麥卡遜 (MCK) 2002 Q4 法說會逐字稿

Good morning and welcome to the Per-Se Technologies Fourth Quarter Earnings Conference Call. Following today's presentation there will be a formal question and answer session. At that time instructions will be given should anyone wish to ask a question. Until that time all lines will be in a listen only fashion. At the request of Per-Se Technology the conference is being recorded. Should you object you may disconnect at this time. I'll now like to turn the meeting over to today's host Mr. Phil Pead, President and CEO of Per-Se Technology. Mr. Pead you may begin sir.

Thank you. Good morning and welcome to the Per-Se Technologies Fourth Quarter Conference Call. I have with me today Chris Perkins, our Chief Financial Officer. This morning we released our results for the quarter ended Dec. 31, 2002. Before we begin, I would like to read the following safe harbor statement.

Please be aware that certain statements made in this call will be forward-looking in nature within the meaning of the Private Securities Litigation and Reforms Act of 1995. These statements will include expectations with respect to future results and the assumptions on which such expectations are based. As with all things actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ from those in the forward-looking statements is found in our press release and in our SEC filings including the Form 10-K for the year ended Dec. 31, 2001, and the Form 10-Q for the quarter ended Sept. 30, 2002. I would now like to comment on our operations and Chris will provide with more detailed financial information later in the call.

2002 was an important year for Per-Se. It was a year in which we achieved revenue growth in all three divisions and achieved a full year of profitability. We also generated positive free cash flow for the second consecutive year. During the fourth quarter we achieved solid year-over-year revenue growth, strong margins, and significant increase in bottom line profitability compared to the fourth quarter of 2001. We generated over $15m in free cash flow during the fourth quarter.

Turning to our Physicians Services division. We had another strong new sales performance during the fourth quarter combined with the third quarter new sales, new business sold in the second half of 2002 was 25% higher than new business sold in the second half of 2001. The effectiveness of our maturing sales organization and the success of the sales and marketing initiatives we implemented during 2002, are evident in the sales momentum generated in the last two quarters and we expect this momentum to continue. Over the past two years productivity initiatives such as our process improvement projects and the proactive reporting and performance monitoring programs we have initiated have enabled us to maintain our client retention rate at our targeted level. These high rates of client retention now provide us with additional leverage that will assist us in marketing our services and our sales organization will benefit from our strong reference of our client base.

During 2003 we will be introducing enhanced reporting tools that will allow our client access to sophisticated business intelligence not available else where in the market place. Healthcare reimbursement for hospital physicians in a complex process. Our reporting helps our client to assess their productivity, their reimbursement by procedure, their yield for procedure and other important metrics and compares their performance to their peers on a national level. Such reporting not only differentiates Per-Se in the market place, but also provides the unique advantage to our physicians. No other company manages the reimbursement of more than $4.3b in annual medical claims across the wide variety of specialty. Storing and normalizing this significant amount of comparative data allows us to offer these unique benchmarking capabilities, which further enhances our value proposition.

In the e-Health division, we continue to sequentially grow our transaction volume and gain market share due to our focus on improving physician and hospital reimbursement and our excellent customer service. Throughout 2002, the division's revenue grew consistently at a double-digit growth rate. EBITDA margins remained above 20% in each quarter even as we continued to make investments in the divisions products and infrastructure. As I previously mentioned the divisions focus is on providing functionality that enables both hospitals and physicians to improve their reimbursement. Our clearinghouse does not solely facilitate the delivery of a client; instead our clearinghouse solutions do provide us tools that assist them in prompt and optimal payment for the services they have provided. The added value such as real-time eligibility, denial management, and the other revenue cycle enhancements enables us to derive approximately 95% of the division's revenue from providers rather than through rebates from payers.

As we discussed in the third quarter conference call, we began phasing out the business of a large print and mail customer whose business was non-medical claims related in the second half of 2002. This client was part of the transition from the sale of our Hospital Services division, which was sold in 1998. This business will be completed phased out by the end of first quarter of 2003. The loss of its client negatively impacts our year-over-year revenue comparison for the second half of 2002, and the first half of 2003.

During 2003 we will continue our investments in the business to better save our customers and to improve the division's long-term margins. During the first six months of 2003, we will be implementing enhancements to our connectivity infrastructure that will add functionality, facilitate higher levels of customer support, and result in cost efficiencies for the divisions operating structure. Additionally, additional functionality will include real-time customizable reporting capabilities, providing clients with multiple views of their information as well as tracking capabilities for up to date client status.

Also during the first there quarters of 2003, we will be converting existing customers of our ASP based physician practice management solutions to a new technology platform. The new platform is entirely web based and will both enhance functionality for the 4000 physician using the product and significantly improve our margins. Our practice management solution drives transaction volume through the division's clearinghouse and is a good margin contributor. Looking at our application software division, we had one of our highest sales courses and grew back odd by 20% over yearend 2001 level. We successfully sold both our patient1 clinical solutions and our Resources1 scheduling products in to our large existing customer based. As we stated in the past, a substantial backlog provides us with good earnings visibility for the coming year. I would like to touch on the opportunities we see for our products in 2003. During the fourth quarter of 2002, Health Trust Purchasing Group named us its preferred vendor for staff scheduling solutions. Heath Trust has 900 members who are required to purchase at least 80% of their annual expenditures through the Purchasing Group. We see significant opportunity in this agreement for our staff scheduling products in the coming year.

For our Patients Scheduling solutions we have had success in the past year in both upgrading current clients to the latest version of our operating room scheduling products and converting existing clients to our enterprise wide patient scheduling system. We see this trend continuing in 2003, as well as expanding our market share with the additional of new customers for both of these products. Approximately, 60% of division's revenue is derived from our resource planning products that are installed in over 2000 hospitals both nationally and internationally. And during 2003, we are focused on delivering increased web functionality that will allow nurses and caregivers to interact through a portal. Ultimately the portal will permit caregivers to review schedules remotely, dynamically allocate resources, facilitate continuing education credit, and provide online purchasing opportunities.

For our enterprise-wide clinical and financial products the market remains very competitive, but we continue to participate in more sales opportunities. We are progressing in the enterprise wide opportunities in which we have been named best of few and vendor of choice. Patient1 continues to be recognized by third party industry analyst. In the most recent class survey on computerized physician order entry or CPOE Patient1 was sided as having the most inpatient hospital live with CPOE and the highest percentage of physicians utilizing CPOE than any other vendor. Computerized physician order entry is central to the issue of reducing medical errors and is sighted as the primary reason hospitals are upgrading their clinical solutions.

I am excited about our ability to continue capitalizing on the market opportunities for all our products. I would now like to turn it over to Chris Perkins to discuss our financial results for the fourth quarter. Chris.

Thank you Phil. First, reviewing our consolidated results, revenue was $89.8m, as compared to $84.1m in the fourth quarter of 2001. EBITDA was $14.3m or 15.9% of revenue as compared to $12m or 14.3% of revenue in the prior year period. Income from continuing operations for the fourth quarter was $3.4m or 11 cents per share on a fully diluted basis compared to $1.1m or 3 cents per share for the fourth quarter of last year. In the Physician Services division, revenue was $58.6m in the quarter as compared to $55.9m in the fourth quarter of last year. On a sequential quarterly basis, total division revenue decreased by 1.5% due to too less business days in the fourth quarter than in the third quarter. On a revenue per business day basis, fourth quarter revenue increased 2% over the third quarter levels. Also, on a revenue run rate basis, Physicians Services activate the fourth quarter at a run rate of approximately 7% over 2001. EBITDA for the division was $9.7m or 16.5% of revenue for the fourth quarter compared to $7.1m or 12.7% of revenue in the prior-year quarter. Revenue growth combined with phase 2 of the process improvement projected, which was completed during the third quarter, continue to be drivers of our year-over-year margin expansion. Our net backlog at the end of the fourth quarter was approximately $4m in annualized revenue. While new sales in the quarter were strong, new business was implemented in the fourth quarter at a substantially higher rate than the prior three quarters of the year. A positive net backlog along with the sales momentum generated in the second half of this year will contribute to revenue growth in future quarters. In our e-Health Solutions division, revenue for the fourth quarter was $17.8m as compared to $16.2m in the prior year period. EBITDA was $3.8m or 21.3% of revenue for the quarter compared to $4.1m or 25.6% of revenue in the fourth quarter of 2001. As Phil mentioned, the division has made investments in personnel and technology to support its infrastructure and product enhancements, which are reflected in the margins. Looking at the Application Software division, revenue was $16.6m for the fourth quarter compared to $15.3m in the fourth quarter of 2001. EBITDA for the software operation was $4.5m or 27% of revenue in the quarter compared to $3.8m or 24.7% of revenue in the fourth quarter of 2001. Revenue backlog for the division increased to approximately $52m at the end of the fourth quarter, which is an increase of 20% over year-end 2001 levels.

Moving to the balance sheet. Our total cash position at the end of the fourth quarter was $51m, which is an increase of over $10m over the year-end 2001 cash balances. Our accounts receivable or day sales outstanding were in line with our expectations. By division, DSOs at Dec. 31, 2002 were 42 days for the Physician Services division, 46 days for the e-Health division, and 64 days outstanding for the Application Software division. DSOs in all divisions were lower or in line with year-end 2001 levels. While these DSO levels are sustainable, we would expect to see some increase in DSOs in the first quarter of 2003 due to seasonality, which is consistent with prior year trends. During the fourth quarter, we generated a positive free cash flow $15.7m. For the full year 2002, free cash flow was a positive $9.5m. Excluding the full year cash flow impact related to the Lloyds litigation of $8.9m, 2002 free cash flow would have exceeded $18m. Free cash flow is defined as operating cash flow plus capital expenditures in capitalized software. During 2002, we absorbed approximately $3m or 10 cents per share on a fully diluted basis and increased insurance litigation expenses, as well as $8.9m negative cash flow impact, as I previously mentioned, related to our ongoing litigation with Lloyds. Our receivable from Lloyds was $6.8m at year-end. For 2003, our financial guidance includes the absorption of $5m or 15 cents or 15 cents per share on a fully diluted basis, and the potential total negative impact on our cash flow of $8-9m. As we stated in our press release this morning, the litigation Lloyds filed against the company in Michigan was dismissed. The court agreed with us that California was a more suitable forum and wished to hear the litigation. The process of pursuing in California, and we expect to achieve positive revolution of this matter to a successful litigation in 2003. We also announced this morning that a tender offered to bondholders was issued today to repurchase $15m of our outstanding 9.5% bonds at [par]. We believe this is a positive step in addressing our capital structure. With the positive free cash flow we have generated over the past two years and our 2003 free cash flow forecast, we are well positioned to take this action to reduce our debt levels. This tender offer satisfy the requirements of some of bonds indenture for the reinvestment of excess proceeds from the assets sales made in the past.

Thank you, Chris. In our release this morning, we reiterated our full year expectations for 2003 and provided quarterly earnings per share guidance. Briefly on a consolidated basis, we expect revenue growth of 10-12%, EBITDA growth of 20%, and fully diluted earnings per share in the range of 45-55 cents on a GAAP basis, which represents a 60-100% increase over our 2002 EPS performance. We expect to generate free cash flow for the year in excess of $15m, and on a quarterly basis, we expect positive year-over-year trends throughout 2003 with steady revenue growth and continuously improving bottom line profitability. We have accomplished a great deal over the past two years. With our first full year of profitability in 2002 and revenue growth in all three divisions, we are confident that 2003 will be a year of accelerating revenue growth, continued profitability expansion, and strong free cash flow generation. That completes my comments. Operator, I would like to open it up now for questions.

Thank you. At this time, we would like to begin the question-and-answer session. If you would like to ask a question, press "star one" on your telephone touch pad. If you are using a speaker equipment, it may be necessary to pick up your handset prior to pressing "star one". One moment while the questions registered. Our first question comes from David Francis (ph) of Jeffries.

Good morning, guys. A couple of questions. First, Phil, if you gave this number, I missed it. Can you tell us what the backlog at the year-end is in the software business? And any kind of update on new wins that you may assigned after the year-end?

Yeah, sure. I will ask Chris to do the backlog number, Dave.

Yeah, the backlog number for our software division is $52m at the end of 2002.

I don't have anything specific to talk about after year-end, Dave. I can tell you that the fourth quarter was a great quarter for us for new sales. And, our [Hims] conference was very positive, significant volume, and the cash, Dave, which came out, I think, was actually announced at [Hims]. Sure this is having a largest install base of computerized physician order entry and that prompted a significant number of people to start buy our [board] and congratulate us. So, that was probably the best news as we got at [Hims].

And, then one follow-up. I know it's hard to tell how litigation will go through the courts, but is it still your expectation that the Lloyds situation will be resolved sometime late this year?

Yes, that is, Dave. The litigation is proceeding, it commencing in California and we are aggressively pursuing the matter.

Great. Thank you.

Our next question comes from Sandy Draper (ph) of Robinsons.

Thanks. Good morning. Chris, can you just remind me first of all, where the increased expenses from the Lloyds as well as just overall DNO? Is that shown up in the corporate line? Or is that put in different pieces? Where does that show up in the actual P&L?

That does all show up in the corporate line and our segment reporting, Sandy.

Okay. Great. Second question, in the e-Health side. I am just trying to sort of walk through the numbers, weakened your guidance, you said you expected the number to drop down in the sequentially first quarter or fourth quarter in terms of top line, is that correct?

From Q4, 2002 to Q1 of next year it will be flat-to-slightly down.

Okay. So you are looking for a fairly significant ramp towards the back half of the year to get to the 18-20% growth?

That's right. Again Q1 is typically lower from a seasonality point of view, transactions for the hospitals and large physician groups are cleared out very strongly in the fourth quarter and therefore a lag as we go into the first quarter.

Okay. Thanks.

And that's consistent with the prior year.

Okay, great, and then one final question maybe for Phil. When you look at the guidance you've given for application software, I don't know if you want to disclose it specifically, but how dependent is that in terms of large clinical or business1, patient1 sales versus -- can you make that number with your sort of core surgery and scheduling type products or do you really to land a couple of large either financial or clinical deals to get there.

It's actually fairly evenly balanced. Sandy, I think that the majority of our revenue forecast for '03 comes from an expectation of good growth in our scheduling products and an expectation that there are some large enterprise deals that we're working, but the revenue forecast is fairly balanced in our approach. We know that the sales cycle and the enterprise products can be lengthy and not as predictable as our scheduling products and so we built our expectations on that.

Okay. Thanks and sorry one final question. Chris, are you putting into your guidance for '03 the buyback on the bonds, or are you waiting until that actually happens with the impact there?

All right. Sandy, no the guidance does not include any impact from the buyback of bonds. So we would wait until that tender is completed before we would include that many future guidance.

Great, Thanks.

Our next question comes from Robert Kyle (ph) UBS Webber.

Thanks. Well I wonder, Chris, if you could comment a little more on the sequential drop in your forecast for first quarter versus fourth. It's a little more than I was expecting and is there more to it than the software business or is that really the whole part of it?

Well. It's really the impact of our few areas. Consistent with prior years, we do have some seasonality impact throughout our divisions from fourth quarter to the first quarter and I will talk about each of those specifically. As already mentioned, in e-Health consistent with our first quarter of 2002, we did see a decline because transaction volume is generally lower in the EDI side in the first quarter than it is in the fourth quarter. So that is providing some negative impact there. Physician services also does have an impact. If you talked about in the past there is a lag in the time from one week, process claims to the time that claims are paid and we recognize revenue. There is usually a lower number of surgery and hospital visits during the fourth quarter due to holidays and another factors.

So there is a lower level of activity in our claims that we are processing in the fourth quarter. That again has an impact once that comes into revenue in our first quarter. So there is some pressure on the position services revenue as well. Software is also slightly impacted because there is generally very strong implementation efforts from us and our clients in completing project milestones at the end of the fourth quarter and there is a little slower start again seasonally as we get into the fourth quarter. So all three of those divisions feel pressure from Q4-Q1. We also mentioned that we will be incurring some additional cost related processes of converting clients in our e-Health division for ASP practice management solution. So that will put pressure on our e-Health division margins in the first quarter. And lastly, I do expect the increase incur a little bit higher cost related to the Lloyd's matter in the first quarter and as we go into 2003 because we are more aggressively within the litigation process than we were at the end of last year.

Okay, that's really helpful. Thanks a lot. And one more thing, could you update us on your income tax situation and just remind me how big the [NOLs] are and what sort of effective rate you expect for the rest of the 2003?

Yes. We still have a significant number of [NOLs] just under a $400m of federal tax [NOLs] that we have through our company and that will shelter our federal income taxes for completely as far as what we paid for 2003 and for sometime beyond. There is no risk of those expiring in large amounts anytime in the near future. We continue to have income taxes that we do incur on the state and local level, but they are not entirely shielded by an allowance on the state and local basis. The guidance that we've given for our total tax provision to be in the 10-12% of our pre-tax income level for 2003.

Okay. One more thing and that's the last one I promise. What was the asset sale - what were asset sales that triggered the offer for the buyback of Senior Notes? Is that just accumulation of several over the past year or two?

Yes. Well that over the past year it was the assets sales in 2002. So, it is from years prior to 2002 that were related to that.

And could you explain why you make the operative buyback denotes now as opposed to sooner or closer after the assets were sold?

Yes. There is a basket of excess proceeds that under the indenture of $10m. If excess proceeds stand with the $10m basket, there was not requirement to reinvest those proceeds. There was an acquisition that was done in early 2003. A small technology -- I'm sorry early of 2000 a small technology acquisition that was done three years ago. That had an earn out that expired in February of this year and that earn out is not going to be met. So, there was an adjustment to our purchase price related to that acquisition that caused us to go about the $10m basket.

Okay. Thanks very much.

Our next question comes from John Souter from SG Cowen.

Hi. Phil can you talk in the physician services division, is there anything on the reimbursement front that as you look ahead throughout '03 that may change from positive or negative -- the trends out in the customer side and your ability to get new customers?

Nothing specific, John. Obviously, the one that we monitor closely is how Medicare reimbursement levels are and we've not seen any negative change in that for 2003. Again, I think the reimbursement for physician said in the hospital based market that we focused on, continues to be a significant focus for physicians, so that reimbursement continues, the complexity continues, people are gearing up now for the effects of [hipper] and we I think will benefit from that as physician's realized those -- particularly those doing it in house realize the cost of having to ensure the privacy and security of the information contained on their own systems. So, we are seeing again -- I was very pleased with the performance in the sales organization, the second half of the year and we expect 2003 to continue that trend.

Okay and within e-Health, what would you expect the role out of the impact of [inaudible] be throughout '03. Would it be pretty much back and loaded?

We still, you know, being guarded in our assessment of what [hipper] means for the clearinghouse. We believe that we will see some volume increase. I can't tell you what I have seen John is that people at the market place in general have been very slow in their conversions. They obviously have to file a plan by April showing what they intend to do for the [hipper] conversions, but most of the plans that we have are being very fairly slow in their conversion. I don't know what the ultimate impact would be. I do think we'll benefit from the transactions done and I agree with you it will be probably in the end of the year.

Thank you.

Our next question comes from Sean Jackson from Avondale Partners.

Hey, good morning. Real quick on the e-Health side, you know, before the phase out of this enlarged print in mail order customer, what was the size of that customer?

The size of client was in the range of $5m on annualized revenue basis.

Okay and when exactly does the stage out begin?

It began in third quarter of 2002. We began limiting the impact of it in the third quarter.

Okay and, I am sorry, it's expected to be completed first quarter of '03, is that correct?

That's correct.

Okay. And also within the e-health, you said, you were converting some of these customers from the ASP side mall to a new platform. Is there going to be, perhaps any revenue disruption because of that transition?

No. We are not anticipating any meaningful revenue disruption. Again there is a -- there is not a significant change in the revenue strength that we are given a new platform from the prior platform. It really is consistent revenue flow but very much increased functionality in utilization for our clients on that. So, there is not going to be a decline or dip in the revenue from that.

Okay. Thank you.

Our next question comes from Jane Maritimer (ph) from Ralph (ph) Capital.

Good morning and nice quarter. Phil, question on the business intelligence functionality. Could you provide a little more detail on the release date to that? Is it the incremental revolutionary and how it would be priced, and what do you expect the uptake to be from your physician day and whether anyone else has this type of solution?

Yes, sure Jane. First of the rollout really begins in the second quarter. The release of the reporting actually occurs in this quarter. We think that it’s unique, Jane, just because of the enormous quantity of national data that we have, as it relates to reimbursements of physicians. Physicians really, for the most time have only been able to take a very regional view of reimbursement. Revenue per procedure, the value of the procedures as it compares to same specialty in different regions for commercial payers in particular is a number that isn't usually known by physicians.

So, we think this is revolutionary rather then an incremental and it gives our Physicians -- Physician that we provide services to -- I think, a unique advantage when they are negotiating their contracts, when they are looking at how they can improve their reimbursements. This data across national levels, I think, gives us an advantage and gives them an advantage in improving their reimbursement. We are including it in our service, so we view this is a value proposition for our existing clients and for new clients, as it relates to either doing it themselves where they won't get access to this data or regional class, well, once again their data is focused only in that particular areas. So, its price is part of our service Jane.

Okay. Thank you. And -- quickly do you build [inaudible] particles, specifically of that headcount in sales by divisions, direct sales and marketing support?

I think the numbers for our physician services, while it refers to [inaudible] I am giving you some rough numbers; I have that. It's approximately 35 in our Physician services organization. This is a combination of management, sales folks, and marketing support. It's about the same number in our software division, and I think it's somewhere in the mid 20s for our e-health division.

Ok. Thank you very much.

You are welcome.

Our next question comes from Ali Redensky (ph) from Jeffries.

Yeah. Several questions. First of all congratulations on a very good quarter. Do you have any -- is their trial date set for the [Lloyd's] litigation? Also have you been in any discussions for this settlement? Second thing are, [absently] additional investments that you are making anyhow and the launch of the [Milwaukee] Kelloggs business; does your margins anyhow actually declining on a [inaudible] basis, and where do you see that trending? And also since it takes like 6 months before you could start reaping the benefits of your physician contracts, should we expect margins to dip slightly in the first 2 quarters of next year, given your robust new pipeline that you have got in that business and also can you give us some update of your expectation for cash at the end of the first quarter. Last year your DSOs increased markedly and your cash dipped at the end of the year first quarter. I just want to know if you expect that seasonal trend to occur again this year.

Okay. I'll try to -- if I miss any of them just let me know. Going back to the Lloyd's question. The answer is no on both of those. We don't have any [inaudible] scheduled and we have not engaged in any discussions related to the settlement. Again, we are very positively approaching and working towards a positive resolution through litigation. The loss of -- what was the question?

Number two is margin on the health.

Margin deterioration.

Are we seeing any margin deterioration?

No. Again our transaction volume is growing now. I think you mentioned that there was a mail order. It's not a mail order client that we are losing. It's a non-medical client's business, but it is related to Print & Mail. Overall margins are not deteriorating in the base of business. It's entirely impacted by the investment that we are making in our products, as well as, in future will also be impacted negatively by the conversion of the AST client base. The cash flow question that you asked. We do typically have -- first quarter is a use of cash flow. We would expect that trend to be consistent. That's driven a large part by the first and third quarter are required quarter to obtainment of our semi annual interest payment, other bonds and also due to - as I mentioned in the call seasonally there is a typically -- would see a small erosion in our days in AR but that usually starts coming back in the quarter subsequent to that. So, I think the trend in our cash flow will be consistent again with what we saw in 2002. In physician services we would expect to see some decline in our margins in the first quarter of 2003 compared to the fourth quarter of 2004. Again that relates to seasonal pressure on revenue as a primary driver in that. I don't know if I missed anything?

Just you cash balances in the first quarter do you expect your cash balances to decline by $10m?

I think that - was just pretty consistent with what we saw in the first quarter of last year. So, I think that would be generally consistent with the rents we expect.

Thank you very much.

Our next question comes from Steve Halper (ph) from Thomas Weisel.

Hi. In the fourth quarter of the operating margin on the software business was particularly high. Is there anything beyond that or is just the kind of normal push to get things installed by the end of the end of the quarter?

Yes. That's really where it is. The normal push that, you know, both us and our clients worked towards as far as meeting timetables, milestones, and objectives and what that allows, the cause of the [inaudible] is in doing that we generally would have a higher mix of license revenue in our fourth quarter than we would have in our other quarters.

And what's the average installed time on Patient 1. The new Patient1 sales?

I would say on there average speed depending on the size of the opportunity 18 months. We have implemented in 12, predominately I think it's in the 12-18 months.

Have you been successfully in new clients as opposed to the legacy you know [HDS] user base which is what Patient 1 is an outgrowth of?

I don't understand your question.

I mean are you signing new hospitals for Patient1 as opposed to taking the old [HDS] customer base and bringing them up to Patient1.

No. We do both. I mean I think the existing customer base uses our Patient 1 solution and we are selling in to new hospitals as well. So we are actually focused on doing both.

Yes. Can you give me a rough percentage of new Patient1 sales where they go, new versus existing?

I don't have that number Steve. We don't -- we haven't published the number where there are new versus existing. Most of our sales for Patient1 have been new customers, is that what you are asking for. Majority of our sales in Patient1 have been to new hospitals.

Thanks.

Next question comes from Rachel Golder (ph) from Goldman Sachs.

Thank you. First question related to the bond tender where the bonds trading right around, but there is chance? There won't be much of the take up on the tender. Would you consider buying bonds in the open market if the tender isn't taken out?

We would evaluate that. We are going to see how the tender takes place, and we would monitor based on the success of the tender any further action.

Okay. Thank you. You mentioned your 2003, estimate of the expenses for the litigation is $5m expense and then total cash flow impact of $8-9m. Does that $8-9m include the $5m expense or that the over and above?

No that includes and again the $5m is not entirely related to the cost of litigation. I see a very significant portion of that cost includes the significant increase in insurance premiums we experienced as a result of the improper recession action taken by Lloyd’s.

Okay. Great. The dismissal of Michigan suite, does this mean that they were then re-file against you in California and does that have the chance of doing the process?

I don't believe so. Again, the litigation under our filing is commencing in California and I think -- I don't believe there would be re-filing, so I believe it will commence in the venue it's now in.

But is there any part -- they instead have to counter suite against you and the claim against you and will they want to reiterate that?

Potentially, I can't answer that specifically.

Okay. And then will you just say why it's a preferable thing that this suite be tried in California over Michigan?

We did not actually do business in Michigan as Per-Se Technologies and that's the reason for the change in venue.

Okay. Great. Thank you.

Our next question comes from Sandy Draper of Robison.

Thank you. Two quick follow-ups. I don't know if you have the number Chris, but I am sorry to look more on the Physician Services side of revenue per day. Do you have the days per quarter or business days per quarter for 2003?

Yes. Nicely enough 2003, days per quarter is going to be the same as it was in 2002, and that is 63 in Q1, 64 in Q2 and Q3, and 62 in Q4.

Okay. Great. And then a follow up on the Lloyd's question. One more looking at the corporate expense and thinking that the incremental $5m on a sort of budget out is it a reasonable sort of take the fourth quarter number and starting to add on the increased numbers. I am looking you needed about $37m in corporate expenses, but obviously is it bigger on the back half? And just try to get a sense of, you know, if that's going to be a fairly stable number quarterly and we should just add the $5m or you also take beyond other expenses that may not be a straight-line number?

No, I think you could go with it fourth quarter number and probably add on to that certainly in the first two quarters of the year. Again lot of litigation is hot and proceeding aggressively in the first half of 2003.

Okay. Great. Thanks.

Once again that is "star" "1" for anyone wishing to ask a question. Showed no additional parties have queued up for questions sir.

Okay. Thank you operator. We appreciate everybody's participation and look forward to speaking with you in the future. Thanks again.

Thank you for participating in today's conference call and have a good day.