- EHR vendor Allscripts reported a loss of $182.2 million in 2019, a plummeting bottom line compared to 2018's $407.8 million profit.
- The loss came despite slight topline growth. The Chicago-based company saw revenue bump 1.2% year over yar to $1.77 billion, according to financial filings released after market Monday.
- Executives for the 34-year-old health IT player blamed the drop on higher hosting costs, higher amortization of software development costs, recognition of previously deferred costs and the 2018 sale of content management business OneContent, which had higher margins than Allscripts' other units.
Allscripts, which sells EHR, financial and population health management platforms to providers and healthcare facilities, has made efforts to differentiate its offerings to compete in the crowded health IT space, including rivals Cerner and privately held Epic.
The company's investment in adjacent growth markets has largely paid off: Allscripts' three non-EHR businesses — life sciences unit Veradigm, patient engagement business FollowMyHealth and care coordinator Careport — now account for roughly a fifth of the company's total revenue.
However, Allscripts failed to realize earnings gain last year, reporting a loss of $19 million in the fourth quarter alone, compared to a profit of $375 million in the same period the year prior. Revenue in the quarter was $451 million, up 2% year over year but below Wall Street expectations.
Margins ticked in lower than expected on a non-GAAP basis at 42.5% in the fourth quarter, compared to 45.3% in the fourth quarter of 2018 and 43.2% in the third quarter of 2019. CFO Rick Poulton said on a Monday call with investors Allscripts plans to hire a financial advisory firm to create a margin improvement plan over the next three months.
Poulton called the margins "disappointing" and chalked them up to "continued higher-than-expected transition and cybersecurity cost in our hosting business, delays in service implementations, which drive unproductive labor costs, and the revenue mix we had in our Veradigm business during the quarter."
Allscripts had a net negative free cash flow in the quarter ($18.4 million) and the year ($84.2 million). "The free cash flow numbers are pathetic, I don't know of another word," Poulton said.
Allscripts also finalized in January a $145 million settlement with the U.S. Department of Justice to quash claims subsidiary Practice Fusion falsified EHR certification and violated anti-kickback laws. Allscripts will shell out the settlement in installments throughout the year, though it expects to recover roughly half from myriad escrows and insurance policies.
Another upcoming issue for the vendor is client attrition from acute care services, which is expected to drag down 2020 revenue by about $50 million. It's "not a new issue," Poulton said, but the "timing of the wind from departing clients aligned in such a way as to create a real bolus that is unusually high and will have a significant impact on year-over-year comparisons."
But "timing aside, [management's] knowledge that attrition is coming is of little use to investors who don't know," Jefferies analysts wrote in a Tuesday note.
Full-year and fourth-quarter bookings were $1.1 billion in 2019, up 15% year over year, and $312 million in the quarter, up 6%. Bookings are a key indicator of software companies' growth potential.
In November, Allscripts inked a deal with New York City-based health system Northwell Health to extend the contract on its Sunrise platform through 2027. Allscripts also plans to work with Northwell, its largest client, to create a voice-enabled, cloud-hosted AI-based EHR.