Fujitsu exit costs Cerner £89m in lost bookings

Cerner has said the termination of Fujitsu’s contract as local service provider to the Southern Programme for IT cost it £89m ($178m) in bookings removed from its second quarter results.

Despite the revised figures, the US clinical software company on Tuesday posted strong figures for the second quarter, showing revenue up to £201m ($402.8m).

It said it remained confident of regaining the NHS contract for the south when a new prime contractor was appointed. It also said it was confident it would not lose business as a result of Fujitsu’s exit from the National Programme for IT.

Speaking in a telephone conference, Cerner’s chief financial officer, Marc Naughton, said: “We reduced our backlog by $178m for bookings we had taken for the southern cluster but not recognised as revenue. Until a new prime contractor is named, we cannot predict the impact it will have on us but we currently expect to play an ongoing role in the automation of the southern region.”

He added: “Our expectation is that the future contracts will result in bookings that are at least as much as this backlog adjustment.”

Naughton told the conference that Cerner had agreed a deal with Fujitsu to continue to support the eight southern trusts already live with Millennium.

“In the interim, we recently signed an agreement with Fujitsu to provide transition services for the eight trusts that have already gone live in the southern region. We expect this contract to provide a bridge until a new prime [contractor] is named. In connection with the execution of this agreement, we did received a payment towards the outstanding receivable balance.”

Cerner’s president, Trace Devanny, added: “We are more committed than ever to seeing the trusts realise continued success in the near term and of equal importance, as they chart their IT stategies over time.

"Cerner’s executive vice-president Jeff Townsend has spent last week in England talking with government officials working with partners on several new initiatives and interacting with key hospital trusts.”

Naughton said he still expected Cerner to realise profit on the activity they have already done in the south, as part of their settlement with Fujitsu.

He said he expects the British government to replace Fujitsu with one of the existing prime contractors, BT or CSC, and that under a new contract Cerner would be prepared to continue its work in the South.

“Going forward, if we are selected to continue in the south – which we certainly think is a strong possibility – we will have a brand new contract. We adjusted backlog this quarter to take out what was left of the Fujitsu contract. So basically, it would be just like signing a new contract, going forward.

“And the difference between that rather than being revenue equals expense for a long period of time we think we will leverage the British Telecom work and get to margin recognition more quickly, which will make it of a more of a normal long-term contract for us. Depending on our work share, if our work share would increase. That booking could be significantly bigger than what we originally had in the southern region.”

He added: “The key for us is that we have a transition agreement in place. We can effectively support those eight trusts that are out there running live in southern cluster today but we look forward to meeting some of the additional demand that we see in the south for people who have not gone live on the Millennium.”

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