q3-10q.htm

10-Q 1 q3-10q.htm Q3 2007 10Q q3-10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________

FORM 10-Q

________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007

COMMISSION FILE NUMBER: 000-24539

ECLIPSYS CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE	65-0632092
(State of Incorporation)	(IRS Employer Identification Number)

1750 Clint Moore Road

Boca Raton, Florida

33487

(Address of principal executive offices)

561-322-4321

(Telephone number of registrant)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days. Yes [ x ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ × ] Accelerated filer [ ] Non-accelerated filer [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [×]

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.

Class	Shares outstanding as of November 5, 2007
Common Stock, $.01 par value	53,655,366

ECLIPSYS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the period ended September 30, 2007
Table of Contents


Part I.	Financial Information

Item 1.	Financial Statements - Unaudited

	Condensed Consolidated Balance Sheets (unaudited) - As of September 30, 2007
		and December 31, 2006	3

	Condensed Consolidated Statements of Operations (unaudited) - For the Three
		and Nine Months Ended September 30, 2007 and September 30, 2006	4

	Condensed Consolidated Statements of Cash Flows (unaudited) - For the Nine
		Months Ended September 30, 2007 and September 30, 2006 (restated)	5

	Notes to Condensed Consolidated Financial Statements (unaudited)		6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results
		of Operations	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		20

Item 4.	Controls and Procedures		21

Part II.	Other Information		22

Item 1.	Legal Proceedings		22

Item 1A.	Risk Factors		22

Item 4.	Submission of Matters to a Vote of Security Holders		33

Item 6.	Exhibits		33

Signatures

Certifications

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ECLIPSYS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)

	September 30,		December 31,
	2007		2006
Assets
Current assets:
Cash and cash equivalents	$	24,512	$	41,264
Marketable securities		124,975		89,549
Accounts receivable, net of allowance for doubtful accounts of $3,945 and $3,907, respectively		99,148		93,821
Inventory		226		1,076
Prepaid expenses		29,529		22,947
Other current assets		955		1,026
Total current assets		279,345		249,683

Property and equipment, net		46,489		45,806
Capitalized software development costs, net		35,741		32,302
Acquired technology, net		732		1,224
Intangible assets, net		2,473		3,307
Deferred tax asset		3,751		3,661
Goodwill		15,012		12,281
Other assets		14,875		15,014
Total assets	$	398,418	$	363,278

Liabilities and Stockholders’ Equity
Current liabilities:
Deferred revenue	$	98,852	$	103,298
Accounts payable		13,025		19,879
Accrued compensation costs		22,035		12,997
Deferred tax liability		3,847		3,699
Other current liabilities		18,831		20,213
Total current liabilities		156,590		160,086

Deferred revenue		10,194		11,289
Other long-term liabilities		2,482		1,247
Total liabilities		169,266		172,622

Stockholders’ equity:
Total stockholders’ equity		229,152		190,656
Total liabilities and stockholders’ equity	$	398,418	$	363,278

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ECLIPSYS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share amounts)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006

Revenues:
Systems and services	$	117,530	$	104,266	$	340,979	$	298,417
Hardware		3,550		4,300		12,150		13,437
Total revenues		121,080		108,566		353,129		311,854

Costs and expenses:
Cost of systems and services		65,671		60,938		197,372		175,532
Cost of hardware		2,685		3,489		9,449		10,991
Sales and marketing		17,980		16,208		54,152		46,949
Research and development		14,182		13,094		42,389		44,076
General and administrative		8,339		6,753		23,942		18,593
Depreciation and amortization		4,710		3,885		13,281		11,581
Restructuring charge		-		-		-		8,547
Total costs and expenses		113,567		104,367		340,585		316,269

Income (loss) from operations before
interest and taxes		7,513		4,199		12,544		(4,415	)
Interest income, net		1,814		1,378		4,916		3,840

Income (loss) before taxes		9,327		5,577		17,460		(575	)
Provision for income taxes		463		-		501		-
Net income (loss)	$	8,864	$	5,577	$	16,959	$	(575	)

Income (loss) per common share:
Basic income (loss) per common share	$	0.17	$	0.11	$	0.32	$	(0.01	)
Diluted income (loss) per common share	$	0.16	$	0.11	$	0.31	$	(0.01	)


Weighted average shares outstanding:
Basic		53,100		51,712		52,594		51,312
Diluted		54,380		52,767		53,843		51,312

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ECLIPSYS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)

	Nine Months Ended September 30,
	2007			2006
				As restated
Operating activities:
Net income (loss)	$	16,959		$	(575	)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization		27,390			27,856
Provision for bad debt		1,378			1,568
Stock compensation expense		8,261			9,390
Gain on sale of investments		16			-
Deferred provision for income taxes		329			-
Changes in operating assets and liabilities:
Increase in accounts receivable		(5,008	)		(4,147	)
Increase in prepaid expenses and other current assets		(6,197	)		(4,927	)
Decrease in inventory		849			479
Decrease in other assets		337			1,592
Decrease in deferred revenue		(6,287	)		(11,235	)
Increase in accrued compensation		9,663			364
Decrease in accounts payable and other current liabilities		(9,658	)		(10,482	)
Increase (decrease) in other long-term liabilities		1,076			(1,108	)
Total adjustments		22,149			9,350
Net cash provided by operating activities		39,108			8,775
Investing activities:
Purchases of property and equipment		(13,065	)		(10,174	)
Purchase of marketable securities		(79,704	)		(72,452	)
Proceeds from sales of marketable securities		44,273			20,950
Capitalized software development costs		(15,278	)		(9,429	)
Restricted cash		(1,969	)		-
Cash paid for acquisitions		(1,153	)		(4,002	)
Net cash used in investing activities		(66,896	)		(75,107	)
Financing activities:
Proceeds from stock options exercised		10,333			23,181
Proceeds from issuance of common stock in employee
stock purchase plan		-			732
Net cash provided by financing activities		10,333			23,913
Effect of exchange rates on cash and cash equivalents		703			4
Net decrease in cash and cash equivalents		(16,752	)		(42,415	)
Cash and cash equivalents — beginning of period		41,264			76,693
Cash and cash equivalents — end of period	$	24,512		$	34,278

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ECLIPSYS CORPORATION AND SUBSIDIARIES

Notes to condensed consolidated financial statements

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Eclipsys Corporation (“Eclipsys” or the “Company”), and the notes thereto have been prepared in accordance with the instructions for Form 10-Q of the Securities and Exchange Commission (“SEC”). The December 31, 2006 condensed consolidated balance sheet data was derived from audited financial statements. These condensed statements do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America but do reflect all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair statement of results for the interim periods presented.

The results of operations for the three and nine months ended September 30, 2007 are not necessarily indicative of annual results. The Company manages its business as one reportable segment.

The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and the notes thereto that are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2006 that was filed with the SEC on May 23, 2007.

The Condensed Consolidated Statements of Operations for the nine months ended September 30, 2006 include a reclassification related to medical benefit costs to conform to 2007 presentation. Specifically, $0.6 million of cost was reclassified to general and administrative expenses resulting in corresponding reductions of $0.3 million in cost of systems and services, $0.2 million in research and development and $0.1 million in sales and marketing.

The Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2006 has been revised to reflect auction rate securities that are held "at market" or held "at rate" on a net basis. Previously, these securities were reported by the Company on a gross basis within "Net cash used in investing activities" section of the statement of cash flows. The impact of this revised presentation was to decrease both the purchases of marketable securities and proceeds from sales of marketable securities during the nine months ended September 30, 2006 by an equal amount of $26.9 million. These changes had no impact on net cash used in investing activities.

2. RESTATEMENT OF CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

The Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2006 included in this Form 10-Q has been restated in connection with the Company’s restatement of its prior financial statements. For additional information, please refer to Note 3, “Review of Stock Option Practices and Restatements of Consolidated Financial Statements,” in Notes to the Consolidated Financial Statements and Exhibit 99.1 in our Annual Report on Form 10-K for the year ended December 31, 2006, filed with the SEC on May 23, 2007.

3. EMPLOYEE BENEFIT PLANS

2005 Stock Incentive Plan

At our Annual Meeting of Stockholders held June 29, 2005, our stockholders approved the Company's 2005 Stock Incentive Plan ("2005 Plan"). Under the 2005 Plan, no further awards will be granted under our prior Stock Incentive Plans which include our 1996, 1998, 1999 and 2000 plans. Awards may be made under the 2005 Plan for a number of shares (subject to adjustment in the event of stock splits and other similar events) equal to the sum of (1) 2,000,000 shares of the Company’s common stock, (2) any shares reserved for issuance under the Amended and Restated 2000 Stock Incentive Plan that remain available for issuance as of the date the 2005 Plan was approved by our stockholders and (3) any shares subject to outstanding awards under our 1996 Stock Plan, the Amended and Restated 1998 Stock Incentive Plan, the Amended and Restated 1999 Stock Incentive Plan and the Amended and Restated 2000 Stock Incentive Plan that expire or are terminated, surrendered or canceled without having been fully exercised, are repurchased or forfeited in whole or part or result in any shares subject to such award not being issued.

In the second quarter of 2006, we implemented a deferred stock unit plan to provide for equity compensation for our non-employee directors in the form of deferred stock units ("DSUs") granted under the 2005 Plan. As of the date of each annual meeting of the Company's stockholders, each continuing non-employee director receives a number of DSUs determined by dividing $75,000 by the fair market value of a share of the Company's common stock on the grant date. These DSUs vest quarterly over the course of the ensuing year. After cessation of board service, the Company will settle the DSUs by issuing to the former director a number of shares of the Company's common stock equal to the number of accumulated vested DSUs. In addition, a non-employee director may elect to receive DSUs in lieu of all or a portion of his or her cash fees. All DSUs received for cash fees are fully vested upon issuance.

ECLIPSYS CORPORATION AND SUBSIDIARIES

Notes to condensed consolidated financial statements

(Unaudited)

As of September 30, 2007, there were 1,444,224 shares available for future issuance under the 2005 Plan.

Stock Options

A summary of stock option transactions is as follows:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2007		5,631,584		$	15.40		6.32	$	32,480
Options granted		566,000		$	21.20
Options exercised		(807,044	)	$	12.79
Options canceled		(281,306	)	$	19.89

Outstanding at September 30, 2007		5,109,234		$	16.19		6.32	$	37,426
Exercisable at September 30, 2007		2,902,413		$	14.13		4.67	$	27,440

As of September 30, 2007, $32.3 million of total unrecognized compensation costs related to stock options is expected to be recognized over a weighted average period of 3.6 years.

The weighted average fair value of outstanding stock options is estimated at the date of grant using a Black-Scholes option pricing model. We issued 566,000 stock options during the nine months ended September 30, 2007. The following are significant weighted average assumptions used for estimating the fair value of the activity under our stock option plans:

	Nine Months Ended September 30,
	2007			2006
Expected term (in years)		6.50			6.46
Risk free interest rate		4.38	%		5.04	%
Expected volatility		62.42	%		77.38	%
Dividend yield		0	%		0	%

We have elected to use the simplified method for estimating our expected term equal to the midpoint between the vesting period and the contractual term as allowed by Staff Accounting Bulletin 107, “Share-Based Payment.”

We currently estimate volatility by using the historical volatility of our common stock.

The risk-free interest rate is the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term input to the Black-Scholes model.

We estimate forfeitures using a historical forfeiture rate. Our estimate of forfeitures will be adjusted over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from our estimate.

ECLIPSYS CORPORATION AND SUBSIDIARIES

Notes to condensed consolidated financial statements

(Unaudited)

Non-vested Stock Awards

Non-vested stock award activity for the nine months ended September 30, 2007 is summarized as follows:

	Non-vested Number of Shares			Weighted Average Grant-Date Fair Value

Nonvested balance at January 1, 2007		366,128		$	17.29
Awarded		150,000			19.62
Vested		(79,433	)		17.23
Forfeited		(9,865	)		15.11
Nonvested balance at September 30, 2007		426,830			18.17

As of September 30, 2007, $7.2 million of total unrecognized compensation costs related to non-vested stock awards is expected to be recognized over a weighted average period of 3.4 years. All non-vested stock awards vest semiannually, in June and December of each year. The total fair value of shares vested during the nine months ended September 30, 2007 was $1.6 million.

Deferred Stock Units

We granted 22,884 DSUs during the nine months ended September 30, 2007 at an average market value of $23.43. As of September 30, 2007, 49,343 DSUs were outstanding at the weighted average grant-date fair value of $21.01. The value of these DSUs is amortized ratably over the vesting period. During the three and nine months ended September 30, 2007, we recorded expense related to DSUs of $0.1 million and $0.4 million, respectively.

4. STOCK-BASED COMPENSATION

During the three and nine months ended September 30, 2007 and 2006, our stock based compensation expense, as included in each respective expense category, was as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006

Cost of systems & services	$	1,158	$	714	$	3,333	$	2,383
Sales and marketing		698		860		2,378		2,548
Research and development		500		498		1,602		1,349
General and administrative		358		649		948		1,948
Restructuring charge		-		-		-		1,162
Total stock-based compensation expense	$	2,714	$	2,721	$	8,261	$	9,390

5. MARKETABLE SECURITIES

At September 30, 2007 and December 31, 2006, all of our marketable securities were classified as available-for-sale and were carried at fair market value with unrealized gains and losses reported in accumulated other comprehensive loss. The unrealized gain (loss) associated with the marketable securities was not significant for the periods presented. We do not recognize changes in the fair value of investments in income unless a decline in value is considered other-than-temporary. Marketable securities consisted of the following (in thousands):

ECLIPSYS CORPORATION AND SUBSIDIARIES

Notes to condensed consolidated financial statements

(Unaudited)

	September 30,		December 31,
Security Type	2007		2006

Auction Rate Securities:
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies	$	66,058	$	45,139
Debt securities issued by states of the United States and political subdivisions of the states		43,081		21,187
		109,139		66,326
Other Securities:
Government Bonds/Agencies		5,249		11,259
Other debt securities		10,587		11,964
Total	$	124,975	$	89,549

All of the marketable securities held as of September 30, 2007 and December 31, 2006 were classified as short-term as they had remaining maturities of less than one year from the balance sheet date or related to auction rate securities and were available to meet our current operating needs. Auction rate securities typically have an interest rate reset feature every 30 days pursuant to which we can sell or reset the interest rate on the security.

6. ACCOUNTS RECEIVABLE

Accounts receivable, net of an allowance for doubtful accounts, are comprised of the following (in thousands):

	September 30,		December 31,
	2007		2006
Accounts Receivable:
Billed accounts receivable, net	$	81,931	$	77,570
Unbilled accounts receivable, net		17,217		16,251
Total accounts receivable, net	$	99,148	$	93,821

7. GOODWILL AND OTHER INTANGIBLE ASSETS

Acquired technology and other intangible assets are amortized over their estimated useful lives on a straight-line basis. The carrying values of acquired technology and other intangible assets are reviewed if the facts and circumstances suggest that they may be impaired, and goodwill is reviewed annually in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” Testing is performed on a more frequent basis if impairment triggering events arise. The impairment test is based upon a number of factors, including operating results, business plans and projected future cash flows. No impairment charge has been recorded in the nine months ended September 30, 2007 or the year ended December 31, 2006. The change in the carrying amount of goodwill for the nine months ended September 30, 2007, is as follows (in thousands):

Balance at January 1, 2007	$	12,281
Earnouts related to past acquisitions		3,002
Other		(271	)
Balance at September 30, 2007	$	15,012

Earnouts related to past acquisitions include cash payments of $1.2 million.

ECLIPSYS CORPORATION AND SUBSIDIARIES

Notes to condensed consolidated financial statements

(Unaudited)

The gross and net amounts for acquired technology, ongoing customer relationships and goodwill consist of the following (in thousands):

	September 30, 2007							December 31, 2006
	Gross					Net		Gross					Net
	Carrying		Accumulated			Book		Carrying		Accumulated			Book		Estimated
	Amount		Amortization			Value		Amount		Amortization			Value		Life
Intangibles subject to amortization:

Acquired technology	$	1,967	$	(1,235	)	$	732	$	1,967	$	(743	)	$	1,224	3-5 years
Ongoing customer relationships		5,644		(3,171	)		2,473		5,644		(2,337	)		3,307	5-7 years

Total	$	7,611	$	(4,406	)	$	3,205	$	7,611	$	(3,080	)	$	4,531

Intangibles not subject to amortization:
Goodwill						$	15,012						$	12,281

Estimated aggregate amortization expense (in thousands):

	For the remainder of
	2007		2008		2009		2010		2011		Thereafter		Total

Total amortization expense	$	417	$	1,463	$	845	$	303	$	177	$	-	$	3,205

8. OTHER COMPREHENSIVE INCOME (LOSS)

The components of other comprehensive income (loss) were as follows (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2007		2006			2007		2006
Net income (loss)	$	8,864	$	5,577		$	16,959	$	(575	)
Net change in foreign currency translation adjustment		1,003		(219	)		2,080		309
Net change in unrealized gain on investments		26		-			11		-
Total comprehensive income (loss)	$	9,893	$	5,358		$	19,050	$	(266	)

9. BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE

For all periods presented, basic and diluted income (loss) per common share is presented in accordance with SFAS 128, “Earnings per Share,” which provides for the accounting principles used in the calculation of income (loss) per share. Basic income (loss) per common share excludes dilution and is calculated by dividing net income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted income (loss) per common share reflects the potential dilution from assumed conversion of all dilutive equity securities using the treasury stock method. When the effect of the outstanding equity securities is anti-dilutive, they are not included in the calculation of diluted income (loss) per common share.

ECLIPSYS CORPORATION AND SUBSIDIARIES

Notes to condensed consolidated financial statements

(Unaudited)

The computation of basic and diluted income (loss) per common share was as follows (in thousands, except per share data):

	Three Months Ended September 30,
	2007						2006
	Net Income		Shares		Per Share Amount		Net Income			Shares		Per Share Amount
Basic earnings per share	$	8,864		53,100	$	0.17	$	5,577			51,712	$	0.11
Effect of dilutive securities:
Stock options and other dilutive securities		-		1,245				-			988
Shares issuable pursuant to earn-out agreement		-		35				-			67
Diluted earnings per share	$	8,864		54,380	$	0.16	$	5,577			52,767	$	0.11


	Nine Months Ended September 30,
	2007						2006
	Net Income		Shares		Per Share Amount		Net Loss			Shares		Per Share Amount
Basic earnings (loss) per share	$	16,959		52,594	$	0.32	$	(575	)		51,312	$	(0.01	)
Effect of dilutive securities:
Stock options and other dilutive securities		-		1,214				-			-
Shares issuable pursuant to earn-out agreement		-		35				-			-
Diluted earnings (loss) per share	$	16,959		53,843	$	0.31	$	(575	)		51,312	$	(0.01	)

10. RESTRUCTURING

In January 2006, we effected a restructuring of our operations which included a reduction in headcount of approximately 100 individuals, and the reorganization of our Company. These activities resulted in restructuring charges of approximately $8.5 million for the nine months ended September 30, 2006, of which $1.2 million related to non-cash stock-based compensation expense.

We did not incur any restructuring charges during the three ended September 30, 2006 or in the three and nine months ended September 30, 2007. As of September 30, 2007, the remaining unpaid restructuring liability of $1.9 million relates to severance and future lease payments which we expect to pay out through 2009.

A summary of the restructuring activity for the nine months ended September 30, 2007 is as follows (in thousands):

	Restructuring					Restructuring
	Liability at					Liability at
	January 1,		Cash			September 30,
	2007		Payments			2007
Severance	$	3,174	$	(2,738	)	$	436
Facility closures		2,486		(1,035	)		1,451
	$	5,660	$	(3,773	)	$	1,887

ECLIPSYS CORPORATION AND SUBSIDIARIES

Notes to condensed consolidated financial statements

(Unaudited)

11. CONTINGENCIES

In July and August of 2007, four purported stockholder derivative complaints were filed in the United States District Court for the Southern District of Florida against certain current and former directors and officers of the Company and the Company as a nominal defendant. The derivative complaints, which followed the Company’s announcement in May 2007 of the results of the Company’s voluntary review of its historical stock option practices, are similar to derivative complaints regarding stock option dating filed against many other companies during the last two years. The complaints allege that during the period from at least 1999 until 2006 certain of the Company's option grants were backdated and that as a result of this alleged backdating the Company's financial statements were misstated and stock sales by the named defendants constituted improper insider selling. The complaints seek to assert claims under the Securities Exchange Act of 1934 and under state law, and request as relief that the individual defendants be ordered to pay damages and disgorgement in unspecified amounts to the Company, that unspecified equitable relief be ordered, that the Company be required to make certain corporate governance changes, that plaintiffs be awarded attorneys’ fees, and that other relief as defined by the court be ordered. The complaints are being consolidated and the defendants’ answers have not come due and have not been filed. The Company is currently unable to predict the outcome of the litigation or to reasonably estimate the range of potential loss, if any.

In addition to the foregoing, the Company and its subsidiaries are from time to time parties to legal proceedings, lawsuits and other claims incident to their business activities. Such matters may include, among other things, assertions of contract breach or intellectual property infringement, claims for indemnity arising in the course of our business and claims by persons whose employment with us has been terminated. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. Consequently, management is unable to ascertain the ultimate aggregate amount of monetary liability, amounts which may be covered by insurance or recoverable from third parties, or the financial impact with respect to these matters as of September 30, 2007. However, based on our knowledge, management believes that the final resolution of such matters pending at the time of this report, individually and in the aggregate, will not have a material adverse effect upon our consolidated financial position, results of operations or cash flows.

12. RECENT ACCOUNTING PRONOUNCEMENTS

In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 allows us an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Eclipsys does not anticipate a material impact on its financial statements from adopting SFAS 159.

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 enhances existing guidance for measuring assets and liabilities using fair value. Prior to the issuance of SFAS 157, guidance for applying fair value was incorporated in several accounting pronouncements. SFAS 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. SFAS 157 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets. Under SFAS 157, fair value measurements are disclosed by level within that hierarchy. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, the same effective date as SFAS 157. Eclipsys is currently evaluating the impact on its financial statements from adopting SFAS 157.

In June 2006, the FASB issued Financial Interpretation 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) which clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS 109, "Accounting for Income Taxes." This Interpretation prescribes a recognition threshold and measurement attribute of tax positions taken or expected to be taken on a tax return. We adopted this Interpretation effective January 1, 2007.

We did not have any material unrecognized tax benefits and there was no effect on our financial condition or results of operations as a result of implementing FIN 48.

ECLIPSYS CORPORATION AND SUBSIDIARIES

Notes to condensed consolidated financial statements

(Unaudited)

The Company records income tax penalties, if any, in general and administrative expense. Interest on penalties, if any, is recorded as interest expense, which is included in interest income, net, on the income statement. The Company has not recorded any interest or penalties related to FIN 48, in the current quarter or on a cumulative basis.

We file income tax returns in the U.S. federal jurisdiction, numerous states, Canada and India. All federal, state and international jurisdictions are open to examination due to net operating loss carryforwards. We do not believe there will be any material change in our unrecognized tax benefits over the next twelve months.

13. LETTER OF CREDIT

In April 2007, we entered into a letter of credit agreement in the amount of $1.9 million to secure our obligation under a lease agreement for our Atlanta location. The letter of credit is collateralized by the Company’s cash of $2.0 million. The letter of credit expires in October 2008, but is automatically extended for one year periods, not beyond December 2017. The cash collateral is restricted by the terms of the credit agreement and is included in “Other assets” on our Balance Sheet as of September 30, 2007.

14. SUBSEQUENT EVENTS

In October 2007, the Company initiated a restructuring plan to relocate its corporate headquarters from Boca Raton, Florida to Atlanta, Georgia. The intent of the restructuring plan is to consolidate more of the Company’s operations in one location, reduce overhead costs, and provide a more accessible location for existing and potential clients as well as employees. The restructuring costs are currently estimated between $2.5 million and $3.0 million. The charges will primarily consist of severance-related expenses associated with the termination of impacted employees. The restructuring costs are expected to be incurred during the fourth quarter of 2007 and the first quarter of 2008. The transition is expected to be substantially complete in the first quarter of 2008.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about our company and our industry. These statements are not guarantees of future performance and actual outcomes may differ materially from what is expressed or forecasted. When used in this report, the words “may,” “will,” “should,” “predict,” “continue,” “plans,” “expects,” “anticipates,” “estimates,” “intends,” “believe,” “could,” and similar expressions are intended to identify forward-looking statements. These statements may include, but are not limited to, statements concerning our anticipated performance, including revenue, margin, cash flow, balance sheet and profit expectations; development and implementation of our software; duration, size, scope and revenue expectations associated with client contracts; business mix; sales and growth in our client base; market opportunities; industry conditions; and our accounting, including its effects and potential changes in accounting.

Actual results might differ materially from the results projected due to a number of risks and uncertainties, including those described in this report under the heading “Risk Factors” and in our other filings we make from time to time with the Securities and Exchange Commission. We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

This discussion and analysis should be read in conjunction with our condensed consolidated financial statements, including the notes thereto, which are included elsewhere in this report.

EXECUTIVE OVERVIEW

About the Company

Eclipsys is a healthcare information technology company and a leading provider of advanced integrated information software, clinical content and professional services that help healthcare organizations improve clinical, financial and operational processes. We develop and license proprietary software and content that is designed for use in connection with many of the key clinical, administrative and financial functions that healthcare organizations require. Among other things, our software enables physicians, nurses and other clinicians to order tests, treatments and medications, and to record, access and share information about patients. Our software also facilitates hospitals’ patient admissions, scheduling, records maintenance, invoicing, inventory control, cost accounting, and assessment of profitability of specific medical procedures and personnel. Our content, which is integrated with our software, provides practice guidelines for use by physicians, nurses and other clinicians.

We also provide services related to our software, such as software and hardware maintenance, outsourcing, remote hosting of our software as well as third-party healthcare information technology applications, training and consulting.

We believe that one of the key differentiators of our software is its open, flexible and modular architecture. This allows our software to be installed one application at a time or all at once, and to generally integrate easily with software developed by other vendors or our clients. This enables our clients to install our software without the disruption and expense of replacing their existing software systems to gain additional functionality.

We market our software to small stand-alone hospitals, large multi-entity healthcare systems, academic medical centers, community hospitals and other healthcare organizations. We have one or more of our software applications installed in, or licensed to be installed in approximately 1,500 facilities. Most of the top-ranked U.S. hospitals named in U.S. News & World Report’s Honor Roll use one or more of our solutions.

Business Environment

The healthcare information technology industry in which Eclipsys conducts its business is highly competitive and subject to numerous government regulations and industry standards. Sales of Eclipsys’ solutions can be affected significantly by many competitive factors, including the features and cost of such solutions, our marketing effectiveness, and the research and development of new solutions. It is anticipated that the healthcare information technology industry will grow and be seen as a way to curb growing healthcare costs while also improving the quality of healthcare.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2006

(in thousands, except per share amounts)

	2007		% of Total Revenues			2006		% of Total Revenues			Change ($)			Change (%)
Revenues
Systems and services	$	117,530		97.1	%	$	104,266		96.0	%	$	13,264			12.7	%
Hardware		3,550		2.9	%		4,300		4.0	%		(750	)		-17.4	%
Total revenues		121,080		100.0	%		108,566		100.0	%		12,514			11.5	%

Costs and expenses
Cost of systems and services		65,671		54.2	%		60,938		56.1	%		4,733			7.8	%
Cost of hardware		2,685		2.2	%		3,489		3.2	%		(804	)		-23.0	%
Sales and marketing		17,980		14.8	%		16,208		14.9	%		1,772			10.9	%
Research and development		14,182		11.7	%		13,094		12.1	%		1,088			8.3	%
General and administrative		8,339		6.9	%		6,753		6.2	%		1,586			23.5	%
Depreciation and amortization		4,710		3.9	%		3,885		3.6	%		825			21.2	%
Total costs and expenses		113,567		93.8	%		104,367		96.1	%		9,200			8.8	%
Income from operations before interest and taxes		7,513		6.2	%		4,199		3.9	%		3,314			78.9	%
Interest income, net		1,814		1.5	%		1,378		1.3	%		436			31.6	%
Income before taxes		9,327		7.7	%		5,577		5.1	%		3,750			67.2	%
Provision for income taxes		463		0.4	%		-		-	%		463			-	%

Net income	$	8,864		7.3	%	$	5,577		5.1	%	$	3,287			58.9	%
Basic net income per common share	$	0.17				$	0.11				$	0.06
Diluted net income per common share	$	0.16				$	0.11				$	0.05

Net Income

Our net income was $8.9 million for the quarter ended September 30, 2007, compared to $5.6 million for the third quarter in 2006.

Revenues

Total revenues increased by $12.5 million, or 11.5%, for the quarter ended September 30, 2007 compared with the third quarter of 2006.

Systems and Services Revenues

Systems and services revenues increased by $13.3 million, or 12.7%, for the quarter ended September 30, 2007 compared with the same period of 2006. Of this increase, $7.2 million was attributable to revenue recognized on a ratable basis and $7.3 million was attributable to revenue from professional services, which were partly offset by a decrease of $1.2 million attributable to periodic revenues related to software licenses and other in-period related activities:

Revenues Recognized Ratably. Revenues recognized ratably from software, maintenance, outsourcing and remote hosting were $76.7 million, an increase of $7.2 million or 10.4%, when compared to the same period in 2006. The increase was due to higher sales bookings in previous periods of our software, outsourcing and remote hosting related services resulting in the growth in our recurring revenue base.

Professional Services Revenues. The increase in professional services revenues, which include implementation and consulting related services, also contributed to the increase in systems and services revenues. Professional services revenues were $32.2 million, which represented an increase of $7.3 million or 29.3% over the prior period. The increase was related to additional client implementation activity and an improvement in utilization of our professional services staff.

Periodic Revenues. Periodic revenues related to software licenses, third party software licenses and networking services were $8.6 million for the quarter ended September 30, 2007, compared to $9.8 million for the quarter ended September 30, 2006, for a decrease of $1.2 million from the prior period. The table below summarizes the components of periodic revenues for the three months ended September 30, 2007 and 2006 (in thousands):

	Three Months Ended September 30,
	2007		2006		Change

Eclipsys software related fees	$	4,292	$	3,857	$	435
Third party software related fees		2,065		1,702		363
Networking services		2,230		4,209		(1,979	)
Total periodic revenues	$	8,587	$	9,768	$	(1,181	)

The decrease in periodic revenues in the third quarter of 2007 compared to the third quarter of 2006 was attributable to lower revenues from networking product sales and services. Management has decided to stop selling networking products which will negatively impact revenues in the fourth quarter and in future periods. In any period, these revenues can be considered non-recurring in nature and we do not recognize this revenue on a ratable basis. This revenue includes periodic traditional license fees associated with new contracts signed in the period, including add-on licenses to existing clients and new client transactions, as well as revenue from contract backlog that had not previously been recognized pending contract performance that occurred or was completed during the period, and certain other activities during the period associated with existing client relationships. In the aggregate, these periodic revenues can contribute significantly to earnings in the period given there are relatively little in-period costs associated with such revenues (other than portions associated with networking services). We expect these periodic revenues to continue to fluctuate on a quarterly basis as a result of significant variations in the type and magnitude of sales and other contract and client activity in any period, and these variations make it difficult to predict the nature and amount of these periodic revenues.

Hardware Revenues.

Hardware revenues decreased by $0.8 million during the quarter to $3.6 million. The lower revenues were a result of lower volumes of client activities in this area and may also have been impacted by clients opting for remote hosted solutions. As remote hosting reduces clients’ need for hardware, future hardware revenues may be negatively impacted. We expect hardware revenues to continue to fluctuate on a quarterly basis.

Expenses

Cost of systems and services increased by $4.7 million, or 7.8%, in the quarter ended September 30, 2007, compared to the third quarter of 2006. The increase in costs of systems and services was primarily driven by additional labor-related costs to support the increased level of activity during the period.

Cost of hardware was $2.7 million during the third quarter of 2007, which represented a decrease of $0.8 million or 23.0% compared with the third quarter of 2006. The decrease in cost of hardware was primarily attributable to the decrease in hardware revenues described above, slightly offset by an improvement in hardware gross margins.

Sales and marketing expenses increased by $1.8 million, or 10.9%, in the quarter ended September 30, 2007 compared to the third quarter of 2006. The majority of the increase in sales and marketing expenses was attributable to an increase in compensation–related costs of $1.1 million. The increase in compensation costs was consistent with the growth in sales activity during the period and included increases in payroll, bonus, and sales commissions.

Research and development expenses during the third quarter of 2007 were $14.2 million, compared to $13.1 million in the third quarter of 2006. Gross research and development costs, including capitalized software development costs, were $19.8 million in the third quarter of 2007, compared to $18.0 million in the same quarter of 2006. The increase in gross research and development costs was due to additional compensation-related expenses on a higher employee base as we expanded our development activities. Capitalized software development costs increased by $0.7 million to $5.6 million in the quarter ended September 30, 2007, compared to the quarter ended September 30, 2006. Software development costs capitalized during the third quarter of 2007 reflect increased activity related to the upcoming release of Sunrise XA 5.0.

General and administrative expenses increased by $1.6 million, or 23.5%, in the quarter ended September 30, 2007, compared to the third quarter of 2006. The increase in expenses was primarily related to additional legal and professional expenses ($0.8 million) incurred in connection with our SingHealth sales contract and the establishment of our Singapore legal subsidiary, other transactional matters and our pending derivative litigation, recruiting-related expenses to attract qualified workforce talent ($0.3 million), as well as increases in various areas to support company growth.

Depreciation and amortization increased by $0.8 million, or 21.2%, for the quarter ended September 30, 2007 compared to the third quarter of 2006. The increase in depreciation and amortization is attributable to increased asset base to support our growing operations.

Interest Income, Net

Interest income increased by $0.4 million, or 31.6%, for the quarter ended September 30, 2007 compared to the third quarter of 2006. The increase was due to higher interest income earned in the quarter on higher balances of marketable securities investments.

Provision for Income Taxes

Income taxes were $0.5 million in the three months ended September 30, 2007. There was no provision recorded in 2006. The provision was as a result of alternative minimum tax recorded, as well as non cash expense related to the utilization of pre-acquisition net operating losses pursuant to SFAS 109 “Accounting for Income Taxes.” The utilization of the pre-acquisition loss resulted in a corresponding reduction to goodwill.

NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2006

(in thousands, except percentages and per share amounts)

	2007		% of Total Revenues			2006			% of Total Revenues			Change ($)			Change (%)
Revenues
Systems and services	$	340,979		96.6	%	$	298,417			95.7	%	$	42,562			14.3	%
Hardware		12,150		3.4	%		13,437			4.3	%		(1,287	)		-9.6	%
Total revenues		353,129		100.0	%		311,854			100.0	%		41,275			13.2	%

Costs and expenses
Cost of systems and services		197,372		55.9	%		175,532			56.3	%		21,840			12.4	%
Cost of hardware		9,449		2.7	%		10,991			3.5	%		(1,542	)		-14.0	%
Sales and marketing		54,152		15.3	%		46,949			15.1	%		7,203			15.3	%
Research and development		42,389		12.0	%		44,076			14.1	%		(1,687	)		-3.8	%
General and administrative		23,942		6.8	%		18,593			6.0	%		5,349			28.8	%
Depreciation and amortization		13,281		3.8	%		11,581			3.7	%		1,700			14.7	%
Restructuring charge		-		-	%		8,547			2.7	%		(8,547	)		-100.0	%
Total costs and expenses		340,585		96.4	%		316,269			101.4	%		24,316			7.7	%
Income (loss) from operations before interest and taxes		12,544		3.6	%		(4,415	)		-1.4	%		16,959			384.1	%
Interest income, net		4,916		1.4	%		3,840			1.2	%		1,076			28.0	%
Income (loss) before taxes		17,460		4.9	%		(575	)		-0.2	%		18,035			3136.5	%
Provision for income taxes		501		0.1	%		-			-	%		501			-	%

Net income (loss)	$	16,959		4.8	%	$	(575	)		-0.2	%	$	17,534			3049.4	%
Basic net income (loss) per common share	$	0.32				$	(0.01	)				$	0.33
Diluted net income (loss) per common share	$	0.31				$	(0.01	)				$	0.32

Net Income

Net income was $17.0 million in the nine months ended September 30, 2007, compared to a net loss of $0.6 million in the first nine months in 2006.

Revenues

Total revenues increased by $41.3 million, or 13.2%, in the nine months ended September 30, 2007, compared to the first nine months of 2006.

Systems and Services Revenues

Systems and services revenues increased by $42.6 million, or 14.3%, in the nine months ended September 30, 2007, compared with the same period of 2006. Of this increase, $19.6 million was attributable to revenue recognized on a ratable basis, $18.6 million was attributable to revenue from professional services, and $4.4 million was attributable to periodic revenues related to software licenses and other in-period related activities:

Revenues Recognized Ratably. Revenues recognized ratably from software, maintenance, outsourcing and remote hosting were $224.3 million, an increase of $19.6 million or 9.6%, when compared to the same period in 2006. The increase was due to higher sales bookings in previous periods of our software, outsourcing and remote hosting related services, resulting in the growth in our recurring revenue base.

Professional Services Revenues. The increase in professional services revenues, which include implementation and consulting related services, also contributed to the increase in systems and services revenues. Professional services revenues were $90.9 million, which represented an increase of $18.6 million or 25.7% over the prior period. The increase was related to additional client implementation activity and an improvement in utilization of our consulting staff.

Periodic Revenues. Periodic revenues related to software licenses, third party software licenses and networking services were $25.8 million for the nine months ended September 30, 2007. This compared to revenues of $21.4 million the nine months ended September 30, 2006, for an aggregate increase of $4.4 million from the prior period. The table below summarizes the components of periodic revenues for the nine months ended September 30, 2007 and 2006 (in thousands):

	Nine Months Ended September 30,
	2007		2006		Change

Eclipsys software related fees	$	12,360	$	7,486	$	4,874
Third party software related fees		5,653		4,367		1,286
Networking services		7,758		9,585		(1,827	)
Total periodic revenues	$	25,771	$	21,438	$	4,333

Hardware Revenues

Hardware revenues decreased by $1.3 million, or 9.6%, in the nine months ended September 30, 2007, compared with the first nine months of 2006. The lower revenues were a result of lower volumes of client activities in this area and may also have been impacted by clients opting for remote hosted solutions. As remote hosting reduces clients’ need for hardware, future hardware revenues may be negatively impacted. We expect hardware revenues to continue to fluctuate on a quarterly basis.

Expenses

Cost of systems and services increased by $21.8 million, or 12.4%, in the nine months ended September 30, 2007, compared to the first nine months of 2006. The increase in costs of systems and services was primarily driven by additional sales of our products as described above, with associated increases in labor-related expenses ($15.0 million) and travel ($2.7 million) to support increased activity during the period.

Cost of hardware decreased by $1.5 million, or 14.0% in the nine months ended September 30, 2007, compared to the same period in 2006. The decrease in the cost of hardware was attributable to the decrease in hardware revenues discussed above.

Sales and marketing expenses increased by $7.2 million, or 15.3%, during the nine months ended September 30, 2007, compared to the first nine months of 2006. The increase was primarily driven by compensation-related expenses ($4.2 million) resulting from higher payroll on increased workforce, increased sales commissions on additional sales volume, and higher incentive compensation on improved financial performance. Furthermore, we incurred additional expenses related to conferences and other events ($1.1 million) targeted to facilitate employee training and increase customer awareness of our software and services.

Research and development expenses decreased by $1.7 million, or 3.8%, to $42.4 million, in the nine months ended September 30, 2007, compared to the first nine months of 2006. The decrease in research and development expense was related to higher research and development activity in connection with capitalizable project costs, in particular, the upcoming release of version 5.0 of Sunrise XA. Capitalized software development costs increased by $5.7 million to $15.3 million in the nine months ended September 30, 2007 from $9.6 million in the nine months ended September 30, 2006. The increase in capitalizable software development costs was somewhat offset by additional compensation-related expenses on higher employee base as we expand our development activities. Gross research and development costs, including capitalized software development costs, were $57.5 million in the third nine months of 2007, compared to $53.7 million in the same period of 2006.

General and administrative expenses increased by $5.3 million, or 28.8%, in the nine months ended September 30, 2007, compared to the first nine months of 2006. The majority of the increase in expenses was driven by $3.9 million in additional legal and professional expenses, of which $2.2 million were incurred in connection with the voluntary stock option review completed in May of 2007. The results for 2007 also include increases in various other expenses to support increased level of activity during the period, including travel, recruiting, compensation as well as other associated expenses. Additionally, the expenses incurred in the first nine months of 2006 were further reduced by capitalization of internal labor costs of $0.4 million in connection with implementation of our enterprise resource planning (“ERP”) system.

Depreciation and amortization increased by $1.7 million, or 14.7%, in the nine months ended September 30, 2007, compared to the same period of 2006. The increase in depreciation and amortization is attributable to the increased asset base, including our ERP system implemented in the second quarter of 2006, intangible assets acquired in the third quarter of 2006 related to the acquisition of Sysware Health Care Systems, Inc, as well as on-going purchases of fixed assets needed to support our operations.

In the nine months ended September 30, 2006, we recorded restructuring charges of $8.5 million. The restructuring was undertaken to better align our organization, reduce costs and to re-invest some of the cost savings into client-related activities including client support and professional services. We did not incur any restructuring charges during the first nine months of 2007. At September 30, 2007, the unpaid liability related to remaining lease and severance obligations in connection with our 2006 restructuring activities was $1.9 million, which we expect to pay out through 2009.

Interest Income, Net

Interest income increased by $1.1 million, or 28.0%, in the nine months ended September 30, 2007, compared to the first nine months of 2006. The increase was due to higher interest income earned in the first nine months of 2007 on higher balances of marketable securities investments.

Provision for Income Taxes

Income taxes were $0.5 million in the nine months ended September 30, 2007. There was no provision recorded in 2006. The provision was as a result of alternative minimum tax recorded, as well as non cash expense related to the utilization of pre-acquisition net operating losses pursuant to SFAS 109 “Accounting for Income Taxes.” The utilization of the pre-acquisition loss resulted in a corresponding reduction to goodwill.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

During the nine months ended September 30, 2007, operating activities provided $39.1 million of cash. Cash flow from operating activities reflected income generated from operations of $54.0 million, after adding back non cash charges of $37.0 million, which included depreciation and amortization, stock compensation and provision for bad debt. The impact of net income was offset in part by decrease in net working capital due to increase in accounts receivable ($5.0 million) related to increase in revenue, increase in prepaid expenses and other current assets ($6.2 million) due to timing of cash payments, decrease in accounts payable and other current liabilities ($9.7 million) related to timing of our contractual obligations of payments, as well as payments of $3.8 million in connection with our 2006 restructuring activities and decrease in deferred revenue ($6.3 million ) due to timing of our customer billing cycles and a decline in up-front billing contracts. These changes were partly offset by the increase in accrued compensation ($9.7 million) due to timing of payroll transactions.

Investing Activities

Investing activities used $66.9 million of cash, and consisted of net purchases of marketable securities of $35.4 million to invest excess cash not needed in daily operations, routine business purchases of property and equipment of $13.1 million, capitalized software development costs of $15.3 million for new product development, $2.0 million used to collateralize a letter of credit on a new building lease, and $1.2 million related to earnout payments on our prior acquisitions.

Financing Activities

Financing activities provided cash inflow of $10.3 million from exercises of stock options. The timing and amount of cash provided by future stock option exercises is uncertain.

Future Capital Requirements

As of September 30, 2007, our principal source of liquidity was our cash and cash equivalents and marketable securities balances of $149.5 million. Our future liquidity requirements will depend on a number of factors including, among other things, the timing and level of our new sales volumes, the cost of our development efforts, the success and market acceptance of our future product releases, and other related items. We believe that our current cash and cash equivalents and marketable securities balances, combined with our anticipated cash collections from clients will be adequate to meet our currently anticipated liquidity requirements for the next twelve months. These requirements are expected to be funded with cash generated from operations, as well as our current cash and cash equivalent balances.

In October 2007, we initiated a restructuring plan to relocate our corporate headquarters from Boca Raton, Florida to Atlanta, Georgia. The intent of the restructuring plan is to consolidate more of our operations in one location, reduce overhead costs, and provide a more accessible location for existing and potential clients as well as employees. We currently estimate the restructuring costs will be between $2.5 million and $3.0 million. The charges will primarily consist of severance-related expenses associated with the termination of impacted employees.

In addition, we expect to incur other associated costs related to recruiting, training and transition of new employees of approximately $1.0 million. The restructuring and other associated costs are expected to be incurred during the fourth quarter of 2007 and the first quarter of 2008. The transition is expected to be substantially complete in the first quarter of 2008.

OFF-BALANCE SHEET ARRANGEMENTS

As of September 30, 2007, we did not have any material off-balance sheet arrangements.

CRITICAL ACCOUNTING POLICIES

There were no material changes to our critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2006 filed with the SEC on May 23, 2007.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We generally invest in high quality debt instruments with relatively short maturities. Based upon the nature of our investments, we do not expect any material loss from our investments. Nevertheless, investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates.

We do not currently use derivative financial instruments. We do not currently enter into foreign currency hedge transactions, although this may change if we are successful in expanding our international business. Foreign currency fluctuations have not had a material impact on our financial position or results of operations.

The following table illustrates potential fluctuation in annualized interest income based upon hypothetical values for blended interest rates for marketable securities balances:

Hypothetical			Marketable securities balances (in thousands)
Interest Rate			$	100,000	$	110,000	$	120,000
	1.5	%		1,500		1,650		1,800
	2.0	%		2,000		2,200		2,400
	2.5	%		2,500		2,750		3,000
	3.0	%		3,000		3,300		3,600
	3.5	%		3,500		3,850		4,200
	4.0	%		4,000		4,400		4,800

We estimate that a one-percentage point decrease in interest rates for our marketable securities portfolio as of September 30, 2007 would have resulted in a decrease in interest income of $1.2 million for a twelve month period. This sensitivity analysis contains certain simplifying assumptions. For example, it does not consider the impact of changes in the portfolio as a result of our business needs or as a response to changes in the market. Therefore, although it gives an indication of our exposure to changes in interest rates, it is not intended to predict future results and our actual results will likely vary.

We account for cash equivalents and marketable securities in accordance with SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities.” Cash equivalents are short-term highly liquid investments with original maturity dates of three months or less. Cash equivalents are carried at cost, which approximates fair market value.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of September 30, 2007. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives of ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. There is no assurance that our disclosure controls and procedures will operate effectively under all circumstances. Based upon the evaluation described above our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2007, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter-ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth under Note 11 to the unaudited condensed consolidated financial statements of this quarterly report on Form 10-Q is incorporated herein by reference.

ITEM 1A. RISK FACTORS

Many risks affect our business. The following is a new risk factor that has not previously been disclosed:

Our business strategy includes expansion into markets outside North America, which will require increased expenditures and if our international operations are not successfully implemented, such expansion may cause our operating results and reputation to suffer.

We plan to expand operations in markets outside North America. There is no assurance that these efforts will be successful. We have limited experience in marketing, selling, implementing and supporting our software abroad. Expansion of our international sales and operations will require a significant amount of attention from our management, establishment of service delivery and support capabilities to handle that business and commensurate financial resources, and will subject us to risks and challenges that we would not face if we conducted our business only in the United States. We may not generate sufficient revenues from international business to cover these expenses.

The risks and challenges associated with operations outside the United States may include: localization of our software, including associated expenses and time delays; laws and business practices favoring local competitors; compliance with multiple, conflicting and changing governmental laws and regulations, including healthcare, employment, tax, privacy, healthcare information technology, and data and intellectual property protection laws and regulations; laws regulating exports of technology products from the United States and foreign government restrictions on acquisitions of U.S.-origin products; fluctuations in foreign currency exchange rates; difficulties in setting up foreign operations, including recruiting staff and management; and longer accounts receivable payment cycles and other collection difficulties. One or more of these risks may cause our operating results and reputation to suffer.

Foreign sales subject us to numerous stringent U.S. and foreign laws, including the Foreign Corrupt Practices Act (“FCPA”), which prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. and other business entities for the purpose of obtaining or retaining business. As we expand our international operations, there is some risk of unauthorized payments or offers of payments by one of our employees, consultants, sales agents or distributors, which could constitute a violation by Eclipsys of various laws including the FCPA, even though such parties are not always subject to our control. Safeguards we implement to discourage these practices may prove to be less than effective and violations of the FCPA and other laws may result in severe criminal or civil sanctions, other liabilities, including class action law suits and enforcement actions from the SEC, Department of Justice and overseas regulators, which could adversely affect our reputation, business, financial condition or results of operations.

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Many other risks affect our business. These risks include, but are not limited to, those described below, each of which may be relevant to decisions regarding ownership of our stock. We have attempted to organize the description of these risks into logical groupings to enhance readability, but many of the risks interrelate or could be grouped in other ways, so no special significance should be attributed to these groupings. Any of these risks could have a significant adverse effect on our reputation, business, financial condition or results of operations. The risks below reflect updates to previously disclosed risk factors, including the following new concepts: (i) risks associated with our recently announced plans to move our corporate headquarters to our existing office in Atlanta, Georgia, which has been added to our risk factor titled “If we fail to attract, motivate and retain highly qualified technical, marketing, sales and management personnel, our ability to execute our business strategy could be impaired;” and (ii) the increased marketplace ramifications of the Certification Commission for Healthcare Information Technology and its certification standards for software, which has been added to our risk factor titled “Potential changes in standards applicable to our software could require us to incur substantial additional development costs.”

RISKS RELATING TO DEVELOPMENT AND OPERATION OF OUR SOFTWARE

Our software may not operate properly, which could damage our reputation and impair our sales.

Software development is time consuming, expensive and complex. Unforeseen difficulties can arise. We may encounter technical obstacles, and it is possible that we could discover additional problems that prevent our software from operating properly. If our software contains errors or does not function consistent with software specifications or client expectations, clients could assert liability claims against us and/or attempt to cancel their contracts with us. These risks are generally more significant for newer software, until it has been used for enough time in enough client locations for us to have addressed issues that are discovered through use in disparate circumstances and environments. Due to our development efforts, we generally have significant software that could be considered relatively new and therefore more vulnerable to these risks, including at present our medication management and ambulatory software, among other things. It is also possible that future releases of our software, which would typically include additional features, may be delayed or may require additional work to address issues that may be discovered as the software comes into use in our client base. If we fail to deliver software with the features and functionality as described in our software specifications, we could be subject to significant contractual damages.

Our software development efforts may not meet the needs of our clients, which could adversely affect our results of operations.

We continuously strive to develop new software, and improve our existing software to add new features and functionality. We schedule and prioritize these development efforts according to a variety of factors, including our perceptions of market trends, client requirements, and resource availability. Our software is complex and requires a significant investment of time and resources to develop, test, and introduce into use. Sometimes this takes longer than we expect. Sometimes we encounter unanticipated difficulties that require us to re-direct or scale-back our efforts. Sometimes we change our plans in response to changes in client requirements, market demands, resource availability, regulatory requirements, or other factors. All of this can result in acceleration of some initiatives and delay of others. If we make the wrong choices or do not manage our development efforts well, we may fail to produce software that responds appropriately to our clients' needs, or we may fail to meet client expectations regarding new or enhanced features and functionality.

Market changes or mistaken development decisions could decrease the demand for our software, which could harm our business and decrease our revenues.

The healthcare information technology market is characterized by rapidly changing technologies, evolving industry standards and new software introductions and enhancements that may render existing software obsolete or less competitive. Our position in the market could erode rapidly due to the development of regulatory or industry standards that our software may not fully meet, or due to changes in the features and functions of competing software, as well as the pricing models for such software. Our future success will depend in part upon our ability to enhance our existing software and services, and to develop and introduce competing new software and services that are appropriately priced to meet changing client and market requirements. The process of developing software and services such as those we offer is extremely complex and is expected to become more complex and expensive in the future as new technologies are introduced. As we evolve our offering in an attempt to anticipate and meet market demand, clients and potential clients may find our software and services less appealing. If software development for the healthcare information technology market becomes significantly more expensive due to changes in regulatory requirements or healthcare industry practices, or other factors, we may find ourselves at a disadvantage to larger competitors with more financial resources to devote to development. If we are unable to enhance our existing software or develop new software to meet changing client requirements, demand for our software could suffer.

Our software strategy is dependent on the continued development and support by Microsoft of its .NET Framework and other technologies.

Our software strategy is substantially dependent upon Microsoft's .NET Framework and other Microsoft technologies. The .NET Framework, in particular, is a relatively new and evolving technology. If Microsoft were to cease actively supporting .NET or other technologies, fail to update and enhance them to keep pace with changing industry standards, encounter technical difficulties in the continuing development of these technologies or make them unavailable to us, we could be required to invest significant resources in re-engineering our software. This could lead to lost or delayed sales, client costs associated with platform changes, unanticipated development expenses and harm to our reputation, and would cause our financial results and business to suffer.

Any failure by us to protect our intellectual property, or any misappropriation of it, could enable our competitors to market software with similar features, which could reduce demand for our software.

We are dependent upon our proprietary information and technology. Our means of protecting our proprietary rights may not be adequate to prevent misappropriation. The laws of some foreign countries may not protect our proprietary rights as fully as do the laws of the United States. Also, despite the steps we have taken to protect our proprietary rights, it may be possible for unauthorized third parties to copy aspects of our software, reverse engineer our software or otherwise obtain and use information that we regard as proprietary. In some limited instances, clients can access source-code versions of our software, subject to contractual limitations on the permitted use of the source code. Furthermore, it may be possible for our competitors to copy or gain access to our content. Although our license agreements with clients attempt to prevent misuse of the source code or trade secrets, the possession of our source code or trade secrets by third parties increases the ease and likelihood of potential misappropriation of our software. Furthermore, others could independently develop technologies similar or superior to our technology or design around our proprietary rights.

Failure of security features of our software could expose us to significant expense and harm our reputation.

Clients use our systems to store and transmit highly confidential patient health information. Because of the sensitivity of this information, security features of our software are very important. If, notwithstanding our efforts, our software security features do not function properly, or client systems using our software are compromised, we could face claims for contract breach, penalties for violation of applicable laws or regulations, significant costs for remediation and re-engineering to prevent future occurrences, and serious harm to our reputation.

RISKS RELATED TO SALES AND IMPLEMENTATION OF OUR SOFTWARE

The length of our sales and implementation cycles may adversely affect our future operating results.

We have experienced long sales and implementation cycles. How and when to implement, replace, expand or substantially modify an information system, or modify or add business processes, are major decisions for healthcare organizations, our target client market. Furthermore, our software generally requires significant capital expenditures by our clients. The sales cycle for our software ranges from 6 to 18 months or more from initial contact to contract execution. Our implementation cycle has generally ranged from 6 to 36 months from contract execution to completion of implementation. During the sales and implementation cycles, we will expend substantial time, effort and resources preparing contract proposals, negotiating the contract and implementing the software. We may not realize any revenues to offset these expenditures and, if we do, accounting principles may not allow us to recognize the revenues during corresponding periods. Additionally, any decision by our clients to delay purchasing or implementing our software may adversely affect our revenues.

We may experience implementation delays that could harm our reputation and violate contractual commitments.

Some of our software is complex and requires a lengthy and expensive implementation process. Each client's situation is different, and unanticipated difficulties and delays may arise as a result of failures by us or the client to meet our respective implementation responsibilities. Because of the complexity of the implementation process, delays are sometimes difficult to attribute solely to us or the client. Implementation delays could motivate clients to delay payments or attempt to cancel their contracts with us or seek other remedies from us. Any inability or perceived inability to implement consistent with a client's schedule may be a competitive disadvantage for us as we pursue new business. Implementation also requires our clients to make a substantial commitment of their own time and resources and to make significant organizational and process changes, and if our clients are unable to fulfill their implementation responsibilities in a timely fashion our projects may be delayed or become less profitable.

Implementation costs may exceed expectations, which can negatively affect our operating results.

Each client's circumstances may include unforeseen issues that make it more difficult or costly than anticipated to implement our software. We may fail to project, price or manage our implementation services correctly. If we do not have sufficient qualified personnel to fulfill our implementation commitments in a timely fashion, related revenue may be delayed, and if we must supplement our capabilities with expensive third-party consultants, our costs will increase.

Our performance depends upon software sales.

We must achieve higher levels of software sales, consistent with our projections, in order to achieve our expectations for annual revenue and earnings and to provide a solid foundation for future growth. Our ability to improve sales depends upon many factors, including completion of implementation and successful use of our new software releases, particularly our pharmacy and ambulatory solutions, in live environments for clients who achieve success and are willing to become reference sites for us.

RISKS RELATED TO OUR IT OR TECHNOLOGY SERVICES

Various risks could interrupt clients' access to their data residing in our service center, exposing us to significant costs.

We provide remote hosting services that involve running our software and third-party vendor's software for clients in our Technology Solutions Center. The ability to access the systems and the data the Technology Solution Center hosts and supports on demand is critical to our clients. Our operations and facilities are vulnerable to interruption and/or damage from a number of sources, many of which are beyond our control, including, without limitation: (i) power loss and telecommunications failures; (ii) fire, flood, hurricane and other natural disasters; (iii) software and hardware errors, failures or crashes; and (iv) computer viruses, hacking and similar disruptive problems. We attempt to mitigate these risks through various means including redundant infrastructure, disaster recovery plans, separate test systems and change control and system security measures, but our precautions may not protect against all problems. If clients' access is interrupted because of problems in the operation of our facilities, we could be exposed to significant claims by clients or their patients, particularly if the access interruption is associated with problems in the timely delivery of medical care. We must maintain disaster recovery and business continuity plans that rely upon third-party providers of related services, and if those vendors fail us at a time that our center is not operating correctly, we could incur a loss of revenue and liability for failure to fulfill our contractual service commitments. Any significant instances of system downtime could negatively affect our reputation and ability to sell our remote hosting services.

Any breach of confidentiality of client or patient data in our service center could expose us to significant expense and harm our reputation.

We must maintain facility and systems security measures to preserve the confidentiality of data belonging to our clients and their patients that resides on computer equipment in our Technology Solution Center. Notwithstanding the efforts we undertake to protect data, our measures can be vulnerable to infiltration as well as unintentional lapse, and if confidential information is compromised we could face claims for contract breach, penalties for violation of applicable laws or regulations, significant costs for remediation and re-engineering to prevent future occurrences, and serious harm to our reputation.

Recruiting challenges and higher than anticipated costs in outsourcing our clients' IT operations may adversely affect our profitability.

We provide outsourcing services that involve operating clients' IT departments using our employees. At the initiation of these relationships, clients often require us to hire, at substantially the same compensation, the entire IT staff that had been performing the services we take on. In these circumstances our costs may be higher than we target unless and until we are able to transition the workforce, methods and systems to a more scalable model. Various factors can make this difficult, including geographic dispersion of client facilities and variation in client needs, IT environments, and system configurations. Also, under some circumstances we may incur unanticipated costs as a successor employer by inheriting unforeseen liabilities that the client had to these employees. Further, facilities management contracts require us to provide the IT services specified by contract, and in some places it can be difficult to recruit qualified IT personnel. Changes in circumstances or failure to assess the client's environment and scope our services accurately can mean we must hire more staff than we anticipated in order to meet our responsibilities. If we have to increase salaries or relocate personnel, or hire more people than we anticipated, our costs may increase under fixed fee contracts.

Inability to obtain consents needed from third parties could impair our ability to provide remote IT or technology services.

We and our clients need consent from some third-party software providers as a condition to running their software in our data center, or to allowing our employees who work in client locations under facilities management arrangements to have access to their software. Vendors' refusal to give such consents, or insistence upon unreasonable conditions to such consents, could reduce our revenue opportunities and make our IT or technology services less viable for some clients.

RISKS RELATED TO THE HEALTHCARE IT INDUSTRY AND MARKET

We operate in an intensely competitive market that includes companies that have greater financial, technical and marketing resources than we do.

We face intense competition in the marketplace. We are confronted by rapidly changing technology, evolving user needs and the frequent introduction of new software to meet the needs of our current and future clients. Our principal competitors in our software business include Cerner Corporation, Epic Systems Corporation, Medical Information Technology, Inc., GE Healthcare, McKesson Corporation, and Siemens AG. Other software competitors include providers of practice management, general decision support and database systems, as well as segment-specific applications and healthcare technology consultants. Our services business competes with large consulting firms such as Deloitte & Touche and Cap Gemini, as well as independent providers of technology implementation and other services. Our outsourcing business competes with large national providers of technology solutions such as IBM Corporation, Computer Sciences Corp., Perot Systems Corporation, as well as smaller firms. Several of our existing and potential competitors are better established, benefit from greater name recognition and have significantly more financial, technical and marketing resources than we do. Some competitors, particularly those with a more diversified revenue base or that are privately held, may have greater flexibility than we do to compete aggressively on the basis of price. Vigorous and evolving competition could lead to a loss of market share or pressure on our prices and could make it more difficult to grow our business profitably.

The principal factors that affect competition within our market include software functionality, performance, flexibility and features, use of open industry standards, speed and quality of implementation and client service and support, company reputation, price and total cost of ownership. We anticipate continued consolidation in both the information technology and healthcare industries and large integrated technology companies may become more active in our markets, both through acquisition and internal investment. There is a finite number of hospitals and other healthcare providers in our target market. As costs fall, technology improves, and market factors continue to compel investment by healthcare organizations in software and services like ours, market saturation may change the competitive landscape in favor of larger competitors with greater scale.

Clients that use our legacy software are vulnerable to competition.

A significant part of our revenue comes from relatively high-margin legacy software that was installed by our clients many years ago. We attempt to convert these clients to our newer generation software, but such conversions require significant investments of time and resources by clients. This reduces our advantage as the incumbent vendor and has allowed our competitors to target these clients, with some success. If we are not successful in retaining a large portion of these clients by continuing to support legacy software - which is increasingly expensive to maintain - or by converting them to our newer software, our results of operations will be negatively affected.

The healthcare industry faces financial constraints that could adversely affect the demand for our software and services.

The healthcare industry faces significant financial constraints. For example, the shift to managed healthcare in the 1990's put pressure on healthcare organizations to reduce costs, and the Balanced Budget Act of 1997 dramatically reduced Medicare reimbursement to healthcare organizations. Our software often involves a significant financial commitment by our clients. Our ability to grow our business is largely dependent on our clients' information technology budgets. If healthcare information technology spending declines or increases more slowly than we anticipate, demand for our software could be adversely affected.

Healthcare industry consolidation could impose pressure on our software prices, reduce our potential client base and reduce demand for our software.

Many healthcare organizations have consolidated to create larger healthcare enterprises with greater market power. If this consolidation trend continues, it could reduce the size of our target market and give the resulting enterprises greater bargaining power, which may lead to erosion of the prices for our software. In addition, when healthcare organizations combine they often consolidate infrastructure including IT systems, and acquisition of our clients could erode our revenue base.

Potential changes in standards applicable to our software could require us to incur substantial additional development costs.

Integration and interoperability of the software and systems provided by various vendors are important issues in the healthcare industry. Market forces and regulatory authorities are causing emergence of software standards applicable to us, and if our software is not consistent with those standards we could be forced to incur substantial additional development costs to conform. Healthcare delivery is now expanding to support community health, public health, public policy and population health initiatives. In addition, interoperability and health information exchange features that support emerging and enabling technologies are becoming increasingly important to our clients and require large scale product enhancements and redesign.

For example, the Certification Commission for Healthcare Information Technology (“CCHIT”) is developing comprehensive sets of criteria for the functionality, interoperability, and security of various software modules in our industry. Achieving CCHIT certification is evolving as a de facto competitive requirement, resulting in increased research and development and administrative expense to conform to these requirements. CCHIT requirements may diverge from our software’s characteristics and our development direction. We may choose not to apply for CCHIT certification of certain modules of our software or to delay applying for certification. The CCHIT application process generally requires conformity with 100% of all criteria applicable to each module in order to achieve certification and there is no assurance that we will receive or retain certification for any particular module notwithstanding application. If our software is not consistent with emerging standards our market position and sales could be impaired and we will have to upgrade our software to remain competitive in the market.

RISKS RELATED TO OUR OPERATING RESULTS, ACCOUNTING CONTROLS AND FINANCES

Our past stock option practices and related accounting issues may result in additional litigation, regulatory proceedings and governmental enforcement actions.

As a result of our voluntary review of historical stock option practices, we concluded that incorrect measurement dates were used for accounting for certain prior stock option grants. As a result, we recorded additional non-cash stock-based compensation expense, and related tax effects, with regard to certain past stock option grants, and we restated certain previously filed financial statements included in our Form 10-K for the year ended December 31, 2006. In addition, the review and related activities resulted in substantial expenses for legal, accounting, tax and other professional services.

We believe we made appropriate judgments in determining the correct measurement dates for our stock option grants, and to date those judgments have not been challenged. However, as with other aspects of our financial statements, the results of our stock option review are subject to regulatory review and a commensurate risk that we may have to further restate prior period results.

Our past stock option granting practices and the restatement of prior financial statements have exposed us to risks associated with claims by stockholders or employees, regulatory proceedings, government enforcement actions and related investigations and litigation. These risks include significant expenses, management distraction and potential damages, penalties, other remedies, or adverse findings, which could harm our business, financial condition, results of operations and cash flows.

In July and August 2007, four purported stockholder derivative complaints were filed in the United States District Court for the Southern District of Florida against certain current and former directors and officers of Eclipsys and Eclipsys as a nominal defendant. The derivative complaints are similar to derivative complaints regarding stock option dating filed against many other companies during the last two years. The complaints allege that during the period from at least 1999 until 2006 certain of Eclipsys’ option grants were backdated and that as a result of this alleged backdating of option grants our financial statements were misstated, and stock sales by the named defendants constituted improper insider selling. The complaints are being consolidated and the defendants’ answers have not come due and have not been filed. We are currently unable to predict the outcome of the litigation or to reasonably estimate the range of potential loss, if any. However, dealing with this litigation will result in significant legal expenses and could divert management’s attention from other business concerns and result in adverse publicity and resulting reputational harm, which could impair our sales and marketing efforts. Any fees payable to the plaintiffs’ counsel as a result of a settlement or judgment may be significant and may not be covered in whole or in part by insurance. See Note 11 to our Condensed Consolidated Financial Statements for further details.

We have a history of operating losses and we cannot predict future profitability.

During each of the five preceding years, we had an operating loss. We may incur losses in the future, and it is not certain that we will achieve sustained or increasing profitability.

Our operating results may fluctuate significantly and may cause our stock price to decline.

We have experienced significant variations in revenues and operating results from quarter to quarter. Our operating results may continue to fluctuate due to a number of factors, including:

·	the performance of our software and our ability to promptly and efficiently address software performance shortcomings or warranty issues;

·	the cost, timeliness and outcomes of our software development and implementation efforts, including expansion of our presence in India;

·	the timing, size and complexity of our software sales and implementations;

·	overall demand for healthcare information technology;

·	the financial condition of our clients and potential clients;

·	market acceptance or our new services, software and software enhancements by us or our competitors;

·	client decisions regarding renewal or termination of their contracts;

·	software and price competition;

·	personnel changes and other organizational changes and related expenses;

·	significant judgments and estimates made by management in the application of generally accepted accounting principles;

·	healthcare reform measures and healthcare regulation in general; and

·	fluctuations in general economic and financial market conditions; including interest rates.

It is difficult to predict the timing of revenues that we receive from software sales, because the sales cycle can vary depending upon several factors. These include the size and terms of the transaction, the changing business plans of the client, the effectiveness of the client's management, general economic conditions and the regulatory environment. In addition, the timing of our revenue recognition could vary considerably depending upon whether our clients license our software under our subscription model or our traditional licensing arrangements. Because a significant percentage of our expenses are relatively fixed, a variation in the timing of sales and implementations could cause significant variations in operating results from quarter to quarter. We believe that period-to-period comparisons of our historical results of operations are not necessarily meaningful. Investors should not rely on these comparisons as indicators of future performance.

Early termination of client contracts or contract penalties could adversely affect results of operations.

Client contracts can change or terminate early for a variety of reasons. Change of control, financial issues, or other changes in client circumstances may cause us or the client to seek to modify or terminate a contract. Further, either we or the client may generally terminate a contract for material uncured breach by the other. If we breach a contract or fail to perform in accordance with contractual service levels, we may be required to refund money previously paid to us by the client, or to pay penalties or other damages. Even if we have not breached, we may deal with various situations from time to time for the reasons described above which may result in the amendment of a contract. These steps can result in significant current period charges and/or reductions in current or future revenue.

Because in many cases we recognize revenues for our software monthly over the term of a client contract, downturns or upturns in sales will not be fully reflected in our operating results until future periods.

We recognize a significant portion of our revenues from clients monthly over the terms of their agreements, which are typically 5-7 years and can be up to 10 years. As a result, much of the revenue that we report each quarter is attributable to agreements executed during prior quarters. Consequently, a decline in sales, client renewals, or market acceptance of our software in one quarter will not necessarily be reflected in lower revenues in that quarter, and may negatively affect our revenues and profitability in future quarters. In addition, we may be unable to adjust our cost structure to compensate for these reduced revenues. This monthly revenue recognition also makes it difficult for us to rapidly increase our revenues through additional sales in any period, as a significant portion of revenues from new clients must generally be recognized over the applicable agreement term.

Loss of revenue from large clients could have significant negative impact on our results of operations and overall financial condition.

During the fiscal year ended December 31, 2006, approximately 40% of our revenues were attributable to our 20 largest clients. In addition, approximately 36% of our accounts receivable as of December 31, 2006 were attributable to 20 clients. Loss of revenue from significant clients or failure to collect accounts receivable, whether as a result of client payment default, contract termination, or other factors could have a significant negative impact on our results of operation and overall financial condition.

Impairment of intangible assets could increase our expenses.

A significant portion of our assets consists of intangible assets, including capitalized development costs, goodwill and other intangibles acquired in connection with acquisitions. Current accounting standards require us to evaluate goodwill on an annual basis and other intangibles if certain triggering events occur, and adjust the carrying value of these assets to net realizable value when such testing reveals impairment of the assets. Various factors, including regulatory or competitive changes, could affect the value of our intangible assets. If we are required to write-down the value of our intangible assets due to impairment, our reported expenses will increase, resulting in a corresponding decrease in our reported profit.

Failure to maintain effective internal controls could adversely affect our operating results and the market price of our common stock.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that we maintain internal control over financial reporting that meets applicable standards. We had a material weakness in maintaining effective internal control over financial reporting in accordance with the requirements of Section 404 (see Item 9A. “Controls and Procedures” of our Form 10-K for the year ended December 31, 2006), and it is possible that we might in the future have another material weakness in maintaining such effective internal control over financial reporting. If we are unable, or are perceived as unable, to produce reliable financial reports due to internal control deficiencies, investors could lose confidence in our reported financial information and our operating results which could result in a negative market reaction.

Inability to obtain additional financing could limit our ability to conduct necessary development activities and make strategic investments.

While our available cash and cash equivalents and the cash we anticipate generating from operations appear at this time to be adequate to meet our foreseeable needs, we could incur significant expenses as a result of unanticipated events in our business or competitive, regulatory, or other changes in our market. As a result, we may in the future need to obtain additional financing. If additional financing is not available on acceptable terms, we may not be able to respond adequately to these changes, which could adversely affect our operating results and the market price of our common stock.

RISK OF LIABILITY TO THIRD PARTIES

Our software and content are used to assist clinical decision-making and provide information about patient medical histories and treatment plans. If our software fails to provide accurate and timely information or is associated with faulty clinical decisions or treatment, clients, clinicians or their patients could assert claims against us that could result in substantial cost to us, harm our reputation in the industry and cause demand for our software to decline.

We provide software and content that provides practice guidelines and potential treatment methodologies, and other information and tools for use in clinical decision-making, provides access to patient medical histories and assists in creating patient treatment plans. If our software fails to provide accurate and timely information, or if our content or any other element of our software is associated with faulty clinical decisions or treatment, we could have liability to clients, clinicians or patients. The assertion of such claims, whether or not valid, and ensuing litigation, regardless of its outcome, could result in substantial cost to us, divert management's attention from operations and decrease market acceptance of our software. We attempt to limit by contract our liability for damages and to require that our clients assume responsibility for medical care and approve all system rules and protocols. Despite these precautions, the allocations of responsibility and limitations of liability set forth in our contracts may not be enforceable, may not be binding upon patients, or may not otherwise protect us from liability for damages. We maintain general liability and errors and omissions insurance coverage, but this coverage may not continue to be available on acceptable terms or may not be available in sufficient amounts to cover one or more large claims against us. In addition, the insurer might disclaim coverage as to any future claim. One or more large claims could exceed our available insurance coverage.

Complex software such as ours may contain errors or failures that are not detected until after the software is introduced or updates and new versions are released. It is challenging for us to envision and test our software for all potential problems because it is difficult to simulate the wide variety of computing environments or treatment methodologies that our clients may deploy or rely upon. Despite extensive testing by us and clients, from time to time we have discovered defects or errors in our software, and such defects or errors can be expected to appear in the future. Defects and errors that are not timely detected and remedied could expose us to risk of liability to clients, clinicians and patients and cause delays in software introductions and shipments, result in increased costs and diversion of development resources, require design modifications or decrease market acceptance or client satisfaction with our software.

Our software and our vendors' software that we include in our offering could infringe third-party intellectual property rights, exposing us to costs that could be significant.

Infringement or invalidity claims or claims for indemnification resulting from infringement claims could be asserted or prosecuted against us based upon design or use of software we provide to clients, including software we develop as well as software provided to us by vendors. Regardless of the validity of any claims, defending against these claims could result in significant costs and diversion of our resources, and vendor indemnity might not be available. The assertion of infringement claims could result in injunctions preventing us from distributing our software, or require us to obtain a license to the disputed intellectual property rights, which might not be available on reasonable terms or at all. We might also be required to indemnify our clients at significant expense.

RISKS RELATED TO OUR STRATEGIC RELATIONSHIPS AND INITIATIVES

We depend on licenses from third parties for rights to some of the technology we use, and if we are unable to continue these relationships and maintain our rights to this technology, our business could suffer.

We depend upon licenses for some of the technology used in our software from a number of third-party vendors. Most of these licenses expire within one to five years, can be renewed only by mutual consent and may be terminated if we breach the terms of the license and fail to cure the breach within a specified period of time. We may not be able to continue using the technology made available to us under these licenses on commercially reasonable terms or at all. As a result, we may have to discontinue, delay or reduce software shipments until we obtain equivalent technology, which could hurt our business. Most of our third-party licenses are non-exclusive. Our competitors may obtain the right to use any of the technology covered by these licenses and use the technology to compete directly with us. In addition, if our vendors choose to discontinue support of the licensed technology in the future or are unsuccessful in their continued research and development efforts, particularly with regard to Microsoft, we may not be able to modify or adapt our own software.

Our offering often includes software modules provided by third parties, and if these third parties do not meet their commitments, our relationships with our clients could be impaired.

Some of the software modules we offer to clients are provided by third parties. We often rely upon these third parties to produce software that meets clients' needs and to implement and maintain that software. If these third parties fail to fulfill their responsibilities, our relationships with affected clients could be impaired, and we could be responsible to clients for the failures. We might not be able to recover from these third parties for all of the costs we incur as a result of their failures.

If we undertake additional acquisitions, they may be disruptive to our business and could have an adverse effect on our future operations and the market price of our common stock.

An important element of our business strategy has been expansion through acquisitions and while there is no assurance that we will complete any future acquisitions, any future acquisitions would involve a number of risks, including the following:

·	the anticipated benefits from any acquisition may not be achieved. The integration of acquired businesses requires substantial attention from management. The diversion of management’s attention and any difficulties encountered in the transition process could hurt our business.

·	in future acquisitions, we could issue additional shares of our common stock, incur additional indebtedness or pay consideration in excess of book value, which could have dilutive effect on future net income, if any, per share.

·	new business acquisitions must be accounted for under the purchase method of accounting. These acquisitions may generate significant intangible assets and result in substantial related amortization charges to us.

Additional investment will be required to realize the potential of our Sysware and Mosum acquisition.

We must make significant investments of money and management time in software development and infrastructure in order to realize the potential of our acquisition of the business of Sysware and Mosum to (i) have a fully integrated and leverageable laboratory information system to sell to our diversified client base, and (ii) build Mosum's India operations into an integrated development and support organization that can cost-effectively augment our onshore resources. If the additional investment turns out to be more than what we anticipated, this may negatively affect our results of operations.

RISKS RELATED TO INDUSTRY REGULATION

Potential regulation by the U.S. Food and Drug Administration of our software and content as medical devices could impose increased costs, delay the introduction of new software and hurt our business.

The U.S. Food and Drug Administration, or FDA, may become increasingly active in regulating computer software or content intended for use in the healthcare setting. The FDA has increasingly focused on the regulation of computer software and computer-assisted products as medical devices under the Food, Drug, and Cosmetic Act, or the FDC Act. If the FDA chooses to regulate any of our software, or third party software that we resell, as medical devices, it could impose extensive requirements upon us, including the following requiring us to:

·	seek FDA clearance of pre-market notification submission demonstrating substantial equivalence to a device already legally marketed, or to obtain FDA approval of a pre-market approval application establishing the safety and effectiveness of the software;

·	comply with rigorous regulations governing the pre-clinical and clinical testing, manufacture, distribution, labeling and promotion of medical devices; and

·	comply with the FDC Act regarding general controls including establishment registration, device listing, compliance with good manufacturing practices, reporting of specified device malfunctions and adverse device events.

If we fail to comply with applicable requirements, the FDA could respond by imposing fines, injunctions or civil penalties, requiring recalls or software corrections, suspending production, refusing to grant pre-market clearance or approval of software, withdrawing clearances and approvals, and initiating criminal prosecution. Any FDA policy governing computer products or content, may increase the cost and time to market of new or existing software or may prevent us from marketing our software.

Changes in federal and state regulations relating to patient data could depress the demand for our software and impose significant software redesign costs on us.

Clients use our systems to store and transmit highly confidential patient health information and data. State and federal laws and regulations and their foreign equivalents govern the collection, use, transmission and other disclosures of health information. These laws and regulations may change rapidly and may be unclear or difficult to apply.

Federal regulations under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, impose national health data standards on healthcare providers that conduct electronic health transactions, healthcare clearinghouses that convert health data between HIPAA-compliant and non-compliant formats and health plans. Collectively, these groups are known as covered entities. The HIPAA standards prescribe transaction formats and code sets for electronic health transactions; protect individual privacy by limiting the uses and disclosures of individually identifiable health information; and require covered entities to implement administrative, physical and technological safeguards to ensure the confidentiality, integrity, availability and security of individually identifiable health information in electronic form. Though we are not a covered entity, most of our clients are and require that our software and services adhere to HIPAA standards. Any failure or perception of failure of our software or services to meet HIPAA standards could adversely affect demand for our software and services and force us to expend significant capital, research and development and other resources to modify our software or services to address the privacy and security requirements of our clients.

States and foreign jurisdictions in which we or our clients operate have adopted, or may adopt, privacy standards that are similar to or more stringent than the federal HIPAA privacy standards. This may lead to different restrictions for handling individually identifiable health information. As a result, our clients may demand information technology solutions and services that are adaptable to reflect different and changing regulatory requirements which could increase our development costs. In the future, federal or state governmental authorities may impose new data security standards or additional restrictions on the collection, use, transmission and other disclosures of health information. We cannot predict the potential impact that these future rules may have on our business. However, the demand for our software and services may decrease if we are not able to develop and offer software and services that can address the regulatory challenges and compliance obligations facing our clients.

RISKS RELATED TO OUR PERSONNEL AND ORGANIZATION

Our growing operations in India expose us to risks specific to international operations that could have an adverse effect on our results of operations.

As a result of our 2006 acquisition of Mosum and subsequent expansion of our India operations, we have a significant workforce employed in India. Our operations in India include research and development and administrative functions, and we expect that our India operations will be integral to the company. This involves significant challenges that are increased by our lack of prior experience managing operations in India. Further, while there are certain cost advantages to operating in India, significant increases in the numbers of foreign businesses that have established operations in India and commensurate competition to attract and retain skilled employees has increased, and will likely continue to increase, compensation costs. As a result of these and other factors there can be no assurance that we will successfully integrate our India operations, or that our India operations will advance our business strategy and provide a satisfactory return on this investment.

In addition, our reliance on a workforce in India exposes us to disruptions in the business, political and economic environment in that region. Maintenance of a stable political environment is important to our operations, and terrorist attacks and acts of violence or war may directly affect our physical facilities and workforce or contribute to general instability. Our operations in India may also be affected by trade restrictions, such as tariffs or other trade controls, as well as other factors that may adversely affect our business and operating results.

If we fail to attract, motivate and retain highly qualified technical, marketing, sales and management personnel, our ability to execute our business strategy could be impaired.

Our success depends, in significant part, upon the continued services of our key technical, marketing, sales and management personnel, and on our ability to continue to attract, motivate and retain highly qualified employees. Competition for these employees is intense and we maintain at-will employment terms with our employees. In addition, the process of recruiting personnel with the combination of skills and attributes required to execute our business strategy can be difficult, time-consuming and expensive. We believe that our ability to implement our strategic goals depends to a considerable degree on our senior management team. The loss of any member of that team could hurt our business.

On October 16, 2007 we announced plans to move our corporate headquarters to our existing office in Atlanta, Georgia. Our current facility in Boca Raton, Florida, will be closed and the transition is scheduled to be substantially complete by March 1, 2008. We could experience difficulty in immediately filling job vacancies created by employees that will not be relocating to Atlanta, or effectively training and transitioning the new employees, which could affect our operations and financial performance until replacements are hired and trained. We will also incur additional costs associated with the relocation of our employees and corporate headquarters.

RISKS RELATED TO OUR EQUITY STRUCTURE

Provisions of our charter documents and Delaware law may inhibit potential acquisition bids that a stockholder may believe is desirable, and the market price of our common stock may be lower as a result.

Our board of directors has the authority to issue up to 4,900,000 shares of preferred stock. The board of directors can fix the price, rights, preferences, privileges and restrictions of the preferred stock without any further vote or action by our stockholders. The issuance of shares of preferred stock may discourage, delay or prevent a merger or acquisition of our company. The issuance of preferred stock may result in the loss of voting control to other stockholders. We have no current plans to issue any shares of preferred stock. In August 2000, our board of directors adopted a stockholder rights plan under which we issued preferred stock purchase rights that would adversely affect the economic and voting interests of a person or group that seeks to acquire us or a 15% or more interest in our common stock without negotiations with our board of directors.

Our charter documents contain additional anti-takeover devices including:

·	only one of the three classes of directors is elected each year;

·	the ability of our stockholders to remove directors without cause is limited;

·	the right of stockholders to act by written consent has been eliminated;

·	the right of stockholders to call a special meeting of stockholders has been eliminated; and

·	advance notice must be given to nominate directors or submit proposals for consideration at stockholders meetings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a) Eclipsys’ Annual Meeting of Stockholders was held on July 11, 2007 in Atlanta, Georgia.

(b) The following describes the voting on each matter considered at the 2007 Annual Meeting of Stockholders:

Matter			Votes For			Votes Against or Withheld			Abstained			Broker Non-votes

	1.	Election of Class III Directors:
		Dan L. Crippen		47,233,214			471,070			n/a			n/a
		Edward A. Kangas		47,237,097			467,187			n/a			n/a

	2.	Approve Eclipsys' Incentive Compensation Plan For Specified Officers		39,494,219			506,474			42,491			7,661,100

	3.	Ratification of the selection of PricewaterhouseCoopers LLP as Eclipsys' independent registered certified public accounting firm for the fiscal year ending December 31, 2007		47,204,618	485,763			13,903			-

ITEM 6. EXHIBITS

See Index to exhibits.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 7, 2007

/s/ Robert J. Colletti

Robert J. Colletti

Senior Vice President and Chief Financial Officer

ECLIPSYS CORPORATION

EXHIBIT INDEX

Exhibit

Number

Description

3.1 (1)	Third Amended and Restated Certificate of Incorporation of the Registrant
3.2 (1)	Certificate of Designation of Series A Junior Participating Preferred
3.3 (2)	Third Amended and Restated Bylaws of the Registrant
4.1 (2)	Specimen certificate for shares of Common Stock
4.2 (3)	Rights Agreement, dated July 26, 2000, by and between the Registrant and Fleet National Bank, as Rights Agent
10.1*	2007 Incentive Compensation Plan for Specified Officers
31.1	Rule 13a-14(a) Certification of R. Andrew Eckert
31.2	Rule 13a-14(a) Certification of Robert J. Colletti
32.1	Rule 13a-14(b) Certification of R. Andrew Eckert (pursuant to 18 U.S.C. Section 1350)
32.2	Rule 13a-14(b) Certification of Robert J. Colletti (pursuant to 18 U.S.C. Section 1350)

(1)	Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (File No. 000-24539)
(2)	Incorporated by reference to the Registrant's Registration Statement on Form S-1, as amended (File No. 333-50781)
(3)	Incorporated by reference to the Registrant's Current Report on Form 8-K dated August 8, 2000 (File No. 000-24539)
*	Indicates a management contract or compensatory plan or arrangement