Q2 2021 Allscripts Healthcare Solutions Inc Earnings Call

August 5, 2021

[music].

Greetings and welcome to Allscripts second quarter, 2021 earnings call.

At this time all participants are in a listen only mode.

A 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 of this conference is being recorded.

It is now my pleasure to introduce your host Stephanie <unk> Vice President of Investor Relations. Thank you you may begin.

Thank you very much and good afternoon, and welcome to the Allscripts second quarter, 2020.1 earnings conference call. Our speakers today are Paul Black Allscripts, Chief Executive Officer, and Rick Poulton, our President and Chief Financial Officer.

We'll be making a number of forward looking statements during the presentation and the Q&A part of this 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 of our future events. Please refer to our earnings release and Seth.

Filings for more information regarding the risk factors that may affect our results.

Please also reference the GAAP and non-GAAP financial statements as well as the non-GAAP tables, and our earnings release and the supplemental workbook that are both available on our Investor relations website and with that I'm in the hand, the call over to Paul Black to begin thanks, Stephanie and thanks, everyone for joining the call and we appreciate your interest and Allscripts I'm very pleased with.

Our strong second quarter financial results, which represents the continuation of our strong performance this year.

<unk> reflects the reset of our client priorities cost base and balance sheet across our business that began last year and continues to be implemented or.

Our strong performance allowed us to innovate around value added solutions and also provide ample free cash flow to return to shareholders and proud to say that we were able to accomplish both of these objectives and the second quarter.

And I'd like to once again acknowledge our associates for their relentless client focus and the robust results that they have been delivering.

Overall, we're pleased with the bookings performance across the portfolio.

The steady demand for our inpatient ambulatory and consumer and very denim solutions.

However, while the Covid pandemic eased somewhat and the second quarter due to improving vaccination rates in North America, we still experienced residual delays and closings from new deals, particularly with large health systems market and in international regions, where the recovery from the pandemic has been more uneven.

This has resulted and deals taking longer to close the timing for these deals are inherently harder to predict.

Overall, our domestic and global pipeline for health systems remains very strong.

We expect the benefit from the investments we've made to deliver sunrise as the platform of health delivered and the cloud through our partnership with Microsoft. This is resonating with our client base and we believe it will be a critical driver to help us win new logos and the us replacement market and and the international Greenfield market.

Our partnership with Microsoft Azure delivers our clients tie availability cyber security disaster recovery and business continuity.

The abilities, which has only become more important over the last year.

Here are a few highlights of the second quarter.

And of 15 years Bunk of care Health system signed an extension with Allscripts into 2031 looking to modernize its clinical documentation for nurses and physicians as they go all in for an integrated electronic health record.

<unk> has chosen to add Sunrise mobile for nursing follow my health mobile patient engagement professional services managed services and are migrating from Microsoft Azure.

This showcases how our partnership with Microsoft is resonating with our installed client base during.

During the second quarter, we began the implementation of our Sunrise platform of health and Mercy and Iowa City is a reminder of this as a competitive win that we announced last quarter, we will provide and innovative cloud based single patient record that enhances the clinician and patient experience across all communities that mercy serves.

And the second quarter Mercy further expanded the relationship with us extending the contract to include managed services for the support of existing solutions.

And our ambulatory business, we added more than 500 practices and the independent ambulatory market across the pro of touch works and practice fusion platforms, our pipeline for the back half of the year remains very strong.

Our success with new business and our pipeline are a direct result of the strategic investments. We've made to build the complete end to end solutions, covering consumer clinical financial and revenue cycle outsourcing and.

An example of the momentum that we're seeing and the ambulatory segment is the expansion of our relationship with the U S. Orthopedic Alliance, which included additional touch works license expansions and RCM services.

<unk> is a large alliance that is aggregating information from orthopedic physicians across the country, creating a narrow network for improved outcomes based on data aggregation of these providers.

We see cross selling initiatives capitalizing on the breadth of our solutions specifically, we are focused on our practice fusion clients integrating allscripts practice management and revenue cycle solutions into the practice fusion electronic health record.

Getting our clients 1 stop shopping helps create loyalty and it also enables us to maintain allscripts as the segment leader and the independent physician practice market.

Rick will discuss the performance of paradigm and more detail later on the call. We're pleased to see this business returned to double digit growth and the second quarter as our solutions across the payer and life Sciences markets continues to gain momentum.

<unk> gives us confidence and our investments to serve these important market segments.

Before I hand, the call over to Rick I'd like to expand on the comments I made and the last call recording.

Corporate social responsibility. This is the core of Allscripts and who we are of the company previously I discussed how we are addressing the and equities and our healthcare system highlighted by the pandemic and health health.

And Allscripts and particular are working to bridge the gaps and care, we continue to make progress towards our vision of building open connected community of health for everyone.

This year, we've made significant progress and Allscripts on our day Eni initiatives. For example, also fit participated and the diversity and bias education as part of our essential training program, We expanded college and insurance and recruitment efforts kicked off the day dei Speaker series focused on topics related to diversity and created the <unk>.

Enrichment group program.

We've also launched and internal dei website getting associate the visibility.

To the program our goal and our vision.

And the second quarter.

At Allscripts also through our Allscripts developer program kicked off of a program called empower. This new program is designed to amplify the diverse voices and healthcare technology to offer valuable resources to the underrepresented entrepreneurs to grow their businesses and to accelerate innovation.

And we partner with developers to help deliver the tools they need to connect their innovation to allscripts clients.

Through the ADP and tower Allscripts is creating a community of the innovators.

Recently recruited ADP partners. We're asked this question how can we use technology and innovative solutions to share of relevant patient social drivers of health information with care providers to advance equity of the healthcare access.

ADP partners pitch their solutions at the advancing health equity using social determinants of share.

Develop the challenge, which is the conducted last Thursday, the demonstrate how their technology share is relevant S. DLH patient information with care providers, both of those care providers can better understand and care for their patients.

The event, we were joined by Dr. Nicky capacity <unk> National coordinator for Health information technology.

I recently heard of great analogy over the past 20 years healthcare was appropriately focused on creating systems to avoid medical errors and eliminate waste and the delay of care, thus, enabling a patient safety system through healthcare information technology.

And quite confident that health equity will be the focus of the next decade.

Look forward to keeping you updated on the progress of all facets of our CSR journey.

It is not only of the right thing to do it will provide significant benefits to the allscripts and our clients and the communities we serve and live in.

To summarize we have built the sustainable business model that delivers innovation and value to our clients, we improve clinical outcomes at the point of care and improved financial performance across all facets of our client operations. We have delivered strong results for our shareholders with expanded margins and free cash flow that allow us to re.

Invest and the business and return substantial amounts of capital at the same time of.

The continued to be optimistic about our performance in 2021.

With that I'll turn the call over to Rick to provide more detail on our financial position and our <unk>.

<unk>.

Thank you.

Okay. Thanks, Paul and thanks, everybody for joining us today.

Just 1 more reminder of Stephen indicated additional financial details are available and the supplemental financial data workbook posted to our Investor Relations website.

We were very pleased with our financial performance and the second quarter, where we saw the continuation of positive trends from the first quarter we.

We benefited from continued continued discipline and managing our cost structure and this drove significant operating leverage, allowing us to report significant year over year growth and adjusted EBITDA EPS and free cash flow.

So with that overview, let me highlight a few items starting with the.

Bookings performance.

We reported $180 million of new bookings and the quarter, which was up 10% year over year as we benefited from demand across our full portfolio.

We believe we are well positioned to benefit from clients returning their focus on optimizing the clinical and financial environments as patient volumes at least for now have for the most part returned to normal levels.

While the course of the pandemic remains somewhat unpredictable, we believe our solutions will continue to resonate and our sales and implementation teams have become highly proficient and of remote working environment.

Revenue and the second quarter was $374 million, which was up 1% both year over year and sequentially.

Our revenue results. So we're really a tale of 2 different stories and our core clinical and financial segment revenue was essentially flat on both the year over year and sequential basis and.

And this continues to reflect the conscious effort on our part to boost gross margins by emphasizing quality of revenue and acceptable levels of client profitability.

Accounts and opportunities that do not meet acceptable levels of margin and profitability are being passed on and are actively manage.

Conversely, as Paul highlighted earlier and as we foreshadowed on our last earnings call and our data analytics and care coordination segment.

After our divestitures is now essentially our <unk> business we.

We saw a nice double digit year over year growth and the second quarter.

It was a particularly strong quarter and our life sciences business within paradigm, both for in quarter revenue as well as new partnership development.

We signed a partnership agreement with PRA Health Sciences, which is now part of icon to create the industry's leading EHR based clinical research network, reaching more than 25000, and physicians and 40 million patients across the net states.

The partnership will use the paradigm study source platform alongside PRA and clinical research technology support so that physicians can offer clinical research is of care option for their patients.

This is another example of the value of the last mile kind of connection to the physician and patient that bare die and brings to life science companies and at a scale that is unmatched in the industry.

Also in the second quarter and other ambulatory EHR competitor of ours, just went live and <unk> each of our carrier network, where we will deliver charcoals for and counters within the last 2 years for more than 80000 providers nationwide.

So based on this progress during the quarter, we expect double digit year over year revenue growth for the balance of the year and our garden business.

So now let me turn to our overall margin performance and the quarter consolidated non-GAAP gross margin was 42, 8%, which was up 330 basis points year over year and was primarily driven by improvements to our client services margins.

As we've talked about on our previous calls just reflects the margin improvement initiatives, we began last year to dramatically improve the productivity and efficiency of our client services organization.

Further down the P&L, we continue to manage our operating expenses tightly and they came in very much in line with first quarter levels. So we saw a nice operating leverage down the P&L. This.

And this helped drive very strong 27% year over year, adjusted EBITDA growth and the quarter and resulted in adjusted EBITDA margin of 18, 4%.

Beyond those headline numbers I am equally pleased that the quality of both our GAAP and non-GAAP earnings continue to improve.

Our R&D capitalization rate continues to go down and we are now and meaningfully burning down the deferred cost balance on our balance sheet as we amortize significantly more than we are capitalizing from current period of expenditures.

And also our non-GAAP adjustments are very limited and once again do not include any restructuring charges during the during the period.

Below the operating line, we had of $5 million recovery that we received related to our practice fusion Doj settlement.

This was our first of several expected recoveries related to that matter and this GAAP income statement benefit was excluded from our non-GAAP reported income for the period.

Okay.

On a per share basis, we reported non-GAAP EPS of <unk> 23 per share, which was up 35% year over year, reflecting our strong margin performance as well as our mark as well as our lower share count.

We retired 17 million shares during the quarter through a combination of open market repurchases as well as our accelerated share repurchase programs.

We also had an excellent quarter of free cash flow generation as we generated $69 million of cash flow from continuing operations and $51 million of free cash flow.

This is a direct result of our improving operational operating performance and our continued focus on driving down Dsos, which came in at 83 days and the second quarter down from 96 days and the second quarter of 2020.

Our free cash flow results continue the dramatic improvement from last year and once again I would like to publicly thank my finance team and our client facing teams for their tremendous work and helping to drive this turnaround.

We ended the quarter with $458 million face value of debt outstanding and we had $231 million of cash on the balance sheet.

This net debt the net debt level of less than 1 turn of adjusted EBITDA leaves us with significant firepower and provides us with additional flexibility as we look to deploy capital to generate the highest returns.

Now turning to our outlook for 2021.

We are increasing our 2021 adjusted EBITDA outlook to a range of 265, the $275 million.

From our prior outlook of $240 million to $260 million.

And we are also increasing our 2021 free cash flow outlook to a range of $115 million to $125 million from our prior outlook of 90 million to $100 million.

This reflects the performance that we've seen and the first half of the year and our expectation that we will continue to benefit both from the cost management initiatives that we've implemented and our continued strong cash flow conversion.

We continue to maintain our revenue outlook of $1.5 billion per the year.

So with that I'd like to open up the call for questions.

Thank you, ladies and gentlemen at this time and will be conducting a question and answer session. If you'd like to ask a question you May press star 1 on your telephone keypad, a confirmation tone will indicate your line is and the question queue. You May Press Star 2 if you would.

The remove your question from the Q4 participants using speaker equipment and may be necessary to pick up your handset before pressing the star T.

Our first question comes from the line of Sean Dodge with RBC capital markets. Please proceed with your question.

Hey, good afternoon, and Thomas Keller on for Sean Thanks for taking the questions.

I'll start off I'm very diamond and the strategic partnership you guys have with PRA can you talk a little bit more about and some of the economics behind that arrangement and how you expect to see that partnership evolve just given the icon acquisition.

Well I mean, the partnership was just signed so the acquisition from icon and I don't think is going to disrupted in any way and in fact, if you listened to the call transcript that icon did a few weeks ago on their earnings call.

They actually spoke about this partnership so.

It's <unk>.

Meaningful and there is as well and we look forward to going with it going together.

And the partnership is built and such that we share and the economics as we deliver value to pharma companies debt both of us are catering too so.

I won't go any deeper than that but it's definitely a.

Highly aligned relationship that we have.

Look forward to capital and capitalizing on together.

Okay fair enough and.

And Paul you mentioned, some ongoing delays and closing some of the new deals.

Can you ballpark some of the magnitude of the impact maybe on Q2 bookings pretty substantial or purchased many of the color would be helpful.

I think we've over time talked about especially outside of the United States of the those deals are pretty good size and the lumpy that's probably of all of the further I would go with that.

We like the quality of the backlog, we like the quality of the pipeline I should say.

I am very personally involved and a lot of of the activities there both inside of the us as well as outside.

And the teams that are working on it and I feel great about where we are with the teams today they have a lot better.

<unk>, if you will they have better and.

Ammunition, they have some good wins in the marketplace and they have the.

Things that you need to have in order to win it helps to have and Microsoft Azure and helps having.

A demonstration and environment thats different and what it was let's say 253 years ago and all of that augers towards eventual success. It's just the timing of these things from time to time don't always come in exactly when the want them too despite of having a good bookings quarter, and just giving you a little bit of of <unk>.

<unk> around the story of what it's like.

To operate on a global marketplace.

Okay. That's helpful and that's all for me Thanks, a lot of Guy.

Thank you.

Our next question comes from the line of Michael Cherny with Bank of America. Please proceed with your question.

Hi, This is Charlotte on for Mike. Thanks for taking my question.

Just wanted to ask what's driving the EBITDA guidance and then could you outline of Pos for the ongoing margin expansion given the success to date.

What's driving our EBITDA guidance modification.

Well again, I think I'll repeat what I said before is it.

The function of really how we've performed and the first half of the year.

You can see those numbers.

Where we're at.

Through 2 quarters and.

And I think.

That plus what we see ahead in terms of continued benefits from our cost initiatives and.

Whatnot is what gives us the confidence to raise the midpoint of that range.

By $20 million at the midpoint. So we've obviously narrowed the range as well given that half of the year is already done so.

Thats whats, giving rise to that.

There is a more specific question. Please let me know.

And you would have to repeat what you asked on margin I didn't quite get all of that.

Yeah I was just wondering if you could outline the path for ongoing margin expansion and just any color on there would be helpful. Thank you.

Well, we've we've had we've done a nice job I think stepping up gross margins. It all starts at the top and.

And gross margins as you can see from the trailing quarters that we've put in our supplemental data workbook that.

1 of the big drivers there is.

The efficiencies we are producing around our client services. So thats both project based services as well as recurring services that we provide to clients.

We frankly started at a pretty unacceptably low level of performance. If you go back to the beginning of 2020.

And we've been laser focused on improving that through productivity and other efficiency efforts. So.

That's paying off and we've made nice progress very steady progress, we'll continue to look at that.

And we'd like to balance that with.

The continued improvement and mix as we are successful with our selling efforts and get more software.

Great. Thank you very much.

Welcome.

And then.

Our next question comes from the line of George Hill with Deutsche Bank. Please proceed with your question.

Hey, good evening, guys and I. Appreciate you taking the question I say Rick of follow up kind of thinking about the raise I guess, if you were to bucket the points of improvement around what I would call like your cost management, your client management and I and.

Whom youre seeing some recovery on the business services side as it relates to utilization when you think about the rates of the midpoint by $20 million I guess could you kind of rank order those and priority is how they contribute to the 20.

So George I understand the question I guess.

Probably.

I'd answer it a little bit differently than you are asking it though I mean, you can see.

Where we are on an EBITDA basis first half first half we're at $136 million already.

So.

And that.

And we performed I guess, it's fair to say we've over performance.

Were relative to our initial guidance and we've done that really on the cost side of the equation. So we've made more progress even faster than.

And then I would imagine when where and.

Faster and are built into our plan.

When we provided our initial guidance so with what we've posted so far and best Crystal ball, we have on what's ahead.

Was it was appropriate to lift the bar.

For our guidance and so that's really what's behind it.

Can I.

Piece of it out the way you are piecing it out.

It's pretty tough to do George debt.

And I wouldn't say that I would I would say, though that again if you. If you start at the top of the P&L gross profit is where it all begins our margins.

And are up nicely year over year, we continued the.

And we continued building off of what was a very strong fourth quarter or are we kind of kept we held in line with what was the very strong fourth quarter.

And so we made good progress on our labor efficiency I mean, most of our cost of sales is labor related costs and we've done a nice job on our cost efficiencies there thats.

Why you see those services margin is jumping and that combined with just maniacal focus on keeping our SG&A costs.

In line is what has led to the.

EBITDA performance and the.

The guidance outlook.

No I follow you and if I could have a quick follow up I was wondering Rick was like was the lift and services really I guess, what I was wondering was where you guys have you guys been extremely conservative in how you would thought about the services part of the business and then the recovery the lift helped you out but it sounds like some of the cost part I guess, Paul 1 for you is that as we start to see the.

Nice recovery and the variable and business, maybe thinking about the portfolio and.

And kind of any are there any changes that you would look to make there.

And now we've always been.

Looking to things, we all of it.

Highlighted in the past what we would do if we had a bunch of extra money to go and spend on things, we would certainly and.

And in an accretive way and and a cost effective way, we would certainly like to continue to build upon the success that we've demonstrated with all of our capital deployment. So there's nothing specific right now George that.

And that I would point to and thats different than what we've talked about and the path.

Nice to be in a position where you could have this kind of conversation of where things are clean and where you have opportunity to pull your head up and look at.

Things that are out there as you know there's a lot of things that are out there and there's a lot of things that are out there that are extraordinarily frothy debt.

It's going to be looking at it as carefully as a lot of other people.

And that are looking at it and the marketplace today.

Okay I'll hop back in the queue. Thanks, guys.

Thanks George.

Our next question comes from the line of Eric Percher with Nephron Research. Please proceed with your question.

Thank you and still appreciating the relative simplicity of guys.

Question for you Paul on the ambulatory success do you see this is stemming from product improvement more or sales strategy. I know you mentioned, the ortho Alliance and.

And then is there an interplay with additional capabilities and paradigm and how you think about the.

And the leverage that you get from that into that.

The physician base.

Well, there's a lot of different markets that would cover the small physician practices and small meaning 2 and was that is extraordinarily well covered by the paradigm. The practice fusion solution and our ability to get if you will a bit more of them and wallet share out of that Eric has been part of the strategy going forward and that to the.

And I am.

Component that we're just starting to bear fruit from it is always of anything how many new clients, we get and that part of the market that part of our of the market is still relatively robust and of course have the sell a lot of them move the meter of away of course like it because not only do you get the client, but you also get the data and that part of the business on the mid size with the.

The <unk> solution that has been something thats been augmented with Azure and some cases and thats been a bit of of new if you will offering and the marketplace.

That combined with touch works, both of which half of back end revenue cycle management outsourcing capability that the new capability and we've had over the course of let's say less.

253 years, and Thats, gaining a lot of traction and the marketplaces the.

And I'll just say the fatigue.

Set and by some of the provider organizations with all of that with all of the people that are working on the back office and their acknowledgment and quite frankly during the pandemic. The both people who were spent home actually could potentially be outsourced or more effectively.

The effectively managed by third party debt. That's all we do so we're getting a lot of traction by the combination of our breadth of offerings, Eric as well as.

What we're doing across the the platform from a technology standpoint.

And I'm curious when you think about the technology.

See a lot of organizations that are helping physicians manage risk and and thinking that <unk> and nowadays so that the boxes and the oaks and diligence.

How do you think about your ability to enable the physician.

I'll start.

To what.

And enable the physician to take on risk the.

Roll that you might have there.

Yes, I think we're giving the on the revenue cycle management side, we're giving them quite of bit of information that the perhaps didn't have and the past the actual contract management component of that we're actually using partners to do that today, Eric. So we're actually that's the capability that we have but its not currently native inside of what we do our buildings some of those K.

Authorities and for some of our largest clients that are doing that on a regular basis, especially those which operate and the California marketplace, which has been full cap for a very long period of time.

So we when we go into those markets, we're able to offer that and <unk>.

Some cases were using a qualified third parties to help us.

Thank you.

Welcome.

Our next question comes from the line of Charles <unk> with Cowen. Please proceed with your question.

Yeah. Thanks, Thanks for taking the question.

I wanted to ask about.

The and our operating rules interoperability rules and I think enforcement started this summer.

Okay, that's great and maybe I could just follow up on Veradigm, you're expecting it to get the double digits. This year maybe.

Can you help us kind of understand what what's resonating in the market.

And and driving the strong growth the expectation you know what what products are and particular clients you know looking at and are very interested in thanks.

Yeah, well I mean, so [laughter] veradigm has multiple legs to the stool of veradigm, but the 1 that you know getting a lot of tracks and right now is our life Sciences leg and you know life Sciences.

Is there is a very fundamental shift as you know in.

Real World evidence has really become and the fundamental pillar for drug discovery and.

At.

That phrase gets tossed around a lot, but what we deliver is a real answer to that and that's really what this partnership of PRA is an example of but we have an incredible the.

Credible size between the ambulatory HR footprint that we have are across multiple platforms.

And bolt on acquisitions around paradigm, we see.

See long term growth opportunities, there assets and that space tend to be expensive, but and <unk>.

<unk> scale and maybe.

Makes sense for us to augment some of our assets that could be around data registries that could be around some other capabilities.

Debt rather than build them organically.

But.

Broader the company look we'd like to invest or we'd like to invest to keep the company growing.

But we're also going to be judicious with capital. So we're gonna have the high.

Bar for.

Return on investment and making sure we have a good business model before we go deploy capital.

As you know we've been very we've had a lot of capital go returned to shareholders recently.

We're very comfortable with our debt levels right now so I think debt paydown of the lowest priority at this juncture.

Investing in the business is our highest priority, but with again the caveat of.

And has to make has to happen.

Very good expected value on return on investment.

So.

Yeah.

That's super helpful.

It leads right into my next question Mark.

And just how you are balancing your.

And lastly, with the share repurchase program.

Our ongoing investments for the share repurchase program.

Well.

I think right now we are in an enviable position, where we have a ton of dry powder. So we don't feel constrained on either of those paths right now.

Continuing to improve the free cash flow generation of the business creates even more flexibility.

And we don't we do not feel constrained at all so.

I don't think balances really and our vocabulary and now it's really about being smart with the capital that we have access to.

That's the idea here. Thank you.

Yeah.

As a reminder, it is star 1 to ask a question.

There are no further questions and the queue I'd like to hand, the call back to Mr. Paul Black for closing remarks.

Thank you very much.

And I'm pleased of the broad progress we've made since Q1 of 2020. This has indeed been and challenging time for our industry, our clients and our associates and grateful for the 8000, plus Allscripts associates with leaned into this pandemic and delivery results for our shareholders and importantly, delivering new innovative solutions for our clients who are on the <unk>.

Line of Covid, our first half performance along with our outlook for the second half has allowed us to increase our outlook for both full year 2021, adjusted EBITDA and free cash flow as shareholders. We appreciate your trust and Allscripts. We will continue to do everything we can to reward the confidence with strong performance.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.

Okay.

[music].

Greetings and welcome to you all squared the second quarter of 2021 earnings call.

At this time, all participants are and of listen only mode.

The question and exercise and we'll all of the formal presentation.

And if anyone should require operator of assistance during the conference. Please press star zero and your telephone keypad.

As a reminder of this conference is being recorded.

It is now my pleasure can you hear of sure host Stephanie shows the Vice President of Investor Relations. Thank you you may be get.

Thank you very much good afternoon, and welcome to the all star of second quarter of 2021 and earnings Conference call. Our speakers today are Paul Black Allscripts, Chief Executive Officer, and Rick Pulse, and our President and Chief Financial Officer will.

We'll be making a number of forward looking statements during the price of presentation and the Q&A part of this call. These statements are based on current expectations and involve the number of of risks and uncertainties that can cause the actual results the very materially.

We undertake no obligation to revise the is forward looking statements and light of new information and our future events. Please refer to our earnings release and SEC filings for more information regarding the risk factors that may affect our results.

Please also referenced the gap and non-GAAP financial statements as well as the non-GAAP tables, and our earnings release and the supplemental workbooks that are both available on our Investor relations website and with that I'm in the hand, the call over to Paul plastic again, thanks step and and thanks, everyone for joining the call and we appreciate your interest and Allscripts I'm very pleased with our <unk>.

Wrong second quarter of financial results, which represents the continuation of our strong performance this year.

Ah results reflect the reset of our client priorities cost base and balance.

Balance sheet across our business and began last year and continues to be implemented or.

Our strong performance allowed us to innovate around value added solutions and also provide ample free cash flow to return to shareholders and proud of state that we were able to accomplish both of these objectives and the second quarter.

And I'd like the once again acknowledged our associates cause the relentless client focus and the robust result, they have been delivering.

Overall, we are pleased with the bookings performance across the portfolio we.

And we saw steady demand for our inpatient ambulatory consumer and Veradigm solutions.

However, while the Covid pandemic eased somewhat and the second quarter.

Improving back the nation rates and North America, we still experience residual delays and closing some new deals, particularly with large health systems market and and the international regions, where the recovery from the pandemic has been more uneven.

500 practices and the independent ambulatory market across the pro touch works and practice fusion platforms, our pipeline for the back half of the year remains very strong.

Our success with new business and our pipeline are a direct result of the strategic investments we've made to build the complete end to end solutions, covering consumer clinical financial and revenue cycle outsourcing.

An example of the momentum that we're seeing and the ambulatory segment is the expansion of our relationship with the U S. Orthopedic Alliance, which included additional such works license expansion and RCM services.

<unk> is a large alliance that is aggregating information from orthopedic physicians across the country, creating a narrow network for improved outcomes based on data aggregation of these providers.

Giving our clients 1 stop shopping helps create loyalty and has also enabled us to maintain allscripts as the segment leader and the independent physician practice market.

Rick will discuss the performance of paradigm and more detail later on the call. We're pleased to see this business return to double digit growth and the second quarter as our solutions across the payer and life Sciences markets continue to gain momentum.

<unk> gives us confidence and our investments to serve these important market segments.

Before I hand, the call over to Rick I would like to expand on the comments I made and the last call recording.

And Allscripts and particular are working to bridge the gaps and care, we continue to make progress towards our vision of building open connected community of health for everyone.

This year, we've made significant progress at Allscripts on our day Eni initiatives. For example, also fits participated and the diversity and bias education as part of our essential training program, we expanded college and ensuring the recruitment efforts kicked off the day dei Speaker series focused on topics related to diversity and created the <unk>.

<unk> enrichment group the program.

We've also launched and internal dei website getting associate the visibility.

To the program our goal and our vision.

And the second quarter.

At Allscripts also through our Allscripts developer program kicked off of a program called empower. This new program is designed to amplify the diverse voices and healthcare technology to offer valuable resources to the underrepresented entrepreneurs and to grow their businesses and to accelerate innovation.

We partner with developers to help deliver the tools they need to connect their innovation to allscripts clients.

Through the ADP and tower Allscripts is creating a community and of innovators.

Recently recruited ADP partners. We're asked this question how can we use technology and innovative solutions to share of relevant patient and social drivers of health information with care providers to advanced equity of the healthcare access.

ADP partners pitch the solutions at the advancing health equity using social determinants of care.

Develop a challenge which is conducted last Thursday, the demonstrate how their technology share is relevant <unk> patient information with care providers. So that those care providers can better understand and care for their patients.

The event, we were joined by Dr. Nicky capacity <unk> National coordinator for Health information technology.

I'm quite confident the health equity will be the focus of the next decade.

Forward to keeping you updated on the progress of all facets of our CSR journey.

It is not only of the right thing to do and will provide significant benefits to the allscripts our clients and the communities, we serve and live in.

To summarize we have built the sustainable business model.

Delivery of innovation and value to our clients, we improve clinical outcomes at the point of care and improved financial performance across all facets of our client operations. We have delivered strong results for our shareholders with expanded margin and free cash flow that allow us to reinvest and the business and return substantial amounts of capital at the <unk>.

Same time.

The continued to be optimistic about our performance in 2021.

With that I'll turn the call over to Rick to provide more detail on our financial position and our outlook. Thank.

Thank you.

Okay. Thanks, Paul and thanks, everybody for joining us today.

Just 1 more reminder of Stefan indicated additional financial details are available and the supplemental financial data workbook posted to our Investor Relations website.

We were very pleased with our financial performance and the second quarter, where we saw the continuation of positive trends from the first quarter.

So with that overview, let me highlight a few items starting with the bookings.

<unk>.

We reported $180 million of new bookings and the quarter, which was up 10% year over year as we benefited from demand across our full portfolio.

Revenue and the second quarter was $374 million, which was up 1% both year over year and sequentially.

Our revenue results. So we're really a tale of 2 different stories and our core clinical and financial segment revenue was essentially flat on both the year over year and sequential basis and.

And this continues to reflect the conscious effort on our part to boost gross margins by emphasizing quality of revenue and acceptable levels of client profitability.

Accounts and opportunities that do not meet acceptable levels of margin and profitability are being passed on and are actively manage.

Conversely, as Paul highlighted earlier and as we foreshadowed on our last earnings call and our data analytics and care coordination segment.

After our divestitures is now essentially are verity and business.

We saw a nice double digit year over year growth and the second quarter.

It was a particularly strong quarter and our life sciences business within paradigm, both for in quarter revenue as well as new partnership development.

We signed a partnership agreement with PRA Health Sciences, which is now part of icon to create the industry's leading EHR based clinical research network, reaching more than 25000 physicians and 40 million patients across the net states.

The partnership will use of paradigm study source platform alongside PRA and clinical research technology support so that physicians can offer clinical research is of care option for their patients.

This is another example of the value of the last mile kind of connections of the physician and patient that bare die and brings to life science companies and at a scale that is unmatched in the industry.

Also in the second quarter and other ambulatory EHR competitor of ours, just went live and <unk> each of our carrier network, where we will deliver chart pulls for encounters within the last 2 years for more than 80000 providers nationwide.

So based on this progress during the quarter, we expect double digit year over year revenue growth for the balance of the year and our garden business.

So now let me turn to our overall margin performance and the quarter consolidated non-GAAP gross margin was 42, 8%, which was up 330 basis points year over year and it was primarily driven by improvements to our client services margins.

As we talked about on our previous calls just reflects the margin improvement initiatives, we began last year to dramatically improve the productivity and efficiency of our client services organization.

Further down the P&L, we continue to manage our operating expenses tightly and they came in very much in line with first quarter levels. So we saw a nice operating leverage down the P&L.

This helped drive very strong 27% year over year, adjusted EBITDA growth and the quarter and resulted in adjusted EBITDA margin of 18, 4%.

Beyond those headline numbers I am equally pleased that the quality of both our GAAP and non-GAAP earnings continue to improve.

Also our non-GAAP adjustments are very limited and once again do not include any restructuring charges during the during the period.

Below the operating line, we had of $5 million recovery that we received related to our practice fusion Doj settlement.

This was our first of several expected recoveries related to that matter and this GAAP income statement benefit was excluded from our non-GAAP reported income for the period.

On a per share basis, we reported non-GAAP EPS of <unk> 23 per share, which was up 35% year over year, reflecting our strong margin performance as well as our mark as well as our lower share count.

We retired 17 million shares during the quarter through a combination of open market repurchases as well as our accelerated share repurchase programs.

We also had an excellent quarter of free cash flow generation as we generated $69 million of cash flow from continuing operations and $51 million of free cash flow.

This is a direct result of our improving operation operating performance and our continued focus on driving down Dsos, which came in at 83 days and the second quarter down from 96 days and the second quarter of 2020.

Our free cash flow results continue the dramatic improvement from last year and once again I would like the publicly thank my finance team and our client facing teams for their tremendous work and helping to drive this turnaround.

And we ended the quarter with $458 million face value of debt outstanding and we had $231 million of cash on the balance sheet.

Now turning to our outlook for 2021, we are increasing our 2021 adjusted EBITDA outlook to a range of 265, the $275 million.

From our prior outlook of $240 million to $260 million.

And we are also increasing our 2021 free cash flow outlook to a range of $115 million to $125 million from our prior outlook of 90 million to $100 million.

We continue to maintain our revenue outlook of $1.5 billion per the year.

So with that I'd like to open up the call for questions.

Thank you, ladies and gentlemen at this time and we will be conducting a question and answer session.

I'd like to ask a question you May press star 1 on your telephone keypad, a confirmation tone will indicate your line is and the question queue.

You May press Star 2.

Like to remove your question from the Q4 participants using speaker equipment and may be necessary to pick up your handset before pressing the starkey of.

Our first question comes from the line of Sean Dodge with RBC capital markets. Please proceed with your question.

Hey, good afternoon, and Thomas Keller on for Sean Thanks for taking the questions.

I'll start off on <unk> Diamond and the strategic partnership you guys have with PRA and can you talk a little bit more about and some of the economics behind that arrangement and how you expect to see that partnership evolve and just given the micron acquisition.

Well I mean, the partnership was just signed so the acquisition from icon I don't think is going to disrupted in any way and in fact, if you listened to the call transcript that icon did a few weeks ago on their earnings call.

They actually spoke about this partnership so we think it's.

Meaningful and there is as well and we look forward to growing with it going together.

The partnership is built and such that we share and the economics as we deliver value to.

Pharma companies both of us are catering too so.

I won't go any deeper than that but it's it's definitely a.

Highly aligned.

Asian ship debt.

And we look forward to capital and capitalizing on together.

Okay fair enough and.

And Paul you mentioned, some ongoing delays and closing some of the new deals.

Can you ballpark some of the magnitude of the impact maybe on Q2 bookings were pretty substantial or just.

Many of the color would be helpful.

The group over time talked about especially outside the United States. The those deals are pretty good size and the lumpy. So that's probably all of the further I would go with that.

We like the quality of the backlog, we like the quality of the or the pipeline I should say.

I am very personally involved and a lot of of the activities there both inside of the U S as well as outside the.

And the teams that are working on it and I feel great about where we are with the teams today they have a lot better.

<unk>, if you will they have better and.

Ammunition, they have some good wins in the marketplace and they have the <unk>.

Things that you need to have in order to win it helps to have and Microsoft Azure and helps having of.

A demonstration and environment thats different and what it was let's say 253 years ago and all of that augers towards eventual success. It's just the timing of these things from time to time don't always come in and exactly when they want them too despite of having a good bookings quarter and just giving you a little bit of of <unk>.

<unk> around the story of what it's like.

To operate on a global marketplace.

Okay. That's helpful and Thats all for me Thanks, a lot of guys.

Thank you.

Our next question comes from the line of Michael Cherny with Bank of America. Please proceed with your question.

Hi, This is Charlotte on for Mike. Thanks for taking my question and I.

Just wanted to ask what's driving the EBITDA guidance and then could you outline of Pos for the ongoing margin expansion given the success to date.

What's driving our EBITDA guidance modification.

Well again, I think I'll repeat what I said before is it's.

The function of really how we've performed and the first half of the year.

You can see those numbers.

Where we're at.

Through 2 quarters and.

And I think.

That plus what we see ahead in terms of continued benefits from our cost initiatives and whatnot.

Whatnot is what gives us the confidence to raise the midpoint of that range.

And.

By $20 million at the midpoint. So we've obviously narrowed the range as well given that half of the year is already done.

So.

Thats whats, giving rise to that.

There is a more specific question. Please let me know.

And you would have to repeat what you asked on margin I didn't quite true.

Get all of that.

Yeah I was just wondering if you could outline the path for ongoing margin expansion and just any color on there would be helpful. Thank you.

Well, we've had we've done a nice job I think stepping up gross margins and it all starts at the top and gross margins as you can see from the trailing quarters that we've put in our supplemental data workbook that.

1 of the big drivers there is the.

And the efficiencies we are producing around our client services. So that's both project based services as well as recurring services that we provide to clients.

And we frankly started at a pretty unacceptably low level of performance. If you go back to the beginning of 2020.

And we've been laser focused on improving that through productivity and other efficiency efforts. So.

And that's paying off and we've made nice progress very steady progress, we'll continue to look at that.

And we'd like to balance that with.

And some <unk>.

Continued improvement and mix as we are successful with our selling efforts and get more software.

Great. Thank you very much.

Welcome.

And then.

Our next question comes from the line of George Hill with Deutsche Bank. Please proceed with your question.

Hey, good evening, guys and I. Appreciate you taking the question I'd say Rick of follow up kind of thinking about the raise I guess, if you were to bucket the points of improvement around what I would call like your cost management your client management and <unk>.

Assume youre seeing some recovery on the business services side as it relates to utilization when you think about the raises the midpoint by $20 million I guess could you kind of rank order those and priority is how they contribute to the 20.

So George I understand the question I guess.

<unk>.

At the answered a little bit differently than you're asking it though I mean, you can see.

Where we are on an EBITDA basis first half Frank first half rate of $136 million already.

So.

Sure.

And we performed I guess, the it's fair to say we've over performed.

Were.

Relative to our initial guidance and we've done that really on the cost side of the equation. So we've made more progress even faster.

And then I would imagine when the work faster and are built into our plan.

And when we provided our initial guidance so.

What we've posted so far and best Crystal ball, we have on what's ahead.

It was appropriate to lift the bar.

For our guidance and so that's really what's behind it.

Can I.

Piece of it out the way you're piecing it out.

It's pretty tough to do George side debt.

And I wouldn't say that I would I would say, though that again if you. If you start at the top of the P&L gross profit is where it all begins our margins.

And are up nicely year over year, we continued the.

And we continued building off of what was a very strong fourth quarter or are we kind of kept we held in line with what was the very strong fourth quarter.

And so we made good progress on our labor efficiency I mean, most of our cost of sales is labor related costs and we've done a nice job on our cost efficiencies there thats.

Why you see those services margin is jumping and that combined with just maniacal focus on keeping our SG&A costs.

In line is what has led to the.

EBITDA performance and the.

The guidance outlook.

No I I, followed you and if and if I could have a quick follow up I was wondering Rick was like was the lift and services really I guess, what I was wondering was where you guys have you guys been extremely conservative in how you would thought about the services part of the business and then the recovery the lift helped you out but it sounds like some of the cost part I guess, Paul 1 for you is that as we start to see the.

Nice recovery and the <unk> business, maybe thinking about the portfolio and.

And kind of any are there any changes that you would look to make there.

And now we've always been.

And looking to things, we always and we've highlighted in the past, where we would do if we had a bunch of extra money to go and spend on things, we would certainly and.

And that I would point to and thats different than what we've talked about and the path.

Nice to be in a position, where we could have this kind of conversation of where things are clean and where you have opportunity to pull your head up and look at the <unk>.

Things that are out there as you know there's a lot of things that are out there and there's a lot of things that are out there that are extraordinarily frothy debt.

Net.

And going to be looking at it as carefully as a lot of other people.

And that are looking at it and the marketplace today.

Okay I'll hop back in the queue. Thanks, guys.

And George.

Our next question comes from the line of Eric Percher with Nephron Research. Please proceed with your question.

Thank you and still appreciating the relative simplicity of guys.

Question for you Paul on the ambulatory success do you see this is stemming from product improvement more or sales strategy. I know you mentioned the <unk> Alliance and then is there an interplay with additional capabilities and paradigm and how you think about the the leverage.

You get from that into that.

The physician base.

Well, there's a lot of different markets that we cover the small physician practices and small meaning 2 in the west that is extraordinarily well covered by the paradigm. The practice fusion solution and our ability to get if you will a bit more of the wallet share out of that Eric has been part of the strategy going forward and that to the.

And a component that we're just starting to bear fruit from it is always of anything how many new clients, we get and that part of the market that part of our of the market is still relatively robust and of course have the sell a lot of them and move the meter of the way of course.

Because not only do you get the client, but you also get the data and that part of the business on the mid size with the probe solution that has been something thats been augmented with Azure and some cases and thats been a bit of of new if you will offering and the marketplace.

That combined with touch works, both of which half of back end revenue cycle management outsourcing capability. That's a new capability. We've had over the course of let's say less.

253 years, and Thats, gaining a lot of traction and the marketplaces.

And I'll, just say the fatigue that set and by some of the provider organizations with all of that with all of the people that are working on the back office and the acknowledgment and quite frankly during the pandemic. The both people who were spent home actually could potentially be outsourced or more efficient and.

Effectively managed by third party debt. That's all we do so we're getting a lot of traction by the combination of our breadth of offerings, Eric as well as.

What we're doing across the.

The platform from a technology standpoint.

And I'm curious when you think about the technology, we see a lot of organizations that are helping physicians manage risk and maintain that agile ons and nowadays so that the boxes and the Oaks and villages. How do you think about your ability to enable the physician.

I'm, sorry of our ability to what.

And the enables us position to take on risk.

The raw.

All of that you might have there.

Yes.

We're giving the on the revenue cycle management side, we're giving them quite of bit of information that the perhaps didn't have and the past the actual contract management component of that we're actually using partners to do that today, Eric. So we're actually that's the capability that we have but it is not currently native inside of what we do our buildings some of those capabilities and for some of our <unk>.

Largest clients that are doing that on a regular basis, especially those which operate and the California marketplace, which has been full cap for a very long period of time.

So we when we go into those markets, we're able to offer that in some cases, we're using a qualified third parties to help us.

Thank you.

Welcome.

Our next question comes from the line of Charles <unk> with Cowen. Please proceed with your question.

Yeah. Thanks, Thanks for taking the question.

And I wanted to ask about.

The and our operating rules interoperability rules I think enforcement started this summer.

Can you talk about sort of the readiness of your clients and what kind of extra services. They're looking for from you guys to help them comply with all the new rules coming through and also and what kind of opportunities has the interoperable interoperability rule crazy for paradigm.

So Charles we.

I think our clients are in very good shape and interoperability.

We were solving a lot of the.

[noise] notification elements of that rule with actually the <unk> business that we divested.

We continue to have a reseller agreement with care for that's a very elegant solution for those rule of the frankly, 1 of the only solutions and the market that is comprehensive.

So we bring that to all of our clients are have that available for our clients and <unk>.

And most of them have become clients of care for it so we think that that.

They are and very good shape.

<unk>.

From that.

As far as opportunities for <unk>.

On that.

Don't see a direct link right now Charles but doesn't mean, we won't see 1 of emerge right now from from those rules in particular.

Okay. That's great and then if I could just follow up on their dime, you're expecting at the growth double digits. This year, maybe can you help us kind of understand what's resonating in the market.

And driving the strong growth expectation and what products are and particular clients.

Looking at and are very interested and thanks.

Yes, well I mean, so <unk> has multiple legs to the stool of paradigm.

But the 1 that's getting a lot of traction right now is our life sciences leg and life Sciences.

There is there is a very fundamental shift as you know.

In.

Real World evidence is really becoming the fundamental pillar for drug discovery and.

That.

The phrase gets tossed around a lot, but what we deliver is the real answer to that and Thats really what this partnership with PRA.

As an example of but we have a incredible.

Credible size between the ambulatory EHR footprint that we have across our multiple platforms.

Plus the footprint that comes from some of the third party relationships that we've talked about on these calls.

And it comes collectively a frankly and unparalleled network of access to.

To the point of care and that is really getting the interest of almost everybody in the life science space right now.

And so were.

We're riding that wave and.

It is absolutely a big part of what's behind our revenue outlook for Burton.

It's not the only thing I'm doing but thats the big piece of it right now.

Great. Thank you I appreciate it.

Youre welcome.

Our next question comes from the line of Stephanie Davis with <unk> Leerink. Please proceed with your question.

Hey, guys. This is Joey on for Stephanie. Thank you for taking my question Frank.

The follow up on the iodine as well and was hoping if you can provide some color on what kinds of in house R&D investments, you're currently making and the business and maybe if you kind of force rank what your top investment bucket the stock. Thanks.

Well the first part of the question with respect to paradigm, whereas the R&D investment.

Look a lot of it is in organizing the information that we have total.

<unk> the information that we have.

To make it most relevant and so that along with <unk>.

He's of used tools for physicians and patients.

Kind of what's that.

And is getting the bulk of the Verity and dollars.

So that's internally in terms of and I think the second part of your question was that merit and specific or just broadly for the company.

Both the possible.

Well again, and then it of airtime level I'd, just say I'd say, it's the same place we're investing today and the same priorities R. R.

We will continue to invest I mean, we will also look.

Tension.

And at bolt on acquisitions around Barrett on and we see long term growth opportunities there assets and that space tend to be expensive, but.

Smaller scales and may make sense for us to augment some of our assets that could be around data registries that could be around some other capabilities.

Debt rather than build them organically.

But.

Broader the company look we'd like to invest.

We'd like to invest to keep the company growing.

But we're also going be judicious with capital so we're going to have the high.

Our core.

Return on investment and making sure we have a good business model before we go deploy capital.

As you know we've been very we've had a lot of capital go returned to shareholders recently.

We're very comfortable with our debt levels right now so I think debt paydown of the lowest priority at this juncture.

Investing in the business is our highest priority, but with again the caveat of.

And it has to make has to happen.

Very good expected value on return on investment.

So.

Yeah.

That's super helpful and that leads right into my next question Mark.

And just how you are balancing your.

And lastly, with the share repurchase program.

Our ongoing investments for the share repurchase program.

Well.

I think right now we are in an enviable position, where we are of a ton of dry powder. So we don't feel constrained on either of those paths right now.

Certainly continuing to improve the free cash flow generation of the business creates even more flexibility.

And we don't we don't feel constrained at all so.

I don't think balances really and our vocabulary right now, it's really about being smart with the capital that we have access to.

That's great to hear thank you.

Yes.

As a reminder, it is star 1 to ask a question.

There are no further questions and the queue I'd like to hand, the call back to Mr. Paul Black for closing remarks.

Thank you very much.

And I am pleased with the progress we've made since Q1 of 2020. This has indeed been and challenging time for our industry, our clients and our associates and.

And I'm grateful for the 8000, plus Allscripts associates of leaned into this pandemic and delivery results for our shareholders and importantly, delivering new innovative solutions for our clients who are on the frontline Covid. Our first half performance along with our outlook for the second half of allowed us to increase our outlook for both full year 2021 adjusted.

And free cash flow is share.

The holders we appreciate your trust and Allscripts will continue to do everything we can to reward the confidence with strong performance. Thank.

Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.

Q2 2021 Allscripts Healthcare Solutions Inc Earnings Call

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