Veradigm Inc (MDRX) 2012 Q3 法說會逐字稿

Good afternoon, my name is Anna, and I will be your conference operator today. At this time I would like to welcome everyone to the Allscripts third-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).

Seth Frank, Vice President of Investor Relations, you make begin your conference.

Thanks, Anna. This is Seth Frank, Vice President of Investor Relations with Allscripts. Thanks everyone for joining us today. On the call are Glen Tullman, our Chief Executive Officer; Lee Shapiro, our President; Rick Poulton, our new Chief Financial Officer; and Dave Morgan, our Interim Chief Financial Officer.

Before we begin I will 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 our ability to achieve the strategic benefit of the merger with Eclipsys and other 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.

And now with that behind us, I would like to turn the call over to Allscripts' CEO, Glen Tullman.

Thank you, Seth. Good afternoon. Thank you for joining us today on our third-quarter 2012 earnings call. We hope all of you, as well as your family and loved ones, impacted by Hurricane Sandy are recovering from this devastating event. For our part we have been working closely with our clients to help them deal with the impact of the storm, enabling them to continue providing care to their patients.

I want to acknowledge the efforts of our team members who worked to help our clients even as they encountered serious challenges of their own at home.

Today I will start with some brief remarks regarding our third-quarter results. I will then update you on the progress we have made in solutions development and client experience. And before taking your questions I will comment briefly on the strategic alternatives process.

Turning to the third quarter, bookings came in at $161.9 million. Our results were impacted for two reasons. First, clients delayed decisions in the quarter due to speculation about Allscripts' future corporate autonomy, and second, clients who continued to delay purchase decisions as they wait for new product releases.

I do want to highlight a few important new contracts across our solutions portfolio in Q3. We signed one new Sunrise client, Appalachian Health System, a three-hospital system in North Carolina. This was a competitive opportunity and resulted in the displacement of a legacy system vendor.

In terms of other notable agreements in Q3, we signed a new Care Management contract with Orlando Health, and added a new Enterprise EHR relationship with Hoag Medical Foundation in California.

We also expanded important relationships with several clients, including Dignity Health, Summit Medical Group, and Catholic Health Initiatives. And we saw improvements quarter-over-quarter in performance management solutions, including EPSi and Sunrise Clinical Analytics as health systems continue to focus on preparing for the shift to value-based care.

Mid-market ambulatory sales of our Professional EHR also were in line with our expectations. The message to take away is despite all of the noise, we continue to compete and sell in the ambulatory, acute and post-acute segment of our business. And we remain increasingly competitive for new opportunities, as well as selling into our client base.

Relative to our client base, maintenance revenue increased close to 5% year-over-year, demonstrating strong retention and stability.

Turning to the healthcare IT market, our view is that industry demand will continue to accelerate, especially now that the uncertainty around Obamacare is gone. We expect the shift to value-based payments and away from fee-for-service to continue.

To effectuate this change, providers of all sizes will increasingly move to accept both financial and healthcare quality risks for the care they deliver. At a minimum providers need robust data capture and systems to drive care coordination and population health management. Further, regulatory changes, such as Meaningful Use and a ICD-10, will drive growth in practice management and Revenue Cycle solutions. These forces will support continued long-term industry transformation.

In addition, managing chronic disease states is a burden on healthcare. Expert systems will be required to manage care of these populations more efficiently, and new entrants on the retail front will increasingly assume this burden. For Allscripts, our open platform, robust clinical solutions, new revenue cycle management platform, and care coordination tools that connect across the continuum of care will continue to be key to driving this industry transformation.

Our application developer program is also having increasing success, leveraging our open architecture to lay the foundation for an ecosystem of innovation beyond Allscripts' walls, opening health care for innovation from our clients and from outside third-parties, much as Apple has done with its App Store. We currently have 35 partners and are adding more, all of whom are developing exciting new applications. In response to an Application Challenge issued 30 days ago, we have already received 72 submissions from developers and clients.

I am also pleased to report that across our portfolio we are delivering on time the solutions development commitments we made back in the first quarter. All of our EHR upgrade releases, as well as Sunrise Financial Manager, our new Revenue Cycle management solution, and our native integration technology, ADX 1.5, are currently or will be generally available this quarter, consistent with our prior expectations.

These products are all ICD-10 compliant, and include significant new features and functionality. This marks the largest and the most ambitious new release cycle in Allscripts' history, and we are ready to go as we head into 2013.

Let me briefly review the status of the portfolio. Enterprise Electronic Health Record 11.4 became generally available in September. We believe this is the highest performing, most stable version of the Enterprise ever released, a view that has been confirmed by our clients.

We anticipate Sunrise Clinical Manager version 6.0 to be generally available this month with enhanced performance features. Sunrise Financial Manager will also be generally available this month. In addition to integrating clinical and financial applications, SFM offers unique visual workflow tools, giving organizations and end-users significant flexibility to configure the system for their workflow.

With the release of SFM, we will have in the market a fully integrated, single database solution for hospitals and physician offices. As many of you have heard, our native integration capability ADX 1.5, is currently live at Blessing Hospital in Illinois, with several others coming online soon.

And last week we released the latest version of Professional EHR 12, our solution for mid and smaller independent practices. It is ICD-10 compliant and features the latest version of Wand, our native iPad mobility application. With Wand, clients have access to a fully functional, mobile electronic health record, with clinical documentation, order entry and charge capture. We believe mobile is a game changer for physician workflow, as is our intuitive easy-to-learn user interface.

Wand has close to 7,000 users today who have processed hundreds of thousands of patient encounters since February. A critical area for the future is care coordination, a key requirement for ACOs. Our solution, Allscripts Care Director, a SaaS offering, will enable organizations to share information and manage patients across all care venues to achieve high-quality outcomes. We are targeting general availability for this solution in early 2013.

While we have been hard at work upgrading our current portfolio and developing new products and solutions, we have also been focused on improving the client experience in the industry's largest customer base, a key metric for continued strong retention.

One measure of our progress came from a recent HIMSS Analytics study that interviewed organizations who recently upgraded to either Sunrise Clinical Manager or Enterprise EHR. The results showed that clients reported a significantly improved upgrade experience. Perhaps more important, these clients, when asked their likelihood to recommend Allscripts, scored us as a 9.3 out of 10.

So to sum up, while there were market distractions that impacted this quarter's financial performance, we continued to make solid progress in moving the business forward.

I would now like to introduce Allscripts' new CFO, Rick Poulton. Rick joined us on October 29 from AAR Corporation, a New York Stock Exchange listed company where he served as Chief Financial Officer since 2007. Rick brings a strong record of strategic financial management and delivering results. We are excited to have him on the team. Rick.

Thanks, Glen, for the kind words, and thank you for the opportunity to say hello. I am very happy to join the Allscripts team at what is a very exciting time for the Company. The healthcare IT industry and its power to enable transformational change in both the economics and quality of healthcare delivery is very appealing to me. And Allscripts' vision and long-term strategy to be a leader in this industry made it very compelling for me to come here.

As Glen has just cataloged, the Company's product portfolio is poised to take a big step forward, and I expect to be a driving force inside the Company to maximize the value of this portfolio for the benefit of our shareholders, our customers and our employees.

Given that I just joined the Company following the close of the quarter, I'm going to let Dave Morgan walk you through the third-quarter financials. I will be available, however, for the Q&A session of the call and look forward to working with you in the future. Dave.

Thank you, Glen and Rick. Before I discuss the 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.

I'm going to focus my comments today on specific areas in the quarter to help you understand the results and put them in proper context. Third-quarter bookings of $161.9 million declined approximately 17% from second quarter and 39% versus the third quarter of 2011. This decline in bookings is attributable to several factors.

As Glen has indicated, market distractions associated with rumors about potential strategic alternatives had a negative impact on our ability to close certain business in the third quarter. Specifically, I would like to highlight several key themes that drove bookings results in the quarter.

First, sales to new clients in the acute and mid- to high-end ambulatory space were down sequentially. This decrease is due to a combination of lower Enterprise ambulatory activity than in recent quarters; lower international business compared to Q1 and Q2 where we added new SCM accounts in the UK; and sequentially lower domestic acute business, which reflects fewer net new SCM deals compared to prior quarters.

Small office physician sales were impacted by anticipation of changes related to our MyWay offering. We have since provided a clear plan to migrate clients to our Professional Suite solution. We expect a strong level of migration in light of our compelling no cost offer.

Sales into our acute and mid- to high-end ambulatory client base continued to modestly recover from the low point we experienced in the first quarter.

Finally, we were pleased with the continued strength in sales of our Care Management and performance management solutions, as health systems continue to focus on preparing for the inevitable shift to risk management, payment for value, and population health management.

From a mix perspective software bookings were a lower percentage of total bookings in Q3 as compared to Q2 and historical levels. Software-as-a-Service arrangements remained relatively constant to Q2, and as a percentage of total bookings continue to track higher compared with 2011 levels.

Backlog totaled $2.83 billion, essentially flat with the second quarter. Our backlog breaks down as follows. System sales backlog was approximately $111 million, down from $122 million in Q2. System sales backlog declined primarily due to lower levels of Enterprise system sales in the quarter.

Professional Services backlog was approximately $395 million, up from $381 million in Q2. Maintenance revenue's backlog was $860 million, up approximately $10 million versus the second quarter. Maintenance backlog will fluctuate through the quarter based on the timing of client activations and renewals.

Finally, we ended the quarter with transaction processing and other backlog of approximately $1.46 billion, down from $1.48 billion in Q2. This backlog will fluctuate quarter to quarter based on the amount of outsourcing renewals or new outsourcing sales activity.

Turning to income statement specifics, non-GAAP revenue was down slightly sequentially as well as year-over-year, driven largely by a decline in system sales and Professional Services. The decline in system sales was attributable to both software and hardware revenue in the quarter when compared with prior periods, and was generally a result of the bookings results we have already discussed.

Professional Services revenue declined versus the prior year based on a lower level of upgrade activity, as well as few newer system implementations. Maintenance revenue increased versus the prior quarter and year, reflecting continued go-live activity and client renewals. Overall client retention trends continued to remain stable.

Transaction processing and other revenue was flat sequentially, a relatively typical pattern given the recurring nature of these businesses. Approximately 72% of the revenue in Q3 was recurring in nature, an increase from 69% in the second quarter.

Notwithstanding the lower mix of software revenue this quarter, corporate gross margin expanded 90 basis points driven by improved margins within our recurring revenue line, namely, maintenance as well as transaction processing, specifically SaaS operations and outsourcing.

System sales gross margins remained significantly below prior-year levels due to lower software revenue and higher capitalized software amortization. This amortization, which flows through the system cost of sales line, was largely unchanged in Q3 at $8.6 million, but was $2.8 million higher over the prior year. Professional Services margins declined due partially to advanced preparations for upcoming product releases.

Turning to expenses, non-GAAP operating expenses were flat compared to Q2. Reductions in R&D growth spending, as well as G&A costs in the quarter, were offset by higher selling and marketing costs.

Breaking down key expenses, gross research and development spend totaled $45.8 million, an 11% increase year-over-year. Capitalized software totaled $11.6 million, or 25% of gross R&D in the quarter, down from Q2 levels. Non-GAAP operating margin was flat at 13.8% versus the second quarter.

Moving below the operating line, we have revised our effective tax rate for the year downward to 29% from our prior view of 37%. The primary driver of this change is a higher proportion of profit being derived from international jurisdictions, which are taxed at lower rates than domestic income. Thus our effective tax rate was 15% in the quarter on a non-GAAP basis, reflecting a quarterly catch-up adjustment to align to our new effective tax rate for the year.

On this basis utilizing a 15% non-GAAP rate, non-GAAP net income was $39.4 million or $0.23 per diluted share after excluding certain amounts, including stock-based compensation, acquisition-related amortization and certain nonrecurring items.

Cash flow from operating activities totaled approximately $31 million. During the quarter we repaid approximately $29 million of our outstanding debt obligations. We ended the quarter with cash and marketable securities of $95.4 million.

Finally, as stated in our press release, we have determined that in light of the decision to evaluate strategic alternatives, which Glen will discussed in a moment, we are withdrawing our 2012 annual guidance.

I will now turn turn the call back to Glen.

Thanks, Dave, and thanks again for your great service as Interim CFO. There is one other important topic I would like to cover today. As you saw from the release that we issued earlier today, we confirmed that in light of ongoing interest expressed in the Company by third-parties, Allscripts is evaluating strategic alternatives.

While we don't plan to provide additional detail beyond what is in our press release, or take questions on the topic, I will say that regardless of the outcome, Allscripts' primary focus is and will continue to be serving our clients and delivering world-class solutions to our clients, and the many new prospects who need to position their organizations for the future of healthcare and want to do so with innovative tools and an open platform. That is something we will continue to develop and deliver.

So let me thank you again for joining us today. And with that I will turn it over to the operator so we can begin the Q&A session. Operator.

(Operator Instructions). Charles Rhyee.

Glen, just really touching on the bookings and, Dave, maybe just some of your comments here, you gave a lot of details on where the miss came from. Relative to the second quarter can you give us a sense on was there more coming from the acute side versus the ambulatory? Can you give us a sense on the split?

And then, secondly, a lot of the more physician-oriented players have all talked about a softness in the market stemming more from macros as there has been less sort of an emphasis by physicians to really move forward with buying EHR. Is that something you are also seeing, because you seem to indicate that it is more product specific for you on people waiting for new releases and stuff? Thanks.

Yes, I will cover both of them, and then we will see if Dave would like to comment. The relative split is pretty much the same as the second quarter. Dave can comment more on that.

That said, I will tell you that in light of uncertainty, some of the large Sunrise deals tend to push, because people are making a 10 year commitment, and they have a big focus on making sure they understand what direction the Company is headed in and the like.

So we are continuing to see strong competitive positioning and vis-a-vis the hospital decisions that are being made in the acute side. Typically it is three organizations that are being invited to these deals, and we think we are well-positioned once we get past the noise.

Relative to the market, we don't see a slowdown. I know others have talked about it. We do see some folks waiting for us, because they are saying we're not going to upgrade now and then upgrade later to get Meaningful Use 2 or ICD-10, so there have been some delays waiting for latest versions, which are all now starting to hit.

As we mentioned, -they are either GA, they will be GA in the fourth quarter or there will be GA in the first quarter. So again we see, as I said, the most ambitious product upgrade and development cycle in the Company's history, and we expect that to pay dividends in the future.

Glen, you are saying that people are waiting for these new releases are these existing clients or are these potential new clients?

I think that is consistent with what we have said in the past and those would-be existing clients. Relative to new clients, generally what we would be installing for most new clients is going to be the new releases anyway. So this is really a function of upgrading. That problem is starting to go away as these hit GA, as we just discussed.

So you are saying you are not seeing any necessarily slowdown from activity from those people -- net new clients looking at Allscripts on the ambulatory side?

We haven't seen it, no. I don't think we are seeing a slowdown in the market.

Okay, thank you.

Ryan Daniels, William Blair.

Andy O'Hara in for Ryan this afternoon. I was wondering if you guys can maybe break out what you think the proportion of weakness in the quarter was from client delays from the potential sale of the Company versus potentially clients waiting for new product releases?

As I went through in my prepared remarks where we saw from a client-based perspective the acute and what we call the mid- to high-end ambulatory base that continue to see a modest recovery quarter-over-quarter. So from a client-based perspective we are seeing some modest recovery, but we are still facing the phenomena that Glen talked about relative to some of these new releases.

Great, that is helpful. And then can you just talk a little bit about the reaction from some of your customers to the MyWay announcement?

Yes, this is Glen. I think the reaction has generally been pretty positive. What we did with MyWay was we offered people an opportunity to upgrade to the Professional Electronic Health Record Suite, and given the strength of the Professional product, along with the Wand Mobility, what they have told us is that is in many cases more desirable than what they had. So that is a free upgrade process that we have offered to clients.

That said, if clients want to continue to use MyWay we have made that option available to them as well. So I think the way we handled it was appreciated by most clients. There is no question that certain clients who just finished training -- you know, if you have just finished training on a new product, you're not really excited, even if it is a better product, of upgrading to the next version, having just finished training. The nice thing is that they have to. They can get usage out of that product for a period of time and then when they are ready upgrade. So I think it has been generally pretty well received.

Just a real quick follow-up. How large is the customer base on that product?

I don't think we have actually sized the customer base, but what I would say is it is in the thousands.

Okay, thanks a lot.

And just one quick addition here. I am reading from an e-mail -- this is Lee -- from one of the customers who just issued a process. And they were talking about our team and saying that the team that came out to visit, they are both wonderful. The trainer in the demonstration of Pro, they were able to demonstrate to me that Allscripts Professional is really a better solution than MyWay, close quote. So hopefully that closes that off. Thank you.

Greg Bolan, Sterne Agee.

Glen, can you talk about the pent-up demand for the integrated Sunrise Clinical Revenue Cycle solutions?

Sure. Basically what we have seen is that there is significant demand both within the base and outside the base for SFM or Sunrise Financial Manager.

One, it is integrated, but I think most important, if you look at the industry there hasn't been -- it has been years since a new financial and revenue cycle management system has been developed. And the one that was developed most recently, frankly, had pretty significant challenges with it.

So people have a great expectation. Sunrise Financial Manager, in its design has taken an account of both the needs of ACOs and value-based management in healthcare. It is ICD-10 compliant. And most important, what we have talked about is the ability to use what we call visual workflow. And that allows people to configure the financial process in a way that suits their ACO. And frankly, they may have to configure it differently depending on whether it is an ACO claim, whether it is a cash claim, whether it is a different payer. No one really gives them that flexibility and capability.

So we think this system is not only a me-too, this offers very substantial new capability to the industry and we are very excited about it.

And then maybe just as a follow-on, not to be repetitive here, but we have heard about some snafus with a vendor's acute Revenue Cycle solution integrating with physician practices, and I was wondering if that might be part of what is creating some opportunities for SFM?

Well, there is no question that if you step outside of what I think one of your counterparts referred to as the big three, the three typical vendors that are being considered, there are a number of challenges with some of our competitors out there that open up opportunities for Allscripts.

That said, it has been incumbent on us to, one, make sure that we execute. And the HIMSS Analytics survey, I think, demonstrates that we are in fact executing today well on the upgrades and the new product installs.

And, number two, we've had to get these products to market. And they had to be ICD-10 ready, Meaningful Use 1 and 2 compliant, and bring some of the great new advantages to market.

So, for example, you heard Lee talk about Professional. If you look at Professional with mobility, I think mobility is a game changer. And when somebody can pick up an iPad, and something like 60% of all physicians now have iPads, the training level goes down, the intuitiveness of the user interface goes up. So they are up and using it faster. It is more flexible. They can involve the patient.

And so this kind of -- I think, we are at a turning point between the open architecture, the interoperability, and the new mobility platforms. I think things are going to change.

So you have got some old systems out there that are harder to connect and harder to upgrade. And you have got a slew of new technologies starting to hit the market, and that is when whole sectors change, and I think that is our opportunity.

And then on Professional, Glen, have you guys chosen a patient portal vendor to collaborate for Stage 2, or is that something you guys are trying to put out on your own?

Again, we have a solution that we work with, and that is Intuit, you know, is a partner with us. But I will be very clear, part of being open is to make sure that we can collaborate with a variety of different players out there. So if someone has chosen a different platform, our salespeople don't love it, but we are happy to work with them.

But that said, we have a solution. It is Meaningful Use Stage 2 ready, and that is the one we are going forward with with our client base.

Okay, great. Just one last one, just with several of these newer products being GAed. I mean, obviously this month, but is there any way you product guys could possibly talk about the trend of bookings in October, the month of October? I figured I might try.

No, I really can't, but I think the try was admirable.

Thanks.

Glen Santangelo.

Just a few quick ones. You talked about some of your competitors outside of the big three having some challenges. Can you give us an update, maybe, on what you see with respect to the displacement or replacement market, if you will, as we evolve through Stage 2 on the acute care side?

I think it is -- what I would say is that we have seen -- if I go alphabetically, Allscripts, Cerner and Epic are very strong players and strong competitors. And outside of that base I think there are a lot of folks who're looking around and evaluating. And I continue to believe that there is going to be changes even within the base. And I think you will see that for some Epic customers and for some Cerner customers, for some Allscripts customers, but by and large those folks who have made an investment are going to optimize that investment.

I think others, especially cases where someone says you have to rip out our system to upgrade, at that point people say -- well, if we are going to have to go through this enormous rip out and replace, maybe we should look at alternative systems.

Second, there have been folks who haven't made the commitment, whether it be to mobility, whether it be to an open platform, whether it would simply be to a go forward strategy that makes sense vis-a-vis value-based healthcare and ACOs and care coordination, and that is causing people to look hard at the market. So I think you're going to see, again, continued growth and change out in that area.

And, Dave, I may have missed this in you're prepared remarks, but I was curious with respect to this quarter's bookings, how much of that came from existing customers versus new customers?

It was approximately -- about probably 60/40, 40 being from new.

40 being from new? And then, Glen, just my last question, and then I will jump off. It seemed like the Company finally is where it wanted to be with respect to Sunrise 6.0 or the integration software or Financial Manager. And given that there are all going to be generally available this month, and it seems like there is some pent-up demand for these new solution sets, why is now the right time to be exploring strategic alternatives, particularly with the stock down almost 50% in the last year, like why now?

First of all, I appreciate you acknowledging what we believe, and that is with the very substantial investment that we made in the product base and not only bring it up to speed, but really putting the Company back in a leadership position relative to the open platform and mobility and care coordination, we do think the Company is very well positioned. And I give Cliff Meltzer and his team in Solutions Development a lot of credit for an enormous amount of work that is going on.

Now relative to strategic alternatives, as we indicated, I think very clearly that there has been ongoing interest expressed in Allscripts by third-parties. And the Company and the Board has an obligation to listen, to understand and then to evaluate when people bring forward strategic alternatives. So that is what I would say.

Okay, thank you.

Jamie Stockton, Wells Fargo.

I guess, Glen, maybe the first one is when you talk about the distraction around the strategic alternatives, and MyWay transition, it seems like both of those hit either like on the last day of the third quarter or the first week of the fourth quarter. So when we think about the impact of that should we be thinking about it more of a fourth-quarter phenomenon versus a third-quarter phenomenon?

I would say two things. One, I occasionally read the analyst reports and I think they've been talking about this for a long time. And, frankly, our clients read the analyst reports as well, and so since the stock price went down a lot of people outside the Company have believed that the Company was undervalued and that caused a lot of speculation to occur.

What happened on the last day of the quarter is, I believe, Bloomberg came out with some detail about a rumored strategic process with a lot of specifics that the Company hasn't confirmed in any way, but that drove even more concern among the customer base. But it was already out there.

Relative to MyWay, the only thing I would say is as we began that process we were careful in terms of not accelerating any of the sales at the end of the quarter.

Now what I would say is that overall there were a number of agreements where they basically said -- look, based on this news, we want to talk to your senior team. We want some assurances that, frankly, we couldn't really give them. So I think some of that pushed forward.

And our view is that that we don't believe any of that was lost, but we do believe that some of that will probably sit until this process comes to a close.

Okay, and then maybe just one other question. Obviously, system sales have been under pressure. Is there any discussion internally about looking for ways to cut costs to try to improve the profitability or is this essentially a situation where you are saying -- all right, let's wait until the new products come out and see what kind of reception we get in the marketplace before we take any actions like that?

I think the Company is always evaluating ways to either cut costs or deliver more efficiently. And so I would never want to step away from that or want our folks to think that we are anything but thrifty. That is the way we have always run the business and we will continue to run the business. So we will look at that.

Our sense is that there continues to be opportunities within the business for cost savings, but that is not the primary strategy on a go forward basis, this is about growing the business.

Great, thank you.

George Hill, Citigroup.

Just two, Glen. Number one, I jumped onto the call a little late, so I don't know if you touched on this. I guess, another company has basically talked about seeing lengthening sales cycles in the low- and mid-end of the ambulatory market. I was wondering if Allscripts was seeing that as well and if there was an impact?

Yes, we kind of covered it, but I'm happy to just touch on it again. We haven't really seen that. We see consistent demand for the products and we see that across the sectors.

That said, we have seen two issues that have impacted our sales specifically. One was related to the noise in the market -- the rumors that have been out there. And the second one is some of the clients have said -- we want to wait until the new products hit rather than upgrading on a standard cycle or buying more. We would like to make sure that we are getting the new GA products that are just starting to hit in the fourth quarter, and some have already gone GA. So that has been what we attribute the slowdown and the impact to sales in the quarter to.

And then maybe a quick follow-up to Glen's question, you talked about reading the analysts' reports every once in a while. I wrote a while ago that as you guys had a lot of repair work to do on the product, it might have made sense for the Company to be a private entity and not do this work in public view with all the new products that are getting ready to be GAed.

And with the feeling that the Company might be turning the corner from an operational and product development perspective, I guess, can you comment on why you would continue to evaluate strategic alternatives when the Company and shareholders might be getting close to being in a position to realize value from all the work that you have put in?

Yes, I think, well first of all, what I would say is that when products are first going GA and we still have work to do and there is more work to do, but really the evaluation of strategic alternatives come from the fact that there is a significant amount of interest, based on the current valuation of the Company, and the Board has an obligation to evaluate that and understand that, and understand from a strategic standpoint those alternatives.

That doesn't mean that we do anything, that means we have got to evaluate it, and that is the process that is underway.

Okay, I appreciate the color. Thank you.

Dave Windley, Jefferies.

So on your MyWay Professional have you established bogeys or targets of the percentage of MyWay clients that will shift over to Professional under this upgrade plan that you have?

Yes, we expect the vast majority to switch over, but that doesn't mean they will all do it next quarter, but over a period of time. We have given them time that they can get Meaningful Use to use the -- kind of double use those words. Meaningful Use out of their investment in MyWay. And then when they are ready, when the customer is ready, they can then switch over to the Professional platform. But that is a free offer and so we expect, and we have already seen, many of them signing up.

Lee, any other thoughts you have on that?

The program will run through October of 2013.

Yes, so again, as Lee mentioned, October 2013 is where the free offer is there. That means they get signed up for that, and we expect that most will do so.

Okay. And kind of a different version of an earlier question. In regard to products that are going GA here in the fourth quarter, can you give us a sense of how much you have primed the pump, how much you expect bookings to lift in the fourth quarter as a result of that? Given your cycle time here is about 45 days or maybe less than that, how much can bookings reflect the GA on several of these products that quickly?

Let me say a few things. Number one, part of the challenge is we have got multiple things going on, so it is not a clean answer because you have got a lot of noise in the market. So some people are sitting on their hands waiting right now until they see the outcome, to the extent there is any outcome, of the strategic alternatives process that we just announced. So that is one thing to say.

A second thing is that part of our GA process now is we get the product out to a few critical early adopters. They spend some time, so we make sure when the product hits that they are high quality, that they don't have bugs in them and we can go forward.

And lastly, in terms of priming the pump, I wouldn't want to try to guess when folks are going to adopt. One of the challenges right now is, to the extent there using one of our products, they know they have a solid upgrade path, then we will work with them to plan when it fits into their cycle. They just want to know the products are there, that they are ICD-10 ready, that they are Meaningful Use 2 ready. And that gives them a level of comfort, and it also allows us to balance how many of those clients hit and do that in a managed way. But I don't think that I would want to project in the fourth quarter.

Okay, Glen, and then last question. So behind these products that are going GA, how would you describe your readiness or your progress against analytics, overlays, data sharing capabilities, things like that behind these products relative to your competition?

I think this is a big focus for us, whether it be analytics, whether it be care coordination, whether it be interoperability, connectivity and mobility. All of those will absorb a higher and higher percentage of our R&D budget, which continues to grow. And we think that we will have a significant advantage.

Some of our competitors are locked into architectures that don't allow for the kind of innovation that we can bring. And with our open ecosystem that we are creating, with all the third-parties starting to develop on that platform, we think we can extend significant competitive advantage as those folks develop for us. So that is really the model.

One, we will internally shift more dollars to those four innovation areas. And, second, the number of folks who are out there innovating in those areas is substantial will be especially well-positioned to take advantage of that innovation.

Okay, thank you. I appreciate it.

Ricky Goldwasser, Morgan Stanley.

This is [Zach Softcheck] in for Ricky. I just wanted to ask another question about the bookings. And looking back at last quarter, you mentioned your expectations for the second half of the year was flattish bookings. I'm wondering looking out retrospectively, when you were giving that commentary were you expecting it to pick up actually when you started having products getting to GA, or did the amount of the impact from clients waiting for products reaching GA exceed your expectations?

What we had communicated previously is that -- and this is really coming out of the -- initially come out of our Q1 call, that we had expected essentially bookings to remain consistent with the Q1 levels, which was about $194 million, $195 million through the rest of the year.

Given that a lot of these product offerings -- Sunrise Clinical Manager, Sunrise Financial Manager, the latest version of Enterprise were all either end of Q3, end of Q4 in terms of GA that was something that we factored in when we were looking at some of those original thoughts on the year.

Okay, thanks. And would it be possible to get any more color on the tax rate changes that you made? And I know you stated that you expected more sales to be coming internationally. Can you give any more color as to why that has changed and what is driving that?

As you look at the results in the third quarter, and you look at the relative outcome of our bookings in the third quarter, as we look at our numbers for the rest of the year, when you make your initial tax rate estimates you make an estimate of where you think your income is going to come from, whether it be domestic or international. And just as a result of the trends that we are seeing, there is going to be a greater proportion of our earnings coming from our international markets. And since they are at lower tax rates you have to adjust for that. So it is really just something that has been emerging coming out of Q3.

Okay, great. Thank you.

We are approaching the one-hour mark, why we go ahead and take one more question.

Sean Weiland, Piper Jaffray.

So can you connect the dots for me between your statement of evaluating strategic alternatives and pulling guidance? I'm not sure I understand what one has to do with the other.

Obviously, as we are looking at various strategic alternatives and the various processes that potentially are involved in that, we felt it was kind of prudent to withdraw our guidance and kind of let that process run its course.

I think that when you look at the impact that these kind of reports and discussions have on the selling process, it adds a level of uncertainty that, frankly, makes it very difficult to stand behind the standard ways that we give guidance.

And so to the extent that process continues, that there is continued rumors and leaks and things like that, and what the Company says, all those impact our ability to deliver on guidance. So with that uncertainty our Board and the management team concluded that the best thing to do at this point while this is underway was withdraw guidance.

All right, so my follow-up then is you say the bookings are weak on the rumors that you are evaluating these strategic alternatives, which you have clearly just confirmed. So how do you expect that to turn around?

I think, first of all, I didn't say they were weak, but I think what we said is they have been impacted. In fact, given some of the noise you could argue that they are strong relative to the questions about the Company out there, because especially as people are making long-term decisions, they would like to know the impact.

So as an example, we had an outsourcing deal recently and what they said is because you're going through this process, we desperately want to do business with you, but we want a one-year provision to exit the agreement written into the agreement.

And that means from a booking standpoint, while we recognize something like $3 million in booking, we would have normally recognized $7 million in bookings, but we couldn't take the rest of that because of a simple provision in the agreement. So that is the kind of stuff that gets in the way of our ability to do that.

In terms of what will turn this around, we believe that to the extent the Board concludes that we should move forward, and that information is given to the market or we decide not to move forward, as the market stabilizes relative to that news, then you have a clean, unencumbered selling environment to go forward.

That happens at the same time that all of these new and upgraded products are out there in the market, and so we expect that there will be good results once we get the noise out of the market.

Okay, could you tell us if you think this is going to be the low water mark on bookings?

I wouldn't want to speculate on what it is. And, again, part of the reason that we withdrew guidance was based on what gets announced, when it gets announced. And if there is any announcement all of those have a very material impact on whether people want to make an agreement or not.

All right. And I will just try one more question. Can you tell us how many physicians today are using a currently marketed product on the PM side as well as the EHR side?

I don't think -- we haven't disclosed that. It is not a way we track it per se and report on it. So I wouldn't want to start now.

Okay, thanks so much.

Thank you. Well, again, I just want to thank everyone for joining us on the call. And we will continue to stay focused. I appreciate those of you who have acknowledged the significant progress that we have made on the portfolio. We will continue to drive that forward.

We do believe we are building something very unique in the industry with an open platform and with the kind of products that the industry wants. So we are excited about that. And we appreciate you joining us on the call today. Thanks very much.

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