Plano, Texas-based Perot Systems originally announced a 10-year, $700m contract with Harvard Pilgrim in October 1999 to implement and manage new technology to help reduce operating costs.
Under terms of the deal, Perot Systems supplied and managed the central administrative software platform, but the client has now decided to replace this with a new transaction processing system from UnitedHealth Group, as part of a larger partnership with the health insurance company that was formed last August.
Perot Systems’ shares closed at $12.75 on Tuesday, giving the company a market capitalization of $1.4bn.
Perot Systems said the loss of business is not expected to have a material impact on the company’s financial results during the next 15 months, but added that its outsourcing work with Harvard Pilgrim will conclude within the subsequent 12 months. Perot Systems said it expects to receive an early termination fee from Harvard Pilgrim, which will be paid in 2006.
Harvard Pilgrim currently represents 5.5% of Perot Systems’ revenue and gross profit, which equates to sales of $25.6m, and profit of $5.3m in the fourth quarter of 2004.
Perot Systems president and CEO Peter Altabef said the loss would not hit the company too hard because of the recent acceleration in its new contract signings. The company reported $507m in new signings in the fourth quarter, up from $216m in the year-ago period.
However, the cancellation of the Harvard deal comes at a time when Perot Systems is preparing for the loss of the majority of its revenue from its largest client, the Union Bank of Switzerland. Revenue from UBS was $73m or 16% of total sales during the fourth quarter.
Perot’s main contract with UBS is due to expire in January 2007, and with the end of the Harvard business looming in 2006, it now faces the challenge of having to replace more than a fifth of its quarterly revenue with new accounts – just to keep sales at current levels.
