterzalek

and platform. we that the is side. for Marc a not to sure are or an necessarily is replacement the new share he and can market. more thanks or selection that seeing John. anything's the question. view made to new My bookings Ricky, would But I a And business This making a active to about (XX:XX:XX) share changed talk the have market. general, we're selection market wants can replacement in about on haven't if smaller replacement I comment market opportunities on deals, I'm transition

business smaller remains in business difference my tend strong The comments, only still strong. is as I've market new and the So they be come smaller very and market market as and new software, mentioned replacement is, market the discussed. the U.S. with the in active which both entities replacement smaller well. to good bookings And But in business new about I which feel we the

Marc G. Naughton

this Ricky, is Yeah. Marc.

new I to that seen we've John's seen. XX%, think what echo we've really from the to comments similar around with would I market was what our is of which percent kind is continues consistent be the but into active It's market that market, we've the seen of going some indicate into opportunities year. a smaller, coming our is would to continue the are pipeline it's an market XXXX.

Ricky R. Goldwasser

of year. your struggling activities competitors seeing some of result more And are a this as Are RFP you that?

John T. Peterzalek

have procurements lack volume see to level component that have a consistent in we don't I in little say, which and out, see of U.S., crossed back we a RFPs But to don't change RFPs; but the the of are to based, RFP would spaces – all the is RFP. very respond I some outside over the conversation a we've a of where RFPs diligently the and in generally procurement there. every into come of volume day largely I working very where

Ricky R. Goldwasser

you. Thank

Operator

Thank you. from our next question And ISI. Evercore Ross with Muken comes

Ross Muken

guys. Hey,

a offset for growth lot the maybe, on line your sort from So margin the the lower to which mind so this seems margin like in growth line. your would of revenue year your it of some hard that's take it expense terms Because above of coming expansion to in corporate segments, obviously is a of goal? and would software sort to the of obviously help in what there licensed be average, return

the of rate big a the us if we're picture transition what market. seeing of back give growth that just gets replacement sort of So in change not that

Marc G. Naughton

Yeah. This is Marc.

perspective, have, orders of get will that We But task see continue side. opportunities from to government licensed kind opportunities software. those the we some orders tax signed, we've of those replacement on indicated chunks a that clearly of as market include

as maybe that a considering certainly market, not market So, kind It's beyond is if will. of as in market. brand is replacement far that everybody's that an opportunity fully new a you – something the

When are you we federal with market us gives off that top good on with pretty that side our replacement hits and platform we government combine SaaS the think into software create, new of our of see more margin. more kick we of the our pretty innovations the to So, line that back significant. to HealtheIntent a and opportunities side selling side us business licenses base the starting higher where runway to get the the business is recurring and

probably when not government you think relative think to getting – as full can asked is it question, as one the may the that I the business have the be So impact the view software. I far

Ross Muken

And two other things. just quick

Marc, so just or what one, on And is you growth bit. a the in ASC year obviously sheet, free we've the the is cash So give us flow we balance XXX what then revenue for secondarily, seen coming far can apples so know to apples? the

prioritizing repurchases tuck-in capital kind of next of don't and allocation versus are have You just about M&A? a lot leverage, I how year guess, you thinking Lumeris after into

Marc G. Naughton

I relative to ASC to of for top number tell year. is Yeah. XXX, head the know the you right have don't mean, what that I off impact I that that my

look a new the to that, XXX Q. whatever are revenue at be XXX, relative quarterly Q of the I it'll – basis have you that think to I we've that take you ASC ASC the on when that would indicate takes in basically also disclosures into kind in disclosed standard, versus taking that account rules clients specific then different. is old the of, signed, flexibility new that in get our the applies era There's that looks advantage rules. language appropriate. change That XXX we're doesn't are contracts revenue the era, new and contracts appreciate. ASC our recognition in those that the that contracts and at In the the

in contract XXX; issues with a ASC those XXX $X.XX an in of And time. that one so, deferred the contract for of could ASC was, have revenue amount the apply making indefinite we terms. could you result

under comparison methodology small would ASC when continued ASC very and there and difference between could old and any contracting be difference. XXX, terms our wouldn't and old or be see between ASC new in you there So we a our XXX XXX XXX a contracts have ASC

as contracts, far a to at as backlog that get XX today. we bit mentioned ASC don't the there, a of ASC in included current dollars exercise. get trying think backlog since they're hundreds backlog. that's There in in on the to revenue have valuable like versus in they that XXX little a cancellation I So, ASC in triggered. XXX. And XXX trying under disclosures is that required, there; not XXX It's the But my our are don't prepared in sitting they're of comments, to of of next clauses them, as and look least very ASC lot isn't focus that's at months we in millions have

of again the period and once is from look a XX-month out going at a over backlog out still Overall, in will revenue bit of to going challenging. looking be backlog at little So, out a sense number number, backlog. XXX drive that of the Trying figure difficult. the XX% our we're company to happen to what's good get trying ASC to to

allocation at to that. pretty you've about capital we'll do offset our is, presentation. a certainly seen this want from recently what talk I slightly standpoint, visit us when think But think a to to than deeply we it's buybacks, HIMSS higher potentially dilution level with and I continue more consistent we do share

an great do able of us to think a quickly investment a more balance to think us I we'd example the our for our leveraging make to on opportunity than it we growth an sheet opportunity is that own. be Lumeris future gets

you you'll when us see more guys part But that on we that's our capital incorporate to as going allocation in February. to strategy. be think something come to of going forward I talk

Ross Muken

Thank you.

Operator

you. Thank

with next comes RBC. Our from George question Hill

George Hill

guess, we long on accounting the long and how I how QX the does weakness, to Good I see does Like and drag expect QX afternoon, recognition, to of we – software duration income that taking that weakness software new – into thanks call. guys, guess, that the under I kind should the the guess bleeding on short standard? bookings expect in how is statement? the the of in weakness should for revenue software the short-term Marc, what long

Marc G. Naughton

license it deferred, I that hit future it hit got of – you've gets quarter, but extent some to the the obviously will that Well, quarters. current doesn't think

than it more period come the future would a benefit point, revenue if some at would will, actually in it sooner. So

was some software issue sales. of QX, lower For just the

a in an by and get from those the and that and, them doesn't transactions the are and therefore, up that revenue software gets sale drive that from that in across the still rollout software made pipeline So, taking to or up made accounting standpoint; line standpoint get getting from going it.

that out to there QX got also the some that repeated And in So, that making QX. incentive is obviously so full quarter. gets point is out were of we is that that that XXX in the lower in QX in impacts recognized and and the to number amount if currently is bookings bigger to percentage key because outlook QX, ASC the lower side there was comp is, revenue pushed QX our benefits pushed under the later from the on we spend the year More for QX side, gets lower adjusting won't relative and and – us. to – not then of of be quarters lower a

George Hill

maybe things interface blocking I know And government for right that particularly rules something now regulatory couple data just business. – has they kind maybe changes follow get That's I kind risk, advantaged or disadvantaged we like like for that by proposed whatever's think the Cerner. about and how guess, do Is there's I submarket the I interoperability the happening through interface historically the business these that of think lucrative small there? with given we maybe of I talk just been a at up data is pending the see regulatory about a and changes? the segment on you And think go which guess, about John. one, about do helpful. how of blocking. of if Okay. subsegments guess, quick

John T. Peterzalek

continue risk, My would that of times kind blocking not different because have and between really we to or interoperability first at be and we'll that. as cannot being interoperability be data right. the as many saying they and a reaction things. interfacing sharing are not is That And – interoperable do the we've view to data record on be; been entities two interoperable

first those or strong we're legislations There regulations now coming, your interoperability of I part they think later. whether So and really will be it's question, to come answer your more will. if through

the systems is and really interfaces frankly, interfaces technical around – I there'll on well I been systems interoperability. leaders always have of different think at we positioned think and we're do those what need things. between But for a type and be

So I huge threat. a as don't see that

George Hill

the appreciate I Okay. color. you. Thank

Operator

from with next Thank Gillmor question our And Matthew comes you. Robert Baird.

Matthew D. Gillmor

Hey, half. just the thanks it the of for to were to can margins lower what back? for back regulatory the that's of as drivers there you think or were predictable? the I tell that'll come quarter and deals slipped, main solution mentioned come lack do that making of that one But wanted question. you back was to Or it more us software the pressure for you've the specific the categories less softer bookings

Marc G. Naughton

a QX quarter timeline a isn't in clients that's think to that software from traditionally prior and get Clearly, perspective, forcing And than has quarter we anything been there go that lower might years. saw regulatory we more done. yeah, – Marc. this I had I is deals This think have

So I impact. think that's the

but software market's the get do to our of is our expect get that, There's in still we it's which shortfall. still QX, offset didn't to active. much the to not said, get. some John usually it Certainly, on out history As there just (XX:XX:XX) more some going indication software We QX of QX. to go

Matthew D. Gillmor

that how thing so the XXXX of the Is first give Okay. and for in multiyear there's bookings of and a or the Can that about the it like us task will any million it bulk flows we XXXX? you maybe And into to sense contribution maybe asking based that revenue? revenue orders $XXX see like orders. how from on then VA task hits, far seems

Marc G. Naughton

Primarily, contracts revenue most completion A way the from Yeah, oriented. varies. services the for those it lot it's in the is of percent part. of flows

basically the as flows in that So, work done. gets

So some shorter of of are term. relatively longer term, task can those be them orders some

to client. specific with I revenue mean, that – So, come refer from not task provide we're a practices and that the it'll our numbers to order. specific client going vary

you've the that the got to what task are to It opportunity total from that specific extent months could what So the bookings flow and XX a path timeframe expect is about, quarter task of sense depending on is, out. XX of be kind the area XXXX continue a kind could contribution probably anywhere in what is. chunks what that being The certain time looking that the we the for of in to that is opportunity going $X going usually little would a $XX be is time order order, while the linear. overall so derive timeframe not the somewhere that it – to to trying period problematic We the that billion, contracted yearly is to certain revenue. is by apply government by billion have in pick But we to revenue contracts number, necessarily of vary period. and But will task over somewhere can successful at. that there be in up annual order talked shorter orders bookings task be a a broadly of

drive good that would of be So a across work, initial which few sites higher level do your the lot of not when a but revenue. and – sites preliminary to spread there'll many is of start some sites; there therefore, limited a you it's especially at work at

we're you clients' give you bit that's our hopefully precise So, going revenue. contribution color, but numbers of to any our that to a – little of gives not to

Matthew D. Gillmor

Got it. Thank you.

Operator

next our from question David And Larsen with you. comes Thank Leerink.

David Larsen

PMPM deal Health and deeper really it services? moving. seems bit can Hi. can Population future when Can more management me Thanks. about When with you like and your you to start where that's Because talk a you healthcare of the Lumeris? IT rate increase is little providing your

Marc G. Naughton

shot elements certainly, believe Marc. hitting a care are health it us. we we today for is value-based huge care at an is This Health, David. Sure, just area absolutely take is combines that opportunity Lumeris, kind of that the think Population the I'll a of and all

we the you road, plans. of they're a clients, grow. surveys doing to to or some is decides to initial to be they to actual the a the group year As then plan, and last see set client will time set that two going some of most half, they have with because an early membership on fairly doing work, going said, plan, they're to on, are work that's us the the And set look is as limited if ready consulting up work going quarter up initial down that by – a to going impact financial up going members, probably initial they're be a provider maybe years the and done

talking to time, lot see probably they the be Lumeris clients, platform to financially being we're HealtheIntent working that what said, with and time you're basically meaningful available, a to on four-year business. during going the by we a as So three, our anything then understand have we're making that before that spending it's prospecting, sure But of timeframe leveraging M&A empowers going platform efforts. to contributed

our the all not once think it's we plan, on off is fruition. financial in will part So the investment pay statement. is an but impact that to it future handsomely of gets This a quick

David Larsen

could that? your PMPM four in or rate And Okay. what $XX years then, three for collect sense be, any $XX,

Marc G. Naughton

fact to into $XX-plus five base, attractive. is are things that's we service membership that PMPM $X if care doesn't of certainly $X little services around a in something management, leverages probably deliver that to selling the to like from business given a from PMPM. very And tools But $X bit that areas leverage four a very being times think talked that again, to from provide we is a David, a the we add same PMPM to technology, that the can other that's that the other get about Yeah. could just we service type to technology. to reasonable. – able technology, that set we Once don't is your get potential $X somewhere

David Larsen

much. very Thanks

Marc G. Naughton

Sure.

Operator

Thank Fargo. our you. comes Stockton next And Jamie question with from Wells

Jamie Stockton

last bookings, quarter? deals maybe give the made there a and saw questions. on quarter evening. type any on this a softness couple you now, guess the clinical? color there more – us you maybe software little for that during any it comments Revenue Just great. on drivers about of saw there the quarter side? I in? just you necessarily of taking You've was can Cycle my mega or maybe right not would Was aren't be the the like revenue Thanks Maybe regulatory in Good software quarter it were color

John T. Peterzalek

isn't thing. This one our is at think look mix there itself, I you John, and if software

was things purely things, it that they whether was – types particular weakness anything clinical a we clinical think a our outside larger any those as I in or coming volume sell software thing There of many components, not software. area of wasn't and issue or just through. of all an are the across it of carry that still

Marc G. Naughton

Yeah. to the Jamie, done usually that is be year's going perspective traditionally and once again, this from usually the fiscal client where hits are area is getting pretty deals incentive challenging. And more isn't there QX lumpiness something – lumpy. And a is an the where gets accomplished. is things on

look of market tea it So I people hit as the that what that's would any I solutions to indicate anything, our kind lack and think offer, wasn't interest on to software. buy desire a think much and coming lot we of shows the looking there definitely as us. in activity at in end, is go leaves pipeline I of at as There the any of the

John T. Peterzalek

software our is broad. software Yeah. pipeline the pipeline, And if you look at

optimistic to on the about side. whether I'm frankly, so, software keep And working

we and for have literally, lot innovations available, it. pipeline create of a new every our day; innovations, shows there We is a demand

Jamie Stockton

Okay. That's great.

difficult a for outlook number year-over-year, on Just bookings had It's very you a maybe know absolute high one comp. on QX. basis. an down the but other very it's I question still

you that said pipeline. in QX? ITWorks had think number last that guys the for in block the of you in guided deals decent bookings confidence were a I quarter the you Is that a number maybe for that building

John T. Peterzalek

land while – I we've on from in quite are of think comes that that relatively large series (XX:XX:XX) items a working confidence a to come for in QX been QX. have number the we

that their double services land through it's way It's the a a process the bit in some things worked would larger the bit that of of side. So, quarter. have little little

other have nothing think in are the that strong of year, we I lot items but to up in So rest. than as just some it's things good quarter particularly through QX larger coming as a a build times

Marc G. Naughton

as the intimated. down will quarter Yeah. I see indicate, the will Jamie, it while highest in be, year-over-year, history I very mix it's it, as deliver you be normally what strong quarter. of similar in the probably think company you And you to we the second think – a if

or anything long there's think that that's and be going the ratio don't higher mix to not driving of term. term long and number changing kind I So

Jamie Stockton

Thank Okay. you.

Operator

Blair. Thank you. with Jeff from William And our next Garro comes question

Jeff R. Garro

Thanks cost about think ITWorks for side, guys. and wanted I insight progress – ask taking margin question. to the Hey, on more the if into RevWorks the you maybe on specifically and long-term have this outlook with the those whether any growth been by of potential businesses should year of or through grown has and investments? expansion weighed about And we how a longer-term profitability the the down little those added businesses margin bit scale?

Marc G. Naughton

RevWorks to making there. in in that kind talked hiring Kansas City year about investment we office local our Cycle, jumpstart in our Yeah. the were people Marc. This certainly We basically billing is Revenue earlier an of outsourcing

XXX this I at effort point. almost think up in we're that people to

So, that's along going well.

us side are Cerner long business. allow think well to clinicians drag margins on allows clearly billing. to, I drive element And that that term, them as the the to billing side, to as business' we both software to going grow that over that's think clear the clinically as That utilize – from a earnings. is so expands we're of I fully business a was basically clients that margin get able the those that

young. technology So I that isn't really a pretty services better the I in like that (XX:XX:XX) to all see Clearly, largest is think rebadged can business workforce and we client our business people drive said, to and addition year. a don't going big a where that this have we you'll impact made that just margins. be business; to we that And in in

the gets you services an which combine the So of them, the that component in clients phase elements From it an ITWorks that that. the elements sold an are early, But the it's all all investment of other is client for is additional margins. those margin support, ITWorks occur, single-digit clients. when standpoint, into still software is of that of XX%

significantly. already they're contributing So,

functions source have to Our goal for of today continue gain leverage a a systems to and those there lot these running. support above of by able already to those centralize be we grow XX-plus to are single having and that the clients is that

I out that them see – basis the they they start of on than those and (XX:XX:XX) for up of But anchors margins. growing right it's about margin certainly expansion extent up when total those are years, talk investment an years. where are driving to you continue keep that opportunity on. in towards contributing couple we right annual the things our we'll margins in how more incrementing we'll our you are it. now, So, incrementing do now early start mean term how XX will long margin points Ideally XX, against be but to drivers and and allowing phases to eventually growth, those margins some be moving next basis,

Jeff R. Garro

your one And base Great. That's Millennium priorities? and of where question your provider then just and ask I system very those in the outside more to if could. progress helpful. kind I and HealtheIntent clients want selling fit to about HealtheIntent efforts specifically non-health

John T. Peterzalek

new it on outside it's And an the things. base HealtheIntent high is we This us. it going many priority and the multiple side, is obviously not EHR-agnostic, have had in we've base, priority by mentioned only maybe that success in the in on for a of only those the of a expansion reasonable us strong area side payer provider is – as of work a one and outside think we've a environments. volume within John. of greenfield what Actually, and client different non-traditional not get can our is to into the client times but design Millennium core that's to type large current I – – but clients, it's It's

it's get and think there. base current outside a client I platform of our opportunities very So, some out to powerful have

Marc G. Naughton

key certainly states states, the well, as I be fairly those it diverse because – tool think in And valuable look we the manage that's populations. they can probably see certainly HealtheIntent of where as Medicaid a in as one for to area

Jeff R. Garro

for questions. Thanks the taking Great.

Marc G. Naughton

Sure.

Operator

you. Thank

Citi. with Demko Stephanie from comes question next Our

Stephanie J. Demko

my Thank taking Hey, questions. guys. for you

on given model? ever your your of you margin some current on data have the thought stores, base large expanding continue the initiatives Just how outside looked data and monetization impact maybe client can at and that

Marc G. Naughton

value, Yeah. is Certainly, like data. data right the that have that have to independent has magic world data, everyone some how truth there the to is you're think going in This huge elixir that. that to Marc. and medical is But use that the and use you certainly to I it's thinks

medical manage with a that spent making our have that within of of key preparing de-identify data hospital. to a it's And That's the when of early. certainly them we today. with an that to data still there to relative So, use. time in and them as opportunity business lot limitations a that more still clients use data data to patient, to But to we business, a them is the there using you broader of We episodic and an do create regulatory the better context. capable think they lot data condition and what in can is but better are some health use manage

I are. so, what at what and anybody those data be some to least medical about think overstating near-term paying And attention that's can talking not of limitations – opportunities are, is

that's to not I get opportunity the going that some something eventually focus to think is that those to data today, I that past see. get a consents, that of limitations, can near-term, make universal But valuable. is

Stephanie J. Demko

was counterparts Understood. you your mentioned a the this of is this sort DoD there. blast Understood. the one or GENESIS cadence to if vendor-specific I this talk issue? on elongation similar if seeing you're But morning on from one-off of past (XX:XX:XX) seeing want Could some that kind that follow-up of ramp the year.

John T. Peterzalek

Was I didn't the the the (XX:XX:XX). seeing question whole question on delay GENESIS side? get that you're some

Stephanie J. Demko

or that saying elongation they're there if (XX:XX:XX) seeing been that is similar one-off? some has a Leidos just

Marc G. Naughton

go we've to is next four, our four. authorized implemented the the actually we've Marc. This standpoint, to From first been

view in moving on our is track. that along So, and well is project

we us client may along. it for but and another to are forward want move and DoD quickly So be they a great is moving supplier-specific the issue,

John T. Peterzalek

sites early We're the running are and see go-lives XXXX, there Our in in mode the the authorization believe, They more. should for going planned planned. four and optimization as four live date and I as off is. are

So, been that committed target making to we backing that to we and believe – on on do. do what were we're and we we're asked we've what

Stephanie J. Demko

guys. All right. you, Awesome to hear. Thank

Marc G. Naughton

Thanks.

Operator

question next you. Rhyee Cowen. comes And with from our Charles Thank

Charles Rhyee

the you is of of and bit something Hey, just with a side. question. well, coming to the contractor. VA here, know for think earlier little from those sort clarify thanks future all divvied Yeah. then with Cerner? being recall more of the the up or the software Leidos in I going I Are of the licensed still all to forward on I the VA Hey, (XX:XX:XX) back software-related the know correctly, If to is about flipped DoD. as went around wanted was but as that rest well bookings any taking prime you the side, mentioned partners sort maybe revenues I VA government sort with your as DoD, shared that coming

Marc G. Naughton

a asked Leidos. VA, and that go components (XX:XX:XX) provide back the other receive all contract then us were prime, sub, from to are for that to dollars the the they both the No, we all Cerner value Leidos there. comes And with the DoD we is to Yeah. and the so license

license For with us as all well. our revenue partners. third-party the us through payout we all and the means the then stays But software that flows VA,

Charles Rhyee

I guys you Okay. and what can't the And from of keep on have terms sort side. splits terms to you expect VA in we if the should the – – given recall have you of in of

but you've basic more wondered kind parameters, could I there. of some given anything if you think share

Marc G. Naughton

task some on perform doing, really to out it's will them our lot we're how a the work this are We're we to we're in still to will we lot that much early at a threw doing initial that well. it XX-XX and how the term that's work of still orders perform some of is tell work I that will little math, But At do I partners deciding exactly part what early it a still but pretty be given, what but perform. much with of point think process. as of for of And a long mean, share – determined. point, our early exactly we'll once cranks share just our up, to perform. partners and try split the Yeah. partners are

Charles Rhyee

Okay. of still it's we that think bit, then little trying model And of could of just one work. ramps linear a billion If we more follow year out XXXX? should would ramp kind terms it at into small looking as to up, were $X or and you about a about in of you talked and next quickly maybe we XXXX, kind a XXXX say Thanks. even year be

Marc G. Naughton

Yeah.

kind VA, It little depending linear. be could we bit scale, of slower what think up gets of the I being ramp-up to a do. there's said, to then on necessarily start. work once And lumpy going not as is go it done, to be is a lot

we... just more have than loaded. going back-end can probably Why projects you'll don't loaded front-end be that so ramp multiple So on,

Charles Rhyee

Okay. Thanks.

Marc G. Naughton

Yeah.

Charles Rhyee

you. Thank

Marc G. Naughton

call. Thanks, more don't take Why we Charles. one

Operator

question Sachs. last And from with our comes you. Goldman Jones Thank Robert

Robert Patrick Jones

the back sneaking around the comments me I I on been and making and of focus talking just has for term on reprioritizing Thanks if about R&D to Great. some some in. guess CHC, Brent, initiatives in think of wanting you made asked bets. to bigger Most know stuff answered. the quarter I longer R&D

spent of lower or dollars over kind reprioritization overall about think little willing what we a just maybe as funding. on for much. particular, there are in an should see And actually clarity, so and where in you'd then about be the thanks R&D? spend, to are of And just more just reallocation time to is this bit areas, follow excited wanted share you a if So up of R&D more

Brent Shafer

for Thanks your Yeah. question, Bob.

in it as of are of speak. the thick we kind right We

touch, breadth choices fact, pieces. nine of us. session top because to and clear making good a we of if returns? bit making next with of get direction through the return; of really so, really a one details But the to efficiency little looking – everything, eight In best things the variety of weeks there's at and have starting portfolio we're had the kind the is given strategic about spend years that put two front you leaders do it's choices return, just of of the maximum concerns and your And on you is maximize and One kind areas our in weeks with two-day XX outline to couple the of on in here. the just many in of cases, our return line got we've the eight in today best grinding

in share the now. certainly get more as hopefully, you that, it of we'll (XX:XX:XX) detail So, right through we but with thick we're But

Marc G. Naughton

our to spend. R&D, not total it's just Yeah. reduce would to R&D indicate I relative that our expectation

to have a the trying We issue opportunities is sector we have a to is be we in bets. which a where going and This the are we big lot – position think opportunities. of we're pick have

So, is R&D. size. Brent million to can that on it we're where things put let's then become in in that and our expectation space spending going as want said, $XXX But it spending what go think continued things businesses we thoughtful. aren't we to refocus to If very be

So the for I I everybody it over with questions to Brent thank turn for closing. that, and

Brent Shafer

opioid toolkit. improved database that the and And how this was opioid think is know of we CHC, see at you is to legislation that state analytics today, and is bipartisan which an I really and and country. amazing it on about broad deep decision just legislation. And But access CHC, for those saw we today high-risk of announced given a crisis that for we it's in what opioids support for bipartisan significant we and passed much signed comments. clinical announced follow itself but Maybe couple Yeah. and One, predictive impacting prescribing. patients is how advanced

then remain country. that's to on just of in very real our them. real Cerner, play really of role that at operating for spend of significant and and I how think opportunities coming really basically on the it at And focused leveraged a need So, a scale. at been we're to meaningful expectations the be need our transformation can long-term on are to investment part and want attainable are providers scale our a opportunity XX And encouraging sure do us. to about we significant I in had we for I think focused of and opportunity front I but leaders great to. your referring that's us to as reinforce of technology And days in we of a our scale, that is to transformation And that mentioned is And continue top we make example our, we're health delivering us looking ahead. we help an I business. we opportunities And positioned to with some of of that that work recognizing look front our what well opportunities is setting think, the time support positioned model I – appreciate want at full care. the we've creating two today, and the portfolio designed at that opportunities really as to just to with plans, in now and mentioned just own briefly, really innovation some have out that we're where absolutely we in

to to creating ongoing to that's will value So value. growth central be clients is us, and creation and shareholder having real a continue all delivering important. that we as approach consistent to grow very our delivering about profitable And

So thanks great have a evening. joining for and much us very

Operator

And today's with disconnect. we that, program, for ladies and you in gentlemen, This wonderful day. and a Have concludes may you all thank the participating conference.

CERNER (CERN) 25 Oct 182018 Q3 Earnings call transcript