Veradigm Inc (MDRX) 2012 Q1 法說會逐字稿

Good evening. My name is Wendy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Allscripts Q1 2012 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (Operator instructions) thank you. Mr. Frank, you may begin your conference.

Thank you. Good afternoon, everyone. Thanks for joining us on short notice. With me on the call today are Glen Tullman, Allscripts Chief Executive Officer; Bill Davis, our Chief Financial Officer; Dave Morgan, our Senior Vice President of Finance; and Lee Shapiro, our President. We would like to take as many questions as possible, so we would appreciate it if you would limit yourself to one question and one follow-up.

Before we begin I will briefly read the Safe Harbor statement. This presentation will contain forward-looking statements within the meaning of the federal securities laws. Statements regarding future events and developments, the Company's future performance as well as management's expectations, beliefs, intentions, plans, estimates or projections relating to the future are forward-looking statements within the meaning of these laws. These forward-looking statements are subject to a number of risks and uncertainties, including some factors outlined from time to time in our most recent Form 10-K and our earnings announcements and other reports that we file with the Securities and Exchange Commission, available on www.SEC.gov. The Company undertakes no obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise.

Finally, please be aware that our call today preempts our previously announced release date of May 7. There will be no call or release on that date. And with that complete, I'll turn the call over to Glen Tullman, Allscripts CEO.

Thanks, Seth, thanks everyone, for joining us today. We wanted to speak with you about our results and other news we announced this afternoon, as soon as we possibly could. I'll start with some brief remarks on the quarter, and Bill will walk through our results in more detail. I'll then spend some time discussing our operational plan to drive growth and improve performance. Dave Morgan will then discuss our revised financial guidance.

Our overall results were primarily driven by lower than expected sales and an unfavorable sales mix. This directly impacted both revenue and profit. We also experienced pressure on the bottom line due to our decision to make significant investments in improving client experience and accelerating product development as well as lower-than-expected software capitalization. A number of our clients and prospects delayed commitment as they waited for us to introduce new releases and demonstrate more robust integration. This dynamic, combined with the first quarter reorganization of our sales and service teams under one leader, were the primary factors that caused our lower than expected sales.

Notwithstanding these results, we had some strong client wins this quarter, including three net new Sunrise deals. We signed over 350 new client agreements for the quarter. Sunrise has continued to secure successes with new hospitals and health system clients, both in the US and overseas. In the quarter, we added Liverpool Heart & Chest Hospital and two additional wins we will be announcing the coming weeks. Liverpool is significant for a number of reasons. It is one of the largest specialty heart and chest hospitals in the UK as well as a major research hospital. This win highlights our opportunity and momentum in key targeted markets outside North America. We are building and investing in our international operations and in our international product requirements.

So, in sum, while we know we face significant challenges, we have a solid plan to address them and are continuing to win new business.

Let me now touch on the news that Bill Davis will be leaving Allscripts effective May 18 to pursue another opportunity with a private company outside the healthcare industry. I'll let Bill talk about the reasons behind his decision in a moment, but first let me say that we are grateful to Bill for the key role he has played in overseeing revenue growth from nearly $80 million when he joined Allscripts to over $1.4 billion last year. He also led several strategic transactions over the past nine years. We thank Bill for his contributions and wish him the best in his new endeavors.

Dave Morgan, our Senior Vice President for Finance, will become the interim Chief Financial Officer upon Bill's departure. Before Allscripts, Dave served as SVP, Finance and Chief Accounting Officer of Eclipsys. I'm confident that Dave, who has deep experience in our organization and our industry, will ensure a smooth transition.

Finally, the Company has also announced today that Phil Pead's service as Chairman of the Board, Director and Officer of the Company terminated yesterday. In addition, Catherine Burzik, Eugene Fife and Edward Kangas have informed the Company that they have resigned as directors. The Company expects that several additional directors will be appointed shortly. I realize many of you may have questions regarding these changes, but I hope you will understand that I am limited in terms of what I can say and will not be commenting beyond our public filing.

Now I will turn the call over to Bill. Bill?

Thanks, Glen, and thanks to those of you who are able to join us on the call today. We again apologize for the short notice in advance of our release as well as this call.

Before I discuss our results, please review the GAAP and non-GAAP financial tables in today's press release and the accompanying explanation to assist you in evaluating and reconciling the financial metrics we will discuss on today's call. The press release and additional information regarding non-GAAP measures are available at investors.Allscripts.com. I will focus on the quarter's performance; and, as Glen mentioned, Dave Morgan will through our revised outlook for 2012 later in the call.

First-quarter bookings of $194.6 million declined 8% over the prior year. As Glen touched on, the majority of the bookings shortfall resulted from two primary factors -- a delay in certain transactions that we expected to close among our existing client base as well as lower-than-expected sales to new clients. Both our acute care and our ambulatory businesses did not perform up to our expectations with regard to both new and existing client sales.

I want to emphasize that the ambulatory market opportunity remains consistent with what we have discussed previously. We continue to see a shift to mid and small physician opportunities. We see this demand curve as one the industry as well as Allscripts will benefit from for several years.

Our performance closing transactions towards the end of the quarter, more specifically, was significantly lower than it has been historically. In some cases, clients and prospects are delaying as they await upcoming product enhancements as well as more progress with our product integration. Most of these opportunities, in fact, remain in our pipeline.

We also experienced the impact of the major reorganization Glen discussed, which aligns sales and service teams into a single organization in the first quarter. We believe this reorganization is the right move for our clients, and we are already seeing benefits from it in terms of client experience. Nevertheless, transition had an impact on our Q1 bookings performance.

From a mix perspective, software-as-a-service transactions totaled approximately $37 million or approximately 19% of first-quarter bookings. Backlog totaled approximately $2.86 billion, up approximately $9 million compared with the fourth quarter.

In order to better align our income statement, we are now providing backlog figures that correspond directly to our reported revenue line. So our backlog breakdown is as follows -- software and related professional services backlog was approximately $501 million. This compares to systems sales backlog of $126.3 million and professional service backlog of $374.7 million. Our maintenance revenue backlog was $853 million. Maintenance revenue backlog was $853 million and maintenance backlog growth was driven by new client go-lives as well as maintenance renewals in our installed base.

Finally, we ended the quarter with approximately $1.509 billion of transaction processing and other backlog. This is inclusive of subscription and SaaS backlog of approximately $645 million.

Now let me briefly run through our income statement. Non-GAAP revenue grew 6%, and totaled $366 million. The $800,000 of deferred revenue included in non-GAAP revenue is allocated $400,000 each to professional services and transaction revenue. Relative to our expectations, the revenue shortfall is entirely attributable to the bookings result I discussed earlier.

Approximately 69% of revenue was reoccurring in nature this quarter. First-quarter gross margin performance reflects a much lower than anticipated mix of software revenue and a higher mix of third-party systems sales, which carry lower gross margin.

Looking at GAAP and non-GAAP operating profit, several factors impacted our performance this quarter. Starting with non-GAAP results, approximately two thirds of the shortfall in our expected adjusted operating profit relates to the bookings shortfall and unfavorable revenue mix in the quarter. Specific to revenue mix, we sold a larger portion of third-party systems to clients, and this resulted in additional systems sales gross margin degradation.

Finally, our net research and development spend, which is after software capitalization, also negatively impacted profitability this quarter. Our gross research and development spend totaled approximately $47.6 million. This represents a 29% increase year-over-year and a 7% increase over the fourth quarter. In addition, capitalized software totaled $12.9 million or approximately 27% of gross R&D expenditures in the quarter, down significantly from 40% in the year-ago period and 30% in Q4 of 2011. Our actual capitalization rate in the quarter was significantly lower than our expectation, due to a higher percentage of our development activity being directed towards product efficiency and quality initiatives that tend not to be eligible for capitalization.

Our software capitalization rate was also adversely impacted by a shift in development methodology from waterfall to more projects being developed using Agile methodology, which accelerates speed to market on software releases but typically results in lower capitalization being realized. The combination of higher gross spend plus lower capitalization rates increased R&D expense on the income statements to the tune of approximately $7 million pre-tax or $0.02 per share. We expect a similar software capitalization rate and gross R&D spending to remain fairly consistent through the remainder of 2012.

Capitalized software amortization totaled approximately $7.3 million, a $3.7 million increase year-over-year. As a result, net software capitalization declined to 12% versus 31% in Q1 of 2011. We expect software amortization to continue to increase each quarter over the balance of this year.

Selling, general and administrative expenses increased approximately $14 million over the fourth quarter. The primary reasons for this increase are an increase in our payroll taxes as well as year-end audit fees, the costs associated with our attendance at HIMSS in the first quarter and, finally, legal costs in the quarter. Excluding approximately $3 million in anticipated one-time charges as well as stock-based compensation and deal-related amortization, non-GAAP income was $23.5 million or $0.12 per diluted share in the quarter.

Regarding liquidity, the Company ended the quarter with approximately $175.7 million in cash and marketable securities, an increase of approximately $18 million from December 31. Cash flow from operating activities totaled approximately $75 million and free cash flow was approximately $42 million. Accounts receivable increased slightly to $370 million, equating to days sales outstanding of approximately 92 days, an eight-day increase from last quarter, reflecting lower revenue in our quarter.

Finally, at the end of Q1 Allscripts had approximately 6700 employees, up 400 versus the end of the fourth quarter.

Before I turn the call back over to Glen and Dave, I would like to comment briefly on my decision to leave Allscripts to pursue an opportunity with another company outside the healthcare IT industry. While the news of my departure coincides with the announcement of our first quarter results and revised guidance, I want to make clear that the timing of my departure was not driven by these factors. I would have preferred to end my tenure with more upbeat news, but an attractive opportunity came along and I couldn't pass it up at this point in my personal and professional life.

I will be around for the next several weeks and look forward to continuing to work closely with Dave Morgan and the rest of the senior management team to transfer my responsibilities in an orderly fashion. I'm proud of the Company's many accomplishments and am grateful to the rest of the management team for providing a rich and rewarding experience over the past 9.5 years. With that, I will turn the call back over to Glen and Dave to discuss the outlook for the year.

Thanks, Bill. Our management team has set into motion a four-point plan focused on product delivery, client experience, sales execution and financial performance to address the issues we have outlined. Let me share some of the highlights of that plan.

The first pillar is product delivery. We are investing over $190 million this year to improve performance and accelerate integration and innovation. Under the direction of Cliff Meltzer, whose experience at Apple, Cisco and IBM gives him the right perspective and experience to drive our operation, the rollout of major new releases and improvements is something we view as a major driver of future business. These releases are critical, as a number of our clients have delayed their purchasing until some of these updates come out. These solutions will dramatically increase the quality of our client experience, and I believe they will also spur new client sales.

Let me walk you through what we already have in motion. First and foremost is integration. While ADX 1.0, the integration between Sunrise Clinical Manager, our acute offering, and Enterprise EHR, our Electronic Health Record for larger, more sophisticated ambulatory practices, was released some time ago and met the technical requirements, it didn't win over our clients. So we gathered several important clients together and rebuilt the product using Agile rapid prototyping technique to ensure it was with our clients wanted and needed. ADX 1.5 will go into beta at clients within 60 days and is scheduled for GA at end of September. The client feedback has been excellent so far.

Additionally, leases in the pipeline and those scheduled for availability in the fourth quarter include Sunrise 6.0, which features high availability designed to simplify upgrades and improve performance; Sunrise Financial Manager, which is the first enterprise-wide financial platform designed with accountable care in mind and ICD 10 as well; and Enterprise 11.4, with enhanced performance functionality and ICD 10 capabilities as well. Relative to improving product performance, we have established test labs to eliminate integration challenges, especially third-party products and their new apps being built for our open platform. Wand, our native iPad app for our enterprise and professional EHRs, has been positively received in the market and is another example of innovation that Allscripts is known for.

The second pillar of our plan is client experience. A big part of our focus over the last year has been upgrading our client base to help them achieve Meaningful Use. To put this in perspective, we have the largest client base in the industry and no competitor has had to touch as many clients in such short order as we have.

Given that many of our clients are smaller practices, the challenges have not just been about upgrading software, but also include hardware upgrades, connectivity issues and work flow. For some, this is the first upgrade or change in years. While we have added staff to manage through this, there have been challenges, and candidly, there is more work to do relative to improving the client experience. On that note, we have added more than 400 front line support personnel to our team, many of whom are just now becoming productive.

We are also making investments to position us for the long-term as we build on the strong foundation of this Company. For example, we have invested over $30 million in our hosting center for Sunrise and we are improving response and resolution time along with establishing a new data center that will come online in the next 90 days, providing additional hosting capability and higher reliability.

Additionally, we have initiatives in each product line, where we are seeing progress across key metrics, including response time, first day resolution and overall client experience. To that end, we initiated an-end-to end client experience program bringing together all of the groups that touch a client. As more clients buy more product, which is good, our support challenges increase.

The bottom line is that while our overall client attrition remains low, which is important, we believe that by executing on the product and client experience front, we will not only protect our client base but continue to grow our market share.

The third pillar of our plan is sales execution. As I mentioned, at the beginning of Q1 we implemented a reorganization of sales and services under one leader, Steve Shute, who joined us from IBM. We believe the change will have a number of significant benefits for our Company and our clients, but we acknowledge the change did have an impact on sales execution and close rate. We are also moving our team from selling individual products to full solution sets. This is part of our natural evolution and we are confident that it is the right move for our clients.

As a part of this change, we have brought in new sales leaders from outside the Company to lead two of our three regions, complementing our existing talent. And they have already contributed to the business by aggressively building pipeline and driving accountability and execution into the field ranks. Together with the highly targeted programs that we have to increase the volume and velocity of our pipeline, we are confident that we will begin to further increase our traction in the market.

The fourth pillar is financial performance. While we are clearly investing in areas that will help our clients, we are increasingly focused on ensuring we use our existing resources efficiently and effectively. We have essentially stabilized our hiring for the year, and we are now focused on operational efficiency.

Now I would like to turn the call over to Dave Morgan to discuss our outlook for the year. Dave?

Thanks, Glen. We believe it is critical to provide the market with a revised view of 2012 that takes into account the impact of first-quarter results but also moderates our outlook to reflect a more conservative outlook, for the reasons Glen and Bill discussed. In addition, we understand the critical importance of providing guidance that has our highest possible confidence level built into it.

With that said, we now anticipate 2012 non-GAAP revenue of between $1.48 billion and $1.52 billion. We anticipate non-GAAP operating income of between $241 million and $259 million, which equates to an adjusted operating income margin of between 16% and 17%. The revised operating profit outlook afflicts lower revenue combined with the increased investments to support the four-point plan Glen discussed earlier.

Non-GAAP operating income assumes exclusion of the following non-cash charges -- approximately $63 million in acquisition-related amortization expense and $44 million in stock-based compensation expense, all on a pre-tax basis. Further, we will exclude, as indicated previously, the approximately $3 million per quarter of the Eclipsys merger-related retention payments through the third quarter of 2012, or a total of approximately $9 million pre-tax from our non-GAAP operating results for 2012.

With all that said, we have announced a few Board changes, one of which will result in additional severance and stock-based compensation expense of approximately $2 million, which we will treat as one-time expenditures over and above the $9 million previously mentioned. We assume an effective tax rate in the range of 36.5% to 37%. This equates to non-GAAP net income between $143 million and $154 million in 2012 or a non-GAAP diluted earnings per share between $0.74 and $0.80, based on a weighted average diluted shares outstanding of approximately $194 million.

Let me briefly address our guidance as it pertains to bookings outlook. Please be aware that our 2012 outlook is not contingent on significant sequential improvement in bookings. As for share buybacks, we currently have $148 million remaining under our previously authorized $200 million share repurchase program, and the Company intends to be very active in this program going forward as market conditions permit, once the window is open.

Finally, I wanted to let all of you know that in connection with the realignment and integration of our sales and services functions in the first quarter of 2012, our first quarter 2012 10-Q segment reporting will reflect the information used by management for making operating decisions and assessing performance going forward. These segments are software delivery, services delivery, client support and managed services. We realize many of you will continue to be interested in revenue trends within our prior segments, specifically as it relates to ambulatory and acute revenue. We will continue to provide ambulatory and acute revenue as supplemental financial data through the remainder of 2012.

In addition, we will provide a recasted view of our historical results on a quarterly basis for 2011, utilizing our new segment reporting. This information will be available on the investor section of our website after we file our 10-Q for the three months ended March 31, 2012.

I will now turn the call back over to Glen for closing remarks.

Thanks, Dave. To sum up, we have improvements to make and we will make them. At the same time, we are still confident there's a great opportunity in this market and we are the best positioned to take advantage of it with an open platform, a broad base of ambulatory, acute and postacute clients and the best people in healthcare. But the fact remains -- we have to execute on all of these opportunities. We believe that with an improved focus on product, customer satisfaction and industry-leading R&D investment, we can not only retain our market share, but grow, particularly in those segments of the market that remain under-penetrated as well as those where our competition remains vulnerable.

We look forward to continuing to update you on our progress. With that, I'll turn it back to the operator so we can take your questions. Thank you.

(Operator instructions) George Hill, Citigroup.

Good afternoon and thanks for taking the question. I'll apologize in advance because some of these questions might seem a little awkward but appropriate given the news tonight. Obviously, Bill, I remember when we talked about you wanting to leave for the Cubs' CFO job -- I guess this isn't it. Glen, safe to assume none of executive management is receiving any cash bonuses this year?

Relative to the year 2011, we did not receive cash bonuses. That's correct.

Okay, can we talk about why stock comp is up 10%? Is that just the attrition? I mean, is that just the turnover on the Board and the management team, or is management the equity comp in lieu of cash comp, given how I guess we should expect the stock to perform over the near-term?

I'm sorry, George, you are speaking to the 2012 guidance in the change?

Yes, and I'm trying to sort through the numbers here. I had my math at -- yes, it looks like equity comp is going to go up about 10%. Am I seeing that right?

Yes; the reason for that is, as you know, when we did the Eclipsys transaction, much of the equity held by Eclipsys employees had been fully vested. So, recognizing much of what we grant are subject to four-year vest, you would expect that our stock comp will just naturally build until we get to effectively a run rate in the fourth year, which would be next year.

So I don't believe -- and I'll ask Dave to confirm. I don't believe that it's changed our guidance relative to stock comp is really any different than what we communicated earlier in the year.

Correct.

So again, it's really just a function of that expense building as new grants are coming online. And so there's nothing unusual or out of the ordinary in terms of executives or the like that's built into that assumption.

Okay, Glen, are you able to give us any more color on -- you talk about the Board discussions around the leadership. I'll have to confess, while you have been a charismatic leader of the Company, I'm surprised, just as I would be surprised if any CEO survived the situation. So I'm not singling you out. I guess, can you give us some color as to how the Board felt comfortable, given the performance, that you are appropriate to continue being the leader of the Company? And I guess how it led to the decision that people like Phil and Gene Fife are leaving -- can you give us any more color on those decisions? Like I said, I'm not trying to single you out. But given the performance that been reported, as the Company faces its greatest tail wind in history, I would have expected the Board to fire any CEO in this position. Can you give us some more color on how decisions were made around leadership?

Sure. I can't -- as I said in the script, I can't comment specifically about the Board discussions. What I would tell you is I think that boards generally take a longer-term view than any one quarter. And if you look at 2011, we felt like 2011 was a very solid year with profitability up over 20%, with revenues and bookings up in the double digits. So, while we don't like to rest on our laurels, there's no question that this is a difficult quarter. And we expect to continue to build the Company from this point.

Okay, and then the last one I'll leave you with as we hop off is, I think, given the turnover, investors are going to have a tough time here with management credibility. On this call, you said to us that you continue to think that the Company is best positioned to maintain and win share. The market statistics and the channel checks that I think myself and everybody else does, does not bear that out remotely. Please give us a reason why we should place any faith at all in that statement.

Well, again, I think we've talked about the number of new wins in areas, whether it be in Sunrise or the overall number of new contracts signed. We, I think, during the comments, mentioned that we were not satisfied with our performance this quarter. That said, the fact is that we are selling and we are making progress. We, in a number of areas, as I mentioned, in integration, we hope that 1.0, ADX 1.0 would address the issue. It did not, so a number of clients are waiting for ADX 1.5. We change the process of development there to involve the clients very directly, and those clients are giving us very good feedback about ADX 1.5, and it's coming out soon. So we think that will address the problem.

Similarly, in a number of areas, we have made progress. But unfortunately, that progress isn't as fast as we or the market would like it.

The last thing I would say is that in an area where there's a tremendous number of upgrades, some of the clients, because we have multiple releases out, have delayed and said, well, we just upgraded from Meaningful Use 1; we might as well skip a release or two, even though there may be new functionality. And I think, in some of our clients, they basically said we'll wait a little bit before we buy more and see what the next release will hold. So we have been managing a number of those different areas.

All right, I'll hop back in the queue. I appreciate you guys getting this information to us as quick as you could. Thank you.

Larry Marsh, Barclays.

Thanks, and good afternoon. So I just want to go back to the Board here, Glen. So who is the Chairman of the Board now of Allscripts? And forget about, I guess, what the Board is doing, but how do you give confidence to investors or your Company when a third of your board just resigned, expressing concern about that leadership?

And I guess, to follow up, it looks like all the Eclipsys legacy board members either were terminated or quit. So it would suggest to some that the business you acquired in 2010 may be meaningfully different in value than what you thought. Can you comment on that? And can you give us any sense of how you're going to be able to run this Company and convince your clients of your leadership if a third of the Board just resigned?

Larry, there's a number of questions you asked. The first question was about the Chairman. The Board will be naming a chairman soon, and I believe in the press release, we indicated that we will also be adding a number of new members to the Board. And we think we have some very qualified candidates that will be joining the Board that bring some very good experience to help us.

Relative to the second question, I think from a client perspective, the way that clients evaluate most companies is based on their products and the performance of those products. I'm not sure that many of our clients could name any of our Board members. Maybe they could have named one. And I think, going forward, the way they will judge us is based on the way the products work. And I think there's a lot of loyalty in the client base relative to those products.

That said, I think we've been very straightforward in saying that there are areas that they are waiting for, whether it be integration, whether it be for some additional product functionality, performance and the like. And we are highly focused on delivering that. One of the things that we've done is, as mentioned, we've changed our development methodology to be more client responsive and faster to market, going from Waterfall to Agile. And in addition, we are actually pumping more dollars and we've done more of the hiring up front than we had initially planned, based on our view that we had to address some of those gaps, and we will.

Okay, just -- so, then, just two quick follow-ups, then. One is, then, if it seems like if you are going to announce new Board members, there's got to be some -- and I'm surprised no Board members on the call. There's got to be some vote of confidence that's communicated to the market of your leadership, because it's not -- it hasn't been done today.

And then secondly, then around Sunrise 6.0, it sounds like you are saying that's now being delayed to fourth quarter. If your clients are waiting on new updates, it sounds like they're going to be at least another six months. So how do we have confidence interim, things aren't going to get worse? It sounds like you are still confirming between 13 and 15 Sunrise installations this year. Thanks.

Yes, I'd say a few things. First of all, again, as indicated in the documents, I think certain Board members are on the board. And I think those folks have indicated a vote of confidence by staying on the Board. In addition, obviously there's new qualified candidates who will be joining the Board, so we have a Board that has a shared vision of where the Company needs to go to.

Relative to 6.0, we tried to be very specific in terms of when the products are coming out. 6.0 is going into controlled release. That means it will be out with clients in June. That's different than a G8 where it rolls out to every client. Part of what Cliff Meltzer has brought is some additional discipline relative to ensuring that went these products go out, they are absolutely rock-solid. And that's why we built additional testing centers and additional steps into the process. So there's no -- I don't sense any delay in 6.0. I think we are generally on target to put we expect and I think our clients are very well aware of that, which is why we've actually published these days and talk about them.

Sean Weiland.

I'm connecting the two data points. One is bookings in the quarter below expectations, which is, quite frankly, in healthcare IT over the long run, kind of par for the course; it's not a big surprise. With four Board members up and resigning, and I've never seen that kind of board turnover because of a sloppy bookings quarter. So I guess my question is, what else? What else is going on here that would cause that kind of turnover on the Board?

John, you are very perceptive, as always. I don't think, as I said earlier, that a board makes a decision based on one quarter, especially when traditionally we have given guidance that's yearly guidance. I know the market breaks it out quarter by quarter.

That said, I think if you look at the history of mergers, sometimes you start off with two companies. Sometimes those two companies have a different view of the future and of the direction that the organization should go and who should take the organization in that direction. So without saying a whole lot more, I think you can look at the statement that was made and the disclosures that have been made.

Okay, thank you very much.

Charles Ryhee.

You know, Glen, at HIMSS this year, which was only about a month and a half ago, you talked at length about sort of where you thought things were going. You had new managers out there, and you were discussing in response to a question about integration and concerns that you were kind of saying that it is important but it is not the deciding factor. Yet, here you're telling us now that you have prospects delaying their commitments, they are not happy with the initial integration, integrated offering here. Is it for us to believe that integration actually is very important, and is it a differentiating factor? Because it does seem to be bared out here in these results.

I think -- and again, I stand by what I said, and that is that integration absolutely matters to a segment, and that segment was focused on 1.0. It worked technically; it didn't work for those -- that set of customers. That was one of the elements. The complication here was there were multiple elements that came together in a negative way at the same time. So, based on a lot of work we did and based on client focus, we reorganized and put our sales and services together. I think Bill referenced the point that in terms of what we expect to close, that rate was lower this quarter than it had been in, I don't know, eight quarters, 10 quarters, maybe ever. And so we converted less at the end of the quarter. We think that was a sales execution issue. That alone wouldn't have been the issue.

Second, we had some big clients recent we are going to wait until you deliver on 1.5. So that was the second issue.

A third issue was amortization or capitalization from a market perspective. And that accounts for the change in software development and our capitalization accounts for something like, Dave, $0.02 (multiple speakers) -- $0.02 of the miss.

Yes, and I'm not actually even worried about the EPS miss, to be frank. It's really just the bookings miss, right, because it's an issue of -- are clients signing up with you guys? And are they -- and with this in the backdrop here, how do you get clients to stick with you when there is not a short window -- I think the window is wide; it's fairly wide, but it is not forever. And people still need to make decisions here. So at this point, how do you get the sales execution, then, fixed?

Again, let me comment on that. We have 350 new client agreements this quarter. We have three Sunrise signings this quarter. We had mentioned that a few of those that we thought would happen slipped out of the quarter. And so that combination is what impacted the sales for the quarter. And there's no question that we weren't pleased with it. As I have mentioned, that it was the first time since I think we can remember that our close rate dropped. We have total confidence in the sales leadership. It's new, but it's the best sales team we've had.

But when you put everything together in one quarter, we didn't expect it would have the impact that it did, paired with all of the factors coming together. And that's what led to this. There's no one piece of this that I can point to.

Okay, let me just ask one last question. This is kind of hopping onto Sean's question earlier. You made mention about differences in visions of where this Company should go. And you look; it's mostly all the Eclipsys guys all gone here from the Board. But you look at the strategies that you guys outlined at the start of the year; it was really all about Eclipsys. It was all about Sunrise, and that's where the next leg of growth at a large extent was going to come from.

Can you talk about, then, how -- what is the difference in vision? If both divisions, it seemed, would be centered on Eclipsys, where does the divergence come from, then? And maybe, perhaps, how long has it been brewing?

Yes. Again, what I would say is no change in strategy there. The Sunrise product, we continue to believe, has the best core clinicals, I should say. Our SFM product that's coming on will have the best financials. And so we don't have any issue there. I think you've seen some change over there. We still have thousands of employees who came from the legacy Eclipsys organization, and terrific development capabilities and the like. So from that perspective, we are not suggesting that there's any change in strategy or what have you. And, as mentioned, we saw three Eclipsys wins or legacy Eclipsys, Sunrise wins, just this quarter.

Has it been an issue that maybe someone offered a bid and these guys felt that that was the right move, there was a disagreement over something like that? Have you guys been approached?

No, no. I can definitively say that there is no approach bid or anything like that.

Okay.

That led to any kind of Board issue.

All right, thank you.

Greg Bolan, Sterne Agee.

Hey, thanks for taking the question. So Bill, do you plan to certify the first quarter 10-Q, or is that going to be Dave?

I plan on certifying the 10-Q.

Okay, great. And then, Glen, you had mentioned two additional wins that could be announced in the next couple weeks, kind of right after you had mentioned Liverpool. Is it safe to say that these two other wins are in the same region?

No, they are both US-based wins.

Okay, and then just last question -- you had also mentioned, Glen, that attrition is low. When you make that statement, is that attrition being low-based currently on your book of business? Or is it attrition that you think may occur over the coming quarter? I just would appear, going back to George's question, that most data points are coming back that you guys possibly are having some issues, obviously, in the market. Can you just maybe clarify that comment on attrition, please?

Yes. We haven't seen a big bump in attrition. We are watching that closely. Part of the reason that we made the investments we made sooner than we would have otherwise made them and the changes that we've made sooner was because we believe that if we kept status quo and we didn't make those investments, we might have an issue. And so we basically said we would have to aggressively invest up front, whether it be hiring development resources sooner, whether it be reorganizing so we are more effective sooner. So we haven't seen that.

I would say, and I'll be very frank about it, we are the beneficiaries of the fact that there are a number of people who are having -- some competitors who are having attrition problems right now. And we are benefiting from that. The flip side of that is there's one at the high end of someone who's winning a lot, and everybody in the industry is faced with that organization. So we're -- I think right now we are holding our own.

If I could add, hopefully, as a credible data point for you to look at, and that is our maintenance line item and the continued sequential growth that we are seeing in maintenance, I believe it's somewhere close to 4% up sequentially, Q4 to Q1. So again, we believe that's indicative of some of the attrition comments that Glen made.

No, that's very encouraging. And just two quick ones left -- Dave, you had mentioned to be very active in the marketplace with the remaining share buyback authorization, and you had mentioned when the window opens. When does that window open?

The window will open Tuesday of next week.

Okay, and I forgot my last question. So I think that's it. Thanks, guys.

Sandy Draper, Raymond James.

The first one is just sort of a housekeeping I may have missed; and if I did, I apologize. Did you guys give any bookings guidance for either -- for the year, in terms of what type of bookings or bookings growth you have to do, to do the new revenue guidance?

We didn't -- consistent with our prior practice, we didn't give specific number related to bookings. But I did comment that if you look at our Q1 bookings results, that we are not -- our outlook is not contingent on a significant sequential growth in bookings from our Q1 numbers.

Okay, second question. This actually, I guess, somewhat follows up on Charles' question. Glen, you obviously mentioned you haven't been approached. And I guess I'd flip it around and say your stock obviously is going to get pummeled tomorrow. As many other questions have come, there's going to be serious credibility for a while. Is there any reason, or what is the benefit to Allscripts being a public company? Because there are public company costs; there are other issues. What are the benefits that you see of being a public company? I would love to just hear that. Thanks.

Yes; I wouldn't speculate on that, other than to say that, again, what we are focused on is the market. We have -- I've been with the Company well over 10 years, and we've seen, in that 10 years we've seen a stock price as high as $89 and as low as $1. And what we've said in both those cases is the same thing, which is every day we come to work, we work as hard as we can, deliver value for the clients to build better products, to expand the base. That's what we're going to do here. So we are going to put our heads down, keep pushing forward.

Okay, thank you.

Stephen Shankman, UBS.

Thanks for taking the question. So I think I heard you mention that you signed three new acute deals in the quarter. That seems pretty solid to me. But I think you also called out the acute area as underperforming. Just hoping you can help us understand where, more specifically, the acute underperformance was. And that was it related to the contract slipping, the size of the deals or something else? Any help there is appreciated.

Yes, this is Bill; I would make two observations. One is in terms of overall, a number of SEM deals that were anticipated and line of sight that we had. As Glen indicated, a few of those ultimately did not materialize as we had hoped. But secondarily, and this has pretty profound effect on our revenue in the quarter was some of the ancillary products. Most notably, our EPSI analytics capabilities fell short. And, again, I would, in that area in particular, given the robustness of demand for that product the prior year, believe that that was principally an execution issue and kind of wrapped up in some of the changes that Glen talked about. So when we talk about acute, it really was overall volume of SEM deals, but also these ancillary products, many of which have pretty immediate revenue conversion that impacted our top line and bottom line.

Let me also add that, again, one or two acute deals can swing the numbers in a very good way. And so from that perspective, if you thought you were going to get one or two more and they slipped, I think Bill made the comment that while some slipped, we didn't feel like we lost a lot of the activity that we were planning on. So from that perspective, we are in a competitive environment, and some of these things take longer. We think we know why some took longer. In other ones, it was execution.

Okay, and then if I can sneak in a follow-up here related to the close rate and customers waiting for product enhancement. What specifically are they looking for? I understand your comments around the integration and the ADX upgrade. But what else are they waiting for, from Allscripts?

I think it's -- the customers that we were specifically referring to, some of those customers are waiting for that integration. Some are waiting for some better third-party integration of products. And then, in terms of the performance, I think on Enterprise we've had some folks who are waiting for newer versions of Enterprise.

The way that works is people say, whether it's leverage, whether they say, look, until some of these things are performing better or the like, until you do X, Y or Z, we are not going to step up and buy more from you. And so there's some of that that goes on. There's other folks who are very happy and they're plowing forward. And that's why you can sell more than 300 client agreements and while we are continuing to go forward and why we are not losing from a standpoint of attrition, why we are not losing clients, per se, at any rate more than you would expect in a competitive market. But that's really what it is. And again, it's not one; if it was one in particular, we could probably isolate it better.

Got it, thank you.

Dave Linley, Jefferies & Co.

Hopefully, a couple of quick ones -- on sales force, I wondered with the reorg, what is the stability of the sales force or, conversely, what has been the turnover in the sales force?

I think the stability is very good from the standpoint of they recognize the opportunity. Again, we brought on some new talent. It's the best talent we've ever had. It supplements the existing talent that we have on board. And frankly, we've got some open territories in the sales force that I expect Steve and the team will fill. So we had only one real loss to speak of that was meaningful, and that's an individual who went off to take a CEO role running a company. It's pretty hard to prevent that, and I think it speaks to some of the quality of the folks we have. But with that exception, I think it's very stable.

So in terms of the sales activity, then as you are now almost a month into Q2, understanding it's the first one and not the last month, but are these delayed decisions -- are you still getting the same push-back? And therefore, would you expect those reasons to continue through the second quarter and perhaps into the second half?

Well, I think what I'd say is that some of those reasons won't go away overnight. However, I think that there are enough clients out there that, without speaking to the second quarter, I'd say we continue to see robust demand. The sales force is settling in. The folks we've brought on, paired with the folks that we have, are very good at developing the pipeline. And that's about as much as I can say without really giving a forward-looking statement.

Okay. Can you speak to -- moving, changing gears here -- speak to the timing of the Board's deliberations about leadership, the reference in the press release? What was the timing of those conversations?

Again, I don't really think that I'd comment more than what's going to be disclosed in the various filings.

Okay. Bill, can you say where you're going?

I have not disclosed that, but I would anticipate that it would likely become public in the next couple of weeks.

So your consideration of this opportunity has been going on for some time?

That is correct. And again, just to underscore, it's a private company and it's outside the healthcare IT industry.

Okay, thank you.

Richard Close, Avondale Partners.

Just a couple questions here. Bill, I was curious if you could tell us in terms of -- on the bookings in the shortfall there, what is the typical, I guess, percentage of bookings that maybe close in the last couple weeks of a particular quarter?

Yes; it is, unfortunately, very high. We have seen literally in the last couple of weeks of the quarter, you could see as much as 60%, 65% of current quarter bookings converging on those last few weeks. And so again, just to underscore the point that Glen made, we had significant opportunity in the first quarter. So I think all of us believe that this is not a function of having adequate demand in the marketplace, it's really around execution and client and prospect satisfaction with where our products are at, at this current point in time. And much of that, again, contributed to our relative performance in the quarter.

Sebastian Paquette, Goldman Sachs.

Thanks and good afternoon. Just on the $50 million miss in bookings, I was interested in -- could you just parse out what portion of that was due to existing customers using Allscripts and Eclipsys products that were waiting to upgrade, versus customers in your late stage pipeline that you are expecting to close into bookings but are waiting for next stage and iteration of products?

Let me attempt to -- I'll answer your question this way. Just under half of the miss, I would say, was expected to be derived from existing clients. And that's important because much of that typically has more immediate revenue recognition associated with it if they are interested in buying additional licenses and/or incremental product. And then the other, just over a half would be effectively, effectively from new prospects. And again, it's just important to note that we did not, from a pipeline perspective, see much of that go away permanently. It was very much a function of the belief that they wanted to see more from the Company in terms of the stability and the incremental integration that Glen outlined. So we are cautiously optimistic in terms of as sales execution becomes more consistent and some of these advancements from a product perspective come to market, that our ability to improve performance should naturally follow suit.

So if those potential customers, call it $25 million to $30 million or so in the quarter -- if they aren't all permanently going away, are you seeing some of those customers going back to bed?

Again, I think with very few exceptions we haven't seen customers -- they fall into three categories. There's brand-new customers who are approaching us. A lot of those are coming from the McKessons of the world and the MEDITECHs of the world. We see customers who are going out to bid simply because they are bringing in two or three different firms and looking at what's out there. And then we see our existing client base. And almost without exception, they basically say we love to stay with you, you just have to execute. You just have to deliver. And that's really how I would segment that.

Okay, and then last question -- just in terms of the R&D trajectory -- I apologize if I missed this. Did you mention that you are expecting an incremental $190 million of R&D spend in 2012 on top of what we currently are expecting? Or can you bracket your expected expenditures for R&D?

No. The $190 million number that was referenced is actual total gross R&D spend. Last year, we spent something close to about $160 million. And so Glen was really highlighting close to a 20% increase year on year. I would add to that we are seeing and have built into guidance for the year a lower expected capitalization rate, in keeping with what we experienced in the first quarter. So the $190 million is not all incremental. About $30 million of that is incremental over 2011.

Got you, thanks a lot.

Why don't we take maybe two more questions.

Anthony Vendetti, Maxim.

I just wanted to ask a question about the fourth quarter, because in the 10-K it looked like there was a restatement there for some system sales. And it looked like if you took out some of those system sales, it looked like you started to see kind of a trend of declining sales for a particular product. And I think it was more on the Allscripts side. I'm just wondering, is this -- would you attribute most of this to Eclipsys, or is it the combination of mostly Eclipsys, a little bit of Allscripts? Can you just talk about that a little bit?

Yes. Again, Anthony, just to be clear, I think that reference you are making in the 10-K actually pertained to Q3, not Q4. But to answer your question as it pertains to Q1, again in keeping with my earlier comments, it's really on balance, in terms of the shortfall from acute and ambulatory perspective. So I can't sit here and tell you it's principally one side or the other. We saw disappointing results from both sides.

Okay, and then just lastly, the follow-up -- in terms of the go forward, one of your competitors said they are not surprised by this. What would you say in terms of your ability to quickly turn this around? Or do you think this is going to be a multi-quarter process? And I know Dave mentioned on the call about setting expectations now that you've reset guidance at a level that you felt very comfortable with. Can you just give a little color on kind of the timing of the turnaround? Is this an entire 2012 situation, or how do you look at it?

Yes. Again, I think that, while I don't want to, surely, speculate on quarters and the like, we have given you a time frame for when the software is coming out. We talked about the fact that we are still selling very vibrantly in the market. We've talked about the fact that certain contracts that we expected flipped out of the quarter. So we continue to believe there's a very vibrant market out there. We believe that we have now in place the right sales structure with the right people. We are making substantial progress from a product standpoint with real deliverables out there and improvement in quality. And from a customer support standpoint we are making progress. So I don't think we're talking about a lengthy process. On the other hand, I want to be sensitive. And we gave very conservative guidance for a reason. We want to make sure that we have the ability to do the right things because we are betting on this not for the next quarter but for the next 10 years.

Okay, and just lastly, on the management changes, any other ones that you are expecting based on today's announcement? And what is the time frame on the new directors?

Relative to management, the answer is no changes relative to the new directors, I expect they are near term, but I wouldn't want to speculate because it always takes two to tango. But I can tell you that there are discussions ongoing.

Okay, thanks.

Why don't we take one more question.

Bret Jones, Oppenheimer.

Thank you for squeezing in here. Just a couple of quick questions -- I was wondering on the integration side, when you were talking about integration concerns from the customers' perspectives with version 1.0 and waiting on 1.5, can you relate to when we were at HIMSS over a year ago when you were talking about the integration platform, you weren't going to go to one single database, that the service-oriented architecture was the technology you were going to go forward with. Has that changed?

Yes, it's a very good question. It's sometimes hard to explain, so I'm going to try. We have -- there are a number of things. One, first and foremost, I don't believe you are ever going to be with one database. And if you look at even those people who pound the table and have old technology but they say it's all on one database, some of those people are the largest users of our EPSI products and our community products and care management products and the like, to say nothing of labs and what have you. And now, as we move into genomics and all kinds of things, connecting those databases, you're going to have multiple databases.

Now, that said, in terms of the core clinicals and for financials, we have a product. If you want one database, we have it. It's called Sunrise. The flip side of that is, according to Oliver Wyman Group, about 93% of healthcare organizations in America can't afford to rip and replace everything out and put in Epic. That's the reality. Those organizations say things like, well, my financials are working but I want to replace clinicals. Or I want to connect the community, or I want to connect to post-acute and go into the ACO environment. And ACO is, almost by default, unless you are in a very small group, require collaboration and integration and interoperability. And so, from that perspective, our open platform makes a lot more sense.

So there's two choices. If you want one database, we can give it to you. We can deliver it. If you want an integrated platform that's open, we can deliver it. And that's what it is.

Now, what happened was, we had some people who said I bought Enterprise and I also have Sunrise. That is -- the reason I said that that is, in some respects, a limited market is because the number of people who own both -- that's a limited universe. That's one segment of our client base -- a very important universe, but a limited universe.

When we delivered 1.0, it technically exchanged information between those two. But then you start to exchange information, and people say, well, I didn't want it in that format. Or maybe I didn't want all that information. So we did the technical piece of it, but the fact of the matter is they came back and said, well, that's not exactly what we meant. Can you build it this way? Can it do these five things? And the answer was it couldn't; 1.5 will.

All right, and then just in terms of the product integration concerns and the sales reorg and kind of the impact that had, was that more on the ambulatory side than the acute side? Or were you seeing it pretty equally across both?

It was across the board. And part of what's happening is, again, there's less and less differentiation between one and the other. A big acute customer -- one of the biggest things they say to us is we want to connect to the community, so they buy our third-party products that do connectivity, and they buy our ambulatory products. And they like the fact that they can connect to our ambulatory base, which is the largest in the industry. So, from that standpoint, it's harder and harder to segment one from the other. So it's across the board.

But the reorganization was the right move. It took some time. We had brought in McKinsey to help us decide what to do and how to do it. And it will pay off.

Okay, great, thank you.

So let me just conclude with one or two comments. Look, there's no question that this was a very, very tough quarter, a very difficult quarter. In my career, I'm not sure that I've had one that was this tough. What I can tell you is that our management team is focused, and it will deliver, as we have done that before. I can tell you that the plan is a very targeted plan to improve in four areas -- in products, in product performance, in the client experience, in sales execution and in financial performance. We talked about the broad investments we're making in products. We've talked about the number of sales and support professionals we brought in to support client experience. From a sales execution standpoint, we've talked about the people we added and the reorganization. And from a financial standpoint, we have essentially finished our hiring for the year. The folks that we need are onboard, and we are now ready to go and optimize those people.

So this focus will pay off in the long-term. It will pay dividends for our clients. And when you do that, you pay dividends for your shareholders. So we -- nobody likes to be in the situation that happened this quarter. It's one quarter. We are in the business for a long period of time, and we are going to continue to deliver.

So again, I thank you for your time today and your questions and the straightforward nature of them. And we'll look forward to talking with you in the future. Thanks very much.

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