Cerner Corporation
Q2 2018 Earnings Call Transcript

Published: 3 Aug 2018

[Operator:]

Welcome to Cerner Corporation's second quarter 2018 conference call. Today's date is August 2, 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. A reconciliation of non-GAAP financial measures discussed in this earnings call can be found in the company's earnings release, which was furnished to the SEC today and posted on the Investors section of Cerner.com. Cerner assumes no obligation to update any forward-looking statements or information except as required by law. At this time, I'd like to turn the call over to Marc Naughton, Chief Financial Officer of Cerner Corporation.

[Marc G. Naughton:]

Thank you, Shannon. Good afternoon, everyone, and welcome to the call. I'll start with a review of our numbers. Zane Burke, our President, will follow me with results, highlights, and marketplace observations. Then Brent Shafer, our Chairman and CEO, will provide closing comments. Turning to our results, overall we had a solid Q2, with all key metrics coming in at or above our expected results. Our bookings in Q2 were $1.775 billion, which reflects a 9% increase over $1.636 billion in Q2 of 2017. This is well above the guided range we provided, largely due to the initial task orders for the Veterans Affairs contract that was announced in May. Note that while the total contract opportunity is $10 billion over 10 years, the impact to our bookings, revenue, and earnings will be phased in over time as individual task orders are executed during the various phases of the process. With the initial task order signed in Q2, we expect to receive the expected contributions from the contract in the second year that we discussed on our last call. (2

[Zane M. Burke:]

Thanks, Marc. Good afternoon, everyone. Today I'll provide color on our results and make some marketplace observations. I'll start with bookings, which grew 9% from Q2 of 2017 and was well above our guidance range. In Q2 the percent of bookings coming from long-term contracts was in the normal range at 35%. Multiple large transactions contributed to our bookings this quarter, with a record seven contracts over $75 million. We're also pleased with the quarter from a new business standpoint, with 31% of bookings coming from outside our core Millennium install base, including a noteworthy win at a large academic medical center. This quarter included broad contributions across several areas that reflect the diversity of our offerings and end markets. We had good results from almost all our solution and service categories, large and small clients, U.S. and non-U.S. geographies. Starting with smaller venues of care, our ambulatory business had a strong quarter, driven by ongoing penetration in the ambulatory settings of our large health system clients as well as adding a large independent provider. In the small hospital market, our CommunityWorks organization continues to execute well, with whole new footprints and delivering strong sales back into our base. Moving to revenue cycle, we had a good quarter, driven by (10

[Brent Shafer:]

Thank you, Zane. Good afternoon, I'm going to offer some closing observations on the second quarter on Cerner as a whole and on our recently announced collaboration and investment in the Medicare Advantage space. Over the course of the last 90 days, I've had the opportunity to spend time with over 100 health system CEOs, including many at our annual CEO event. It's been a chance to listen. While health system CEOs are (17

[Marc G. Naughton:]

I think we're ready for questions.

[Operator:]

Thank you. Our first question comes from Robert Jones with Goldman Sachs. Your line is open.

[Robert Patrick Jones:]

Great, good evening, thanks for the question. Marc, you mentioned the bookings coming largely above the guidance range, driven from the VA. Can you maybe just share a little bit more context on how the bookings fared outside the VA? I'm just curious maybe where you saw traction away from that key client.

[Zane M. Burke:]

Robert, this is Zane. I'll take it and let Marc clean up my story here but what I'll first say is without the VA, we finished just above the highest end of the range without the VA. So we saw incredibly strong growth across global, across our population health solutions, and our core EHR marketplace both with a significant win at the academic side, as I mentioned in my prepared comments, as well as in our community offerings, so broad-based with that. We had our ITWorks clients that did well, this client as well as additional rev cycle in the RevWorks business. So we saw broad-based elements both globally and here at home in the U.S.

[Robert Patrick Jones:]

Great, thanks so much.

[Operator:]

Thank you. Our next question comes from Matthew Gillmor with Robert Baird. Your line is open.

[Matthew D. Gillmor:]

Hey, thanks for the question. I wanted to ask about the margin outlook and some of the comments Marc made, and I was hoping you could get us oriented for 2019. With the headwinds impacting the margins this year, is there an opportunity for you to be above the high end of the 30 to 60 bps range, or would you encourage us to stay within that range?

[Marc G. Naughton:]

This is Marc. Obviously for 2019, we're just starting the planning process for that year, so it's a little early to provide anything that's more granular. Relative to that, I think we've talked about the ability that once we get through this significant investment year to be able to look at 30 to 60 basis points growth beginning in 2019, while certainly our starting point for that growth is going to be a little bit (22

[Matthew D. Gillmor:]

Got it, and one quick follow-up. When do you expect the next task order for either the VA or the DoD? I'm just trying to understand when that will hit bookings next.

[Marc G. Naughton:]

We'll try to give you some visibility to the extent we can, but those task orders we've got – the first set of task orders, that usually carries you forward for a little while. So it will be dependent on the projects and when the next set of services and solutions need to be delivered. So that's about all we can provide for a view on that.

[Matthew D. Gillmor:]

Got it, thank you.

[Operator:]

Thank you. Our next question comes from Lisa Gill with JPMorgan. Your line is open.

[Lisa C. Gill:]

Thanks very much. Just going back to your comments around the relationship with Lumeris, how do we think about that overall size of that market opportunity? Do we think about it HealtheIntent? Do we think about it the new Maestro Advantage EHR, or do we think about you taking on risk over time as we think about value-based care? I'm just trying to get my arms about how to think about and size that market opportunity for Cerner specifically.

[Zane M. Burke:]

Lisa, this is Zane. So first off, I think what you should say is yes, obviously it's a HealtheIntent play, but really the broad elements of this are this is a higher PMPM market that allows us to move from where we've been just a technology-only play in the $1 to $5 PMPM on an aspirational basis to playing more the nature of being upwards of $100 PMPM. Now we'll share in that. Lumeris at this point has the larger bulk of the offerings and the services that will be provided in that area, but it allows us to play at a much higher PMPM basis, bring all the attributes of what we do from a HealtheIntent perspective, bring the things to bear that Lumeris has, and then we'll go create some new offerings together.

[Marc G. Naughton:]

This is Marc. I think financially, you look at going from, as Zane said, $1 to $4 PMPM technology to probably $15 to $20 PMPM would be what we would work to develop and deliver on these clients. Anything relative to a success factor or fee would be on top of that. So we're not going at-risk from a negative standpoint. We are putting some of the economics at risk that we will deliver certain performance, and that performance will then be additive to the $15 to $20 PMPM once we get fully ramped up. So you can gauge the market however many million PMPMs you wanted to use, but it's obviously significant. When we look at going forward on our 10-year model, if you will, and $1.8 billion that we're looking at, the key is it's not additive. This is part of the strategy for that $1.8 billion, and this business by itself would be 25% to 30% of that number by the time we get to that point in time, the end state of the 2025 model. So I think that would clarify at least for us what we think the ability to deliver an impact on our financials is.

[Lisa C. Gill:]

And then, Marc, this is the way I understand this. Brent made a comment that as you think about your balance sheet and supporting your growth strategies, do you have what you need today to be able to support this growth that you talk about over the next 10 years, or do we think about internal investments or is it more M&A activity that you'll have to grow and procure certain products to be able to deliver on this?

[Marc G. Naughton:]

I think the Lumeris investment is a great example of taking technology we've created, skill sets we're developing, but then finding a partner where we can go faster on development, we can go faster into the marketplace, we can get to those revenue dollars in a faster timeframe. I think that applies to the other businesses. You'll see us both investing internally, as always has been our history, but you'll also see us identify areas that could grow to be $100 million businesses, and maybe there's an opportunity to do an acquisition that gets us started doing that business and gets us to that $100 million level in a shorter period of time. So I think we're certainly not going away from investing internally. That's our key strategy and that will continue to be our key strategy. But we have a strong balance sheet, and I think the Lumeris investment shows that we're willing to use it to support our growth strategy.

[Lisa C. Gill:]

That's very helpful, thank you.

[Operator:]

Thank you. Our next question comes from Charles Rhyee with Cowen. Your line is open.

[Charles Rhyee:]

Hey, thanks for taking the question. I just wanted to follow up, continuing on Lumeris here. In their current M&A plan that they're offering, can you remind us how many lives they're currently managing? And then also, this is moving you further up the value chain here, certainly a little bit of a departure from your legacy business. But as you think about longer term as we move to value-based care, does this make you think about maybe what the next generation of Millennium looks like? How do you see the EHR itself having to be redesigned to think about more of an outcomes-based model of care? Thanks.

[Marc G. Naughton:]

That was a simple question, Charles. I think surely from the Lumeris standpoint, obviously they run a health plan today, and you can certainly get the sense of how big that health plan is. The opportunity here is really to go help our clients and non-clients who are going down the path, certainly in the Medicare Advantage space, prepare themselves for value-based care and ultimately for taking risk. And I think we see that market coming. It hasn't come as fast as we originally thought, and I think for most people in the selling population health solutions. But I think this will get us – allow us to be ready when that market hits to have the premier solution that's available in the marketplace. I think from how does this relate to our traditional EHR business, it obviously is key to what we're going to do with Lumeris is gathering the data from a variety of different EHRs. So the interoperability we built into Millennium and built into HealtheIntent, the ability to pull data from Millennium, the ability to push alerts and information back into an electronic medical record that can impact the care that the patient and the person is receiving while they're in front of their physician rather than getting a text message or an e-mail later, all of that is contextual to really being able to move the meter on the health of the population. So they're intertwined. Millennium as it is today is a perfect conduit for us to leverage. And those at HealtheIntent, as we've discussed, it lays over the top of not only Millennium but any EHR, and that's part of the strategy is that's the cloud-based option today is using that to pull all the data from all those different solutions.

[Charles Rhyee:]

And if I could just follow up, from an accounting standpoint, from a reporting standpoint, are you consolidating all the premiums, and then you kick back out – or can you talk about the ownership structure of how this joint venture would look like? Are they going to be booking all the revenues and you're just going to be getting a minority interest? How should we think about the bookkeeping of it? Thanks.

[Marc G. Naughton:]

Let me just break it into two parts. We made an investment in Lumeris that's less than 20%, so that will have no impact on our income statement. To the extent we go to market, how it gets reflected in our income statement will depend on how the – are we basically the prime? Is Lumeris the prime? Is it all run through us? Is it all run through Lumeris? All of that will determine where the revenue sits. But certainly initially, a lot of the work there is going to be things that are components of the project because we're talking with (31

[Charles Rhyee:]

Great, thank you. Thanks a lot.

[Operator:]

Thank you. Our next question comes from Jamie Stockton with Wells Fargo. Your line is open.

[Jamie Stockton:]

Thanks for taking my questions. I guess maybe the first one, Marc, real quick, the strong license revenue during the quarter, was there anything notable from the VA in that number?

[Marc G. Naughton:]

No. No, it was...

[Jamie Stockton:]

Okay.

[Marc G. Naughton:]

Once again, our expectation was that the VA wouldn't have a big impact on the quarter, and we delivered on that expectation.

[Jamie Stockton:]

All right, that's great. The sales and client service expense did ramp pretty notably sequentially, and I caught your – I think it was your comment that you guys, you're hiring up in the Works business in general, but you also were taking on Adventist employees. Can you talk about whether there's been a really tight match of when you've taken on – maybe specifically the Adventist contract, when you've been taking on the expenses versus when the revenue is really flowing through, and maybe outside of Adventist with the rest of the Works business, what your expectations are there? Because it seemed like there was a big step-up in expenses this quarter but not necessarily a big step up in revenues. So I'm curious. Has the revenue step-up already happened, or are we going to see it in the future? Any color around that would be great.

[Marc G. Naughton:]

Jamie, good question. In Q1, basically, we were in the process --we were running Adventist revenue cycles, so all of that activity was already occurring. Under ASC 605, the older rev-rec rule, all we could recognize is the net margin that we (34

[Jamie Stockton:]

All right. That's great, thank you.

[Marc G. Naughton:]

Sure.

[Operator:]

Thank you. Our next question comes from Mohan Naidu with Oppenheimer. Your line is open.

[Mohan Naidu:]

Thanks for taking my questions. Zane, Marc, on the non-federal business, if you can, parse out the upsell between your existing customers versus new market share gains. What are you seeing that excites you in both these segments? And is there a worry for potential slowing of spending within hospitals as they try to figure out what they need to do for these value-based models?

[Zane M. Burke:]

So, Mohan, this is Zane. I think what we're excited about is first off that we actually had such strength across all the bookings elements. And I think what we're seeing in the U.S. in particular is there is still a need for efficiencies and scale. And that drives a lot of our Works offerings – so both our ITWorks, RevWorks. And so those pieces of our business, we're seeing good growth in that space. New marketplace it was, it's continued strength in the community hospital marketplace, but we had – we sprinkled in a very significant large academic medical center. And so we're seeing our competitiveness be very good in the replacement EHR market, so there's still a strength, there's still quite a bit of activity in the replacement EHR market. Many of those are community hospitals, so they tend to be a little bit smaller, but the activity levels are still very high. And while we had our highest Q2 in the history of the company for bookings, we also had a growth in (37

[Mohan Naidu:]

Thanks, Zane.

[Operator:]

Thank you. Our next question comes from George Hill with RBC. Your line is open.

[George Hill:]

Hey, good afternoon, guys, and thanks for taking the questions. I guess, Zane, my first question would be around the deals over $75 million in the quarter. They're pretty large ones, I guess. Is there a characterization of what those customers typically tend to buy or what they look like, or is it spanning the range from new footprints to Works deals? I would just love to hear about what's going on in the big check size category.

[Zane M. Burke:]

It's a great question, George, and it actually is a full box of chocolates, and they're all very desirable. And so I'd look at them and say what you saw – obviously our federal business was very strong in the quarter, but you saw our IDN business where a major IDN who's looking to scale and grow in their markets investing, doubling down on Cerner in the future. You see an investment by clients that are a new ITWorks client in that space. You see a new academic medical center in that space. So again, it was quite a very strong quarter from a diversity of what was driving those activities. Most all of those are around how do I grow and scale into the future. And I think that's really how you have to think about it.

[George Hill:]

Okay, and then maybe a quick follow-up. I'm going to ask one more on Lumeris. I guess how do we think about how that relationship fits into I guess your other relationships? And I'm thinking competitively. Centene and Ascension announced a partnership this week on Medicare Advantage. You guys are working with Lumeris. Do you envision that you and Lumeris eventually wind up competing against Cerner Ascension, or are you guys the back end and helping build out Cerner Ascension? I'm just trying to figure out how you guys think the pieces fit together.

[Zane M. Burke:]

Here's how I'd look at it this way, George. We see it as an opportunity for growth across multiple service lines, across multiple areas. And I'd probably add just – I'm not going to compare and contrast what Centene is doing with what we're doing, but what I'd say is our relationship with Salesforce, for example, there are some significant business needs to accomplish for our clients and to help them succeed as the world changes and as we all work to empower the consumer of the future, in that we're going to partner with certain organizations to create that experience. We're going to help them empower healthcare in a different way. We're in this case partnering with Lumeris to deliver a services offering that's based off our technology and their market-leading services and their Medicare Advantage plans. And I think you're going to continue to see us do that type of activity where we bring the biggest scale and really use Cerner's platform moving forward to be the world's most (41

[George Hill:]

Okay, I appreciate the color. Thank you.

[Operator:]

Thank you. Our next question comes from Michael Cherny with Bank of America Merrill Lynch. Your line is open.

[Michael Cherny:]

Good afternoon and thanks for taking the question. Diving back into the margin question, some of the direct service costs, as you get more experience in some of the large Works and large consulting contracts, how do you think about any of the leverage if you can get it on the back-end costs, whether you can spread more of it over the RevWorks side or the ITWorks or whatever it might be so that going forward there is a little more predictability in some of those margin targets, I know, Marc, you want to hit.

[Marc G. Naughton:]

Michael, clearly the concept of the Works business is to get scale and then to drive efficiencies into those businesses. One of the things you're already seeing as we move forward is we're investing this year in creating a 600-person Kansas City-based business office that will run at a much lower cost than some of the regional business locations that we're already using to support clients. So that's one area where we can look at bringing costs down. We certainly are going to look at any of our options. We have a large India presence. So there's a chance to be able to leverage some of those people that we have in some of the businesses as well. So the whole focus of these businesses from a service component is how do I get leverage. In RevWorks, it's how do I get lower-cost humans, and the second set is how do I take this technology we've created, the clinically driven revenue cycle, and use automation, adding in AI to be able to significantly reduce the amount of human touches that are required to actually get paid in this environment. So I think all of those things are future opportunities for efficiencies. We're at a point where we're trying to grow these businesses. We're trying to capture that business. These are dollars that they're spending today that we're trying to have them redirect to us. Once we get those captured, then we'll start worrying about becoming more efficient at it. And that's not any different from the hosting business when we started that out and we were single-digit margins, now we're well over 30%. So I think it's a similar thought. Maybe it doesn't get us over 30%, but that's the same goal that we're striving for.

[Michael Cherny:]

Excellent, thanks so much.

[Marc G. Naughton:]

Sure.

[Operator:]

Thank you. Our next question comes from Jeff Garro from William Blair & Company. Your line is open.

[Jeff R. Garro:]

Good afternoon, thanks for taking the question. I want to ask about Adventist. Marc, the bookkeeping a little bit there, but maybe more of a substantive thing, thinking about how the progress is going against the plan for the year and just the impact of them, RevWorks and a partial ITWorks client, and then how we can start to think about that impact being the more fully outsourced RevWorks pipeline.

[Marc G. Naughton:]

Wow, you broke up a little bit on the question, but I think it was basically how does Adventist impact in the year out. Clearly we have ASC 606 coming into the year, we knew that we would get revenue from that client fully in our revenue and then have the cost coming in cost of goods sold and other expense line. So it hasn't changed our revenue guidance. It was all baked into our original guidance. So I think that's pretty consistent with the numbers we've been sharing is how it's going to impact this year. The good news is it's going to continue to impact future years. It's a recurring level of revenue that will be underneath a very long-term contract, so it will continue for some time.

[Jeff R. Garro:]

Great. And then the follow-up is I was actually hoping for also a little bit more on the substance of the relationship and achieving greater value for them, where you're progressing there, and then how we can think about that relationship impacting the more fully outsourced RevWorks pipeline. Thanks.

[Zane M. Burke:]

Sure, this is Zane. So the project has been going extremely well. We've been delivering against our objectives. I think that's Marc's view of performance plan, so I'd just say it's gone very well. I think we have, from a value creation office, we've been hitting several tens of millions in the value creation office in terms of our value that we're driving together on an annual basis. And so the management team on that side is very happy with where we are, and I think that will lend itself to additional opportunity. There's not a hard code in for hit this objective and then it creates the next trigger event. But success here will help us to get more success, both with Adventist as well as, obviously, throughout the marketplace because this is central to how we're thinking about the entire marketplace, which is add value, create value together with our partner and to be closer to the strategies of our clients overall. And Adventist is a really good example of how we're driving value together, and we've seen continued growth and trust placed in Cerner to perform and execute on the services side of that. And I would anticipate that will help us both with Adventist as it relates to additional services offerings as well as other clients who are closely watching to see what happens here and how we perform over time.

[Marc G. Naughton:]

Jeff, this is Marc. We've talked about them being our cornerstone client for this business. The fact that they rebadged all of their associates to Cerner in Q2 is a big statement by them in their trust on us to deliver, where folks are certainly reducing their cost to collect. We need to get some time in delivering on those targets to be able to prove to people that we can do this at large scale. So we're in that process, it's going well, but it's going to – it takes some time. Rebadging was a big milestone for us.

[Jeff R. Garro:]

Great, thanks again.

[Operator:]

Thank you. Our next question comes from Eric Percher from Nephron Research. Your line is open.

[Eric Percher:]

Thank you. So Lumeris and your willingness to deploy capital for growth opportunities seems very significant. I understand Lumeris – the agreement with Lumeris occurred over a very long or fairly long period. I'd welcome perspective on how the transaction came to be and whether you think that's a path you should typically follow, or if Brent's comments around using the balance sheet suggest increased awareness of other potential opportunities to put capital to work.

[Marc G. Naughton:]

I think from my perspective, Lumeris was a little bit unique, because when we started working with him, we figured out hey, this is pretty cool. We like it. We want to be in this Medicare Advantage. We think it's a sweet spot as people start going to take risks and coming around to who's the best in our opinion in that. Lumeris having the services component and actually running a 4.5-star plan, which is kind of a big deal, caught our attention. So we spent a lot of time just meeting with the people, understanding what it would take, how would we leverage our technology and our service offerings to be effective in that space. And as all those conversations kept going, it evolved from hey, we should work together to hey, maybe we could use some of your tools. And that's why that one took quite a while. I think if we look at other maybe smaller levels of capital deployment to help us jump-start growth in an area that we think has potential for growth, I think those can occur more quickly. But I think we're still a company that likes to invest internally, but I think it's also – we are also – we're looking at our balance sheet saying we ought to – to the extent we have seven really good areas of growth, is there some subset of that that we could go invest some capital in and get us started faster, and therefore get us to that $100 million-plus business faster.

[Eric Percher:]

That's helpful.

[Zane M. Burke:]

And this is Zane. If I may, just Marc talked about our ability for speed, which I couldn't agree more with. The flip side of that is we're being incredibly thoughtful about who we partner with and who we bring into our clients and what that means when we do that. And so I would just say these are very long-term plays, so we're being – the Lumeris conversation, I think it's appropriate that we spent a lot of time on how will this work and how can we deliver real value. Our Salesforce arrangement is of a similar variety. We spent two years in the making to make that really come to life in the proper way because these are incredibly strategic decisions we're making to broaden the suite of solutions. But in our view, these are people we're bringing into our clients and we need to make sure that we fully vet the long-term feeling of that as well as the impact on Cerner over the long haul. And I think we're being appropriately judicious about how we look at these, but if there's a need for speed, I'm glad to hear Marc's ready to go with it.

[Eric Percher:]

That's helpful to hear. And unrelated but a follow-up, it's been a year since we spent some time about LifePoint, and obviously they were in the news lately. Could we just get a bit of a progress report there?

[Zane M. Burke:]

Sure, the LifePoint engagement is progressing very well. I think we have our go-live coming up here in the very near term before the end of the year. And they're very pleased and they've been a good partner for us. And so we would anticipate it will be beneficial for both organizations as we move forward and an opportunity to expand. So we're excited about what they're doing and we think that's a great team and I don't anticipate their capital structure to really change the game here as it relates to what we're doing with them.

[Eric Percher:]

Thank you.

[Operator:]

Thank you. Our next question comes from Sean Wieland with Piper Jaffray. Your line is open.

[Sean W. Wieland:]

Hi, thank you, first a quick one on revenue cycle. The activity that you cited in the quarter, are you selling the Millennium revenue cycle or Soarian revenue cycle or a mix of the two.

[Zane M. Burke:]

This is Zane again. We market both solutions but principally it's the Millennium revenue cycle solution set. Most organizations are buying an integrated ambulatory acute and revenue cycle, and then many of our clients who have been a long-term Millennium client want to get on a single instance. But we have had Soarian sales. There's still a marketplace for standalone patient (52

[Sean W. Wieland:]

Okay, great, and an unrelated follow-up

[Zane M. Burke:]

I think in the population health space, there's an appetite for that dialogue. And we're tiptoeing our way appropriately into it, so we're not putting ourselves at significant risk, as Marc indicated. But most of these are upside opportunities as we've done that. And so we'll continue to work our way through that and mature how comfortable we get with all the risk elements of that before we get too far.

[Marc G. Naughton:]

This is Marc. We can do very well and grow to a significant number without having to take downside risk.

[Sean W. Wieland:]

Okay, thanks so much.

[Marc G. Naughton:]

Why don't we take one more question?

[Operator:]

Our next question comes from Donald Hooker with KeyBanc. Your line is open.

[Donald H. Hooker:]

Great, just a side question. A lot of questions have been asked, but I was curious how you guys think about telemedicine. And you guys have a partnership I know with American Well, and you've mentioned some work with the VA around virtual healthcare as well. But just how does telemedicine fit in your outlook for healthcare in your business model over the next few years?

[Zane M. Burke:]

This is Zane. Obviously, telemedicine is an important piece. I think the recent changes in reimbursement are very helpful for telemedicine. I think there's going to be more as it relates to the consumer aspects of really well care and utilizing the physician and acute settings for really high-acuity situations as opposed to these many situations where people have to go to the doctor's office and use valuable resources that are very costly. And so I think you'll see telemedicine. I think you're going to see the wearables. I think you're going to see a whole lot of different technologies on the go-forward, which puts the people that don't need to utilize these very expensive, very talented resources, we're not using those for those people that don't have a high acuity; that we only use those resources when there's a real need for high acuity. And so we're going to continue to look for both. Telehealth is one of those pieces. But on the telemedicine side of that, we're going to look for other technologies which continue that strategy. Let's make sure that high acuity meets the high cost pieces versus the low acuity using up that bandwidth in the network.

[Donald H. Hooker:]

Got you, and maybe one last quick one. You guys have been press releasing a lot of wins in the smaller rural hospital space. So I guess, one, can you update us with where you are in terms of the number of hospitals, the footprint you have with that CommunityWorks offering in the sub-75 bed hospital area? And you had mentioned taking that multi-tenant offering up into larger hospitals. I thought that was an interesting development a few quarters ago. I was just wondering if there was an appetite for a CommunityWorks style offering as you move up into larger settings.

[Zane M. Burke:]

So this is Zane. We're well over hospitals in taking that live actually today, and we're well in the contracted and significantly in excess of that. Moving up into larger settings is really one of those pieces around both M&A activity, around ease of use, and predictable cost models, and so we see that more as a delivery model than we do as a market segment. So instead of thinking just pure community hospital, it's also surgical centers, it's behavioral health. It's all those things. It's really a delivery model when we talk about CommunityWorks. And so it's much broader than that. We see there's quite a bit of applicability for that model, and we are competing and doing extremely well in that marketplace, and there's as much activity as there's ever been in that space. So it is very, very high activity level, and we're competing for more than our share.

[Donald H. Hooker:]

Thank you.

[Zane M. Burke:]

Great, thank you.

[Brent Shafer:]

Thanks, Marc. This is Brent. I want to thank everyone for joining us today. I'm very pleased with our solid results for this quarter, and we will continue to focus on delivering against the expectations we set. My conviction is that Cerner has great opportunities to grow over the long term, and those continue to increase. I think we're taking the steps necessary to realize this potential, and we appreciate you being with us. Have a great evening. Thank you, bye-bye.

[Operator:]

Ladies and gentlemen, this concludes today's conference. Thanks for your participation, and have a wonderful day.