Veradigm Inc.
Q2 2010 Earnings Call Transcript

Published: 12 Jan 2010

[Operator:]

(Operator Instructions) Welcome everyone to the Allscripts Q2 2010 Earnings Conference Call. I would now like to turn the call over to Glen Tullman, Chief Executive Officer of Allscripts.

[Glen Tullman:]

Welcome to Allscripts fiscal 2010 second quarter conference call. This is Glen Tullman, Chief Executive Officer of Allscripts. Joining me on the call today is Bill Davis, our Chief Financial Officer; Lee Shapiro, our President; and Seth Frank, our Vice President of Investor Relations. Before we get started, I am going to ask Seth to review our Safe Harbor statement.

[Seth Frank:]

This presentation will contain forward looking statements within the meaning of the Federal Securities laws. Statements regarding future events, developments, the Company's future performance, as well as management’s expectations, beliefs, intentions, plans, estimates or projections relating to the future are forward looking statements within the meaning of those laws. These forward looking statements are subject to a number of risks and uncertainties, including the volume and timing of systems sales and installations, our ability to integrate acquisitions and realize the benefits of the merger with Misys Healthcare, the implementation and speed of acceptance of the electronic health record provisions of the Health Information Technology for Economic and Clinical Health Act, and other factors outlined from time to time in our reports filed with the Securities and Exchange Commission, to which you should refer, including our 2009 annual report on Form 10-K available through the website maintained by the Securities and Exchange Commission 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.

[Glen Tullman:]

I’m going to cover five areas today

[Bill Davis:]

Let me begin by briefly reviewing the highlights of our financial results for the second quarter, and then we will discuss our outlook for the remainder of our fiscal 2010. As many of you know, and as I’ve mentioned in prior quarters, we completed the merger with Misys Healthcare on October 10, 2008, and Allscripts was treated as the accounting acquiree in the transaction. As such, our GAAP results for the year ago period, the second quarter fiscal 2009 reflect Misys Healthcare’s performance plus approximately six weeks contribution from Legacy Allscripts. In comparison, the results we reported today for Allscripts second quarter fiscal 2010 reflect the results of our combined operations for the full quarter. Secondly, please note that Allscripts consummated the sale of our Physicians Interactive Business in September 2008 and our Medication Distribution Business in March 2009. Thus the non-GAAP results also reflect the exclusion of the results from these businesses that we divested. For these reasons, as well as for other reasons set forth in our earnings release, we do believe that the non-GAAP results are meaningful when evaluating and comparing our year over year results. Thus I would direct you to the non-GAAP results and reconciliation table and explanation included in our press release to assist in evaluating financial comparable periods and adjustments to reconcile GAAP and non-GAAP financial metrics. In addition, we are making available supplemental financial data that includes previously reported financial information since the beginning of our fiscal 2009 on a quarterly basis including GAAP and non-GAAP information. We plan to update this document quarterly going forward. The supplemental data sheet in our press release can both be found on our website at Investor.Allscripts.com. Let me review the highlights of our second quarter financial results. As usual, they start with our bookings performance, also known as order intake. They were strong, totaling $93.8 million in the quarter, reflecting 16% growth year over year. The $80.7 million of bookings recorded in the quarter ended November 30, 2008, again reflects legacy Allscripts and Legacy Misys Healthcare combined. As a reminder, Allscripts reported bookings conformed to our established definition of bookings which does not include transaction fees. In contrast, if you follow Misys PLC they in fact do include transaction fees in their bookings definition and if you were to include those, such transaction fees would add approximately $36.6 million to our quarters reported bookings for a total of $130.4 million. Recall that in the first quarter fiscal 2010, we did in fact sign one of the company’s largest transactions with North Shore-Long Island Jewish Medical Center. As we discussed then, given the nature of the North Shore transaction, and minimum commitments assumed in our original agreement, Allscripts Q1 bookings of $97.5 million included approximately $10 million related to the North Shore transaction. We stated at that time we would update the market if North Shore represented a material portion of any future quarter booking performance. There was no such material impact from North Shore in the second quarter, nor were there any other transactions of that order of magnitude in our Q2 bookings. Therefore, if one considered the exclusion of contribution to bookings from North Shore in Q1, Q2 bookings had in fact grew approximately 7% sequentially. Our Q2 bookings represent strong execution by our sales and marketing team and our illustrative of diverse sales across our client base with particularly strong showing of professional and enterprise EHR sales and include continued success cross-selling into our legacy Misys install base. Also, as Glen mentioned, our Health System Group also had a record bookings quarter. It’s also important to note, given quarterly fluctuations, to look at our year to date bookings which were up approximately 30% versus the first six months of fiscal 2008. Even excluding the impact of North Shore, bookings are up 23% year to date, a strong result that reflects the power of Allscripts market position, strong industry demand, and the benefit of our substantial footprint. A final important point on bookings is that approximately $22.2 million or 24% of our Q2 bookings are related to software as a service or SAS transactions that again will be recognized as revenue over approximately the next 48 months. This brings our year to date SAS bookings to $47.4 million or approximately 25% of total bookings and compares to $34.9 million or 24% of bookings in the first six months of fiscal 2009. We continue to expect that up to one third of our bookings could result from SAS deals in the future. This positive long term trend is a win/win for Allscripts and our clients as our SAS offering aligns the cost and maintenance of clinical software with the proposed federal incentives that will begin in 2011. For Allscripts, we benefit in terms of additional stability and visibility into our financial model in the enhanced long term revenue and margin profile. Turning to backlog, again you can see this information on the supplemental data sheet that I mentioned earlier. We ended the second quarter with approximately $741 million in reported backlog which consists of approximately $192 million of clinical software and related service fees, approximately $159 million of subscription and ASP fees, and approximately $246 million of annual maintenance fees that are expected to be recognized over the next 12 months, finally, approximately $145 million of transaction fees which principally consist of EDI transaction fees and again are expected to be recognized over the next 12 months. Total revenue in the quarter on a GAAP basis was $169.3 million and were $170.7 million on a non-GAAP basis. Q2 non-GAAP revenue was up approximately 5% versus the prior year period. We had strong results across all of our solution in our portfolio in the quarter with solid quarter performance specifically in our Enterprise EHR. We also saw noticeable up tick in our SAS related revenue. Systems revenue growth was impacted this quarter by a lower volume of hardware sales in the quarter. We also benefited from an up tick in maintenance revenue as more of our clients continued to go live on our solutions. We continue to expect that our overall revenue growth will reflect and increased mix of SAS transactions from smaller practices on the subscription basis and enterprise revenue from larger physician practices both of which will continue to take longer to convert into revenue. Turning to margins and expenses, non-GAAP gross margin percentage for the second quarter was 56.8% up 210 basis points sequentially and up from 55.3% in the second quarter a year ago. The improvement in gross margin was attributable to several factors including improved efficiency in our professional service organization with gross margin of 18.6% and incremental maintenance revenues from existing clients. We also benefited from a lower mix of hardware revenue, as I mentioned earlier, which yields lower margin then software and again helped us from a gross margin perspective in the quarter. Overall, we continue to expect gross margins to track in the mid 50% range for the remainder of this year, once again, depending on our overall revenue mix. GAAP operating expenses were $68.8 million for the quarter and included approximately $1.4 million in pre-tax transaction related expenses which represents mostly wind down of integration and severance costs associated with the Misys transactions. We expect this to be the final quarter in which we have transaction related costs related to the Misys merger. Non-GAAP operating expenses before stock based compensation deal related amortization and transaction related expenses were approximately $60.5 million which were up slightly compared to the $57.8 million in the first quarter. This slight increase in non-GAAP operating expenses is primarily due to an increase in incentive based compensation associated with our continued strong financial performance. On a run rate basis we have largely achieved our planned cost synergies from the Misys transaction of $25 to $30 million in the current fiscal year. Looking to the second half of fiscal year, with the proposed meaningful use roles criteria set forth by the Federal Government on December 30th we believe it will be critical to accelerate investments in key corporate initiatives that will further solidify Allscript’s competitive positioning to maximize the stimulus opportunity. For example, as Glen mentioned, our Ready Program is a cornerstone of our strategy to transform our approach to implementation and will ultimately result in significant long term benefits for Allscripts and of course for our clients. We also are focused on public sector and will invest in several projects to bolster our position relative to regional extension centers and other organizations. Also, I would point to several important R&D initiatives that will continue to allow us to stay ahead of the competition and meet our client needs to be stimulus ready. Turning briefly to a few other items. Capitalized software was approximately $5 million in Q2 bringing our year to date total to $8.5 million or approximately 27% of our year to date R&D spend. As we’ve indicated, our capitalized software expense will fluctuate somewhat on a quarter to quarter basis based on our product development schedule and this will be true for the remainder of fiscal 2010. Our GAAP tax rate in the quarter was approximately 39.9% a slight increase from the 38.6% rate we recorded in the first quarter. We continue to anticipate a full year tax rate in the range of 39% to 40% and have used the lower end of such range for non-GAAP purposes. GAAP net income for the quarter was $15.8 million. After adjustments, non-GAAP net income was $24 million which compares to $16.6 million in the second quarter a year ago and represents a growth rate of 45%. Details on the adjustments to reconcile GAAP and non-GAAP income are included again in our press release as well as the supplemental financial information referenced earlier. On a per share basis, our diluted earnings were $0.10 on a reported basis and $0.16 on a non-GAAP basis. Regarding our share count, we anticipate a fully diluted share count of approximately 151 to 152 million for the remainder of 2010. With regard to overall headcount, we ended the quarter with approximately 2,307 employees which compares to 2,404 at the end of the first quarter which is largely due to outsourcing approximately 100 individuals related to our field support team. Turning to our balance sheet and capital structure, Allscripts ended the quarter with approximately $90.5 million in cash and marketable securities a net increase of $3.6 million from the $86.9 million in the first quarter. We generated approximately $19.8 million in cash flow from operations in the quarter and $41.1 million for the first six months of the year. We also reduced our long term debt by approximately $20 million leaving Allscripts with approximately $24 million in long term debt which represents a two thirds reductions this fiscal year and its also due in part to the conversion of our convertible debt in Q1. We continue to expect solid cash generation going forward. A key driver to that is our accounts receivable which we saw a slight increase of $5 million to $155 million versus the first quarter, yielding a one day increase in day sales outstanding to 83 days. Please note that in the third quarter, which is consistent with prior year, we do in fact expect a slight increase in accounts receivable as a result of our annual maintenance billing that occurs typically at the beginning of the calendar year and represents a substantial component of our go forward revenue. We see opportunity going forward as we not only capitalize on the significant in flow of billings from our maintenance but also continued focus in our cash collection area. In summary, we are pleased with Allscripts results for the quarter and our year to date performance. We are seeing robust demand across our business and continued progress cross selling Allscripts Clinical Solutions into the Misys install base. Importantly, we are committed to continue to invest in the critical initiatives Glen and I have discussed that will better position Allscripts to maximize the stimulus opportunity and improve the company’s positions in the market for years to come. It’s important to reemphasize that we do expect to see gradual increase in demand of EHR solutions driven by the Federal Stimulus Program beginning more noticeably at the end of this calendar year. As stimulus based buying increases, we anticipate higher deal volumes, albeit with smaller values, per deal as buyers shift to smaller practices. In addition, our anticipated shift to increasingly higher mix of SAS revenue through increased adoption of electronic health records among small physician groups will also impact our revenue growth. Finally, our higher mix of reoccurring revenue which is approximately 67% is derived from our maintenance revenue, SAS agreements, and our EDI business should continue to yield a mid single digit organic growth rate. Based on these factors, we are making several upward adjustments to our financial guidance for fiscal 2010. With regard to revenue, we are affirming our anticipated revenue range of $680 to $700 million for fiscal 2010. We are raising our net income guidance to $64.5 to $66 million which equates to an EPS range of $0.41 to $0.43 per diluted share and our non-GAAP net income expectation to a range of $93 to $95 million which equates to an EPS range of $0.61 to $0.63 per diluted share. Our non-GAAP net income guidance contemplates approximately $13.5 million of acquisition related amortization and approximately $9 million of stock based compensation, both of which are net of tax. With that I would like to turn it back over to Glen for a few closing remarks.

[Glen Tullman:]

In closing, I want to wish all of your a prosperous 2010. 2010 is the start of a new decade which we believe will bring dramatic change in the practice of medicine. We will look back on this time as a moment in which the electronic health records delivered a sweeping change from a fragmented system of healthcare silos into a connected system of health. I want to thank all of you for your confidence in us, thank our clients for their support, and thank our employees for their hard work and commitment. I can assure you that we will continue to work hard to earn your confidence, deliver for our clients, and capitalize on the opportunity to lead this market. Before we go to Q&A I want to cover two things. I encourage you to go to our website to see Dr. Brenner from Summit Medical Group talk about their successes with CQS. I want to make sure that I give you the correct reference there. It’s www.Allscripts.com/Innovation. I think I said backslash the last time. Second, I know that many of you are interested in the proposed final rules on meaningful use and product certification. This topic is of significant interest to our clients and we have over 3,000 participants already registered for the first of three webcasts being held this afternoon at 1

[Operator:]

(Operator Instructions) Your first question comes from George Hill - Leerink Swann

[George Hill:]

Were there any more material revenue or bookings in this quarter that came from the North Shore deal?

[Bill Davis:]

There were not. I mentioned first on the bookings front that we did not have any material additions to our bookings in the quarter. We have made good progress in terms of the start of our deployments there so we did recognize some amount of revenue but I would characterize it as fairly immaterial in the quarter.

[George Hill:]

Safe to assume then that the CHI deal with the initial sell perspective financially will probably look a lot like the North Shore deal. Can you take a minute a talk about how historically when still look for a contract like this with a hunting license that’s on the back end of it, how you guys have historically sold into the hunting license portion of it and the time these normally take to harvest the additional license sales?

[Glen Tullman:]

These are very different then deals we signed in the past. Number one, they typically include, as did North Shore, as does CHI, all of their employed positions. Step one is getting your employed positions up and operating and ready for meaningful use. Then step two is to go out to the community. In both cases this is much more than a hunting license. In the case of North Shore-Long Island Jewish there are substantial incentives larger than the Federal incentives for physicians to adopt this solution. Not only are there financial incentives but there’s connectivity to the hospital which is very, very important. There’s connectivity the Emergency Department, all of that provided by Allscripts. If you’re a physician, you’re referring your physician to a North Shore hospital, one of their 13, you’re referring to a long term care facility which they’re the largest provider, or you’re sending a patient to the ED, all of that provides a full connected experience. In the case of CHI, once again it is a full marketing and sales program and again that is being aggressively marketing by CHI. Why? Because they want to use the stark exemption to get those referrals and be easy to do business with. I’ll just give you one example since I’ve been giving lots of web addresses out today. If you go to www.NSLIJ.com/EHR you can see an example of the kind of integrated marketing efforts that we’re providing. Again, that should give you an example. These are much more than a hunting license.

[Bill Davis:]

If I could make a few confirming points on CHI specifically. One, I just want to reinforce that the transaction that actually was signed in the beginning of our third quarter so it is not included in our Q2 bookings performance. Agree with you, the order of magnitude in terms of what CHI could mean to us over time is very significant. Want to emphasize that again from a bookings perspective in Q3 we will be relying on the minimum contractual commitments there. The market ought to think about that actually a little bit less then what North Shore represented in terms of total deal value initially.

[George Hill:]

I know a lot of people on our side of the business were waiting with faded breath for the meaningful use requirements to come out. Have you guys seen any material change within the client base with respect to meaningful use and how they’ve reacted once they’ve seen the regulations?

[Glen Tullman:]

We’ve always categorized this as a step function. Step one was when the legislation was actually passed. Step two has been when people start to understand what it is and then meaningful use will be something that we won’t have any difficulty having our products meet the requirements of, in fact we’re assuring that by providing the guarantees we spoke of. The last step will be what I call the “Cash for Clunkers” effect, when the first physician on your block gets a check, the rest of the physicians there’ll be a mad scramble for those who’ve not yet adopted. We also see of course adoption started at the largest groups because they have to do the most planning and its now moving very quickly through the middle market and through some of the independent physicians and small practices as well.

[Operator:]

Your next question comes from Sean Wieland – Piper Jaffray

[Sean Wieland:]

My comment is around the areas of increased investment that you alluded to. Can you be a little bit more specific on what areas of this product implementation capacity?

[Glen Tullman:]

We are investing in a number of areas and really the areas that we’re focused on, as Bill and I both mentioned one is Ready, the ability to quickly implement because we know that’s going to be important. Two, its usability, we want our systems to be much more intuitive. When we talked about our professional product and the new user interface, the physicians who’ve been using it for a period of time have really raved about how easy it is to use and how we listen to physicians to better design the product. Community and Connect is another big investment for us and that is the capability, I mentioned this great term semantic interoperability. The ability to have whole communities connect and share information. You’ve seen that out in Connecticut where not only our customers but connecting with all kinds of labs and competitive practices and the like. You see that in a variety of place where we’re connecting with hospital systems. One usability, two connectivity, three innovation, all of those are driving some of that investment. The last one is there is an investment in people. That is that we are carefully but reasonably aggressively bringing on the right kinds of people to help us grow and make sure we can accommodate the future growth. That’s where the investment is going.

[Operator:]

Your next question comes from Richard Close – Jefferies

[Richard Close:]

With respect to bookings, you guys mentioned that the health system sales were a record in the quarter. Can you give us any indication if you exclude the health system area what the bookings growth would have been?

[Bill Davis:]

We have not gotten to that level of specificity in the past so I’d prefer not to go that next level of detail. As Glen indicated, I will tell you though that in all areas, including professional, enterprise, and health systems we delivered on our own internal plan, all of which contemplate meaningful growth in the respective quarter as well as thinking about it on a year to date basis as well. We’re very encouraged by our overall performance. Did not mean to suggest that our bookings performance was solely driven by health system rather we saw strong performance across all our respective segments.

[Richard Close:]

On the Ready Process, I guess some of the statistics that you threw out there since it started in September I believe you said. Does that include the Enterprise product at all? If you could give us a little bit of an update on maybe Version 11 and how those roll outs are going, or upgrades are going, have the implementation times improved?

[Bill Davis:]

Interestingly enough our Ready initiatives actually started in the Enterprise Suite and the successes that we’ve seen have been predominantly focused on the Enterprise side. Given its success in the criticality of needing to do it across our portfolio, the investments that we spoke to are actually moving that aggressively in the direction of Professional and ultimately will have some contribution to our total portfolio set. We are very encouraged in what we’re seeing on the Enterprise side in terms of our ability to deploy these principals.

[Glen Tullman:]

Going forward we’re going to ask that if we can try to limit the questions to maybe one question as opposed to a cluster because we’re trying to get to as many people as possible. Relative to Version 11, we’ve seen great progress there. I think the best example of that is out at Sharp in California, Bill Spooner and his team implemented the entire organization, brought them up on the brand new Version 11 order functionality all seamless. It was a big, big step because the entire organization one day converted over and they had a terrific seamless upgrade and install. Version 11, where we’re putting in to new customers we’re seeing great results. One of the challenges, you always have this, when you’re dealing with an upgrade from a product that people have been on for years, some people really love the functionality of V-10, they’ve been using it for a long time and when they move to Version 11 there’s things that frankly are just a little bit different in Version 11. We’ve also worked through those issues. We’re seeing great progress across the board of Version 11 and we continue to invest a lot in it because it’s our lead product. We’re also seeing a lot of innovation come out of Version 11 as we add all this new functionality it is first available in Version 11, things like our CQS Module which I mentioned give people real capability they would otherwise not have. Similarly if you look at our clinical trials functionality available in Version 11 the only one in the industry that has it and that kind of capability and innovation as well we hoped for with Version 11. Through the bumps, continue to focus on making it better and better and some great results to show for it.

[Operator:]

Your next question comes from Jamie Stockton – Morgan Keegan

[Jamie Stockton:]

My question applies to hospital employed physicians. I think on your website you said this was an area the legislation seemed a little ambiguous as to whether or not they would qualify for the incentive payments, it doesn’t look to me at least like they will. Do you think that will have any impact in the marketplace or do you agree that it doesn’t look like they will qualify for the incentive payments?

[Glen Tullman:]

This is a controversial area and anything we say here understand that these rules are not yet final. I just did a session for a few hundred people for EHI and that was one of the big questions which was do they qualify, do hospital employed physicians qualify, what billing code should they be using? Some organizations have told us that they would rather continue under their existing billing code as opposed to change the one that qualifies. I think its up in the air. What I will tell you is there simply are not any hospitals out there that either employ physicians or have affiliated physicians that aren’t looking at electronic health records. If you are a large organization in the market today you’re looking at it almost independent of the funding. Most of these organizations see the funding especially for large hospitals as a really good thing. It’s brought this discussion to the fore but whether or not that ends up as including them or how it’s resolved, I don’t see that as being material to our results or to the sales growth that we’re seeing.

[Operator:]

Your next question comes from Corey Tobin – William Blair

[Corey Tobin:]

On the Upgrade Enablement Center I think you mentioned this, did you say there was 1,000 doctors that have purchase EMR through this since December?

[Glen Tullman:]

What the Upgrade Enablement Center was a way to take the existing legacy Misys space and make it very quick and easy to upgrade them to one of our newer products whether it was our Professional product which it is in most cases, or Enterprise products. It’s a way to systematically approach it, that’s one of the investments that we’ve made. What I said was that approximately 1,000 physicians have already contracted for being a part of the Upgrade Enablement Center. In other words, they’re already signed on, they’re in process of being upgraded just since we opened it which was in late November, early December was really the timeframe.

[Bill Davis:]

These are legacy Misys customers that are principally on Misys EMR that we’re converting as Glen mentioned to one of our go forward product solutions whether Professional or Enterprise, predominantly Professional thus far.

[Glen Tullman:]

I think the important point here is that what we didn’t want to do is have our existing sales force go out existing base, spend a lot of time selling them. What we wanted was to make it a total no brainer for this existing base to convert. Low cost, low complexity, systematic, and no involvement of the sales force and that’s the real success of the Upgrade Enablement Center.

[Corey Tobin:]

Remind us if you could please, how many physicians in your current install base are currently on a Misys EMR solution? How many are eligible, so to speak to work through the Upgrade Enablement Center?

[Glen Tullman:]

The entire Misys base should convert and what we’ve said all along is that’s over 100,000 physicians. That said, it’s in the thousands and I don’t think we’ve given a specific.

[Bill Davis:]

In terms of the direct audience of being on a Misys EMR you’re talking somewhere in the 15,000 to 20,000 range. That’s one opportunity. Really the point Glen was making earlier is that we see this ability to convert these customers in a very efficient manner to ultimately be applicable to net new opportunities as well. This isn’t just about taking existing customers and converting them, we see the ability to leverage the underlying infrastructure and the know how in a much broader sense and that’s what we’re most excited about.

[Operator:]

Your next question comes from Sandy Draper – Raymond James

[Sandy Draper:]

I want to make sure I’m clear, on the second half of the year you’re expecting mid 50% gross margin?

[Bill Davis:]

We absolutely benefited in the quarter in terms of the mix of the revenues, less hardware, more license revenue and so that’s the dynamic that will fluctuate from period to period. Number two is that as I mentioned with the shift going to smaller practices, there is some prospect of a little bit of tension being created by that shift to the smaller practices and the associated margin. The ongoing dynamics of the shift to software as a service in the near term that has the implication of recognizing all the costs of deployment up front and those revenues being recognized over time. Again, I want to be cautious for people not to get ahead of us from a specific gross margin point of view. With that being said, just want to reemphasize the operating leverage that we have demonstrated and how that translates into the earnings year to date and the guidance that we’ve given for the year. We’re not going to take our eye off the ball in terms of overall profit performance but I just want to call out the prospect of some variability there.

[Sandy Draper:]

One thing I was a little bit surprised, there was more volatility around the support maintenance and transaction processing margin sequentially. One was up, one was down. Can you help me understand what are the things that drive support maintenance gross margins to be that volatile and the same thing for transaction processing if generally they’re pretty high recurring revenue business lines?

[Bill Davis:]

There typically should not be much in way of variability other than the fact that we are from a resource planning perspective in both areas, attempting to get our resource plan right. It’s ebbing and flowing a little bit just was we work through that. I would tell you in both instances it is largely motivated by resource plan. Specific to the EDI front, I made reference on the headcount that we actually in the quarter transitioned about 100 heads to an outsource relationship specific to our field support individuals. There actually was some cost implications associated with that, you’re seeing a little bit of that working through the results. Outside of it I would expect both of them in the normal sense to be fairly consistent.

[Operator:]

Your next question comes from Atif Rahim – JP Morgan Chase

[Atif Rahim:]

In terms of the investment initiative that you talked about could you give us any idea of what expenses are like and how they might trend from now through the end of the year?

[Bill Davis:]

I think you asked in relation to the investments that we talked about how that translates into costs. I would say there is some variability there. I think that if you take our first half performance and correlate to what that would mean in terms of hitting our revenue and our profit guidance for the second half you’re talking about upwards of a couple million dollars a quarter in terms of what it could translate into in terms of overall cost spend.

[Operator:]

Your next question comes from Greg Bolan – Wells Fargo Securities

[Greg Bolan:]

A follow up to an earlier question on North Shore, are you seeing a preference for the Professional EHR over My Way by the non-employed physicians?

[Glen Tullman:]

I think it’s too early to tell. We have distributors who are doing well using My Way and we see strong interest in Professional. The biggest benefit of Professional is simply that with so many years of experience built into the product and with all of the functionality it’s more comprehensive then the My Way offering which is a newer offering. From that perspective we’re probably seeing it lean a little more that way but of course what we want to do is what’s best for our clients. Whatever decisions they make we’re happy to accommodate them. All of it will be connected at North Shore.

[Greg Bolan:]

Can you talk about the progress you’re seeing with the distribution agreements with Cardinal and Henry Shine? Is there any way to quantify or even just qualify their impact to second quarter bookings?

[Glen Tullman:]

I believe we’ve seen very solid progress with both Henry Shine where we have a very tight strategic relationship and I think you’ll see continued progress and activity together. Cardinal has just done some reorganization and brought on some additional sales capability that was recently changed. We’ll see some activity there as well. We’re very, very pleased with both of the partnerships. The one thing I’d say about Shine which is the primary jist of that relationship is lead generation and we are close to our full year target already which I think demonstrates both the interest in the market and Shine’s ability to market their customers in close relationship with their customers.

[Operator:]

Your last question comes from Don Hooker – UBS

[Don Hooker:]

With respect to your bookings, how much of that is selling into that Misys space? When those Misys positions are choosing and EHR what is your win rate there?

[Glen Tullman:]

Some great news, one of the surveys out there recently said they had actually surveyed the Misys space and above 80% of that base said that when they make a decision about an electronic health record they had already intended to select an Allscripts product of one kind or another. We think we’re in very good shape relative to the Misys space. The good news is that there’s no disproportionate amount as you can see from some of the new sales announcements its not like some great percentages all coming from the Misys space or vice versa so we’ve got great runway in that base. What we’ve done is we’ve made it easy for them from the standpoint of saying you don’t have to convert tomorrow; you convert when you’re ready to convert, and we will support you until that time. On the other hand, some of those products are going to need to be upgraded, some of the older Misys products and they are going to need to convert to qualify for meaningful use, that’s why we built the Upgrade Enablement Center to make sure that those are simple to use, simple to upgrade and don’t take a lot of time. Overall I think that we’re in very good shape. We’re right on our projections relative to what we thought would happen in the Misys space and now with the Upgrade Enablement Center we have the capability to actually accelerate. Let me close the call. Thanks very much. We tried to accommodate a variety of market situations and conference and the like in doing this first thing in the morning. We appreciate folks across the board getting up to join the call. We continue to see a very bright outlook for this market and we continue to be committed to be the leader in electronic health records practice management and the variety of other products we provide to hospitals and tin activity and pay processing and the like. Thanks, we’ll look forward to keeping you updated and talking to you next quarter. Thanks everyone.

[Operator:]

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