Veradigm Inc (MDRX) 2013 Q4 法說會逐字稿

Good afternoon. My name is Rhonda, and I will be your conference operator today. At this time, I would like to welcome everyone to Allscripts fourth quarter and full year 2013 earnings conference call. All lines have been placed on mute to prevent any background noise.

Thank you. I would now like to turn the call over to Mr. Seth Frank, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Rhonda. Good afternoon. Today with us on the call are Paul Black, Allscripts President and Chief Executive Officer, and Rick Poulton, our Chief Financial Officer. During today's call, we will reference supplemental financial tables available on the investor relations home page of the 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 news release, with accompanying explanations to assist you in evaluating the financial metrics we will discuss today.

Before I begin, I will read our Safe Harbor statement. This presentation will contain forward-looking statements within the meaning of the federal security laws. Statements regarding future events and developments, the Company's future performance, as well as management's expectations, beliefs, intentions, plans, estimates, or projections related 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. And 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, I would like to introduce Paul Black, President and Chief Executive Officer of Allscripts.

Thank you, Seth, and thank you for joining us to discuss Allscripts fourth quarter and 2013 full-year earnings results. 2013 was a defining year for the Company. At the beginning of the year, there was a fair amount of concern about Allscripts' future direction.

Fast-forward 14 month later and I am proud to report the leadership team and Allscripts' 7200 associates have been successful in stabilizing the client base, [one or more] of the largest in healthcare, executing on key strategic initiatives, delivering on obligations, and restoring confidence with key clients, associates, and shareholders.

During 2013, I traveled a fair amount in order to hold 383 client meetings, spending time listening very intently to the collective voice of Allscripts clients. We worked hard and made significant progress, taking specific actions on multiple fronts to enhance day-to-day execution, operational effectiveness, and to ensure we are positioned for the future of healthcare in a post electronic health record world.

Most importantly, we made real progress in restoring that critical element of trust. We enjoy a very strategic relationship with the clients that we serve. We assist them with their mission of doing some of the most important work I know of: caring for people whose lives have been interrupted by sickness and disease, and keeping healthy people well.

The evidence of Allscripts' stability, clients' trust, and market momentum can be seen in the Company's financial performance, client satisfaction validation by third parties, and the addition of hundreds of new clients to the Allscripts open Connected Community of care network. We finished 2013 with stability and growth in the fourth quarter for a recurring revenue, one key barometer of the health of the Allscripts installed base.

From an execution standpoint, the most basic and critical task this year was delivering on obligations to Allscripts clients, ensuring certification of 2014 Meaningful Use 2 version of Allscripts electronic health records. We did that for every solution we offer that qualifies for the MU program.

Allscripts has received ONC MU2 certifications for 32 solutions in 2013. This was a huge priority last year and we are successful by employing discipline and rigor throughout the organization, particularly within the solutions development team.

We have made excellent progress upgrading clients to 2014 eligible additions of Allscripts electronic health records solutions. As of today, half of Sunrise clients who committed to the MU2 version of Sunrise 6.1 are live. For TouchWorks, about one-third of those are live on version 11.4.1.

Finally, for Professional EHR, two-thirds of clients are live on version 13.0. With all of Allscripts' MU-eligible solutions 2014 certifying, we moved rapidly in parallel to strengthen other products of the organization. For example, 2013 was about investment: investment in clients, in innovation, in research and development.

All in, we invested over $500 million in acquiring, engineering and enhancing existing as well as new platform solutions. At over $249 million, 2013 was the largest year for research and development investment in the Company's history. Part of this initiative was the assimilation of and extensive investment in two critically important platforms for Allscripts' future growth: dbMotion and Follow My Health. These solutions bring powerful, prudent technology platforms, client and leadership talent to Allscripts. This led us to leapfrogging industry and positioning Allscripts as the leader in solutions for the global movement to value-based care.

We also enhanced Allscripts' senior leadership team in 2013. We added highly credentialed executives in international, revenue cycle management, population health management, sales, research and development, business unit general managers, legal, and other key functions. Some of the leadership came externally. Most leaders came from within the Company.

We streamlined layers of management and aligned the business to ensure client success in the solutions we delivered to them, creating clear client ownership, P&L responsibility, and accountability. We consolidated North American offices, reinforced leadership in Chicago corporate headquarters, and created centers of excellence. At the beginning of 2013, we had 23 North American facilities and we are on plan for one-half of that number in 2014.

Finally, we focused on enhancing Allscripts corporate governance, adding two experienced independent directors to Allscripts' Board of Directors as a cohesive, highly aligned governing body, focusing on the long-term stewardship of the Company on behalf of the Company's shareholders, associates, and clients.

In 2013, it was a year of focus: investing, building, executing, and creating stability. And while stability is good, momentum is better. That leads me to my favorite topic, sales results.

We created solid momentum in 2013. The last three quarters of bookings grew compared to the prior quarter. And we ended 2013 with the largest bookings quarter since the fourth quarter of 2011.

We were asked on this call one year ago if we could grow bookings in 2013. We replied, that is our goal. 2013 full-year bookings grew 23%.

While bookings grew in each of the last three quarters of 2013, Q4 was the best of the year. Total bookings in the fourth quarter were $274 million, equating to a 52% year-over-year growth, and 16% growth compared to a very strong Q3 of [2003]. I am very happy with the quality of bookings in the quarter, with no one specific agreement skewing the results. We saw balanced and healthy demand, reinforcing the success of client focus and the market positioning for the future.

While a majority of the bookings in Q4 came from existing Allscripts' client base, a significant percentage came from new client footprints. Allscripts added over 200 new client relationships across acute ambulatory and population health management. For the full year of 2013, Allscripts added almost 800 new clients, an important achievement as we expand the open Connected Community of Health.

Looking at client segments, [a key] had a strong quarter as we sold two new Sunrise footprints, one domestically at the Dameron Hospital Association in Stockton, California, and one at the Guam Regional Medical Center. Both of these agreements were important wins against major competitors, representing strong endorsements of the superior and flexible clinical functionality of Sunrise integrated platform.

In ambulatory, we had a good quarter of client expansion as well as new sales of TouchWorks. We also posted double-digit sequential growth in professional electronic health record as we added new physician practices to Allscripts industry-leading installed base of approximately 45,000 ambulatory facilities.

In the fourth quarter, we extended and expanded relationships with several large IDN clients, including a multi-year extension for two hospitals acquired by Montefiore Health System, a specialty teaching hospital in the Southeast, and another academic medical center in New York. We also successfully executed major TouchWorks expansion this quarter, including a major health system in the Northeast and a national occupational health provider. One of these agreements adds over 1000 new providers to the Allscripts network.

In the fourth quarter, Population Health Management solutions were 42% of total bookings compared to 26% in the fourth quarter of 2012. In the fourth quarter, Population Health Management solutions bookings increased almost 90% compared with last year. And for 2013, full-year Population Health Management bookings increased approximately 70% compared to 2012, a phenomenal achievement.

The drivers of this performance are multi-fold and reflect the strength of Allscripts' solutions portfolio. These are tested and proven across hundreds of clients, demonstrating the strength of Allscripts' Population Health strategies. This includes leveraging data and clinical information captured by disparate systems, whether Allscripts or competitors. This is something we do better than any supplier in the market, due to Allscripts' open philosophy in a real-world approach to healthcare financial challenges. dbMotion today supports connectivity in approximately 10% of hospitals across the United States, connecting some [277 disparate] electronic health records, vastly opening a connected network.

In the rapidly emerging area of consumer empowerment, Allscripts Follow My Health portal continues to drive robust demand across all provider types and sizes. Existing Allscripts electronic health record clients and new organizations select Follow My Health because it provides a robust patient engagement platform across vendor-agnostic acute ambulatory and post-acute settings for a truly universal and holistic community patient health record.

Finally, within care management, we're an industry-leading network of over 13,000 post-acute providers coordinate transitions of care; we continue to expand Allscripts' market leadership.

Before handing the call over to Rick, I want to say a few words about what comes next. The challenge Allscripts clients face is to improve value in healthcare. As defined by Harvard professor Michael Porter, value is health outcomes divided by cost.

Top of mind for all US clients is a transition to value-based care. So this means all clients must be able to do two things very well -- measure outcomes and measure costs. Allscripts has always been an outcomes-focused Company. We have a proven track record and countless success stories, studies and data demonstrating superior positive outcomes associated with utilizing the Company's solutions.

We are the only HCIT company that offers a robust, proven, cost-based decision support solution. Third-party recognition for EPSi clearly supports this claim.

Finally, the value equation does not stop at the four walls of any one medical campus. It is consumer-centric and is measured based on care wherever the consumer receives it in the community. As we discussed, and as 2013 bookings illustrate, we are well-positioned to lead healthcare through this transition to value-based care.

Community does not equal HIE. [We renew] dbMotion contracts are already replacements of a health information exchanges that moved basic patient clinical results from one provider to the next. No semantic interoperability, no single click on the agent for the community view of data, no workflow engineering, just FedExing clinical results -- big blobs of data.

This is not helpful to caregivers. Caregivers want contextual data delivered to them without multiple sign-on or clicks. Data that are available through the entire community, providing a single source of truth to make better decisions about the person in the bed, the clinical or post-acute facility.

Caregivers at the University of Pittsburgh Medical Center report that 67% of the time, they are in their native electronic health record and click the Allscripts community view, they make a different decision about the care that they order for their patients. This is a stunningly important statistic.

We are working on continuous improvement, and a goal in 2014 is to drive strategic synergy between the Allscripts solutions to make them much more powerful together for the complex community interoperability that healthcare requires. It is going to be about outcomes, costing, and community and activity.

With those comments I will turn the call over to Rick Poulton, who will discuss the financials.

Okay. Thanks, Paul, and good afternoon, everyone. As I comment on our results, please utilize the GAAP and non-GAAP financial statements in our earnings news release as well as the supplemental data sheet posted to our investor relations website this afternoon.

The fourth quarter and 2013 in full-year were successful were successful from multiple perspectives. Bookings growth accelerated into the fourth quarter, allowing us to finish the year on a strong note. Revenues stabilized and we showed sequential growth in the quarter, and we continue to increase the percentage of new bookings derived from subscriptions and long-term managed service agreements, helping us to build our backlog to record levels at the end of the year.

In addition, non-GAAP gross profit, non-GAAP operating profit, adjusted EBITDA, and the associated margins with all three of these measures grew for the third quarter. So with stability in the business and momentum in key corporate growth areas, we head into 2014 on a firm footing to grow revenue, continue to reduce our costs, and generate positive free cash flow.

That's the main focus of my comments today. And, as we discuss the fourth quarter highlights, I will also make some comments about what we expect ahead.

So, starting with bookings, the 52% growth in bookings realized in the fourth quarter over last year reflects several drivers. These include new wins in the core acute electronic health record markets for Sunrise, increasing wallet share within our existing acute and ambulatory base, as well as continued strong sales of Population Health Management solutions.

We continued to also see a strong interest in our managed services solutions during the quarter.

As Paul indicated, we finished 2013 with total bookings of over $900 million. This represents year-over-year growth of 23%. It is a strong performance by all measures, and in line with the goal we set for early 2013, which was to exceed our 2012 sales performance.

Our SaaS bookings, or subscription bookings as a percentage of the total bookings for the period, were 44% in the fourth quarter, another record which broke the level we set back in the third quarter. To put this in perspective, our SaaS or subscription bookings grew 87% on a dollar basis in the fourth quarter compared to last year. And for the full year, the dollar growth was 67%. And this collectively helped to build our backlog and it definitely helps improve our long-term revenue visibility.

From another point of view, looking at Population Health Management solutions, we continue to enjoy significant success across the solutions suite. In our fourth quarter, 42% of our bookings came from Population Health Management solutions. And that is an increase from 35% in the prior year as well as 40% in Q3. So, for all of 2013, 35% of bookings were derived from our Population Health Management solutions.

Aided by these strong bookings in these areas I have talked about, as well as our significant client renewals that we achieved during the year that we discussed on prior calls, our backlog increased to $3.4 billion at year-end, which is an increase of $100 million sequentially and a 21% increase from the end of 2012.

When comparing bookings and backlog, please remember that client renewals, transaction fees, and maintenance revenue commitments are not included in Allscripts reported bookings, but they are reflected in backlog for their contracted or expected contractual period.

We finished 2013 with $2.1 billion in transaction processing and other backlog, and that includes our subscription arrangements and managed services, including our (technical difficulty) hosting and IT outsourcing.

As we have seen throughout this year and as we have discussed in the past, there is a lag in the conversion of bookings to revenue, which will be more extended as we continue to grow our subscription base bookings. -- -based bookings. However, we believe that, over time, this will provide greater visibility into our future revenue outlooks.

So now, with that backdrop on bookings, let's turn to the P&L and talk about revenue. Total non-GAAP revenue was $354 million, which is up $20 million from the third quarter. Digging into the results by revenue category illustrates several important highlights.

Our non-GAAP systems sales revenue increased 10% sequentially and was relatively flat over the prior year, due to significantly lower hardware revenue in Q4. So, less low margin hardware sales translate into better systems sales gross margin, and we will talk about margins in a moment.

Our services revenue rebounded significantly in the fourth quarter. Services revenue, as reported, increased $12 million over Q3.

As we anticipated last quarter, we saw the release of some previously deferred revenue in services as we achieved certain contractual milestones. In addition, our electronic health record upgrade activity has begun to increase.

But, with that said, I would remind you that what I indicated last quarter still remains our outlook over multiple quarters. We expect quarterly professional services revenue on average to settle in the low to mid-$50 million range per quarter.

Overall trends in maintenance are stable, which is again an encouraging metric regarding stability of our client base. As a reminder, there could be some variability in the quarterly progression of this metric, but in Q4 we experienced some one-time benefits primarily associated with the achievement of certain client milestones and other adjustments. But, again, even with those one-time benefits considered, we view the maintenance revenue stream as very successful and indicative of a stable base.

So, similar to professional services, there was some lift in the quarter that would not be expected to repeat in the first quarter, but, again, we feel very good about our maintenance revenue situation.

The preponderance of growth coming from our new clients and client expansions, as you will see in the booking results, is due to the shift from perpetual license agreements that have separate maintenance contracts to bundled software and maintenance subscription-based agreements for new purchases.

Allscripts transaction processing and other revenue decreased 2% year-over-year on a non-GAAP debt basis, but it increased 4% versus the third quarter. The year-over-year comps were negatively impacted by the loss of an outsourcing client that we have talked about in previous quarters, and this will anniversary in Q2 of 2014.

Sequential revenue improvement occurred across our IT and outsourcing and our hosting businesses, and that helped to drive the sequential improvement.

Our SaaS based revenue, which is what we historically call subscription agreements and is included in the transaction processing line, continues to trend upward and -- as we compare it to prior periods. Subscription revenue grew 12% compared to last year and it continues to build sequentially as it increased 3% from third quarter.

Looking at margins, on a GAAP basis, as we talked about in Q3, systems sales gross margins improved. And this is, again, due to the positive mix shift between hardware and software. In addition, the software mix featured a larger proportion of Allscripts software revenue, which carries better margins compared to third-party software.

When we exclude the amortization expense, gross margin for system sales was 52.6%, and that is up meaningfully compared to the year ago period as well as last quarter. The total amortization expense, which is again related to capitalized software as well as acquired intangibles in purchases accounting, this is included in our cost of goods sold. And it increased 37% over the prior year and 35% for 2013 overall, due to higher cap software amortization as well as the amortization from these purchase accounting intangible assets.

Our professional services margins improved significantly due to lower use of third-party consultants and higher billable hours. Gross margins were consistent within maintenance and transaction processing compared to our third quarter.

Overall, gross margins on a non-GAAP basis improved to 44.4% during the period. And this compares to 43.6% in Q3 and 44% in the prior-year period. So all in all, gross margins trended positively and this quarter we are managing the business to continue to improve margins in 2014 and beyond.

As we drop down to operating expenses, our GAAP SG&A -- our selling, general, and administrative expenses -- increased $5 million over the prior year to $109 million. SG&A increased $4.6 million compared to the third quarter. As you will see in the non-GAAP table in our press release, for both the year and the quarter there are numerous one-time items and non-cash charges that make it challenging to easily compare periods.

So with 2013 behind us, we wanted to provide you with an analysis to use in benchmarking our success in achieving some operational efficiency goals that we had outlined a year ago at this time, and we have reiterated periodically throughout the year. I would direct you to the SG&A supplemental datasheet. It is in table 2. That is posted to our investor relations section of our website, if you haven't seen it already.

But, in summary, you will be able to see that we made good progress decreasing core SG&A spending when we compare it to 2012. Exiting 2013, we have eliminated approximately $25 million in our SG&A expenses when we compare that on an apples and apples basis to 2012. We believe this sets us up on a solid course to enjoy a full year effect of these savings in 2014.

So as we look ahead, we would expect one-time and nonrecurring items, which were very significant in 2013, to decrease markedly in both dollars as well as duration going forward. We will be winding down the My Way conversion to our Professional EHR platform in the first half of 2014.

In addition, we will be making some modest investments to expand our hosting services operations, add more capacity, and drive higher service levels around both our acute and post acute and ambulatory clients. And, finally, we will incur three more quarters of the non-cash transaction related expenses related to deferred comp from our dbMotion acquisition.

So all in, we will expect a total in the range of approximately $20 million in nonrecurring expenses in 2014, $15 million of which represents cash costs and the balance being the non-cash amortization just mentioned. Ultimately, we expect this support -- we will expect these continued investments to accrue incremental benefits to us over time.

As we turn to our R&D expenditures, fourth-quarter gross R&D expenses were $60 million, which is flat quarter to quarter and it is up 11% compared to last year. In 2013, our total gross R&D was $242 million or 18% growth over 2012, and this is very consistent with the double-digit growth we have discussed all year long.

We capitalized $12 million of this R&D during the quarter or approximately 19% of the total spend. This is a capitalization rate consistent with Q3. And for all of 2013 our software capitalization rate was 17%, which is down from 21% in 2012. These details can be found also on the supplemental datasheet on our website.

Looking forward, we expect to continue to drive more efficient, high-yield R&D investments. Our absolute gross dollar R&D spending should not change materially from 2013, but we would expect to get a higher yield out of that spend.

Finally, below the operating line, we reported approximately $2.5 million of non-cash amortization in the quarter and this runs through our interest expense line. This relates to our convertible bond that we issued last year, and it is all a function of the accounting rules around convertible bonds.

Finally, as you get down to the tax rate, Allscripts non-GAAP effective tax rate for 2013 was 28%. And this reflects the benefit of certain tax credits we realized during the year, as well as the distribution of our income across certain tax jurisdictions.

Looking ahead, we would expect our non-GAAP effective tax rate in 2014 to be in the 33% to 35% range, but this does assume that the R&D tax credit that we are currently eligible for will be renewed going forward.

After excluding all non-cash and other adjustments, non-GAAP net income totaled $14 million or $0.08 per share. This is up $0.03 a share compared to Q3. Our weighted average shares outstanding increased by 300,000 to approximately 178.5 million shares.

Our adjusted EBITDA improved by $9 million compared to Q3 and totaled $49 million or 14% of non-GAAP revenue. The details of this calculation are presented in table 5 of the news release.

And, finally, we ended the quarter with total liquidity of approximately $411 million. This is comprised of cash, marketable securities, as well as undrawn amounts under our bank facilities.

So, to summarize for the year, we had a very good year and finished on a high note with strong new sales, significant renewal volumes that have significantly increased our revenue backlog, and future revenue visibility. We continue to increase recurring revenue and expect that percentage of total revenue to continue to increase looking ahead.

We had a few revenue benefits in Q4 that will not likely recur in Q1, as we talked about earlier. However, expect to continue to see strong recurring revenue growth as we go throughout 2014.

We have made significant progress in reducing core SG&A spending and expect, again, to accrue a full year of benefits in 2014 from the investments we made in 2013. We will make some additional investments in our infrastructure, which we believe will have a strong ROI. And, once again, we expect R&D spending to moderate from a growth perspective as we drive higher yield out of spend we have.

As most of you know, last month we provided outlook of our expectations for non-GAAP revenue and adjusted EBITDA over the next three years. We have built our 2014 plan with a goal of getting us off to a good start toward that multi-year outlook.

So with that, thanks for your time and attention. And now we will take your questions.

(Operator Instructions) Robert Jones, Goldman Sachs.

This is actually Adam Noble calling in for Bob. I'm just wondering -- obviously, we have seen a major inflection in bookings over the last three quarters. I am just wondering how we should think about bookings for FY 2014.

Would you expect to see similar growth? Would you expect to see any growth over these levels? Just wondering how we should be layering in bookings for next year.

Yes. Well, you know what we -- I guess a couple of things; point out the obvious. We had nice momentum as we went out throughout the year, so we started the year with good momentum.

Having said that, I remind you of the typical seasonal pattern of bookings and Q4 is always the strongest time of the year. But I will just reiterate what I said a couple of moments ago. We built 2014 plan with the expectation that we get our three-year guidance off to a good start.

Okay.

(multiple speakers) direct answer to your question, but it is (multiple speakers) where our head is.

Absolutely. And just to ask around SaaS bookings specifically, obviously up to 44% for the quarter. Do you think that there is more room for that to increase as a percent of the total? Or are we kind of reaching a healthy saturation for SaaS bookings as a percent of bookings?

Look, the long-term output of what SaaS bookings does for us, and minimizing quarter to quarter variability of revenue rack and getting us better visibility is something we like. So directionally, we are kind of positively predisposed towards those. But, there's certainly a big chunk of our business that still operates under a licensed model (technical difficulty) model.

And so I am not sure I would give you an answer to, are we at saturation point. But I think it is never going to get to 100%, but we are happy to see it continue to be a strong piece of the overall equation.

Okay. Thanks for the questions.

Gavin Weiss, JPMorgan.

I just wanted to get some more color on your system sales backlog. Obviously, a really nice increase there sequentially. Can we think of that as mostly related to the Guam and Dameron sales? Or is there anything else getting into that number? And how should we think of that converting into revenue over the longer-term?

Gavin, this certainly goes to transaction help that number, but they are certainly not solely responsible for that. Amongst a very strong $274 million booking quarter, we had a whole suite of extensions of other software beyond just the Guam and Dameron deals. Okay? So think of those as nice contributors, but not the big bubble. You should see it more as a reflection of a very strong sales quarter.

How does that turn to revenue? Every deal that sits in there has a scheduled install date. Sometimes those schedules move around a little bit, but you should think about that, in general terms, over pretty close to once a year, maybe once every 18 months type of thing.

Okay. That's helpful. And I apologize if I missed this. I think last quarter you talked about attrition rates being consistent with prior quarters. Can you maybe give us some more detail on how those trended throughout 2013, mainly relative to 2012? And was there any improvement throughout the year? And do what you expect going forward?

Yes. This is Paul. Thanks, Gavin. The attrition rates for 2013 versus 2012 versus 2014, I would say that they are stabilized. And I would say that we have a very large installed base and we don't have any one client that represents other than North Shore-Long Island Jewish, which we have talked about in the past, as a major contributor to and would have a major impact on the recurring revenue or the demanded stream that comes in.

So we don't like to lose any clients and that is why I spent a lot of my time last year meeting with everybody. That doesn't say that everybody I met with is going to stay on forever, but it's a big focus inside the Company. We have realigned the Company around the client and we have a very direct connection with everybody that is out there that we have the privilege of serving.

My expectations of the people that are out there in the field today around the globe is that we don't have any more. Having said that, there will always be people, because of ebb and flow of what happens in healthcare, there will be folks that decide that they need to go with somebody else, either through an acquisition or for some other reason.

Thank you.

George Hill, Deutsche Bank.

Paul, we continue to see real strong growth in the top health management toolset. What are you seeing from the perspective of your clients on their opportunity to buy risk and take risk in the plan space? And I guess can you talk a little bit more about what you are seeing, about how their revenue model is changing and how it is syncing up with your opportunity in [pop-outs]?

I think a lot of folks, George, are really interested in making sure that they have an offensive play here. So it depends on who we are talking to.

So if I am in a large multi-group specialty practice, which I have been in, and they want to maintain their independence and they don't want to join the local hospital association or be bought by the hospitals, they want to call their play. So what they have been doing is establishing their own Medicare ACO. And I have got some folks that did that last year using dbMotion using our Follow My Health portal to help them really connect to and manage those costs.

The other thing that they are doing that has been pretty interesting, which has been a pretty successful component of what we do is the EPSi, the cost accounting system, which if you're going to go at risk, and you at some point in time may not have a claim, you have to have the shop floor automated to understand what your true costs are.

We are seeing more and more clients act in their own independent behalf. Many clients are saying that they would like to be much more at risk, because they need those dollars in order to maintain their own profitability. They see, whether it's a 22% to 30% of uplift that you might get because you are at risk, or in the shared savings programs getting a 10% to 50% cut of that, if you have been good at it and you are effective at it, and you are good at managing your population.

They see those dollars as dollars they need to maintain their profitability and their growth as the CMS cuts come in their direction. That's been a pretty active market with regard to the people that you wouldn't normally suspect wanting to go and become their own ACO, and people that you wouldn't normally suspect going out and filing for their own [Knox King].

Sounds good. That's interesting. Maybe a quick follow-up then, kind of the opposite side of Gavin's question is you guys announced a deal with Dameron and with Guam. Can you talk about how you feel in the competitive environment for the replacements that are going on? And can you provide a characterization of the client where you feel like your hit rate is going to be the highest?

Sure. You know me. I think that anybody that is out there that is making a change should become Allscripts. So I always start there. And from there, I have set that expectation with the sales organization and with our client-focused community.

As Rick talked a lot about, also, we expect to increase our wallet share with the clients that we currently have in helping to question their overall IT spend. And perhaps we can be more efficient if they minimize the number of suppliers that they are doing business with, and we provide some scalability there.

On the capability for us to compete, it is multifaceted. So if I am fine doing an RFP response, or I'm out presenting to a multi-group specialty practice, I expect to win that. I don't care how big they are, how small they are, both on the revenue cycle side as well as electronic health records side because we have great products and solutions for that.

For a standalone hospital, I think that we have done quite well, which is what -- the Dameron is a good example of that, of having a single-architected, inpatient/outpatient revenue cycle system that people can utilize. We just got the class rating back for our ambulatory Sunrise product and we ranked number two. We didn't (technical difficulty) have 15 respondents for that, but we ranked number two.

So, our ambulatory capabilities with the new Sunrise Ambulatory solution are being well-received in the marketplace.

The other piece that happens, I think, in that market, in the 200 to 500 marketplace, is that they are also looking for a Population Health Management strategy themselves. And so our capabilities to articulate that with those people is also helpful in making us distinguish ourselves compared to somebody else who may not have that set of capabilities in their quiver.

Charles Rhyee, Cowen.

Maybe to follow up on George's question in a different way here. With your newer versions of Sunrise sort of out in the market with some of your first installed at the end of last year, can you talk about how the sales pipeline is shaping up there? Sort of how much -- how many potential clients have kind of cycled through some of these facilities and any sort of takeaways you are hearing from the field there?

As part of the focus on new business in the Company, we have a different focus in the second half of 2013 than we did at the beginning of the year. And that is driving additional pipeline because that is the only place those folks are working. They don't have an installed base to go back and cross-sell or upsell additional solutions or outsourcing capabilities. They are out and looking only for new business, whether that is ambulatory, inpatient, or population health solutions.

So the backlog -- excuse me. The pipeline there is -- has been growing and, as we have said, we also sold some. So we are feeling better about our capabilities there. I would like to see that be stronger than what it currently is, but the trajectory that we have there is quite good.

And then, following up on that, as you see this pipeline shape up, should we think about sort of the typical sales cycle, if someone is going through looking at Allscripts now, is that still, would you say, like a 6 to 9 months timeframe? Because anything as regards to the changes in timing for Meaningful Use kind of push out decisions? How should we think about when we could see maybe a pickup in conversion versus maybe what we are seeing right now? Thanks.

You're welcome. It really depends on the client and the opportunity and who you are talking to. Again, a small group practice can make a decision tomorrow.

A larger group practice takes a longer period of time. A large integrated delivery network will take traditionally 18 months, just because of the processes that they work through and the size of the transaction that they are contemplating, and the clinical processes that they have to go through in order to make a decision like that. So it really varies.

I am not seeing a gross compression of time based on any indicators that are out there. That Meaningful Use stuff is -- continues to be important. And some people are not going to be on the same supplier that they are on today when they certify a new test for Meaningful Use 3.

Jamie Stockton, Wells Fargo.

Maybe the first one, you had a really strong SaaS quarter again. Can you talk about the solutions that drove that versus maybe what you saw drive the big step up in the third quarter? I mean, is that the same mix of what is driving this demand?

Yes, Jamie. We had very strong contributions from our Population Health suite of solutions. Not everything in there is sold on a SaaS basis, per se. But the strength is definitely coming a large part from there. No question.

Okay. And then, maybe just one other one, Rick. The schedule that you guys put in for SG&A, where you were trying to illustrate the cost savings that you have been able to drive, the differences between the non-GAAP SG&A number and the adjusted non-GAAP SG&A number, are any of those one-time-ish expenses? Or are those mostly going to recur in 2014?

The non-GAAP to adjusted non-GAAP, Jamie? Just to make sure I understood you right. Jamie? Maybe you got cut off. Okay. I am assuming you mean the bottom of that reconciliation that we put out there.

The answer is, those line items are not one-time in nature. That is why we haven't excluded them. But for purposes of the analysis we said about knocking out SG&A costs and making some structural improvements to that, it was important on an apples and apples to identify those items.

So, certainly, the concept of incentive comp non-cash depreciation and the acquired SG&A that we got when we bought dbMotion and Jardogs are not going to go away. But, having said that, again I would reiterate the ERP is a non-cash charge. We will continue to manage the dbMotion and Jardogs cost and look for synergies on that as we go forward.

And incentive comp is just a function of how the Company is performing. And, clearly, coming off of 2012 and the performance in 2012, that was why that was such a low base. But we have to perform for that number to become real. So those would be my thoughts on that. Hopefully, that was the response to what you are asking.

Anthony Vendetti, Sterne, Agee (sic).

Actually, it is Maxim Group, but thanks. Paul, I was just wondering if you could point to -- you have had a lot of new client wins, as you pointed out, particularly in Population Health Management. I was wondering if you could point to any particular deals, if you would like to name a client that would be great, but any particular deals where you beat out your former employer or Epic or others where -- I know switching costs are expensive.

But any situations where you have either taken a client from them or won a deal head-to-head, and why would they -- why did they choose Allscripts or Eclipsys?

It's a pretty competitive market out there, Anthony, and it is rare to go into any situation where you are not competing with almost everybody. And so when we do that, it is just important to stick to your knitting, to focus on the things that we are strong in -- our open Connected Community, our ability to do the inpatient/outpatient revenue cycle, the capability for us to also have a costing system. And to layer on top of all that, a real true strategy for Population Health Management including the connectivity layer, the analytics layer, the care coordination, care management layer, and then bringing it all back down into the point of care back at the bedside, clinic, or post-acute facility.

So we maintain our competitiveness. It is something I preach internally every day about making sure our products and solutions are competitive, the way that we bundle them, the way that we package them and the way that we go to market. And we try to do it in that professional manner as we possibly can.

And we have a lot of very good, talented competitors that are out there that make it a dogfight every time we compete. Therefore, every time we win, we are very pleased with that.

Okay. Great. Thanks.

Bret Jones.

Paul, I wanted to ask you on dbMotion, when you were talking about some large group practices -- (multiple speakers) it sounded like you said (multiple speakers) practices. I'm sorry. Can you hear me?

Yes, I can, Bret. Thank you.

Okay. Sorry about that. I just wanted to ask, what you were talking about Pop Health before, you were mentioning large group practices. And I was just wondering if you would talk about dbMotion. And what size group practices are we talking about that would be suitable for dbMotion, since it is a relatively expensive product?

Interestingly, we sold it to 25 groups and above. So -- sorry; a group of 25 doctors and above, because they want to connect to the local market. And they are also using it as a capability for them to grow their practice with other independent groups.

And they are using it as a strategy to attract other docs who don't want to change their electronic medical records where, in some cases, those docs are being courted by a health system, hospital, or insurance company. And one of the first things those folks talk to that independent physician group about is, we would love to have you join us. We would like to buy your practice, but you need to change your EMR.

So it gives an independent physician group practice -- let's say a 3- to 6-person group practice an alternative to selling their practice to somebody that perhaps they hadn't thought about doing. And most docs would prefer to join another physician-led practice than sell to somebody else.

All right. That's helpful. Then, in terms of trying to also cite dbMotion from the hospital perspective, would you say all hospitals would be relevant potential customers? Or is it really focused in on the large IDNs? Or -- and do you sell to the main hospital and they are the one to want to acquire dbMotion and it gets rolled out throughout? Or do you count every single hospital within the health system as a customer?

We typically sell -- if it is a health system, we sell at the health system level. And that is one of the key strategies for them to say, instead of having to rip out all the different electronic medical records at all the different hospitals that you have acquired, are acquiring, or may have a solution offered by another competitive supplier that may not be up to snuff, we can layer on top of that and get the data out, which are important, versus replacing the EHR.

So from that standpoint, we sell at the systems level, we have got a lot of integrated delivery network folks that use it not only internally to connect to all their hospitals, but also to connect to the rest of the community, both the owned physician practice groups as well as the affiliated physician practice groups in order, again, to get the data to have a holistic community view of a patient.

We have got a number of hospitals that are traditionally relatively small or modest-sized that are buying this in their marketplaces because, again, they want to connect to the independent physician group practices that are out there without forcing them to have to replace their electronic medical record. So it's been a pretty interesting strategy that has developed when they go out and they say to, again, a small practice that may not want to be acquired, that they are interested in sharing the data. And they can get that done very effectively with a dbMotion strategy.

David Larson, Leerink Swann.

Congratulations on a very good quarter. Paul, can you talk a little bit more about the new ambulatory solution within Sunrise? Is that an ambulatory product within Sunrise 6.1?

And did I hear you correctly that half of your base now has 6.1 installed? And is that ambulatory product used primarily by docs in the hospital? Or is it also being used by docs in offices around a hospital? And what sort of development plans do you have for that ambulatory product going forward? Thanks.

There were a lot of questions there, so let me try. The Sunrise Ambulatory solution has been out there for a long time. There is approximately, I'll just say, 45 clients -- Sunrise clients that also have Sunrise Ambulatory. The largest of them being our client friends in New York City at New York Presbyterian, where they have one of their ambulatory -- their faculty practices have 1200 physicians using Sunrise Ambulatory.

So that has been out there and in production for quite a long period of time. So Sunrise has had an ambulatory system for quite a while. So it is not new to 6.1.

It has been substantially enhanced. And it has continued to be architected over time, and architected in a way that we spent a lot of time on learning from other and ambulatory solutions, but making sure that the workflow that we have that is specific to the physician's specialty, is relevant that helps them get their work done more quickly.

So a cardiology workflow is different than an oncologist, which is different than a neurologist. So that workflow content those folks utilize as they are doing their work, that all has to be developed and delivered with that solution, whether it is TouchWorks, Pro, or Sunrise.

So the guys that are using that and the gals that are using that in the field are ambulatory physicians. And that is why it is called Sunrise Ambulatory. It is a different look and feel, but it is the same architecture.

It is the same database and it is the same integrated workflow as the Sunrise inpatient system. So when we compete head-to-head against some of the other folks that have an integrated architecture, we can show them inpatient, outpatient, revenue cycle, all integrated.

Okay. Great. Thanks. And then, can you just talk about your strategy moving into like the community hospital space, like hospitals with 200 beds or less? How are you competing against Cerner's Community Works, for example, on price and overall deployment for these smaller facilities? Thanks.

Sure. We believe that that is a nice marketplace for us to compete in. And we have got a fair amount of focus on that marketplace since there seems to be movement in that market still. And we expect to be successful there this year.

Greg Bolan, Sterne, Agee.

Most of my questions have been answered, but I was actually wondering, Paul, do you need your installed base hospital clients IT budgets to grow in order to improve your wallet share there? Or is it more of an upsell type strategy that you guys are following right now?

We don't need it to grow. It is -- typically, what I have found on the inpatient side, is you go into talk to folks and you say, how many different suppliers are you doing business with? And it is anywhere from 100 to 250, on average. It is weird. It is about 174.

And so I say to them, and our team says to them, gee, that seems like a lot. Is there a way for us to take a peek at what you are spending with those folks and perhaps there are some of those that might be better served by having those be on an Allscripts platform.

And people, because of the cost pressure that they have come are looking at that much more closely today than they probably have in the past, meaning whether it is an outsource that capability or you're going to let me host it for you. Or you're going to let me replace some of the point solutions that are out there with something that is integrated with the rest of the Sunrise suite.

So because of the CMS cuts, people are looking at every line item of everything that they are doing inside of these integrated delivery networks and physician practices. And we are trying to make sure we are there driving that conversation and assisting them in looking at their accounts payable file and saying we could replace this and that and the other thing, and potentially outsource components that historically people have not been looking at because they have been busy doing other things.

Thanks, and congrats on a strong finish to the year.

Thank you very much.

We are approaching our scheduled ending time and our last question comes from the line of Jeff Garro, William Blair.

I just wanted to ask, with the success you have had with your Population Health Management products, have you also seen momentum with those solutions from outside of your core customer base? And any chance you could quantify what percentage of bookings that was in the quarter?

Well, the answer to the first part of your question is, absolutely. Again, just to reiterate, when we talk about our Population Health suite, we are talking about several different solutions. Sometimes it gets sold in a bundle; sometimes gets sold individually. But, with some of those solutions, the vast majority of the clients are outside of our EHR base.

Okay. So there is definitely a range, but we are very successful in going beyond that. And, frankly, that is why we talk about this suite, because the one common thread it has is it is all EHR agnostic. So while we certainly talk to our HR clients about it, they are agnostic solutions that can sit on top of any EHR.

Can we give you any more data beyond what we have said already on how much outside EHR base? No. We are not going to do that. But I think if you just reflect on the comments I just made, you could conclude that it is a meaningful number.

Great. Then just as a quick follow-up, have you seen customers from outside your base buy one of the products that fit your Population Health Management definition, and then come back in subsequent quarters and buy additional products that fit under this umbrella?

Yes. We see that and that is a big part of our strategy to get one and then do a good job. Earn the right to come back and ask for more business.

Great. Thanks for taking the question, guys.

You are welcome. Well, thanks, everybody, for calling in and for your questions today. To conclude, we are moving into 2014 with momentum, compelling value proposition, and a strong competitive positioning for value-based care in the United States and around the globe.

We still have a lot of work to do, but we have made significant progress in 2013. I am very proud of the associates that -- our Allscripts folks that have been busting it this last year and really made measurable progress for ourselves, but most importantly, for our clients that have a lot depending on our success on their behalf.

I am thankful for every Allscripts client, all of whom rely on us to provide them to do the important work they perform every day around the globe. We look forward to seeing many of you at HIMSS next week. Good night.

Thank you. This does conclude today's conference call. You may now disconnect.