Veradigm Inc (MDRX) 2007 Q4 法說會逐字稿

Good afternoon. My name is Kadisha, and I will be your conference operator today. At this time I would like to welcome everyone to the Allscripts fourth quarter and year end of 2007 earnings call. All lines has in placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you have already done so, please press the pound sign now. Then press star one again to ensure that your question is registered. Thank you. Mr. Glenn Tullman, you may begin your conference.

Thank you, Kadisha. Good afternoon, and welcome to the Allscripts fourth quarter and year end of 2008 conference call. This is Glenn Tullman Chairman and Chief Executive Officer of Allscripts. Joining me on the call today is Bill Davis our Chief Financial Officer and Lee Shapiro, our President. Before we get started, I'm going to ask Bill Davis to review our 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.

This 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 SEC, which could cause Allscripts actual results, performance, prospects or opportunities in 2008 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, change, circumstances or any other reason after the date of this release. With that said, I'd like to turn the call back over to our CEO, Glenn Tullman.

Thanks, Bill. 2007 was a record year for Allscripts. Financially, our results demonstrated the strengths of our markets and the performance of the company. Earnings for the year were 35 cents per share or 59% over 2006. Revenues were $281.9 million or 24% higher than last year. And clinical sales were 193.3 million for the year and $49 million for the quarter. While we are proud of our performance during 2007, we set some aggressive goals. To grow faster than the market and to implement touch works Version 11 aggressively.

However, with respect to those goals, we achieved most, but not all of our expectations. Our initial guidance provided in October of 2006, was based on several assumptions including the timing of our touch works V-11 release, and the impact on our deployment schedules, the mix of practice management and electronic health record sales, and the percentage of enterprise sales. Let me make a few comments on each of these. First, the timing of our touch works V-11 release and the impact on our deployment schedule. We have been talking about our Version 11 release for almost 2 years, and so the release of Version 11 which included more physician and client input than ever before more functionality, more flexibility and over 2 million new lines of code was a milestone for the company.

However, the much-anticipated release added unexpected delays, which have had both a time line and a bottom line impact. Simply stated, given the flexibility and breath of the software, it has taken more time for our people and for our clients to learn it and to configure it. In addition, we have had our share of cleanup that comes with any undertaking of this size. So what are we doing about it?

First, we have shifted significant resources from around the company to focus on addressing issues identified by the first 30 clients of Version 11. Our touch works Version 11.1 update due out in the second quarter will address many of the enhancements that have been requested. Second, we have committed to send teams on site to assist some of our early users with deployment. I have always said to our clients, we don't always get it right. But, no one cares more are or will work harder to get it right than Allscripts, and many of our clients are seeing that commitment in action today. That said, it's about performance, and we're focused on making the software and deployment changes so that additional work won't be necessary going forward. And as Bill has noted in the past, this kind of client commitment isn't free. We'll be addressing Version 11 issues for the next few months and while we'll see some financial impact as we work through it, we're making solid progress, which is reflected in our 2008 plan.

A second consideration was the mix of practice management and electronic health record sales. The good news is that practice management sales exceeded our expectations both in the number of sales and the size, confirming our view that the architecture of our practice management system would scale up to handle the largest sites in the country. The challenge we faced during 2007 was that clients who purchased both the PM and the electronic health records generally implement PM first, slowing our ability to drive electronic health record revenues sooner. And while this is more of a delay than a problem, it had a clearer impact on our 2007 revenue numbers. A third assumption was the percentage of enterprise sales. You may recall that last year we took some of our top sales talent and focused them on enterprise sales. While we had solid success in signing large enterprise agreements, it's pretty clear that the revenue recognition on the larger agreements doesn't come as quickly as the mid sized sales we make. So our success on larger agreements did not add as much revenue as we had planned. That revenue, of course, will come, in but over a longer period of time.

Let me make a few comments on bookings. Terms of bookings, we believe that our pipeline was robust enough to hit our Q4 target. However, a number of agreements slipped out of the quarter and bookings in the quarter didn't materialize as we expected. We found that some of the larger agreements even in cases where we have been selected as the vendor of choice were delayed multiple times. The good news on the delayed enterprise agreements is that we have not lost any of them, but going forward, we have learned to be much more careful in relying upon them in our bookings and revenue expectations. One quarter ago, we were talking about the highest bookings number in the history of the company. And what is typically a slower quarter.

In this quarter, we saw a different result. Our focus during 2008 is to expand the pipeline and fortunately, given the strength of the market, especially for larger enterprise clients, this is something I believe we can accomplish. So I've taken the time to provide a perspective on 2007 performance, but I also want to highlight several important accomplishments during the year. First, we expanded our footprint in the market. Allscripts now has close to 40,000 physicians and over 700 hospitals using our software solutions.

In 2007, we delivered more solutions to that base while adding new clients to the Allscripts community. Existing clients added physician users and bought more of our products for more of their users. This is solid high margin business for us. And for new clients, the year was highlighted by adding more of the "name brands" in healthcare, including groups like Columbia University Medical Center, Leahy Clinic and Oschner Health System to a base that already contains many of the industry leaders. This is critical because these groups have significant influence in an industry that relies heavily upon referential selling, and these groups and these agreements validate our position as the leader in electronic healthcare today in the large group market. Giving other large prospects the confidence to move forward and abandon their first generation EMR's, and also in the influencing mid market groups like the two that were announced today to select Allscripts as their vendor of choice.

And let me say a word or two about the two clients that we highlighted with press releases today. Prohealth positions is the largest primary care medical group in Connecticut, with 180 positions and 60 mid level providers in more than 80 locations. Prohealth selected our electronic health record and practice Management Solution after a very competitive bakeoff. And Mancado clinic in Minnesota also selected touch works for their 113 multispecialty physicians to enhance their quality initiatives. This was an electronic health record agreement only. But both of these highly competitive agreements confirm that Allscripts continues to be the solution of choice for large medical groups.

At the same time, we continue to gain significant traction in the smaller end of the market, as demonstrated by our team delivering over 100 sales in the fourth quarter, a new record. Health mattics is also building on a strong reference base, which we've noted many times is key to selling in all of our markets. And even given the strong results, we're continuing to invest in our health mattics EHR, adding content, features and enhancing connectivity demonstrating our long term commitment to the products and to the segment. I'm also pleased to say that having been in the first group of electronic health records certified when C-chip began, we just cleared C-chip certification for a second time with our health mattics product.

To switch gears a bit, in the hospital market, the Allscripts brand has now emerged as the leaders in three areas. First, hospitals are purchasing our electronic health records for their affiliated physicians. We have strong results with the emerging hospital market as more hospitals took advantage of the start safe harbor, which enables them to fund some of the cost of our solutions. We expect to see continued expansion here with an emphasis on systems that ambulatory physicians will use and are using today. Second, we made solid progress with our set of solutions in the emergency department. Bringing in new clients such as OSF healthcare system, an agreement valued at $1.6 million. An important part of our story is now our ability to cross sell from our portfolio. A great example is Iowa Health, which uses our electronic health records and contracted for our emergency department solution in 2007 due to their success with our health record, as well as our ability to connect the EHR and the ED products and exchange information on things like medications, allergies and problem lists. Connectivity will become increasingly important across all of our products. And the third area for Allscripts in the hospital space is our care management solution, where we made excellent progress as well.

Our win at New York health and Hospitals Corporation helps solidify the New York market for our canopy product. And of course our [inaudible] and acquisition expanded our footprint dramatically. I want to highlight another area for 2007 and that was the strength of and our investment in our products. As many of you are aware, for years our electronic health record solutions have been rated number one in class, which is known as the consumer reports of healthcare IT. In fact, virtually, all of our solutions have been ranked in the top three in their respective categories. Even with that as the baseline, in 2007, we made a number of the boldest and most significant investments in the history of the company. Three significant software products help define the year. The first as i've already mentioned was the refresh of our health mattic electronic health records software, demonstrating our commitment to both the product and to what we think of as the professional market. This is the market that demands an integrated electronic health record and practice management solution that's easy to install and yet fully featured and connected and we're delivering. The second was our introduction of touch works V-11, which was a bold undertaking as I outlined earlier in my comments.

The market wants more functionality, connectivity, and innovative features like disease management, real time clinical trials and updated contents. And once again, touch works V-11 position us well to deliver on what the market demands. And the third was the national electronic prescribing patient safety initiative, better known as NEPSI, which made electronic prescribing accessible and free using an ASP on demand solution. I'm proud that Allscripts stepped up to try to tackle this tough problem and to reduce the millions in medication errors and thousands of lives lost to preventable medication errors. Physicians are now using the software in 50 states and the software also serves as the on ramp to the electronic healthcare highway and our portfolio solutions. One sign of our success, Allscripts transmitted more electronic prescriptions in 2007 with our electronic prescribing products, using the sure scripts pharmacy, health information exchange than any other electronic prescribing vendor in America.

So let me also talk about our product portfolio. During the year, we made significant investments across the company. But, they were required to get us to where we want to be. Core to our mission is to deliver a full set of solutions that inform and connect physicians and in 2007 we added products to the mix and broadened our portfolio to get there. One of the success stories for all script that is emerged in 2007 was practice management. In the touch works space, we included practice management in over 45 agreements, close to 2 times what we originally anticipated and as I mentioned, some of the Genesis of our problem with revenue. And some of those agreements were with our existing electronic health record clients, where we replace the current practice management vendor. Both Novant, the largest healthcare provider in the state of North Carolina and LSU are great examples on the progress we are making in our base.

At the end of the year, we also announced our acquisition of extended care information network. ECIN solidifies our position as the leading provider of hospital care management and discharge planning software. Along with our existing canopy care management solution, the acquisition gives us and install base of 700 hospitals, as as over 5,000 post acute care facilities. For example nursing homes and assisted living facilities. We now have an ASP based suite of softwares of service solution that will enable Allscripts to connect another key component of the healthcare delivery system. The exchange of patient information between hospital case managers, physicians outside the hospital, and the growing number of post acute care facilities nationwide. So in summary, solid progress for the year with a lot of great accomplishments by the team. To further address our financials, I'm going to ask bill Davis to take over the microphone. Bill?

Thanks, Glenn. And hello, everyone. As Glenn stated, we are proud of the many accomplishments in 2007 including our delivery of 24% revenue growth in nearly 60% growth in company profits over 2006. With that said, we fell short of our expectations for the year. I want to reemphasize a few points made earlier by Glenn, regarding our revenue and results in earnings shortfall in 2007. In a nutshell, we saw an expansion of our deployment cycles caused by both our touch works V-11 product delays, and the fact that we did see stronger than expected interests for our practice management in EHR solutions in the year. While positive to bookings, the combined EHR and PM system sales do in fact take longer to implement than the standalone EHR sale.

Again, the impact and the timing of our revenue recognition on these projects. In addition, we did experienced a higher percentage of large enterprise sales than originally projected, which typically involve longer deployment cycles and more sophisticated payment structures. Some of which impacted our ability to recognize revenue in the year. As it pertains to the fourth quarter specifically, total bookings during the quarter were approximately 52.4 million consistent with prior quarters. Bookings do not take into consideration the 11.9 million of sales and medications. Our clinical software businesses contributed 49 million in bookings during the quarter, excluding on going support. We continue to be impacted by the timing of certain enterprise deals as Glenn outlined. Our physicians interactive business had bookings at 3.4 million during the quarter. A larger PI bookings amount was dependent and in part due to the ongoing challenges pharma faces that did not happen in the quarter and in some cases may not happen at all. Bookings for all of 2007 totaled 205.8 million. Our clinical software businesses contributed 193.3 million of the annual amount. Representing 17% year over year growth. Physicians interactive contributed the balance of our annual bookings of 12.5 million.

Turning now to backlog, we ended the fourth quarter with 275.5 million in sold backlog, which includes approximately 24.3 million acquired from EESN, the backlog breakout is as follows, license and services related to our clinical software businesses, makes up 137.9 million. Software southbound scripts or our ASP contractual commitments, includes the addition of ECIN again at 24.3 million is a total of 59 million. Support and maintenance fees, which are expected to be recognized over the next 12 months is 59.6 million. And physicians interactive made up the balance of 19 million again for a total of 275.5 million. Turning now to revenue, our fourth quarter revenue of 73.4 million represented a 9.8 million or 15% increase over the same 3 month period last year. Our clinical software businesses contributed the majority of that increase. As I alluded to earlier, our fourth quarter was impacted once again by nearly $2.5 million of work performed that could not be recognized as revenue due to the slower expected deployment schedules of touch works V-11 in expansion of project plans and its computation of percentage of completion accounting.

As Glenn mentioned, we are very focused on taking the necessary steps to return deployment cycle times to historical levels, which will serve as an opportunity to accelerate revenue that has been deferred over these past two quarters. As I've mentioned before, I do believe it will take the better part of the first half of 2008 before we see the full effects of such efforts. Revenue in the quarter was also impacted by approximately $2 million less hardware revenue than we originally expected. The lower hardware revenue is a direct result of our fourth quarter bookings performance. Physicians interactive had revenue of 3.7 million in the fourth quarter. We saw another solid quarter from our meds business, with revenue at 11.9 million, this compared to 10.9 million in the third quarter. In terms of revenue mix, our software in related services segment represented approximately 79% of total revenue in the fourth quarter. Fourth quarter, revenue by segment, again is as follows. Our meds business delivered 11.9 million, or 16% of the total. Clinical software businesses delivered 57.8 million or 79% of the total. In physicians interactive, delivered the balance of 3.7 million for a total of 73.4. Total revenue for 2007 was 281.9 million. This compares to 228 million for 2006. And represents a 24% increase. Our clinical software businesses increased to 222.7 million in 2007 revenue, from 173.5 million for 2006, a 28% increase.

Looking now to gross margins, overall our gross margin was approximately 49% in the fourth quarter versus 50% in the third quarter. Margins by segment are as follows. Our meds business delivered 13% margin. Our clinical software business delivered 57% margin compared to 58% in the prior quarter and physicians interactive delivered a consistent margin compared to the third quarter at 32% for a total of 48.9%. The sequential change in the medications gross margin can be attributed to the lower gross margin revenue in the quarter, related to both flu vaccine as well as mix of drugs being sold. Principally, being driven by a slight increase in lower margin bulk sales. The sequential change in the clinical software margin can be attributed to the incremental effort related to V-11 deployments offset by less hardware revenue being recognized in the quarter. I do believe it's important to note that some of the incremental effort related to V-11 is reflective of our commitment to ensure that our clients both have a smooth transition and realize the full benefits of what V-11 has to offer. Glenn mentioned two such client experiences earlier, Sharp Healthcare as well as Thomas Jefferson University.

Turning now to expenses. Operating expenses excluding amortization of intangibles and stock based compensation for the fourth quarter were 25.5 million. This compares to 25.9 million of expenses in the third quarter. The decrease is attributed to lower marketing expenses in the quarter due to our annual user's conference being held in that quarter as well as slightly higher capitalization. The decrease is in spin or offset by some additional bad debt expense in the quarter. With regards to capitalized software, we had 2.8 million in the quarter. This amount compares to 2.1 million, we capitalized in the third quarter and is reflective of our investment we continue to make in the development of both touch works as well as our health mattics EHR. We capitalize an additional $2 million related to our ongoing work with Walters core for new product content. As we discussed in the past, both Walters core as well as internal development will fluctuate from quarter to quarter, depending on our product development cycle. Stock based compensation was 1.5 million for the quarter, and deal amortization was 2.7 million. Both amounts were fairly consistent with the prior quarter. As I mentioned earlier this year, or earlier in 2007, we have been working on tax related projects to determine if the company can reduce its effective tax rate. And one such product pertains to R&D tax credits. We completed phase one of such work in the fourth quarter, which resulted in and as recording approximately $2 million of tax credit in the fourth quarter as a reduction of our overall tax provision. Please note that approximately 1/3 of this credit pertained to 2007 and the balance pertained to prior periods. Net income for the quarter was 5.9 million or 10 cents per diluted share. This compares to 4.1 million or 7 cents per share in the third quarter of this year, and 4.5 million or 8 cents per share in the fourth quarter of last year. Net income for the year was 20.6 million or 35 cents per share and compares to 11.9 million or 22 cents per share in 2006, representing EPS growth of 59% year over year growth.

Our fourth quarter gap earnings of 10 cents per diluted share includes 1.6 million or 3 cents per share of acquisition related amortization net of tax and $900,000 or 1 cent per share of stock based compensation also net of tax, bringing our nonGAAP adjusted earnings for the quarter to 14 cents per diluted share. This compares to GAAP earnings of 7 cents per share in the third quarter, which includes 1.7 million or 3 cents per share of acquisition related amortization net of tax, and 900,000 or one penny per share of stock based compensation also net of tax, resulting in nonGAAP adjusted earnings of 11 cents per diluted share in the third quarter of 2007. NonGAAP adjusted earnings or 49 cents per share in 2007 versus 37 cents per share in 2006. Please note that we did use an effective tax rate of 40% in the fourth quarter of 2007, and for the full year to compute the tax effect of both zero related amortization and stock based compensation for adjusted earnings purposes, so to be consistent with the presentation provided in the first three quarters. Basic shares outstanding for the quarter were 56.3 million, and diluted shares were 65.3 million. The 7.3 million shares issuable under our convertible debt offering can continue to be dilutive to our GAAP earnings per share, and were dilutive in all of 2007 as well as the fourth quarter of 2006.

Therefore, the 7.3 million shares are included in both our GAAP and nonGAAP adjusted earnings diluted per share computations for such periods. It is important to remind you to add back net interest expense related to the convertible debt to net income when computed diluted earnings per share, given that we added the debt underlined shares to our diluted share count. That quarterly amount was approximately $520,000 net of tax. With regard to overall head count we ended the quarter with approximately 1,155 employees, which compares to [1,062] we reported in the third quarter. Our ending head count included the addition of 82 employees from ECIN on the last day of the year. The most significant news regarding our balance sheet is the fact that we consummated our acquisition of Extended Care Information Networks or ECIN on December 31. The acquisition combines the two industry leaders in care and management, and enables Allscripts to connect another key component fot he healthcare delivery system while adding more than 400 hospitals and nearly 5,000 post acute care facilities to our customer base. We paid 90 million for the business and funded the transaction through $50 million of borrowings under a new $60 million credit facility in the balance from cash on hand. The financial statements issued earlier today classify a large percentage of the purchase price as good will. We currently working with an independent third party on the valuation of identifiable intangibles and expect that work to be completed prior to us filing our form 10-K later this month. As disclosed in January, ECIN generated approximately 19 million dollars of revenue in 2007 and approximately 7.1 to 7.4 million in earnings before interest, taxes, deappreciation and amortization or EBITDA before related expenses. Relative to other balance sheet considerations, we ended the quarter with 63 million in cash and marketable securities, which is reflective of us generating approximately 17 million in cash from operations in the quarter. The strong cashflows from operations were offset by approximately 6.4 million of capital expenditures and capitalized software, as well as approximately $29 million used to fund the balance of the ECIN transaction that was not funded by the new line of credit. Please note that approximately $9 million of additional cash was used in January to fund the balance of the ECIN transaction. Accounts receivable at December 31 decreased to $81.4 million, which includes approximately 3.5 million of receivables acquired from ECIN, excluding the ECIN receivable balance, we ended the quarter with day sales outstanding of approximately 95 days.

Let me now turn to our outlook for 2008. We expect the ECIN business to contribute approximately $20 million in revenues in 2008. As it pertains to the bottom line impact of the ECIN transaction, we anticipate taking on approximately 4 million to 5 million of additional deal related amortization in 2008. And approximately 4 to 5 million of additional interest expense related to the 50 million of new borrowings, as well as having less cash available to invest. Both incremental costs will offset the standalone profitability of ECIN. As you think about our relative sequencing in 2008, I would assume that ECIN will be a drag on the company's profits for the first quarter or two, in the range of 1 to two pennies each quarter and is expected to be break even for the full year. Including the impact of the ECIN transaction, we do expect revenue growth in the range of 20 to 25% in 2008. We continue to expect EPS growth in the range of 40 to 50% for 2008, once you give effect to a normalized effective tax rate in 2007. It's important to note that our ability to deliver on our 2008 guidance is heavily dependent on our efforts to stabilize V-11 deployment cycles over the course of the year. Regarding our effective tax rate for the year, I indicated before that approximately 1.4 million of the R&D tax credit pertains to years prior to 2007.

Consequently, I anticipate our on going tax rate to be in the range of 39%. Finally, given the challenge of predicting the precise timing of certain bookings from quarter to quarter, especially on larger agreements, we do not intend to provide bookings guidance going forward. That said, we understand the importance of bookings to our operating model and do intend to continue reporting actual bookings on a quarterly basis consistent with our past practices. In closing, despite falling short of our own expectations for the year, the business as a whole made solid progress, and we set new records on virtually every key financial metric we measure. We fundamentally believe Allscripts has the right products to address the needs of a very robust market opportunity. We are focused on capitalizing on that opportunity while providing an attractive return for our investors. With that, I'll turn the call back over to Glenn for some closing remarks.

Thank you, Bill. Let me bring it back to the company and what we're trying to accomplish. A number of years ago we painted an interconnected healthcare system that delivers quality care to patient's and does so in a cost effective way. Today, we hear virtually everyone talking about electronic healthcare, including patients and employers who are demanding better carat prices they can afford, and virtually everyone else connected with healthcare. The message is clear that equipping physicians with electronic tools that allow them to practice more effectively based on information provided realtime on their computers and connecting them with hospitals and other key parts of the healthcare system will be critical to addressing our healthcare challenges. I'm pleased to say that your company Allscripts will continue to lead the charge providing software, technology, connectivity and information that are core to addressing this critical problem. I want to thank everyone on the Allscripts team for their effort and for their dedication. Our employees, our clients, our partners, and all of our shareholders for their passion and for their dedication to the Allscripts vision. We'll now open it up for questions. Thank you.

At this time, i would like to remind everyone, if you would like ask a question, please press star then the number one on your telephone keypad. We'll pause for just a moment to compel the Q-And-A [roster]. Your first question comes from the line of Sandy Draper with Raymond James.

Thanks and good afternoon. Just a quick question Bill on your EPS guidance, is the number there, when you said affected for fully taxed in '07, are you going against 49 cents or 46 cents? I'm just trying to understand that.

Yeah, I'm coming up, I think it's important Sandy to recognize that about 1.4 million of that tax benefit in '07 again pertained to prior years. S, I would think about the baseline EPS to build off of closer to 32 to 33 cents, so, you know, should put you in the relative range of about 45 to 48 cents.

Okay. So, 45 to 48 is the baseline off of...that's a GAAP number.

That is a GAAP number.

Okay. That's helpful. And then your comment about the revenue guidance and the ability to deliver on Version 11 and timing. How can service, I guess have you been there obviously the last couple quarters have been clearly disappointing. When you look at the range, 20 to 25%, is 20% assuming a pretty slow deployment and 25 is better, or just sort of maybe help me get a sense of how you calibrated the numbers?

Yes, I think you have to start with the relative contribution of ECIN. I indicated an expectation of around $20 million from that business, which would imply organic growth that is actually closer to about call it 15% or their bouts. So, we are absolutely trying to be as cautious as we can be relative to the relative ramp of all of our clinical businesses, the touch works in particular. Quite frankly, my comment in terms of highlighting the relative risk, I view that even being more prevalent on the cost side in recognition, that we're continuing to carry a meaningful amount of deployment costs that we're not recognizing the full benefits in terms of recognized revenue, just because of the expansion of the project plans that we're experiencing. So, the caution is really in and around the margins, I think we have taken appropriate steps to be as cautious as we feel we can be on the top line in terms of our ability to deliver that. But, recognizing that there's considering to be incremental costs required to deliver that.

Okay, great. Well, I've got more questions, but I know there will be a lot, so I'll jump back in the cue.

Okay.

Your next question comes from the line of Corey Tobin with William Blair.

Hi, good afternoon. A couple things if I could. On the bookings guidance, any reason to believe that we wouldn't expect to see bookings grow at least in line with the end market of 2008?

You know, Corey, what I would say is, we are trying to be very conservative in our numbers. We believe that the market continues to be robust, we have had a very robust pipeline. That said, we have seen some of the agreements that we expected to close where we were vendor of choice, seen those agreements get pushed for a variety of reasons. Many of those were out of our control, whether they be personnel changes or the like. So, we've taken a very conservative tact relative to projecting what we're going to do going forward. I would add to that, Corey, our desire in recognition of what has transpired here over the last couple quarters, in terms of our ability to predict the timing of some of these deals is really not to get pegged to a specific number or expectation. We do believe we're in the midst of a robust market. We do believe we're well positioned to participate in that market, and so we're hopeful and certainly expect that we'll continue to be leaders in that respect, but in terms of getting pegged to a specific number, we really want to try to avoid that.

Well, maybe we could just focus on some of the stuff you're mentioning about the slipped. Is there anyway to try to quantify? Where exactly that number might have? Or the magnitude of that piece of the business or anything along those lines?

Well, Corey, I think that clearly had we not expected based on our pipeline to deliver on the bookings number, we would have taken it down. We were highly confident and now that said, we had some of those, when you're dealing with the kinds of sales we're dealing with, you are going to have a mix of large enterprise deals. Some of those slipped and have pushed. And based on our experience, including direct meetings with individuals and some of those people have moved on to other opportunities now. you know, our view was, we again want to be very conservative relative to going forward and predicting when those will happen. The good news, we've not lost any of those. And we do expect them to come in. Having had a lot of confidence in the fact that some of those that we expected to close would close, I think we've taken a much more careful tact.

Final one for me if I could, is it just that you mention the enterprise base where is being the area where the few deals have slipped. Is it just that or it seems health mattics from the previous quarters. so, is it just the enterprise base or is there stuff in the middle market segment as well? Thanks.

Well, I think clearly health mattics as we said, had a record number of unit sales and we expect that market to continue to have solid sales. We had two impacts, one some of the enterprise deals pushed. Second in the mid market. I think it was pretty clear that we pulled a lot of talent out of that mid market. And so that didn't grow quite as fast as we expected. That said, you're seeing some of the agreements. One of the agreements that was announced today, Prohealth for $3.5 million was an agreement that we expected in the fourth quarter. And frankly, they expected in the fourth quarter and ended up pushing because of a Board of Director's meeting. So, that was an example of 3 1/2 million on a mid market deal that pushed. And so there's a share of those out there. But, again, we want to be very careful and for sure not create any kind of overhang with any one big large deal because that's not the case.

Thank you.

Your next question comes from the line of Sean Wieland with Piper Jaffray. Thank you. This is Wieland, Sean.

Outside the handful of big deals that slipped in the what sounds like the enterprise market, could you comment on pricing in the mid market and if you've seen any changes there?

This is Glenn. You know, we think that mid market and high end pricing is fairly solid and good. At the low end of the market, I think Bill has commented before that we've seen some pricing erosion. We've actually seen steps starting to stabilize all be it at a bit lower point. But that, the good news is, that's being made up by number of unit sales. So across the board, I don't think pricing is an issue. And in fact, I see some level of opportunity in pricing. But, I don't see across the board as pricing being an issue going into 2008.

Yes. The one point of clarification, I guess I would add to that, because it does have an impact, and that is as we see practice management systems being introduced into these mid market and large deals, that tends to be subject to more commodity type pricing. And so,it tends of the effect of bringing the overall gross margin percentage expectation down on this deals. So, that is one consideration in terms of pricing dynamics, but I would echo Glenn sentiment. We do see opportunity for if some improvement there, which is something we're focused on.

Great. A couple questions on version 11. What's the average Version 11 implementation time right now? And then what's the plan to get it down and where do you see it settling?

What I would say is we don't quite yet have an average and part of the challenge,we have Version 11 across the 30 or so clients that we're implementing it. Some are new, some are larger, some are smaller. So, I'm not sure that we have an average time per say, other than saying that to date, it's been larger, and part of that challenge has been that we may have Version 11 working perfectly at one site and we take it to a different sized site. And there are different training requirements, there are different implementation requirements and they may be using it or they may be using it in different specialties in a different fashion because of the flexibility. That's what's made it complex. As I mentioned, we have a plan which includes shifting a significant number of resources across the company to focus on both software enhancements and other changes that have been requested by the initial clients, that's number one. Number two, we brought in some process expertise, some black belts who are helping us focus, teams on how we're going to deploy this in a more standardized fashion which makes it easier for our clients, and also obviously more cost effective for us to deploy. Now, that said, we are making progress on it's moving in the right direction. I mentioned 11.1, which is coming out in Q2, and that will address many of these issues, so we feel very confident that while we have an issue, that we also are working the issue very aggressively, and that we've got it to where it's under control.

Ok, great. Thank you.

Your next question comes from the line of Jackson Spears with Capstone Investments.

Glenn, there was a question asked on pricing, could you be a little more specific on that. Was there some pricing pressures for the health mattics base to put you lower in there? And was that initiate all by you?

Yes, there was pricing pressure, we saw it at the lower end. It wasn't initiated by us, we saw one of our competitors. One of our kind newer competitor who introduced some pricing pressure, which frankly, we don't see as sustainable. But, nonetheless, when people are buying, sometimes even though we may be getting a premium, it may not be as large as we've had in the past. So, that's where we saw the pricing pressure, and I think we're learning to compete with it better. We're also seeing more and more the value of both connectivity, of content of cross selling. And people are starting to understand that simply buying the electronic health record in the low end without having a vibrant practice management system as we do, will again come back to bite you. So, [inaudible] net, we think we've got that. We know what issue we have to address there, and we think we have our hands around how we're going to do it. The good news as I mentioned is that unit volumes are going to more than cover any price degradation so we see that at best as flat, we don't see that as going down.

If I could add to that, Glenn. Jack, this is a dynamic that we've actually been seeing for some time, we actually talked about on prior calls. So, the dynamic of the lower end of the market is not necessarily new. If anything, we actually started to see a little bit of stability in pricing and low end of the market in the fourth quarter, and as Glenn indicated, very very strong unit sales in the health mattic segments, we were pleased with our performance at the low end of the market.

You're rolling out 11.1 in the second quarter, how might that affect your cost structure and the support services? Do you have to provide for implementation?

Well, the good news is, that's actually going to part of the solution, not a part of the problem. It addresses 11.1 is all about the ease of implementation, ease of deployment standardization and that makes it easier again for our clients as well as us. It's a win win. In addition, it addresses some of the quirks that we found in V-11, when you add 2 million lines of new code, you're going to have certain things that don't exactly do what you expected them to do. And as clients point those out, we want to quickly respond to those. The good news is, that those are not the major part of it, the major part of it is the fact that the flexibility in giving clients exactly what they asked for has caused us more challenges in terms of deployment and training than we expected.

So, looking forward to the third and fourth quarters, but, they're all at the 11.1 'coz that lead to some acceleration. some, i said acceleration of bookings in the second half of this year?

I think as we see the progress that we expect in terms of not only through the releases, but also through the education of both our clients and deployment resources, the acceleration opportunity will be first and foremost felt on the revenue side, which is a good thing, because as I suggested, if you accumulate Q3, Q4 work that was performed the we were not able to recognize in revenue, it's an excess of $5 million, and that's not lost revenue, it's just an effect protracted and at some point that will come through. And your point. Hopefully you start to see some of that in the latter half of this year, as it pertains to bookings, I think Glenn indicated and we certainly feel that the level of interest for V-11 and what it means to the market is very very strong. And so we're staying very very focused on capitalizing on that opportunity. I don't think that V-11 per say will be an accelerator of sorts, but really that's more of a function, the fact that we feel we're in the midst of a pretty robust market opportunity.

Thanks, Glenn.

Your next question comes from the line of [Douglas Sail] with Lehman Brothers.

Hi, good afternoon. I was wondering, Glenn, you could describe or provide some detail around the integration of the ECIN project and ECIN company. Is this something that you are personally involved in a lot right now?

Actually and I don't mean to pass this one off, but I'm happy to say that Bill Davis was really leading the charge on the integration. I will make one or two comments and then I'll ask Bill to comment. One, what's unique about ECIN and our Canopy product is not long ago, the two companies were partnered and worked together. And then John McConnell who was the former CEO and founder of A4 bought Canopy then we bought John McConnell's company A-4. And so now, we owned A-4. So putting these two companies back together is something that they had already worked together once, in a very unifying fashion. That said, the integration we were fortunate to get some very high quality management, the CEO of Extended Care, Jeff Surges has come over. And Jeff is running all of our hospital operations that includes ECIN, Canopy and ED area, so we have very high confidence in Jeff. Bill?

Yes, Glenn. I think you really hit on the high points, that is that we have a shared customer base already, there's a lot of familiarity with the two development organizations in terms of the relative strengths of the products. The great news is that they are both ASP solutions, it's our ability to really seamlessly integrate them in a very low impact way from a disruption factor. We're very excited about, so we do have an internal plan, you know, over the next 12 to 18 months, it's ultimately moved, all clients to a single platform. But that will be done in a very seemless fashion. And we're seeing tremendous -- we're seeing tremendous excitement and success in really short order in terms of bringing the two market leaders together in the care management arena.

And then as a follow-up, are you needing to recruit additional head count into the hospital solutions group right now to handle this sort of product integration conversion?

No, if anything, just the opposite, we actually have reason to believe and already starting to enjoy some benefits from some overlap. You know, we see some Cinergi opportunity and the good news is, that a vast majority of the Cinergi opportunity comes from hiring avoidance, meaning Canopy and ECIN independently, their businesses that are both growing at pretty healthy clips. And so they both had plans of hiring some 15 to 20% heads or resources over the course of '08 and an opportunity to rationalize those hiring plans is what we've really been focused on.

Is that freed up within Allscripts as a broader company, more resources to focus on the ambulatory solutions? In particular, touch works?

Yes, they absolutely has, Jeff was one of the first in terms of offering up Glenn talked about the contribution of some 30 resources from other areas of the business into touch works, to help with our V-11 efforts, and certain percentage of those have come out of the hospital solution group area. So they are in fact helping in that regard.

Okay. Great. Thank you very much.

Again, if you'd like to ask a question, please press star then the number one on your telephone keypad. Your next question comes from the line of Alan Fishman with Thomas Weisel Partners.

Hi. This is Alan Fishman and for [Steve], I just had a few quick questions. The first is when you're going to market a new touch works account, are you selling Version 11 or Version 10?

We only sell version 11 now.

Okay.

And basically, Version 11. Now, the great news about Version 11 is it's exactly what physicians have been asking for, and it was physician designed and it has all kinds of connectivity and content and functionality that they've really been after, so it's a breakthrough product and that's all that anyone would really want now.

Okay. And then my second question, just has to deal with the mix of enterprise deals, hospitals versus multipractice groups. Is there anyway you could give us color on how that breaks down when you look at your sales pipeline over the next 12 months or so?

Yes, we historically have not given that level of detail, I think it is fair to assume that we have nice representation across all those various groups. We talked a lot on the last quarter about relative traction being motivated by Stark law relaxation, and we continue to see that as being a meaningful contributor to our pipeline. And we've always been very strong and kind to multispecialty group settings. So, but, in terms of getting specific percentages, we've not provided that in the past.

All right, that's fine. Thank you very much.

Your next question comes from the line of Bret Jones with Leerink Swann.

Good evening. I was wondering if you could speak a little bit to what really changed in Q4 between the time you gave guidance and it actually transpired. It seems to me that we're talking about longer deployment cycles and the fact that it they combine the practice management EMR's. You also potentially delaying Was the shortfall in revenue simply due to bookings?

It really was two factors, as I hilted my prepared remarks about, 2 million dollars of the shortfall can be directly attributed to the shortfall in bookings, and that would have been by virtue of hardware, being in that mix, which you tend -- you're able to recognize more immediately. But there was an impact further impact beyond what even we expected, kind of in early November, relative to the V-11 expansion of project plans and I attempted to quantify that as about 2 1/2 million dollars in the quarter, it was the combination of the two. The V-11 implications, much greater impact on the bottom line. The hardware at $2 million would have only contributed about 200 to $300,000 to our operating income. So much greater impact from the V-11 in terms of profitability.

All right, thanks. When I look at the bookings that we talked before, and the enterprise deals were typically about 20% of bookings, and I think you said we could expect that to be personally higher, but the now the bookings shortfall was about 43%. You've talked about some of that coming out of the mid market. But, I was wondering if you could talked any comments to being and to why in the mid market some of those deals slipped?

Yes. We, again, what I talked about on the third quarter call, and have in several of the conferences that we've presented in the last couple months is that you if you really look at the relative distribution of our sales over the course of 2007, very very strong, at the low end of the market. And that was even up against some pretty hefty head winds from a pricing perspective, and then very very strong on the high end. We created a little bit of a challenge for ourselves, at the beginning of the year by taking some of our strongest producing sales reps in January of '07 and moving them toward the enterprise sales which created a bit of a void for ourselves in the mid market. We began to take steps to try to correct that in the middle of the year, and quite frankly started to see some positive progress in terms of rebuilding the actual bookings in the mid market. Quite frankly even in the fourth quarter, but in terms of timing considerations that Glenn was speaking specifically to, I think those were largely felt in the enterprise area of the business. But I'll let Glenn add to that if he'd like.

No, I think that's right, Bill. I think what you said is right.

All right. And then lastly I just wanted to make sure I caught this, and maybe I misunderstood. When you were talking about some of the enterprise deals dealing with some of this. I think I heard sales people that were in charge of those people have left, have you lost some of those people that you transitioned over to focus on the enterprise group?

No, and I may have been unclear. What I was talking about is some clients that we were dealing with had shifts in personnel that caused their organizations to delay decisions that would otherwise have been made.

Okay. Great. Thank you very much.

Your next question comes from the line of Atif Rahim with JPMorgan

A couple questions. First on the bookings again, I guess relative to the expectations you had for the fourth quarter, there's about a 30 million or so shortfall, would that be purely, I mean, I'm trying to break out what percentage of that would be deals that slipped versus, you know, the incentives you had for your sales force, focus on the mid sized deals. Could you break out for example what percentage of the shortfall came from deals that slipped versus maybe less execution than you had expected?

Yes. I think what I would say is the bulk of this is not execution based, the bulk of this is deals that slipped. And most of those deals came in the enterprise environment which is the way you make up large numbers, needs less to say. That's not to say that we're not also focused on execution. We focus on execution every quarter. But [net net] this was really an issue of some of the larger deals that we expected slipping.

Okay. And then I guess with regard to the additional resources you're putting into the Version 11 implementation, et cetera, how are you dealing with customers who are are supposed to get the implementation underway already? Are those projects just on hold and what's the customer reaction to that been?

Well, what we've done and this is part of what I referred to is we have actually sent folks on site to help them. Now, the issue with Version 11 is, we have Version 11 deployed and working at certain customers. The issue has been each customer and healthcare as you know, is a little bit unique, a little bit different, and because Version 11 allows them a significant amount of flexibility, that actually adds to the complexity of implementation. We're also dealing with the fact that our own teams are in many cases doing their first version 11 install. So you put those two together, and it adds to delays. In what we've seen. What we're doing is, we're doing what we always do, and that is working closely with our clients. Our clients are partners, and we both want the same thing, so we work with them and we say how can we address this, if it's additional people that we need to put on site, we'll do that, and we have done that and are doing that at certain clients. The -- I guess the good news from our client's perspective is we're committed to make sure that we spend the time and the energy to get them live and that's good news for our clients. In some respects, though, it does imply additional costs and bill has already referred to that, but first and foremost, we're building a great company that clients can depend on, that's our commitment to them, and that's what we're going to do. Unfortunately, at least for a short period of time, there will be some additional expenses, associated with that.

Right. Okay. Just as a final follow-up, are those additional resources that you're putting to the test, is this mainly in house in terms of overtime, et cetera, or would that be third party consultants that you're bringing in?

In most cases it's in house, that said as Bill mentioned and Bill may want to comment on this. What it does is it delays revenue recognition because it extends project plan out. And so consequently, we've done work, but we don't because the deployment hasn't moved forward. We don't necessarily get to recognize the revenue.

Bill, you want to add to that?

I would just reemphasize that really what that play is is an expansion of project plans and there is a practical limitation in terms of our ability to just throw more bodies at it, and expect that you can kind of keep pace, because the reality is, the greatest tension comes from how quickly the client in those circumstances is able to move. So, we are seeing not own until terms of overall hours being added, but also an elongation of the time required to get those hours worked.

Okay, that's great. Thank you.

Thank you. Why don't we take two more questions?

Your next question comes from the line of Richard Davis with Needham and Company.

Okay. Just a simple quick question. I think last time you talked about with the NEFCY initiative with the E Prescription and do you have like, I think it was like 5,000 doctors, a half a million E Prescriptions and things like that. How has that gone? Just give as an update on that. That's the easy question part. Well, we continue to see growth. I don't think that we have, we're going to get in the habit of announcing the number of physicians each quarter. That said, we want to give people an indication that it was real, it was operating in every state in the country, and that we were making very significant progress. You're going to see a number of states, I believe start to mandate electronic prescribing, based on the fact that it's now free. They didn't like the fact before, they didn't want to mandate something physicians would have to buy, but now that it's free, we see a number of states talking about accelerating mandates, both the time frame and the fact that they would have them at all. We've seen great leadership from certain states who are already stepping up and we've already begun to employ. In addition, hospitals are now interested in funding some of this deployment work via Stark. So we're seeing that as well. But [net net], we're seeing nice growth in scripts, nice growth in physicians, strong interest and I think importantly, as I mentioned in my comments, we're proud of the initiative, because it's saving lives. Got it. Okay. That's all I needed, thanks.

Why don't we take one more question.

Your final question comes from the line of Newton Juhng with BB&T Capital Markets

Thanks, guys. Glad you got me in here. Just one quick one here on the quarterly composition of bookings. I know you're getting rid of that annual number. But, are we still looking at Q1 to Q4 basically being, Q1 to Q3 being somewhat equal and then a bulk in Q4? Or do you think after what you've experienced this past quarter, your outlook on that may have changed a little bit?

Yes, I would still anticipate that the 4th quarter everything else equal should be higher than the other, the first three. So, I have no reason to believe that kind of relative contribution of Q1, Q2, Q3 being fairly close to one another, and Q4 being higher than first three. I would expect that to be the same.

Okay. And then even with the pushout of some of this business that you talked about out of the fourth quarter, shouldn't expect the first quarter to really gain all the benefit of that?

Yes. I'm really really hesitant to try to set that expectation, so that's actually a great question, and opportunity to provide a word of caution, I just -- you know, as Glenn indicated, some of these enterprise deals, and we witnessed this last year with Columbia, specifically where we started to talk about it indirectly on the first quarter and it wasn't until August that that was ultimately consummated. I think you have to deal with the reality that some of these could span multiple quarters until I'd be very hesitant to bank on the fact that it all kind of falls into just the first quarter.

Okay. Bill, and lastly, here, in terms of your capitalized software, it being a little higher this quarter as we looked at that going forward. Can we see that normalize back down, or with the pushout of 11.1? Or should we expect the cap software to be high in the first half of the year?

I would expect it to be kind of in that range, thereabouts in the first quarter. I mean, the way I'm thinking about the full year is that we actually spend a little bit over 30 million in R&D, and I expect somewhere between 25 and 30% of that number in terms of capitalization.

Okay, thank you very much. That's really helpful.

Great. Well, thank you very much. Let me conclude with just a few final comment. And in a sense it takes us back to where we started. 2007 was a record year for the company. 59% earnings growth, revenue growth of 24%. Very strong sales growth, clinical sales especially. And we were pleased with that. However, as we said, we set very high expectations. We met some, but not all of those expectations, and our objective going forward in 2008 is to make sure that we set achievable goals for ourselves and we consistently quarter over quarter deliver on those goals. That said, again, I think that the progress that we've made in the market, the progress that we continue to make and our commitment to doing the right thing for our clients, even if it costs more is something that's very important for us on a go forward basis. So, we appreciate all of your support, the investor confident. We continue to believe this is a very exciting market. And we continue to believe that we will be the leader in the market. So thanks very much, we'll look forward to talking with you next quarter.

This concludes today's conference. You may now disconnect.