IDX predicts $1 billion revenues from LSP contracts

 

The company has also briefed US analysts that while the contracts contain milestone payments IDX will still get paid a significant proportion of contract value irrespective of any performance issues.

 

Payments will also be guaranteed under the LSP contracts for an agreed number of implementations for each year, rather than the firm having to re-sell its solution hospital-by-hospital.

 

If accurate, the $1 billion figure indicates that IDX will see almost 30% of the total revenues from the ten year London and Southern LSP contracts, which were awarded for £996 million ($1,897 million) and £896 million ($1,706 million) respectively. Previous predictions of the firms share of the revenues from the LSP contracts had been closer to 15%.

 

The projected IDX revenue figures and clarification of key features of the contracts with LSPs, formed part of a detailed presentation to investors held by IDX in Burlington, Vermont on 13 February. The $1 billion figure is almost double the revenue figures that had been predicted for IDX from the two LSP contracts by one US analyst.

 

In a 17 February briefing note to investors, SunTrust Humphrey Robinson states: “UK revenues of $1 billion are double ours, and the street’s [Wall Street’s] expectations& our top line expectations were essentially half the $1 billion in software, services and maintenance revenue IDXC [IDX Corporation] will see over the next 10 years."

 

Significantly, the briefing note goes on to state that IDX’s detailed update to investors had largely allayed concerns over the penalty clauses associated with the LSP contracts, and that rather than just winning a “hunting licence” to sell in each region payments to IDX were tied to an agreed implementation schedule – though this remained a “work in progress".

 

On the key issue of what penalty clauses suppliers face if they fail to deliver and successfully implement systems the SunTrust Humphrey Robinson note is emphatic: “While milestones do exist with all system implementations, IDXC’s contract includes threshold payments per annum where the company will be paid a pre-determined range, independent of any and all performance issues."

 

Speaking to E-Health Insider Ryan Stuart, director of Healthcare Research at SunTrust Hunphrey Robinson, said IDX had a reputation for being extremely conservative in its financial reporting, and had included some potential penalties from the LSP contracts being invoked in its revenue projections.

 

“To provide financial guidance to Wall Street they needed to be very, very conservative and have factored in revenue hits."

 

Stuart said IDX’s projected figures would also see the firm receiving more front-end revenue from the two LSP contracts than had previously predicted. “The bottom line is that IDX will see $40-65 million in revenue directly from the UK in 2004."

 

Ironically, the strict US financial reporting regulations that required IDX to provide details of the key features of the two NHS contracts they are involved in mean that fundamental details of the shape and structure of the contracts awarded by the National Programme for IT (NPfIT) have come first from the US rather than the NHS or NPfIT itself.

 

It is not, for instance, clear whether iSOFT, principal clinical systems provider in the remaining three NPfIT regions –  North East, North West and Eastern – will see a similar percentage of revenues from the overall value of the LSP contracts. “If IDX is seeing that amount from two regions, what is iSOFT seeing from three?" questioned Stuart.

 

An initial indication, provided by iSOFT as part of a recent analyst update, suggests their overall share of revenues may be lower.  In a 28 January update ISOFT said that for the Eastern region, where Accenture was awarded a £934 million contract, it expected to see £89 million in revenues; for the North East, where Accenture was awarded a £1,099 million contract, it expected to see £79 million; and for the North West and Midlands, where CSC was awarded a £973 million contract, it projected £132 million.  All of these figures were given in respect of software licensing and maintenance only.   

 

A key factor in any such a difference in figures between iSOFT and IDX is likely to be the different degrees to which the firms will be providing detailed value-added services such as implementation, training and support in addition to software systems.

 

While the IDX and iSOFT figures on projected revenues from LSP contracts provide some insight into the nature of the LSP contracts awarded many questions remain unanswered. No details have been published by the NPfIT on the nature of penalty clauses in contracts, or precisely what suppliers will be paid to deliver and by when.