NextGen Healthcare Inc (NXGN) 2003 Q1 法說會逐字稿

At this time I would like to welcome everyone to the fiscal 2004 first quarter conference. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone key pad. If you would like to withdraw your question, press the pound key. Thank you.

Mr. Silverman, you may begin your conference.

Thank you, Mandy. Welcome to Quality Systems fiscal year '04 first quarter conference call.

I'm once again today joined by Greg Flynn, Executive Vice-President and General Manager of our QSI division; Paul Holt, our CFO; and Pat Cline, President of the NextGen Healthcare Information Systems Division. Please note the comments made on this call may include statements that are forward-looking within the meaning of the securities laws including statements related to anticipated industry trends, the company's plans and strategies and projected operating results. Actual results may differ materially from our expectations and projections and you are asked to refer to our SEC filings including our forms 10-K and 10-Q for discussions of the risk factors that could impact our actual performance. Note that the company's past performance is not necessarily indicative of future performance.

In the quarter, the company achieved record revenue performance and the company set a new earnings record. First quarter record totalled $16.3 million, up 33% over the prior year and earnings per share at 35 cents share exceeded the prior year by 35%. As noted in our press release, the quarter's top and bottom line results were largely driven by stock performance at our NextGen Healthcare Information Systems unit. The $12.2 million in revenues es obtained by the division for the quarter represented an approximate 50% increase on a year-over-year basis.

Operating income at NextGen came in at 62% ahead of the prior year's figure. Our EDI unit narrowly set a revenue record and at $1.9 million showed growth of 16% on a year over year basis which incorporated 79% year over year growth at NextGen and flat year over year performance within the QSI division. The QSI's division revenues of $4.1 million were lower than levels obtained in prior quarters and off of our internal standards. Gross margins were improved versus prior quarters however and the improved the growth margins and continued restrained spending in the division helped the division's operating margin which came in at 26% move closer to our historical levels.

Corporate expense came in at approximately the levels of the prior two quarters. This quarter corporate expenses were driven in large part by higher professional services expenditures and as well as higher insurance cost. Cash and cash equivalents increased to a record $39 million during the quarter, up from $36.3 million in the prior quarter. Average head count for the quarter was 271, which taken with the quarter's revenue count generated an annualized revenue per employee figure of 234,000 a year, also a record. There were no stock repurchases during the quarter. Since our last call, the company gained inclusion into the Russell 2000 index.

Also, since our last call, one of our directors, Emad Zikry, announced his resignation from the board. Subsequently Mr. Zikry asked to be considered as a candidate to fill his own vacated board spot and the board's nominating committee recommended and the board of directors approved Mr. Zikry being placed on a slate of directors to be voted on by shareholders at the company's annual meeting which has been scheduled for September 24, 2003.. As a result of Mr. Zikry's resignation from the board, Bill Small an existing director, has joined the board's audit committee.

The performance of the company for the quarter and in particular the performance of the NextGen division exceeded our internal expectations. I want to thank all members of our team for their individual and collective contributions to our results. I also want to take a moment and clearly point out to current and/or prospective investors that while we are extremely pleased with the quarter's performance and while we remain committed to working hard, there are absolutely no guarantees that the company or either of its divisions will sustain or exceed the type of performance turned in during this quarter.

I will turn the call over to Paul Holt, CFO, for additional financial texture on the quarter.

Thank you Lou and thank you all those who are joining us today.

This quarter characterizes one of our strongest ever in terms of growth in systems sales revenues which grew to $9.5 million this quarter, an increase of 32% compared to the prior year and 8% over the prior quarter. Our performance in this category was driven by record growth from NextGen on a dollar basis and near record growth on a percentage basis. Systems sales in the NextGen division grew 21% during the quarter to $9 million compared to $7.4 million last quarter. Our [indiscernible] and "other" revenue for the quarter was up to $6.8 million, up 16% compared to $5.8 million reported a year ago. On a year-over-year basis, NextGen experienced strong growth rate and maintenance and EDI [ph] revenues; however, the lack of growth from the QSI division tempered the overall growth rate in this category. Our gross profit margins this quarter came in around at the higher end of our historical range at 59 1/2% of revenue. As I've often mentioned in prior calls, the primary factor influencing our gross margin percentages is the level of hardware and third party software content included in our system sales.

SG&A as expense of revenue was slightly lower at 29.1% this quarter compared to 29.8% in the prior year. Total SG&A expense increased to $4.7 million this quarter compared to $3.7 million a year ago. The largest contributor to this increase in SG&A expenses was increase in selling related expenses at the NextGen division as well as the higher corporate related expenses.

R&D expense came in $1.4 million compared to $1.1 million a year ago. All of the actual increase in the R&D expense was related to the NextGen division. Our effective income tax rate declined to 38.3% this quarter. This compares to 39.4% a year ago. As was discussed in recent quarters, the company is taking research and development tax credits which are resulting in a lower effective tax rate.

Moving over to divisional performance, as Lou mentioned we were quite pleased with the NextGen division reporting [indiscernible] quarterly revenue and operating income numbers.

The dental division reported its revenue up $4.1 million and operating income of $16.4. As Lou has mentioned, higher gross profit margins at that division helped them to continue to provide a significant contribution to profits.

Moving on to the balance sheet, I'll just highlight three areas. Our average day sales outstanding moved up a day to 107 days this quarter as compared to 106 last quarter. And for those of you who are tracking this, our data sales by the division are 73 for the QSI division and 118 for the NextGen division. Although our cash collections activity during the quarter was strong, the company sold a significantly higher amount of new contracts for services and software this quarter resulting in both higher receivables and deferred revenue balances. And our increase in our DSO number is attributable to the increase in deferred services which are recorded both in receivables and deferred revenue. Total deferred revenue stood at $14 million at the end of the quarter.

Quarter end cash, as we mentioned, was $39 million or $6.33 per share. This compares to $36.4 million just one quarter ago or $5.92 a share. Company generated $3.2 million in cash from operations this quarter. For those of you who are tracking this, our non-cash expenses for the quarter break down as follows. Amortization expense $63,000 for QSI division, $291,000 for the NextGen division for a total amortization expense of $354,000. Appreciation expense, $42,000 for QSI and $176,000 for NextGen, a total of $218,000.

Our investing activities for the quarter were as follows. Capitalize software $76,000 for the QSI division. And $549,000 for NextGen, $625,000 total. Fixed assets, 3,000 QSI and 172,000 for NextGen for a total of $175,000.

I'd like to thank all of you for being on the call and your interest in our company. I'm going to turn things over to Greg Flynn Executive VP and General Manager of our QSI division will provide an update on the QSI division.

Thank you, Paul. Good day to you all.

As mentioned, revenues for the quarter were approximately $4.1 million. Despite the somewhat lower revenue versus last quarter, profitability for the QSI division for the quarter was virtually comparable to the prior quarter due to positive mix of hardware and software within our sales. As I have said before, QSI's mix of hardware and software is variable quarter to quarter and is, of course, driven by our client's needs.

On the EDI front we continued our growth trend with revenues reaching a record approximate $1.95 million for the quarter. This represents a year over year growth of approximately 16% for the quarter and I believe of greater significance a year over year growth of approximately 79% for sales of BDI to the NextGen division client base.

We continue to view the NextGen base as a fertile avenue of sales for EDI. As you know, the company's EDI function is implemented and facilitated out of the QSI division. To note on the product sales front, there were several upgrades again in this quarter of our CPS product among existing users. Also, again QSI continued its client sales penetration with our data minor reporting software and enhanced user interface screens. Additionally we have a number of new product ideas on our development drawing boards.

QSI's sales pipeline again remains virtually unchanged at $3.75 million. We define our pipeline of sales situations where QSI is in the final three based, in our judgment, of purchase choices and we believe that the sale will occur within 180 days. Our sales staffing level also remains unchanged.

As always, I would like to thank those of you on our call for your interest and support of our company. Now I would like to turn the discussion over to Pat Cline, President of our NextGen sales division.

Thank you, Greg. Hello, everyone. NextGen has now set a record in every quarter dating back into calendar year 2001 and we are very proud of our continued performance. Last quarter NextGen signed 42 agreements. 38 of these agreements were with new customers. The company's moving along very well with respect to a number of new product development initiatives and we are very excited about our progress in this area. Our sales force remains at 22 and we have another new sales rep next week. Our pipeline is presently at $31 million. This number represents the total value of prospective deals that we are tracking where our confidence level is 50% or better that the customer will buy NextGen within about 120 days.

In closing, I would like to say thanks again to the NextGen team for delivering another record performance.

Operator, we are ready for questions.

To ask a question, please press star then the number one on your telephone key pad. We will pause for just a moment to compile the Q&A roster.

Your first question comes from Alfred [Indiscernible].

Hello, can you hear me?

Yes.

Fine. First of all, congratulations, super quarter, very strong in all areas. Balance sheet and P&L looks great. From that standpoint, I have a couple of very small kind of nit-picky questions. One of them, looking at the balance sheets, I wonder why the major swings in the inventory between quarters. Is that third party type of stuff that you have and then ship out?

Yes. We sell hardware and third party software and that just has to it with the timing of transactions if we are carrying inventory. We generally don't carry a whole lot of inventory.

That's a simple one. Secondly, beautiful gross margins. They have been improving each quarter here. At some point you can't keep going up like that. What do you feel the future looks like on the margins and how about competition there?

We historically reported on our calls that the margins stay in a reasonable band and they kind of move within that band quarter to quarter based on our sales mix. We have been resolute in not providing any particular guidance in terms of where we see the gross margins moving. We have tried to at least suggest that there seems to be a band and it is variable with the mix of our sales and that's what history has proven out.

Well, thank you. They have been very, very consistent but always looking better. Last question which is on the balance sheet again an area that I'm not too familiar with. Under your current liabilities you list the deferred revenue or I think you called it the fast deferred service revenue. How do you actually -- what is that and how do you actually handle it. How do you amortize and get rid of it?

Deferred revenues come principally from two areas. Implementation and training services which relate to our software. Those are services that we have sold as part of our sale of software. And we have not rendered those services quite yet so those have to remain in deferred revenue. As those services are rendered, they are amortized into the income statement. They also come from maintenance which we will bill in advance and so if we are billing that in advance, we can't call that revenue until the maintenance period has expired. So as the period expires, the debt will be amortized into the income statement.

Okay. Thanks a lot. Appreciate it and good job.

Thank you.

Your next question comes from Brendan Oston. [ph]

Hi, guys. Congratulations. That's obviously the stock's telling you you surprised a lot of people this morning.

Thank you.

A couple of quick questions. You guys ran off a bunch of numbers that I didn't get all of them. What was the head count QSI versus NextGen?

We didn't break that out. We have historically give an total company head count.

Did you break out your operating margins out of NextGen? I know you gave us the operating margins for QSI.

We can. NextGen was, to be exact, $3,359,999 in operating income.

Which amounts to -- that's about 25% roughly?

Yes, 3,359 -- thank you.

We talk a little about the QSI division. It's been a rough spot the last couple of quarters. If you backed out the NextGen EDI part of the business QSI by my calculations would be down -- what would that be, $300,000 from Q1 of last year? What are the issues facing you guys there and is that expected to persist?

The numbers I reported we do not include the NextGen EDI. That's included within the NextGen division. To answer your second question, the factors that we are facing in the marketplace is continued challenge within the consolidator market if you watched that at all. Those are the large dental multi-groups, if you will, that have had -- I guess financial challenges is a best way to term it.

Also on the EDI side, NextGen was like $700,000 and dental was a million two?

The specific numbers I'm showing are 1.34 for the QSI division and just shy of $600,000 for the NextGen division.

And to just two questions on NextGen and then I will see if I can circle around later. On the NextGen, practice management versus electronic medical records management, what's driving the sales right now? Is there sort of -- is it still a 50/50 split? Last quarter you said you were kind of 60/40 in favor of practice management. What's driving the division and still seeing the same drivers in EMR. I know [Indiscernible] were talking about it and something about there is a new standard coming in 2004, in that area. Maybe you can talk about what's going on in that sector?

At a 50,000 foot level we see the mix as reasonably stable, close to 50/50. In the quarter that we just reported and probably in the current quarter, we will tend toward practice management, I think, a bit little more than electronic medical records because of what's going on with the HIPPA transaction standards and compliance state which is the middle of October. A lot of people have older legacy practice management systems are struggling to catch up to comply with those standards. We have a number of new customers with accelerated implementation programs, I will add. With that said, the MR market remains very strong, a lot of interest. There is a lot of government focus and industry focus on it. And the market is heating up. On a go-forward basis, certainly as we get through October we see nothing but good things there.

And then last area here, just has to do with business model scaleability on the NextGen side. The last quarter I think I asked you guys, can you keep growing this area at 40% and you said, you know, you think so. And I know there is a professional service aspect to the NextGen sales and I'm just -- I'm curious. You managed to pop back up 50% huge base over what you did in Q4. How much business can you actually do in a quarter with the amount of people that you have at this point?

We think we do have scaleability. We are always strained for people as any young rapidly growing company is. People are obviously a very, very important resource. We are hiring and training and retaining as best we can. With that said, we don't see implementations in training as a big bottleneck. We aren't upsetting customers because we can't get to them. We think we are balancing our resources very, very well. To scale much faster would require an increased focus on rendering services in unique ways and we are doing just that with more web based training, automated training, classroom training, third party relationships and leverage as well as we need to. So we are pretty confident in our ability to scale this thing.

You don't feel restrained in anyway?

We don't.

Thanks a lot guys. I will circle around.

Your next question comes from Sean Wyland.

I wanted to dive into NextGen and the that were 42 deals signed. Can you give us an idea of average deal size, how many average number of physicians per practice that you are signing and what's the minimum and maximum there? Can you tell us how many of those deals included in the MR and how many of them were just practice management?

Shawn, this is Pat. I don't have that data in front of me. I would be happy to provide it. Paul, can you add anything?

I don't have it right in front of me either. I could tell you we had -- but, the quarter we had some large deals and some medium sized deals. It's hard to characterize every quarter we will have a mix of deals, some larger and some smaller.

Okay. How many of the deals are under this fast track implementation to get live by the HIPPA by October 16th.

I would say 5 and 10. That's reasonable guess.

When is the deadline, if you will, for if you haven't bought by such and such a date we can't help you out by October 16th?

We have not set a deadline, though we have created some unique fast track programs. I think we may be signing deals as late as the end of September with an implementation to go live date in the middle of October. I'm using the Y2K time frame as my guide. During the Y2K time frame, we brought practices live within weeks of their contract and not months and years.

Do you see -- what's your outlook on terms of number of deals going forward? Do you think it may continue to accelerate up until HIPPA and then level off or decline a little bit? Do you have sense for that gauging by the $31 million pipeline?

I don't think it will increase dramatically up until HIPPA and I don't think it will decrease dramatically afterwards. HIPPA is helping to drive some sales on the practice management side, but we have a very strong base of prospects on the medical records side. Even customers that don't have a HIPPA issue but are looking longer term on the practice management side.

Paul, just a quick question for you. What was the software R&D capitalization rate for last quarter? It looks like 31% for this quarter.

I gave out what we capitalized --

You did 625 this quarter. Do you remember what you have did last quarter? If you don't know off the top of your head, that's fine.

In total it was about 468,000 last quarter.

Okay. Any reason for the increase there?

We have some as Pat was mentioning, we have some on-going projects, some relatively new projects that we've initiated to further enhance the product that is driving some of that increase.

Okay. Lou, there is an update on -- last quarter you were talking about this two quarter or six month project that you were working on that would increase the expenses for a certain period of time. Is there any update on that?

Just to correct, I think -- how I phrased it. I mentioned the corporate expenses were up and I mentioned that for the last couple of quarters and I mentioned the increase was driven in some portion by our corporate projects that I was not going to elaborate on. And at this point I would say that I would continue to hold that position that I won't be elaborating on that topic, but I will say that our corporate expenses, as I mentioned at the outset of the call are up, and they are up for a variety of different reasons. As many people can appreciate things like insurance costs that are going up. We continue to have increased calls in our resources from our professional service relationships and so, where I am at this point, I don't want to be in the business of giving guidance on any element of our numbers because they are all certainly variable. I do think that given what I have seen over the last few months that corporate expenses are likely to remain at higher than historical levels on a go forward basis. Exactly how high is hard to say.

Thanks a lot and great job on the quarter.

Your next question comes from Andrew Shapiro.

If you could clarify because we were under the understanding over past quarters the inclusion of EDI was in the QSI division and Greg just said that NextGen EDI is accounted for into the NextGen revenues. Is this a change in policy? Or has it always been this way and just communicated -- how does it work? You have $1.9 million in EDI broken out with 600 and 1.34 as you mentioned.

This is Paul. Now, we have always done it that way. We have always added NextGen's customers belong in NextGen and they were accounted for in the NextGen division.

The 600,000 is in the 12.2. Is that right? And the 134 is in the 411?

Yes.

Yes. It's that way historically so we can change our formulas and spreads here? Is that right?

Yes.

If I understood you correctly in your script, you said director Zikry resigned and then came back on to the board. Could you elaborate more on that strange behavior?

Let me clarify and let me not put value terms on it. Clarification is that he did resign from the board and then requested that he be considered to fill the then vacant board seat. So to be absolutely accurate about it, he is not currently a board member, but he is on the slate to be considered by shareholders when they vote on the nominees for the board in concert with the shareholder meeting to be held in late September.

How long was he off the board and isn't an 8-K filing required when a board member resigns?

He resigned from the board at the very end of May, if my memory serves, and we operated with -- in lockstep with our counsel in terms of what the filing requirements are and to the best of our counsel's knowledge and therefore ours, there was no filing requirement on that item.

That's surprising. Okay. And move to the audit committee, Zikry is no longer on the board at present but the nominating committee has added him to the company nominated slate, is that right?

That's accurate.

The revenues for the quarter had really nice growth relative to last quarter's revenues, but it was a little surprising since we have had SG&A running at a higher level than normal for the underdisclosed reasons that you have summarized to see that the SG&A levels had to rise at basically a faster pace than even the revenues rose quarterly in that SG&A's higher percentage of revenues this quarter in June versus the March quarter. Is the accelerated increase in the SG&A expenses related to these undisclosed strategic professional service things? Or were they related to the insurance side. Has insurance risen -- rising faster than your sequential revenue growth?

Paul may have additional comments on this. Basically, in his prepared comments, Paul went through the fact that there were a number of drivers to be increased in SG&A expense. So we have added head count. We -- when you have a good quarter you are selling expenses go up and those are good things.

Those are variable, right?

But in SG&A.

Yeah.

Yes, that is all correct.

But what I'm getting at is last quarter SG&A as a percent of sales is 28.3%. This quarter SG&A as a percent of sales 29.1% meaning the SG&A went up at a faster pace than your sequential revenue growth.

Correct, yes.

So I'm trying to get a handle in terms of where the costs are rising at such fast sequential pace.

This is Paul. Commission expenses are variable. We had a slightly higher even commission rates, so to speak, because those things move around as well. You have to factor that in. So that would explain some of this.

And is the undisclosed professional fees, have they accelerated and are they at a higher pace than they were last quarter?

I would like to once again try do a clarification here, Andy. There are -- in the prior quarters I had mentioned, again, among a number of factors driving corporate expenses was a corporate project that I was not prepared and am not prepared to comment on. And in this quarter I mentioned that we did have some increases in our professional services fees. I didn't intend to have those two linked.

Oh! And then the costs that are regarding those other activities they continue still at present?

They continue. The amount will vary a little bit in here.

Were they higher this June quarter versus the March quarter?

I am not prepared to comment on the granularity.

I guess I'm expressing a little bit of disturbance with the increase -- with such nice revenue growth to have the increase in the SG&A side be in excess of that chews into the scaleability or the economy as a scale that we expect or hope to see from this business.

Certainly, members of the management team are aware of that phenomenon. While there are no guarantees in terms of exactly how each quarter comes in, we are now and we have been working very hard to at least attempt to make sure that we are leading with revenues and following with expenses rather than vice versa. We do have places where we have needed to increase our head count or increase our spend level and we have tried to do that in a way that's respectful of our shareholders and all of that.

It appears that in R&D, that goal is actually being achieved.

Well, I appreciate your sense of that.

R&D it's being achieved. Just the SG&A side -- you haven't had any reallocation from R&D into SG&A at all?

Our methodologies have been consistent.

Hopefully you get your SG&A line to be operating like your R&D line. Thank you.

Your next question comes from Mike Crawford.

Pat, I think you said that EMR -- EPM revenues were about equal this quarter.

I commented more in general that I think it's been running in a range for the last few quarters.

Okay. And regarding the pipeline, you said your four month pipeline is $31 million. How many deals? Do you break it up by number of potential deals as well?

We have that data internally, but it's not a number I care to articulate on the call.

How about how many deals or what percent of deals shelled out in the pipeline last quarter?

I don't have that information in front of me. I'm sorry.

I can tell you that my guess on the number of deals in the pipeline might be somewhere between 80 and 100.

Okay. So that would -- and the pipeline last quarter your four month pipeline at that time, do you remember what it was? I think it was about the same. Okay. I think that's it for the NextGen side. On the QSI side, how is it all do you feel that business is affected by Eastman Kodak's proposal to the purchase of Practiceworks?

We rarely competed with Practiceworks on practice management system purchases. When I say rarely, there typically in the very low end of the market. I certainly don't want to tout, but I do view their purchase of Practiceworks as an affirmation actually of the clinical products suite that we offer. I think Eastman Kodak is looking at their lost revenue of sales of film based on the new type of delivery of the clinical products suite, the digital radiography and that's a similar product that QSI offers. I think you are seeing somebody else buying into the concept.

So, in other words that Practicework's acquisition of trophy. That that technology is similar to what you use in CPS?

Yes, it is.

Okay. Thank you. And then the last couple of questions, I guess, are for Lou. Perhaps the board. Has the board considered or how do they weigh on a 3 for 2 stock split to increase the float?

Mike this is Lou. Hard for me to speak for the board as best I know there hasn't been any discussions in any material way of a stock split but that's best as I know.

What about this growing cash level? Is the board prepared to address what to do with this? $39 million earning -- I don't know what it's earning, 1%?

Thereabouts.

That's -- I don't think that word care to invest in a bank. If that business is growing rapidly and just seems that there is -- that cash should either be dividended back to investors or deployed. In that regard, Lou, what's the status of your kind of M&A analysis that's been ongoing for almost a year now?

Few questions there. Let me see if I can give you it back in some reasonable order. In terms of any acquisition searches that I'm working on, the work is ongoing. I would say at this point have -- the number of new or good ideas flowing in has really trickled down a lot from perhaps 6 or 9 months ago. I'm still out there looking and consistent with how I've described the activity in the past. Relative to the cash position of the company as we have said historically, it's cash -- we certainly look at that as an asset. We -- better to have it than not have it.

Your point is certainly understood by the management team in terms of making sure that there are diligent discussions at the board level about the best use and treatment of that cash and again, I elect not to speak for the board.

I know that the topic of what to do with the cash has been brought up from time to time by a variety of sources to the board including management. And that's as good as I can tell you right now. That's not to say that there is anything imminent that I know about. I know the board continues to -- they are aware of the cash position. They are aware certainly of what alternatives exist in terms of uses for the cash. And it is my belief that on a regular basis, the board takes inventory of cash and the alternatives and that's where we are.

And then Lou, final question, would you characterize this quarter as one of unusually high percent of software sales? Or would you expect going forward for you to have a similar mix that would -- with it running higher gross margins?

The -- on the growth margin question specifically, again, without providing guidance, the best I would say is that we have operated in the past within a reasonable band. I don't know if we could call it narrow, but it's a discernible band. Without giving any specific guidance or guarantees that we will always stay in that band, I have to suggest that we will stay in that band and I think the fact is that our mix -- our revenue mix from quarter to quarter is subject to a lot of different variables. Many of which we don't control.

I think it's difficult for me to try to definitively tell you that it's coming quarters will be in a different proportion than what we had in this quarter or any other quarter. We are out there working as hard as we can to close deals. Our implementation staff is rendering hours to the best of the collective abilities of our staff and our customers ability to implement quickly. And we have all cylinders working as hard as they can and it's very hard for me to project with any confidence what the mix is on a go forward basis.

Thank you.

Your next question comes from Gene Manheimer [ph].

Good morning, guys. Great quarter. Most of my questions have been answered. If I can get your comments on perhaps the competitive landscape out there, who you are seeing in the finals of competitive bids and are you seeing any less of Epic given they should have their hands full with their Kaiser implementation?

No more change in the competitive mix. We are seeing Epic a little bit less. I would agree they have their hands full and once again congratulations to them on that deal that is filling their hands. And I will say thank you to them for helping us out. We are seeing GE a little more. They recently beat us in a competition that was very price sensitive. We're continuing to watch them. But have no fear of them. Not seeing Amicor [ph] very much. We see Mysis [ph] from time to time on the EMR deals. Acor, [ph] Allscripts, [ph] PMSI on the EMR side. On the practice management side, all the usual suspects, Mysis, GE with the product they acquired from Melbrook, [ph] Medical Manager and many, many others.

Okay. And the deal that you lost to GE, was that a combination of Medical Logic and Melbrook.

I believe that one was just on the EMR side.

Thank you very much.

Your next question comes from John Feltch. [ph]

Hello?

yes, we are here.

Sir, you may proceed with your question.

I have a quick follow-up to the Kodak question. Are you expecting to see any merger activity increase there? Is there any increased interest level in QSI? What can you say about that market? I understand Kodak's play there, will be there any competitive reaction among their competitors?

There is certainly consolidation already within the industry if you look at it over the last five years. I don't see any increased trend per se based on them.

And just about everything else has been asked. I appreciate it. Thank you.

Your next question comes from Brandon Osten.

Just on clarification when you broke out amortization and depreciation, is amortization is that all software amortization?

Yes.

And that's all the capitalized software amortization there was in the quarter?

Yes. That's correct.

Okay. Thanks a lot, guys.

Your next question comes from David Specter. [ph]

Most of my questions have been asked. I wanted to ask going back to the competitive situation. In the deals that you have been winning that have been competitive, can you identify the key factors? Is there a pattern to why you think you are winning those deals and the flip side will be when you would occasionally lose one, like the GE deal, what's the key factor?

When we win, it tends to be because of product capabilities. We have a product mix that we don't think any of our competition can touch both on the EMR side and on the practice management side. We think we got a lead of 18 months or so on our competition. When we lose, it tends to be in a very price sensitive deal. A competitor may come in and sell something for $2,000 or $3,000 per doctor where our price might be $7,000 or $8,000 per doctor. We do a reasonable amount of discounting, but we aren't willing to go to the levels that many of our competitors are willing to go to.

Right. On the 42 deals that you did in the quarter, how many of those were competitive and how many do you think you were the only one being considered?

Very rarely would we be the only one being considered. There may be one or two deals out of that number where we would be the only one being considered. Just about all of our deals are very competitive.

Okay. Thanks a lot.

Thank you.

Your next question comes from Corey Tobin.

Good morning. I want to clarify a couple of points. You said there were 42 contracts. Was it 38 you said were for new customers?

Correct.

I know you said you don't have the average deal size. But do you have a 42 how many were EMR versus PM versus both?

I don't have that information in front of me. When we looked at it which was close to the end of the quarter, it tended to be in the same kind of band which is roughly half of the deals that we do tend to be both, and the remaining is pretty well mixed between practice management only and EMR only.

And then finally with respect to EDI, do you have a feeling for what percentage of the NextGen customer base you are currently providing the EDI services for? Or asked another way, what percentage of your customers use you for EDI services?

In answer to that question, it's a little broader because we provide a number of services. I can tell you we feel our penetration rates without giving you exact numbers are still reasonably low within that customer base.

Reasonable, as in less than 50%?

Yes.

Greg, you might correct me if I'm wrong, but my guess is that we are under 25%. Do you think that would be accurate?

Yes, I believe that's true. Why I'm a bit hesitant on the answer is we offer a variety of services and any one customer might be using a small percentage of those services. But, yes, it would be less than 25%.

And to be clear, that's just on the NextGen you are speaking, right? Great, thanks.

Your next question comes from John Feltch. [ph]

Sorry about the problem with the phone on the last one. There are a huge number of government standards that will be coming out in the next 12 months that might impact your EMR business. The standardization of an intra-operable electronic health record, NIH license for snowmed [ph] et cetera. Do you see this changing your products mix or develop cost or the scaleability of your business in anyway?

We don't. We're very, we think, fortunate to have the government focusing and increasing their focus on electronic health records. We really like what they are doing. We participated in many of the discussions and meetings that their direction has been I think shaped from. So we were excited about it.

Thanks a lot.

Thank you.

There are no further questions at this time, sir.

We would like to thank all who joined us on today's call and look forward to chatting with you again in the fall. Thank you.

Thank you for participating in today's conference. You may now disconnect.