Cerner rides earnings wave with ADAC HCIS acquisition

Cerner rides earnings wave with ADAC HCIS acquisition

Radiology plays new role in firm’s growing market dominance

Unlike most of the ailing HIS market, Cerner is riding high. Following record third quarter earnings, the firm has taken advantage of ADAC’s desire to exit the HIS business (HNN 10/18/00) and will purchase ADAC’s HCIS division for $6 million in cash.

As with the sale of its cardiology information systems group to Camtronics last month, however, ADAC will not make any money in the Cerner deal. The company will take a one-time charge of $7 million and report an estimated loss of 5¢ per share for HCIS in the fourth quarter (end-Oct. 2).

According to Neal Patterson, president and CEO of Cerner, ADAC’s products complement Cerner’s installed base in radiology and expand Cerner’s offerings in image management and distribution. It is not clear how Cerner plans to integrate ADAC’s Envoi image management system and QuadRIS product with its RadNet radiology information system.

The acquisition also gives Cerner access to a broader customer base within radiology to market its other IS products. These include the HNA Millennium suite of clinical, management, and financial information systems.

The Kansas City, MO-based firm declined the opportunity to comment beyond the information contained in the joint release, citing the ongoing nature of the transaction. The firms expect the acquisition to close in November. Patterson expects the deal to be nondilutive for 2001 financials and the newly acquired division to have positive cash flow in 2002.

Once the deal is finalized (pending customary closing conditions and regulatory approval), Cerner still has plenty of cash to pump into product development and marketing for radiology. The firm reported net earnings of $6.2 million on revenue of $104.3 million for third quarter 2000, a 912% increase over net earnings of $680,000 on revenue of $80.9 million for the same period in 1999. For the nine months ended Sept. 30, net earnings (excluding nonrecurring and extraordinary items) were $12.6 million on revenue of $284.9 million, a 332% increase over net earnings of $3.8 million on revenue of $250.5 million for the same period in 1999. In addition, Cerner exceeded First Call earnings estimates of 14¢ per share by 3¢ per share with diluted earnings of 17¢ per share in the third quarter.

The market responded favorably to Cerner’s plans to buy HCIS. On Oct. 24, the day of the release, Cerner’s stock closed at $56.44 from an opening price of $53.52 per share, an increase of 5.5%. On Oct. 25, the stock reached a new 52-week high of $62.56 per share and closed at a respectable $61.38 per share. Several Wall Street firms have initiated coverage on Cerner since September.

In tandem with increasing its share in radiology, Cerner is hooking up with other partners to further round out its product offerings and extend the capabilities of the HNA Millenium suite. The firm recently signed an agreement with First Consulting Group to package HNA Millenium with FCG’s IT consulting services. The partners are initially targeting the areas of patient safety, accounting, and revenue cycles.

Cerner is also partnering with Virtmed, a provider of wireless handheld devices and applications. Virtmed is the first company to use Cerner’s HNA Objects, which allows other vendors to integrate their products into the HNA Millenium architecture, to develop mobile applications that extend the reach of HNA Millenium onto the wireless handheld platform. The first available application for the Palm OS will add mobile orders, results, and medical necessity checking to Cerner’s ePathlink provider-laboratory connectivity.

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