Veradigm Inc.
Q4 2007 Earnings Call Transcript

Published: 14 Feb 2008

[Operator:]

At this time, I would like to welcome everyone to the Allscripts fourth quarter and yearend 2007 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. Mr. Glen Tullman, you may begin your conference.

[Glen Tullman:]

Thank you, Katisha. Good afternoon and welcome to the Allscripts fourth quarter and yearend 2008 conference call. This is Glen Tullman, Chief Executive Officer of Allscripts. Joining me on the call today is Bill Davis, our Chief Financial Officer and Lee Shapiro, our President. Before we get started, I am going to l ask Bill Davis to review our Safe Harbor statements. Bill?

[Bill Davis:]

The statements made by Allscripts or its representatives in this conference call will include certain forward-looking statements that are based on the current beliefs of Allscripts management as well as assumptions made by and information currently available to Allscripts management. Wherever practical, Allscripts will identify these forward-looking statements by using words such as may, will, expect, anticipates, believes, intends, estimates, could or similar expressions. These forward-looking statements are subject to a variety of risks and uncertainties, including those listed in the earnings press release issued by Allscripts today and in Allscripts' filings with the SEC which could cause Allscripts' actual results, performance, prospects, or opportunities in 2008 and beyond to differ materially from those expressed in or implied by these statements. Except as required by the federal security laws, Allscripts undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this release. With that said, I'd like to turn the call back over to our CEO, Glen Tullman.

[Glen Tullman:]

Thanks, Bill. 2007 was a record year for Allscripts. Financially our results demonstrated the strength of our markets and the performance of the company. Earnings for the year were $0.35 per share, or 59% over 2006. Revenues were $281.9 million, or 24% higher than last year and clinical sales were $193.3 million for the year and $49 million for the quarter. While we are proud of our performance during 2007, we set some aggressive goals to grow faster than the market and to implement Touchworks version 11 aggressively. However, with respect to those goals, we achieved most but not all of our expectations. Our initial guidance provided in October of 2006 was based on several assumptions including, the timing of our Touchworks V-11 release and the impact on our deployment schedules, the mix of practice management and electronic health record sales and the percentage of enterprise sales. Let me make a few comments on each of these. First the timing of our Touchworks V-11 release and the impact on our deployment schedule. We have been talking about our version 11 release for almost two years and so the release of Version 11, which included more physician and client input than ever before, more functionality, more flexibility and over 2 million new lines of code was a milestone for the company. However, the much anticipated release added unexpected delays, which have had both a timeline and a bottom-line impact. Simply stated, given the flexibility and the breadth of the software it has taken more time for our people and for our clients to learn it and to configure it. In addition, we have had our share of clean-up that comes with any undertaking of this size. So what are we doing about it? First, we have shifted significant resources from around the company to focus on addressing issues identified by the first 30 clients of Version 11. Our TouchWorks Version 11.1 update throughout in the second quarter will address many of the enhancements that have been requested. Second, we have committed to send teams on site to assist some of our early users with deployment. I have always said to our clients we don't know who is getting it right but no one cares more or will work harder to get it right than Allscripts. And many of our clients are seeing that commitment in action today. That said, it is about performance and we are focused on making the software and deployment changes, so that additional work won't be necessary going forward. And as Bill has noted in the past this kind of client commitment isn't free. We will be addressing Version 11 issues for the next few months and while we will see some financial impact as we work through it, we are making solid progress, which is reflected in our 2008 plan. A second consideration was the mix of practice management and electronic health records sales. The good news is that practice management sales exceeded our expectations, both in the numbers of sales and the size, confirming our view that the architecture of our Practice Management system should scale up to handle the larger sites in the country. The challenge we faced during 2007 was that clients who purchased both the PM and the electronic health records generally implement the PM first, showing our ability to drive electronic health record revenue sooner. And while this is more of a delay than a problem, it had a clear impact on our 2007 revenue numbers. A third assumption was the percentage of enterprise sales. You may recall that last year we took some of our top sales talent and focused them on enterprise sales. While we had solid success in signing large enterprise agreements, it's pretty clear that the revenue recognition on the larger agreements doesn’t come as quickly as the mid-size sales we make. So our success on larger agreements did not add as much revenue as we had planned. That revenue of course will come in, but over a longer period of time. Now, let me make a few comments in bookings. In terms of bookings, we believe that our pipeline was robust enough to hit our Q4 target. However, a number of agreements slipped out of the quarter and bookings in the quarter didn’t materialize as we expected. We found that some of the larger agreements, even in cases where we have been selected as the vendor of choice were delayed multiple times. The good news on the delayed enterprise agreements is that we've not lost any of them, but going forward we have learnt to be much more careful in relying upon them in our bookings and revenue expectations. One quarter ago, we were talking about the highest bookings number in the history of the company in what is typically a slower quarter. In this quarter we saw a different result. Our focus during 2008 is to expand the pipeline and fortunately given the strength of the market, especially for larger enterprise clients this is something, I believe we can accomplish. So I've taken the time to provide a perspective on 2007 performance but I also want to highlight several important accomplishments during the year. First we expanded our footprint in the market Allscripts now has close to 40,000 physicians and over 7000 hospitals using our software solutions. In 2007 we delivered more solutions to that base, while adding new clients to the Allscript community. Existing clients, added physician users bought more of our products for more of their users. This is solid high margin business for us. And for new clients the year was highlighted by adding more of the “Name Brands” in healthcare including groups like Columbia University Medical Center, Lahey Clinic and ASHNER health system to a base that already contains many of the industry leaders. This is critical because these groups have significant influence in an industry that relies heavily upon referential selling. These groups and these agreements validate our position as the leader in electronic healthcare today in the large group market, giving other large prospects the confidence to move forward and abandon their first generation EMRs and also in influencing mid-market groups like the two that were announced today to select Allscripts as their vendor of choice. Let me say a word or two about the two clients that we highlighted with press releases today. ProHealth Positions is the largest primary care medical group in Connecticut with a 180 physicians and 60 mid-level providers in more than 80 locations. ProHealth selected our Electronic Health Record and Practice Management Solution after a very competitive backlog. And Mankato Clinic in Minnesota also selected TouchWorks for their 113 multi-specialty physicians to enhance their quality initiatives. This was an Electronic Health Record agreement only. But both of these highly-competitive agreements confirm that Allscripts continues to be the solution of choice for large medical groups. At the same time, we continue to gain significant traction in the smaller end of the market, as demonstrated by our team delivering over 100 sales in the fourth quarter, a new record. HealthMatics is also building on a strong reference base, which we've noted many times is the key to selling in all of our markets. And even given the strong results we're continuing to invest in our HealthMatics CHR, getting content, features and enhancing connectivity, demonstrating our long-term commitment to the products and to the segment. I'm also pleased to say that having been in the first group of Electronic Health Record Certified when CCHIT began, we just cleared CCHIT certification for a second time with our HealthMatics product. To switch gears a bit. In the hospital market the Allscripts brand has now emerged as a leader in three areas. First, hospitals are purchasing our Electronic Health Records for their affiliated physicians. We have strong results with the emerging hospital market as more hospitals took advantage of the start safe-harbor, which enables them to fund some of the cost of our solutions. We expect to see continued expansion here with an emphasis on systems that ambulatory physicians will use and are using today. Second, we made solid progress with our set of solutions in the emergency department bringing in new clients such as OSF Healthcare System, an agreement valued at $1.6 million. An important part of our story is, now our ability to cross-sell from our portfolio. A great example is Iowa Health which uses our Electronic Health Record and contracted for our emergency department solution in 2007 due to their success with our health record as well as our ability to connect the EHR and ED products and exchange information on things like medications, allergies and problem lists. Connectivity will become increasingly important across all of our products. And the third area for Allscripts in the hospital space is our Account Management Solution, where we made excellent progress as well. Our win at New York Health and Hospitals Corporation help solidify the New York market for our Canopy product and of course our ECIN acquisition expanded our footprint dramatically. I want to highlight another area for 2007 and that was the strength of and our investment in our products. As many of you are aware, for years our Electronic Health Record solutions have been rated number one in class, which is known as the consumer reports of healthcare IT. In fact virtually all of our solutions have been ranked in the top three in their respective categories. Even with that as a baseline, in 2007 we made a number of the boldest and most significant investments in the history of our company. Three significant software projects help define the year. The first, as I have already mentioned was the refresh of our HealthMatics Electronic Health Record software, demonstrating our commitment to both the product and to what we think of the professional market. This is the market that demands an integrated Electronic Health record and Practice Management solution that's easy to install and yet fully featured and connected, and we are delivering. The second was our introduction of Touchworks V-11, which was a bold undertaking as I outlined earlier in my comments. The market wants more functionality, connectivity and innovative features like disease management, real-time clinical trials and updated content and once again Touchworks V-11 positions us well to deliver on what the market demands. And the third was the National Electronic Prescribing Patient Safety initiative, better known as NEPSY which made electronic prescribing accessible and free using an ASP on-demand solution. I'm proud that Allscripts stepped up to try and tackle this tough problem and to reduce the millions of medication errors and thousands of life lost to preventable medication errors. Physicians are now using the software in fifty states, and the software also serves as the on-ramp to the electronic healthcare highway in our portfolio solutions. One sign of our success, Allscripts transmitted more electronic prescriptions in 2007 with our electronic prescribing products using the Surescripts Pharmacy, Health Information Exchange than any other electronic prescribing vendor in America. So let me also talk about our product portfolio. During the year we made significant investments across the company but they were required to get us to where we want to be. Core to our mission is to deliver a full set of solutions that can inform and connect physicians. And in 2007 we added products to the mix and broadened our portfolio to get there. One of the success of stories for Allscripts that emerged in 2007 was Practice Management. In the Touchworks space, we included Practice Management in over 45 agreements, close to two times what we originally anticipated, and as I mentioned some of the genesis of our problem was revenue. In some of those agreements were with our exiting electronic health record clients where we replaced the current practice management vendor. Both Novant the largest healthcare provider in the State of Carolina and LSU are great examples of the progress that we are making our base. At the end of the year, we also announced our acquisition of Extended Care Information Network. ECIN solidifies our position as the leading provider of hospital care management and discharge planning software. Along with our existing Canopy Care Management solution the acquisition gives us an installed base of 700 hospitals as well as over 5,000 post-acute care facilities; for example, nursing homes and assisted living facilities. We now have an ASP-based suite of software as a service solution that will enable Allscripts to connect another key component of the healthcare delivery system, the exchange of patient information between hospital case managers, physicians outside the hospital and the growing number of post-acute care facilities nationwide. So in summary, solid progress for the year with a lot of great accomplishments by the team. To further address our financials, I'm going to ask Bill Davis to take over the microphone. Bill?

[Bill Davis:]

Thanks, Glen, and hello everyone. As Glen stated, we are proud of the many accomplishments in 2007 including our delivery of 24% revenue growth and nearly 60% in company profits over 2006. With that said, we fell short of our expectations for the year. I want to reemphasize a few points made earlier by Glen regarding our revenue and resulting earnings shortfall in 2007. In a nutshell we saw an expansion of our deployment cycles caused by both, our Touchworks V-11 product delays and the fact that we did see stronger than expected interest for our Practice Management and EHR solutions in the year. While positive to bookings, the combined EHR and PM system sales do in fact take longer to implement than the standalone EHR sale, again impacting the timing of our revenue recognition on these projects. In addition, we did experience a higher percentage of large enterprise sales than originally projected, which typically involved longer deployment cycles and more supplicated payment structures. Some of which impacted our ability to recognize revenue in the year. As it pertains to the fourth quarter specifically, total bookings during the quarter were approximately $52.4 million, consistent with prior quarters bookings do not take into consideration the $11.9 million of sales and medications. Our clinical software businesses contributed $49 million in bookings during the quarter, excluding ongoing support. We continue to be impacted by the timing of certain large enterprise deals as Glen outlined. Our position interactive business had bookings during the quarter of $3.4 million. As I indicated last quarter, a larger PI booking amount was dependent on three platform sales occurring in the fourth quarter. And in part, due to the ongoing challenges pharma faces, that did not happen in the quarter and in some cases, may not happen at all. Bookings for all of 2007 totaled $205.8 million. Our clinical software businesses contributed $193.3 million of the annual amount, representing 17% year-over-year growth. Physicians interactive contributed the balance of our annual bookings of $12.5 million. Turning now to backlog. We ended the fourth quarter with $275.5 million in sold backlog, which includes approximately $24.3 million acquired from ECIN. The backlog breakout is as follows

[Glen Tullman:]

Thank you, Bill. So let me bring it back to the company on what we're trying to accomplish. A number of years ago, we painted a vision of an interconnected healthcare system that delivers quality care to patients and does so in a cost-effected way. Today we hear virtually everyone talking about electronic healthcare, including patients and employers who are demanding better care at prices they can afford, and virtually everyone else connected with healthcare. The message is clear that equipping physicians with electronic tools that allow them to practice more effectively based on information provided real-time on their computers and connecting them with hospitals and other key parts of their healthcare system will be critical to addressing our healthcare challenges. I am pleased to say that your company Allscripts will continue to lead the charge, providing software, technology, connectivity and information that are core to addressing this critical problem. I want to thank everyone on the Allscripts' team for their effort and for their dedication, our employees, our clients, our partners and all of our shareholders for their passion and for their dedication to the Allscripts' vision. We'll now open it up for questions. Thank you.

[Operator:]

(Operator Instructions) Your first question comes from the line of Sandy Draper with Raymond James.

[Sandy Draper:]

Thanks and good afternoon. Just a quick question, Bill, on your EPS guidance. Is the number there, when you said affected or fully taxed in '07, so are you going against $0.49 or $0.46. I am just trying to understand that?

[Bill Davis:]

Yeah, I am coming up. I think it’s important, Sandy, to recognize that about a $1.4 million of that tax benefit in '07 again pertains to prior years. So, I would think about the baseline EPS to build-off, of course, $0.32 to $0.33, so it should put you in the relative range of about $0.45 to $0.48.

[Sandy Draper:]

Okay. So $0.45 to $0.48 is baseline, and that's a GAAP number?

[Bill Davis:]

That is a GAAP number.

[Sandy Draper:]

Okay. That’s helpful, and then your comment about the revenue guidance and the ability to deliver on Version 11 and timing, how conservative have you been there, obviously the last couple of quarter have been clearly disappointing? When you look at the range, 20% to 25%, is 20%, assuming a pretty slow deployment, and 25% is better? Or just sort of maybe help me get a sense of how you calibrated the numbers?

[Glen Tullman:]

Yeah, I think you have to start with the relative contribution of ECIN. I indicated the expectation of around $20 million from that business, which would imply organic growth that is actually closer to about, call 15% or thereabout. So, we are absolutely trying to be as cautious as we can be relative to the relative ramp of all of our clinic businesses, but Touchworks in particular. Quite frankly, my comments are in terms of highlighting the relative risk, I view that being more prevalent on the cost side, in recognition that we are continuing to carry a meaningful amount of deployment cost, that we are not recognizing the full benefits in terms of recognized revenue just because of the expansion of the project plans that we are experiencing. So, the caution is really in and around the margins. I think we have taken appropriate steps to be as cautious as we feel we can be on the topline in terms of our ability to deliver that. But recognizing that there continues to be incremental costs required to deliver that.

[Sandy Draper:]

Okay. Great, we'll I've got more question, but I know there are going to be a lots, so I'll jump back in the queue.

[Glen Tullman:]

Okay.

[Operator:]

Your next question comes from the line of Corey Tobin with William Blair.

[Corey Tobin:]

Hi Good afternoon a couple of things if I could. On the bookings guidance, any reason to believe that we wouldn’t expect to see bookings grow at lease in line with the market in 2008?

[Glen Tullman:]

You know, Corey, what I would say is, we are trying to be very conservative in our numbers, you know we believe that the market continues to be robust; we've had a very robust pipeline. That said, we have seen some of the agreements that we expect to de-close when we were the vendor of choice seeing those agreements get pushed for a variety of reasons. Many of those were out of our control whether they be personnel changes or the like. So we've taken a very conservative path relative to projecting what we're going to do going forward so…

[Bill Davis:]

I just – I would add to that Corey, our desire, just in recognition of what has transpired here last couple of quarters in terms of our ability to predict the timing of some of these deals, is really not to get pegged to a specific number or expectation. We do believe that we're in the midst of a robust market. We do believe we're well positioned to participate in that market and so we're hopeful and certainly expect that we will continue to be leaders in that respect. But in terms of getting pegged a specific number we really want to try to avoid that.

[Corey Tobin:]

Well maybe you can focus just a little bit on some of the tough clients that you mentioned that might have slipped. Is there any way to try to quantify where actually that number might have -- or the magnitude of that piece of the business or anything along those lines?

[Bill Davis:]

Well, Corey, I think that clearly had we not expected, based on our pipeline, to deliver on the bookings number we would have taken it down. We were highly confident, and that said, we had some of those when you're dealing with the kinds of sales we're dealing with, you are going to have a mix of large enterprise deals, some of those slipped and have pushed. And based on our experience including direct meetings with individuals and some of those people who had moved on to other opportunities now, our view was, again, we want to be very conservative, relative to going forward and predicting when those will happen. The good news is, we've not lost any of those and we do expect them to come in. Having had a lot of confidence in the fact that some of those that we expected to close would close, now, I think we've taken a more careful path.

[Corey Tobin:]

And final one for me, if I could. You mentioned enterprise space as being the area where a few deals had slipped, is it just that, or have you seen something held back in your previous quarters, so is it the enterprise space or is there stuff in that sort of middle market segment as well? Thanks.

[Glen Tullman:]

I think clearly HealthMatics, as we said, had a record number of unit sales and we expect there market to continue to have solid sales. We had two impacts, one some of the enterprise deals pushed, second in the mid-market I think it was pretty clear that we pulled a lot of talent out of that mid-market. And so that didn't grow quite as fast as we expected. That said, you're seeing some of the agreements, one of the agreements that was announced today ProHealth for $3.5 million, was an agreement that we expected in the fourth quarter. And frankly, they expected in the fourth quarter and it ended up pushing because of our Board of Directors meeting. So that’s an example of $3.5 million on a mid-market deal that pushed and so there is a share of those out there. But again we want to be very careful and for sure not create any kind of overhang with any one big large deal because that's not the case.

[Corey Tobin:]

Thank you.

[Operator:]

Your next question comes from the line of Sean Wieland with Piper Jaffray.

[Angus Lin:]

Thank you. This is [Angus Lin] for Sean. So outside the handful of big deals that slipped in what sound likes the enterprise market, could you comment on pricing in the mid-market and if you have seen any changes there?

[Glen Tullman:]

Yeah this is Glen. No, we think that mid market and high-end pricing is fairly solid and good. At the low end of the market, I think Bill has commented before that we have seen some pricing erosion. We have actually seen that starting to stabilize, it is at a bit lower point, but the good news is, that's being made up by number of unit sales. So across the board, I don't think pricing is an issue and in fact, I see some level of opportunity in pricing. But I don't see across the board as pricing being an issue going into 2008.

[Bill Davis:]

Yeah, the one point of clarification I guess I would add to that because it does have an impact, and that is, as we see practice management systems being introduced into these mid-markets and large deals that tends to be subject to more commodity-type pricing. And so it tends to have the effect of bringing the overall gross margin percentage expectation down on these deals. So that is one consideration in terms of pricing dynamics but I would echo Glen's sentiment we do see opportunity for some improvement there which is something we are focused on.

[Angus Lin:]

Great, a couple of question on version 11. What's the average version 11 implementation time right now? And what is the plan to get it down and where do you see it settling?

[Glen Tullman:]

You know, what I would say is we don’t quiet yet have an average and part of the challenge is we have version 11 across the 30 or so clients that were implementing it. Some are new, some are larger, and some are smaller. So, I'm not sure that we have an average time per se other than saying that to-date it's been larger. And part of that challenge has been that we may have version 11 working perfectly at one site and we take it to a different site and there are different requirements, there are different implementation requirements and they may be using it or they may be using in different specialties in a different fashion because of the flexibility. That’s what made it complex. As I mentioned we have a plan, which includes shifting a significant number of resources across the company to focus on both software enhancements and other changes that have been requested by the initial clients, that’s number one. Number two, we’ve brought in some process expertise, some black belts who are helping us focus. Teams on how we are going to deploy this in a more standardized fashion, which makes it easier for our clients and also, obviously more cost effective for us deploy. Now that said, we are making progress on it. It's moving in the right direction. I mentioned 11.1, which is coming out in Q2 and that will address many of these issues. So we feel very confident that while we have an issue that we also are working the issue very aggressively and that we've got it to where it's under control.

[Angus Lin:]

Okay, great. Thank you.

[Operator:]

Your next question comes from the line of Jackson Spears with Capstone Investments.

[Jackson Spears:]

Okay, Glen, there was question asked on pricing, could you be more specific in that, are there some pricing pressures within the HealthMatics space to target the lower end there, and was that initiated all by you?

[Glen Tullman:]

Yeah, there was pricing pressure we saw at the lower end. It wasn't initiated by us. We saw one of our competitors; a newer competitor who introduced some pricing pressure, which frankly we don't see as sustainable, but nonetheless, when people are buying, sometimes even though we may be getting a premium that may be as large as we've had in the past. So that's where we saw the pricing pressure, and I think we're learning to compete with it better, we're also seeing more and more the value of both connectivity of content and cross-selling and people are starting to understand that simply buying the electronic health record in the low end without having a vibrant practice management system as we do will again come back to bite you. So, net-net, we think we've got that, we know what issue we have to address there and we think we've got our hands around how we're going to do it. The good news as I mentioned, is that unit volumes are going to more than cover any price degradation, so we see that at best as flat, we don't see that as going down.

[Bill Davis:]

If I could add to that Jack, this is a dynamic that we’ve actually been seeing for sometime we've actually talked about on prior calls. So the dynamics of the lower end market not necessarily new, if any thing we actually started to see a little bit of stability in pricing in low end of the market in the fourth quarter, and as Glen indicated very, very strong unit sales in the HealthMatics segment. So we were actually quite pleased with our performance in the low end of the market.

[Jackson Spears:]

You're rolling out 11.1 in the second quarter, how might that affect your cost structure and the support service you have to provide for your implementation?

[Bill Davis:]

Well, the good new is that's actually going to -- that's a part of the solution, not a part of the problem. It addresses 11

[Jackson Spears:]

So looking forward in the third and fourth quarter with the (inaudible), could that lead to some acceleration, some I said, acceleration in both the Qs in the second half of this year?

[Bill Davis:]

I think as we see the progress that we expect in terms of not only through the releases but also through the education of both our clients and deployment resources. The acceleration opportunity will be first and foremost felt on the revenue side, which is a good thing because as I suggested if you accumulate Q3, Q4 work that was performed that we were not able to recognizing revenue in excess of $5 million and that's not lost revenue, that is just in effect protracted and at some point that would come through and to your point, hopefully, you'll start to see some of that in a the later half of this year. As it pertains to bookings, I think Glen indicated and we certainly feel that the level of interest for v11 and what it means to the market is very, very strong and so we are staying very, very focused on capitalizing on that opportunity. I don't think that v11 per-se will be an accelerator of sorts, but in reality, that's more of a function affect, we feel we're in the midst of pretty robust market opportunity.

[Jackson Spears:]

Hey, thanks, Glen.

[Operator:]

Your next question comes from the line of Douglas Tsao with Lehman Brothers.

[Douglas Tsao:]

Hi, good afternoon. I was just wondering Glen if you could describe or provide some detail around the integration of the ETHAN product and the ECIN company. And is this something that you are personally involved in a lot right now?

[Glen Tullman:]

Actually, and I don't mean to pass this one off, but I am happy to say that Bill Davis was really leading the charge on the integration. I will make one or two comments and then I'll ask Bill to comment. One, what’s unique about ECIN and our Canopy product is, not long ago the two companies were partners and they worked together and then John McConnell, who was the former CEO and founder of A4 bought Canopy, then we bought John McConnell's company A4, and so now we owned A4. So putting these two companies back together was something that they had already worked together once in a very unifying fashion. That said, the integration, we are fortunate to get some very high quality management, the CEO of Extended Care, Jeff Surges has come over and Jeff is running all of our hospital operations that includes, ECIN, that includes Canopy and that includes our ED areas and so we have a very confidence in Jeff. Bill?

[Bill Davis:]

Yeah, Glen, I think you really hit on the high points and that is that we have a shared customer base already. There is a lot of familiarity with the two development organizations in terms of the relative strengths of the products. The great news is that they are both ASP solutions and so our ability to really seamlessly integrate them in a very low impact way from a disruption factor. We are very excited about it. So, we do have an internal plan over the next, call it 12 to 18 months to ultimately move all clients to a single platform but that will be done in a very seamless fashion and we are seeing tremendous excitement and success in really short-order in terms of bringing the two market leaders together in the Care Management arena.

[Douglas Tsao:]

And then as a follow up. Are you needing to recruit additional headcount into the hospital solutions group right now to handle this sort of product integration conversion?

[Glen Tullman:]

No, if anything just the opposite. We actually have reason to believe and already starting to enjoy some benefits from some overlap. You know we see synergy opportunity and the good news is that a vast majority of the synergy opportunity comes from hiring avoidance meaning Canopy and ESIN independently, are businesses that are both growing at a pretty healthy clip. And so they both had plans of hiring some 15% to 20% hedged resources over the course of a week and an opportunity to rationalize those hiring plans is what we have already been focused on.

[Douglas Tsao:]

And is that you freed up within Allscript to the broader company more resources to focus on the ambulatory solutions in particular on Touchworks?

[Bill Davis:]

Yes, they absolutely had. I mean Jeff was one of the first in terms of offering that Glen talked about you know the contribution of some 30 resources from other areas of the business into Touchworks to help with our V11 efforts and you know certain percentage of those have in fact come out of the hospital solution group area. So, they are in fact helping in that regard.

[Douglas Tsao:]

Okay great thank you very much.

[Operator:]

(Operator Instructions) Your next question comes from the line of Allen Fishman with Thomas Weisel Partners.

[Allen Fishman:]

Hi this is Allen Fishman in for Steve. I just had a few quick questions. The first is when you're going to market for a new Touchwork account, are you selling a version 11 or version 10?

[Glen Tullman:]

We only sell version 11 now and basically version 11, the great news about version 11 is it’s exactly what physicians have been asking for and was physician designed and has all kinds of connectivity and content functionality that they really have been after. So it’s a breakthrough product and that’s all that anyone would really want now.

[Allen Fishman:]

And then, my second question just has to do with the mix of enterprise deals, hospitals versus multi-practice groups. Just kind of, is there any way you could give us some color on how that breaks down when you look at your sales pipeline over the next 12 months or so?

[Glen Tullman:]

Yeah. We historically have not given that level of detail. I think it is fair to assume that we have nice representation across all those various groups. We talked a lot on the last quarter about relative traction being motivated by Stark law of relaxation and we continue to see that as being a meaningful contributor to our pipeline and we've always been very strong in kind of a multi-specialty group setting. But in terms of giving specific percentages we've not provided that in the past.

[Allen Fishman:]

All right, that's fine. Thank you very much.

[Operator:]

Your next question comes from the line of Bret Jones with Swann.

[Bret Jones:]

Good evening. I was wondering if you could speak a little bit to what really changed in Q4 between the time you gave guidance, I mean what actually transpired? It seems to me that we're talking about longer deployment cycles, and the fact that the combined Practice Management EMRs also was potentially delaying the deployment cycles. Was the shortfall in revenue simply due to bookings then?

[Bill Davis:]

It really was two factors as I highlighted in my prepared remarks; about $2 million of the shortfall can be directly attributed to the short fall in bookings and that would have been by virtue of hardware being in that mix, which we are able to recognize more immediately. But there was a further impact beyond what even we expected kind of in early November relative to the V11 expansion of project plans. And I essentially quantify that as about $2.5 million in the quarter. So it was in fact the combination of the two. The V11 implication much greater impact on the bottom line, the hardware at $2 million would have only contributed about $200,000 to $300,000 to our operating income. So, much greater impact from the V 11 in terms of profitability.

[Bret Jones:]

All right, thanks. Whenever I look at the bookings, we talked before and enterprise deals were typically about 20% of bookings and I think you said that we can expect that to be potentially higher but the booking shortfall is about 43%, you have talked about some of that coming out of the mid markets. But I was wondering if you can talk to any common theme as to why in the mid markets, some those deals slipped.

[Bill Davis:]

Yeah, again what I talked about on the third quarter call and have in some of the conferences that we presented in over the last couple of months is that if you really look at the relative distribution of our sales over the course of 2007, very, very strong at the lower end of the market, that was even up against some pretty hefty head wins from a pricing perspective and then very, very strong on the high end. We created a little bit of a challenge for ourselves at the beginning of the year by taking some of our strongest producing sales reps in January of '07 and moving them towards the enterprise sales, which created a bit of a void for ourselves in the mid market. We began to take steps to try if of course correct that in the middle of the year and quite frankly, started to see some positive progress in terms of rebuilding the actual bookings in the mid-market, even in the fourth quarter. But in terms of timing considerations that Glenn was speaking specifically to, those were largely felt in the enterprise area of the business. But I will let Glenn add to that if you like.

[Glen Tullman:]

No, I think that's right. And I think what you said is right.

[Bret Jones:]

Right, and then lastly I just want to make sure I caught this and maybe I misunderstood. And Glen, when you were talking about some of the enterprise deals and dealing with some of this, I think I heard sales people that were in charge of those. Those people have left? Have you lost some of those people that you transitioned over to focus on the enterprise group?

[Glen Tullman:]

No, I may have been unclear. What I was talking about is some clients that we were dealing with had shifts in personnel that caused their organizations to delay decisions that would otherwise we believe had been made.

[Bret Jones:]

Okay. Great, thank you very much.

[Operator:]

Your next question comes from the line of Atif Rahim with J.P Morgan.

[Atif Rahim:]

Yeah, there are a couple of questions, first on the bookings again. I guess relative to the expectations you had for the fourth quarter, there is about a $30 million or so in shortfall. Would that be purely just, I mean, I'm trying to break out what percentage of that would be, deals that slipped versus the incentives you had for your sales force in the Touchworks side to focus more on the mid-sized deals. Could you break out for example what percentage of the shortfall came from deals that slipped versus just maybe less execution than you had expected?

[Glen Tullman:]

Yeah, I think what I would say is the bulk of this is not execution based. The bulk of this is deals that slipped. And most of those deals came in the enterprise environment, which is the way you make up large numbers needless to say. That’s not to say that we are not also focused on execution. We focus on execution every quarter. But net-net, this was really an issue of some of the larger deals that we expected slipping.

[Atif Rahim:]

Okay. And then, I guess with regard to the additional resources you are putting into the version 11 implementation etcetera. How are you dealing with customers who were supposed to get the implementation underway already? Are those projects just on hold and what’s the customer reaction to that had been?

[Glen Tullman:]

Well, what we've done and this is part of what I referred to is, we have actually sent folks on site to help them, now the issue with version 11 is, we have version 11 deployed and working at certain customers. The issue has been each customer in healthcare is a little bit unique, a little bit different, and because version 11 allows them a significant amount of flexibility that actually adds to the complexity of implementation. We're also dealing with the fact that our own teams are in many cases doing their first version 11 install. So you put those two together and it adds to delays in what we have seen. But what we are doing is we're doing what we always do and that is working closely with our clients. Our clients are partners and we both want the same things. So we work with them and we say, how can we address this if it is traditional people that we need to put onsite? We'll do that and we have done that and are doing that at certain clients. I guess the good news from our client’s perspective is we're committed to make sure that we spend time and the energy to get them live, and that's good news for our clients in some respect. So that does imply additional cost and Bill has already referred to that. But now, first and foremost, we're building a great company that clients can depend on. That's our commitment to them, and that's what we're going to do. Unfortunately, at least for a short period of time there will be some additional expense associated with that.

[Atif Rahim:]

All right, okay. Just as a final follow-up, are those additional resource that you are putting to those, is this mainly in-house in terms of overtime etcetera or would that be third-party consultants that you are bringing in?

[Glen Tullman:]

In most cases it's in-house, that said, as Bill mentioned and Bill may want to comment on this. What it does is, it delays revenue recognition because it extends the project plan out. And so consequently, we've done work but we don't because the deployment hasn't moved forward, we don't necessarily get to recognize the revenue. Bill, you want to add to that?

[Bill Davis:]

Probably just, I'll just reemphasize that. Really what's at play is an expansion of project plans and there is a practical limitation in terms of our availability to just throw more bodies at it and expect that you can kind of keep pace because the reality is this is the great attention comes from how quickly the client in those circumstances is able to move. And so, we are seeing not only in terms of overall hours being added but also an elongation of the time required to get those hours worked.

[Atif Rahim:]

Okay, that's great. Thank you.

[Glen Tullman:]

Thank you. Why don't we take two more questions?

[Operator:]

Your next question comes from the line of Richard David with Needham and Company.

[Richard David:]

Okay, just simple quick question. I think last time you talked about, there was the NEPSY initiative with e-prescription and you had like, I think it was like 5,000 doctors, half a million e-prescription and things like that. How has that gone? Just kind of as an update on that? That's the easy question Glen?

[Glen Tullman:]

Well we continue to see growth. I don't think that we're going to get in a habit of announcing the number of physicians each quarter. That said, we want to give people an indication that it was real, it was operating in every state in the country, and that we were making very significant progress. You are going to see a number of states, I believe start to mandate electronic prescribing, based on the fact that it's now free. They didn't like the fact before. They didn't want to mandate something physicians would have to buy. But now that it's free, we see a number of states talking about accelerating mandates, both the timeframe and the fact that they would have them at all. We've seen great leadership from certain states who are already stepping up and we've already begun to deploy. In addition, hospitals are now interested in funding some of these deployment works via Stark, so we are seeing that as well. But net-net, we are seeing growth in scripts, nice growth in physicians, strong interest and I think importantly, as I mentioned in my comments we are proud of the initiative because it's saving lives.

[Richard David:]

Got it. Okay. That's all I needed. Thanks.

[Glen Tullman:]

So, why don't we take one more question?

[Operator:]

Your final question comes from the line of Newton Juhng with BB&T Capital Markets.

[Newton Juhng:]

Thanks guys. I am glad you got me in here. Just one quick one here on the quarterly composition of bookings, I know you are getting rid of that annual number. But are we still looking at Q1 to Q4 basically being -- Q1 to Q3 being somewhat equal and then a bulk in Q4 or do you think after what you have experienced this past quarter your kind of outlook on that might have changed a little bit?

[Bill Davis:]

Yeah. Newton, we would still anticipate that the fourth quarter, everything else equal should be higher than the other the first three. So, I have no reason to believe that kind of relative contribution of Q1, Q2, Q3 being fairly close to another and Q4 being higher than the first three, I would still expect that to be the same.

[Newton Juhng:]

Okay. And then even with the push out of some of these businesses that you talked about out of the fourth quarter. I shouldn't expect the first quarter to really gain all the benefit of that?

[Bill Davis:]

I am really very hesitant to try to set that expectation, so that's actually great question and opportunity to provide you a word of caution as Glen indicated some of these enterprise deals that we witnessed this last year with Columbia specifically, where we started to talk about it indirectly on the first quarter and it wasn’t until August that was intimately consummated. I just think you have to deal with the reality as some of these could span multiple quarters. And so I'd be very hesitant to bank on the fact that it would all kind of fall into just the first quarter.

[Newton Juhng:]

Okay. Bill. And just lastly here, in terms of your cost capitalized software, it being a little bit higher this quarter, as we look at that going forward, can we see that normalized back down or with the upshot of version 11.1 in a week. Should we expect cap software to still be kind of high in the first half of the year?

[Bill Davis:]

I would expect it to be kind of in that range, thereabouts in the first quarter. I mean the way I am think about the full year is that, we actually spend a little bit over $30 million in R&D and I expect somewhere between 25% to 30% of that number in terms of capitalization.

[Newton Juhng:]

Okay. Thank you very much. That’s really helpful.

[Glen Tullman:]

Great, well thank you much. Let me conclude with just a few final comments. And in a sense, it takes us back to where we started. 2007 was a record year for the company. 59% earnings growth, revenue growth of 24%, very strong sales growth, clinical sales especially and we were pleased with that. However as we said, we set very high expectations. We met some but not all of those expectations. And our objective, going forward in 2008 is to make sure that we set achievable goals for ourselves and we consistently quarter-over-quarter deliver on those goals. That said, again I think that the progress that we've made in the market. The progress that we continue to make and our commitment to doing the right thing for our clients, even if it costs more, is something that is very important for us on a go forward basis. So we appreciate all of your support, investor confidence. We continue to believe this is a very exciting market and we continue to believe that we will be the leader in the market. So thanks very much. We look forward to talking with you next quarter.

[Operator:]

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