Veradigm Inc (MDRX) 2008 Q2 法說會逐字稿

At this time, I would like to welcome everyone to the second quarter 2008 earnings conference call. (OPERATOR INSTRUCTIONS) I would like to turn the call over to our host, Mr. Glen Tullman, Chief Executive Officer. Sir, you may begin your conference.

Thank you very much, and good afternoon. I couldn't be more excited about our call today or the prospects for Allscripts. Before we get started, I'm going to ask Bill Davis to read our disclosure statement. Bill?

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

These forward-looking statements are subject to a variety of risks and uncertainties, including those listed in the earnings press release issued by Allscripts today, and in Allscripts's 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, Inc., 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 preliminary proxy statement, a definitive proxy statement, and other related materials. The definitive proxy statement will be mailed to the shareholders 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's materials and all other [offered] documents filed with the SEC when available at no charge on the SEC 's Web site at 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 offices 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 at 100 F Street in Washington, DC. Please call the SEC at 1-800-SEC-0330 or visit SEC's Web site for further information on its 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, its directors and its executive officers and their ownership of Allscripts securities is set forth in our form 10-KA, which was filed with the SEC on April 25th, 2008.

Additional information regarding the interest of these 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 , I'd like to turn the call back over to

Thanks, Bill. I'm happy to have this opportunity to share my thoughts about our people, our clients, the strength of our market and positive trends driving it, and and our business performance. While Bill will cover the financials in detail later during this call, I want to begin by saying that I'm very pleased with our strong operating results for the quarter. Sales were in excess of $55 million, and this quarter set new records for Allscripts with $81.5 million in total revenue and $68.2 million in revenue from software and related services, a 25% increase over Q2 results from a year ago. Our TouchWorks business unit led the way due in part to solid progress we had made with version 11 of our TouchWorks Electronic Health Record. As a result, our bottom line, excluding transaction-related expenses, came in at $4.2 million for the second quarter and $5.9 million for the first six months of the year.

Let me begin the discussion on the quarter by talking about our people. Our team stayed focused and delivered for our clients while we continued to invest in the right things. Driving revenue with a 25% year over year growth rate, developing new products, and innovating all at the same time requires energy and commitment, and our team has it. And we ask many of our best people to work on activities related to our pending merger with Misys. Even with all this in motion, our people stepped up to the challenge and delivered to our clients. I'm very proud of them.

With respect to V11, we have made significant progress with certified work flows, enhanced documentation and a reduction in cycle times, which translated directly into our results. The bottom line is, we expect continuing improvement going forward .

What's most exciting is the way our clients are using our soft ware and solutions from all of our business units to transform healthcare in the communities they serve. Committed people and great clients are a powerful combination and I'm pleased to say that our partnerships with our clients are stronger today than they've ever been before. The best evidence of this will be seen tomorrow at our annual users conference, when close to 2,000 clients and partners join us in Chicago. As you can imagine, this is a great opportunity to educate our clients and celebrate their accomplishments. But it also provides the opening to discuss our other products and services.

While all of this is going on inside our customer base, the market continues to expand, and the trends and actions of the federal and state governments are all helping spur solid growth across the market. I'm sure you are all aware that Congress recently passed landmark legislation on electronic prescribing that, for the first time, will provide meaningful incentives for physicians to automate. We estimate these incentives range from $2,500 to $4,000 per physician.

As the largest provider of electronic prescribing software in the country, with more end users and more prescriptions transmitted electronically than any other company, we stand to benefit. In fact, we're already seeing evidence of increased interest. As an example, two days after Congress approved the Medicare legislation , more than a thousand attendees, including physicians, administrators, CIOs and CEOs, joined us for an Allscripts-hosted Webcast to explain the legislation and how to leverage it.

We believe that getting physicians to use electronic prescribing serves as the on ramp to the electronic healthcare highway, and I want to clarify one point on this legislation. Physicians will receive the incentive whether they use stand-alone ePrescribing or ePrescribing as a part of one of our Electronic Health Records. Allscripts is the only company to provide both options. So whether a practice is adopting stand-alone ePrescribing or a full Electronic Health Record, Allscripts is uniquely positioned to meet the needs of the market.

Additionally, the Stark Safe Harbor, as I'm sure you're aware, provides hospitals the opportunity to help subsidize the deployment of either ePrescribing or Electronic Health Records, and we have seen considerable opportunity and activity in this area . As I've often stated, healthcare can benefit from a push from the government, but it doesn't require it. There is an amazing amount of energy already built into the market. A good example is our July executive summit that we held in Chicago with 110 prospects, a significant opportunity, and a significant turnout from across all of our businesses. We typically go to contract with a significant number of the attendees that join us at these events.

With that said, the best indication of market momentum is our sales performance, and with $55.9 million in sales this quarter, there's a lot to talk about. During the quarter, we signed Blue Cross Blue Shield of North Carolina for a statewide ePrescribing program, building upon a successful pilot that we announced almost two years ago. The state's largest health insurer, with more than 3.6 million members, Blue Cross Blue Shield of North Carolina is offering Allscripts's electronic prescribing software at no cost to physicians throughout the state. And they're also providing a $1,000 bonus to physicians who utilize ePrescribing on top of any government incentives.

Importantly, the bonus in our software are available to physicians who are already using ePrescribing, contained within a complete Electronic Health Record. Once again, Allscripts is the only electronic prescribing solution that Blue Cross Blue Shield is providing at no cost to its prescribers, and the only vendor featured with a "direct to Allscripts" button no less, on their new EPrescribing Web site. We think this statewide program sets an example for payers across the nation of how to leverage technology to improve the quality of healthcare services they deliver .

In speaking of statewide programs, our TouchWorks team delivered a major implementation of our combined Electronic Health Record and Practice Management Solution for the New Mexico Department of Public Health. As governor Bill Richardson's office announced last week, all 49 of the state's public health clinics are now successfully running our system via web based remote hosted model. The health department also received about $900,000 for a matching grant program to help private practices cover the cost of Electronic Health Record systems, and we are in a strong position to capture that business as well.

Earlier today , we issued two press releases about agreements signed in the second quarter. We announced that Hartford HealthCare Corporation in Hartford, Connecticut, will implement our Emergency Department Information System as well as our Electronic Health Record, taking advantage of the stark rules. Hartford is the latest of several major hospital agreements we've signed that connect physicians in the emergency department to physicians outside the hospital using our systems. With our Allscripts Connect initiative, something you will hear more and more about, we are bridging the information gap and connecting physicians in all environments, which we believe will improve the quality of patient care, reduce unnecessary procedures and errors, and, therefore, lower cost .

Being on the network, the Allscripts network, that is, we 'll soon move from a nice to have to a requirement of doing business for physicians. They will want, just like your bank or your broker, the best information provided real-time to make the highest quality, most cost-effective decisions.

And we continue to see meaningful activity by hospitals like Hartford and East Jefferson General Hospital in New Orleans, which we announced earlier in Q2, who view the Stark changes as an important opportunity to engage with physicians in their community. They see physicians as their life-blood, and are using technology to connect with them for referrals.

Another example of hospital attraction that we announced today is Evangelical Community Hospital in Pennsylvania . Evangelical will host our Electronic Health Record for 100 physicians and subsidize its costs and ongoing fees associated with providing the system to physicians in that community, as allowed under the Stark regulations. The 135-bed hospital is also implementing an element of our Electronic Health Record that many hospitals find attractive. Our iHealth personal health records, provided in partnership with Medem, for patients who want to have their medical information accessible by caregivers wherever they may travel. And Evangelical will implement Allscripts Study Manager, providing the data tools to more easily participate in clinical research. Study Manager creates new revenue streams for physicians inside and outside the hospital and provides advance care options for patients.

On the practice management front, we continue to see great results from our Practice Management Solution for physician practices. I'd like to announce several large new clients who selected our TouchWorks Electronic Health Record and Practice Management solution during the second quarter . Center Medical and Surgical in State College, Pennsylvania, the largest multi-specialty group in central Pennsylvania , is implementing our combined system for 55 physicians and 22 mid-level providers. The Center for Orthopedic and Neurosurgical Care in Bend, Oregon, is implementing our combined solution, which is our Electronic Health Record and Practice Management system for 33 physicians. And Edward Health Service Corporation in Naperville, Illinois, will provide our Practice Management solution on a stand-alone basis, and, combined with our Electronic Health Record, to a total of 76 physicians and 19 mid-level providers.

We're not only selling practice management, but we're able to deliver with seamless system go-lives for clients. This means converting hundreds of physicians at a time to a new system that generates heir billing and scheduling to the most sensitive parts of their businesses, and doing so without a hitch. To name just two very large examples, this is true of LSU Healthcare Network in New Orleans, with 500 physicians, and Novant Healthcare in North Carolina, with nearly 900 physicians.

And I'm also pleased to report that Novant, which was just ranked fourth most integrated delivery network in the United States, and also uses our Electronic Health Record, signed the largest agreement yet for our new Clinical Quality Solution tool, or known as CQS. Their purchase of 900 CQS licenses for physicians, will entirely automate their participation and paper performance programs, while also giving their physicians substantial new disease management capabilities. CQS fulfills the promise of healthcare IT by letting physicians viewing aggregate patient data in real-time -- unlike quality reports that come after the fact -- and immediately take proactive steps to help at-risk patients and deliver preventive care.

To change gears, our HealthMatics business, which focuses on smaller physician offices, also had a very strong quarter. Financially, we had solid growth on the top and bottom lines as more and more physicians in small and medium sized medical groups are drawn to Allscripts. For example, Integrated Medical Professionals of Long Island, New York, one of the largest urology groups in the country, purchased additional licenses for both Electronic Health Record and our Practice Management solution. Another example, Children's Medical Group, the largest pediatrics group in Mississippi, purchased our integrated solution for 13 physicians at their three locations. The market, even for smaller groups, is moving.

Our Hospital Solutions Group, which includes both our Care Management and Emergency Department Solutions, also delivered a strong quarter. As an indication of the strength of our solutions, our ED solution ranked number one in both utilization and implementation in the class report, which, as you know, is the Consumer Reports of healthcare IT. And to validate that point, Stephanie Reel, the CIO of John Hopkins recently paid our ED team a great compliment on the widely read HIStalk blog. Referring to the ED implementations, she told the blog, "In my career, it was the first time a system came in ahead of schedule and under budget ." Pretty impressive words from one of the most recognized CIOs in the industry.

And we made important progress in our Care Management Group by quickly combining the best aspects of our Canopy and recently-acquired ECIN solutions into a single integrated web-based offering that is now the clear market leader. At the ACMA conference, the biggest case management show of the year, close to half of the attendees came to the Allscripts Care Management launch, a great example of our presence in this space.

And on the sales front, our care management business had a record quarter selling into the post-acute market, adding 439 new facilities who pay us a month subscription fee. These results significantly add to the Allscripts network, which is already far and away the industry's largest network of post-acute providers. Over 200 of these new clients were home-care and hospice providers. So lots of exciting news and great performances from our Hospital Solutions Group. Meanwhile, our physicians interactive and NSG units continue to operate to plan.

At

Thanks, Glen. As Glen indicated, we are very pleased with our financial results this quarter, including strong clinical bookings, record revenues, as well as measurable operational improvements in several of our businesses, including TouchWorks and our Version 11 implementation cycles. We continue to believe that our financial and operational progress will only continue in the second half of this year. We are also very excited about the progress we are making to prepare for our merger with Misys Healthcare. We continue to work toward the closing as it's expected to occur in the latter part of September. I plan on providing a more detailed update regarding the Misys merger in a few minutes, but I would like to first provide a quick overview of our second quarter performance.

Our total bookings during the quarter were approximately $55.9 million. Consistent with prior quarters, bookings do not take into consideration the $9.5 million of sales and medications. Our clinical software businesses contributed $53.5 million in bookings during the quarter, excluding ongoing support . This represents approximately 12% sequential growth over the first quarter of this year.

Consistent with Glen's comment earlier, we are very encouraged by the strong demand for our clinical software products and our team's ability to continue to execute in the midst of a lot of change in our business. Rounding out our bookings performance for the quarter is our Physician's Interactive business, which had bookings of $2.4 million. Total bookings for the first six months of 2008 were approximately $107.9 million or 22% growth over the same six-month period in 2007. Our clinical software businesses contributed approximately $101.3 million of our six-month booking performance and represents 25% increase over last year .

Turning now to backlog, we ended the second quarter with $291 million in backlog. The backlog breakout is as follows: License and service fees related to our clinical software businesses represents $144.7 million of our backlog. Software subscriptions and ASP contractual commitments make up another $63.6 million, and support maintenance fees, which are expected to be recognized over the next 12 months are $65.7 million, and then Physicians Interactive make up the balance of $17 million, bringing our total backlog to $291 million. Our ending backlog is indicative of our strong revenue growth in the quarter and the fact that we enjoy acceleration of backlog takedown that was driven by improved deployment cycle times in both our TouchWorks and our HealthMatic businesses.

Our second quarter revenue of $81.5 million represented an $11.5 million or 16% increase over the same three-month period last year. It also represents the first time our total revenues exceeded $80 million in a quarter. Our clinical software businesses contribute the majority of that increase and represented 25% revenue growth year over year, and 16% sequential growth. This improvement was in part due to the improvements made in our TouchWorks V11 deployment cycles. We are encouraged by the progress being made and believe there's opportunity for further improvement as we move into the second half of this year.

Physicians Interactive had revenue of $3.8 million in the second quarter, and we also saw another solid quarter from our meds business, with revenue of $9.5 million. In terms of revenue mix, our software and related services segment represented approximately 84% of our total revenue in the second quarter. Second quarter revenue by segment is as follows. Our medication business delivered $9.5 million, or 12% of our total. Our clinical software business delivered $68.2 million, or 84% of our total; and again, our information services or Physicians Interactive delivered the balance of $3.8 million, for a total of $81.5 million.

Looking now to gross margins, overall our gross margin was approximately 50.5% in the second quarter. The 50 bip improvement over Q1 was due to a positive revenue mix shift offset by slightly lower margins in our Physicians Interactive businesses. Margins by segment were as follows: Our medications delivered margins of 17% in the quarter while our Clinical Software Segment delivered 56% which was consistent with the first quarter. And then Information Services or PI delivered 34%, again for a total of 50.5%. The sequential change in our meds gross margin is attributed to the mix of drugs we sold in the quarter.

Turning now to expenses. Operating expenses, excluding amortization of intangibles and stock-based compensation for the quarter were $31.5 million. This compares to $29.8 million of expenses in the first quarter. The second quarter contemplates the inclusion of approximately $3 million of transaction-related expenses. In the first quarter, included approximately $2.7 million of transaction-related expenses. Taking that into account, our normalized operating expenses were approximately $28.5 million in the second quarter, and $27.1 million in the first quarter.

The increase quarter on quarter is primarily due to an increase in incentive compensation and bad debt expense that are commensurate with our revenue growth and improved profitability. Both increases were partially offset by less marketing spend in the quarter. With regards to capitalized software, we had $2.3 million in the quarter. This amount compares to $2.4 million we capitalized in the first quarter, and is reflective of the investment we continue to make in the development of both our TouchWorks and HealthMatics product lines. Please note that these capitalized software amounts do not include approximately $1.6 million or $800,000 we spent in Q1 and in Q2 respectively, on our Walters core content creation project.

Also note that total capitalized software amount will continue to fluctuate from quarter to quarter depending on our product development cycle. Stock-based compensation was approximately $1.6 million for the quarter and deal-related amortization was approximately $3.4 million, both amounts are relatively consistent with prior quarter . Net income for the quarter was approximately $2.4 million or $0.04 per diluted share. Excluding the $3 million of transaction-related expenses, our net income would have been approximately $4.2 million after tax or $0.07 per diluted share. The $0.07 per diluted share includes $2.1 million, or $0.04 per share of acquisition-related amortization net of tax as well as $1 million or $0.02 per share of stock-based compensation, also net of tax, bringing our non-GAAP adjusted earnings for the quarter to $0.13 cents per diluted share.

Net income for the six months ended June 30th was approximately $2.4 million or $0.04 per share. Excluding the $5.7 million of transaction-related expenses net of tax, our net income would have been approximately $5.9 million or $0.10 per diluted share.

Basic shares outstanding for the quarter were 56.8 million, and diluted shares were 57.8 million. The 7.3 million shares issuable under our convertible debt offering were not dilutive to our GAAP earnings per share in the second quarter, nor were they for the six months ended June 30th Therefore, the 7.3 million shares are excluded in both our GAAP and non-GAAP adjusted earnings diluted per share computation for such periods.

With regard to overall head count, we ended the quarter with approximately 1,149 employees, which compares to the 1,157 employees we reported in the first quarter.

Turning now to our balance sheet, we ended the quarter with $66.1 million in cash and marketable securities, which is reflective of us generating approximately $7.4 million in cash from operations in the quarter. The strong cash flows from operations were supplemented by $1.4 million of additional proceeds from option exercises and contributions to our employee stock purchase plan. Cash inflows were offset by approximately $3.6 million of capital expenditures and capitalized software. Accounts receivable at June 30th were approximately $83.8 million, which includes approximately $7 million of receivables related to ECIN. Day sales outstanding improved to 93 days in the quarter.

I would like to close by making a few comments regarding our pending merger with Misys Healthcare. I have received several questions as well as the fact that there appears to be some confusion regarding certain deal-related considerations I wanted to try to address and clear up today. First, we previously commented that we anticipate the combined proforma model for 2008 to be total revenue in excess of $700 million and adjusted earnings of approximately $85 million to $90 million. We wanted to confirm that such projections are, in fact, based on US GAAP results for Misys Healthcare in reconciling differences between the segment information provided by Misys PLC and Misys Healthcare's US GAAP results were, in fact, contemplated in such proforma perspective.

We filed an 8-K last week to provide you with the reconciliation between the two publicly reported numbers. You should anticipate similar adjustments to Misys Healthcare's 2008 financial results when we file their carve-out financial statements for the year ended May 31st, 2008, later this month.

With that said, we have consistently thought about the Misys Healthcare business as one that is capable of generating at least $380 million of revenue and 15% to 16% operating margin on a US GAAP basis, which is consistent with their current run rate, as evidenced by their recently completed fourth quarter. I also wanted to confirm that the $85 million to $90 million of non-GAAP proforma adjusted earnings for 2008 contemplates $15 million to $20 million of pre-tax cost synergies. While we intend to provide further color on synergies at the time we close the transaction, we continue to be comfortable with our first year cost savings estimate.

Please note that the $85 million to $90 million of non-GAAP proforma adjusted earnings for 2008 do not take into account the anticipated deferred revenue adjustment we expect to record as we revalue Allscripts's balance sheet on the date of consummation, nor do such results take into account any one-time transaction fees associated with consummating the transaction or costs associated with implementing cost synergies. Again, we intend to provide more color on both as the transaction consummation draws near. We encourage people to think about our opening cash balance to be in the range of $30 million to $35 million once you take into account such onetime expenses.

With regard to the timing of the close, as I mentioned earlier, we continue to work towards a consummation of the merger by the end of September. The ultimate timing is heavily dependent on the completion of the SEC review process, and our requirement to file audited financial statements from Misys Healthcare for the year ended May 31st, 2008, as well as our Form 10-Q for this recently-completed second quarter.

Finally, we have received a lot of questions regarding our convertible debt holders, and what they're likely to do when the merger is consummated; i.e., are they likely to convert, hold, or put the securities back to the Company. The reality is that each convert holder will make their own investment decision, and, therefore, there is no way to be certain what they will do . We do encourage you to refer to our proxy statement in which we outline the range of possible outcomes related to the convertible shares and resulting impact on our expected share count as well as the dividend amount.

In closing, I wanted to acknowledge the great efforts of our employees as well as our clients. We are very encouraged by the progress we made in the second quarter and look forward to our momentum continuing in the second half of 2008. With that, I'd like to turn it

Thanks, Bill. I thought I would just add two comments relative to the pending Misys transaction. As Bill noted we expect to close the transaction in September. To the extent it's appropriate, our integration planning for day one is proceeding well, and my perspective is the more I learn about this transaction, the more excited I get about the prospects for our combined Company. So that said, let me close by giving you a thought. For years we've talked about the market for clinical software connectivity and information services focused on the ambulatory market and driven through physicians. We believe that market is here today, and Allscripts is the best positioned to capitalize on the opportunity to our broad and industry-leading product sweep, our committed people and our ability to deliver for our clients. Our record performance this quarter is indicative of our persistence and drive to transform healthcare through the simple act of focusing on our clients and ensuring they have the support they need to transform their own businesses. One client at a time, we're fulfilling our shared vision of a connected healthcare system that provides higher quality care, more cost effectively. So I want to thank you for your time today and for all of your continued support, and at this point, Bill and I are pleased to take your questions.

(OPERATOR INSTRUCTIONS) And your first question comes from Sean Wieland with Piper Jaffray.

Hi, guys. Congratulations on a great quarter. I'm going to ask a question I've asked already, but maybe you're in a better position to answer it now. Is there any update on the product strategy as you're working on the integration plan for Misys?

Sean, this is Glenn. You know, we have been, I think, reasonably consistent in saying that the transaction is based on selling our Electronic Health Records into the very strong practice management base that Misys has. At this point, given the fact we're still operating as separate companies, that's all we're prepared to say . That said, I can assure you that we will have a very tight product strategy on day one, that we won't have multiple -- will continue to go forward with the strategy that is focused on having Electronic Health Record that is geared toward larger, more complex practices with significant integration and communication needs and an easier to install lower to mid level Electronic Health Record and integrated Practice Management Systems. So we are looking very closely at it, but at this point, we really can't

Okay, that's fine. What are the prospects saying, and what do you think the bookings trends will be in front of you consummating the merger? Do you get the sense that the pipeline is waiting for that to happen and to get more clarity on that , or do you see your sales moving forward at

No,l we've been very encouraged both on the Misys side, as you heard them report a very strong quarter, especially in healthcare, and similarly with our results. I think it speaks to the strength of the market, the demand for high-quality products and the reputation that Allscripts has earned, because we have not seen, despite issues that had surfaced along the way with V11, despite the announcement of the merger, despite typically weak first quarter and a little bit slower second quarter results, none of that has really impacted our ability to sell product out in the market, and we expect that that will actually continue to accelerate as we bring the companies together. So, we have not seen any slowdown and the clients basically understand why this makes sense, and I think they're assured by the fact that we have the size and scope now that they know we're going to be here whereas some of the other competitors in the market may not.

Okay. And then, one other quick question for Bill. At what EPS level does the convert become diluted and you have to add those shares back in?

So, Sean, on a stand-alone basis what we've historically talked about is our GAAP results are in and around $0.07, that's when they work their way back in. But by virtue of us expensing as much as we are in the way of transaction costs, our GAAP results will continue to be depressed by virtue of that.

Okay. Great. Thank you very much.

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

Hi, guys. Congrats on a nice quarter.

Thanks, Corey.

A couple of things real quick. Glad to see the positive commentary surrounding ePrescribing. How many physicians do you have submitting ePrescriptions today?

I think the only data we've given out is to say that the NEPSI program, I think it was two quarters ago, passed 10,000 stand-alone ePrescribers that had signed up for the program, and, again, some time ago we crossed into the millions of prescriptions in that program. Other than that, we've not given separate guidance on the number of prescribers or the like. Independently, SureScripts has reported that we continue to be the number one submitter of electronic transactions that they route to their pharmacy members.

Okay. Well, great. Let me see if I can try it a different way to gauge the order of magnitude. Is there any commentary you can provide regarding the revenue contribution from ePrescribing fees that were captured during the quarter?

Yes. Consistent with what I've said in prior quarters, clinical transaction fees -- so originating or driven off of our Electronic Health Records as well as ePrescribing stand-alone -- continues to represent about 1% to 2% of our clinical software revenues; and while we continue to see that improve, it's not subsequently moved the needle in the last couple of quarters. So it's been in that general range.

Okay. Great. Shifting gears just for a second, Glen, you mentioned in your prepared remarks, I think you said Allscripts study manager, if I heard that correctly.

That's correct .

Can you give a few more details on exactly what that is and also how that integrates with I believe, the product before was called Action, the Allscripts clinical action network?

Yes. Basically Study Manager, really the name is descriptive. What it 's doing is helping these practices manage clinical trial studies that they're involved in, and it does integrate with our Electronic Health Records, so it reduces the need to re-reenter data, it helps them organize the data for submission into clinical trials . Relative to Action or ACTN, the Allscripts clinical trials net work, that is a separate group of clients that have agreed to allow us to use their patient de-identified data as a part of studies that we conduct, and we essentially become their partner in remarketing that data to large pharma. So once again, the Study Manager program integrates and is very helpful in that. So we expect to see -- we already have a significant number of our clients using study manager. We expect to see that continue as practices look for new and alternate

And just to round off on this, I'm assuming is there -- do you receive a fee for the sale of the study manager manager module as well as a per-study fee, or what exactly is the revenue contribution to Allscripts? Thanks.

Study Manager is a separate module, so that is paid for separately, that's correct. As for individual studies, those are compensated separately. So what might happen is a pharma might come to us and say , "We want to do this study. First tell us whether you're capable of doing it." We survey our base and say, "We know that we have X number of patients that are on that medication or have that particular diagnosis," and then we actually go out into the network. They may say, "We want similar data from ten practices, some large, some small in all different areas of the country We want it all in the same format, and we want it next week." We can go into our database with the permission of those clients, pull that information, submit it , patiently identify it, and then typically split the revenues that we

Excellent. Thanks.

Your next question comes from the line of Sandy Draper with Raymond James.

Thanks. A couple of quick questions. Bill, are you willing to or can you provide an organic growth number or give us a sense of the contribution from ECIN?

From a bookings perspective, I have that. It was around -- organic growth, when comparing year to year, was right around 10% or thereabouts. So incremental would have been ECIN contribution. And then, on the revenue side, I don't have that -- I don't have that at my fingertips.

Okay. I may just follow up on that. Thanks for that on the bookings. On the commentary -- on the backlog, you did a better job pulling through with version 11, which is certainly nice to see. Do you think, Bill, did you get any acceleration sort of a bolus this quarter and then it sort of tails off, or are we sort of at the beginning of a several quarter step-up level and catch up on the version 11 revenue?

Yes. There was no kind of pin-up effect, if you will, in the quarter . Clearly, what we saw in the quarter from a project plan perspective was relative stabilization, which we've been talking about now for a couple of quarters and anticipating that we would start to see it not only in Q2, but even more fulsomely as we moved into the latter half of this year. So, everything we saw in the quarter is consistent with our expectations and really serves as the beginning of what we would expect to be positive results coming out of

Okay, one last one. This may seem like a negative spin on what was a good quarter. I was a little bit surprised with the strength of the revenue in clinical software. I guess I would have expected gross margin -- 50 basis points is nice -- I guess I would have thought a little bit more. Was there anything in there that limited that, or as we keep going, should that keep going up? Just trying to understand the relationship with that big of a growth in clinical software, why there wasn't a little more growth the gross margin side?

Yes. And that's fair. There's two things I would point out. One was we did see an increased level of software amortization. Again, as we continue to make investment in furthering V 11 in the fact that that is in a GA state, the capitalization is occurring immediately. So we had some of that. And then the relative mix of what we sold and associated, third-party costs, if you will, in terms of data licenses and the like that we recognize, that was -- the mix was another relevant consideration. So we absolutely believe that, again, as we continue to work our way through the backlog of installations and what not, that utilization and relative productivity of those installation resources will only improve, which will serve as opportunity for gross margin expansion. So, those would be the two primary drivers that I'd point you to.

Great. Thank you very much.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Richard Close with Jefferies.

Yes. Just really quickly on this backlog conversion, it looks as though, on a basis point improvement from the first quarter to the second quarter, by my calculations, Bill, is like 150 basis points on the conversion on clinical. Should we assume similar improvements in 3-Q and 4-Q? You probably have different numbers, but should the improvements be on par with what happened in the second quarter?

Yes. I appreciate that the perspective or the attempt in terms of leveraging that for a perspective on Q3 , Q4. I really am hesitant to give that level of detail in terms of providing that level of guidance at this point . So I would just simply say, more qualitatively, that, again, we 're encouraged by the progress that was made in the first quarter. We really think that we're in the early stages in terms of demonstrating that improvement, which is what we've indicated to the market now for the last couple of quarters in terms of what we would expect to occur. But in terms of attempting to try to quantify that or leveraging Q2 as a barometer from Q3 to Q4, I'd be

Okay. And then when we think about TouchWorks, obviously that's different than the HealthMatics, and we assume HealthMatic is more in line with Misys on a more go-forward basis once you consummate the deal. But when we think about TouchWorks, are we seeing anything different from the market in terms of competition on that larger group practice? How do you feel you're competing in the marketplace, and with respect to the implementations, their improvement, is that knowledge getting out into the market, where people are saying, "V 11 isn't essentially a risk anymore?"

Yes. This is Glen. I think there's two different questions. One, as you analyze the Misys practice management base, it turns out there are actually a significant number of clients that are using both Vision and Tiger, two of their practice management systems that fall into the higher end, and those clients will actually be sold by our TouchWorks unit. So we see significant opportunity both on the lower end and the higher end relative to the Misys space. So that's number one.

Number two, in terms of the competitive positioning, what's really interesting -- and I applaud both clients and prospects for understanding this is, they have really seen what V 11 offers, and what it offers is significant upgraded capability compared to other products in that space in, the higher-end space. So earlier in the call, we talked about, for example, clinical trials, some of the functionality that we have there, which generates new revenues for practices. Those are the kinds of things that you get out of V 11. And I think the market has been both very interested in that and willing to understand that the that the undertaking was a big one that, we've worked through many of the issues. As Bill said, we're continuing now on a nice up trend in terms of our ability to install it more quickly, and bring real value sooner to our clients. So I think competitively we're well positioned at the high end, and the Misys space includes both opportunities for TouchWorks as well as HealthMatics.

Yes. If I could amplify on the point in terms of operational focus, again, both Glen and I said in our prepared remarks, we're very encouraged by the progress that we have made through the second quarter. But it's important to note that we do feel we've got more work do do there, and quite frankly, we think it's a great opportunity in terms of demonstrating further financial improvement as we move into the latter half of the year, but I do think it's appropriate to emphasize that we do still have some more work to do, but feel we have a very good handle only it and clear action plan around it that we're focused on executing against.

Okay. And one final question. Glen, how would you gauge morale at your company currently, in the midst of this merger?

I think it's very high. We're -- any time you do a merger, there is going to be some trepidation about what happens and who -- where the leadership is going to be, I think, at a high level, we've made that very clear up front when we announced to the market, and we 're now working through those decisions throughout the organization. That said, for example, at the sales force, we've made it clear that not only will we not be reducing any quota-carrying sales reps, but we'll be adding quota-carrying sales reps. So this is a transaction that's based on upside opportunity -- our people are increasingly understanding that. They have some sensitivity because we're still two separate companies. But all in all, I think, people understand -- our own people understand the rationale for the transaction, the opportunities that it will provide, and I think morale is pretty high. We've really had very little in terms of attrition in the base and we see this as adding together two groups of very good people to come out with a stronger Company. So I think it's pretty high.

Okay. Thank you.

Your next question comes from Charles Rhyee with Oppenheimer.

Yes. Thanks for taking my questions. First on the margin, in the software, I know you guys give it in the Q, but can you give us a sense of what the operating margins before corporate costs were for software in this quarter. I know it looked like it was about 25.5% for the first quarter.

Yes, Keith, I don't have that segment information with me down to the operating income line. Again, our intention is to get our -- oh, I'm sorry, it's Charles. My apologies, Charles.

No worries.

The expectation is we're going to get our Q on file later this week so you'll have that disclosure as we normally provide in the Q.

Okay. I guess related to that, though, I know in the past, in the last few quarters, one of the problems that was impacting the margins was the revenue recognition changes and adjustments you'd have to make as project lines got longer under percentage of completion, and my sense here is based on your results, you had a nice tick-up on the margins and software. Is it safe to say that a lot of those prior-period adjustments you kind of worked through at this point , or were the results still indicative that you're still having some of that, but the performance was more than enough to

No. So to your point, the last couple of quarters, I've talked about cumulative adjustments, which is a direct result of project plan expansions or whatnot in the order of magnitude of $2 million to $2.5 million each quarter, and we did see a pretty meaningful decline in that cumulative adjustment in the quarter. It actually was less than $1 million in the second quarter, and again, that is indicative of the fact that we started to see relative stabilization of those project plans, and that resulted in the positive financial performance. So we did have some of that, but at appreciably lower levels than what we'd experienced in the last couple of quarters.

And then as you look forward here, obviously the complexion of the company changes once the deal is completed, but at least as we think about the third quarter, to this point, do you see that number sort of similar to where you were in the second quarter, or do you think that could even improve?

I think there's -- I don't think that number, quite frankly, ever goes to zero. But at the same time, I think there's probably some area for improvement off of the amount that we incurred in the second quarter. So, I'm not troubled by the prospect that if we did the same level in the third and fourth quarter, I think we'd still be okay, But I think there's opportunity to potentially see even slight improvement off of what we did.

Okay. You know, quickly, I know earlier you talked about the fact that when you're expensing these transaction costs it's going to impact your GAAP EPS numbers which affects how you deter,om your share counts. Is it fair to think that the third quarter will again have a similar amount of transaction related expenses that we should consider when thinking about share counts?

Yes , I would think that that's a reasonable assumption. Again just to give you a little bit of flavor, it's falling in three principal categories of costs. As we've mentioned before, we have engaged a third party to help us in the integration planning efforts , which is going very, very well , and yet that's a costly endeavor, if you will. So that's number one.

Ongoing legal fees associated with the proxy process and consummation activities, and then third -- third party assistance, especially on the accounting side with things like international accounting reconciliations and the like. So all of those given second quarter level, I really don't see them being materially

So I mean, in the sense that if we were to model this out, we could try to make an estimation, if our third quarter, whatever number we come out to, less than what we'd make an estimation for transaction which you're saying is going to be similar to the second quarter, if we're hitting the $0.07 threshold, then we're still -- without the converters.

That's correct.

Okay. Great. Thanks a lot, guys.

Why don't we go ahead and take two more questions.

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

About stand-alone guidance -- could you perhaps reiterate what you said in the past about your revenue and EPS goals for the company as stand-alone? Is that still intact?

Yes. Again, I would put it in the context of what we said in prior quarters. You know, while I'm very encouraged by the revenue progress that we made in the second quarter, I would still hold up kind of the cautionary language that I brought forward on Q1 in terms of the required ramp on revenue to get to 20% to 25% growth. I think the business is capable of doing that. Again, I would caution people in terms of the prospect of that occurring in 2008 if for no other reason the Q1 performance specifically. Relative to earnings, again, we're talking about earnings expansion north of 40. I think the second quarter is once again a positive indicator in terms of progress that we are making; but with that said, we also acknowledge in the first quarter the fact that it's heavily dependent on the latter half of the year's specific performance. So I think the Company is very well positioned, and in terms of delivering on what we talked about last quarter. But at the same time there's a fair amount of work still to be done in the last six months of the year.

Okay. Understood. And a question for Glen perhaps. Glen, you said the BCBS North Carolina purchased ePrescription system for physicians in that area, but I'm kind of curious, given NEPSI's free ePrescription availability, what drives some of the buyers to purchase the stand-alone ePrescription model from you versus telling physicians that there is a free download available or free ePrescription system available?

Well, I think that each of the systems is used differently. NEPSI is really designed to allow individual physicians to access and use ePrescribing system, but it doesn't really have the ability to roll up and manage that in a comprehensive fashion, which is what a big managed care plan or payer or even employer might be interested in doing. So number one, they get a lot more functionality in terms of providing it, a lot more control. We work much more cooperatively with them as opposed to -- think of NEPSI almost as a Google-like transaction where individuals go out and hit this, but there's no way to aggregate all that and analyze it for an individual. If you said to someone you can go out and Google this, but then you wanted to understand what each of those those people are Googling and how they were using it , you wouldn't be able to do that, so you would then go and get some kind of more comprehensive solution. So that's really the difference. Now, I think that Blue Cross Blue Shield in North Carolina has a very good program. They're backing it up with advertising and support; and as I mentioned, if you go to their site, there's actually a way to order prescription software, electronic prescribing software, but it also has a separate line that says, "Click here for free Allscripts electronic prescribing

Okay. That's great. Thank you.

Okay. Why don't we take the last question?

Your next question comes from Richard Davis with Needham & Company.

Thanks. With regard to -- you guys have a pretty good reputation with deployments and successful deployments, frankly, compared to some of our competitors. How are you managing the staff deployments, kind of the balance both margins and service delivery? Because, again, you've done a pretty good job and I just want to make sure I know how you think about that . Yes. Again, back to the margin discussion, quite frankly, this is an area where we are continuing to overinvest, and the relative utilization of our deployment resources in particular, while we have seen improvement, are not to historical levels or the levels in which we feel we can operate the business . So that fact alone, we do believe, will ultimately serve as a meaningful gross margin expansion opportunity as we're continuing to make advancements on the relative stabilization of the deployment efforts and the like, and that translates into increased productivity of those resources. With that being said, we manage all these projects very closely from a resource perspective, management of the expectations with our clients; and as I've often said in the past, quite frankly, we're prepared to move oftentimes at even a faster pace than our clients, recognizing that you are fundamentally changing the way these practices are practicing medicine, and, therefore, they tend to be the ones that are setting the requisite pace. But it's an area where we're committed to over-investing to make certain we get it right, and we demonstrate a commitment to these customers as we work through this transition period, and we sincerely believe it's paid us dividends in terms of their support of us, and ultimately translating into positive indications out to the marketplace

Let me just add that we really believe that increasingly, people are going to focus more on invest whatever it takes to get the software used because of the benefits in the software, so we see, as Bill said, we see opportunity here, But we also see customers understanding how important it is to have well-trained implementation and deployment resources available to allow them to successfully deploy the software, because it's not just about the software. It's about the entire process. And that bodes well for some of the low-priced competitors we have, because what we've seen is those systems either are not being used or being de-installed, whereas we're willing to step up and make the commitments to get the systems used.

Got it. Okay. Thanks. Thank you. And Glen, before you wrap up, if I could respond to Sandy's question on organic revenue growth both, because I commented both on year over year growth as well as the sequential growth, and the year over year 25% growth, about 60% of that growth was organic, the balance would have been acquisition-related, and almost 100% of the sequential growth was organic from Q1 to Q2.

Great.

Well, Bill, thanks for following up on that. So again, I just want to conclude in a way where we began. We remain very excited about where the Company's positioned. We're very proud of our people having worked their way through a tough period, kept focused on what's important , and we kept investing in the right things , and so we think it was a great quarter. It's a building quarter, one we can use as a springboard going forward into the rest of the year. We're also very excited about the pending merger with Mysis and are looking forward to the consummation of that. So that said, very strong market, well positioned Company, and great people to make it happen. So we want to thank all of you for your confidence, and we look forward to talking to you next

This does conclude today's second quarter 2008 earnings conference call.