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Pead
Pead

Allscripts chairman ‘terminated'; CFO leaving


By Gregg Blesch and Joseph Conn
Posted: April 27, 2012 - 3:30 pm ET
Tags:

(Story updated at 3:30 p.m. ET.)

The leadership of Allscripts Healthcare Solutions is in flux as the company reported disappointing financial results for the quarter that ended March 31.

In a news release (PDF) and call with investors that pre-empted the scheduled release of its first-quarter earnings May 7, CEO Glen Tullman also announced that “the service” of board chairman Philip Pead “terminated” April 25.

As a result, three other members of the nine-member Allscripts board—Catherine Burzik, Eugene Fife and Edward Kangas—resigned, according to the statement. Two of them, Fife and Kangas, like Pead, were former board members of Eclipsys, a developer of inpatient electronic health records systems that Allscripts acquired in September 2010. Fife also had served as president, interim CEO and chairman of Eclipsys. Kangas is board chairman of Tenet Healthcare Corp.

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Chief Financial Officer William Davis will leave the company May 18, it also was announced.

“Our overall results were primarily driven by lower than expected sales and an unfavorable sales mix,” Tullman said on the call.

Allscripts officials declined further comment.

The company's share price on the NASDAQ exchange was hammered Friday on the news, driven as low as $9 in early morning trading. It recovered somewhat and closed at $10.30 a share, but still down $5.72 per share, or 36% off its previous close Thursday of $16.02.

Bookings in the quarter declined 8% to $194.6 million from $212.4 million in the same period in 2011. Operating income was $13.0 million, down 47% compared with $24.5 million in the first three months of 2011.

And yet, Allscripts also posted positive numbers. Total revenues were up 9% year-over-year for the quarter to $364.7 million compared with $335.3. Its long-term debt fell 9% to $295.2 million from $322.7 million; its debt service payments dropped 42% to $24.8 million from $42.5 million.

Davis said in the call with investors the timing of his departure is not related to the newly disclosed financial challenges, instead describing that he was taking a position he “could not pass up” with an unspecified company outside healthcare.

Dave Morgan, senior vice president finance, will take over as interim CFO. Morgan previously was senior vice president finance and chief accounting officer of Eclipsys.

Asked by an analyst why the board chose to retain him at the top in light of the results, Tullman pointed out that 2011 was a very solid year and boards typically take a longer view. “There's no question that this was a difficult quarter and we expect to continue to build the company from this point,” Tullman said.

Todd Cozzens, a venture partner at Sequoia Capital, a Menlo Park, Calif.-based venture capital firm, formerly served as vice chairman and CEO of Picis, a Wakefield, Mass.-based developer of IT systems that acquired three companies during his tenure.

The board shakeup, Cozzens speculates, is fallout from an old-fashioned showdown over the direction of the company between former Eclipsys board members and Pead, who had been president and CEO of Eclipsys when it was acquired by Allscripts, and veteran Allscripts board members and Tullman, who won. “This is a fundamental rift in the strategy of where Allscripts should go,” Cozzens said.

Cozzens said the drop in Allscripts' net income could be attributed to increased spending on development costs related to the Eclipsys merger and needed improvements to those systems for them to remain competitive and, similarly, further development of Allscripts' multiple products for the ambulatory care market, where it sells three different products for small, medium and large group practices.

Spending by Allscripts on research and development was reportedly up 64% to $36.1 million for the quarter, compared with $22 million for the period a year ago.


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