Veradigm Inc (MDRX) 2005 Q1 法說會逐字稿

Good afternoon. My name is Alicia (ph) and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Allscripts first-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. (OPERATOR INSTRUCTIONS). I will now turn the call over to Glen Tullman, Chairman and Chief Executive Officer. Sir, you may begin your conference.

Thank you, Alicia. I'm pleased to welcome you to the Allscripts Healthcare Solutions first-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, and Lee Shapiro, our President. We will begin by reading a copy of the Safe Harbor statement. Bill?

The statements made by Allscripts, or its representatives in this conference call, will include certain forward-looking statements that are based on the current beliefs 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, intends, estimates, could or similar expressions. These forward-looking statements are subject to a variety of risks and uncertainty, including those listed in the earnings press release issued by Allscripts today and in Allscripts filings with the Securities and Exchange Commission, which could cause Allscripts' actual results, performance, prospects or opportunities in 2005 and beyond to differ materially from those expressed in or implied by these statements.

Except as required by the federal Securities laws, 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'd like to turn the call back over to our CEO, Glen Tullman.

Thanks, Bill.

Each quarter, I begin these calls with the financial highlights, and I've consistently told our investors to watch sales for the following two reasons -- (technical difficulty) -- determined -- (technical difficulty).

Mr. Tullman?

Hello?

Sir, your line went dead on us.

Are we back?

Yes, you are back.

Okay. Let me begin. Bill, did we get the Safe Harbor? Let me just start the call over. I'm pleased to welcome all of you to the Allscripts Healthcare Solutions first-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, and Lee Shapiro, our President. We will begin by reading a copy of the Safe Harbor statement. Bill?

The statements made by Allscripts or its representatives in this conference call will include certain forward-looking statements that are based on current beliefs of Allscripts' management, as well as assumptions made by and information currently available to Allscripts' management. Wherever practical, Allscripts will identify these forward-looking states by using words such as may, will, expects, anticipates, believes, intends, estimates, could or similar expressions. These forward-looking statements are subject to a variety of risks and uncertainties, including those listed in the earnings press release issued by Allscripts today and in Allscripts' filings with the Securities and Exchange Commission, which could cause Allscripts' actual results, performance, prospects or opportunities in 2005 and beyond to differ materially from those expressed in or implied by these statements. Except as required by the federal Securities laws, Allscripts undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of any new information, future events, changed circumstances or any other reason after the date of this release.

With that, I'd like to turn the call back over to Glen Tullman.

Thanks, Bill.

Each quarter, I begin these calls with financial highlights. I've consistently told our investors to watch sales for the following two reasons -- to determine if the market has indeed tipped and as an indicator of our future performance. As you'll see from our sales discussion later in my comments, the market is moving and we are a significant player. Today, however, I want to spend some time highlighting what is happening in the healthcare technology sector and how this is having a very positive impact on our business. So let me begin there.

Investors always need to ask two questions. Why invest in healthcare? And why invest in Allscripts? So let me address each one. Why healthcare? Healthcare is one of the largest and fastest-growing segments of our economy, accounting for close to 17% of our GNP and getting larger every day. Healthcare is a market that is significantly underinvested in Information Technology, in particular in the area of ambulatory electronic health records, and healthcare continues to shift outside the four walls of the hospital and into the ambulatory space.

The White House and Dr. David Brailer, the national coordinator for health information technology, have clearly stated a goal of every American having an electronic health record, so the trends are very positive.

But why Allscripts? Allscripts is the market leader in each of our businesses with award-winning products and significant relationships that provide a competitive advantage. We have a blue-chip client base consisting of many of the leading medical groups in the country, thought leaders that influence other buyers. We have a substantial head start creating a barrier to entry for future competition. We have strategic partnerships, like our agreement with IDX, that give us clear advantage in the market today. We have a very strong and experienced management team, and our people are the most committed in the industry.

So, the questions investors should ask are, is there anyone who doesn't believe that healthcare will be automated? And is there anyone who doesn't believe that it's happening as we speak? Our results clearly answer both of these questions. I wasn't sure how we would follow our fourth-quarter performance, during which we set records on virtually every measure, so I'm pleased to report that we delivered the second-largest sales quarter in our history in our Clinical Software Group with sales of $15 million. With our pipeline larger than ever, our expectation is that more deals in 3 to $5 million range will close during the next two quarters, and we're really just getting started.

Most of you have seen our brand positioning of informed connect transform, which we successfully introduced at HIMS. This really tells the story of Allscripts. We are informing positions by delivering innovative products, like electronic health records that provide real-time information and e-detailing that provide needed information on medication and medical devices.

We are connecting physicians with patients, pharmaceutical companies, payors and a host of others with our I-help (ph) and Patients Interactive offerings that provide physician-directed patient compliance and adherence. We're getting paid for making those connections.

This family of products and services offered by our separate business groups are all coming together to help our clients transform healthcare. As you know, when industry transformation occurs, opportunities occur. We are committed to partnering with our clients to drive the transformation of healthcare and ultimately delivering solid returns to our investors. Our progress in informing, connecting and transforming healthcare is evident in each of our business units.

Our Clinical Software business is hitting on all cylinders. As I mentioned, with $15 million of sales, we delivered our second-largest sales quarter ever. During the quarter, we signed contracts with a number of new clients, including leading organizations like University Physicians Healthcare, the largest physician group in Arizona, which we announced this morning. UPH has 260 physicians who will be using our full electronic health record in a contract valued at approximately $3 million.

Q1 revenue was where we expected it to be, given the size of the clients we are in the process of deploying, including Sharp, Healthcare Partners and others. Some of the larger deals take a few months to get underway and require more investment before we can get our revenue recognition into full swing. In fact, for the larger deals, we actually relocated a number of our deployment folks to the client side -- to the client sites, I should say, to maximize speed of deployment and our downstream revenue-recognition opportunity.

Bill will provide more color on the financials, so in order not to steal his thunder, I want to comment on the strategic wins, because I believe the quarter was a home run if you look at our industry leadership and our sales development.

As most of you know, the language in our space changed from electronic medical records to electronic health records, reflecting the important role patients and connectivity will play in healthcare. Given this important change, our investment in Medem, the physician-patient connectivity platform developed by the AMA and 45 other medical societies, is looking better every day. I'm pleased to say that Allscripts will be the first to be fully integrated with Medem's offerings, a clear indication of our leadership in the physician patient connectivity area.

We are also leading the industry, and leadership is about setting the bar and demonstrating results. In terms of setting the bar, we have been intimately involved in the development of e-prescribing standards. Additionally, we are on the certification commission for healthcare information technology, which, last week, released the initial work product on Electronic Health Record standards. Two weeks ago, we held another executive Summit in Washington, D.C. with Newt Gingrich, key client presentations, Michael Zamore, Kennedy's lead advisor on healthcare, and 75 C-level executives from 41 organizations, all prospects and all coming to learn from the experts, not only about what's happening in Washington but also about where the EHR space is headed and the latest information on deploying electronic health records. It's nice to have your prospects learning from you.

We are developing a blueprint for success, defining industry Best Practices and sharing those practices, releasing our first book entitled "The Electronic Physician" in two weeks. At the same time, competitors are just starting to announce new initiatives and focus on the importance of implementation. They should read our book and they can get it in two weeks on Amazon.

Our clients are leading the way as well, receiving grants, piloting (ph) paper performance at places like Dartmouth Hitchcock Keene, leading the development of RIOs at key clients like the Holston Medical Group, taking the lead in telemedicine where the University of Tennessee Medical Group is using our Electronic Health Record to share information on patients at remote locations across the state of Tennessee, and demonstrating the power of the Electronic Health Record in developing new revenue streams for the practice, such as participation in clinical trials, which has drawn interest across our client base. We want to take the Electronic Health Record from a cost to a revenue-generation tool, using the power of the information it contains for the benefit of the practices and the physicians.

As I stated, the second part of leadership is delivering results. You can see that our clients have become the centers of excellence that all other groups look to for Best Practices. With well over 100 IDX sites who consider us the safe choice, a growing number of non-IDX sites as well as increasing strength in specialties like ophthalmology where we've signed two of the top ten ophthalmology practices in the country, Dean McGee Eye Institute and Delhini (ph) Eye Center, which is part of USC, we're making solid strides. Our client base continues to grow. This coming week is our Allscripts Client Experience, or ACE, our annual client conference. We have over 325 attendees representing 114 different medical groups. Record attendance speaks to the strength of our growing client and reference base.

Here's the punchline -- once our existing contracts are fully implemented, we will have more physicians using our Electronic Health Record in California than any other system. Everyone knows about Kaiser, but Allscripts is the real story in this market with St. Jude's Heritage, Brown & Toland, USC, (indiscernible), Sharp and Healthcare Partners, to name just a few of our larger clients. Due to this positive outlook, we are hiring more sales and more support personnel.

Now, I talked quite a lot about our Clinical Software Group, which is appropriate, but I want to spend some time on two very significant developments in our Physicians Interactive business. For the first time, virtually every major pharmaceutical company has announced plans to either directly cut or reduce, by attrition, significant numbers of their detail representatives and change their sales strategy. We believe this is the first step in creating what we call an electronic dialogue with and between physicians, through e-detailing and other innovative approaches. That's exactly what we are delivering. As you recall, we reported on our last call that we signed our first Patients Interactive contract, which is the physician-directed patient adherence and compliance service we introduced. Investors should think of Physicians Interactive as the umbrella for a range of innovative services designed to connect pharmaceutical organizations with physicians in a very efficient and cost-effective way, and in turn, improve patient care.

The Boehringer Ingelheim agreement announced this morning is indicative of the new and broader approach we're taking with pharmaceutical organizations. We were selected as their preferred provider of e-detailing services across their ten major therapeutic areas. The contract spans multiple years and represents millions of dollars of potential revenue over that period, with an opportunity to sell through incremental products, including Patients Interactive. Our progress was born out by strong sales. In fact, in the third quarter, we had our largest -- our third-largest -- I'm sorry. In fact, this quarter, we had our third-largest sales quarter in Physicians Interactive history, which positions us well for future growth in this area of our business.

I should also comment on our Medications group. We had a very solid quarter, maintaining both revenue and margins despite the recent voluntary market withdrawal of Bextra. This business continues to perform as expected for us.

So, to summarize, the quarter was solid from a sales and earnings perspective but more important, the Company positioned itself to lead and to win in the future. I will now turn it over to Bill Davis, our Chief Financial Officer, to give you more information on the financials. Bill?

Thanks, Glen, and hello, everyone.

As Glen indicated, I will provide a little more insight into our Q1 performance and comment briefly on our outlook for the balance of year.

Turning first to our Q1 results, key financial highlights in the quarter include our net income of 1.3 million, or $0.03 per share, total bookings in the quarter of 19 million, representing a 43% increase over the same period a year ago. Our clinical software bookings were a major contributor to this increase, a significant accomplishment given how seasonally soft Q1 tends to be in our software business. Our revenue of 26.2 million represents a 13% increase over Q1 of 2004, led by a 61% increase in our Clinical Software and related services revenue, year-over-year. Finally, we generated 2.9 million in cash flow from operations, fueled by strong Company performance and continued focus on working capital.

As previously indicated, total bookings during the quarter were approximately 19 million. Consistent with prior quarters, bookings do not take into consideration the 9.8 million of sales in Medications. 19 million in bookings compared to 13.3 million of bookings in Q1 of last year and a record 29.5 million of bookings in the seasonally strong fourth quarter.

Our Clinical Software business contributed $15 million of those bookings, excluding ongoing support fees. This compares to 9.9 million in the first quarter of 2004, which represents a 52% increase and the $25 million in bookings during the record and seasonally strong Q4.

We are also encouraged by the fact that clients are committing to more of our solutions for more of their doctors. As such, our average deal size for new customers increased to approximately $600,000 in the quarter.

Our Information Services segment, consisting of our Physicians Interactive, or PI, business, also had strong bookings during the quarter of 4.1 million. This compares to 3.4 million a year ago and a record 4.5 million in the prior quarter. As it relates to Physicians Interactive first-quarter sales, Glen made mention of our agreement with Boehringer that we believe has the potential of contributing several million dollars of additional revenue over the term of the agreement. I wanted to clarify that we only included a portion of such potential in our Q1 reported sales.

Turning now to backlog, we ended the quarter with 73 million in sold backlog. This represent a 43% increase over our backlog amount at the end of Q1 of last year. The backlog breakout is as follows -- license and service fees related to our clinical software business is 40.5 million; software subscriptions, which will be recognized over the next three to five years, makes up 9.3 million; and support and maintenance fees for the upcoming 12 months is another 11.4 million; and finally, our backlog related to our Physicians Interactive business is 11.8 million, for a total of 73 million.

As I've indicated before, our reported backlog amount does not include anything relating to our meds distribution business, which we view as recurring in nature. I also wanted to mention that we continue to be encouraged by the level of visibility that our backlog provides us.

Revenue for the quarter was 26.2 million. This represents a 3 million or 13% increase over the same period in 2004. Our Clinical Software business improved revenues by 5.4 million or 61% when compared to the first quarter of last year. Such increase was mitigated by an overall decline in meds distribution in the PI business. As indicated on our Q4 call, we expect both of these businesses to improve over the course of 2005.

In terms of our Q1 versus Q4 revenue, we saw some strengthening in our Medications business, where our software business delivered consistent results. As Glen indicated, such software revenue was impacted by the mobilization of some key resources at some of our large accounts, which will benefit us in the future quarters as their productivity ramps. Finally, PI experience a slight decline due to the timing of some key client program launches. As previously indicated, we expect the contribution from that business to increase over the balance of 2005.

In terms of revenue mix, our Software and Information Services segment represented 63% of our total revenue for the quarter. That's compared to 52% a year ago. First-quarter revenue by segment was as follows -- Medications delivered 9.8 million, which is up $0.5 million from the fourth quarter, where Software and related services delivered 14.3 million and Information Services delivered 2.1 million, for a total of 26.2 million. The key take-away from revenue is that the clinical software revenue continues to be very strong for us and we expect to see meaningful growth from both our Clinical Software and Information Services segment in the balance of 2005.

With regards to gross margins, they also improved. Overall, our gross margin was 46.4% in the first quarter versus 39.5% in Q1 of 2004. Such increase is primarily due to the continued improvement in our Clinical Software margins and the positive change in our overall revenue mix from our higher profit margin businesses. Margins remain relatively flat when compared to the fourth quarter in all three of our segments. Margins by segment are as follows -- our meds delivered 22% gross margins; Software and related services delivered 64% gross margins; and Information Services at 42% for a total of 46.4. Consistent with revenue, I expect overall gross margins to improve going forward, as our growth businesses continue to become a more significant part of our total revenue.

Turning now to expenses, we continue to maintain tight control over our expenses. Operating expenses for the quarter were $10.8 million and are consistent with the fourth quarter. Total capitalized software in the quarter was $600,000. This amount is consistent with the amount we capitalized in the fourth quarter as well. As we have indicated in the past, this amount will fluctuate from quarter to quarter, depending on our total product development cycle. R&D expenditures as a percentage of Software revenue continued to be in the range of approximately 20%. Amortization expense remained consistent at $400,000 for the quarter.

With regards to net interest income related to our convertible debt offering, it resulted in a little less than $100,000 of net expense in the quarter. As we've indicated previously, we expect net interest expense to continue to climb in future quarters, as interest rates rise and we benefit from higher short-term rates.

Net income for the quarter was 1.3 million or $0.03 per share. This is consistent with the results we reported last quarter and compares to $0.01 per share in the first quarter of 2004.

Basic shares outstanding for the quarter were 39.1 million and fully diluted shares were 42.2 million. The 7.3 million shares issuable under our convertible debt offering continue to be antidilutive to our earnings per share and therefore are excluded from our fully diluted computation.

With regard to overall headcount, we ended the quarter with 346 employees. This compares to 347 we reported in the fourth quarter.

Turning now to our balance sheet, we ended the quarter with 130.4 million in cash and marketable securities, up 2.2 million over the prior quarter. Such increase is reflective of the 2.9 million in cash generated from operations and 3.6 million in option exercise proceeds. Such sources of cash were offset by a $1.5 million interest payment on our convertible debt offering, a $1 million deferred purchase price payment related to our AIC acquisition, and an additional $0.5 million previously committed investment in our Medem relationship. Cash also was impacted by the previously mentioned $600,000 of capitalized software and approximately $400,000 of capital expenditures.

Accounts Receivables increased approximately 2 million in the quarter, primarily due to increase in advanced billing to customers, as evidenced by the $2.5 million increase in deferred revenue. We ended the quarter with Days of Sales Outstanding of 80 days or 21 days if you take deferred revenue into consideration.

Finally, as it relates to our outlook for the balance of 2005, we continue to execute against the plan we laid out for your earlier this year. We're still comfortable with the guidance we provided on the last quarter's call. Please note that the SEC recently announced a change related to the effective date for expensing stock options. It is Allscripts' intention to commence expensing of stock options on January 1, 2006, in compliance with the SEC's updated requirements.

In summary, we are very encouraged by our accomplishments in the first quarter. With very strong sales, positive operating results, improving cash flows and strong interest in the marketplace for our products and service offerings, we are very focused on delivering profitable growth in future quarters and believe we're well-positioned, in part due to our financial strength, to capitalize on substantial opportunity that exists in all of our markets.

With that, I'd like to turn it back over to Glen for some closing remarks.

Thanks, Bill.

Our strategy of inform, connect, transform really tells the story of Allscripts and our potential -- great positioning and products that our clients want and need in a market that has enormous opportunity. At $1.7 trillion spend with an estimated waste and inefficiency rate of 30%, the potential to deliver value is unrivaled anywhere else in the economy today. We are not only positioned to do just that, we are actually doing it every day, all around the country and we are fast becoming the company to talk to if you want to connect with physicians to inform and educate them. After all, healthcare at its heart is really an information business, and we are in the business of transforming it.

Thanks for your time today and for your support. At this time, we'd be happy to take questions.

(OPERATOR INSTRUCTIONS). Devon Wade (ph).

Great quarter! I've got a question for you. Could you recap from the first of the year through today's -- when that you announced with the Arizona deal, what number of those were IDX-related versus independent of that?

Let me just make sure I understand the question. What number of the deals that we signed were IDX versus non-IDX?

Correct.

Yes, this is Bill. About 80% or so of our deals in the first quarter were IDX or from the IDX customer base.

When you say through the quarter, since we are now a month down the road, you are including using today's announcements?

No, I'm referring just to the Q1 reported sales.

Great. Thank you.

Sean Wieland's line.

Nice job on the quarter. Can you talk about how you are structuring your business to ramp up for anticipated needs at Professional Services with some of these larger deals that are getting signed?

Sure. This is Glen. There's a few things we're doing. Number one, as I mentioned, we are continuing to hire both sales and service deployment personnel. Second, we have implemented and we spent a lot of time and effort last year with a process called 3D, which is a quality process focused on rapid deployment and implementation of our services. In fact, we had a number of people trained in black belts to do that. Last but not least, we have consultants, which are outside firms, who we are certifying in how to implement and deploy our system, and a number of our sites are actually going to be using those firms to help us role these out. So really three different things -- one, hiring; two, Six Sigma quality processes; and three, the involvement of third parties to implement our system. So, those are kind of the three-pronged approach that we're using.

Did you hire in the first quarter and then it was just no increase in headcount?

Yes, we are hiring; we are continuing to hire, but the good news is we don't have to hire in all areas, so there are certain areas of the business that we're getting more efficient in and we don't need the same level of hiring; in fact, we can actually take down cost. I think this is consistent with what Bill had talked about at the end of the year, and that was that there are areas of the business that we're getting better at, that we expect to be flat but we will do incremental hiring in sales and deployment.

Can you comment on any potential uses of cash?

No, I don't think we are prepared to comment on any uses of cash at this time. We are pleased that we continue to generate cash from operations and you know, we continue to evaluate opportunities as they are brought to us. As we suspected, in part based on the convertible and our strong cash position, we are seeing a lot of opportunities in the market but we've also previously said we're going to be very careful about what we do with the cash.

Okay, thank you very much.

Corey Tobin.

Good afternoon and a very nice quarter! I wanted to just hit a couple of things. Bill, can you remind us the cost of the install teams? That's going through cost of goods sold for software and services on the P&L. Is that correct?

That is correct.

Okay. Then, with expect to your plans to hire up a little bit more in that area, what should we expect specifically with respect to gross margin in that segment of the business? Are we at -- is 65% or so a comfortable rate we should expect to see for some time, or is there additional leverage to be had there?

No, I have specifically talked to the market about the fact that I'm comfortable with mid '60s gross margins. I do see some expansion opportunity, especially in these larger deals, where software represents a larger percentage of the overall deal value and service takes on a smaller percentage, if you will. But based on our expected mix of customers and where we are at just from an overall revenue-recognition standpoint, I think, for the balance of the year, I am comfortable with mid '60s.

Okay, great. Shifting gears for a second and going onto to the PI business, I think, in the prepared remarks, you mentioned that there were -- the timing of certain programs held back revenue a little bit. Can you just expand on that for a second? Also, do you still expect to see sort of 30%-plus growth rate year-over-year there for the remainder of this year?

Yes. So, relative to the delays that I speak to or spoke to, consistent with what I said last quarter, using the Patients Interactive initiatives as an example, there is a ramp associated with, as they are brought into backlog, getting them prepared for launch. So I cautioned the market in my prepared remarks last quarter to expect some of that uplift to start the middle towards the back part of the year. So in some respects, we're still feeling the effects of some of the regulatory issues that impeded some of our sales efforts middle of last year.

So I am -- relative to your second question, we still are comfortable and still have visibility that we're going to see that business gain traction the balance of this year. Thus, we are comfortable with the guidance and the range, the 30-plus% range that I commented on.

I also will note, because it's something that Glen commented on in his prepared remarks, that we are very encouraged by some of the developments that are going on in pharma, in terms of what they are doing on with -- doing with their dedicated sales force and belief that will directly benefit our -- the types of services that we offer in that business.

That's great Thank you. On a similar note, with the Boehringer release today, I think that makes two -- correct me if I'm wrong -- two preferred provider deals so far, if I include the one that was announced last quarter. Is that correct?

We've announced two. That's all that we've announced so far.

Okay. Can you just comment on the pipeline for additional deals of that magnitude?

Actually, we are -- on these calls, I always announce that there's three people on the call, and some people think that Lee Shapiro, our President, is actually mythical because he doesn't usually comment, but this is one I'm going to ask Lee to comment on relative to that. Lee?

Sure, Glen, I will be happy to. What I would say is that we have a number of those conversations ongoing with many potential clients and some existing clients when we think about their strategy for how it is they can utilize our services across their organization. So we are seeing significant interest and we view this as being an opportunity for us.

I think the real difference you're seeing in Physicians Interactive Group now is, because of the way we are adding breadth to the product line, this is no longer just about e-detailing. Patients Interactive takes us to a whole new level in these organizations and that, paired with the changes that Bill and I mentioned relative to reducing costs, reducing detail reps, we are very bullish on what's going to happen and you know, we are probably talking about a quarter or two out.

That sounds very fantastic. One last question, if I could, on that meds business. Did I understand directly from the prepared remarks that the Bextra recall was the majority -- accounted for the majority of the year-over-year declined there, or was there something else there?

No, that is not the key driver for the difference. It's really working off of if you look at the performance in the fourth quarter, you know, we talked about a couple of other recalls, such as Celebrex and what have you, so we did anticipate and it was baked into our thinking in terms of expectations for the overall year, you know, that that business was going to have to rebound. So, relative to Q4 performance, which I think is the appropriate benchmark, it's moving in the right direction.

Okay, great, so no reason to change expectations for I guess flat revenue year-over-year for that business or for the full year?

Correct.

Thank you. Congrats once again.

Derek Wingo's (ph) line.

Yes, thank you. Just two questions -- what was the total for D&A in the quarter? Also capital expenditures for the quarter and the estimate for the year?

So, capital expenditures in the quarter were about $400,000. Our estimate for the full year is in the 3 to $4 million range in total. D&A I think was right around 1 million, 1.1 million in the quarter.

So around 600,000 depreciation?

That actually is exclusive of the $400,000 of acquisition-related amortization, so you'd have to add that 400,000 to the 1 million.

Okay, thank you.

Dwayne Kinnings (ph) line.

Hello, gentlemen. Congratulations on a fine quarter. We are very happy with how thing have been going fundamentally and we continue to expect great things from you guys.

I notice that your deals, as expected, tend to get or are getting larger and larger. Could you speak, Glen, to where you see that trend going one year out, two years out, and in the long term?

Well, I'd say a few things. One, Bill commented on the movement from the average deal size from $500,000 to $600,000, and that's a good trend that we like to see. As I mentioned, we see some larger deals on the horizon. However, as we start to move out, whether it's a year or two out, we expect that the midmarket and the smaller market will start to play an important role in terms of both momentum and our sales. So we may have to either separate and track those levels of sales a bit differently because we're selling to a five-doc practice that is going to be very different than a 500-doc practice. So we see price stability in each of the three markets that we look at, the 25 and above, the 10 to 24, and the smaller-than-10 markets, but within each of those, there are kind of price movements.

I think the good news is there's going to be more business; that's what we expect to see in the market -- and that the deal sizes are strengthening. That's because people are not just buying for a few physicians or a few modules, but they are tending to commit to a full Electronic Health Record right up front, even if they don't implement it all right up front. So, all very good signs.

Brandon Austin.

Hello, guys. I'm just trying to wrap my head a little more around the percent complete and how to sort of apples-to-apples compare that to the WebMDs and other players in the world who recognize revenues differently. So on the clinical software side, you guys said it was 15 million in the quarter in bookings, up 52% year-over-year. Is that correct?

That's correct.

When you say clinical software bookings, is that license or is that license and Professional Services and maintenance associated with the contract?

It's license and service; it does not include any maintenance or support related to those transactions.

Okay. Would you have a sense of what the bookings in just the license would be year-over-year, versus, well, versus last year, say year-over-year?

Well, there again we recognize the revenue on a percentage-of-completion basis, combining both the license and service. The general rule of thumb that I provided is you can think about software being in the 65 to 70% of kind of total deal value range. I would suggest to you that that has been -- it's been on the incline in terms of software represented in a larger percentage as these deals get larger.

Okay, so you guys had about -- okay, so when I'm looking at the current quarter, what percent of the total license revenues reported in the quarter would be related to the clinical software side?

I'm sorry, could you repeat the question?

I'm sorry. The clinical, the software you reported in the quarter, how much of that is related to Clinical Software? Is that basically all of it?

I'm not sure I follow the question.

I'm sorry. Of the software -- okay, so you guys report software-related services of 15 million, and that's all on the clinical side?

So that is a bookings or sales number, and that is specific to our clinical software business, that's correct.

But the revenue number put on the income statement, that's also the Clinical Software part of the business?

In that segment, that is correct.

Okay, so you guys basically executed on 15 million of contracts and then booked 15 million of contracts, so your book to bill essentially is holding over 1, then? Is that a fair statement?

Yes, it's close, it's close. because we actually, from a revenue standpoint, we had just over 14 million of revenue in that segment, versus the 15 million of bookings.

Okay. On the competitive front, are you seeing anything really out of Cerner or out of WebMD? Because those guys have that sort of big practice management installed base, and IDX has that big practice-management installed base, but I know that they are going at it sort of alone in the Electronic Health Record space, making a lot of noise, but are they -- are you seeing them a lot in terms of action?

Well, this is Glen. Let me make one other comment relative to your last question. That is it's very important when you are looking for differences between us and the Cerners and WebMD, our revenue recognition is percentage of completion basis, so whether we sign -- whether it's a subscription or a license, we are not taking a big chunk to make the quarter at the last day of the quarter, which has been kind of traditional. It's a very conservative revenue-recognition model, so I just point that out to kind of close that off.

Your question on Cerner and WebMD -- we aren't seeing much of them at all. Cerner is a fine company that's doing well in the hospital space; that's where their bread and butter is. You know, our whole approach to the business is that healthcare is moving outside the four walls of the hospital and we are the leaders in the ambulatory space. Cerner is big hospital. WebMD is very small physician practice groups. That's in the two to five range is their bread and butter, so that's not an area that we're focused on. Frankly, it's not yet a well-developed and profitable part of the Electronic Healthcare Record space. So we think that, down the road, we will see them as we enter that space in a profitable way, but at this point, we really aren't seeing much of either Cerner at the high end or WebMD at the low end. Again, WebMD's practice management systems are in the two to five physician area. Frankly, I think they are well-enough known there that people wouldn't buy WebMD if you are a much larger practice.

Okay, last question and -- who are you seeing out there? (LAUGHTER)

We don't generally comment on the specifics in the large space. I guess I will say one or two words about them. In the very large space, 25 and above, you know, we will tend to run into Epic on occasion. Epic has been largely distracted with Kaiser, and that's been a very good thing for them and, frankly, a very good thing for us. In addition, when people are really starting to focus on utilization -- and that is not just putting in a system or buying it but getting physicians to use it -- we have a real advantage versus all the other people in the market.

In terms of the midmarket, we see a little more competition. In the IDX space, we have a very high win rate because of the strength of our strategic relationship with IDX, because of the number of installs we've had at a variety of locations and geographies, because of the way we are integrated and last but not least, because we are the safe choice. Outside of the IDX market, we run into quality systems and through their next gen program, and that's probably the primary competition that we see there. But again, in terms of multi-specialty, large academic groups and where IDX is strong, we are very strong.

I think the other significant advantage we are seeing is, as the market has moved from an electronic medical record to an Electronic Health Record, we've really become the Electronic Health Record of choice. And so, as people look forward and say, who's investing in the market, who understands the connectivity pieces of the market, that's the hottest part of the market, multi-specialty and academic medical groups, and that's where we are being successful.

So again, all of those are fine companies. It's just we have a very selective, very different focus and where we compete, we have competitive advantage.

Brandon Austin Thanks a lot. Great quarter, guys.

Michael Boston's (ph) line.

Great quarter. I know you spoke to this previously but I was just wondering if you could comment a little further. Last quarter, you mentioned that the midmarket practices and the smaller independent groups were tipping as we speak in 6 to 12 months respectively. I was just wondering if you could kind of make, you j=know, characterize those same markets three months later today and where you see those, and specifically what you guys are doing to position yourselves to take advantage of those trends?

Sure. I think that we would stick with our view of those markets. They are moving. You know, the large market is on fire. You can't really be a state-of-the-art provider at the high level without having an Electronic Health Record and Electronic Health Record strategy, and that now includes the patient connectivity piece of it.

The midmarket is, again, starting to turn; we see good traction in the larger midmarket practices and in the specialties. I think, realistically, our competitors are seeing that as well. So it's just a hot space.

In the small market, I think it's still not developed, and you know, you'll hear people like Dr. David Brailer talking about the fact that we have to figure out a way to help move the smallest piece of the market along. That may be through some kind of government tax credits or intervention or the like, but you know ,that still has a way to go.

In terms of how we are approaching the market, a few things -- one, we are working with some of our largest clients to do distribution agreements, where they are interested in actually either getting into the business, because they already have the infrastructure, know how to implement it and know how to support it, and so they are looking at ASP models to ASP our software. So that's one model, the MSO model.

Second, we have some developments underway where we are developing Rider (ph) EMRs with our partners with Microsoft, through our development facility in Louisville and the like. That's a product called CutsChart (ph) and that will be very easy to install and to deploy. In fact, the model for that is the WellPoint distribution we did. If you remember, when we were selected by WellPoint to help automate their physicians on e-prescribing, the way we did that was actually they would call Dell, they would order their hardware and the same time, Dell would notify us and we would download our software electronically. So even though it was priced very cost effectively, we were able to do that at our same margins.

Last but not least, I would say that whether you are a mid-sized group or a small group, you're still looking to buy the leading provider and so people are looking to the large groups to say who's the leader in the market. So we think that market presence, the strength of the brand and our experience are going to pay off in those mid-size to smaller markets. We will be a player there, and we've got significant development efforts underway in those markets.

Excellent. That sounds very promising. Then lastly, of the 346 headcount, can you break out how many of those are in sales and marketing? Do you have that number handy?

In terms of sales and marketing of our headcount, I think we have about -- in the clinical group, about 35. I'm looking at Bill -- (multiple speakers).

Yes, from a sales -- I don't have the breakdown of headcount readily accessible, but of the total, I would approximate probably in total about 120, 130 of them are in the sales and the deployment groups in total.

I would say also that keep in mind, we are fortunate that we benefit from some of our partnerships like IDX. Today, when people are looking to buy a practice-management system, they aren't going to do that without looking at the electronic medical record or the Electronic Health Record, and so increasingly, our IDX strategic partnership finds the IDX folks actually selling for us. That's especially true in their group cast market, which is their midmarket.

Great. Excellent quarter, gentlemen.

Thank you. One thing -- why don't we -- given I think that Corey had a record five questions and we've said that we would limit this, why don't we take two more questions from the next two on the list, whoever they are?

Jim Bartlett's line.

The last call, you said that you were planning on hiring 10 to 15 salespeople in the next couple of months. Were you successful in doing that?

We are in the process. We've added a few salespeople, not as many as I would like. I think we've got about five hired and we are interviewing for the rest, so I would have liked to have probably been two-thirds of the way through that 15, but we are about one-third of the way through.

Will that complete the number of hires that you will do this year in this area?

In the sales area?

Yes.

You know, I mean, Bill is shaking his head yes, it will. What I would say is, you know, assuming sales continue to grow, we will continue to hire -- (LAUGHTER) -- but realistically, that's what we are scheduled to do, yes.

All of those in the clinical area?

There are probably two more in the Physicians Interactive Group.

Out of the 15?

Yes.

Yes.

How long does it take them to become productive?

That really depends on the level of experience they have. We like to get them out and up and making sales calls in 45 to 60 days.

But for modeling purposes, our plan is based on a six to nine-month ramp, so we view that as potential upside in terms of their productivity.

How many salespeople -- you said I believe it was clinical you had 35 now. How many did you have one year ago?

It was high 20s, call it 28, 29, I believe.

Thank you.

Jay Hingarami's (ph) line.

Great quarter. Being at the end of the line again, most of the questions get asked. I just wanted to go over some housekeeping stuff. Bill, I think an earlier question talked about Physicians Interactive. You're still maintaining the 30% guidance for growth?

We are.

Okay. Was it the mid '60s -- was that gross margin for software or --?

Yes, gross margin.

Okay. Can you just reiterate the guidance for the whole year again, please?

The overall guidance we gave is revenue in excess of 120 million and EPS of $0.22 to $0.24.

Okay, that's great. I look forward to talking to you off-line, and great quarter. Thank you.

There are no further questions.

Well, let me conclude with just a few comments. We continue to be very excited about each of our businesses and the way they are operating to date and where we think those businesses can grow to. In each of our business areas, in the Clinical Software arena and in the Physicians Interactive group, the trends are really with us. I think that that speaks well to what those markets are going to do and our positioning relative to taking advantage of the products that we have.

So with that, we appreciate all of your support, we appreciate the questions and we look forward to talking with you again next quarter. Thanks very much for joining us.

This concludes today's Allscripts' first-quarter earnings conference call. You may now disconnect.