NextGen Healthcare Inc (NXGN) 2005 Q1 法說會逐字稿

Good afternoon. My name is Latoya, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Quality Systems First Quarter Fiscal 2005 Earnings Conference Call. All lines have been placed on mute, to prevent any background noise. After the speakers’ remarks, there will be a question and answer period. (Caller instructions.) I would now like to turn the call over to Louis Silverman, President and CEO of Quality Systems. You may begin sir.

Thanks Latoya. And welcome everyone to Quality Systems First Quarter Fiscal 2005 Conference Call. Paul Holt, our CFO; Greg Flynn, Executive Vice-President and General Manager of our QSI Division; and Pat Cline, President of our NextGen Healthcare Information Systems Division, join me on today’s call.

Please note that comments made on this call may include statements that are forward-looking within the meaning of the securities laws, including, without limitation, statements related to anticipated industry trends, the company’s plans, products and strategies, and projected operating results. Actual results may differ materially from our expectations and projections.

And you should refer to our SEC filings, including Form 10K and 10Q, for discussions of the risk factors, management’s discussion and analysis, and other information that could impact our actual performance. We undertake no obligation to update such projections or forward-looking statements in the future. Please also note that the company’s past performance is not necessarily indicative of future performance.

For the quarter, the Company set new revenue and earning records. In the June quarter, revenue totaled $20.1m, which was up 23% over the prior year. Fully diluted earnings per share at $0.51 exceeded prior year by 46%. The quarter’s top line results were driven by record revenue performance at NextGen. The $16.1m in revenue attained by the Division for the quarter represents a 32% year over year increase. The QSI Division had quarterly revenue of $4m in the quarter, which represented a 2% year over year decline in top line performance for the Division.

Company profitability was driven by strong bottom line performance at both the NextGen Division and the QSI Division. Gross margin percentage for the Company is slightly less than 60% for the quarter. It came in at below the level for the March quarter, but certainly at the high end of our previous historical band.

Operating income at NextGen came in at a record $5.2m, 55% ahead of prior year performance. QSI Division operating income came in nearly 16% ahead of the prior year, so not quite at record levels. That was significant profit performance at the QSI Division in the context of a 2% decline in year over year revenue.

Quarterly operating margins were strong at both divisions. Each division came in at approximately 32%. Our EDI unit set a revenue record. And at $2.3m Company-wide, EDI revenue for the quarter was 18% of prior year. Year over year EDI growth of 78% in the NextGen Division offset a 9% year over year EDI decline at the QSI Division. I will once again remind participants that EDI revenue is reported as part of divisional totals each quarter. As a convenience, Paul Holt will break out divisional EDI totals later in the call.

Corporate expenses for the quarter at $994,000 came in at approximately 19% over prior year levels. Cash and cash equivalents increased to a record $54.9m during the quarter, up from $51.4m in the prior quarter, and $36.4m in the prior year. DSOs increased on a sequential basis to 104 days from 99 days at fiscal year-end, but were lower than the 107-day figure for the prior year. Collections activity remained strong during the quarter.

Head count at quarter end was 339, which, taken with the revenues for the quarter, generated annualized revenue per employee of $238,000, which is not far off our prior high mark levels. There were no stock repurchases during the quarter.

The Company filed its Proxy Statement on July 28 of this year. The Proxy Statement contains the Company’s proposed Director slate, which includes five new non-management, Independent Director nominees, as well as returning Directors, Sheldon Razin and Ahmed Hussein. Topics related to executive compensation remain an important area, requiring continued focus by the Board’s Compensation Committee. Some progress has been made in this area relatively recently. And the need for sustained progress remains.

The Company continues to be invested in cash and highly liquid short-term investments. And there is nothing new to report on the present Board’s position on the utilization of its assets. Our management team continues to evaluate acquisition opportunities. And while we want to continue to reiterate our strong desire to not commit to completing an acquisition, we continue to review and evaluate opportunities that make strategic and economic sense for the company.

During the June quarter, the Company met with investment professionals in Montreal, Toronto, Denver, and Portland, Oregon. The Company has accepted an invitation to present at the upcoming Roth Capital conference scheduled in New York City during the month of September.

In closing my prepared comments for this morning’s call, I’d like to point out that the performance of the Company for the June quarter continues a series of quarters where our performance has exceeded our internal expectations, at times by a very wide margin. I want to again express my thanks to the entire team for their contribution to the Company’s results for the quarter.

I also want to, again, clearly point out to current and/or prospective analysts and investors, that while we are extremely pleased with the quarter’s performance, there are absolutely no guarantees that the Company or either of its divisions will exceed or even sustain the level of performance turned in during this quarter during future periods. It is possible that the quarter’s performance will encourage investors or analysts to set new short, medium, or long-term expectations for the Company.

In response to this possibility, please continue to note that we do not give our financial guidance to the investment community, and we do not comment on the guidance advanced by members of the financial community. I will now turn the call over to Paul Holt, our CFO, for additional financial details on the quarter.

Thanks Lou. This quarter reflects the continued growth in both of our revenue categories – system sales and maintenance, and other revenues. Consolidated system systems came in at approximately $11.1m this quarter, representing a 17% year over year increase, while maintenance and other revenues came in at $9m, an increase of 32% compared to the prior year quarter.

As Lou mentioned, our gross profit margin this quarter came back to the higher end of our historical range, at 59.8% of revenue. This margin percentage was slightly higher than our margin percentage from a year ago, which was 59-1/2%. However, it also represented a drop from last quarter’s 62-1/2% margin.

SG&A expense as a percentage of revenue was somewhat lower this quarter, at 24.6%. That compares to 29.1% in the prior year quarter. Our total SG&A expense on a hard dollar basis increased to approximately $5m this quarter. That compared to $4.7m a year ago. The primary contributor the increase in SG&A expenses was higher general corporate expenses, which grew by approximately $161,000.

A $268,000 increase in SG&A expense at NextGen was partially offset by a $216,000 drop at the QSI Division. R&D Expense grew 18% compared with prior year quarter at $1.6m. That compares to $1.4m a year ago. Most of this increase in R&D expense was related to increased investment in the NextGen Division product line.

Our effective income tax rate this quarter was significantly higher compared to a year ago, at 39.4%. That compared to 38.3% a year ago. Our rate this quarter, and our rates in general, are impacted by a proportionally lower amount of R&D tax credits reflected in this quarter’s tax provision.

Moving over to divisional performance, based on the increase in both system sales and maintenance and other revenue, the NextGen Division reported its highest ever quarterly revenue of $16,149,000. That represents a 32% increase over the year ago quarter of $12,242,000. System sales in the NextGen Division grew 18% on a year over year basis, to $10.6m, compared to $9m a year ago.

Maintenance and other revenue in the NextGen Division grew 70% year over year to $5.6m, compared to $3.3m in the prior year. The increase in maintenance and other revenue this quarter was driven primarily by the continued growth in the NextGen base of installed users, which drove maintenance and EDI revenue in that division to higher levels. NextGen maintenance revenue totaled $3.8m this quarter. That’s up 73% from last year’s $2.2m, while NextGen EDI revenue grew 78%, to $1,060,000, compared to $596,000 a year ago.

NextGen’s operating income of $5,194,000 represented a 55% improvement over the year ago quarter operating income of $3,359,000. The Dental Division reported revenue of $4m, and operating income of $1,264,000. QSI Division EDI revenue was $1,228,000 for the quarter. That compares to $1,342,000 a year ago.

Moving on to the balance sheet, I am going to highlight, as I normally do, three notable areas – receivables, deferred revenue, and cash. Our DSOs moved up 5 days to 104 days this quarter. That compared to 99 last quarter. This DSO number is still a comparatively low figure, compared to our recent history. And, for those of you who are tracking this, our DSOs by division were 99 days for the QSI Division, and 106 for the NextGen Division.

Reflecting the growth in the customer base of NextGen, our deferred maintenance and services revenue grew by $2.1m this quarter, to $19.4m, compared to $17.3m at the start of the quarter. Our quarter end cash grew by approximately $3-1/2m, to $54.9m. That equates to $8.63 a share. That compares to $51.4m, or $8.13 at the end of last quarter.

For those of you who are tracking this, our non-cash expenses for the quarter break down as follows. Total amortization expense - $418,000. That’s $58,000 for the QSI Division; $360,000 for the NextGen Division. Total depreciation expense - $225,000. That’s $40,000 for the QSI Division, and $185,000 for the NextGen Division. We also incurred a non-cash expense related to deferred stock option compensation of $107,000.

Our investing activities for the quarter were as follows - $542,000 in capitalized software; $45,000 for the QSI Division; $497,000 for the NextGen Division. Fixed assets - $426,000. That’s $5,000 for the QSI Division; $421,000 for the NextGen Division. I’d like to thank you all for being on this call, and your interest in our company. I am going to turn things over to Greg Flynn, Executive Vice-President and General Manager of our QSI Division.

Thank you Paul. Good day to you all. My comments will be relatively brief, since QSI Division numbers have already been reviewed in some detail. While I would have liked to have seen increased revenues in the quarter, I am pleased once again by the division’s strong income contribution to the Company’s overall performance.

On a comparative basis, operating income at the division improved over the prior quarter, as well as the same quarter of the prior year. Diligent cost containment and our mix of software/hardware sales, among other components, aided these results.

Of course, I am pleased as well on the growth of our EDI sales to the NextGen Division client base. As we have noted on previous calls, these EDI services are provided through the QSI Division. Significant other events in the quarter were sales of our data miner report writing product, strong sales of our laser forms products, record quarterly sales for our QSI scan offerings, and continued sales of our EUI user interface product.

While revenue generation from these types of add on sales is typically nominal, these sales are key in further tying our existing client base to QSI. Each of these offerings also maintain a technical freshness in the marketplace for QSI. Also of note in the June quarter, the QSI Division was chosen as one of three vendors to participate in a pilot dental software program with the Indian Health Service, that’s IHS, which his a branch of the US Armed Forces, the government.

The initial pilot contract utilizes both QSI practice management and clinical software. Implementation is currently underway. If a pilot moves forward to full national deployment, the contract for the winning vendor will likely be a large multi-year award. As always, let me comment on our sales staffing and pipeline. Our sales staffing remains unchanged from last quarter. And our pipeline remains at $3.9m. Our pipeline is defined as sales situations, where QSI is in the final three purchase choices, and we believe that the sale will occur within 180 days.

On a more personal basis, I observed recently that the 10th current QSI Division employee has marked their 20-year anniversary with the Company. Though still young, I admit that I fall into this group. I would like to take this opportunity to acknowledge each of my co-workers, long, medium and short-term, for their efforts, commitment, and loyalties – key ingredients to the success of the division and the Company. Thank you again. I appreciate each of you for joining us on this call. And we’ll now turn the call over to Pat Cline, President of our NextGen Division. Great quarter Pat.

Thanks Greg. Hi everyone. During the first quarter, you’ve heard, NextGen continued to break records for top line and bottom line. The Company executed over 40 agreements, 34 of which were with new customers. Our sales force increased to 30 people. And, as I mentioned on the last call, the sales force now includes 3 inside salespeople, who are focused on selling NextGen systems to the smaller practice market.

Since we continue to have a significant number of leads to follow-up, we still intend to grow our sales force by approximately 1, 2 if we’re lucky, people per quarter. The market for electronic medical records systems continues to heat up. And our pipeline has increased to $38m. As many of you know, there has been a lot of activity, both in the private sector, and in the government, surrounding the adoption of electronic medical records systems.

We feel this is a very positive thing for NextGen. We also feel that we’re extending our lead on the competition on the product front. Our 5.0 version of NextGen EMR and NextGen EPM should be released later this month. This new release integrates the database of the two products. And it’s already live in a number of practices.

In closing, I’d like to once again thank the employees of NextGen for their ongoing and outstanding contributions to our success. Latoya, we’re ready for questions. Latoya?

(Caller instructions.) Your first question comes from Mike Crawford of B. Riley.

From B. Riley & Company. Pat, on the 40 contracts, you said 34 with new customers. What were - ? How many of those contracts were for both EMR and EPM? And what was the mix?

About two-thirds were for both EPM and EMR – 24 of the 34 fell into that category. The remaining was split, 5 EPM only, 5 EMR only.

Okay great. And then actually on the dental side, what is the - ? So is this a phase one award or something that you got with the IHS? And what would be the expected requirement for the finalists?

It’s an evaluation phase, where we’re piloting our software in two offices. That pilot will last roughly through the end of this quarter, unless they change requirements. Then the powers that be will gather together and decide which of the three finalists currently piloting will be chosen to move forward. Of course, there is always the possibility that they won’t move forward at all, or they’ll move forward with more than one vendor.

Right. So, I guess, who are the other two finalists? And what is the expected revenue amount for the winter.

It’s unclear what the expected revenue amount would be. It certainly should be in the multi-7 figures over time. The other 2 finalists are a company called Software of Excellence, which is a New Zealand based firm, and Dentrix.

Thank you.

Your next question comes from [Brendon Olston] of [Sprout] Securities.

Oh, hi guys. What was that first competitor you mentioned?

Software of Excellence.

Software of Excellence?

Correct.

Okay.

It’s a New Zealand Company.

Got you. In terms of margins, obviously you guys are kind of peaking at a new level here, at 27% operating margins. I know you guys don’t give guidance. And you’re very clear on that. But is that a level that can be sustained, without saying if it will be sustained?

Anything is possible [Brendon]. I would say, as I have said many times, we’re not running the company to focus on a bottom line margin percentage. We work hard to generate as good a top line growth as we can. We try to maintain a reasonable level of expense discipline, while continuing to reinvest in the business. And it just so happens that this quarter we ended up with better margins than we have in some time. But it’s not a -- it’s not the result of a carefully architected plan to boost margins.

So if we do get to that level again, it will be for the reasons that I discussed, that we’re working hard on the top line, and trying to reinvest in the business, but also watch our expenses. And if our numbers drop a little bit or rise a little bit, it will be because of a different mix of some of those factors. But it’s not a -- we’re not managing the business with a particular margin percentage or even margin trend in mind.

Right. But just to get a sense of where your heads are at, are we basically looking at if revenues took another spike in Q2, but operating margins were a bit down, your goal would basically be to keep increasing EPS, regardless of where those margins might fall out on that general strategy?

I think that’s a fair characterization of our mindset.

Great. And how about small market strategy? I know it’s still early days. But how’s that coming along in the NextGen Division?

I think it’s coming along fairly well. The new salespeople that we added to focus on that market have made sales. Three or four sales have been made by that relatively new team. I think that’s very positive, given that it takes folks to build a pipeline from the small system leads. I don’t want to get into reporting on a quarter to quarter basis the particular numbers, or even numbers of sales made by that group. But let me just say that early indications are positive.

Okay. And do you have a sense of where these guys are going to be starting out quota wise on sort of an annual basis?

I think their quotas are starting at around $650,000-700,000 on an annual basis. But I’ll emphasize that this is a learning experience for us. We may learn that that number is too high. We may learn, and hopefully we’ll learn, that that number is too low.

And how’s the pricing worked out vis a vis your normal pricing? Is it substantially lower? It is half of, or 75%, like without disclosing any actual dollars for competitive purposes? But how’s that trend for the small market?

I think it’s a little bit lower. I don’t think I’ll go into great detail, as you mentioned, for competitive purposes. But it’s more attractive at the low end. And I think to offset that somewhat, the cost of sale is also greatly reduced, based on the new selling model that we’re exploring.

Okay. And on capacity, system sales of NextGen were up a healthy – I guess it was 16% year over year. In terms of that 16% versus what happened last year, is the business getting a little lumpy in that sense? Or is there sort of - ? Can we still scale at 25% to 35% growth rate on the system side for NextGen if demand dictates? Or is it mainly – are we going to see most of the growth on the maintenance and services side.

My hope is that you see growth, both on the top line system sales side, as well as the maintenance and services side. Services are typically sold along with new contracts, and then rendered as time goes on. With respect to our ability to deliver systems, I feel very confident in our ability to scale from a delivery, installation, and project management and training perspective should, as you put it, demand dictate.

All right. I’ll circle back with some more questions. Thanks guys.

Your next question comes from Eugene Mannheimer of Roth Capital Partners.

Good morning, and congratulations on a great quarter.

Thanks Gene.

A couple questions. One, to follow up on the small practice strategy, could you -- ? Pat, could you just define what you would call a small market? Is it less than 10 doctors? Or how would you characterize it?

I would characterize it as under 5 physicians. And let me just also say that, as I mentioned on the last call, this small market strategy is an expansion of our focus, as opposed to a shift in our focus. We’re still also very focused on the higher end and mid-range practices.

Okay. Thanks Pat. And would you -- ? Certainly there has been a lot of discussion. The government has set a framework for electronic health records over 10 years. Would you say that that has -- ? Is that impacting physician sales cycles at all? Is it accelerating as a result of this event? Or is it the same?

Well, the framework that you talk about was actually just released on the 21st of July. I think it’s too soon to tell whether that particular announcement is going to shorten the sales cycles. But I would say that overall the initiatives, both on the government side and the private sector, the pay for performance types of things, and all of the talk, and all of the buzz relative to paying physicians for producing better quality, because better quality reduces overall the cost of care, is very positive for us. And my gut is that sales cycles have been shortening for the last few months.

Great. Thanks very much.

Thank you.

Your next question comes from [Rick Layitt] of [Armor] Capital.

Good afternoon. Good quarter.

Thanks Rick.

Pat’s NextGen Division accounted for 80% of rev, and it looks like 95% of op income. They grew 32%. Quality Systems really didn’t. In the past when I have asked you for the rationale of keeping these two companies together, it was because Quality Systems was a nice contributor to off-profits. With the quarter we just had, can you still make that case today?

Rick, let me respond this way. I think your numbers, at least at the operating income line, are off.

Are off?

But -

What was the contribution from NextGen to op income?

Paul is going to work on that now. The issue there is we have to issue how to allocate. To answer your question, we have to deal with corporate expenses, which we report – division. We report the NextGen Division, QSI Division.

So in your press release, when you have op income of $5.2m from NextGen?

That reflects no allocation for corporate overhead.

Okay.

So basically the calculation for the Company as a whole, just to cover this point, would be operating income at NextGen, plus operating income at QSI, minus corporate expenses, equals –

Okay. So can you give me revenue and op income in the same manner that you did for NextGen for Quality Systems?

Yeah. Paul will give that to you in a second. But let’s take your question, just the numbers aren’t going to be quite as lopsided as you laid out. But your question – the general theme of your question remains. And that is -- I believe your question is why keep the two divisions separated and/or why keep both divisions at all. I guess those are the -- maybe the two parts of your question.

Yeah. I mean I’d just look at where the growth, and increasingly where the profits are generated. It’s pretty clear.

Yeah. Well, we agree that that’s where the –

It seems to me, Wall Street always prefers a simpler story to understand, not that that makes it right. And I’ve listened to your arguments. But, you know, we’ll see what the balance is like when you give us the numbers here.

We remain very comfortable that we can run the two divisions, that there continues to be good rationale for –

So what kind of revenue growth do you look for over the next three years out of Quality Systems?

I think it’s fair to say, first of all, that we haven’t given forward guidance, and don’t intend to begin. But, on the other hand, clearly most of whatever growth expectations we have internally and whatever growth expectations are out in the public market, are really tied to the growth of the NextGen Division. I think that’s not a state secret.

Have you made any changes to compensation plans for gentlemen that are running these two divisions in the last 90 days?

Well, specifically, in terms of the people running the divisions, they are the top corporate folks. So certainly any going forward changes would be worked on at the Board level.

And I had the impression, in talking with management, that we are working on, in particular, for Pat, something new or different.

The Compensation Committee and the Board, as I referenced in my comments, they have been working on this issue. They continue to work on the issue. I did reference that we had made some progress in the very recent terms. And I would say that progress included Pat, but was not limited to Pat. It was really more on the –

So what should we as shareholders expect? I mean what’s the timeframe? Give us a flavor for what’s coming down the pipe.

I can tell you what I hope for. But I would also temper that by reminding people that I’m not on the Board. And it’s hard for me to speak for the Board in general. So my hope is that the progress that was made over the last 60 days or 90 days or so is the same, and that the Compensation Committee and the Board come to really all members of the management team with some, I’d say energizing compensation plans, that include both short and long-term compensation elements. But for me to speak for the Board, or to set any kind of a threshold, I think would be pretty inappropriate at this time.

I hope the Board is listening. And Ill just register with those that are listening. It’s very important that management get representation on the Board, so that we don’t have to go through these kind of discussions each quarter.

I certainly appreciate the vote of confidence and your sentiments, and second the motion.

And you should -- now, we should expect progress with regard to the matter you just discussed.

Again, thanks for the vote of confidence, and voicing your opinion.

Can I have those numbers now?

Yeah. We’ve given out -- operating income, I am going to break it down for you. $5,464,000 was our –

Yeah. Total.

So you’ve got $5,194,000 at NextGen, and $1,264,000 at the QSI Division. You back out of that $994,000 in unallocated corporate expenses. And there’s your $5,464,000. So you referenced 95%. It’s actually 80%, which is in line with each division’s share of revenues.

But my point, to make it again, is that the operating income contribution from NextGen has rapidly become the dominant driver…

We all agree.

…of the economic wealth creation of this Company. And if the Board and the management don’t recognize that, and do things so that shareholders can properly value the growth business vis a vis the other business that’s really not growing, I think that’s a mistake.

And we appreciate your sentiments. Thanks.

You have a follow-up question from [Brendon Olston].

Hi. That was quick. Paul, just on the – what was the capitalized software number in the quarter?

$542,000.

Okay, 542. Got you. And in terms of the NextGen breakout, you said $10.6m was systems up 18%. Maintenance was up 70 something percent, or maintenance services and EDI. I think you said maintenance was 3.8, EDI was 1.1. So the balance is going to be pro serve?

The balance is going to be miscellaneous items, reimbursed travel type stuff, or miscellaneous other. It’s a small portion of the total.

So where does professional services fit in there?

Yeah, that would be included in there as well. Outside of implementation of systems.

Okay. So implementation of systems is in system sales?

Yes.

Okay. Got you. Got you. And it looks like your average deal size is ramping a bit. Is that a fair statement?

It bounces around [Brendon]. I think we’ve mentioned on a number of calls that’s really hard for us to pick out a trend in that number. So it would be hard for us to point you to a trend, because it just does bounce around a bit.

Okay. And competitively, are we seeing the same people? Or is there anything interesting changing in the competitive landscape that we need to be made aware of?

Nothing real interesting as far as I’m concerned. Same players, a few newcomers. But they seem to be struggling.

Okay.

On the dental side, excuse me, it’s typically the same players we’ve seen.

Same guys. Okay. And just in relation to what Allscripts was saying on their recent conference call with regards to electronic medical records, obviously they’re saying similar things to what you’re saying in terms of the market hitting a tipping point. They’re seeing an acceleration in growth.

And from a macro standpoint, it just looks like EMR is just -- we’re going to be heading into call it a two to three year phase, that’s going to probably -- it’s probably going to move the market from whatever the guess is now, 17% penetration, to something like 40% or 50% three years from now. Do you guys feel that you’re set up well from a sales capacity standpoint to get your fair share of business, given that you are a market leader on the ambulatory care side?

The short answer is yes. We think we’re very well positioned to capitalize on the market as the market heats up.

Okay.

I would add to that [Brendon] that we also know that nothing is handed to us. And, as we’ve said on numerous occasions, our biggest challenge is that we need to continue to execute in the near-term, and continue to invest in the infrastructure, so that we can sustain whatever execution we can, to the highest levels we can.

Yeah. I am just thinking in terms of sales capacity. Like I mean if this market heats up the way some groups and Leapfrog and guys like that are saying it could heat up, do you feel like the NextGen Division can sustain a 35% or 40% growth rate for three years, if the demand is there?

We think we’ll be able to handle the demand from a sales perspective.

Okay. And installation perspective. And on the insurance side, is there any movement on that front? We saw a Leapfrog Group report that suggested a $5,000 a year reimbursement to doctors if they -- by insurance companies and Medicare, if they converted to electronic medical records. Is that something that’s becoming more pervasive in the industry?

We are seeing a number of those types of reports and suggestions and those types of things. It’s something that’s being talked about more frequently in the industry. And, as I mentioned earlier, there are more programs that have actually been put in place, mostly on the private sector at this point. These programs seem to be taking off, and getting legs over the last six months or so.

And just sort of last question, what’s the - ? Does that change the sales process at all in terms of insurance companies reimbursing? Are they looking at putting in approved software lists, or having a say in terms of what software programs you can go to? Are they asking software vendors to check off with them or anything like that? Are they just saying if your electronic medical records, we’re going to give you this reimbursement? But it really is your decision in terms of which EMR system you’re going to use.

It depends on the program. And there are a lot of them out there. And they differ. But there has been a lot of discussion recently relative to the certification of electronic medical record systems. And it’s starting to smell like there will be a certification process for these systems, so that both the insurance, private insurers, and perhaps the government, should they put financial incentives in place, for doctors to buy systems and utilize systems, or to use systems to deliver certain performance. Those organizations will be able to have confidence that the systems that are being funded or partially funded can do the job.

Okay great. Great. Thanks a lot guys. Great quarter.

Thank you very much.

(Caller instructions). Your next question comes from [James Fargett] from [Salem’s Clinic].

Yes. I am just trying to get an idea of the number of physicians you have using your systems.

The bottom line is we’re not sure. We have various licensing mechanisms, one of which is an enterprise or geographically limited license. So we don’t necessarily track all of the physician license and users of the systems. I would think that a reasonable guesstimate right now would be somewhere in the neighborhood of 15,000. But that’s just a guess.

Okay. Thank you.

Thank you.

At this time, there are no further questions.

We’d like to thank everyone for their participation on the call. And we will see everyone next quarter.

This now concludes today’s Quality Conference Call. You may now disconnect.