Veradigm Inc. (MDRX) Earnings Call Transcript & Summary

Good afternoon, everybody, and welcome to the Allscripts presentation at the JPMorgan Healthcare Conference. My name is Anne Samuel, and I cover health care IT here at JPMorgan. With us today is CEO, Paul Black. We'll be taking questions after the presentation in the Georgian room. And there, we'll be joined by President, Rick Poulton; and CFO, Dennis Olis. So with that, let me turn it over to Paul.

Thank you very much. Paul Black. It's nice to have everybody here today. I appreciate it. I'd like to give you an update on what's going on at the Allscripts Corporation. As our disclaimer, with our forward-looking statements, of which, there will be potentially some of those between now and during the Q&A, I'm sure. And what we like to do is always talk about what we do for a living and how we think we have impact to our clients. The vision that we have for the company is to be the open connected community of health as we build those across all the communities that we serve in, open from the standpoint of we're one of the very few people that have actually been doing that and offering an API layer for more than 12 years. We encourage developers to build solutions that sit on top of our solutions. And we actually provide a mechanism by which people can do that, in that we train them, and we have a group of people whose only job at Allscripts is to help those entrepreneurs become successful. Communities, we think, are important because it's not just inpatient, it's not just ambulatory, it's connecting all the data about that person to all the different caregivers irrespective of the venue so our population health solutions, our care coordination solutions are all very interconnecting those communities. Of health, we think about the status, everybody that wants to be healthy. It's nutrition concept. It's a disparities of income concept. It's also what we aspire to, to make sure that our solutions are relevant not only for those who are sick, but also for those who are trying to maintain a healthy life balance. The way we look at this is there's fundamentally 4 different components. The systems of record that are out there today are -- we could convert that into the electronic medical record platforms that are there throughout the entire United States and the rest of the world. We are very good at building electronic medical records. We've been in that business for a very long period of time. We think that those records are important from the standpoint that they provide the scheduling, they provide the registration, they provide the billing, and they also provide all the documentation that are required for somebody to have a longitudinal view of that person's health and that person's status in the community. Those are very -- that's a core fundamental of what we do, and we get to participate with our clients in the growth as they grow. And we get to participate in adding additional value services around that, whether that be revenue cycle outsourcing, whether that be hosting or whether that be managed services. We'll talk about that quite a bit. The second component of that is connecting the consumer or connecting the citizen, depending upon what country you're in, to their record. Once you connect that person to their record, that person can actually be more engaged and more compliant with the protocols that have been asked of them to follow but also for them to provide additional input, whether it's Fitbit or other wearables, of data about their -- themselves, their health status and in many cases, the wearables are giving important information to a remote diagnostician, who is also monitoring their health. The systems and analysis are also important from the standpoint of making of that connected community, that connective tissue that's out there and making sure that, that actually is connecting, again, not only from hospital to hospital but hospital to ambulatory group, the primary care or general practitioner in the U.K., wherever that person may be, connecting everybody to a single record. That connective tissue is something we've spent a lot of money on, we continue to develop and it not only connects people, but it also helps people to actually actively manage and coordinate that care. And lastly, my -- and the team's biggest thing that we continue to think about from a vision standpoint is how do we maintain relevance in this industry and how do we think about what else is going to be needed by these institutions and these organizations that are accountable, both clinically and financially, for the health and the well-being of the communities and the populations that they serve. That is fundamentally the vision and then the 4 strategies that we have in order to maximize the potential of our company, not only financially, but also maximize our potential to be relevant to this industry, both here in the U.S. and around the globe. As I said, we get to grow with our clients. One of our largest clients is Northwell Health that's been a very large and important client for us since the 2003 time frame. We have announced yesterday a long-term extension of that contract. And we've actually had 4 different contracts that we've expanded over the course of the last 12 months. This client is important for a lot of reasons, not the least of which is that they're our largest revenue source to Allscripts, but they also have been working with us to develop a new platform. And that's the Avenel platform that we've talked about, a net new way of thinking about electronic medical record, a way for the physicians and other caregivers to actually actively utilize something that's different as compared to what the systems are today. While the systems we think are useful, there's been a lot of complaints in the marketplace, whether it's mine or the other large organizations that build electronic medical records about the physician fatigue, the burnout and other things. And we are working with Northwell specifically on creating a new metaphor for the exchange of information between a caregiver, the computer and the patient. Those are all very important strategies for us, and we think that we, with them, will be able to embark upon something that's new and importantly different. Another piece of the company when we think about growth and we think about who we are is our ambulatory footprint. We get a lot of industry information about size of companies. And we've gone to a revenue-based ranking, if you will, where you have 2 competitors that are larger than us from a revenue standpoint. We're the second largest publicly traded company that's in the marketplace. But particularly, that revenue and those other benchmarks get converted to some sort of inpatient component. I would just say, from what is happening in the United States, the ambulatory revenue in the United States will outstrip the inpatient revenue sometime this year or next year. So from an ambulatory standpoint, we're actually the #1 ranked provider of ambulatory EMRs in the marketplace today. We're actually bigger than the folks from Madison. And we have a very large and important group of people that interact with the Allscripts interface each and every day. That can span the globe from a 1-person practice, of which there are 30,000 of those with our Practice Fusion solutions, to large multigroup specialty practices that are independent that have no relationship with any -- no formal relationship with any of the integrated delivery networks that are part of their community. They have informal relationships, but they are independent. And they're large, and they're also very strategic to not only that community, but also they are the feeder of referrals into those inpatient facilities. So this is kind of an unknown thing that people haven't talked about. I thought I'd bring it up because I think it's incredibly important, and it's a big piece of what we do. So where are we in 2020? And a lot of people have talked about this. And we've talked about it this time last year about the electronic health record being a mature marketplace, the health care information technology marketplaces being somewhat mature. And that's as a result of things in this country where stimulus added a lot of additional -- the stimulus package added a lot of additional dollars into the marketplace for people to finish, digitizing the entire U.S. marketplace. And that has occurred, which is why we now find ourselves we've been selling electronic medical records to be in a replacement marketplace, which we welcome. There's still plenty of business to go out and get every single year, but there's other things that we have to do. So when we think about what the market is looking for, we think about cost. People want to understand what their costs are. They want to be able to coordinate the care. They want to be able to get paid. And from a payer and life sciences standpoint, there's a lot of people now that there's a digital framework that are out there, they want to plug into that. There's a closed-loop concept with regard to both of the insurance providers but also from a payer -- from a pharmaceutical standpoint when you think about drug surveillance, when you think about new trials and when you think about very targeted therapies that are out there that would be beneficial to people, not only to get to the physician, but eventually to get directly to the consumer. We will see a large number of direct-to-consumer ads as we watch the Super Bowl in the next month, when you watch the playoff games or the next -- this weekend, when you watch the Chiefs win, you'll see a bunch of people -- last weekend, there was 5 different major biosimilars ads that were out there. The direct-to-consumer marketing from pharma is not only going on aggressively, but it's been going on for a long period of time. We will actively participate in that dialogue with our clients. The investments that we have made over the course of the last 7 years, I think, uniquely position us in this marketplace to not only be a great electronic medical record supplier but also provide additional solutions that meet these market needs that I just described a second ago are specifically around the machine learning and the cloud. There's a bunch of new technologies that are out there from the usual suspects, the large organizations that have cloud -- that provide cloud services to us, but also those capabilities that are there to be able to integrate at a very rapid manner large data sets and be able to bring some semblance of additional information back that may not have been normally insights that would have fired with a regular monolithic application suite. The consumer and the care coordination components are also big investments that we made, both organically and inorganically over the course of the last 7 years to position us uniquely in that marketplace to have not only some 15 million people that are actively we're looking at working with and being interacting with their own personal health record, but they're also because they have consented that data, we grant consent of those data and those data rights in their record so that they then can actually move their records around to different care providers as well as to organizations that might be participating or they could be a candidate for a clinical trial. We think that's extraordinarily important. And thirdly, the big piece here that's different about Allscripts is that we have a very large data business and a very large component of being able to de-identify that information, not only from our data sources, but also from other organizations like NextGen where we actually are helping them monetize that data asset, again, with the appropriate HIPAA regulations, with the appropriate privacy. We've been doing this for a long period of time, and we actually are the engine that helps other organizations monetize that data that are extraordinarily important to pharmaceutical industry as well as to our payer community. These things -- these platforms that sit outside of the traditional EHR business inside of Allscripts have been quietly building up to be approximately 20% of our enterprise revenue. So these 4 platforms that you see here are also different in that they are EHR agnostic, meaning these things can -- these platforms can sit inside of a Cerner, Epic or anybody else's EHR platform. They also are cloud based so there's a different type of technology. They have a different profile financially for us, and they're all recurring revenue. These businesses also have been growing north of 10% per year from a revenue standpoint. And our revenue growth inside this company is largely being fueled by the investments that we've made a long time ago in these 4 different platforms. The patient engagement is our FollowMyHealth as well as our HealthGrid solution. The care coordination is our CarePort, which allows people to not only from a post-discharge standpoint understand where patients are, where they've been, how long they've been there. If you are at risk or if you have signed up for a bundle, you want to know not only where that patient went, but after they went to that step-down unit or for 25% of the people that actually went to some other place other than going home after they've been discharged out of the hospital, where they went, how long they went there and then where they went after they went to that place. CarePort have been extraordinarily important data coordinator and a resource coordinator in that marketplace, not only for hospitals, but also for anybody that's risk -- at risk, including a lot of insurance companies are interested in and many have procured that. To be precise, these are the investments that we've made in the precision medicine platform, where we've taken genomic information inside of the electronic medical record, combining that genotypic information that might be around what medications I'm on, what family history I have, how long I've been sick, what I've been diagnosed with, and combine that with information that comes back from a sequencing machine. So we can actually pinpoint people that potentially should be sequenced and as well as help people order what test should be ordered. And then when that assay comes back from the sequencing machine, we actually can help them order the correct protocol that's going to be metabolized by that person in a much more specific manner than it would have been with a broader population base. We think this will work across everybody. Be much more specific, and we're getting a lot of traction with that application. Again, it's EMR-agnostic. And lastly, the investments we made in our Veradigm platform around the data, the analytics, the capabilities there that I'm going to talk about a little bit more further. So with Veradigm, there are 4 different major areas that we work with. We work with health plans, we work with clinical workflows. And by that, we talk about closing the loop. And to me, it's important. There's a lot of people that apply data in the marketplace today. There's a lot of data aggregators. What's important about our strategy and how we think about data and how we think about insights is different. We actually try to bring that information back into the workflow of the clinician, and we try to present that information to consumers as well. The consumer component is newer, but that is something that we will continue to do as people who are sick that have their own personal health record, who'll be -- instead of looking at potentially at something on Facebook or joining one of those communities, being able to access information directly from their own portal versus having to go out to some outside source. So those are all important components of taking information and connecting that information to a clinical trial, to a specific medication, to a specific caregiver, to a specific patient. Those are all components that we think are distinguishing of us and the way that we think about what we're doing inside the Veradigm platform. The life sciences organizations today, this concept of real-world evidence has a lot to do with the fact of historically run randomized clinical trials, the data that come out of the electronic medical record. I heard that the FDA has been very supportive of being able to compress the time, the cycle time to get the yes or no on drug discovery. If it is safe, if there's efficacy to it and there's a way to surveil it long term, these are all components that we are able to also help as a result of having the data inside of electronic and medical record, not in data that came out of something that was published 90 days after the trial was run. We think this is going to be a brand-new and a very important construct for how pharma goes to market as well as how they're doing their research. We're seeing a fair number of pharma organizations bring back in some of their clinical trial work and bring back in some of their R&D work, and they're starting that process with a digital platform. So the connectivity between what we do; the data we have; the infrastructure of assets that we have, specifically around the ambulatory footprint, are all extremely interesting to and very strategic to the folks that we're having dialogue with on the pharma side. The last thing we have inside of the Veradigm organization is the Practice Fusion solution. And again that is -- it has been historically a physician-based EMR that has historically been taken -- uptake -- excuse me, purchased by physicians that are anywhere from 1-doc to 2-doc practices. This is not a replacement for the multigroup specialty practice solutions that are out there, but a lot of physicians still practice any 1- or 2-doc practice. And there's a relatively large market for that. We have some 30,000 physicians that are actively involved in that. They are also being marketed to, if you will. There's actually campaigns that go out from organizations as pharmaceutical organization's advertising as well as they also have a closed-loop with regard to any sort of additional insights that may be available from pharma and/or insurance companies as they're using those solutions, all very important and all very strategic to us. This business has done very well. The capital that Allscripts that we deployed during the course of 2019 was fundamentally deployed against these growth marketplaces. That was not the case in '17 and '18 as you probably recall. But those were all -- those -- the capital that was deployed during those time frames went across a broad spectrum of solutions. We focused our solution -- or excuse me, our capital acquisitions inside of this marketplace to be inside of the growth areas of the business in 2020. And you should see us continuing to do that going forward. Tuck-in acquisitions like Pulse8, which was a payer analytics capability. Registries that we bought that have further expanded our capabilities to be relevant to a larger population of provider organizations as well as payer organizations and to the pharmaceutical industry. So those capabilities, we think, continue to enhance what the value proposition and what makes Veradigm different and unique. The other thing that I'm very pleased about with regard to 2020 is what we did from a top line standpoint for our bookings. So the sales execution during the course of 2019 was very good. We had a 14 -- we announced 2 days ago that our bookings were up 14% year-over-year. And with that growth has come from a lot of important areas, has come from our global business where we have sold more dbMotion and Sunrise over the course of the last 12 months. We entered 2 new countries as a result of efforts that have been going on for a long time. For those of us who have been doing this for a while, to enter a new country is not an easy thing to do. And once you get into those countries, being able to perform to get those systems turned on quickly is also important. That's how you establish your reputation, that's how you establish additional growth business. I'm very pleased with that execution against that last year. We also had very good execution in our historic -- or our legacy business, if you will, the hospital business. We had very good execution against those opportunities last year. And as I mentioned earlier, the growth, while they're -- again, they don't represent yet more than 20% of our business. From a revenue standpoint, we had good growth inside of the businesses, including the Veradigm business. So those are all important indicators of -- future integrators of how we're going to perform as a company, not selling something as a problem. And we had a very good sales year last year. So as we look at why we think Allscripts is a good investment, you've got a robust, diversified application set. We think we actually have more applications, a broader portfolio than anybody else in this industry. You also have a management team that's actually been doing this for a long period of time. That's most -- it's the most senior management team of the publicly traded organizations that are out there today. We have a high recurring revenue model. Over 80% of our revenues come in at a recurring -- not highly recurring, meaning they're not professional services 3-year contracts. These are actually recurring revenue, which we think is an important distinction. We think that our future growth opportunities are -- have -- that we've outlined are real, and they also distinguish us from other people that are in the marketplace. And we also have a very -- I'll say this, with all appropriate, hopefully, modesty, we have a very good record of deploying capital over the course of the last 7-plus years. We made acquisitions. We deployed capital organically. We spent money on research and development, which has led us to sort of the retention rates that we've had recently over the last 24 months as a result of the increased competitiveness of the solutions that we have out in the marketplace. And we've been able to also sell some companies and do quite well on the disposition of those assets, all totaling some pretty decent records. And I would say, very good records, given the fact that we also, as a result of that, have some $300 million of recurring revenue that was manifest as a result of those acquisitions. And lastly, the thing that's important for me as a CEO of this company is building a culture. And there are 2 things that are distinct, I think, about our culture that are extraordinarily important to me that we test all the time. One is the concept of trust. Trust is a very important word inside of our company. Trust means you do what you say you're going to do. There's handshakes, there's telephone calls. But to me, that is an incredibly important way of doing business. There's no difference in doing business in the U.S. or anywhere else around the world. And to me, trust is an incredibly important core quality of what we do each and every day, whether you're on the phone, whether you're an engineer building something, whether you're a salesperson or whether you're deploying solutions. That is something that we focus on. And when we get industry ratings on this topic, everybody understands what the word trust means when you fill out a survey. And we continually, over the last 4 plus years, have rated the #1 trusted provider in the marketplace. Again, I'm very proud of that. And that's not all me, but it's the things -- concepts like that start at the top. We don't tolerate untrustworthy human beings that work at the company. But to me, again, that's very important somehow -- not somehow, it's the way we were all raised. And to me, it's important, that's the way we should conduct business each and every day. The other thing I'm very proud of is that people inside the company give back to the communities that they serve in. We don't dictate what solutions, we don't dictate what religions, we don't dictate what kind of companies and organizations they get involved in. We think that's a personal choice. But we fund them, we give them time off and we encourage that. And I'm very proud of the different types of work that these people have independently determined matter to them and matter to the communities that they serve in. So that is my prepared comments. We're going to have a Q&A afterwards. Again, thank you very much for your attention, and we appreciate your interest in Allscripts. Have a good day.