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Allscripts Healthcare Solutions (NASDAQ:MDRX)

Q4 2010 Earnings Call

February 15, 2011 4:30 pm ET

Executives

William Davis - Chief Financial Officer and Principal Accounting Officer

Glen Tullman - Chief Executive Officer and Director

Seth Frank - Vice President of Investor Relations

Analysts

Atif Rahim - JP Morgan Chase & Co

Jeremy Lopez - William Blair & Company

Bret Jones - Brean Murray, Carret & Co., LLC

Benjamin Forest

Lawrence Marsh - Barclays Capital

Jamie Stockton - Morgan Keegan & Company, Inc.

Greg Bolan - Wells Fargo Securities, LLC

Sean Wieland - Piper Jaffray Companies

Operator

Good afternoon. My name is Kyle, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Allscripts 2010 Q4 Earnings Conference Call. [Operator Instructions] Mr. Frank, you may begin your conference.

Seth Frank

Hi, good afternoon. Thanks, Kyle. This is Seth Frank, Allscripts' Vice President of Investor Relations. On the call today are Glen Tullman, our Chief Executive Officer; Bill Davis, our Chief Financial Officer; and Lee Shapiro, our President. I'll start the call by reading our Safe Harbor statement.

This presentation will contain forward-looking statements within the meaning of the Federal Securities laws. Statements regarding future events and developments, the company's future performance, as well as management's expectations, beliefs, intentions, plans, estimates or projections relating to the future are forward-looking statements within the meaning of these laws. These forward-looking statements are subject to a number of risks and uncertainties, including our ability to achieve the strategic benefits of the merger with Eclipsys and other factors outlined from time-to-time in our most recent annual report on Form 10-K, our earnings announcements and other reports we file with the Securities and Exchange Commission. URL [ph] 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'd like to turn the call over to Glen Tullman, CEO of Allscripts.

Glen Tullman

Thanks, Seth, and welcome to the fourth quarter and year-end earnings call. We had a great year-end close and a strong start as one company. Our first full quarter of combined results for Allscripts and Eclipsys.

Today, we're reporting exceptionally strong sales across our entire portfolio, with a number of significant wins and robust cross-selling into our base. Our revenues, our profit and our cash flow all mirror the strength of our sales engine. I'll spend the next few minutes highlighting our financial results for the quarter, as well as some important wins that demonstrate our traction, and I'll discuss the formula that has positioned Allscripts for continued success.

That formula includes our unique ability to deliver on our vision of a connected community of health for our clients and their patients. We believe this will become the new operating system for healthcare, and that Allscripts is uniquely positioned to deliver it.

So let's get started with our fourth quarter results. We delivered record bookings of $288 million, with strong sales across our entire portfolio of acute, ambulatory and Post Acute solutions. Our bookings demonstrate both the strength of our existing client relationships and the attractiveness of our offerings to prospects.

Non-GAAP revenue of $337 million, non-GAAP net income of $38.7 million and non-GAAP earnings per share of $0.20 demonstrate that we are executing on both our operational goals and our integration plan. And at the same time, we continue to generate robust operating cash flow, enabling us to further reduce our debt even as we continue to innovate and invest in our business.

As I've said before, we're at the beginning of the single fastest transformation of any industry in history. Our strong financial performance, paired with our ability to invest in both integration and growth, positions us perfectly to execute on the transformation now underway in the market.

The initial HITECH Act incentive payments to providers started in January. The first hospital in the country to receive payment under the Medicaid portion of the HITECH Act was an Allscripts client, the University of Kentucky Medical Center, which received $2.86 million.

As the stimulus payments from both Medicare and Medicaid are issued in the coming months, we believe the physician office and hospital markets will continue to accelerate. This will result in purchases of net-new systems and upgrades.

We think we're well-positioned to take advantage of both selling opportunities. And while the stimulus is important in driving the market, it's only part of the story. During the fourth quarter, it was clear that our cross-selling effort is already paying off, as a number of our Sunrise Hospital clients selected Allscripts' ambulatory Electronic Health Records for their employed physicians and, often, for their affiliated physicians as well as a part of their community programs. I want to take just a minute to highlight a few of the most prominent cross-sales of our ambulatory and acute solutions into our combined client base.

Yesterday, we announced that Cleveland-based University Hospitals Health System, one of largest healthcare systems in the nation, selected our Electronic Health Record and Practice Management solution for all 1,400 of their employed multi-specialty physicians across Ohio. This agreement, one of the largest in our history, also includes an exclusive endorsement of our Electronic Health Record for independent physicians affiliated with the health system's 10 hospitals.

Our community solution will provide a unified patient record that can be shared by their employed caregivers and by independent physicians. University Hospitals was already a customer for our Sunrise Enterprise suite of Acute Care solution across its hospitals, and now will upgrade to our latest Sunrise Version 5.5, and will actually purchase Sunrise for their newest hospital as well.

Another important win, Maimonides Medical Center in New York City standardized across their health system by selecting our Electronic Health Record and Practice Management solution for their 400 employed physicians. Maimonides was already using both Sunrise Enterprise and our Allscripts Care Management and ED solutions.

Their decision to replace their existing ambulatory EHR for employed physicians was driven by our vision of one patient record to dramatically improve care coordination across all care settings. It's a message that we believe will continue to resonate, with both existing hospital clients and some new clients. Their selection of Allscripts is also representative of the appeal of our set of solutions to a key client segment, community hospitals that have limited time and dollars to deploy an IT solution.

We fit well into this space, and our connectivity capabilities, which lead the industry, are important, especially important, to our community clients. I also want to highlight the significant traction we are seeing selling our EPSi Enterprise Performance Management solution, which meets a critical market need.

EPSi has proven ability to help hospitals improve margins and efficiency. In the fourth quarter, we sold EPSi to a number of Allscripts clients where we have prior ambulatory relationships, including Sharp Healthcare in San Diego, Danbury Hospital in Connecticut, and UMass Memorial Health Care in Worcester, Massachusetts. Existing and new acute care clients who selected EPSi during the quarter include: Robert Wood Johnson University Hospital in New Jersey, one of the nations leading academic medical centers; the University of California at Irvine Medical Center; and Dallas County Hospital, the flagship hospital of the Parkland Health System.

I mentioned that we had traction across the portfolio of products and that includes everything from extensions to new purchases. For example, Barnes-Jewish Health System will extend their implementation of Sunrise Enterprise into their new West County Hospital. St. Joseph's Health System in the Los Angeles area selected our Care Management Solutions for all 14 of their hospitals, as well as our Referral Management and Homecare solutions for their post-acute care facilities. Sisters of Mercy Health System in St. Louis will deploy our Care Management and Referral Management solutions in all of their 25 hospitals and 29 post-acute care facilities.

And in another sign of our success with community opportunities that connects hospitals with affiliated physicians, St. Mary's Medical Center in Michigan will provide the Allscripts MyWay EHR solution to their affiliated physicians to improve care coordination. St. Mary's will also leverage our Allscripts Community Exchange to share information between affiliated physicians and the hospital's Sunrise Enterprise solution, as well as our Professional EHR used by their employed physicians.

This trend of hospitals embracing our community model continues to accelerate, and we believe it's a strategic advantage. Some hospitals want to connect to the Allscripts community of more than 50,000 ambulatory physician offices, and they do so through our solutions. Others want to connect through existing solutions they have, and there too, Allscripts is leading the way, connecting with Siemens in Albany Medical Center in New York, Westerner [ph] at Sharp Healthcare in San Diego and West Penn Health in Pennsylvania and other third-party applications including competitors. We have the unique ability to connect healthcare across entire communities and help our clients compete in an evolving marketplace.

And as we anticipated, clients and prospects are responding to the expanded choice in the market, whether for a single ambulatory and acute-care offering or for a best-of-breed solution architected on an open platform and designed to integrate with their existing technology. Our strategy is working, and meeting a severe market need.

Let me turn now to one of the key questions that arose when we completed our merger with Eclipsys, the integration of Sunrise with our ambulatory solutions. I'm very pleased with our progress to date.

Many of you who attend the HIMSS Conference in Orlando next week, will have a chance to see our integration work first-hand. Our presence at the show will be larger than ever, and we expect to generate significant interest in the new Allscripts and our unique approach to delivering a connected community of health, with one network, one platform and one patient record. We'll conduct live demonstrations of point-to-point native integration between the Sunrise Acute Care offerings and our suite of Electronic Health Records for our physician offices.

In fact, you'll be able to see the integration between Enterprise, Professional and Sunrise Clinical Manager live. We're now able to show in real-time how information flows seamlessly between the hospital and the physician’s office to enable a single patient record. These are real-time record updates without the use of add-on interfaces. So while there is more work to be done, today we are well-positioned to deliver on our vision.

As we continue to focus on integration during the fourth quarter, we also achieved the ARRA [American Recovery and Reinvestment Act] certification for our acute and ambulatory Electronic Health Records by year-end as we have promised, as well as certifying a number of our ancillary products. As a result, our clients and prospects can feel confident that they have selected technologies designed to enable them to demonstrate meaningful use.

I want to close with a few comments about how we have differentiated Allscripts competitively in the market today and for the future, by executing on our vision of creating a connected community of health. Successful healthcare organizations will increasingly be compelled to collaborate with providers inside and outside their four walls to deliver a coordinated care across their communities. Seamless care coordination is the foundation of new care structures such as the accountable care organization and the patient-centered medical home. These and other strategic shifts in the way care is provided are designed to help healthcare organizations adjust to a world in which they are paid not for quantity but rather for quality of care they deliver.

Allscripts offers solutions to meet this strategic imperative. To connect inside healthcare organizations, we offer Helios by Allscripts, built into every new Sunrise Enterprise implementation. Helios offers an open, service-oriented architecture that supports integration between Sunrise and third-party devices and applications. It allows our clients to connect while avoiding the expense and waste of a rip-and-replace strategy.

To connect outside their organizations, the Allscripts Community solution, powered by dbMotion, enables Health Systems to become the hubs of care by connecting to the IT systems in physician practices and post-acute organizations across their communities. More over, they can connect in a unique fashion, with semantic interoperability that gives providers just the right information they need, when they need it.

Our community solution continues to build momentum in the market, with existing and new clients using our technology to build one patient record across their communities. As an example, in the fourth quarter, Orlando Health, a long-time Sunrise Clinical Manager and Enterprise EHR client, selected our community solution to connect their seven hospitals to ancillary systems and physicians.

And I mentioned earlier that University Hospitals Health System and St. Mary's will both use our community solution to connect with their affiliated physicians. So to sum up, we are delivering on our strategy and also, on the execution that we told you we would. We have the most utilized and effective solutions in the market, a client base comprised of the most trusted healthcare providers in the world, and the technology and innovative strategy to drive real change in the healthcare system over the next several years as the industry moves into the information age, and we're off to a great start on what will be our most critical year yet.

So with that, I want to turn it over to Bill Davis, who will take us through the detailed financials. Bill?

William Davis

Great. Thanks, Glen, and good afternoon, everyone. I'm excited to provide additional details regarding our strong financial results in the fourth quarter. I also will provide a quick and positive update regarding our outlook for 2011.

Before we begin, I encourage you to access the non-GAAP tables and explanations made available to you on our website to assist in evaluating the comparable periods and related adjustments to reconcile GAAP and non-GAAP financial metrics. You can find such supplemental financial information at investor.allscripts.com.

As I'm sure you've gleaned from Glen's comments, Allscripts delivered a strong quarter on all levels across all of our key metrics. And our performance is particularly noteworthy, given it represents our first full quarter of consolidated results since closing the Eclipsys merger in August. We're off to a great start and we're pleased with our market position as we move into 2011, what both Glen and I refer to as “the most important year in history of our company”.

Our story for the fourth quarter is a very good one. We reported record booking, solid revenue growth, expanded operating margins, and we exceeded our own expectations for non-GAAP net income and earnings per share. We also reported strong cash flow, reduced our transaction-related debt, all the while, and we continue to invest in our future growth.

So to begin, total company bookings were $288.2 million. Our Ambulatory and Acute businesses contributed nearly equally to this very strong quarterly performance.

Looking at the specific contribution from the businesses, Legacy Allscripts total bookings for the three months ended December 31, were $140.4 million, significantly outpacing any quarter in our history. This represents growth of approximately 50% year-over-year and 25% sequentially.

Allscripts’ bookings performance reflects ongoing demand for ambulatory EHRs, the breadth of our ambulatory solutions portfolio and the success of our unique and scalable distribution strategy. Our approach leverages multiple paths to the physician, including our own internal sales force, our leading channel partners and, as Glen noted, the community relationships we continue to build with our health system clients who, in turn, sponsor Allscripts' EHR solution to their affiliated physicians.

Our ambulatory bookings' results also reflect significant cost sales of our EHR to Sunrise Clinical Manager clients in the quarter, resulting in triple-digit Enterprise EHR sales growth year-over-year. This includes our expanded relationships with clients Glen mentioned, as well as others.

We also saw excellent sales growth in our fourth quarter bookings of our Professional EHR to new clients, and we continue to also successfully migrate certain of our clients off legacy platforms inside and outside our installed base to our new solutions.

Additionally, we experienced solid year-over-year growth in sales of our MyWay solution through our retailer channel.

Turning to Legacy Eclipsys. Bookings were approximately $147.8 million, up approximately 31% for 2010. This result exceeds the high-end of the 20% to 30% bookings growth range previously communicated to the market. A very solid performance.

Eclipsys sales in the quarter also reflect a balanced book of business signed, including significant cross-sales of Eclipsys solutions into the Allscripts base as Glen highlighted. We had a great quarter of EPSi sales to legacy Allscripts clients and meaningful increases in Sunrise Clinical Manager sales to clients looking to expand and upgrade their acute-care technology.

We are excited about our market positioning with the acute-care as we look ahead to 2011, particularly when marrying our acute and ambulatory system offering together to provide what we see as much needed and desired alternatives to monolithic and closed IT systems.

In terms of SaaS bookings mix, approximately $52.4 million or 18% of our Q4 bookings relate to Software as a Service transactions. A significantly higher mix of large Enterprise EHR deals, as well as licensed software in the acute-care market, resulted in bookings mix this quarter between license and SaaS arrangements. For modeling purposes, most of this quarter's SaaS bookings will be recognized as revenue over the next 48 months.

We expect SaaS bookings to increase in 2011 with an up-tick in new Sunrise Clinical Manager clients, which typically are sold on a seven-year subscription basis, along with a growing number of sales into the smaller physician market.

Before we move beyond bookings, I do want to remind you that starting in the first quarter of this year, we will report a single bookings number as has been Allscripts' policy historically. In addition, we will also conform to a single bookings definition, which excludes maintenance agreements as is consistent with Allscripts' historical definition. Finally, we will recap historical consolidated booking numbers, [indiscernible] investors and making growth rate comparisons to prior periods.

So now let's turn to backlog. Allscripts ended the fourth quarter with approximately $2.7 billion in backlog compared to approximately $2.6 billion at the end of the third quarter. Specifically, 84% of our backlog relates to future revenue from multi-year reoccurring sources, including maintenance, subscription contracts, outsourcing engagements, remote hosting contracts and transaction processing fees. These are all consistent with our third quarter.

So backlog at the end of the quarter is distributed as follows: Software and related professional services represented approximately $442 million of our reported backlog; subscriptions and SaaS backlog makes up another $606 million; maintenance fees representing approximately $768 million of our reported backlog. This category consists of 12 months of maintenance fees for Allscripts clients and multi-year maintenance fees contracts for our Legacy Eclipsys clients.

Finally, we ended the quarter with approximately $860 million of transaction and other backlog revenue, which principally consists of Allscripts' transaction fees from our Payerpath and other businesses, which are expected to be recognized over the next 12 months, plus contracted revenue for remote hosting and outsourcing services that will be recognized over the next three-to-four years.

Turning to the income statement. Total non-GAAP revenues were $337.1 million, representing 10% growth when compared to our non-GAAP revenue in the fourth quarter last year. Non-GAAP revenue represents GAAP revenue, plus the addition of a $20.9 million acquisition-related deferred revenue adjustment in connection with Eclipsys merger.

In terms of revenue mix, approximately 18% of our fourth quarter revenue was derived from system sales. Another 15% from professional services, 30% from maintenance, and 37% from transaction processing and other. Consistent with our third quarter, on a consolidated basis, approximately 67% of our consolidated revenue was reoccurring in nature in the fourth quarter.

Allscripts non-GAAP gross profit was $167 million, or 49.5% of non-GAAP revenue. Non-GAAP gross margin year-over-year was impacted by a higher mix of lower margin hardware, as well as a higher mix of professional services revenue in the quarter, which also carries a slightly lower margin profile than systems sales. Please keep in mind that system sales' gross margin in Q4 under U.S. GAAP is impacted significantly from a comparison standpoint by virtue of the $20.9 million deferred revenue adjustment I mentioned earlier.

Non-GAAP operating income totaled $69.3 million. After giving effect to the add-back of the deferred revenue adjustment, acquisition-related amortization expense of $17.4 million, as well as stock-based compensation expense of $3.7 million and transaction expenses related to the Eclipsys merger of $17.8 million. Non-GAAP operating profit margin was approximately 20.6%. This is very good performance as we continue to manage discretionary spending and at the same time growing our gross R&D investment by more than 20% year-over-year.

We also began to see some benefit from merger-related cost synergies being recognized in the quarter. On a consolidated basis, Allscripts reported a GAAP net loss of $6.2 million and diluted loss per share of $0.03 for the fourth quarter. The GAAP loss is attributable to charges associated with the Eclipsys merger. After adjusting for these charges, as well as stock-based compensation and additional tax expense primarily arising from the non-deductible merger-related expenses, our non-GAAP net income totaled $38.7 million, which represents a 14% year-over-year increase and our non-GAAP diluted earnings per share were $0.20.

In terms of additional P&L items to note, our research and development expense totaled approximately $37.9 million, which is relatively consistent with the third quarter expense of $38.5 million, and also represents approximately 11% of our non-GAAP revenue of $337.1 million.

Our capitalized software totaled approximately $17.9 million, and represents 47% of gross R&D spend in the quarter. Software amortization totaled $2.7 million, yielding a net capitalization rate of approximately 40%. This capitalization rate is attributable to the significant investments we made throughout 2010 and culminating with the meaningful new certification of every Allscripts EHR product prior to year end which, as Glen mentioned, is consistent with our prior commitment to both our clients, as well as to the market.

Looking to 2011, we expect our software capitalization rate to decline in line with more historic levels, and this will be accompanied by acceleration in amortization of capitalized software, reflecting our significant meaningful use-related investments that took place in 2010.

Allscripts' non-GAAP effective tax rate on a consolidated basis was approximately 39%. However, you will note that our effective rate on a GAAP resist was much higher in the fourth quarter, which actually drove our pretax income of $3.6 million into a net loss for the quarter as I previously mentioned. The reason for this is the fact that we had a large number of non-deductible merger-related expenses that were incurred in the quarter. As a result, non-GAAP net income is adjusted for a normalized tax rate of 39% resulting, again, in the previously mentioned add-back of tax expense totaling $8.4 million in the quarter.

Shares outstanding for the combined company on a non-GAAP diluted basis were 190 million, a 4.5 million share decrease versus the third quarter. This reduction in shares is attributable to the retirement of additional shares related to the Eclipsys merger and Allscripts' repurchase of shares from its former majority shareholder. Please recall that our former majority shareholder exercised its right to request that Allscripts repurchase an additional 5.3 million shares after a completion of the Eclipsys merger. Our fourth quarter share count gives a full quarter effect of such repurchase that again took place late Q3.

Turning to our balance sheet. Allscripts ended the quarter with approximately $131 million in cash and marketable securities, an increase of approximately $9 million from September 30.

Cash flow from operating activities was strongest in the company's history, totaling $74.3 million in the fourth quarter. Our ability to generate substantial free cash flow is an important component of our business that affords us substantial flexibility as we look forward.

We generated approximately $40.6 million of free cash flow, which we define as cash flow from operations after capitalized software and capital expenditures.

Also, as you are aware, in connection with the repurchase of approximately 24 million of our shares in August, Allscripts entered into a credit agreement for $470 million senior secured term loan facility, as well as a $250 million senior secured revolving facility. We initially borrowed a total of $570 million to finance the share repurchase.

In the fourth quarter, we repaid another $40.9 million of these facilities, which brings our total repayments to $81 million of the initial amounts borrowed. As of December 31, the company had $489 million of borrowings outstanding. We are very pleased with the pace of our debt repayment, and our ability to continue to reduce this manageable amount of leverage based on the strong free cash flow of our business.

Accounts receivable for the company totaled approximately $317 million, which equates to days sales outstanding, or DSO, of approximately 86 days, which is consistent with our third quarter.

Finally, we ended the quarter with approximately 5,580 employees which compares to 5,300 at the end of our third quarter. Before

I turn the call back over to Glen, as noted in the press release, we have increased our earnings per share guidance for 2011 as a result of what we believe will be a lower share count in the year than originally contemplated when we last addressed this topic in November. Specifically, we now expect weighted average common shares outstanding in 2011 to be approximately 194 million shares, yielding earnings per share of between $0.86 to $0.90 per share, a $0.01 increase at both the low- and high-end of our previous range.

As you look to Q1 from a bookings perspective, I also want to remind you that the fourth quarter performance was positively impacted by some of the large transactions we highlighted on today's call, as well as typical calendar year-end demand. Such factors can result in seasonal differences in reporting bookings as we look into 2011.

Our expectations for non-GAAP revenue, operating and net income remain unchanged for the year. Specifically, we continue to anticipate non-GAAP revenue for 2011 to be in the range of approximately $1.425 billion to $1.45 billion, non-GAAP operating income of approximately $303 million to $308 million, which equates to non-GAAP operating margin of approximately 21%. We anticipate non-GAAP net income of approximately $167 million to $176 million.

Our guidance contemplates interest expense of between $24.5 million to $26.5 million, and a tax rate of between 38% to 39.5%. Please note our guidance contemplates our commitment to deliver at least $25 million in cost synergies during the year. Our cost synergy estimates remain unchanged for 2012 and 2013 at $35 million and $40 million, respectively.

I do want to mention one additional change in our non-cash expense assumptions for 2011. Specifically, we now anticipate stock-based compensation expense of approximately $40 million in 2011. The increase is due to the inclusion of anticipated 2011 awards, as well as approximately $8 million related to retention packages put in place for certain executives at the time of the merger.

So in closing, this was a significant and very positive quarter for the company across-the-board. The quality of our sales is reflective of the company we are today, and we believe our position in the market will only improve as we look forward. We benefit from a strong market and demand should continue to grow for our solutions as the adoption of EHR and related information technology continues to improve. We look forward to seeing many of you next week in Orlando at the HIMSS Conference. It should be an exciting event and week for the company as a whole. So with that, I'll turn the call back over to Glen for some closing remarks.

Glen Tullman

Thanks, Bill. These are extraordinary times in healthcare, and I'm convinced that Allscripts is ideally positioned to take advantage of the opportunity in the market.

When we announced the merger with Eclipsys, there were four fundamental questions. The first, can we deliver on our results as a combined company? We've done that. The second, can we cross-sell? We've demonstrated our ability to do that as well. The third, can we hit our synergies? We remain on track, as Bill just related, to deliver on the synergy number. And last but not least, can we integrate our products? One month after our merger at the Eclipsys User Conference, we demonstrated native integration between Sunrise Clinical Manager and our Professional Electronic Health Record. In one week at HIMSS, we'll demonstrate additional integration between our Enterprise EHR and Sunrise.

So to sum up, we've delivered on the goals we outlined when we announced the merger. I'm pleased with our fourth quarter results, and know that we're just getting started. There is a lot more work ahead of us. It will be all about client focus and execution, and I'm confident that we have the energy, the ability and the commitment to deliver on our vision of building a connected community of health. Nothing could be more important or more rewarding.

Thanks to our clients who give us the opportunity to make a difference, to our employees for their commitment to delivering on our mission and vision, and to our shareholders for your continued confidence in Allscripts. So thanks, again, for joining us, and at this time, we're ready to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Larry Marsh from Barclays Capital.

Lawrence Marsh - Barclays Capital

Just really wanted to elaborate on two things. First, a nice rebound in the Eclipsys' bookings this quarter, I know what you're talking about -- not reporting that anymore in the future, but could you elaborate a little bit about what drove such a big sequential improvement? Was it just bigger deals and timing? And then just maybe a reflection as well on timing of new Head of Sales to replace Jeff Sturges (sic) [Jeff Surges], please?

Glen Tullman

Yes. I'd be happy to comment on both. First, we continue to see strength across the market. So one, I would say, cross-selling, and a number of the Legacy Eclipsys products are being cross-sold into the Allscripts client base. Similarly, I talked about at Barnes-Jewish Christian and University Hospitals where people who are satisfied with the Sunrise Clinical Manager are expanding and adding new hospitals and the like. And we see a lot of that going on. And last but not least, we see strength in the pipeline, people are starting to really understand that they can now have the best of both worlds, that they can have the best hospital software in the market paired with the best ambulatory solution, and they can connect to those ambulatory providers, with 50,000 offices using our software. And that community connection is really starting to resonate with clients. I think the other thing that's happening is more and more of the mid-size hospitals are saying, "We don't have to do a rip-and-replace strategy anymore, we can connect everything." And that's why this connect team is so important. So that's number one. In terms of your question about our sales leader, we have, as we've said, we have a very deep and strong sales organization. It's being led by Steve Rilan [ph] today. But the great news is that, Allscripts, has always done a very nice job in terms of connecting and managing relationships with our clients. So we're continuing to evaluate that. We're continuing to look at internal and external candidates, but we don't feel any special urgency to make that move until the time is right, and we have the right selection for that. Last but not least, I'd say that we do continue to hire into the sales organization because of the growing demand for our products.

Operator

Your next question comes from the line of Jamie Stockton from Morgan Keegan.

Jamie Stockton - Morgan Keegan & Company, Inc.

Glen, I guess my first one is that if you think about that core 250 or so hospitals that Eclipsys brought with them, I think that Bill said at the time of the merger, that about 20 of them were Enterprise clients for Allscripts on the physician EHR side. Could give us an indication of where that number is today or how many clients are currently in discussions looking at the Enterprise EHR?

Glen Tullman

Well, I don't want to get into a kind of a quarterly management number. We've fallen into that trap before. What I will say and you saw us report, a number of the largest opportunities converted almost instantly, and I don't want to say it was easy work for our sales force. But in fact, there was real demand for both the ambulatory software, the Enterprise software, but also for this concept of connecting to the community. So you saw a number of those big wins. I feel confident in saying, you're going to continue to see existing Eclipsys clients, make the decision to strengthen their overall offering by adopting that. That becomes even stronger next week when we demonstrate native integration and information exchange. So we think that's robust. I would tell you also, that I would be surprised if there's a single Eclipsys client that doesn't understand that we have that offering available. So I would hope that every one of those clients, and I expect our sales force has visited with every one of those clients. More important, I think what we're seeing is outside the existing Eclipsys' base, we're seeing very strong interest in the offering that we now have. And that's -- a big part of that is hospitals understand that they have to get referrals. And the way to get referrals is to be easy to do business with, the way to be easy to do business with is to be connected. And Allscripts, if you think about the new Allscripts, and our acute-care offering, we're really the only major acute-care company that has a world-class system that also has substantial share in the ambulatory market. And that's going to become increasingly important as we get to this connected community of health.

Jamie Stockton - Morgan Keegan & Company, Inc.

I guess my follow-up question is on the low-end in the physician EHR market, and you guys are obviously doing well with the Enterprise products, could you give us some color on, I think there are roughly 150 EHRs that have now been certified under the government program. Could you give us some color on the competitive dynamic on the low end, and whether or not it's getting more severe?

Glen Tullman

Frankly, we think that, and I'd refer to it as small- to mid-sized physician groups, anyone who buys our product is not low in any measure from our perspective. But in those small- to mid-size groups, we see very robust activity. Part of that is being driven by some of these community programs. When North Shore-Long Island Jewish says that in addition to their 14 hospitals and all of their EDs and their 1,200 employed physicians that they're going to equip 7,000 additional physicians with our software, that makes our job of selling into those communities much stronger because they're providing a subsidy through the Stark Relaxation programs. But we see those community programs happening out at Sharp in San Diego, and at UMass and in Hartford, and really, all across the country, we see great programs starting to start up, where our clients are saying, “We want to be connected with the community. You have already made it easy, now make it easier”.

William Davis

This is Bill. I would add to the specific question about the number of competitors having been certified. We have not seen any change in the market in terms of it becoming more fragmented. We would continue to define this market as one that is largely defined by a select number of vendors, which we are clearly one of. So we take note of the number that have actually been certified, but what we're seeing in the market in terms of what’s influence the buying decision, we believe is still limited to a select few.

Operator

Your next question comes from the line of Atif Rahim from JP Morgan.

Atif Rahim - JP Morgan Chase & Co

I guess, Bill or Glen, could you talk about the competitive dynamics on the hospital side? Do you see any changes on the displacement from there on the large hospital side which Eclipsys is playing in?

Glen Tullman

Yes. This is Glen. I think the competitive dynamic have changed very dramatically. But we're still seeing that playing out. Kind of in keeping with my comments earlier in the call, a lot of people wanted to see if the new Allscripts, the combination of Eclipsys and Allscripts combined, could execute and could develop the integration that we've now demonstrated and we'll be showing at HIMSS. Once that happened, people started -- the floodgates start to open, people start to get very, very interested. So I think you're seeing a change in the competitive environment that people don't have to, they don't have to buy a system with outdated software, with MAM [ph] software. They don't have to buy systems that are monolithic and kind of -- if you think about it, vertical. They can, today, buy the latest software in a horizontal, open architecture, very connected, and get all the benefits of the community as well. So I think that's changed from a competitive dynamic. And really, increasingly, the new demand on acute systems is going to be how easy are you to use for physicians out in the market, how much do you connect? And as people start to ask that question, I think Allscripts is going to have a very significant advantage. So we do see this market is changing. And we think we're well-positioned for it. Now I think also you're going to see some change. There are going to be people who change from the traditional systems they've had and decide to go in different directions. Some of the largest systems that have both time and money are going to say, “We want one fully integrated system, and we'll force everyone to use it”. But we think more than 90% of health care in America is going to say, “Help us figure out how to connect everything together and make it all work”. And that's an especially strong spot for us.

Atif Rahim - JP Morgan Chase & Co

So along those lines, do you have a competitive wins this quarter? And if not, what's the timeline of when we can start to see some of those competitive displacements?

Glen Tullman

Well again, I think if you looked at some of the ones we've talked about, you'll see some competitive displacements. Again, I don't want to talk specifically about competitors. But if you go to Maimonides, one of the things you will see that they had decided to take their existing Practice Management system and fully replace it with our Practice Management system. And so from that perspective, they decided that, hey, they're using us in the hospital, they're using us now for Electronic Health Records and they'll go forward and just replace what they had. So I think you'll see that. And one other area I draw your attention to, we haven't mentioned it, but we had announced it, and that was Australia. And we see, again, robust international growth in the future down the road. So as that contract comes to fruition and as others do on the international forefront, we think we're going to be very well-positioned there as well.

Atif Rahim - JP Morgan Chase & Co

And a quick one for Bill, Bill, I think you gave out the consolidated SaaS number, but would it be possible to break out what the Allscripts SaaS bookings were versus Eclipsys?

William Davis

Yes. I don't have that at my fingertips. We can follow-up with you on that information. There's no discernible difference between the two, but we can get you the precise number.

Operator

Your next question comes from the line of George Hill from Citigroup.

Benjamin Forest

This is Ben Forest in for George. First question is, I was wondering if you can provide any additional color on cost savings synergies, have there been any surprises either positive or negative as you’ve worked through the integration so far?

William Davis

No. The benefit of having done a couple of large transactions like this before as we intimated on the on the third quarter call, feel very comfortable with our planning process and the identification of where we anticipated the synergies to come from, and would suggest that we really haven't come across any major surprises either from overall cost realization or timing related thereto. So it's for that reason we re-affirmed expectations for 2011, as well as 2012 and 2013. So really no surprises to date and feel very good about how we've executed on them thus far.

Benjamin Forest

A follow-up: when you think about the guidance for 2011, what uncertainties are you looking at that really dictate whether you will come in near the high-end or the low-end of the guidance?

William Davis

It really is a function of sales mix and sales timing in that, as we've talked a lot about in the past, the one great benefit this business model has is that so much of our revenue is reoccurring in nature, with close to 2/3 of it be reoccurring in nature. We get a substantial portion of the balance coming directly from our backlog. So we have a high degree of visibility in what I'd call, kind of 85% to 90%. The mix of the remaining 10% is really, in my estimation, what will drive the key difference in terms of being the low-end versus the high-end. And this is all about how much of the transactions doesn't come in the form of SaaS versus license, how much of it is Professional versus Enterprise because the revenue takedown is different depending on those types. So it's really timing and mix as it pertains to what we're putting in the backlog.

Operator

Your next question comes from the line of Bret Jones from Brean Murray.

Bret Jones - Brean Murray, Carret & Co., LLC

In regards to the Eclipsys' customer base and prior to the acquisition, there was some high-profile customer turnover and I was wondering if you can give us an update on how customer churn has been on the inpatient side?

Glen Tullman

This is Glen. What I would say is, the best indication to look at is the strength of the overall sales number and that is, we grew sales number what we thought was a very healthy rate. I would say in a market this is big and given the amount of different solutions out there and different business objectives, that you are going to see some flux one way or the other. But we're very comfortable with what's happened, and I think that we feel good about it. So I don't want to comment on specifics in either direction. The ones that we're winning and the big takeaways or, on the other hand, any potential losses. I would say that another place you can look, we commented on both the renewals, the folks like Barnes-Jewish Christian and United Hospital Health System but also the cross-selling. This is a massive market and in a massive market, I think we've got to be careful to either to look at any one transaction and make too much of it. But we're very comfortable with what's happening.

William Davis

This is Bill. I'd add two perspectives. One, we made the comment on the third quarter call, many of those kind of high-profile departures again, were well-known, well-understood by us coming into the transaction. And so we remain confident that nothing has happened since then that we didn't foresee or wasn't anticipated. So again, visibility from that perspective, very good. Number two, we have certain attrition assumptions built into our own internal plan. Remain very comfortable with the fact that we're executing at, if not slightly below, those internal expectations. So from a broader metric perspective, again, to Glen's point, you’re always going to have some element of attrition. But I would suggest to you it's a relatively low in our business model and well within the confines of what we anticipated it to be.

Bret Jones - Brean Murray, Carret & Co., LLC

And then the second question is just on the RCM front, particularly in the ambulatory side, there does seem to be a clear niche within the Enterprise segment, that's looking for -- of a non-software-based offering. Have you guys developed a strategy to address this niche component of the market?

Glen Tullman

I'll let Bill comment as well, but there are certain pieces of the business that at least to-date, we have not wanted. In Revenue Cycle Management, we do not want to be a bodyshop, per se. That said, we are looking at the space. We have offerings in the space, and we'll continue to evaluate it. So we're watching it very closely.

William Davis

Yes. I would just kind of echo Glen's sentiments in that. And we've commented in the past that the profit profile of the outsourcing component of it is something that, again, we've made a conscious decision not to go there. It's something that we continue to evaluate. But our primary focus is on the technology solutions that we bring to market and the capabilities that we bring to our customers. We have some very effective partnership relationships that can take that to the logical extension of providing those outsourcing capabilities if so desired. But again, I just want to be very careful because it is something that we have consciously looked at and made conscious decisions about in the past.

Operator

Your next question comes from the line of Greg Bolan from Wells Fargo Securities.

Greg Bolan - Wells Fargo Securities, LLC

Bill, just looking at clinical software and related services backlog, very nice sequential bump there, in fact, the strongest out of the entire backlog. And also, just thinking about kind of it looks like maybe two- or three-quarter drop in SaaS versus software. And can you help me kind of reconcile that trend relative to your unchanged 2011 revenue guidance? Is it just that we're so early in the year it's just too early to call, maybe a slight bump there relative to your previous expectations?

William Davis

Well, it's a couple things. First of all, I want to clarify your point. I actually, I believe, SaaS' subscription actually sequentially is up slightly from a backlog perspective. I think you made reference to a decline. But that being said, I got your point in terms of with stronger software and related services backlog, why am I not taking up revenue guidance? And the reason for that is really, to my earlier comment, and that's one of mix. As I've said now for the better part of four-to-six months, this is a market that is still largely defined by Enterprise-sized transactions. We are seeing positive momentum on the lower-end of the market, but what really constitutes our backlog today, you ought to be thinking about takedown over literally, several months, i.e. talked to the market about typically, nine-to-12, sometimes up to 18 months takedown. And so the reason why I'm not taking guidance up in light of the strength of the backlog, is just really looking at it very specifically in terms of when that revenue is expected to come in, the fact that much of it is Enterprise-related, and it will come in, in over a little bit longer period. The good news is as you just think about the latter half of this year, building for 2012, it's just as indicative as the strength that we're building in the degree of visibility than we're increasing as we go along.

Greg Bolan - Wells Fargo Securities, LLC

Glen, just obviously, we know that the government is pushing for increasing adoption and putting the dollars on the table for providers to potentially grab. But as we think about commercial payers, are you seeing the payers becoming more aggressive in terms of piggybacking on the government's efforts to bolster EHR adoption?

Glen Tullman

Yes. We think we see a tremendous amount of interest from the payers in two respects. One, they're pushing for adoption, but two, the payers are increasingly will focus on putting into place programs that mirror accountable care organizations and the like that focus on bundled payments for example, and that really are going to increasingly require people to have the right kinds of information both on cost but also on quality metrics to get properly reimbursed. So I think you're going to see more and more drive, and we have seen more and more interest in drive from the payers in terms of our solutions.

Operator

Your next question comes from the line of Sean Wieland from Piper Wiley (sic) [Piper Jaffray].

Sean Wieland - Piper Jaffray Companies

Bill, can you give us a breakdown of pro forma bookings from the fourth quarter '09 as if the companies were combined, as well a revenue break-out? And looking forward to the guidance in '11, can you give us your thoughts on break-out by revenue line?

William Davis

What was the latter part of your question, Sean?

Sean Wieland - Piper Jaffray Companies

Just in your revenue guidance for 2011, rough sense of how that's going to break out between systems, between the four reporting lines.

William Davis

We've historically not gotten to that level of detail and I really would honestly like to not establish that precedence. So we're going to kind of stick to the level of guidance that we've given thus far. In terms of the historical pro forma, let me -- Q4 of a year ago would have been just over $196 million and that compares to the $288 million that we reported this quarter, and what I would encourage you to do, I don't have it at my fingertips, but I can try to see if we can get it before we end the call but I would just deduct from $196 million Allscripts standalone for November, our November quarter, and the residual would be Eclipsys.

Sean Wieland - Piper Jaffray Companies

And do you happen to know what the systems sales number would've been combined last year in the December quarter?

William Davis

I don't have that at my fingertips either, I'm sorry.

Sean Wieland - Piper Jaffray Companies

And what were the DSOs in this quarter?

William Davis

86.

Operator

Your final question comes from Jeremy Lopez from William Blair.

Jeremy Lopez - William Blair & Company

Glen, I'm wondering, recognizing the success you guys are seeing on the cross-selling front, I'm wondering if you, you kind of alluded to this, but can you characterize the pipeline in terms of net new deals that combined the inpatient and the ambulatory offering assuming you guys have some of those, what are you guys telling them in terms of availability, in terms of the natively integrated offering?

Glen Tullman

Well, as I mentioned, we expect to demonstrate that at HIMSS, and so anyone who is buying the combined solution would be installing a solution that natively exchanged information between both the ambulatory and the acute. But I think importantly, we've got to throw into there post-acute, as well as community. So the game has really changed substantially, and I'm not sure everybody’s getting that yet but they're starting to. When you talk about the 30-day re-admission rule, let me say the hospitals, if somebody leaves and they come back, you don't get paid by the government a second time. They get very interested in post-acute. And so that transition of care, whereas in the past when you left the hospital, they didn't really care where you went, now they're very concerned and they want that data and information, your medical plans and the drug regimen all transferred electronically, and they want to keep in touch. So our 10,000 post-acute care sites have become very strategic. Similarly, when people talk about connectivity increasingly, they're saying not only, "How do you get acute to talk to our ambulatory?" That's almost a given now. What they're saying now is, "And how do you get us connected to our community, both our affiliated and even the ones who are not affiliated with us?" That's what they want to talk about. So again, we're feeling very good about that. We're feeling very good about our competitive differentiation in the market.

Jeremy Lopez - William Blair & Company

But do you have an actual time horizon for when you can actually install a net-new kind of inpatient/outpatient that is, kind of the new natively integrated Eclipsys, Allscripts offering?

Glen Tullman

Yes. We'll have live code shipping at the end of the first quarter is what we said to the market and we're on schedule. And we'll show that live code next week at HIMSS. So for all those folks who are concerned about it, that concern goes away.

Jeremy Lopez - William Blair & Company

Do you have, I mean maybe another way to get at this is, is there a line of existing clients that kind of raised their hands and say, I'm willing to do it as soon as you have it available?

Glen Tullman

Absolutely, and believe me, they're willing, anxious, all anxious to get the first code. They'll get that before the end of the first quarter. Some of them will begin playing with that code. And so when we go GA, we'll be ready to go. For any of the net-new, just so you understand, when you go net-new and you're installing a hospital, you're not going to be ready to use that integration for at least a few months. But that said, for our existing base they're very anxious to get it, and many of them have seen it. And again, if you are at HIMSS next week and you join some of the events we have for analysts, then we'll see you there, and you'll see it all happen live.

Jeremy Lopez - William Blair & Company

Is there any time horizon in terms of actually having a reference site so that new folks can shop? Or is that kind of TBD at this point?

Glen Tullman

Again, I think a reference site will come from one of our strong, existing users and the answer is yes, I don't want to -- I don't think we've announced one publicly yet or where that is yet but there's a number of our top clients, legacy Eclipsys clients and Allscripts clients, vying for it. So again, we're excited about that.

William Davis

Glen, before you wrap up the call, if I can just come back, I'd promise to try to provide to Sean Wieland's question. The bookings of Q4 a year ago, Allscripts would've contributed $93.8 million and Eclipsys standalone would've contributed $102.4 million.

Glen Tullman

Well, thanks. Well again, I'll just close the call by saying that we feel very strong about the quarter. We're able to deliver across the board and there was strong demand in the market that was both from our existing client base, as well as from new clients who were able to add to the fold.

In addition, relative to the merger, we felt good about delivering on the combined company results, our ability to demonstrate that we can cross sell into the base, our realization of synergies and last but not least, is the last question evidenced strong interest in, "Can you innovate and can you integrate at the same time these products?" and I think, we've been able to demonstrate that very good.

So the company has never really been better position than it is today. The market has never been stronger, and we're looking forward to a great future. So again, thanks, everyone, for joining us, and we'll look forward to talking with you next quarter or seeing you at HIMSS. Thanks, very much.

Operator

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

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