Q2 2020 Allscripts Healthcare Solutions Inc Earnings Call
How did momentarily once again, ladies and gentlemen, please continue to hold our conference will be getting started momentarily. We do thank you for your patience [music].
A question answer session will follow the formal presentation.
As a reminder, this conferences being reported.
My pleasure to turn the whole over to step and she'll scene, Vice President Investor Relations. Please go ahead Sir.
Thank you very much good afternoon, and welcome to the awkward second quarter 2020 earnings Conference call. Our speakers today are Paul Black Orcus, Chief Executive Officer, and Rick Pulsing, our President and Chief Financial Officer.
Well, we're making a number of forward looking statements during the presentation in the Q&A part of the call. These statements are based on current expectations and involve a number of risks and uncertainties that can cause our actual results to very materially we undertake no obligation to revise these forward looking statements in light of new information or future events. Please refer to our earnings released in <unk>.
Some more detailed descriptions of the risk factors that may affect a result.
Please reference the gap and non gap financial statements as well as the non gap tables, and onions release and the supplemental work booked that are both available on our Investor Relations website. Please also reference the supplemental an investor we'd presentation and the supplemental financial workbook posted on the IR website for additional information on her marching are proven any.
She lives in segment reporting and with that I'm gonna have them a call over to Paul blocked it again.
Stepping in fact, everyone for joining the call I'd like to begin by pretending our associates for their bravery and dedication do our clients.
Alright, and frontline cause there's pandemic or 100 per cent focus on providing the best patient care they possibly can.
You are very pleased with the results for the second corner, despite the disruption to our client base in the global economy.
Our business model food resilient as we were able to move to a virtual failed and implementation model.
We generated $188 million of new bookings in a corner, our clients where rightly focus on managing the pandemic. We also had a number of long.
Term extension quarter U the extension, including minority Hospital, New York.
Through 2027.
Trading our strength other quiet beige and the importance of having a solid core EHR installed.
He's extension are often accompanied by purchases of additional solutions and services and the second quarter. We also signed eight new quiet logos and the independent physician practice segment, including continued growth and revenue cycle management services.
Like the phone cause my <unk> my remarks today on three topics first.
Oh discuss how are we introduced innovative solutions to our clients to help them manage through the cobin 19th pandemic.
Second I'll talk about.
The health care, the Hell of a client base and finally I'll cover important partnership with Microsoft and how we are thinking about the evolution bar solutions.
<unk> responded to the urgent need that our clients my offerings specific solutions to help providers fight the spread of Kobe 19, including the rapid deployment follow my help telehealth Corbett 19th workloads for Sunrise.
Passenger you somebody elephant regulatory reporting within a electronic health records and Ikea services stopping to supplement our clients teams.
More fundamental capabilities of EHR and <unk> and open architecture strategy have never been more important either Michigan critical system and our clients rely on 24 hours a day.
Solution, including R. E S. R. A platform analytics post acute networks and patient engagement.
Ah what enabled unnecessary ashton to successfully treat and complain and they'll be pandemic in all cases critical.
[noise] critical component has access to data, enabling systems to deploy resources based on search predictions patient acuity leveraging various care settings to ensure all patients are cared for.
Community why data referral network E patient transition to fill pay provider resourcing, which contributes to broad unified patient care using the clinical and financial burden and any particular system here are some examples of how we helped our clients successfully managed to the clinical and financial people to their operations yeah.
Using all script Sunrise EHR data north well with one of the first you at the organization to report presenting characteristics and outcomes a a large coke patients hospitalized with Kobe 19.
Knowing that a generalizable and simple survival calculator based on data from you have patients Hospitalize with Kobe 19 had not yet they never do.
North of all had use data from Oscars Sunrise to refine our understanding caring for Kobe 19 in America.
North well covered 19 survival calculator six factors routinely valid available in hospital admissions.
Estimate the probability survival joined hospitalization designed to complement.
Clinical evaluation, an assistant treatment decisions could have been internally and externally validated across 13 acute care Hospital, then New York City.
To help improve patient access <unk> throughout the rest of the country North well has made this calculator publicly available through the web.
And the United Kingdom glasses or hospital NHS Foundation traveling why the Sunrise D. H R. On March the drop added E observation functionality, which included automatic calculation of moved to the National early warning score designed to pick up patient.
At risk of deterioration.
The implementation the news too was immediately helping to trust me inpatients during the Kobe 19 outbreak.
Lots of fire hospitals is also introduced icons and she was patient tracking borgia identified patients with Kobe 19, and make those results available throughout the rest of the system.
Move rapidly to new ways fully supporting go lives without risking the health of our staff and it just out what patients from traditional support well floor walking activities.
Careful of platforms Goodbye financial value for our clients purport played a big part in elevating the public conversation about Kobe 19, and the impact.
Early on Washington Post publishing article do come in realtime data captured by the care 14 that won't <unk> organization, and a clinician better understand how about viruses affecting patients.
Using purport hospitals in Michigan proactively communicated Coca 19th testing status, they're supposed to keep providers premium posted discharged as a result post acute providers could take necessary measures protect staff and patient and managed to use a personal protective equipment.
Airport create a new capabilities to allow hospital to identify posted to your providers accepting quite a bit 19 positive patients minimizing times now bye discharged planters in case manager calling individual facilities.
Determine their capabilities and their capacity this was especially critical hospital throughout the state research seating capacity during the cold the 19th surge like telehealth offerings continue to see brought adoption amongst their client base close to 200 clients are selected follow my house telehealth, enabling secret carried it.
Could be delivered to patients in their homes and improving communication between quarantine people and health care organizations.
For my House [noise].
Yeah, Yeah diagnostic patient record at its core goodbye vital connections to the patients per team cause provide better outcomes for both physicians in patient file a solution providers Unpracticed fusion platform is all have also a rapidly adopted Paul a halt for the second quarter Somebody's 698000 total tall visit.
From packet fusion 300 per cent from two one.
[noise] total during cute too close to 900000 telehealth visits were experienced by our entire client base combining both of those solutions.
I'm moving onto the health of our clients age now we believe we're thinking about it I didn't close I'm close I'm going forward.
[noise] continues to be much uncertainty around the progression of the pandemic, we believe our clients that become recovering from the worst of the impact they'll be calling April.
[noise] patient volumes, an elective surgeries come back strongly in June and July and my conversations with C. D. O S. He had indicated that outpatient inpatient emergency department and surgery.
A medium to 90% are pretty covid levels, but some variation by region.
Providers continue to benefit from government relief, including the cares Act, which initially authorize $100 billion and funding to hospitals, another health care providers and also remove many of the policy barriers to use a telemedicine during the crisis <unk>.
Additional additionally, $75 billion in funding became available to the Paycheck Protection Act and health care enhanced Manhattan, specifically, the department and help them services <unk> targeted allocation to help providers and high impact areas $12 billion, one to 395 hospitals in those areas 10 violent billing dog.
With fancy with 4000 and World Health care providers, an additional 19 billing dog with al Qaeda organizations.
Safety net hospital skilled nursing facilities in hospitals in small metropolitan areas.
[noise] Heroes Act, which is under discussion S. Congress negotiate next Corona bias relief package.
[noise] pose as an additional hundred billion dollars for that provider really fun incentives version call for an additional 25 billion. So whatever the number they decide on there won't be additional provider relief coming.
[noise] supplemental programs, along with the rebounded patient volume an electric procedures <unk> help to stabilize the financial situation I'm in your providers and we believe we are wall position as they continue to invest in solution that improve clinical outcomes and financial performance.
During these times clients are looking for a supplier. It was scale that office solution not just silent products, which is exactly how we'd been positioning our offerings.
[noise] problems <unk> throughout the enterprise.
Definitely an orange D building out new platforms had proven to be durable competitive advantage of swirl script.
Now I'm turning to our relationship with Microsoft We recently announced the extension of our strategic relationship with Microsoft for five years. The extension will further enhance allscripts cloud based unripe electronic health records and not be Microsoft crowd provider for the solution opens Colin invasion opportunities to help transform helped.
They're smarter more scalable technology this little accelerate the development and delivery solutions, including a crowded version of Sunrise.
Cause I need with our clients that goes on constantly ask for things one Laura my total cost of ownership.
To improve my electronic medical record experience for my doctors three innovate Gimme near pool possible solutions for helped me connect my consumers make it easy.
Moving to the cloud will accelerate the platform to drive these for asks to market success. We have solutions natively written for Microsoft as you're already such as Michael <unk> excuse me such install my house them to be precise.
You are partnership all scripted position to leverage Microsoft extensive platform tools and intellectual capital.
That's awkward designers an application architects to create a modern progressive innovative user experience for our clients and their consumers.
The strategic alignment will also create cornification opportunities working with Microsoft to transform health care Cosbys version of fun Wise, we'll offer benefits such as improving cybersecurity organizational effectiveness and solution interoperability.
Faster implementations and upgrade that are less interested for our clients and you expect our clients to start experiencing somebody's advantages Buddy in 2020.
Using the club we will also probably impact patients in smaller will you have hospitals extending the reach of this great platform to those who who is in the past had to settle for subpar E M ours.
Welcome promises and the lack of innovation patients in these areas well now have better access to their health records to make more important decisions removing perhaps the last bill <unk> roadblock to access and nudging them to take charge of their own house.
I like the highlight of significant new win for the company Allscripts has been selected by micro Hill to migrate Uf's Department of state.
Medical help you Wanna do a cloud based solution for like their electronic Health Records. This will be done using our touch work electronic health records for a patient and our patient engagement pollution follow my house.
Judith partnership approximately 450, clinicians and their staff that state will gain access to a scalable EHR edited that deployed across the world more than 200 designated health units and mission on a rolling basis 220 23.
This is a significant competitive win for our ambulatory business you expect it to provide additional momentum as we pursue additional opportunities.
Hoping that you had to the rest of 2020, we remain focused on assist in a classroom different certain time.
Our diversified portfolio has never been more relevant do we believe we are able to capture new opportunities and to demonstrate the value of our solutions with both new and existing clients.
When you're trying to call over the <unk> for our financial performance.
Okay. Thanks, Paul.
I have a lots of cover but I'd like to start by echoing Paul's comments spanking, our team members for their hard work and commitment to our clients during these difficult times.
The energy and the commitment has been amazing the witness and the leaders in our organization I've never been more focused on there right now.
I'm Gonna structure my comments today around three areas first brief review of our second quarter performance second as promised that our last earnings call I'll provide additional details and disclosures [noise] around our segment reporting and the implications for a portfolio.
And then finally I'll get an update on the progress we've made on our margin improvement program and our our new year and longer term adjusted EBITDA margin goals under that program.
Ah just a reminder, what stuff and told you earlier, we have posted a supplemental presentation. In addition to our usual supplemental data work book, an Investor Relations website.
These documents provide additional details on a margin improvement initiatives and segment reporting.
And I'll <unk> I'll be referring to the content and these documents during my commentary.
So I was starting with the quarter given the macro environment during the quarter, who were pleased with a $188 million a bookings that we recorded this reflected broadbased strength across the portfolio solutions, including Sunrise expansions and continued success with new account wins in our ambulatory solutions is Paul went through.
Revenue for the corner was $406 million, which was down $11 million from first quarter, primarily as a result of the cold it impact on patient volume's.
Recall from our first quarter call, how cold it impacts our revenue.
With regards to a recurring revenue the areas of our business that are most directly impacted by patient volumes at our clients are are and just heard of revenue cycle management services are payment clearinghouse and some transactional service lines, we have around lab connectivity E prescribing Preauthorizations and sharp falls.
Collectively these represent approximately 10% of a recurring revenue in any given corner.
And of course are nonrecurring revenue in any given quarter is driven by a mix of in period sales and backlog burned down.
Over the longer term stability in nonrecurring revenue is highly dependent on michelle's activity.
But in the near term are substantial backlog helps cushion some of this against any in quarter weakness themselves activity yourselves mix.
During the corner a recurring revenue remained at 82% of total revenue consistent with where we were at the first and the first corner of 2020.
We were encouraged to see patient volumes recover in June for example, in our pair past ambulatory claims clearinghouse business. We saw claim volumes dropped to 60% of normal volumes in April.
And then we were they were covered back to approximately 80 per cent of normal volume in June.
And we witness similar trends another patient volume sensitive areas are a bit of our business.
We're very pleased with our margin performance and a quarter as we benefited from the margin improvement initiatives that we'd previewed last quarter.
Consolidated non gap gross margins increase to 150 basis points sequentially.
And are adjusted EBITDA margins increased 530 basis points sequentially as we dramatically improved the profitability of our clients services organization and reduce slow value operating cost around the company.
Oh sure more details about our margin improvement plan and our outlet for adjusted EBITDA margins and <unk> and a little bit.
As we had previewed on our last call we recorded a restructuring charge in the second quarter of $28 million, most of which was related to severance cost as we implemented this margin improvement plan.
Looking out over the balance of the year I would expect no more than $10 million, an additional restriction charges and this will be split between both the third and fourth corner.
Overall for the Pinel, we recorded <unk> for sure at 18 cents and a quarter.
Which exceeded last year second quarter non gap earnings per sure even with revenue down approximately $39 million on a year over year basis.
The new margin efficiencies already beginning to show itself on our free Cashflow performance.
For the first half of 2020.
You just are off reported operating cash flow for the impact of $73 million in payments that we made it to the G O J.
As well as approximately $23 million in cash restructuring charges.
January at $55 million and free cash flow.
And that is more than a $90 million improvement relative to the first half of last year.
So we're not we're not done with a free cash flow improvement, but we think we well on our way it's a good start.
The HR software and services for both inpatient and outpatient providers as well as our patient engagement solutions and in totality of the compromise the comprises about 77% of our total revenue today.
Our data analytics and care coordination segment comprises 21% of our total company revenue.
And it includes our point of care and clinical data solutions for payer in life science customers and it also includes provider solutions that bridge traditional acute to post acute care and manage the expansion of value based care.
Finally, the unallocated segment includes our EPS ESI financial decision analytics platform, which is typically sold to our hospital clients.
As you saw in our press release earlier today, we finalized an agreement to salary PXI business unit.
The purchase price of $365 million.
Represents a multiple of approximately seven and a half times trailing 12 month revenue.
And approximately 18 and a half times trailing 12 month adjusted EBITDA for this business unit.
The deal is a significant wind for allscripts clients and shareholders and tangibly demonstrates how valuable some of these businesses. Some of these business units outside our core clinical and financial solutions maybe.
The transaction is expected to close later this year and act and the after tax proceeds will be used to de lever and further strengthen our liquidity position.
So stepping back to our new two main business segments.
Despite attrition related to decisions made a number of years ago, our core clinical and financial segment has regained some near term momentum with major inpatient clients extending their long term contracts and team new wins in the ambulatory business, including the state Department deal that Paul mentioned earlier.
Our international presence continues to expand as we view the core business outside the us as a growth business, which with large opportunities in the pipeline.
While the timing. These deals is hard to predict we do believe that we will win our fair share of new deals and we are in advance negotiation in advanced negotiations on some significant opportunities at this time.
Our data analytics and care coordination segment contains our higher margin and higher growth opportunity businesses with products that are sold inside and outside of the allscripts installed HR base.
This includes the paradigm, which is focused on solving problems for payer in life science companies using the point of care presence and clinical data that we have.
It also includes our Careport business and end to end platform that bridges acute and post acute each ours and provides visibility for providers payers and escos into the care that patients receive across care settings.
Careport currently manages 40% of post acute transitions in the United States and processes more than $18 million 18 million annual referrals.
To be precise our cloud based precision medicine platform harmonizes genomic clinical and lifestyle data and brings precise each are agnostic in work flow interventions that works seamlessly with existing provider workflow and truly facilitates decision, making at the point of care.
And finally, our Payerpath claims management solution reduces the time cost and clutter associated with managing healthcare transactions for practices of all sizes and manages the claim reimbursement cycle, ensuring prompt inaccurate payment.
With all these solutions have in common is that they provide a high recurring revenue stream with high margins on cloud based tech stacks.
Their end market customers are not limited to the Allscripts space of the HR customers and they all operate in large faster growing markets when compared to the us markets for our core clinical and financial solutions.
This comment on faster growing markets may ring, a little hollow when you see that Q2 revenue was slightly down on a year over year basis in the segment.
But this was driven by two temporary headwinds in the quarter. The first being the impact of lower patient volumes and the second was a temporary setbacks Rivera time in the aftermath of the Crj settlement.
But our expect our expectations are that both of these headwinds will dissipate and we'll have a smaller and smaller impact as we look ahead.
New this quarter, we are showing segment profitability all the way down to the adjusted EBITDA level.
We believe this makes our segment disclosure is more useful and the methodology for how we did this has laid out in the supplemental information I referred to earlier, we intend to continue this presentation in future quarters.
Putting all the pieces together and you can see that the core clinical and financial solutions segment comprised 77% of total revenue, but 58% of our total adjusted EBITDA earnings.
While our higher margin data analytics and care coordination segment comprises 21% of total revenue for 35% of total adjusted EBITDA across the company.
So now let me shift and update you on the status of the margin improvement plan that we discussed on our last earnings call.
We've made significant progress since we hired Alixpartners in March to help us develop and execute.
With a fine with the primary focus on improving adjusted EBITDA margins.
At the beginning of our margin improvement program.
Before we started on these margin initiatives, our adjusted EBITDA margins in our core clinical and financial segment were 9.9%.
And they were 24.8% in our data analytics and care coordination segment.
We began our work by setting appropriate goals for where we thought our performance should be.
For the core clinical and financial segment, we set that at a level of 18% to 20% adjusted EBITDA margin and this was based on competitive benchmarking of similar size companies in our sector.
As for the data analytics and care coordination segment, we set we set a best in class 30, plus percent adjusted EBITDA margin goal for those businesses.
Working in tandem with ALS partners to evaluate our cost structure business processes customer profitability and our overall solutions portfolio, we were able to identify and implement $76 million of permanent annualized margin uplift through June.
And we have a high level of confidence and an additional $25 million of annualized margin uplift over the next 18 months.
And also we have finally, we have identified an additional $70 million beyond that of early stage initiatives that are likely to provide additional margin uplift in the quarters ahead.
Let me give you some examples of where we've been able to improve processes and reduce costs across the across our cost of sales, our R&D and RF CNHTC.
And our cost of sales we have now Rightsized our services organization to reflect the current revenue environment as well as improved the productivity. This labor base by setting scheduling and improving our ability to flex costs up and down based on the volume of work and thus avoiding unproductive bench of resources.
We've improved our hosting costs by aggressive vendor management, and we've shed some low margin revenue, including hardware and some third party solutions.
In our R&D, we have significantly restructured our R&D organizations to focus on hot on high ROI projects and optimize the mix of onshore and offshore developers.
We are laser focused on only funding investments with a clear path to deliver value to our clients.
Finally on the SGN a line, we've reduced layers of management and increased spans of control across the organization.
Which we believe will not only increase efficiency, but also make us more responsive and nimble to our client needs.
Putting all this together results and confidence that we would we will be able to increase margins over time, even as when we remain in an uncertain revenue environment.
Based on initiatives implemented today as well as those we expect to implement over the family over the remaining course of EBITDA margin plan.
In our core clinical and financial solutions segment, we expect to increase to margin.
EBITDA margin target of 15.5% to 16% by the fourth quarter of 2020 and to continue to improve from there in 2021.
In the data analytics and care coordination segment, we expect adjusted EBITDA margins to increase to 29.5% to 30% by the fourth quarter of 2020, and then to also continue to improve throughout 2021.
These margin expectations assume no changes and the underlying portfolio of solutions in each of our segments and we will have some seasonality that will drive quarter to quarter variability, but we're very confident in our trend line.
So with that I'd like to open up the call for questions.
Thank you adoption ducking your question and answer session, if you'd like to replacing the question could you. Please press star one under telephone keypad, a confirmation total will indicate your line is in the question Q.
The press star to if you'd like to remove your question from the Q for participants using speaker equipment, it may be necessary to pick up or headset before pressing star one one moment. Please what we pull for questions.
Questions raised coming from Charles read from Cowen and company. Your line is allies.
Yes, hey, thanks for taking the question guys and.
You know maybe question for you Rick you, obviously gave some pretty.
Positive EBITDA margin targets by year end can you can you talk about sort of what.
Sort of the changes that have already happened so far in terms of.
Sort of taking costs out and then what needs to be done over the next couple of quarters soda to get there and you said that it really doesn't depend on it really just assumes the current portfolio stays the same anything else. Besides you know with ESI going.
Anything else, maybe in the core business stat.
You know could potentially also be.
Yes, it looked at being sort of maybe more noncore going forward. Thanks.
Okay. Charles Thanks for the questions covered a little bit of ground there. So.
Let me.
Let me try to pick them off I mean, so we obviously have made substantial improvement during the quarter in our EBITDA margin numbers I'm just went through all those details and you can see them and all the supplemental information in quite a bit of detail.
What would the message that I'm trying to get should take away is.
We did a lot upfront to get the proverbial low hanging fruit.
It was comprehensive across the organization the way you should think about.
The buckets of margin are really not cost of sales.
Our R&D cost and Rs unit costs, and so I went through some examples of things we did in all those areas and there's more to be done. So my optimism around continuing you see an increase to the margins is because we have done a lot of work building the plan and while we've executed a lot of it theres still a height.
Great confidence in some initiatives that are yet to be fully implemented.
So yes, we do expect an increase as we get towards year end on that.
The second part of your question Charles I think was with respect to the portfolio and.
We do have some information in the in the Investor presentation, that's posted that.
Makes it clear what margins are with and without ESI.
On a consolidated basis, but the reason weve presented this on a segment basis is this transaction or any beside doesn't impact any of those numbers because we've had that excluded from this dose segments.
And your comments on as this is that the only piece of the portfolio that we could sell or might sell.
No I think.
The takeaway that I want everybody to have as we have a lot of.
Good businesses, both in our core and around the core and.
Many of those businesses in the data analysts and care coordination segment, our businesses that do more business outside the Allscripts Chr customer base than they do inside and are very capable of standing on their own.
So.
We're not.
Predicting our foreshadowing anything, but they certainly are possibilities going forward.
Okay I appreciate that thank you.
Welcome.
Thank you next question today is coming from Robert job of Goldman Sachs. Your line is that a lot.
Great. Thanks for the question I mean, I guess ripped a statistic on that theme that clearly nice progress of the margin improvement and where you see it added in you highlighted the free cash flow generation is certainly a lot of progress there too and I guess, if we take a step back and we look at the these two new segments that you guys Recut, how do you kind of think about growth.
In each one of those buckets, if we're able to kind of look out beyond those it this tobin window and I know, it's a bit of a tough question, but I think you guys have done a lot of heavy lifting internally clearly, but just just trying to think about what the outlook is on the topline and returning to growth.
Yes.
Yes, Bob.
So it's in part why we've created the segments, because we do see different growth drivers and these different areas of business.
The core.
Clinical and financial solutions, which to date are are highly weighted towards the United States.
No. It's no mystery to anybody on this call it the us market as a relatively mature market for those solutions. There is some level of replacement activity that's been happening and we think we'll continue to happen.
We expect to be a net share shift winner but.
You know the pace in the volume of what that could look like I think is.
Is difficult to predict particularly.
With co bid and what's that what's that doing two priorities at certain.
Places.
But the international markets remain I think.
An exciting area and we have some very strong.
Points of presence internationally, we have a strong resume internationally, we think we're very competitive internationally and we would expect to see.
Some growth off of that that tends to be.
It's difficult to predict.
It's a little bit like drilling for oil on their big Big Big hits, when they happen, but difficult to predict when they will so.
I don't we're not going to Fourq shadow a growth rate I don't think Bob but I do think we're ready to we are competing vigorously in many markets and we would hope to be back with some good news on that.
Any I guess.
Go ahead.
No sorry go ahead.
Well. So then on the other segment the data analytics and care coordination side I mean, those are again, we've we segment those business because the addressable market is fundamentally different than our HR client base and therefore, a larger market and in there are.
There are macro forces that are driving more growth opportunities there so with the.
The continued growth of value based care the shift from from Medicare to Medicare advantage plans.
Those are driving a much greater interest in managing costs from acute to post acute environment and we have a platform that is.
It is extremely well positioned to take advantage and capture some of that growth.
We are very time.
Ability to connect payers and life science companies to the clinical point of care and with the clinical data.
That's that's a exciting opportunity and Thats why we have put investment into that space to position ourselves to ride that growth.
And we have an ability with our clearinghouse business to continue to grow that in terms of its market penetration as well so.
I think generally without giving you numbers on expected growth because they'll all be a little bit different by different market segments, there, but in general we feel that the growth opportunities are going to be a lot more significant and that data side.
And that's why we're trying to create more so on the transparency that we're doing with this presentation.
No Thats helpful. Rick I guess, maybe just a quick follow up as you as you highlighted for ESI sale healthy LT multiple looks like maybe $20 million EBITDA you talking about rightsizing. The portfolio are there any assets as you think about some of those buckets. You just highlighted where you would look to add any kind of tuck in or bolt on.
That that might help supplement or replace the EBITDA on revenue of some of the businesses that you have shut.
Yes, I mean actually we were constantly thinking about and scouring the market for things that we think are good ads.
You don't have to look too far backwards, Bob to see we've deployed a fair amount of capital uneven even just last year, we put it out a fair amount of capital to continue to strengthen the varied on asset base.
Yes, we'll be opportunistic but.
To be up candid, giving where we still have seen thus our stock trading and how poorly.
We are getting valued I think it's difficult to do a lot of capital deployment with that market situation. So.
Weve focused on improving the operation, we're hoping with.
Again, a little more transparency the market, though Marco wake up and we'll get a fair value on the assets, we have and I think that'll that'll in turn lead us to think about how to continue to optimize and whether thats being an acquirer of assets or a seller of assets I think remains to be saying.
Great. Thanks for all the time.
Sure.
Thank you next question, please coming from Sean Dodge from RBC capital markets. Your line is there a lot.
Hi, Thanks, good afternoon.
Maybe going back to the EBITDA margin initiatives, Rick you mentioned that the cost actions, you're taking to help but she does is that all you need to do to get to those targets or is it going to take some revenue growth as well I guess of the longer term targets you laid out those achievable on your current revenue base.
Yeah, well Weve calibrated.
The cost base, Sean to the existing revenue environment. So from my perspective as revenue comes back and we see growth.
That'll make it a lot easier frankly to get to those numbers, but we're not counting on it with what we are working on right now so.
It's a lot of cost, but it's not 100% cost and we had some my view junkie revenue to and.
We're being a little more.
Selective in where we're going to.
Spend our time generating revenue too so so that works against some of the topline growth, but we think it's the right trade to make to create a more efficient organization. So.
I don't I'm, not maybe said differently. If it's behind your question is are you banking on a certain revenue growth to hit those targets. The answer is now.
Got it Okay. That's helpful and then.
Maybe on the EPA aside transaction.
A strategic or mechanical standpoint, how difficult is going to be to disentangled asking the rest of the solutions are capabilities, you're providing client.
Is there some type of commercial agreement will have on the back end it as we open to continue to sell it or was it.
As I pretty much already operating independently from everything else.
We manage the company today.
With very much a portfolio type of approach, meaning that the set the way. The segments are outlined is very consistent with how we manage it so those businesses are.
Having independent identity, if you get a chance to look at.
The Investor presentation Slide we posted we talk about how we calculated profitability and you will see there's a lot of it is direct directly attributed indirectly kind of lines up with these business units.
Very little of it is allocated and that Thats indicative of these businesses. These business units outside the core.
Our fairly independent from the core so unraveling it not not.
I'm not saying it's.
No work, but it's a it's a pretty modest lift to unravel there are some some of our year to our clients that.
That do use the solution and so.
It might be some contract unraveling to do there is a little bit of TSH type support we have to provide.
But not there's not a lot of looks.
Understood. Thanks again.
You're welcome.
Your next question today is probably from George Hill from Deutsche Bank. Your line is Alex.
Yeah. Good afternoon, guys and thanks for taking the question I guess, Paul admit Rick My question on ESI is I guess, how did we come to the conclusion to sell that asset versus any other part of the asset was it more valuation driven for the demand that you saw for the asset or was it the kind of the output of the portfolio review.
Ill pause there for SEC.
Yes, so George it's more I would say it started with the output of the portfolio review and what we felt was.
Most strategic and less strategic and then we compare that to what we thought about our competitive positioning and.
Where we thought we would be long term with that and.
And then again.
Ran that up against the need or the priorities for capital and liquidity and things like that so.
Kind of triangulation of all the above.
Okay. That's helpful and maybe a quick follow up for Paul kind of away from the strategic view I guess, how could you just talk a little bit about the disruption of the sales process.
During the code environment and kind of how far back do you think we are to kind of being able to sell as normal in the market versus still being at a pretty highly high level of disruption. Thank you.
I think that people, Georgia, depending upon where you are and what part of the country lot of clients, we'll still see us.
Had a lot of client visits they're still working with Ceos are showing up the CEO the saying it's hard for them to expect their doctors and nurses to show up with or not at work themselves. So they actually we'll see us so that actually is.
That I wasn't based business as usual, but it's it's more comment is still do face to face meetings with many of our large organizations on the new business side, we're doing a lot of creative things with regard to the way we that we demonstrate the product today versus where we used to setting up web sites for people to actually go in and actually experiences.
Solutions.
In a buy in a month men toward way for them to actually walk through it and then specifically that everybody is doing quoted this way. So it's not like you're being disadvantage that were being disadvantaged from a different on competitor because they're able to do something that we are not so from a long term perspective I actually.
The ability for people to be to look at software remotely and for people to actually play with it themselves versus room for people being.
Proctored to buy one really smart dr. willing partner, so there's others that kind of a new way of doing as I think is pretty important.
But broadly it is.
It's a different way of doing business, but our people are not in my perspective are gravitating into a pretty nicely a lot of people like that to do this from home in a lot of people are getting better.
Okay.
Thank you next question is coming from Eric Percher from their fund research. Your line is now alive.
Thank you went to return to the cost reduction, but maybe a little more forward looking the.
Vision of another 70 million is pretty bold.
When you look at that what of the three areas you focused on Dcs, representing the greatest opportunity.
Well, Eric let me, let's first qualify that so right. So I said, we put in the bank already 76 million.
We had 25 of what we are on highly confident of exercising over the next 18 months and we've identified early stage initiatives a 70, okay. So.
The reason on clarifying that is.
Very typical in these kinds of drills that you identify something and then you put it through the Cana.
He put it through the sanity check and use have some stuff fall off so I don't want you to put that money in your pocket, yet I certainly havent. So you shouldnt, but it's indicative of.
There is a.
There is.
Building spectrum of opportunities we've identified and some are at already completed some are in the near should be complete over the near term and some are longer term opportunities that we're working towards over the long term as well so.
I just want to make sure you don't.
I don't have a misperception this perception on what we said.
Then with that backdrop, where where is.
The next layers of opportunity look we still have on.
We still have areas that are underperforming I think you see that still with the core margins.
While we made significant progress in Q2 were still.
We're still below where I think.
For sure, where we want to be but even with you did a basic competitive benchmarking and see that and it's indicative of there's still some pockets on one I'll pick on his are like our hosting costs for where we provide hosting service to our clients are.
Our still not where they ought to be and we have more work to do.
And just that area alone has.
Im not exaggerating to tell you a 20 different initiatives that are all going to chip away at some of that work.
And no longer term the Microsoft.
Relationship that Paul talked about and we're very proud to have cut with them is part of getting at some of the structural cost inefficiencies that we have today. So.
[music].
It's.
It's an area that.
Those it's an example of so in our cost of sales a couple of things that way us down and Thats why our gross margins are not we're still not where we'd like to see them wind up but I.
I think we worked pretty hard on the R&D Saturday I don't think there'll be a lot more come out of there, but we still have some areas that are.
That are in the R&D.
Investment bucket when we classify R&D that are not people that write code. So we have a lot of.
Solution management organizations things like that that we have to continue to just rationalize and make sure. We're.
We're set up as efficiently as you want to be.
Our biggest my biggest focuses the corporate overhead and so SDMA as an area that for me is.
Where we will have.
Maybe an outsized look at how can we make that more efficiently.
That's helpful. I was curious to see if you'd land on Microsoft when we think about that do you have to get to a point where your migrating more.
More of what you have today, meaning later in the five years than earlier or are there opportunities early on.
There are.
Definitely some opportunities early on we've already created instances with our ambulatory. They ambulatory technology that was built client server, but we are moving into.
Two azure based environments are ready and we are running some clients in instances like that already and I think as we get more and more comfortable with making those transitions and.
Running them efficiently, we'll see more flow in that direction.
But I think the inpatient side is.
As you know is still an opportunity that's in front of us and.
That will take a little longer to make real.
Thank you.
Sure.
Thank you. My next question today is coming from Stephanie Davis from SVB. Your line is alive.
Hi, guys. Thanks for taking my question. So long as large portion of the margin improvement this quarter team from R&D reduction, which is a pretty big departure from land there are large national peers and their beyond that so I was hoping any give me more detail on the you found pockets of cost opportunity without sacrificing growth.
And as a follow up how you benchmark your internal targets for R&D as a percentage of rather.
Given the.
Broad array of mature software companies out there.
Yes, well I'll start by saying.
I can guess, who you're referring to but.
Let's just I'll just talk about those data [laughter] yeah.
We are we invest.
Just as much if not more of our revenue dollars back into our solutions as anybody in industry. So obviously you know size can can change what that absolute dollar amount is but we invest every bit as much.
Some of what you've seen.
Is.
Your observation I mean, I'd actually encourage you to keep looking deeper because a lot of the impact was across many different areas but.
You know without compromising what you're investing for clients and the new is we have we had a huge opportunity to optimize our mix of onshore and offshore developers and a bit those of significant opportunity and we can do that efficiently because we have a very large operation offshore the where they're all our employees it's not.
It's not like Weve send it out the third parties.
We can efficiently staff up in locations like that we can efficiently recruit quality talent and that's a big cost savings for us. So thats, an it thats an opportunity where nothing got lost in terms of value to clients, but we were able to.
Really push on optimizing that mix.
Another example is again inside R&D is it's not just people who write code I mean, we had large and I would argue excessively large.
Project management offices that did a lot of work that.
Didnt meet our standard for ROI, and so weve right sized that event.
So we feel really good about the changes we're making.
And.
And have but have done at all with the client interest at heart and we feel like we're investing.
Very much the appropriate amount of money in our solutions given the marketplace that we're in.
So, but again thats that see I'm trying to answer your R&D question, but again and we.
We've made changes up and down all buckets of the organization.
Listen I understand historically, when I've I've talked to your folks about R&D stand in line with outsized versus other industries. There was a heightened level of regulatory compliance spend in the healthcare focus.
That taking down and they just given where the industry is.
Well, the or no I mean, the regulatory regulators or not.
Sitting on their hands Theres definitely in continued requirements that come our way and it tends to go and wait until a little bit 70, I mean, there's you remember the big waves, obviously, a meaningful use one and two.
As a lot of work now right now happening around interoperability rules.
So those do come in waves and.
At the those times it can separate the you know the strong in the weeks so.
We may see continue to see some industry evolution from that but.
Regulatory driven investment has not gone away.
Okay. That's helpful. Thank you.
You're welcome.
Thank you next question is coming from David Windley from Jefferies. Your line is alive.
Hi, Thanks, I, if I heard correctly I think you said 200 clients on.
On your tell of health or telemedicine solutions in some 900000 visits in.
To Q I guess two questions around that is that a material revenue opportunity.
For all scripts, maybe three questions that how are you pricing that and is there an opportunity is there a difference in that pricing strategy kind of in the midst of covert versus after things start to normalize. Thanks.
We do charge for it and we charge on a per visit basis, and we also charge dependent upon.
Inside of.
Our other organization at that practice fusion, we actually do it on a per.
A per provider basis. So we do think it isn't a revenue opportunity in our clients really like it the yes that sunk in many cases and talking to clients. They peaked at around 70% or their visits on the inventory site went too.
To.
Virtual and eight what they're trying to figure a way and that's up from like 15% of their visits and they're trying to men or two to manufacture way to make that happen and stay.
And stay at.
With that rate.
50% this kind of the Florida trying to hit at this is all subscription business for us. So it's all recurring revenue and.
I think that as result of coated that many consumers are going to permanently demand that this is the way that they have their interaction with the docs, especially on the primary care side and certainly dependent upon the age of that cohort, but interestingly there was a lot of folks that were but just say there were more or elder there were also.
Taken with this and they enjoy being able to see their position online versus having to come in and sit and wait being a little bit if you will nervous about.
The potential health and safety of being what fitting in a waiting room.
Understood. So to clarify is it either a per physician ori per visit or is it actually both.
It's a subscription it's it's a pm.
Per provider per month kind of pricing typically David.
Okay. So so not a per visit.
Patient visit.
Driven revenue model, just just want to make sure I understand I mean, right the debt right Paul as it was referred to the client can build the video us, but would be recharge them on a subscription basis and and in your discussions on this.
How how important.
If you get into this at all how how important do your customers indicate the ongoing reimbursement regime will be to their decisions around.
Embedding tele medicine in their practices like like they are doing with your solution.
But there's no doubt that normalizing for reimbursements for the virtual visit is helped you know.
It's certainly remove the conflict of trying to force people into the office. So that is definitely helped to but I think the answer. Your question is kind of rewritten everyday with the reality of the world Ren I mean.
I think.
We I think so a lot of our clients would like to practice medicine, the way they with the personal touch but.
That's a problem for both them and patient and so seeing them on a virtual basis is better than not seeing them at all.
So I think there the the evolution is happening on a daily basis.
Very good thank you for the answers.
Okay. Thanks for the question.
Thank you next question today is coming from Michael Cherry.
From.
The Murphy your line is I want.
Good afternoon, thanks for all the colors so far.
Just diving in and again on the Microsoft side as you think about the push going forward is there anything that as you go through this partnership because expansion that you're seeing more for anything else that what they're doing it on their health care side of that they want to brings a table I guess relative to the initial.
Partnership.
It has the end goal changed.
For them.
From our or four and whatnot.
Theres been delivered pieces on the person's Microsoft over time, just curious to see where where we sit.
Yes, Microsoft has been pretty clear that theyre not going to be on the application business, they're not going to be in the end user business and or competing with us they want to be.
Service to us in previous people like us that do what we do so they've been pretty clear about that they have a series of things that they offer around cognitive services around the way they build their applications that make it much slicker for us and much faster for us to stand up new capabilities that we are going to take full advantage up because of the way to date.
Do that inside of the cloud.
On things like Credentialing things like.
Hi that you can call to service and.
It's pretty in its very impressive and it does allow us to get to interest more interesting solutions much more quickly and then just a bit the scale that they have is also quite impressive to us their ability to generate new region few things more more more quickly and then lastly, the fiber impact they spend billions of dollars a year.
Sure on fiber and that as the race that isn't will continue to be.
Run for here through return through Returnability, and we think that.
Lining up with somebody like them with their capabilities.
And there their capital spend on that every year is something that we think is incredibly important.
Great and then just one quick technical question, Rick I'm, sorry, I missed if I missed this you noted.
Your view of where the stock sits.
Obviously, you had been historically active on the buyback perspective buyback side I.
I think about that on an intermediate basis.
Yeah, I mean, it's attractive Mike for sure I think.
We have been active I would expect to be active again.
But we're.
With with.
The first the onslaught of coded and potential implications and unknowns around liquidity, we thought it was smart.
To be husband, our cash and just be prudent during that I think we're feeling better about that but I think we're we're also feeling like it's good time to take down our leverage a little bit.
[music].
But will continue as we generate cash and business.
Et cetera, you should expect us to continue to be opportunistic buyer if the stock is undervalued.
Great. Thanks, Rick.
Welcome.
Thank you for next question is coming from Matthew Gilmore from Baird. Your line is alive.
Hey, Thanks for the question I just had a quick clarification.
The ESI proceeds will there be any tax weekends with that or do you have some ability to shield any game.
We have some tax attributes left Matt So we won't have a full incremental effect, but we will pay some taxes, yes.
Okay is there any of your way for us to just thinking about what the net proceeds are or is that sort of CBD at this point.
It's it's still TBD, but I mean, you should assume you know some deal costs and then you should assume.
Some taxes and.
You know why don't we sketch out some numbers and then we'll have steffan post them or something like that rather than just due to something off the top my head here.
Got it fair enough. Thanks, a lot.
Welcome.
Thank you next question is coming from Richard close from Canaccord Genuity. Your line is allies.
Great. Thanks, congratulations on the expense controls there.
Just with the new buckets year divisions I appreciate the revenue on a last 12 months are you going to be reporting those divisions. The actual numbers on a quarterly basis going forward like in the 10, Qs and Ks and whatnot. So we can sort of track that going forward that would be.
My first question.
Yes, sorry to interrupt or so but you answered yes, when you see our Q filed.
You will see some of this same information.
Okay, and then where we'd be seeing sort of like quarterly look back in terms of.
The historical numbers.
Yes, Rick it's the.
We havent posted on in the supplemental workbook going back to 2018 than we have quarterly for 2019 in the first two quarters of 2020. So you got to segment breakdown all the way down are you adjusted EBITDA.
Excellent and then just Rick just clarification on the data analytic side you had mentioned.
The revenue decline there you said payerpath I understand that but I didn't quite get.
What the maritime was what were cards that.
Yes.
That's fair question, Richard what I was saying is I think we.
The this settlement, we reached which we are certainly familiar that im talking about that.
And we Didnt have all the same disclosure clarity that we have today, but I think over the last couple of quarters there's been.
An observation that the growth in the veered I'm area was not was kind of started a little debt and what I'm, saying, what I'm, saying to you is we did have I'd say, a little bit about a pause that happened with the DJ announcement and we.
I think a lot of the business partners of Aradigm wanted to understand that and get comfortable with it and.
The good news is we've worked through all that and feeling much better about the look ahead, but I mean, we had a couple of quarters, a pretty stagnant growth come out of them because of that.
Okay. Thank you.
Thank goodness question is coming from Ricky Goldwasser from Morgan Stanley. Your line is that a lot.
Hey, this is actually Raymond on for Ricky.
I wanted to start by asking about strategic areas in adjacent sees that you can see is potential fits in a lot of our conversations we hear about the consumer and at home care being.
Very interesting areas what are your thoughts on those potentially being fit for your business.
Well Raymond I mean, we so we made some significant investments in positioning ourselves for Jason twos for several years now I think in an area that is.
Close to what one of things you. Just gave an example of is in patient engagement I mean, we think all of our health system clients.
In the large all the way down at a small are very interested in.
You know a patient patient engagement solutions of all levels that kind of get them tighter connected with patients on a pre visit and post visit basis and so our.
Melkert platform is a really good tool for that.
And we would expect to see some growth coming out of that.
In the quarters ahead, but a lot of the issue a lot of the businesses that we just described in the data analytics and care coordination segment are really all about pursuing some adjacent sees beyond just the core clinical HR and financial solutions market. So.
Things around.
Bringing bringing personal personalized medicine engine genetic testing into the clinical workflow thats what should be precise is all about.
Transitioning from acute post acute care.
That's what Careport, it's all about and Teradyne is all about bringing.
On the clinical again.
Point of care as well as clinical data that we've collected for decades now to those entities and help them reduce some of their friction costs that they have within or trying to interact with the point of care. So these are all in our view adjacent sees that we've positioned ourselves into with both organic and inorganic.
Investments.
Okay. Thank you.
Thank you.
Each of our question answer session, let's turn the floor back over to Mr. Black pretty further closing comments.
Great. Thank everybody for Dan on the line width of today and for listening to the Allscripts Conference call I'm impressed with three different things with in spite of that the act the pandemic that's going on around the world. We had a very strong performance from a sales organization from our global people from the client relationship that we have from the new business that we have as well the recent.
Department of state when I'm also pleased with the strengthening we have in the building of the in enduring company with respect a lot of the hard work that's going on with the Lf Partners initiative. That's brought a lot of focus a lot of clarity and we've also taken substantial act.
Actions already to make sure that we have the right size of company in the right margin profiles. We look forward that will strengthen us for the long pole and I'm very proud of what we've been able to accomplish in very short period of time, and then from a development standpoint from a solution standpoint, it's also extraordinarily important to us as a software company, obviously and our work with micro.
It's often what we're doing our plans there will help us to be much more agile on a going forward basis and have importantly.
Great New solutions that are going to be we think very well received by the marketplace. As we're already in those markets and we know what they want and we know what their specific asks are with regard to total cost of ownership and the ability for them to connect more efficiently through a cloud based.
Solution. So that we thank you for your time in your interest in Allscripts and we'll talk to you soon appreciate it.
Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time have a wonderful day. Thank you for your participation today.