Nov 7, 2013
Executives
Seth Frank - Vice President of Investor Relations Paul M. Black - Chief Executive Officer, President, Director and Member of Compensation Committee Richard J.
Poulton - Chief Financial Officer, Principal Accounting Officer and Secretary
Analysts
Charles Rhyee - Cowen and Company, LLC, Research Division George Hill Robert P. Jones - Goldman Sachs Group Inc., Research Division Ricky Goldwasser - Morgan Stanley, Research Division Michael Cherny - ISI Group Inc., Research Division Gregory T.
Bolan - Sterne Agee & Leach Inc., Research Division Eric W. Coldwell - Robert W.
Baird & Co. Incorporated, Research Division Jamie Stockton - Wells Fargo Securities, LLC, Research Division David Larsen - Leerink Swann LLC, Research Division Richard C.
Close - Avondale Partners, LLC, Research Division
Operator
Good afternoon, my name is Katrina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Allscripts Third Quarter 2013 Earnings Conference Call.
[Operator Instructions] I would now like to turn the call over to our host, Mr. Seth Frank, Vice President of Investor Relations.
Sir, you may begin your conference.
Seth Frank
Thank you, Katrina. Today with us on the call are Paul Black, Allscripts President and Chief Executive Officer; and Rick Poulton, our Chief Financial Officer.
During today's call, we will reference supplemental financial tables available on the Investor Relations homepage of the Allscripts website at www.investor.allscripts.com. In addition, we will reference both GAAP and non-GAAP financial measures on today's call.
Reconciliations of non-GAAP financial measures are available in the news release, with accompanying explanations to assist you in evaluating the financial metrics we will discuss today. Before we will begin, I will 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 related 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 on 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 now I'd like to turn the call over to Paul Black, President and Chief Executive Officer of Allscripts.
Paul M. Black
Thank you, Seth, and thank you for joining us to discuss Allscripts' 2013 Third Quarter Earnings Results. Highlights of the third quarter of 2013 include strong bookings, major client expansions and renewals and new clients added to the Allscripts connected community.
We are executing on client obligations and have substantial work underway for MU2 and ICD-10 upgrades. We have successfully aligned Allscripts corporate priorities to ensure client success in their journey to value-based care delivery.
We are making measurable progress tracking on plan with the key strategic imperatives we refocused the company around this past January. Allscripts' #1 priority is a commitment to client success.
For the past 11 months, I have spent the majority of my time face-to-face with clients around the globe. Year-to-date, I have conducted over 200 site visits and almost 250 in-person client meetings.
This past August at the Allscripts Client Experience annual user group, or ACE, we hosted over 3,000 client attendees from the United States and abroad. Our clients have been very clear about what their priorities are and Allscripts' role in achieving them.
We have also invested approximately $180 million in gross research and development spending year-to-date, a 20% increase over the same period in 2012. And we've invested more than $250 million in future requirements, enhancing both community and consumer connectivity platforms.
For example, we are increasing the functionality and interoperability of a community health record, focusing on impacting decision-making at the point of care. We have continued to invest in patient engagement opportunities as well as developing a new analytics platform for managing patient communities.
The Allscripts installed base scale, combined with an open platform, provides us with a significant competitive differentiation and a leading position to enable the movement from fee-for-service care to accountable care. This focus in investment is paying off.
Bookings grew double digits in Q3 compared to prior periods, with 40% of bookings coming from subscription contracts, a new record. We believe the migration to a higher mix of long-term recurring revenue is the right strategy as we transition to more predictable, consistent growth.
While total revenue declined sequentially as a result of this transition, this result is isolated largely to nonrecurring revenue. In contrast, recurring revenue increased to 77% of total revenue compared to 72% last year.
This result was driven by a higher mix of subscription and maintenance revenues. We still have work to do, and we are focused on the fundamental execution to ensure a solid foundation for future success for clients and shareholders.
Allscripts had an outstanding bookings quarter. Total bookings were $236 million or approximately 47% growth year-over-year and 10% growth compared to the second quarter of 2013.
This substantial uptick in growth over last year reflects a focused execution of our global client organizations. Allscripts' bookings year-to-date increased a solid 14% over 2012.
We again had a healthy mix of sales inside and outside of our core installed base. We added net new clients in acute, ambulatory, Population Health Management and post-acute solutions.
Year-to-date, we have added over 580 new client relationships. Major client renewals and expansions is an important theme again this quarter, and I would like to recap a few of them for you.
We announced a comprehensive $120 million renewal and expanded agreement with Presbyterian Intercommunity Hospital, or PIH, a major healthcare delivery network in Southern California serving a population of over 1.5 million lives. This new agreement runs through 2020, extends its existing partnership and it also expands it into a recently acquired hospital, PIH Downey.
In addition to the current ambulatory and acute solutions, PIH expanded the partnership to include the Allscripts' full suite of Population Health offerings. PIH also contracted for Allscripts' hosting and outsourcing services at PIH Downey.
I'm also pleased to announce that Allscripts signed a new comprehensive partnership in the quarter with New York-Presbyterian Hospital, extending the overall partnership through June of 2019 and expanding the Allscripts into a newly acquired facility, Lower Manhattan Hospital, formerly known as NY Downtown Hospital. We are exceptionally proud of this relationship with New York-Presbyterian, and we look forward to a continuing successful partnership with them in the future.
The consolidation opportunity can also favor us in the ambulatory marketplace. In the third quarter, we displaced a major private HCIT competitor, HealthCare Partners or HCP, a subsidiary of DaVita HealthCare Partners.
HCP manages and operates medical groups across multiple states and manages integrated care management for approximately 733,000 managed care lives. In addition to expanding Enterprise Electronic Health Record across its California medical group sites, HCP has embraced Allscripts for its Population Health Management needs to connect to communities and to empower consumers by selecting both dbMotion and FollowMyHealth.
We will work closely with HCP to enable their vision of being a national role model for a consumer-based, integrated and coordinated care organization. In summary, provider consolidation, along with the impact of accountable care, are driving Allscripts growth and creating opportunities for us.
While some Allscripts' clients may be acquired, we are also seeing the benefits from existing clients growing and expanding through their own consolidation efforts. PIH, New York-Presbyterian and HealthCare Partners are examples.
Now I would like to shift and talk about some specific solutions that we are delivering to the market. Population Health Management is a strategic imperative for most health care executives today.
With the migration from volume to value-based care delivery, interoperable Population Health Management solutions connected to the consumer marketplace are the key to market leadership in the new health care ecosystem. Value-based care requires a digitized care -- chassis across all care settings and across time.
This creates a paradigm shift to a patient-centric coordinated care model with a longitudinal patient record available at all points in the care continuum. Value-based care requires patient engagement solutions that integrate with existing longitudinal patient record investments.
To be relevant to provider organizations growing through an acquisition strategy, these solutions must be EHR-agnostic. Allscripts Population Health Management architecture meets these requirements with a proven solution in wide use today.
This platform starts with dbMotion and FollowMyHealth, combined with other key assets in the Allscripts portfolio. This contrast with competitive offerings that are in the early stage or proof of concept work.
Allscripts patient -- Population Health Management solutions went through such a development phase 6 years ago at the University of Pittsburgh Medical Center. Today, dbMotion integrates with 47 disparate systems at UPMC alone, including all of Allscripts' acute and ambulatory Electronic Health Record competitors.
Around the globe, we, today, can harmonize data from over 227 different electronic medical records. dbMotion serves as the Population Health Management platform at over 500 hospitals globally, supporting approximately 3,000 clinics.
We believe this is unprecedented in the industry today. We believe health care organizations have 2 choices: rip and replace to automate the medical campus, or digitize and protect prior investments to automate the community while innovating for the future.
We offer both choices, a key differentiator. And the proof is in the results.
Population Health Management solutions comprise approximately 40% of Allscripts' total bookings in Q3. Population Health Management bookings more than doubled year-over-year.
In Q3, a large system in the North East chose dbMotion to expand the use of Sunrise into Population Health Analytics, integrating Enterprise EHR and ambulatory settings throughout its own campus and integrating noncommunity-based affiliated physicians across the rest of their community. We also signed a new Southeastern Medical Center client.
They plan to use dbMotion to integrate 2 different inpatient EHR systems, connecting them to share patient data with affiliated physicians in their locale using numerous different EHR platforms. The FollowMyHealth patient engagement platform also had a phenomenal quarter.
We saw excellent traction in the Sunrise base across multiple academic medical centers, with a strong pipeline heading into the end of the year and into 2014. We currently have approximately 50,000 providers currently active on the FollowMyHealth cloud-based platform, a 100% increase year-to-date.
And we believe this represents a significantly larger presence than competitive offerings. Allscripts has long embraced cloud-based architecture and will migrate additional solutions into a multi-tenant cloud based environment as we believe the market requires.
Today, we have multiple cloud-based EHR-agnostic solutions, including FollowMyHealth, Allscripts' Care Management, Care Director, as well as Population Health Analytics. This year, we migrated Professional EHR to a fully remote hosted platform.
In addition, Payerpath, Allscripts ePrescribe solutions, both reside in a cloud environment. Collectively, these cloud-based solutions represent more than 25% of the bookings and approximately 15% of the revenue in the third quarter.
This matters because these offerings enable Allscripts to deliver exceptional functionality at a relatively low cost. In addition, Allscripts cloud-based solutions serves as an innovative platform for a wide breadth of health care end-users, including providers, payers and patients.
In care coordination, Allscripts Care Management continues to gain traction as a scalable, proven technology to digitize transitions of care. Health systems and hospitals are focused on closely managing length of stay via discharge planning in order to prevent unnecessary acute readmissions.
We estimate that we have approximately 38% market share of the comprehensive care management systems with over 1,000 hospitals and 12,000 post-acute providers connecting daily on the Allscripts Referral Network. In Q3, we estimate Allscripts Care Management client transitioned approximately 25% of all hospital discharges requiring post-acute care, a material position for our company to hold in the importance phase of transitioning care out of the campus and into the community.
We also achieved a record of approximately 23,000 electronic referrals occurring daily on the Allscripts Care Management platform and referral management network. Finally, on the post-acute space, we enjoyed a strong quarter.
Of note, we signed the largest new home care agreement in the company's history with Medical Services of America, a leading home care agency. This client expanded their existing relationship with us beyond hospice by choosing Allscripts Homecare in a competitive win.
We continue to expand in home care and hospice to support the growing demand for care delivery in low acuity settings. This is an integral part of the emerging ACO community fabric.
We estimate Allscripts currently has in excess of 25% of the home care market today. Allscripts has been in a transformational mode this year: returning to core execution basics, investing in strategic platforms and most importantly, delivering on critical client obligations.
This is an incredibly challenging time for all of health care. It requires a strategic transition from fee-for-service to value-based care and a tactical transition preparing for ICD-10 and upgrading systems to meet Meaningful Use.
We began an industrial-strength rollout of the MU2 solutions immediately upon their ONC certification and general availability this past summer. Allscripts clients will begin demonstrating for Meaningful Use 2 in the first calendar quarter of 2014.
Since we last talked, multiple clients have completed these upgrades. Today, we offer complete EHR certification for every application required to test for Meaningful Use 2, along with modular certifications for client flexibility.
Allscripts' total eligible provider active stations for MU1 ranks #2 and are nearly twice that of the largest competitor. Taken together, we know of no other company who has progressed this swiftly to help clients to achieve this level of success in the Meaningful Use 1 and Meaningful Use 2 programs.
While at times, there are challenges with new software versions and upgrades, we are working diligently to ensure the best possible experience by deploying on-site resources when necessary and providing executive level attention and resolution where issues might arise. We are closely aligned with Allscripts clients to ensure their success.
As one of the largest and most important to date is Baylor Scott & White Health upgrade to 6.1 Sunrise on October 12 was a key example of a major Sunrise 6.1 upgrade success. This client activation was virtually flawless, and client feedback has been positive.
We saw nearly 4,000 users were online the first weekday following the activation. We believe Baylor now has set the stage for Meaningful Use Stage 2 reporting.
I believe client confidence in Allscripts is increasing. Approximately 90% of Sunrise clients have or will commit to the 6.1 upgrade before the end of the year.
These implementations will continue on a large scale during 2014. In ambulatory, a large West Coast client experienced a successful Enterprise EHR upgrade to version 11.4.1, characterizing it to us as their best executed upgrade, finishing faster than their previous activations and ahead of their budgeted hours.
Looking ahead, what excites me most about Allscripts is the potential of growing the impact we have in health care every day via what we think of as the Allscripts' network effect. We have a presence in over 50,000 physician practices, over 1,500 hospitals and 10,000 post-acute facilities.
And as most of you know, we work with providers of all sizes, not exclusively small physician groups. Allscripts' unique ability to connect these entities to effectively managed care transitions in managed care on and off campus of any given institution remains a tremendous opportunity for which we are well positioned.
We will exploit this as a powerful competitive advantage when we are competing for new clients. For example, we can demonstrate today that an average hospital catchment area has over 3,000 Allscripts clients in that area.
So whether it is through Population Health Management solutions, the Allscripts Referral Network or core enterprise health record, we have a multitude of opportunities to create a Connected Community of Health without having to add new providers. We already have them.
They need to be repurposed or rerouted to new paradigm of care. We have been using Open as a competitive differentiator since 2007.
We can accomplish this with proven leadership and demonstrated commitment to an open platform. We allow for and encourage innovation on top of this mobile architecture.
In early October 1, Allscripts mobile iPad solution for the physician office, hit the 1 million patient mark. It's interesting to talk about being open, but we actually built 1 on the Allscripts open API, the same toolkit we provide to outside developers.
This approach accelerates confidence from clients, partners and software engineers that when Allscripts says open, we mean it, ensuring scalability and exceptional functionality on this platform. We are taking these competitive advantages globally.
We recently hired Rich Berner, a health care IT industry veteran, to lead the Allscripts global business. With recent success of Sunrise activations in the United Kingdom and South Australia, we see further opportunities outside the U.S.
for core EHR and Population Health Management solutions. In Canada, where we had a significant client base, Sunrise Ambulatory Care Modules recently achieved an electronic medical record J-class certification from the Canada Health Infoway.
Infoway is an independent organization accelerating the development, adoption and interoperability of Electronic Health Records across Canada. The organization sets national and international standards for privacy, security and interoperability of HCIT.
And with those comments, I will hand the call over to Rick, who will review the financial results in detail for the quarter.
Richard J. Poulton
Okay. Thanks, Paul, and good afternoon, everyone.
As I comment on the results, please utilize the GAAP and non-GAAP financial statements in our earnings news release, as well as the supplemental data sheet posted to our Investor Relations website this afternoon. I'm going to make first -- first make some broad comments on the quarter as well as our year-to-date progress, and then I'll provide a little more details on the numbers.
We continue to make very good progress on our 4 key financial goals for 2013. These are: stabilize our client base; two, build confidence in Allscripts in the marketplace; third, create a positive momentum in executing our sales and delivery plans; and then fourth, invest for long-term success.
The third quarter was defined by bookings acceleration, a continued mix shift within bookings and revenues to longer-term contracts and continued aggressive investment in order to best position Allscripts to return to profitable growth. The investments we've made in our solutions and the client base are in early stages of creating return as evidenced by this quarter's bookings results.
These investments include our R&D investments, investments in driving a lower long-term cost structure and delivering on our prior client commitments, as well as investments in the capital we made earlier this year as we completed the acquisitions of both dbMotion and Jardogs, 2 very critical assets for ensuring our success in client connectivity as well as patient engagement. Taken together, we'll have invested well over $0.5 billion in 2013 to ensure Allscripts client success and put us on a trajectory for long-term growth.
So now I'll turn to third quarter results. Paul did a very good job of talking about bookings detail, but I want to point out a couple of highlights from my perspective.
We grew bookings 46% compared to the third quarter of last year, as well as increased bookings growth 10% on a sequential basis to the $236 million, a very strong performance by any measure. Certainly, the expanded agreement with PIH helped fuel the growth rates that I just mentioned, but we would have had a strong year-over-year growth even without that agreement.
For the year, bookings are -- have increased 14% on a year-to-date basis compared to 2012, putting us in a very good position to meet the goal we set earlier this year and communicated to you that we intended to grow bookings year-over-year in 2013. When we described our strategy to you last February, we described the goal of ensuring a more consistent, predictable and profitable financial model at Allscripts for the long term.
We set the stage that in 2013, it would be a financial transition period, specifically within our P&L as that shift accelerates throughout the year. I think as you look at the third quarter, you really see that this transition is well underway in our financial metrics, and that this is largely driven by new subscriptions and managed services agreements.
SaaS bookings as a percentage of the total bookings for the period were 40% this quarter, the highest number we have ever had in a single quarter and up significantly from both the year-over-year and sequential comparisons. Within this group, an amount representing 25% of total bookings came from cloud-based delivered solutions, as Paul mentioned earlier.
So while certain competitors of ours would like to think we are a dinosaur EHR company, many of our solutions that Paul enumerated earlier are alive and well in the cloud. Continuing what we saw in the second quarter, we engaged in multiple major client renewals and expansions, including PIH, New York-Presbyterian as well as some others.
These client decisions are a clear indicator of stability and confidence in Allscripts. It is not a one-quarter phenomena, but the latest quarter period of demonstrating this transformation.
And we are seeing these renewals and expansions across our solution suite, including core EHR solutions, managed services and major commitments to our accountable care portfolio. It is in this area where we're having significant success.
Approximately 40% of our bookings came from Population Health Management solutions, and this compared to 1/3 of our bookings last quarter and approximately 25% in the year-ago period. We are executing on a strategic expansion of our offerings to build on this future growth beyond EHR, and you'll see that very much in this quarter.
As a reminder, client renewals for existing services and subscriptions do not count towards our bookings metric. So what you see this quarter is a combination of extended commitments as well as strong add-on sales covering more facilities, more doctors and more post-acute facilities.
As a result of more long-term agreements, we saw our total backlog increase sequentially by 4% or approximately $115 million to a total of $3.3 billion. This is a new high for Allscripts.
One metric that is also worth highlighting is that in 2013, we have added over $0.5 billion to our transaction processing backlog, reflecting subscription renewals, expansions and new agreements. That metric stayed relatively flat during 2012.
So while some of this uptick ties to the renewal cycle, it is also clear that we're making significant progress. Our maintenance backlog declined just slightly.
This is a result of fewer client renewals of multiyear maintenance contracts this quarter due simply to the timing of contract maturities. Maintenance revenue grew sequentially, and I'll discuss that a little more in a few moments.
So while the bookings results are encouraging, for the most part, we are not yet picking up these benefits on the income statement due in part to the timing of revenue recognition. The result of these collective efforts means that our income statement continues to be negatively impacted this year as we post a GAAP loss on significant noncash charges as well as expenses directed at increasing our organizational efficiency.
So now let me turn to the P&L and talk about revenue. Total non-GAAP revenue was $334 million, a decline of 7% year-over-year and 4% sequentially.
The declines in revenue relative to both periods are due largely to a decline in system sales revenue, as well as our professional services. These are both the nonrecurring components of our top line revenue production.
System sales revenue declined due to less software revenue recognized in the quarter, largely a function of the bookings mix shift that I've already talked about. Services revenue had a more notable decline of about $10 million in the quarter.
There are several factors that impacted this decline, including the go-live of several large implementations of our Sunrise platform late in Q2 and early Q3. These were notably -- those go-lives are abroad in both the U.K.
and South Australia. And these projects were not immediately backfilled with other new go-live projects.
Also, we've had a meaningful amount of client service projects in which we are not yet recognizing revenue at the present time due to some -- as clients await some upcoming releases of our product. So these efforts get hung up on our balance sheet as deferred revenue.
We expect that some of this revenue deferral will begin to be recognized in the remainder of 2013 as well as early 2014, and we also expect that MU2 upgrades will provide some tailwind next year. However, we expect quarterly services revenue to settle in the low to mid high $50 million per quarter range for the next several quarters.
In contrast, maintenance revenue increased in the quarter compared to Q2, an encouraging trend relative to client stability and growth. There can be some variability in the quarterly progression of this metric, but generally, we expect a flat trend over multiple quarters in line with our year-to-date quarterly average of maintenance revenue.
This is due to the shift from perpetual license agreements to subscription-based agreements and thus, the recharacterization of these maintenance dollars into transaction processing and other revenue. Our transaction processing and other revenue decreased 3% year-over-year, but it increased 1% versus the second quarter.
The total transaction processing revenue decline compared to last year was due to the roll-off of an outsourcing client that we talked about in detail during our Q2 call. The remaining revenue components of transaction processing, which include our remote hosting and our other transaction businesses, were generally stable relative to prior periods, and that's consistent with our expectation.
You will see in the supplemental data sheet that SaaS-based revenue, which is what we historically call subscription agreements and is included in the transaction processing line, continues to trend up compared to prior periods. In fact, the subscription revenue this quarter of 14% -- is up 14%, I should say, year over year, and that's an important factor to consider as you evaluate our top line going forward.
Overall attrition rates within our core client base are consistent with our prior quarters. Switching to margins.
On a GAAP basis, system sales gross margins deteriorated due to less Allscripts software revenue and it resulted in a higher mix of third-party software, which carries lower gross margins. In addition, we did have a higher mix of hardware during the period as well, which also contributed to this margin decline.
Looking at the impact of noncash expense on gross margin, amortization expense is an increasing headwind when comparing results from prior periods due to the higher capitalized software amortization, as well as the increased acquisition-related amortization from the deals we did earlier this year. For example, total noncash amortization expense within system sales cost of sales measure increased by $6.6 million versus last year, accentuating the margin compression on a GAAP basis.
We anticipate that Q4 will have slightly more robust mix of software revenue, helping to improve the system sales gross margin. Our non-GAAP services margins were relatively stable and continue to be impacted by our continued investments in ongoing client commitments.
On an overall basis, we maintained our corporate gross margins on a non-GAAP basis at approximately 44%, and that was similar to what we had in Q2. As we move down to operating expenses, SG&A expenses as reported, increased approximately $14 million or 15% over the prior year and were essentially flat compared to Q2.
Our reported SG&A was impacted by the following onetime items this quarter. We had approximately $14 million of severance and other nonrecurring costs, and we had approximately $2 million of transaction-related costs associated with the acquisitions we completed earlier this year.
The vast majority of this transaction-related costs relates to deferred consideration payouts. This is the stock consideration we gave in the deal that went to employees that are -- still work for us.
This is recognized as compensation expense, and we will be having this cost with us through the third quarter of 2014. Netting this $16 million of nonrecurring expenses within SG&A, our third quarter adjusted SG&A of approximately $89 million is a decline of $2 million on a sequential basis.
The increase in SG&A compared to last year reflects additional expenses associated with dbMotion and the Jardogs acquisition, which will anniversary in the first quarter of 2014. Turning to R&D.
In the third quarter, our gross R&D expenditures totaled almost $60 million or 20% growth year-over-year. We capitalized $11 million of R&D this quarter or approximately 18% of the total spend.
This is a capitalization rate consistent with Q2 but certainly down from last year. On a reported basis, R&D increased 31% year-over-year due to the absolute spending increase as well as that lower capitalization rate.
We remain on target with our stated goal to invest double-digit growth in R&D investment throughout 2013, and gross R&D and spending, as Paul said, is up 20% year-to-date. These details can be found on the supplemental data sheet on the website.
Allscripts' non-GAAP operating margins were relatively consistent with Q2, again, off of our lower revenue base but bolstered by consistent gross margin quarter-to-quarter. As we've discussed, operational efficiency is a key priority this year as we set our cost structure for the future.
We remain on track to drive $50 million in annualized savings from our cost structure on a full year run rate basis in 2014 when we compare that on an apples-to-apples basis with 2012. Most of these savings will come in the SG&A line item.
Finally, moving down to nonoperating. We recorded approximately $3 million of noncash amortization expense in the quarter, approximately $2.5 million of this runs through our interest expense line and the remainder through our other income expense line.
These expenses relate to recurring charges that stem from convertible bond accounting rules, and we'll continue to add this back as an expense for non-GAAP purposes. Moving to taxes.
Our non-GAAP effective tax rate for the quarter was 20%. This is a decline from the 34% we recorded in the second quarter.
This variance in non-GAAP rate is simply due to the effect of permanent differences on lower expected taxable income base. And so we would expect the rate to be low for the balance of this year.
Next -- we'll give you guidance for next year as we get toward our fourth quarter call. After excluding all noncash and other adjustments we discussed, non-GAAP net income totaled $9 million or $0.05 a share, flat with the second quarter.
Also, weighted average shares outstanding were flat at approximately 178 million shares. Adjusted EBITDA totaled approximately $40 million, and you can see the details of this calculation in Table 5 of the news release.
We ended the quarter with total liquidity of approximately $425 million, and this is comprised of cash, marketable securities and undrawn amounts under our bank credit facilities. So with that, thanks for your time and attention.
I will turn the call back over to Paul before we take your questions so that Paul can update you on a couple of timely announcements.
Paul M. Black
Thanks, Rick. Before we take your questions, I have 2 items I'd like to cover.
First, Cliff Meltzer, Head of our Solutions Development, will be leaving Allscripts by the end of the year. During the past 2 years, Cliff has better driven alignment between research and development and the needs of our clients.
I want to thank Cliff for his contributions, and we wish him well in the future. Effective today, I have appointed Jim Hewitt, Allscripts Senior Vice President of Solutions Development, as the new leader of our Solutions Development team.
Jim is a health care IT industry veteran who brings highly valuable experience as a former Allscripts client, as well as exceptional credentials as a commercial health care IT development executive. Jim was CEO of Jardogs, now FollowMyHealth.
Jim knows Allscripts well both as a client as a CIO of Springfield Clinic in Southern Illinois, as well as through his tenure as the engineering lead for Enterprise EHR at Allscripts from 1999 through 2005. Jim is the right person to take Allscripts to the next level as we will increase the effectiveness of our global development team and precisely align development resources with our clients and their requirements for the future.
Secondly, we are privileged to announce a 5-year extension and expansion of our relationship with Montefiore Health System in New York, which signed in Q4. Allscripts will upgrade both Montefiore New Rochelle and Montefiore Mount Vernon hospitals to Sunrise 6.1, as well as Sunrise Clinical Analytics, Radiology and Laboratory systems.
This agreement also opens an opportunity for implementation of FollowMyHealth within Montefiore. We have been committed to these hospitals for many years, and we look forward to working with this prestigious health system in the future.
And with that, we will open the call for questions.
Operator
[Operator Instructions] Your first question comes from the line of Charles Rhyee.
Charles Rhyee - Cowen and Company, LLC, Research Division
If I could ask a question, I guess, then around the Allscripts Care Management platform, if you can go more into that and kind of describe to us a little bit more in detail what are the parts that go into that, what type of provider's on it and sort of what kind of referrals, what kind of information is going through that right now when a referral gets sent back and forth, that would be great.
Paul M. Black
Sure. So the key to this is having a caregiver that's at a discharge location, typically an inpatient setting, is trying to figure out and coordinate the care of that person who's going to an outpatient setting where the sort of step-down unit, a SNF, which is called a skilled nursing facility, a home care agency.
And what traditionally has happened without this kind of capability is that you would send somebody out with paperwork. And what we do is we send out an electronic exchange, send acknowledgment and receipt of that information from us to the receiving organization.
So the referral network is extraordinarily important component to the overall case management solution that we sell. One is just the management of all the documentation that has to accompany the patient as they depart the hospital.
And the second one is the receipt of that information on the other end so that they can continue the protocols and the care path that, that patient might be on in order to effectively manage the trajectory and effectively manage their health in the post-acute setting.
Operator
Your next question comes from the line of George Hill.
George Hill
One of the -- the first question I'm going to ask is something I feel like I should probably know the answer to. With everything that we're seeing in the macro health care environment with respect to benefit design changes, we feel like we're seeing a lot of demand for what I would call ability to pay tools, eligibility verification tools, EOB, the point of care tools.
I guess I wanted to ask if you guys are seeing the same thing, and how do you feel like you're positioned to penetrate that market on the rev cycle side?
Paul M. Black
That's a good question, George. Thanks.
We are seeing that as well, and we think that the managed care component to the practice management systems that we have and on the revenue cycle on the patient accounting side are very important pieces that we have in place in some instances; in some instances, are things that are in the development organization to be built this year. So those are additional either buy, build or partner for those.
Historically, we've been partnering for them, and I've been pretty interested in spearheading the engineering organization to build more of it. And in some cases, on the practice management side, we have those capabilities today.
George Hill
Yes, and I guess, Paul, with a quick follow-up there, is that on the path down the road to population health, does this change in macro benefit design seem like an -- I guess I would ask you, how much of an intermediate step does it seem like? And just kind of are you perceiving things kind of the same way that I'm seeing things at my end?
Paul M. Black
I think the change in the benefit design might be an interim play. If you play this out far enough and dependent upon what part of the world you're operating in, like whether you're in California or some places in New York where you have a very high percentage of capitation and in some cases full cap, you will see the co-pay component to be a very important piece.
But you're going to see a decline in the emphasis on a claims processing system, as an example. That will also then put more pressure on folks to understand at the shop floor what their costs are, which we feel we're very well positioned with, with our EPSi solution, our cost accounting solution, which is pretty interesting to see the way this is all playing out.
Operator
Your next question comes from the line of Robert Jones.
Robert P. Jones - Goldman Sachs Group Inc., Research Division
Yes, just wanted to ask about conversion. The bookings have been growing nicely impressive this quarter, especially when you consider the historic seasonality with 3Q.
But you're clearly on the revenue side not quite tracking where the Street had been expecting. Can you maybe just talk about the right way to think about the backlog configuration and conversion expectations going forward?
Specifically, I guess if I think about Population Health and dbMotion becoming a bigger component of the new wins, anything you can share on how we should be thinking about revenue conversion will be really helpful
Richard J. Poulton
Yes, Bob, I mean, it's clearly -- that's the challenge. I mean, that's in part why I'm trying to give everybody a little more thought thinking on our services revenue.
I think when I look at where the Street was relative to us and try to decompose it, I think the nonrecurring pieces of our revenue are where we're seeing the biggest variation, not the recurring pieces. And that's kind of natural as we switch from less perpetual license sales to more subscription base.
So that's what's flowing through now. There's probably -- there's no real easy way to think about it.
I think you can sort of say on average, a subscription deal is probably a 5-year type deal, and you turn the meter on after you install it. Different products have a little bit of a different installation cycle.
So contrast sort of the FollowMyHealth portal, that's a pretty short cycle between order taking and when it goes live versus, say, certainly a Sunrise install at the other end of the spectrum. But even dbMotion is a little longer term install right now.
So you have that gap to install, and then you kind of think of it as probably a 5-year ratable recognition after that. So when you put that in the whole context of the whole backlog, there's lots of moving pieces, and it's pretty tough to generalize.
But those are the things you have to think about.
Operator
Your next question comes from the line of Ricky Goldwasser.
Ricky Goldwasser - Morgan Stanley, Research Division
Can you talk a little bit with more detail about your replacement opportunity? As it relates to acquisition, how long does it take when one of your hospital customers make an acquisition for them to have that conversation with you about replacing?
And somewhat related is what percent of the new dbMotion contract that you have sales overlap with Allscripts clients versus clients that use other vendors?
Paul M. Black
On the first one, it depends upon the strategy of the organization, but if it's an inpatient facility, when we see them in the cases that we cited in the call today, the 4 different organizations, they have been buying and then immediately contracting with us to begin a project by which to go put system -- or put our systems in. Once they've made that, if you will, enterprise determination that not only are they going to affiliate with the facility, but there's going to be an asset transfer.
And so on the 4 that I cited today, the 3 inpatient settings and the 1 outpatient, those were all -- once they've made those affiliations, they are putting us in. On the dbMotion question, I'm not sure I was tracking with what the question was.
Richard J. Poulton
You're saying in our base versus outer base -- outside our EHR base. Is that what you're saying, Ricky?
Ricky Goldwasser - Morgan Stanley, Research Division
For the new bookings.
Richard J. Poulton
So I think it's fair to say dbMotion being new to the family is still probably you're spending most of the time building a pipeline off of our EHR client base, but it's not -- certainly not exclusive. When we bought the company, about half their business was outside our base and they continue to prospect outside our base.
And I know your question was just on dbMotion, but I'd just say there are other solutions in our Population Health Management which are much more skewed towards outside our EHR base.
Operator
Your next question comes from the line of Michael Cherny.
Michael Cherny - ISI Group Inc., Research Division
So one quick clarification for Rick. You mentioned something about tax guidance.
I assume that you meant just for taxes, not for actual guidance in 2014 as we get close to the 4Q call?
Richard J. Poulton
Yes, that was definitely the context, Mike, that I set it in with some tax rate because I know we had given tax rate guidance earlier this year and it's moving around a little bit due to the changing pretax income levels. But -- and so I'd like -- I thought we'd clean that up for expectations going forward on the next call.
Yes, we're not saying right now what else we'll guide towards. We'll certainly, I think, continue to share our thinking as we get to the year end on what we see ahead.
But what that exactly looks like right now, we're not going to say.
Michael Cherny - ISI Group Inc., Research Division
No, that's my understanding. Appreciate that.
And then Paul, maybe another question around dbMotion given that it's now been part of the organization for a few months. So obviously, this, along with a lot of the other tools you have, are playing out well in the bookings.
I guess, how does your sales force reacted to being empowered with some of these other tools, some of these other packages? It's showing up in the bookings.
But in terms of the education process you've done with them, having them go back out to market particularly when they're going to clients with some of those Population Health that maybe are not traditional Allscripts clients, I guess what has energized them and what's the feedback they're getting particularly for clients that you're still pursuing in the pipeline but maybe haven't really signed yet?
Paul M. Black
The sales reps really like having something in their quiver that allows them to pull out when they're out in the marketplace. We've got a lot of great relationships in the market with existing clients.
And with new business, this is something that seems to be front and center in most of the executive minds that we have the privilege of talking to. So the sales reps needed to get some education.
But as a reminder, we've been working with dbMotion now for over 4 years. So it wasn't a brand-new concept to us, and it wasn't a brand-new concept to the sales force.
We are, though, making sure that all salespeople have the educational background to be able to have a fluent conversation about this topic versus having to bring in a specialized sales force just to have a conversation around this. So we are training people, and we're making sure that they are understanding the totality of the expanded placemat of solutions that we now have.
The other thing that's interesting is we actually got some very quality executives that came with those acquisitions, as well as a quality engineering organizations and a quality support and delivery organization. So there's been a lot of, if you will, gems in the asset that we bought in addition to the core technology, which has been a very pleasant surprise to all of us.
And last but not least, the combination of Jardogs, now FollowMyHealth, and dbMotion has been a pretty powerful asset combination when we go out to the marketplace because people who wanted -- they do want to connect and interoperate, but they also want and start investment for and have a meaningful dialogue around what the patient engagement strategy is for their health system.
Operator
Your next question comes from the line of Greg Bolan.
Gregory T. Bolan - Sterne Agee & Leach Inc., Research Division
Paul, could you maybe talk about the replacement of Cliff? And just trying to think of the appropriate way to ask this, but clearly, Allscripts is on a new path here while you're at the helm.
And just wanted to kind of see, is the replacement just kind of, I guess, putting leadership in place that you feel can allow you or enable you to take that additional share, expand that footprint within the acute ambulatory arena and kind of more in line with your longer-term vision for the company?
Paul M. Black
Cliff did a great job for this company for a long period of time. I feel that on a going forward basis, that the alignment that we need to have between the amount of money that we spend on our research and development, between the ever-growing wants and needs of our installed base and the vision of the company to make sure that we are a relevant player in the Connected Community of Health are all really important components of how we are managing every element of the business on a going forward basis.
The thing that we've been focusing on internally, as you've heard us say probably a thousand times, is the focus on execution and the focus on making and keeping obligations to clients. So we are extraordinarily laser-focused on every element of the company, every report, every executive, every meeting, where we start and begin with, what are we working on and how are we spending the money, how is the money that's being spent right down the middle of the fairway of what the current needs of the clients are, as well as how do we spend additional money on the wow factors and on some of the things that other, perhaps, competitors may not be contemplating.
So I feel very good about the team that we have in place today. Their -- at their ability to build a high-performance organization amongst all of them, their knowledge of the solutions that they are saying grace over and are accountable for are all extremely important.
And last but not least, we're running it by, if you will, the numbers with regard to how much money we spend, the project plan, the deliverables, the dates and the functionality are all in there and being managed at a corporate PMO that is a regularly reviewed weekly activity with either a green or a red light on where we are.
Gregory T. Bolan - Sterne Agee & Leach Inc., Research Division
That's great. And just last question, on HealthCare Partners, known to be a well-respected, good reputation within the ACO world.
Is it fair to say that dbMotion may have played a fairly significant role in your ability to displace a large private health care IT vendor there?
Paul M. Black
That's -- the answer is yes. But they also have been a really strong Enterprise EHR client for a long period of time.
They have a very large internal IT shop that is extraordinarily adept at being able to convert their constituents', their caregivers' requirements into contextual workflow using our systems working with us. They also have a very bold vision for what they want to do and how they compete in the markets that they compete in.
And they have an acknowledgment that the ability for them to connect inside of their physician offices in multi-specialty groups, as well as connect outside to the rest of the community in order for them to be a relevant player, are all extremely important. But they have been a believer in the open platform for a long period of time, and I do believe that they are extremely eager users of dbMotion and they want it installed as quickly as they possibly can.
Operator
[Operator Instructions] Your next question comes from the line of Eric Coldwell.
Eric W. Coldwell - Robert W. Baird & Co. Incorporated, Research Division
First off, you went through a laundry list of solutions that you have that are cloud-based in nature. That was really good disclosure.
During that discussion, you threw out something on Enterprise and I missed it. Just curious if you could kind of tie that into your cloud strategy and what you've done with Enterprise because I don't want to miss that one.
And then I guess my 0.5 question is, 15% of revenue today cloud-based in nature. I was hoping you could put that in context with where that might have been a year ago and how you see that trending over the next year or 2?
Paul M. Black
Yes. On the Enterprise question, it's -- we remotely host it in some cases today, but most of the time -- today, most of our Enterprise clients, especially our larger clients, are client hosted around premise, which represents an opportunity for us to go back in to outsource and to migrate those folks to our data center, which a lot of them are beginning to raise their hand and saying, "Given my CMS cuts and some of the other things that I've been working on, why don't you give me a quote for us, for you, Allscripts, to host our solutions."
Eric W. Coldwell - Robert W. Baird & Co. Incorporated, Research Division
And then the 0.5 question, 15% of revenue cloud today, where was that a year ago and where might it go over the next couple of years?
Richard J. Poulton
Don't have off top of my head where that was a year ago. So I mean, we may have to cover that, go looking backwards.
But what I can say is with 25% of bookings and 15% of revenue, you -- bookings is the leading indicator of revenue, so that number should go up.
Operator
And your next question comes from the line of Jamie Stockton.
Jamie Stockton - Wells Fargo Securities, LLC, Research Division
I guess just, Paul, the traction that you guys have had recently when it comes to some of these SaaS solutions, especially the multi-tenant solutions, has it changed the long-term thought about what you're doing in the ambulatory space as far as leaning toward more remotely hosted? I mean, I hear your comments to the previous questions that you're seeing a lot of incremental interest in the remote hosting solution.
But have you thought about whether there is a place for a true multi-tenant solution in the future on the ambulatory side?
Paul M. Black
Yes. To me, whether it's multi-tenant or whether it's hosted, we absolutely are going to go in that direction from the standpoint of that's what clients want, and we will always be very malleable when a client says, "This is the way I like it and I prefer to pay for, acquire and have my system managed."
There's a lot of benefit to them of having somebody else run, operate, build, support, upgrade systems, if you will, in the cloud or behind the wall or behind the curtain, and we intend to move to an environment globally where we are doing much more in offloading our clients, much more of the work is coming to us versus staying on site with them.
Jamie Stockton - Wells Fargo Securities, LLC, Research Division
Okay. And then maybe, Rick, just gross margin profile for the typical SaaS solution, if you could update us on that?
Richard J. Poulton
So our -- again, we use this term SaaS to really describe all of our subscription models. So whether it's delivered through a kind of a classic multi-tenant, cloud-based delivery or just remote hosted, when we use the term SaaS, we're including both.
It's significantly north of where our enterprise gross margins are right now.
Operator
Your next question comes from the line of David Larsen.
David Larsen - Leerink Swann LLC, Research Division
Can you talk about the in-sell opportunity for your Sunrise 6.1 platform and also the Enterprise 11.6.1 platform?
Paul M. Black
I'm sorry, our what?
David Larsen - Leerink Swann LLC, Research Division
The in-sell opportunity. So for your existing base of hospital clients, I mean, how many are -- how many facilities will need to install those products?
Paul M. Black
In the United States, all of them will, and we are -- I think I said in my comments, a very high percentage of our Enterprise Sunrise and Pro base have signed for the upgrades. They need those upgrades to get their Meaningful Use 2 dollars.
And just so you know, that gives us an opportunity to talk to them about whatever else they have, and they've got their organizations lined up to go do an upgrade and you'd like to get additional value out of spending the time to do that upgrade. They'll get a lot of value when they get their Meaningful Use 2 check, but that's a really great time to also talk to them about FollowMyHealth patient portal, about a lot of the other solutions that we have that in many cases, they were unaware of.
David Larsen - Leerink Swann LLC, Research Division
Okay. And then you've also mentioned the term global a couple times.
I mean, which countries are you expanding most aggressively in? Is that a significant focus?
Paul M. Black
We have a big focus in installed base both in Australia, Canada, Singapore and the United Kingdom.
Operator
And your final question comes from the line of Richard Close.
Richard C. Close - Avondale Partners, LLC, Research Division
Just a follow-on on David's question here with respect to the upgrades. I think you mentioned 90% committed to 6.1 in '14.
How comfortable do you feel that the team you have in place can continue, I guess, the flawless execution that you've had already on the most recent upgrades?
Paul M. Black
Well, I'm never comfortable, which is why we continue to have the inspections that we have every week. And it's not that the people that are here aren't great.
It's just that with the reason that in my opinion that we've done as well as we had is we've had a lot of inspection and we've had a lot of collaboration internally, as well as with our clients, to make sure that people understand the complexities that surround an upgrade of this magnitude. So it's the mechanization of that is what I'm trying to get to such that there's very little variance as we go from the 16th to the 30th to the 50th to 100th upgrade, and that we're also, as I've mentioned a minute ago, adding some interesting, cool applications that go along with that, that add a lot of value to the health systems.
So it's not just a like-for-like upgrade to get the Meaningful Use. We've bought a bunch of additional features, whether it's Enterprise Pro or Sunrise, that people have been asking for.
So that's part of the reason why they're doing the upgrades in addition to the MU2. But it's broadly, I feel very confident that this team will continue to execute at the ramp that they've been doing.
And after you've done a large number of upgrades, they actually get a bit easier because you've seen a lot of the issues before and you've been able to surveil the upgrade and the entire client environment in a much more effective way to understand what you're walking into. Well, thank you very much for your questions today.
To wrap it up, we are pleased with the sales in the quarter, which usually is a very tough quarter for HCIT. And with the growth in recurring revenue, we are migrating to an increased financial consistency and predictability over time.
We're delivering on our major software upgrade obligations, accelerating the client base toward readiness for ICD-10, Meaningful Use 2 and beyond. We have a strong leadership position in the post EHR market and are positioned well ahead of the competition in scale, solutions available now and our corporate philosophy and design to be open.
Finally, we also see multiple opportunities to grow wallet and market share in the core business as the company's client base grows through this consolidation phase. We expect to leverage the company's vast, connected community network as a strategic asset.
So we look forward to speaking with you again soon. Thank you very much.
Operator
Thank you for participating in today's conference call. You may now disconnect.