Aug 8, 2012
Executives
Seth Frank - Vice President of Investor Relations Glen E. Tullman - Chief Executive Officer, Executive Vice President and Director W.
David Morgan - Interim Chief Financial Officer and Senior Vice President of Finance
Analysts
Michael Cherny - ISI Group Inc., Research Division Jamie Stockton - Wells Fargo Securities, LLC, Research Division Atif A Rahim - JP Morgan Chase & Co, Research Division Gregory T. Bolan - Sterne Agee & Leach Inc., Research Division Andrew O'Hara Charles Rhyee - Cowen and Company, LLC, Research Division George Hill - Citigroup Inc, Research Division Lawrence C.
Marsh - Barclays Capital, Research Division Alexander Y. Draper - Raymond James & Associates, Inc., Research Division Eric W.
Coldwell - Robert W. Baird & Co.
Incorporated, Research Division Sean W. Wieland - Piper Jaffray Companies, Research Division Stephen B.
Shankman - UBS Investment Bank, Research Division
Operator
Good afternoon. My name is Sarah, and I will be your conference operator today.
At this time, I would like to welcome everyone to the Second Quarter 2012 Earnings Conference Call. [Operator Instructions] Seth Frank, Vice President of Investor Relations with Allscripts, you may begin your conference.
Seth Frank
Thanks, Sarah. Good afternoon, and thanks for joining us.
With me on the call today are Glen Tullman, Allscripts' Chief Executive Officer; Dave Morgan, our interim Chief Financial Officer; and Lee Shapiro, our President. [Operator Instructions] Before we begin, I'll briefly read the Safe Harbor statement.
This presentation will contain forward-looking statements within the meaning of the federal securities laws. Statements regarding future events and developments, the company's future performance as well as management's expectations, beliefs, intentions, plans, estimates or projections relating to the future are forward-looking statements within the meaning of these laws.
These forward-looking statements are subject to a number of risks and uncertainties, including factors outlined from time to time in our most recent report on Form 10-K, our earnings announcements and other reports we file with the Securities and Exchange Commission. These are available at www.sec.gov.
The company undertakes no obligation to update publicly any forward-looking statement whether as a result of new information, future events or otherwise. And with that complete, I'd now like to turn the call over to Glen Tullman, Allscripts' CEO.
Glen?
Glen E. Tullman
Thanks, Seth. Good afternoon.
Thank you for joining us on our second quarter 2012 earnings call. I'll begin with the highlights of our results and our focus on operating performance.
Dave Morgan, our interim Chief Financial Officer, will then provide more detail and review our guidance. Our second quarter results demonstrate progress in several key areas and opportunities for improvements and others.
I'm confident we are moving in the right direction. Looking at the highlights, bookings reflect an improvement in mix versus the first quarter.
Specifically, we had strong results in the mid-sized physician market with our professional Electronic Health Record solution. Total ambulatory bookings were also up significantly quarter-over-quarter, and we capitalized on key opportunities in the enterprise Electronic Health Record physician market, particularly through competitive replacements.
Our acute business also performed well. We closed 2 net new Sunrise Clinical Manager agreement, plus 1 footprint expansion with one of our larger clients.
Revenue was also up sequentially and slightly year-over-year at approximately $371 million. Our non-GAAP operating margin increased over Q1, heading in the right direction, and we expect continued improvement in the second half of the year.
Total R&D expense increased year-over-year, reflecting significant investments in our core Electronic Health Record assets to improve performance and our increased focus on new product development and innovation. Our operating cash flow remains strong with close to $60 million generated in Q2 and free cash flows in excess of $25 million.
Also, our board doubled the size of our share repurchase program in April to $400 million. We repurchased a total of 21 million shares in the quarter.
Dave will provide more information about our share repurchase program and the impact on our financial guidance for 2012. Now let's turn to a more detailed upgrade -- or update within several areas of our business.
We continue to see ample opportunity for Allscripts to grow market share across the entire continuum of care. Our vision of a connected community of health continues to be a differentiator for us.
Cape Cod Healthcare's decision in Q2 to replace their incumbent clinical vendor demonstrates the power of pairing robust clinical solutions with the ability to connect to a local community. This was a major new enterprise win for us, covering more than 300 physicians.
Within the acute arena, we expanded our Sunrise footprint by 2 hospitals in Q2, including Salford Royal NHS Foundation Trust, our second acute care win in the United Kingdom. In addition, we signed a new SCM client in the Northeast, as well as an SCM footprint expansion with Ascension Health, one of our largest national clients.
We also had a strong bookings quarter in care management, another area where Allscripts differentiates itself from our competition. The quarter included wins at North Shore Long Island Jewish Medical Center and New York-Presbyterian Hospital.
New client sales of our care management solution were also up during the quarter. Turning to product delivery.
Our solutions development team continue to make progress enhancing the performance and integration of our portfolio. The next releases of our core Electronic Health Record systems are currently in the early adopter phase at multiple client sites and on target for general availability in the fourth quarter of this year.
SCM 6.0 and Enterprise EHR 11.4 include major development enhancements in new functionality such as ICD-10 compliance, improved stability and performance, along with enhanced upgrade experience for our clients. On the new product front, Sunrise financial manager is entering early adopter phase and on scheduled for general availability in Q4.
Some of you had a preview of SFM during the ANI HMFA -- HFMA conference in Las Vegas in June, and client reaction continues to be positive. SFM and Sunrise Clinical Manager operate on the same platform which enables us to offer a single, fully integrated clinical and revenue cycle solutions critical in a market migrating to a pay-for-performance reimbursement environment.
We are confident this will raise the bar for our competition. And we remain on track with the expansion of the native integration capabilities between our hospital and large physician practice Electronic Health Records.
The new capabilities are receiving positive feedback throughout our early adopter program. As our clients confront change on a regulatory, financial, care coordination and analytics fronts, I'm pleased to say that we have new offerings or solutions in development within each area coming to market over the next 3 to 6 months.
One other area of significant importance and continued focus for Allscripts is client experience. Over the last 12 months, after upgrading a significant number of the 50,000 practices and more than 1,500 hospitals who use our solutions, some of who experienced challenges, we have continued to work hard to improve client satisfaction by expanding our services and support capabilities.
Given our efforts, client retention remains strong and is unchanged from the first quarter. The integration of sales and services led by Steve Shute completed at the beginning of the year, enables us to approach client relationships as a coordinated team to meet client needs and solve issues more effectively.
Response to this change has also been positive. During Q2, Meaningful Use upgrades and activations continued, and we had multiple major upgrades through SCM or Sunrise 5.5 that went exceptionally well based on client feedback.
Some examples include university hospitals in Cleveland, Hoag Memorial in Orange County, California and Parkway East Hospital in Singapore. We also successfully upgraded North Shore Long Island Jewish Medical Center, our largest client, to Sunrise 5.5.
We have or are in the process of upgrading a total of 68% of our acute care clients to SCM 5.5, which positions us well for future sales into our base. In addition, we added additional client support resources domestically in Q2 as we prepare for the increased demands we anticipate, associated with ICD-10, which we believe will lead to stronger client satisfaction, a critical success measure.
So overall, solid results with room to grow and improve. And now, I'll hand the call over to Dave Morgan to review the financials.
Dave?
W. David Morgan
Thanks, Glen, and thanks for joining us this afternoon. Before I discuss our results, please review the GAAP and non-GAAP financial tables in today's press release and the accompanying explanation to assist you in evaluating and reconciling the financial metrics we will discuss on this call.
The press release and additional information regarding non-GAAP measures are available at investor.allscripts.com. I will first review the key highlights of our second quarter performance, and then I will update our guidance and outlook for 2012 before we take your questions.
Second quarter bookings were flat on a sequential basis, totaling $194.1 million versus $194.6 million in Q1. Bookings declined over the prior year by approximately 21%.
As we indicated on our Q1 call, we expect relatively flat bookings for the rest of 2012. Having said that, our results reflect 3 notable data points.
First, new SCM bookings, including a footprint expansion; second, an increase in ambulatory bookings; and third, continued strength in care management bookings. We believe we are well-positioned to benefit from the breadth of our solutions across the ambulatory, acute and post-acute market.
We witnessed the sequential improvement in ambulatory sales, specifically professional EHR, as well as new and add-on sales of our enterprise EHR solution. We are pleased to see sales to existing ambulatory clients return to historical level.
The strength is encouraging and reflects in part the completion of the realignment of our sales and services organization, which we noted in our Q1 call, and our continued efforts to improve product performance and client experience. In terms of sequential bookings comparison, we had a greater mix of high margin bookings, such as software and SaaS, compared with the first quarter of 2012.
From a mix perspective, software-as-a-service agreements totaled $53 million or 27% of bookings versus only 19% in the first quarter, a positive development for future revenue visibility. Backlog totaled $2.84 billion, down $25 million compared with $2.86 billion in Q1.
Our backlog breaks down as follows: System sales backlog was $121.9 million, down from $126.3 million in Q1; systems backlog declined slightly due to increased system implementation in the quarter, which generated higher software revenue; professional software backlog was approximately $381 million, up from $374.7 million in Q1. This reflects continued demand for our implementation and related services.
Maintenance revenue backlog was $849.5 million, down slightly from $853 million in Q1. Maintenance backlog will fluctuate quarter-to-quarter based on timing of client activation and renewals.
Finally, we ended the quarter with transaction processing and other backlog of approximately $1.485 billion, down from $1.509 billion in Q1. We saw fewer outsourcing agreement in the second quarter, which accounts for this variance.
All other categories of backlog increase in Q2. Now let me briefly highlight notable items from the income statement.
Non-GAAP revenue grew 2% year-over-year and 1.4% sequentially. For those of you wishing to allocate the $700,000 of deferred revenue adjustments for non-GAAP purposes, approximately $300,000 is allocated to Professional Services and the remainder to transaction processing and other revenue.
We did experience a sequential increase in system sales revenue of 14.5%. Professional Services revenue declined slightly from Q1 due to less upgrade-related activity.
However, Professional Services revenue was up a strong 15% year-over-year. Maintenance revenue was down sequentially, but up 7% year-over-year.
Attrition rates were unchanged, as Glen mentioned. The slight sequential decline in maintenance revenue was due to the timing of client activations and other adjustments.
We anticipate growth in maintenance for the remainder of 2012. Approximately 69% of our revenue was recurring in nature, unchanged from the first quarter.
Overall, second quarter gross margins were flat over Q1. However, there were improvements in some important areas, especially system sales and Professional Services.
System sales gross margins increased 230 basis points quarter-over-quarter. Note that software margins grew more significantly, but were offset by lower hardware margins as well as sequentially higher capitalized software amortization.
In addition, higher software -- higher capitalized software amortization related to gross margins reduced gross margins by 600 basis points when compared with a year ago quarter. Professional Services gross margins trended up 160 basis points over the prior quarter due to fewer low-margin upgrade-related services and decreased use of third-party consultants.
Transaction processing and other gross margins were slightly lower quarter-over-quarter. Non-GAAP operating margin increased 260 basis points as we realized good operating leverage on our SG&A expenses.
Gross research and development spend totaled approximately $48.8 million, a 29% increase year-over-year. Capitalized software totaled $13.7 million or 28% of gross R&D in the quarter, down from 34% 1 year ago and up from 27% in the first quarter.
As we discussed last quarter, our software capitalization rate is lower when compared with 2011 due to a shift in development to agile methodology. We anticipate similar software capitalization rates through the remainder of 2012.
Capitalized software amortization totaled $8.3 million, an increase of $1 million over the last quarter and an incremental $2.9 million over the last year. Net software capitalization declined to 11% from 20% in the second quarter of 2011.
SG&A expenses declined approximately $5 million over the prior quarter on a GAAP basis, returning to a more normalized go-forward run rate. Included in our GAAP results and as discussed during our first quarter 2012 earnings call, we incurred additional expenses during the second quarter associated with the changes in our board, legal settlements and related items resulting in nonrecurring charges of $3.1 million.
We also incurred $3.1 million in transaction-related retention expense, as discussed in prior calls. Q3 2012 marks the last quarter we will record approximately $3 million of Eclipsys merger-related retention payment in our non-GAAP operating results for 2012.
This amount is consistent with prior quarters. Non-GAAP net income was $29.3 million or $0.16 per diluted share after excluding the $6.2 million I just discussed, as well as stock-based compensation and acquisition-related amortization expenses.
Regarding liquidity, the company ended the quarter with $122 million in cash and marketable securities. This is a decrease of $55 million, driven by our share repurchase activity during the second quarter.
As of June 30, 2012, we had $243 million available under our revolving credit facility. As we reported previously, we secured an additional term loan of $150 million in the quarter.
Proceeds were used to partially repay the amounts we drew down on our revolving credit facility to fund the repurchase of $225 million of stock in the second quarter. Please note that the share repurchases completed in the second quarter impacted results by less than $0.01 per share.
Cash flow from operating activities totaled approximately $59 million and free cash flow was $26 million. Accounts receivables decreased to $363 million, equating to day sales outstanding of approximately 89 days, a 3-day improvement from last quarter.
Now let's turn to our guidance. We continue to anticipate 2012 non-GAAP revenue of between $1.48 billion and $1.52 billion.
We continue to assume non-GAAP operating margins in the 16% to 17% range. Reflecting our current borrowings outstanding of approximately $488 million and associated interest expense, as well as the new estimated diluted average share count of $182 million, we are adjusting non-GAAP earnings per share to a range of $0.77 to $0.83, an increase from our prior range of $0.74 to $0.80 per share.
Also, we made a small adjustment to our segment reporting in our 10-Q, which we will file tomorrow. We have expanded the number of reportable business segments to include IT outsourcing and pathway solutions, our transaction processing and related business.
We will continue to present revenue and operating income for these and other reportable segments, namely software delivery, services delivery and client support. I will now turn the call back to Glen for closing remarks.
Glen E. Tullman
Thanks, Dave. To sum up, I'm pleased with the improvements in our business and new clients that we signed during the quarter.
And we're excited to welcome more than 4,000 clients and partners to Chicago for our annual client conference, the Allscripts Client Experience, known as ACE, next week. There will be more than 400 sessions, many of which are client-led.
In addition to a number of new announcements, many partners will highlight new applications or apps designed to run on the Allscripts open platform. Think of this like the App Store on your iPhone.
In closing, I want to sincerely thank all of our 6,800 team members for their hard work this year. I never cease to be amazed that the energy and dedication of our people to succeed, and we will.
Transforming health care is important work, and we're committed to moving the industry forward with our open platform and a focus on creating a connected community of health. We look forward to continuing to update you on our progress.
With that, I'll turn it over to the operator so we can take your questions. Operator?
Operator
[Operator Instructions] Your first question comes from the line of Michael Cherny with ISI Group.
Michael Cherny - ISI Group Inc., Research Division
So I just wanted to dig in a little bit -- on the 2 new SCM wins as well as the expansion, can you talk a bit about the conversations you've had with these customers related to, obviously, the rollout of 6.0, and have they been involved or in the discussions regarding new product? And what are the expectations as you deploy the products at these 3 sites, what version of Sunrise will they be going live on?
And kind of what's the product roadmap for them going forward?
Glen E. Tullman
Frankly, all the discussions are around 5.5, and I think the comfort level came from seeing some of our largest clients actually deploying 5.5 very successfully. So we talked in the prior quarter about some of the delays that were associated with everything from the corporate changes we made and a lot of the press around that, to some of the products concerns.
And people wanted to see 5.5 being rolled out easily and without any issues, and we demonstrated that. So that's really been the success factor that they've focused on.
Of course, the other piece is really a decision between an open platform where they can connect and use what they have and the rip and replace methodology that's much more expensive and takes much longer. So those are really the key factors.
Michael Cherny - ISI Group Inc., Research Division
Great. And then just one more clarification for Dave.
When you said -- talked about bookings for the rest of the year, I know you guys don't provide formal guidance. But did you say that you expect, roughly, flat sequential bookings for the last 2 quarters?
I just want to confirm I heard that.
W. David Morgan
Yes. And as we said in our first quarter call, we were not in contemplation of the guidance -- the original guidance that we issued and even the revised guidance, it's still predicated on relatively flat bookings for the rest of the year.
Operator
Your next question comes from the line of Jamie Stockton of Wells Fargo.
Jamie Stockton - Wells Fargo Securities, LLC, Research Division
Maybe, Glen, the first one is just on the Sunrise Clinical Manager side. When you think about the level of activity in the marketplace, over the next year, let's say, how would you expect the number of decisions to compare to what we've seen over the last year?
Glen E. Tullman
I think we're going to continue to see a steady stream of decisions. And frankly, as we get to the end of the next 12 months, I think you'll start to see them increase.
There's a number of competitors in the market that have kind of started to step away, that's one thing that's driving some of the decisions. And I think, second, as the need for analytics and insight and care coordination continues to increase, I think more organizations are going to look for a sensible alternative that's affordable, easy to install and open, and I think they're going to come in our direction.
So that said, I think, it's a stable and slightly growing number of decisions that's out there.
Jamie Stockton - Wells Fargo Securities, LLC, Research Division
Okay. And then maybe my follow-up is, how do you view what's going to happen in the ambulatory space along those same lines, just the aggregate number of decisions?
Glen E. Tullman
Well, I think, as access to the Meaningful Use dollars starts -- continues to open up, and more and more people test and then move into Meaningful Use 2, you're going to see continued strength there, especially in smaller practices. Now there is some combination of activity, including hospitals buying up practices on one end.
On the end, there's payers providing significant support to keep practices independent. And then right in the middle of that, there's some large groups that are large independent groups that are kind of playing in the middle of that space.
So there's ample opportunity out there for us, assuming we execute.
Operator
Your next question comes from the line of Atif Rahim with JPMorgan.
Atif A Rahim - JP Morgan Chase & Co, Research Division
I think expectations were low and you guys definitely came out ahead. My first question related to that is what are the pushbacks you've got during the quarter, as you sold through clients, given some of the issues of the board level are more visible?
And what's the longer-term view that clients have of you guys? And secondly, on the acute market, you didn't comment on bookings there.
Were they up sequentially or flat, or how should we think about that segment?
Glen E. Tullman
So I'll take the first piece. Relative to pushbacks, I think, a big issue that was created both in the market and from a stock perspective was clients wanted to make sure that we were stable, and that we are moving forward and that there was no other shoe to drop.
I think this quarter demonstrates that in a big way. A number of clients were watching and waiting.
Some told us they were waiting on decisions to make sure the second quarter was solid and we were back on track. And it took some time, frankly, and some energy to get out in front of our clients and explain what had happened, talk about the strength of our new board, which is stronger than ever.
And so once we've done that, we think the selling environment is going to come back. The other factor, of course, was people were watching very closely 5.5 upgrades.
They've been pleased with the progress there, with our Enterprise EHR upgrades. And again, a lot of focus around Allscripts is on execution, and delivering from that standpoint.
Last but not least, we see next week as a great chance to relaunch, if you will, with 4,000 of our clients here in Chicago, more than 100 of our partners here, and presenting lots of client presentations on best practices. So we're excited about that.
We think it positions us well into the September through December selling season.
W. David Morgan
And then -- this is Dave. With regards to bookings in our acute segment.
Sequentially, they were down from Q1, and I guess I would break that down into a couple different areas. One is, as Glen and I both mentioned on the call, we saw significant activity in our Care Management business, up sequentially as well as up year-over-year.
From a new SCM sales perspective, those were essentially flat quarter-to-quarter. And then from a client base perspective, it was down quarter-over-quarter.
But that's really kind of consistent with the themes that we've been articulating coming out of Q1, where a lot of our base through some of the upgrade activities that they went through in 2011 and some of the additional product enhancements and stability enhancements coming out later in the year, we're still kind of in a pause, and a wait-and-see kind of mode at this point.
Atif A Rahim - JP Morgan Chase & Co, Research Division
Got it. And then as a follow-up to that on the ambulatory strength, you said it was mainly in the mid-size groups.
And I might have missed this earlier. Was this replacement activity?
Or a greenfield sales that you're making? And then, how did the small market fare with your MyWay product there?
Glen E. Tullman
Yes, I think the answer to your first question, it was some of both. We had some very big competitive replacements, some of our lead competitors out there.
And then also, we had some brand-new clients join the fold, which we are pleased with. Again, we felt given a lot of the uproar that had come earlier in the quarter, we were pleased to see, frankly, what we thought was strong sales in the midst of that.
Relative to the low end of the market, my perspective is that MyWay was reasonably flat and more and more people are moving to Pro. They're moving to Pro for 2 reasons.
One, because there's much anticipation around the fully featured iPad release, which is coming out at ACE. A lot of reasons that people went with MyWay was easy to use, easy to install, easy to train.
While with the iPad release of Pro, you get all those benefits, but in addition you get the strength of the industry-leading practice management system, and you also get a lot of the analytics that are built in the Pro that frankly weren't in MyWay. So we're seeing a movement more and more to that mid-market.
Operator
Your next question comes from the line of Greg Bolan with Sterne Agee.
Gregory T. Bolan - Sterne Agee & Leach Inc., Research Division
I realized that ADX 1.5 has been in beta testing at one site for the past 3 or so months. But can you talk about any color you received on referenced site visits as of late at that site?
And then, can you also talk about the pricing dynamics for the 2 new Sunrise deals won this quarter?
Glen E. Tullman
Well, relative to ADX, I think there's been actually a lot of focus and attention on it. And some investors, I think, even held calls with them separately that we weren't on but we heard about.
I think there's a lot of interest in ADX. This was developed using the agile methodology, side-by-side with the group of clients, Blessing just happened to be the first one.
And from that perspective, they remain very satisfied. Part of what Cliff Meltzer, who leads that whole solutions development organization, has brought to us, is this new terminology that's -- where we have sites that are early development partners.
And so, from that perspective, we're making sure on every one of these releases that we spend time out there in the market with clients to work out all the kinks before we go GA. So we've seen very favorable response from what people are seeing there.
They're saying it's easy to use, that it addresses their issues. And there is a going to be a lot of talk and a lot of demonstrations of it at ACE, so we feel very good about that.
Dave, do you want to take the pricing?
W. David Morgan
Yes. With regard to the kind of overall pricing environment, I think you asked the question specifically about the deal size as well.
If you look at the net new Sunrise deals, as well as the footprint expansion, the average deal size is consistent with what we've been seeing over the last 2 to 3 quarters. So we're not seeing any substantive change in the size of the deal.
And then, in terms of just the overall pricing attached to those deals, I would characterize those as consistent with what we saw in the first quarter, as well as the fourth quarter as well.
Operator
Your next question comes from the line of Ryan Daniels with William Blair.
Andrew O'Hara
This is Andy O'Hara in for Ryan this afternoon. Just a follow up on ADX 1.5, I'm curious, how many clients, roughly, have both Sunrise and Enterprise and -- want that integration there?
Glen E. Tullman
I think that the clients that want both that don't have some form -- remember, 1 or 2 of the clients have actually built some of their own, which we helped them at. But I think that's between, call it, 25 and 35 clients.
Andrew O'Hara
That's helpful. And then, can we also get an update on the CFO search?
Glen E. Tullman
Yes. Relative to the CFO search, we have said that we are looking at internal and external candidates and it's underway.
Operator
Your next question comes from the line of Charles Rhyee with Cowen and Company.
Charles Rhyee - Cowen and Company, LLC, Research Division
Going back to the new footprints, obviously, that's encouraging here. Can you talk about the rest of the base, I guess in 2 fashions.
First, what does the pipeline look like for you right now at this stage in terms of potential and new footprints down the road, maybe some color on where -- what type of clients are you talking to right now? And then secondly, how did the sort of protecting the base, the client footprint look right now?
You've obviously had some competitors, kind of suggest that a lot of your clients are looking elsewhere or at least fielding RFPs. Can you talk about sort of how your -- talking to your customer base currently, and maybe just some more color, that will be helpful.
Glen E. Tullman
Yes, I'll just -- I'll make some quick comments. Dave may want to comment as well.
First of all, relative to the pipeline, I would say the pipeline is consistent. It's strong.
Frankly, I didn't expect, based on last quarter, any dramatic increases in the pipeline, we were -- we wanted to make sure there weren't any decreases, and I don't think we saw any real movement one way or the other. So consistent, solid and very strong pipeline.
Relative to the interest of clients, generally, it's really across-the-board. We think the open message is starting to resonate.
We think people are starting to understand that paying these astronomical amounts to install a closed system doesn't make sense for the future. At the high-end, and in the mid-market, they simply can't afford it anyway.
And as -- whether we have an Obama or a Romney administration, one thing is certain, and that is health care is going to get squeezed. So the focus on cost-effective systems that are easy to install, that connect with what you have that works today is really garnering more and more attention.
And if you look at the blogs and you see the undercurrent here, it's going to get pretty interesting. In addition, as the apps start to hit, we're going to see the same effect that we saw in the computer market, first you buy the computer then you connect the computer, then you start to put apps on the computer and everything changes, and so that's what we see coming.
So I think those are 2 things. Relative to the last piece, and that is protecting the client base.
Look, the reality is that a lot of clients are out there looking. I mentioned that we have some very big competitive takeaways in the mid-market, and those were places where other well-known systems that are doing very well were installed, and we had takeaways there.
This market is going to be very competitive and it's going to be active, and I think people are going to be out looking. Looking is different from changing.
And as many who are looking that are our customers, we're in talking to a lot of customers, including some customers who are saying, hey, we have this big system that's from a well-known brand and we can't afford it anymore, so how can you help us take down our cost. And I think you're going to see some interesting dynamics, but I wouldn't get too hung up one way or the other on 1 account or another because, I think, you're going to see movement in all directions.
What's important is the overall trend, is it up, and are people preparing for what's next. And we are.
Dave, anything else you want to add?
W. David Morgan
I think you covered it from those perspectives.
Charles Rhyee - Cowen and Company, LLC, Research Division
If I may have just one follow-up, Dave. As we think about the guidance for the year, where are we going to get, you think, the most leverage in the margin?
Is it at the gross margin line or are we looking at more from the operating leverage, given that we've have done about $0.28 this year, we're obviously getting the benefit of the share repurchase. But to get to the back half sort of the midpoint number, where should we looking for that leverage the most?
Glen E. Tullman
Well, I think the way you ought to think about it is, obviously, our gross margins right now or last 2 quarters have been in the high -- sorry, low 40s, call it, 42% to 43%. So I would look for some expansion in that in the back half of the year.
And obviously, you saw some of that in the second quarter on our system sales, margin expansion, as well as some just operating leverage that we'll see as -- we'll see some higher revenue growth in the back half of the year.
Operator
Your next question comes from the line of George Hill with Citigroup.
George Hill - Citigroup Inc, Research Division
Can you tell us whether or not, I guess, as we look at quarter end, were net footprints up or down on the acute side?
Glen E. Tullman
Net footprints were up.
George Hill - Citigroup Inc, Research Division
Okay. All right.
That's helpful. And David, we know that the bookings came in late in Q1, as a lot of deals that you guys had expected to close did not close and had slipped.
And what I want to figure out is, did many of those deals that you expected to close in Q1, did any of them close in Q2 by the enterprise bookings number? I would guess maybe no.
And what I'm trying to get to here is, what is the pipeline starting to look like? And if you've got this backlog of whether they be Sunrise acute -- or Sunrise acute care sales or Sunrise financial sales or ADX 1.5 sales, I'm trying to ask you now, how conservative are we being with the bookings?
What does the pipeline look like? What's composed in the pipeline?
Do you guys keep pushing up this revenue rec [ph] that's leading to a building pipeline? And that's the idea I'm trying to wrap my head around, however you want to answer that question, I'll take it.
W. David Morgan
All right. Well, I guess, as Glen just mentioned, we're seeing stability in the pipeline coming out of some of the announcements that happened right at the end of the first quarter.
And obviously, as we talked about, we've got a lot of major activity happening that we're going to be previewing next week at ACE that will be coming out in the back half of the year, specifically around the next version of Sunrise, the anticipated release of Sunrise financial manager, the next upgrade in some of our integration capability. So from that perspective, it's not that we're seeing opportunities drop out of our pipeline, but it is consistent with kind of how we thought the year would begin to work itself out, because we're still early in the year and these things are coming out in August to late third quarter.
George Hill - Citigroup Inc, Research Division
Okay. Then I'll add one last one for Glen.
So Glen, does that mean that maybe we should be looking for fourth quarter or early next year, there's a bolus of these people sitting on the sideline who decide to get involved to make purchasing decisions?
Glen E. Tullman
No, we're going to be -- stick with the guidance that we've given, and we want to be very conservative in trying to guess what the future is. But what I would say is pipeline is going in the right direction.
It's very solid, very stable. We're comfortable with it.
And what we can predict is that we're going to have -- we have a lot of great new products coming out, and we have increasing stability in our existing base, and the ability to execute. We've got enormous focus on client satisfaction and client experience.
So we're doing all the fundamentals right. If you do the fundamentals right, the rest happens, but I'm not going to predict the time.
Operator
Your next question comes from the line of Larry Marsh with Barclays.
Lawrence C. Marsh - Barclays Capital, Research Division
Just to make sure I'm clear on the point, Glen. I guess, your message today seems to be that you feel like the quarter, under the circumstances, was at or above your, maybe initial expectations based on the stability of the pipeline, or maybe some ambulatory bookings improvement.
Is that right? And I guess, just to follow up on George's question, I know that you said in the first quarter, with the pre-release, that your guidance didn't assume any significant sequential improvement in bookings.
Today, you're implying that we shouldn't expect to see any real sequential improvement in bookings after the fourth -- second quarter decline. Is your message that those 2 statements are the same in a general sense?
Or would you say that, no, given we had 2 wins under the circumstances, we're still disappointed about the trend in part of our business and pleased with other parts?
Glen E. Tullman
Well, first of all, I don't know what -- where you are in the world, Larry, but it's late afternoon here but I'll say good morning to you any way. Relative to pipeline and kind of overall guidance, what we really don't want to get into predicting where it's going, other than saying the pipeline remains strong and is continuing to grow.
And I think what I'd say is we, given the amount of questions and the essential freezing of the client base when we had the challenges in the market with stock performance and the like, I think what I'd tell you is that the pipeline was in line with what we had said, and that we thought we did a lot of the client recovery efforts that were necessary, and we got the client base back to focusing on the right things, which are execution, product functionality, and why an open solution makes more sense than many of our competitors. So but I think, again, we're confident, we're going to continue to execute.
We don't want to update anything, we simply want to say that we were operating, we think, in line with what we told you we'd do.
Lawrence C. Marsh - Barclays Capital, Research Division
Okay. Just a follow-up, the 6.0, you had said, was in its control release already with the message today it's still expected to be rolled out, generally available in the fourth quarter, so that seems to still be on track.
And I guess, along with that, I think when you had said your communication with your new board members, they're supportive. Can you elaborate on any other data point they provided you so far in terms of support or direction, given that we're still early on in the -- given the significant changes you've made on the board in the last quarter?
Glen E. Tullman
Yes, I think we added some very high-quality board members. And I think the board is working well together.
We actually leave this call and spend the next 2 days with our board. And we think that the board is supportive of the strategy that we're moving forward on with significant focus on execution and optimizing the plan we have, which we think is the right plan.
So I think I'm comfortable in saying the board is supportive of the plan and very focused on ensuring that we execute. So that's -- I think that's the comment that I would make.
Operator
Your next question comes from the line of Sandy Draper.
Alexander Y. Draper - Raymond James & Associates, Inc., Research Division
Just one quick question for Dave, a clarification, and maybe a bigger picture question for Glen. Dave, in reference to the comments about the leverage in the back half of the year, I didn't get it, do you -- would you expect to see sort of similar levels of declines in the SG&A as you take out cost and we could expect to see pretty material sequential declines in SG&A?
I wasn't sure if I pick that up. I didn't quite get where the operational leverage is below the gross margin line.
W. David Morgan
It will come across a number of the areas from sales, marketing, G&A, R&D, et cetera. Some -- it will be across the board.
So that's kind of what we're looking at right now.
Alexander Y. Draper - Raymond James & Associates, Inc., Research Division
Okay. And then, Glen, when you look at what's going on in the industry, there's a couple of the 2 buzzwords that a lot of people are talking about are population health management and then analytics.
I'd like to just get your sort of bigger picture thoughts on where you guys are positioned there, and how you see potential opportunities to go after those, and/or potential either areas that you need to bolster?
Glen E. Tullman
Yes, I think what I tried to say in my comments is in each of those areas, we have new product offerings coming out, our updates, we're strengthening our relationships with our key strategic partners. So if I work my way across each of the important areas that we'd see, we have great internal offerings that we're investing heavily in.
In terms of care core coordination, we expect to have a new product offering prior to the end of the year. We've done a lot of work with the folks at Oliver Wyman, who we think are top experts in the area.
And relative to population -- health and population management, Humedica is our partner there. As full disclosure, we have an ownership stake in Humedica, that they're known as industry leader in the space and we're strengthening both our marketing and sales efforts, but we are also strengthening the integration between the products.
And so that is what's happening there. Same thing is happening with dbMotion on our community and connectivity efforts.
Again, strengthening that, they are a leader in the market as well. And finally, our own internal offerings, which we're investing heavily in.
So whether it be ACOs, whether it be new payment models, we see this as driving more and more of the smart decisions that are being made out there. And core to that is that you got to be open, you got to be flexible.
And frankly, you've got to be able to partner. Because as we bring more than 100 of our partners together in Chicago, every one of them is pulling for us to win, so we can sell their products.
And we think that starts to create this ecosystem, whether it be for products or whether it be for people who install our own software, we're happy to work with all of the above. So that's kind of the plan.
Operator
Your next question comes from the line of Eric Coldwell with Robert W. Baird & Co.
Eric W. Coldwell - Robert W. Baird & Co. Incorporated, Research Division
I was intrigued by the comment on the success at University Hospitals, and obviously, sounds like the upgrade there going well on the acute side. A year ago, that same account announced a relationship with another vendor in the ambulatory market, and that vendor recently said that, that contract has been delayed in terms of the implementation schedule by at least 6 months or so.
Are there opportunities around relationships like that to -- now that you're seeing success with the upgrade, can you get back in the door on some of these other opportunities that you've missed out on?
Glen E. Tullman
Well, I'd say a few things. One, first of all, we -- University Hospitals Health System, UHHS, is absolutely a key client of ours.
I was there recently. It's got, I think, some of the best leadership in the industry under Tom Zenty.
I met with their 14 Quality Officers and our Chief Quality and Outcomes Officer, Dr. Diane Bradley was there.
Some of the outcomes they're getting there, I would suggest, they could have the best health care in Cleveland. I mean, they're terrific.
Relative to what we're doing, we're doing a whole variety of things with them based on the success. And again, if you execute, when you're rolling out or upgrading your software in 14 of their hospitals, including the brand-new one that I was at, it's pretty significant.
In terms of other opportunities, we see it, you heard me talk earlier in the call about rolling out with North Shore Long Island Jewish in terms of our care management software, and also with New York-Presbyterian, they've been clients for ages, and yet their buying all new stuff around care management, which Dave mentioned is a very hot product for us, and with our care coordination stuff coming out, that's going to get even stronger. So I do think there's opportunities.
I'm sorry if some of our competitors have seen that flow. I know they must be disappointed about Cape Cod as well.
But we're just going to continue to focus on execution. That's what we know we have to do.
Our clients have told us, you told us, and that's what we're going to -- we're going to it right and focus on that. So but there's ample opportunity within the base and outside the base if we execute.
Operator
Your next question comes from the line of Sean Wieland with Piper Jaffray.
Sean W. Wieland - Piper Jaffray Companies, Research Division
I think most of my questions have been asked. I'll just ask, is there an update that you can provide on the relationship with Quintiles?
Glen E. Tullman
The relationship with Quintiles is very strong. I just met with their CEO, and I think we have an increasingly strong relationship where we're doing innovative things together.
But great leadership there, and I expect we'll continue to grow that relationship. I think it is at the early stage, but there's huge opportunity there when we think about what our clients want, what they deliver and what their clients want that all should fit together nicely, and increasingly we're creating win-wins for all of them.
But as we talked about creating a partnership to improve research, that benefits the clients, it benefits the patients and it benefits pharma. And I think we can do something unique, and that's what I talked to Tom Pike about.
Sean W. Wieland - Piper Jaffray Companies, Research Division
Okay. And then it's always hard to keep track of whose customers are whose.
Cape Cod, was that Athena?
Glen E. Tullman
A whole bunch of people around the table are waving their hands saying I shouldn't get in to talking about competitors. So we'll let you guys figure that out.
It's a SaaS based operation, I think.
Operator
Your next question comes from the line of Stephen Shankman with UBS.
Stephen B. Shankman - UBS Investment Bank, Research Division
So I did want to touch on the maintenance revenue growth trajectory. I believe I've heard you guys in the past refer to much of that base as subject to CPI growth.
But obviously, it's been growing much stronger than that recently. So I'd imagine a lot of that is due to some new system activations, but I am trying to get a sense of the maintenance revenue growth outlook in the back half of this year.
And if you could just remind us about line items, I guess, growth related to the bookings and kind of the relationship there.
Glen E. Tullman
I'd say 2 things, and I'll let Dave comment as well. One, I think we're up 7% year-over-year, so it's better than CPI by a long shot.
Part of that has to do with the growth in our sales. So you're adding -- so CPI is on the existing base, but as you add new clients, you're going to see growth.
But Dave, do you want to comment more on that?
W. David Morgan
Yes, I mean, as I indicated in my initial opening comments, I mean, you would expect the maintenance to continue to grow in the back half, in the back of the year. One of the other things to note about our maintenance revenue and its relations to bookings, is a lot of our bookings are -- the related revenue begin to kick in whenever clients go live or if the products actually go into production.
And so sometimes, what you see is an actual lag in maintenance revenue from the actual bookings that we see.
Stephen B. Shankman - UBS Investment Bank, Research Division
What's that typical lag time?
W. David Morgan
It's going to vary depending on the type of deal, I mean, depending on whether it's a care management deal to whether it's an Enterprise EHR deal, the size of the deal. So I mean, if you figure, implementation timelines can run anywhere from 6 to 9 months, that's a data point.
Glen E. Tullman
Okay. Well, again, I want to thank everybody for joining the call this quarter, and we look forward to updating you in future quarters.
Thanks very much.
Operator
This concludes today's conference call. You may now disconnect.