Veradigm Inc (MDRX) 2002 Q1 法說會逐字稿

Good afternoon. My name is and I will be your conference facilitator today. At this time I would like to welcome everyone to the Allscripts Health Care Solutions quarter one earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer period. If you would like to ask a question during this time simply press star, then the number one on your telephone keypad and questions will be taken in the order they are received. If you would like to withdraw your question press star, then the number two on your telephone keypad. Thank you. I would now like to turn the call over to Mr. Glen Tullman, Chairman, President and CEO. Thank you. Mr. Tullman, you may begin your conference.

I am pleased to welcome all of you to the Allscripts Health Care Solutions first quarter earnings call. Dave Mullen, our Chief Financial Officer, is also joining me today as is , our Executive Vice President. He will begin by reading a copy of the Safe Harbor Statement. Dave?

This conference call may contain forward-looking statements about Allscripts Health Care Solutions that involve risks and uncertainties. These statements are developed by combining currently available information with Allscripts' beliefs and assumptions. Forward-looking statements do not guarantee future performance. Because Allscripts cannot predict all the risks and uncertainties that may affect it or control the ones it does predict, Allscripts' actual results may be materially different from the results expressed in its forward-looking statements. For a more complete discussion of the risks, uncertainties and assumptions that may affect Allscripts see the Company's 2001 annual report on Form 10K, which is available through the Web site maintained by the Securities and Exchange Commission.

Thanks, Dave. Based on your feedback in the past, we're going to limit this call to 45 minutes, which should allow ample time for questions. So, let's begin. I believe that the first quarter was one of the most significant in Allscripts' history based on the results, the growing acceptance of our solutions by customers and the leadership that Allscripts continues to demonstrate. During the quarter we saw meaningful sales traction, solid progress toward profitability, and a market that we believe is closer and closer to the tipping point for clinical solutions. Loss per share was 16 cents, slightly ahead of what we expected. Allscripts has established itself as a leader and innovator in each of our key markets. In the large physician practice market we are signing up new customers for our TouchWorks product suite faster than anyone we compete with, in part because no other organization today offers a mobile and modular suite of applications that addresses physicians' needs while at the same time aiming toward a full electronic medical record. Our ability to rapidly implement sites, in many cases five on the personal application in less than 90 days from contract signing, is setting a new standard of performance and delivering faster return on investment for our clients. It's a real competitive advantage for us.

Sales with TouchWorks continue to be strong. This quarter we completed 25 TouchWorks agreements, including new and current customers, a clear indication that the modular strategy continues to work well and customers continue to buy more of the products we are offering. Our physicians in the active group had a record quarter themselves with thirteen agreements signed with nine different clients, a mix of new business and expansion of some existing satisfied clients. Our backlog actually expanded modestly during the quarter at a time when in the software business it would normally lag a bit. On a year-to-year basis revenues also increased, especially in the technology part of the business where, many of you know, we generate our highest margins. We also announced a number of key customer successes. One week ago we issued a press release describing our agreement to provide TouchWorks for 150 physicians at Sierra Health Services, Nevada's largest multi-specialty medical group. Today we announced and agreement with Baptist Health Systems to provide our clinical dictation and charge capture applications to at least 200 physicians at Baptist Medical Center in Jackson, Mississippi.

We are also very excited to announce a three-year agreement with the Hawaii medical service Association known as HMSA, the largest provider of health care coverage in Hawaii and a member of the Blue Cross/Blue Shield Association. This is especially pleasing because after piloting our TouchWorks RX e-prescribing products, the results in terms of increased formulary compliance and increased generic utilizations proved out. Today 265 physicians in Hawaii are using our systems to write hundreds of thousands of prescriptions. And HMSA plans to expand that number to over 500 high-volume prescribers over the next three years. It's clear that providing physicians with electronic prescribing and real time information has a measurable impact on the choices they make and that's exactly why HMSA decided to move forward with TouchWorks. At large sites that we've announced in previous calls also continued to make progress. For example, at an executive forum for about sixty of our prospects held last week in Boston, the University of Minnesota Physicians announced that over 260 of their physicians are up using TouchWorks dictate and document applications and that they expect over sixty physicians to be live using our results and RX plus e-prescribing applications within 60 days. Similar success stories are coming from many of our customers including University Cardiologists, a highly respected cardiology group in Chicago, which has reduced document turnaround time from six days to 24 hours and cut transcription costs by 30 percent using our dictate and document offering, a real success story there. However, one of the most important stories was told to us recently by a physician using our system. With the ability to view her schedule from an IDX practice management system real time on her Compaq I-Pak, she noticed her next two appointments had cancelled. In the extra few minutes she had with the patient she was treating she detected something that may have saved the patient from hospitalization. This is a clear example of the impact of just right, just in time information can have information can have on patient care and on outcome.

Now let me turn my attention to our strategic relationships for a quick update on the quarterly progress with our partners since there tends to be questions during Q and A on how we're doing. First, let me begin with IDX. Our IDX relationship continues to grow stronger every day. In the past two weeks I personally met with over 200 IDX employees face-to-face along with who many of you know as President of IBM. And the goal was to communicate both our successes and to build even more momentum and the numbers demonstrate that momentum; 56 percent of our first quarter deals were with existing IDX customers. We now have signed agreements with 61 IDX customers, which while demonstrating excellent progress represents only about 5 percent penetration of their customer base. As you can see, there's a lot of room to grow. IDX has also realigned key personnel to focus full time on Allscripts, which will help close additional IDX accounts in the coming quarters. And this is a real commitment on their part to the partnership we have.

This quarter we also announced an expansion of our physician mobility relationship with Compaq. The two companies will increase funding and staffing of joint marketing and sales programs continuing our present focus on larger health care enterprises. Working together we also plan to market a set of easily deployable and easy to install clinical products for smaller medical practices. This is new, providing a product offering that will allow us to address the hundreds of thousands of independent physician practices who want to access electronic prescribing and other practice management solutions. We also continued to invest in innovation to lead the industry, not only with great ideas but bringing those ideas to fruition with great products. During the first quarter, some of you may have seen this press release already, but we received Intel's top honor for wireless solutions across all vertical markets. Intel selected Allscripts for this honor from a field of more than 1,300 premier solution providers worldwide, based on our use of wireless technology and delivering our touchworld's mobile clinical solutions to physicians. Why Allscripts? Because with 5,000 mission critical wireless handhelds deployed we are one of the largest and most visible reference sites for Intel in the United States. Today we also announced a very important partnership with the American College of Physicians American Society of Internal Medicine, which with a115,000 physicians is the nation's largest association of internal medicine physicians. With this agreement Allscripts will be the first company to bring evidence-based medicine to the hand held using ACP's pure database and if you check the release you can actually view into their database through a Web based application. Now, as you know, with initiatives in place from organizations such as , patient safety is one of the key issues that our customers are focused on. Our relationship with the American College of Physicians will be the next advance in medical safety by providing physicians with the latest clinical evidence while they are in the decision making process, before errors can occur, not after the fact. Still, as you can see, there has been a significant amount of activity allowing the context of strong financial results and so at this point I'd like to ask Dave Mullen to comment on our financials in more detail. Dave?

Thank you, Glen. As Glen alluded we continue to make excellent progress on the two key components of our business plan, sales traction and movement to profitability. With the former this means continuing to grow revenues and backlog and for the latter it means improving gross margins and controlling our spending. I'd like to add some color on both as I talk briefly about some of the financial highlights for the quarter. We turn first to sales. Given the flurry of TouchWorks sales activity at the end of last year our expectations for the first quarter were pretty modest and we're pleased with the results. As Glen noted, we closed 25 TouchWorks deals during the quarter with a total value of $4 million in software and services. This represents initial commitment only and does not include ongoing support. More than half of the contracts were add-on deals, which separate and apart from the dollars are important because they represent renewed commitment on the part of our clients to our products and underscore the continuing success of our modular strategy. As we often discuss, another key element of our strategy is penetrating the IDX customer base. I am pleased to report that we continue to make strong progress; 56 percent of the first quarter deals were with IDX customers. We have a very strong pipeline of TouchWorks business that we continue to develop.

The most exciting activity occurred in our Physicians Interactive unit use which provides e-detailing services to pharmaceutical manufacturers. There we had a record quarter in terms of closing new business, signing 13 new contracts with nine different customers worth $3 1/2 million. The previous record was the fourth quarter last year when we did 2.3 million, so this represents dramatic progress. The average contract value here was $275,000. Eight of the deals represent repeat business with existing customers and the other five were with four new pharma customers bringing the total number of pharmaceutical companies we've done business with to 24, ten of whom are repeat customers. Overall our backlog grew to $31 million at the end of the quarter, approximately half of which we expect to convert to revenue over the balance of 2002. The backlog breakout, for those of you who are interested, is as follows: one-time fees are $18 million, subscription fees $9 million, support fees $4 million. Just as a reminder the backlog includes software and services only. It does not include medications, although we view medications as recurring revenue.

In the revenue area our revenues increased 13 percent over the first quarter of 2001 despite the fact that we lost more than $400,000 in quarterly revenues from the elimination of our unprofitable business. The key to growing our revenues is moving clients forward on installation so that we can convert backlog into revenue. As we've looked at how to do that better, we found three principal factors, two of which we can do something about and one of which we can't. The big increase in TouchWorks sales in the fourth quarter of last year frankly stretched our install resources a bit thin so we couldn't move all of our clients forward in the way we wanted to. To address this we've been hiring experienced project management folks and now feel that our staffing today is better matched to our backlog. Second, in joint sales with IDX our installations are generally delayed until the practice management system is installed. Fortunately IDX is very efficient in that process so the delays are manageable. We've had five or six of those over the course of the past few quarters, most of which have now been completed or will be completed shortly and we'll be able to move forward.

Finally, we are still somewhat dependent on the client's willingness and ability to move forward with system implementation on our schedule. The way to overcome this is simply by expanding the backlog so that we have more choices if certain installations get delayed. Total revenue for the quarter was 18.8 million. We're slightly changing the way we break out this total to add some transparency and reflect the way that we manage the business today in three distinct lines; medications, software and related services and information services, principally e-detailing. So the breakout by category is as follows: medications was 12.5 million; software and related services 4.5 million and information services 1.8 million. Now I know the first question is going to ask is well, can you give us that historically so I'm going to give that answer before I get it. In 2/1 of last year the mediation number was 12.6. The software number was 3.3 and the information services number was .7. Twelve months ago technology revenues were 24 percent of total revenues. In this quarter they're 33 percent, a measure of the shift we're making to more profitable revenue streams.

Margins continue to improve as we see the impact of both exiting from unprofitable parts of our business and shifting our revenue mix from medications to software information services. Overall our gross margin was 20.4 percent versus 18.6 percent in Q4. By product line medications was 18 percent, software and related services 13 percent, information services 56 percent. The area that I am personally most pleased about is our spending. The progress we've made in reducing our overall spending as a result of the restructuring is now fully reflected in the first quarter results. It is better than we originally expected and while SG&A will grow modestly during the year, it is now at a level that effectively lowers our breakeven point in terms of revenue. Total SG&A was 10.4 million in the quarter versus 13 million in Q4, which is a $2.6 million improvement. Head count, a significant determinant of our overall spending, was 360 at March 31st compared to 399 just three months ago and is now at what we would call a normalized level. Our loss for the quarter was $6 million, a substantial improvement from the 8.6 million we lost in Q4 and is evidence that we're still on track for profitability in the fourth quarter this year.

Turning quickly to the balance sheet, we had 71.7 million in cash and marketable securities at the end of the quarter, which we believe gives us the financial resources necessary to accomplish our goals. A portion of that is sitting in long-term assets because certain investments have maturities beyond one year, a fact that a few people have missed so I call your attention to it. Accounts receivable DSOs were essentially unchanged as were unbilled receivables and deferred revenues. Our restructuring reserves decreased by approximately $1 million as we disposed of certain liabilities, primarily severance pay. $70 million with no debt puts us in a very strong position relative to the industry and what we have to accomplish, especially given the way we've reduced our burn rate. With that, I'm going to turn it back over to Glen to finish up.

Thanks, Dave. Well, I've got to tell you, I haven't seen Dave that excited between the expense controls that we've shown and the record quarter in Physicians Interactive. I think we've got him going here. But I want to talk about one or two more topics before we conclude. First is an important topic and it's an announcement of a new appointment in our management team. I couldn't be more pleased to announce the appointment of Lee Shapiro as President of Allscripts Health Care Solutions. As many of you who follow the Company know, both Dave Mullen and more recently I have held the title of President. In both cases Dave and I have found that our one position Dave as CFO and my role as CEO as full time jobs and given the opportunities that we have at Allscripts as well as the increased scrutiny in the financial area of the business that every company is facing today, we felt it was appropriate that it was appropriate for us to focus on those roles and at the same time to elevate Lee's status to match the role he's playing at Allscripts, to check the terms of strategic agreements and in running various business units for the Company. Just a bit of background, Lee has been with us for two years in a variety of roles including business development and is part of what we believe is the strongest health care management term in the country including Joe Carey, our Chief Operating Officer, Scott Leisher, our Executive Vice President of Sales, , our Executive Vice President of Client Service, our co-Chief Medical Officers, Dr. , Dr. and our technology and software folks, , our CTO, and , our CIO. Lee brings us the kind of determination, drive, experience and smarts that will help Allscripts continue to be a leader but also navigate an increasingly complex and rapidly changing health care environment.

So, take aways: I think the key take away from the call is that we continue to make progress on our vision, becoming indispensable to physicians by adding innovative applications that physicians will both want to use and need to have, want to use and need to have, to practice quality health care cost effectively. We believe we have the right people, the right focus and we are rapidly moving to profitability in expanding our sales and our customer base in one of the hottest markets today, clinical systems. The time is now. We have the right products at the right time and we're making it happen every day. So with that I'd like to thank you for joining us on the call today and I think Dave and I are now ready to take your questions.

At this time I would like to remind everyone in order to ask a question please press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q and A roster. Your first question comes from , Bear Stearns.

Good afternoon, guys. How're you doing? I had a question on this Hawaii deal that you announced today. It's obviously a health plan, as you noted, which I know has been a long-time target of yours to get sort of the payer community more involved. I was wondering if this is the beginning of other efforts in that area and if you could give us a general sense of where you're going with the payer world more broadly speaking?

Sure, Ray. Basically HMSA is the dominant player in the Hawaii market in terms of health care coverage and I think what's significant about the agreement is it was a long-- it was an eighteen month pilot period that they have very clear data that shows the increase in generic utilization and formulary compliance. I think that's going to wake up a number of other plans to say that when you're using this kind of technology you can, by putting this information in front of physicians, you can impact their behavior. You can change what they're prescribing and have a measurable impact. Relative to other plans I can tell you that we're working with a number of other plans. Some of those plans, virtually every plan is doing it differently, but I think it's safe to assume that there will be more of these announcements coming down the pike including plans from some of these systems and including some of the largest health care payers getting actively involved in pushing the e-prescribing, both from a safety and a cost reduction standpoint.

And I mean where there's something unique here given that it sounds like in this territory that their stocks may have been fairly captive to the plan and I guess where I'm going with this thought is if you were to take a scenario where doctors deal with multiple payers, do you think you're going to run into more of a challenge of getting a payer sort of paper access to a doc when he's not full time committed to their plan?

Well, one of the challenges, you're optimization is perceptive. Clearly if you have a payer that has a dominant position, they're in a stronger role. However, what we found is physicians are physicians and in essence if you don't provide a product that they perceive as adding value, they just won't use it so that's helpful. One of the challenges is even some of the largest payers only have 20 percent share of a particular physician's practice and so they have a little less influence but we think the combination of the payer's portion along with the product that actually adds value to the physician, both in terms of presenting formulary information but also in terms of services like our Pocket Library and others. That's going to be the secret that again gets this to the tipping point. So it's a combination. No one of them is going to do it. HMSA was in an especially good position and they got great results because of it.

Okay great. Thanks.

Thank you.

Your next question comes from , and Company.

Hi, guys. Dave, a couple of number questions; if I got the numbers right, 4 million of new business, 25 deals, that's an average deal size of 160 grand. Is that right?

Yes.

That's down a little bit from the fourth quarter. Is that because of the add-on nature of a lot of the deals in this quarter?

You're exactly right, David. We took that number apart because when I first saw it I said, "What's going on?" But when I looked at the new deals in there, the new deals averaged 275,000.

OK. That's terrific.

By the way that 275 if you look at Q4, you know the average deal 238, Q3 298, so that's right in the ballpark there. In those the mix was different there. Those quarters had a bit higher percentage of new deals. Now we're getting a combination of new deals and people are coming back to add modules, so again consistent with what we expected.

OK. That makes sense. Can you remind us what the backlog was at the end of the fourth quarter?

Thirty million.

OK. What do you think is driving the incremental strength in the Physicians Interactive business? You've had two strong quarters now and do you expect that momentum to continue?

We do. I think a couple things are happening. Pharma has generally been slow on the draw. They're not organizations that move quickly but now they're feeling for the first time pressure on their spending, pressure on their top line caused by both public pressure on drug profits in general and then the fact that the gravy train is running out because many of these blockbuster drugs are coming to the end of patent. So this represents a very cost effective way of getting their message out to physicians, approximately half the cost of what it costs them to reach a doctor in a traditional fashion. We're seeing a substantial appetite in that market place for e-detailing and we are ideally situated as the market leader in that space.

Dave, I want to add something to that and that is that I believe also for the first time now we have companies coming back because they have their own results showing the effectiveness of this. Last year this was really about experimenting. This year it's about having proven programs and so what's exciting if you look back to Dave's numbers he talked about the fact that ten of the companies we've done business with are repeat customers. In addition, you'll notice that the average contract size is also growing, both great indicators, and again we're very bullish on that part of the business.

OK. Last question, the SG&A line continues to come down and come down considerably on both the gross basis and as a percent of revenue. How long does that continue?

As I've said in the comments, I believe that where we are now represents a normalized state that we would expect SG&A for the balance of the year to increase very modestly. In other words, the first quarter really represents the full impact of the changes we made last year. And, frankly, from this point forward it's all about sales.

So the G&A is pretty constant and as you sell commissions go through there?

Right.

OK. Very good. Thank you, guys.

Your next question comes from , AG Edwards and Sons.

OK. Good afternoon. I'm not Sandy Draper but I do have a question on comparables to the new revenue breakout. Do you have the, Dave, the sequential change? I mean because obviously meds were 12.8 in the fourth quarter but I assume it's 3.4 of what we used to call services doesn't compare to the 1.9 in the new breakout?

No, you're right. The fourth quarter numbers, Seth, and by the way there's a lot of people glad you're not Sandy Draper including Sandy Draper. The breakout for Q4 was 12.8 million in meds and I talked about the reason for that decline was our exit from the outsourcing business and from a bunch of touchless accounts that were not profitable for us. Software and services was 4.5 and the info services was 1.4 in Q4.

Okay great. Let's see here, and then to get to the bookings number last quarter in aggregate was 79. The 4 million that Dave just asked you about before, you'd add to that a 3 1/2 for Physician Interactive so that was just down slightly, the bookings number. Is that right?

Right.

OK. Let's see, other questions here, the gross margin expansion and the mix this quarter, would you expect as you pull through-- I mean, two questions; how much predictability do you have over mix going forward based on the backlog? And how dependent are you on you know new-- I guess it's GPMS Systems from IDX be implemented? To me that is actually a little bit of news. I wouldn't have expected that in a lot of cases that would be the case. If this is sort of an add-on sale, although I understand that while they're in there selling the new upgrade or something they may be cross selling you into hell. How dependent are you on that and how will that sort of impact gross margin ramp through the rest of the year?

It's not something that's a huge percentage of our backlog, Seth, but you know in many cases when IDX makes a net new sale of their system the customer is buying both their system and our system. And my point when I went and took a look at the backlog and I said, "Okay, how are we going to convert this to revenue? What reasons are we not?" the three reasons I came up with were; one, that we had signed up more business than we could staff, at least initially. Second, there were two or three significant deals in the backlog that were IDX net new deals where first they had to install the practice management system before we could put in the clinical system and the good news is that IDX has got that down to a science and they can generally do that in ninety days so I know there's one that we just started working on last week that was pending the installation of their system. So it's a piece of the challenge but it's not a big piece today because obviously their installed base is a bigger opportunity for us.

OK. And have you thought about-- talked to them cross-training some of their implementation people?

This is Glen. Yeah, that's one of the things that you know again, and Dave talked about. I think the area that we focused on with IDX has been one, making sure that our teams are coordinating and two, making sure that all the interfaces are done efficiently. As Dave mentioned I think now with the 30 percent expansion and backlog in the fourth quarter you know that caught us a little bit off guard. It was a good problem to have and we've shifted internally some of our people and gone outside and upgraded a few of our people to make sure we have the right level of project management experience to drive forward so we think that's a problem that we've pretty much addressed.

OK. And then just finally to wrap, for the record you didn't say anything about future guidance other than being profitable in the fourth quarter. I would assume there's no change to the 90 to 95 million in top line and the aggregate gross margin targets you talked about previously?

Yeah, we don't have any reason to revise guidance at this time.

OK. Thanks very much.

Thank you.

Your next question comes from , Goldman Sachs.

Thank you and good afternoon. Firstly, in just kind of digging up the new personnel that you had how many new implementational project managers have you brought in? And then secondly, you highlight obviously the strong cash position. You know with that as a backdrop can you talk a little bit about the competitive climb and how you think changes in your market generally are benefiting your pipeline and your project flow? Thanks.

In terms of implementation people I think we've hired five key experience project managers. Those would be people who would lead at key sites and some of those came out of consulting and some of those came out of competitors so that's the situation there. Then we shifted some of our internal people from different areas to support those more senior project management people. That's the first answer to your question. The second answer in terms of the market I think everybody acknowledges that the market for clinical systems is a hot market today and we're seeing that from a number of trends, from LeapFrogs, from the Institute of Medicine Reports, the Whole Patient Safety Initiative and . All of those trends, all of those kind of global trends, are driving people to say, "We need to automate." I think the second trend, which is especially beneficial to us, Chris, is that people are starting to realize that the electronic medical record implementations that they did over the past few years and some of these multi-million dollars very large projects that are multi-year just haven't worked. And the reason they haven't worked is because physicians weren't engaged and so what we bring to the party is that physician engagement giving physicians tools, very rapidly get them up and operating on the system and that's a real competitive differentiator. Many of our competitors, and that's a shifting environment-- you know we've moved from single application competitors to some broader based competitors but in every case we can go in, get an application in, working, that provides a return on investment.

you've reached the mobile voice mail for Chris

And we can do that quicker? So that's probably the answer to the competitive environment. We think the competitive environment will heat up. We think we've got a pretty significant lead and competitive differentiation.

Your next question comes from , CIBC.

Could you talk a little bit, Dave, about the split between license and subscriptions, one-time license versus ongoing subscriptions? What's the trend in among new contracts or at least for this quarter?

Of the 25 deals we did, Ben, 17 were license and 8 were subscription and that has been relatively consistent. It has been about 3/4-1/4 for the last two or three quarters.

If you had your druthers which one would you lean towards and are you incenting your sales force in that direction?

We don't. Our sales force is compensated on gross profits, which is a calculation that we make under either scenario and each of them-- you know they really represent vehicles for giving clients choice. On the one hand I prefer subscription because it represents a dependable, long-term, recurring revenue stream. On the other hand I like license because you get your cash up front. But--

As long as they sign you like it?

Right, exactly. So I think what we really like is a mix and it tends to be the bigger organizations who have capital budgets tend to opt for the license and the ones who don't opt for the subscription.

OK. Any change in the competitive market? Is the Web MD product showing up more? Do you think there any other ones? It seems like most of the competitors have fallen by the wayside.

Ben, this is Glen. We have focused virtually all of our efforts to date, you know recently, on the larger physician practices so if Web MD is out there, we're surely not running into them because they're offering isn't targeted to the markets that we're focused on. That said, I mentioned that working closely with Compaq and Microsoft and Intel we expect to re-enter the smaller market with a pre-packaged offering that will be targeted there. That will probably take place over the next six to nine months and at that point my expectation is that we may run into them. That said, you know again, we feel very good about what we're seeing in the market today. You know if I look at our backlog, over a hundred deals in TouchWorks and Physicians Interactive with a value in excess of $50 million so--

You meant pipeline.

Pipeline, sorry. That's why Dave is here.

We're all glad.

But thank you. But anyway with a hundred deals and that kind of market value we have a lot to shoot at and we're pretty comfortable with where it is.

And it looks like the blend has been pretty even between dictation, charge capture, prescribing. Is that still constant?

Yeah, it really is. It's again the modular approach works because each organization has their own hot button and where they want to get started.

So are some of the add-on sales selling at-- the add-on sales, do they tend to be an additional module or more docs using pre-existing modules?

Yes.

Yes.

And we like both.

OK. My notes say last quarter 60 docs went live on five applications within 90 days of delivery in Q4. Do you have a similar statistic or asking I guess in a more coherent way, how many docs are using this one or more TouchWorks solutions today?

Well, I don't know where you got the--

He got it from the UMP.

Oh, it was just UMP. That's right.

Yeah, I think that was just one customer.

Yeah, I'm--

That we were talking about and you know in terms of the applications again there's two ways to go but essentially we have about 6,000 physicians that are using various applications in various ways and I think if you looked at the signed backlog, that's probably double that number assuming-- mullen: Triple and quadruple.

Dave is saying triple and quadruple.

And there's 18,000 docs in backlog? tullman: Yeah, let's make a note that that is the first time that Dave has ever on a call upped one of my numbers. And I want--

Per unit company?

Yeah, any of our three companies. So about 18, about a 3X in terms of physicians in contracted backlog that we just have to get installed.

Great. The ACPPO that was announced today, that relationship, is that just going to be another sort of component of Pocket Library or is there some revenue? How do you make money doing that I guess is--

Well, that is its separate service that someone would-- it's like another module so to speak. It's not part of Pocket Library because it's interactive with the application so it's an integrated application. That Pocket Library is integrated but this is much more significant in terms of the impact that it will have on physicians and, again, it's really the first. You hear a lot about evidence-based medicine. No one has figured out how to take evidence based medicine and get in into use and that's what ACP has done in terms of the editing and the compiling of it and putting it into a database and now we're the delivery methodology for it.

So in effect you've licensed their content?

Yeah. I think that's a reasonable way to look at it.

And you'll sell it as another application and pay a probably significant royalty to ACP?

I think you know what you could say is that we're licensing it and we will sell it.

OK. Well can you give us an update on the PBM relationships?

I will but that has to be your last question.

I was just going to say-- can I one last one after that which you'll probably have no comment on?

OK. I'll tell you in advance we have no comment on your last one. In terms of the PBM relationships, again continue to make progress there with each of the PBMs and that's also being driven by because as we move forward with RX Hub we have to have separately contracted relationships with any of the payers or PBMs that we're working with. So as payers and PBMs want to participate in RX Hub, you know part of their bylaws indicate that they have to have a separate relationship with any of the providers. And RX Hub, some of our sites there will start to come on line within about 30 to 60 days so good relationships there again, as you know, that with many of the major PBMs each time we present their formulary or route a transaction to their mail order or message in a clinical appropriate way, we get paid a transaction fee. And again, as we go from the 6,000 physicians today to the 18,000 physicians, those transaction fees, which are high margin for us, will become a more important part of our bottom line.

And then finally--

Thank you, Ben.

Thank you.

Your next question comes from , First Albany.

It's actually, Noah Yosh for Kevin Berg. My questions have been answered. Thanks.

Your next question comes from Dan Brady, Presidio.

May I squeeze two in? The first, Dave, you mentioned-- you broke down the backlog as far as one-time subscription and I guess interactive. Could you go through that again? I missed that.

In terms of the - yeah the backlog was, in one-time fees, it's $18 million; in subscription it's $9 million - subscription fees contracted for but not yet brought into revenue - and then support. And support is typically associated - that's the recurring fees associated with license deals. And that's $4 million; and that represents, generally, one year's worth.

So - and the subscription is the - that's the total annualized amount, or is that how much you'd actually realize in 2002, and then it would be something larger than that?

No, that is the total amount contracted for. So that subscription term could be anywhere from two years to five years. And then - so each of those three components we're going to recognize a portion of them in 2002. What I said was that when we looked at it, we thought about half of that $31 million we would recognize in 2002. Obviously the lion's share of that would come out of the one-time fee.

OK. I'd like to ask a question, too, about HMSA. I'm aware of some other efforts being made to have hand-held script technology in the doctor's offices, and everybody seems to have a different idea about who and how this will be paid for.

Now, you've been selling the product so far to large medical practices, where they pay for it. Can you - is it a fair question to ask you just what kind of a financial relationship you have will a big payer like HMSA? Are they buying them for certain high - you know, high-prescribing doctors, or are they mandating the doctors use them? How is that going to work?

Dan, I think there's two different models. You mentioned, with the larger academic medical centers and integrated delivery networks, they're actually purchasing, especially for their employed docs - excuse me - they're purchasing the technology. Recall that we have thousands of physicians who are also paying us each month to use our electronic prescribing applications. Many of those are taking advantage - they're generating revenue to help cover the cost through our , or our dispensing technology.

Where payers are involved there tends to be a subsidy that they will provide two physicians who are using the technology. But I think in most cases where you're dealing with independent physicians, people have concluded that if you simply give it away that you don't get the buying from the physician.

Well, without being specific because we, of course, have confidentiality with individual clients, I think it's safe to assume that where payers are involved there's a subsidy that comes into play. But I think it's also safe to assume that most people have learned the lesson from some of our early competitors who have gone by the wayside. Giving products away free doesn't get the kind of buy-in or utilization that you need.

Last but not least, in terms of mandating it, I've not yet seen very many places that can mandate physicians to do anything.

No, that would be pretty hard to believe, I think so. Is it safe to say that HMSA is subsidizing it to some extent? That the doctors are also - have bought into it and are paying something for it?

Yes, I think that's an appropriate characterization.

Yes. Are you aware of what is doing now in the Atlanta area?

You know, we try not to comment on specific competitors on any of these calls, and what they're doing, but you know...

Well, we can cover that off-line...

Yes, I think I'd say two things about competitors. One, we try to keep close track of them; but our own view is that what we need to focus on is getting what wee do right, because that's how big the market is. If there's other competitors, we would like good competition, because we'd like people to day not, Should I do it, but Which one should I choose. That helps us.

OK, thanks very much.

Thank you. Well, with that that's going to conclude - we've just passed the 45 minute mark. We told everyone we would only keep you that long.

I want to close with just a few comments. As Dave has alluded to, our financial strength, the products that we have focuses on the markets, and specifically on physicians - automating physicians at the point of care not only from an automation standpoint, but providing information that impacts their decisions, we have the people to make it happen. And every quarter we're making progress toward that goal.

Again, Dave's figure: 6,000 physicians, but a backlog - contracted backlog that multiplies that up to 18,000 physicians, many of those high-volume prescribers, influential physicians and the like. So we believe we continue to be extremely well-positioned to do what we've set out to do; and that is to become indispensable to physicians.

Again, I want to thank everyone for spending your time, for joining us today, and for your continued support.. And we hope everyone has a great week. Thank you.

Thank you for participating in today's Allscripts Health Care Solutions quarter one earnings release conference call. You may all now disconnect.