NextGen Healthcare Inc (NXGN) 2009 Q1 法說會逐字稿

Good afternoon. My name is Shaquille and I will be your conference operator today. At this time, I would like to welcome everyone to the Quality Systems' first-quarter fiscal 2009 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 session. (OPERATOR INSTRUCTIONS)

Thank you. Mr. Lou Silverman, President and CEO, you may begin your conference.

Thank you, Shaquille. Welcome, everyone, to Quality Systems' first-quarter fiscal 2009 earnings call. Paul Holt, our CFO; Pat Cline, President of our NextGen Healthcare Information Systems division; and Donn Neufeld, Senior Vice President of the QSI Division, join me as participants on this afternoon's call.

Please note that the comments made on this call may include statements that are forward-looking within the meaning of the securities laws, including without limitation, statements related to anticipated industry trends; the Company's plans, products, perspectives, and strategies; preliminary and/or projected operating results; capital and equity initiatives and the implementation of; or potential impact of legal, regulatory or 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, 10K, 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.

I will now provide some summary comments on the quarter. Paul, Don, and Pat will follow with additional details. For the quarter, the Company recorded record revenue of $55.2 million, this represents 31% year-over-year growth, versus the prior year quarter. NextGen's revenue for the quarter was a record $51.2 million, up 34% over the prior year.

Note that the HSI revenue cycle management acquisition, which operates within the NextGen division, was acquired in a transaction closing on May 20, 2008, and that entity contributed $1.7 million to divisional and company revenues for the final few weeks of the quarter. Excluding HSI revenue, the NextGen division turned in year-over-year revenue growth of approximately 30%.

The QSI division reported revenue of $4.1 million, which was up over the prior quarter by approximately 2%. Aggregate NextGen operating income was up 43% over the prior year quarter and the HSI acquisition proved to be a modest contributor to this result. QSI division operating income declined by about $80,000 on a year-over-year basis. Corporate expenses came in at about $3.3 million, on the high end of our historical range. These expenses were driven largely by professional service fees on a variety of areas, including our year-end audit, the current proxy contest, as well as a variety of other items and initiatives.

Fully diluted earnings per share for the quarter was $0.40 per share, up approximately 38% over the year-ago quarter. As announced today with the Q1 results, our Board approved a 20% increase in the Company's dividend to $0.30 per quarter. With this increased dividend accruing to shareholders of record as of September 15, 2008, with an anticipated distribution date on or about October 1, 2008.

The Company's annual shareholder meeting will be held on September 4, 2008, at the Center Club here in Southern California. Belatedly, the Company's definitive proxy statement was filed on August 4. Regarding investor conferences during the June quarter, the Company presented at the Deutsche Bank and JMP conferences. The summer is a quiet time for investor conferences, as many of you know, but the Company's fall calendar is filling up quickly.

Regarding acquisitions, as we continue to move through the process of integrating HIS, we continue to review potentially interesting acquisition opportunities that come to our attention. Regarding the selection of a successor CEO, a search committee's and Board's work continues, and an announcement will be made just as soon as the decision is finalized. I have been told that the committee, the search committee, will be presenting its recommendations to the comp committee and the Board of Directors of the whole next week.

As is our custom in our earnings call, I want to clearly point out that there are no guarantees that the Company or any of its divisions will meet or exceed past present or expected levels of performance in the future.

In closing my prepared remarks for this call, I want to thank the NextGen, QSI, and corporate teams, our many clients, as well as the analysts and investors who have contributed to the Company's growth and success over the past eight years. I have enjoyed our work together and continue to be appreciative of the confidence you have demonstrated in the Company. Paul Holt.

Thanks, Lou. Hello, everyone. Consolidated system sales were $25 million this quarter, that is up 25% compared to $20 million a year ago. Our consolidated maintenance EDI and other services revenue rose 37% to $30.3 million, compared to $22 million in the prior year quarter. Excluding HSI, this category of revenue rose 27% compared to the prior year.

Our gross -- consolidated gross profit margin came in down just slightly at 65.2%, compared to 65.4% a year ago. The decrease in our gross margin over last year has several moving parts in there, but there is -- some of it has to do with hardware. Other parts have to deal with revenue cycle management services, which do have some lower margins compared to software, as well as some slight changes in our margins on EDI and the implementation revenue.

Total SG&A expense increased by approximately $2.7 million to $15.3 million, that compares to $12.6 million a year ago. The primary drivers of this increase was selling-related expenses, some legal and other SG&A expenses in the NextGen division, as well as higher corporate and wage expenses. SG&A expense as a percentage of revenue this quarter declined to 27.6% compared to 30.1% as revenue growth exceeded the growth in our SG&A expenses.

Our interest income for this quarter decreased to $374,000 compared to $739,000 a year ago. Our interest income in this quarter decreased primarily due to lower interest rates overall, as well as a portion of our cash being invested in tax-favored auction rate securities, which offer lower interest rates but higher after-tax yields compared to money market or short-term U.S. treasuries.

As of June 30, we had approximately $18 million in auction rate securities of which $2.9 million -- approximately $2.9 million was recorded as current due to their sale subsequent to June 30. At the end of last quarter we had approximately $22.6 million in total auction rate securities.

The Company's effective income tax rate increased this quarter to 38.3% compared to 37.9% in the prior year quarter. Our effective tax rate this quarter was impacted by both a lack of benefit from R&D tax credits, as well as a reduced amount of tax-free interest income received by the Company. As I noted in our last call, the R&D tax credit statute has lapsed as of January 1 of 2008 and, therefore, we will not be recording a benefit related to already taxed credits, unless Congress decides to reinstate the credit.

Moving on to divisional performance, our systems sales in the NextGen division rose 23% to $24 million compared to $19.5 million a year ago. Continued growth in the NextGen's base of installed users, as well as our recent acquisition, contributed to 46% higher revenue in this category at $27.2 million versus $18.6 million a year ago. Excluding HSI, NextGen's revenue in this category grew 37%.

Operating income in the NextGen division was up 43% to $19.852 million compared to $13.903 million a year ago. Our dental division reported a year-over-year increase of 2%, reporting revenue of $4.067 million compared to $3.982 million a year ago. Operating income for this division was $976,000.

Moving onto our balance sheet. I want to first point out a new item on our balance sheet, which is approximately $1.5 million in restricted cash. This balance consists of cash held by our newly acquired subsidiary, Healthcare Strategic Initiatives, which is acting as agent for the disbursement of certain government and social services programs. HSI earns an administrative fee which is based on a percentage of funds disbursed. There is also a current liability for the same amount included in other current liabilities to reflect the nature of this restricted cash.

Our ending cash balance, not including restricted cash, was affected by cash paid out for acquisition of HSI. This quarter we paid out approximately $8.3 million related to our acquisition of HSI and also repaid approximately $2.3 million in assumed debt. Despite these cash out flows, our total cash and marketable securities decreased by only approximately $2.3 million this quarter to $79.4 million, or $2.86 per share, as compares to $81.7 million, or $2.98 per share, at the end of the prior quarter.

As of June 30, we had 15 -- approximately $15.1 million of the Company's marketable securities included in long-term assets, due to the fact that these amounts related to the Company's positions in auction rate securities, which are no longer liquid due to failed auctions for these securities. In the June 30 quarter, we recorded an additional unrealized loss of $534,000 on or related to our auction rate securities. This is recorded as comprehensive income as opposed to being on our income statement according to GAAP.

Note also that the Company paid a dividend of approximately $6.9 million, or $0.25 per share, in April 2008 and again in July of 2008. Also, as Lou mentioned, the Board of Directors has declared an additional $0.30 per share dividend to shareholders of record on September 15 to be paid early as October 2008.

This quarter our DSOs increased by two days compared to the prior quarter coming in at 138 days. DSOs in the year-ago quarter was 145 days. DSOs net of amounts included in both accounts receivable and deferred revenue increased by three days compared to the prior quarter, and 88 days compared to 85 days last quarter. Our DSOs by division, this quarter was 92 days for the QSI division and 141 days for the NextGen division.

Our deferred revenue, which is maintenance services, that came in at $46.2 million. That is up $1.4 million from the prior quarter and up $5.6 million compared to the year-ago quarter. Deferred annual licenses and implementation and training in the NextGen division continued to grow in the June quarter versus prior periods.

Again, as I normally do, I am going to list out our non-cash expenses for the quarter, which break down as follows. Total amortization expense $1.196 million, that is $38,000 for QSI and $1.158 million for NextGen. Total depreciation expense $630,000 and $75,000 for QSI, $555,000 for NextGen. Non-cash stock option expenses $697,000.

Our investing activities for the quarter were as follows -- capitalized software $1.705 million, that is $47,000 from QSI and $1.658 million for NextGen. Fixed assets, total of $786,000, that is $514,000 for QSI and corporate, and $272,000 for NextGen.

Again, I want to thank you all for being on this call and your interest in our company. I would like to thank Lou Silverman for his years of service to Quality Systems. They have been good years for the Company and I trust good years for all of the investors.

I will turn things over to Pat Cline, President of our NextGen division. I'm sorry, we are going to move to Donn Neufeld.

Thank you, Paul. Thanks to everyone on the call for your interest in our company. The QSI division numbers have been addressed in detail by Lou and Paul, I would like to briefly address other areas of interest within the division. During the quarter, we continued to enhance our dental and clinical products, CPS, improving both the range of functionality and the ease-of-use for practitioners in the operatory. These continued enhancements allow us to further penetrate our user base that has not yet embraced the chartless office.

The quarter saw three new joint QSI/NextGen clients purchasing the CPS product. We see increased energy with our NextGen division with these joint sales. A note on our sales staffing 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 that I will turn it over to Pat Cline, President of our NextGen division.

Thanks, Donn. Hi, everyone. Once again NextGen set top and bottom line records. We are very pleased with that and we also showed solid growth over last year. During the quarter we executed about 65 new agreements and our pipeline currently stands at $85 million. Our sales force grew by one to 59 at the end of the quarter and we have hired a few additional salespeople since then. As I stated on the last call, I think we are improving the overall quality of our salesforce.

We are busy integrating HSI, the company we acquired last quarter, and things seem to be going well with that integration. We also seem to be adding new revenue cycle business and we look forward to solid organic growth in that area. Market demand remained steady, and we continue to win the key deals in the market place.

Thanks, again, to NextGen employees for their dedication to customer service and for being the best. Thanks also to our customers for the confidence that you have placed in the company and thanks to everybody on this call.

Shaquille, we are ready for questions.

(OPERATOR INSTRUCTIONS) Ross Muken, Deutsche Bank.

Good morning, gentlemen. Good afternoon, sorry. Looking at the strong growth you saw this quarter in NextGen, can you talk a bit about some of the overreaching factors we are seeing on the political end, whether it has been some stimulus? Anything that the government has done or any sort of change in legislation or what, if not that, would you sort of put towards the continued strength in that business?

As I have said on many calls, the market has been a good market. It has been nice and steady. There are a lot of drivers in the market that we have talked about in the past. To speak specifically to a part of your question relative to the government initiatives, programs, and recent laws that have been put into place, all of those are drivers from the stark relaxation or safe harbor to the e-prescribing bill.

I will also add that the growth that we achieved was a little bit easier this quarter, the quarter that we are discussing, because the comp last year was a little bit weaker. Not a lot, but it's also a [hey] factor so I thought it was worthy to mention.

Great. Lou, good luck in whatever you do post this endeavor.

Thank you, Ross.

Bret Jones, Leerink Swann.

Thank you very much. We have talked before, I know on the last call I have asked, add-on sales what that contributed in the quarter. I don't think -- I think you guys have declined to talk about that, but I'm wondering if you can address may be the percentage of the base that has been penetrated? I know Pat you said last time that there is still a considerable opportunity there. I was wondering if you could get a little more specific?

I can't get much more specific. There still is considerable opportunity in the existing customer base numbering in the many tens of millions of dollars at least, but to get more specific would be difficult. It's also tough -- one of the reasons that we don't break this out is that it's tough to describe, or to define rather, what an add-on sale is. We may have an existing customer or a partner who, as far as a billing entity is concerned, they will place an order, so you might call that an add-on sale. But that order might be for a brand-new practice, so is that a new sale or is it an add-on based on the distribution mechanism?

We also will do similar sales with existing customers where an existing customer, for example, we did a recent announcement on the banner deal, which was a nice transaction for us. That is an existing customer, but the licenses that they purchased, many of the licenses, probably all most all of the licenses, are going into brand-new practices. Practices that have never been NextGen customers who haven't enjoyed the use of the software. Again, is that new or is it an add-on? And I could go on, but it's really tough for us even to define what an add-on sale actually is.

Fair enough. I guess what I was trying to get at, just judging from the proxy that was filed over the last couple of days indicating that new system sales had only grown 8.6% over the last three periods. The growth has all been coming from increased maintenance and additional add-on sales. I was just wondering, one, can you confirm that 8.6% number? And then I just wanted to talk about the add-on, but you have already addressed that.

Speaking, I think, for myself, other managers, and the majority of the Board, if you are referring to Hussein's proxy, we think it's full of inaccuracies. Again, it's very difficult for anyone to define exactly what an add-on versus a new customer is for many, many different reasons. There is also another nuance that, because of the way deferrals work and revenue recognition rules work, very often if we are, let's say selling maintenance services at a price below VSOE, we might wind up deferring revenue out of the software that later comes in as (technical difficulty) That will cause maintenance to grow somewhat faster in the future, based on software license deferrals now.

Again, it's pretty complicated. There are some nuances. I can't confirm that new sales to new customers were only 8.6%, that is something I am not prepared to confirm.

Okay. Then the last question I would just like to ask. Enterprise deals in this quarter, can you discuss what percentage did they comprise of the new deals or give us any kind of sense for how much enterprise contributed this quarter?

We also don't break out enterprise deals. I will tell you though to give you, I hope, a reasonable answer to your question that we didn't see any material change in the number of large deals or very large deals versus small deals in the quarter. The banner deal with a nice large deal for us. But as far as the number of those type deals, or the mix, we didn't see a meaningful change quarter-to-quarter or year-to-year for that matter.

All right, great. Thank you. And good luck, Lou.

Thank you.

Richard Close, Jefferies & Co.

Congratulations on a good quarter. Just looking at the NextGen revenue, typically we are dealing with sequential downtick, obviously, after a strong fourth quarter. Was there anything, maybe, anything that got pushed from the fourth quarter to the first quarter that you can maybe give a little detail to?

No, there wasn't anything meaningful that was pushed from the one quarter to the other. You always have a fair amount of that. You never close all the business that you hope to in a quarter. Most quarters you wind up closing some of the business that you thought you would close or hope to close the prior quarter.

There wasn't anything meaningful in that regard. We hope we are continuing to improve the sales force. We think we are positioned very well as the leader in the market space. There are a lot of diverse drivers that we have talked about. There is no one thing that I can point to.

Okay. Maybe go the opposite way, maybe anything that was sped up from deals that you thought maybe were going to happen later in this fiscal year that got -- that were taken early, possibly?

Richard, I wish I could help you, but no there is nothing that is coming to mind.

Okay. So would you characterize the performance, I guess, on the NextGen in business in the first quarter as maybe a change in the overall market that there is an accelerated interest or an accelerated desire to buy the product now versus maybe deferring or putting off the purchases?

I guess I'm try to get at, what is your general thoughts on what the current environment is currently and has it improved?

It's very tough to look at these things on a quarter-by-quarter basis. When we had a great quarter, like we just had, we are proud of it. We will take it; it's terrific. But just like the negatives can't always be viewed as a trend quarter-over-quarter, the positives aren't necessarily a trend either.

As far as the market place, we haven't noticed a downtick in it. We haven't noticed a market uptake in the marketplace. We think it's a good market. Again, we think we are well-positioned as the leader in the market. There is again -- I know you live in a world, and I do in some respects, that is sort of a quarterly results driven world. But looking over the long term I continue to think is the best way to look at this investment and this stock and company.

Okay, thank you very much.

Thank you.

Charles Rhyee, Oppenheimer.

Thanks for taking the question. I guess my question is, obviously, you just bought HSI. The first acquisition you have done in a while and it seems to me that there is a lot of opportunities on the M&A front. But here you raised the dividend again -- or at the Board approved another raise in the dividend. Can you give me a sense on what the discussion at the Board level was on why the dividend needed to be increased here?

I will give you my opinion and Lou you might want to follow-on a little bit. The discussion, essentially, was an increase shareholder value discussion. Obviously, when you do a dividend increase you pay careful attention to the acquisition strategy. The other places where you might deploy capital, the future financial picture, and whether the Company can afford it. A lot of different things weigh into those discussions and conversations. Based on those things and more, we felt it was a good thing to do for our shareholders.

I would not say that the fact that we increased the dividend means that we should or are ruling out additional acquisitions in the future.

I mean, because it almost seems that you are underlevered here. You have zero debt on the balance sheet. One of your largest competitors is basically, effectively, doubling in size. Obviously, you can question the merits of that particular merger or not, but it does seem like in this environment we are starting to see maybe a pace towards greater consolidation. It's almost -- I sometimes get a sense and I would be curious to hear your impression, is there sort of a land grab out there for market share as it consolidates.

If not, then maybe it's not an issue, but if so, do you feel that the Company needs to, at some point, become more aggressive in that fashion? Or do you feel like maybe right now, because that perception is out there, people -- the multiples are sort of -- the asking prices are just kind of running through the roof?

There were a few questions in there. I won't comment on the large competitor doubling in size and what I think of that transaction. I also will tell you that there are a couple of ways to get market share. One is by taking it away from your competitors and another is by buying a company or by acquiring market share. We have, obviously, done a little bit of that in the revenue cycle space. We may do more of that, as Lou pointed out, we are continually looking and, in fact, over the last six months we have stepped up that program to follow through with our discussion previously, which is to look aggressively and acquire very selectively.

I think we have got a lot of room to run organically. I think we will continue to replace competitor systems now and over time. I don't see our success as being tied to our needing to acquire market share -- by acquiring companies, that is.

That is fair then. I guess then, as you have stepped up your effort you are reaching out to see what is out there and what might fit for Quality Systems here. Do you think that the prices, the valuations that people are asking for remain reasonable or do you think people are reaching at this point?

I think it depends on the space. I think it's tough for us to give an opinion on that. You almost have to do so on a company-by-company or opportunity-by-opportunity basis. Until to you really get to know the company or the target it's tough to say that the multiple or metrics are rich or are not. I do think -- I will say that there are opportunities out there that we would be interested in pursuing.

Okay, great. Thanks a lot. And Lou, good luck.

Thanks, Charles.

Constantine Davides, JMP.

Thanks. Just a first couple quick follow-ups on the CEO secession plan, it sound like you guys are pretty close. Can you maybe just a talk about that with respect to Lou's departure date and how close that is as well, and what your contingency plan might be there? Then, Pat, I think some speculation about whether that is something you would be interested in and I'm just wondering if you can comment on that as well?

This is Lou. I will take the first part of that. In terms of departure date, the plan is for next week to be my last week with the Company, based on the schedule that I referenced in my prepared remarks. Though it's not 100% guaranteed, it seems likely that the Board and related committees will be acting on recommendations of the search committee such that there is a good chance, but not a guaranteed chance, that a successor will be in place shortly prior to my departure. Pat, you can take the other end of that question.

Okay, I will try. While I was, and remain, involved in the discussions, my feeling has been for quite some time that our shareholders are best served by having me focus on the Company's growth engine as opposed to putting me in a different role.

Okay. Can you maybe just talk generally about what sort of candidates you guys are looking at? Are they coming within, healthcare IT, or have you had a pretty broad search at this point?

Let me say that, and this may be too vague an answer for you, and I apologize for that, but I'm not going in to go into more detail on it, both internal candidates and external candidates were considered.

Okay. Fair enough. Then second, I guess somebody talked about the transaction that is going on in the industry. Can you maybe just talk about your experience, I guess, specifically selling into the Misys space and has that changed at all over the last few months in terms of your ability to exploit that pipeline at all?

I would love to tell you that it has created a world of opportunity, it has significantly increased our pipeline, but I just can't. There are some opportunities. I might say that it's up slightly, because anytime you go through that type of change it creates a little bit of uncertainty, a little bit of fear. But practices tend to do their homework and competitors do a good job of spinning situations and trying to turn them into positives. Maybe very slightly, but nothing material.

Okay. Thanks for the color, guys.

Leo Carpio, Caris & Company.

Good evening, gentlemen. First to ask on the quarter, I had a couple of quick questions. Could you provide us some color on the competitive environment in terms of has the change shifted or is it pretty much the same as it was last quarter?

Pretty much the same as it was last quarter.

Okay. Then regarding HSI, what was the operating income contribution to the quarter for that?

We haven't given that out specifically. We reference the fact that it was a modestly positive contributor to the NextGen results in the quarter.

Any updates on the Siemens relationship, in terms of, I think that one is up for renegotiation for next year. Any sense there?

We have not put out anything publicly on that. Pat can comment further, but I think it's fair to say that right in here both sides of that relationship continue to be reasonably pleased with the relationship.

I would echo that. The relationship I believe is enjoyed by both parties. I can't think of anything that I have seen or heard that would indicate that the relationship will not be ongoing.

Okay. Then lastly, in the past you have given the statistic the number of combo deals that were combination EHR and Practice Management. Do you have a -- provide that color for this quarter?

Paul, do you have that?

Yes, it's about three-quarters of the deals were combo deals.

Do you have what was in the prior quarter?

I think the prior quarter is a little bit higher than that. I don't have the exact number, but I think it was probably closer to 80%.

Okay. Thank you and good luck, Lou.

Thank you, Leo.

Frank Sparacino, First Analysis.

Paul, could you give the ending headcount?

Why don't you stay tuned for the -- we are going to have the queue out here just shortly. Don't have that right in front me just yet.

Okay. Then maybe Pat or Lou, in terms of investment priorities when you look at products, services, or even sales and marketing, but maybe if you could just talk about for fiscal '09 what the priorities are and should we expect the level of spend to be similar to recent years? Is there anything unusual this year that would perhaps suggest greater investment than prior years?

This is Pat. I don't see any change on the horizon relative to substantially increasing spend or substantially reducing spend in customer service or product or in sales force. Our plan is to continue to grow the sales force. As I have stated in the past, our plan is to maintain the lead that we feel we have product wise. Our plan is to develop the reputation that we think we deserve, which is to have -- to become the gold standard relative to customer satisfaction and customer service.

Customer service is a top priority for us. It's something that we continue to invest a lot of money in and we are enjoying the results that we see.

Then maybe lastly, just going back, Paul, I guess to you. You made a comment on the margin change, I guess for EDI and implementation. Just wondering if you had any further explanation for that as it relates to the gross margin?

Well, the EDI margins are going to -- there is some mix issues there. There is different lines of the EDI business that carry different margins and so there will be -- you will have some amount of fluctuation depending upon the mix. On the implementation side of things, we have been adding resources in that area. When you -- initially those new resources may not be as profitable, but that is just part of our investment to get those people up and running.

Then of course, you have the revenue cycle management business, which as a service business, will generally carry lower margins than what we would carry on our software.

I have got some other data now on the headcounts. 705 employees, that is not including HSI. We added -- with HSI we added an incremental 200 to number.

An incremental -- okay, so 720 -- 725 then?

No, that is 705 organic and then an additional 200 that came along with our acquisition.

Okay. Thank you. Nice to job, guys.

Steve Halper, Thomas Weisel Partners.

Just on the sales force, on number of 59 you said you added one. I am assuming that one was a net. Can you say how many people left the firm in the quarter?

Yes, they one was a net. I don't have the exact number that left or were terminated. My sense though is that it might be one or two.

Okay.

And that would be typical.

So due to the consolidation of -- within your market space, are you seeing other hiring possibilities coming out of that?

We actually have seen an uptick in the number of sales resumes that have come into our company. I am not sure that I want to characterize it as something to do with a particular company or merger, those kinds of things. We actually see them coming from a few different areas.

Thanks.

You are welcome.

Jeff Schmidt, Sidoti & Company.

Thanks for taking my call, guys. I just wanted to quick -- I missed the pipeline numbers. I was wondering if you could repeat that?

On the NextGen side is $85 million.

QSI side it was $3.5 million.

Thanks. Then can you comment maybe on the mix of stark business that you are seeing, if there is any trends there?

Long-term trends the stark relaxation has been a positive for us and for the industry. It's very tough for us to nail it down on a quarter-by-quarter basis, because we would have to crawl out further into the customers' heads as far as what, exactly, motivates them and how much it weighs into their decision. But we do feel that it has been a help.

Is there any way you could quantify a year-over-year business mix? Or an attempt at it?

No, it would be tough. But my gut is that there is no huge change year-over-year. I think we have done a few more deals in the past year than perhaps in the prior year because of the stark relaxation. I think the larger deals have gotten, in fact, a little bit larger, but not a huge, huge swing.

Okay. Thanks, guys.

You are welcome.

Atif Rahim, JPMorgan.

Thanks. Most of my questions have been answered, but perhaps if you could touch on a market share related question. You said one of the ways to gain share is definitely either win new business or win a competitor's business or just buy it. But just digging a little deeper into that, if you look at your pipeline right now, how would you characterize that in terms of business that you think is with another competitor right now that you plan to win versus totally greenfield opportunity. I am not sure if you could even characterize it like that. And perhaps break it further into the practice management versus the EMR side?

That is a very good question, especially the last part of the question where you asked about breaking it down EPM versus EMR. Because you would almost have to, to answer that question. On the practice management side, the market place itself is somewhere between we think at 93% and 95% or 96% saturated. Just about all of those prospects that are in the pipeline, and we have already gone through the number of deals that we do that include that product, are replacements of somebody else's product.

On that side of the fence, our market share is relatively low because that is a market that has been around for a long, long time, since the late '70s and early '80s. But we are doing very well, we think, relative to capturing market share, that is new sales that we are making relative to new sales that our competition is making. On the electronic health record side, most of it is what you called greenfields. Most of it is practices that are not automated on the clinical sides and are coming in in others.

There is a small subset of our electronic health records perspective customer base that are replacements of competitor systems. We will typically replace a competitor system or two each quarter. I am sure they would tell you they find a customer of ours that they might replace as well, and that is just the nature of the beast.

I would like to dig deeper into that, if possible. Given the relatively young nature of the EHR market, what drives the replacement there?

Typically, it's either implementation headaches that a customer is having or they are not able to realize the benefit that they thought they would be able to realize. They haven't improved efficiency, they haven't improved their productivity. Some customers will get upset if a competitor puts a system in that is buggy or has problems and may not work, or a competitor doesn't honor their promises or those kinds of things.

Yet that customer wants to implement an electronic health record system, they might go back out to market. We have found some competitors customers that have had their systems for relatively short periods of time and generally that is either system bugs that they haven't been able to overcome or utilization or problems with the implementation.

It's also important to point out that just because a competitor's system might be replaced doesn't necessarily mean that that is all our competitor's fault. Sometimes the practice or the purchasing organization has turnover or isn't taking enough responsibility or those types of things. Sometimes it's a competitor stumbling, but very often it's just, for whatever reason, there wasn't a good match there.

Okay, thanks. I appreciate the color and also I would like to extend my best to Lou.

Thanks, Atif.

Frank Sparacino, First Analysis.

Just one follow, curious on whether the general economic issues have crept into any of the discussions, as well as the transition from NPI and impact perhaps to cash flow at the practices, which would obviously have an impact perhaps on spending in other areas. But just curious on your thoughts there?

Yes, I think the market is, and has been for quite some time, impacted somewhat by the NPI situation. You have probably read about and seen some of the press where the whole industry has stumbled. Relative to the rest of the industry, I think NextGen was able to be very proactive in that regard. Our customers didn't feel very much in the way of problems.

In fact, somebody suggested to be today internal to the organization that we make sure that our customers are aware what the rest of the industry went through and how our being proactive with our calls and with our software and all of the things -- all the steps that we took so that our customers didn't feel the NPI issues, how well they worked and so on.

There is always when the economy seems to be a little tighter, there is always some discussion. But as I've said on other calls, those practices that see that their reimbursement might be over time trending down and their costs over time might be going up, they tend to be our best prospects. Because our systems are designed to deliver terrific return on their investment, and help them to become more inefficient, help them collect more money, and help them to take their costs down.

Thank you.

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Thank you everyone for your attendance on the call, your interest and support of the Company. And good luck QSI.

Thank you.

This concludes today's conference call. You may now disconnect.