Nov 6, 2015
Executives
Seth R. Frank - Vice President-Investor Relations Paul M.
Black - President, Chief Executive Officer & Director Richard J. Poulton - Chief Financial Officer
Analysts
Richard Close - Canaccord Genuity Group, Inc. George R.
Hill - Deutsche Bank Securities, Inc. Nathan A.
Rich - Goldman Sachs & Co. Michael Aaron Cherny - Evercore ISI Garen Sarafian - Citigroup Global Markets, Inc.
(Broker) Greg Bolan - Avondale Partners LLC Matthew D. Gillmor - Robert W.
Baird & Co., Inc. (Broker) Sean Dodge - Jefferies LLC Charles Rhyee - Cowen & Co.
LLC Chris E. Abbott - Leerink Partners LLC Mohan Naidu - Oppenheimer & Co., Inc.
(Broker) Nicholas M. Jansen - Raymond James & Associates, Inc.
Gene Mannheimer - Topeka Capital Markets David Ho - Barclays Capital, Inc.
Operator
Good afternoon. My name is Amanda and I will be your conference operator today.
At this time, I would like to welcome everyone to the Allscripts Third Quarter 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers' remarks, there will be a question-and-answer session. This call will last approximately one hour.
Thank you. I would now like to turn the conference over to Seth Frank, Vice President of Investor Relations.
Please go ahead.
Seth R. Frank - Vice President-Investor Relations
Thank you, Amanda, good afternoon. Our speakers today are Paul Black, Allscripts Chief Executive Officer and Rick Poulton, Allscripts President and Chief Financial Officer (sic) [Paul Black, Allscripts Chief Executive Officer and President, and Rick Poulton, Allscripts Chief Financial Officer].
A few opening forward-looking statements here. Some of the statements that we'll make today will be considered forward-looking, including statements regarding future investments and our future performance.
These statements involve a number of risks and uncertainties that could cause our actual results to differ materially. These forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise these forward-looking statements in light of new information or future events.
Please refer to our SEC filings for more detailed descriptions of the risk factors that may affect our results. And now I'd like to turn the call over to Paul.
Paul M. Black - President, Chief Executive Officer & Director
Thanks, Seth. Welcome to the Allscripts third quarter earnings call.
Results this quarter were strong across the business. Bookings of $272 million were a third quarter record and the third consecutive quarterly record this year.
Recurring revenue is strong and continues to climb. Gross margins increased for the second quarter in a row, and continued focus on containing operating expenses drove double-digit growth in adjusted EBITDA and non-GAAP EPS.
Quarterly new client count is approximately 180 and totaled 560 year-to-date. Overall, this quarter demonstrates excellent momentum in the business globally.
Now some details, we had a great quarter in the Sunrise platform, driven both by new client and add-on sales to our existing base. We signed University Hospital of South Manchester, an 850-bed teaching hospital in Manchester, England, to the Sunrise platform.
This client will implement a complete solution, including Sunrise acute and critical care, ED, mobile, FollowMyHealth and Patient Flow. Stateside, we won a highly competitive opportunity with Baptist Health Care in Pensacola, Florida.
Baptist is the largest new Sunrise agreement in the United States market in recent years. It includes Baptist Hospital, a 492-bed tertiary care facility, two additional hospitals, several medical parks and associated physician practices, including the prestigious Andrews Institute for Orthopaedics & Sports Medicine.
Baptist is going all in with the Sunrise as an integrated platform for in-patient, out-patient, and revenue-cycle management across all care settings. This includes Allscripts' population health solutions, including dbMotion, FollowMyHealth, and EPSi.
The success we are having in the acute replacement market is a function of strong clinical functionality, a compelling total cost of ownership model, and an implementation approach that is highly efficient. We believe the wins this quarter firmly put to bed the myth that there are only two competitive alternatives in the marketplace.
In the physician market, bookings were strong as we grew both our EMR footprint and recurring managed services. We are expanding Allscripts' partnership with Catholic Health Initiatives, a strategic long-term TouchWorks client.
CHI has engaged Allscripts to manage the daily requirements of its mission-critical IT infrastructure and clinical operations. This approach allows CHI to focus on delivering outstanding patient care.
This week, another one of our largest Allscripts TouchWorks EHR clients, Advocate Medical Group, selected Allscripts' Hosting Solutions to help improve system stability and overall performance. Advocate also signed a long-term extension for TouchWorks.
Successful implementations at Southern Illinois University, where 400 providers went live in one day, highlighting TouchWorks' scalability and large multi-specialty groups. CapitalCare Medical Group, a 130-provider, multi-specialty group practice in Albany, New York, chose Allscripts' Practice Management and Payerpath solutions as a replacement for its legacy practice management solution.
They also extended their TouchWorks' EHR term for seven years. New client bookings for professional EHR and practice management were strong in Q3.
New provider counts are at the highest level in several years. A key to our success in the EHR market is Allscripts' approach to designing solutions based on client feedback and the use of best-in-class UI design processes.
I'm proud to announce Allscripts received a perfect score for TouchWorks and Sunrise on a recent comparison of EHR vendor user-centered design processes, usability testing methodology, and transparency of test findings. The scoring was on evaluation framework created jointly by MedStar Health, National Center for Human Factors in Healthcare, and the American Medical Association.
The framework was based on best practices and recommendations from the human factors and usability literature and on the ONC's user-centered design criteria. In addition to strong usability testing methodology, these perfect scores reflect the rigor Allscripts applies to our entire user-centered design process as we research and design solutions with usability and safety in mind.
With the multi-year investments that we've made in our core EMR solutions, we are seeing success in retaining and in attracting new clients for managed services, value-based care programs, and RCM services. We see demand by healthcare providers to migrate the value-based care, create ACOs, conduct patient outreach, and utilize analytics for care improvement and cost management.
A first step in this journey implementing chronic care management programs, allowing for improved care quality and outcomes for the chronically ill populations. We have signed up dozens of clients, representing hundreds of physicians.
We have enrolled tens of thousands of patients in value-based management programs that will generate improved patient care and revenue opportunities for our clients. The ACO service offerings complement Allscripts' leadership in solutions for population health management.
A large West Coast health plan contracted with us for dbMotion to manage the care specific patient cohorts. We added multiple second-generation consumer engagement platform clients in Q3, including Catholic Health Initiatives, who will replace a legacy third-party portal with FollowMyHealth across its 1,500 TouchWorks providers.
This is the largest FollowMyHealth contract that we have ever signed. We see good demand for post acute and transitions of care solutions, reflecting attempts to aggressively manage acute care utilization.
New client sales were strong for other population health solutions, such as Homecare and EPSi. The largest not-for-profit hospice in Illinois has selected Homecare in a highly competitive situation.
A major South Florida health system chose Homecare over an integrated module available from its incumbent EHR supplier. A children's hospital in Northern California selected EPSi for cost accounting over competitive solutions and its legacy solution provider.
Our global business continues to pick up momentum. Allscripts' investments in these markets continue to produce results with client satisfaction and new business.
New client go-lives have been successful, such as the Guam Regional Medical Center with an integrated Sunrise clinical and revenue cycle solution during Q3. We continue to have renewals and extensions across the global markets.
For example, a provincial government in Canada will extend Sunrise as their e-health foundation across the entire jurisdiction. Accomplishing early outcomes with their strategy, they continue to advance our solutions across the continuum while focusing on improving access to care, a provincial priority.
This province is also at the forefront of connecting the community by leveraging our population health platform, dbMotion, to connect over 420 primary care clinics. Looking at Allscripts' strategic priorities in the market, we continue to focus on leadership and innovation promoting open interoperable systems.
We have led in this area for many years and now healthcare leaders are seeking interoperable solutions to overcome data silos and data blocking attempts across disparate EHR systems. When HIEs are unavailable or not practical, we have seen a tremendous uptick in clients sharing data via Allscripts Direct, a format physicians can use to send summary of care information without interface or middle layer of technology.
Where HIEs are available, clients are sharing data bidirectionally, with either state or regional HIEs allowing them improved access to clinical information. And for organizations who want to minimize clicks to impact, dbMotion enables highly sophisticated open systems to connect our interoperability semantic platform to normalize and share data, delivering it directly to the clinician's work flow.
Today, dbMotion connects over 808 distinct source systems to more than 640 hospitals and healthcare facilities around the globe. One national health system client is receiving an average of 3 million messages a day, and in one month added almost 800,000 new encounters across the dbMotion platform.
In Q3, we completed an implementation of dbMotion across a major health system in the Southwest. Since the initial rollout in March, the platform has successfully processed more than 36 million messages and connected more than 1 million patients.
14 different source EHRs are connected, emblematic of most U.S. healthcare markets as they manage care across complex settings through multiple EHRs in their communities.
This client plans to aggregate data from 18 different source systems across more than 90 facilities, including an associated eight (10:29) accountable care organizations and six different health plans. Allscripts' success with consumer engagement has been remarkable over the last three years.
In Southern Illinois, Memorial Physician Services has achieved 17% of the group's patients, almost 19,000 people, using FollowMyHealth. In fact, all major providers in the Springfield area are utilizing FollowMyHealth, providing patients with a single consumer record sitting on top of multiple electronic medical records, eight major hospital and clinic organizations in Southern Illinois.
Here is a few statistics on FollowMyHealth. We're connected to over 8,775,000 (11:13) patients, 1 million of whom are attached to more than two different organizations, demonstrating the use of a portal which is what we call non-tethered.
In other words, it can connect to multiple different electronic medical records; they don't all have to be sourced from Allscripts. We have over 3,522 different organizations who have access and are attached to FollowMyHealth, and we have over 399,000 providers who are also attached and using FollowMyHealth to connect and to communicate with their patients.
To conclude, I'm very pleased with our Q3 performance. We are improving EHR systems globally, installing interoperable and open solutions, and facilitating better transitions of care, we are adding hundreds of thousands of patients and providers to our consumer engagement platform.
Longer term, we see the opportunities for paradigm shifts in care, utilizing precision medicine through genomic technology that will change the way healthcare and wellness are being managed. And now I'll turn the call over to Rick.
Richard J. Poulton - Chief Financial Officer
Okay. Thanks, Paul, and good afternoon, everybody.
Thanks again for joining us today. As I review the third quarter details, please reference both our GAAP financial statements, as well as the non-GAAP tables in our earnings release and the supplemental data book that's posted to our Investor Relations website.
To re-emphasize some of Paul's opening commentary, the third quarter was a strong one for Allscripts on many fronts but particularly in terms of financial performance. Results continue to track well against our annual guidance, and the overall picture nine months into the year aligns with what we've been saying to you for multiple quarters about our goals.
Specifically, annual growth and bookings, an increasing mix of recurring revenue as a percentage of the total, improving gross margins, continued operating expense control, and all of which collectively yield significant double-digit growth and adjusted EBITDA earnings per share and cash flow. So we remain very focused on delivering on the commitments we've made to both our clients and our shareholders, and our execution across the company has never been stronger than it is right now.
So let's look at sales. Once again, we recorded $272 million of total bookings.
This was a third quarter record and it's the second-highest bookings level in Allscripts' history. From a growth perspective, bookings increased 22% versus last year's third quarter and were up 13% on a year-to-date basis.
From a mix perspective, approximately $120 million, or 44% of the total, was related to software delivery. These software delivery bookings increased 4% in the quarter and 12% year-to-date.
Recall that software delivery includes our subscriptions, license software, hardware and transaction-related revenue. And once again as a reminder, maintenance associated with perpetual software licenses is not included in our bookings metric.
The remaining $152 million, or 56% of the total bookings, were related to client services. These include both recurring services such as managed IT, rev cycle management, and value-based care services but also include non-recurring other project-based client services.
Paul highlighted a few of the notable transactions in the quarter that contributed to these results and that includes both our new Sunrise wins at both South Manchester as well as Baptist Pensacola and also the managed IT services agreement that we signed with Catholic Health, but we really saw widespread strength across in-patient ambulatory and post-acute market segments. It's important to note that the Sunrise wins have a significant services content in those contracts, so those transactions get split across the mix categories that I discussed above.
As a result of our sales activity for the quarter, our contract backlog was $3.6 billion at the end of the quarter. This is a 4% increase year over year, and it's up $150 million from last year's third quarter.
Transitioning over to the P&L, our total revenue increased to $355 million in Q3, a 2% overall increase on a year-over-year basis. However, in terms of revenue mix, we again saw a similar trend to what we have seen all year with stronger growth in our recurring revenue, which is then significantly offset by declines in our non-recurring revenue.
But the rate of decline for non-recurring revenue has slowed, and this allowed us to realize a net overall growth for the first time in the last four quarters, so we are quite pleased with that. Recurring revenue, which consists of our subscriptions, recurring transactions, support and maintenance, as well as recurring managed services, grew 6% on a year-over-year basis; and it constituted 75% of our total revenue.
This is up 300 basis points from the third quarter of last year. Also, just for perspective, if you – excluding support and maintenance revenue, which is – we've discussed in the past – we do not expect to grow much due to an increasing client preference for subscription-based models, our recurring revenue increased 12% on a year-over-year basis.
Our recurring managed services revenue was a standout with 20% growth year-over-year, driven by the areas Paul discussed, specifically hosting, outsourcing, value-based care services, as well as revenue cycle. Our non-recurring revenue was down 9% year-over-year but essentially flat on a sequential basis with Q2.
As I reflect on the last four quarters, as well as what we see in backlog today, I'd expect non-recurring revenue to continue to be in the $80 million to $90 million range quarterly for the near-term. So we should be near the end of anniversarying large year-over-year declines.
As I look ahead to Q4, I'm – similar to last year, I'd expect project-based services work to be a little lighter than we saw in Q3 due to the holiday season, so overall this may take us a little closer to the middle of the range for non-recurring revenue. On the long-term basis, we'll continue to emphasize recurring revenue and our new sales activity, and we'll do that in order to help provide more predictability and buffer what modest volatility that we see in the non-recurring buckets.
Turning to non-GAAP gross margins, as we discussed in both our first and second quarter earnings conference calls, we expected to see significant improvement, and we're very pleased with the 46.4% margin that we realized this quarter. Margins improved both across our software delivery as well as our client services.
Within software delivery, where we posted our highest margin ever at 64.5%, we benefited from both favorable mix of our own software versus third party software or hardware; and we also benefited from improved support and maintenance margins. So while mix can change quarter to quarter, we believe the support margins are durable, and looking ahead, we expect to continue to post better-than-historical-average margins in this area.
Within our client services, prior actions taken to align our resources with client demand as well as improving our hosting margins helped us reach our goal that I had discussed at length in our second quarter call of achieving low double-digit levels by the fourth quarter of this year, so we are very pleased to have achieved this result one quarter earlier than we had planned and to have done it so decisively. Moving down to operating expenses, Allscripts' non-GAAP SG&A declined 4% from the year-ago period to $76 million.
We saw a small uptick in SG&A on a non-GAAP basis compared to Q2. This is not due to an increase in core spending but rather it's a seasonal effect from our ACE user group conference that we hosted in August, and I previewed that in our last quarter's call as an anticipated event.
So, as a result, I would expect slightly lower SG&A in Q4. You will note on Table 4 of the press release, which contains our non-GAAP income statement, that we recorded $9.9 million of non-recurring expenses in Q3.
And that's larger than the $2 million to $3 million that I discussed last quarter. While we had a modest amount of charges in the quarter for severance and work efforts surrounding the DoD proposal, and those were in line with what I had forecast last quarter, the balance of this charge relates to the settlement of some outstanding litigation.
Removing litigation-risk overhang has been a theme for the company all year, and while we would, of course, prefer not to have this one-time expense, we believe that our efforts in Q2 and Q3 removes significant uncertainty surrounding potential future litigation liabilities for the company. So all in all, we think it was well worth doing.
Looking at R&D, we recorded total expense of $48 million on the income statement and we capitalized $11 million to our balance sheet. Thus, our total gross R&D spend was approximately $59 million for the quarter, and that's a 5% increase year-over-year.
We maintain a strong commitment to innovation for our clients and building out our capabilities in emerging areas of healthcare and we will continue to do this while still generating significant increases in profitability and cash flow, the same theme that we discussed last quarter. Moving down the P&L, our adjusted EBITDA, as calculated and illustrated on Table 5 of the press release was $66 million, a 44% increase year-over-year and a 540-basis-point improvement in margin on a year-over-year basis.
This is a great performance, and it's emblematic of the leverage that we have in our business. Accounting rules required us for GAAP purposes to apply equity accounting methods to our investment in NantHealth.
This resulted in a non-cash, pre-tax reduction of $1.4 million to GAAP pre-tax earnings in the quarter. We expect to have similar accounting treatment until NantHealth converts from an LLC to a C-corp, and then at that time we would expect to revert back to a more traditional cost-based method of accounting.
So for now, while we have this accounting effect, this amount is added back for purposes of calculating adjusted EBITDA, non-GAAP net income, as well as non-GAAP earnings per share. In terms of interest expense, as is typical, we recorded approximately $2.8 million of non-cash interest expense.
That's related to our convertible notes, and we continue to exclude this from non-GAAP net income. As discussed in our press release, we amended our bank credit facility during the quarter, and this provides us with numerous benefits, including an increase of $150 million in availability.
It also provides lower drawn pricing. It provides us significant covenant flexibility and also extended the tenure of the facility.
So, all in all, this new facility will provide us significant strategic flexibility as we look ahead. But as a result of this amendment, we had to write off $1.4 million of previously deferred debt-issuance costs, and this is included in our GAAP interest expense for the quarter, but we do exclude this for non-GAAP results.
Finally, our non-GAAP net income for the quarter totaled $25 million overall, and this equated to $0.13 per diluted share. That compares to $12 million in non-GAAP net income in the year-ago period, which was $0.06 per share, so more than double on both of those measures.
Year-to-date, our non-GAAP net income is $62 million, and as we disclosed in the press release we have generated $81 million of free cash flow during the nine-month period. So we're quite pleased with the progress that we've made year-over-year both in the amount of free cash flow as well as the efficiency we are showing in driving and converting net income to free cash flow.
This will continue to be a goal as we look ahead. So now let me close my remarks with some comments on our guidance.
With one quarter left in the year, we are narrowing our annual guidance to reflect where we are year-to-date and also incorporating some of the preliminary views I shared earlier on Q4. Our full year revenue guidance has been adjusted to $1.390 billion to $1.405 billion.
This range anticipates the potential for variability and non-recurring revenue in the fourth quarter. We're also narrowing our adjusted EBITDA range to a range of $238 million to $245 million for the year.
And finally, we are similarly narrowing our non-GAAP EPS range to a range of $0.45 to $0.47 per share for the year. It's our intention, as is customary, to provide our view on 2016 during our fourth quarter call in February.
So with that, I'd like to open up for questions and we're happy to start, operator, whenever you are ready.
Operator
Your first question comes from Richard Close from Canaccord Genuity.
Richard Close - Canaccord Genuity Group, Inc.
Just really quick on the bookings – congratulations on all the success there. I was wondering if you could – I know you wait to fourth quarter for 2016, but how should we think about the potential for bookings growth over 2015?
Richard J. Poulton - Chief Financial Officer
Well, I mean, Richard, we had obviously a really good run all year. Each quarter, we've been up on a year-on-year basis, and we would certainly hope to keep that trend going in Q4.
Richard Close - Canaccord Genuity Group, Inc.
Okay. And then with respect to the pipeline as you look out, you talked about strength both on acute and the ambulatory.
If you can talk about the quality of the pipeline as you see it across your business units?
Richard J. Poulton - Chief Financial Officer
Yeah, we talked about strength not only in patient ambulatory but also post-acute, and I'll let Paul speak, maybe some more color, but I mean I think the results we saw in the quarter continue to show up in the pipeline as we look ahead as well.
Paul M. Black - President, Chief Executive Officer & Director
Yeah, I think the things we have been talking about for 2015 continue in 2016, where we talk about growth in hosting and outsourcing opportunities, population health opportunities, the global marketplace as well as the new and replacement market. All of those seem to be really coming into good focus, and while I wouldn't ever say we are hitting on all eight cylinders, but we are getting a lot closer, and that feels a lot better today than it did at any time that we have been here with regard to the rate at which things are coming our way and, if you will, the clarity in the backlog.
Richard Close - Canaccord Genuity Group, Inc.
Okay, congratulations.
Richard J. Poulton - Chief Financial Officer
Thank you.
Paul M. Black - President, Chief Executive Officer & Director
Thank you.
Operator
And your next question comes from George Hill from Deutsche Bank.
George R. Hill - Deutsche Bank Securities, Inc.
Good evening, guys, and thanks for taking the question. And, Rick, when you started talking about 2016, I thought you were going to – you had me excited.
I thought we were going to get some guidance.
Richard J. Poulton - Chief Financial Officer
Sorry to let you down, George.
George R. Hill - Deutsche Bank Securities, Inc.
It happens. I guess, Paul, can we talk about market segmentation?
And you guys are putting up good bookings. Can you talk about where you're winning both on the hospital side and the ambulatory side from a client perspective?
So what are the characteristics of a client right now who is choosing Allscripts competitively in the market? Why are you winning?
And I guess what prohibits you from moving up market, and Baptist is nice and CHI expansion is nice; when do we see even bigger stuff start to roll on?
Paul M. Black - President, Chief Executive Officer & Director
Okay. The global piece, George, is also something to make sure we keep focused on with regard to moving up market, if you will.
So those deals are pretty good sized. The things that are out there that are, if you will, in flight.
In the U.S., I think the things that you've covered, the large multi-group specialty practice organizations are continuing to look to us for both the EMR component but also the practice management component and, importantly, for their capability to connect to the other organizations that they interoperate with in their community. So, by definition, a large multi-group specialty practice is going to have to connect to the hospitals and the geography as well as the ACO organizations and the insurance companies.
So that's been a good and will continue to be a great marketplace for us. Those folks are also getting bigger, meaning they're buying other practices and they continue to roll out all those solutions that I just mentioned.
The hospital marketplace – if there is – everybody has one or almost everybody has one today. And some of the people that are in that marketplace are moving out.
They've either declared with a date certain point in time upon which they're no longer going to support the in-patient, out-patient or revenue-cycle systems that people are currently on. And that's creating a marketplace for us to go after that wasn't here 12 months, 18 months ago; and there's three or four suppliers that most people know about that have made that declaration.
There is other organizations who have made less investment on the, if you will, the 2020 version of what a solution needs to look like that would include full post-acute, full population health, and full connectivity solutions. So as people are looking at a hospital from a hospital perspective at who is going to take them into the next decade and what the next 10-year solution is going to look like, I think that's why we're getting more additional looks today than we may have in the past to the extent that we can cover multiple different venues of care that they're moving into.
George R. Hill - Deutsche Bank Securities, Inc.
Okay. That's all I had.
Thanks, guys.
Paul M. Black - President, Chief Executive Officer & Director
Thank you.
Richard J. Poulton - Chief Financial Officer
Thanks, George.
Operator
And your next question comes from Robert Jones from Goldman Sachs.
Nathan A. Rich - Goldman Sachs & Co.
Hi, this is Nathan Rich, on for Bob this afternoon. Just a question on the client services margin.
It looks like you guys got back to the double-digit range, I think slightly ahead of your schedule. Can you just talk about what drove the upside there and how we should think about the margin opportunity for that side of the business going forward?
Paul M. Black - President, Chief Executive Officer & Director
Yeah, well, I mean the variables that drive it, Nathan, we talked a lot about on our Q2 call, but we had taken some pretty significant cost actions earlier this year, the latest of which was in May. And so, when we finished our second quarter call, we said we didn't have a full quarter of that benefit in and by having a full quarter of benefit of some of those cost actions and aligning our resources in some of our service areas to the right level of demand, that that would naturally bring up third quarter margins.
So some of what you're seeing was just basic math. We also told everybody that we had re-negotiated our hosting agreements last quarter and that we expected those benefits to start to phase in at the very end of this year and more likely in first quarter.
We started to pick up a little bit of that early and that's partly why we got to where we got to as quick as we did. But low-double-digit margin in services was something we forecasted three months ago and I see it as just delivering on what we said, so.
Nathan A. Rich - Goldman Sachs & Co.
No, that makes sense. And then just one follow up.
Just wanted to get your sense of how you're looking at M&A opportunities in the market right now. Obviously, you made the investment in NantHealth earlier this year.
I'd just be curious, given some of the changes we've seen in the market and any changes in valuations that you guys are seeing, how you think about the opportunity to bolt on to your existing portfolio?
Paul M. Black - President, Chief Executive Officer & Director
Yeah, I mean look we've heard a lot of announcements. We all heard of couple of announcements in the last quarter, so there is a lot of activity out there.
We're a pretty highly fragmented industry for what has become a more and more mature, I think, industry, so I think some kind of evolution will likely happen, and we think we've earned the right to participate in that. We weren't executing so well a couple of years ago, but we think we've really gotten our act together, our cost space together, our cash generating ability together, and so we will be active considerers of that, but we don't feel like we have to do anything but we'll certainly look for the right opportunities.
Nathan A. Rich - Goldman Sachs & Co.
Great. Thank you.
Operator
And your next question comes from Michael Cherny with Evercore ISI.
Michael Aaron Cherny - Evercore ISI
Guys, nice job on the bookings performance.
Paul M. Black - President, Chief Executive Officer & Director
Thank you.
Michael Aaron Cherny - Evercore ISI
So, obviously, we are now, I think, two and a half years post the dbMotion acquisition integration; seems like this is a business that – and, I know, Paul, you first joined and acquired the business, you talked about it as being incredibly strategic. I guess as you look back now, has it lived up to your expectations or exceeded them and relative to competitive dynamics on dbMotion, who do you see as your biggest threat?
Paul M. Black - President, Chief Executive Officer & Director
You know, I always have very high expectations, so I would say that it's almost invariable that I am going to get disappointed in that regard. I think from a pure play performance perspective of financials, it probably has not been as solid on an independent basis as I would have like them to be.
I think if you add it into the overall picture of what Allscripts represents today versus what we would have represented back in 2012 on the trajectory that we were on, it's very difficult to hold yourself out as a population health management supplier of tools and services to people if you don't have a layer that allows you to connect multiple different platforms, which is what this does. It also does it, to your competitiveness question, in a way that nobody else that I am seeing in the marketplace does it, and this is third parties that are out implementing them as early as today continuing to review with me the fact that it's got a leg up and that is that we not only connect different electronic medical records and we semantically harmonize the data, putting it into a place where the data can be analyzed, but then importantly – and this is the thing that really makes the difference, I think, between this solution and others that are out there – you can as a physician get a delta view of the data that are important to you since the last time you looked at it when you clicked on the community tab, and I don't have to, if you will, do a lot of signing in and signing out.
So from a workflow, from an ease of use, from a value of data that are transferred to a very busy, highly, if you will, they got a lot going on each and every day, trying to see a lot of patients. This is the solution that really brings all the great wonderful analytics that everybody is reading about, pontificating about, it brings it to the bedside or the clinic.
And at the end of the day, you have to have and we have to offer solutions that allow that to occur.
Michael Aaron Cherny - Evercore ISI
Thanks, Paul, that's helpful. And then, just one quick one for Rick.
We're not trying to get rid of you yet, but any updates on the CFO transition?
Paul M. Black - President, Chief Executive Officer & Director
Yeah, that would be me, so I think it's a great honor for Rick that we have this high class problem of looking for a CFO. And I'll just say publicly that he has been promoted as a result of myself and the board's confidence in him and his capabilities as being able to take on more of the day-to-day operational responsibility in the company.
We've retained a third-party search firm. We're going to do a national search and we will keep you updated on that process.
Michael Aaron Cherny - Evercore ISI
Thanks, Paul. I appreciate it.
Paul M. Black - President, Chief Executive Officer & Director
You bet.
Richard J. Poulton - Chief Financial Officer
I'm with you till then, Mike.
Michael Aaron Cherny - Evercore ISI
Can't wait.
Richard J. Poulton - Chief Financial Officer
I won't leave you.
Operator
And your next question comes from Garen Sarafian with Citi Research.
Garen Sarafian - Citigroup Global Markets, Inc. (Broker)
Good afternoon, guys. Thanks for taking the questions.
On sales, Rick, I think I understood your comments in the prepared remarks, but given some of your peers' results recently, just wanted to touch on revenues again. So in terms of sales, you discussed the puts and takes leading to your guidance; it all sounds pretty reasonable.
But are you seeing any changes to industry trends impacting how your clients are spending, how much your clients are spending, or maybe other trends and how backlog is converting to revenue?
Richard J. Poulton - Chief Financial Officer
Well, I think the demand feels good to us. I mean, again, three quarters in a row of record bookings.
So not just comps off of what you might – if a cynic said, hey, it's just up over poor comps – these are actually records for the company. So we're feeling pretty good about the demand profile, and pipeline feels good, too.
I think the conversion of bookings to revenue, especially when we think about some of the new services offerings that are coming to market, there is probably a little longer tail emerging. We're not just selling software that gets turned on one quarter out or two quarters out and therefore that triggers revenue recognition.
There's a lot of services components that do require a little more, a little slower ramp. So I think that's just maybe a general observation, but I don't see it as distorting our top line or anything like that, no.
Garen Sarafian - Citigroup Global Markets, Inc. (Broker)
Okay. No, that's useful.
And then just one quick one to make sure, Catholic Health is not included in the bookings number this quarter, is that correct?
Richard J. Poulton - Chief Financial Officer
No, Catholic Health is in the third quarter bookings.
Garen Sarafian - Citigroup Global Markets, Inc. (Broker)
It is included. Okay.
All right, great.
Richard J. Poulton - Chief Financial Officer
The one that's not is Paul spoke about a win with Advocate.
Garen Sarafian - Citigroup Global Markets, Inc. (Broker)
Okay.
Richard J. Poulton - Chief Financial Officer
And that's a very meaningful piece of business for us and that will be in the fourth quarter numbers.
Garen Sarafian - Citigroup Global Markets, Inc. (Broker)
Sounds good. Thank you.
Richard J. Poulton - Chief Financial Officer
Thank you.
Operator
And your next question comes from Greg Bolan with Avondale Partners.
Greg Bolan - Avondale Partners LLC
Hey, thanks, guys, for taking the question. So just first just a quick question, can you give me employee head count as of the third quarter, please?
Paul M. Black - President, Chief Executive Officer & Director
It's not something we disclose, typically. At year-end, we'll have something in our 10-K about employees, but ...
Greg Bolan - Avondale Partners LLC
Okay.
Paul M. Black - President, Chief Executive Officer & Director
... let me just say, I'm not going to be mysterious.
I mean you won't find it having changed very much from last year-end. We have gotten some efficiencies in some of the services and support areas, but we've seen some growth in some of our managed services areas, which require employees to go down (38:38).
But I am not sure what analysis you're ultimately doing, but I would just, at the risk of stating the obvious, make sure if you're doing any kind of metric per employee that you're also cognizant of contractors.
Greg Bolan - Avondale Partners LLC
Sure.
Paul M. Black - President, Chief Executive Officer & Director
There is an awful lot of hired labor that people don't report as employees, too. We've aggressively managed that down here and that's a large part of our profitability story.
Greg Bolan - Avondale Partners LLC
Yeah.
Paul M. Black - President, Chief Executive Officer & Director
I'm not so sure that true around the industry, though.
Greg Bolan - Avondale Partners LLC
No, I mean, I guess actually you certainly noticed where I was going. I guess, but is it fair to say, though, that just overall productivity per employee has improved, because I mean just annualizing this quarter's non-GAAP operating income and just kind of taking that employee count from last year, I mean, obviously you take into account, of course, also, you guys are hiring more on the outsourcing side – or excuse me, outsourcing more staff, but is it fair to say that that number has gone up per employee.
Paul M. Black - President, Chief Executive Officer & Director
Profitability per employee?
Greg Bolan - Avondale Partners LLC
Profitability per employee, yes.
Paul M. Black - President, Chief Executive Officer & Director
Absolutely.
Greg Bolan - Avondale Partners LLC
Yeah, that's what I thought. Okay, thank you.
Paul M. Black - President, Chief Executive Officer & Director
The last thing – before you are cut off, the last thing, too, I'm not sure where you're ultimately going, but remember, too, that not all employees necessarily are – you can't use the same cost estimate. I mean, we have, for instance, more than 25% of our workforce in low-cost labor markets, so.
Greg Bolan - Avondale Partners LLC
Thanks, guys.
Paul M. Black - President, Chief Executive Officer & Director
Thanks.
Richard J. Poulton - Chief Financial Officer
Thank you.
Operator
And your next question comes from Matthew Gillmor with Robert Baird.
Matthew D. Gillmor - Robert W. Baird & Co., Inc. (Broker)
Hey, good afternoon, and thanks for taking the question. But I just wanted to ask about fourth quarter EBITDA and margins.
I think the implied range for the fourth quarter EBITDA has a nice step up in margins from the third quarter, so can you help frame up what's driving that sequential increase? Is that just the operating leverage and all the cost reductions that have gone on?
And then secondly, you're obviously exiting the year at a much higher run rate for margins than the beginning. Is the margin range from the last two quarters kind of a good jumping off point as we think about next year?
Richard J. Poulton - Chief Financial Officer
Yeah, let me take those in order. Your observation on EBITDA – I'm not sure if you look, I'm not sure where you got that from, so let's just repeat.
I mean we just published a quarter where our EBITDA margin was 19%. I think if you look at the revenue range and EBITDA range that I put out there in the implied numbers for Q4, it depends on where you are in the range and whatnot, but you're sort of in the same zip code, plus or minus 100 basis points.
So I don't think there is any implied significant step up in EBITDA margin in Q4. But maybe to the more – the point that is – your second part of your question, is the margin performance durable going forward?
Yeah, I mean that was – I tried to make those comments to that, and so let me just repeat them. Our gross profit margins are at the highest they've been at least in the last three years here and they came up a lot.
The good news is we think most of that increase is durable. We did have a little bit of favorable mix in our software margins this quarter, and mix can change from quarter-to-quarter so you could potentially see a little bit of volatility, or a little bit of degradation there depending on mix, but the pieces that go around that software mix, we think are very durable.
So I do think it's a good jumping off point.
Matthew D. Gillmor - Robert W. Baird & Co., Inc. (Broker)
Okay thanks a lot and congrats on the quarter.
Richard J. Poulton - Chief Financial Officer
Thank you.
Paul M. Black - President, Chief Executive Officer & Director
Thank you.
Operator
And your next question comes from Sean Dodge with Jefferies.
Sean Dodge - Jefferies LLC
Hi, good evening and thanks. Paul, maybe taking the market or booking segmentation question a little different way, you mentioned new clients continuing to be an important contributor.
What percentage of bookings is coming from outside your current footprint? And which product specifically are you getting the most traction with attracting your new clients?
Is it mostly dbMotion there or pop health or ambulatory or something else?
Paul M. Black - President, Chief Executive Officer & Director
I don't think we give the breakdown of what percentage comes from new business but it was as good a new business quarter as we've had in a very long period of time. In this quarter, as we stated, I was very pleased with that from the standpoint of the range at which across the different business units that business came from.
So we had new business in dbMotion with the health plan. We had new business out of global, which is important.
We have new business in the United States in Sunrise. We have a bunch of new business in the TouchWorks organization and in the pro organization.
A lot of home care, which was extremely important to us because of the way that that connects the community and allows us to have a very strong and continued robust offering in the post-acute space. So, quite frankly, as I said earlier, while we may not have hit perfectly on all eight cylinders, it's pretty close with regards to the new business performance this past quarter, and it came from all of those different segments.
Going forward, as you look at the pipeline, as we look at the pipeline it continues to look good as these people have been in their roles now for two plus – in some cases, we've got people who have been there for 18 years, but a lot of the team, a lot of the leaderships been here for a period of time. You get productivity out of that leadership every quarter that they're spending more time in front of the same client.
So that is my indicators are feeling much better in that regard, and my expectations for the new business contribution continue to go up every quarter.
Sean Dodge - Jefferies LLC
Okay, and then you're a few months out now in the partnership with NantHealth. The long-term plan is to develop some pretty sophisticated solutions with them.
But can you give us a sense of how long it will take to complete at least the initial integration of the two systems. And then maybe when we could first expect to see some form of co-branded solution hit the market?
Paul M. Black - President, Chief Executive Officer & Director
Yeah, I don't know that we are going to see a co-branded solution. I think the fact that there is a cross-investment.
We'll either go through the NantHealth medium if they go to market, or they'll come under our banner as we go to market and start inside of our install base. But we should see some of their protocol algorithm machine work integrated within inside of our organization both TouchWorks and Sunrise inside the next six months.
And so we should see demonstrable benefit from that piece of the relationship very soon. We're getting a fair amount of traction by having conversations with existing clients and as well, it's a pretty interesting dialogue with new clients as to what they think about, as I mentioned earlier, picking at a 10-year electronic medical records supplier and partner for the next 10 years.
Not only do they want the EMR, not only do they want connectivity, platforms, not only do they want to be able to engage consumers, but they're also looking for a precision medicine platform and we feel we're the only supplier out there that offers all four of those.
Sean Dodge - Jefferies LLC
Great. Thanks and congratulations again on the quarter.
Paul M. Black - President, Chief Executive Officer & Director
Thank you very much.
Operator
And your next question comes from Charles Rhyee with Cowen and Company.
Charles Rhyee - Cowen & Co. LLC
Yeah, thanks, guys. First of all, congrats on the quarter here.
Quick question for you...
Paul M. Black - President, Chief Executive Officer & Director
Thanks, Charles.
Charles Rhyee - Cowen & Co. LLC
... for Rick, I guess, obviously we've now turned positive in revenue growth, clearly your commentary in the past on as we kind of layer on the recurring revenues and bookings.
How should we think about – obviously you gave us the guidance for the fourth quarter, I mean is it – do we – should we feel comfortable in sort of how you had kind of laid out, at least in broad strokes, the progression should continue at least as long as our bookings performance, let's say, remains sort of in this kind of range that the revenue growth should start to continue to sort of accelerate from here?
Richard J. Poulton - Chief Financial Officer
Yeah, I mean – so, Charles, we've been fighting a trend all year about – when we talk about revenue growth, we've been fighting a trend all year where recurring revenue has been growing at a pretty nice clip and the non-recurring has been going down a lot. And I think we've talked about that at a fair amount of length over the last three earnings calls.
The comment I made earlier in my prepared remarks was just to illustrate or let you know that – I think the range that I can see for the near-term on what non-recurring should be is kind of a range we've now been in for the last few quarters. So we should be done anniversarying these really large year-over-year declines and then, therefore, that should allow the goodness, if you will, that's happening on the recurring side to show through.
Charles Rhyee - Cowen & Co. LLC
Right.
Richard J. Poulton - Chief Financial Officer
And so, that's how I think about the revenue situation.
Charles Rhyee - Cowen & Co. LLC
Okay. Then, maybe to follow up on that, in that sort of $80 million to $90 million, what is that typically – what is that mix consist of that if we've now seen it kind of being stable, what are people kind of buying in that bucket?
Richard J. Poulton - Chief Financial Officer
Well, there is sort of one – there is a significant kind of – two significant buckets, sorry, is the way I should say it, right. One is on the – is what we classify up in our software, which is called system sales and others, and that picks up, Charles, some to the extent we still do have upfront license software, and there's still some solutions that lend themselves to that.
That's in there. To the extent we still have hardware attached to a deal, that's in there, and frequently we have third-party software that is part maybe of a larger sale or solution that integrates to our solutions.
So those are the types of things that tend to drive that system sales and other. And then, the second piece of non-recurring is down in the, what we call, other client services, and that's really that project-based work that I've talked about many times, where we're usually either doing installs or upgrades of some of our solutions somewhere.
So, collectively, that's the non-recurring and those are the two piece parts, and if you pull out Table 2 on the supplemental data sheet, you can see how that's trended over time, each of those.
Charles Rhyee - Cowen & Co. LLC
All right, okay. So, last question on the hosting margins, we've obviously hit the target of low-double-digits.
I can't remember off the top of my head here, did you give us a sense on where you think you could eventually get to in hosting or what's the sort of the next target that you're kind of looking for? Thanks.
Richard J. Poulton - Chief Financial Officer
Yeah, let me just make a clarification. When we talk about services margins, we're picking up more than just hosting, okay, Charles, we're picking everything that we put in that services bucket.
Charles Rhyee - Cowen & Co. LLC
Okay.
Richard J. Poulton - Chief Financial Officer
Where hosting I think is worthy of, as a subset of all that and it's worthy of a separate conversation, is that has historically been a financial drain for us and it's been an area of a lot of emphasis that to improve our profitability there. And as I said last quarter, we started that profitability improvement march by restructuring a couple of our large third-party provider deals.
We started to get some of that benefit already and that's how we achieved the jump up to double-digit profitability in services a quarter earlier than I had anticipated but there is a little more there to get. So I think we're going to continue to work, I think, intrinsically, services margins ought to be able to get those up to the 20% range over time but that's not going to happen overnight.
Charles Rhyee - Cowen & Co. LLC
Great. Thanks a lot guys.
Richard J. Poulton - Chief Financial Officer
You're welcome.
Operator
And your next question comes from David Larsen with Leerink Partners.
Chris E. Abbott - Leerink Partners LLC
Thanks, and good evening, this is Chris Abbott in for Dave, and I'll also say congrats on the nice quarter and strong bookings. So the bookings mix this quarter, it was much more heavily weighted toward the client services, and I think historically it's been heavier on the software.
What were the sort of largest buckets that drove that shift, even if we look compared to last quarter, and then was it large contracts or should we think of it being more heavily weighted, I guess, going forward on the services side?
Richard J. Poulton - Chief Financial Officer
Yeah, so I made a couple of comments earlier that would help to explain that a little bit. So first off, we talked – Paul spoke at length and we also did a press release week before last on our Catholic Health Initiatives deal.
That's a good-sized deal that's 100% services, so that certainly helped. We had a – the two large Sunrise new footprints, so both Baptist Pensacola as well as South Manchester.
Those are – have a lot of software content in them but they also have a lot of services content in those deals as well. So they kind of help drive both buckets, if you will.
And those would be a couple of noteworthy, but we, generally speaking, are under-penetrated across our client base in terms of providing services, certainly if you look relative to one of our larger competitors, and it's an area of good opportunity for us, so we'll keep doing that. Paul already signaled a nice win we've already booked here in the fourth quarter with Advocate Health, so, I mean we are hoping to continue to have strength in that services line.
Chris E. Abbott - Leerink Partners LLC
Okay. And sorry if I missed it, did you restate the bookings, the software versus services bookings for the first two quarters?
It looks like the Table 1 chart in the financial supplement might have changed a little. Was there anything there that shifted?
Seth R. Frank - Vice President-Investor Relations
This is Seth. There is nothing that shifted.
We can look at that, but all the numbers should be the same.
Chris E. Abbott - Leerink Partners LLC
Okay, thanks, guys.
Richard J. Poulton - Chief Financial Officer
Thanks, Chris.
Operator
And your next question comes from Mohan Naidu with Oppenheimer.
Mohan Naidu - Oppenheimer & Co., Inc. (Broker)
Thanks for taking my questions. Paul or Rick, congrats on a good quarter here.
I just want to hit on the client services bookings again one more time. So, you guys are getting a higher mix of client services bookings than historical rate here and how should we think about the revenue conversion?
Rick, you commented a little about that earlier. But should we start thinking about an elongated conversion from bookings to revenue?
Richard J. Poulton - Chief Financial Officer
I wouldn't make any major shifts in your thinking at all. I just thinks it's – I was asked about if there are any trends, and I think some of the services opportunities ramp up over a longer period of time, but there is a lot.
Those are merging service areas of opportunities, and that's how I was answering the questions. I mean the basic managed IT programs, the basics services content around a new footprint install, et cetera, and that's what driving the lion's share of the numbers.
Those are not having any different conversion right now.
Mohan Naidu - Oppenheimer & Co., Inc. (Broker)
Okay got it. That was helpful and just one more question.
So you gave a comment that you have a lot more opportunity within your own customer base for additional services. Given that backdrop, should we expect to see – continue to see higher mix of bookings coming from client services than in software.
Richard J. Poulton - Chief Financial Officer
Yeah I mean, look, we're a software company and we want to sell a lot of software. We've had very strong mix the first two quarters of the year on the software side.
Two-thirds of our revenue today is, as you can see from our P&L, is what we would characterize as software and the delivery of it and a third of it is on services. When you look at it that way, us having a third of services revenue is a lot lower penetration than, again, one of our large competitors.
So it just to us speaks of opportunity, and it's opportunity we intend to exploit, but we still want to sell a lot of software.
Mohan Naidu - Oppenheimer & Co., Inc. (Broker)
All right. Thank you very much.
Richard J. Poulton - Chief Financial Officer
Thank you.
Paul M. Black - President, Chief Executive Officer & Director
Thanks.
Operator
And your next question comes from Nicholas Jansen with Raymond James.
Nicholas M. Jansen - Raymond James & Associates, Inc.
Hey, guys, a lot's been covered, so I'll just be quick. In terms of the UK opportunity, it seems like you've had several notable wins over the last couple of quarters and I just wanted to dig a little bit deeper there.
And you made the Oasis acquisition about 15 months ago and just wanted to get your broader views of how you view the UK market shaping up and your competitive positioning in that market? Thanks.
Paul M. Black - President, Chief Executive Officer & Director
I think there's a fair number of trusts that are over there that are making decisions about what they're going go do over the next 12 to 24 months. Our competitive position over there continues to increase not only by getting new footprints but, importantly, the folks that are in country are highly referenceable for Allscripts and that's the thing we focused on very heavily.
And that's the historical clinical side, having a PAS solution that complements a EPR solution over there. In some cases that was the reason why we might have not been eliminated, or that we might not have been invited to a procurement and those reasons have now gone away.
And there's also a fair amount of population health or community connectivity thoughts that are underway there, too, that helps our overall competitive positioning that, perhaps, two or three years ago they weren't including in their selection evaluation criteria. So the market is warming up.
The solutions that we have are delivering results, and we have a number of executives over there who are willing to speak on our behalf about their experience with us and about the value that we've been able to jointly create. That's – if you're in this business, that's what you want clients to talk about.
You want them selling for you, and as long as we can continue to give good support to those folks, which we plan to do, we expect to continue to win business over there.
Nicholas M. Jansen - Raymond James & Associates, Inc.
Nice job on the quarter guys. Thanks.
Paul M. Black - President, Chief Executive Officer & Director
Thank you very much.
Operator
And your next question comes from Anthony Vendetti with Maxim Group. Mr.
Vendetti, your line is open. And your next question comes from Gene Mannheimer with Topeka Capital Markets.
Gene Mannheimer - Topeka Capital Markets
Hey, good afternoon. I think that's Gene Mannheimer with Topeka.
Congrats, again, on a good quarter.
Unknown Speaker
Hey, Gene.
Gene Mannheimer - Topeka Capital Markets
Hey, there.
Unknown Speaker
Thanks, Gene.
Gene Mannheimer - Topeka Capital Markets
Sure thing. So you've clearly done a solid job improving margins across the organization.
When we think about going forward here, which of your OpEx line items would you think would have the best opportunity to leverage?
Richard J. Poulton - Chief Financial Officer
Which OpEx?
Gene Mannheimer - Topeka Capital Markets
Yeah.
Richard J. Poulton - Chief Financial Officer
Gene, is that what you're saying?
Gene Mannheimer - Topeka Capital Markets
Yes.
Richard J. Poulton - Chief Financial Officer
So I'll tell you how I think about it, Gene. I mean I think there is three basic buckets of costs.
There's our development investment; there's our SG&A costs, and then there is what we call our cost of sales, but the direct cost of providing some of the services. We've been hacking away at SG&A pretty hard for the last couple of years and feel good about the progress I've made there.
And it's an area we'll continue to emphasize keeping a lid on it and so that we get really nice leverage off of that as we grow, but I don't think there is a lot more reduction to happen there. In the same way, we're pretty committed to continuing to invest heavily in the solutions, so I don't see the R&D piece coming down a lot.
But I do see opportunities in the cost of sale bucket, and it's a collection of lot of stuff, It's labor, but it's also a lot of third-party providers that are somehow attached to some of our solutions, and we think we see some opportunities there. So that would be one of our areas, the focal point in 2016, and to the extent we're successful, that should create some upside opportunity on gross profit margins, and then if you get that obviously it gets leverage all the way down the P&L.
Gene Mannheimer - Topeka Capital Markets
Okay, great. That's helpful, Rick, thanks.
And just also I want to ask with the ICD-10 deadline now behind us, October 1, did you see in the quarter any impact of that on your client base and bookings, either good or bad? Thanks?
Paul M. Black - President, Chief Executive Officer & Director
Yeah, I wouldn't say that we saw too much on the booking side, given the fact that our ICD-10 solutions has been out and available for more than a year. We put those in the same time we put in the MU2 version of our software.
So those decisions, quite frankly, got made 12 to 18 months ago. There were a few laggards that realized one day that they needed to jump in and we worked like crazy to get them ready and converted and get them over, but those were – that was work that's kind of behind us.
And I think it has been the case around the rest of the industry, because of good planning, because of our clients' good planning in collaboration and working with us and just doing a lot of hard work on their end with the testing and working with their payers, there's been a remarkably small amount of, if you will, of static around that coming out of the marketplace. I quite frankly expected there to be more and for us to be geared up to go quickly remedy anything, and we have not spent a lot of time on that.
We not only see it on the practice management side and the billing side but we also see it with our payer path, where we are in the back office EDI system for getting information submitted and the claims submitted to the insurance companies and multiple different payers and, again, very little issues there, which we're proud of. A lot of work went into that.
Gene Mannheimer - Topeka Capital Markets
Okay, thank you, Paul. I appreciate it.
Paul M. Black - President, Chief Executive Officer & Director
You're welcome. Thanks for the question, Gene.
Operator
And your final question comes from Eric Percher.
David Ho - Barclays Capital, Inc.
Good afternoon, this is David Ho, on for Eric. I wanted to switch gears a little bit and talk about the payer and life sciences business.
I know in the past couple of quarter, it's been a source of strength, but was just generally wondering if you could talk about how the unit has grown? What are the some of the key drivers of that strength and maybe more specifically, if you could talk about the partnership with Express Scripts and how that's doing?
Thanks.
Paul M. Black - President, Chief Executive Officer & Director
I would just say our payer life science business opportunity is meeting or exceeding the goals we had for it this year. It's always been a meaningful contributor to some of our sales throughout the first nine months of the year.
And we're busy working hard to convert those sales into revenue, and I think that will become a more meaningful revenue contributor as I look ahead to next year. I wouldn't want to comment on any specific relationships right now, but we have a broad client base across payer and PBM communities right now, so it's good.
Seth R. Frank - Vice President-Investor Relations
Okay, are we done with Q&A there, operator?
Operator
And there are no further questions.
Seth R. Frank - Vice President-Investor Relations
Okay, we have some closing comments, please.
Richard J. Poulton - Chief Financial Officer
So I'm going to turn to Paul to close, but I want to just – Chris some time ago had asked a question about whether we had a restatement on our bookings classification. And I think the answer is we did have a small just line item adjustment, nothing changed in the totals at all, but we're as with some of the new service offerings we are rolling out, we looked at it a little harder and split some of those between software and services as opposed to keeping them all in one category, and so we thought it was appropriate to reflect them on a good comparative basis.
So that was a good catch on your part. Sorry we didn't have the answer for you initially but there was a small change.
Okay, and if there is any more details anybody wants on that, they can talk to Seth offline. So, Paul?
Paul M. Black - President, Chief Executive Officer & Director
Thanks, everybody, for taking time to be on the call with us today. Clearly, our Q3 is a reflection of a lot of hard work over a very long period of time.
It's also been in collaboration with a lot of clients who have been continuing to vote with their wallet and with their fingertips as they give us better client ratings for many of the third-party rating agencies, so we're very pleased with where we find ourselves in this management team 36 months into the roles that we've had here and we made a ton of progress. We always can do better, and we always will strive to do better on behalf of our clients as well as on behalf of our shareholders.
But I would just let everybody – remind them that we are working very diligently on all the right things that we think move the meter both on top line, bottom line, expanding margins and growing this business in a profitable way and, importantly, doing that with the right kind of relationships in the marketplace that earn us additional business with each of our existing clients as we operate with them each and every day. Thank you very much for your time and we'll look forward to talking to you all soon.
Operator
This does conclude today's call. You may now disconnect.