Dive Brief:
- Oracle expects two new contracts with a total value of more than $1 billion for its recently acquired Cerner business as the health software vendor faces heightened competitive pressure from Epic, according to executives on an earnings call on Monday.
- Cerner is facing “near-term headwinds” to its growth rate as the technology giant transitions customers from licensed purchases to cloud subscriptions, which means less revenue upfront and more cash rolling in over time, management said.
- Oracle completed its more than $28 billion purchase of Cerner a little over a year ago, significantly boosting the technology company’s healthcare presence.
Dive Insight:
The push to the cloud will improve performance and security in addition to allowing for new features, said Larry Ellison, Oracle chairman and CTO, during the earnings call. Although the business is doing “extraordinarily well,” it will face revenue headwinds during the switch, he added.
“The old Cerner business, you'd sell licenses, so you sell a big contract and you get a big chunk of revenue in that quarter,” he said. “Our new business model is cloud. So, we get a big Cerner award, and we get that money now over time rather than all up front.”
The EHR segment of the business has also faced some friction this year. Salt Lake City-based health system Intermountain Healthcare and Pittsburgh-based UPMC recently announced they would fully transition away from Cerner to competitor Epic, the largest EHR vendor in the country.
Providers have become less confident in Cerner, with a growing number of organizations questioning the vendor as a long-term partner, according to a survey from research firm KLAS.
Oracle also laid off hundreds of employees and rescinded job offers from the Cerner unit earlier this summer, largely due to ongoing problems with its Department of Veterans Affairs contract, according to Insider.
Cerner signed on to modernize the VA’s EHR five years ago, but the project has been delayed and has grown more expensive than planned. In the spring, the department annouced it has renegotiated its contract with the vendor to include stronger performance expectations and larger financial credits to the VA if the company doesn’t meet requirements.
During each of the previous three quarters, Cerner contributed $1.5 billion to Oracle’s total revenues.
Overall, Oracle missed analysts’ revenue expectations during the first quarter of its fiscal year 2024. Its stock price opened nearly 12% lower on Tuesday morning.
