Veradigm Inc (MDRX) 2003 Q2 法說會逐字稿

Good afternoon, my name is Tina and I will be your conference facilitator. At this time, I would like to welcome everyone to Allscripts Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press "*" then the number "1" on your telephone keypad. If you would like to withdraw your question, press "*" then the number "2" on your telephone keypad. Thank you.

I would now like to introduce Glen Tullman, Chief Executive Officer. Mr. Tullman you may begin.

Thank you, Tina. I am pleased to welcome all of you to the Allscripts Healthcare Solutions second quarter call. This is Glen Tullman, Allscripts' Chairman and Chief Executive Officer. Joining me on the call today is Bill Davis, our Chief Financial Officer.

Let's start by reading copy of the Safer Harbor statement. Bill?

The statements made by Allscripts or its representatives in this conference call would include certain forward-looking statements that are based on the current belief of Allscripts management, as well as assumptions made by and information currently available to Allscripts management. Wherever practical Allscripts will identify these forward-looking statements by using words such as "may," "will," "expects," "anticipates," "believes," "intend," "estimates," "could," or similar expressions.

These forward-looking statements are subject to a variety of risks and uncertainties including those listed in the press release issued by Allscripts today. In an Allscripts filings with the SEC, which could cause Allscripts actual results, performance, prospects, or opportunities in 2003 and beyond to differ materially from those expressed in or implied by these statements, except as required by the Federal Securities Law, Allscripts undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, changed circumstances, or any other reason after the date of this release.

With that, I would like to turn the call back over to our CEO Glen Tullman.

Thanks, Bill. I want to begin by sharing with you some headlines that focus on second quarter results. From the financial stand point, this is the second quarter in a row that we have had positive cash flow. Our backlog is off from $37.5m to $38.7m, while at the same time showing growth in both of our higher margin businesses TouchWorks and Physicians Interactive. That growth in the business mix contributed to an overall margin improvement from 30.9% in Q1 to 33.9% in Q2.

Software margins grew from 39.1% to 43% from the first quarter to the second quarter. Perhaps most important, we are reconfirming that we will be profitable in the fourth quarter of 2003 a goal we feel confident we can achieve. Our confidence in that statement is due to the positive sales momentum we are experiencing. Deals for the quarter were $6.1m in TouchWorks and $2.5m in Physicians Interactive.

That said we have already closed deals in excess of $1m this quarter with more close is expected in the next few days. Today we are also announcing two strategic acquisitions that I am very excited about, our RxCentric and Advanced Imaging concept or AIC. We feel that both the acquisitions will help strengthen our competitive position and product functionality and provide key people to drive sales for our PI and TouchWorks businesses.

Let me provide some detail on each of the acquisitions. AIC or Advanced Imaging Concepts are recognized as the leader in clinical document imaging. Having won a number of prestigious industry awards including best imaging applications at TEPR this year.

We have been working together with AIC for almost a year and have had solid success in selling their products, as have others. Some of you may know that they supply a number of our competitors including [Nextgen]. Based on client's feedback, we believe that imaging is the strategic part of our product offering. Given our selling success today ,and I should mention that we've already sold approximately $3.1m in AIC products over the last four quarters. Given the strength of their people and there reputation, the decision to acquire the company was not difficult, depending on how quickly we can close the transaction, we expect AIC may contribute this year. Bill will provide more color later in this call on the exact amount.

Next year, AIC should add about $2m to our bottom line and closed to $4m in cash. While this acquisition is good for the balance sheet and good for our TouchWorks' product line, there is one other key aspect of the deal that is absolutely critical to recognize. AIC is providing a great entry point for automating the smaller independent physician market. AIC offers a cost effective product that provides value and it is easy to implement. AIC brings a very solid broad network and an excellent track record in selling to this market gaining as a great entry point and as a separate business unit of Allscripts, AIC will be charged with expanding our presence in this area.

Our second acquisition, RxCentric, was a primary competitor for Physicians Interactive unit. RxCentric was focused on two areas -- selling to international clients and using robust multimedia capabilities for higher-end e-Detailing presentation. RxCentric bring strong relationships with many current clients that will expand our customer base and three very experienced sales people to our team, who will require little lead time to get up to the speed and contribute.

The bottom line on RxCentric is as follows; it will enable Allscripts to increase our sales capacity, expand our product offerings, and deliver a number of new client relationships including a solid base of new business in 8 countries.

Let me turn back to our quarterly results for a moment. I am pleased with the progress I discussed just a moment ago. Our operating results were disappointing in both our Direct and TouchWorks business units. Results in our Allscripts Direct unit were off for two reasons; a slow down in dispensing and occupational health sites triggered by the tough economy and our continued efforts to call the customer base and find customers with both acceptable margins and the recurring revenue something which in the short-term hits revenues, but which is the right long-term business decision.

Results in our TouchWorks unit were impacted because we did not implement a number of signed contracts in our backlog as rapidly as we had expected. Both the changes in the Direct unit and the delays in the TouchWorks unit led to a shortfall on both the top and bottom line.

I want you to know that we have taken a number of actions to correct this situation. In TouchWorks, while sales are strong, we are not taking down the backlog fast enough and therefore can't recognize the revenue as quickly as we would like.

Beginning this quarter, we are putting replay systems to better track our progress across client and in addition to our own team. We are working with a number of consulting organizations to assist us in speeding the implementation process, which will allow us to accelerate revenue recognition and drive results to the bottom line. We have learned a significant amount about how to implement and manage the process over the last few quarters and we expect to see the results beginning in Q3.

In our Direct business, while we can't impact the economic conditions of the occupational health market, we have reorganized to allow some more focus on driving new business and we expect to see results very rapidly, most likely, in Q4. So why we are confident about the long-term value we are building at Allscripts, few reasons; first, our customers are being successful using the software. It is working and they are seeing great results.

Let me give you a few examples. The University in Minnesota Physicians Group which we talked about before and includes 450 full-time physicians is now processing 1.3m results a month through the TouchWorks system and we estimate they will save $3m a year in paper medical records and all those $500,000 a year in recovering lost charges. Central Utah multi-specialty clinic, another site that we've mentioned and Central Utah should add it to the largest multi-specialty clinic in the State of Utah.

They recently concluded a return on investment study on our application. In the first year on TouchWorks, they saved over $980,000 in the project and they project, I should say, that they will save approximately $8.3m in the first five years using the system. Another example that I think is a good one, MIT is a great example of an organization that is seeing the benefits of going paperless. They are printing 9000 pure documents per month and filing 20,000 less documents.

As they have reduced [inaudible] by over 93%. Additionally, they file 1000 less documents per day as they receive, review, and sign off on their laboratory results and transcription result electronically by the TouchWorks. So that's one solid reason.

Another reason that we have confidence is that we continue to gain recognition in the market place as a leading electronic medical record provider. For the second year in a row TouchWorks received a five star rating in the AC group electronics medical record evaluation which was released at the 2003 annual conference.

Third, the markets for our products are ready and customers are buying. As we have said, the two greatest needs in healthcare today are the need for better information for physicians for providing care and that comes to electronic medical record, and the need to communicate information to physicians especially from pharmaceutical companies and doing that work cost effectively is what our e-Detailing applications are all about.

Thinking of the e-Detailing, last weeks [inaudible] released an extensive survey of 2200 physicians who have gone through e-Detailing programs. The conclusion was that e-Detailing works one data point is at 7 out of every 10 physicians who have completed an e-Detailing program indicated that they write more prescriptions for the medication that was featured in the program then they had previously written.

Last, but not least, we are making the right long-term decisions to build a profitable successful company. Having solutions to the tough business challenges that are client space and the value these solutions add makes Allscripts a very attracted investment opportunity.

At this point, I would like to take a more detailed look at our financials and I am going turn it to Bill Davis our Chief Financial Officer.

Thanks, Glen and hello everyone. Today I will first review our Q2 results in more detail. I will then provide updated guidance with respect to our expectations for the balance of year, and finally, I will further insight into our two acquisitions that were announced earlier today.

Turning first to our second quarter results, while we were disappointed with our performance, we continue to be encouraged by the key indicators in our business including backlog, total sales, and the strength of our overall financial position. For the second quarter in the row, Allscripts generated positive cash flow and ended the quarter with $67m in cash and marketable securities. This represents the [inaudible] increase since the beginning of the year.

Total sales in bookings during the quarter were approximately $8.6m. Our TouchWorks business, the largest part of our software segment, contributed $6.1m in sales during the quarter excluding ongoing support. This compares to $6.2m in the first quarter and $3.4m in the second quarter of last year. TouchWorks' year-to-date sales of $12.3m represented 65% increase over the same period a year ago.

Further, more than half of the contract we've signed this year are with existing customers. We are also encouraged by the fact that our average deal size for the quarter remains strong at approximately $300,000, while average deal size with new customers remained consistent quarter-over-quarter at over $400,000 per deal. The average number of modules purchased in the quarter was four.

Our physician's interactive unit, the largest part of our information services segments at sales during the quarter of 2.5m as compared to 3.3m in the first quarter. This decrease is primarily due to the fact that we had several client deals postponed due to the issuance of final [OIG] guidelines during the quarter related to program incentives for physicians.

Ultimately, we believe such changes will increase demand for [PI's] product offerings, but it clearly had an adverse effect on our second quarter sales by freezing the market for a period of time. We believe that these clients will ultimately move forward and sign with or without the incentive structure. Consistent with our TouchWork's business, we are encouraged by the amount of sales that have been recorded in the first couple of weeks of this quarter. We are also encouraged by the fact that are average deal size increased slightly quarter-over-quarter to approximately $280,000 per deal.

Turning to backlog, our total backlog at the end of the quarter was 38.7m. This represents a 3% increase over the first quarter and an 11% increase since the beginning of the year. The backlog breakdown is as follows. One time fees is $24.2m, 50% of which is from our TouchWorks products and 40% from Physicians Interactive. Our subscription -- our reoccurring revenue stream is $9.4m, and then SMA's for the next year is 5.1, given a total of 38.7.

Revenues for the quarter was $19.7m. The $300,000 decrease as compared to Q1 was due to a $900,000 decrease in our medications revenue, offset by a $200,000 increase in our software and a $400,000 increase in our information services or PI revenues. The medication revenue decline was primarily due to a slowdown in dispensing the medications by certain of our clients, and as Glen mentioned earlier that [inaudible] in the occupational health area tended to be effected by the overall economy.

Medication revenues were all adversely affected due to the bankruptcy of one of our large legacy TouchScript clients. Well both our TouchWorks in PI revenues grew quarter-over-quarter. It did not grow at the rate that was originally expected. Our challenge in the TouchWorks business continues to be our ability to put out backlog quicker which has been and will continue to be one of our top priorities. Glen has already outlined ways in which we are addressing this opportunity.

With regards to PI, we continue to face certain client delays impart due to pending FDA approval. Our ability to deliver certain programs was also handled by clients wanting to evaluate the impact of the previously discussed OIG announcement. As I indicated previously, we believe these new guidelines will create opportunity for all scripts longer-term with regards to our TouchWork's business 13 clients came wide on one or more modules in the second quarter for the first time.

IDX customers continue to represent a significant portion of our sales in that business. We are ready to IDX customers as of June 30. In terms of revenue mix, our software and information services segment worth 43% of total revenue for the quarter compared with 40% in the prior quarter and 38% a year ago. Both increases are due to the overall increases in revenue from our TouchWorks and PI businesses and a decline in the medication distribution business.

Second quarter revenue by segment is as follows; medications are $11.2m, software $6m, and information services of PI $2.5m. Year-to-date revenues grew to $39.7m from $38.9m in 2002 revenue from our software information services grew 18% to $16.4m, from $13.9m to the 6 month period ended June 30, 2003, versus the same 6 month period a year ago.

Looking at margins, they continue to improve as we enhance our implementation capabilities and shift our revenue mix towards the higher margin businesses. Overall, our gross margin was 33.1% in the second quarter versus 30.9% in the first quarter of 2003. Margins by segment are as follows, medications are 22% which is consistent with the first quarter, our software business is up from 39% in the first quarter to 43% in the second and our information services or PI held steady at 59%.

The total gross margin of 33.1% compared to 30.9% in the first quarter. We continue to be encouraged by the consistent margins being delivered in our PI business as well as a strong progress that was made in our software segment. It is important to note that our software gross margin has increased from 17% in the second quarter of 2002 to approximately 43% this quarter a trend that we expect to continue.

Turning now to expenses, we continue to maintain tight controls overall our expenses. Operating expenses for the quarter were $8.9m versus $8.7m in the first quarter. This expected $200,000 is attributed to the fact that second quarter included cost related one of our executive summons as well as an increase in insurance professional service fees.

We capitalized approximately $400,000 as software development cost in the quarter. This amount will fluctuate from quarter-to-quarter depending on where we are in our product development cycle. R&D expenditures as a percentage of software revenue were approximately 30% in the second quarter. With regards to headcount, we ended the quarter with 301 employees.

Our loss for the quarter was $2.1m or 5 cents per share, both of which are consistent with the first quarter. Basic shares outstanding for the quarter were $38.5m and fully diluted shares were $39m, had we been profitable. As we look forward, in the balance of the year, we continue to execute a plan that has [inaudible] profitable in the fourth quarter, while we will not be profitable for the entire year. We expect our growth businesses to continue to make progress in the third and fourth quarters.

Based on our performance year-to-date and our expectations for the balance of the year, I expect total revenues of $80m - $85m and a net loss of 13-14 cents per share for the core business. In the [inaudible] that will be used to fund the two acquisitions I expected to exit the year with approximately $46m in cash.

Finally, I would like to provide some additional information regarding the two acquisitions we announced earlier today. First, with regards to Advanced Imaging Concepts or AIC, we have reached an agreement to buy the company for an aggregate value of $18m. We expect to use approximately $14m - $16m of our cash to complete this transaction. The balance of consideration will be in the form of Allscripts stock options.

AIC will continue to operate out of this location and has 25 employees who will be joining Allscripts. We expect this transaction to close later this year as such we do not know what contribution it will have on our 2003 operating results. However, on a standalone basis, AIC is expected to generate approximately $8m in revenue and $2m in net income for the year.

As we look forward to 2004, we expect AIC to contribute in excess of $10m of profitable revenue and generate in excess of $3.5m and positive cash flow for our business. Demand of net income that AIC will produce half of their revenue will on large part will be dependent on the amount of amortization that will be recorded from this acquisition.

We have engaged in an independent valuation firm to assist us in making that determination and expect to provide more detail 2004 guidance for AIC when we provide overall company guidance later this year. The closing of the AIC acquisition is subject to customary closing conditions including shareholder approval.

Turning now for our second acquisition. We have agreed to purchase substantially all of the assets of our RxCentric for $4.5m. The agreement also provides for a contingent consideration of up to $1.75m in cash if certain operating objectives are met during the year following the closing. The base consideration of $4.5m what we paid in cash lets the assumption of certain operating liabilities.

We expect to use approximately $3m of our cash to complete this transaction, which is scheduled to close later this quarter. Expect the addition of our RxCentric sales resources to have an impact on our Q4 sales numbers the benefit of which will start to be realized in 2004. Given our RxCentric's current back log, I expect them to contribute approximately $1m in revenue with a modest amount of profit in the fourth quarter.

This transaction also is subject to customary closing conditions including attaining certain customer consent. We do expect our RxCentric to contribute in excess of $4m in profitable revenue in 2004 and generate positive cash flow in excess of $600,000 for the year.

In summary, while we are disappointed with our current quarter performance, we continue to be encouraged by the key indicators of our growth business which include our sales prospects, total backlog, and our strong cash position. Couple this with key strategic acquisitions in both our software and Physicians Interactive businesses and we believe we are well positioned for future growth.

With that, I will turn it back over to Glen Tullman for some closing remarks.

Thanks, Bill. Well, before I make some additional comments, I just wanted to reiterate how excited we are about these two transactions, which we think fit perfectly in terms of what we are about and supporting our growth businesses. But I also want to announce the number of changes to our Board of Directors.

The first is that Rich Tarrant will be stepping off the board. Rich has served on the Allscripts' Board for two years to ensure us strategic alliance agreement with IDX got off to the right start. Rich stayed on the board until he was comfortable, the companies were operating together successfully, and with over 7 years remaining in our 10 year strategic partnership, the companies are in fact operating together more successfully than ever.

With over 90% of our sales coming from the IDX base, it's clear that the partnership is working, and the key relationships are now in an operating level, which is important because its more and more clear that clients who are in the market for the practice management system are also looking for a clinical solution. So being closely tied is important from the market perspective.

The momentum is strong and is evidence by a number of joint activities underway including the recent launch of our joint marketing campaign called the [Tandem] campaign are mutual commitment to invest additional funding to further integrate with the IDX Group [cast] product, and our role as the primary sponsor at the upcoming IDX user conference in Boston.

Rich has made a much appreciated contribution to the Company and we thank him for the time and efforts he put into insuring we had a smooth transition over the last two years. At the same time, I am very excited to announce that we are also adding two directors that I believe add real value to our Board. The first, Bob Compton (ph.), has been a successful entrepreneur and venture capitalist for the past 20 years. He founded Novin Communications (ph.) in February 2000 and served as its Chairman and Chief Executive Officer.

Bob has funded or started more than two dozen companies in software, medical devices, and healthcare services. Previously, Bob was President of the Neurosurgery division of Medtronic, a $7.5b medical technology Company. Prior to Medtronic, he was President and COO of [inaudible] Group, a $400m medical device company acquired by Medtronic for a $3.7b. Bob has an undergraduate degree from Principia College and an MBA from Harvard Business School. We expect that Bob, will play a key role in helping guide our strategy in our Physicians Interactive business. Given his pharmaceutical and medical device background, we plan to benefit from his general business experience in this area.

The second board member we will be adding is named Gus Demage (ph.) and [Gus] is President and Chief Executive Officer of ConnectiCare. For those of you who are unfamiliar with it, ConnectiCare is a very successful $300,000 member Asian mall located in Connecticut. Prior to ConnectiCare, [Gus] was employed for more than 20 years at Blue Cross Blue Shield in Massachusetts.

[Gus] is a graduate of Damily (ph.) College and was a Bachelor of Science degree in accounting and finance and a CPA. He'll be joining our audit committee and we expect that [Gus] will also be critical in helping our management team better understand the complexities of the manage care and payer environment and how Allscripts can add value-added services to these groups. All of these Board additions and changes will become effective from August 1.

So to summarize, 2003 is on track for a profitable fourth quarter and we are positioned to deliver a very solid year in 2004. A progress on the financial front in addition to our cash position is a good early indicator. Our TouchWork sales and overall growth in our backlog are also good signs. I would just give you one other evidence of what's happening in the market, we have these executive comments every so often where we bring in C-level executives; CIOs, CEOs and alike.

We have one upcoming next week in Chicago and we have 90 C-level executives signed up to attend and this is a session where we spend a day and half with these executives with our partners talking to them about the electronic medical record market and health care and they actually paid a fly-in in participating these, so very strong sign.

In addition, as evidenced by our acquisitions, I think you can see that our management team is committed to taking the steps necessary to ensure that we are building a successful and profitable company. Holding a business, especially one that requires investment, is tough stops especially in this environment. Well we experience some bumps, the trends are positive. We continue to be confident that we have the solutions that our clients need and that we are the people they want to work with.

Now, I want to end the call by thanking our employees for putting out a great effort during the quarter, progress that will continue to build upon each and every day. And I also want to thank our clients for their confidence in us and, you, our investors for your continued support as we build the Allscripts success story together.

At this point, we will be happy to entertain any questions you might have. Thank you for joining us today.

At this time, I would like to remind everyone, in order to ask a question, please press "*" then the number "1" on your telephone keypad. We will pause for just a moment to compile the Q&A roaster.

Your first comes from the line of James Kumpel with Raymond James.

Hi, good afternoon guys. Just a couple very brief ones here, first of all, I thought I heard two different numbers to medias on the averaged deal for us on TouchWorks, Glen I thought you said $300,000, but Bill, I think you said $280,000. Which one was it?

I didn't comment on the average deal size on TouchWorks.

Yes, let me reiterate. I did comment on two different deal sizes I'll distinguish.

Okay.

Our overall average deal size was $300,000 in the TouchWorks business. I also indicated that for new customers because we have both new and existing customers buying additional licenses, just new customers, it's over $400,000 relative to our Physicians Interactive business.

That's was $280,000.

That's the 280,000.

I appreciate. I am sorry. Okay, on the acquisitions, maybe you can walk through some of that again, if you wouldn't mind for I guess advanced imaging concepts? What you think was your economic participation in the sales of their price you talk about 3m sales of their products since the last 12 months? Did you book any of that, whatsoever over the past 12 months and if there are going to be any kind of revenue contribution that gets carved out as a result of your [inaudible] now?

Yes. Let me take the first shot at that in terms of participation we were in essence of resale of their products. So we would go out and sell those products that we have integrated into the TouchWorks suite and offered as an add on a modular add on to the TouchWorks suite. So we had revenues that we would recognize and then of course we had a cost to sales when we would buy it from them. So that's been the way it operated traditionally.

Now, I'll let Bill comment on it as well.

Yes, to your second point, we have been recording our revenues from the sales related to the AIC products. We have been recognizing that revenue in a consistent manner as our other product offerings which is done on a percentage of completion basis even though the sales numbers in $3m. There has been a potentially lower number recognized as revenue and the result of this acquisition will effect, have us taking away that cost to sales that really have -- historically been recording, given that, that will go away.

So, you have been recording it as a net against the $3m.

No. we have been recording growth and I wanted to just clarify we've not booked all $3m of that as revenue, those were sales of the sales number that Glenn was speaking to and so some of that is actually sitting in our back log and is being brought in as it has being implemented in the client.

I see.

But at the same times we record the revenue, we've been recording a cost to sale to AIC and as they become part of our operations that cost to sale will go away.

Was AIC bringing something to the table that you felt was significantly lacking in TouchWorks before?

Well, AIC offer something that is added to the TouchWorks suite and that is really the ability not only managed the document, but enter the document, send the document in and file the document, move the document a lot more efficiently. So the imaging component was really what they were driving in TouchWorks.

Okay, are there any other resale agreements?

No, we don't have any other aspects where the TouchWorks suite that we were selling, you know, software. I think the one piece I would mentioned is that there is some contents involved in the TouchWorks suite where we selling you know, as part of our pocket library as an example. You know there are prescriptions that people occasionally get.

Okay. This last one, on RxCentric. Is there any intention to use their international presence as a mechanism for cross selling? And if your other services -- or is that really just a legacy that you are acquiring internationally and the focus will remain domestic on your PI?

Well, in terms of positions interacted, but if not there is an absolute intention to take that product as an internet-based product and our ability to sell it whether it be domestically or internationally is the same. Part of the acquisition or part of the asset purchase is some really topnotch sales people including one or two people who are focused on international market. So it is one of reasons that fits so well it broadens our ability to sell the same product and we get some very, very top notch sales people.

For under $3m in cash net of -- after the liabilities are in?

That's right.

Okay. Great, thank you.

Your next question comes from the line of Sean Weiland with WR Hambrecht.

Hi guys, I wanted to talk about the bookings a little bit. Specifically, if you can give us any insight into the TouchWork's pipeline and what the bookings number or how that $6m - $6.4m did compare to your expectations? Where do you think that could go for the remainder of the year? What do you think the catalysts are to drive bookings growth from here?

Sean, this is Glen. Well, we don't generally give our pipeline. I think what the equity is comment on it. The variant in what the sales number could have been this quarter is very substantial in terms of the size of the deals we are signing is much, much more common than it used to be for us to have $1m deals in the pipeline. Part of what I mentioned within the first few days following the quarter, we had already signed another $1m in deals. We had deals pending that are worth millions of dollars.

A number of those we fully expected to close during the quarter. So I think what we see is a very vibrant market for the products, people are buying, and you know now is the function of just getting those closed in the right timeframe. What we didn't want to do is provide the kind of incentives that we probably used to provide to get people to sign within the quarter and take a hit on our margins.

So we were perhaps a little more patient than we used to be in saying -- if we are the vendor of choice, we are negotiating the deal, we know it's coming -- that just pumping the sales number this quarter as opposed to next quarter at the cost of margin isn't going to be something that we will be likely to do.

That said, we are in a number of these deals. We are in legal negotiations with vendor of choice and the like, and we have a high degree of confidence in our sales number that's far in excess of the $6m that we booked this quarter.

And were St. Jose and [inaudible] was that -- where those Q2 deals or Q3?

[Sanctioned] early deals and St. Jose (ph.) is actually Q1.

Okay.

Here in closer with the Q2 deals.

Okay. I'd be interested in your thoughts on the e-prescription language that's in the pending Medicare bill. Do you think that that's going to have any impact on your business?

We do think in -- I think we were just, Bill and I had a disconnect here. [St. Jose] was actually in both quarters because they signed a deal and then they expanded the number of licenses they bought. Part of the vision we held off announcing it was they were in the middle of trying to decide whether they could buy more licenses. So this is one of those great cases where they're both right.

Okay

In terms of commenting on the various legislation that's out there, I do think it's going to have an impact. We've been involved through the e-health initiative and a number of other organizations [leap frog] and the like. In working with organizations that are promoting the various bills. Some of those bills include funding. The most current bills do not include funding, but there's people trying to push that.

In any case, I think it's very clear that once again that aspect to be prescribing is going to happen. We see it happening. People are reading the handwriting on the wall and they are saying not only we are going to e-prescribing, but we are going to step up and more fully automate with the full EMR or the pieces of the full EMR and that fits very well in to our modular strategy. Though we see they are being an impact and being a very positive impact.

Okay. Bye. Thank you

Again, in order to ask a question, please press "*" then the number "1" on your telephone keypad.

You have a follow-up question from the line of James Kumpel with Raymond James.

I just wanted to understand what's some of the milestones you have for RxCentric for them to get the [inaudible]?

You are speaking quantitatively or qualitatively.

I would assume you probably can't give all the details quantitatively. So I assume the types of metrics that you are going for unless you want to give the quantitative view?

I think there is really two sets. One is, we expect the number of existing contracts to run out. The way that they have been described to us, so that's the piece of it. Second, there are sales incentives built into the agreement and then there are some qualitative things that will measure as well. So all of that fits into it. At the end of the day, it's about performance of the customers that we acquired as part of the agreement, as well as, how well that business unit PI does.

Can you give us a sense of how quickly RxCentric has ramped up to get to this $4m of run rate revenues relative to where they were last year?

Yes, they are. This is relatively new business. They got into it I believe the second quarter of too maybe a little bit in Q1 of 2002, but principally in the second quarter and to recognizing that I think their 2002 revenues were in kind of $0.5m a quarter about $2m on the annualized basis and have trended up since then. They are indicating expectations around a $1m in the fourth quarter.

Essentially they had a different business I think that they kind of moved away from -- it's only if there is any legacy component of that?

There is not.

Okay, just in general, if you can give us sort of sense of the value of the assets that you have acquired from both AIC and RxCentric maybe consider your own guesstimates on the amortization side?

From the tangible assets standpoint, the AIC Group we think about net assets in $0.5m - $0.75m range and areas that we are focused on are customer contracts, trademark names, employment agreements, we are looking at in-process R&D, and then obviously the major intangible asset being the core software itself.

Right and for RxCentric pretty [diminished], I guess?

Yeah, I'm sorry.

For RxCentric I'd assume it's pretty [diminished].

That's correct with the exception that we spent a lot of time analyzing the uniqueness of their physician database. So there is an expectation that some day we will be scribed to that because there are some unique physicians that will spend in what we already have.

Okay and I am just trying to get an assessment on the AIC side. Can give sort of sense of how well they've grown in the last year?

Yes, their business from a revenue standpoint in 2002 did somewhere in $4.55m on the top-line and as I indicated, expectation is that would ramp up to over 8 this year and then since then it's been a healthy growth all of which all indicated been profitable.

So it's going from $4.5m - $5m in annual sales up to $8m in annual sales at this point and you expected it to grow to $10m next year?

That's right. I said in excess of $10m.

Alright. Okay and just finally, are there any specific clients that AIC or RxCentric brings to you that you really didn't have access to previously?

Yes, but especially relative to RxCentric, what we find in the pharma spaces they actually ask us not to comment on specifics. I can tell you that they bring to us one of the top 5 in the world where we really didn't have a solid relationship with.

Okay.

So that's a very good add for us. In terms of AIC, AIC has a substantial client base and it's about something that we have worked in [inaudible], in terms of selling but they have 250 installations in 40 states and well over 10,000. I think its something close to 14,000 license users, though a very solid basis of our clients.

Okay. Well, I'll let other people get in call. Thanks.

We appreciate everyone joining us today. Again, to reiterate, we think that there is some very exiting news on the call today. We have had a more difficult quarter than we expected in two of our business units, but part of that I see as growing pains - something that we are very focused on addressing. The future is a very bright one with continued growth and movement to profitability. So, thank you very much joining us today and we will look forward to talk with you in next quarter. Bye, bye.

This concludes Allscripts' second quarter's earnings conference call. You may now disconnect.