A New Strategy At Allscripts Healthcare Solutions Is Making All The Difference

A greater focus on customer needs and product quality is leading to stronger bookings at this healthcare IT turnaround story.

Feb 21, 2014 at 2:00PM

The health care IT space is still very competitive, with Epic and Cerner (NASDAQ:CERN) holding large shares in large hospitals, but new management has made a big difference for Allscripts (NASDAQ:MDRX). Strong bookings put the company on good footing for 2014, while growing interest in population health and a sizable replacement opportunity in electronic health records (EHR) offer more enduring potential.

Q4 strong, but bookings were the star
Allscripts' fourth quarter came in quite strong relative to sell-side expectations for non-GAAP numbers. Revenue fell 4% for the quarter, with growth in maintenance revenue offset by declines in the other line items, good for a modest (approximately 4%) beat with every line above expectations. Gross margin improved on both a sequential and annual basis, but operating income declined 19% from the year-ago level on higher SG&A spending (on a non-GAAP basis, SG&A is almost one-third of sales).

There was a wide range of sell-side expectations for non-GAAP operating profits, but Allscripts clearly beat expectations for its bookings. Bookings rose 52% (and 16% sequentially) in the fourth quarter, almost 14% better than the average estimate. With this strong influx of orders, Allscripts' backlog rose almost 22% at year-end.

Population health continues to draw interest
There are a lot of positive moving parts to Allscripts' bookings, as the company saw good interest in its SaaS offerings (44% of bookings) and good strength in core EHR products. One of the notable positives was also the interest in the company's population health product.

Population health is an emerging category that that uses electronic medical data to manage and improve outcomes for groups of patients through data aggregation, risk stratification, care coordination, and outreach. Allscripts' population health platform represented 40% of third quarter bookings, and that grew to 42% in this quarter.

As an emerging category, I believe population health is an invaluable growth opportunity for Allscripts. Large rivals like Epic and Cerner do not have entrenched relationships within this market, though Cerner is intending to fully ramp its Healthe Intent platform in the coming years. Allscripts is certainly going to have to deal with competition from Cerner, Epic, athenahealth (NASDAQ:ATHN), and others, but survey results suggest that Allscripts has a very good opportunity here.

Has Allscripts put its problems behind it?
Allscripts hasn't always been the best-run health care IT company in the business, but today's management team has taken a lot of steps to turn around the business. These moves appear to already be bearing fruit and could position the company for further share gains and profit growth.

Part of the problem for Allscripts is its legacy of growth through acquisition. That has left the company selling disparate systems and lacking an integrated platform. Consolidating platforms risks alienating customers, so it is at best a multi-year project. In the meantime, management has increased R&D spending and begun offering customers a clearer product roadmap. Allscripts management has also been focusing on improving the quality of the products it offers, and that has been reflected in improving survey scores and solid customer commitments to upgrades.

One of the remaining challenges is for Allscripts to gain share in the hospital/health care system market. MU-eligible provider attestations show that Allscripts enjoys better than 11% share in the ambulatory care market (against about 6% for General Electric, 3% for Cerner, and 2% for athenahealth), but the company's share in the market for hospital health care IT systems is closer to 4% (against around 15% for Cerner).

Cerner has talked about 50% of the EHR market being ripe for competitive replacement, so I will be very interested to see if Allscripts can drive share growth with its Sunrise enterprise platform. Keep in mind, though, that athenahealth has shown itself to be a very strong fast-mover – the company has moved into clinical management (from revenue cycle management) much faster than most of its rivals expected.

The bottom line
Allscripts shares have performed pretty well over the past year as investors have started buying into the turnaround theme. With the ambulatory care market only about 50% penetrated and a large chunk of the acute care market up for competitive take-away, there is definitely an opportunity for Allscripts to make hay with better products, service, and marketing.

Like many turnarounds, Allscripts doesn't look all that cheap right now. If the company can continue to grab share from established leaders like Cerner and stay ahead of them (and others like athenahealth) in growth opportunities like population health, there could yet be worthwhile rewards from these shares.

More powerhouse investing ideas
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

Stephen D. Simpson, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers