Cerner Earnings Call Nuggets: Future Deals and Bookings Composition

On Thursday, Cerner Corporation (NASDAQ:CERN) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Future Deals:

Michael Cherny – ISI Group: So just thinking ahead a little bit on the outlook, obviously with the 4Q bookings number, very impressive numbers, especially given the growth you’d put up last year. I want to get a sense if you can about the expectations for any of the larger deals especially the works types deals in the fourth quarter. As you get more comfortable with these deals, as you get greater clarity about when it takes to get client signed up for them. Is it giving you a higher degree of visibility in terms of being able to guide to these deals and is there any kind of clarity you can give around any potential contribution in the fourth quarter of any deals you could be expecting?

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Marc Naughton – EVP and CFO: This is Marc. We’ve been indicating that clearly so far for this year we’ve been consistent with having an ITWorks deal every quarter. I think we’re able to predict those at least relative to our normal forecast process where we review all the deals, lay out where we think they’re going to happen. So it kind of varies between if there is one that we think is on track for Q4, it would be part of our guidance. If there isn’t one that’s still on track for Q4, it wouldn’t be part of our guidance. I think you’ve seen us be fairly consistent with those long-term bookings to be kind of around the 30% level. A little lower, maybe a little bit under. So I think it’s pretty fair to say that that feels like that’s going to be a fairly consistent number that you’re going to see us in the upper 20s to low 30s of that number relative to the total bookings, and I think that we are getting a little bit of an ability to forecast those at a higher degree of certainty and a little bit less risk in our forecast process, so each quarter is going to be a little bit different with types of deals, but I think overall with our mix of long-term opportunities in any one quarter, you can kind of still see us generating that type of percentage on a quarterly basis.

Michael Cherny – ISI Group: And then just quickly on the large for-profit public company you guys referenced. Obviously it seems like that customer had a fairly recent (indiscernible) with one of the solutions you’re displacing. Can you talk a little about if you can any clarity as to how you guys were able to wedge your way in there and what that means going forward. I know you talked about a few other systems that are looking now for replacement. How quickly you expect this replacement market to develop with stage II on the horizon about 15 months from now?

Zane Burke – EVP, Client Organization: This is Zane. As it relates to this particular (indiscernible) organization, we’ve been working it for the about the past two years and having dialog and they had an awareness of maybe some of the shortcomings that were in some of our competitors’ solutions and then some of the success that we’ve had in the Investor Owned segment and so really the combination of our success in the Investor Owned marketplace and in fact delivering on predicable timelines on particular budgets and creating a framework by which you can use your scale in a different way which is what the premise behind these large-scale organizations really drove home what they needed to do there. So my expectation is we’ll continue to see opportunities both in the Investor Owned segment as well as other segments as people look at our competitors and where they are relative to being able to meet the mandates that are coming up.

Bookings Composition and Displacement:

George Hill – Citigroup: Marc, I guess, just a question on the bookings guidance following up on Michael’s question is, I guess, do we know what the composition of the Q4 bookings will look like or I guess can you give us directionally, because I would have expected the revenue guidance to be a little higher given the bookings strength in the quarter, so is there anything that’s changing in the composition of the booking mix or is there anything you know now about the bookings mix that’s putting the revenue guidance kind of where it is?

Marc Naughton – EVP and CFO: No. there is nothing particular in the bookings guidance. I think for this quarter obviously we had a strong software quarter, so it drove out a higher level of revenue relative to the bookings performance, but I think Q4 feels pretty normal, once again, still looking for a percent somewhere around 30% of the bookings to be from — in long term in nature and there is still going to be a chunk of that that’s going to be hardware related but that’s kind of now equalized on a quarter-over-quarter basis, so I don’t think there is anything unique George that I point to relative to the – to looking at the revenue that’s coming out. Keep in mind, again lot of our revenue is coming from the backlog and lot of the bookings is driving into some of the backlog even the stuff that is in the 30% long-term can still have three or four year element of some of the service component, so I think there is not going to be necessarily a complete direct correlation between the bookings number and revenue number, but there is nothing unique about it.

George Hill – Citigroup: Question for the Mike, on the displacement opportunity, I guess just how quickly are we starting to see the market turn? I feel like historically whether it’s been meaningful use or CPOE or care based drug cycle or whatever the industry trend was, market churn really never ticked up much above 5%. Do we feel like we’re seeing acceleration and I guess how do we expect that to play out into ’12 through ’13 and maybe first part of ’14.

Zane Burke – EVP, Client Organization: I would say that we are seeing a bit of an acceleration in that displacement market and I think that’s evidenced by some of our – the things I’ve discussed in my script and I think that’s indicative. Those comments are indicative of what’s going on broadly and I actually believe again that this is a long-term view that this is a five to seven year marketplace as you look at it. I think that many organizations will look at who they are with the horse that they bet on and make a decision to go in different direction and I think it will occur over that five to seven year time period, I think we’ll actually see some – there’s obviously a natural curve to some of those things, but I think we’re on the very beginning of that curve.

A Closer Look: Cerner Earnings Cheat Sheet>>