Veradigm Inc (MDRX) 2002 Q2 法說會逐字稿

Good afternoon, my name is Midge, and I will be your conference facilitator. At this time I would like to welcome everyone to the Allscripts Healthcare Solution Second Quarter Conference Call. All lines have been place 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 that time, simply press star and then the number 1 on your telephone keypad. If you would like to withdraw your question press star and then the number 2. Thank you. I will now turn the call over to your host for the afternoon, Mr. Glenn Tullman, Chairman and Chief Executive Officer. Mr. Tullman please begin.

Thank you, this is Glenn Tullman, Lee Shapiro, our President, and David Mullen, our Chief Financial Officer are also joining me on the call today. We will begin the call today by reading a copy of the Safe Harbor statement. Dave.

This conference call may contain forward-looking statements about Allscripts Healthcare Solutions that will involves 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 that 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 and uncertainties and assumptions that may affect Allscripts, see the company's 2001 annual report on Form 10-K which is available through the website maintained by the Securities and Exchange Commission.

Thanks David. Thanks to everyone for joining us on the call today. We appreciate your time and we will try to limit the call to 45 minutes, which should allow an awful time for questions. So, let's get started.

Q2 was a solid quarter for Allscripts. Today we are reporting record revenues with our first quarter ever to exceed $20 million. Our lowest per share, new contracts signed with prominent industry leaders, and a very strong performance in our position in our active units. The key take away is that Allscripts continues to make progress, each year, every quarter and in each segment of our business. We firmly believe that we are in the right market with the right products and solutions and most importantly we continue to deliver results. Let me talk about what gets me excited.

One of the strengths of Allscripts is that we have diversified revenue base drawn from number of different market segments. When we speak of TouchWorks we are specifically targeting the market for ambulatory clinical solutions. In this market, position groups have stopped looking at clinical applications as nice to have and now viewing them as mission critical. Increasing physician efficiency using information to make better decisions, the [Indiscernible] charges, and addressing patient safety are all key drivers of our sales today. What is exciting to me about this part of our business is that the confirmation we are getting from the market place that our solution really works.

One example of this is the Aurora Medical Group, the largest healthcare delivery system in the state of Wisconsin. After a pilot with 60 positions [usually] prescribing software they have already to purchase our solution for an additional 250 positions. Patient's safety the key driver in their decisions continues to be a major public health issue as documented by the Institute of Medicine in [Leaveforst] The [Indiscernible] here is that physician groups pushed by public organizations and by employers are now taking action and one other piece of great news is that Aurora also decided to move forward on our TouchWorks charge capture application as well. Bottom line the market for clinical automation is heating up and Allscripts is perfectly positioned. Through the quarter we also continued our progress developing TouchWorks extending our competitive advantage that in installing product at multiple client locations. A new release version 9.0 due out in September, responding to client requests and adding new functionalities. For example, 9.0 will include delivery of the first evidence based medicine elements and a viewer allowing physicians to access information from other clinical systems typically found in hospitals giving them one device that does it all. That's great stuff that physicians that really want and need. TouchWorks enjoys a unique place in the market. But TouchWorks can expand into a full electronic medical record, its modular design allows our clients to connect to a solution that have flexibility on implementation and to address the most present business issues first, quickly at a reasonable cost and with a strongest return on investment. This marginal approach is working very well. So competitively, we are very different from all of the other [EMRs], they require large commitments, multi-year installation cycles, and a full change of physician behavior overnight, which is all you know just doesn't happen. The proof is that this quarter alone 16 clients went live on [Indiscernible]. And earlier today, we announced a number of new customer contracts. The first agreement was with [Harvard] clinic, the largest multi-specialty physician group in the state of Georgia. Harvard signed on for a dictate and document solution as a first step for fully automating their physician. We also announced an agreement with the [Indiscernible] medical group, one of the largest integrated delivering networks in the entire country. Comfortable as ever, which I mentioned earlier, the trend we are seeing is that the top leaders, the largest and most prestigious groups in the country are beginning to lead the charge on clinical automation and being so with Allscripts solution. Another separate market segment that we target is pharmaceutical companies who can use our e-marketing solution offered through our Physicians Interactive Group. Pharmaceutical company expands over $8 billion each year marketing their products to physicians. Initially, products like e-Detailing products were used as an experiment, but they would now become a standard part of the marketing mix. Our Physicians Interactive Group is the current leader in this new area. It has nearly two-thirds of all major pharmaceutical companies as its clients. So we expect this area to continue to improve our growth. As an example, we are currently working with one of the largest pharmaceutical companies in the world and recently found a global contract to be a preferred e-Detailing provider for the entire organization. Later contracting structure, all brand teams within the company can act as our solution. This is a real advantage for us because we eliminate the need to contract, sell, and compete with each of the brand team's business separately, which shortens both the time and the cost of sales. I am also pleased to report that we signed our largest contract ever with Adventist one of the largest pharmaceutical companies in the world. And now we vow to have a separate press release on the contract if an agreement that provides similar interactive education services targeted at the high volume prescribing physicians, they most want so. To summarize, our two primary markets are growing very rapidly and we are already starting to take advantage of this growth as demonstrated by our improving financial results. Although, we talked for a moment about our financials, we continue to make strong progress for profitability. As I mentioned the second quarter was the first in our history to exceed $20 million in revenue, a significant milestone for our team and we accomplished that despite the fact that some of our larger contracts we then selected as a vendor of choice by taking a bit longer than expect to [Indiscernible]. As they were mentioning, our margins continue to improve at a healthy rate due to cost controls, but also to leveraging our base. An EPS with a loss of 10 cents, a result we are pleased with. Our 10 years strategic relationship with IDX also continues to produce desired results. During the quarter, 75 percent of our TouchWorks contracts were [Indiscernible] by the ex-customers. We now have signed agreements with 59 IDX customers, which represent luckily 5 percent penetration of their customer base. So the bottom line is that while we continue to make lots of progress, the outside pretension was still significant. We will be joining IDX at their National User Conference next week in Boston, a great opportunity for us to present the entire base and interact with key prospects. I didn't want to miss the opportunity to highlight [Indiscernible] from Physicians Interactive Group, which delivered a very strong quarter as well. Sales were 3.4 million and revenues exceeded 2.5 million, a new record. The number of e-Details, our interactive learning sessions conducted with physicians grew from 16,000, our previous record, to over 21,000, a 30 percent increase, and as with TouchWorks, our current customers continue to sign additional contracts, once again showing evidence that our customers are feeling great value by working with us. [Indiscernible] said, I am going to now turn it over to Dave to provide additional detail on the financials.

Thank you Glen. From the financial standpoint, we continue to execute on the plan we laid out to you nine months ago, which internally we call the path for profitability. It is a combination of topline growth, margin improvement, and tight expense control. All three elements are evident in our second quarter results. Turning first to sales, the momentum in our Physicians Interactive Unit continue to build with another strong sales quarter as Glen mentioned, signing $3.4 million in the new business. ** All of the contracts signed represent our peak business with pharmaceutical manufacturers and the average deal size was $380,000 significantly larger than previous quarters and evidence that we are moving beyond the pilot stage and becoming a meaningful part of the way these companies market their products. Shortly after the end of the quarter, we added a new top 10 [pharmacal] to our PI client list. Sales of our TouchWorks products represent real progress as well. We crossed $3.4 million of TouchWorks business during the quarter. This only includes software services and not the ongoing support. What I am pleased about is that about half of the contracts were add-on deals, which separating apart from dollars are important because they represent expanded commitment on the part of our clients to our products and underscore the continuing success of our [Indiscernible] strategy as Glen commented on earlier. Our pipeline remains strong. The chance continues to be closing, which seems to take longer than many cases than we would have liked. The good news is that we do not seem to be losing deals to competition. The average deal size was $205,000 and the average number of modules purchase was three. A backlog was $29 million at the end of the quarter. The backlog breakout is as follows: one-time fees was $16 million, subscription $9 million, and recurring support, $4 million. According to revenues, for the first time in the company's history, [Indiscernible] revenues exceeded $20 million. That represents a five percent increase over the second quarter of last year and a seven percent increase sequentially. More important technology revenues, which come from software and information services rose 18 year-over-year and 21 percent sequentially. When you consider these percentage increases keep in mind that last year's numbers contain more than a million dollars of revenue from our profitable business arrangements that we exerted as part of our restructuring in the third quarter of last year, including more than $600,000 in software. Ignoring that the increase in revenues would have been even greater.

In terms of revenue mix, technology revenue was 38 percent of total revenue for the quarter compared with only [Indiscernible] is consistent with the plan we laid out for the company some time ago, and it is one of the factors contributing to the margin improvement. We are happy with the progress we made during the quarter in moving client implementations of TouchWorks forward as Glen mentioned 16 clients came viable on more and more modules in Q2, 12 for the first time. The revenue breakup by category meets $12.5 million [software-related] services 5.0 million and information services 2.6 million. Margins continue to improve as we see the ongoing impact of exceeding from one possible parts of our business and shifting our revenue mix from medications to software information services. Overall, gross margin was 24.7 percent versus 12 percent in Q2 of last year and 20.4 percent in the first quarter of 2002 by product line. [Indiscernible] was [19 percent], software 17 percent, information services 67 percent. Margins improve over the first quarter in every segment of our business. We continue to find two non-medications business with operational efficiencies and better purchasing. Stocks were [Indiscernible] with implementing the TouchWorks' product. In e-Detailing business, our increasing ability to recruit physicians of viable with [Indiscernible] some streamlining of operations has contributed to the significant improvement in that component of our business. We continue to maintain tight control over expenses. Last quarter, we indicated that our SG&A of 10.4 million was that what we considered to be a normalized level. This quarter it is even lower, which is a product of our ongoing program to examine every area of our spending as well as capitalization of software and subsidization of some of our marketing expenses by our strategic partners. These [Indiscernible] account for the bulk of the reduction in SG&A from Q1. Well both of these factors should contribute to the third quarter as well. There is no assurance of [Indiscernible] stay in place indefinitely. Our head count remained constant with [Indiscernible] in the first quarter, which was 360. Our loss for the quarter was $4 million, a substantial improvement from the 6 million we lost in Q1 and consistent with the plan we laid out for you nine months ago.

A quicker view of the balance sheet: We had 67.7 million in cash and marketable securities at the end of the quarter, which we believe provides us with ample financial resources to accomplish our goals. A remainder that a portion of that is sitting as long-term assets because certain investments have maturities beyond one year. Accounts received will [grow] in line with our growth and revenue from the first quarter and DSOs were essentially unchanged. In summary, we continued to [Indiscernible] our path for profitability. Our balance sheet puts us in a very strong position relative to the industry and sure enables us to accomplish what we set out to do. Many of you have started to ask us about our outlook for 2003. We have taken a preliminary look at the numbers and based on that we expect revenues in the $105 to $110 million range, gross margins for the year of 35 to 40 percent and net income in the range of 5 to 12 cents per share. With that I am going to turn it back over to Glen to finish off.

Thanks Dave. There are two other important issues that I want to address on the call today. No calls today would be complete without a discussion of integrity in quality relative to accounting as well as our corporate governance. At Allscripts we take our corporate responsibility very seriously. Given that this is a third public company we have won, we have been very conservative relative to our accounting practices and very proactive related to FEC and NASDAQ requirements. Today, we are already compliant with many of the recent NASDAQ recommendations. Our audit, compensation, and nominating committees are all comprised of independent directors. We have no half balance sheet financing arrangements for special purpose entities. We fully disclosed any [involved] related party terms or actions. Our audit committee is quite active and its Chairman is the former CFO of a public company. Our auditors have represented [Indiscernible] independent. We do not have any loans to officers and we have not repriced options. We take our positional responsibility to our stockholders and our employees very seriously. I should also mention that we have a strong board with very experienced healthcare, legal, and investment professionals from top organizations in the country, and just as important we have a very strong financial team with a balance of technical expertise, business experience, and the systems to provide the information they need to produce consistent financials. I believe investors can be confident in our numbers and the integrity with which they are reported. I do want to address one change to that case.

Over the past few years, Dave Mullen and I have had conversations about his future and his objectives, one of which was to be a CEO of a company. We always agreed that a change of that nature could only happen when Allscripts was on its way to profitability with a strong set of financial controls and a strong team in place. Dave has made the decision to leave Allscripts to pursue a CEO [Indiscernible]. Dave has committed to stay on to until we find a suitable replacement, and we already have a search underway and are fortunate given the current market conditions, they have a solid supply of candidates to choose from. Dave and I have worked together for almost 19 years and while I don't like losing him, it would be unfair to deny him the opportunities to run his own shell something unconfident [Indiscernible]. I want to thank Dave for his contributions and for the strong position he is leaving us in: A great team, sound financial controls, and a strong sense of integrity that should inspire confidence to our investors and our employees. In closing I want to make a few points. The quarter was a successful one for Allscripts on virtually every measure, record revenues, strong markets, which are increasingly requiring our software solutions, continued progress on our products, and approach which creates competitive advantage, and a solid customer base, which is getting more larger with each and every quarter. As I mentioned, the markets we are in are heating up. We have effectively positioned Allscripts to take advantage of this momentum and even more important we are consistently delivering all these opportunities and our promises both to our customers and to our shareholders. We are well on our way to becoming an indispensable part of the way physicians practice medicine, a key part of our vision. I want to thank all of you for your support and patience while we make that vision a reality. With that I have concluded our formal remarks for Q2, and will now go into open up the lines for questions. Thank you.

Ladies and gentleman, at this time I would like to remind everyone, if you would like to ask a question, please press star, then the number 1 on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of David Francis with Jeffries and Company.

Good afternoon guys, Dave sorry we are loosing you. Glen, can you talk about the growth profile of the company and your outlook going forward. You put up a good solid quarter, but from a sequential perspective bookings on the TouchWork side of business are down, backlogs down a little bit, and as we look at the company going into what we all hope is a strengthening market environment for these new products and solutions, can you give us your view as to when you think the sequential wrap will be a little bit more visible going forward?

Sure. Let me first say that there was a slight decline in the backlog, but the pipeline is very strong and, you know, we are very confident in terms of what's out there. I mentioned in my comments that we have a number of contracts -- large contracts where we have been selected as vendor of choice, and they simply haven't been completed yet. As you get to the larger agreements in a move up from a $250,000 to much larger agreements, there is additional steps that need to be taken, so we feel very comfortable. Dave you may want to comment just a bit on the decline in backlog relative to similar contract adjustments.

Well it was a very slight decline and in fact when we looked at it, the bookings exceeded the amount of revenue we pulled out of backlog. The real reason of the dip was really contract adjustments, where modifications are made the contracts based on client's wishes as an example, if one client who decide to buy the hardware from somebody else so we don't really care about that since there is no margin hardware, but it does make, you know, you do adjust the backlog from the fact that you won't be selling on that hardware?

But overall I would say that we remain very confident, the market remains very strong with these kind of solutions as we noted and we are getting [Indiscernible] attractions both in the IDX base and outside of it.

On the IDX side, I think you said you had 59 users inside the bases, I recall on the last call you said you had about a similar number, are you seeing a slow down in adoption there or what are the dynamics there?

No, again I am not sure what we coded on the last call, but I think what you might be referring to is the overall penetration on the base and you know we see that is why growth is coming from as I mentioned 75 percent of our TouchWorks contract were with IDX customers. So we see continued growth and a [Indiscernible] growth there and a number of the agreements were vendor of choice on select IDX customers.

Okay, I will wrap up and then turn it over, do you guys still project from your prospective to be cash flow neutral to positive in the fourth quarter and continue to see sequential bookings growth on the TouchWorks side going forward?

We continue to be on track from our prospective for a crossover in the break-even in the fourth quarter of this year and we do have an expectation that our bookings in TouchWorks will increase based on what we see in the pipeline.

Thank you guys.

Your next question comes from the line of Chris [McSaddin] with Goldman Sacks.

Hey as I am actually [Gary Stern] calling in for Chris. I was wondering if you could us give us a little bit of color on the contract mix license for subscription and if that differ between the pharma companies and the TouchWorks contracts?

Actually licenses subscription is really only applicable to the software business and the quarter we did 60 percent license deals, 40 percent subscription deals, which is reasonably consistent with what we have done in prior quarters. When we look at our pipelines the phenomenon of deals that I have seen that are close to [Indiscernible] or license deals as opposed to subscription deals. Again these have to do mostly with financial wherewithal of the people with [Indiscernible] wherewithal the just financial architects [Indiscernible] good capital budgeting or not. On the PI side of business our project is all sold in the same way which is based on the [Indiscernible] procession, so there is really not a license or subscription arranged from that side.

Okay and your sales people in [Indiscernible] to go either way or is that not really inner factor into the competition?

Our TouchWorks focuses are paid on gross profit in terms incentive and I think that they are probably indifferent, there might be a slight bias in favor of license, but the important thing from their prospective is that they get deal signed.

Great, thanks a lot.

Your next question comes from the line of James [Couple] with Raymond James.

Hi, good afternoon, could you tell me again the bookings figure for the quarter and what might be a reasonable outlook over the course of the next, the remaining quarters of the year?

We booked 3.4 million in PI and we booked 3.4 million in TouchWorks and well we have regular forecast going forward.

Now, have you guys learned on anything in particular over the past couple of quarters because there has been some mixed signals from various Healthcare, IT vendors about the robustness of the market. What you can tell us about the decision-making processes within the IDX physician base that may have changed in any way over last year?

This is good. We have not really seen a tremendous change in terms of decision-making process as David and I both commented on some of these decisions are taking a bit longer than we excepted. We attribute that to the size of the agreements that they are considering and they were starting to sign, as you know generally the average IDX size has been creeping up there is some flexibility there, as if you put in one large million dollar deal it can influence that average, but the deals that are in the pipeline right now, there is a number of fairly large deals. But I would say that we have seen significant change in physician behavior.

Well it was a very slight decline and in fact when we looked at it, the bookings exceeded the amount of revenue we pulled out of backlog. The real reason of the dip was really contract adjustments, where modifications are made the contracts based on client's wishes as an example, if one client who decide to buy the hardware from somebody else so we don't really care about that since there is no margin hardware, but it does make, you know, you do adjust the backlog from the fact that you won't be selling on that hardware.

But overall I would say that we remain very confident, the market remains very strong with these kind of solutions as we noted and we are getting [Indiscernible] attractions both in the IDX base and outside of it.

On the IDX side, I think you said you had 59 users inside the bases, I recall on the last call you said you had about a similar number, are you seeing a slow down in adoption there or what are the dynamics there?

No, again I am not sure what we coded on the last call, but I think what you might be referring to is the overall penetration on the base and you know we see that is why growth is coming from as I mentioned 75 percent of our TouchWorks contract were with IDX customers. So we see continued growth and a [Indiscernible] growth there and a number of the agreements were vendor of choice on select IDX customers.

Okay, I will wrap up and then turn it over, do you guys still project from your prospective to be cash flow neutral to positive in the fourth quarter and continue to see sequential bookings growth on the TouchWorks side going forward?

We continue to be on track from our prospective for a crossover in the break-even in the fourth quarter of this year and we do have an expectation that our bookings in TouchWorks will increase based on what we see in the pipeline.

Thank you guys.

Your next question comes from the line of Chris [McSaddin] with Goldman Sacks.

Hey as I am actually [Gary Stern] calling in for Chris. I was wondering if you could us give us a little bit of color on the contract mix license for subscription and if that differ between the pharma companies and the TouchWorks contracts?

Actually licenses subscription is really only applicable to the software business and the quarter we did 60 percent license deals, 40 percent subscription deals, which is reasonably consistent with what we have done in prior quarters. When we look at our pipelines the phenomenon of deals that I have seen that are close to [Indiscernible] or license deals as opposed to subscription deals. Again these have to do mostly with financial wherewithal of the people with [Indiscernible] wherewithal the just financial architects [Indiscernible] good capital budgeting or not. On the PI side of business our project is all sold in the same way which is based on the [Indiscernible] procession, so there is really not a license or subscription arranged from that side.

Okay and your sales people in [Indiscernible] to go either way or is that not really inner factor into the competition?

Our TouchWorks focuses are paid on gross profit in terms incentive and I think that they are probably indifferent, there might be a slight bias in favor of license, but the important thing from their prospective is that they get deal signed.

Great, thanks a lot.

Your next question comes from the line of James [Couple] with Raymond James.

Hi, good afternoon, could you tell me again the bookings figure for the quarter and what might be a reasonable outlook over the course of the next, the remaining quarters of the year?

We booked 3.4 million in PI and we booked 3.4 million in TouchWorks and well we have regular forecast going forward.

Now, have you guys learned on anything in particular over the past couple of quarters because there has been some mixed signals from various Healthcare, IT vendors about the robustness of the market. What you can tell us about the decision-making processes within the IDX physician base that may have changed in any way over last year?

This is good. We have not really seen a tremendous change in terms of decision-making process as David and I both commented on some of these decisions are taking a bit longer than we excepted. We attribute that to the size of the agreements that they are considering and they were starting to sign, as you know generally the average IDX size has been creeping up there is some flexibility there, as if you put in one large million dollar deal it can influence that average, but the deals that are in the pipeline right now, there is a number of fairly large deals. But I would say that we have seen significant change in physician behavior.

Are you guys taking possibly on expanding the hardware platforms on which TouchWorks resides in [tablets] and in various other types of platforms that might provide for more flexible applications in the NAD, easier graphics and presentation of data and images?

Well as you maybe aware you know in addition to the iPAQ which is the hand-held pocket PC device, TouchWorks is currently available on desktops it is currently being used on tablets and is being used over the web, so we have a tremendous amount of flexibility today. We also aid development partners so relative to Microsoft, a new tablet, you know, when that is out there and actually being used, you know, we believe that our applications they can run on it today, currently and will start to really focus on optimizing those for the new Microsoft tablets as it is available. Given its expense, and the fact that it will even be available until sometime in the third quarter, you know that is not yet a factor. Of the only thing that I can tell you that we won't do, is we will continue to run from a hand-type perspective on pocket PC devices and HP/Compaq iPAQs, specifically, we won't be going with [palms] generally because the palms don't have the capability to run our applications.

Okay, and I guess the last question will be on the [e-detailing] Glen, can you talk a little bit about some of the requests you may have received from pharmaceutical companies in terms of new services and have you seen any kind of a movement or request from them to maybe integrate or align that much further with folks like [Dendrite] and maybe some other contract sales forces in supplemental sales organizations?

No I think we haven't seen a lot of that. I think the supplemental sales organizations as you know are under a lot of pressure right now. From our perspective what is the real news here is that e-detailing and our interactive education services have now become a real part of the mix [Indiscernible] we talked about close to 2/3rds of all of the major pharmaceutical organizations are now our customers. The great news is that many of those are repeat customers already. In terms of new products, we released one new product it is called [squad leader] which allows them to better target the [fraud] leaders out there and influence their behavior. In addition, we started, we have actually added to the sales force in the [Indiscernible] and we have also started to limit our executive summit kinds of behavioral that have been so successful on the TouchWorks site of our business. We started to [mimic] back on a [Indiscernible] sort of type of business. You know, again we will remain very, very excited and encouraged on that side of our business.

Alright guys, well, thank you very much and Dave we are going to miss you.

Your next question comes from the line of Patrick [Hoshlow] with Bank of America Securities.

Good afternoon guys. I want you just to clear up one issue to date touched on with an IDX customer sales. I thought [Indiscernible] last quarter you had 61 IDX customers signed up 96, 59, did I hear wrong last quarter or was there net loss of IDX customers?

It was not a net loss. I don't recall of giving that statistic last quarter.

Okay then I probably misheard. Could you give me an average [Indiscernible] sites for the new deals rather than one on an aggregate?

[Indiscernible] from 8000.

[Indiscernible] excuse me, and that is for just [Indiscernible], okay.

Yes.

And, the [Indiscernible].

Well, I think what you say for new deals as opposed to that the areas [Indiscernible].

I am sorry for new customers I will do make that query. [Indiscernible]

new customers, which is [Indiscernible].

I don't have that, sorry.

Okay. You mentioned a capitalized software expenses and some of these harder paid marketing expenses along your G&A you will only give a break outs which maybe just think about the look like going forward?

We capitalized, this would be on the [Indiscernible] you will see anyway, we can't rely in this quarter by $600,000 worth development expenses, you guys will recall that fourth quarter last year, we indicated that we were going to be compelled to capitalize software this year because you know that is what our accountant say we should do it, it still a relatively modest amount but that is where it is.

Okay. Fair enough. One last [Indiscernible] housekeeping question. Share count went up about 3 percent sequentially, I was just a little surprised in the --, any explanation there?

That is probably resolved in the first quarter, we sold some stock to Compaq as of you know as a strategic partners, they wanted to be an investor we didn't really want to sell the stocks, so we sold them back $2 million worth of stock and that is probably what is contributing to the incremental growth in shares.

That explains it.

That was in a footnote to the first quarter [Indiscernible].

Okay. [Indiscernible] thanks a lot.

Your next question comes from the line of Kevin Berg with First [Obeny].

Hi, it is actually Noel [Indiscernible] Christopher Kevin Berg, just a quick one, can you give us the update on how you are currently working with any of the [PDNs] and your management of complaints I guess, given a bit just of that, [Indiscernible] plans on working with these guys over the next year or so?

In relative to the [PDNs] are, as you know we have been consistently working with the [Indiscernible] and ExpressScripts and have a very solid working relationship with both of them. When you go beyond those I would say that most of it is piling work or discussions that we were having and while it will be true largely for PDNs and for the payers. We were engaged in discussions with many of them, but there is nothing material enough that I would talk about on the phone. In terms of Rx hub, we continued to have a solid relationship with them and expect to be as they start to rule out their services probably the first to offer their services in few key markets.

Really that's helpful. Thanks.

Ladies and Gentlemen. Once again I would like to remind everyone. In order to ask a question, please press star 1 on your telephone keypad. The next question comes from the line of Sed Frank with A.G. Edwards.

Hi, couple of things I won't keeping note. I had my note last quarter also, but there were 61 our installed base was 61 practices, this is so -- so there is a comparability you know that number was given out, I guess so you may want us to recheck which one of the two numbers is not right because I do have that. Are you guys expecting to close lots of business at the [IDX] meeting and is it something that you think is really going to generate significant amount of business that would show from third quarter bookings number?

You know I would say right now that bulk of our business is going to come from third quarter is already identified and we were working that in some cases as I mentioned we were already as vendor of choice we are waiting for board votes like. So while we are very excited about it and we always gets excited when we have a chance to meet with large groups of customers and present to them and I should mention, I think we were doing five separate presentations at the IDX meeting and I am addressing a launching in some of our product people are speaking at separate sessions. So that would be a great opportunity that largely that of the people that we may be targeting for the fourth quarter are executive summit program, the next one which is being held in the August. That's where we really seem to drive most of our sales from relative to the IDX space and outside the IDX space.

Okay then one followup and I am done is to understand David's departure, so as the issue day you have an opportunity lined up and that's were you going or you are going into the world to find what you want?

I don't have an opportunity that specifically at the present time [Indiscernible]. I didn't - you know, and when Glen and I discussed this for some period of time, we felt that the best way was in the best centers of the company was the first make sure that there was a smooth transition and that the company did miss the beat and then to look for the opportunity, so that - it didn't distract from my attention from that company or, you know, in anyway interrupt the progress that we were making.

Okay. I mean typically when this sort of thing happens, it's been my experience usually companies do wait to announce and tell the person's you know leaving it sounds like may be we wanted to make sure people aware that this was happening?

In this day and age, when a CFO leaves most people assume the worse and we felt that this way we want to make it absolutely clear that there is nothing about the financial operations of the business about the future prospects of the business ramping out, this triggering that's only other than my own desire to pursue what I think is best for my career at this point of time, and I want to make that you know abundantly clear.

Right. I hear you and then you ventured to guess when how long this will take using someone else outside give some lead ready to fill some important position?

Yeah. We are already interviewing candidates. We have been doing that for some period of time. We got as I mentioned in my comments some really we think world class candidates that are available and after that candidate is selected and comes on board when you know we will -- able to spend some time helping them transition. So again we want to make sure the transition was a very smooth one that everybody understood that what was and what wasn't going on and I think importantly we also didn't want people to you know as we started to search of small [Indiscernible] we didn't people to say 'yeah, what's going on' and put us into an awkward situation. So we felt announcing it in advance everybody would understand what's going on and everybody would understand that the smooth transition was the best way to do it.

Okay. Thank you.

Only take one or two more questions.

Gentlemen your next question comes from the line of [Ray Falthy] with [Bear-Stearns].

Hi guys. Good afternoon. On physician interactive I have two questions. One is, right now you talked about [Indiscernible], but where are you at in providing for a validation of the value back in the pharma companies in terms of [Indiscernible] etc and so that what's been their reaction obviously you see you will strike against momentum there and then secondly, have you considered using some of the whole combination of both PI and TouchWorks as suitably persistent platform for the pharma companies a little bit more of a follow through from the educational programs that you are currently offering together more a sort of direct input in the [dark] is that another possibility?

Yeah, we in terms of results we have two different case studies that have been done with very positive results in the order of 50 percent return on investment. So very, very strong what is the challenge is that the pharma companies are very [Indiscernible] relative to releasing information so for example even today on talking about [Adventists] they didn't want a separate press release, they don't want the drugs identified, they don't want the size of the agreement even though we have set it for largest we have ever signed. They didn't want the numbers released. The other company I mentioned where we have the global agreement you know also with varying [Indiscernible] you know confidentiality so they are keeping close to the bus but we have two side case studies that are public, one is available I believe on our website and so that's available I think that addresses your question. Dave you want to make a comment?

With respect to the persistent platform the enthusiasts, -- you know in our discussions with pharma that comes up periodically in. We are started to look at that right but the biggest issue and the thing that we need to be very careful about is we don't want to anything to irritate our physicians or in anyway hamper their utilization of the product because the fundamental issue is these pharma companies would not want to talk to us at all if not for the fact that we had physicians using our product. So, what comes first is making sure that physicians are happy with it and if there is ways to [weave] in to that information that they want and that the pharma companies wish to provide then we are happy to do that. We are working in our alliance with IMS on exactly that kind of a product makes them we had some successes frankly in selling that to the pharmaceutical manufacturers.

Lets be very clear that at the end of the day, this company is about physicians, it's about providing physicians with tools that allow them to make better decisions and what others decisions while we are providing them with different informations on the medications. We are providing them with information from [PBNs] so they understand formulary and all that is done real time. The first side of that is providing them with education on various pharmaceuticals and how well is work together as Dave said there is a very careful balance that you have to have but it is very clear that both sides will begin to leverage each other going forward and that's a bit part of our investor relationship.

Great, [Indiscernible] follow-up on the IDX sort of customer base you may think about a 5 cent penetration in [Indiscernible] trying to think it that's you know it sounds like a small number but I - well roughly yours that our perspective on whether or not you have got low hanging through, work on a you know sort of visibility you have to further penetration [Indiscernible] you are confident that you can get that number two or 20 or 30 percent level ultimately you all are hopefully higher. What kind of magic that you are looking at?

Well we have a system in place where [Indiscernible] heads our sales organization corrects every IDX account, tracks our contacts with them and has a color coded system in terms of where they stand in the decision making process so relative to how high that would go clearly we think 5 percent is only the start and I would say some portion of that is going to be well hanging fruit but we -- there is a lot of well-hanging fruit out there. The one of the biggest challenges over the past twelve months has been do we have reference sites because that [tallies] people buy and increasingly we can play to very satisfied customer's ideas and otherwise and that accelerates the process in fact university of Minnesota physicians where they have agreed to buy the entire TouchWorks EMR-3 on you know that will result in being the largest and fastest EMR rule out this ever been done [Indiscernible] 150 physicians in less than twelve months that's from the contract signing using most of our products and that's never been done before and probably that number of physicians represents more than all of our competitors have done combined so when you get those kind of reference sites then sales start to accelerate exponentially.

Sure.

I will take one more question and then you know in respect for what you had asked us to do we will call it we call [Indiscernible].

Gentlemen, your final question comes from the line of [Ted Shannon] with Piper Jaffray.

Hi guys, just two follow-up on from me you said earlier you talked little quickly about following some of your contracts had been revised after the quarter last month and I want to find out how often is that happens in our dollar basis so also we can connect [Indiscernible] how you know what kind of impact is that have in general?

Yeah, it is primarily on hardware I would say that this is the adjustments we have tend to be you know $0.5 million a quarter or something like that if we haven't.

Okay, so it is just on the hardware component it is not somebody trying to back out of purchasing a couple component or something like that?

Yeah, really not you know its -- they may have signed the subscription deal and want to convert to license or vice versa things like that.

Okay, great, thanks a lot, guys.

Well let me conclude by saying a few things. One its very clear that mentioned questions on it that the markets we are in are heating up and we believe that Allscripts is very effectively positioned to take advantage of its momentum and I think you are beginning to see that you know find the actual results so we remain extremely excited the business is coming together as Dave mentioned margin improvement in every one of our operating units setting records in various components if you look at physicians interactive records in the number of sessions, records in revenue, very strong from that standpoint and best that I can say about our [TouchScripts] group is our TouchWorks group I should say is that we had an increasing number of very satisfied customers and at the end of the day that's what this is about you produce great software and you get people to use it and like it and they tell other people and in my experience in healthcare works out in last company and here that's what successful companies are built on. So, we appreciate obvious support, we appreciate the time on the call up-to-date, we remain very excited about the market and we remain confident on our ability to deliver on the promises we have made to the market to our shareholders and to our customers. Thanks very much for joining us today.

Ladies and gentlemen, this concludes today's Allscripts Healthcare Solutions second quarter conference call. You may now disconnect.