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Executives

Glen Tullman - Chairman and CEO

Bill Davis - CFO

Lee Shapiro - President

Analysts

Charles Rhyee - CIBC World Markets

Corey Tobin - William Blair

Sean Wieland - Piper

George Hill - Leerink Swann

Richard Close - Jefferies & Co.

Larry Marsh - Lehman Brothers

Atif Rahim - J.P. Morgan

Steve Halper - Thomas Weisel Partners

Richard Davis - Needham & Company

Allscripts Healthcare Solutions Inc. (MDRX) Q3 Earnings Call November 8, 2007 4:30 PM ET

Operator

Good afternoon. My name is Felicia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Allscripts' Third Quarter 2007 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

Thank you. Mr. Tullman, you may begin your conference.

Glen Tullman

Thank you. Good afternoon and welcome to the Allscripts' third quarter 2007 call. This is Glen Tullman, I am the Chief Executive Officer of Allscripts. And I am here today with Bill Davis, our Chief Financial Officer and Lee Shapiro, our President. Before we begin the call, I am going to ask Bill Davis to read the Safe Harbor Statement. Bill?

Bill Davis

The statements made by Allscripts or its representatives in this conference call will include certain forward-looking statements that are based on the current beliefs of Allscripts management, as well as assumptions made by and information currently available to Allscripts management. Wherever practical, Allscripts will identify these forward-looking statements by using words such as may, will, expect, anticipates, believes, intends, estimates, could or similar expressions. These forward-looking statements are subject to a variety of risks and uncertainties, including those listed in the earnings press release issued by Allscripts today and in Allscripts' filings with the Securities and Exchange Commission, which could cause Allscripts' actual results, performance, prospects, or opportunities in 2007 and beyond to differ materially from those expressed in or implied by these statements.

Except as required by the federal security laws, Allscripts undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this release.

With that, I would like to turn the call back over to our CEO, Glen Tullman.

Glen Tullman

Thanks, Bill. I typically begin each quarterly call with an assessment of our market and this will be no exception. The market for electronic healthcare solutions, especially in the ambulatory area in which we focus, continues to be strong and expanding at a rapid rate across each of the market segments we compete in. Large academic medical centers and integrated delivery networks, what we refer to as: “enterprise accounts”, as well as mid-level multi-specialty groups and smaller independent practices. In terms of our traction, I think the best window I in can provide into the market is, as you would expect related to sales.

Are providers buying? And are they choosing Allscripts? The answer to both of these questions is a definitive: “yes”, and at record levels; as our team delivered excellent results in sales during the third quarter.

I am very pleased to report record clinical sales of $63.2 million, a 77% increase year-over-year, and the largest booking quarter in the history of the company. And it came during the third quarter, which is traditionally a light quarter, not only for Allscripts, but across the industry.

As I had promised on our Q2 call, we expected to sign two significant enterprise agreements in Q3, and I am pleased to report that we have delivered. Earlier in the third quarter, we announced the largest contract in our history with Columbia University Medical Center, one of the premier academic medical centers in the world. Under this agreement, Allscripts will deploy our electronic health record to more than 2,000 physicians.

Other than a press release, I haven't had a chance to talk about Columbia, but the prestige and size of Columbia has been raising eyebrows and driving both interest and sales in the largest academic and integrated delivery network systems.

Earlier today, we announced the signing of one the most prestigious, multi-specialty groups, in the country: the Lahey Clinic, which was actually the nation's first multi-specialty group practice. Lahey gives us a solid footing in Massachusetts, along with our other enterprise client there, the UMass Memorial Health Care Hospital, where we are deploying V11 as we speak.

Columbia and Lahey raise our profile dramatically and reinforce our position as the number one provider for both large enterprise clients and multi-specialty groups and we're already seeing the impact.

In addition to Columbia and Lahey, we've been fortunate to sign agreements with a number of very prestigious organizations, for example, Albany Medical Centre will implement our Electronic Health Record for the 250 physicians in their medical faculty group.

Butler Health System in Pennsylvania will deploy our HealthMatics ED solution and our Electronic Health Record to 65 non-employed physicians. ABQ Health Partners in Albuquerque, which was previously known as Lovelace Medical Group, and is a part of the Ardent Health Services, selected our Electronics Health Record for their 250 multi-specialty providers, in a contract valued in excess of $3 million. And in another big win, Ochsner Health System selected Allscripts to provide its Electronic Heath Record.

Ochsner is not only one of the largest healthcare systems in the Gulf Coast with 600 physicians in 7 hospitals, but they are among the most technologically sophisticated, and they selected Allscripts because, in the words of their CIO: Lynn Witherspoon: "without the architecture that Allscripts has developed, interoperability would be next to impossible. It's what allows Allscripts to offer solutions in a heavily automated environment like Ochsner". This is confirmation from one of the most prominent CIOs in the industry that our interoperability solutions work.

It is also important to focus on two other areas that address independent community based physicians, first: in terms of direct sales to physicians in a small to mid-market. We had a very solid quarter, with close to 100 contracts, representing approximately 800 physicians. Our ability to connect those physicians to hospitals will become increasingly important in the sales process.

This quarter we also observed an increasing role that hospitals are playing in the purchase decisions for electronic health records, in large part due to the change in historic rules. Our efforts in this area translated into sales of close to $5 million, a portion of which was delivered working closely with our hospital partner, AmerisourceBergen. Having ABC on our team is important, because almost a third of the hospitals look to ABC as a strategic long term partner.

Just today, for example, we announced that Poudre Valley Health System in Colorado will deploy our Electronic Health Record and Practice Management System, beginning with 200 of their non employed physicians, with a goal of hosting it for their more than 500 independent staff physicians. Also, during the quarter, we announced that Frankfurt Health System in Philadelphia will offer our combined EHR-PM to 100 physicians. And we've closed several other stark related sales, including Blessing Health System in Illinois, St. Francis Hospital in New Haven, Connecticut and NorthwestHospital in Seattle.

Our success in selling across key segments of the market is tempered by two challenges. First: during the quarter, we had one or two major agreements with clients for add on products pushed into the fourth quarter. Those agreements would have closed the gap between the third quarter revenues and EPS numbers we reported today versus analyst estimates. I am pleased to report that I expect both will close during the fourth quarter.

Second: while our sales in the enterprise accounts area were very positive news, given the complexity of some of these agreements, the required pre-planning and the sheer size, paired with our conservative approach to revenue recognition, we will recognize revenue from some of these larger agreements over longer period of time than we initially planned. While the pace of the deployment and rollout among some clients is not always optimal from a revenue recognition standpoint, this has little impact on the continued success and growth for the company.

In fact, our success story in the quarter was not limited to Electronic Health Records sales. In prior quarters, we talked about our effectiveness in cross selling, and I can share several examples of that beginning with another hospital group: Butler Health System in Pittsburgh, which purchased both our Electronic Health Records, and our Emergency Department Information System.

Another example that we announced just today is: Carolina's Medical Center Northeast, a long time TouchWorks user, with 160 physicians, that just purchased our Emergency Department product and: Lakeside Medical Group in Los Angeles, who purchased our Electronic Health Record for 100 of their physicians and also purchased Canopy Care Management Solution.

Frankford Hospitals, which is owned by the Frankford Health System, the group I mentioned earlier, as a stark related agreement for Electronic Health Record made the same decision.

The idea of suite of products that connects the ambulatory physician with information across the enterprise, including care management, and the emergency department, and beyond the enterprise into the community is taking [home]. And Allscripts is unique in our ability to play in the largest groups, in the smallest groups, and in the specialties as well.

I am also pleased to report that our National Electronic Prescribing Patient Safety Initiative, known as NEPSI has now enrolled more than 5000 physicians, who have written in excess of 500,000 e-prescriptions. That number is accelerating, as is the number of physicians. We expect very strong gains during the fourth quarter, and we continue to add key partners, including Quest, who will provide lab information to the growing list of NEPSI partners.

So, overall the sales machine is working well and across multiple products and service offerings. However, to build a great company it's necessary to continue to invest in improving processes, improving R&D and in innovation.

We're continuing to invest in systems to drive quality, service delivery and efficiency. This is being spearheaded by our new Chief Operating Officer, Ben Bulkley, who is making great use of his years of experience at GE, to take our deployment in client support to the next level of quality.

Our vision is to be an indispensable part of the way physicians practice medicine. And delivering on that vision requires investment today for success tomorrow.

Another critical aspect of our strategy is continued investment in R&D. For example: our version 11 Touchworks release, our connectivity strategies that link our products, our partners and our communities together, and our focus on adding content that will inform physicians at the point of care, with the latest care plans and updated information on the patients, the diagnosis, the medication and the best practices to treat them.

We believe investing now in development, in resources and in quality will pay-off for our clients. Its one important reason we are number one in KLAS, the consumer report's of heath care.

Finally, in terms of innovation, Allscripts was the first electronic prescribing, Electronic Health Record provider, to connect to Microsoft's HealthVault web based solution that will enable consumers to store information from many providers, devices and share that information. It's part of the next wave of healthcare, connecting patients, and where they are today.

Before Bill talks about the financials, I want to close with a few comments; first: I couldn't be more bullish on the strength of the market, just this week, the Centers for Medicare and Medicaid Services said that for the first time, Medicare will pay bonuses to doctors and other health care providers for using Electronic Health Records in e-prescribing during calendar year of 2008.

CMS said a significant pool of money will be available to paying centers for using technology beginning next year. This is one more signal to physicians in the market that electronic health care is happening and they need to get on board.

Point two: Allscripts is the leader in ambulatory electronic healthcare, and we are making investments necessary to continue our leadership.

And finally: while it is sometimes hard to predict the exact numbers quarter-by-quarter, the trend in our performance are clear, we're growing, we're setting records and we are well positioned to continue to do, and do so in a profitable manner.

Now, let me turn the call over to Bill Davis for a detailed look in our financial performance. Bill?

Bill Davis

Thanks Glen and hello everyone. As Glen indicated, our third quarter included several significant accomplishments but before I comment on those, I would like to address the obvious question upfront, why did Allscripts third quarter revenue and resulting earnings per share fall short of market expectations.

There are two reasons for this; first: we have had a deal of success in signing large enterprise agreements as Glen mentioned, while this is great news from a booking's perspective, it does translate in to elongated take down of revenue, because of the complexity and size of this deployments. While the pace of the deployment and rollout among some clients is not always optimal for the revenue recognition perspective, this has little impact on the continued success of the company. It is important to note that we do expect some level of ramp up to continue in the fourth quarter on several of our large customers.

Second: Glen also mentioned the fact that we anticipated approximately $3 million of additional license bookings and revenue in the third quarter. We are hopeful that such bookings and revenue will occur this fourth quarter.

We continue to be very encouraged by the level of interest in Allscripts, as evidenced by clinical software bookings. As Glen mentioned, we had record clinical bookings in the quarter of $63.2 million, excluding ongoing support. The third quarter clinical bookings represent a 77% increase over the third quarter of last year and a 21% increase over the second quarter of this year. Clinical bookings for the first nine months of 2007 totaled $144.4 million, representing a 40% year-over-year growth.

Our Physicians Interactive business contributed the balance of our bookings at $1.8 million, bringing near year-to-date total bookings to $9.1 million. PI's ability to deliver on $30 million of 2007 bookings is heavily dependent on the signing of three platform transactions in the fourth quarter. We are actively working several platform transactions that are in excess of the required three.

Our near-term concern is the well publicized challenges pharma is facing, and their impact on individual pharmaceutical company's ability to make independent buying decisions. The good news is that there were several platform transactions that we have confidence in, but ultimately it will be a question of timing.

Turning now to backlog: We ended the third quarter with $246.7 million in sold backlog. The backlog breakout is as follows. License and service fees related to our clinical software businesses were $133.4 million. Software subscriptions, which will be recognized over the next three to five years, represented $33.6 million, support and maintenance fees for the next 12 months is $59.4 million and Physicians Interactive made up the balance of $20.2 million, again for a total of $246.7 million.

As I've indicated before, our reported backlog does not include anything related to our medication distribution business, even though we view that medication revenue as reoccurring in nature.

So, turning now to revenue, our third quarter revenue was $73.4 million, represented an $11.3 million, or 18% increase over the same three-month period last year. Our clinical software businesses contributed a majority of that increase. Physicians Interactive, or PI, had revenue of $3.6 million in the third quarter and this compares to $2.2 million in the third quarter of last year. The 60% increase is primarily attributed to the continuation of services performed under our platform deals.

Moving to our meds business, we saw another solid quarter of revenue of $10.9 million. This compares to $10.4 million in the third quarter of last year. Revenue for the first nine months of 2007 totaled approximately $208.5 million. Our clinical software businesses contributed approximately $164.9 million of such year-to-date amount, representing 32% year-over-year growth.

In terms of revenue mix, our software and related services segment represented approximately 80% of total revenue in the third quarter. Our third quarter revenue by segment is as follows. Our medication business again delivered $10.9 million or 15% of total revenue. Clinical software delivered $59 million or 80% of our total revenues, and information services or Physicians Interactive delivered the balance of $3.6 million for a total of $73.4 million.

Looking now to gross margins, overall our gross margin was approximately 50% in the third quarter of 2007, versus 49% in the third quarter of last year. Margins by segments are as follows, our medication segment delivered 15% gross margin, our clinical software business delivered consistent gross margins of 58% when compared to the second quarter, and we saw a decline in our information services segment from 40% in the second quarter to 32% in the third quarter, for a total of 50.1%.

The sequential change in the medications gross margin is attributed to the lower gross margin revenue in the quarter related to flu vaccine, and a mix of drugs that were sold in the quarter. Our Physicians Interactive sequential gross margin change was a result of certain hiring and platform development cost being incurred or lower revenue base in the quarter.

With regards to expenses, operating expenses, excluding amortization of intangibles, and stock-based compensation for the third quarter were $25.9 million. This compares to $24.9 million of expenses in the second quarter. The increase is attributed to the cost incurred related to our Annual Users Conference held in August, and less capitalized software in the quarter.

With regards to capitalized software, we had approximately $2.2 million in the quarter. This amount compares to $2.9 million in the second quarter. The decrease is reflective of the general release of TouchWorks version 11 that occurred in June. As we've indicated in the past, this amount will in fact fluctuate from quarter-to-quarter depending on the product development cycle.

Stock-based compensation was approximately $1.5 million for the quarter, and deal-related amortization was approximately $2.8 million. The anticipated increase in stock-based compensation is due to the full quarter effect of grants approved in June and certain additional grants that were made in August.

The slight increase and deal-related amortization is related to our $11.5 million acquisition of a maintenance stream related to approximately to 600 ambulatory practice management customers, from Source Medical in Birmingham, Alabama, which was consummated in July. As we mentioned last quarter, this transaction is a part of a broader strategic with the leader in systems for ambulatory surgical centers.

Net income for the quarter was $4.1 million or $0.07 per diluted share. This compares to $3.3 million or $0.06 per share in the third quarter of last year. Please note that the net income for the first three quarters of 2007 reflect a full tax provision, using a 40% effective tax rate.

Our GAAP earnings of $0.07 per diluted share, includes $1.7 million or $0.03 per share of acquisition-related amortization net of tax and $900,000 or $0.01 per share of stock-based compensation, also net of tax, bringing our non-GAAP adjusted earnings for the quarter to $0.11 per diluted share.

This compares to GAAP earnings of $0.06 per share in the third quarter of last year, which includes $1.9 million or $0.03 per share of acquisition-related amortization net of tax and $400,000 or $0.01 per share of stock-based compensation also net of tax, resulting a non-GAAP adjusted earnings of $0.10 per diluted share in the third quarter of last year.

Basic shares outstanding for the quarter were 56.2 million and diluted shares were 65.2 million. The 7.3 million shares issuable under our convertible debt offerings continue to be dilutive to our GAAP earnings per share in 2007 and therefore included in both our GAAP and non-GAAP adjusted earnings diluted per share computations for the third quarter as well as for the full nine months.

The 7.3 million shares were excluded from last year's results due to the shares being anti-dilutive. It's important to remember to add back net interest expense related to the convertible debt to net income when computing dilutive earnings per share, given that we added the debt underlying shares to our dilutive share count. That quarterly amount of interest was approximately $523,000 in net of tax.

With regard to overall head count, we ended the quarter with approximately 1,062 employees. Which compares to 1,036 employees we reported in the second quarter.

Turning now to our balance sheet, we ended the quarter with approximately $75 million in cash and marketable securities, which is reflective of us using approximately $11.5 million to fund our previously mentioned Source Medical acquisition. And approximately $3.2 million of capital expenditures in capitalized software. Such outflows of cash were offset by cash from operations of approximately $2 million, and approximately $700,000 of option exercises in employee stock purchase plan contributions.

We ended the quarter with approximately $81.2 million in accounts receivable and day sales outstanding of approximately 99 days. The anticipated increase was primarily due to several large milestone billings that occurred in September, and is partially reflective of the increase you see in deferred revenue. We expect both our day sales outstanding and accounts receivable balance to come down in the fourth quarter.

Turning now to the balance of 2007, as I mentioned at the beginning, we are seeing some near-term impacts on revenue associated with the ramping up of resource on some of our largest clients, while we believe it's possible to mitigate that exposure with add-on license sales in the fourth quarter. We believe it is appropriate to recalibrate market expectations for the full year.

We now expect total revenue for the year to be in the range of $286 to $288 million, a 25% increase over last year. And GAAP earnings per share of $0.34 to $0.35 per diluted share, a 55% increase over last year.

The 2007 GAAP EPS guidance contemplates $0.10 per share, tax affected of deal-related amortization and $0.4 to $0.5 cents per share of stock-based compensation also net of tax.

It's important to note that we remain confident in Allscripts' positive outlook. So, as we look into 2008, we continue to see a business that is positioned to grow revenue, approximately 20% to 25% fueled by 25% to 30% growth from our clinical software business.

Given the operating leverage in the business, we see that top-line growth translating into 40% to 50% earnings per share expansion. This takes into account an expectation that deal-related amortization will remain fairly consistent with 2007 levels and stock-based compensation will move closer to about $10 million next year or $6 million on an after-tax basis.

In terms of our bookings guidance, we continue to see a lot of strength in our clinical software pipeline, both for our Electronic Health Record and our practice management offerings. We expect the fourth quarter to be another record quarter for Allscripts

Finally, we have also gotten lot of questions regarding an Investor Day. We are looking to schedule an Investor Day in the first half of 2008. In the mean time, both Glen and I are scheduled to present at several analyst conferences over the next several months. With that I'll turn it back over to Glen for some closing remarks.

Glen Tullman

Great, thanks Bill. So, let me conclude with a few thoughts for investors. If you believe that healthcare will continue to eliminate the paper and become electronic like every other sector, you want to be in this space. And if you believe that healthcare is moving outside the four walls of the hospital, to the ambulatory space and into the hands of physicians, as we do, you want to invest in companies that are the leaders in the ambulatory electronics space.

Finally the results demonstrate that quarter after quarter Allscripts continues to lead, to grow, to satisfy our clients, and to do so in a profitable manner.

So, I want to conclude the call today by thanking our employees for another solid performance during the third quarter. To thank our clients for there continued support, and to thank our investors who are helping us to provide the tools for a better future of healthcare in this country. Thanks very much and we are happy to entertain your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Charles Rhyee with CIBC World Markets.

Charles Rhyee - CIBC World Markets

I had a quick question about the quarter, itself. You guys had an existing backlog as it were, and I know that you guys spend a lot of time hiring and training a lot of implementation staff. Can you give us a sense on there productivity in the third quarter and there ability to pull revenues and margin into the quarter?

Bill Davis

Sure, Charles. It’s Bill Davis. We actually saw close to about a 25% increase in the production of our resources, in terms of overall [bill blowers] in the quarter. And we had anticipated that, by virtue of lot of resources being dedicated to version 11, our efforts earlier in the year and the like. So, we absolutely saw a very nice improvement, in terms of overall productivity. The challenges we tried to highlight in terms of that conversion into revenue was where those efforts were focused on in term of ramp up of some of our larger customers.

And given the long duration and the overall number of hours involved in those implementations, what that translated into, your overall revenue. So, we absolutely are seeing the capability being there in terms of the production capability, to pull the backlog through, but also recognizing that we are moving some large customers into production at the same time.

Charles Rhyee - CIBC World Markets

So, is it fair to say that when we are talking about these large deals, these are deals that were signed earlier than the ones that we talked about in the last quarter or so?

Bill Davis

It's a combination of both, actually, and we absolutely have had enterprise deals--it’s part of our bookings--going back to the fourth quarter of last year. We always did in the third quarter, but it is also indicative of the fact on some of our largest, Columbia included, they were committing resources, have committed resources, even starting in the third quarter.

Charles Rhyee - CIBC World Markets

Okay. Great, thanks a lot.

Glen Tullman

This is Glen, let me just add to that, because this is really critical, the point here is that we are spending resources. We have more resources, but those are going in part to support the V11, in part, to some of these large clients, that we are not yet billing for. And there is one other piece, and that is in the sales process, as we are working with many new large enterprise clients, they are requesting, and we are deploying, some people pre-sale, to do some analysis of implementation and the like, and that is also drawing on resources. So, we have more resources. Training was successful. Some of that work that we are doing--we will build for--it's just the timing isn't working for us this quarter, and we are concerned that as we ramp up on some of these larger deals, there is going to be a delay.

Charles Rhyee - CIBC World Markets

Great. Thank you.

Operator

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

Corey Tobin - William Blair

Hi. Good afternoon. A couple of things, if I could, please. On the guidance, can you guys give us a bit of a feeling here? Would you characterize the guidance for 2008 with respect to the amount of cushion that you have in there versus your internal goals? Would say it's sort at a comparable level to which you had in '07, more or less? In term of, again, cushion, compared to the internal plan.

Bill Davis

I would say it's a more cushion, Corey, than what we feel we came into this year with and, again, trying to appropriately calibrate what we believe to be some of the risk factors that we highlighted through our prepared remarks.

Corey Tobin - William Blair

I am assuming when you say on account of that, there is more cushion on both the clinical software business and the overall revenue line.

Bill Davis

Yeah. Again, I mean our outlook, just to kind of break that down, the meds business, we continue to talk about that one as being a very consistent performer for us. We are expecting continued improvement from our Physicians Interactive business. But, you think about it in terms of overall or absolute dollars, it's not going to drive the significant portion of our overall increase. So, the reality is that our growth engines are our clinical software businesses. And so, as we talk about 20%-25% growth in expectation that our clinical software businesses going are be driving 25%-30% growth from that segment perspective. So, it is indicative of what we see in terms of relative robustness of the marketplace. And it's also indicative of the strength of the backlog that we continue to build.

Corey Tobin - William Blair

Okay, great. Switching gears for just a second here on bookings, I think in previous calls, we've talked about, roughly, $40 million or so from your enterprise sales force. Just curious as to how that team is tracking to that goal, and where you expect it to end up of the full year?

Bill Davis

Yeah, what we've actually talked about, is that we expect somewhere about 20% of our clinical bookings to be driven by our enterprise sales force. We have been very encouraged by the work that they have done to date. I will tell you that by virtue of our outlook for the fourth quarter, it's possible that they may contribute more than that 20%. And again, indicative of what we believe to be a very robust market in terms of rich opportunities.

Corey Tobin - William Blair

Okay, great. And finally last question on the cash flow, or the operating cash flow more specifically. I understand the ramp in DSO this quarter, but do you expect that number to come down? It sounds like in Q4 and in turns should we expect to see a ramp in the operating cash flow in the fourth quarter?

Bill Davis

Absolutely. I mean, I can tell you that some $14 million-$15 million increase specific to the TouchWorks business and, again, we--I think, 95% of that. And certainly close to 90% of that is sitting in the current category, indicative of the fact that it was built in September. A lot of that was these milestone billings in terms of the upfront deposits and what not, in some of these larger deals, but also just in terms of where the timing of some other billing milestone fell. So, I am absolutely expecting a reversal of the cash flow from operations in terms of a pop in the forth quarter and a corresponding decrease in overall receivables and DSOs in the quarter, as well.

Corey Tobin - William Blair

Okay, great. Thank you.

Operator

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

Sean Wieland - Piper

Hi, thank you. My question is around the reduced outlook in 2008, and Bill if I understood you correctly, it's because of some of these larger deals were taking a little longer to implement. Is this related at all to the version 11 that's being sold in the market? I mean, could you give us an update on early success stories with version 11? How many customers are adopting it? Is it a longer sale cycle because of that version or because of the nature of the market, or something along those lines?

Bill Davis

Yeah. If I can comment to first part of your question, and then I trust Glen will answer the second in terms of the uptake of V11.

First and foremost, this is the first time we've come forward in terms of providing a perspective on 2008. And what we are attempting to do, Sean, is recognizing the dynamics, but also recognizing the dynamics in terms of the backlog and some of the considerations that we highlighted. We want to be very considerate of kind of the expectation setting process, and making certain we're setting realistic expectations that the market can fully understand, and expect that we will deliver upon.

And in light of current year performance, in light of the relative robustness of the backlog, and also the prospects in terms of that backlog continue to be replenished, in terms of strong bookings next year. We believe that we're being prudent in terms of the guidance that we've provided. So, with that I'll ask Glen respond to the V11 question.

Glen Tullman

Yeah. I'll just add to what Bill said. Again, I think the earlier answer we gave, more cushions in those numbers. And frankly, Sean, there have been a variety of your counterparts who said to us, we are making our lives more difficult than we should by pushing these numbers. So, we've taken some of that guidance. We try to give very realistic numbers with solid space to allow for error and for delays, realizing we may have more of the larger deals, for example, in 2008.

Relative to version 11, we continue to see good progress there in rolling it out. We see very strong demand. And again, in some respects, the demand has outstripped what we expected because of the positive response. And that means that we've taken some of our resources and deployed them to version 11, to rolling out version 11. Those upgrades are profitable, but they aren't as profitable as implementing a new client. So, we've seen a numbers of decisions that they are the right decisions for our clients, but they have had timing impacts in term of revenue recognition and that is yet another one. But, we are talking about, it’s dozen now, of version 11 installs that are underway and that have been completed.

Sean Wieland - Piper

Okay. So, I think I understand but, just want to make sure that when you are going and sell and installing a net new client, and you guys are no to selling and installing large deals. Are the deals taking longer to implement or there is higher mix of version 11 upgrades in there?

Glen Tullman

Well, I think, it’s all of the above. I think that some of the deals are more complex. I mean, we were talking with larger and larger sites, that's number one. In terms of sites, some of them had revenue recognition milestones that mean that we do more of the work upfront, before we built for it. In terms of version 11, clearly on the version 11 deployments, where they take people, those are less profitable than a net new customer. That said, they are profitable, and that said we need to do them to move the base along. So, it's a combination of factors. And the last factor, very important was, not unlike the prior quarter, one or two of these deals that we expected to be signed, which were license expansion deals from existing customers would have driven those numbers, but didn’t get signed with the right timing.

Sean Wieland - Piper Jaffray

Okay. That’s helpful, and one other question related to CCHIT certification, what is the plan to get the '07 certification done?

Glen Tullman

We have, and again it's a little awkward, because I am trustee on CCHIT, the initial plan with CCHIT was that you have three year certifications, and that’s still the plan today. And, in fact, both of our Electronic Health Records, HealthMatics, was the first to be certified, and both were certified very early on. That was great in the first nine months, subsequently now, people have said, but what about 2007. And I think CCHIT and we are clearly struggling to say is this a yearly certification or is it a once every three years?

To the extent that it becomes a yearly certification, that’s going to put a reasonably large drag on a variety of folks. That said, we are moving both products along to 2007 certification, the products themselves actually have the requisite attributes in them to be certified today. We just have to go through the process and in fact, some of the 2008 certification that we have seen, the products already have that functionality in there.

One other note, the 2007 certification has not been a buying requirement, a prospect for us. We've seen very little of it, other than in some of the smallest accounts where we have seen the issue come up, but the larger, more sophisticated accounts understand the three-year process, and they understand the interoperability aspects of the product. They are really in the next phase in certification and we are leader there.

Sean Wieland - Piper Jaffray

Okay. Alright, thank you.

Glen Tullman

Thank you.

Operator

Your next question comes from the line of George Hill with Leerink Swann

George Hill - Leerink Swann

Hey, guys. I guess the first question, I didn't hear you guys speak to this exclusively. Glen are you guys backing off the $230 million number for the full year clinical software bookings?

Glen Tullman

No. We didn’t. We are not backing off that number, so that's the one piece of the guidance we didn’t change. We still see, the message continues to be, and you saw this quarter, we see very robust sales. And the issue this quarter was one of turning those sales into revenue.

George Hill - Leerink Swann

Okay. And then I guess, we started to talk a little bit about preliminary 2008 guidance. Can you talk about where you think the market is from a market penetration perspective? You guys continue to see robust demand right now, but is this a market that continues to grow at close to 40% clip in 2008 from a bookings perspective, or we are get in to a point where the incremental sale is harder to get?

Glen Tullman

No. I think the growth is going to continue to accelerate. I think you will see a little more competition in the various markets. Clearly the entry of hospitals as a buying entity will accelerate growth for the smaller clients who were previously very difficult to access. But we see continued very vibrant growth across each section of the market. The largest academic medial centers in integrated delivery networks, the mid-sized, multi-specialty groups.

And again, even in the smaller groups, because based on the change in the stark rules, hospitals are stepping up to equip those physicians, that paired with our NEPSI initiative, we are going to drive more and more of the individual independent physicians, and very small groups in to the automated world.

George Hill - Leerink Swann

Okay. Can you talk a little bit about, what I call, demand mix, and how much can you talk about demand mix for the health…HealthMatics products versus the TouchWorks product?

Glen Tullman

We focus both of those products on separate segments, so the demand mix has been strong in both cases. It’s a different fire in both cases, so HealthMatics is typically the smaller independent physicians, and stretching up to some of the small to mid-size mnlti specialty groups, and that’s where they've been focused.

It is, I will admit, a little bit blurred when hospitals get involved, because depending on whether the hospital wants to host the application or what the hospital is using, TouchWorks is unique in being an application that a large group could use, but it could also be deployed to a smaller group. So, we see robust demand in both products.

George Hill - Leerink Swann

I have two more brief ones; I'll be real quick. First, seeing any material pricing pressure in the market?

Glen Tullman

I think we are seeing some pricing pressure in the low end of the market. And there you see some segments that are on the very smallest groups, they are buying on price. And that’s something we're watching very closely, and we are making sure our folks sell on value.

I think that, in the larger groups, we haven't seen that, and in fact I would call it pricing stabilization. The issue is the larger groups are so focused on simply making sure that physicians used it, that they are actually willing to invest more in certain cases, to make sure that the technology works, and is used by physicians, because there's millions of dollars at stake in pay-per-performance and pay-per-quality programs. So, again, small markets yes, larger markets we see stability.

George Hill - Leerink Swann

And Bill, one last question, the growth of revenue on earnings on the income statement is obviously not keeping pace with the reported bookings growth. From a modeling perspective, do you think, investors should think about what I will call the waterfall effect of the backlog is taking place, at a slower pace now, as it seems the deployment cycles are lengthening and may be you guys --

Bill Davis

George, that's exactly what, we try to communicate and keeping with our thinking around our outlook for a way, by virtue of adding some of these larger transactions. Some of the other factors that Glen talked about in terms of version 11, being incorporated in those deployments are alike, we are seeing a little bit of elongation there. And again, we're trying to incorporate that into our thinking, in term of outlook, not only for the balance of year, but also into next year.

George Hill - Leerink Swann

Okay, thank you.

Operator

Your next question comes from the line of Richard Close with Jefferies & Co.

Richard Close - Jefferies & Co.

Great, thank you. With respect to the clinical bookings, did you give a specific guidance number for '08 and if not, why?

Glen Tullman

We have not, Richard, because so much of kind of that momentum is build on kind of how we exit this year. Our fourth quarter represents, as we have talked about many times, some 35%-40% of our annual bookings amount. And in order to kind of perfect that outlook, really want the benefit of having completed this year. And so our expectation is, is that we would be in a better position to provide early part of '08.

Richard Close - Jefferies & Co.

Okay. And then, with respect to, I guess, the third quarter revenue, I know everyone, and we seem the go around and around on this. But, I would suspect that you weren't really anticipating a much revenue contribution from the Columbia and Lahey. So, when did you just, I guess come to the realization that some of your existing customers weren't going to be deploying on schedule and if you were to break it down, how much do you think it's internally an Allscripts implementation situation, or how much your clients are putting the breaks on a little bit?

Bill Davis

Yeah. I guess I would characterize it a little differently. It was the conscious decision on our part to redirect resources and/or allow some of these larger ramp ups to consume those resources, as opposed to it being kind of opportunistic by virtue of some of our customers stopping or delaying. We don't mean to convey that sentiment, because that's not what's occurring. So, that was the consideration. The dynamics that play kind of in the quarter as were evaluating it, really gets to the second consideration that I highlighted, and that is this that we saw an opportunity to in effect mitigate that by virtue of some add-on sales that we were anticipating. That would have immediate revenue recognition impact, enable us to kind of fulfill what we thought was the right business decision in terms of moving some of these larger deals forward, maybe sooner that what was originally anticipated and those ultimately didn't materialize. So, quite frankly, in terms of understanding its full implication on the quarter really went up the very end of the quarter in terms of I have fully understanding where those add-on deals are going to ultimately shake out.

Richard Close - Jefferies & Co.

And then…

Glen Tullman

We really made a client-focused decision about accelerating and investing in certain of our existing clients, thinking that, as Bill said, we would be covered by one or two of these agreements that frankly went to the last minute and ultimately didn't sign for variety of reasons. They will sign this quarter, so we are comfortable with that.

Bill Davis

If I could add one more thing, because its critical point and that is we actually believe that we have more actionable backlog today that we have actually the requisite resources in terms to deploy in the near-term. And so, we are constantly making those business decisions in terms of where we are dedicating those resources, obviously with desire to maximizing revenue. But, we also want to make certain that we are balancing that with kind of the broader business objectives that we are focused on at the same times. So, I don't think it’s fair characterization to suggest that we moved resources because either clients delay or some other factor. The reality is that we have very actionable backlog and are focused on maximizing as much as we can.

Richard Close - Jefferies & Co.

Okay. I know this smaller comparison, but you made some references to Physicians Interactive and something with regard to three platform deals and all that. Can you go over what you said there?

Bill Davis

Absolutely. What I did say was that, our ability to deliver on the guidance that we provided of $30 million is heavily dependant on signing three platform deals in the quarter. The good news is, that we have more than three platform opportunities before that are being actively worked. I continue to be concerned at the kind of general state of affairs in pharma and there preparedness to move is, quite frankly, is quickly as we need them to in order to us to be able to deliver on that.

The reality is that we had anticipated one of those deals to occur in the third quarter and move to the fourth quarter, and so I am highlighting the realities in terms of what we're up against there. We've not moved off of that, but are clearly trying to communicate to the market in terms what is going to be required in order for us to deliver on the previously made commitment on the booking side.

Richard Close - Jefferies & Co.

Okay. And then, just as a one follow-up, and sorry for jumping around here. But, going to back to implementations and all that, I mean, you did have a great bookings quarter. Is there anyway we run into a situation where we were oversold in the marketplace and then we can't deliver on the sales that we have succeeded in landing, and thus chaining sort of the whole market. We've heard about people going out there and selling a whole bunch of business and not necessarily executing. And how would you gage your position with respect to I guess that comment?

Glen Tullman

Let me take that one. This is Glenn. Part of the reason that we made the investments and it was commented on earlier. I think it was pretty evident to everyone that we hired a healthy amount of implementation specialist and we spend a good deal of the quarter training them. So, we feel like we are adequately prepared for that. There is always an outlet and that is, we have a number of consulting firms we work with. Some of those firms are right now on implementations, managing them and the like.

They had said to the extent we outsourced the implementation process, we feel it's a higher risk to the client depending on who it is and moreover, our margin gets impacted. So, we are, again, trying to manage that as opposed to just dumping it off to third parties.

Richard Close - Jefferies & Co.

Okay. And you mentioned the new COO and you mentioned focus on customer service. Have you had any issues on customer service that may be, has changed significantly from first or second quarter to third quarter?

Glen Tullman

Well, I think the biggest thing that we're finding is, one, we talked about being indispensable to our clients. And what that really meant is that we want to say they couldn't practice without our software, and that was great. And in the past when we had any kind of software interruption, people would go back to their paper based files or they would go back to their script pad.

Today, our clients increasingly don't have anything to go back to. They are truly paperless. And that puts an added responsibility on us to make sure we are up 24/7. To make sure that our level of responsiveness is what it needs to be. So, again, we are making investments now to protect our clients and to make sure we are prepared for that.

Similarly, we want to make sure that as we add clients, we don't keep adding support people and the likes. So, as you grow a company you go through stages and that requires investment in systems and the like and then brings experience in helping companies make that transition, so again, much of what we are doing is preparing just as we prepared in hiring implementation folks, preparing in advance and making the investments to accommodate, both a strong fourth quarter as Bill called it, and I was happy to hear him say that a record fourth quarter that we expect in terms of sales, and then furthermore very solid guidance that we have given for nest year. We need the infrastructure to deliver that. That’s our promise to our client, and that’s what we intend to do. So, that’s where Ben is focused.

Richard Close - Jefferies & Co.

Okay. Thank you.

Operator

The next question comes from the line of Larry Marsh with Lehman Brothers.

Larry Marsh - Lehman Brothers

Thanks, and good afternoon, Bill and Glen. First, only quickly, Bill, basically it sounds like you are guiding to about $85 million or so in clinical software bookings in the fourth quarter, and I know you are not being that specific. But I just wanted to also make sure are you giving any breakdown of expectations of revenues, with the change in everything guidance for this year or is that something you would hope to give for your early '08?

Bill Davis

I think your computation is right, in terms of what bookings are required to deliver on our previous commitment on the booking front of $85 million. I am not sure I followed the second question.

Larry Marsh - Lehman Brothers

Okay. I wasn't clear at all. Let's see. In the past, and at the analyst day last year, you gave us a breakdown of expected revenues in the prepackaged medications business, software business and information services, PI. You are giving us an updated view of total revenue guidance. Did you or are you in a position to give us a breakdown of the expected revenues by the three divisions for '07 or '08?

Bill Davis

For '07, the delta, in terms of where we were at previously to our outlook now, it's principally being borne by the clinical software businesses. So, no reason to believe that our meds business won't be in the $44 million-$45 million range, and physicians interactive close to the $16 million. So, I think you can work your way back into the clinical software revenue number by virtue of that.

Relative to next year, I made mention of this in response to another question. Again, for planning purposes, we are thinking about the meds business continue to be a solid contributor at or maybe slightly higher than the levels that we've enjoyed last couple years. We are expecting some moderate amount of growth out of physicians interactive, call that, too, kind of 20%-25%. And that, resulting in large percentage of the growth being fueled by the clinical software businesses.

Larry Marsh - Lehman Brothers

Okay, very good, thank you. And then just (inaudible) gross margin sort of thoughts as well, too premature to go in that level detail at this time.

Bill Davis

It is and again the one dynamic and I've talked a lot about that over the course of this year that I've always been attempted to be a conservative one in terms of, there is lot of reasons to believe that the business at the gross margin level should enjoy gross margin expansion.

The one reason quite frankly, why I held that in reserve is some of the pricing dynamics that we've experienced at the lower end of the market. And at this juncture just given the landscape being what it is. That's a prudent thing to do. With that said, we see tremendous operating leverage in our operating expense structure and it's for that reason, why we even at moderately flat or may be a slight up tick in gross margins, we see the level of expansion at the bottom line that we conveyed in our guidance.

Larry Marsh - Lehman Brothers

Got it. Two other quick things in, first great to hear about the second mega deal, I'm assuming they were both showed up as bookings in the third quarter. I'm also assuming you are not being as specific, I'm assuming collectively about $15 million-$20 million, and you don’t have to comment specifically on that I want some way off. But, I'm just curious, over what period of time do you expect to recognize revenues, as you do PUC with these two, and when does it really start to kick in for both of these on the revenue line?

Bill Davis

So, all I have said relative to the Columbia deal, in keeping with prior quarters, it was a deal in excess of $10 million. It is important in recognizing that that’s a 2000 physician practice, that like all academic settings, those tend to get priced on an FCE basis. So, the pricing would in affect equate to a fewer number of docs than 2000, in terms of calibrating that against our typical per doc price of about $10,000 per doc.

Relative to them substantively showing up in our results, as I commented last quarter on expectation of Columbia as well from Lahey, we'll see a very small amount in the fourth quarter, but much more fulsome contribution in next year.

And I'm not familiar with the Lahey rollout plan in terms of total duration, but it pertains to Columbia--we are talking about call it 18 months and 24 months type of period, in terms of the substantive work been done there.

Glen Tullman

Lahey will be a little bit faster than that?

Bill Davis

I would expect that to be, yes.

Larry Marsh - Lehman Brothers

Okay, then, just, I just want to make sure, I am clear on the discounting you mentioned on the lower end, is that really impacting your HealthMatics business more, sort of booking here is kind of still what you hope? And is [Greg Short] is still set to take over for David in January?

Glen Tullman

Yeah, Greg Short is already on board, he has no other responsibilities other than running the sales force now, so he's down there, moving his family down there. And so, that's all gone, that transition has occurred, even though David is still there, working the quarter. And so, we have kind of two folks for these entire few months as that transition happens.

We see the pricing pressure that I talked about, and competitive environment, we do see primarily in the HealthMatics' accounts, that's correct. And in terms of the number of sales, I'm not sure it’s impacting at all the number of sales, in fact, increased competitiveness there, we will hope drive the number of sales, I think, we are watching very closely, in terms of any impact on margins.

Bill Davis

I would just add to that, actually the volume of transactions in the HealthMatics space have outpaced our expectations. But that overage from the volume perspective, we've given some of that back from a pricing perspective.

Larry Marsh - Lehman Brothers

And then just you are still have about 37-38 salespeople in TouchWorks and high 40's in HealthMatics, Bill?

Bill Davis

Yeah, that's about right, we added a few more in total across both those sales forces but those are very close.

Larry Marsh - Lehman Brothers

Then, just very quickly…I mean, you layout still a very interesting growth, projection for '08. Clearly, Glen, just you probably already talked about it, but in summary, as you talk about the opportunities, what's your biggest concern as you look at the market in the next year?

Glen Tullman

In terms of biggest concern, right now I think this quarter just the revenue recognition. We know how to grow the company. We will continue to do that. We know how to grow it rapidly. We know how to grow it profitably. Frankly, I think this year our challenge has been managing the market, managing some of the market expectations. So, from an investor standpoint, as we guided this coming year, as I think Bill replied earlier, there is more cushion in the numbers and we have a lot more focus relative to that.

In terms to the market itself, we expect that the market will become more competitive and that's not just from a pricing standpoint, we expect that some of the folks that have not been able to compete in the ambulatory environment, we will be able to compete, we will become more competitive. We hope that doesn't happen, but our expectation, our planning for it, we are preparing for that. That said, all that will happen at the same time that the market is going to expand dramatically. So, we are very comfortable from a business perspective in terms of where we are. It is really all about execution. The markets there and we would just continue to execute and frankly that's what we are pretty good at doing.

Larry Marsh - Lehman Brothers

Very good. Okay, thanks.

Operator

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

Atif Rahim - J.P. Morgan

Hi. Thanks, guys. Good job getting those two deals, for instance, unfortunate it's not playing on for revenues as expected. But, as we look out to '08, do you expect the mix of these larger enterprise deals with kind of longer deployment cycle to increase or decrease?

Glen Tullman

I expect everything to increase. So I think across the board, we are going to see more agreements in the large market, in the mid-market, and then in the smaller market. Bill did mention that we may see in the fourth quarter a stronger mix from the enterprise group than we expected, in terms of delivering the numbers. So, from that standpoint, the enterprise and the willingness of the enterprise organizations to move forward is accelerating. I think we are also starting to see the first replacements market in the enterprise group.

The other area that's very strong is practice management for us and that continues to be a very positive for telling of what's going to happen for next year. So…

Atif Rahim - J.P. Morgan

Okay. So, if I were to just to dig deeper into that, if the deals with longer deployment cycles are increasing. Your revenue growth is about 30% this year in the software segment, and you are guiding to about 30% next year. How do you see the revenue growth coming in about the same line, given that some of these deals have the mix of the larger, longer deployment cycles is lengthening?

Bill Davis

Yeah, I guess I would, if I were to answer that question little bit differently, and that I don't believe, as you look at our overall booking expectation next year and the relative contribution from enterprise sales, I don't expect on a percentage basis to be materially different then what we will deliver this year. So, I think the relative compliment of enterprise deals, large deals, mid market deals, what you have will remain. It's also important to note that a very large percentage of what we actually recognize in revenue next year will be drawn from the backlog that we carry into next year. So, in some respect to the extent that mix where to shift on us, it actually would express itself more fulsomely in '09 than it would in 2008.

Atif Rahim - J.P. Morgan

Okay. And in terms of the hiring that you've done, looks like most of it is on the implementation side. Is that resulting in a net benefit near-term, or is it just the heck on cost, just showing up in the SG&A in terms of the insourced versus outsourced implementation. Do you have any costs saving from that?

Bill Davis

Well, we classify all those deployment resources, actually, as cost to sales. They don't actually fit in SG&A. So, I think about the benefits from that in a couple of respects. Firs,t is that, obviously, they have become more productive--our ability to pull through more of the backlog. There is benefit with no incremental cost associated with it. Second, is that, to the we are able to absorb more of that work and less in the reliability on third-party resources, that's more profitable for us, as well. So, both create benefits for us and that's how I think about it.

Atif Rahim - J.P. Morgan

Okay. But can we expect an increase in gross margins from that or not?

Bill Davis

Again, in response to the earlier question, I mean, I think that that's one factor that I would point to, to say that gross margin should absolutely expand within the clinical software segment. I am hesitant to offer that up for the reason I stated before relative to the pricing dynamics at the lower end of the market. So, at this juncture I am thinking about those being within some reasonable range in terms of what we've delivered on in that segment till date.

Now, overall, you are going to see gross margins continue to expand, because as the software segment continues to become a larger percentage of our overall revenue, it's going to create natural margin expansion just by virtue of the mix shift in overall revenue. But, at segment level I would be very hesitant at this point to be offering up a lot of gross margin expansion.

Atif Rahim - JP Morgan

Okay, understood. And then lastly on the NEPSI initiative, so you had about 5,000 physicians downloaded. Can you give us an idea of what the uptake has been in terms of physicians actually buying your products?

Glen Tullman

Relative to the NEPSI initiative, first of all, we've got 5,000 physicians, more have downloaded it, but we have 5,000 actually using. It's prescribed, which I think is the kind of material number. In terms of the full Electronic Health Record up sale, while we've seen a limited number of those; number one, it’s very early; number two, we've not dedicated any real marketing focus on that, we said we wouldn't, we surely didn't want to spook people, to have anyone think, that initially, that was simply a marketing tactic. We are very interested in having it deployed widely for use in electronic prescribing. So, we've not focused on that. That said, I think, a few people have come to us, but it’s a relatively small number, I wouldn't say it's significant at this point.

Atif Rahim - JP Morgan

Okay. Do you have any idea on when you expect that to kind of accelerate?

Glen Tullman

I wouldn't speculate on that right now, we continue to support and expect the NEPSI initiative to expand, and because of that, more physicians who get using electronic tools, similar than more upgrades.

Atif Rahim - JP Morgan

Okay. Thank you.

Glen Tullman

Why don't we take two more questions, since we are trying to manage the timing on the call?

Operator

Okay, your next question comes from the line of Steve Halper with Thomas Weisel Partners

Steve Halper - Thomas Weisel Partners

Hi, Glen. Could you just update us on how you feel about meds business, you know these days, if they are as good, it generates cash flow but strategically, how does it fit today?

Glen Tullman

Sure, I would pair it to your words, it’s there, it generate cash flow, it's a consistent performer, and while it's not particularly strategic, we are not rushing to make any changes with it. That said, it is interesting, because in some respects we have more people asking about dispensing medications now than ever before, in part because there are all new sources of retail clinics that are out there providing that service. But that said, I think our guidance is the same and there is no impending decision. Bill, you want to add to that?

Bill Davis

Yes. Well put.

Steve Halper - Thomas Weisel Partners

Thanks.

Glen Tullman

Sure.

Operator

Your next question comes from the line of Richard Davis with Needham & Company.

Richard Davis - Needham & Company

Thanks. With regards to your partnership with Microsoft, Google has also kind of made some commentary that they would like to do electronic health records, at least on the consumer side. Would you partner with them? Or do you have a point of view as to what they are doing? Or is it just so early days it's almost impossible to tell?

Glen Tullman

Sure. Google is a strategic partner of Allscripts today, and I would expect that to the extent that anyone wants to be operating in this business if they want physician participation in their partner, then we would be working together. That said Google has been tight lipped about what they are doing and maybe asked their partners to also maintain that confidentiality. So, unfortunately, I am not at in a position where I can comment on that.

Richard Davis - Needham & Company

Got it. Okay. Thank you.

Glen Tullman

Well, thank you very much. Again, I will just conclude the call by saying that, to kind of paraphrase the statement I made earlier, we have been very good about knowing how to build the business that’s very client-focused, that meets our client needs, that continues sales, revenue and bottom line expansion, and we will continue to do that. We don’t feel great about the quarter in terms of the fact that, there were analyst expectations out there that were in excess of what we delivered. That said, we are very, very focused on continuing to do the right things for our clients, continuing to invest in the business, and continuing to build the business in a very profitable way. I think that's speaks to the guidance that Bill gave for 2008.

So, again, I want to thank all of our employees for continuing to make Allscripts successful, to thank our clients. We think we have the best client base in the business, and finally to thank our investors for helping us to build the business. Thanks very much and we look forward to talking with you next quarter.

Operator

Ladies and gentlemen, this concludes today's conference call. At this time, you may disconnect.

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