NextGen Healthcare Inc (NXGN) 2007 Q2 法說會逐字稿

Good afternoon. My name is (indiscernible) and I will be your conference operator today. At this time, I would like to welcome everyone to the Quality Systems' second quarter fiscal year 2007 conference call. All lines have been placed to mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (OPERATOR INSTRUCTIONS). Mr. Silverman, you may begin your conference.

Thank you (indiscernible) and welcome everyone to Quality Systems' fiscal 2007 second-quarter conference call. Paul Holt, our CFO; Greg Flynn, our Executive Vice President and General Manager of the QSI Division; and Pat Cline, President of our NextGen Healthcare Information Services division, once again join me on this afternoon's call. Please note that the comments made on this call may include statements that are forward-looking within the meanings of the securities laws, including without limitation, statements related to anticipated industry trends, the Company's plans, products and strategies, projected operating results, capital and equity initiatives, pending litigation and the implementation of -- or potential impact of legal, regulatory and accounting requirements. Actual events or results may differ materially from our expectations and projections and you should refer to our prior SEC filings, including our Forms 8-K, 10-K and 10-Q for discussions of the risk factors, management 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. Also, as I have mentioned on each and every call for this past many quarters, please continue to note that the Company's past performance is not necessarily indicative of future performance.

I will now provide some summary comments on the quarter. Paul, Greg and Pat will follow with additional details.

For the September quarter, Company revenue totaled $37.5 million, up approximately 27% over the prior year. Fully diluted earnings-per-share at $0.30 was up 43% over the $0.21 earned in the same quarter of the prior year. The $0.30 reported for the quarter is inclusive of an approximate $0.02 per share expense tied to the adoption of FAS 123 (R), which is the accounting pronouncement related to accounting for stock options.

NextGen Healthcare's revenues for the quarter of $33.5 million represents a 31% year-over-year increase. The NextGen division's operating income of $14.1 million represents a 43% increase over prior year. The QSI division's revenue and operating income performance was essentially even with the prior year's performance. Corporate expenses were up 6% year-over-year to $2.3 million. Please again note that the current quarter figures include FAS 123 (R) expense and prior-year figures do not include such expenses.

EDI revenues for the quarter came in at $4.1 million, up 28% over the prior year. I'll once again remind listeners that EDI revenue is reported as part of divisional revenue totals each quarter for each division. Cash and cash equivalents was $74.7 million at quarter end, up from $67 million in the prior quarter. Headcount at quarter end was 582.

Regarding investor conferences during the quarter, the Company presented at the Thomas Weisel conference, the Bear Stearns conference and a UBS conference in the next couple of months. We're presently scheduled to present at the Credit Suisse, JMP and Piper conferences.

In closing my prepared comments for this afternoon's call, I want to once again clearly point out as I have over the past many quarters that there are no guarantees that the Company or either of its divisions will meet or exceed their current level of performance in future periods. It's possible that this quarter's performance will cause 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 don't give out financial guidance to the investment community and we don't comment on guidance advanced by members of the financial community.

Once again, my sincere thanks go out to Pat, Paul and Greg for their leadership and to all team members for their dedicated service. I will now turn things over to Paul Holt.

Thanks, Lou, and hello everybody. Consolidated revenue increased to $37.5 million this quarter, an increase of 27% compared to $29.5 million that we recorded a year ago. Consolidated system sales rose to $19.6 million this quarter, an increase of 17% compared to $16.7 million in the prior-year quarter. Maintenance, EDI and other services revenue rose 39% to $17.9 million compared to $12.9 million in the prior-year quarter. I would add that revenue generated from existing customers increased significantly this quarter versus the prior-year quarter.

Our consolidated gross profit margin this quarter came in at 68.4%, up from 67.5% a year ago. The increase in our gross margin over last year is primarily due to a relatively lower amount of hardware and third-party software as a percentage of revenue compared to last year.

Total SG&A expense increased by approximately $1.1 million to $10 million in the second quarter compared to $8.9 million a year ago. The increase in SG&A was primarily from the NextGen division and consisted of increases in selling and related expenses. SG&A expense as a percentage of revenue decreased to 26.7% compared to 30.2% in the prior-year quarter.

The Company's effective this quarter was slightly higher compared to the year-ago quarter at 39.8%, or better 39% last year. The reason for the increase was primarily due to a couple of factors -- the expiration of the R&D tax credit statute this year, as well as the addition of certain nondeductible stock option expenses related to the Company's adoption of FAS 123 (R).

Before I move onto divisional performance, I would also note that second-quarter results included approximately $913,000 in pretax expenses related to stock options. The after-tax impact of stock option expensing for the quarter was $612,000, or $0.02 per diluted share. Note that the prior-year quarter does not include expensing of stock options under FAS 123 (R).

In terms of divisional performance, system sales in the NextGen division rose 17% to $18.9 million this quarter, compared to $16.1 million a year ago and again continued growth in NextGen's base of installed users drove maintenance, EDI and other revenue in that division 55% higher compared to last year at $14.6 million versus $9.4 million last year. Operating income in the NextGen division was up 43% to $14,055,000 compared to $9,850,000 a year ago. Our QSI division reported a slight decrease in reported revenue at $3,972,000, compared to $4,018,000 in the prior year. Operating income for the QSI division was $1,245,000.

Moving on to our balance sheet, our cash increased by approximately $7.7 million this quarter to $74.7 million, or $2.77 per share. That compares to $67 million, or $2.50 at the end of the prior quarter. This quarter, our DSOs were at 135 days versus 126 days in the prior year. DSOs net of unpaid deferred revenue was 81 days versus 71 days a year ago. One of the factors impacting DSOs this quarter is a customer concentration in accounts receivable which will be disclosed in our upcoming September quarter 10-Q filing. Siemens represented 13% of our gross accounts receivable as of September 30, 2006. Siemens did not constitute more than 10% of our revenue, however, due to required revenue deferrals. DSOs by division were 84 days for the QSI division and 141 days for the NextGen division.

Deferred maintenance and services revenue stood at $39.4 million as of September 30. That's up from $2.6 million in the prior quarter and up $3.5 million compared to the start of the fiscal year. Again, the primary drivers of the growth in deferred revenue has been our deferred implementation training, as well as maintenance services in the NextGen division.

And like I always do, I'm going to give out our non-cash expenses for the quarter, which break down as follows. Total amortization expense $772,000; $36,000 for QSI; $736,000 for NextGen; depreciation expense $440,000; $57,000 for QSI; $383,000 for NextGen; non-cash stock option expense $913,000; and capitalized software $1,130,000, that is $49,000 for QSI and $1,081,000 for NextGen. And finally, our investments in fixed assets were $679,000 for the quarter. That's $32,000 for QSI and $647,000 for NextGen.

I'd like to thank you all again for being on this call and your interest in our company, and I'll turn things over to Greg Flynn, who will provide an update on the QSI division.

Thank you, Paul, and thanks to those of you on the call for joining us.

QSI division and EDI numbers have been addressed in detail by Lou and Paul, so I would like to touch briefly first on key software development achievements for the division, and then other historical areas of interest for these calls.

I'm proud of our team for their software development and implementation efforts for the quarter. In particular, we added a number of developments to our clinical product suite offering, which is the dental electronic record equivalent of EMR. These developments were focused on five areas -- one, taking advantage of new enabling technologies that dramatically improve image resolution for x-rays, tooth charting and the like; two, improving the product's ability to concurrently display multiple chart record elements; three, continuing to increase the number of practice management features available to practitioners in the operatory; four, streamlining the input and decision-making flow for staff, helping to ensure rapid and consistent office processes; and five, maintaining the unique scalability features of our CPS, so necessary within our large multi-office environments. I think that CPS saw a good development progression this quarter.

Now following the line of historical questions, I will comment on our sales, stuffing and pipeline. Our sales staffing remains unchanged from last quarter and our pipeline is approximately $3.5 million. 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.

With this report, I will turn the call over to Pat Cline, as you know, President of our NextGen division. And thanks again for your interest in our company.

Thanks, Greg; hi, everyone. In the second quarter, NextGen executed approximately 50 customer agreements. While this number is a little bit lower than the last couple of quarters, based on activity in orders already signed in the current quarter, we expect the number to improve again significantly.

We're also very pleased with our overall sales performance. As Paul mentioned, license orders from existing customers were up, representing evidence that our systems are delivering positive results. As further validation, we recently congratulated yet another NextGen customer -- Cardiology of Tulsa -- for winning the prestigious Davies Award for the real results they have achieved within their NextGen systems.

Also about a week ago, a different NextGen customer, Dr. Hal Teitelbaum, won MGMA's Physician Executive of the Year Award. Dr. Teitelbaum has grown Crystal Run Healthcare in New York over 600% to about 150 providers in the last five years, which is approximately the same amount of time they have been live using NextGen solutions.

Our sale force grew slightly last quarter to 52 people and our pipeline remained steady at about 65 million. As I mentioned on the last call, the market for our products remains very strong. NextGen continues to win key sales in the marketplace and we feel that we're very well positioned to continue to do so. We're looking forward to our annual users meeting this quarter where we'll present new industry-leading software capabilities and service offerings to more than 2000 people attending that meeting.

Stopping short of giving guidance, I will say that we feel very good about the current quarter and about the Company's future in general. And in closing, I would like to once again thank NextGen's employees for their hard work and our customers for their continued confidence. We are ready for questions.

(OPERATOR INSTRUCTIONS). Richard Close.

Congratulations on a great quarter. Pat, I was wondering if you could talk a little bit more about the agreements, I guess 15 new agreements, and just remind us what that compared to last year and why you think that was lower than I guess previous quarters?

Yes. The new agreements of 50 I think compared with -- I don't have it in front of me -- but I think I recall about 70 last quarter. I'm not sure what it was the prior year. As you may know, there is some seasonality to things. In the summer quarter, leads slow down a little bit, there aren't as many trade shows. Primarily, the summer slowdown is vacations, vacations on the part of customers and selection committees and in fact our sales people and that kind of thing too. We typically try to make up for that in various ways as other companies in our business do. So a little bit of it's seasonal, though I wouldn't say that's 100% of it.

In about half of the year, the fiscal years, going back many years, the summer quarter, the number of sales is actually a little bit down. But again, I think the real question is -- how is NextGen doing in the marketplace? Is the number of new customers sold in one quarter significant or representing a trend? And, no. As I said, I think, based on what we have already seen in the current quarter; that is, deals signed and additional activity, that that number will improve in the current quarter.

Then I guess a general question. With respect to Seimens, obviously, they've had a couple of pretty decent announcements I guess with your NextGen product, although you guys didn't put out a formal press release. I was wondering if you can comment at all on that, in terms of when we see announcements like that, how long is the implementation period maybe with respect to the couple of announcements out there? Is it a one- to three-year process or (MULTIPLE SPEAKERS)?

I won't go into a deal-by-deal situation, but maybe I can give you a little bit of texture.

That would be helpful.

Very often when a very large contract is signed, it is a multi-year rollout, and it's extremely rare that a company can take all of the revenue in what is often a multi-million dollar deal and recognize it all upfront. There is a lot to do over an extended period of time. So, again, without getting into individual deals or revenue recognition on particular deals or those kinds of things, they were significant deals. I think they're going to pave the road for additional business downstream and I think that's great for the Company and its shareholders.

And does that, those type of contracts when they're signed, do they come out of your pipeline, and then you have refilled your pipeline obviously -- it's standing pat at $65 million?

That's correct.

So those deals -- could you comment whether those deals were in the pipeline previously?

I don't want to do it on a deal-by-deal basis, but you have it right, I think. And that is, if for example I have a $2 million deal in my pipeline a few months ago, and that $2 million deal happens to sign a contract, even if we don't recognize all of that revenue, that entire deal comes out of the pipeline and we're constantly backfilling with new leads and new prospects.

Thank you very much and congratulations.

Sandy Draper.

One follow-up to Richard's question and then a broader industry question. Pat, would it be fair to say that, obviously, you delivered a good revenue number, even though the new customer deals were down. You did comment that you got more add-on sales, but would you also see any increase in deal size, or really did the new add-on sales to existing customers make up for the slightly lower number of deals?

Though I haven't done an average deal size calculation because there are so many moving parts in that calculation, and frankly what you call a new customer versus an existing customer, especially when you have reseller relationships and multiple people splitting off from practices and joining and merging and things, it becomes kind of difficult, so I don't get all that granular. I will say, I personally didn't notice a big difference in the average deal size, so part of that certainly is additional sales to existing customers. And as I mentioned, I think that is a testimony to the fact that our software is out there working and delivering solid results. Otherwise, these customers wouldn't be calling and ordering more licenses.

So this is basically a situation where you may have a 10- or a 20- or a 30-doc practice, and they may have only bought it for four docs upfront or three or whatever the number is, then they go live and they say, hey, it's working and we like it. Let's add to other docs. Is that what these add-ons are, or is it additional modules?

That would be a typical situation. Another typical situation, you're right, is it may be an add-on module or another product. Somebody might go live with the electronic medical record product and decide a year later that it's time to replace our practice management system with something that's fully integrated with the electronic health record system and buy another module. Or they might start with practice management and add EMR later if their relationship and results with the Company have been strong.

One final question and I will get back in the queue. From a broader industry perspective, and I realize this is early, but we had the official Stark law relaxation come through about a month or so ago. And at the same time, some of the hospital vendors certainly seem to be talking more aggressively. Have you seen any change in the way customers are acting because of the Stark laws, and then also of the competitive landscape, or is it really too early to tell on either situation?

We've seen a little bit more activity level on the part of some of the larger health systems, in part because of the relaxation of the Stark and what has been done with the Safe Harbor rules. But frankly, that is one driver of many that are going on right now and sort of putting wind under our wings, so to speak. The government actions are part of it. That might include grants and seed money from different things. You see easy that with the government and with private industry. Payors are getting into the game. There's just a lot more talk and a lot more buzz. And, frankly, the folks that are out there implementing these systems are seeing results, and that's translating into a better, hotter market.

On the hospital IT company part of your question, you mentioned that they're maybe gearing up or talking about competing more in the ambulatory space. We have seen them Company for a long, long time and we feel pretty confidently that NextGen's products are superior to the products of our hospital-based competitors. Without mentioning names, I think you know the kind of companies that I'm talking about. And while the big health systems will typically look at their incumbent vendor, they will also typically look at what the marketplace has to offer. And as physicians get involved in decisions, whether it's for a large health system or a smaller or mid-size practice, they're going to look at systems and whether they can use the systems, whether the systems will deliver the results. So NextGen is winning a lot of those types of deals.

Recently, I would also say more than ever, NextGen is replacing the systems of some of the larger hospital IT companies that they have tried to put out into the ambulatory communities. A lot of these hospitals are -- they realize what the system can do relative to physician linkage and results, but they haven't had success with a lot of the systems that they've been trying to implement from these larger competitors of ours. And so increasingly, they are putting them aside and going with a system like NextGen's.

Thank you. That's very helpful commentary, Pat, and congratulations on the good quarter.

Thanks a lot.

Len Podolsky.

Hi, guys, congratulations on a really good quarter. A few questions on this end. Sean is not available, so -- he couldn't make it. Could you comment generally on the pricing in the marketplace and what you're seeing from the various group sizes that you're pursuing?

I don't see a major change in the pricing in the marketplace. We have noticed over the last maybe six or nine months that certain competitors are pricing a little bit lower or maybe getting a little bit more aggressive with discounting levels. But I don't see that that's eroding anything that we're doing. NextGen is typically priced closer to the higher end. We are used to for years and years having our system be more expensive than most of our competition, or many of our competitors, anyway. We try to sell value and have people focus more on the return on the investment than the actual cost or the price of the system. And the more sophisticated purchasers and customers look more at the return and more at the value than just simply what the system costs. You can buy an electronic health records system for $200 or $300. So you really have to look at what the value is when you're comparing that to a system that might cost $10,000 or $15,000 or $20,000 per provider.

Are you doing anything different today, in terms of selling the value proposition, than you were last year?

No, I don't think so.

And again, is it competitors -- is it private companies, or is it one of your public competitors that's sort of pricing more aggressively I guess?

It's both.

Okay. And then one quick question on SG&A. It seemed like, I guess we were modeling for a bit higher in the quarter. Can you comment on the lower than expected SG&A expenses in the quarter?

Paul, you want to take that?

I will take it here. We had a couple of revisions to certain -- some profit our comp plans that resulted in some slightly less cost going into the category. So I would attribute that to that. That's the answer I would give you.

The other thing, Len, at least on a percentage of revenue basis, we had -- corporate expenses were up modest year-over-year, but that's in the context of on a percentage of revenue basis. That could account for a couple of things too. We had a little more legal activity last fall with our proxy situation, so that could also account for some of that.

I'll throw you one more piece of information. When Paul talked about changes in comp plans, I will mention that that includes executive comp plans.

Could you just comment on some of the recent activity around the stocks?

We have really no comment. We were watching the same things that you were.

I guess maybe specific to any insider activity?

I will say that I'll venture a guess that we're often as amazed as other people are as we watch what the stock does and what moves might or might not be based upon.

Thank you very much freer time.

I would just say that, clearly, with the executives who are certainly very well aware of our reporting requirements and policies, and also, if that was the nature of your question, were acutely aware of when we were needing to file [Form 4's] and aware of the Company policies, et cetera, et cetera.

Oh no, that wasn't the nature. That's fine. Thanks again for your time, and congratulations on a really, really good quarter.

Thank you.

Brandon Austin.

I must be a little out of I guess having kept in touch as closely as I thought I had. What's other revenue?

Other revenue includes add-on services. We have something -- reimbursed travel, we have some other type of the third-party software subscription fees, that sort of thing, makes up that category.

I'm looking at the implementation number. It seems to be somewhat flat over time, and I remember two years ago you went through this period where the software really kept going up and the hardware wasn't as big as a focus. And is your software just easier to install by the customer, now that the implementation isn't going up at the same rate as the software products?

Yes, that's a true statement. Our software has become far easier to install and far easier to implement. We've done quite a lot as a Company over the last couple of years to make it that way, the most significant of which is releasing new versions of our content or knowledge base that allows people to install the products more out of-the-box. There are still services required, but we are trying to streamline that. As I've mentioned on a few prior calls over the years, we have had these initiatives in place to look at and to support our scale as the Company. So we're constantly asking ourselves questions like -- how do we move from selling 50 or 70 systems at quarter to 100 or 200 systems a quarter? And one of the answers is, we streamline the implementations, make it easier to implement and to use the system and to get the results out of the system.

The stock-based comp, Paul, is that buried in the SG&A.

[Stark]-based comp -- oh, stock-based comp -- it's in cost-of-goods sold, it's in SG&A, it's in all three of those categories, which I believe we have a disclosure in our -- footnote in our financial statements, which you will see in our 10-Q which will lay all of that out for you.

Last question. I guess this one is for Pat. A couple of years ago, we used to discuss you guys really ramping up on the smaller sort of sub-10 doctor market with maybe a scaled-down product, quicker implementation. Is that initiative still underway? And if so, can you give me a sense of what your success has been in that area?

We have not been as aggressive over the last couple quarters with respect to this small practices, but we do still have the initiative underway and we are constantly learning and massaging things in that area, again, in the implementation area to make it easier and faster and to bring the cost of the sale or the system down for the small practice while we keep profitability in the sale for the Company.

Great quarter, buys, thanks a lot.

Ross Muken.

Hi, guys, [Mike Churney] here for Ross. Congratulations on a strong quarter. I just wanted to go into one quick question because I think most of it has been covered already. But regarding the QSI division, it seems that it keeps steadily chugging along. I know that when he's spoken in the past, he's said that doesn't take much management resources. At what point do you start to consider that maybe that something is distracting it a little and that something maybe to consider options on so you can focus more on the NextGen division?

As I've said many times over many years, we continue to value the QSI division for its contribution to the Company's financial performance. It is profitable, it is cash-flow positive, and you referenced, it continues to not be any type of management distraction. Though we are not forecasting, it's hard to forecast what the future will hold, but it seems to me that as long as those things continue to be true, our -- if that part of the business is status quo, so would our perspective on the division remain status quo. So those are the guideposts that we use, and I would venture to guess, at least in the short-term, that those are the guideposts that we'll continue to use in looking at our business.

Sounds good, congratulations again on the quarter.

[Richard Adams].

I was wondering if you could comment on the sales force restructuring and how that is going?

It's going rather well. It's a little bit early for me to say that it was a complete success, but early indications and all indications are that it's going well.

And I think you hired 10 or so reps in the June quarter. Can you just talk about their productivity and whether they're starting to make sales and how that's going?

I can't give you a lot of the detail, but I'll tell you that whenever you hired 10 reps, three or four typically wash out, a couple early and a couple over the kind of time frame that you're talking about. A couple of others will still be in training and starting to do some things, and there will be a couple of people that you get good indications on. But it's early to tell on that as well. We hope the folks that we haven't washed out will grow into top performers.

Alright, thank you.

Gene Mannheimer.

Thank you, nice quarter. Just to continue the thought on the small practice, you mentioned, Pat, you have focused less of your efforts on that market the last couple of quarters. Why is that? Is it because you don't see it as a great of an opportunity or the current demand such that you've remained focused on the mid- to large-size practice? Thank you.

I think it's more demand-based, Gene. When you a finite number of sales hose reps and you have a good number of leads coming into the pipeline, those -- and depending obviously on how the compensation plan is structured, those sales reps have in the past tended to focus on the larger deals. And there's certainly one school of thought that says, that's what they should be doing, that's good for the Company, it's good for the shareholders, they're more profitable deals. But on a more macro level, our hope is to continue to expand in the small practice area, as well as maintain our focus in the mid range and high end. As I've said in the past, we don't want to shift our focus to the low end or the small practices. But we want to expand to that area. It's just that that expansion I think is going a little bit slower than we had hoped.

Okay, thanks, Pat. One last one. Can you just talk a little bit about the role of e-prescribing in your systems? Is that available to clients, and do you see that as a revenue-able opportunity?

E-prescribing is a part of our system, it's a part of our system that most of our providers use. It's a component that many of them will try to implement early on in the cycle, but we're not a company that breaks out a lot of its components and does a lot of free trials with [just-the-need] prescribing type of system. We tend to sell the complete solution and have the e-prescribing integrated with the rest of the product. We have considered lighter versions of the product, express versions of the product with e-prescribing and four or five other modules, and we continue to talk about that kind of thing. But we don't believe that it would be a good thing for us to break out a product that would sell for $100 a month, or in some cases, less, as we look around the market and the competitive landscape with just an e-prescribing solution.

Thank you.

Richard Close.

I was wondering with respect to your implementation teams or people out there installing the product, are you comfortable with the size of that part of your business? Are you recruiting now? Maybe a little bit more clarity on the size of that and expected growth there.

We continue to grow our implementation team, and yes, to answer the other part of your question, we are recruiting. We are recruiting in that area and in many other areas of the Company. I think our headcount is up over the last year, to 1.5 yeas, by more than a couple hundred people. So it's a company that is growing quickly.

Part of your question I think was getting at -- are we comfortable with the size of that department. We are at this point, but again, we are recruiting. And the reason I say we are at this point is that we also have partnerships and relationships with third-party firms who are trained and certified to implement our system. So should we need to lean on them, we can lean on them without staffing for peaks.

Then getting back to I guess the seasonality, or somewhat seasonality in the business, or the 50 new clients, did you see -- was there anything like the number of overall deals? Did that go down in the quarter maybe versus the second quarter, or did your win rate change at all in the quarter versus previously?

I don't think the win rate changed. We do take a look at those things pretty often. And no, I don't believe the total number of deals went down. I don't want to get into reporting the total number of deals each quarter, but I will say that, each quarter, there are literally hundreds of orders processed, obviously most of them from existing customers.

Thanks very much, congratulations.

George Hill.

First a couple of housekeeping items. I don't know if I missed these numbers. What were free cash flow and cash flow from operations in the quarter?

That will be in our 10-Q filing. Just look at our statement of cash flows. That will be filed shortly.

Okay. I had suspected that maintenance and revenue might be flat to slightly up from the previous quarter. Could you maybe talk about why it declined? By my model, this is the first time in a very long time that we have seen any sequential decline in maintenance and other.

There's a few moving parts in there. You have maintenance, you have EDI and you have other. Now what goes into other has to do with various -- with add-on services there. We have some subscriptions with some third-party software that we sell, and those things can have some amount of fluctuation from quarter to quarter. But if you look at the EDI numbers and the maintenance numbers, those were not down sequentially. Those were up.

You talked about wanting to be able to do more than we'll say between 50 and 70 deals or we'll say deployments a quarter. Do you guys feel like you're capacity constrained on the deployment side?

No, I think we're at a reasonable balance today. If we were doing north of 100 deals or 200 deals a quarter, we would certainly with the current staff be capacity-constrained, but we don't want to hire an implementation team and train an implementation team to do 200. It's more of a slow, steady, balanced ramp.

I also think, George, the spirit of Pat's comment was that we are -- we continue to try to hire in a responsible manner looking toward the future.

And I guess speaking to the future, I think this is the tough question that somebody tried to allude to earlier. I guess, Pat, with the Company's future looking so bright, I know a lot of investors are interested in why you would choose to liquidate your position at this time. Would you choose to put any color around that?

I will give you a little bit on that. As you know, people in my position have pretty serious restrictions on when stock is traded or how stock is traded. So a lot of people use 10b5-1 trading plans. And in my case, the stock went through a price threshold that I had set and I had no idea when the threshold was set that the stock would hit that threshold or when it might hit that threshold. As for my personal investment or diversification strategy, I just in don't want to get into that. But as I've said on this call, I feel good about the Company, the current quarter and how the Company is positioned and on into the future.

Okay. And I guess the last thing that it might ask you guys to speak about big picture is, it looks like the 5% cut to Medicare reimbursement to the physician practices is going to stick. I will say -- how do guys think about that and the selling process going forward, and the flip side of that being, does your agreement with Siemens, given the relaxations in the Stark law, kind of protect you or offset you from anything like that?

The way we look at it and the way we try to communicate it to our prospective customers is that a cut in Medicare reimbursement is all the more reason to implement a NextGen system that can help that practice see a solid return on the investment, can help that practice collect more of the money that they are billing and streamline their work flow and enhance their productivity and with the electronic health record systems, again, impacting, positively impacting, the financial side of the business. I think it's those practices that don't implement sophisticated systems that are going to really feel the pinch of Medicare and other payor cuts that would -- that might follow. The ones that have the foresight to go after these systems get them in and realize the results are going to be the ones that will fare well into the future.

Okay, thank you.

(indiscernible).

I have three questions for you. First one is on the revision of the comp plan, is this revision going to decrease the compensation expense on the annual basis? The second question is if you could give what percent of revenue is from Siemens and break out Siemens accounts receivables I guess growth as well on a sequential and year-over-year basis. And third, I was wondering when you set that trading threshold that you mentioned that triggered the sale of the shares?

I will take a couple of those. Relative to the comp plan and its projected impact on the financials, it's impossible to predict and we won't predict. It is the -- compensation plan is tied to certain performance criteria, and whether we hit those criteria or not is not certain at this time. So, therefore, the overall cost of the plan is not something we would speculate on at this point in time.

But is it fair to say that, for modeling purposes, it's probably true -- Is probably correct to model it as before, in terms of the annual number, kind of on the [facts], as people were expecting?

We have a long-standing policy of not providing guidance, and so unfortunately, while I appreciate your question, it's just not something that we're prepared to do.

Let me ask the other way. Is the compensation expense going to catch up in the next few quarters?

Same answer.

But what was the benefit I guess in the current quarter?

Again, what's your question?

My question is -- what is the benefit of this revision in the comp plan for the current quarter, for the September quarter?

We're not going to go into a blow-by-blow description of each part of the income statement. I appreciate the question, but --.

I just thought since you have highlighted it on the call that it's an important item, you would give it --.

What we wanted to do was (MULTIPLE SPEAKERS) on the SG&A question that was asked about the reduction in SG&A. But to get into the individual buckets and to say the revision of the compensation plans equaled X dollars is something that we're not willing or able to do. There were revisions to the compensation plans that contributed to the drop in SG&A. Whether those plans get revised again six months from now or a year from now or frankly next week is anybody's guess. I hope that helps, because that's about all we can give you.

On your next question relative to -- I tried to jot it down, you packed a lot of questions into a short amount of air time. But it sounded like you were looking for some granularity on specific revenue performance from Siemens. And, unfortunately, once again, we have a long-standing practice of not breaking out any particular customer in a granular fashion. So we will respectfully maintain that policy.

Would this be broken out in the 10-Q, given that it's a significant customer?

If it gets to the point where we have any 10% customers or greater, we have an obligation to disclose that and would do so appropriately.

So is it fair to say that Seimens was 10% then?

It is fair to say that, at present, it's under 10%.

And the same thing on accounts receivable, I would assume?

In Paul's prepared comments, he did reference a concentration in accounts receivable with Siemens that was approximately 13% of growth.

I see, got it.

And I think you had a third question that Pat may or may not elect to answer, relative to --.

I'm going to elect not go into any more detail on my personal trade of the stock, what the thresholds were set at and when they were set and the dates of the plan and when the plan was put into place and when it would have expired in those kinds of things. I also appreciate the question and the curiosity. But outside of the curiosity, the real key is, how do I feel about the Company and the Company's prospects for the future and those types of things. I think as I have said I feel pretty good about those things. You also may know that I continue to hold some additional stock options in the Company.

Right, okay. Fair enough. I'm just looking at the From 4 and trying to find that the sale was done under the plan and I cannot find any notes there.

You should.

I can't tell you that it was done under 10b5-1 trading plan. As to what it shows on the copy that you have, I cannot comment. (MULTIPLE SPEAKERS)

I just saw the note in there in the remarks. Thanks.

Thank you.

Richard Close.

Paul, I missed the depreciation. If you could hit me with that again -- the total and then the breakout, I'm sorry.

No, it tells me that somebody is actually paying attention. $679,000 -- I'm sorry you asked for depreciation expense.

Yes.

$440,000 consolidated, $57,000 for QSI and 383,000 for NextGen.

Thank you very much.

Noah Yosha.

Thanks for taking the question. I'm sorry if you answered this already, but what exactly changed with the executive compensation plan?

I think that's all the detail that we're prepared to go in.

There were some changes. We're not going to get into the granular detail.

Okay. And what is management currently -- what are bonuses based on, and just internal targets, financial targets?

We put out an 8-K on this. I don't remember the exact date, but I'm guessing it was -- help me out with this, guys, late July, perhaps -- which gives you plenty of detail there. And just so we don't bore everybody with going through position-by-position with the top four named executive officers, I would just point your attention to the 8-K, which goes through for Pat, myself -- Paul Holt -- and Greg Flynn, some information on the individual plans.

Great. And then just on the DSOs, were -- excluding Siemens -- were the DSOs up as well?

We're not going to break out DSOs ex-particular accounts. We've given you our DSO numbers, we've given you, as we typically do in our filings, the DSOs less the -- we have done our gross to net, the 135 down to 81, but we're not going to be at a place where we start breaking out variations on the theme.

What about just current trends? Should we expect that to come back down in the December quarter or --?

We don't provide first quarter guidance. We do have a lot of effort and activity in the Company related to collections and related activities. In terms of where the numbers fall, there are many moving parts to that calculation, and I would be not in favor of issuing projections or prognostications on that.

Fair enough. And then Pat, you mentioned the options. Do you own any stock at all right now?

I can honestly tell you that, as of this moment, I don't know the answer to that question.

Okay, fair enough. Thanks guys.

Vincent Maulay.

Just following up on Noah's question, why you cannot disclose the changes to the management compensation?

We could, we just have elected not to.

I was just curious why you have elected not to?

We have filed the plans themselves or the basic elements of the plans in the 8-K that I referenced, and in terms of getting more granular than that, we just choose not to.

There's actually not much of an answer that we could provide, even if we wanted to be because, you probably know, the plans have significant components for many of us that are performance-based. So outside of your looking at the major elements of the plan, in the filing, it's very difficult for us to say this is what is going to happen this quarter, next quarter, the quarter after that.

And just, Pat, why don't you -- presumably after you're done selling your stock, are you going to own any of it?

I don't think I will get into making that prediction.

Any reason why not? I understand diversification, but not -- I'm curious why you wouldn't want to be owning any of this stock?

I didn't say I didn't want to own any of the stock. I am going to stop there.

Okay, great. Thanks, guys.

George Hill.

Thanks for the follow-up. I think I'll try to make this simple. With SG&A this quarter lower than some people' expeditions or lower than your plan because of a change in the management compensation plan whereby expectations weren't hit and you guys were paid less?

In terms of (MULTIPLE SPEAKERS) other peoples' expectations, George, I really and haven't make it a practice or --.

I think you guys said that it came in below your expectations.

I think what we said is that it came in less than the year prior on a percentage of revenue basis, and we pointed to changes in compensation plans as one of the drivers of that.

Okay, thank you.

At this time, there are no further questions.

Thank you, everyone. I appreciate your attendance on the call, your interest in the Company, and we'll hope to chat with you in a future quarters. Thank you.

This concludes the conference call. You may disconnect.