EHR Vendor Allscripts' Health Questioned By Analysts
Allscripts, one of the largest providers of health IT products and services, reports a lower-than-expected quarterly profit and a management shake-up.
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Allscripts Healthcare Solutions has elected Dennis Chookaszian chairman of the company and doubled its share repurchase program to $400 million. However, these moves may not be enough to quell analysts' concerns that the company can't turn around its fortunes and aggressively compete against rivals like McKesson, Cerner and Epic.
Allscripts' most recent troubles began April 26 when the company reported in a conference call that net income dropped to $5.8 million, or 3 cents per share, in the first quarter, from $12.6 million, or 7 cents per share. The company's revenue rose 9% to $364.7 million from $335.3 million, but analysts expected earnings of 24 cents per share and $387.5 million in revenue, according to FactSet.
Allscripts has lowered its 2012 earnings forecasts to an adjusted profit of 74 cents to 80 cents per share, down from previous estimates of $1.06 to $1.10 per share.
The company also announced first-quarter bookings of approximately $194.6 million declined 8% over the prior year, when the total dollar value of bookings was $212.4 million.
"There's no question that this was a very tough quarter," Allscripts' CEO, Glen Tullman, said during the investors call. "In my career I'm not sure I've had one that was this tough."
The company's chief financial officer, Bill Davis, said the bookings shortfall resulted from two primary factors--a delay in certain transactions that the company expected to close among its existing client base, as well as lower than expected sales to new clients.
"Both our acute care and our ambulatory businesses did not perform up to our expectations with regard to both new and existing client sales," Davis said.
Davis will be leaving the company May 18, and is one of several top executives that won't be around to see whether the company sinks or swims in the coming quarters. In a statement, Allscripts also said Phil Pead, who was chairman, left the company, as did three board directors: Catherine Burzik, Eugene Fife, and Edward Kangas, who tendered their resignations.
Complicating matters has been the company's recent restructuring effort to combine its sales and service teams under one umbrella, as well as the prolonged development of its technology as it tackles the issues of customer satisfaction and technology integration.
"A number of our clients and prospects delayed commitment as they waited for us to introduce new releases and demonstrate more robust integration," Tullman said.
Judy Hanover, research director at IDC Health Insights, said the timing of Allscripts difficulties is clearly unfortunate given that electronic health record (EHR) adoption is proceeding rapidly this year.
"These problems have meant that Allscripts is not competing well against vendors like Epic and Cerner in the marketplace at a critical time, and Allscripts has failed to garner as much market share as these competitors," Hanover told InformationWeek Healthcare. "Long term, Allscripts will need to fight a more difficult battle to win back lost customers and/or find replacement opportunities as the market becomes more saturated."
As it fights to maintain and grow market share, Allscripts' Tullman said the company will invest more than $190 million this year to improve performance and accelerate integration and innovation. Part of that investment will go toward the development of ADX 1.5, which will go into beta testing at clients' facilities within 60 days, and is scheduled for general availability at the end of September. According to Tullman, the previous version of the software, the ADX 1.0, which integrates Sunrise Clinical Manager, its acute care offering, with its enterprise EHR for larger, more sophisticated ambulatory practices, was met with less-than-enthusiastic reception by clients.
This year the company will also offer several tools including Sunrise Enterprise 6.0, which is designed to simplify upgrades and improve performance, and Sunrise Financial Manager which is an enterprise-wide financial platform designed to accommodate the accountable care model as well as ICD-10 codes.
While Allscripts pins its hopes on new products as it attempts to bring the sheen back to the company fortunes, analysts have their doubts.
Citi analyst George Hill described the company's quarter as "strongly disappointing," while other investment analysts at Raymond James, Goldman Sachs, and William Blair have cut their price targets and downgraded the company's stock rating.
IDC's Hanover predicts that Allscripts' long-term survival will hinge on how it approaches its position in the market going forward, how it manages the delays with its customers, and how much confidence is eroded in the process.
"Allscripts needs to deliver on the revised dates, work with its customers to convey progress, and provide high levels of service in the interim, as well as meet and exceed expectations for these releases with its customers when they become available, in order to win back confidence," Hanover said.
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