May 6, 2016
Executives
Seth R. Frank - Vice President-Investor Relations Richard J.
Poulton - President Melinda D. Whittington - Chief Financial Officer Paul M.
Black - Chief Executive Officer & Director
Analysts
Zack W. Sopcak - Morgan Stanley & Co.
LLC Richard Close - Canaccord Genuity Group, Inc. Matthew D.
Gillmor - Robert W. Baird & Co., Inc.
(Broker) Nina D. Deka - Piper Jaffray & Co.
(Broker) Steven Couche - Avondale Partners LLC Elizabeth Anderson - Evercore Group LLC Mike Ott - Oppenheimer & Co., Inc. (Broker) Zachary Wachter - Cowen & Co.
LLC Gene Mannheimer - Topeka Capital Markets Allen Lutz - Citigroup Global Markets, Inc. (Broker) George R.
Hill - Deutsche Bank Securities, Inc.
Operator
Greetings and welcome to Allscripts' Q1 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode.
A question-and-answer session will follow the formal presentation. We ask that you please limit yourself to one question and one brief follow-up question per caller, so others will have a chance to participate.
As a reminder, this conference is being recorded. Today's conference call will be one hour in duration.
It is now my pleasure to turn the call over to your host Mr. Seth Frank, Vice President, Investor Relations.
Thank you, you may begin.
Seth R. Frank - Vice President-Investor Relations
Thanks, Rob. Good afternoon.
Our speakers today are Paul Black, Allscripts' Chief Executive Officer; Rick Poulton, Allscripts' President; and we welcome Melinda Whittington, our Chief Financial Officer. A number of forward-looking statements will be made during the presentation and the Q&A portion of the call.
These statements are based on current expectations and involve a number of risks and uncertainties that could cause our actual results to differ materially. We undertake no obligation to revise these forward-looking statements in light of new information or future events.
Please refer to our earnings results and SEC filings for a more detailed descriptions of the risk factors that may affect our results. Also, as management reviews the first quarter details, please reference both our non-GAAP and GAAP financial statements, as well as the non-GAAP tables in our earnings release and supplemental data book that are available on the Investor Relations section of our website.
And now, I'd like to hand the call over to Rick Poulton.
Richard J. Poulton - President
Okay. Thanks, Seth, and thank you, everybody for joining us this afternoon.
With Melinda joining us, we're going to change things up a little bit. I will cover the business highlights for the first quarter; Melinda will discuss the financials in detail; and then Paul will close by discussing our market positioning, his outlook on the regulatory front, as well as some of our other long-term initiatives of the company.
We're very pleased with the first quarter results and believe that the year has started on a strong footing. Bookings were $252 million, a record for the first quarter of the year and it's the fifth consecutive record bookings quarter for the company.
Our bookings growth was 7% year-over-year and in addition, we had nice year-over-year growth across all financial metrics, including revenue, gross margins, EBITDA, net income and free cash flow. The quarter was solid across all end-user segments including large health systems, community hospitals and physician groups in the U.S., as well as our global business.
And I'd like to review a few highlights in each of these four areas. Beginning in health systems, the highlight of the first quarter was the agreement we signed with University Hospitals in Cleveland.
UH Cleveland significantly expanded and extended its commitment to Allscripts through 2024 for both patient care and population health management. UH is installing the full Sunrise platform into five new hospitals and they also added the CareInMotion population health management platform.
Sunrise will display several other vendors in this move and we are most proud of this as UH had evaluated all commercial options before making this additional long-term commitment to Allscripts. Back at the HIMSS Conference, we officially launched CareInMotion, which is Allscripts' single solution platform for comprehensive population health management.
We're leveraging existing point solutions in a modular integrated platform including dbMotion, Care Management, Care Director, FollowMyHealth and Allscripts EPSi. And thus far, the reception has been very positive.
We added another large new academic health system in the Southwest, who'll utilize the CareInMotion platform as the foundation for their population health strategy. This is another proof point regarding our ability to deploy CareInMotion across multiple non-Allscripts EHR systems.
In terms of delivery, we had another successful CareInMotion go-live in health systems just outside of Chicago and a separate Sunrise academic medical center client is progressing nicely with their large project rollout across the large geographic region in Texas. In this instance, they are measuring impact to care from access to a single community patient record view, which is integrated into workflow, and they are gathering case studies that prove out accelerated decision-making, as well as intervention times that benefit patients, providers and health plans.
Moving to the community hospital market. We just executed a very successful go-live at Palo Verde Hospital, which was a contract we signed in the first quarter of 2015.
We continue to demonstrate success with our managed services model that rapidly and successfully scale Sunrise implementations into the community hospital market. We continue to pursue new business opportunities in this market.
Allscripts' success within the Sunrise client base has been attributed to the significant investments we have made in the platform. Back in March, Black Book Rankings recognized the Sunrise platform as the top overall inpatient EHR for large hospitals and academic medical centers for the third year in a row.
In addition to this honor, Black Books loyalty index ranks Allscripts at the top of vendors especially those who expand into adoption of population health and managed IT services. Moving to the large ambulatory market, I'm pleased to announce that in the first quarter, George Washington Medical Faculty Associates, which is a TouchWork's client since 2000 renewed its relationship with Allscripts by signing a new long-term agreement that extends and expands the solutions that medical faculty associates will utilize thus cementing the basis for a highly strategic long-term relationship.
George Washington Medical Faculty Associates is the largest independent physician practice in the Washington D.C. Metro region with more than 750 providers across 52 medical and surgical specialties.
In the smaller ambulatory market, our Professional EHR bookings grew year-over-year, and we added the largest number of new physicians and other providers in the last nine quarters. We're seeing solid improvements in client satisfaction within our Professional EHR and similar to the trend we saw in Sunrise, and you should expect to see additional third-party validation of these improvements as the year progresses.
We continue to see strong demand for managed services across all market segments, and in particular, our ambulatory segment is very robust. These services include hosting, revenue cycle management, and chronic care management services.
From an execution standpoint, we had a significant milestone during the quarter as we activated hosting at Catholic Health Initiatives. This is one of Allscripts' largest ambulatory clients with over 500 locations and nearly 6,000 users.
On the international front, we signed an extension for Sunrise with Alberta Health Services through the year 2021. In the first quarter, we also signed a significant add-on sale to SingHealth, this is a major client in Singapore and we also had a very successful go-live with the Ministry of Defense in Singapore, which is a Sunrise client that we signed in 2014.
Also in the first quarter, Salford Royal NHS Foundation Trust expanded its partnership by selecting CareInMotion to initiate the transition to a new model with integrated care. Salford Royal is the first United Kingdom client to deploy dbMotion, which again is an important part of our CareInMotion platform, and we believe that this relationship we have establishes a beachhead with the core population health platform in the UK, a market that is just now starting to gather momentum for consideration of population health solutions.
New client activity and pipeline in the international markets is strong and we look forward to continuing the momentum for the multiple large UK sales that we had in 2015. I would like to conclude with comments on the Netsmart transaction that closed a couple of weeks ago.
We are very excited about this announcement. First of all, we have taken Allscripts Homecare and placed it into the hands of a world-class management team, creating the technology solution leader in the human services and post-acute market.
Homecare will flourish and scale much faster than we would have been able to do on our own. Second, behavioral health, human services, and post-acute care are highly strategic markets for most of our clients.
The Netsmart JV creates a platform to manage patients across the entire spectrum of the lifecycle, including health maintenance, acute and chronic illness, and (08:33), and these are connected and essential to achieving the ultimate goal of managing healthy communities and populations. So together, we have added additional capabilities that round out Allscripts offering to be the most comprehensive in the industry.
Finally, we believe the Netsmart JV creates value and allows Allscripts to participate in a strategic growth platform, which will unlock long-term shareholder value for Allscripts shareholders in addition to the near-term benefits of lifting our top-line and giving us direct exposure to the additional growth market opportunity. So on that note, I'd like to hand the call over to Melinda to discuss our first quarter financials.
Melinda D. Whittington - Chief Financial Officer
Thanks, Rick. I'll focus my comments on the first quarter financial result and provide updated guidance for 2016.
Please consult the tables in the back of the press release and the supplemental data workflow to reference the numbers we will be reviewing. Overall, first quarter results were in line with our expectations with respect to growth and bookings, revenue, adjusted EBITDA and non-GAAP EPS.
Bookings grew to $252 million, a 7% increase compared to the $236 million a year ago. In terms of mix, services bookings grew 61% year-over-year, while software delivery bookings decreased 25%.
Let's put these metrics in context. First, both acute and ambulatory bookings increased year-over-year, but bookings mix can be inherently lumpy as execution of multi-year contracts varies in timing and by solution-type quarter-to-quarter.
Specifically, in Q1 2015, we had a new footprint Sunrise win, as well as significant new bookings activity in the payer and life sciences business, while on the current quarter, we had a higher mix of services bookings. Moving to backlog, we are at $3.65 billion as of the end of Q1, which is flat versus the end of last quarter.
Transitioning to the P&L, I'll break my revenue comments down by our two reported types, software delivery, support and maintenance and client services, as well as by recurring and non-recurring revenue within those two types. Note, beginning this quarter, we have aligned our supplemental data book and SEC disclosures along the same structure to better reflect how we think about our business.
First quarter total revenue increased 3% year-over-year to $346 million. Client services revenue grew 9%, while software delivery, support and maintenance grew 1%.
Looking more closely, software delivery, support and maintenance grew 1% in total to $229 million, driven by a slight decline in recurring software, partially offset by growth in the non-recurring components. On a sequential basis, both recurring and non-recurring software revenue grew slightly versus Q4.
As you know, the vast majority of Allscripts new software sales are made under a subscription model, a journey we aggressively pursued beginning over three years ago. Subscription revenue continues to be an important growth engine for the company, and we expect software recurring revenue to shift back to positive growth going forward.
And finally, the non-recurring portion of the software and related revenue grew 15% year-over-year. This strong performance was driven by increased third-party software and hardware revenue.
Turning to client services revenue, growth was 9% to $116 million. As you've seen in prior quarters and as indicated in the bookings trends, demand for recurring managed services and population health services continues to be robust.
The recurring portion of services revenue increased 22% in Q1, driven by hosting, outsourcing and population health and revenue cycle management services. The non-recurring portion of services, consisting of project-based onsite client work was down $4 million or 9% year-over-year, consistent with our expectations and with the trends we discussed last quarter.
Finally, stepping back to look at total Allscripts revenue on a recurring and non-recurring basis. Total recurring was $268 million.
That's growth of 4% year-over-year and up to 78% of total revenue, the highest level we have ever recorded. Importantly, Allscripts continues to make progress transitioning to subscription-based software revenue and recurring services.
You will see that in the continued year-over-year growth in recurring revenue. Total Allscripts non-recurring revenue was essentially flat at $78 million as the year-over-year declines are flattening out, consistent with our discussion last quarter and within the $75 million to $85 million range we called out at that time.
Moving to margins, we had a nice lift versus year-ago as anticipated with non-GAAP gross margin of 46.9%, up from 42.3% a year-ago, a 460-basis point improvement year-over-year. Within software delivery, support and maintenance, we posted gross margin of 63.2%, up from 61.9% or 130 basis points, helped by mix and improved efficiency within the support organization, which we believe is a sustainable benefit to margins.
Moving to operating expenses, first quarter non-GAAP SG&A increased 6% from year-ago, primarily due to timing of marketing spend and other expenses. Going forward, we expect spending levels for non-GAAP SG&A to remain fairly consistent with Q4 expense levels.
Note that GAAP SG&A in this quarter also includes a $3.7 million one-time charge for fees and expenses associated with the Netsmart transaction. Looking at R&D, expense was $47 million, flat versus year-ago.
Total R&D spending also remains generally on trend with gross research and development spending of $62 million, essentially flat with the fourth quarter. Roughly one-fourth of total spending was capitalized, consistent with Q4 levels and with our prior commentary on this trend.
Also in Q1, we recorded $4.7 million in impairment charges. These included a charge for impairment of capitalized software and impairment of one of our cost method investments.
These amounts are non-cash and are excluded for purposes of calculating our non-GAAP metrics. In addition, as in prior quarters, we apply equity accounting methods to Allscripts' investment in NantHealth, which resulted in the non-cash charge of $2.6 million to GAAP pre-tax earnings in the quarter.
This amount is also added back for purposes of calculating our non-GAAP measures. Regarding profitability, adjusted EBITDA as illustrated in table five of our earnings release, was $62 million, a 23% increase year-over-year.
This represents an 18% EBITDA margin for the quarter similar to Q4 levels and a significant improvement from 15% in Q1 last year. This is strong performance owing to our gross margin expansion from actions taken over last year to remove costs as well as leverage created from our revenue lift.
Non-GAAP net income for the quarter totaled $25 million, that's a 68% increase year-over-year, and non-GAAP EPS came in at $0.13 for the quarter. Cash flow for 2016 also began on a strong note as we generated $53 million of free cash flow, growth of 23% year-over-year.
With regard to share repurchase, we bought 2.9 million shares for a total of $37.5 million in Q1. Shares were repurchased at an average price of $12.70 per share.
As of the end of Q1, there was $112.5 million remaining under our current authorization. And now, I'll wrap up the financial discussion with our annual guidance for 2016.
Recall, we closed the Netsmart Technologies transaction last month and as a reminder, Allscripts contributed 100% of its Homecare business to Netsmart as partial consideration in the formation of the Netsmart joint venture. Beginning in Q2, our financial statements will reflect 100% of the results of our combined entities and then deduct our JV partner share of earnings from earnings numbers.
As a result, we are adjusting Allscripts guidance to reflect the consolidation of Netsmart into Allscripts financial statements, beginning in the second quarter of 2016. We are increasing revenue guidance to between $1.58 billion and $1.61 billion, that's midpoint growth of about 15% year-over-year.
We are increasing adjusted EBITDA guidance to between $280 million and $300 million, that's midpoint growth of 20% year-over-year. And we reiterate, our non-GAAP earnings per share of between $0.55 and $0.62 per diluted share, a midpoint of 24% growth year-over-year.
This guidance is consistent with our stand-alone Allscripts guidance provided in February for the full-year 2016, plus our expectations for the partial year Netsmart impact as shared in April when we announced the transaction. The company plans to provide pro forma historical financial statements, as well as additional detail on the impact of the Netsmart joint venture's impact on Allscripts consolidated financial statements in July.
And with that, I'll hand the call over to Paul.
Paul M. Black - Chief Executive Officer & Director
Thanks, Melinda. As you can see, we had a strong first quarter and we're off to an excellent start for the year, carrying the momentum created last year into 2016.
Looking back over the last three years and taking into account investments we made, the partnerships created, and the client relationships we strengthened, I believe the company is as strongly as positioned as it has ever been to ensure our client success. We have increased the breadth and depth of solution offerings, substantially enhancing our competitive position in the global market of healthcare IT.
The external environment is prime for Allscripts success. From a regulatory standpoint, ICD-10 is behind us, it was generally a smooth transition.
The market is moving ahead to focus on the next wave of regulatory requirements, specifically Meaningful Use 3 and the massive reimbursement changes from CMS under the MACRA legislation. This is a game changer.
The manner in which Medicare pays clinicians will favor value and quality over volume. This is no longer a theme, it's a reality, and it's permanent.
The first rule, linking cost and quality were issued last week. MACRA creates a Merit-Based Incentive Payment System built on quality measurement and reporting.
In addition, providers will have the opportunity for bonus payments for participation in eligible Alternative Payment Models. This equals challenges and opportunities for Allscripts' clients.
We anticipate significant opportunities to educate and support clients during this transition. Allscripts has a critical role to play during this next wave of change.
We will lead the industry to ensure a successful navigation, transitioning clients to the new CMS programs. We will accomplish this through additional education programs, quality improvement initiatives, workflow optimization and consulting services, all to deliver the highest quality of care, increased efficiency and maintain physician independence.
MACRA replaces the Meaningful Use program. The new program is called Advancing Care Information.
The certification requirements for EHRs continues to grow and evolve as we did for MU2, we are full steam ahead doing the work necessary to certify MU3 to deliver upgrades in a timely manner. Beyond regulatory change, Allscripts has strategically been investing in Precision Medicine, as a long-term foundation for innovation and additional growth.
We've had a dedicated team focused on creating pharmacogenomics and molecular diagnostics. This initiative is in sync with other investments underway in personalized medicine.
We are building a Precision Medicine knowledge hub, bringing together clinical, genomic and consumer-based information to a centralized database. In addition, we are engineering clinical work flows and research-based predictive screening in treatment regimens.
We are partnering with the National Institutes of Health, a Sunrise client, and HIMSS Stage 7 award winner on the Sync for Science initiative. This pilot will allow individuals to access their health data and send it to researchers in support of the goals of the Precision Medicine Initiative.
We are well positioned with the FollowMyHealth platform which is architected to capture every variable on the data collection map including family history. We also grant consent at the consumer level.
Both of these features are important to patients and to researchers alike. This development work will be beneficial to all clients and prospects as Precision Medicine becomes more widely adopted.
This initiative also syncs with the company's Open strategy through the Allscripts Developer Program. Allscripts leadership and the interoperability in Open continues to distinguish us in the market.
Only recently are we seeing a few other vendors embrace Open APIs, a strategy we have invested in for nearly a decade. We have 3,600 developers using Allscripts Open APIs and working on just under 1,550 applications.
There are 135 certified solutions in the Allscripts Application Store. Year-to-date 2016, we have executed over 223.6 million data shares and it continues to grow every quarter.
To connect it all, consumer health and consumer engagement are top of mind for the executive at our largest clients. We expect increasing demand by consumers with mobile apps who are connected to their electronic health record.
These are critical components of population health management driving patient engagement. As a result, the demand for open interoperable solutions will grow rapidly.
We are making additional investments in Allscripts' consumer strategy. We hired Tess Coody-Anders as the Senior Vice President and General Manager, Allscripts Consumer Health.
Tess will have responsibility for the FollowMyHealth platform and will drive the company's consumer health strategy. Finally, Black Book released a new study last week that is truly sobering for C-suite executives, considering a rip-and-replace strategy for the sake of one platform.
A few highlights by the numbers from this survey. 87% of those financially-threatened hospitals now regret the executive conclusion to change systems.
90% of nurses reported EHR process changes diminish their ability to deliver hands-on care at the same level of effectiveness. 63% of executives say they or their peers were in employment jeopardy through the EHR replacement process.
And 78% of non-exec physicians, admit the clinical buy-in they were sold never materialized after the replacement was launched. With statistics like these, it's not surprising clients are making incremental investments with existing suppliers and only replacing systems when there is no alternative.
So with that, I'd like to open up the questions – for questions, Rob.
Operator
Thank you. We will now be conducting a question-and-answer session.
. Our first question comes from the line of Zack Sopcak with Morgan Stanley.
Please proceed with your question.
Zack W. Sopcak - Morgan Stanley & Co. LLC
Hey, thank you. Good afternoon, and welcome Melinda.
Thanks for the question. First question, I just want to ask was on the booking mix.
As you indicated, it was a little bit more weighted towards client services. It seems like you have about one quarter each year that happens.
Is this – is there anything in particular about the quarter that drove that and do you expect that to normalize more over the year?
Richard J. Poulton - President
Yeah. Zack, I mean, I appreciate the observation you made, because that's right.
I mean, there is a lumpiness that can happen particularly when you think about Sunrise sales. Sunrise deals tend to have a lot of lumpiness to them.
And in this first quarter, we didn't have any of that closed, so that's partly why you see a little bit of a fall off on the software side. But there is a lumpiness; we still feel very good about the pipeline for Sunrise; and so I would just look at it the way you started is that you're going to get your lumps every now and then, and that wouldn't read anymore than that into it.
Zack W. Sopcak - Morgan Stanley & Co. LLC
Got it, thanks. And then just a quick one on free cash flow.
It was a solid another good quarter in free cash flow growth. Your expectations for the year, are they changed at all, and does Netsmart impact your free cash flow expectations at all?
Richard J. Poulton - President
Yeah. I'll start and then I'll let Melinda finish.
I mean, we – it was a great quarter. You have to start by recognizing, you do have seasonality sometimes in the cash flows.
We send out a lot of maintenance bills in the first quarter. But with Netsmart, you know the sort of details around the transaction and what we invested in the venture.
And when we report free cash flow going forward, we won't report the cash flow or will separate the cash flow from that entity, because obviously that cash flow will help grow that entity and service the debt inside that entity et cetera. So we'll separate that for you.
But beyond that, we don't expect any changes. I think free cash flow has been a major theme from us for over a year now and we feel pretty good about our efficiency in that area.
Zack W. Sopcak - Morgan Stanley & Co. LLC
Okay, great. Thank you.
Operator
Our next question comes from Richard Close with Canaccord Genuity. Please proceed with your question.
Richard Close - Canaccord Genuity Group, Inc.
Yeah. My question relates around bookings.
Obviously, a solid first quarter. I think on the fourth quarter call, we asked about the growth opportunity in bookings year-over-year, and you said, they're a little bit easier to post growth in the first half of the year versus the back half of 2016.
Just wondering if you could give us an update on that whether you think you'll be able to post growth in the second quarter?
Paul M. Black - Chief Executive Officer & Director
Yeah, this is Paul. We were asked those questions last year, they said that, is 2016 going to be a hard comp and/or hard to beat the comps in 2015.
And we said that we expect that will always be the case. Our goal is to try and set bookings records every single quarter.
Our expectation – it's not the guidance necessarily but our expectation is that we're going to set consecutive quarterly records. So I'm not seeing anything from the forecast or anything from the pipeline to suggest some sort of trailing weakness or some other macro environment in 2016 that's going to be much different than what we saw last year.
Richard Close - Canaccord Genuity Group, Inc.
Okay, thank you.
Paul M. Black - Chief Executive Officer & Director
Sure.
Operator
Our next question comes from Matt Gillmor with Robert W. Baird.
Please proceed with your question.
Matthew D. Gillmor - Robert W. Baird & Co., Inc. (Broker)
Hey, good afternoon, and thanks for taking the question. I wanted to ask about the software subscription revenue.
I think Melinda said that the software subscription revenue has declined slightly year-over-year. Can you maybe just give us a sense for what the factors were that contributed to that?
And was that just sort of a normal fluctuation you see in that revenue bucket?
Melinda D. Whittington - Chief Financial Officer
Yeah. For the most part, you really have normal fluctuation.
You're going to have a little bit of just fluctuation as we talked about based on timing of when certain activities start up and so forth. So I wouldn't – as we said, we expect to see those numbers really – the big growth trends start to pick up more.
And as we confirmed our guidance, we're expecting overall revenue growth in line with the expectations we talked about before, plus Netsmart, so I think we'll see that pick back up.
Matthew D. Gillmor - Robert W. Baird & Co., Inc. (Broker)
Okay. And then maybe one follow-up.
Sorry.
Richard J. Poulton - President
I'm sorry Matt, I was just going to add to Melinda. It was up sequentially, and so I think that helps illustrate.
We had a little bit of a one-time blip, first quarter of last year, we had some maintenance credits and what not that came in. And so comp was a little bit unusual, but...
Matthew D. Gillmor - Robert W. Baird & Co., Inc. (Broker)
Got it. Okay, that makes a lot of sense.
And then on the Netsmart JV, I just wanted to – I know you're going to give some more details in July, but can you maybe give us a sense for how it impacts the P&L presentation in terms of how the revenues fall into your revenue buckets? And then second, will you be consolidating the debt from the JV on the balance sheet, how should we be thinking about the treatment there?
Melinda D. Whittington - Chief Financial Officer
Yes. So this will be a full GAAP consolidation, and so you'll have 100% of the balance sheet and the income statement consolidated, and then a one-line adjustment to take out our partner's fair share.
So the debt will be on the balance sheet for presentation purposes, but we do intend to split that out, given that the Netsmart debt is not ultimately recourse back to us.
Matthew D. Gillmor - Robert W. Baird & Co., Inc. (Broker)
Okay, thanks. I appreciate all the color.
Richard J. Poulton - President
So Matt, full transparency on Netsmart, right? You'll see it on the P&L, and you'll see it on the balance sheet.
Operator
Our next question comes from Nina Deka with Piper Jaffray. Please proceed with your question.
Nina D. Deka - Piper Jaffray & Co. (Broker)
Hey guys, thanks for taking the question. Can you share us some insight on the workflow element of your population health platform, and maybe how that strengthens your value proposition versus pop health players who aren't as focused on workflow?
Paul M. Black - Chief Executive Officer & Director
Yeah, this is Paul. So when you do a side-by-side demonstration of what we do and what our capabilities are, it's the little things that are, if you will, tricky to do that, as I've said in the past, have taken us seven or eight years to perfect.
And that is specifically if I have allergies that are represented in multiple different electronic medical records, one in ours, one in Athena, one in eClin, one in some other third-party solution that are out there. What clinicians do not like to see is the same allergy represented in the electronic medical records six different times.
So what we do is, we actually – when we talk about harmonization of the data and normalization of the data, we actually check and see that that allergy is actually the same allergy, it just comes from different systems, and it may be inside of that system represented in a different nomenclature differently. And I've seen demonstrations of other systems where you actually see, again, the same allergy represented six times.
Docs look at that and they say, that's a lot of noise, that's a lot of clutter, and I'm not sure that I really like using the system. The second thing is they don't like logging in and logging out a system to get to the HIE data, and that's why our concept and construct of the agent, which shows them in the top right-hand side of the screen, there is new information that they want to see based on their specialty type, and the only time that that flashes is when there is new information.
So we show them a delta view. So those are two examples of reasons why we're actually getting a fair amount of uptake and fair amount of just on the raw demonstrations.
People saying this is really great. We like it, we like it better than the other things we're seeing, and it actually is providing me value as a clinician.
Nina D. Deka - Piper Jaffray & Co. (Broker)
Great, that's really helpful. And then for my follow-up question, can you quantify the JV contribution to the guidance adjustment?
Is it – does it make up 100% of what was adjusted or were there potentially some other adjustments made?
Melinda D. Whittington - Chief Financial Officer
Yeah, if you go back, I mean the math follows pretty closely to look at our guidance for Allscripts back in February plus what we indicated would be the net impact of Netsmart when we announced that arrangement. So two things though to keep in mind, that net impact of Netsmart will involve both.
We contributed our Homecare business into the business, and then we'll get our fair share portion of that back on an earnings line. And so important to keep that in mind.
And again, just to reiterate that you're looking at 100% contribution of that new Netsmart entity to revenue with only our fair share on the profitability lines like EBIT and EPS.
Nina D. Deka - Piper Jaffray & Co. (Broker)
Great. Thank you so much.
Paul M. Black - Chief Executive Officer & Director
Thanks for the question.
Operator
Our next question comes from Greg Bolan with Avondale Partners. Please proceed with your question.
Steven Couche - Avondale Partners LLC
Hi, this is Steven Couche on for Greg. I know you mentioned that contract renewal with George Washington earlier, but can we talk a little bit more about your positioning in ambulatory?
There's some speculation out there that you've lost some market share, any independent physician market? Would you mind to address that?
Richard J. Poulton - President
Well, I mean, it's hard to comment on rumors and innuendo. But, I guess, let me reiterate couple of things we did say which is, this is very well-known, respected practice, GW, so that is significant that they re-upped with us for a long time.
I also made the comment earlier that we added the most new accounts in our Pro business that we have in nine quarters, so I think those are directional indicators of – things feel a lot better than perhaps the speculators are speculating to you. I think every vendor in the market has some level of churn, but I would just tell you from our standpoint, churn is within our expectations and we continue to feel very good about our ambulatory business.
Steven Couche - Avondale Partners LLC
Great, thanks. And then just a quick follow-up.
There has been some additional entrants into the rural kind of 100 bed and less space, how would you describe that market in general speaking of churn? And have you bumped into any of these new entrants during the procurement process?
And thanks for taking the questions.
Richard J. Poulton - President
Yeah. I mean, we don't have a lot of target down at that small of the market, but we certainly have picked up a few accounts down there.
I would just tell you the business that we have in that small slice of the market has not been challenged by any of the new names I think you're referring to. So that's a relatively new area for us as well.
So we've sort of drifted into that segment as well for clients who appreciate the clinical sophistication that we bring them. And so we pick up accounts that's relatively new for us.
We didn't grow up in that segment of the market. So right now it's kind of just the net positive for us but we don't see, we don't bump into a lot of who I think you're referring to.
Steven Couche - Avondale Partners LLC
Great, thank you.
Richard J. Poulton - President
Sure.
Paul M. Black - Chief Executive Officer & Director
Thanks, Steven.
Operator
Our next question comes from Vijay Kumar with Evercore. Pleased proceed with your question.
Elizabeth Anderson - Evercore Group LLC
Hi, this is Elizabeth Anderson. I have a question about the CareInMotion sales.
Can you give a little bit more color on the type of interest you're seeing for that sort of new compilation of that, like what types of institution, is it – people who generally have dbMotion or not, et cetera? Thanks.
Richard J. Poulton - President
Yeah, sure. I mean, again, so CareInMotion is our integrated platform for population health, and it really pulls together a lot of point solutions that we've had, some of which we've had for a long time, some of which we've had for a shorter amount of time, but it's – as we pull them together, through a comprehensive suite, we're marketing them onto that umbrella brand.
It is modular, so many clients can start in with one or just a couple of the modules as opposed to the whole platform. But then our goal is obviously to progress the client through to the full suite over time.
So we've had very warm, as I had mentioned earlier, very positive reception to it so far. And I think by, again positioning it as a platform and giving our client base a broader view as to how it all hangs together, allows us to create a good go-forward path with those clients.
Elizabeth Anderson - Evercore Group LLC
Okay, great, thank you very much. And then also just a question on the guidance.
I know that you said in the comments you made before that the revenue – that the guidance particularly on the revenue side was consistent with your prior guidance and then obviously you added it Netsmart. So are you saying – are you making any changes on that guidance on the basis of the core business?
Melinda D. Whittington - Chief Financial Officer
No.
Richard J. Poulton - President
No.
Melinda D. Whittington - Chief Financial Officer
No.
Elizabeth Anderson - Evercore Group LLC
Okay.
Richard J. Poulton - President
It's our old guidance plus the impact of Netsmart. That's what you're looking at.
Elizabeth Anderson - Evercore Group LLC
Okay, perfect. Yeah, thank you for the clarification.
That's really helpful.
Paul M. Black - Chief Executive Officer & Director
Thanks, Elizabeth.
Operator
Our next question comes from Mike Ott with Oppenheimer. Please proceed with your question.
Mike Ott - Oppenheimer & Co., Inc. (Broker)
Good afternoon. Thanks for taking my question.
Paul, I appreciate your comments on MACRA, and it's still early and it's obviously complex proposal, but can you share any additional thoughts on potential impacts specifically on the replacement market or your services business in particular?
Paul M. Black - Chief Executive Officer & Director
The complexity of this thing is somewhat staggering for both us, as well as our clients from the standpoint of what needs to be captured. And so the government knows quite frankly, they've spent $30 billion on the investments on the HITECH Act and they know that most of the platform is now digital and they're asking for a lot of quality information.
So the payment for performance and the payment for quality is this the front-end of what's going to be, I think, a very large and long-term trend. Look the issues will be in getting the quality data assimilated in a way very quickly that are on behalf of our clients so that they don't have to spend a lot of time in either chart abstraction or in writing report, writing, if you will, reporting systems in order to do that themselves.
So we want to be a report generator for them. We have collected a lot of that data as a result of the way that we collect data in the cloud today for MU2 certification.
So we think we have a head start on it. But getting those data presented in a way that's consumable with the new standards is going to be important.
We see it as an opportunity not only, of course, to go back to our client base to help them to not to, if you will, build a stronger relationship with them, there'll be some consulting opportunities, there'll be some services opportunities around that. And importantly, I do think that some people that are in the business, some of which have already raised their hand and said I'm out, it will create some EMR suppliers of the 492 that were certified for Meaningful Use 1 and Meaningful Use 2, I expect that there will not be 492 that also gets certified for MU3 and for this MACRA legislation, which will create opportunities for us to go replace those that are no longer in the business.
Mike Ott - Oppenheimer & Co., Inc. (Broker)
That's very helpful. Thank you.
And in the past, you guys have discussed improving services margins throughout 2016, I wonder if that is still a good assumption going forward?
Melinda D. Whittington - Chief Financial Officer
Yes. We do intend to continue to see that improvement.
I think over time we've called that we thought we could see those get as high as 20% over time, not saying that we would be able to achieve that all this year, but we're at 15% currently, and so we continue to expect improvement.
Mike Ott - Oppenheimer & Co., Inc. (Broker)
All right. Thanks, Melinda, and welcome.
Melinda D. Whittington - Chief Financial Officer
Thank you.
Operator
Our next question comes from Nina Deka with Piper Jaffray. Please proceed with your question.
Nina D. Deka - Piper Jaffray & Co. (Broker)
Hey, guys, thanks again. Just wondering if you could maybe provide a little bit information on this new resell partnership with Imprivata and maybe how that might contribute to the value propositions offered to your TouchWorks space?
Paul M. Black - Chief Executive Officer & Director
Yes, we have a lot of relationships with multiple third-parties as part of our application development program, and the Imprivata folks provide a single sign-on set of capabilities that I think are important for not only obviously our solutions but for multiple other suppliers that might be in a centralized environment. So if you're running a large shop, and you don't yet have CareInMotion installed, this gives you capability to go to a single sign-on set of capabilities.
But it's emblematic of other things we're doing with the other 152 different suppliers that are out there to resell their solutions on top of ours, and it's again something we encourage in the marketplace, if they can find a solution that sits on top that's great for our clients and great for them, we welcome that innovation.
Nina D. Deka - Piper Jaffray & Co. (Broker)
Great, thank you. And then just one more question about, are there any new milestones achieved with your partnership with NantHealth?
Paul M. Black - Chief Executive Officer & Director
Yeah, I would say that the progress there has been great. We have a lot of – I have a lot of clients, Allscripts does, that our Sunrise clients that are already doing some sort of cancer treatment and the ability to quickly bring in the protocols that NantHealth has as part of their Eviti program, and something that we are integrating inside of two or three of our clients and those are going to be going live pretty soon.
We're also seeing some new business opportunities both in the United States and outside the United States that would not only be a NantHealth-driven or an Allscripts-driven initiative, but it would potentially deliver some new EMR placements for us, as a result of a holistic approach to either a city, country or region.
Nina D. Deka - Piper Jaffray & Co. (Broker)
Great, thank you. That's really helpful.
Thanks, again.
Paul M. Black - Chief Executive Officer & Director
Thanks, Nina.
Operator
Our next question is from Charles Rhyee with Cowen Group. Please proceed with your question.
Zachary Wachter - Cowen & Co. LLC
Hi. This is actually Zach Wachter on for Charles.
Just a quick question off of the revenue guidance question from before. I know you are saying that the core revenue is still the same.
I'm just wondering if the mix has changed at all given the mix in software was probably a bit different than we expected in 1Q. And you previously said you expect recurring revenue growth of 5% to 7% and non-recurring to decline at a rate of 2% to 4%, and I'm wondering if that's still – if we still think about it that way going forward.
Thanks.
Melinda D. Whittington - Chief Financial Officer
Yeah. I think that the general guidance is still right.
We'll have on any given quarter a bit of a shift between – but I think still planning in line with the guidance, and obviously the overall 3% to 5% that we've talked about is still the right planning to model plus Netsmart, of course.
Richard J. Poulton - President
Remember, also, recurring revenue is software and services. We have recurring in both buckets.
So it's a little bit of apples-and-oranges to compare the software bookings to recurring revenue. So just wanted to make sure you're clear on that.
But, yeah, to reiterate what Melinda said, we had a 5% to 7% up on recurring, 2% to 4% down on non-recurring was really embedded in our guidance. And we still feel pretty good about that.
Paul M. Black - Chief Executive Officer & Director
Is there anything else, James (sic) [Zach] (46:09)?
Operator
Our next question comes from Richard Close with Canaccord Genuity. Please proceed with your question.
Richard Close - Canaccord Genuity Group, Inc.
Thanks for the follow-up here. Talk a little bit about international.
You mentioned SingHealth and another client, I think the Department of Defense over there, you obviously had your first population health client in the UK, there has been some noise I guess maybe on the implementation in Australia. And so if you could just talk a little bit about all those things happening on the international front, update on some of the implementations over there and new wins but also what you see in the pipeline.
Richard J. Poulton - President
Sure. Let's go to the non-lay ups first.
So the noise going on in South Australia, I talked to the executive down there this week on just the normal cadence that we have. But they're getting ready to go-live with very large brand-new hospital and that's called Royal Adelaide, and that project is on plan and we've not had major issues with regard to that or quite frankly with the success of the rest of the rollout down there.
There has been pockets of clinicians who perhaps have had issues that in our opinion, and I think the client would support, may have gotten a little bit more press than either of us had expected or wanted to, and we obviously take any discontent very seriously. But on a macro basis, that is not something that's causing us any issues either from a relationship standpoint, from a broader clinician adoption standpoint, nor from a rollout process.
In the United Kingdom, there is a lot of activity over there in many different trusts, where we've been successful, and we are doing the deployment there. And our clients that are there are buying more from us, which is always a wonderful sign of client satisfaction.
People that pay their bills are happy, spread the news and buy more. That's a great business model for us in any country, and it's certainly working for us over there.
They also are acting as a great set of references for us as we are expanding other initiatives into that – in that marketplace. And in Singapore, there is a lot of very heavy-lifting going on with regard to deployment of some solutions that were sold over the course of end of 2014 and beginning of 2015 that had a lot of very specific country requirements.
And we are quite pleased that because of not only in country engineering that we have but the relationships that we have with executives that are there and client teams that are focused on this, as well as our client team that's there and our engineers that are there that we're getting really good uptake on the deployment of some really interesting and exciting new functionality for Sunrise in that marketplace. So broadly there is always – we're never perfect.
But from the standpoint of how we feel about business outside the United States, in every geography we had clients purchase something new over the course of 2015 going into 2016, and we had a lot of new client additions or new footprints that were either purchased and/or implemented, not only on the Sunrise side but as we broadly talked about, working into the population health management piece, as well. So we're pleased with the business outside the U.S.
Richard Close - Canaccord Genuity Group, Inc.
Okay. And just one more.
With respect to Netsmart, just to be clear, when you say transparency, is the revenue going into the individual buckets currently on your income statement, and then you'll say how much revenue was in each of those line items? Or just exactly how is that going to be presented?
Melinda D. Whittington - Chief Financial Officer
I mean specifically to Netsmart, they will retain their own organization, and so it will be a top-line reporting. So we'll have those buckets.
If your question was more to revenue across all of our business lines, no, I mean that's all centralized, and then we do breakout reporting below that.
Richard J. Poulton - President
Yeah. But I think, Richard, if you're asking, are we going to change the format?
The answer is no. The four line, the kind of breakdown of revenue you see today, Netsmart will fit into, so you'll see a consolidated total.
What you'll also see though is a separate standalone kind of results for the entity itself, okay? (50:53)
Richard Close - Canaccord Genuity Group, Inc.
Okay. Let me try it this way then.
So of the incremental revenue that we're adding in for Netsmart, can you give us in terms of modeling guidance in terms of the percentage that would go into software delivery and maintenance and then the percentage that goes into client services?
Melinda D. Whittington - Chief Financial Officer
Yeah. You'll have a lot more of that perspective in July.
At this point, as we're working through, I mean we have 8-K filing requirements that will even include historical audited financials and everything for Netsmart. And then, we'll provide a lot more detail on how to model the elements.
And then – and of course there is going to be purchase accounting adjustments and transactional noise and so forth as well. So we'll be able to take you through a lot more of that in detail with real exhibits in July.
Richard Close - Canaccord Genuity Group, Inc.
Okay, thank you.
Operator
Our next question is from Gene Mannheimer with Topeka Capital. Please proceed with your question.
Gene Mannheimer - Topeka Capital Markets
Thanks. Good afternoon.
You used to put some numbers around your pop health bookings either in absolute figures or as a percent of total, and I'm not sure that you're still doing that insofar as you're selling more of a platform. But can you quantify or even speak qualitatively about the traction you're seeing of CareInMotion?
Is it stronger than, say, a year ago? And finally, are you selling that primarily to your own base?
Are you seeing success across competitors' EHRs as well? Thanks.
Richard J. Poulton - President
Yeah, thanks, Gene. The answer is – the short answer is population health continues to be quite strong for us.
I would note, we do still have it as a segment in our SEC filings, so you see the P&L impact from it when you look at that. So there is still a lot of transparency.
We had good success with CareInMotion. We've seen different pieces of the platform ebb and flow in terms of popularity, so obviously patient engagement platform was a big driver of activity a year and a half to two years ago with MU2 requirements.
Now we're seeing a lot more of the action come on the dbMotion side. So people are focused on different modules at different times, Gene, but in general, it is still a good source of momentum and activity for us.
Gene Mannheimer - Topeka Capital Markets
And you're selling that across competitors' EHRs or primarily to your own base?
Richard J. Poulton - President
Both. So every module on the platform is EHR agnostic, so it has a mix of both Allscripts EHR clients and non-EHR clients.
And as I alluded to in my remarks earlier, we had a nice acute win outside our base during the quarter.
Gene Mannheimer - Topeka Capital Markets
Great. Thank you.
Operator
Our next question comes from Garen Sarafian with Citi. Please proceed with your question.
Allen Lutz - Citigroup Global Markets, Inc. (Broker)
This is Allen in for Garen. Thanks for taking the questions.
With regard to the ambulatory replacement market, can you just speak to whether or not churn in RFP activity is increasing or decreasing year-over-year? And to that point, can you talk about sort of what's driving practices to switch vendors?
And is that changing then maybe – against maybe one or two years ago?
Richard J. Poulton - President
Well, I mean you have on the horizon – the answer is, I think there is more activity, and there is more activity both in terms of additional services but also more activity in terms of potential EHR churn, because on the horizon you've got MU2 requirements and now you have a whole new book of MACRA reimbursement rules. And it's a fairly fragmented market and not all the providers in the space are showing the interest or the willingness to kind of invest for these new book of requirements.
So that's creating some level of action and I think it's no small coincidence so that's why we had our best quarter in nine quarters with respect to our Pro base.
Allen Lutz - Citigroup Global Markets, Inc. (Broker)
Got it. Thank you very much.
Richard J. Poulton - President
You're welcome.
Paul M. Black - Chief Executive Officer & Director
Thanks, Allen.
Operator
Our next question is from George Hill with Deutsche Bank. Please proceed with your question.
George R. Hill - Deutsche Bank Securities, Inc.
Thanks for squeezing me in guys. And I think most of my questions have been answered, Paul and Rick, and welcome aboard, Melinda.
I kind of just wanted to talk about the Precision Medicine Initiative that you guys have made an announcement about, and I ask only because, as we hear from a lot of the clinical research companies Precision Medicine from a therapy perspective is really starting to take off, I'm wondering if you can just talk about how long do you think it is before it kicks off from a technology perspective and if you have any opportunity for more partnerships or kind of transaction opportunities beyond NantHealth?
Paul M. Black - Chief Executive Officer & Director
Thanks, George. There is a lot activity going on.
If you look at all the different initiatives, the MoonShot, the National Immunotherapy Coalition, the Think for Science (56:07), Precision Medicine Initiative, I mean there is a ton of things that are going on, which all creates a lot of goodness. The convergence, if you will, of the science of the technology platforms of the fact that there is an entire digital platform out there today that there wasn't out there in the past, the capability to connect that last mile which is what we do to the clinicians that are out there both in large academic medical centers as well as out into rural America, all create this very exciting time for us from my perspective.
I think that the amount of change that's going to occur and the level of clinical efficacy, meaning the right people around the right meds that we've talked about for such a long period of time, but now we're going to know at a genomic level whether or not they're are on the right regimen and the right chemotherapy routine. That is all quite exciting.
And it really hasn't gone under anybody's radar. Pharma is interested in it, the FDA is interested in it, the payers are interested in it, our large clients are interested in it, and consumers are interested in it.
People are going to start demanding it. That's why we've made such a large investment thus far, and we'll continue to do so, both organically and inorganically to stay ahead of that.
The work that we're doing with Nant is, as I said in the past, quite exciting not only because of the breadth and depth of what they bring to what we do, but also because of the relationship that we have and the doors that opens for us. But we're not completely relying upon that specifically with the work we're doing with the National Institute of Health (sic) [National Institutes of Health] (57:48).
They've been doing precision medicine and sequencing there for a long time. The pharma entrants to this and when we talk about the pharmacogenomics, that's where they are extraordinarily interested in making sure that the medications they have are matched up with the people who have the right kind of profile for those medications to deliver a better outcome.
So they are keenly interested in getting access to at a genomic level, a larger group of people could actually should be on the medications that they have worked so hard to develop, but currently are not on it. So that will – it will take time but over time, I think you will see a huge shift in the way that things are prescribed, administered, paid for, and hopefully, the results of all that will come out when people that we all know that may have an extraordinarily rare or debilitating disease having a cure for it.
And that's the Holy Grail behind what this is all about from my opinion.
George R. Hill - Deutsche Bank Securities, Inc.
Yeah, that was the answer I was hoping for. Thanks, Paul.
Richard J. Poulton - President
George, just specific on the partnering question, I mean, just – NIH we talked about a lot, that's a meaningful partnership that we've added as well. And then there is another important partnership will close in the next week.
So the answer is yes, we continue to broaden that network of partnerships.
George R. Hill - Deutsche Bank Securities, Inc.
And we'll keep our eyes still.
Richard J. Poulton - President
Thanks.
Paul M. Black - Chief Executive Officer & Director
Thanks, George.
Operator
There are no further questions. I'd like to turn the call back to Paul Black for closing remarks.
Paul M. Black - Chief Executive Officer & Director
Thank you very much for joining us today, the momentum we created as I said earlier carries us into 2016. We had a very good and very solid Q1 in EPS, bookings, revenue and cash, those are all obviously very important metrics of how we're measured on a 90-day basis.
But importantly, we also have got a lot of clients implemented, installed, and new functionality delivered to them which is, their success is something that will bode well for our company over a long period of time. We're not sitting still.
We're adding additional capabilities to our organization and create a competitive advantage both from open systems, from interoperability, from precision medicine and from our global reach. So as I said in my comments earlier, and I'll leave you with those comments as we close the call this evening, we think this company is extraordinarily well positioned throughout the balance of 2016, and it's been a lot of hard work, a lot of effort that's going on to get us to where we are today.
Thank you very much for your time
Operator
This concludes today's teleconference. We thank you for your participation.
You may disconnect your lines at this time.