Fresh off its milestone win in late July of a potential 10-year, $4.3 billion contract to modernize and make more efficient healthcare records management at the Defense Department, Leidos [LDOS] executives on Wednesday said that revenue from the program will ramp slowly over the next two years in line with the initial implementation and then increase as the complexity of the program grows.
The deployment phase of the Defense Healthcare Management Systems Modernization (DHMSM) will occur in two phases beginning in the spring of 2017 and ending in the summer of 2023, the officials told investors on an analyst call Wednesday late afternoon after the close of stock trading. This is the more complex portion of the program and when the bulk of sales will be realized, said James Reagan, chief financial officer of Leidos.
Leidos, a surprise winner for the indefinite-delivery, indefinite-quantity DHMSM contract over teams led by IBM [IBM] and CSC [CSC], received a $98 million task order for the first year of the program. Leidos expects to get the second task order within six to 12 months, Roger Krone, the company’s chairman and CEO, said on the call.
During the first two years of the program, which runs through the spring of 2017, Leidos and its teammates will establish the electronic health records system baseline and begin the initial implementation of DHMSM, according to briefing slides the company presented during the call.
The contract has a two-year base period, two-three year options–one for each of the two main deployment phases, and a two year earned program performance period. Reagan said the final two years of the contract will have sales similar to the first two years.
Reagan said that given that revenue on the program flow as task orders are awarded, there will not be a big spike in Leidos’ backlog but to expect incremental bookings as work progresses.
The DHMSM program will serve 9.6 million DoD personnel and their families, be installed in more than 1,230 locations in 16 countries and more than 750 expeditionary units, and a number of hospitals and clinics.
The system Leidos is providing is commercially-available. Two of the company’s key teammates are Cerner [CERN], which is providing the core to the system, its EHR medical health records system, and Henry Schein [HSIC], which is providing the dental health records system. Accenture [ACN] is another key partner.
Jon Scholl, president of Leidos’ Health & Engineering Sector, said one of the key contributions from Leidos will be the interoperability of the system, which “is a discriminating capability we offer our customer.”