Veradigm Inc (MDRX) 2012 Q2 法說會逐字稿

Good afternoon. My name is Sarah and I will be your conference operator today. At this time, I would like to welcome everyone to the second-quarter 2012 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

Seth Frank, Vice President of Investor Relations with Allscripts, you may begin your conference.

Thanks, Sarah. Good afternoon, and thanks for joining us. With me on the call today are Glen Tullman, Allscripts' Chief Executive Officer; Dave Morgan, our Interim Chief Financial Officer; and Lee Shapiro, our President. We'd like to take as many questions as possible today, so we'd appreciate it if you would limit yourself to one question and one follow-up.

Before we begin, I'll 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 factors outlined from time to time in our most recent report on Form 10-K, our earnings announcements, and other reports we file with the Securities and Exchange Commission.

These are available at 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.

With that complete, I would now like to turn the call over to Glen Tullman, Allscripts' CEO. Glen?

Thanks, Seth. Good afternoon. Thank you for joining us on our second-quarter 2012 earnings call. I'll begin with the highlights of our results and our focus on operating performance. Dave Morgan, our Interim Chief Financial Officer, will then provide more detail and review our guidance.

Our second-quarter results demonstrate progress in several key areas and opportunities for improvements in others. I'm confident we are moving in the right direction.

Looking at the highlights, bookings reflect an improvement in mix versus the first quarter. Specifically, we had strong results in the mid-size physician market with our professional Electronic Health Record solutions. Total ambulatory bookings were also up significantly quarter-over-quarter. And we capitalize on key opportunities in the enterprise electronic health record physician market, particularly through competitive replacements.

Our acute business also performed well. We closed two net new Sunrise Clinical Manager agreements, plus one footprint expansion with one of our larger clients. Revenue was also up sequentially and slightly year-over-year at approximately $371 million. Our non-GAAP operating margin increased over Q1, heading in the right direction. And we expect continued improvement in the second-half of the year.

Total R&D expense increased year-over-year, reflecting significant investments in our core Electronic Health Record assets to improve performance and/or increase focus on new product development and innovation. Our operating cash flow remains strong, with close to $60 million generated in Q2, and free cash flows in excess of $25 million. Also, our Board doubled the size of our share repurchase program in April to $400 million. We repurchased a total of 21 million shares in the quarter. Dave will provide more information about our share repurchase program and the impact on our financial guidance for 2012.

Now let's turn to a more detailed upgrade -- or updated within several areas of our business. We continue to see ample opportunity for Allscripts to grow market share across the entire continuum of care. Our vision of a connected community of health continues to be a differentiator for us. Cape Cod Healthcare's decision in Q2 to replace their incumbent clinical vendor demonstrates the power of pairing robust clinical solutions with the ability to connect to a local community. This was a major new enterprise win for us, covering more than 300 physicians.

Within the acute arena, we expanded our Sunrise footprint by two hospitals in Q2, including Salford Royal NHS Foundation Trust, our second acute care win in the United Kingdom. In addition, we signed a new SCM client in the Northeast, as well as an SCM footprint expansion with Ascension Health, one of our largest national clients.

We also had a strong bookings quarter in Care Management, another area where Allscripts differentiates itself from our competition. The quarter included wins at North Shore Long Island Jewish Medical Center and New York Presbyterian Hospital. New client sales of our care management solution were also up during the quarter.

Turning to product delivery, our solutions development team continued to make progress in enhancing the performance and integration of our portfolio. The next releases of our core Electronic Health Records systems are currently in the early adopter phase at multiple client sites, and on target for general availability in the fourth quarter of this year. SCM 6.0 and Enterprise EHR 11.4 include major development enhancements and new functionality, such as ICD-10 compliance, improved stability and performance, along with an enhanced upgrade experience for our clients.

On the new product front, Sunrise Financial Manager is entering early adopter phase and on schedule for general availability in Q4. Some of you had a preview of SFM during the ANI HFMA Conference in Las Vegas in June, and client reaction continues to be positive. SFM and Sunrise Clinical Manager operate on the same platform, which enables us to offer a single, fully-integrated clinical and revenue cycle solution, critical in a market migrating to a pay-for-performance reimbursement environment.

We are confident this will raise the bar for our competition, and we remain on track with the expansion of the native integration capabilities between our hospital and large physician practice Electronic Health Records. The new capabilities are receiving positive feedback throughout our early adopter program. As our clients confront change on the regulatory, financial, care coordination, and analytics fronts, I am pleased to say that we have new offerings or solutions in development within each area coming to market over the next three to six months.

One other area of significant importance and continued focus for Allscripts is clients' experience. Over the last 12 months, after upgrading a significant number of the 50,000 practices and more than 1,500 hospitals who use our solutions, some of who experienced challenges, we have continued to work hard to improve client satisfaction by expanding our services and support capabilities. Given our efforts, client retention remains strong and is unchanged from the first quarter.

The integration of sales and services led by Steve Shute, completed at the beginning of the year, enables us to approach client relationships as a coordinated team to meet client needs and solve issues more effectively. Response to this change has also been positive.

During Q2, meaningful use upgrades and activations continued, and we had multiple major upgrades to SCM, or Sunrise 5.5, that went exceptionally well based on client feedback. Some examples include University Hospitals in Cleveland; Hope Memorial in Orange County, California; and Parkway East Hospital in Singapore. We also successfully upgraded North Shore Long Island Jewish Medical Center, our largest client, to Sunrise 5.5. We have, or are in the process of, upgrading a total of 68% of our acute care clients to SCM 5.5, which positions us well for future sales into our base.

In addition, we added additional client support resources domestically in Q2, as we prepare for the increased demands we anticipate associated with ICD-10, which we believe will lead to stronger client satisfaction, a critical success measure. So, overall, solid results with room to grow and improve.

And now, I'll hand the call over to Dave Morgan to review the financials. Dave?

Thanks, Glen, and thanks for joining us this afternoon. Before I discuss our results, please review the GAAP and non-GAAP financial tables in today's press release, and the accompanying explanations to assist you in evaluating and reconciling the financial metrics we will discuss on this call. The press release and additional information regarding non-GAAP measures are available at investor.allscripts.com.

I will first review the key highlights of our second quarter performance, and then I will update our guidance and outlook for 2012 before we take your questions.

Second-quarter bookings were flat on a sequential basis, totaling $194.1 million versus $194.6 million in Q1. Bookings declined over the prior year by approximately 21%. As we indicated on our Q1 call, we expect relatively flat bookings for the rest of 2012.

Having said that, our results reflect three notable data points. First, new SCM bookings, including a footprint expansion; second, an increase in ambulatory bookings; and third, continued strength in Care Management bookings. We believe we are well-positioned to benefit from the breadth of our solutions across the ambulatory, acute, and post-acute market.

We witnessed a sequential improvement in ambulatory sales, specifically professional EHR, as well as new and add-on sales of our enterprise EHR solution. We are pleased to see sales to existing ambulatory clients return to historical levels. This trend is encouraging and reflects in part the completion of the realignment of our sales and services organization, which we noted in our Q1 call, and our continued efforts to improve product performance and client experience.

In terms of sequential bookings comparisons, we had a greater mix of high-margin bookings, such as software and SaaS, compared with the first quarter of 2012. From a mix perspective, Software-as-a-Service agreements totaled $53 million, or 27% of bookings versus only 19% in the first quarter, a positive development for future revenue visibility.

Backlog totaled $2.84 billion, down $25 million compared with $2.86 billion in Q1. Our backlog breaks down as follows. System sales backlog was $121.9 million, down from $126.3 million in Q1. Systems backlog declined slightly due to increased system implementations in the quarter, which generated higher software revenue. Professional software backlog was approximately $381 million, up from $374.7 million in Q1. This reflects continued demand for our implementation and related services.

Maintenance revenue backlog was $849.5 million, down slightly from $853 million in Q1. Maintenance backlog will fluctuate quarter-to-quarter based on timing of client activation and renewals.

Finally, we ended the quarter with transaction processing and other backlog of approximately $1.485 billion, down from $1.509 billion in Q1. We sold fewer outsourcing agreements in the second quarter, which accounts for this variance. All other categories of backlog increased in Q2.

Now let me briefly highlight notable items from the income statement. Non-GAAP revenue grew 2% year-over-year and 1.4% sequentially. For those of you wishing to allocate the $700,000 of deferred revenue adjustments for non-GAAP purposes, approximately $300,000 is allocated to professional services, and the remainder to transaction processing and other revenue.

We did experience a sequential increase in system sales revenue of 14.5%. Professional services revenue declined slightly from Q1, due to less upgrade-related activity. However, professional services revenue was up a strong 15% year-over-year.

Maintenance revenue was down sequentially but up 7% year-over-year. Attrition rates were unchanged, as Glen mentioned. The slight sequential decline in maintenance revenue was due to the timing of client activations and other adjustments. We anticipate growth and maintenance for the remainder of 2012. Approximately 69% of our revenue was recurring in nature, unchanged from the first quarter.

Overall, second-quarter gross margins were flat over Q1. However, there were improvements in some important areas, especially system sales and professional services. System sales gross margins increased 230 basis points quarter-over-quarter. Note that software margins grew more significantly, but were offset by lower hardware margins, as well as sequentially higher capitalized software amortization. In addition, higher capitalized software amortization related to gross margins reduced gross margins by 600 basis points, when compared with the year-ago quarter.

Professional services gross margins trended up 160 basis points over the prior quarter, due to fewer low-margin upgrade-related services and decreased use of third-party consultants. Transaction processing and other gross margins were slightly lower quarter-over-quarter. Non-GAAP operating margins increased 260 basis points, as we realized good operating leverage on our SG&A expenses. Gross research and development spend totaled approximately $48.8 million, a 29% increase year-over-year.

Capitalized software totaled $13.7 million, or 28% of gross R&D in the quarter, down from 34% one year ago and up from 27% in the first quarter. As we discussed last quarter, our software capitalization rate is lower when compared with 2011, due to a shift in development to agile methodology. We anticipate similar software capitalization rates through the remainder of 2012. Capitalized software amortization totaled $8.3 million, an increase of $1 million over the last quarter, and an incremental $2.9 million over last year. Net software capitalization declined to 11% from 20% in the second quarter of 2011.

SG&A expenses declined approximately $5 million over the prior quarter on a GAAP basis, returning to a more normalized go-forward run rate. Included in our GAAP results, and as discussed during our first quarter 2012 earnings call, we incurred additional expenses during the second quarter associated with the changes in our Board, legal settlements, and related items, resulting in nonrecurring charges of $3.1 million. We also incurred $3.1 million in transaction-related retention expense, as discussed in prior calls.

Q3 2012 marks the last quarter we will record approximately $3 million of Eclipsys merger-related retention payments in our non-GAAP operating results for 2012. This amount is consistent with prior quarters. Non-GAAP net income was $29.3 million or $0.16 per diluted share, after excluding the $6.2 million I just discussed, as well stock-based compensation and acquisition-related amortization expenses.

Regarding liquidity, the Company ended the quarter with $122 million in cash and marketable securities. This is a decrease of $55 million, driven by our share repurchase activity during the second quarter. As of June 30, 2012, we had $243 million available under our revolving credit facility. As we reported previously, we secured an additional term loan of $150 million in the quarter. Proceeds were used to partially repay the amounts we drew down on our revolving credit facility [to fund] the repurchase of $225 million of stock in the second quarter. Please note that the share repurchases completed in the second quarter impacted results by less than $0.01 per share.

Cash flow from operating activities totaled approximately $59 million, and free cash flow was $26 million. Accounts Receivable decreased to $363 million, equating to Days Sales Outstanding of approximately 89 days, a three-day improvement from last quarter.

Now let's turn to our guidance. We continue to anticipate 2012 non-GAAP revenue of between $1.48 billion and $1.52 billion. We continue to assume non-GAAP operating margins in the 16% to 17% range. Reflecting our current borrowings outstanding of approximately $488 million and associated interest expense, as well as a new estimated diluted average share count of 182 million, we are adjusting non-GAAP earnings per share to a range of $0.77 to $0.83, an increase from our prior range of $0.74 to $0.80 per share.

Also, we made a small adjustment to our segment reporting in our 10-Q, which we will file tomorrow. We have expanded the number of reportable business segments to include IT Outsourcing and Pathway Solutions, our transaction processing and related business. We will continue to present revenue and operating income for these and other reportable segments, namely software delivery, services delivery, and client support.

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

Thanks, Dave. To sum up, I'm pleased with the improvements in our business and new clients that we signed during the quarter. And we're excited to welcome more than 4,000 clients and partners to Chicago for our annual client conference, the Allscripts Client Experience known as ACE next week. There will be more than 400 sessions, many of which are client-led.

In addition to a number of new announcements, many partners will highlight new applications or apps designed to run on the Allscripts open platform. Think of this like the App Store on your iPhone.

In closing, I want to sincerely thank all of our 6,800 team members for their hard work this year. I never cease to be amazed at the energy and dedication of our people to succeed, and we will. Transforming healthcare is important work. And we're committed to moving the industry forward with our open platform and a focus on creating a connected community of health. We look forward to continuing to update you on our progress.

With that, I'll turn it over to the Operator so we can take your questions. Operator?

(Operator Instructions) Michael Cherny, ISI Group.

So I just wanted to get a little bit (multiple speakers) -- on the two new SCM wins as well as the expansion, can you talk a bit about the conversations you've had with these customers related to, obviously, the rollout of 6.0? And have they been involved in the discussions regarding new product? And what are the expectations, as you deploy the products at these three sites, what version of Sunrise will they be going live on? And what's the product roadmap for them going forward?

Frankly, all the discussions around 5.5, and I think this comfort level came from seeing some of our largest clients actually deploying 5.5 very successfully. We talked in the prior quarter about some of the delays that were associated with everything from the corporate changes we made and a lot of the press around that to some of the product concerns. And people wanted to see 5.5 being rolled out easily and without any issues, and we've demonstrated that. So that's really been the success factor that they've focused on.

Of course, the other piece is really a decision between an open platform where they can connect and use what they have. And the rip in the place methodology that's much more expensive and takes much longer. So those are really the key factors.

Great. And then just one more clarification for Dave. When you talked about bookings for the rest of the year, I know you guys don't provide formal guidance, but did you say that you expect roughly flat sequential bookings for the last two quarters? I just want to confirm I heard that.

Yes, and as we said in our first quarter call, we were not in contemplation of the regional guidance that we issued, and even the revised guidance, it's still predicated on relatively flat bookings for the rest of the year.

Okay, great. Thanks.

Jamie Stockton, Wells Fargo.

Thanks for taking my questions. Maybe, Glen, the first one is just on the Sunrise Clinical Manager side. When you think about the level of activity in the marketplace, over the next year, let's say, how would you expect the number of decisions to compare to what we've seen over the last year?

I think we're going to continue to see a steady stream of decisions. And frankly, as we get to the end of the next 12 months, I think you'll start to see them increase. There's a number of competitors in the market that have kind of started to step away. That's one thing that's driving some of the decisions.

And I think, second, as the need for analytics and insights and care coordination continues to increase, I think more organizations are going to look for a sensible alternative that's affordable, easy to install, and open. And I think they're going to come in our direction. So that said, think it's a stable and slightly growing number of decisions that's out there.

Okay. And then maybe my follow-up is, how do you view what's going to happen in the ambulatory space along those same lines? Just the aggregate number of decisions?

Well, I think that as access to the meaningful use dollar starts -- continues to open up, and more and more people test and then move into meaningful use too, you're going to see continued strength there, especially at smaller practices.

Now, there's some combination of activity, including hospitals buying up practices on one end; on the other end, there's payers providing significant support to keep practices independent. And then right in the middle of that, there's some large groups that are large independent groups that are kind of playing the middle of that space. So there's ample opportunity out there for us, assuming we execute.

Okay. Thanks.

Atif Rahim, JPMorgan.

And I'd say well done in the quarter. I think expectations were low and you guys definitely came out ahead. My first question related to that is, what are the pushbacks you've got during the quarter, as you sold through clients, given some of the issues at the Board level were more visible? And what's the longer-term view that clients have of you guys?

And secondly, on the acute market, you didn't comment on bookings there. Were they up sequentially or flat? Or how should we think about that segment?

So I'll take the first piece. Relative to pushback, I think a big issue that was created both in the market and from a stock perspective, was clients wanted to make sure that we were stable, and that we were moving forward, and that there was no other shoe to drop. I think this quarter demonstrates that in a big way.

A number of clients were watching and waiting. Some told us they were waiting on decisions to make sure the second quarter was solid and we were back on track. And it took some time, frankly, and some energy to get out in front of our clients and explain what had happened, talk about the strength of our new Board, which is stronger than ever. And so once we've done that, we think the selling environment is going to come back.

The other factor, of course, was people were watching very closely, 5.5 upgrades. They've been pleased with the progress there with our Enterprise EHR upgrades. And again, a lot of focus around Allscripts is on execution and delivering from that standpoint.

Last but not least, we see next week as a great chance to relaunch, if you will, with 4,000 of our clients here in Chicago; more than 100 of our partners here; and presenting lots of client presentations on best practices. So we're excited about that. We think it positions us well into the September through December selling season.

And then -- this is Dave -- with regards to bookings in our acute segment, sequentially, they were down from Q1. And I guess I would break that down into a couple of different areas. One, as Glen and I both mentioned on the call, we saw significant activity in our care management business up sequentially, as well as up year-over-year. From a new SCM sales perspective, those were essentially flat quarter-to-quarter.

And then from a client-based perspective was down quarter-over-quarter. But that's really kind of consistent with the themes that we've been articulating coming out of Q1, where a lot of our base through some of the upgrade activities that they went through in 2011, and some of the additional product enhancements and stability enhancements coming out later in the year, are still kind of in a pause and a wait-and-see kind of mode at this point.

Got it. And then as a follow-up to that, on the ambulatory strength, you said it was mainly in the midsize groups. And I might have missed this earlier, was this replacement activity or greenfield sales that you're making? And then how did the small market fare with your my Way product there?

Yes, I think the answer to your first question, it was some of both. We had some very big competitive replacements, some of our new competitors out there. And then also, we had some brand-new clients join the fold, which we were pleased with, again. We felt, given a lot of the uproar that had come earlier in the quarter, we were pleased to see, frankly, what we thought were strong sales in the midst of that.

Relative to the low end of the market, my perspective is that My Way was reasonably flat, and more and more people are moving to Pro. They're moving to Pro for two reasons. One, because there's much anticipation around the fully-featured iPad release, which is coming out at ACE.

A lot of reasons that people went with My Way was, easy to use, easy to install, easy to train. Well, with the iPad release of Pro, you get all those benefits, but in addition, you get the strength of the industry-leading practice management system. And you also get a lot of the analytics that are built into Pro that, frankly, weren't in My Way. So we're seeing a movement more and more to that mid-market.

Perfect. Thanks very much.

Greg Bolan, Sterne, Agee.

I want to second those congrats on much better than expected results, I think, out there. And I realize that ADX 1.5 has been in beta testing at one site for the past three or so months, but can you talk about any color you received on reference site visits as of late at that site? And then -- and can you also talk about the pricing dynamics for the two new Sunrise deals won this quarter? Thanks.

Well, relative to ADX, I think there's been actually a whole lot of focus and attention on it. And some investors, I think, even held calls with them separately that we weren't on, but we heard about. I think there is a lot of interest in ADX, which was developed using the agile methodology side-by-side with a group of clients -- [Lessing] just happened to be the first one. And from that perspective, they remain very satisfied.

Part of what Cliff Meltzer, who leads that whole solutions development organization has brought to us is this new terminology that's where we have sites that are early development partners. And so from that perspective, we're making sure on every one of these releases that we spend time out there in the market with clients, to work out all the kinks before we go GA.

So we've seen very favorable response from what people are saying there. They're saying it's easy to use; that it addresses the issues. And there's going to be a lot of talk and a lot of demonstrations of it at ACE. So, we feel very good about that.

Dave, you want to take the pricing piece?

Yes, and -- that referred to the overall pricing environment, I think you asked a question specifically about the deal size as well. If you look at the net new Sunrise deals as well as the footprint expansion, the average deal size is consistent with what we've been seeing over the last two to three quarters. So we're not seeing any substantive change in the size of the deals.

And then in terms of just the overall pricing attached to those deals, I would characterize those as consistent with what we saw in the first quarter as well as the fourth quarter, as well.

Thank you.

Ryan Daniels, William Blair.

It's Andy O'Hara in for Ryan this afternoon. Just a follow-up on ADX 1.5. I'm curious, how many clients roughly have both Sunrise and Enterprise, and want that integration there?

I think that the clients that want both that don't have some form, the number one or two of the clients have actually built some of their own, which we helped them at. But I think that's between, call it, 25 and 35 clients.

All right. That's helpful. And then can we also get an update on the CFO search?

Yes, relative to this CFO search, we have said that we're looking at internal and external candidates, and it's underway.

All right. Thanks a lot.

Charles Rhyee, Cowen and Company.

Yes, hey, thanks for taking the questions here. Hey, you know, going back to the new footprints, obviously, that's encouraging here. Can you talk about the rest of the base? I guess in two fashions -- first, what does the pipeline look like for you right now at this stage, in terms of potential, the new footprints down the road, maybe some color on where -- what type of clients are you talking to right now?

And then, secondly, how does protecting the base, the client footprint look right now? You've obviously had some competitors, kind of suggests that a lot of your clients are looking elsewhere or at least fielding RFPs. Can you talk about how you're talking to your customer base currently? And maybe just some more color, that would be helpful. Thanks.

Yes, I'll just -- I'll make some quick comments. Dave may want to comment as well.

First of all, relative to the pipeline, I would say the pipeline is consistent; it's strong. You know, frankly, I didn't expect, based on last quarter, any dramatic increases in the pipeline. We wanted to make sure there weren't any decreases and I don't think we saw any real movement one way or the other. So consistent, solid, and very strong pipeline.

Relative to the interest of clients, generally, it's really across the board. We think the open message is starting to resonate. We think people are starting to understand that paying these astronomical amounts to install a closed system doesn't make sense for the future at the high end; and in the mid-market, they simply can't support it anyway.

And as whether we have an Obama or a Romney administration, one thing is certain, and that is, healthcare is going to get squeezed. So the focus on cost-effective systems that are easy to install, that connect with what you have that works today, is really garnering more and more attention. And if you look at the blogs and see the undercurrent here, it's going to get pretty interesting.

In addition, as the apps start to hit, we're going to see the same effect that we saw in the computer market. First, you buy the computer; then you connect the computer; then you start to put apps on the computer, and everything changes. So that's what we see coming.

So I think those are two things. Relative to the last piece, and that is protecting the client base, look, the reality is that a lot of clients are out there looking. I mentioned that we have some very big competitive takeaways in the mid-market. And those were places where other well-known systems that are doing very well were installed, and we had takeaways there. Now, this market is going to be very competitive and it's going to be active. And I think people are going to be out looking.

Looking is different from changing. And as many who are looking that are our customers, we're in talking to a lot of customers, including some customers who are saying, hey, we have this big system that's from a well-known brand, and we can't afford it any more. So how can you help us take down our cost? And I think you're going to see some interesting dynamics.

But I wouldn't get too hung up one way or the other on one account or another. because I think you're going to see movement in all directions. What's important is the overall trend -- is it up? And are people preparing for what's next? And we are.

Dave, anything else you want to add?

No, I think you've covered it from those perspectives.

Thanks. Maybe if I could just have one follow-up. Dave, as we think about the guidance for the year, where are we going to get, do you think, the most leverage in the margin? Is it at the gross margin line? Or we looking at more from the operating leverage? Given that we've done about $0.28 here, we're obviously going to get the benefit of the share repurchase. But to get to the back-half sort of midpoint number, where should we be looking for that leverage the most? Thanks.

Well, I think that the way you ought to think about it is, obviously, our gross margins right now are -- the last two quarters have been in the high -- sorry, low 40s, call it 42% to 43%. So I would look for some expansion in that in the back-half of the year. And obviously, you saw some of that in the second quarter on our system sales margin expansion, as well as some operating leverage that we'll see, as we see some higher revenue growth in the back-half of the year.

Thank you.

George Hill, Citigroup.

Thanks for taking the questions. I guess, Glen, congratulations on the new Sunrise deals that you guys sold this quarter, definitely in a challenging environment. Can you tell us whether or not, I guess, as we look at quarter-end, were net footprints up or down on the acute side?

Net footprints were up.

Okay. All right. That's helpful. And David, we know that the bookings came in late in Q1, as a lot of deals that you guys had expected to close did not close and had slipped. And what I want to figure out is, did many of those deals that you expected to close in Q1, did any of them close in Q2 by the enterprise bookings number? I would guess maybe no.

And what I'm trying to get to here is, what does the pipeline starting to look like? And if you've got this backlog of whether they be Sunrise, acute care sales or Sunrise Financial sales, or ADX 1.5 sales, I'm trying to ask -- how conservative are we being with the bookings? What does the pipeline look like? What's composed in the pipeline? Can you guys keep pushing out this revenue [rec] that's leading to a building pipeline. And that's the idea I'm trying to wrap my head around. However you want to answer that question, I'll take it.

All right. Well, I guess as Glen just mentioned, we're seeing stability in the pipeline coming out of some of the announcements that happened right at the end of first quarter. And obviously, as we talked about, we've got a lot of major activity happening that we're going to be previewing next week at ACE that will be coming out in the back-half of the year, specifically around the next version of Sunrise, the anticipated release of Sunrise Financial Manager, the next upgrade in some of our integration capabilities.

So, from that perspective -- it's not that we're seeing opportunities drop out of our pipeline, but it is consistent with how we thought the year would begin to work itself out. Because we're still early in the year and these things are coming out in August to late third quarter.

Okay, then I'll lob one last one in. And Glen -- so, Glen, does that mean that maybe we should be looking for a fourth quarter or early next year, there's a bolus of these people sitting on the sideline who decide to get involved to make purchasing decisions?

Yes, we're going to be -- stick with the guidance that we've given. And we want to be very conservative in trying to guess what the future is. But what I would say is, the pipeline is going in the right direction. It's very solid, very stable. We're comfortable with it.

And what we can predict is that we're going to have -- we have a lot of great new products coming out. And we have increasing stability in our existing base and the ability to execute. We've got enormous focus on client satisfaction and client experience. So, we're doing all the fundamentals right. If you do the fundamentals right, the rest happens. But I'm not going to try to predict the time.

Great. I appreciate the color. Thanks.

Larry Marsh, Barclays.

Just to make sure I'm clear on the point, Glen, I guess your message today seems to be that you feel like the quarter, under the circumstances, was at or above your maybe initial expectations, based on the stability of the pipeline, and maybe some ambulatory bookings improvement. Is that right?

And I guess just a follow-up on George's question. I know that you said in the first quarter with the pre-release, that your guidance didn't assume any significant sequential improvement in bookings. Today, you're implying that we shouldn't expect to see any real sequential improvement in bookings after the second quarter decline.

Is your message that those two statements are the same in a general sense? Or would you say that, no, given we had two wins, under the circumstances, we're still disappointed about the trend in part of our business and pleased with other parts?

Well, first of all, I don't know where you are in the world, Larry, but it's late afternoon here. But I'll good morning to you, anyway. Relative to pipeline and overall guidance, what we -- we really don't want to get into predicting where it's going, other than saying the pipeline remains strong and is continuing to grow.

And I think what I'd say is, we, given the amount of questions and the essential freezing of the client base when we had the challenges in the market with stock performance and the like, I think what I'd tell you is that the pipeline was in line with what we had said. And that we felt we did a lot of the client recovery efforts that were necessary. And we got the client base back to focusing on the right things, which are execution, product functionality and why open solution makes more sense than many of our competitors.

So, I think, again, we're confident. We're going to continue to execute. We don't want to update anything; we simply want to say that we're operating, we think, in line with what we told you we'd do.

Okay. And just to follow-up, the 6.0, you had said is in control release already with the message that it's still expected to be rolled out, generally available in the fourth quarter. So that seems to still be on track.

And I guess along with that, I think when you said your communication with your new Board members, they're supportive. Can you elaborate on any other data points they've provided you so far, in terms of support or direction, given that we're still early on in the -- given the significant changes you made in the Board in the last quarter?

Yes, I think we added some very high-quality Board members. And I think the Board is working well together. We actually leave this call and spend the next two days with our Board. And we think that the Board is supportive of the strategy that we're moving forward on, with significant focus on execution and optimizing the plan we have, which we think is the right plan. So I think I'm comfortable in saying the Board is supportive of the plan and very focused on ensuring that we execute. So that's -- I think that's the comment that I would make.

Okay. Very good.

Sandy Draper.

Just one quick question for Dave, a clarification, then maybe a bigger picture question for Glen.

Dave, in reference to the comments about the leverage in the back-half of the year, I think, Dave, would you expect to see similar levels of declines in SG&A as you take out costs, and we could expect to see pretty material sequential declines in SG&A? I wasn't sure if I picked that up. I didn't get quite where the operational leverage is below the gross margin line.

It will come across a number of the areas from sales, marketing, G&A, R&D, et cetera. So it will be across the board. But -- so that's kind of what we're looking at right now.

Okay, thanks. And then, Glen, when you look at what's going on in the industry, a couple of the two buzzwords a lot of people are talking about are population health management and then analytics. Love to just get your sort of bigger picture thoughts on where you guys are positioned there, and how you see potential opportunities to go after those. and -- or potential either areas that you need to bolster. Thanks.

Yes, I think what I tried to say in my comments is, in each of those areas, we have new product offerings coming out or updates or we're strengthening our relationships with our key strategic partner. So, if I worked my way across each of the important areas that we see, we have great internal offerings that we're investing heavily in.

In terms of care coordination, we expect to have a new product offering prior to the end of the year. We've done a lot of work with the folks at Oliver Wyman, who we think are the top experts in the area. And relative to population health and population management, Humedica is our partner there. As full disclosure, we have an ownership stake in Humedica. But they're known as a industry leader in their space, and they're strengthening both our marketing and sales efforts, but we're also strengthening the integration between the products. And so that's what's happening there.

The same thing is happening with BB Motion on our community connectivity efforts. Again, strengthening that. They're a leader in the market, as well. And finally, our own internal offerings which we're investing heavily in.

So, whether it be ACO's; whether it be new payment models, we see this as driving more and more of the smart decisions that are being made out there. And core to that is that you've got to be open, you've got to be flexible; and frankly, you've got to be able to partner. Because, as we bring more than 100 of our partners together in Chicago, every one of them is pulling for us to win, so we can sell our products.

And we think that starts to create this ecosystem, whether it be for products or whether it be for people who install our own software, we're happy to work with all of the above. So that's kind of the plan.

Thanks. I appreciate the comments, Glen.

Yes.

Eric Coldwell, Robert W. Baird & Company.

I was intrigued by the comment on the success at University Hospitals. And obviously, it sounds like the upgrade there is going well on the Acute side. And year-ago, that same account announced that a relationship with another vendor in the ambulatory market, and that vendor recently said that that contract has been delayed ,in terms of the implementation schedule, by at least six months or so.

Are there opportunities around relationships like that? Now that you're seeing success with the upgrade, can you get back in the door on some of these other opportunities that you've missed out on?

Well, I'd say a few things. One, first of all, we -- University Hospitals Health System, UHHS, is absolutely key client of ours. I was there recently. It's got, I think, some of the best leadership in the industry under Tom Zenty. I met with their 14 Quality Officers and our Chief Quality and Outcomes Officer, Dr. Diane Bradley, was there. Some of the outcomes they're getting there, I would suggest they could have the best healthcare in Cleveland. I mean, they're terrific.

Relative to what we're doing, we're doing a whole variety of things with them based on their success. And again, if you execute when you're rolling out or upgrading your software in 14 of their hospitals, including the brand-new one that I was at, it's pretty significant.

In terms of other opportunities, we see it. You heard me talk earlier in the call about rolling out with North Shore Long Island Jewish in terms of our care management software, and also with New York Presbyterian. They've been clients for ages, and yet they're buying all new stuff around Care Management, which Dave mentioned, is a very hot product for us. And with our care coordination stuff coming out, that's going to get even stronger.

So I do think there's opportunities. I'm sorry if some of our competitors have seen that flow. I know they must be disappointed about Cape Cod as well. But we're just going to continue to focus on execution. That's what we know we have to do. Our clients have told us. You've told us. And that's what we're going to get it right and focus on that. So -- but there's ample opportunity within the base and outside the base if we execute.

Great. I'll leave it at that. Thanks, Glen.

Sean Weiland, Piper Jaffray.

I think most of my questions have been asked. I'll just ask, is there an update that you can provide on the relationship with Quintiles?

The relationship with Quintiles is very strong. I just met with their CEO. And I think we have an increasingly strong relationship where we're doing innovative things together. But great leadership there and I expect we'll continue to grow that relationship.

I think it's -- it is at the early stage, but there is huge opportunity there when you think about what our clients want, what they deliver, and what their clients want. It all should fit together nicely. And increasingly, we're creating win-win for all of them. But as we talk about creating a partnership to improve research, that benefits the clients. It benefits the patients. And it benefits Pharma. And I think we can do something unique. And that's what I talked to Tom Pike about.

Okay. And then it's always hard to keep track of whose customers are whose. Cape Cod, was that Afina?

You know, a whole bunch of people around the table are waving their hands saying I shouldn't get into talking about competitors. So we'll let you guys figure that out. (multiple speakers) It's a SaaS-based operation though, I think.

Okay, thanks so much.

Your next question (multiple speakers) --

Okay, why don't we take one more question.

Certainly. Your next question comes from the line of Stephen Shankman, with UBS. Your line is open.

Great. Thanks for fitting me in here at the end. So I did want to touch on the maintenance revenue growth trajectory. I believe I've heard you guys in the past refer to much of that base as subject to CPI growth, but obviously, it's been growing much stronger than that recently.

I'd imagine a lot of that is due to some new system activations, but I am trying to get a sense of the maintenance revenue growth outlook in the back-half of this year. And if you could remind us of that line item's, I guess, growth related to the bookings and the relationship there.

Well, I'd say two things, and I'll let Dave comment, as well. One, I think we're up 7% year-over-year, so it's better than CPI by a long shot. Part of that has to do with the growth in our sales. So you're adding -- so, CPI is on the existing base that as you add new clients, you're going to see growth.

But Dave, you want to comment more on that?

Yes, I mean, as I indicated in my initial opening comments, I think you'd expect the maintenance to continue to grow in the back-half of the year. One of the other things to note about our maintenance revenue and its relations to bookings is, a lot of our bookings are -- the related revenue begins to kick in whenever clients go live or the products actually go into production. And so sometimes what you see is an actual lag in maintenance revenues from the actual bookings that we see.

And what's that typical lag time?

It's going to vary depending on the type of deal. I mean, depending on whether it's a care management deal, to whether it's a Enterprise EHR deal, the size of the deal. So I mean, if you figure implementation timelines can run anywhere from six to nine months; that's a data point.

Fair enough. Thank you very much.

Okay, well again, I want to thank everybody for joining the call this quarter. And we'll look forward to updating you in future quarters. Thanks very much.

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