NextGen Healthcare Inc (NXGN) 2012 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to today's Quality Systems first quarter 2012 first-quarter results conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions.) This conference is being recorded today, Thursday, July 28, 2011.

At this time I would like to turn the conference over to our host, Mr. Steve Plochocki, CEO. Please go ahead, sir.

Thank you, Operator, and welcome to the Quality Systems fiscal 2012 first-quarter results call. With me this morning are Paul Holt, our Chief Financial Officer, Pat Cline, QSI President, Scott Decker, NextGen President, Donn Neufeld, Executive Vice President of EDI and Dental, Steve Puckett, Executive Vice President of NextGen Inpatient Solutions, and Monte Sandler, Executive Vice President of NextGen Practice Solutions.

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

I'll provide some opening comments and then turn it over to the team.

The Company reported record net revenues of $100.4 million for the fiscal 2012 first quarter, an increase of 21% when compared with $82.9 million in the fiscal 2011 first quarter. Net income for fiscal 2012 first quarter reached $19 million, up 57% versus the $12.1 million in the comparable period a year ago. Fully diluted earnings per share were $0.65 in the first quarter of fiscal 2012 compared with $0.42 fully diluted earnings per share for fiscal 2011 first quarter, an increase of 55%.

The fiscal year is off to a busy start as evidenced by our first quarter's financial results. We're pleased with the Company's performance this quarter as our pipeline continues to build. Additionally, all four of our business units remain on-target performing to plan. The stimulus incentives and road to achieving meaningful use gained additional momentum in the marketplace and play a key role in our ongoing business operations and anticipated growth.

On July 27, 2011, our Board of Directors approved the two-for-one split of the Company's common stock, and a proportional increase in the number of Company shares authorized from 50 million to 100 million. Each shareholder of record at the close of business on October 6, 2011, will receive one additional share for every outstanding share held on the record date. The additional shares will be distributed October 26, 2011, and trading will begin on the split-adjusted basis on October 27, 2011. This is yet another sign of our strength and positioning as a Company and our belief in our future growth and performance.

Furthermore, we announced that Pat Cline, President and Board Member of Quality Systems, plans to retire later this calendar year. As you know, Pat has been an integral member of the senior management team since joining Quality Systems. On behalf of the entire Company, we wish Pat all the best and value the notable contributions he has made over the years to the growth and success of our organization. We certainly always appreciate the assistance that we've gotten from Pat and we look forward to working to him -- with him through this transitional period on a personal and professional basis. Thank you, Pat.

And I'd like to now turn it over to Paul.

Thanks, Steve, and hello everybody. Our consolidated first-quarter revenue of $100.4 million represented a 21% increase over the prior year revenue of $82.9 million. We're very excited to break the $100 million mark for the first time in the Company's history.

Our earnings per share of $0.65 is up 55% over the prior year of $0.42. Consolidated system sales grew 18% over the year-ago quarter to $34.4 million compared to $29.1 million in the prior year quarter. And our consolidated maintenance, RCM, EDI, and other services revenue grew 23%, $66.1 million compared to $53.9 million in the prior year quarter.

We enjoyed strong performance in maintenance, EDI, and other services, which grew 23%, 24%, and 36% respectively. Our other services revenue benefited from a strong increase in consulting and other add-on type services rendered to existing customers versus a year ago. Maintenance, EDI, revenue cycle, and other services accounted for approximately 65.8% of total revenue this quarter, which is up slightly versus 65% a year ago.

Our consolidated gross profit margin came in at 65.2%, up significantly from the year-ago quarter of 61.6%. This is driven primarily by a lower -- a relatively lower amount of hardware content included in our systems sales this quarter versus a year ago.

The total SG&A including amortization expense increased by approximately $3.3 million to $29.9 million this quarter versus $26.6 million a year ago, and this increase is driven primarily by increased headcount and employer-waived cost as well as increased sales commissions.

Our R&D expenses grew to $6.8 million this quarter. That's up 24% over the prior year $5.5 million. Our increased investments in R&D reflect our commitment to both continued innovation and physiotechnology of our customers as well as further integration between our ambulatory and inpatient products. We believe that the combination of our ambulatory and inpatient products presents a compelling product offering to the healthcare market.

Our effective tax rate this quarter was 34.2% versus 36.6% a year ago. This quarter we benefited from a higher amount of R&D tax credits, which were not included in the prior year tax provision due to the fact that the credit had been allowed to lapse in the prior year. We also benefited from higher deductions related to incentive stock option exercises this quarter compared to the year-ago quarter.

Moving on to segment performance, our NextGen division revenue increased 19% in the three months ended June 30, at $74.6 million. Divisional operating income increased by approximately 30% compared to the prior-year period at $29.3 million versus $22.6 million a year ago.

A QSI Dental division revenue declined slightly by 5% this quarter to $5.1 million, and divisional operating income declined slightly to $1.3 million versus $1.6 million a year ago. The prior-year quarter for the QSI Dental included a larger amount of hardware compared to this quarter.

Our Practice Solutions division revenue increased 14% this quarter, and our divisional operating income increased significantly to approximately $2 million as compared to $0.2 million in the year-ago period. The year-ago period included certain business integration expenses, which were not included in this quarter's results.

Our Inpatient Solutions revenue increased 131% this quarter at $7.3 million versus $3.2 million a year ago. Note that our recent acquisition of IntraNexus contributed approximately $0.8 million in revenue this quarter. Inpatient divisional operating income increased to $3.1 million compared to $0.2 million in the year-ago period.

Moving on to our balance sheet, our total cash in marketable securities this quarter was a record $124.1 million or $4.26 per diluted share. That compares to $100.9 million or $3.47 at the end of the prior year quarter. Our DSOs net of amounts included in both accounts receivable and deferred revenue was up slightly versus last year at 81 days versus 80 days a year ago. Our DSO is based on our gross balance sheet compared -- ended at 135 days versus 123 days a year ago. Our growth in DSOs versus a year ago is primarily driven by increased services, which have been sold but not yet rendered, and therefore included both in accounts receivable and deferred revenue.

Our current deferred revenue increased to $80 million compared to $76.7 million last quarter and $63.6 million a year ago. The primary driver of this increase is as I just mentioned, a higher amount of services sold but not yet rendered.

And for those of you who are tracking this, certain non-cash expenses for the quarter were as follows. Amortization of intangible assets -- of acquired intangible assets $901,000 and stock option compensation $956,000.

Again, I'd like to thank you all for being on this call and your interest in our Company. I'll now turn things over to Pat Cline.

Thank you, Paul. Good morning everyone. I'm proud of the Company's performance during the first quarter, and I'm proud of the many achievements of our team members. As you know, the Company has now reached a milestone, which is a revenue run rate of over $400 million annually, but more importantly the Company has a tremendous opportunity to continue that growth.

As Steve mentioned, I've decided to retire near the end of the year. I plan to stay on in the meantime to help transition certain activities and relationships and to do more detailed planning. You should all know that my decision to retire is in no way based on a lack of confidence in the opportunities presented to the Company. These opportunities are unprecedented, and my sincere hope is -- and my expectation in fact is that the Company will continue to capitalize on them and continue its stellar performance.

I look forward to speaking with you again on the next call in October, and I will now turn things over to Scott.

Thanks, Pat, and good morning everybody. Just give you a few of the highlights from the ambulatory division for the last quarter. As Paul mentioned, we had another very good quarter, the third one in a row, with growth this quarter coming in 19% year-over-year and operating income growing 30% year-over-year.

A few metrics that we continually track for you. We had 97 new contracts in the division this quarter. Approximately 20 of those were SAFT-based contracts, which is a little bit higher than we've been running in the past. Discounting did not materially change in this quarter from previous quarters.

As of the end of June we have 98 quota-carrying sales and management positions versus the 89 I reported last quarter in the ambulatory division. The pipeline for ambulatory and inpatient combined is $172 million versus $168 million that we reported last quarter.

On the Recs front, I'm happy to say we've now been selected in 53 out of 55 that have made decisions with seven outstanding. We actually gained back two of them that had previously decided not to go with us, have reversed those decisions based on market demand, that being the Los Angeles Tech Rec and the Washington DC Rec. We still have seven outstanding. We think we're well positioned in those.

On the meaningful use front, our product continues to be widely deployed with over 500 clients downloading our meaningful use version and well into their adaptation. While we can't track exactly how many are receiving funds, we have had over 100 providers report in that they received over $3 million in payments just on a self-reporting basis.

With that I'd like to just, once again, thank all of our clients for their continued support and working with us pushing the envelope on how we can really use healthcare technology to change the game and also thank the NextGen staff for all of their hard work the past quarter and all the sacrifices they're making to really take advantage of this market opportunity.

I'll turn it over to Donn Neufeld.

Thank you, Scott. During the quarter, dentists using the NextGen EPM, EHR, and QSI Dental record received Medicaid incentive payments. We continue to have success selling QSI electronic dental record integrated with NextGen EPM and EHR. We had eight new joint Dental sales during the quarter.

The QSI Dental pipeline is approximately $7.7 million. NextGen EDI had records for revenue and operating income in the quarter.

Thanks everyone on the call for their support and interest in our Company, and with that I'll turn things over to Steve. Steve?

Thanks, Donn. At Inpatient we continue to be happy with the performance of this business unit. And as you may remember, the Inpatient Solutions is a combination of the acquisitions of Sphere, Opus, and most recent IntraNexus.

We continue to find the success in our combined Inpatient Financial and Clinical applications, particularly in the rural and community hospital market. And we've mentioned before, we believe this is an underserved marked, and we're finding excellent traction and opportunity, particularly to energize and use the synergies of our ambulatory product there as well.

We're happy to report that we continue to see success with a lot of different cross-sell opportunities across the organization for our group.

Our Q1 highlights include the addition of another eight hospital clients into the NextGen family, bringing our total hospital representation to well over 100 now. And as a reminder, some of our hospital clients are single entities as well as some of them are -- involve larger networks with many facilities. So -- but in this case it's eight total clients this quarter.

In summary, it was another strong quarter for us, and we continue to be excited about the opportunities ahead. With that I'd like to turn it over to Monte.

Thanks, Steve. Good morning everyone. I remain extremely pleased with the progress we continue to make in Practice Solutions, our RCM business unit. Revenue increased 14% in the current quarter over the same period last year. As a result of our continued efforts on integration and overall service delivery, operating income for the quarter was $2 million, a dramatic improvement over prior year.

As reported last quarter and in addition to service delivery, our focus has been on sales and marketing. We have recently added a new Practice Solutions sales specialist in an effort to continue to support the NextGen sales force. In addition we've implemented new tools to help our sales team continue to market and sell our services. These efforts have allowed us to continue to grow our pipeline of existing NextGen customers and new customers alike.

We continue to prepare for the implementation of 5010 and anxiously await the future of Medicare reimbursement. With all these changes, we remain well positioned to help our providers navigate the changing environment and optimize their revenue cycle with our full service, all payer, best practice solution that's built on NextGen's industry-leading software platform.

Thank you for your time and interest in our Company. Operator, we will now take questions.

Thank you, sir. Ladies and gentlemen, at this time we will now be conducting the question-and-answer session. (Operator Instructions.) One moment please.

Our first question comes from the line of Sebastian Paquette, CFA with Goldman Sachs. Please go ahead.

Thanks. Good morning, guys. I'm wondering if for the NextGen clinical outpatient, what was your client retention during the quarter? And in terms and consolidation of outpatient physicians by hospitals, I wonder if you'd classify that as stable or accelerating? Thanks.

This is Scott. We don't really report on retention numbers, so I'm going to pass on that. But I will comment on your other question, which is we definitely see quite a bit of movement occurring with the consolidation of physician practices into hospitals. That's probably at unprecedented levels from what we've seen in the past.

We view that as really a positive for us. That's a very good segment for us. It is helping hospitals with a multi-specialty-type environment, but we do see that occurring and probably accelerating.

Okay. And then in terms of Inpatient Solutions, taking a look at the second half of 2011, are you expecting any slow down in bookings activity?

No we -- this is Steve from the Inpatient. I see, for the most part, the same trend that we've been seeing in the inpatient side. Very similar.

Okay. Great. Thanks a lot.

Thank you. And our next question comes from the line of Ryan Daniels with William Blair and Company LLC. Please go ahead.

Yes. Good morning, guys. Just a couple of questions in regards to modeling, I guess for Steve or Paul. If we look at the breakdown of revenue, it looks like the other services revenue was particularly strong. I think you mentioned some of the consulting services. Do you view that as something that can continue at that pace or might that slow down a little bit after people stretch to get meaningful use and now they have another fiscal year to do it?

This is Paul. I don't see that necessarily slowing down, but I think Scott may be able to have a little more color on that.

Yes. So, I would say that we're working -- tremendous amount of consulting opportunity. It's a relatively new opportunity that we've been pursuing, which is really helping our clients with everything from workflow to strategic planning to rollout. So there's certainly some wind behind it because of helping clients get to meaningful use. But on the flip side, we're really just tapping the surface of it, and we would expect fairly significant growth out of our professional consulting group over the next two to three years.

Okay. That's helpful. And then on the cost side, if we look at the implementation and training that had a big jump in the fourth quarter. It actually came down to just over $4 million this quarter. Do you have a feel for what the run rate might be there? I would imagine that would have actually picked up a little bit given the strength in system sales.

Well, we're -- this is Paul. We are -- we have a lot of opportunity there, as you can see, but -- with the services that we've been selling, so we have been ramping up in implementation and training. So I would foresee that those costs are going to follow in line with revenue as we continue to work to grow that revenue line.

Okay. Great. And then maybe one broader one, just in regards to Pat's retirement. Have you guys begun the search for a replacement? I'm curious with the language that just some of his duties will be transitioned to other people or if you actually are going to fill that position.

This is Steve. The -- Pat will be with us through pretty much the end of this calendar year, and we'll be working on transitional elements over the next 30 days for sure as we put our plans together.

One of the things that we've done though over the last few years under Pat's leadership is we've developed quite a diversified business model with multiple business units. And as you know, there's six of us on this call today. It's a sign of that type of scope, scale, and breadth that we have in our organization.

The -- we believe the transitional element won't have a major impact or material impact on the way we do things, but there will be certain responsibilities that we'll have to delegate and move throughout our system. But right now no decisions have been made on whether anybody new is coming in from the outside or what we're going to do internally. We're still very early stage on this, but everyone should feel very comfortable and confident in the fact that we have a very strong infrastructure, all four business units are operating ahead of plan, and we anticipate to continue to do that.

Okay, that's helpful color, Steve. Thanks a lot.

Thank you.

Thank you. And our next question comes from the line of Charles Rhyee with Gowen Group Company. Please go ahead.

Yes, thanks. It's Cowen actually, but hey, thank for taking the question, guys. You know maybe a few questions back on the inpatient side. You know you talked about eight new clients. Can you, Steve, maybe give a sense on who you're displacing here in this part of the market?

Yes. As I mentioned on the call earlier, we are focusing particularly right now on the rural and community hospital. As we get some traction in this area, we see continually competing against people like Healthland, HPS -- CPSI, HMS, that offering in particular.

Typically for a lot of these markets there's no clinical system, so it's a new entry for us. Obviously most of these have some sort of financial system, but those financial systems either tend to be some of the ones I mentioned to you or actually there is a large market out there, I guess, of some ma-and-pa-type shops that still have ten to 20 different systems out there that we also seem to be replacing on the financial side.

And were these a like combined clinical and financial here, or were some systems just clinical only?

In this quarter I think there was potentially one just clinical only, but by-and-large we typically do both. People are looking for that integrated system.

Certainly. That makes sense. Have you -- can you discuss sort of any cross-selling that you've already been able to see pulling in the ambulatory on any of these deals, or is that sort of further down the road?

Well, I can talk to this a little bit. In many cases where there's hospitals, there's doctors. And just by definition, and particularly in the small rural communities, they tend to be smaller sets, let's say six docs up to maybe a big one might be 20 or 25 in a rural setting like that. So almost always we have an opportunity to show the ambulatory system as well.

And typically with some of the competitors that I mentioned before, our ambulatory certainly gives us a strength and a leg-up to the competition on that. So it's a strong market for us to do that with. So yes, we do see a lot of that.

Great. Thanks. And then maybe one more question for Paul here. You know obviously the -- if we look at the other revenue line, that's really where -- I mean, we saw a lot of growth here relative to our expectations, and I think you kind of mentioned, is this where we're seeing the growth in the services part of your business, or was there a lot of software in that as well? And if that's the case, when are your clients really coming back in terms of add-on modules in this past quarter?

Well I -- this is Paul. I think we can expect to see growth in both categories, what we put in the system sales in terms of implementation and training as well as the other services. And I think as Scott may have mentioned, we see a lot of opportunity on the consulting aspect of things to help practices -- help people run their practice better and more efficiently.

There is an analogy of selling a Ferrari and making sure people understand how to use all of the bells and whistles and all the capabilities that are embedded in that system. So we think there's a good opportunity in both lines.

Okay, but as far as this last quarter, is the increase in the other revenue, is that mostly the services that we were talking about earlier on the call?

Yes.

Okay. Thanks.

And if I could just add on inpatient, Charles, we've long said that in the development of our Inpatient Solution we wanted to be able to demonstrate to the investment community over time that we are a truly dominant player and an emerging player in that area.

I think when you look at the fact that Paul announced that we're up about 131% versus prior year in inpatient, and Steve Puckett and his team have a very deep pipeline, we think that we're going to continue to be able to establish ourselves as the strongest player in that market. And we're very proud of that business unit, and you can expect to see very good things out of that business unit in the future.

Great. Thank you.

Thank you. And our next question comes from the line of Constantine Davides with JMP Securities. Please go ahead.

Thanks. Just a quick question here. You called out the number of SAFT deals ticking up, and I'm wondering if that's indicative that smaller practices are starting to contribute a little bit more? And I'm just wondering, you know one of your competitors has said they expect about a third of their deals to drift towards a SAFT-based arrangement over time, and is that something you're also expecting? Is that consistent with your expectations?

Yes. We are seeing an impact, and I think we've been talking about for the last year, is that we've been making changes to the software and our configuration and our pricing to hopefully get into the smaller market in a little bigger way than we have in the past. And I think we're starting to see that traction. We really only sell SAFT to one- to five-doc practices at this point, so it is fairly indicative of us getting into that side of that market.

Now with that said, a vast majority of our clients actually run the software in somewhat of a SAFT model, i.e. they'll outsource to a third party to host it for them. So it's a fairly widespread practice at this point, and I think you'll only see that continue to accelerate.

And I guess on a related note, you guys launched a mobile product not too long ago. I'm just wondering what the uptake has been like amongst your Legacy HR users and maybe you can give a sense how many docs are using NextGen on an iPhone or some sort of tablet?

I don't have the specific metrics. We're still fairly early in the rollout of that product so I don't have the exact numbers. I would say though that we continue to see tremendous interest in our clients in rolling out that type of technology, iPhone-, iPad-, Android-type platform. So maybe next quarter we'll have a little more detail for you.

Okay, and last one. I know you guys mentioned 5010. Obviously I see the 10s hanging out there on the near-term horizon, and I'm just wondering are you seeing any uptick in practice management only sales or demand for RCM? Just wondering if you can talk a little bit about how that's impacting your business, and then I'm just curious if your -- the current versions of your inpatient and outpatient are compliant with those standards? Thanks.

This is Scott. I'll answer first and then, Monte, maybe you want to chip in. I would say our clients are still predominantly focused on meaningful use, so from a clinical standpoint. With that said, it is starting to heat up on the 5010 as the deadline starts to be impending.

I wouldn't say that I saw any material change in the amount of purchasing going on or stand-alone practice management systems just to accommodate 5010 at this point, though it certainly is factoring in to the decision criteria.

Our current releases are not yet 5010 compatible. Those will start to roll out next year. We've started to lay the groundwork, but they aren't completely there yet.

Monte, do you want to add anything from the revenue cycle side?

Yes, this is Monte. As we draw closer to the rollout of 5010, we're certainly in a good position to help our customers and potential customers make sure that they are prepared and able to submit and resolve claims. So we continue to hear more about it, but I think, as that deadline gets closer we'll continue to see more activity, and that'll probably pick up over the last half of this calendar year.

Thank you. And our next question comes from the line of Jamie Stockton with Morgan Keegan. Please go ahead.

Yes, thanks for taking my questions. I guess real quick on the inpatient product, could you, now that you've had IntraNexus here for a little bit, could you give us a feel for what the -- what the plan is or what the timeline is on how that solution is going to be integrated with what you had previously on the NextGen inpatient side that you got from Opus?

Yes. I think we -- we talked a little bit to this on the last call as well. The -- we mentioned a move to a new technology platform, and some of the strategic reasons behind the IntraNexus purchase have to do with getting clients who have a much bigger business unit, some of them up into the $4 billion and $5 billion type range. So those systems can -- or the IntraNexus system is capable of running the RMC for systems such as that.

So the process or the thought process in those is to keep those clients currently on that system, but to have a convergence plan to bring those together. So our goal is to continue -- somebody mentioned earlier on the other comment about the ICD-10. Both of those -- both of our product platforms are on target to do that and be released as well, either at the end of the year or the beginning of next year. So we see that doing it and the convergent stream right into the ultimate product that we are working towards building.

Okay. And so the incremental deals that you guys are selling right now, are those generally two -- two separate solutions but you're pushing IntraNexus now as the patient accounting system? Or is this still the Sphere patient accounting system?

Well typically on the smaller market -- we talked about rural and community, we do lead with the Sphere system. Obviously we've had that one under our belt a little bit, a little more tighter integration with that initially.

The IntraNexus solution though we do have the ability now to go up-market with that and to actually position on bigger accounts. So generally speaking for the rural community market, we are leading with Sphere. For larger opportunities we would bring the IntraNexus solution to the mix as well.

Okay. And then just one other question on the Hanger deal, if you could give us any feel for what kind of a contribution it might have made or in future quarters what you expect there, that'd be great.

This is Paul. I don't know if we really want to get into talking about individual deals. Historically we just haven't done that. But we -- it clearly is a very large opportunity for us, but it's a longer-term kind of contract, so you have to think about it more in terms of a longer-term horizon.

Okay. Thank you.

Thank you.

Thank you. And our next question comes from the line of Donald Hooker with Morgan Stanley. Please go ahead.

Hey, great. Thank you for taking my questions. So I guess my first question is for Pat. You've obviously been a huge driver of this Company over the past decade or so. And just curious, are you looking to move in a different career direction or -- just wanted to get some more color around your decision to potentially retire later this year.

First, thank you for your kind words. No, right now I'm going to pursue something that's more important, which is spending a little more time with family, children, and friends, and then take some time and sort of decide where life and my profession takes me. But I haven't made any decisions at this point.

And as Steve mentioned, I'll be staying on until near the end of the calendar year so nothing in the immediate timeframe. Thanks again.

Gotcha. And I guess, back to Steve, I think the last quarter you -- I don't know if you formally gave guidance, but you sort of indicated you were comfortable with consensus numbers for the fiscal year. I don't know if that counts as guidance or not, but would you reiterate that at this point?

Yes, we're in general agreement with the consensus view of the analysts for revenue and earnings per share.

Gotcha. Okay. Nice to hear that. And then I'll ask one more and then I'll step off. In terms of the revenue cycle management Practice Solutions business area, I notice some -- can you kind of talk about the growth structure there kind of over time, is this kind of what we should expect in terms of revenue growth, and is there a -- are you willing to provide a backlog number as sometimes you have in the past provided a backlog number? Could you possibly provide one now?

This is Monte. So we've been focused, as we've talked about, recently been focused on integrations from our two acquisitions. We continue to make strides in those efforts. And you know our growth this year is really focused on cross-selling to the NextGen customer base as well as other -- the other business units that we have that create opportunities for us to up-sell our service, as well as the external market. We see rev cycle as a big opportunity in the marketplace as healthcare continues to evolve and change.

So our growth -- we expect our growth to continue, and we're looking at various different avenues to do that. Our pipeline continues to improve. As I reported, we added another sales specialist and we continue to focus on sales and marketing.

I don't know that we've really given out a pipeline number in the past, and I'm not sure that we necessarily want to do that right now, but we continue to see that grow and remain optimistic on our future.

And this is Steve Plochocki. I'd just like to add that some of the general trends that we are seeing that we have talked to most of you about historically are really starting to take hold. And those general trends are that as we has anticipated, the increased coding expansions that we're starting to see with the government as well as other commercial payers is putting healthcare providers in the position of trying to make hard decisions on whether they want to make billing and collection a core competency or they simply want to outsource it and stick to their core competency, which is treating patients.

And I've had the opportunity to interact with Monte and his team on several deals where I'm starting to see, after -- I'm a 35-year healthcare executive, I'm starting to see that there's -- that this is really an emerging trend amongst consolidated -- consolidating healthcare systems, that they're making hard decisions on what's a core competency and what's not, and how can they remain competitive on a going-forward basis.

And we believe outsourcing to full-service providers, an RCM as we are, is going to be a continued trend, and I believe an expanding trend.

Yes. I'll jump off, but I meant to say a contracted backlog number for the RCM space, not the pipeline. If you have that, but that's all I have. Thank you.

Thank you. And our next question comes from the line of Newton Juhng with FBR Capital Markets and Company. Please go ahead.

Thank you very much. I also want to reiterate, Pat, best wishes on your future endeavors. Obviously had some very insightful conversations with you in the past, and going to miss those. But wish you the best of luck.

Thank you.

Yes. And then, Paul, I did have a question for you on the R&D expense side. Can you help us with the -- since we don't get a cash list statement, just on the cap software for the quarter, was it a little bit lighter that also maybe contributed here to that number being a little higher? And also how should we look at the expense line trending over the course of the year? Is this level kind of a sustainable line that we should be looking at to build off of?

Yes, you're correct in that sometimes if we get -- the amount of capitalization can impact that figure. And what we capitalize was approximately $2.5 million. You'll see this in the 10-Q that we're going to file shortly. Which was not hugely different, maybe down just slightly from -- on a sequential basis. And that just sort of ties into what people are actually doing, whether it's something that we're going to capitalize or whether it's more of an R&D type of activity.

So -- but we are making stepped-up investments, as I talked about, in integrating both of the ambulatory and the inpatient products, and there's other -- there's other projects that are going on. And so we generally don't like to give out forward guidance on things, so there are -- subject to some fluctuations in what's being capitalized, I wouldn't expect the number to drop significantly. I guess I'll say that.

Okay. In terms of gross R&D?

Yes.

Okay. Fair enough. And then, just regarding the tax rate and the R&D credits that you were talking about before. Is that something we should expect to be ongoing through the rest of the year, or was that more of a one-time, this-quarter-only situation?

I characterize our tax rate as being a little less this quarter than what I'd expect it on an annual basis, and that's partly driven by some of the stock option exercises, incentive stock option deductions that we took in the quarter and certain aspects of R&D tax credits. But I guess that's -- I'll just give that out that we're probably a little lower this quarter than what we'd expect to see in the full year.

Okay. Okay. And last, but not least. You know, I was looking at that EDI -- EDI services line item, and the gross margin of that unit was definitely significantly above what we were expecting. In fact, we hadn't seen it this high for quite some time. And one of the things that I was just wondering about was also kind of the sustainability of that.

It seems like the number does jump around a bit from time to time, and so 34.2% I think is the number I have here. That seems pretty robust. Can we see that number trend down going forward?

Yes. There -- well, I wouldn't necessarily say trend down, but you have some mix issues there in EDI. Certain pieces of EDI have much better margins than others, so for example claims have better margins than statements. And Donn may be able to add a little bit of color on that as well.

Yes. This is Donn. I think that, as Paul mentioned, it does fluctuate, and based on the mix of things it's probably at the upper end of what we'll see. Some of the rebates and things we get come in intermittently, so I would say that it was at the upper end. But you'll see it fluctuate as we receive income kind of in different quarters that relate to multiple quarters.

Okay. Great. Thank you very much for the help, guys.

Thank you.

Thank you. And our next question comes from the line of Atif Rahim with JPMorgan. Please go ahead.

Hi. Thanks, guys. Pat, I also want to thank you for your contributions to the Company over the years. You will definitely be missed.

The question that I have on this front is what drove -- what drives the timing of your decision at this point in time and how long has this been discussed with the Company? And I guess during the transition, or even post the transition, are you going to be available as an advisor to the Company just to help with issues that may arise?

Well, I appreciate, as well, your kind comments. I'd rather not get into any specifics related to my decision regarding how long I'd thought about it or how long we've talked about it or that kind of thing. But with respect to the last part of your question, I've put the last roughly 17 years of my life into this Company, and I have deep-rooted loyalties to the Company's employees and to our customer base and certainly want to see the Company continue to succeed, so even after the transition period, if I'm called upon or there's something I can do for the Company, I'm happy to -- happy to provide that.

Got it. Okay. All the best in the future. And then a question for Paul. On the other services line, the consulting service that you said might have driven revenues in that line item, could you just help us think about how or where in the selling cycle the need for those services arises? Is this something that goes on before an implementation, post, or during?

Well I would say post, but I would defer a little more to Scott to add some color on that.

Yes, I would say the majority of the business we've done so far is oriented to post install, how to improve your processes and workload. With that said, we are running across some opportunities now as we expand the portfolio, which I would say are in sync with implementation. And in fact we're finding, for example, revenue sharing or upside sharing -- if we implement the system we can find you these kind of savings by implementing our system, sharing in that. So all of that would kind of fall into the consulting realm also.

Okay. All right. Thanks. And then last question, for Donn. The QSI division revenue is down a little bit and earnings down too, and I think, Steve, you had said this is in line with your plan. So are we envisioning that business kind of flattening out here? And then I'm trying to correlate that with what the opportunity is in the federally-qualified health centers, which is one of the areas that's been driving this. What's the opportunity you have for that business?

Yes. No, the trend we definitely see going up. We are small enough to where any individual quarter, one or two contracts can swing it, and at the end of last year we actually brought in a couple of large contracts that -- and looking at the pipeline is where we laid out that we would see it not continuing up from there. But the general trend is definitely up, and the opportunities in the federally-funded centers continue to contribute to our growth.

Okay. That's great.

And, Atif, just a little more color on the community health centers, the federally-qualified. As you know, in July of 2009, that's when the government first allocated their first stimulus dollars, and it was to those groups, about $1.6 billion. There were about 1,250 systems at that time, community health center groupings.

The government added another $10 billion to that pie in the fourth quarter -- excuse me, third or fourth quarter of last year, 2010, and the goal there is not only to expand that group to about 1,800 community health systems, but also to make sure that they're all fully electronic as well.

So we believe the continuation play of our one-stop-shop joint selling effort between ambulatory and dental to those groups, which as you know require -- one of the requirements to be a community health system is you have to provide dental as well as physician-based services. We think that's going to be a continuation play for us over the next two to four years.

Got it. Steve, what's -- can you provide us any update on what your market share is in that segment right now?

It's difficult to assess directly the market share. I would venture guess though, without being too bold, that we're certainly in the first or second position in terms of market share in that particular segment.

All right. Great. That's great. Thanks very much.

Thank you.

Thank you. And our next question comes from the line of George Hill with Citigroup. Please go ahead.

Thank you, guys. My phone wasn't working for a second. I'll start off with echoing, Pat, again, sorry to see you go after all these years and wish you the best. Jump in with a question. Steve, we're seeing a lot of chatter in the M&A space with lots of assets on the ambulatory side seemingly becoming available. Maybe can you update us on how the Company is thinking about M&A? What size nuggets of business are the right size for the Company to take a bite at? And how is the Company thinking about financing?

I think -- I think we've certainly been engaged in M&A. We've done six deals in nearly three years. We're very selective. You're right, there's an awful lot available. There's an awful lot for sale. We keep quite busy as these books keep piling up in our offices. But we're selective.

We've got four core groups that we do extremely -- our business lines are doing extremely well. We will make the investments that we think will enhance shareholder value and build those business lines. And we have not been out of the mix. Like I said, we've done six deals in the last three years. So we will continue to be engaged in that process.

As you're correct, there appears to be an awful lot out there right now available in the marketplace.

Okay. And if I can just kind of follow up on that theme for a second. You guys have historically made the decision, or at least taken the strategy of picking up smaller platform pieces and then growing them inside of the Company's existing infrastructure, the way that you have guys have started to build the inpatient business.

Would you guys take a look at buying big pieces of market share on the ambulatory or on the inpatient side? Or should we think of management's strategy as being consistent with what you've executed in the past? And I guess just any insight into how you guys think about that.

Well, George, I'll characterize it this way. We've got a model that's worked for us. We'll be consistent with that model. But, however, the right combination of something that can give us the right strategic footprint at the right price isn't something that we wouldn't consider.

Fair enough.

So it's got to be the right -- it's got to be the right deal.

Okay.

As you know -- as you know, there's an awful lot for sale, but there's some pretty hefty price tags on things that have not yet fully matured. They're still in their adolescent stages. So we're always going to be very conservative in terms of our views on that, but if there are opportunities that we think we can get the right footprint we want at the right price, we would move in that direction, certainly.

Right. And I see some big price tags on things at the other end of their lifecycle as well. Last one, Pat. I guess as you talk about the sales pipeline, can you talk about what you're seeing with respect to inpatient-led deals or hospital- or system-led deals versus ambulatory-led deals, and where is the strength? And are you guys seeing a slow down yet at the, what I would call the high-end of the ambulatory market?

I think we are seeing some pull-through with inpatient deals pulling through ambulatory deals, and we, I think, see a little bit going in a reverse. The cross-selling that was discussed earlier is working well.

At the very high end of the ambulatory market, the numbers do seem to indicate, that is the industry numbers, not ours in particular, that the market is more saturated than it is in the smaller group practices or mid tier. I think the real strength, it lies in the integration of the ambulatory and the inpatient, as doctors and hospitals themselves integrate, and in the integrate -- beyond the integration of the platform and product line, the new architecture that Steve talked about, which is cloud/web-based, end tier, highly-scalable architecture that we're making investments into.

Okay. All right. Thanks, guys. And Pat, best wishes again.

Thank you.

Thank you. And our next question comes from the line of Bret Jones with Oppenheimer and Company. Please go ahead.

Thank you. Just a couple of quick questions. On the slow end of the market, when you talk about small practices, I was wondering where those sales leads are coming from. Is that really success in the VAR channel, is this your direct sales force, or is it the hospital pull-through that I think Pat was just referencing?

Yes. This is Scott, and actually I'd characterize -- those are probably our three strategies, all of which are executing fairly well at this point.

So internally we have an in-house sales team who sells to the small market, and so we've seen increase -- and that's what you actually see in the direct numbers. Indirectly we get, after the small market, both through our channel partners and then also increasingly through health systems as they're accumulating and distributing product for us, and you -- that kind of gets blended in or lost a little bit because what you'll see is us making a large sale to a health system, not necessarily all the small fields that are driving that.

And how big is the in-house team that's dedicated to the small market?

I think there's about five reps right now in that group.

Okay. Thank you. And then just switching gears a little bit. On the implementation costs in the quarter, and this is probably for Paul, I know last quarter you talked about hiring -- hiring a bunch of staff to build up that capacity, and so I was expecting, as you guys utilize that capacity, I was expecting the margins to improve. But I didn't expect to see the implementation costs themselves go down sequentially. What drove that?

There is some aspect of allocation cost between certain parts of the -- of our cost of goods that can drive things. So when, for example, we have more in the way of add-on services, there may be some other costs that are being allocated a little bit differently. So I think there's -- there is some amount of that going on.

But I'll just say going forward you can expect to see that -- as we add on resources in that area, you can expect to see those costs come up.

Okay. Where else would they have been allocated to I guess? Can you help me out with what lines you might be shifting costs from as you just allocate between the different lines?

Well, there's some amount in the other services line as well as implementation --.

Okay.

That's included in the system.

All right. Great. And then I'd just like to say congratulations as well to Pat. Thank you.

Thank you.

Thank you. And our next question comes from the line of Stephen Shankman with UBS Securities. Please go ahead.

Great. Thanks for taking the questions. Maybe it's splitting hairs a little bit, but I just wanted to kind of follow up on the soft guidance question. I guess when you gave the initial commentary two months ago that you were in general agreement with the consensus view, the consensus view was around $2.76. Since then it's crept up to about $2.79. And then if you factor in I guess the $0.04 beat today, that can get you around $2.83.

So I'm just wondering if that general agreement is with still that $2.76 number or with closer to the $2.83?

Well, I mean, Steve, if the consensus views continue to escalate, we would comment on that. As of right now the consensus view that we see we're in general agreement with.

So that's the $2.79 that you see?

Yes.

Okay. And then, to change gears a little bit, just a follow-up question on the pricing. Any more granularity that you can provide us as to pricing differences I guess on the ambulatory versus the small hospital market?

I'm not sure if I understand the question.

Well I guess there was some commentary before that I guess pricing hadn't materially changed on the ambulatory side. I guess the question is more focused on the small hospital side of the market. I mean have there been any changes there in terms of pricing, and is your strategy to kind of I guess compete a little bit on price there as well?

This is Steve. Are you asking in terms of the inpatient product or the ambulatory product in that market space?

Inpatient.

Inpatient. I think, you know, on the small market we've always had the pressure of cost, the pricing is there. I don't think that's changing any. I think we sort of have built over the course of time now sort of a model that's working well for us. So I don't see anything changing. I see the same pressures that we've been having.

That pressure gets released a little bit more the more you go up-market, obviously. But it's definitely a constrain for us, absolutely.

Okay. Great. Thanks, and best wishes to Pat as well.

Thank you.

Thank you. And our next question comes from the line of Sean Wieland with Piper Jaffray. Please go ahead.

Hi. Thanks. Pat, is it too late to change your mind?

I appreciate the question. Let me leave it at that.

All right. Do you have a non-compete?

I appreciate the question.

All right. How about this one? Paul, what was the Practice Solutions revenue number? I think you said it was up 14%, but I don't think you gave us the number.

The Practice Solutions number, revenue number was -- oh, you're right. I didn't give out that -- I didn't give that number. Hold on just one second. I'll tell you what it is.

All right. While you're doing that, I think you said that the 5010 version is shipping next year, but the compliance date for it is January 1, 2012. Can you reconcile that for me?

This is Monte. I think he meant to say ICD-10.

Oh. Okay.

Scott, am I right?

Yes.

So tell me about where you're clients are in their preparation for 5010? How many of them are actually submitting test transactions in a 5010 format?

I don't have that information. Monte, do you have any?

No. I think what we'd probably say is that our latest version includes the requirements to meet 5010, and so any of our customers that have upgraded to that latest version are in that process. And I think that's probably as granular as I can get.

All right. So just so I -- I'm clear. Is the onus on the client to be in compliance with 5010?

I'm not sure who you're directing that question to. So from the Practice Solutions side, we assist our customers in meeting those requirements. I think, Scott, if you want to take it for the ambulatory side?

This is Pat. Certainly the onus is on all parties. We've got to provide the software and the client needs to, on the compliance date, unless that date changes, be submitting claims in the proper format. So I think both are important.

Okay. All right. And then Paul, do you have that revenue number?

It's $13.4 million.

$13.4 million. Okay. Thank you very much.

Thank you.

Thank you. And our next question comes from the line of Frank Sparacino with First Analysis. Please go ahead.

Hi, guys. Just two quick things I think. Steve, on the inpatient side, you had talked about eight new hospital clients this quarter. Can you give us some context how that compares to the last couple of quarters?

Yes. I mean one of the things that I had mentioned because I know everybody is tracking these numbers is that in many cases, even in critical access hospitals, we will sell to a client who may have two or three different hospitals in the network. They may be expanding that to eight to twelve or so. That is a market that's out there.

In some cases we're dealing directly with a single hospital entity. So tracking clients and hospitals are a little bit difficult by the numbers so to speak. But really nothing materially has changed. I can't remember off the top of my head, but it was four or five or something like that were the clients that we had the previous quarter. And before that it was probably something like eight or nine again.

So again it's sort of -- each quarter we've done well with that. Again, sometimes the numbers are bigger for one client than they are others. So I think that needs to be kept in perspective when looking at those numbers. But nothing has materially changed as far as the number of deals or the size of the -- in terms of the revenue.

Okay. And then, Scott, on the pipeline. I just want to make sure I have the right -- what is the right comparison for the year ago versus the $172 million you just gave?

I don't have that number in front of me. If you give me a minute I can probably track it down.

Sure. And then just lastly, Scott also for you. You had made a comment around -- you had cited I think a $300 million figure in terms of client base that was in the process. And yet if you look at the money distributed to date it's been small -- I think much smaller than people would have expected. And I think there's some reasons behind that, but I was just wondering if you can put your number in context with the numbers to date?

I'm sorry. Help me with that question?

Yes, I don't know how to answer that.

So the clients that you talk about that are sort of in the process of testation for meaningful use, you talked about a figure that's greater than $300 million. So are these -- the money distributed to date has been fairly small, smaller than the $300 million you're talking about. So do you have a sense as to what sort of the timeframe is, the expectation from these clients who are in the process?

Yes, I think maybe you misunderstood me. What I said was that $3 million, not $300 million, our clients had reported received from about 100 providers. So we maybe just got mixed up on understanding the number I through out because I don't recall throwing out a $300 million number.

Do you have a sense though as to the client base today -- you gave a figure out in terms of downloads, but do you have a sense as to where they stand in terms of chasing meaningful use in your one versus your two?

We have a sense, but I don't have the numbers in front of me. I think what you'll see is a bell curve. So clearly the people who've been EHR users for quite some time were very well prepared and are on the early stages of this, getting their dollars, and what we're seeing is just an increase in activity, both of the download and the activity of people going after it.

So I would say as we get into -- and this is just an opinion more than anything, late this year and getting into the middle of next year is when you'll see the bulk of people getting to their qualifications.

The other thing we're hearing is definitely that things are going to get pushed out a year from the government, so I think it probably gives everybody a little more to run with.

Thank you.

And just -- this is Steve Plochocki. And just, Frank, the meaningful use stage one Medicare payments started this past quarter. I mean the quarter that just left. And according to CMS, about 500 ambulatory medical providers have Medicare meaningful use and received about $9 million in stimulus money through June 30.

We estimate that approximately 60 of that group are NextGen providers, and they've received about $1.1 million through June 30. But this is all very early stage. It's all very early stage. We think, and Scott's right, it'll be a bell curve, and we're at the very front end of that bell curve right now.

Thank you, Steve.

The pipeline number a year ago was $129 million versus the $171 million, $172 million.

Thanks.

Thank you. And our next question comes from the line of Leo Carpio with Caris and Company. Please go ahead.

Hi. Good morning. I have a couple of quick questions. First regarding the software sales figure. It looked like it was a little bit lighter than what I was expecting. Were there any one-time circumstances, perhaps something -- an installation that was delayed or pushed out? Or is it just simply a reflection that there's more SAFT in your mix?

I would say it's highly reflective of the SAFT being double what we've seen in the past.

Okay. And then in terms of the RCM side of the business, have you seen anything in terms of healthcare utilization trends? Anything notable there as in healthcare utilization trends improving, changing, or flat year-over-year?

What we're continuing to see is more responsibilities being shifted to patients from a revenue cycle standpoint. And patients are much more active in their utilization of providers in healthcare, and their responsibility is increasing. So I think we're definitely seeing movement and we're watching it, and we think that it's probably just the beginning. It's going to change significantly over probably the next couple of years.

Okay. And then the last question, regarding the meaningful use stage two proposed delay out by a year, do you have any sense in terms of what that's going to do to your sales pipeline or in terms of demand or interest from your potential clients? Is that going to push it out or is it going to get more people back in the market, especially like the Legacy guys?

I don't think it's going to affect things dramatically. I think we've seen most of the market start its movement now and it's in various stages, and I don't -- we haven't certainly seen so far any indication that it's going to change timing. I think it just gives everybody a little bit of sense of relief that they can still get in on it.

And actually, Leo, we see that as a positive because the government -- the government's been pretty sensitive to ensuring that anything they do is to -- is for the purposes of continuing to encourage adoption of EMR. So by moving the timeline out, they've given people more time to get on board with it and thus we believe it's going to have a more positive impact overall.

The tight timelines of stage one, two, and three, when they were first laid out, were pretty aggressive. I mean, just to the -- to all of us as a management team, when we looked at it and looked at the timelines we though we can meet those standards, but my goodness, that's pretty aggressive. And we're not too surprised that the government made the decision to push things out a bit.

Okay. Thanks. And, Pat, sorry to see you go. We're going to miss you.

Thank you very much.

Thank you. And our next question comes from the line of Anthony Vendetti with Maxim Group. Please go ahead.

Thanks. On the Recs, you obviously got some of those back. Are the ASPs are those deals a little bit lower than you overall deals, or did you have to offer anything special for that? And then across just generally ASPs, have they remained stable?

Yes. So our pricing -- market pricing has been fairly stable as well as our discounting. The package that the recs are getting is a little below our general market price. It's a little bit reduced functionality though also.

Okay. And then in terms of trends that you're seeing in terms of being able to sell into practices. Are you continuing to see the large practices become larger as they buy smaller practices, and also the trend of hospitals buying practices? Is that still continuing? And if so, is that something you expect to continue?

Yes, and probably more the latter than the former, which is clearly the hospitals buying up the practices and more and more fairly large groups, certainly around key specialties such as cardiology. And yes, I would also expect that trend to continue for at least the foreseeable future as long as the concept of ACOs is staying forefront of health systems minds, I think they'll continue to buy up practices to position to take advantage of that market.

Okay. And then just lastly, I just wanted -- I don't know if you've addressed this, but is the position of president being filled by anyone internally or is there going to be a search for that position? Has that been decided yet?

Well, Anthony, as we had stated earlier, the -- Pat will be with us through the -- through near the end of this calendar year. And we will engage in transition of sorts of responsibilities. No decisions have been made on anything along those lines yet.

We -- like I said, we have four business units with leadership at the head of each unit. We have a Company that's very strong and intact. And any adjustments we make as a result of Pat's absence will be, in my opinion, subtle.

Okay. Great. Thanks.

Thank you.

Thank you. And our next question comes from the line of David Larsen with Leerink Swann. Please go ahead.

I just have two really quick ones. For systems sales gross margin, 84% this quarter. I thought that was very good. Do you think that's sustainable? And then number two, was there a perceptible difference in demand from a small hospital side last quarter versus this quarter, and if so what do you attribute it to? Thanks.

This is Paul. The first question about the margin on the system sales. It was very heavily influenced by the amount of hardware that we added, which is very typical. How much hardware we're going to have in any given quarter is very hard to predict. It's -- it depends really on which customers want to upgrade their hardware at the same time that they're putting in a system. And they can -- they may come to us for that. They may go elsewhere for that. Or they may not even need it. So there's -- that's kind of hard to predict, and unfortunately it does cause some fluctuations in our margins there that make it a little challenging for folks to model, but it is what it is.

And I'll defer to Steve on the inpatient question.

Yes. Is the question whether or not there was much demand change between last quarter and this quarter?

No. Calendar 1Q and calendar 2Q.

Oh, calendar. Okay. I'd say a little bit. I'd say particularly critical access market that we look at tends to be some of -- we have a few that are early adopters, some that are kind of waiting to see. And I think with the distribution of payments starting, I think -- a lot of these critical access also are reimbursed on their calendar year and their cost-based reimbursed, so it's a little bit different model.

But in any event, we do see, yes as we move into -- towards 2012 that there is more interest. Some folks that were waiting to see are being more interested now and wanting to get started and realizing that really in order to get things installed you're talking about a six or nine month window typically.

So I'd say the demand is picking up from calendar year to calendar year a little bit, yes.

Okay. So a little bit more in this quarter versus last quarter. Thanks a lot.

Okay.

Thank you. And our next question comes from the line of Gene Mannheimer with Auriga. Please go ahead.

Okay. Thank you, and nice quarter. Most of my questions have been answered, but what was the hardware number for the Q? And I don't know if you talked about the Hanger agreement, but this -- certainly this seems like a nice win for you. Can you talk a little bit about perhaps the magnitude of that deal and how long it rolls out and would the financial impact be seen this year or next? Thank you very much.

Yes. So, first you're going to see this detail in the Q of course, but our total hardware this quarter was about $1.9 million versus $4.1 million a year ago. So you can see the fairly large decline there in the hardware content.

And then in terms of your next question about Hanger, that's -- clearly it was a very big opportunity for us and it was a very significant win for us. And it's certainly going to help going forward, but it is more of a longer-term horizon that you have to think about, and we're just trying to be consistent with not getting into details on individual contracts with customers, so --.

But you do have -- but the only thing that we will say is that it is something that's going to be spread out over time.

Great. Thank you.

Operator, we will take one more question please, if there is anyone in the queue yet.

Actually there are no more questions in the queue.

Great. See my timing is perfect again. Thank you all for joining us. As you can see, as our pipeline continues to build, our business units continue to perform, we're clearly in the first year of the stimulus with momentum building on all fronts. All is good on a going-forward basis in our Company, and we look forward to our future encounters and travels with you folks. And thanks again for all your support.

And again, Pat, thank you for everything. And again, Pat will be on our call next quarter, so it's not farewell just yet. Thank you all. Take care.

Thank you. Ladies and gentlemen, if you'd like to listen to a replay of today's conference please dial 303-590-3030 or 1-800-406-7325, enter the passcode 4459575. That does conclude today's Quality Systems fiscal 2012 first-quarter conference call. Thank you for your participation. You may now disconnect.