Veradigm Inc (MDRX) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Allscripts fourth-quarter 2012 earnings conference call. Thank you. I would now like to turn today's conference over to Seth Frank, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you very much, Susan. Good afternoon. This is Seth Frank, Vice President of Investor Relations at Allscripts. I'd like to thank everyone for joining us on our fourth-quarter 2012 call today.

Today, we have Paul Black, Allscripts' President and Chief Executive Officer; and Rick Poulton, our Chief Financial Officer. Paul will summarize our recent Company accomplishments, our strategic focus for the future and a summary of his recent meetings with clients and Allscripts team members. Then, Rick is going to give an overview of the fourth-quarter results, and then we will take your questions.

During today's discussion, we will reference supplemental financial tables which are available on our website on the investor relations home page of Allscripts' website at www.investor.Allscripts.com.

In addition, we will reference both GAAP and non-GAAP financial measures on today's call. Reconciliations of non-GAAP financial measures are available in the press release, and they include accompanying explanations to assist you in evaluating financial metrics on the call.

Let me briefly read the Safe Harbor statement, and then we will begin. 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.

Now, I would like to turn the call to Paul Black, President and Chief Executive Officer.

Thanks, Pat. Good afternoon, and thank you for joining us. I am delighted to speak with you today on my first earnings call with Allscripts. Today marks exactly 62 days since I joined the Company as CEO.

As you know, the Board of Directors concluded the strategic alternative process in late December, and with this new clarity we immediately hit the ground running. We are moving decisively to deliver on our mission to help transform healthcare globally.

During this time, I have been actively engaged with our clients and team members. We have already taken multiple actions to help move the Company forward diligently and with urgency. Today with an independent Board of Directors, a unique and strong portfolio of assets, and solidification of our senior management team, we are moving ahead to do the work necessary to restore our leadership position in this vitally important industry.

Allscripts closed out 2012 having achieved some important milestones. We released Sunrise 6.0 on December 4. This release includes some key enhancements, including ICD-10 compliance, enhanced pharmacy and notes functionality. In addition, SCM 6.0 provides enhanced quality and performance improvements. The early adopter program has gone well and we have a significant number of clients already signed on for upgrades in 2013.

In early December, we also released a Sunrise Financial Manager, our new revenue cycle management platform. SFM is built on the Sunrise 6.0 platform and, together with our clinical suite, provides a complete end-to-end integrated solution. Its features include electronic forklifts and a unique visual workflow design and deployment. This solution set has been architected from the ground up for accountable care organizations, or ACOs, a clear differentiator from historic platform approaches. We currently have multiple early adopters and have made several sales to existing clients since [growing] (inaudible).

We also successfully launched ICD-10 supported versions of our ambulatory enterprise EHR 11.4 as well as professional EHR 12.0. These are all important deliverables for meaningful use, too, as well as ICD-10 requirements. With the strategic foundation, our clients have continued to expand their use of our solutions.

A recent success story was our go-live at Baylor University Dallas campus, a 1065-bed facility and the 11th in the Baylor system to activate Sunrise Clinical Manager. With respect to meaningful use, we are pleased with where we stand today with approximately 97% of our enterprise ambulatory EHR clients having at least one eligible provider test for meaningful use, stage 1.

Further, approximately two thirds of our hospital clients have attested. In terms of industry ranking, our trajectory has been steadily moving upward, and CMS indicates Allscripts ranks number two in eligible providers having it cited for meaningful use.

In order to optimize our affiliated physician market opportunity, we are migrating free of charge our MyWay clients in a small physician market to the advanced professional EHR suite. Just this week, we activated multiple clients with the accelerated migration center. This hosted solution also provides a new mobile native iPad experience. So far, the reception to the program has been strong.

We are expanding our clinical footprint in the non-acute-care delivery destination, such as convenient care clinics, patient-centered medical homes and retail healthcare.

Regarding the acute care market where single architected, single database solutions are important, I wanted to update you on the Sunrise Acute Care solution. We successfully closed two Sunrise Clinical Manager agreements thus far in 2013. The first was with an existing client who, after thoughtful consideration, decided against aggressive attempts to leave us for the largest competitor, and instead substantially increased their long-term commitment to Allscripts. This client signed a long-term agreement for SCM as well as expanded the relationship to include our ambulatory offering and fully integrated Sunrise Financial Manager. This will enable a truly integrated platform including inpatient, outpatient, practice management and patient accounting solutions.

We also signed a new integrated delivery network client in the quarter. This affiliate of a large national for-profit health system is acquiring a comprehensive bundle of acute, ambulatory, post-acute, revenue cycle and service offerings to build out their new campus that is focused on wellness optimization. This is an exciting greenfield population health management client that will be a totally integrated solution across the entire community. This is a highly competitive opportunity that included an engagement from our two largest HCIT peers.

The secret sauce that distinguishes us with clients and prospects is our strategy of offering open healthcare IT ecosystems, enabling our vision of connected community of health, which ultimately drives better health outcomes for all consumers.

Opening our architecture connects the clinical and financial data across everything venue of care beyond the four walls of any given institution. For example, our web-based operating system enables a single sign-on into one place and provides a fully integrated workflow across literally dozens of existing systems that otherwise require individual logons. This capability includes Allscripts as well as third-party systems.

Open also means the Allscripts developer program, where we enable a broad community of developers and suppliers to design and integrate applications that become an extension of our architecture. We currently have dozens of developers who are working on new apps today in diabetes, patient ID authentication and other innovative and impactful areas. Open means enabling inpatient, ambulatory and postacute clinicians to design their own protocol and evidence-based alerts according to the needs of their own practice or clinical subspecialty.

For example, using medical logic module capabilities within Sunrise Clinical Manager, the Phoenix Children's Hospital designed specialized protocols and surveillance capabilities that greatly reduced the incidence of IV infiltrations in pediatric patients, a painful and potentially serious complication for inpatient kids on IV therapy. Today, there is no leader I know of the occupying the virtual layer between the hundreds of different systems inside and outside individual healthcare organizations. This is our focus. This is why Open matters -- to connect all care venues to enable community-based, individually coordinated care.

Open is a needs minimum requirement in a population health management solution. Allscripts is positioned to lead in the vast opportunities that have arisen in the connected community of health arena.

Now I want to focus on the four key areas for operational and strategic focus in 2013 and beyond. These are, one, client alignment; two, unlocking competitive advantage; three, streamlining our cost structure; and, four, reporting predictable, consistent financial results. We will continue to fine-tune and invest in these focus areas during the year as it makes sense for the business.

Allscripts is a great company. We have the leading physician footprint in the industry with approximately 50,000 practices and over 1500 hospitals using our solutions. We have an attractive position outside of the IDM as tens of thousands of alternative and postacute providers also use Allscripts. Many of these organizations are the country's highest regarded hospitals, medical groups, community care organizations and integrated delivery networks.

2013 will be a year in which we deliver on our client obligations. This requires precise coordination, communication and joint accountability from every functional area in the Company from development through sales to professional services, hosting and support. We have made commitments to our clients and we have an obligation to deliver.

A major priority is to industrialize the delivery of our solutions. By metric-driven disciplines, we are establishing a cadence to deliver new solutions on time and to enable improved predictability for our implementation and upgrade processes. Operationally, we are taking steps to simplify our client interactions and to make doing business with Allscripts easier. We will accomplish this by eliminating potentially disruptive handoffs between business units and implementing a predictable high level of client touch.

We will harden our clients' support structure. We will establish and set mutual 2013 goals with our clients and we will meet them. Clients want more face time with our dedicated teams and we will execute on their behalf.

We will also continue to grow our investments in R&D in 2013. We finished 2012 with $191 million in total R&D investments before capital write-offs or expense, and this number will grow into the double digits during 2013. Projects will include enhancements for stage 2 meaningful use as well as in testing in our revenue cycle services platform for the ambulatory market.

We have taken some important steps to make sure we maximize the return on this R&D investment. We recently created centers of excellence for the development organizations. Approximately two thirds of our domestic R&D staff will now be in one of two major centers, Raleigh and Boston, with the rest of our staff in other locations. This move enables us to concentrate and focus the team on delivering higher-quality solutions faster while reducing complexity and cost, bringing developers in the focused team to ensure a more dynamic, agile and robust working environment.

As a result of these initiatives, I expect to see improvement in client satisfaction as the year progresses. Currently we use a host of internal surveys and client interviews, including annual measurement of net promoter scores to determine satisfaction and the propensity of clients to recommend us to their peers. While these are important measures, they do not benchmark us against our peers. We believe such information collected by a third party is strategically critical for us to enhance our client satisfaction.

Therefore, I have established a relationship with the [Kloss] research organization to deepen our knowledge and perspective about the client experience.

We will return Allscripts to growth. Therefore, we must ensure the Company is well positioned to provide solutions and services beyond electronic health records. We will do that in several ways. One is through capturing a larger share of our clients' information technology budget, providing the needed services that they value. IT hosting is an area where we participate today, often known as managed services. It's a relatively small business, constituting less than 5% of our annual revenue in 2002 -- or 2012 with marginal profitability. We believe there's a significant opportunity within and outside of our client base to host clients' IT systems, which offer major strategic advantages to healthcare providers. We are enhancing our focus on this business and plan to implement operational metrics to increase predictability and reliability of revenue and profitability over the next several years.

In addition, the evolution of the population in health management has occurred, and we are well positioned to provide a community architecture and an operating system that enables the base operating platform and our analytical tools, care coordination and transaction services necessary for providers to successfully participate in value-based healthcare.

Given our core strategy of open systems, we believe patient information and connectivity needs must be supported independent of the point of care or underlying IT supplier. Data stuck in a silo is not information. Throw into the mix the switch to risk-based provider contracts or a single payment for population health, and you have a tremendous opportunity.

The Allscripts community care architecture is an important differentiator for us in the market today and it will enable our clients to be profitably positioned in the future. Through our partnership with dbMotion, today we create a single virtual patient record from multiple sources, systems and care settings across communities. This is the digital key that unlocks the open exchange of our information with other systems to enable free flow of patient information across disparate EHR systems.

Health providers need actionable, real-time decision support at the point of care, tracking and referral systems across communities to coordinate care and analytics to predict and identify gaps in the effectiveness and outcomes of health populations. This core technology is instrumental in positioning Allscripts for future opportunities to comprehensively support accountable care organizations with population health management, clinical and financial analytics, patient engagement and care coordination.

It's notable that dozens of our clients are already using Sunrise today in a manner that will be of critical value in a pay for value environment. For example, the quality team at University Hospital in Cleveland is leveraging Sunrise to enhance clinical best practices compliance and access new surveillance tools. Within a span of only four months, the team designed, developed and deployed a host of new features.

One of these resulted in 100% compliance and assuring recommended pneumonia blood culture frequency prior to initiating treatment. UH Cleveland also used advanced whiteboard features to predict case risk to reduce readmissions.

Our Care Management platform enables care coordination across the community during the discharge and postacute phases of care delivery. Today, Allscripts' Care Management platform alone delivers 6 million referrals annually across almost 1000 hospital clients, and we have more than 112,000 postacute providers in our network. We have a proven, successful formula and go-to-market strategy that we will duplicate in emerging market segments.

Finally, we are focusing our efforts in 2013 on building momentum with patient or consumer engagement, a critical component of meaningful use too. Mobile solutions that are EHR-agnostic will be critical to our success in this arena. We look forward to continuing to update you on our progress throughout 2013.

Next, I would like to discuss the notion of making the most of the assets we have, becoming more efficient and productive. We are putting a strong operational focus on the business to streamline the organization and reduce our cost of doing business. We announced this morning a plan designed to support this focus by creating a simplified physical organization that is aligned more closely to our business priorities and is more agile and delivering results for our clients. We will execute on this site consolidation plan over the next three quarters as we move from having dozens of locations, some with as few as one or two people, to seven key facilities in North America, aligned with the centers of excellence strategy discussed earlier.

We will also take actions, including rigorous and intensive procurement and sourcing processes that coordinate and maximize the natural advantages of our scale. We will invest in key areas, like solutions development, enhanced hosting capabilities and service offerings that drive superior returns and drive enhanced efficiency in overhead-related areas.

To be clear, we have a plan to invest approximately $45 million to $50 million in 2013 that will drive in excess of $50 million of annualized savings from our cost structure beginning in 2014. For 2013, we expect to capture approximately $25 million of these savings, or about half the total annual run rate, thereby offsetting part of the upfront investment for 2013. We will share additional details on this program as they are implemented and executed during the year.

Before I turn the call to Rick, I wanted to briefly address the importance of delivering consistent financial performance as a strategic focus. We will take several actions during 2013 to set the stage for improved financial consistency and predictability in the future. This is driven by our client alignment initiative. Today, we enjoy two-thirds recurring revenue. While 100% recurring revenue is an enviable target, we plan to more fully align our business terms and financial models to future market demand.

This will result in an increasingly larger mix of subscription-based contracts, increased hosting revenues as well as SaaS offerings for the ambulatory and postacute marketplace. As you have heard, I'm sure, and in your own channel checks, this is largely a matter of client preference in emerging business models.

Also, as mentioned earlier, we will seek to aggressively solicit and capture as much of our clients' IT spend as possible. An example would be a client who makes multi-year commitments to our entire portfolio, such as a greenfield population health management client we discussed earlier, that maximizes our long-term visibility and lines our performance with clients' success. This will provide us with superior flexibility and return for our client-aligned efforts.

In addition, as our development organization executes, we will industrialize our processes much more so than they are today, better aligning our costs and revenues and creating less quarterly volatility.

Finally, we are committed to utilizing our cash flow and balance sheet through share repurchases, debt reduction and business development initiatives intended to create long-term value.

As I hope you have surmised from my comments today, clients are priority number one. Let me summarize the messages we heard from our clients during the initial period of intense interaction with our installed base. These conversations focus on what we are doing well today and where we need to improve.

Clients of all types and sizes delivered a clear message that Allscripts is a critical long-term partner. Clearly, they want to help, as our mutual success is interdependent and requires close alignment. Allscripts also enjoy significant loyalty and brand equity among our clients, and I would submit this fact is not lost on the industry at large. This requires daily focus to maintain and grow this equity.

I have also had the pleasure of meeting with many Allscripts team members across the country to better understand who we are as a Company and what makes us special. Allscripts has great assets, a large multidimensional installed base, passionate, dedicated, hard-working team members, and an innovative spirit, unique technology, and institutional experience that, in my opinion, no one else can touch in this industry. This Company sits on a very solid foundation to move forward and to execute.

And with that, I will hand the call to Rick to discuss our financial performance and elaborate further on these initiatives.

Thank you, Paul, and good afternoon, everyone. I would like to add that I am excited to join all of you for my first official Allscripts earnings call as CFO, and I look forward to getting to know all of you in the weeks to come. I will make my comments relatively brief so we can maybe get to your questions as soon as possible.

Also, please utilize the supplemental data sheet available on the investor relations section of our website as well as the supplemental information in today's press release. It contains backlogs and other metrics we have historically provided on this call.

In our fourth quarter, we benefited from sequential increase in bookings to $180.7 million compared to approximately $162 million in the third quarter. As Paul stated, the clarity that resulted from the conclusion of the strategic alternatives process was helpful in making sure we closed out 2012 in a positive direction, and the bookings results for the quarter reflect some momentum during the final two weeks of the year.

We saw growth quarter over quarter across all of our solution offerings, including ambulatory, acute and postacute, led by acute sales to our existing client base.

A few notable wins in the fourth quarter included the following -- a major academic medical center utilizing Sunrise Clinical Manager in its acute facilities agreed to purchase our Enterprise Electronic Health Record as the platform for their ambulatory strategy. We also had an initial sales success after going GA with our Sunrise Financial Management product. The large acute clients signed an agreement to implement SFM and we have several others in early adopter phase and are undergoing implementation.

We also had success cross-selling our Care Management platform this quarter into multiple clients, including a multimillion dollar agreement with an existing large strategic client on the West Coast.

Software as a service agreement constituted almost 36% of our bookings mix during the quarter. This is a substantial increase over the prior quarter and year. This shift toward more predictable, consistent financial results is consistent with the strategic initiatives Paul outlined a moment ago, but it also explains some new systems sales revenue recognized during the quarter. I'll comment more on that in a moment.

Non-GAAP revenue before a nonrecurrent provision to defer revenue increased slightly over Q3. While professional services, maintenance and transaction processing grew in Q4, we experienced a decrease of almost $6 million in system sales, the majority of it lower software revenue. This reflects in large part revenue mix in the quarter as well as the higher SaaS bookings I mentioned.

As we noted in our press release, we recorded a one-time charge against revenue of $16.8 million. This adjustment reflects a revenue deferral for clients who have long aged accounts receivable balances. This provision is added back to our non-GAAP results because of its nonrecurring nature. And the way you should think about this is we have effectively shifted these client accounts to more of a cash basis revenue recognition.

Non-GAAP gross margin during the year -- during the quarter declined 190 basis points, entirely due to a large negative swing in system sales gross margins. The non-GAAP system sales gross margin was a loss of $2.6 million, or negative 9%. This resulted from a low mix of Allscripts software revenue in the quarter combined with higher amortization expense.

Capitalized software amortization flows through this system cost of sales line, as does certain purchase accounting amortization. In total, this represents $16.5 million of the cost of sales for this line.

Moving down to SG&A, expenses increased $14 million over Q3, largely as a result of the one-time items included in the non-GAAP presentation. These items relate to severance associated with the departure of executives, costs associated with the strategic alternatives process as well as the period costs associated with migrating our MyWay clients to our professional EHR platform.

Our R&D expense increased in the quarter to approximately $50 million and we capitalized approximately $3.6 million during the quarter. This capitalization rate is much lower than we usually experience, and this was primarily a result of unique circumstances between the status of certain projects and the accounting rules that apply. As we employ our agile methodology for solutions development, we may have quarterly fluctuations in the amount capitalized. But as Paul indicated, we do expect 2013 gross R&D to grow double digits and capitalization rates should return to the 20% to 25% range for the full year.

Non-GAAP operating margin was 8.3% in the quarter compared to 13.8% in the third quarter, this, again, a function of lower system sales gross margin and the higher research and development costs I just mentioned.

Our non-GAAP effective tax rate for 2012 was 23.6%, so the meaningful adjustment downward from the 29% that we were booked at through the third quarter. The primary driver of this change is a higher proportion of profit being allocated to international jurisdictions as well as the impact of the one-time charges in the quarter -- that we recorded during the quarter.

Thus, as we did in our Q3, we recorded a quarterly catch-up adjustment to align our new effective tax rate for the year. The required adjustment in our Q4 rate to align for this effective rate of 23.6% for the year actually resulted in a net tax rate benefit for the quarter at minus 3%.

Please see the non-GAAP table 4 for the cumulative impact of the tax rate adjustment on one-time items for the quarter. Utilizing the non-GAAP tax benefit, non-GAAP EPS was $0.16 per share. As you saw in our release, we have introduced a non-GAAP adjusted EBITDA calculation to help investors better understand the underlying business trends. The cost of EBITDA totaled $53.6 million for the quarter and was $253.5 million for the full year. Please see table 5 in our release for this information. We will continue to provide this on a go-forward basis.

We believe adjusted EBITDA is a valuable metric for evaluating our performance and plan to provide this figure on a recurring basis.

Looking forward, as you heard from Paul, we are taking decisive steps, including our site consolidation as well as establishing R&D centers of excellence in order to fully align ourselves with our clients. With this mission being our primary focus in 2013, we are not providing forward-looking financial guidance beyond what we have discussed today in order to afford ourselves the maximum operating flexibility to execute on our plan.

We will continue to evaluate the merits of providing additional metrics as we make progress.

Thanks for your time and attention. And now I will turn the call back over to Paul.

We are actually going to take Q&A. I understand we've had some sound quality issues during the call, and I apologize. Susan, can you hear us?

Yes, I can.

Okay. Do we have an echo? Or is the sound quality good, because we would like to proceed with Q&A, please?

We can proceed with Q&A.

Let's go ahead, then.

(Operator instructions) Charles Rhyee, Cowen and Company.

Paul, thanks for the comments here, but a question for you -- in the last couple months as you have been traveling around meeting clients, you kind of talked about some of these intense conversations you said. Can you talk about some of the main concerns from your existing client base that they are really pressing you about? You obviously talked about some of the good things they said. What are some of those big issues that they are struggling with, with Allscripts? And then maybe any conversations you've had with prospective clients -- what are the kind of questions that they are asking as they look to maybe move forward with Allscripts?

Sure. It depends what venue I'm in. If I'm in a sitting patient facility versus a large ambulatory group practice, or I am in a -- somebody that has got a very large retail clinic operation, so all of those things are different conversations. The ambulatory folks are very interested in what we are doing on the population health management side and what our care director and what our care coordinator asset is going to do for them. They're also pretty interested in what we are doing with our accounting systems in that regard, because they want to make sure that in the absence, potentially of a claim in the future, they want to be able to account at the shop floor level, at the clinical side, of exactly how they are going to get things done.

They are trying to make sure that we remain focused on R&D spend, which I have reassured them that we have. We have a lot of deliverables that are due this year that we are, as I had mentioned, are doing quite well against. They are mostly interested in meaningful use 2 payments and in their ICD-10 compliance, which we feel very confident we are in good shape with them on.

Most of them or a lot of them are asking about what else we are working on, and they are pretty interested in a lot of the future things that I've talked about here today. But to summarize what they are saying, is they are saying you are important to us. There are some things we need to go work on together that the Open actually is very important to them. That's what makes Allscripts different. It is why they bought us in the first place. And then you typically end the meeting with, how can I help? And that's kind of a fun conversation to have, to be honest.

What about perspective clients? Is anyone asking about an integrated offering, when we'll be fully integrated, Sunrise hit the market, any kind of questions like that?

Yes, I get some of that, but I can take them to a couple places now and show it to them. So I feel much better. If they want to jump on an airplane, we can go show them. And I think that's important, that we actually have that as well. And not -- on the acute care side, that's important to some of them. But most of them, again, are talking about the layer above and what we are going to do there.

Great, thank you.

Mike Cherny, ISI Group.

Can you hear me okay?

We can't really hear you okay. I apologize.

Okay, I can jump back in the queue, then, and see if that works better in a bit.

We can actually hear you okay now, Mike, sorry about that. Go ahead.

No problems. Let's try this. So the system sales line -- you mentioned how there's going to be a larger focus on software-as-a-service-based revenue going forward. I know you are not providing guidance, per se, on that line item. But when you think about where you were in the quarter, is that the type of after jumping-off point you expect for the next portion of the year, just given the transition of the system sales line over a year-over-year basis as well as throughout the year? Just trying to get a sense of what our appropriate starting point is.

I guess -- here's what I would say to that. Clearly, fourth-quarter was down significantly from what you have seen us report previously. So we haven't seen that big of a shift in the business in one quarter's time. So I think what we are showing you for the quarter is a little artificially low.

But, directionally, as we more and more go to market with the types of solutions that customers want to buy, I think we will continue to see a shift towards more of the transaction processing and those type of line items on our P&L, as opposed to the software sales line item.

So a roundabout way of saying we think there's a little bit of an artificial deflator in it for the quarter, but directionally, you will see that come down a bit.

And then just jumping over to the new IDN, you were discussing -- you talked about a couple of your competitors being involved there. Can you talk about when you are going to discussions there what specifically, particularly with regards to the new product rollout, attracted this client towards selecting you guys? What were the key tenets they focused on with you that decided to allow them to go your way?

I'd say two things. One is our strategy and where we are in the delivery component to population health management, broadly, number one. And then, number two, the open connected communities architecture approach that we have. We acknowledge that there's many other places and venues outside the four walls of the hospital that we have to connect into. We live in a world where we are willing to interface and interoperate with those other venues that may not all be Allscripts. And in any community where you have a large IDN or you have a large physician practice group that's going to be a relevant player in the ACO world, they need to connect to those distant postacute care settings, and not all those postacute care settings are going to be any one specific supplier.

Great, thanks.

Greg Bolan, Sterne Agee.

Paul, in the past, your predecessors had characterized the replacement market for core acute clinical to be around 400 hospitals. Over the next few years, if hospitals with moderate to large size ranging from $10 million to $15 million per hospital -- is that consistent with what your thinking is? Does that change at all? That would be helpful.

Well, it probably hasn't changed substantially, but the way that I have grown up is I assume any organization that is taking care of a person, whether that's a health facility, an inpatient facility, outpatient facility, that that is an organization that should have some relationship with this company.

So I look at key things about their -- even if it's in all X supplier or an all Y supplier, there are still a bunch of different things that we can go in there with that our competitors don't have that we have. And in many cases, we have more of our -- some of our solutions installed in a non-core Allscripts architected account than we do in our own.

So at EPSI, as an example, our cost accounting system is installed; and that should be installed, as far as I'm concerned, in every organization throughout the globe. So there are some competitors that are out there that are requiring major upgrades or major uplifts to their technology that people have talked about in the past that are certainly organizations that we are having conversations with. But again, we have a pretty large sales force and we have a substantial number of different solutions that we can be selling to anybody, irrespective of a -- let's say they made a core supplier choice.

That's helpful, thanks. And as a follow-up, bookings for the quarter were quite a bit better than our estimates and definitely consensus. Just thinking about the sequential improvement, could you maybe characterize -- and I'm sorry; I apologize if I missed this in your comments earlier. But if that was concentrated to one or several clients, just looking at concentration as it relates to the sequential delta in bookings?

Well, there is a number -- and I don't think we provided the actual color, but there wasn't one large deal that was out there in the quarter. We, of course, would love to have large deals every quarter, but we didn't have one. So the team was scrambling pretty hard. They did a very good job, in my estimation, bringing in the bookings numbers that they had. I, of course, would love to see a $300 million or $400 million or $500 million booking number. We had $180 million, and it exceeded at least some of the estimates that were out there. But again, my expectations of the team and the team's expectations of themselves are higher than that.

So I appreciate the compliment. It was a tough selling quarter, given all the other activities that were going on with the marketplace and specific activities that this Company was undergoing at the time. So I was pleased with the core execution of the sales organization and the professional services organization in the quarter.

That's great. And then just real quick on that, so the goals that you have set forth for your team as it relates to bookings -- are those more consistent with 2011 levels?

We -- yes, that's a great question. Again, to go back to -- there's a lot of opportunity that's out there. There's a lot of opportunity in new areas that we have not been exposed to in the past. There's a lot of global opportunities that we have not executed on as swiftly as I would expect. So I have pretty high expectations of a pretty good-sized sales force to be able to go out and execute. I don't think we are given that level of detail yet.

Okay, alright, thanks, guys.

Glen Santangelo, Credit Suisse.

I'm just kind of curious, Paul, if you can talk about the gross margin trends in the quarter. It was obviously a little bit worse than we expected, and the R&D obviously ticked up sequentially a fair amount. Could you maybe give us a little bit more color into those trends and maybe when you would expect those to normalize?

Well, again, I think the gross margin is getting affected a bit by both an increase in amortization, non-cash amortization of previously capitalized software, as well as, again, with more and more of the bookings coming on more of a subscription basis, you're having less upfront rev rec on it. And so we are losing some of that high-margin software revenue as a result of that. So I think that's really what is driving that margin outcome.

On the R&D side, we are going to continue to invest heavily in our product suite. And as we have indicated a couple of times here, we will grow our gross spend double digits on a year-over-year basis in 2013. We did see an artificially low -- in my opinion, an artificially low capitalization rate on that software investment this quarter. We shouldn't expect to see that going forward. And as I said, again, in my comments, that we would expect for the full year next year, we may have a little quarter to quarter volatility, but for the full year we should be back in that 20% to 25% range in terms of capitalization rate.

Thanks for that. And Paul, just to follow up, shifting gears for a second, a number of your competitors have talked about decelerating growth in terms of ambulatory purchases. Can you maybe just elaborate a little bit in terms of what you are seeing in the market on the ambulatory side?

Yes. If you segment the ambulatory marketplace -- and I apologize; this is day 62 -- but what I'm seeing is the places that I'm going to are the larger physicians' group practices, the larger IPAOs, the larger MSOs. And those folks have been relatively actively acquiring physician groups.

So I'm seeing growth in those organizations and growth in the physician groups that they are bringing on board. Some of them are buying those physician groups and some of them are affiliating with them.

The same on the IDN side, where you have got your larger IDNs that are out there where we are the ambulatory solutions choice for them, both for the internal, if you will, employed physicians, as well as for their affiliated strategy. They are also spending quite a bit of money to go acquire physician office practices. So I have not been, quite frankly -- and I will -- but I haven't been to the single or those two-doc office practices to find out what's going on in their world. I have just not been out there to be able to go do that yet. I will. But everybody that I'm talking to is growing their footprint. Again, I have not been to all of them, but the ones I have been to are health and they're growing.

Okay, thanks for the comments.

George Hill, Citigroup.

Paul, can you talk a little bit about -- the Company came to the end of its strategic decision process at the end of December. We are now midway through quarter one. You talked about the strength in bookings in the last two weeks of the fourth quarter. I guess just client confidence trajectories and how the conversations have changed with clients over that period?

George, I'm sorry; it's Paul. I got the preamble. I didn't get your question.

Okay. I'm trying to figure out if the reverb from the line is coming from me.

Yes. I apologize; we have it as well.

Okay. Just the pace of improvement with respect to bookings and operating results after the Company announced the strategic review was complete?

I'm sorry. We only had six business days. So (laughs).

Well, I guess, can you comment up through now?

Oh, up through now, I apologize, sure. So there's still a bit of -- are you really done? That's something else I should be watching, asking about or thinking about. And I'd tell them we have concluded the process. [Banker] is no longer around, the [interim] is closed, and I was not named as an interim. So that level of discussion that we are having on that topic, when they bring that up, are you sure you are done -- so that's number one.

Number two, again, most of the places I'm going to are the installed base clients. Then there are a few net new opportunities. But the installed base clients I'm going to are -- they want to make sure that we are doing well, which we are. And we talk about that, and then we talk about specific things we are going to do in the next 30, 60, 90 days with them to stabilize, to optimize and to, if you will, innovate on top of the platforms that they already have. And we are doing some 30-/60-/90-day plans with those folks, set some core objectives that align us, and then we are going to go meet them in that kind of time frame.

So there has been a lot of that going on. It creates a better, tighter client alignment out there. There's a couple of large -- some clients that are extraordinarily interested in, that our entire concept of openness, given the environment that they find themselves in where they have acquired, let's say, two to three large hospitals or two to three large physician group practices and they are trying to figure out how they are going to interoperate all those different positions that are out there without having to rip and replace. And we are giving them options for how to go do that as well.

Okay, and just as a quick follow-up, how long do you think it will be before you are out of what I will call repair mode for the Company, and the Company can just compete in the market without the overhang of clients and prospects worrying about a company in a constant state of reorganization?

Yes. I'm trying to get all that behind us, and I think we are done for the most part of that, George. I wouldn't characterize it as repair mode. I would characterize it as execute mode, get back to knitting, get back to staying at home and doing the chores, get back into delivering on behalf of our clients, which is what they have always wanted.

Okay, I'll hop back in the queue, thanks.

Bret Jones, Oppenheimer.

I just wanted to start off with bookings a little bit. I just want to make sure I understand the message. You have talked about restoring growth, and I just want to see if you'll actually put it down that you expect bookings to grow in 2013.

On a year-over-year basis?

Yes.

Yes, that is our goal.

Okay, and then just to get a sense for what you think the mix of those bookings is going to be, because it does sound like there's a shift in focus if you are looking more towards expanding hosting and things like that. Is that something you think will change the mix in 2013, or is that more longer-term?

The way that I'm going to incent the sales force and what we are going to ask them to do is sell software. And everything else that goes around that, great. We are going to sell as much software as we possibly can. We have a lot of it, we have a lot of other additional options that are out there and we have a lot of venues that are about acquiring software that cross the -- span the entire gamut of healthcare, which is pretty exciting and interesting to me.

Okay, great. And then just one last one, if I could, on revenue, the revenue deferral -- I just wanted to better understand. Do you have a track record for collecting on these clients? And why is the AR age for these particular clients -- is it inability to pay, or is there something else going on?

I think the reasons for the aging on the receivables run the gamut of some being more potentially what you might think of as traditional credit oriented, some of it not that way at all. Some of it has, then, characteristics of disagreements, perhaps, that we have to continue to hash out with certain clients in some areas.

But I think, with that said, the common theme and what has changed is we've just said, hey, where we have some of these long-dated receivables we think we should change our approach to rather than just continuing to book, send them monthly maintenance bills and book revenue all the time, we should have a little different approach to that. So we're taking a more conservative approach to the balance sheet and think it is a kind of prudent move, given the circumstances.

Alright, great, thank you.

Eric Coldwell, Robert W. Baird.

I believe you said 36% of the mix was SaaS in the quarter on the bookings. Can you give us a sense on how that impacted your actual bookings? Obviously there's going to be some variance, I think, between how you book traditional sales versus SaaS-based deals.

I'm not sure I got your question.

Well, oftentimes the SaaS-based contract will not come with certain of the upfront payments. Perhaps companies don't book the total magnitude of the contract up front or set minimums. We've seen with other companies in this space, when they have a mix shift to SaaS, that can have a negative impact on the actual bookings, not just the revenue. I'm just curious if there's any difference in how you book your SaaS-based contracts versus your traditional ones. And maybe there's not.

No, there's not any real meaningful difference in the way we've reported the bookings.

Okay, thanks. Second question -- I just wanted to understand the clarification on the tax rate, realizing that the adjusted number tax rate is actually a benefit this quarter. I think we've got the number. But are you taking a one-time benefit for items such as charges and accruals that were actually excluded from the pro forma results, so you're getting an adjusted benefit for items that didn't show up above the line in these numbers or prior-period numbers? I'm just wanting to get a clarification on that.

Now, the shift in the projected effective tax rate for the year is really predominantly a function of the mix between how much of it is US-based profit versus international-based profit for us, from a tax perspective. And certainly, with some of the charges we have taken, that predominantly weighs heavily against the US-based operation. So you have more of a shift going in the international markets, and that is bringing down our overall effective tax rate.

Okay, last question is related to MyWay. You made a comment about starting the transitions of customers. Again, the audible here wasn't great. So I'm just curious if you can give us a refresh on what you said about MyWay and the conversion and success so far.

Yes. We have a migration center that is converting those clients to a hosted environment. That hosted environment migration center has been active now for about six days. So far, the process of getting people converted from MyWay to Pro has been going quite well. And when they come out of that experience, not only will they get it converted most quickly, but we are going to be doing a predominant amount of the work for them, number one. Number two, they will be hosted. And number three, they will come out with an iPad application interactively with the back-end server. So it's pretty comprehensive and the initial feedback has been positive.

Can you give us a sense of what kind of attrition you might have experienced so far? Can you quantify that?

No, I don't have that. Sorry.

Okay, I'll drop out. Thanks.

Well, thanks, everybody, for your questions and for your attention today, and enduring what will most likely be a longer-than-normal set of prepared remarks.

To summarize, Allscripts has a strong, highly differentiated set of solution, a significant footprint and diversified loyal clients around the globe. We will take the next several quarters to focus squarely on our clients and simplify our approach, increase our touch, deliver on obligations and drive a positive and permanent inflection point in their satisfaction with us.

Second, we will position the Company through further development of existing solutions and new offerings to position the Company and our clients for the world of population health management.

Third, we have taken steps to carefully manage our cost structure, leverage our size and streamline our processes to be more efficient in our day-to-day operations.

Finally, we will take concrete steps to improve the predictability and consistency of our financial model and align our business practices with the broader market direction through subscription-based agreements.

Thanks very much for your patience and time, and we look forward to seeing many of you at HIMSS in New Orleans in two weeks.

Thank you for participating in today's conference. You may now disconnect.