Q3 2019 Earnings Call
Glassware greedy greetings and welcome to all scripts third quarter 2019 earnings conference call. At this time, all participants are in listen only mode.
Question and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to turn the conference over to your host Stefan Schulz team Vice President Investor Relations. Thank you you may begin.
Thank you very much good afternoon, and welcome to the Allscripts third quarter 2019 earnings Conference call. Our speakers there Paul Block Allscripts, Chief Executive Officer, Colton, Our President Dennis <unk>, our Chief Financial Officer.
Well, making a number of forward looking statements during the presentation on the Q and a part of a call. These statements are based on current expectations and involve a number of risks and uncertainties that could cause our actual results to vary materially.
We undertake no obligation to revise these forward looking statements in light of new information or future events.
Please refer to our earnings release that FCC filings for more detailed.
Description of the risk factors that may affect our result.
Reads referenced the GAAP and non-GAAP financial statements as well the non-GAAP cables in our earnings release and the supplemental workbook that both available on our Investor Relations website and with that we'll get a hand the call over to <unk> Holt.
Okay. Thanks.
Good afternoon, everybody. Thanks for joining our call today as always we appreciate both your time and your interest and all scripts.
In order a lot more time for the questions that are on your mind, Oh, we'll keep our prepared remarks shorter no. We traditionally have on these calls so let me briefly summarize our operational performance.
We reported a strong third quarter with bookings of $236 million. This was up 19% from last year's third quarter and were also up 19% on a year to date basis.
The sales momentum was broad based and balanced across our inpatient outpatient and paradigm franchises.
Equally important our pipeline of new deals remains strong heading into the fourth quarter and we remain comfortable with our bookings guidance for 2019, which as you will recall, we increased starting last quarter.
In the inpatient market, we had a very strong quarter and we saw strength across both the sunrise and paragon customer bases.
We saw significant scope expansions at several clients and a good number of clients electing to take upgrades as well.
Both of these are core properties, our core solid leading indicators of their commitment to all scripts.
But perhaps the biggest news we hadn't quarter is the progress we made with our largest client northwell.
As previewed on this call last quarter, we'd been negotiating some long term extensions of our existing business with them as well as talking to them about expanding our relationship it's an exciting new area.
I'm happy to report that we completed the extension of our Sunrise platform at Northwell through 2020 so.
This renewal follows the extension of the Touchworks agreements that we signed with them last year.
We are close to securing extension up the last significant piece of business that we have with them, which is our managed services contract and they should be finalized by the end of this year.
In addition, we announced that we entered into a joint development agreement with more well to develop and commercialize next generation DHR.
We plan to co develop the Chr using our technology and development expertise combined with north wells clinical and operational excellence.
Well keep you updated has this project progress over the next several quarters.
Moving to the ambulatory market, we had a great quarter, winning some new market share has resigned 15 new clients.
We are seeing new opportunities as groups it independent physicians combined and look to consolidate vendors.
An example of this is orthopedics not as a Colorado, which combined a number of physician groups and saw a value in adopting our full ambulatory suite of technology, they're larger organization.
It's displaced a number of our competitors.
We expect additional groups of providers to join orthopedic centers of Colorado, which will allow us to continue to expand our footprint there going forward.
Looking ahead in this market our pipeline for new clinical tools revenue cycle services and patient engagement tools feels very strong to me.
Finally, with paradigm I remain very happy with the balanced approach we are using to both achieve our near term growth targets, while simultaneously investing in areas to support long term growth.
An example of the latter is the long term strategic partnership with Komodo health that we announced during the third quarter.
Initially the partnership will focus on linking Allscripts industry, leading ambulatory HR dataset with come autos health care about this contains encountered data for more than 150 private and public payers.
The collaboration will enable they're not to provide the worlds largest linked dataset containing a complete longitudinal view of nearly 50 million you identify patients.
The market is clearly demanding weight DHR and claims data for research and this partnership will enable our clients to perform both clinical and economic analyses as well as Phil and each our data caps.
We believe this is differentiates paradigm, even further from our competitors and we are seeing significant interest from our clients.
So with that let me turn call over to Dennis to go from more of the financial details for third quarter and our outlook for the balance of the here.
Great. Thanks, Rick.
As we review this quarter's results. Please reference the schedules in the earnings release as well as a supplemental data workbook available on the Allscripts Investor Relations website.
For clarity purposes, let me make a few opening remarks before diving into the results.
First my comments on the income statement will largely focused on non-GAAP metrics, unless otherwise stated [laughter] full reconciliations of GAAP and non-GAAP figures are available in the earnings release.
And second the third quarter results do not include any impact of year over year transactions as we have exceeded the one year Mark on all of our recent acquisitions and divestitures.
Now, let's turn to the results for the third quarter.
As Rick noted bookings were strong in the quarter totaling $236 million up 19% year over year as the momentum from the first half continued.
Our reported backlog now stands at $3.9 billion.
This reflects both the impact of bookings as well as renewals in the quarter that are not included in the bookings metric.
Year to date bookings up $798 million also represent a 19% year over year increase as we have seen strength across our entire portfolio.
Turning to the income statement third quarter, non-GAAP revenue totaled $445 million within our guidance range and up 1% year over year.
As we mentioned on the last call, we expected year over year revenue growth to improve as we entered the back half of 2019.
We saw this in the third quarter, and we expect our fourth quarter year over year organic revenue growth to improved by approximately 5% versus the same period a year ago.
This reflects the continuation of the strong bookings trend we've seen in 2019, and it's consistent with a multiyear guidance that we communicated earlier in the year.
non-GAAP revenue reflected less than $1 million, an acquisition related deferred revenue adjustments in the third quarter of 29 team.
And third quarter of 2018, such adjustments totaled $7 million.
Q3, 2019, GAAP revenue was $444 million up 3% year over year.
Looking at our total revenue split total recurring revenue was flat versus the same period last year and sequentially.
Non recurring revenue was up 6% versus Q3 2018, as we benefited from a higher amount of upfront software license sales.
Our total recurring revenue mix came in at 79%.
We continue to expect recurring revenue trend in the high Seventys to the low 80% range for the balance of 2019.
Moving to non-GAAP gross margin, calling Allscripts gross margin was 43.2% in the third quarter of 2019.
Paired with 45.4% with third quarter of 2018, and 44.1% in the second quarter of 2019.
Gross margins came in slightly below our expectations in the quarter as a result go higher than expected transition cost in our hosting business.
An additional investment in the building out of the data infrastructure in the paradigm business.
We expect gross margins to improve sequentially in the fourth quarter.
Looking at operating expenses, non-GAAP , EPS DNA totaled $86 million $84 million decline from a year ago as we benefited from actions taken to drive transaction related synergies as well its overall expense management.
The non-GAAP asking a figure excludes transaction related and other expenses.
non-GAAP R&D was $52 million up slightly year over year.
Recall that non-GAAP R&D also excludes transaction related and other expenses.
Our gross software capitalization of rate was 32% up slightly as we continue to invest in new functionality across our portfolio.
Adjusted EBITDA totaled $74 million, which equates to 17% adjusted EBITDA margin.
Adjusted EBITDA margin was impacted by the decline in gross margins as I discussed earlier, partially offset by the leverage on the S. DNA line.
We expect margins to improve in the fourth quarter as we benefit from cost savings related to our datacenter migration.
Additional services revenue due to plant upgrade.
Faster growth in the high margin paradigm business and overall leverage on S. DNA in R&D expenses.
Looking below the line total cash interest decreased to $7 million, which compares to $9 billion from a year ago.
GAAP loss per share in the quarter was three cents and includes transactional legal and other cost of $16 million.
Finally, excluding noncash adjustments and transaction related and other expenses non-GAAP net income attributed to Allscripts totaled $28 million and non-GAAP EPS was 17 cents for the quarter.
We ended the quarter with the principal balance of $585 million unsecured debt and 345 million of convertible senior notes.
[noise], our leverage ratio defined as net debt divided by trailing 12 month EBITDA was 2.7 at the ended the quarter up slightly from 2.4 at the end of Q2.
2019, primarily due to borrowings related to share repurchases in the quarter.
The strength of our balance sheet gives us significant flexibility for additional investments in high growth areas and the continued return of capital to shareholders.
Share repurchases totaled $46 million in the third quarter 2019.
Allscripts currently has $102 million remaining under its existing stock repurchase program.
We expect to be opportunistic with additional share repurchases going forward with our prior practice.
Turning to cash Q3, operating cash flow totaled $36 million compared with $15 million a year ago.
Days sales outstanding or DSL totaled 88 days in the third quarter flat sequentially and down from 93 during the third quarter up 2018, as we benefited from higher revenue and improved collections.
Q3 free cash flow totaled $1 million after accounting for capitalized software and capital expenditures.
As we've noted in the past cash flow will vary from quarter to quarter. We expect for your 29 Kane cash flow to improve from 2018 levels as onetime cash cost related transactions have decreased throughout 2019.
Turning to our outlook.
Expected bookings in 2019 of between 1.05 and $1.1 billion consistent with our prior outlook and reflecting an 11% year over year increase at the midpoint.
This reflects continued strength in both our provider and paradigm businesses.
We expect revenue growth to accelerate in the fourth quarter as we benefit from the strong bookings that we've seen so far in 2019.
As a result, we're also affirming our prior non-GAAP revenue guidance for the fourth quarter up between 460 $470 million.
Which reflect an approximate 5.5% growth year over year at the midpoint of the fourth quarter outlook.
Finally, we are narrowing our outlook for full year non-GAAP earnings per share by raising the low end based on performance to date and our outlook for the fourth quarter.
We now expect GAAP earnings per share between 67 cents and 70 cents per 2019, implying 17 to 20 cents per share for the fourth quarter.
This outlook reflects a non-GAAP effective tax rate of 24% for 2019.
And with that I'll turn it over to Paul.
Thanks, Anna first I'm pleased with the results for the group third quarter and year to date, we've had a strong bookings performance all year long. This will help drive anticipated mid single digit organic revenue growth in the fourth quarter.
Consistent with prior years, we work in the team to meet our commitment to shareholders can to our client.
Our leadership team most experienced a Republican traded companies on our marketed using his knowledge and experience to meet or exceed our obligations.
Our long term vision and strategic investments have driven performance in 2019, we're confident this will continue for the long term.
Our strategy at the place Allscripts within healthcare marketplace is going in the future. While also focusing on the needs of our current client.
That said, we're offering interoperable solution that connect and optimize today's health care urbanization and engage consumers.
Combined this strategy what paradigm in our pet parent pharma clients are responding.
The investments we've made our platforms in human capital position us to drop the most crucial needs and health care today.
Through our each ours another solutions bolstered by our first hand clinical expertise, we are expanding our clinical Robert relevant driving results from precision medicine and expanded offerings.
Also serving the rapidly growing digital strategies embraced by the pair and life Sciences markets Allscripts is delivering on the increasing global demand for all of these solutions are.
Our solutions, our embraced by client recognized as best in marketing.
We see that.
In the long term extension of our Sunrise platform by our lives largest client Northwell health.
Solutions are also recognize and by best in class by the industry Black book named US number 160, HR solution providers and a global user satisfaction survey.
Black book also named Allscripts Sunrise in the top overall inpatient DHR large hospitals across United States in 2019.
In addition, frost <unk> Sullivan ordered the ambulatory revenue cycle company of the year Allscripts revenue cycle business unit.
Last month, we held our allscripts client experience, meaning or hay in Dallas.
Over 500 of our Sunrise and Touchworks Paragon and revenue cycle clients want attendance topics included.
Going all land the latest upgrade digital front door creation and precision medicine looking ahead to the ended this year 2020, we will focus on organic revenue growth increasing margins as we leverage our scale and a generating free cash flow. This will allow us to execute on our long term capital deployment.
Already a prudent R&D investment strategic and accretive M&A opportunities and opportunistic share buybacks.
All this will allow us to better serve our client and will benefit associates and shareholders.
With that summary, let's open it up for questions.
Thank you at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad and confirmation telling indicate your line is in the question Q you may Prestart too if you like to remove your question from the Q.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment. Please why we pull for questions.
My first question comes from Michael Cherny with Bank of America. Please proceed with your question.
Good evening and thanks for taking the question.
So first maybe on the Northwell Ics expansion and the new product development can you maybe talk to us about what are some of the milestones we should be looking for as you work on this product developments to work the commercialization efforts and how we should think about the economics at least in terms of how it rolls to the model and even if even better how it ties to your multiyear growth.
Yes.
It was this actually contemplated in those targets you put out earlier this year.
Yes, Hi, Mike Thanks for the question.
Yeah, I think with respect to first party question time wise.
I think you should continue to expect maybe not maybe not every quarter, but the work toward.
Design and that that's really where the focus on user interface and workflows.
We'll really get worked on hard I'd say over the next six months or so.
And.
Dan will.
Do a little bit more work on building we've done a lot of work on the chassis is of the solution already and so we'll have a little bit of work to do to build a and then of course northwell will be a lab for us if you will for commercializing so they will become a user of it so that's the big picture.
Your plan.
As as we work through that well communicate what's relevant as we go through that.
I think it starts so again really to the rest of your question with you know and an understanding that there is very low user satisfaction in every HR on the market today and so are we see a big opening for a opportunity that uses modern technology.
To really build a solution by the users so kind of a a tool for physicians built by physician since the when we're thinking about it.
And we're excited about it we yes, it's incorporated into our growth a aspirations that we've already talked about.
As we commercialize it further and we see what kind of share shift we get with it.
Well, obviously provides those outlets as appropriate.
Thanks, So just one quick one for Dennis you talked about the expectations for gross margin step up into the fourth quarter. How much is that simply tied to the better revenue growth are there other elements mer terms of mix or other components.
That drive that maybe any details on how that compares to the Threeq gross margins report.
Yeah Michael.
Do you expect the gross margins to improve sequentially in the fourth quarter part of it is just the overall revenue growth as noted that we expect to see pretty significant growth from Q3 to four and topline revenue some of that being.
Software, which has high margins. We also are seeing pretty strong growth across all the different product of within our veered I'm platform. So we expect that business. The growing that typically has higher margins than what we see in the provider space.
And then the last item is we expect to see to complete the data center consolidations, which had some incremental cost that we incurred in the third quarter. We expect the final data center conversion to be completed by the end of the year, which should bring higher margins as we go into the end of Q4 add into 2020.
Perfect. Thanks, so much.
Our next question comes on Charles Rhyee with Cowen and company. Please proceed with your question.
Yes, thanks for taking the questions [laughter] question I don't know if I missed it but maybe if you can kind of give a sense for burdines performance specific in the quarter.
Is there a revenue number you kind of going to share with us or at least a little bit more in terms of the growth characteristics of paradigm and then and then secondly, Dennis.
And Rick you talked about sort of 5% five and 10% of midpoint.
Growth in the fourth quarter.
This quarter, we kind of came at the low end the lower end of the guidance range that you had kind of sit out before they can you talk about sort of the.
The bookings that obviously strong bookings throughout the course of the year, so far anything in those.
Thank you already seeing implemented that you've already seen coming in for the fourth quarter or just maybe a little bit on sort of what kind of might have happened between this quarter and what you're seeing for next quarter. Thanks.
Yes, so Charles I mean will will follow our Q tomorrow with segment disclosures et cetera, but you should think a paradigm is you know is a business today that's in the.
250 to 175 million dollar year annual range.
We continue to believe its best days are still ahead of it so.
So I'll reiterate the comments I made earlier about you know I'm happy to see us hitting our near term numbers, but also making investments and the progress on what I think our longer term growth opportunities for that business.
So we remain excited about it and I think we'll have lots to talk about that in the future as you go.
As far as the revenue.
Sequential revenue uptick.
This is a little bit of seasonality that aerodyne experiences and they tend to have a strong fourth quarter. So you have a little bit of that factor, but I think beyond that it's really what you surmised. We've had some strong sales for several quarters in a row now.
And we're starting to see that come to fruition in the revenue.
So as to just to clarify it's just a little bit more of that the strong bookings. We saw early in the year just took a little while four to start to get implemented in wrapping up to the numbers themselves.
Yeah I mean this this is it some of that there's some previous sales that are coming in again, there's some seasonality patterns that we have paradigm and then also our outlook for pipeline that will convert to sales in the fourth quarter and what some of the revenue implications of those deals are better in front of us so its a.
Little mix of all the above it was also had some strong bookings in the first half and health grid and it revenue cycle management, which takes a little while too to get up in a convert that into revenue. So we're starting to see the benefits of that as we go into Q4.
Great. Thanks.
Our next question comes from Robert Jones with Goldman Sachs. Please proceed with your question.
Great. Thanks for taking my questions. This is Jack wrote off on for Bob.
So it was encouraging to see free cash flow gets a positive territory in the quarter, but I think your commentary has been for 80% plus of net income headed into 2020. So my question is what gets you incrementally closer to that goal and is that still within your range of expectations, given the step up and capitalized software in the quarter.
Yes, Thanks Jack.
So as we.
Presented our results for the third quarter. If you look at it from a year over year basis free cash flow was up $24 million year over year $40 million sequentially from second quarter. So we've seen improvements in our free cash flow in our operating cash flow both year over year and sequentially.
Going forward, we'll continue to focus on.
The datacenter moves will be behind us for the most part of which has been an expensive we've incurred during 2019 that will be.
Like I said that we will complete last action at the end of the year. We've also seen some significant improvements in our d. So going from 93 down to 88 will continue to work that and drive.
Our receivables performance.
Some of our.
Retention programs that we've had in the past are all behind US now so that won't be a burden that will carry forward into the future.
And as we look to.
Manage our overall spend across the company both in S.J., where we've seen benefits throughout the year, we expect to those benefits continue into next year. We'll also look to reduce our overall gross R&D, where it makes sense and shift some of those dollars to revenue mob more revenue generating projects.
Got it that's helpful. And then regarding Northwell does your joint development efforts involve any increases in R&D spending versus what we would normally expect.
At this point I would not expect that.
Great. Thanks.
Our next question comes from David Windley with Jefferies. Please proceed with your question.
Hi, Thanks in the.
Focusing on varied I'm in the very nine business and particularly.
The data provision for payers and life Science are you product sizing that data into kind of granular specific products or is it more.
One of a lot a lump sum data provision of MMR data from yourselves in next gen to the customer to do with it as they will.
There are restrictions on use of that information whenever we have it and you know the whether it's a one time feed or a fee that's getting updated a refreshed on some kind of regular basis, you know will vary by client need.
So I think you can you should think of it more as a product than it is just stay.
Pool that people can wander around it.
Okay and.
Is the.
Traction that you're seeing you mentioned kind of the seasonality in the fourth quarter I think that applies to this business as well.
Is the traction more life Sciences, these days or pretty balanced between life science and payer.
Yeah, I mean, so denbury paradigm is more than just the data business varied I'm sure understood. Okay.
Okay, and so it appeals very much to payers as well as a life science companies and.
And life science companies surrogates like CRM, So we have client.
Depth and breadth across all those major areas and I think it's fair to say that the ER.
Interest enthusiasm in activity, we're seeing is growing and all those areas.
Okay.
And then maybe finally I'll, let this go but your deal with Nexsan certainly augments the breadth of that data I think you've talked about maybe at least being in discussions with some other sources of data could you comment on.
Either the volume of those discussions or the progress and those discussions as it relates to growing the data dataset.
Bob I'll start by just saying we're off we're off to a.
Good start with next Gen and Thats progressing largely as everybody expected.
We're seeing some revenue coming from that now, but I would expect that the scale up.
Much more significantly as we get into the late life later part of second quarter of next year.
Yes, we are continuing to have dialogue with other industry.
Each our competitors.
Who see the scale, we've created and see the opportunity to partner with us there.
Nothing finalized on that front, yet so obviously as we finalize anything we'll we'll have more to say at that time, but right now I, just say that discussions pension.
Okay, great. Thank you.
Our next question comes from a Donald Hooker with Keybanc capital markets. Please proceed with your question.
Great. Thanks for letting me on is there any update on that practice fusion settlement from the other but you talked about last quarter. I think you had you would hope for some maybe some offsetting recoveries from some third parties.
Ah, yes, so let's just I mean look parsed that question, we continue to work very constructively with the.
Department of Justice on finalizing that settlement that we had reached so that obviously be documented and formulized when we are.
Doing that.
We are working with them and we're still hoping that that will be wrapped up by the end of this year. There's been no change at all to the material Tom So what we.
When we announced the settlement last quarter on this call.
What was the second part your question.
Recover recoveries, yes, the recoveries.
We mentioned that.
And we do have a variety of third parties, we expect.
To have a portion of recoveries from.
But you know I think that's going to happen play out through.
2020.
Possibly even beyond but it's going to that will be down the road a little more you know we remember we haven't paid out we have not paid out dollar one yet either just similar color.
Yes, yes, sure sure and so as we start thinking about 2020 now how are you thinking about maybe guiding the street in terms of are you going again sort of afford quarter revenue or you're going to get the kind of.
It seems like a lot of your business is recurring at this point so it feels like there's some.
These and predictability here are you going to give us kind of a full year outlook or how are you thinking about guiding the street going forth permanent besser religion standpoint.
I will tell you in January how's that down.
Look I mean, I think our quarterly approach this year.
Well, perhaps a little on Orthodox I think frankly has.
Well, it's it's we've had I think the tightest.
Conversation, so far with the street in terms of performance versus expectations and I attribute that to that.
The simple truth is even with our business model, that's now largely 80% recurring revenue.
Some of their recurring revenues still has upfront revenue consideration when you put it through the accounting standards that we operate under today, So I'm predicting quarterly numbers down to the last 1% of quarterly revenue or 2% According to revenue.
It's a challenge even when we just quarterly range is out there to put an annual range out I think leaves a lot of space for you know potentially up.
Disconnect between what the company's expecting and what the streets effect. So.
We'll continue to monitor it for the year, but I guess that was all commercial for we didn't we think even I was on Orthodox this year, probably work pretty well and will continue to take input from Ah you guys and will make a decision in January .
Okay, and then maybe one last real quick one are there any do you have a nice nice pickup in revenues in Q4 and are there any.
Kind of onetime revenue items there with these renewals this large northwell renewal or fours any kind of bolus of sort of.
Revenue associated with that.
No there's nothing nothing no ball if at all from Northwell and the only thing that might even qualify for the word bolus of some of the seasonality I mentioned earlier.
Thank you.
Our next question comes from Eric Parcher with Nephron Research. Please proceed with your question.
Thank you and thanks for the detail Rick maybe to follow on with the prior question Yeah. As we look at the strengthening of revenue number for next quarter and strengthen gross margin before we get too carried away looking after 2020 I Wonder is there anything relative to the long term.
Since there are clearly elements. They kept you from reaching that earlier in the year as we look forward is there anything you'd call out with respect to last year, we should keep in mind.
Yeah, Eric I I don't think there's.
Anything that's particularly noteworthy I mean, you know we are look we put out an ambitious goal or what we felt was an ambitious goal last beginning of this year for what we would do on an organic and potentially going on inorganic basis, Oh, what we expected due over the next three years.
As you point out through and through three quarters were certainly below that range. We know that we also are expected to come out of the gave us a little slower so I think Q4 feels.
Yeah feels like a good outlook in us right in the middle of the fairway of what we're expecting.
At our guidance or this year.
But so I wouldn't say, there's any reason to be thinking a lot differently right now.
If we feel that it's appropriate to I think definitely will be the first one italia, but I think fourth quarter is more for me a testament that.
We weren't crazy when we put out some of the aspirations we did in January .
That's good context, and then lastly on the gross margin can you give us some indication of how we're trending with out very dime or in the remaining business.
Well again, we do we will provide some of those details tomorrow, but from a from a gross margin standpoint, we had said on the call last quarter that we expected to end the year in the 44% range well after the.
Fourth quarter, and I would still reaffirm that that range as we go into Q4 as far as 20 $20 will provide some additional guidance on that.
The next quarter's announcement, but right now I'd say you we should expect to see an improvement from Q3 in Q4, it up to about 44% range.
Thank you.
Your next question comes from Jeff Garro with William Blair. Please proceed with your question.
Hey, good afternoon, and thanks for taking the questions maybe a couple more on bookings just fit for us just for clarity on exactly which quarter Northwell hit in the maybe any broad color you could give on that just kind of general you've done the order of magnitude of that extension relative to the rest of the bookings results.
Yeah, I'm really glad just asked that question because I wanted to make really clear the northwell extensions contributed zero to bookings. Okay. We we define and I've always have defined bookings as incremental business. So if you're just renewing business, we already have a wall that busy.
This obviously goes into our backlog it does not count in bookings so northwell contributed.
Nothing to that.
The extension as I said in my comments was is through 2027 cents a seven year extension on what we had and it matches. The seven year extension they signed last year with Touchworks and again as I indicated we're in the process of wrapping up a managed services extension with them the swap but no.
None of those extensions or drive bookings activity.
Thank you there very helpful. I guess the follow up at the end of quarter backlog number that that would include an impact from the extension is that something that we should look for and the yearend results.
Yeah, I said that backlog does include the extension and as Rick noted when we complete the managed service agreement that balance will roll into backlog as well.
Got it and one more for me, how book and see it kind of implied fourth quarter bookings would it would be a pretty strong result relative to the rest of the quarters into year on an absolute basis, but maybe a lower level of your for your growth. So maybe you could provide some detail on.
Well.
Comparison corridors and how we should think about the impact of that and maybe just the thought process behind the change in Brazil has not changed in the full year bookings outlook, given the momentum year to date.
Well.
You know your math your observations right.
We had a really bang up record quarter last year fourth quarter last year. So the absolute dollars a I think our strong for Q4, what we're implying in our it just the guidance. We continue to have out in front of you, but you won't have the same year over year left.
Historically Q4 was always the biggest and corridor for everybody.
The some of that buying pattern has changed a little bit we've seen in more recent years, but but last last year. We certainly had a very big fourth quarter. So with that comp a I don't think I don't think you can expect 19% year over year growth, but.
I will say, we've got a nice pipeline.
[laughter].
Good to hear thanks for taking the questions guys.
Thank you.
Our next question comes from Sandy Draper with Suntrust. Please proceed with your question.
Oh, Thanks very much for taking my question I guess, a technology question on the partnership with Northwell, We're not think about what you're planning on are you trying to get to a single instance, multi tenant design or are you really maybe just the front end interface into the cloud in the Bakken tend to be the same and then I guess the.
Follow up is is it a separate technology path for Touchworks versus Sunrise or does this had the opportunity you bring touchworks in sunrise together and more integrated thanks.
So sandy what is we're definitely single database multi tenant pure cloud technology.
The focus is on a ambulatory and outpatient and so the workflows that go with that.
So this is not an exercise to effectively integrate touchworks and sunrise has been on today.
But this isn't a this is a recognition that the user base would like a more user friendly tool and we think they should do that with modern technology. That's what we're doing.
Okay. That's helpful. And then maybe a quick follow up as mentioned earlier about that.
How are you have anything we are flat sequentially. So you've had some good bookings I hear that yeah like revenue cycle management can take while I'm just thinking off the good bookings what are the puts and takes it has happened that have led to recurring revenue being flat at this point did not seeing enough.
Thanks.
Well I mean, I think overall revenue has been largely flat right Sandy. So I mean, we're going in and out of conversation on what's happened the last three quarters versus what's what without seeing for Q4 Q4 were expecting or a nice lift.
In year over year revenue and but for the first three quarters to be fair, it's been pretty flat. So I think you know what you're just seeing is the same composition of that relatively flat revenue as the revenue grows up yeah, I think there's a possibility to see that ratio uptick a little bit.
But you know it's going to slow you're right you're talking off of a really big base. Obviously, so it's not going to change dramatically in one quarter, but I think with revenue growth you will see that start to creep up again.
Towards more recur.
Okay. Thanks.
Welcome.
Our next question comes from Stephanie Demko with Citi. Please proceed with your question.
Thank you for taking my question Oh continue in that train of thought about the north ballpark or SAP.
If you ignore saw had to start from a blank slate to create an E car.
What would differ from what exists in the markets.
And with the idea that they are helping develop and commercialize this product what sort of economics are you working with North Wallace energy like given exchange that's assistance.
You might have to my of to help me with the second part of that question, a little better but I mean.
Ah, Yes, I think the first part I mean, Stephanie is at the risk of being repetitive is a I think the one thing everybody in the industry could agree on very quickly is that user satisfaction of today's tools is extremely low.
I'm sorry.
Had too many clicks.
Yeah lots to collect physician burn out you know you know it you know all the stores. So are you know to be able to use modern technology and and again the first generation of DHR as I go back again was was really the focus was digitizing what were paper forms for the most part so now you're talking about re.
Imagining the clinical experience and trying to build workflows and user interfaces that.
Make a physician's job easier rather than more difficult. So that's that's Steve.
The blank space, we start with and that's the work we're doing and that's why we partnered with Northwell.
He HR vendors cannot do that effectively on their own in our view.
Second part of question I think you mentioned some better economics I apologize I don't think I was just the economics given osborne's, helping you guys developed that's how should we think about their economics versus what you would look like in the broader market.
Oh.
Yeah, well north was our largest customer by far and Northwell has business relationships with us that.
Reflect the size and scale that they represented to us.
That said, there's significant economic incentive for them to make this work as well because yeah moving from.
They host all their own technology today, or the technology of ours, what they run.
There's some pretty significant cost that they could avoid by having a cloud based solution.
So there's lots of economic motivation for them to participate mess, but again I think.
Economics are from their perspective economics are secondary too.
Physician satisfaction and trying to really take will take the lead in the industry of trying to Rex reckon with this problem and do something about it and so that's what's really motivating them much more so than economics.
Understood and one last quick one for dentists are you guys wrong the convert.
Well as you know they convert became current and July of this year.
We continue at health are very attractive coupon rate of one of the quarter percent. So we've got a lot of different debt the debt capital market the available to us and we're looking at all the different options that we have available that's allows us to maintain flexibility within our capital structure and keeping our debt cost low so.
I would expect that we would act on that sometime in the coming weeks or months as very soon or perhaps even before the end of the year we would.
Be able to come to market with their with what we're plans are but we've got a lot of different options available to us and I will be coming to everybody here fairly soon.
All right sounds like a plan. Thank you guys.
Thanks, Stephanie.
Our next question comes from Matthew Gilmore with Robert W. Baird. Please proceed with your question [laughter] Hey, Thanks for the question Dennis had mentioned some incremental costs associated with the data center conversions.
You might give us a sense for the magnitude of those costs and I know, there's always puts and takes what the quarter in a year, but I was curious if those were costs that were contemplated in the outlook or is that a drag but your overcoming.
So we had caused all contemplated in the previous outlets that we had given the cost that we actually incurred in quarter came out to be a single digit million dollars more than what we had anticipated. So I'm again as we close off that final data center here. This year those costs will not carry forward into 2020.
Got it that's how I. Thank you.
But.
Our next question comes from Jamie Stockton with Ryan.
Please proceed with your question.
Hi, good even maybe just a quick one on capital allocation from here you guys have 102 million I think Dennis said left on the buyback I see no probably burned through that in the next two or three quarters.
No.
Once you get that done it's kind of the thought process from there you know M&A is the primary use of cash from here.
No I mean, Jamie as we've shown you in the past I mean, we we can work with our board on Reauthorizing, no more under the buyback as well and agreement with that and.
You know you know you know from past conversations that we've had that you know our view of the discount we trade out relative to some of our industry peers is a ridiculous and our view and it's because of that that we've been pretty aggressive with the share repurchases. So.
I think our decisions on capital allocation and be a function of whats the environment. We're in.
We have taken our foot off the gas of M&A, a little bit the last 15 months or so.
Part of that's a reflection of we wanted to make sure we digested what we already owned and make sure. It was working effectively.
Part of it was clearly a function of.
How we were being valued in the marketplace. So.
Well continue to look at those levers and then we'll make smart capital allocation decisions, yet I think that's hopefully what everybody respective us.
Okay. Thank you.
Our next question comes from George Hill with Deutsche Bank. Please proceed with your question.
Hey, guys. Good afternoon, and thanks for taking the questions I guess, one quick follow up on Northwell.
When new product is developed it seems like there's going to be a revenue share component I don't know if you can talk about that at all and then given that they were your largest client and the renewal I suspect probably either takes effect in the fourth quarter or the beginning of next year can you say, whether new whether or not revenue from the client should be expected to go up or go down. Thank you.
[noise] I think.
Sorry, George you cut out a little bit. So you may have to clarify something but I mean on this on the second part of your question. The extensions we've had with Northwell.
Are you know a lot about the footprint, we already have with them. So I think maybe around the edges, there's a little bit extra opportunities.
We are talking to them about a couple it solutions, they're not running today. So there's some thing around the edges, but that you know the bulk when we talk about renewals, that's really or you know renewal for what they have today. So it doesn't change a lot but recognize you know this is north wasn't organization that has been growing tremendously and.
Still has aspirations and get any grow further so you know as they grow we obviously grow with them.
I don't think like I said, you cut out unless I didn't really here. The first part of your question George So if you're still there you may want to re asked that yeah.
I guess it sounds like the co development with North wells like a product that you guys will market together.
I guess should we just think of the economics of that is like a 50 50 split and then just to clarify the second part of the question.
I guess, you know extension or renewal I guess when I was just wondering is where you guys able to maintain the car pricing levels on the relationship.
On the extension.
Or you know.
Given that there your largest <unk>.
Okay Economics is should we assume price compression.
Yes, no we preserved or current economics in these renewals, we did not have significant discount.
On it so no no no deterioration on that and with respect to the platform we're talking about.
Your your presumption of some kind of 50 50 split is not accurate, but why don't we just let's let's do that let's get.
The platform built and getting in place and then we'll talk more about what the economics there.
Fair enough. Thanks.
Thanks.
Our next question comes from Richard close with Canaccord Genuity. Please proceed with your question.
Great. Thanks for the questions congratulations on bookings and north well I'm. So you know a lot of talk about cerner shifting millennium towards ADW S longer term and just curious your thoughts do you guys. See this is an opportunity for all scripts that pick up market share.
We're at all or you know does this put you guys said any you know sort of competitive disadvantage just just want to getting your thoughts in and around.
Their announcement.
From a cloud perspective, you know we have a substantial number wrap up our applications that already.
Run in the cloud when you think about anything that not core HR, we actually that's where most of those Ron we have some of our electronic medical records actually already run in the cloud and we've been working very aggressively with.
Microsoft Azure to talk about how we can move what we have from where we are today as a as a cloud hosted opportunity in future.
Competitive standpoint that I've, just make a comment that our competitiveness has increased substantially over the course last four to five years.
We have a complete electronic health record that spans everything's you'd want to do and an inpatient standpoint.
From a clinical standpoint from an out point outpatient standpoint from a revenue cycle on the inpatient and revenue cycle in the outpatient so we see our overall competitive positioning to be as good as it's been since you know we all been here over the last seven plus years.
Anytime anybody does a platform, which were announced as some sort of new technology that does potentially offer an opportunity for us to participate in a RFP that may be mandated by the board of that institution. If in factors in large switching costs. So that has historically been an op.
Opportunity for people in this marketplace when somebody goes through and event like that it's not be.
Flip the switch one day and its fixed enact just doesn't work that way.
Great. Thanks, that's good perspectives and then Paul maybe you mentioned a couple points that you're focusing in on organic growth in the increasing margins. Just curious your thoughts and then around what did you know the main levers in terms of on the margin side, where you guys hope to get benefits.
Going forward.
Yeah, I think we always they're looking at our cost infrastructure a company and how we you know how we evaluate back compared to our peers, but also compare to what we need to do in order to drive EPS targets, we need to have for 2020 and beyond.
So that's an important compile that we go through each and every year. So there's opportunity there is opportunities that come out of some of the synergies that we've been expecting had been realizing as a result, some of the other organizations that have become part of the Allscripts family that will continue to be something that we focused on and the third Bang you mentioned that I read.
Thank you that I mentioned in my comments are around new business and what we can and should be doing in that regard to generate new footprint to our company, although our always pretty very profitable when we get them and again because of our competitive nature and our competitiveness increase overtime and the global marketplace, where we've been doing.
Quite well, we expect to get results out of that on a going forward basis.
Okay. Thank you congratulations.
Thank you thanks.
Our next question comes from Gene Mannheimer with Dougherty and company. Please proceed with your question [noise].
Oh, thanks for taking the questions guys.
One more with respect to the door 12 collaboration to do you anticipate a step up in the R&D expense related to that collaboration.
Oh.
Yeah, Hey gene.
Oh I get to that question a little bit earlier at this point you should not expect that I think at least in terms of what our overall spend levels are right now.
Yeah, our outlook on that changes will certainly communicate that but right now I don't expect overall enterprise R&D spending to change much.
Okay, sorry, sorry, if that was asked before so are leveraging a lot of the work you've done with Avondale with this so with this project through a lot of the R&D spend was was made.
We are using that infrastructure, yes, as a starting point gene and so that is correct. We've got a fair amount of investment already into what we were happy here.
Got you, Okay, and let's see we're coming up on about two years since the Mckesson Eas acquisition Hep, how would you rate that deal today and are you pleased with the retention rates and that in that business or sit asked differently is it reasonable to say youre growing that business. Thanks a lot.
Yeah.
So Jim let me just I'll start by.
Reminding you you know one of the first things we did after acquiring it was we sold off a piece of it called one content.
That recruit more than our entire investment in the business right. So.
We are so from a financial standpoint, its would be impossible cannot feel good about the return from that transaction.
I'd say, putting that piece of side, yeah, I mean, we had to make a bad or an estimate I should say upfront with was how much embedded attrition was already in the client base that was coming over.
And we did that and I'd say that has largely played out as expected. So that part I think we did a good job of estimating that and you know what's happened is we you know we knew that was going to happen, but we've been seeing some of that so part of the answer as to why revenue has been slow to.
Lift off is because you know we had a bunch of embedded attrition that is kinda leaked away over the course of the last 18 months.
And you know it just becomes a little more of a headwind that we have to overcome when we start looking at year over year results.
We're not complaining about it because I mean, we knew that was going to happen, but that's just the reality of that as so with those clients and some and some clients were able to persuade the two actually change your mind in states, Iraq, but with the balance I'm, particularly with the upgrades they've done to the latest version of the Paragon thing.
We think customer satisfaction is.
Going up considerably.
And we have seen some customers, who probably outgrew the capabilities of Paragon make a nice transition to Sunrise, which is a fuller feature set and the paragon offering. It. So we've seen people trade up and that's been a good to kind of keep them in a family as well so.
I know your question that's a long winded answer your question, but overall, we feel good about that transaction and I think it's created a good good collective scale to our hospital and health system organization internally.
Absolutely Thanks, Rick.
Thanks, Dan.
We have reached the end of the question and answer session I would now like to turn the call over to pull black for closing comments.
Thank you everyone for your interest in all scrip Q3, historically, it's been a challenging quarter I'm glad to see the company pull through of with a pretty solid quarter does this time, but importantly, a full year outlook. There is and is in line with what we talked about when we're at the JP Morgan Conference in January as you all know and you've heard a day, there's always a lot of things that can.
Happen and I'm proud of what we've been able to accomplish and I'm also very proud of what we've been able to do on behalf of our client.
So what back to the end the call. Thank you very much for your interest in our company and look forward to talking to again soon.
This concludes todays conference you may disconnect your lines at this time and we thank you for your participation.
The conference call US ended please disconnect your lines at this time. Thank you.