Veradigm Inc (MDRX) 2008 Q1 法說會逐字稿

Good afternoon. My name is Jason, and I will be your conference operator today. At this time, I would like to welcome everyone to the Allscripts first quarter 2008 earnings conference call. All phone lines have been muted to prevent any background noise during the call. After the presentation, there will be a question-and-answer period.

At this time, I would like to turn it over to Mr. Glen Tullman.

Thank you, Jason. Good afternoon and welcome to the Allscripts first quarter 2008 conference call. This is Glen 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 am going to ask Bill Davis to review our Safe Harbor statement. Bill.

The statements made by Allscripts or it's 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. Whenever 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 uncertainties, including those listed in earnings press released issued by today, and in Allscripts' filings with the Securities and Exchange Commission, 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 Security 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.

In addition, a portion of this conference call will cover the proposed business combination involving Allscripts Healthcare Solutions and Misys Healthcare Systems LLC, a wholly-owned subsidiary of Misys PLC. In connection with this proposed transaction, Allscripts intends to file with the Securities and Exchange Commission a proxy statement, a definitive proxy statement, and other related materials. The definitive proxy statement will be mailed to the stockholders of Allscripts.

Before making any decision with respect to the proposed transaction, investors and security holders are urged to read these documents, and other relevant materials when they become available, because they will contain important information about the Company, and the proposed transactions. Investors and security holders can obtain copies of Allscripts materials and all other offer documents filed with the SEC when available, at no charge on the SEC's website, www.SEC.gov.

Copies can also be obtained at no charge by directing a request for such materials to Lee Shapiro, our President and Secretary, at our corporate office in Chicago. Investors and security holders may also read and copy any reports, statements, and other information filed by Allscripts with the SEC, at the SEC Public Reference Room in Washington, D.C. Please call the SEC at 1-800--SEC-0330, or visit the SEC's website for further information on it's Public Reference Room.

Allscripts' directors, executive officers, and other members of management and employees may under the rules of the SEC, be deemed to be participants in the solicitation of proxies from the stockholders of Allscripts in favor of the proposed transaction. Information about Allscripts, it's directors and it's executive officers, and their ownership of Allscripts securities, is set forth in its Form 10-Ka, which was filed with the SEC on April 25th, 2008. Additional information regarding the interest of those persons may be obtained by reading the proxy statement, and other relevant materials to be filed with the SEC, when they become available.

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

Well, thanks, Bill. That has to be a record for Safe Harbor statements, I appreciate everyone bearing with us. Let me begin the call. Allscripts turned in a solid first quarter performance with some positive highlights and progress. Just to give you a quick top-line review, #1, our sales team delivered a strong performance in the quarter that confirms Allscripts leadership. While that didn't carry through to the revenue and earnings line this quarter, we are seeing measurable progress with our TouchWorks v11 electronic health record. Our investment is paying off, and as I will discuss, good things are happening at our client sites.

#2, our Hospital Solutions Group delivered strong sales, a new product launch, and further validation that we are building a long-term franchise with a strong recurring relevant revenue element. #3, our proposed merger with Misys Healthcare is progressing well, and we are moving aggressively towards closing this summer.

To cover the quarter in more detail, the most positive news was the strength of Sales bookings for the quarter. Sales bookings for the company were $52 million, up more than 50% over the first quarter in 2007, and were roughly the same as sales bookings for the fourth quarter of 2007.

TouchWorks led the way which, when you consider the first quarter is traditionally the slowest of the year, when you consider the questions surrounding our proposed merger with Misys, and the discussion around the work we are doing with clients on v11, demonstrates the strength of the electronic healthcare market, the strength of the Allscripts brand, and the confidence our clients and prospects have in our people, and in our Company.

For over ten years we have continued each and every quarter, to make progress toward our mission of being the leading provider of software, information, and connectivity, to physicians and other key healthcare stakeholders. We are closer than ever to achieving this vision, especially considering our successful acquisition of Extended Care Information Network, and the addition of their 400 hospitals, and close to 6,000 extended care facility customers.

If you also include the proposed addition of Misys and their 113,000 physicians, to the Allscripts base of over 40,000 physicians, it is clear we are on our way, to realizing our vision of an interoperable connected healthcare system, one that empowers the best physicians and caregivers in the world, to safely deliver world-class patient care in a cost-effective way. It is a sign of things to come as physician groups and hospitals continue to look to Allscripts, for industry leading solutions from a company they can trust.

In fact, as we suggested in prior quarters, given the Stark exemption, hospitals are playing a larger role in the purchase of electronic health records. A report from MD Buyline, the #1 online buyer's guide for hospitals, suggests that when hospitals go shopping for electronic health record solutions, they consistently look to Allscripts. MD Buyline went on to report that over 40% of all the requests they receive for information about electronic health record, are for Allscripts products or services.

Over the last two years no other single vendor has received even half as many requests for information from buyers using MD Buyline. Just this morning we received news of another in a series of Stark related purchases of our electronic health record and practice management solutions.

St. Luke's Hospital in suburban Toledo, Ohio, signed a contract to purchase our combined EHR and PM solution for 100 of their affiliated physicians. It is the latest in an expanding list of Allscripts wins with hospital groups, who increasingly are looking to build relationships, or what I like to call an electronic dialogue, with physicians, by donating, and in the case of St. Luke's, hosting and providing IT support for the electronic health record.

Another new client announced today is Heart Center Medical Group, a 50-physician multispecialty practice in Fort Wayne, Indiana. They, like St. Luke's, purchased our combined electronic health record and practice management solution. Besides being one of the premier cardiology and multispecialty groups in Indiana, The Heart Center is noteworthy, because they are among a growing number of clients, who have upgraded to a full electronic health record, from our Impact MD document imaging solution, which along with electronic prescribing, we think of as an onramp to the electronic highway, for many practices who want the savings from, and convenience of accessing scanned medical charts from the computer, but aren't quite ready to implement a complete electronic health record.

Both St. Luke's and The Heart Center demonstrate again, that our practice management solution has become widely accepted in the enterprise market, building on the success and positive reputation we have enjoyed with smaller and mid-size practices. We announced last month, that TeamPraxis, Hawaii's largest physician management company, has purchased a statewide license, an enterprise license, for our combined EHR/PM suite.

TeamPraxis is worth mentioning for another reason as well, we partnered with them to introduce the Allscripts clinical quality solution, a powerful new tool that automates the quality reporting requirements of pay-for-performance programs. This is an important capability, that is already generating real interest among prospects, and our existing client base, because it solves a serious problem. How to make it easier for physicians to generate income from pay-for-performance initiatives.

From an earnings and bottom line standpoint, we further accelerated our investments in our TouchWorks v11 product, to allow more of our clients to realize the promise of this product sooner. Our challenge with v11 is what every business wants. Our clients love the functionality and breadth of the product and want it now, as we discussed we continue to work to streamline the deployment process, applying some of the best talent inside and outside our Company. We have told you on previous calls, slower than expected installs of v11 resulted in our revenues being lighter in the first quarter.

The good news is that we are executing against our improvement plan, and that we are seeing solid measurable results. One recent example with our implementation deployment process, was demonstrated in an e-Mail I recently received from [Michael Bush], the Chief Strategy Officer of Butler Health System in Pennsylvania, which complimented us on the effort we have put into making v11 work for them. Michael writes, "over the years, I have been through many installs, but I have to say that this was one of the smoothest, particularly given the magnitude of the tasks to navigate. From start to go-live was about 14 weeks, which is incredible.

Frankly, I was holding my breath on Day 1 waiting for the boom that never occurred." He continues, "This is further confirmation of how bullish we are concerning our partnership with Allscripts. We are confident that in the next two years of rollout to our regional physicians, we will truly transform the quality of care to our community, while creating a more energized, positive, and engaged medical staff.

Butler went live with the first small group of physicians on the full functionality of the v11 release, and plans to continue deploying physicians each week. This work flow-based approach cut our deployment time in half, using our newly refined processes.

Thomas Jefferson University, one of the premiere medical centers in the United States, is also in the deployment process today, for their 400-plus multispecialty physicians. It is one of our largest installs, and their CIO, Bruce Metz, said recently, "Allscripts acts like a true partner, and makes the kind of customer commitments that go beyond other vendors."

These are just two of the positive stories I could share from clients across the country, from George Washington University medical facility associates in Washington DC, the first group to deploy v11, to Medical Rehab Associates in Lewistown, Maine, to Walla Walla Clinic in Washington state, to Community Care Physicians, a well-led and innovative group in Albany New York. Our client focus has paid off and they can see the progress we are making.

That progress includes not only delivering on client initiated improvements with our TouchWorks v11.1 release delivered in March, but also providing many improvements of the full TouchWorks v11 experience, such as pre-configured certified work loads, and over 1,500 note forms, delivered in conjunction with our client-led specialty specific physician advisory boards, both of which serve to accelerate deployment. We expect to see all of this progress begin to make a financial impact in the form of backlog take-down in Q2, but the real impact, as Bill will comment on will be in Q3 and Q4. When we have combined benefit of faster take-down and less expense.

Today we have 37 clients live on v11, these clients range from single specialty and primary care to multi-specialty groups, MSOs, academic medical centers, and integrated delivery networks. Some have upgraded from TouchWorks version 10. Some have converted from a competitor's EMR, and others are becoming electronic for the first time. Another hundred or so clients are in some stage of implementation or upgrade, and this number is growing. The bottom line is that we are very encouraged by our progress with v11, and it's safe to say that the buzz continues with our clients. We are also seeing strong sales of our HealthMatics electronic record, and our offering is among the most advanced available today, for groups with 25 physicians or less. During the quarter our HealthMatics EHR was selected by the Centers for Medicare and Medicaid Services, better known as CMS, for a pilot project demonstrating it's ability to collect and report pay-for-performance data to CMS.

This new pilot for the Physicians Quality Reporting Initiative, or PQRI, will determine which electronic health records can best enable physicians to receive bonuses from Medicare for reporting on quality metrics, which we think going forward will be a key differentiator as pay-for-performance begins to play a bigger role in physician practices. One last item on our professional offering, for proof that the small market is really ready to take off, read the latest issue of the Journal of Medical Innovation, which includes a study done by one of our clients, Valley Medical Associates in Springfield, Massachusetts.

Valley Medical is a four-physician practice that implemented our electronic health record, and reported return on investment, including lower payment time from 30 days to 15 days, fewer claim denials, and increase in revenue by $60,000, which is close to $15,000 per physician, meeting docket and other pay-for-performance requirements, and finally, reduced transcription costs by 60%. Overall, that is about a $10,000 savings per physician, just in terms of medical staff saving reductions.

It's important to note that we continue to add significant and valuable functionality to our Professional EHR. For example, in our Healthmatics Professional EHR, we added patient link, which eliminates many hours of staff data entry, given the ability for the patient to complete the documentation, and new functionality that allows scanning into the Electronic Health Record, that automatically maps to discrete data elements.

In the practice management area, we completed our common user interface with both of our electronic health records, as well as our first single database solution with Enterprise practice management, and important selling feature for some of our prospects. While I am on the subject of our Healthmatics electronic health records, I did want to highlight the competitive scenario.

While we continue to invest to make our products better, we have mentioned before that eClinicalWorks have become a significant competitor in terms of price. While they continue to compete on price, their clients are starting to see what class, KLAS, which is the consumer reports of healthcare, where class ratings have already concluded. They don't have the infrastructure necessary to efficiently bring clients live or support them, so the apparent up-front savings turn out to be illusory at best, and costly in terms of lost physician time and efficiency, and deinstalls, which the market is beginning to understand. One example this quarter was Pediatric Group Associates, an Orion healthcare practice in Roswell, Georgia, which is now converting to Healthmatics from eClinicalWorks.

Moving on to our Hospital Solutions Group, the quarter saw record sales from product in this newly organized business. Formed after our acquisition of Extended Care Information Network late last year, and under the able leadership of Jeff Surges, the Hospital Solutions Group incorporates our emergency department information systems, as well as our care management and discharge management solutions. I am pleased to report that during the quarter, we fully and successfully integrated ECIN and Canopy into the new Allscripts care management product, and have seen excellent results.

Our new integrated care management sales team produced the largest Q1 bookings quarter, for both organizations, including signing 20 hospitals from our existing Canopy client base, to our new Allscripts discharge planning module, which has been integrated into our care management product solution. Overall during the quarter we brought 35 hospitals live, and delivered several large sales in the million dollar range.

At HIMSS in February we announced that Banner Health, one of the largest nonprofit care systems in the country, is implementing our care management solution at six Phoenix area, and two Colorado area hospitals. You can expect to see several more announcements during the quarter highlighting our successes in this area.

As I have talked about before, we think of our ED Solutions as the door into the hospital, and our care management solutions, as the door out, and we connect both electronically to ambulatory physicians in need of this information, validating our vision of connecting physicians, hospitals, and extended care providers.

Finally, I want to comment on our proposed merger. Bringing Allscripts and Misys Healthcare together, represents a compelling opportunity for our clients and for our stockholders, of both companies, to participate in a combined organization with significant potential, including a major cross-selling opportunity, that will be an important driver of our growth in future years.

Mike Lawrie, the CEO of Misys PLC, and I have shared a vision of where healthcare needs to go. Toward a safer, higher quality of care, and more efficient system, that is connected and interoperable. And this transaction will aggressively move us in that direction. We have teams who are working together on plans, that will make the merger as seamless as possible to our clients. And we believe the anticipated cost synergies will be quickly realized.

We see this as a perfect merger. A great fit strategically with shared vision between the companies, for building an inoperable connected healthcare system, and a shared culture of competition and performance among the team. We remain confident that this business combination is the best outcome for our clients, our employees and our shareholders, and pending regulatory approvals, we are hoping to close the transaction late summer.

So let me conclude with a few comments. For years we have talked about the market for clinical software, connectivity, and information services driven through physicians. That market is here today. And with the proposed merger, Allscripts will be even better positioned than in the past, to capitalize on the opportunity. Through our broad and industry-leading product suite, and our ability to deliver across the board.

At this point, I want to turn it over to Bill who will further address our financials. Bill.

Great. Thanks, Glen, and hello, everyone. As Glen stated, we are encouraged by the bookings momentum in the quarter, and the progress that we are making on TouchWorks version 11 implementation cycles, and while such efforts have not fully expressed themselves in our financial performance, we are pleased with the operational progress we have made to date, and continue to believe that our progress will become more apparent to the financial markets in the second half of this year.

We are also very excited about our pending merger with Misys Healthcare, which will result in the combined organization having as its customers nearly one out of every 3 ambulatory physicians in the United States, with strong revenue and earnings growth potential. We continue to work toward the closing in the late summer timeframe, and may even have an opportunity to accelerate such timing depending on the extent of an SEC review of our proxy statement.

So turning to the first quarter specifically, first, our bookings, our total bookings during the quarter were approximately $52 million. This represents a 51% increase over the first quarter of last year, and is comparable to our fourth quarter bookings performance, even though Q1 tends to be seasonally lower than the fourth quarter. Consistent with prior quarters, bookings do not take into consideration the 9.6 million of sales and medications.

Our clinical software businesses contributed 47.8 million in bookings during the quarter, excluding ongoing support. This represents approximately 64% growth over the first quarter of 2007, and approximately 42% organic growth in our ambulatory businesses, when compared to the same period last year.

Our Q1 bookings performance compares to $49 million of clinical bookings in the fourth quarter, which again, we are encouraged by given the typical seasonality. We also view our bookings performance as a good indicator of the ongoing interest in all of our clinical solutions, including TouchWorks version 11. Rounding out our bookings performance is our physicians interactive business, which had bookings during the quarter of 4.2 million, representing a 23% increase over the fourth quarter.

Turning now to backlogs, we ended the first quarter with $285.3 million in sold backlog. The backlog break out is as follows, License and service fees related to our clinical software businesses represents $144 million, Software subscriptions as well as ASP contractual commitments including our ECIN business is 58.5 million, and our support and maintenance fees, which are expected to be recognized over the next 12 months is 63.4 million, and physicians interactive contributes the balance of 19.4 million, again for a total for $285.3 million.

Turning now to revenue, our first quarter revenue of 72.1 million, represents a 7.1 million, or 11% increase over the same three-month period last year. Our clinical software businesses contributed a majority of the increase. As I alluded to earlier, our first quarter was impacted again by nearly $3 million of work performed, that could not be recognized as revenue, due to slower than expected deployment schedules of TouchWorks v11.

We remain focused on our plan to return deployment cycle times to historical levels, we are encouraged by the progress we are making, both from a development and deployment perspective, including the fact that TouchWorks version 11.1 was released two months ahead of schedule. With that said, I continue to believe that it will take the better part of the first half of 2008, before you begin to see the full effect of such efforts.

Software revenue was also impacted by approximately $3 million less add-on license revenue to existing customers, when compared to the fourth quarter. This decline had a meaningful impact both on our top line and bottom line given it's high contribution margin. Physicians interactive had revenue of 3.9 million in the first quarter, and we also saw another solid quarter from our Meds business with revenue of 9.6 million.

In terms of revenue mix, our software related services segment represented approximately 81% of total revenue in the first quarter. First quarter revenue by segment was Meds again 9.6 million, our clinical software businesses delivered 58.6 million, and our information services rounded it out at 3.9 million. Again for a total of 72.1.

Looking now to gross margins, overall our gross margin was approximately 50% in the first quarter, versus 49% in the fourth quarter. Margins by segment were as follows. We saw medication margins going from 13% in the fourth quarter, up to 21% in the first. Our clinical software business was fairly consistent with prior quarter at 56%. And a slight improvement in our information services business going to 35%. Again for a total of 50%.

The sequential change in our Meds business is attributed to the mix of drugs being sold. Principally driven by the decrease in lower margin bulk sales, and less flu vaccine sales that typically take place in the third and fourth quarter.

Turning now to expenses, operating expenses, excluding amortization of intangibles and stock-based compensation for the first quarter were 29.8 million, this compares to 25.5 million of expenses in the fourth quarter. The increase is attributed to the inclusion of approximately 2.7 million pretax of transaction-related expenses. Taking that into account, our normalized operating expenses were approximately 27.1 million. Again compared to 25.5 million in the fourth. The increase over the fourth quarter is primarily due to the addition of ECIN operating expenses, and certain marketing expenses related to our presence at the HIMSS Conference in the first quarter.

With regards to capitalized software, we had 2.4 million in the quarter. This amount compares to 2.8 million we capitalized in the fourth quarter, and is reflective of the investment we continue to make, in the development of both our TouchWorks and Healthmatics EHR EMP/PM products. We capitalized an additional 1.6 million related to our ongoing work with Wolters Kluwer for new product content.

As I have discussed in the past, we see this content development work being a significant differentiator in the marketplace. Please note that [TAS] total capitalized software amount will fluctuate from quarter to quarter, depending on product development cycle. Stock-based compensation was approximately $2 million for the quarter, and deal-related amortization was approximately 3.4 million. Both amounts reflect the consummation of the ECIN transaction at the end of the fourth quarter.

Net income for the quarter was approximately $100,000, or breakeven on a per diluted share basis. Excluding the 2.7 million of transaction related expenses, our net income would have been approximately 1.7 million after tax, or $0.03 per diluted share. The $0.03 per diluted share includes 2.1 million, or $0.04 per share of acquisition-related amortization net of tax, and $1.2 million, or $0.2 per share of stock-based compensation, also net of tax, bringing our non-GAAP pro forma adjusted earnings for the quarter to $0.09 per diluted share.

Basic shares outstanding for the quarter were $56.5 million, and diluted shares were 57.5 million. The 7.3 million shares issuable under our convertible debt offering were not dilutive to our GAAP earnings per share in the first quarter. Therefore those 7.3 million shares are excluded from both our GAAP and non-GAAP adjusted earnings diluted share computations for our first quarter. With regard to overall headcount we ended the quarter with approximately 1,157 employees, which compares to the 1,155 employees we reported in the fourth quarter.

Turning now to our balance sheet, we ended the quarter with 61.4 million in cash and marketable securities, which is reflective of us generating approximately 14.9 million in cash from operations in the quarter. The strong cash flows from operations were offset by approximately 7.8 million of capital expenditures and capitalized software, as well as approximately 8.9 million of cash that was used in January, to fund the balance of our $90 million purchase of ECIN.

Accounts Receivable at March 31st were approximately $81 million, which includes approximately $6 million of receivables related to ECIN. Deferred revenue increased 9.6 million when compared to our December 31st balance, due to a meaningful amount of our annual software maintenance, as well as subscription fees being billed in the first quarter.

I would like to close by making a few comments regarding the balance of 2008. As part of the Misys announcement, I referenced the fact that Misys PLC is a publicly traded company in the U.K., and it is subject to U.K. listing and disclosure requirements. There are specific requirements related to the disclosure of forward-looking information, that limits our ability as to what we are able to say.

So with that, I did want to make a few specific comments to help you think about Allscripts' standalone performance for the rest of the year. As I mentioned last quarter, our ability to deliver our previously communicated guidance is dependent on our efforts to improve v11 deployment cycles over the course of the year. While we do anticipate quarterly sequential revenue growth the rest of this year, we expect some pressure on such anticipated growth rate, and our ability to achieve the 20 to 25% top line growth previously communicated.

I want to note that we do believe Allscripts has the ability to grow at those levels. It is simply a function of timing, and given the need for most of the required growth to occur in the last six months of this year. Working off the $5 million of adjusted earnings we generated in the first quarter, we do continue to see an opportunity to achieve the lower end of the previously communicated earnings guidance, assuming we are able to deliver a reasonable amount of sequential revenue growth in each of the last three quarters, and we are able to continue to maintain tight controls over our cost structure.

As both Glen and I have mentioned before, we are encouraged by the progress we are making to improve deployment cycle times in our TouchWorks business. We expect the benefit of such work to become more apparent to the financial community over the coming quarters. We are equally encouraged by the growth potential of all our businesses, and look forward to all of our businesses to contribute to our continued success in the future.

So with that, I would like to turn it back over to Glen for some closing remarks.

Thanks, Bill. Allscripts has great products that we are providing to the industry's most impressive set of clients, with new prospects looking to us first among all other vendors. We expect to make continued progress in the business throughout 2008, and continue to deliver on our promise of moving healthcare forward.

I want to thank first and foremost our clients, who are driving our growth and our success, and reconfirm to them, that delivering world-class solutions that work is job one. I also want to thank our employees who do the work, the millions of little details that make our clients successful every day, and who I believe are the industry's best. And last but not least, I want to thank those investors who have stood by us during some rocky times. We are all shareholders, and committed to deliver shareholder value.

So thank you, and we will now open it up for questions.

At this time, (OPERATOR INSTRUCTIONS) We will pause for just a moment to compile the Q&A roster. Your first question comes from Atif Rahim of JPMorgan.

Hi, thanks. Can you perhaps give us some more clarity on whether there were any outsized deals this quarter, that drove your bookings, perhaps some of the enterprise deals we have seen in the past? Secondly, for Bill, can you quantify the pressure that you expect to see on '08 revenues? You said the 20 to 25% is kind of stretched out, but any updated forecast there?

Sure, Atif. Let me first take the enterprise question. I was very encouraged that while we continue to have a strong pipeline of large enterprise wide deals, and I am talking about deals kind of in the Columbia-size range, this quarter we did not include any of those, which I think speaks to the strength of the pipeline that we could deliver. The quarter that we did deliver in the first quarter, and not depend on any of the larger agreements.

We have said in the past that it is important not to base the quarterly numbers off of those large agreements, and hopefully use them to ice the cake, and that was the case this quarter. So this quarter does not include any of the larger kind of mega deals that we have talked about. Bill.

Yes, relative to the revenue question, I do think that it would be premature to do that. I think we would benefit from a little bit more time, and again, just to reiterate, understand that the revenue will likely come under some pressure, and it will be challenging to get to that level, but we intend to update the market as we have some more experience behind us.

Understandable. One quick clarification for the transaction related expenses that you have highlighted, those are all related to Misys, right? None related to ECIN?

That is correct.

Okay, thank you.

Your next question comes from Corey Tobin from William Blair & Company.

Good afternoon, guys. Quick question on bookings. Should we expect to see the same traditional ramp that we have seen in bookings in the past, which is to say should we expect bookings, or does the pipeline support bookings ramping from the level we thought Q1?

Corey this is Bill. We have, as you know, in the fourth quarter, indicated an intention not to provide guidance specific to bookings, and so we are not prepared to comment, in terms of our outlook there. I would just say qualitatively that again we are very encouraged by the level of activity in the marketplace, the number of opportunities that are available to Allscripts, so we continue to execute against those opportunities, but getting to specifics, we are not prepared to at this point.

Understood. Let me just try one other thing then. Post merger, is the business, should we expect the fourth quarter, in terms of bookings, to continue to be the strongest throughout the course of the year? Not asking you if that is going to be the case, but is that a typical pattern that has been seen in the past?

Corey, I think that is an industry kind of indication that we have seen throughout this industry. And so I think it is reasonable to assume that the fourth quarter in the healthcare business is going to, and the healthcare IT business will be strong for most of the businesses here. So without violating that principal of giving quarterly guidance, I would say that we expect the end of the year as generally a strong part of the year.

Great, thank you very much.

Your next question comes from Sean Wieland from Piper Jaffray.

Thanks. Bill, on your comments on the outlook on revenue guidance for this year, is this predominantly because of lower bookings expectations going out the rest of the year, or longer implementation cycles that you are seeing, therefore taking longer to recognize the revenue?

It is almost exclusively just recognizing the Q1 performance, and the relative ramp that would be required to, in effect, achieve that level of growth, and the backlog conversion required to do that. The reality is that we have sufficient backlog to deliver on that, but because of the deployment cycles being what they are, and an expectation that we are not going to see meaningful improvement on those cycles for a little while now, is really what is giving me reason to state that prospective.

Said another way, Sean, it's a timing issue, clearly not a backlog issue, or a sales booking issue. It has to do with how quickly we can make all the changes related to the more rapid deployment of v11 to realize that revenue.

So are the recognition milestones you need to hit, are they specific to product deliverables, service deliverables? Is it a bandwidth issue, or getting the product fixes out the door?

It is not product fixes, per se. It really has to do with getting the cycles in place, as you would do with any new product. It is just this one happens to be bigger and offer more functionality to our clients. The good news is they are taking advantage of it. The good news is they want it. And we are learning, along with them, as we implement some of these products.

We have seen, as I mentioned in my earlier comments, we've seen where it works and where the new processes are put into place from start to finish, much more rapid implementation times, but we won't get that through the whole base, and as Bill said, we really will start to see the impacts of that in the second half of the year. So then the question is how quickly, can you do it, and how much can you do. And it's just too early, I think, for us to give more visibility on that right now.

Okay. Second question, what is the plan to get TouchWorks certified on 2008 CCHIT?

On 2008?

Yes. I am sorry, 2007.

Well, the good news is, it is certified on 2007.

Okay. All right, thank you very much.

Yes.

Your next question comes from Sandy Draper from Raymond James.

Thank you. Question, Bill, and I know you are going to stay away from giving any specific guidance, but I am just trying to think about the gross margin and the clinical solutions business that you reported in the first quarter, talking about holding costs steady, when I think about building out a model, should I think about you have got a pretty good fixed cost basis there, and whatever the revenue ramps up, the majority of that is going to flow through the gross margin? Or how should I be thinking about incremental margins, in terms of relative to the revenue ramp?

Yes, I think Sandy, really implicit in our results is the fact that we are carrying costs, and recognizing costs that we are not in a position where we are recognizing a corresponding amount of revenue, because of the project plan expansion, and what have you. So as we see those project plans, first stabilize, and then ultimately begin to improve, I do expect that that incremental revenue that comes through will be at very high margin. So that will provide for some margin expansion opportunity in that segment.

Secondarily, I made reference to the fact in that the first quarter, you had a decline, or we had a decline of add-on sales to existing customers, the order of magnitude of about $3 million. There too, that tends to be higher margin revenue, and so as we see, and not really surprised by that, given kind of the buying behavior in the first quarter versus some of the other quarters. As that increases in subsequent quarters, as I would expect it would, that will add for some additional margin expansion opportunity as well.

I think, you know, part of when you heard Bill talk about some pressure on revenues, you didn't hear him talk about the bottom line. And I think in part that has to do with what you have identified, and what Bill just talked about, which is as we come into the second half, as we benefit from these improvements, and can both recognize work that has been done, that can bring in more sales, license sales, and the like, all that comes in it at higher margins, so it supports the bottom line. The question is whether you can get to the top line as well, and that is where we see some pressure.

A quick follow-up, Bill. So are there actually some expenses in cost of goods right now that, I wouldn't say are one-time in nature, but could actually go away once you have finished with some of these project?

I wouldn't characterize them that way. Again, you think about the composition of our cost of sales, a large percentage of them are deployment resources. So what you are really getting at is how much revenue is able to be generated on a per-consultant or per-deployment resource basis. And so the expectation is as those project plans, or cycles stabilize, and then improve, their revenue generating capability will naturally improve with it, and that is what will really drive the margin expansion that I spoke to.

Great. One follow-up and I will jump back in. Once we strip down to the 27.1 million of SG&A, outside the charges, are there any higher expenses in there, relative to special work projects, anything else, or is that sort of a good normalized base to be building off of, in terms of SG&A?

Again, the one thing that I tried to highlight too, is the first quarter takes on, you can think about it as somewhere between $0.5 million to $1 million of costs, associated with our HIMSS participation. We also have Annual sales service meetings, and the like. So I think the base you should be working off is slightly lower than the 27.1, when you take those into account.

Great, thanks.

Your next question comes from Richard Close from Jefferies & Company.

Glen, you talked a little bit about Butler, wonder if you could give us some more information there. How many modules are they running now of TouchWorks, or is it the full TouchWorks suite?

They are on the full suite. I will say that they've had great success. They are on the full suite. They have had great success, there on the full suite. That said, they are rolling, they have a number of smaller practices. It is not one big practice. It's a number of smaller, I should say, not practices, but groups that are practicing, like many of the large practices you see, and they are doing one a week. But that said, they are rolling out the full electronic health record.

Okay. So right now, in the doctors that are live, they have the full suite, they have notes, and it is not just E-prescribing, or anything?

Absolutely. And that is true of a number of other sites as well.

Okay. And then if you looked at the 37 customers I think you mentioned on version 11, how many of those are being started off, of the 37 started off on a module version of the 11 now, with the hopes of adding additional modules down the road? Or are they on the full suite?

Well, again, what most people do is, I don't think anyone ever starts with one module, but typically they will start with a base, and then they will add on groups of modules, and that varies. It is an integrated product, just so we are clear. The benefit of the product is that you are allowed to, unlike many of the other ones, you are allowed to kind of phase them in.

So what we see is probably something like a third of them are taking advantage, or in the rollout phase with all of the modules, and another third are about a little more than halfway through, and another third are probably about a third of the way through. That would be pretty typical of that.

The challenge frankly, for all these practices, and the biggest change of behavior for physicians, is when they go to a full note product, because that is where they can both gain the most efficiency, but it is also a change in behavior. One of the things we released was certified work flows, and 1,500 additional notes. All of those things make it easier for physicians to instantly adopt, and to get deployed very quickly.

Okay. Just a couple more questions on this. Of the 37 customers, how many of those are new customers, essentially, a new customer that came to you and bought version 11 versus someone that had version 10?

I don't have an exact breakout on that, but I think and again, I think there is a sampling of all of the above. So there is some version 10. As I mentioned, some are coming to us from our impact.MD product. Some have come to us that are brand-new that are conversions from other clients. So there is a mixed bag.

And then within that, you have everything from cardiology or orthopedic, to multispecial to pediatric, to integrated delivery networks. And that does add some of the complexity, because the product is broad enough that it can address all of these different specialties, but each time you go out, in some cases it is our first time on version 11, upgrading those practices.

But there are a solid number of those that are using version 10 very successfully, and there are a lot of folks using version 10 that frankly, don't want to upgrade right now, because they are having so much success with version 10.

If I look at the 37, about 20 of those 37 were TouchWorks version 10s that are now version 11?

I can't really tell you. I haven't broken them out that way.

Okay. Thank you.

Your next question comes from Bret Jones from Leerink Swann.

Good afternoon. I just want to kind of dovetail off of Richard's question there. I just want to make sure I am clear. One-third of the TouchWorks 11, they are running TouchWorks 11 notes, and the rest would be on TouchWorks 10 notes?

No, no, probably a third are working with TouchWorks 11 notes, and then the other ones may not have adopted, so in other words, there are a whole bunch of new customers. They may have not gotten to note yet, then others may be running version 10 note. So there is a mixture in there.

When you look at Butler's success, would you say that is predicated on the fact that they were primarily smaller groups, making up the larger system?

Butler was really, the first to go through our accelerated deployment process that was just redesigned. So it is one of the first beneficiaries of the investment that we have been making in version 11, and just a great guy we brought on, [Jay Kahn], who is leading that process, has done a first-class job of helping us redesign that process, and make it much faster. So to the extent that now that becomes our standard, we will start to see the benefits there.

Was that version 11.1, is that the process that you are referring to, the new version 11.1 with the pre-configured work flows?

That is correct.

Can you give us any sense as to how much compression you have had in the deployment cycle for Butler Health, compared to some of the other sites that were out there earlier?

I think it was about 50% faster than comparable implementations before that. But again, we had the benefit of starting from scratch with Butler, and that was a terrific benefit. You don't always get that.

Okay. And that is why you don't expect the turnaround to happen, until really sort of see the dam break until the back half of the year?

That is right. You have a number of implementations that have already started on, without the benefit of the brand-new process, so there is some conversion, some of those will keep going. They are halfway through, or what have you, and you have other sites that they were the perfect size to use that process for the first time. So we know we will get there, and the issue is again, we are sticking with the estimates that Bill had given, to really start to see the benefit in the second half of the year.

Two more quick questions. Version 11.11, did that ship in March also?

No, I think version 11.1 shipped in March. 11.11 comes out next month, I believe.

Great. Then the final question would be on pricing. The last quarter you discussed pricing specifically for the practice management component. I was wondering if that, being fairly liberal with the pricing, has that rebounded, or have you guys been more conservative with your pricing there?

I don't think we saw any material difference in terms of pricing, specific to PM. The comments that we made on the fourth quarter were really specific to kind of the high end in the TouchWorks customer base, and I would, without having the specific data in front of me, don't believe it was really materially different, Q1 versus Q4.

The general comment was we haven't seen tremendous price pressure at the high end. In fact what we see is clients understanding that the biggest cost to an electronic health record is having a failed implementation. So we actually see clients saying, ramp it up, give us more resources, to make sure the implementation is done well.

We are also starting to see that, and that related to my comments in the smaller practices, and that is, as customers really understand that just buying the least expensive software isn't the best decision for them, we are starting to see good data that speaks to making sure that you are with somebody who is going to be around, to deliver on what they sold you is really important.

Okay. I just want to clarify. On the practice management, I believe there was discounting in the practice management in Q4. I was wondering, and it sounds like that was going on in Q1, also?

I think that is fair. I thinks Glen's comments are absolutely appropriate, especially if you think about it from the the electronic health record side. The comment we made in the fourth quarter, which I still believe to be true, is that you do see a little bit more commodity pricing dynamic on the practice management side at that higher end.

But still respectable margins are being realized by that work. But when you compare it to the electronic health record counterpart there is more commodity pricing pressure there.

Great, thank you very much.

Your next question comes from Charles Rhyee of Oppenheimer.

Hi guys, thanks for taking the question. Couple of questions. First one, you mentioned on the bookings that, and I think in response to an earlier question, you were able to hit it without having some of the large enterprise deals, and if I recall, in the fourth quarter, relative to what you had originally expected, you saw some of those big deals slip. Is there anything that you are seeing, in terms of why those deals may not have come through yet?

You know, what I really think is, and we I think we learned this in one or two quarters last year, that these are very, very tough to predict, even if you are a vendor of choice. And so we have just basically said we're going to just use those, we are not going to build them into our internal forecast, and when they come, they will be added value, and that is the way we have changed in the way we have managed the business because they are difficult to predict, given their size, given that normally they have to go to Boards of Directors, and the like.

That said, I think the market for those larger deals is as strong as it has ever been. So we don't see any degradation or weakening of that market. It is just that we are feeling good that we don't to have depend on that to deliver on the kind of sales numbers you saw in the first quarter.

Okay. You talked about the 37 customers on v11. If I recall correctly when you reported the fourth quarter, you said there were 31. So basically had net six more since February? Is that the way to think about that?

Yes, I thought it was 30, but yes, that is roughly, we slowed things down to make sure we would get it right, and again, I think there is a lot of demand for this, and frankly, it wasn't easy to slow some of our customers down, even with some of the challenges, because they see such benefit in the functionality. But we were kind of carefully managing that as best we could in the first quarter.

Does that mean that all 37 are on v11.1?

No, no. All 37 are on v11 or v11.1.

I guess my last question here, Bill, you talked about the challenge of maybe hitting the high end of the revenue. I think I missed your comments there at the end. You kind of related how you related that to the EPS line as well.

I just indicated that working off the 5 million of adjusted earnings we generated in the first quarter, we do in fact, see an opportunity to potentially achieve the lower end of the previously communicated range. Our ability to do that is dependent on some reasonable amount of sequential revenue growth over each of the last three quarters, as well as ongoing tight control of our expenses, and the expense side really equates to, are there any incremental investments that need to be made, or we choose to make, and potentially accelerate some of the things that need to be done on the v11 side. At this point we don't believe so, but that is what I was alluding in to terms on the notion of tight cost control.

Great. Final question. Am I right to consider the breakeven point, not the breakeven point, but the point at which the convert is sort of not dilutive, basically this $0.09 level?

I actually haven't run it recently. I think it is actually a little bit lower than that, somewhere closer to $0.07ish, but we can rerun that. I think it is closer to $0.07, $0.075.

Thanks a lot.

Your next question comes from Larry Marsh from Lehman Brothers.

Thanks, and good afternoon. Just a couple quick follow-ups, Glen and Bill. I think you said some of this in the prepared comments on ECIN. Bill, I think you had said 6 million of revenues in the first quarter. Is that right?

I don't think I broke out their relative contribution specifically, Larry.

Okay. I guess you had --

We talked about the segment.

Okay, I am sorry.

No, no, the 6 million that I refer to is actually how much of our receivables related to ECIN. I didn't mean to imply that that was revenue.

No, that was my fault. I guess just ballpark, I know they generated a little less than 20 million last year. Do you have a sense of ballpark of revenue contribution in Q1?

What I would encourage you to do, we talked about an expectation that they would deliver about 20 million for the year.

I got that.

And again, we are very pleased with their performance. I think it is reasonable to assume that they are tracking against that on a quarterly basis. So you ought to be able to get somewhere close.

Okay. I think you had also said assumed some dilution in the first quarter of a penny or two. And is that consistent with what you saw in the quarter?

It is. We did have some integration costs that we had anticipated, as well as the incremental deal related amortization interest expense and stock comp, all of which I highlighted in my prepared remarks. So it worked out. That business performed as expected in terms of it's first quarter performance.

Right. And I know you had said look for deal-related amortization expense to be up 4 to 5 million versus last year. If we look at the first quarter, it is maybe a little less than that. But is that still, again, I don't want to get to you repeat yourself, but is that still the right ballpark?

I think we are going to end up towards the lower end of that range, because we did finalize our valuation work in the first quarter, and so our deal-related amortization came out slightly better than what we originally anticipated, but not by a whole lot.

I got it. Just remind me. ECIN, on the discharge planning software business, was that a contributor to your bookings in the first quarter?

It was. It was.

Do you have any sense of ballpark?

What I did, what I highlighted for you to try to give you a flavor of that, is we talked about overall clinical bookings of 64%, but then I also highlighted the fact that our ambulatory bookings, so I was excluding hospital, and I would exclude ECIN, our organic growth was closer to 42%.

Got it. Two other quick things. I guess you are communicating today the message that guidance is still dependent on stabilizing the deployment cycle, and I think, Glen, you talked about somebody being pleased with all effort you are making.

I guess as you think about, this part of the year, is the message here today that you feel like that you are still seeking stabilization? Is it getting a little bit more challenging for you? Or do you feel like, hey, it is stabilizing in the next two months, and therefore we are very encouraged to sort of think about the second half of the year?

I think we have tried to make it very clear, that we are seeing very good progress, we are very pleased with the progress, and that is why I used some specific examples to demonstrate the upside opportunity, number one.

Number two, I think Bill commented that the expense that we have undertaken this quarter will be less we expect next quarter, vis-a-vis TouchWorks v11. So we see a continued ramp down from fourth quarter last year, first quarter here, second quarter, then by third quarter we will see a positive result coming in.

And then finally, the Columbia, you called that out, I think, in your prepared remarks, Glen. As we think about that as a large customer, and you are mentioning there could be other opportunities here in the next year or so, where do you stand specifically there? Have you been able to recognize any revenues? Where are you in the installation? Is it still is still in the process of rolling out?

At Columbia we are in very good shape. We are making great progress there. I was there a week and a half ago, and moving nicely through the deployment process, it has obviously been one of the largest and most prestigious academic medical centers in the world, a fair amount of complexity, but we are on schedule there. The timing for someone like a Columbia works very well, because we move past these few months of challenges into a very nice timeframe of when they need, what they need, we will have it, and it will be sufficient to deploy very efficiently. The answer is yes, we are recognizing revenue at Columbia.

Okay. Very good. Thanks.

Why don't we take one more question, and then we will let people get off the phone.

Your final question comes from Steve Halper from Thomas Weisel Partners.

Sure, so with the release of version 11.1 in March, were you able to bring any of the deferred revenue into the income statement?

No, we really were not. Again as Glen alluded to, in the month of March in particular we had a few customers that were deploying that product specifically, for the most part what was deployed in the first quarter was 11.0, and so really didn't see any sort of meaningful kind of P&L impact from 11.1 coming in in March.

But that occurs in the second quarter?

You are going to potentially start to see that. I want to be very cautious, because to Glen's earlier point, we have a large number of customers that are in varying stages of deployment, and it is going to take us some time to, in effect, work through that backlog of deployments. Some will benefit from some of the learnings, like we have obtained from a Butler type of experience. Others will not. And it is for that very reason why we do think it is going to take some time to ultimately work through, and start to see it express itself in the P&L.

Just as a follow-up, you talked about the top-line pressures, and your ability to get to the low end of the 20 to 25% guidance, as predicated on some reasonable level of sequential revenue growth. I am assuming the top end of the range is basically not achievable at this point?

Well again, I think again, it was our intent to try and manage expectations as appropriately as we can. I think based on our first quarter performance, and what would be necessary to do that, I think that will be challenging. There will be a lot of pressure on that.

With that said, I want to remind everybody what I sudden my prepared remarks, and that is, I see the growth potential of this business being one that can deliver 20 to 25% top-line growth. It really is a function of timing, and the realities that, the concern that we are going to, quite frankly run out of runway in terms of our ability to do it in calendar '08.

The real issue is simply how quickly some of this new software and processes get deployed in v11, how quickly we can move them into the market, and based on that, that is what determines it. We have tried to be very conservative about that, in part due to not wanting the risk of running out of time, but the business is there, and we have no doubts that we have the solutions now, and moving forward with the solutions that many of these clients. Now it is a function of timing.

Great. Thanks.

Again, I want to thank everyone for joining us on the call today and for your continued interest and support, thank all of our clients and our employees, and we are looking forward to again, a very strong quarter in the second quarter, and continued progress on v11, and continued progress on all of the issues that healthcare faces. So thanks everyone. Have a great evening.

That concludes today's teleconference. You may now disconnect.