What to expect from Cerner's partnership with Amazon this year + 3 other questions

Cerner reported a 6 percent increase in 2019 revenue, which hit $5.7 billion.

During the company's fourth quarter and full year conference call on Feb. 4, executives including Chairman and CEO David Shafer, Executive Vice President and CFO Marc Naughton, Executive Vice President and Chief Client Officer John Peterzalek and Executive Vice President of Strategic Growth Donald Trigg discussed the company's progress in several key areas.

Here are four key questions answered during the call, as transcribed by Seeking Alpha.

How is Cerner's partnership with Amazon going?
Cerner revealed its partnership with Amazon and Amazon Web Services in July 2019, aiming to collaborate on many levels and enable company growth. "Leveraging the powerful combination of Cerner technology, the AWS infrastructure, their artificial intelligence and machine learning capabilities, we expect to create next-generation user experiences and innovations to deliver more predictive patient-centered care," said Mr. Shafer.

Cerner is now moving almost all of its non-federal HealtheIntent clients to the AWS public cloud during the first half of the year. "We see it as a key enabler of our health network strategy and focused global markets such as England, as the NHS accelerates its push to advanced integrated care systems," said Mr. Trigg.

Mr. Naughton said he is excited about the opportunity to think through the technical migration to the public cloud and broader opportunities based on the company's relationship to Amazon, leveraging their experience in the consumer world.

"We've been very happy with our opportunity to engage with them and look at key strategies around approach, whether those are publicly disclosed activities around how they think about their employee population and some of the things that they're doing in concert with JPMorgan and with Berkshire portfolio of companies or acquisitions that they've made around capabilities like PillPack," he said. "We've had good visibility with that."

What is Cerner's position on the HHS' proposed interoperability rule?
Mr. Shafer said Cerner is a "vocal proponent" of the 21st Century Cures Act and aims to work with the ONC and other stakeholders to accelerate interoperability.

"We fundamentally believe it's wrong to ask patients striving to get better to manage a collection of faxes, PDFs and paper-filled shopping bags. It's wrong to ask providers to leave their workflows to review and leverage relevant patient information," he said. "It's wrong to waste hundreds of billions of dollars on the highest administrative costs in the world when we're in the middle of an affordability crisis in United States healthcare. So, we're going to continue to be a positive voice for change in the industry."

Where is Cerner with its Department of Defense contracts?
Cerner reported yesterday that its leader of the VA EHR implementations, Department of Veterans Affairs Secretary Robert Wilkie, was fired ahead of an important go-live date in March. However, Mr. Peterzalek said he doesn't anticipate that will impact the company.

The company continues to advance its projects with the VA and Department of Defense.

"On the VA project, Cerner, along with our VA and other partners, remain focused on initial operating capability go-live. We have completed initial integration validation and doing a significant amount of training and site penetration activities ahead of the scheduled go-live in March," he said. "Looking beyond the initial go-live, we expect to go live at additional IOC sites in 2020 and continue to just steadily scale our work to provide additional value and capabilities in the upcoming quarters."

The company will also leverage its acquisition of the AbleVets team over the next year. Go-lives are expected in 2020 for the DoD as well.

Why was Cerner's revenue backlog down 10 percent?
Cerner reported ending the fourth quarter with $13.71 billion revenue backlog, which was a 10 percent drop over the same period in 2018. Mr. Naughton said there were several reasons.

"[It's] primarily due to the termination of a RevWorks agreement," he said. "Also recall that our backlog calculation of the new revenue standard excludes revenue from contracts with termination clauses, even though such clauses are rarely exercised. When you combine the expected revenue from our backlog and the additional revenue expected from contracts not included in our backlog, our revenue visibility remains at nearly 85 percent over the next 12 months."

Last October, Cerner terminated its agreement with Roseville, Calif.-based Adventist Health to manage the system's revenue cycle through its RCM arm, RevWorks. When the contract was terminated, Adventist took on all RevWorks employees and Cerner reported a $60 million organizational restructuring charge.

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