奇異 (GE) 2002 Q1 法說會逐字稿

All sites please stand by. Today's teleconference is about to begin.

Good morning and welcome to the first quarter 2002 earning's call. Following today's presentation there will be a question and answer session, and at that time instructions will be given.

Today's teleconference is being recorded at the request of IDX Systems Corporation for instant replay purposes. If anyone has any objections you may disconnect at this time.

I will now like to turn the meeting over to your host, Mr. Richard Tarrant, chief executive officer. Sir, you may begin.

Thank you,

, and welcome everyone. I know you have a busy day today, so we're going to get right to it.

Before we start, I have Jack Kane with me and Jim Crook. And Jack's going to read some language.

Various remarks that we may make today about future expectations, plans and prospects of the company constitute forward looking statements for the purposes of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. The actual results may differ materially from those that are indicated by these forward-looking statements. As a result of various important factors, including those discussed and our most recently report on file with the SEC, the 10-K, which was filed on March 29, 2002.

Thank you, Jack.

Today, I'm pleased to report that our transition is behind us and we believe that our return to profitability is sustainable. We had record revenues for the quarter with 15 percent year-over-year growth and close to 5 percent sequentially. Gross margins also increased.

Our goal for today's call is brevity in our reporting. And in order to leave more time for questions, we expect the call to last no more than 45 minutes. I have a couple of comments to make before I turn it over to Jim, who will update you on our progress against the objectives set out in our December 5 investor day presentation.

First, you should know that we exercise our option to purchase shares of

. That partnership is progressing favorably and we believe an ownership position enhances the relationship. And that regard, we signed another full pact contract, our third. Dartmouth-Hitchcock Medical Center now joins

and Hershey Medical Center, further validating that we are a major player in the pact imaging market.

Other significant contracts include Medical College of Georgia for our enterprise patient access system; and Covenant Health, a large new group practice customer with over 200 doctors. Also Saint Francis in Hartford, an existing

customer, contracted for Carecast, our full clinical system.

Saint Francis with over 600 beds is a significant win, because they're a knowledgeable customer currently using a competitive position order entry system. They choose Carecast because they wanted to move to the next level of sophistication. They were especially impressed with the real-world use of our system, scene and site visits, and the fact that our pharmacy system is integrated with physician order entry.

Another large group practice with over 100 doctors in Rhode Island signed a GPMS contract.

Also in the quarter, we hosted our first CEO summit announcing Carecast as successor to our last word clinical system, and that is an evolutionary successor not a rewrite. The summit was a resounding success with all prospects in attendance unanimously endorsing our vision for Carecast.

As a result, our pipeline is larger than it has ever been. Bookings for the quarter were $105 million, up 75 percent over Q1 '01, and down slightly from Q4 '01 as expected. We therefore reaffirm guidance for the year of between $430 and $450 million in revenue and 45 cents earnings per share.

Our

partnership is progressing nicely. The recent signing by

of a contract with diagnostic clinic, a 126-physician IDX customer, is indicative of the progress and of the potential in the IDX customer base for

.

With regard to the market, we continue to see money being spent in this health care marketplace, hospital and physician utilization are up throughout the country, driving the need for IT spending. So we're very bullish, at least anecdotally on the spending increase.

And I guess with that, I'm going to turn it over to Jim, who's going to give you a business unit update consistent with what we promised you back on December 5 at our investor's conference.

Jim?

Thanks, Rich.

I am going to base my comments on the guidance we gave you on December 5. And I'm going to stick to the facts, with regard to what we've achieved so far and compare those to the projections we gave you on December 5.

A couple of points up front: Number one, I will talk, as Rich has, about several deals, several contracts that we signed in the quarter. And that is not a complete list, we signed many more deals than we're going to communicate to you this morning.

Number two, when I talk about the business as a whole and the business units individually, I am going to give you what our annualized revenue targets were, projections were on December 5, and I'm going to give you what our annualized gross profit margins were on December 5.

Against those two numbers, I will tell you just how we're performing in each business unit through Q1. So I want to make sure that you know definitionally what I'm going to provide: Annualized revenue, annualized gross profit margin targets and then I'm going to talk about what we did in Q1.

First of all, in the Enterprise Solutions Division; again, this is the business with about 300 customers. We serve many, many large clinics -- large academic medical centers and we also have 35 hospitals or so that use our products to do enterprise station access. Our projection on December 5 was to do $135 million to $140 million worth of business in the Enterprise Solutions Division with an annualized gross profit margin of 42 percent. In Q1 our revenues were $34.2 million with gross margin of 41.3 percent. We are very much on target with the Enterprise Solutions Division.

There were three or four dependencies that I discussed on the 5th of December. One was that annually we were looking to do three large new deals. As Rich as already described, we've done at least one of those in the first quarter in Covenant Medical Systems in Texas, a very large clinic, and it's a good recurring revenue deal that we did with Covenant.

Two, the second dependency was that we were planning to do two enterprise station access, have two contracts during the year. We've done at least one of those in the first quarter with the Medical College of Georgia. Three, we had a dependency for EDI. With the EDI recurring revenue business that we're building, we are on track with that. And the fourth dependency was in the management consulting area. And we are slightly behind in management consulting, but nothing to be alarmed about. But that's essentially where we are.

Notably, we have completely executed on the realignment that we announced in September of last year. We have maintained -- we've actually achieved the customer satisfaction levels that we had hoped to achieve and, more importantly, or equally as important rather, we have hit the revenue and profitability targets for Q1 on the nose. Secondly, in our Systems Division, we told you we would do $40 million to $42 million worth of business in the year 2002 with a gross profit margin of 48 percent.

Our revenues in the first quarter were $9.3 million in the Systems Division with a gross profit margin of 45.6 percent. So we are on track in the Systems Divisions to achieve our annualized results. The Systems Division is the business that services the 10 to 200 physician practice marketplace, where we have about 600 customers using a product called Group Practice Management Systems, GPMS.

There were a couple of dependencies in the Systems Division. One was that we would sign 44 new contracts in 2002 and we are on track through the first quarter to get that done. Notably,

that Rich talked about, 118 physician group, is another 100-plus physician practice, in addition to a couple that we had executed in the fourth quarter reflecting our position in this 100 to 200 physician space that the Systems Division inherited from the Enterprise Division when we did our realignment last year. That's the Systems Division.

In the Integrated Solutions Division, which is Carecast

communicators, our revenues for 2002 would be $89 million to $95 million with a gross profit margin of 32 percent. First quarter revenues were $21.8 million with a gross profit of 30.8 percent. We are on target there. Our dependencies: six new deals. Rich has already communicated that St. Francis, the TDS customer, has come on board for Carecast. We also indicated that we had dependencies on our marketing plan and the executive of not only our marketing plan, but better execution in the business across the board.

The CEO summit, the Carecast launch were very successful. The interest in our products -- our Carecast products -- is increasing. We are competitive in many more situations than we were competitive in before as a result of the increased presence that we have in the states, and we are gaining recognition by

and other industry watchdogs with regard to the progress we're making on the clinical and the patient accounting front.

The think-speed and fail-safe care communications that we have based our marketing plan on is coming through loud and clear.

In our radiology and imaging solutions division, we communicated that we would do 43 to 47 million of business in 2002 with a gross profit of 48 percent. We are ahead of that plan through q1. Our revenue, $12.4 million -- gross profit margin, $51.9 percent. Our dependencies, 16 new deals. We are ahead of that as the numbers that I've just indicated to you would reflect. We did several new deals in the first quarter. We also, as Rich said, signed our third complete tax deliverable, which further provides the positioning in that business that we know we deserve. You'll hear much more about that going forward. Secondly, we had dependency on the

partnership and the investment that Rich alluded to also shores up that as something that we will execute on.

And most importantly in this area, version 10, which is the new deliverable that we have been working on in the field, deploying in the field for about 15 months, has reached a very, very strong level of maturity. One of the measurements we use for that is that in the first quarter, we installed everything that was in our backlog for version 10. And that is very significant when you do come out with a new product.

And that's what version 10 was and it is enjoying great success in the marketplace now.

our revenue projection for 2002, 123-126 million, our gross profit target annualized, 22 percent in the first quarter. We hit our revenue targets of $26.9 million, and our gross profit was slightly under the progression that we're looking for at $19.1 percent.

The reason that this was slightly under we've communicated to you before.

is an outsourced transcription business where quality is the name of the game, quality and turnaround time. We continually invest in quality, and we're always trying to find a balance between the quality we provide, the benefit that it provides for the customer, and the cost of providing it.

In the first quarter, we instituted a quality incentive program that frankly far exceeded our expectations in terms of what we were able to achieve for our customers metric wise. However, we paid for it, and we are adjusting that in the quarters going forward so that we will bring that gross profit margin in line where it belongs.

In

, our dependencies were 50 new deals during the year. We are on target to achieve that. Almost 70 percent of the new deals in the first quarter were to IDX customers which is very significant in that the account management program that we put in place late last year is really starting to take hold with regard to getting companies' products distributed across other divisions' customer bases.

Also of note, we signed what we believe is the first full outsourcing contract in Canada with

in Toronto, again an existing IDX reg customer. But we signed an

transcription deal with Saint Michael's Hospital in the first quarter. Our business metrics still look very strong. In summary, I'll reiterate the guidance we provided, $430 million to $450 million for the year. And a gross profit margin of 34 to 36 percent for the year, we are tracking. With that, I'll turn it over to Jack Kane.

Thanks, Jim.

I'm going to just hit a couple of things here and be brief in areas where I thought people might have questions. The first area is in the classic piece of our business, the core business. The service revenue in q1 was $50.5 million, versus $42.7 million in the fourth quarter.

So we had a sequential increase of about $8 million or 18 percent in the service component of our business. And that really had to do with all areas really. Maintenance was up, and our implementation fees also were up pretty significantly. And the margin on that is also up 25 percent, compared to 22.7 percent last quarter. And that really has to do with the higher level of revenue that caused the improvement in that margin.

The other thing I thought I'd speak to quickly on the income statement here is the other income. You see that we had a $4.3 million gain on the

health transaction from a here ago. And the reason for that is we had a $4.5 million guarantee for

health when we signed the deal. And what we did is we deferred $4.5 million of the gain a year ago in case we did not meet that guarantee. We met all but about $200,000 of that guarantee, so that's been relieved now. And therefore it's been recognized as part of the gain. Cash -- we had end of the quarter with about $49 million compared to $56 million a quarter ago. And the $7.5 million of cash was used really in the area of

.

Receivables increased to $8 million. And it had to do with higher levels of revenue which ended up being in our AR balance at the end of the year. The core part of the business used $6.5 million.

used about $7 million from operations. My expectation is the core business next quarter will generate about $6 million of cash, and

pretty much break even.

We also indicated that we committed to exercising options in

, so we'll be spending about $7.5 million this month on the exercise of those options. Accounts receivable, I mentioned, went up about $8 million. They were $95.5 million last quarter, up to $104 million.

But what's really important to note here is our DSO only went up one day; 88 days up to 89 days, but down 15 days from a year ago. So while our revenue went up, our DSO continued to remain pretty constant and well on the lower end of the scale in the industry.

Software capitalization: We capitalized $869 thousand in the quarter. We amortized $432 thousand, so net impact of $437 thousand. And that's significantly down from where we were in the fourth quarter. And again in my mind, nominal amounts of money relative to the industry.

From a backlog perspective, we closed the quarter with a systems sales backlog of $159 million compared to $150 million, an increase of $9 million or close to 6 percent sequential growth. Services was $343 million compared to $305 million, a $38 million sequential growth of 12 percent, achieving record backlogs of $501 million compared to $455 million a quarter ago.

And those numbers are well over last year's. You can imagine last year the backlog was $384 million. So $117 million increase in backlog year over year or 30 percent. Jim has reiterated the guidance, so I don't need to go through that. And I continue to expect to see our DSO in the 85 to 90 day range.

And with that, I'll turn it back to Rich.

Thanks, Jack.

, we're going to turn it over to questions now.

Thank you, and at this time if you'd like to ask a question, just simply press Star-1 on your touchtone phone. And if you're using speaker equipment, please lift your handset prior to pressing Star-1. To cancel your question, it's Star-2. Once again, it's Star-1 to ask a question and Star-2 to cancel.

One moment while the questions register. Our first question comes from

with Bank of America.

Good morning guys. One more point of clarification on

. R&D there was up substantially. What was that from?

Actually, R&D last quarter was below where it had been historically,

, due to some capitalization. It's only a couple hundred thousand dollars that was capitalized in the fourth quarter where really nothing was capitalized in

in the first quarter. But if you looked at the gross run rate, it's pretty much in line.

Pretty steady, OK. I heard your cash flow guidance, Jack. Should we assume that the previous $40 million cash flow from operations guidance for '02 was maybe a little bit high now, or should we still be there?

I would say it's a little bit high. We'll probably do about $35 million in cash flow, with capital expenditures of about $27 million for the year. And the

expenditure of about $7.5 million.

And one more. I apologize if I missed this, but are you willing to give a size of that Carecast deal that you announced?

We don't -- we're not going to give the size, Patrick. But all those deals recently have been hired, and we have budgeted.

OK. And you're as you say still comfortable with 6...

Yes.

...for the year. Great.

Thanks a lot guys.

Our next question comes from

with CIDC World Market.

Good morning. Could you talk a little bit about the competitive environment you're seeing, Jim and Rich, just what's going on with self-cycles, who's making the decisions? And is there any noise in the market coming from

and Horizon, or is it still primarily the traditional

IDX?

Right now,

, I would say it's still the traditional

, IDX.

and Horizon are certainly something to keep our eye on. We just don't see them as really competitive as of yet. My guess is most of their activity is in their existing customer base. But you know both of those products are still an unknown for the most part.

Sales cycles are still long. I don't see any real change one way or the other. Decision makers are -- is that what your question, decision makers? -- in the hospital side, it's very much committee-oriented, a lot of physician input now that physician owner entry is a big driver. And we play hard on that, because we're trying to cross-sell into many of our existing IDX customers.

And we go to the

that we have the experience with and the trust with and drive their vote pretty hard.

Sure. OK. Thanks.

Thank you. Our next question comes from

with

.

Hey guys. Can you talk a little bit about the competitive environment on the physician side too, and specifically what are you seeing as the catalyst for new deals? In the macro-health care environment, do you see any evidence that are driving demand for physician practice management systems?

This is Jim. One event that's driving is the continued disaggregation of practices from rolled-up MSOs that occurred in the mid-90s and into the late 90s, and that's still occurring although it's dwindling in terms of its volume. So I don't see any other macro event that's driving it.

I see a great strength in both of the spaces that we serve. The large market certainly would be extend the product in the 30-plus years that we've been continuing to evolve that product But what we have seen is we saw a lot of aggregation of companies occur over the last couple years, and in that aggregation there was a great loss of focus on the customer.

And what we've done in both our enterprise and our systems division areas, we have really stayed the course, with the focus on the customer, which is really -- we're deriving great benefits from now. But the only macro pieces that continued the segregation I mentioned earlier.

And what other systems is GPMS competing against now?

Well, GPMS will compete against

; it will compete against Medical Manager. I know there's a couple of offerings that -- I think they're called VitalWorks now, I'm not exactly sure, but there's a couple of offerings there that will come onto the horizon from time to time. There are a couple of other smaller, more regional players that we'll run into from time to time. And that's generally it.

OK. All right. Thanks a lot.

Thank you.

Our next question comes from

with J.P. Morgan.

Thank you very much.

I was wondering if you could just talk a little bit, Jack, about two things.

Number one, your SG&A was slightly higher in the quarter than what I was looking for, so I was wondering if there was any type of driver behind that.

And then, secondly, the R&D tax credit, just wondering how long that's going to extend through.

Thanks.

OK. SG&A, we had more commissions and bonuses that were in the first quarter compared to a year ago, which may be what you are -- I assume that's what you were comparing it to.

Yes, I was.

And the R&D, I assume it's going to live on for quite a while. If your concern is the tax rate, I'm very comfortable with the tax rate right now over the next, I would say, two years at least.

Great. Thank you very much.

You're welcome.

Thank you.

Our next question comes from

with SunTrust Robison Humphreys.

Yes, thanks.

Just a quick follow up to that. Is that, Jack, comfortable with existing tax rates you saw in the quarter of 33 percent?

Yes, 33 percent.

OK. And then another question, on the maintenance line. As you indicated, it picked up with implementation and higher recurring revenues. You know, is that something you expect to maintain at that level and build off or is there any sort of implementation that's maybe a quarter or two that you would then expect to drop off of some millions of dollars, you know, in a quarter or two?

No, I'm comfortable at this level.

OK. Great. Thanks.

Thank you.

Our next question comes from

with Bear Stearns.

Yes, hi, Jack. How you doing?

Had a question maybe more for Richard or Jim on the Carecast rewrite. You know you characterized it as a sort of evolutionary rewrite. I just wondered if you could get a little more specific on how

in your clients, and sort of how you're managing with sometimes a normal product evolutionary pattern where clients sort of want to wait to see the new generation product before they commit. Are you seeing any of that among your client base or perspective client base? crook: Ray, this is Jim. The answer's no. You know, we have followed a pattern for a very long period of time of being very upfront with our customers. We very much believed in a product road map strategy, where our customers know going in -- and our prospects know as well, going in, what ride they're in for, in terms of how we're going to continue to evolve the product, both from a functional standpoint and from a technology standpoint.

So the customers -- and I think the number's about 70 now -- large integrated delivery networks that utilize

Carecast, but the customers understand. And we feel very strongly that the prospects must understand. I don't know that all of our competitors follow the same plan, but we will be in a presentation very close to decision time telling the customer that this is what they're going to expect if they're in business with us. Every couple of years, they're going to go through an upgrade that's going to move them forward. And we're going to evolutionarily bring them along. We're not going to revolutionarily bring them along: I think our customers very much appreciate that, very much support that. And everything is very much above the covers in terms of what our plan is,

.

So we haven't had any hiccup. In fact, our customers embrace it, because they know what they should plan for to continue to keep their system current with what their needs are. And our prospects understand it as well.

, this is Rich. Just to follow up on that. We are very, very hesitant and would not in this health care environment make any drastic moves to quote "new" technology. It's something that we think is fret with danger: we are sticking with the proven technology. We hear pros and cons about

, but we know it works.

We know its sub-second response time for thousands of physicians when they're entering orders. And that's really critical, and we don't think any other technology has proven with complex sophisticated position order entry at the sub-second response time for thousands of doctors, which we can prove and show.

There's no physician order entry system in the marketplace that can do that and show that.

So again, if I'm at St. Francis, for example, I have no reason to sort of wait for the next, you know, evolution of Carecast. You can begin, I assume, implementing what you need to for me and then you'll bring me along as if I was any other, you know, longstanding customer of yours? Is that the way it works?

Absolutely.

OK. Great. And one last tiny question on hardware. We've seen hardware revenues strong in some other areas this quarter. Did you guys see anything particular in hardware revenue this quarter?

Hardware revenues were lower this quarter than a year ago.

OK. Great. Thanks, guys.

And our next question comes from Chris McFadden with Goldman Sachs.

Thank you. Good morning.

Last week we talked a little bit about some of the staffing dynamics around the IDX business. Can you just kind of update us on how you see those

activities, where overtime played a role in the business? And, you know, what your outlook is over the next couple of quarters. Thank you.

Chris, this is Jim.

I missed some of that. You want to understand what the dynamics are around the IDX business and what we see going forward?

From a staffing perspective.

Oh, from a staffing perspective, OK. I missed that part.

We are still hiring at the rate and being able to find the resources at the rate that we need to continue to grow that business. We have a higher rate of turnover, obviously, in that base than we do anywhere else in our company, but that is expected. We do have some work that we're doing offshore in India, and it's a very small portion of the resources that we deployed to get everything done. But we do not have any concern looking at the staffing issue going forward.

And how would you compare the staffing dynamics, you know, quarter-to-quarter?

No change.

Thank you.

Thank you. Our next question comes from

with Raymond James.

Hi. Good morning.

You earlier alluded to the Allscripts commitments and being able to

$4.3 million. Can you talk a little bit about what, if any, commitments you have in 2002? And what we might be able to expect in terms of the roll out of further recognition?

Well, in terms of guarantees to Allscripts, there's no more guarantees. That was a one-time transitional guarantee of revenue from our customer base. I don't know if that answers your question regarding that piece.

In terms of just what we might be able to expect coming out of the Allscripts installations within your base, can you allude to some kind of range of financial impact?

Yeah. We need to leave that to Allscripts in their call, but we're pleased with the partnership. We are selling and they are selling and we're becoming closer and closer in terms of working together. So I would say it's positive. But in terms of ranges and expectations, that's got to be Allscripts' earnings call stuff.

Can you maybe talk a little bit about the total cost of ownership of an IDX enterprise-wide system, for example, versus an

or Cerner or

or

. You know, there's always the debate about, you know, the hardware architecture and the basis upon which the software was developed. If you're pitching against

and Cerner and

and

to a major hospital system, how do you characterize your cost of ownership and the hardware component of that cost of ownership?

Jim, this is Jim Crook. The basis and the origin of the

product which has evolved into Carecast, has been quite an architecture right from the beginning. So we do not have some of the requisite challenges that some other parties have with regard to having software on each client. And that is the biggest component to total cost of ownership, with regard to the distribution and the management of programs that are distributed around a network. Our architecture from day-one has been

client, so the total cost of ownership is limited with our offering.

Secondly, the way we also talk about total cost of ownership in a study that has been done by an independent consulting firm, by the name of Anderson Consulting -- Mark Anderson Consulting is the name of that. And Mark and his team have done a very thorough study on the cost of ownership as it relates to up-time and as it relates to performance, but mostly on up-time.

And what Mark has framed -- and this report is available. His firm is in Houston. And if you need it, we can get that information to you. But his firm has done a very comprehensive study on what it costs an organization to have any down-time at all, and any tenth of a percentage point above or below 100 percent up-time, there's a significant cost that an organization incurs in any application environment, but most specifically in the clinical application environment.

And what the response time guarantees that we provide our customers and that our customers experience that also limits and helps our situation dramatically from the cost of ownership standpoint.

And I guess the question would relate to implementation time and what actions, if any, you've taken to try to continually reduce implementation time. That's something that

has alluded to in their earlier call, as being a driver of expanded margins, taken their implementation time down from 18 to 24 months down to 12. Can you talk a little bit about what your average times have been and how that compares to the past and what actions you've taken to continually drive that down?

Jim, again. We are continually driving down the time that it takes to install, implement our products across the board. With the clinical systems it is still in the 12 to 18 months time frame, and that range hasn't changed.

There's a huge dynamic that's involved here that makes this difficult to project and predict. When an organization steps up to the plate to implement position order entry there is a major behavior modification that the physician in the institution have to go through. And that modification of behavior is not completely dependent or not completely in the hands of the vendor.

So it's very difficult to say that the best practice scenarios we put forth are automatically going to reduce the time it takes a customer to implement position order entry. It is a moving target, however, we have our eye very much on that ball. And we are experiencing improvements in the time it takes our customers to really gain a return from our products across the board.

Is there any material difference in the way that your CPOE system -- by the way, I'm sorry, this is the absolute last. But is there any material difference from the way your CPOE system functions and operates versus

and

to your knowledge?

The way it operates, I think in terms of true operation, yes, sub-second response time for a very high number of users. I mean, we play real hard on that and others are starting to talk about that, I think, because we've been so strong on it. But the fact of the matter is, we have

nonstop, high-powered clinical based hardware and that's pretty -- there's some downsize to

in the marketplace that we have to, certainly, fight off a competitive situation. But when the rubber hits the road and the physician has to make an order entry at midnight and the emergency department in Manhattan, that system better damn well be up, and

will be up.

OK. Thank you very much.

Thank you. Our next question comes from

with

Company.

Hi guys. Congratulations on a good quarter. Just two quick questions. Have you guys begun implementation on the Saint Francis deal yet?

Dave, Jim responding. I think so. We're not deep into it, though. When we did our fourth quarter call we alluded to a deal that was in the CON process, Dave. Saint Francis was that deal. And the CON finally cleared, sometime toward the middle to end of March. So I don't know the answer to your question. Typically, it takes several weeks to have the kick-off meeting scheduled. I just don't know whether that has occurred. And if it's occurred, we're very much in the early stages.

So safe to say there hasn't been a whole lot, if any, revenue recognized against that yet.

Very limited and consistent with the way we have typically provided you with backdrop, in terms of the way we recognize revenue.

And when you complete the

investment, what kind of an ownership stake will that leave you with?

Dave, this is Rich.

a private company and they prefer us not to talk about the details. It's enough so that we've -- you know, we are a partner and a real equity partner, but not enough to give us any sense of control or whatever.

The accounting treatment, Dave, would be at cost, not the equity method of accounting.

OK. And will you guys have a board seat or no?

No.

OK. Congratulations, again. Thanks.

Thank you. Our next question comes from

with

.

Good morning. Just on the -- in the

environment, on these large deals, like the third one you signed up here with Dartmouth. What's sort of your sweet spot that you're seeing right now versus some of the, you know, the major hardware companies out there that are selling this stuff, G.E. and Siemens? And what are you able to -- you know, one or two things you're able to pitch against there to pull through deals? Does it have to do with having some tie-back with your radiology system?

Seth, this is Jim. Don't want to give too much competitive information away, but two things: One is that our tax offering,

is fully integrated. We run off of a single database. And that database is the database that runs both the risk system and the digital image management distribution system.

The integrity of the data and images that flow through the enterprise as it relates to the images and the transcribed report that's attached to it is very readily seen and appreciated by the learned-eye, in terms of a radiologist that has a bunch of cases that have to be read. That's number one.

Number two, in the environment where the enterprise has a real focus on market share and on coordination of care, the ability to distribute this information, in terms of the digital image and the transcribed report out to the ordering physician, that can improve the quality of care, keep the quality of care more coordinated and lower the overall cost of care by allowing decisions to be rendered sooner is very much recognized and appreciated, as well. Those are the two main items.

OK. And then just hopping back to the

margins. Do you anticipate, even just what you're seeing here in the second quarter, getting some improvements on the metrics so the customers aren't calling back from you as much? Is there anything you're not doing you need to do there?

I expect to see some improvement in the margins. I think you're alluding to a different issue, though. You're speaking to, like a penalty.

If I understood Jim.

What Jim was speaking to is that, we put an incentive in place for higher quality and we kind of -- a little beyond the quality levels, so customers should be thrilled at that.

Right. OK. I'm with you. Thanks.

Thank you. And our last question comes from

) with

.

Hi. Could you just tell us about your success in the EDI market and how you're going back into the installed base, tap that and what kind of success you've had there.

Yes. We're still cranking along there. As we reported before, we've generated almost $1 million a month worth of EDI business through the last three quarters of 2001, and virtually all of that revenue production we will see in 2002. Our momentum continues. The targets that we had established for the first quarter of 2002 we hit. So we have a very significant population out there to see the EDI into and to execute against. We feel good about the direction, the momentum and our execution in that area.

Yes. What percentage of accounts have you tapped already, customers?

I would say about 30 percent, maybe 25 percent.

Thanks.

Thank you. And at this time I show no further questions. I would like to turn the call back over to Mr. Richard Tarrant for any closing remarks.

OK. Thank you. I know you all have a lot of calls today, and I assume you will be unanimous in deciding that our's is the best call with the most information and the most punctual.

So we are pleased that our transition is behind us. We've had a few tough quarters. We believe we've done what we said we were going to do. We've hunkered down. We've got our basics back in line. The market is out there. They are buying system. We are well-poised to go forward. And we believe that we are in good shape for the future.

Thank you for your support and we'll talk to you next time.

Thank you. This concludes today's teleconference. Thank you for your participation and have a great day. You may disconnect at this time.