NextGen Healthcare Inc (NXGN) 2007 Q3 法說會逐字稿

Good afternoon, My name is Ben, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Quality Systems conference call. [OPERATOR INSTRUCTIONS] Mr. Silverman, you may begin your conference.

Thank you, Ben, and welcome, everyone, to our call, Paul Holt, our CFO, Greg Flynn, Executive Vice President and general manager of the QSI division, and Pat Cline, President of the NextGen divi -- NextGen Healthcare Information Services division once again join me on this afternoon's call. On today's call, the Company will be discussing its preliminary results for the quarter ended December 31, 2006. These results, which should now be on the wire, are deemed preliminary in nature because the Company has received written notification from the Securities and Exchange Commission stating that the Commission has initiated an investigation of trading activity in the Company's securities.

While making clear that the investigation does not mean the commission has concluded there has been a violation of law, the commission seeks Company documents and records concerning the chief financial officer. The Company intends to cooperate fully with the commission's investigation. The independent registered public accountant's review of unaudited interim financial statements for period ending December 31, 2006, to be filed on Form 10-Q is not yet complete, as auditors received notification of this investigation on February 1, 2007. We would appreciate on this call and thereafter your respecting our limited ability to provide further comments on this matter.

Additionally please note that the comments made on this call will 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; preliminary and/or projected operating results; capital and equity initiatives, pending litigation; any 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 the past many quarters, please continue to note that the Company's past performance, preliminary or otherwise, is not necessarily indicative of future performance.

I'll now provide some summary comments on the quarter. Paul, Greg and Pat will follow with additional details. For the December quarter, the Company expects to report revenues of $38.5 million, up approximately 44% over the prior year. Fully diluted earnings per share are expected to be $0.32, which would represent a 78% increase over the $0.18 earned in the same quarter of the prior year. This $0.32 figure is inclusive of an approximate $0.02 per share expense tied to the adoption of FASB 123(R), which is the accounting pronouncement related to accounting for stock options, as well as a little over a $0.01 per share benefit tied to reduction in our tax rate as a result of the reenactment of the R&D tax credit in December of 2006. Paul will have additional details on this item for you.

NextGen Healthcare's revenues for the quarter is expected to be $34.2 million which would represent a 50% year-over-year increase. Expected NextGen operating income of $13.4 million would represent a 70% increase over prior year. QSI division revenue and operating income performance is expected to be up over prior-year's performance. Revenue is expected to be up approximately 10% on year-over-year basis and operating income is expected to be up 44% on a year-over-year basis. Corporate expenses are expected to be $2.2 million, which would represent a 26% year-over-year increase. EDI revenue for the quarter is expected to come in at $4.3 million, which would be up 30% over prior year. I'll again remind listeners that EDI revenue is reported as part of divisional revenue for each quarter for each division. Cash and cash equivalents are expected to be $80.4 million, at quarter end, up from $74.7 million in the prior quarter. Head count at quarter end was 618.

Regarding investor conferences during the quarter the Company did present at the Credit Suisse, JMP and Piper conferences. JPMorgan initiated coverage on the Company during the quarter/ Between quarter end and the call the Company presented at the JPMorgan conference and the Needham conference. First Analysis initiated coverage of the Company as well in January. On February 1st, the Company announced that it would pay a $1 per share dividend to shareholders of record as of February 13, 2007, with an anticipated distribution date of February 28, 2007, as well as the establishment a of regularly dividend of $0.25 per share to commence after the conclusion of the quarter ended June 30, 2007, and continuing quarterly thereafter.

In closing my prepared comments for this call I want to clearly point out that there are no guarantees that the Company or either of its divisions will meet or exceed their past levels or expected levels of performance in future periods. It's possible that investors or analysts will 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 to the investment community and we do not comment on guidance advanced by members of the financial community.

I'll turn things over to Paul Holt.

Thank, Lou, and hello, everyone. Preliminary consolidated revenue increased to $38.5 million this quarter, an increase of 44% compared to $26.8 million in the year-ago quarter. Our preliminary consolidated systems sales of $19 million this quarter represents an increase of 41%, compared to $13.5 million in the prior-year quarter. Preliminary maintenance, EDI and other services revenue rose 47% to $19.5 million compared to $13.3 million in the prior-year quarter. Preliminary and consolidated gross profit margin this quarter came in at 67%, up from 64.9% a year ago. The increase in our preliminary gross margin over last year is due to a couple of factors; a relatively lower amount of hardware and third-party software as well as payroll expense as a percentage of revenue.

Total preliminary SG&A expense increased by approximately $2.6 million to $10.6 million in the third quarter, compared to $8 million a year ago. The increase in preliminary SG&A was primarily from increases in selling and compensation-related expenses in NextGen division, as well as higher corporate related expenses. Preliminary SG&A expense as a percentage of revenue this quarter decreased to 27.5%, compared to 30% in the prior-year quarter, primarily due to a significant year-over-year growth of revenue, which grew at a faster great than SG&A expenses.

The Company's preliminary effective income tax rate was significantly lower this quarter compared to the prior year at 35.6% compared to 37.6% last year. The reason for the decrease in the preliminary effective tax rate was primarily due to the reenactment of federal research and development tax credits, which occurred in December of 2006. The reenactment was retroactive to the start of our fiscal year. resulting in a catch-up research and development credits during the quarter December 31, 2006. The December 31, 2006, quarter preliminary income tax revision included approximately $369,000 or $0.01 per share -- per diluted share in net benefit related to R&D tax credits, including catch-up amounts from the first two quarters of the fiscal year. Before I move to divisional performance, note that third quarter preliminary results include $782,000 related to stock options due to the adoption of FASB 123(R). The after-tax impact of FASB 123(R) option expensing for the quarter was $587,000 or $0.02 per diluted share, and note that the prior-year quarter does not include FAS -- expensing of stock options under FASB 123(R).

In terms of divisional performance our preliminary systems sales in the NextGen rose 40% to $17.9 million this quarter compared to $12.8 million a year ago. Continued growth of NextGen's base of installed users drove preliminary maintenance, EDI and other revenue in that division 61% higher than last year at $16.3 million versus $10.1 million last year. Preliminary operating income in the NextGen division up 70% to $13.424 million compared to $7.904 million a year ago. The dental division reported preliminary a year-over-year increase of 10%, reporting revenue of $4.267 million compared to $3.867 million last year. Preliminary operating income for the division was $1.368 million.

Moving down to our balance sheet, our preliminary cash increased by approximately $5.7 million this quarter, to $80.4 million or $2.98 per share, compared to $74.7 million or $2.77 at the end of the prior quarter. This quarter our preliminary DSOs grew five days at 140 days versus 135 days last quarter. DSO in the year-ago quarter were 129. Our preliminary DSOs this quarter were impacted by a significant customer, which represented 20% of total gross accounts receivable as of December 31, 2006. We're also impacted by restaffing in our credit and collections group, as well as an increase in the amount of unpaid deferred revenue. We intend to work on bringing this number down. Our preliminary DSOs by division this quarter were 90 days for the QSI division and 146 for the NextGen division.

Preliminary deferred maintenance and services revenue was $40.5 million as of December 31. That's up $1.2 million from the prior quarter and up $4.6 million compared to the beginning of the fiscal year. Again, the primary drivers of the growth in deferred revenue is deferred com -- implementation and training, as well as maintenance services in the NextGen division. And again, for those of you who are tracking this, our preliminary non-cash expenses for the quarter break down as follows: Total amortization expense $832,000, that's $36 000 for QSI and $796,000 for NextGen; total depreciation expense $520,000, $57,000 for QSI and $463,000 for NextGen; stock-option compensation $889,000. And then our investing activities for the quarter were as follows: Capitalized software $1.303 million; $44,000 for QSI; and $1.259 million for NextGen. Fixed assets totaled a mil -- we invested $1.115 million and that breaks down to $62,000 for QSI and $1.293 million for NextGen.

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

Thank you, Paul, and thanks to those of you on the call for joining us. The QSI division,, as well as the EDI preliminary financial data have been addressed in detail by Lou and Paul, so I'll focus on software development achievements for the division and then other historical areas of interest for these calls. Most key for the division in the last quarter were our development and implementation efforts for the CPS Clinical Product Suite software package. We are clearly advancing on our goal of merging our business functions with our clinical functions. We are enabling practitioners to have knowledge and control of both their patient treatment and business management chair side. There are many new CPS developments to be debuted at our users group meeting beginning tomorrow. I am excited to see our users' reactions and I'm proud of our staff's effort in advancing our CPS product.

Now following the line of historical questions, I'll comment on our sales staffing and pipeline. Our sales staffing remains unchanged from last quarter and our pipeline is approximately $3.2 million. Our pipeline is defined as sales situations where QSI in the final three purchase choices and we believe that the sale will occur within 180 days.

With that I'll turn the call over to Pat Cline, as you know, President of our NextGen division.

Thanks, Greg. During the quarter NextGen executed approximately 80 new customer agreements, up significantly from the prior quarter and at the high end of our historic range. I'm also happy to report that the Company reached new highs in areas of customer service last quarter, for example, in response time related to customer support calls. Our sales force grew once again to total of 58 people and we're working hard to get many of our newer people up to speed. Our pipeline has also grown to over $70 million at this point. NextGen continues to win key sales in the marketplace and we feel very good about the Company's future. In closing I'd like to once again thank NextGen's employees for their hard work and our customers for their continued confidence.

Ben, we're ready for questions.

[OPERATOR INSTRUCTIONS] Your first question comes from Sean Wieland

Hi, thanks for taking the question. And I don't -- I haven't seen the numbers, at least I haven't seen them on my wire yet -- but I guess the first question that I have, you said that one customer was 20% of accounts receivable? Was this a deal that was signed in the quarter or was it a historical deal? Could you tell us who it is?

Well, Sean, this is Paul, we don't -- we won't get into naming any cus -- any individual customer, but that they do const -- this particular customer constitutes 20% of AR and that is about as far as we really can go.

Shen, this is Lou. That's aggregate AR. It's not bracketed into the quarter. Right?

Okay.

So it's total Company. It's the total Company. It's the accumulated AR over how ever much time, you know, the AR --

Okay, so it would it be safe to assume that it would be Siemens?

You're free to make whatever assumptions you want, safe or otherwise.

Okay. And you went over it a little bit fast on what we can ask you about on the pending SEC investigation. Can you just -- I missed some of the moving parts there. Can you just tell us what that is, again?

Well, I just -- all I said was that given the nature of this, that we'd appreciate your respecting our limited ability to provide further comments on the matter.

Okay. Is there a filing on that or will there be?

We will have -- that's a good question. I think that we have our press release has a little bit of texture on that, although not much more than I read. And then we will, with our queue, have some data in there. It's premature to speculate exactly what's going to be in there, but --

Okay.

The plan is you'll have essentially a repeat of what I read through in a couple of places, both in the transcript for this call and the press release will be pretty close to that, and then we'll more than likely put something in our Q when it's filed.

Just so you know, I can't find the release anywhere on the Wire, so there might be a delay in that.

I apologize for that and I know that we have people working on it. It'll -- it'll be out there at some point. It should be ou -- it should've been out there long ago. We do have people working on it.

Okay. Thank you very much.

Your next question comes from Atif Rahim.

I haven't seen the numbers either but just wondering, I missed the earlier comments on the SEC investigation. Perhaps -- could you explain to us why you can't tell us anymore about it than what you've told us at this moment, or at least when you received the notice of the investigation?

On that I think that at this point we're content to -- with the information. We'll leave it at the information we've provided thus far. Again, it is an investigation of -- into trading in the Company's equities, and the data that the SEC has asked for from us revolves around activities of Paul Holt, our CFO.

Okay. And do you have an expected da -- filing date for your Q?

We know what the deadlines are and we anticipate everybody working with maximum effort to meet those deadlines.

Okay. Thank you.

That is short of a guarantee, but that's -- certainly we know everybody's going to be working hard to get there.

All right. Thanks.

Your next question comes from Richard Close.

Great. thank you. We'll look forward to those press releases, as well. Just quickly, I was wondering if we could talk a little bit about -- a little bit about the sales force. You said you increased that to 58 this quarter. I believe it was flat last quarter at 52. Is that correct?

I think it was somewhere in that number. I don't have the prior Q number. I think 52 or 54, somewhere in there.

Okay. So with that being said, of the ten people you hired in the June quarter of last year, how many would you say are still at the firm or at the Company?

Well, I have to apologize. Again, I don't have that in front of me. Typically out of ten people hired, three or four may make it to the first year. Most of the turnover the first year would be caused by us as opposed to any other factor.

Okay. And then with respect to the 20% of accounts receivable, would that one customer have been 10% in the September quarter?

Richard, this is Lou. My recollection is that we did have an AR concentration in the September quarter. I don't remember the exact concentration of --

It was about 13%.

And we also would have an obligation to disclose the revenue concentration if it was greater than 10% and we -- in a quarter or on a year-to-date basis, and we haven't disclosed that.

Okay. And then final question because I know other people want to jump on here. But with respect to -- I believe you gave in your Q the level of -- in millions of dollars of sales with bars. Do you have that for this quarter, the December quarter, or should I look in the Q when that comes out?

Why don't you just stand by for the Q when that comes through.

Okay. Thank you very much.

Thanks, Richard.

Your next question comes from George Hill.

Good afternoon, guys. Can you explain, Lou, I don't necessarily understand why the investigation is delaying the filing of the Q?

Fair question and we continue to work with our auditors to make sure that they're ready to sign off and check off on our numbers, and I think they're just reviewing their audit procedures and internal standards to make sure that in the context of this investigation that they've completed all of the reviews that they need to. I don't think it's advisable for me to get into the business of charting out what the auditors are going to do or feel like they need to do. I know they're working on that and we intend to work with them to assist them in any way we can.

Okay. And just because I also have not seen the press release, --

You know, George, we have -- we're not sure exactly what's going on other than we keep getting assurances. Somebody said it just hit.

Did you say it is Paul or Pat that is the subject of the investigation?

Paul Holt, our Chief Financial Officer.

Okay. All right. Well that might explain a little bit more about the filing of the Q.

Actually let me clarify that. Nobody said that Paul Holt was the subject of an investigation.

Fair clarification, Pat. I --

Okay. And then the last question I would want to dig into is that you -- just to hit a couple of the numbers real quick, you said NextGen revenue was?

Paul, NextGen revenue?

NextGen System revenue is what you asked?

Yes.

$17.9 million.

And 80 new deals in the quarter?

That's about 80. I --

About 80 new deals? Well, I'll say according to my model that would indicate that average deal size is falling off a little bit. Are you guys seeing more traction down market I guess would be my next question or is my assumption there wrong?

Well, it depends on how broad a time horizon upon which you make your assumption. If you look quarter over quarter, certainly the average deal size would be down. If you look over a longer period of time I think you'll see that it's well within the historical range.

Okay, And [inaudible] any changes you guys are seeing in the competitive market? I'll just say from my perspective we've seen one of the smaller private companies get more aggressive, especially on price. Anything that you guys are seeing from a competitive or pricing perspective you'd like to comment on?

As I've mentioned on a couple of prior calls we see one or two of our -- actually a couple of our competitors getting more aggressive. As I think about it, I'll correct myself and say that I can think of three of our competitors that have gotten more aggressive on pricing. Fortunately NextGen has not had to react in any material way to that. We think we bring quite a lot of value at our current price structure. From time to time, if there is a deal or potential customer that is of strategic value to us, we may reduce our price, not to meet competition, but to push somebody who's sitting on the fence to our side of the fence. But I don't think our competitors' pricing tactics have affected us very much.

I'll ask one more brief question before I hop off. With the customer that is the outstanding DSO issue, is there anything that's different in their terms that would be different from the average customer that would lead to the increase in DSO days?

You'll see that in our Q that there is some impact on the terms that we've extended and that it has some impact on DSOs.

All right, I'll hop back in the queue. Thanks, guys.

Your next question comes from [Michelle McDonah].

Hi. Can you explain to me why your NextGen System sales were down $1 million sequentially?

Pat, do you want to take that one?

No, I can't. It's very difficult to look quarter over quarter. I think if you were to graph the Company's results over a two-year period, you'd see trends with respect to system sales and just about everything else are very positive. If the time horizon is one quarter, that's tough for me to react to.

Okay. Thank you.

Your next question comes from [Dan Katz].

My question's been asked. Thank you.

Your next question comes from Gene Mannheimer.

Thanks for taking the question. Pat, could you elaborate a little bit on the mix of bookings within NextGen, specifically practice management versus EMR?

EMR was a little bit up in the quarter but not out of the historic range. For those on the call that may not be familiar with that range, the mix of EMR to EPM in most quarters has been about equal. Lately there's been a slight edge on the EMR side that I attribute to the market. Also, about two-thirds to three-quarters of our sales of customers have attended to purchase both products, that the is the practice management and the electronic health record product, and not a material change in this quarter. It'll vary slightly quarter to quarter, but nothing big to report.

Okay. Thanks, Pat. With respect to the segments of the market -- say small, medium and high-end -- can you give us any color on how the bookings break out among practice size?

No, we typically don't report or break it down by practice size. While I don't have all that information in front of me, based on sort of my gut and my knowledge of the quarter, we fared pretty well in each of the segments. I don't think we saw a big shift from larger size to smaller or smaller to mid-range, or anything like that. It pretty well mirrors what we've done in the past.

Thanks, Pat. And final question, with respect to Siemens, do you typically invoice Siemens on delivery of software? And thank you for taking the questions.

We typically invoice on the delivery of software, I think that -- would have to answer yes. We do charge for our products.

However, while they may be invoiced upon delivery of the software, they also may have payment terms that are tied to other milestones or other time frames. So invoicing upon delivery of software isn't necessarily the same as payment for the software being due with the invoice.

Well said, Pat.

Understood. Thanks very much.

Your next question comes from David Sicily.

Hi. I wanted to touch on that systems sales question and ask, it seems like since Q4 of fiscal '06, I guess, the systems sales have peaked at $20 million and now have bounced around down to the $17.9, so kind of give us a sense of why that is. What's happening out there in the marketplace? I think it was Pat that spoke, you acknowledged that there's been tremendous growth over the last couple years in this area and it now seems to be flattening out and the business has been one in the maintenance and EDI space. So maybe qualitatively after you answer the first part, give us a connection between how your driving the ancillary revenues?

Certainly as the existing customer base grows and as our systems are accepted in the marketplace by the providers or physicians that are using them, those existing customers want to purchase more in the way of additional services, additional modules and those kinds of things. So sales to existing customers, whether that is services or EDI or those kinds of things are not -- I wouldn't characterize them as bad things. I think they're -- I think that's good and, again, a testimony to the software's success. And I don't necessarily agree with the notion that new system sales are flattening out. Again, if you look at a relatively short time horizon, you may conclude that. Again, I just don't necessarily agree with that conclusion.

I apologize for trying to box you into Wall Street view. I will concur that you've had it over time it's been growing, so I apologize.

I think the other [inaudible] is that Q4 number that you're referring to included a fairly good-sized chunk of revenue that was picked up from that Siemens transaction from last year, so you may not be using a fair comparison there in light of that individual transaction that we had last year.

Sure, but I was putting it in the context of what you said, which was that you had -- I believe the NextGen Systems sales were up 50% so you weren't really playing that to the -- if you want to quantify that Siemens push-out, that would be great.

Well, I think as we did disclose, we had $2.4 million that was recognized in that Q4 quarter.

And that was all Siemens, though, right?

Yes, that was that part of that --

Okay, so that helps us. Thank you. I didn't know that.

Your next question comes from [Blad Artimonos].

Actually it is [David Oncorn]. I've got some questions for you. You say that the investigation relates to the trading activities and you say that you've asked -- they've asked for records relating to the CFO. Does the record request exclusive to the trading activities of the CFO or is the information request broader than that?

We've said what we have to say on the investigation at this time. We're not at a place where we're going to go into an extreme level of detail.

Well, what I'm getting at is, is the investigation relating around the Company's activities based upon the information request request from the CFO or is it strictly around trading activities?

It is the - -the information sought is are documents and records concerning the activities of our CFO.

But broader than just his trading activities?

I don't think we can characteri -- it's tough for us to know exactly what, other than what's been asked -- the information that's been asked of the Company, exactly what is being looked into. I want to repeat that -- well, let me just say that I've got every confidence in Mr. Holt. I think if the Company felt that there was any wrong-doing, Mr. Holt may not be on this telephone call. and I'll add that as far as I know the Company is the target of investigation.

I'm sorry. As far as you know the Company is not the target of investigation?

Yes, that's what I said.

Okay, thank you very much.

Your next response comes Chris Leonard.

My question's been answered. Thank you very much.

Your next response comes from Craig.

Thank you. Good afternoon. On the NextGen market environment, can you comment on whether any kick-back statute -- Safe Harbor and Stark exception that were enacted at the beginning of the quarter -- had positive, negative neutral impact on new sales volume?

I think the -- once again looking over a little bit of a longer time horizon, the relaxation of the Stark regulations has positively impacted NextGen and our competition. I think the market has heated up. The relaxation of the Stark laws is if it - if customer organizations take advantage of it, those organizations would be typically the larger organizations, larger opportunities, and the sales cycles typically associated with those organizations tend to be drawn out, but I do think that over the last quarter we have seen some benefit from it, yes.

Good, thank you. And with respect to subscription-based pricing, could you comment on your thought process on that right now, and both from a market perspective competitively what's going on as well as your own products and services and what you're thinking about there?

Well NextGen's licensing model is to sell software licenses and provide help in having customers finance those licenses over a longer period of time. If they'd like to pay for them by the month, we also offer subscription model pricing. Subscription model pricing is something that's preferred by, at this point, a small, in our opinion, subset of the market, but we'll keep -- we need to keep an eye on it.

Thanks, very much.

You're welcome.

Your next question comes from Richard Close.

Yes, with respect to head count, you gave us the sales people. Can you talk a little bit about any additions in terms of numbers on the NextGen side for implementations?

Richard, this is Lou. We -- just to pop in the line here front of Pat, we gave you total Company head count. We haven't typically broken out department by department. Pat may have additional granularity on this, but from my perspective it is fair to say our additions to head count on a long-view basis have been relatively consistent across all departments of the Company. That is to say, our additions have been spread out through many, many of our departments. We believe that that is said as a good way to run a business, to continue to reinvest and bolster the roster of the key departments in the Company to keep up with growth that we've enjoyed in the past and hopefully to serve as a foundation for growth in the future.

Okay. What was head count then? I missed that, I'm sorry.

I believe 618 Company wide. I'm just checking here. Yes, 618 at quarter end, total Company.

I'll add a little more texture to that. Over the six or nine months I think we've added somewhere in the neighborhood of between 30 and 40 people in the Company, between our implementation and training department and our customer support or customer service departments. It's somewhere in that range. Again, I don't want to get into a habit of breaking that out every quarter, but just to give you a texture over that longer period of time, the Company is increasingly focused on customer satisfaction and customer service. We think strategically that's a way that we can continue to protect our margins and our pricing, and we -- in addition to continuing to grow the sales force, we'll continue to grow our service staff accordingly.

And then a final question. Maybe how would you characterize how you guys see yourself in terms of market share and then possibly thoughts on your win rate in competitive situations?

I don't have our market share numbers in front of me. It's something that we do pay attention to and we're very pleased with where we are relative to market share, share of new sales and especially our share of those key strategically important sales that are highly competitive. We win our fair share of the ones that we want to win.

Okay. Thank you.

Your next question comes from Len Podolsky.

Hi, guys. Thanks for taking the follow up. Question for Lou. Do you guys plan on doing a follow-up call after the finalized numbers come out?

Good question and I'm just going to leave that as an open item at this point in time. We'll just play that by ear.

Okay, sounds good. And then moving on to the business, on the last call you guys commented that revenue from existing customers was up as a percentage of revenue sequentially. Can you give some commentary on that on the December quarter?

Revenue from new -- from existing customers?

Yes.

Well, I think what we said was last quarter we didn't give out any numbers but we said that revenues with existing customers were up significantly that quarter, and did have an impact on that quarter. I think that's that is what we said for the prior quarter. This quarter, if we're getting into -- I'm not going to get into quantitative --

Right. Yes,I think the commentary was pretty qualitative.

And qualitatively I think we went to a little bi -- more of tra -- more traditional mix of existing versus new customers.

Okay.

From a qualitative point of view.

Okay. Was there any concentration that had an impact there?

As we talked about, Len, the concentration that we referenced last quarter in the Q was a receivables concentration. We also talked about a similar concentration for this particular quarter. And we also mentioned that there was no disclosable -- or disclosable revenue concentration in either of those quarters.

And then one final question for Pat. You mentioned on the last call that one of your goals is to figure out how to sell 100 to 200 systems a quarter, versus 50 to 70. I guess, \anything in the hopper that you have on that front to get you guys to that goal at some point?

Well, we'e -- we have a number of initiatives under way in a lot of different areas of the Company. I've alluded to one or two of them. We have some things that we're pretty excited about relative to partnerships, and in particular our partnership with Siemens and the additional opportunities that may come down the road. But while we feel very positively about our future, including the number of systems per quarter, again, it's not really something that you can look on a quarter over quarter, and maybe not even a year-over-year basis. What I was talking about -- well, I'm not sure what particular call you're referencing, becau --

It was the November 2nd call.

Okay. I've talked about that a couple of times also with respect to scalability, and that is how do we leverage our training and implementation resources across a broader base of customers to make sure that when we have that type of demand that we can adequately deliver and adequately train our customers and continue to do a great job for them.

I'm sorry. One final, final question, and I promise I'll leave it at that. Any update on the small practice product?

Not that I'd want to go into on this call. I apologize.

Okay. Thanks, thanks very much.

Thank you.

Your next question comes from Richard Adams.

Yes, hi. Do you guys have a cash flow from operations number for the quarter?

We will as soon as we file the Q. I've got -- why don't you just wait until we get the Q, which we'd like to get out shortly.

Okay. And then just to clarify the DSOs coming up five days, did you say all of that was attributable to the one customer, or just part of it?

Well, I mentioned a couple of -- three factors. I think it's safe to say that the -- that significant customer was a part of it, but I wouldn't -- I don't have some kind of a finely tuned analysis that breaks it all out for you, but I did -- I mentioned the three what I -- we felt were the most significant factors there.

Okay. And then just lastly I think you mentioned seeing some pricing pressure from some competitors and I think eClinicalWorks was mentioned. Have you seen them moving up into the mid--market segment from the small segment? Are they becoming a competitor in -- from a head-to-head basis?

I'm not sure that ECW was mentioned but now that you mentioned them, not anymore than usual. We've seen them from time to time for a while in that mid--market segment and we're very happy with the way that we fare in that segment as well.

Okay, great. Thanks, guys.

Your next question comes from Donald Rich.

Hello? Thank you for taking my question. Guys, you had a financially -- looks like a great quarter. I've basically two questions: Number one, do you have procedures in place and policies in place for trading the Company stock for employees, officers and directors?

We have a policy, yes.

And the second part, your cash on hand looks pretty decent, but going to a subscription or permitting a prescription -- subscription basis and 140 days DSO and paying a dividend, is this going to strain your cash on hand at all?

The board of directors, when they were looking at this issue, took into account a whole bunch of factors and concluded that this was a prudent decision for the Company. And clearly we need to continue to execute as a Company to avoid the risks that you are pointing out. But I think it's fair to say that that was taken into consideration as the board deliberated and drew their conclusion.

Thank you.

I'll also add -- this is Pat -- that I didn't mention that we were moving to a subscription model. I just mentioned that we had offered a subscription model, but our primary model is selling licenses. There hasn't been any major shift of focus relative to subscription-based pricing. And finally, our DSOs, as we've talked about on a couple of prior calls, tends to be sort of artificially inflated. Paul, do you want to quickly go into the deferral issue?

Yes, we have -- on our balance sheet we include in accounts receivable amounts that are -- that are sitting in accounts receivable as well as in deferred revenue, and we call it unpaid deferred revenue. And we have disclosures in the Q which allow you to calculate DSOs on a gross basis or on a net basis. On a net basis, although I don't have the number in front of me, it's substantially less than on a gross basis.

Okay, thank you.

Thank you.

Your next response is from Michelle McDonah.

Hi. Can you tell me what the tax rate we should apply for next quarter and next year, please?

You know, we don't have a practice of giving out any forwarding guidance like that. Unfortunately I'm afraid I can't -- I can't really give you guidance about the future on our tax rates. I can just talk about what we're reporting on today.

Okay. And another question is when the board voted on the dividend, did you have knowledge of the SEC investigation at that time?

I'm not going to comment on that at this time.

Oh, okay. Thank you.

No other questions.

Okay. Well, thank you, everyone, for joining us on our call today, and we'll look forward to chatting with you again down the road. Thank you.

That concludes today's Quality Systems conference call. You may now disconnect.