NextGen Healthcare Inc (NXGN) 2009 Q2 法說會逐字稿

Good morning. My name is Berlice and I will be your conference operator today. At this time, I would like to welcome everyone to the Quality Systems Second Quarter Fiscal 2009 Earnings Conference Call. (OPERATOR INSTRUCTIONS) Thank you. Mr. Steve Plochocki, you may begin your conference, sir.

Thank you, Berlice, and welcome, everyone, to Quality Systems Second Quarter Fiscal 2009 Earnings Call. Paul Holt, our CFO; Pat Cline, our President of our NextGen Division; and Donn Neufeld, the Senior Vice President of our QSI Division, join me this morning as participants.

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

I will now provide some summary comments on the quarter, and then Paul, Donn, and Pat will follow with additional details. For the quarter, the Company recorded record revenue of 59 million. This represents 31% year-over-year growth versus the prior year quarter. NextGen's revenue for the quarter was a record 54.9 million, up 33% over the prior year. The HSI revenue cycle management acquisition, which operates within our NextGen Division, was acquired in a transaction closing on May 20, 2008, and that entity contributed 4.2 million in divisional and company revenues for the quarter.

Excluding HSI, the NextGen Division turned in year-over-year revenue growth of approximately 23%. The QSI Division reported revenue of 4.1 million, which was up over the prior year quarter by approximately 3%. Aggregate NextGen operating income was up 23% over the prior year quarter. Corporate expenses came in at about 4.1 million on the high end of our historical range. These expenses were driven largely by professional service fees in a variety of areas, including the year-end audit, proxy contest, as well as a variety of other items and initiatives.

Fully diluted earnings per share for the quarter was $0.37 per share, up approximately 6% over the year-ago quarter. In the quarter, Management prevailed in a proxy fight with dissident shareholder Ahmed Hussein. Expenses related to that fight resulted in a reduction of earnings per share by approximately $0.03. We also had an additional $0.02 of higher than normal legal costs related to several other matters. These matters are now largely behind us. It's business as usual on a going forward basis.

We recently announced the closing of our purchase of PMP, Physicians Practice Management, which is a revenue cycle management company. We're pleased to have [Terry Snyder], [Don Goode], and the entire PMP team onboard with our NextGen Division. We also had our first annual Analyst Day at our NextGen operation in Horsham, Pennsylvania on August 21. That was my first week on the job and it afforded me the opportunity to meet many of you who are on this call today.

I'll now turn it over to Paul Holt.

Thanks, Steve, and hello, everyone. As Steve mentioned, we were pleased to report our consolidated revenue of $59 million representing a 31% increase over the prior year. Our consolidated revenue growth, not including our recent acquisition of HSI, was 22%. Earnings per share of $0.37 would have been $0.42 outside of proxy related expenses and unusually high legal expenses mentioned in our press release.

Consolidated system sales of 24.8 million was up 14% as compared to 21.7 million in the prior year quarter. Our consolidated maintenance, EDI, and other services revenue including revenue cycle management, rose 46% to 34.2 million, compared to 23.5 million a year ago. Excluding revenue from our recently acquired HSI acquisition, this category of revenue rose 26%. Our consolidated gross profit margin this quarter came in at 64%, down from 67.3% a year ago. The decrease in our gross margin over last year was due primarily to the inclusion of revenue cycle management services at lower margins, a higher amount of hardware included in our system sales, and lower margins on our EDI revenue compared to a year ago.

Our total SG&A expense increased by approximately 5.1 million to 18.3 million in the quarter, compared to 13.2 million a year ago. The primary drivers of this increase was approximately 1.2 million in proxy related expenses, approximately 1 million in legal expenses incurred in the NextGen Division, related to several other matters, which are now largely behind us, other SG&A expenses in NextGen, including HSI, and some higher corporate related expenses. SG&A expense as a percentage of revenue this quarter increased to 31% compared to 29.2% as the unusual proxy and legal expenses pushed up our SG&A expenses faster than revenue growth.

Interest income for the three-month period ended September 30 declined to 340,000, compared to 645,000 in the year ago period. Our interest income in this quarter declined primarily due to lower interest rates earned on our cash investments, as well as a larger portion of our cash being invested in short-term U.S. treasuries, which have had significantly lower interest rates compared to prior--other periods. As of September 30, 2008, we had approximately 12.7 million in auction rate securities. The end of last quarter we had approximately 18 million in auction rate securities.

The Company's effective income tax rate decreased to 36.3--or I'm sorry--increased to 36.3% compared to 36.1% a year ago. Our effective tax rate for this quarter was impacted by the lack of a benefit for R&D tax credits as well as a reduced amount of tax-free interest income, which was received by the Company in the quarter. This was partially offset by a large amount of stock option exercises resulting in some tax benefit to the Company.

Moving on to divisional performance, system sales in the NextGen Division rose 14% to 23.9 million, as compared to 21 million a year ago. And continued growth in NextGen's base of installed users continued to drive higher maintenance, EDI, and other revenue in that division. Total maintenance, EDI, revenue cycle management, and other revenue grew 54% at 31 million versus 20.1 million a year ago.

Revenue in this category grew 33%, not including the 4.2 million in HSI revenue. Operating income in the NextGen Division was up 23% to 19,302,000, compared to 15,699,000 a year ago. Our QSI division reported a year-over-year increase of 3%, reporting revenue of 4,113,000, compared to 4,006,000 last year.

Moving on to our balance sheet, our total cash and marketable securities increased by approximately 3.1 million this quarter to 82.6 million, or $2.92 per share, compared to 79.4 million, or $2.86 at the end of the prior quarter.

Note that the Company paid a dividend of approximately $6.9 million or $0.25 per share in July of 2008 and 8.6 million, or $0.30 per share in October of 2008. The Company's Board of Directors has declared a $0.30 dividend for shareholders of record on December 15, 2008, to be paid early January 2009.

This quarter our DSOs increased by two days compared to the prior quarter at 140. DSOs in the year-ago quarter was 138 days. DSOs net of amounts included in both accounts receivable and deferred revenue was unchanged at 88 days. Our DSOs by division this quarter was 88 days for the QSI Division and 144 days for the NextGen Division. Our deferred maintenance and services revenue at 46.1 million was down by .1 million from the prior quarter and up 6.2 million compared to the prior year. The amount of deferred maintenance revenue declined slightly on a sequential basis due to the timing of certain maintenance billing. Our deferred annual licenses and implementation and training in the NextGen Division continued to grow in the September quarter versus prior periods.

For those of you who are tracking this, our non-cash expenses for the quarter break down as follows. Total amortization expense, 1,267,000, that's 40,000 for QSI and 1,227,000 for NextGen. Total depreciation expense, 705,000, that's 82,000 for QSI and 623,000 for NextGen. Stock option compensation, 431,000. And our investing activities for the quarter were as follows. Capitalized software, 1,465,000, that's 69,000 for QSI and 1,396,000 for NextGen. Investments and fixed assets totaled 684,000, that's 93,000 for QSI and 591,000 for NextGen.

And again, I want to thank you all for being on our call and your interest in our Company and I'll turn things over to Donn Neufeld.

Thank you, Paul, and thanks, everyone on the call, for your interest in our Company. The QSI Division numbers have been addressed in detail by Steve and Paul, but I'd like to briefly address other areas of interest within the division. The quarter saw growth in new clients purchasing the QSI electronic dental record along with the NextGen EPM and EMR. We had four joint sales during the quarter up from three last quarter. QSI is the only company that can deliver the full functionality of an electronic medical record, electronic dental record, and enterprise practice management from one vendor. This positions us well with entities that deliver both medical and dental services, especially the government funded health centers. There are over 1,000 of these organizations nationwide with over 7,000 locations.

A note on our sales and staffing pipeline, our sales staffing remains unchanged from last quarter and our pipeline is approximately 4.3 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'll turn it over to Pat Cline, President of our NextGen Division. Pat?

Thanks, Donn. Hi, everyone. During the quarter, the Company executed over 70 new agreements and our pipeline remained steady at 85 million. Our sales force grew by seven to 66 people by the end of the second quarter. As you saw from our filings, we closed the PMP acquisition this week with Practice Management Partners. It's my pleasure to welcome them and their customers into the family.

I've been asked a number of times whether or not the economy or credit tightening has or will affect our business, so let me answer that in my prepared comments. While we did have a couple of medical practices during the quarter let us know that they were holding off because of a general economic concern or fear, our new customers don't seem to be having problems securing credit to purchase systems. Who knows what the future is going to hold with this economy, but so far it hasn't affected us very much. Market demand seems steady and we continue to win competitive deals in the marketplace.

Thanks again to NextGen employees for their dedication and hard work. It really makes a difference. And thanks, also, to our customers for the confidence that you've expressed in NextGen Healthcare.

Berlice, we're ready for questions.

(OPERATOR INSTRUCTIONS.) Your first question comes from the line of Ross Muken with Deutsche Bank. The line is open.

Yes. Can you talk about some of the early successes you've had from a revenue cycle standpoint in terms of cross-sell? Or at least, if that sort of started--hasn't started to manifest itself, at least the conversations you've had within the existing base and what types of customers seem to be most interested in the new offerings that you guys now possess?

Sure. I would characterize it as--although it's early in the game, we have seen significant interest from HSI's customer base in the electronic health record system. We've seen significant interest in the NextGen base in revenue cycle services, and we've seen some early successes relative to executed deals that will be coming on in the coming months to add revenue. As we've discussed in the past, our strategy is to cross-sell services and systems while increasing revenue, integrating the sales force, adding a layer of sales and marketing to increase the revenue. And then, also, realized economies of scale and other cost savings in many different areas and systems, and labor and EDI and those kinds of things. And so far, I think things are going according to plan. There's a little bit of offset as you bring on significant revenue in this business in that you sort of precede things with a little bit of expense as new accounts ramp up. But outside of that sort of revenue lag, I think things are going very well.

And relative to your comments on the sort of economy, I mean, I think of this market, obviously, in sort of different segments. At the lower end of your customer base into the smaller doc offices, are you sort of anticipating a bit of contracted demand in '09, and sort of the consumer in general, of which doctors clearly are, is obviously not feeling as optimistic about their business? And if so, do you think there is any sort of potential offsets by things being done at government like the EHR demonstration project, and then obviously what CMS announced last night relative to ePrescribing?

The bottom line on the first part of the question is I just don't know. I think we might anticipate a slight slow down on the very low end, but overall I don't anticipate a slow down. Medical practices are certainly not recession proof and sentiment weighs into things. But much more of our businesses is mid-range and high end. And to the second part of your question or statement, to validate it, yes, we do see with various government programs, grants, ePrescribing, other adoption programs that are being put out, somewhat of an offset and hopefully more than an offset. I think we still have some good tailwind in this business.

And just lastly, quickly, not to take too much time, but in terms of getting just back to the revenue cycle piece for a second, given we're sort of in a capital constrained environment, you guys are obviously good generators of cash flow. Do you anticipate using sort of the struggles of smaller companies in terms of their access to capital as a means to do maybe a bit more deal work, buying smaller entities in the next 12 months?

I'm not going to rule out additional acquisitions, nor will I tell you that it's a significant part of our strategy. Certainly, the PMP acquisition coming shortly on the heels of the HSI acquisition gives us more in the way of capacity, geographic coverage, and other synergies, management synergies and those kinds of things. But our strategy has not changed from or deviated from an organic growth--a significant organic growth strategy to one of growing through acquisitions. So to the extent that we feel based on demand we need the additional capacity or there are other significant synergies, we'll look at additional deals. But I think our past will--in that regard will remain our future, and that is looking at deals more aggressively, but being pretty selective as we go on.

Great. Thanks, Pat.

Your next question comes from the line of Donald Hooker with UBS. The line is open.

Thank you. Good morning. You mentioned that the revenue cycle business was a little bit of a drag on margins in the quarter. Can you maybe give some color as to what those margins were for the revenue cycle and where they can go, kind of so we can think about that going forward?

I can give you a little bit of color. I don't want to get into the exact margins and those kinds of things. But these businesses are lower margin because of the service orientation traditionally than the software license business. However, we do have, as I mentioned, in our strategy a two-fold program. One is to layer on additional revenues with higher margin contribution. And also to pull costs out of these businesses through economies of scale and EDI and to remove costs that these businesses have traditionally had, for example, purchasing software licenses and software maintenance and those kinds of things. And also, deploying our technology, which is very advanced, to its fullest, we believe we'll also be able to take labor costs down.

So we've got a number of different things going on to improve the--what are traditional margins in that business and we wouldn't be pursuing that business aggressively if we didn't think we could be very successful at it. So it's a little bit of color, but I'm not going to get into the specific numbers.

That's fair. Maybe some more questions. Looking forward, I mean, should we anticipate any sort of integration or transition costs, as you have a couple of these businesses now and you have your own business and kind of pulling it all together?

Well, there are always some costs associated with that, but no, I don't think they'll be significant. I think we'll have them well under control.

Okay. Guys, let me ask one more and I'll jump off and let others ask. As a follow-up to the earlier question about the physicians, also, I guess with respect to hospitals. I mean, are you seeing any kind of read-through from them in terms of I guess Stark Agreements or anything like that? Are they having funding problems for Stark?

So far, so good. I would say the credit or funding issues have hit hospitals a little bit harder than they have the mid-size and high end practices. But we have not seen a big slowdown in that area.

Thank you.

You're welcome.

Your next question comes from the line of Bret Jones with Leerink Swann. The line is open.

Thank you. Just to follow up on some of the comments earlier. When you talked about the medical practices that held off in the quarter, were they existing clients that were buying additional licenses or were these new clients?

The ones that I know of are new clients. I would guess that maybe there were a couple of others that I didn't hear about. But the ones I know about were potential new clients.

Okay. And when we think about some of the large enterprise clients that you have and the low penetration you have as far as implementing that base, do you think of that--is that essentially backlog or are these more master agreements that we'll implement in phases as you guys execute?

More of the latter, Bret.

Okay, great. And you've already talked about the margin compression. Speaking of the revenue cycle and the margin compression, you didn't want to get into a target as to where you think those margins could get to or you just didn't want to talk about where they are currently?

Both. I would--let me characterize the target for you to give you a little more texture though. I believe that if we do a great job we can get to the same type of margins, that is net margins, that we enjoy in the software business. But I won't say that we're going to be able to do that with these organizations immediately. That's something that we strive for over time.

Any sense for what timeframe that would take or--?

--Well, the bottom line is no.

Okay.

We do have internal targets and internal plans, but I'd rather not share those with you.

Fair enough. Last question I'll ask, and then I'll jump back in the queue. Can you contrast the PMP offering with the services that you purchased from HSI in terms of the technology they're utilizing to approach revenue cycle management? Thank you.

Certainly. These two organizations are very, very similar with respect to the systems that they use, the processes and procedures that they use, the size of the customer base, revenue numbers, and many other things. They're both terrific companies that we're delighted to have onboard. Each one brings a couple of services that the other one does not and a couple of proprietary technologies or methodologies or sciences that can be deployed and used by the others and in some cases used by the broad NextGen customer base. So very similar companies, but some things very complementary as well.

Thank you.

You're welcome.

Your next question comes from the line of Atif Rahim with JP Morgan. The line is open.

Hi. Thanks. Pat, I guess, could you comment on what benefits you see from the R&D tax credit now that it's essentially gone into effect going forward? And then, secondly, could you give us any more color on what the other legal matters were during the quarter that cost about a million?

I can try to give you a little texture. We're not going to get into the details on the additional legal costs. But I will tell you that they are--they were not customer related, if that helps. Relative to the R&D tax credit benefit that we may pick up in the current quarter and/or in future quarters, I think as Steve mentioned, there can be some--or is likely to be some residual effect from those increased legal costs that may flow over to this quarter. My best guess might be that the pickup in the tax credit may offset that. So I don't think there's a big gain or a big loss in the current quarter related to both of those things combined.

Atif, this is Steve. We--in terms of the additional legal matters, we--as you know, we had the proxy related costs that we had to bear. But we also had several other legal matters that the Management and the Board felt it was important that we settle, get rid of, and get it behind us, so that we can get on with running our business, integrating revenue cycle management with the two acquisitions that we recently did. So we made the decision to get rid of some of these legal matters, get them out of our way, so that they don't encumber us on a going forward basis.

Your next question comes from the line of Frank Sparacino with First Analysis. The line is open.

Hi, guys. I was wondering if you could just comment--I think, Pat, you made a remark earlier about the practice is seeking financing. I'm just curious as to what percentage of your deals involve the physician practice seeking financing. And more specifically, what type of financing are they getting?

It's a good question. Unfortunately, I don't have a good answer. We do know the number of practices that come to us for referrals for financing and we deal with a few different entities that are able to provide financing to practices and physicians with good credit. But there's a good number of practices that tell us that they're paying cash, and then they'll go to their local bank or borrow against a retirement program or all kinds of different things depending on their wherewithal, facilities, and financial advice. And those we just don't know about. Again, to us they're paying cash and in the background they're borrowing. So I don't have a good answer. If I were to give you a wild guess, I might say about half of our deals are financed, but it would just be a wild guess.

Okay.

What was the second part of your question?

That was it, Pat.

Okay. Thank you.

Thank you, guys.

Thank you.

Your next question comes from the line of Richard Close with Jefferies. The line is open.

Yes, thank you. I apologize if I missed this in your opening comments. But with respect to the pipeline, I think you said 85 million, that's the increase there. Is that increase versus the most recent quarter solely based on the acquired businesses that you've completed over the last couple quarters?

The pipeline of 85 is roughly consistent, and no, it does not include anything from the acquired entities.

Okay. And then, with respect to the revenue cycle services that you've acquired, I assume they're--it's a majority consulting businesses, obviously, with the lower margin. What do you see the opportunity to automate those processes with the technology? Is that something that is truly you are capable of doing or will these stay people businesses?

Well, they're going to stay people businesses, but they're not in my opinion, in our opinion, going to be as people and as labor intensive. And, yes, to answer the other part of your question, we do believe that by implementing our more sophisticated systems and various other technologies that we can pull costs out of these businesses and see some margin expansion.

Okay. And then, finally, Pat, did you mention what the add-on sales were in the quarter as a percentage? I know you haven't necessarily given that number out before, but I think you've given a directional--.

--Yes, we try to stay away from that, because it's so difficult, as we've mentioned in the past, to define what's new and what's an add-on, and I've mentioned the reasons for that relative to our enterprise clients, and clients that maybe have multiple sub-clients, multiple practices, purchasing a starter system, and then making a significant purchase of a different product and whether that's characterized as an add-on or upgrade or whether it's a new sale, and many other complicating factors. So that's why we don't break it down for you and we're not going to start at this point. But let me just say that we're relatively pleased with the direction of new system sales.

I'll also take this opportunity even though I think Paul said that year-over-year, system sales were up 14%, we've also talked a little bit about our strategy of adding recurring revenue. Revenue cycle management is a part of that, but there are other things like subscription model sales or software offerings, software as a service, hosting rather than selling hardware, and those kinds of things. Very often we'll put a customer into a hosted environment, which might in the very short term reduce that sort of system sales component. But in the long-term, it's more lucrative for us. It requires less capital outlay for the customer and again, the revenues are recurring and very visible. So again, part of our strategy is to increase our visible recurring revenue and that has a slight negative impact on the system sales growth.

So I--from your comments I assume that is increasing as a service offering interest from the customer base?

That's correct.

Okay. And then, you've talked--in the last quarter I think you had a pretty large license purchase in the first quarter. Was there anything like that that occurred in the second quarter?

There wasn't anything as big as that one in the second quarter, but we did have some pretty significant, and usually have some pretty significant deals--seven figure deals in the quarter.

Okay, thank you. Congratulations.

Thank you very much.

Your next question comes from the line of Sandy Draper with Raymond James. The line is open.

Great. Thank you very much. And I apologize if I missed this or misunderstood. But I know, Steve, you had talked about sort of trying to break up the revenue buckets a little bit differently. Is that something--did I just miss that or is that something you're going to be doing going forward this quarter?

Yes. That--Sandy, as we move ahead with the integration of our revenue cycle management businesses into our organization, and we can get some better streams of understanding of run rate, I mean, you have to remember we're early on in our RCM. Our one acquisition, HSI, was in May and we just closed this past week the PMP acquisition. So, yes, it's our view to do that in the future. But we need to get some run rates under our belt on RCM, and over the next several quarters we'll get those run rates and be able to speak more reasonably to those issues.

Okay, great. Thanks. And then, maybe a follow-up for Pat. Pat, I know it hasn't been that long that you guys have had the RCM business. And I know the--one of the primary focuses is the large opportunity for cross-selling that service to your software customers and software to those customers. But when you're looking out competitively in the marketplace, the big name and sort of revenue cycle management for the physicians, as Athena, would be curious from your perspective do you think you guys have things that you could do combining your software and RCM platform together that they can't do? And then, how do you sort of combat their sales pitch of being Internet based and the power of the network and having everybody on the same network gives them leverage? Sort of how do you sell against that? Thanks.

On the first part of the question, yes, we do believe we have very significant advantages over that organization and others in the space, not the least of which is our world class electronic health record system being something that just about all practices are either in the market for currently or will be in the market for. And I don't think there is much of a comparison when you're looking at clinical offerings and the integration of those clinical offerings with the financial offerings and revenue cycle management services between our organization and anybody else in the space. I believe that's a very strong and very unique advantage.

As to the network I think some of what is put out there is overplayed. We have connections to most of our customers where we monitor their systems. We use the Internet to do that, so in other words, most of our customers are connected to us via the net today and we can use those pipes for other things. But the "we have everybody on one network and so we can go update these business rules or those codes or those kinds of things," I think is not a very significant advantage. We could use things like a similar download technique that your anti-virus software uses. So if I have a new rule or a new code set or that type of thing that I need to propagate to a customer base that's out there, we can make that very, very painless even if the customer is on a standalone type of environment.

But with our revenue cycle management customers with HSIs and PMPs, both of those organizations do host for their customers now and have them on a network and in a centralized hosting facility. And there are also many, many thousands of NextGen users that are in similar hosted environments. One of our hosting partners I think hosts for somewhere in the neighborhood of 7,000 physicians. So we've got a lot of those components today and some other very significant advantages.

Great, that's helpful. Thanks, Pat.

You're welcome.

Your next question comes from the line of Leo Carpio with Caris and Company. The line is open.

Hi. Good morning, gentlemen. Sorry to beat up a dead horse here. I just have a few more questions on the whole credit crunch impact. Regarding the customers who you've asked for referrals to for credit, or it's for your credit partners, what (inaudible) your partners use currently? Any particular types, like large companies or small, regional firms?

I'll give you as an example, which would be U.S. Bank. We do refer a fair amount of business to U.S. Bank. They're a very healthy bank and they tell us and we see that there really isn't a credit problem relative to their organization. Provided that a physician or a medical practice has reasonable credit, money is there to lend.

Okay. And would GE be among those list of referrals that you use?

No, they're not presently.

Okay. And in terms of the hospitals or your conversations with them on the Stark related deals, the ones--has anyone indicated any slowdown or postponement yet?

We haven't seen it. It's tough for me to speculate as to whether we will see it. It's certainly within the realm of possibility that a month or so from now we hear that as an issue. But to date, that's not something that we're hearing.

Okay. And then, lastly, turning to the presidential election next week, any thoughts in terms of what the impact of that--could happen to you in terms of what's a--I mean, in the case of an Obama victory in which he had--he's already stated he's going to spend billions of dollars to help the doctors adopt healthcare IT. Could that possibly have like a short-term, near-term impact on demand?

I think the good news is that both candidates have spoken about the need to increase adoption of electronic health records and they both are getting very good advice relative to how these systems can reduce costs and improve quality and really make improvements. Whichever candidate gets into office is going to have a very difficult task placed on his desk relative to the Medicare problem. We've got a huge issue with Medicare costs in this country. We've got many thousands of people a day turning 65 and in my opinion it can only be dealt with a couple of ways - increase taxes or reduce benefits or both. And there's not much of an alternative for either candidate to head in that direction. But in addition, again, the good news is both of them are talking about electronic health records. And I believe that whichever candidate is elected it could increase the tailwinds for us.

Okay, thank you.

You're welcome.

Your next question comes from the line of Alan Fishman with Thomas Weisel Partners. The line is open.

Hi. Thank you. I wanted to ask specifically, if you could give a ballpark around how many doctors PMP serves, what their customer base is?

I believe it's under 1,000, but I'm not aware of the exact number off the top of my head.

Okay. And secondly, I see you added six sales reps in the quarter. Where--I guess can you discuss kind of the quality of the resumes you are seeing these days, given kind of high profile dislocations among other healthcare IT vendors, and kind of what your hiring plan is over the next few quarters.

Yes. We have seen I believe an increase in the quality of our sales force as we've increased the quantity. Part of that has to do with--I think a lot of it has to do with our hiring practices and being more selective than in the past. We do see--this is relative to your comment about dislocation in other areas--we do see I would see an increased stream of resumes that might allow us to cherry pick a little bit better or have a larger stable to choose from. To get to the last part of your question, we would like to be at near 80 sales reps by the end of our fiscal year, but I'll state clearly that we also, as I have mentioned in the past, need to keep an eye foremost on the quality. So with our selection process, it's very possible that we don't get to the internal goal of 80.

Okay, great. Thank you.

You're welcome.

Your next question is a follow-up from the line of Frank Sparacino with First Analysis. The line is open.

Hi. Real quick, Paul, can I get the total headcount at the end of the quarter?

Stay tuned for the Q. We'll have all of that in the Q filing.

Okay. And then, Pat just following up on that last comment you made on the sales force. Where would you expect most of those additions to be from a geographic or maybe even from a market segment standpoint? I don't know how you would break that down if you would for us.

I'm not able to break it down much further. We're going after, as I mentioned, quality first, and the market is big enough and robust enough that if I have a terrific sales candidate in a region where I already have a terrific sales person, we would go ahead and bring that person on anyway. So it's tough for me to say if they're going to be in this region or that region. We have a little more of a need in certain areas than in others. But again, focusing on the quality, we're looking for the right kind of people and not necessarily the geography. And then, as far as market segment breakdown, we've got openings at the lower end and we've got openings at the higher end and for that matter all the way through the Company.

Right. And before you're done, I think you have another question. But I think it's your lucky day. I've got that headcount number for you.

Great.

(Inaudible.)

I'm sorry, Paul. I missed it.

983.

Great. And then, Pat, just to be clear on the sales hiring, is there--is it just a change--management philosophy change right now that's driving that hiring? Is it something you're seeing in the marketplace, or what exactly should I pinpoint that to?

No, I wouldn't say that it was a change. We--if you go back and look at transcripts from any prior calls, in fact, over a period of years, you'd see that it has been our goal to grow our sales force. We did go through a period some number of quarters ago where the size of our sales force contracted and we went through a sales person quality initiative, I would say. We lost a couple that we would have liked to have kept, and we got rid of many that we needed to get rid of that didn't quite do the job for us from a quantity and quality perspective. But we've regrouped and over the last couple of quarters we're beginning to add and again, we think the market supports it.

Thank you, guys.

You're welcome.

Your next question comes from the line of Sean Wieland with Piper Jaffray. The line is open.

Hi, thanks. My question is on the competitive landscape, and specifically have you seen any ripple effects from the Allscripts-Misys merger?

No. I got a similar question on the last call, and as I stated, I'd love to be able to tell you that our sales have doubled because of fallout and ripple effect and fear in the minds of their customers or prospects. But while we see a little bit of that, I wouldn't call it material.

Okay. And the CCHIT, the new certification came out in the past quarter. Are you seeing that as a competitive advantage for you? How does that sit in the minds of buyers?

It is in certain cases. The sophisticated buyers absolutely look at 2008 certification. They know that. The big differentiators between the '07 certification and the '08 certification are relative to interoperability. And they're looking at systems increasingly that are highly interoperable and our system is and has been. We lead the field in that area. Our competitors would like to paint the picture that they're leaders, but reality is reality. And those that are [OE] certified and those that do have the interoperability built into their systems when in certain cases where customers are looking at them. And again, we think that's increasing.

Okay, thanks.

Berlice, we'll take one more call.

At this time there are actually no further questions in the queue.

Well, then I timed it perfectly, didn't I? Well, we want to thank everyone for joining us today. We want you to feel comfortable with the fact that the Company is running well. Everything that we talked about today in terms of the costs that we incurred are not related to customer matters nor are they related to operational matters. We're glad to have those talks behind us and it's business as usual on a going forward basis. So thank you, again, for all your support. And we'll talk to you again next quarter. Thank you.

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