NextGen Healthcare Inc (NXGN) 2005 Q3 法說會逐字稿

Good afternoon. My name is Shannon and I will be your conference facilitator. At this time I would like to welcome everyone to the Quality Systems third 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. [ Operator instructions ] I would now like to turn the call over to Mr. Louis Silverman, President and CEO of Quality Systems. Please go ahead, sir.

Thank you, Shannon, and welcome, everyone, to Quality Systems fiscal 2005 third quarter 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, once again join me on this afternoon's call. Please note the comments made on this call may include statements that are forward-looking within the meaning of the security laws including without limitation statements related to anticipated industry trends, the Company's plans, products and strategies, projected operating results, capital initiatives and the impact of legal, regulatory and accounting requirements. Actual events and results may differ materially from our expectations and projections, and you should refer to our SEC filings including our forms 10-K and 10-Q for discussions of the risk factors, managements discussion and analysis, and other information that could impact our actual performance.

We undertake no obligation to update any projections or forward-looking statements in the future. And please note that the Company's past performance is not necessarily indicative of future performance. For the quarter the Company set new revenue and earnings records. In the December quarter revenue totalled 22.1 million, up 21 percent over the prior year. Fully diluted earnings of $0.64 per share exceeded prior year fully diluted earnings per share of $0.40 by 60 percent. The quarter's top-line results were driven by record revenue performance at our NextGen Division where the 18.3 million in revenue attained by the division for the quarter represents a 31 percent year-over-year top-line increase. The QSI Division had quarterly revenue of 3.7 million which represented an 11 percent year-over-year decline in top-line performance for that division.

Companywide growth margins were very strong at 66 percent which represents our highest level in recent years. Paul Holt will cover this item and others during his prepared remarks for the quarter. Operating income for the quarter at NextGen came in at a record 6.7 million, 78 percent ahead of the prior year performance. QSI Divisional operating income declined approximately 23 percent on an year-over-year basis, so the operating margin for the division came in at just under 28 percent for the quarter. Companywide SG&A expenses increased materially on both a sequential and year-over-year basis. Our EDI Unit set a record at 2.7 million in revenue for the quarter. I'll once again remind participants that EDI revenue is reported as part of divisional revenue each quarter.

Paul Holt will break out divisionally EDI totals as a convenience later in the call. Corporate expenses for the quarter came in at 1.3 million, that represents approximately -- over a 30 percent year-over-year increase as well as a 14 percent sequential increase. Expenses in the corporate area continue to grow in response to the Company's overall growth as well as external factors such as Sarbanes-Oxley 404 internal compliance efforts. Cash and cash equivalents increased to a record 66.4 million during the quarter, up from 59.5 million in the prior quarter and 45.3 million in the prior year. Headcount at quarter end was 367, which taken with the revenues for the quarter generated annualized revenue per employee of 240,000. Note that this figure is not something that we use as an internal management or measurement tool.

The quarter's revenue per employee figure is, however, relevantly consistent with the levels attained in prior quarters. Company's board of directors has recently announced authorized a $3 per share dividend to be effective for shareholders of record on February 24, 2005. As well as a 2 for 1 stock split that will become effective for shareholders of record on March 4, 2005. Acquisition search activity continues and I will reiterate as I have mentioned on prior calls that we're not interested in just doing a deal for the sake of doing a deal. We will actively pursue opportunities of strategic significance but also represent a good financial fit for us. Absence those characteristics we'll remain patient and continue to focus on organic growth. In the next couple of weeks the Company will present at the UBS conference in New York City and the Ross Capital Conference here in southern California.

We're also scheduled to present at the Sidoti Conference in New York City in early April. Additionally, meetings with members of the investment community are scheduled for 4 additional cities in the coming weeks. In closing my prepared remarks for the morning -- actually, I should say for the afternoon, I'd like to point out that the performance for the Company during the quarter continues a set of quarters where our actual performance has exceeded our internal expectations at times by a fairly wide margin. I want to again express my thanks to all members of our team for their contributions to the Company results. I also want to clearly point out to current and prospective analyst 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 division will exceed or even sustain the level of performance turned in during the quarter.

It's possible that the quarter's performance will encourage investors or analyst 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 out financial guidance and we don't comment on the guidance advanced by members of the financial community. I'll now turn the call over to Paul Holt, our CFO, for additional financial details on the quarter.

Thanks, Lou, and hello, everyone. We're continuing to see growth in both of our revenue category system sales and maintenance and other. Our consolidated system sales rose to 11.7 million this quarter. That's an 18 percent increase compared to the prior year, 9.9 million. Maintenance and other revenues rose 25 percent to 10.4 million compared to 8.3 million in the year ago quarter. A very low level of hardware and third party software included in system sales resulted in our consolidated gross profit margin this quarter coming in at the highest we've seen in recent years, 66 percent of revenue. Total SG&A expense increased by approximately 1.5 million to 6.4 million. This compares to 4.9 million a year ago.

Part of the contributor to the increase in SG&A expenses was -- came from the NextGen Division and that was 0.6 million in selling related compensation expenses to our expanded NextGen sales force. NextGen also had another 0.6 million increase in other SG&A expenses. We also had a $0 .3 million increase in corporate related expenses, total corporate expenses were 1.3 million this quarter. That compares to 1 million a year ago. SG&A expense as a percentage of revenue this quarter increased to 29.1 percent compared to 26.9 percent in the prior year quarter. R&D expense grew 5 percent compared to the prior year quarter at 1.7 million. That compares to 1.6 million a year ago. And again, most of this increase was related to investment in the NextGen product line.

Our effective tax rate was lower compared to last year at 37.1 percent. That compares to 38.4 percent a year ago. Our rate this quarter was impacted by a proportionately higher amount of R&D tax credit, reflected in this quarter's tax provision. That was slightly offset by a higher federal tax rate. During the quarter ended December 31, we recognized 0.2 million in tax credits from prior periods which had not been recognized previously. Our NextGen Division recorded growth in both software license and implementation revenues resulting in a 21 percent year over year growth rate in system sales. System sales in the NextGen Division rose to 11.3 million this quarter compared to 9.3 million a year ago. Again, growth in the NextGen's base of installed users has driven our maintenance and other revenue higher to -- actually 51 percent higher at 7.1 million versus 4.7 million a year ago.

Our maintenance revenue in the NextGen Division was up 54 percent from last year at 4.9 million versus 3.9 million a year ago, while EDI revenue grew 74 percent to 1.5 million compared to 0.9 million a year ago. As Lou mentioned, our operating income in the NextGen Division was significantly higher, up 78 percent to 6.7 million compared to 3.789 a year ago. Our QSI Dental Division reported a year-over-year decline of 11 percent in reported revenue at 3.742 million compared to 4.198 last year. Operating income was 1.37 million. QSI Division EDI revenue was 1.2 million for the quarter compared to 1.3 million a year ago. Moving on to our balance sheet. Our cash grew by approximately 6.9 million this quarter to 66.4 million or $10.18 per share. That compares to 59.5 million or $9.26 per share at the end of the prior quarter.

This quarter we received a $2.1 million tax benefit related to employee stock option exercises. We also received $1 million in actual proceeds from employee stock options. Our turnover of accounts receivable measured in DSOs increased 7 days to 115 days this quarter compared to 108 in the year ago quarter. On a sequential basis this DSO number was also up 7 days. Breaking that number down by division, our DSO for QSI Division was 90 days and 121 days for the NextGen Division. The primary driver of the increase in DSOs is attributable to an increase in undelivered services billed in advance and included in accounts receivable. Deferred maintenance and services revenue now stands at $23.7 million. That's an increase of 2.8 million compared to last quarter and 6.4 million compared to a year ago.

Primary growth driver of our deferred revenue is again implementation and training services of NextGen Division. For those of you who are tracking this, our non-cash expenses for the quarter break down as follows. Total amortization expense 492,000. That's amortization of capitalized software. That breaks down to 56,000 for QSI and 436,000 for NextGen. Total depreciation expense 258,000, that's 41,000 for QSI and 217,000 for NextGen. Deferred stock option compensation is also a non-cash expense. That was 108,000 for the quarter. Our investing activities were as follows. Total capitalized software, 746,000. That breaks down to 22,000 for QSI and 724,000 for NextGen. Total fixed asset investment was 362,000. That was 27,000 for QSI and 335,000 for NextGen.

Again, I'd like to thank you for all your interest in this Company. I'll turn things over to Greg Flynn, Executive Vice President, General Manager of our QSI Division, who will provide an update on the QSI Division.

Thank you, Paul. And thank you to everyone on the call for their interest in our Company. The metrics of QSI Division have already been covered in detail by Lou and Paul, so I won't be redundant. In summary, while I would have liked to have seen better performance on the revenue side, I again am pleased by the profit contribution by the QSI Division to the Company. Of particular note again, was the growth in our EDI business with revenues up approximately 5.8 percent over the prior quarter and NextGen EDI revenue up approximately 10.6 percent over the prior quarter. As you know, QSI Division staff pursue and process the EDI business for both the QSI and NextGen Divisions.

I feel that we're making noteworthy strides in growing this part of our business. On the product development front, as I usually report, our new dental software version 9.3 is now moving to beta test, and the quarter also saw numerous enhancements to our CPS product. This is the dental equivalent of the electronic chart. In particular, we incorporated new time-saving ease of navigation and work flow features to CPS. All such features are geared to maximize in productivity and minimize in user interaction time. Our dental clients, generally high-volume patient offices, have proven to be an invaluable source of input and consequent enhancement for our CPS product. As always, let me comment on our sales, staffing and pipeline.

Our sales, staffing remains unchanged from last quarter and our pipeline itself also is virtually unchanged at $3.95 million. We define our pipeline as sales situations where QSI's in the final 3 purchase choices and we believe that the sale will occur within 180 days. In turning the call over to Pat Cline, our President of NextGen Division, I would like to personally thank the NextGen staff, Pat's crew, and the QSI Division for their contributions to our continued growth. Pat, great job.

Thanks, Greg. Hi, everyone. In the third quarter NextGen executed over 55 agreements with new customers, once again about two-thirds of these customers licensed both the NextGen EMR and the NextGen EPM products. The reminding deals were roughly split between EPM and EMR with a slight edge this quarter to the EPM side. Our sales force increased to 35 people including 4 inside sales people and our pipeline has increased to about 44 million. Our new NextGen 5.0 platform continues to do well in the market place. Our customer base is migrating at a steady pace to this new platform that integrates our EPM and EMR offerings. The overall market for our products remains strong.

We're about to enter the trade show season, so, hopefully, we'll see a marked uptick in the number of leads that our sales force has to follow. That season starts with the HIMSS conference beginning this coming weekend. In closing I'd like to once again thank the employees of NextGen for another terrific job. Shannon, we're ready for questions.

At this time, I would like to remind everyone, if you would like to ask a question, press star then the number 1 on your telephone key pad. We'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Sean Wieland with WR Hambrecht.

Hi, guys. Congratulations on yet another great quarter. I feel like I always ask the same question, but I'm going to ask it again. Can you talk about what are some macro level issues here that you think are driving demand? Specifically, can you talk about pay for performance as it relates to your customer base? Is that a driver of demand here? Can you talk about the market that you're selling into, small versus medium versus large docs and where you see you have a competitive advantage and if you could add any commentary on Hill physicians, that would be super.

Okay. That's a long question and probably, unfortunately, a little bit longer answer. Sean, there are a number of drivers, as you know, moving this business to adoption, hopefully, at a little faster pace. The government has become more of a driver. The government is working on the adoption issue on many fronts. President Bush, you know, mentioned again healthcare IT in the recent state of the union address and many in the government sector are pushing for increased budget dollars, targeted toward adoption of the electronic health record.

You also mention pay for performance. There are also many private sector drivers, specifically we're seeing many payors push for adoption of these systems, and in many cases we're seeing payors and other private entities fund the purchase of systems, either partially or totally. There are now so many sources of funding available for purchases of electronic health record systems that we've recently hired a new person whose job is to determine the source of all these funds and to track the funding sources and to help our customers access the funds. As you know, there're also other drivers, technology, the fact that it's easier now to quantify a return on investment on the electronic medical records side and the tremendous push both again government and private sector for quality. That push coming from employers and, therefore, payors. You also mentioned large versus small.

I would say that we don't really have a sweet spot. We tend to fare very well in the larger enterprises, practices of 50 or 75 or 100 or 200 physicians. But increasingly, especially with our new inside sales force, we're doing very well at the lower end of the market. About 80 percent of the physicians in the country practice either by themselves or in small groups, and we don't want to take our eyes off of that ball. So we're doing things to lower the cost of sale and ultimately lower the cost of our systems, yet still maintain our profitability in the small practice market.

Okay. And then, is there any update you could share on health physicians? Is that a deal that was counted in the fourth quarter or is that an ongoing opportunity?

Sean, this is Lou. We've not made a practice of commenting on specific deals in specific quarters. I think we're going to keep that tradition intact.

Okay. How about the EDI business? What do you see in the opportunities there? Any changes there?

Pat, if you want to go ahead? I'll go ahead. It's obviously growing business. As we increase our customer base on the NextGen side, we view it as a growing opportunity.

I would agree with that.

Okay. Is it a growing opportunity in just the overall volume of transactions or in the services that are being layered into that?

It's more volume based than additional services, to answer accurately.

Great. Okay. Thank you very much.

Thanks, Shawn.

Your next question comes from the line of Brandon Austin with Sprott Securities

Hi, guys. As usual, another great quarter. One of the numbers I didn't get was the total number of deals that you guys signed on the NextGen side?

I didn't cite the total number of deals. I think on a go forward basis, I'm not going to go through the total number of contracts, but rather the number of contracts with new customers. As it -- as it has become more -- far more difficult for us to get our arms around what's a new contract versus what's a small upgrade and what's an add-on sale and a new customer, or an existing customer rather, buying a couple of new licenses. We're having more and more difficulty putting the buckets. So, we're going to talk about what we think most people care far more about, which is the number of new contracts. And I believe the number was 57. And what I said was over 55.

Okay. Then maybe in a different vein, can you sort of give us a number or a feel for the direction of average deal size?

I think the average deal size probably stayed about in line with what it has been. Paul, you might have the actual number, but I didn't -- though I haven't personally done the math, I didn't see on the back of the envelope type of thing, any material difference.

Brandon, we're going to ask that you get a little closer to your phone. It's awfully difficult hearing you on this end.

Is that better?

Much better.

Okay. What about that QSI contract you were talking about 2 quarters ago? Is that still in the works or is it -- what's going on with that?

The decision was delayed. It's still pending.

Still pending.

That's the Government Indian Health contract, I believe you're talking about.

Right. Okay. Okay. Pending. On the tax deferral, I don't know if I'd call it an issue but the whole capital gains deduction for purchases made in calendar '04, did you guys see an effect on sales there? Were there any guys that sort of said, I got to get this tax credit in, rush this installation to December 31st? Did you guys see any boost from that?

We did see a little bit at the low end. I wouldn't say it was a big driver in the quarter, but our inside sales force did successfully point out that tax break or tax advantage, and its expiration to a number of the smaller practice prospects.

Okay. And on the SG&A jump, I guess it was -- I mean, I say jump because it was about a million bucks in the quarter. Was that -- first of all, with all the adjustments that were made to compensation and whatnot, were the bulk of those done -- was the bulk of that reflected in Q3 or is there some carryover into Q4 there?

When you say adjustments, Brandon, can you be a little more specific?

Sure. If quarterly SG&A was expected to go up 1 million a quarter based on, you know, whatever measures were taken, whether it was compensation increases or whatever, was it a million bucks expected and we jumped a million in Q3 or was it sort of 2 million but it happened halfway through the quarter, so we'd expect a further boost in Q4?

I'm not sure I'm following your question entirely, but -- and, clearly, I'd like to point out -- or I'd like to point out clearly that we have not issued forward guidance on any elements in our financials. We've mentioned that SG&A, our goals are to continue to grow our sales force. If our sales force grows and continues to be successful selling expense will go up. Corporate expenditures are increasing and I think in a general way, we've pointed out that those are certainly within our expectations on a go-forward basis. I will confess I'm not exactly tracking with the rest of your -- where the rest of your question is going, if it's going -- if I haven't answered it thus far.

I mean, maybe for a different way. Is 30 percent of revenues a fair number that you guys are comfortable with? Or is sort of 25, 26, which is where we've been in the past, more of -- you know, more of an expectation on your side?

As you know, Brandon, from being a veteran of these calls, we haven't and don't intend to start managing the business based on percentage of revenues. This quarter is another good example where the lower level of hardware in the quarter has maybe done a couple of interesting things to our metrics when you look at certain numbers as a percentage of revenue. So I think the most accurate answer to your question is that we just aren't managing the business to a percentage and we do expect that a number of elements in SG&A will continue to increase, although based on the timing of additional hires or certain other expenses, it's hard to know whether that's absolutely going to be on a steady basis or a little more of a step function type of thing. Surely the expenses are heading north as opposed to south, if our projections have any accuracy at all.

Sure. I guess, Paul, you broke out the increase in SG&A. How did that break down again?

Yes. Although, my comparison was with the year ago.

Oh, okay.

If you want it, I'll give it to you.

That's okay. I'll check it in the transcript. Just a few more quick points here. On the hardware sales, if I look at the cost of sales versus system sales, obviously cost of sales is going dramatically down, while system sales is going dramatically up. And again, I know you guys don't give guidance, but this has been a consistent trend in the past. So, from sort of a purchasing standpoint of your customers, are you finding that this is becoming the trend or, you know, amongst your customer base, or is this something that you're influencing or is this just random walk down gross margin lane?

I think we've talked -- Pat's talked i the past about the increasing sophistication that clients in general have in terms of hardware purchases. And I think it is -- you're accurate in pointing out that we've had lower levels of hardware over the past number of quarters. So while I'm reticent to officially label that a trend, I think it happens to be our reality over the past few quarters, though we have no idea what the next quarter is going to look like, and we could see a sudden increase in hardware sales which would not surprise nor disappoint us. And in the same vain, we could see a continuation of the trends that we've seen over the last few quarters and that would neither surprise nor disappoint us. So it's really a customer specific situation specific kind of event on our end quarter by quarter. But certainly, as you point out, we have seen an increasing level of gross margin with a corresponding decrease in the relative role of hardware in our revenues over the past few quarters.

Is there any interest in breaking out hardware revenues in the future or not really?

Brandon, we have that in our MD&A disclosures in our Q.

Okay, great.

So, we put that in last quarter. You'll see it there.

Okay. I'll circle back. Thanks.

Your next question comes from William Bermudez with WNC Investments.

Yes. My question becomes would you folks be willing to explore other lines of business within the medical and/or dental field, but mostly the medical? In particular, the veterinary field as others have?

This is Lou. While we wouldn't unequivalently rule anything out, a move into the veterinary field is not something that we have put at the top of our priority list, in terms of expansion opportunities. But we certainly appreciate the suggestion and your interest.

Thank you.

Your next question comes from Gene Mannheimer with Roth Capital Partners.

I guys, once again great quarter. Most of my questions have been answered but let me ask about the sales cycle. Are you seeing any elongation of that cycle as positions sort of mull over their options or is it pretty consistent with recent patterns.

It's been relatively consistent.

Okay.

Also, you mentioned that in the quarter, about two-thirds of the new agreements were both EMR and EPM sales. In the case of the practice management sales, are these replacements of other vendor systems or typically replacing the clinics homegrown system?

Well, it's a combination of the 2, but by and large it's a replacement of a competitor's practice management system.

Very good. And who typically -- you know, you want to talk about some of the usual suspects that you see in the competitive landscape?

No real change to the competitive landscape on the practice management side, since we were just discussing that. It continues to be Medical Manager, Mysys, IDX and Epicada(ph) at the very high-end and a number of smaller players on the medical records side, GE, Allscripts, A-Four, 4 or 5 other smaller companies.

Okay. Very good.

Then, of course, the practice -- the incumbent practice management vendors, some of the ones that I mentioned, for example, mysys and medical manager, have electronic medical records systems that they're typically selling to their installed customer base.

Okay. Thanks very much, guys.

your next question comes from Bob Plesa with RJJP.

Good afternoon. Could you talk about share trends?

Share trends?

Yes. Your growth is obviously significantly faster than, quote, the market.

Yes.

How would you compare your share of market over the last few quarters versus last year's quarter?

This is Lou. I guess I would say I'm reticent to compare the numbers because I'm not sure we have a good baseline to compare anything to. One of the things that is a factor in our industry, relative to your question, is that there are very few, if any, comprehensive studies that look at share by participants in our market. There may be some I'm not aware of too many of them. I'm actually not aware of any of them that are -- that cross my desk. So, I guess, the simple answer to your question is, yes, we've been growing. We'll leave it to you to decide how fast the industry's growing and what our share is doing as a result of that. We just don't have -- I don't have a great baseline to use to answer your question.

Can you break out your sales by same store, so to speak, in new business?

We haven't, and we've recently expanded the amount of detail we've put into our MD&A disclosures, though that's not been one of the areas that we've expanded to. So appreciate the question.

You mentioned a few moments ago that the vet business is not one of your top priorities in expansion. What are your top priorities in expansion?

Well, I'd say at the very top of our list is to continue executing within the markets that we are currently addressing. We continue to feel that the opportunities in the medical market are pretty strong. We nevertheless need to execute to reach those opportunities and I'd say that's our major focus. The other things that we would look at I'd say are more -- I'd say we're not really ready to comment with great specificity in terms of some of the other areas that we might look at as growth opportunities. But, again, you and others on the call, and people that might listen later on, should know that our -- at the top of our list is to continue to execute in our present markets, both medical and dental.

Thank you.

your next question comes from William Haas, with Access, Inc.

Congratulations on a great quarter.

Thank you, Bill.

Just a couple of quick questions maybe for Pat. Pat, you mentioned attempting to lower the cost of sale. Could you maybe talk about what factors, if any, are acting to maybe increase the cost of sale other than maybe gas prices? And what types of opportunities do you see are out there in driving it down, whether it's technology, mode of installation, training, monitoring and support or are there other things you're working on?

Well, you covered most of them. I wouldn't characterize things as the cost of sale being driven up. It's more that as we look to the smaller practice market, which is a key market for us in the future, we're trying to drive the cost of sale down from its present levels so that we can lower the system price, make it more affordable but, again, keep our -- maintain our profit. The things that we're using, again, you covered most of them. Web-based demonstrations I might add to the list that you put forth. We're doing most of the product demonstration to the 1, 2 and 3 doctor practices via the internet by remote means saving on air fare and rental car and hotels and not flying people to Juneau, Alaska, to do a demonstration for a 2 doctor group. Again, that allows us to maintain a lower price. We're also doing remote training, computer-based training and E-mailing proposals and those kinds of things. Again, just to lower the cost, maintain the profit and lower the price.

Okay. And is that sort of, I guess that process never ends and you'll continue to look at ways of doing that? Where are you now? Are you still -- are you happy? Can you reach those folks in, say, a single or 2 practice office effectively, or are you -- continuing to drive it down?

We're continuing to drive it down. I don't think I'll ever be happy. I think we can always improve. I'm reasonably pleased with the progress that we've made to date on many of these initiatives.

And on your gut -- and I know there's quite a bit being done on the reimbursement help side and the payors stepping up. But from your perspective, to get a real deep penetration, and maybe this is 5 or 10 years out, what type of percentage decline in delivery costs or the cost structure from your end would you expect to see or would be a good number? In order to drive out that -- the ability of the providers to acquire it?

Well, I'm not sure driving the cost down is a critical part of the answer. But to answer your question, I think we can take probably 10 to 20 percent out of the cost of the system still maintaining today's profitability by using some of the technologies and techniques that we've talked about, and a couple of others. I think what's more important with respect to driving adoption is physicians realizing that these systems far more than pay for themselves and that there is a quantifiable return on investment with electronic health record systems. And that's starting to happen. I think physicians know that these systems will truly improve quality. And there's quite an interest in that. But at the same time, they're more than paying for themselves. I think the adoption curve heads upward.

That's a good point, Pat, with more focus on outcomes, I guess they would want to get a payback there, too. I appreciate your color. Thank you.

Your next question comes from the line of Sheila Cunningham with Hilliard Research.

Hi. Thanks for the dividend. But I thought you were resisting things like dividends and stock splits. I'm wondering what was the thinking behind the dividend, how you came up with the sum and what you think is kind of a comfortable cash cushion for your business, whether it's -- you look at it in relation to total assets or revenues or kind of how you figure it.

Sheila, this is Lou. As we've discussed on many calls, the issue of whether or not to put , or what the metrics are. Those are entirely board issues and veteran listeners on these calls will know that I have made it a practice not to comment on what elements the board did or didn't consider in terms of reaching its conclusions. So, I -- clearly the board deliberated on the issue, they made the decisions and, you know, that's kind of the bottom line bottom line. In terms of being resistant to either of those, certainly we've discussed the question of a dividend or a stock put has been raised on many calls and we have, in the past, not been at a place where the board has decided that was the right thing to do. And coming out of our last board meeting, the new board took a different position, and hence the 2 announcements that we made. In terms of the cash cushion, I think that we certainly don't feel like having cash is a detriment to us. And I think that the cash that we have -- will have if the company post dividend should be at a place where it doesn't negatively impact any of our initiatives that we know of today.

Okay. But just to split a hair --

I would just add, to clarify, that the dividend that was announced was a one time special dividend.

Sure. Let me just split a hair. I appreciate your whatever about the feelings about the board and their initiatives, et cetera, but I would hope that they consulted you before they came up with a number. Because if you've got some expansion plans that may include an acquisition, well, surely they should know. Surely they should be polite enough to ask you what kind of cash you thought you needed on hand.

I'll just go back to my answer that says that these are board issues and we'll leave it there.

Okay.

your next question comes from Josh Stewart with Sidoti & Co.

Hi, guys. I just wanted to see if you could give me any color on what's going on with the NextGen Express product. Whatever you can give me as far as, you know, are people buying both the practice management and EMR? Can you say how many you sold and how many of these inside sales guys are selling?

I don't want to get into the habit of breaking out by product, but in general, we're pleased with the way that NextGen Express, which is a later version of the electronic medical records product, is going and we're very pleased with the performance of our new inside sales group.

Okay. As far as EMR versus EPM is it about the same, two-thirds are buying both or is that too early to say?

Interestingly, it has been.

Okay. All right. Great. Thanks, guys.

your next question is a follow-up from Brandon Austin.

Paul, can you give us the software growth number in the NextGen Division?

Software growth? Are you talking about system sales in total?

No, just the software. You guys are breaking it out on your -- in the MD&A, so I thought you might have that number handy.

It will be in the Q, Brandon. It will be there. We're going to be filing -- we have a requirement to file that Q within the next couple of days.

Okay.

We did that.

Okay. Okay. In terms of the internal sales force, how's that doing relative to your expectation? And, you know, what's your feel in terms of how the process is working there with regards to, you know, being able to work against the competition on sort of a remote basis?

It's meeting or exceeding our expectation. Again, it's relatively early, so I want to be -- let me say I'm cautiously optimistic.

I mean, do you -- given the limited experience you guys have had like being only 9 months or something on the sort of, you know, 5 or less doctor practices. Do you feel like this is an efficient way to compete in that market or are we going to get a better sense after tapper or how are you feeling in that regard?

I think it's an efficient way to compete in that market. And, yes, I think we'll have a better sense after Deborah.

Okay. And can we get into a little more detail on the competition? It seems as though there've been some interesting competitive happenings. EpEx seems to continue to go after these very large deals. I guess Allscripts is trying to break out of that IDX installed base and, of course, Cerner bought the VitalWorks. My understanding from talking to people at Cerners for the express purpose of going after the ambulatory EMR market. Do you have any comments? And of course we have the Intergy release by WebMD. Do you have any comments on all those fronts? In general even?

Let me say that I think that Allscripts continues to compete very effectively in IDX accounts. We have not seen any marked increase in competitions with VitalWorks or with Cerner as a result of that acquisition, but I would say it's fairly early.

Have you encountered Cerner's product base outside of sort of their large installation type of installs before? To the point where you would have a sense of how competitive it might be?

Yes. We're relatively familiar with Cerner's offerings. We have competed many times with Cerner. Sometimes we've won. Sometimes we've lost. Sometimes we've lost and come back and won later. Cerner competes with us when the purchaser tends to be a large health system that has a relationship with Cerner and that health system wants to move out to the ambulatory side. Cerner will come in and present the offering -- their offering and compete in that marketplace. We have not seen Cerner selling ambulatory systems on a standalone basis.

In terms of sort of typical deal that you're signing nowadays, what would be the number of doctors range? I know it's always been sort of a 50 doctor to 250 doctor practice, but is that range tightening up? Are we seeing strength in certain sizes and maybe not so much in others or maybe you're focusing on certain sizes?

No. I would say the range is broadening. We're seeing more opportunities in the hundred to 200 plus, but we're also seeing opportunities with large networks of physicians that might be 1,000 or 2,000 or 3,000 physician groups, IPA and that sort of thing.

And last question. Are you finding a change in who you have to target inside an organization who's going to champion the cause for EMR or for a replacement of a legacy practice management system? And whether it's the doctor or IT guy?

Certainly there's a difference on the prac -- between the practice management side and the electronic health record side. On the electronic health record side, you're targeting both the IT and executive people, as well as the physicians. Very few IT folks are willing to overrule physicians and the physician selection when it comes to a product the physician is going to use every day. Though some of them do. That's not the norm. On the practice management side, it's typically the practice managers and executives and administrative folks that get involved in each function selection.

Great. Thanks a lot.

Your next question comes from John Vail.

Yes. Thank you. Great job, fellows, again, on a wonderful quarter. I had just a quick question on standards. There's been some discussion in the press about standards emerging either as a triumphant of customers, vendors and government, or I'm not quite sure where that's coming from. Do you anticipate any extraordinary hurdles or to adopt to any standards with what you have now?

Terrific question. Standards are evolving much more quickly than we've seen them evolve in the past. Government has had some involvement in standards, primarily with respect to transactions and HIPAA, that is transmitting claims and remittances and those kinds of things. But, there's been much more work lately, relative to standards surrounding the electronic health record. We've seen HL-7 standards evolve. We've seen some new standards come in to play and start to evolve. One is called the Continuity of Care Record, or CCR. I do see at some point in the future that various electronic medical record systems vendors will -- vendor systems will be exchanging data, clinical data using these standards. I don't see that that day is too far off.

Great. Thank you very much.

At this time there are no further questions. Mr. Silverman, are there any closing remarks?

Thank you, Shannon. I'd just like to thank everyone for their participation on the call. And we'll see you in a few months from now with our fiscal year- end discussion. Thank you.

This concludes today's Quality Systems third quarter fiscal 2005 earnings conference call. You may now disconnect.