NextGen Healthcare Inc (NXGN) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Quality Systems fiscal 2012 fourth-quarter and year-end 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, May 17, 2012. I would now like to turn the conference over to Steve Plochocki, CEO. Please go ahead, sir.

Thank you, Alicia, and welcome, everyone, to the Quality Systems 2012 fiscal year-end and fourth-quarter results call. With me this morning are Paul Holt, our CFO; Scott Decker, the President of NextGen; 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 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 to 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 principles.

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

The Company reported revenues of $429.8 million for the fiscal year ended March 31, 2012, an increase of 22% compared to $353.4 million for the fiscal year ended March 31, 2011. Net income for fiscal 2012 was $75.7 million, a 23% increase versus net income of $61.6 million for the year ago. Fully-diluted earnings per share for the fiscal year 2012 was $1.28, a 21% increase from $1.06 for fiscal year 2011.

Revenues for fiscal 2012 fourth quarter were $109 million, up 12% compared to $97.1 million in the year-ago period. Net income for the fiscal 2012 fourth quarter was $15.1 million compared to $18.6 million in the same period a year ago.

Fully-diluted earnings per share was $0.25 in the fourth quarter of fiscal 2012 versus $0.32 for fiscal 2011 fourth quarter.

We are pleased with the results of fiscal 2012, which demonstrate strong growth in both revenues and profits compared to the previous fiscal year. Our performance for fiscal 2012 fourth quarter was impacted due to delays in both the closing of several fourth-quarter opportunities, as well as recognition of revenue related to a large customer implementation.

Looking ahead, we remain confident about the growth opportunities, as evidenced by our recent guidance in the 2013 fiscal year. We have stated that we expect revenues to increase 20% to 24%, earnings per share to grow 20% to 25%.

Some of the key dial-movers for our upcoming year include, one, to continue to expand offshore capabilities for software development and back office functions; two, expand our international distribution channel; three, continue to maximize cross-selling opportunities; four, sell more multiple product deals, like the Norton deal that we recently announced; five, expand RCM capabilities to dental and hospital markets; six, move upstream in the hospital sector; seven, be at the forefront of ACO modeling. At HIMSS in February, we introduced five new products to aid physicians in that effort.

Eight, continue to compete and win in the 50% of the market that has yet to it adopt electronic medical records. Nine, continue to acquire product and service offerings that supplement or complement our core offerings domestically and internationally.

You will be hearing from our division heads, and they will be touching on all of these key areas. I will now turn it over to Paul. Paul, take us through the financials.

Thanks, Steve, and hello, everyone. I am going to begin my comments with a review of our fiscal 2012 results, get into some additional details regarding our guidance for next year, and then finish with a discussion around our fourth-quarter results.

As Steve mentioned, we are proud of our accomplishments this past year, with revenue and earnings per share growing by 22% and 21%, respectively. We achieved 19% growth in system sales and 23% growth in our services revenue lines. Our three acquisitions during fiscal 2012 added approximately $7.1 million in revenue, resulting in organic revenue growth rate of approximately 20%.

Since April 1, we have completed another two acquisitions which bring significant new capabilities and synergies into the Company. Matrix Management Solutions brings a very sophisticated and efficient RCM company, which has built its service offerings completely around the NextGen platform. The Poseidon Group acquisition expands our capabilities within the inpatient world, as well as brings additional hospital customers to cross sell-our products.

The additional capabilities around emergency departments is critical to our efforts of advancing the breadth of our hospital market offerings. Poseidon brings approximately $1 million in annual run rate revenue, which is primarily recurring.

In addition to all the acquisition activity, we made substantial progress this past year in building out our Bangalore, India operation, which is providing top-level development and quality assurance resources to the Company in a cost-effective manner. We intend to build on our successes there and leverage the labor arbitrage to allow investment in our product and service offerings, to ensure our clients are at the leading edge of accountable care organizations and pay-for-performance and quality reimbursement model.

We ended the year with $139.4 million in cash and marketable securities, or $2.36 per share. This was up from $130.1 million or $2.20 per share at the end of the prior quarter.

This past year, we generated approximately $77 million in cash flows from operations, which enabled us to return $41 million in cash dividends to our shareholders, invest approximately $11.7 million in cash paid for acquisitions, while still growing our cash and marketable securities balance by approximately $17.8 million during the year. We are in a strong position going into fiscal 2013, with no debt and a stronger cash position than ever before.

Moving on to our fiscal 2013 guidance, our guidance range of 20% to 24% revenue growth includes expected growth in all of our business segments and revenue categories. We are expecting a slight increase in recurring revenue share of total revenue next year, primarily on the heels of faster growth in RCM and other recurring revenue streams. We are confident in our ability to deliver on this guidance, which is very consistent with our five-year compound annual growth rate of 23%.

Supporting our confidence in this guidance range are a number of factors, including our current sales pipeline, growing momentum in RCM, which Monty will discuss further, increased interest we are seeing from payor groups and large enterprise customers in enterprise Ambulatory solutions, as rapid growth in demand for consulting and other services, additional products and service capabilities as a result of acquisitions and new international market opportunities.

Our earnings per share guidance of 20% to 25% growth represents a slight increase compared to our five-year average compound annual growth rate of approximately 18%, and is consistent with what we've achieved on average over the last two years. I want to point out that we are not guiding to sequentially lower operating income margin percentage in spite of the change in revenue mix I mentioned earlier. Our expected operating margins implied in our guidance are consistent with our experience in the last several years, which is among the best in our industry, I might add.

So a proportionally higher service revenue mix will be offset by leveraging the investments in operations that we made in fiscal 2012.

Moving to our fourth-quarter results, our consolidated March quarter revenue of $109 million was up 12% over the prior-year quarter at $97.1 million. Our system sales results in the fourth quarter were negatively impacted by several large opportunities which were delayed in closing, as well as the deferral of revenue related to a multimillion dollar arrangement with a large customer, which includes customization and development of our software.

As I previously stated, for quite some time -- I would say many years -- it is difficult to predict quarterly results as the timing of the closing of our contracts can be very fluid based on a number of factors, which can vary with the facts and circumstances behind every prospect. This is why we've never provided quarterly guidance in the past and actively manage towards annual performance type goal.

Consolidated maintenance, RCM, EDI and other services revenue grew 23% to $74.2 million compared to $60.5 million in prior-year quarter. We benefited from year-over-year growth in our other services revenue, maintenance and EDI categories, which grew at 53%, 23% and 22%, respectively. Our other services revenue growth was driven by a number of factors, primarily an increased demand for consulting and other add-on type services.

Our consolidated gross profit margin this quarter came in at 61.5%. That is down from both the year-ago quarter and the prior quarter, which were at 65.8% and 66%, respectively.

Gross margin was down primarily due to the previously mentioned large contract delays, which resulted in a comparatively lower amount of high-margin software revenue.

Our SG&A expense, excluding amortization, increased by approximately $4.9 million to $34.2 million in the fourth quarter compared to $29.3 million a year ago. The increase was driven primarily by increased headcount and selling-related expenses.

Our R&D spend was up to $8.9 million this quarter, a 55% increase compared to the prior-year quarter and an 8% increase on a sequential basis. Our increased R&D spend reflects our commitment to continuing to invest in our products as we move towards health care reform and accountable care organizations, as well as make investments in our inpatient -- continued development of Inpatient product line.

Moving over to segment revenue and operating income performance, NextGen Ambulatory revenue for the prior year, full-year fiscal 2012, $325.5 million, up 22% over the prior year. NextGen Ambulatory operating income, $127 million. That is up 22% over the prior year.

On a quarterly basis, the NextGen division Ambulatory revenue was $82.5 million. That is up 12% from $73.7 million a year ago.

Moving to QSI Dental, for the full fiscal year, revenue of $19.6 million -- it's off slightly, 2%, from the prior year, and operating income $3.4 million. That is the full year. QSI Dental division revenue for the fourth quarter was $5.1 million. That is off from the prior year at $5.6 million.

Our Inpatient division for the full fiscal 2012 reported $34.5 million and operating income of $10.4 million. On a quarterly basis, the Inpatient business unit performed with $8.8 million versus $5.1 million in the prior-year quarter.

Practice Solutions full-year fiscal 2012 revenue was $50.3 million. It is up 3% over the prior year. And operating income was $5.8 million, up 37% over the prior year. For the fourth quarter, Practice Solutions delivered approximately $12.6 million in revenue, which is just slightly off the prior-year quarter at $12.7 million in revenue.

Moving on to our balance sheet, our total cash and marketable securities this quarter, $139.4 million, or $2.36 per diluted share, compares to $117.7 million, or $2.02, at the end of the prior-year quarter. Our DSOs, net of amounts included in both accounts receivable and deferred revenue, declined by a couple of days to 77 days compared to 79 days last year.

Our DSOs based on a gross basis compared -- was 122 days versus 131 days a year ago. And on a sequential basis, our DSOs declined by seven days. Our DSOs were also impacted by a change in our contracting policy, as our standard agreement now includes services billed as incurred, resulting in those services not being included on our balance sheet in deferred revenue. As of March 31, 2012, we had approximately $4.5 million in services, which have been contracted for on a billed-as-incurred basis, and therefore not on our balance sheet in either accounts receivable or deferred revenue.

Our current deferred revenue balance declined this quarter to $83.1 million compared to $90.6 million in last quarter. And as I just mentioned, a portion of that decline, approximately $4.5 million, was related to the discussion I was just having about services on the billed-as-incurred basis.

So for those of you that are tracking this, I'm going to break out our non-cash expenses for the quarter. Total amortization of capitalized software, approximately $2.3 million. Amortization of intangible assets, approximately $1.3 million. Depreciation expense, $1.3 million. Stock comp expense, approximately $900,000.

Investing activities for the quarter, internally generated capitalized software, approximately $3.5 million, fixed assets approximately $3 million.

So again, I would like to thank everybody for being on this call and your interest in our Company. We are all very dedicated to this Company and to our shareholders, and we are going to continue to keep our heads to the ground and keep pushing. So I will now turn things over to Scott Decker, President of NextGen Healthcare.

Thank you, Paul. Good morning, everybody. As Paul mentioned, I am very pleased to announce that for the fiscal year 2012 the Ambulatory division saw revenue growth of 22% to $325 million and operating income growth to 22.1% year-over-year. It should be noted that's being compared to about 11.3% revenue growth for the division in fiscal year 2010 and 16.5% in fiscal year 2011. So we continue to see a nice acceleration of revenue growth in the division.

It should also be noted that all the Ambulatory growth was on a purely organic basis in fiscal year 2012, and was highlighted by 100% growth in our management consulting business, which grew to exceed $10 million in revenue in fiscal year 2012.

While the fourth quarter was disappointing in terms of system software sales, the Ambulatory division still saw year-to-year growth of approximately 12%. As noted, the quarter was impacted by the slippage of transaction closings and a revenue recognition delay in conjunction with a large implementation project. In general, though, we continue to see a robust Ambulatory market and anticipate our performance to bounce back in the coming quarters, more in line with the past 12 to 18 months.

From an operating metrics standpoint for the Ambulatory division, we signed 75 new contracts for the Ambulatory division in the quarter. Five of those were staffed. It should be noted that our third-quarter new client contracts were much higher than historical trends, with nearly 128 new contracts.

Based on our pipeline and activity levels, we anticipate that the market should support our historical trends in the coming quarters of around 100 to 100 plus new contracts per quarter.

Discounting in the quarter did not materially change, in line with the past six to eight quarters. As of the 3-31, we have 116 quota-carrying sales and management positions versus 107 last quarter and 91 a year ago. The pipeline is $189 million versus $168 million a year ago. That number includes Ambulatory, RCM and Inpatient.

From a software delivery standpoint of major releases, it is highlighted by our 5.7 release, which just went to limited general release this month, and we anticipate will go to general release in the coming quarter. We've made the decision to continue on track to release our ICD-10 compliant software version 5.8 in fall of this year. We currently anticipate releasing our Meaningful Use Stage 2 compliant release, 5.9, in spring to summer of 2013.

As has been mentioned a couple times, we have a large customer implementation contract that did have a bearing on this last quarter, so I wanted to highlight that and give a little more color to it. This contract was signed in the first quarter of 2011, from a calender standpoint. We just completed initial development requirements, which are being delivered in our EPM 5.7 release, which I mentioned just went to LGR this month. The time and materials were unique to this client which as completed to date is yet to be recognized and was noted in our preliminary results comments both last week and this morning.

That initial work is approximately $2.5 million to $3 million worth of work.

We anticipate this client going to an initial set of pilot sites later this summer that will go to approximately 100 users, and we are assuming the pilot -- if the pilots go as planned, we will start rollout to all clinics for this client in calendar year 2013. This will ultimately result in excess of 3000 licenses being distributed to those clinics.

Moving on, I am also pleased to announce that this month we have signed our first international distribution agreement. The agreement, which is a three-way partnership with a major international IT company and a regional distributor, will take us into Latin America in the coming months. The details of the announcement are pending final approval, but should be released in the next few weeks.

From a fiscal year 2013 outlook standpoint, we expect to see 20% plus top-line and bottom-line growth during fiscal year 2013. We are in the midst of a strong push for Meaningful Use. NextGen is currently ranked fourth in Meaningful Use Medicare attestations, with approximately 3300 in the April report, which was through February.

NextGen has also been selected by 9000 REC enrollees, ranking fourth in that category as well. It should also be noted that there is about 25,000 REC enrollees who are yet to select an EHR and are prime candidates for NextGen solutions, based on our market share within the RECs and all the work we've done to be one of the top vendors in the majority of the RECs across the country.

Outside of the Meaningful Use catalyst, we see tremendous opportunity in our large clients as the industry consolidates and they prepare for the shift to accountable care organizations. Many of our large clients are telling us to expect 100% growth in physician EHR use over the next 24 months, as they acquire and wire their markets in preparation for a shift in quality and outcome-based reimbursement models. These large clients represent three distinctly different business models, built around hospital systems, (technical difficulty)

Scott?

Ladies and gentlemen, please continue to stand by. It appears that Scott's line just disconnected. One moment, please.

Ladies and gentlemen, thank you for standing by. Please go ahead.

Okay, we will now be moving on to Donn Neufeld.

Good morning. During the quarter, we renamed the QSI Electronic Dental Record the NextGen EDR. The new name will better reflect the tight integration of our Electronic Dental Record with the NextGen suite of products. We continue to have success selling NextGen EDR; we added seven new sales during the quarter.

This week, we received Meaningful Use certification for NextGen EDR, strengthening our position in the FQHC and Medicaid marketplace. During the quarter, we also signed an agreement with Suni Medical Imaging to resell their sensors, panoramic, supplemetric and 3D imaging products with all of QSI Dental solutions, including the NextGen EDR.

We will be working with our RCM business unit to add dental services in fiscal year '13. The QSI Dental pipeline is approximately $6.7 million.

NextGen EDI had record revenues and income in Q4. We saw solid growth in fiscal year '12, up 20% over fiscal year '11. The new EDI products for claim edits and EDI reporting are getting a strong acceptance.

We continue to leverage our ViaTrack acquisition. It is the recommended solution for all new NextGen Hospital Solutions sales.

Thanks to everyone on this call for their support and interest in the Company. I will now turn things over to Steve.

Thank you, Don. From the fiscal year perspective, I am pleased to report that Inpatient Solutions exceeded its projections, contributing $34.5 million to the Company's revenues and $10.4 million in operating income. This year has demonstrated an acceptance of our products in the hospital inpatient marketplace and brings our inpatient penetration to well over 200 hospitals now. This quarter, we added 12 new hospital clients into the customer base, and I'm happy to report that many of these were from the synergies created across our product portfolios.

We continue to see a strong pipeline of deal opportunities ahead and the market continues to be strong in our targeted segment. I am particularly proud of the cross-sell synergies that we continue to enjoy with both our Ambulatory systems and now our surgical services. You may remember that last July we completed the acquisition of CQI. That company specializes in systems providing centralized scheduling and operating room management. This quarter, we benefited from expansion sales into some of their larger integrated networks.

Our surgical services offering also positions us to successfully target a new market, specialty surgical hospitals, with a comprehensive solution.

At the beginning of the month, we completed the acquisition of the Poseidon Group. Poseidon is an Atlanta-based emergency department systems vendor. Their products are built to run over the web and will integrate nicely with our current web-based product offering. We will immediately begin to offer the company's products to our current customer base, similarly to how we have successfully marketed the CQI surgical suite to them. Poseidon also offers a PC-based documentation system that will allow some of our smaller hospitals to build a transition path from paper to an automated emergency department.

With the addition of surgical services and an emergency department offering, we are able to begin to offer a more comprehensive product suite that allows us to move into larger community-based hospital opportunities.

We are also excited to announce our new name change, from NextGen Inpatient Solutions to NextGen Hospital Solutions. As you are probably aware, hospitals perform many outpatient services in addition to inpatient admissions and are involved in many integrated delivery solutions that extend beyond the traditional inpatient services. We believe this new name will more accurately identify our product offering, will ultimately appeal more broadly to our market base as we continue to grow and build our portfolio out.

In closing, we are continuing to focus on the role in community hospital market, which has become our strength, and with an expanding offering of new portfolio of products, we are beginning to scale upward in the market, and we look forward for the new opportunities this will provide us.

Thank you for your time and attention, and now I would like to turn it over to Monte Sandler.

Thanks, Steve. Good morning, everyone. Practice Solutions had a busy fourth quarter with many things to report. We had our strongest quarter to date of booking new contracts and I'm pleased that we are beginning to see the fruits of our labor as it relates to our sales and marketing focus over the past several quarters.

To that end, we have recently added two new RCM sales directors, with plans to add one more, in an effort to drive continued growth to our business unit. We also improved our operating income 37% year-over-year, which was a large part of our focus for the year.

As a result of those efforts, we have seen continued operating margin improvements over the past three fiscal years by scaling the business and finding ways to be better, smarter and faster.

Our backlog of signed deals not fully implemented remains strong as a result of strong sales and our sales pipeline continues to grow. The IASIS Healthcare contract that I reported last quarter is already fully implemented and growing as expected. We signed several deals to our full-service RCM offering in the fourth quarter, all of whom selected Practice Solutions to help them reduce costs, optimize revenue and maximize the use in the NextGen product suite.

We recently announced the acquisition of Matrix Management Solutions and could not be more excited about what this acquisition brings to our organization. Matrix has been providing outsourced RCM services on the NextGen product suite since 1998. They bring a quality team and unparalleled experience that will enable us to continue to scale our organization.

I am also pleased to announce that we will be changing our name in the coming quarter from Practice Solutions to RCM Services, as we feel that it better represents the outsource services that we provide to our customers, which are focused on revenue optimization and software utilization. The name change also better positions us to offer RCM Services to our NextGen Hospital Solutions, formerly NextGen Inpatient Solutions, and QSI Dental customers.

These efforts have already begun and will prove to be additional areas of growth for our organization in the future.

Our service delivery remains strong, in part due to our successful implementation of the 5010 EDI requirement, and I'm pleased with the minimal impact we experienced on behalf of our customers. We are watching the future of Medicare reimbursement closely and hope that a more permanent solution is reached before the end of the calendar year. We also believe that with the implementation of ICD-10 looming in October 2014 that providers will choose to focus on their core competencies of providing quality medicine, thereby creating opportunities for our full-service offering to help them optimize their revenue cycle.

I am confident that we remain well-positioned to help our providers navigate the changing environment and optimize the revenue cycle with our full-service, all-payor, best practice solution that is built on the NextGen industry-leading software platform. Thank you for your time and interest in our Company.

This is Steve Plochocki, and I think we have Scott back on. We lost him for a second there. So Scott, if you could pick up, you were on the international discussion when I think we lost you. And hopefully, you were signing a big contract for this June quarter when you were off the air there for a while. Go ahead, please.

Absolutely, Steve. I apologize. I will just recount the last comment I was making on international, since I seem to have gotten cut off.

As I was saying, I am pleased to announce that we, this month, just signed our first international distribution agreement as a Company. The agreement, which is a three-way partnership with a major international IT company and regional distributor, takes us into Latin America in the coming months. The details of that announcement are pending final approval, but should be released in the next few weeks.

So with that backdrop, talk a little bit about the 2013 outlook for the division. We expect to see 20% top-line and bottom-line growth during fiscal year 2013. We are in the midst of a strong push for Meaningful Use. NextGen is currently ranked fourth in Meaningful Use Medicare attestations, with approximately 3300 in the April report, which takes us through the February timeline.

NextGen has also been selected by 9000 REC enrollees across the country, which also ranks us fourth of all vendors. 25,000 REC enrollees are yet to select an EHR and are prime candidates for NextGen Solutions, based on our market share within the RECs.

Outside of the Meaningful Use catalyst, we see tremendous opportunity in our large clients as the industry consolidates and they prepare for the shift to an accountable care model. Many of our large clients are telling us to expect 100% growth in physician EHR use over the next 24 months as they acquire and wire their market in preparation for as shift to quality and outcome-based reimbursement models.

These large clients represent three distinctly different business models built around hospital systems, payors, and lastly, large physician groups, each with distinctive advantages in pursuing accountable care contracts and thankfully all of them NextGen clients.

While we continue to see good momentum in the market for our large clients aggressively rolling out business, we are also executing on plans to be increasingly competitive in smaller markets. Highlighting these plans are the introduction of our new intuitive user interface for physicians that is receiving rave reviews from current and prospective physician groups. And to complement the new user interface, we will be offering streamlined deployment models later this year that should make it easier for the small practice to go live and get proactive help from NextGen as they adopt EPM and EHR.

Lastly, we anticipate continued aggressive growth in our management consulting business line, as we saw in the past year. We are also excited about both the launch of our analytics business and additional international agreements as we go forward in this fiscal and calendar year.

With all that said, as always, I need to thank our clients, who are definitely the thought leaders in helping us forge ahead into the new ACO world, and of course all of the NextGen employees across the country who are working so hard in conjunction with our clients to take advantage of the rapid change that is occurring in the industry and truly making NextGen a leader in this segment.

Thanks for your time and look forward to the questions.

Alicia, we will now take questions, please.

(Operator Instructions) Charles Rhyee, Cowen and Company.

Thanks for the question -- taking the questions here. Maybe starting with the quarter itself, obviously you had to make an announcement relative to, I guess, where expectations were prior. Steve, it sounded like you were pretty positive on where things were going earlier in the quarter.

Where did it kind of change for you, and what do you think signaled that? And clearly, we've seen some disruptions at some of your peers; yet some of your other competitors seem to do quite well. What do you think is really going on here and why maybe the delays within your customer base specifically?

Charles, it is always difficult, when you consider the fact that so many of our deals get closed in the last five to eight working days of a quarter. As a matter of fact, if you look at the history of Quality Systems, go back 10 years -- I've been on the board for eight years -- every four to six quarters, we have a quarter like this where the deals don't line up the way we would like them to, and we just don't get them done.

Several of the deals that we should have gotten done in the March-end quarter, we have since signed and have since announced to the marketplace.

It happens periodically. None of the fundamentals have changed, though. Our pipeline is deep. Our categories one and two are strong. We have a very strong bevy of six- and seven-figure deals in that pipeline. None of the fundamentals gave us any indications that we weren't going to be able to pull some of these deals through. But the bottom line is that we did close many of them heading into this June quarter, and we are really off to a pretty good start for June.

Okay. That's helpful. Maybe then looking at specifically on the RCM side, you guys talk about renaming this and really pushing this division forward. Yet the revenues in this division have been pretty flat the last few quarters. Why is that the case here? You had pretty strong growth; it seemed like it was kind of acquisition-driven. Maybe also what is the contribution of Matrix to the revenues as we think about fiscal '13?

This is Monte. As you all remember, our revenue cycle management business grew through acquisition in 1998 with the acquisition of -- in 2008 -- excuse me -- with the acquisition of HSI and then subsequently PMP. We've now added Matrix to the fold.

So we remain focused. And I've been telling you for the last few quarters that we are focused on our sales and marketing, and we are continuing to find opportunities to not only cross-sell within the customer base, but also include ourselves in net new customers going forward.

So I think we saw some of that coming to fruition in the fourth quarter, and we continue to see our pipeline grow and our backlog grow, so I think we are on solid footing.

With respect to Matrix, again, they've been a long-time customer and user of our applications. So we see a lot of synergies and opportunity to continue to improve our service offering. And I think it has been reported that we expect the revenue from the Matrix contribution to be upwards of $10 million.

Okay, great. And then just -- maintenance I noticed was down sequentially. Why would maintenance be down, Paul?

I would point you to the annual -- try not to look at the quarter -- the quarterly numbers on maintenance can have a little bit of variability from time to time. I think you just need to look at -- on the year-over-year percentage, which was north of 20% growth. At times, there can be some noise in that maintenance revenue line, but if you look at it on an annual basis, I think it makes perfect sense.

Okay, but was there any contracts that came off of maintenance? Because if I remember back in fiscal '07, you had a large client come off maintenance, and that kind of impacted that for a while. Is that something similar going on here?

That was a particularly -- a much larger kind of situation. You do have those kinds of things from time to time. We didn't have something of that magnitude in the past quarter. But as I was saying, sometimes you have situations like that, but on a smaller scale. That is some of the noise than I am referring to.

Great. Thanks a lot, guys.

David Larsen, Leerink Swann.

I think if I heard you correctly, the size of the revenue that was not recognized in the quarter due to the implementation timing was $2.5 million to $3 million. Is that correct?

That's correct.

And you did incur costs for that project, right?

That's correct.

And then did I hear you say that you were going to add about 3000 licenses for that project in the future? So would there be incremental revenue recognized for that in the future, in addition to the $2.5 million to $3 million?

That is also correct.

Okay. And then how big were the deals that actually pushed to the next quarter? Have you sized that, or are you not disclosing that?

I think the best way to characterize that is that they were seven-figure deals, and they would have had a significant impact on the quarter. And we will get the benefit of that in June, June quarter.

Okay. And then you guys have presented some grids showing that 90% of EMR sales in the quarter are greenfield. Can you just tell me what percentage of your total sales does that make up? So like what percentage of your total system sales now within NextGen are EMR-specific sales, roughly?

Scott, do you want to answer that? I don't mind taking it. That is a relatively small -- a vast majority of our deals are joint deals, both EHR and EPM. The balance has -- historically, it has been split actually kind of roughly even between EPM and EHR only.

Okay, so within the NextGen system sales, about 50% EMR, 50% practice management. Is that correct?

Yes, that's on average. You will have some variability from time to time, but typically, that's -- Scott may -- probably has some color on that as well.

I think you are on the right track; just to make sure we are all talking the same thing. So if you looked at all -- when we talk about greenfield, it is only in talking about new client signings. So even with that said, though, the vast majority of our sales these days are combined EPM/EHR sales. I'm not quite sure what path you were trying to clarify.

Okay, that's helpful. Thank you.

Constantine Davides, JMP Securities.

A couple questions on RCM, if I could. The first is on the pipeline. You mentioned that includes RCM. I just want to be clear -- is that consistent with how you measured pipeline in the third quarter?

Yes, we have been measuring pipeline on a consistent methodology, it's probably coming up on almost two years now.

Okay. And then Monte, just on a related note, you mentioned it was a very strong bookings quarter in RCM. Can you just maybe provide a backlog number? I know that's something you have done in the past.

Constantine, this is Paul. We have -- this past quarter, that backlog is north of $10 million, approximately.

I would add to that it's almost a 50% increase from some of the previous quarters.

And is most of that coming from (multiple speakers)

Very strong quarter.

Is that $10 million, I mean, that is the run rate on Matrix. Is that (multiple speakers) exclusive of that or is that additional?

That's separate. This is backlog contracted business, separate from Matrix.

Got it, great. And maybe one for you, Paul. Guidance that you put out recently was 20% to 24% revenue growth. How much of that growth is going to come from new acquisitions, either those completed in the first quarter, or have you factored anything from future acquisitions in the next couple quarters in that 20% to 24% number?

What has been factored in is the Matrix acquisition. We did factor that in. We are not going to -- I don't want to get into the exact dollars related to Matrix, but just from a qualitative point of view, just so you know, that has been factored into the guidance. But beyond that, we have not factored any other acquisitions in there, because felt it was more conservative to not assume anything, necessarily.

All right. Thanks, Paul.

Greg Bolan, Sterne, Agee.

Steve, don't really ever talk about this much and I understand why. But if you think about like the Tiers 3 and 4 for the pipeline versus say Tiers 1 and 2, versus say this time last year or maybe last quarter, what are you seeing? Not necessarily needing to quantify, but just kind of qualify the improvement, decline or maybe just same type trend?

As Scott indicated, I think our current pipeline is about $189 million. A year ago, it was $168 million. And in order for that to continue to grow, the deeper categories, the early lead categories, have to be growing at the same pace.

Sure.

So if you look at it as a V, with four categories, with the near-term deals at the point of the V and the more extensive deals further out in the V, the V is getting wider.

Got it. Okay, understood. And just on the RCM services side, a little bit better than what we were expecting. And I know you all had spoken about kind of the change in the compensation structure. Maybe, Paul, if you could just refresh us what actually changed, and then if this quarter you've seen some benefit from the change in compensating sales folks.

I don't necessarily want to get into the actual details of our commission plan. But suffice it to say that we did make a concerted effort this past year to get our sales team and our sales folks more aligned to selling revenue cycle as opposed to just selling what they've historically sold, which is software.

And admittedly, as we talked about it, it is well-known our growth rate in RCM was not what we would have liked it to have been. But I think it is very safe to say that we've made some excellent progress in getting our sales force tuned in to selling RCM, and we certainly saw quite a surge in the fourth quarter, which we think is somewhat related to that. And we are excited about it, and I think it portends well for the future. But then Monti may have (multiple speakers).

Yes, this is Monte. I think what we've done is we've added more expertise to our sales team as it relates to selling RCM services. And we've worked really hard to continue to integrate our RCM services within our sales organization. And I'm pleased to say that we've made tremendous progress. We are seeing -- as I said in my prepared comments, we are starting to see the fruits of those labors. And so I think that continues to move in an upward trend and in the right direction.

I think the other thing that you all could be thinking about is today, of the four business units, RCM Services is the only pure service organization. Today we are providing service to one of those technology groups, being NextGen Ambulatory. But we also have opportunities within our NextGen Hospital space as well as our QSI Dental space. And again, as I mentioned in my prepared comments, we have already begun the path towards servicing those customer bases as well and continuing to cross-sell our services throughout our organization.

Thanks for that. And then Scott, you ended the fiscal year with 116 quota-carrying NextGen reps. What would be your goal for fiscal '13 in terms of just ending this year?

I think you will probably see it continue to tick up slightly, probably net-net, maybe another 10 to 15 by the time we are having this conversation a year from now. A little bit of that is, as Monte said, growing the RCM capability. We're also investing more in just what I would count call account management folks. With the shift towards ACOs, as I mentioned, some of the larger clients represent absolutely huge opportunities for us. So just to give you little color on the mix.

That's great. Thanks. And this last question, Steve or Scott, just the talent pool. You know, we've seen several other vendors run into some woes, and it is maybe company-specific. One in particular, obviously. Have you seen any noticeable change in kind of the influx of more -- higher, more senior type personnel on the sales side or on the operations side starting to occurred? Any comments on that would be helpful.

Are you referencing in our organization?

No, I'm referencing just kind of the influx of I suppose resumes, opportunities. Senior folks that are out there that are possibly looking for a change to come over to NextGen.

I think as Scott indicated earlier, of the 775 software vendors out there to provide EHR, we are fourth. So we're in the top five in terms of installed base and customer base.

So, look, periodically, we do get things come our way. I don't know if I've seen an onslaught or anything. Scott, I'd defer to you on that. Have you seen a huge onslaught of this type of activity?

I think maybe just taking it from a little different tangent, there is some additional talent who is entering the market over the last quarter or so, that I think gives us some opportunities where they were in the past, just there has been some shuffles in some of the larger competitors. I think that is what you were alluding to.

Right. Okay. That's helpful. Thanks, guys.

Donald Hooker, Morgan Stanley.

I think Scott Decker mentioned he was anticipating 20% revenue growth in fiscal '13, if I heard him correctly. And I was thinking of some of the other divisions. Are there any other -- like, looking at, say, the RCM Practice Solutions business, what would be a good revenue growth we should anticipate at that business for fiscal '13?

Well, I think we already mentioned -- we already talked about you've got a backlog number that is out there. Now some of that is dependent on our customers. We have some control of that; we don't have all control over that, in terms of timing and how that rolls out, so we kind of have to be sensitive to that.

But you also have the Matrix acquisition, which we're excited about, and the pipeline that is taking place. And so I think all that -- you throw all that together, and you are talking about at least something on the order of 40% year-over-year north of that built in. So I think that is -- hopefully that gives you a little bit of color there.

I'm sorry -- to 40% year-over-year growth?

In the RCM, in revenue cycle.

Yes. Scott, it's just -- he's got $10 million of new book business for the year. We just bought Matrix. That's another $10 million. And we have 10 months to go to the year. I think that is how some of the math is rolling out. I've kind of challenged them to do much better than that, which I think they will.

If we can do better than that, absolutely. That puts pressure on Monte, but this is the life we've chosen, I guess.

Got you. And then I guess from the outside, it is always difficult to monitor what you guys are doing in the inpatient space, the hospital space, as well, with all the acquisitions. Is there sort of a revenue growth outlook for fiscal '13 there as well? Because you gave it for the whole Company, and I am just trying to sort of think about how the pieces fit together.

Okay, well, we've given you a couple pieces. Are you trying to get at (multiple speakers) business unit?

Yes, I'm trying to sort of triangulate around some of the Inpatient business and the Practice Solutions business for fiscal '13, what kind of revenues to anticipate. You gave us a consolidated number; I'm just trying to break it down by division.

We have not -- and this is not rehearsed. We talked about, I think, two of those divisions, we have not -- I would rather try to keep it at a more higher level. We've given you a couple of large divisions. Certainly, we know there is a lot of opportunity in the inpatient side of -- hospital side as well as dental.

But I think -- why don't you do this? You've got the range we've given you as a whole. You've got two of the pieces already. I think that you can do some math there and back into something reasonable on the other two, if I can offer that up.

That's fine, and one last one. When I think about -- I know you guys have a number of large, I guess you call them enterprise relationships. I think of Banner, Trinity, Adventist, IASIS, I think you referenced. Are any of those relationships a material part of revenues as a percentage? What percentage of revenues would those relationships be? I'm trying to think how exposed you might be to one specific enterprise relationship.

I don't know if we really want to get into that level of detail. Our RCM unit has got quite a few customers in their base. There are some larger customers, some smaller customers. I don't think we can -- I'm not going to say that. But I think we want to try to get away from getting into that level of detail and try and identify particular customers and what percent.

But I think -- Don, this is Steve -- Don, what I always look at, we've got over 4000 group practices. We have a lot of large customers in that mix. But I don't think there is any one customer -- and Scott, you can answer this better than anyone -- there isn't any one customer that has any kind of material balance to our system.

Yes, Don, that's exactly what I was going to say. It is probably more opportunistic risk than it is any risk to the ongoing business stream. So even our biggest client, the main thing is just maintenance stream. And losing a big client, while it would be painful, it would hardly even show up, I think, in our financials. I would be more concerned, because as I said, this shift to ACOs is really having a lot of those clients, as you know, do a tremendous amount of physician acquisition right now, which is very nice upside for us on the EHR/EPM front.

But are you seeing more downstream competition from larger sort of inpatient IT vendors, like Epic or Cerner?

No, I don't think so. I mean, everybody has been focused on that space. Everybody continues to be focused on that space. I feel like we are really, really well-situated. And I am out with those large clients on a month-to-month basis, and they are all talking to us about how do we continue to grow together and, to be honest, can we scale with them, is their biggest question.

Okay. Thank you all so much.

George Hill, Citigroup.

Most of my initial questions have been answered. I guess Steve, just to double check, did you guys say it looks like Matrix is going to contribute, it looks like on a calendar basis, about $12 million or $13 million to revenue in fiscal '13?

I think it was sort of $9 million to $10 million. Paul --

Here is what we've talked about. We talked about some approximate run rate revenues prior to us acquiring Matrix. We do have expansion plans, of course, for Matrix, along with the rest of that unit. But I think we are trying not -- we didn't really want to get into that kind of granularity in terms of the guidance. But I think you've got a couple of pieces there already, so I would like you to work with that.

Okay. Good stuff. And there's kind of a Consumer Reports for the healthcare technology space out there, and according to them, they are saying that client SAT scores for NextGen customers, I guess, seem to be on a pretty consistent slide. I guess is that something, Scott, that you feel like you are seeing and hearing from the customers? And if you are, how are you planning to address that? If not, how do you -- what do you think of the disparity between what you guys hear and what is being reported?

It's a great question, George. And it's interesting, because I'm sure you are probably referring to [Class] as much as anything. And what is interesting about [Class] is it is really a trailing indicator, rather than a leading.

And when we saw that decline start to occur, that was 24 to 18 months ago. And at least from the data I'm seeing, I think we've stabilized it. Because we did do a lot of both internally and externally, A, to just -- I've talked a lot about some of the quality initiatives we launched 18 months ago, and then a lot of things on the user interface work we've been doing.

So as I currently talk to clients, I really feel like it has turned, and they are much more positive than they were 12 to 18 months ago, and if we continue to deliver, I think, on the things we have been now for, as I said, really the last year, year and a half, my anticipation is we will start to see those subjective conversations we are having be reflected in the objective data that's starting to trend back up for Class in the coming quarters.

Okay. I appreciate the color. Thank you.

Bret Jones, Oppenheimer.

Thank you for taking the questions and good morning. Just want to circle back on Matrix for one second. When you talk about a $10 million run rate, that would be a net contribution to you. Is there any expectation of maintenance revenue that might roll off since they were an existing client?

They are an existing client. There was, I would say, a very small amount of maintenance revenue. I think nothing really of any significance I think to us as a whole, as a Company.

But that does -- that rolls off, but then that was an expense to them. So on a net basis, you are even. You have a small amount of maintenance revenue that does roll off, but then you have the expenses that they were running; that expense also rolls off. So on a net basis, from a bottom-line point of view, nothing changes really.

Great. That's helpful. I just wanted to circle back to Constantine's question on the pipeline, to make sure I understand the definition correctly. Scott, you said that you have been calculating it the same. I just want to make sure I understand that it has been reported the same. Because this is the first quarter I remember RCM being included in the pipeline number that is being reported.

Yes, so it has been calculated and reported on a consistent basis. The reality is there just hasn't been that much RCM in the past, and so I maybe didn't even mention it. But if it was there, it was in the numbers and what we were reporting.

Okay, great. Just wanted to check on that. And then the implementation revenue spiked up fairly dramatically. There wasn't a lot of cost associated with that. I wanted to make sure there wasn't any kind of catch-up payment or catch-up revenue [rec] that occurred in the implementation line.

No, we have been ramping up, we've got a lot of implementation work out there, and I think that is just being reflected.

So the catch-up is essentially the fact that you had hired those people before, but now you're actually able to bill them. Is that what we are seeing? Why the cost (multiple speakers) actually going up with revenues?

Yes. So, initially, when you are growing an implementation group, you have to -- obviously, they are not billable on day one. So you do have to make an investment in those people before they become billable resources. And so I think you are seeing some of that.

Okay. And then just lastly, on the hospital side, the $8.8 million of revenue was considerably lower. So I just wanted to understand, with the slippages you saw in the quarter in terms of deal signing, was that primarily in the Hospital side or was it Ambulatory or both?

It was a combination. I think we saw that in both those business units.

Any common reason as to why they slipped?

No -- this is Steve -- there is no particular reason at all. Hospitals obviously are very complex organizations, their boards. Things that we can and cannot control in terms of timing is a little bit more difficult.

I do want to point out I know one of the deals that Steve Plochocki mentioned earlier, too, that we've made an announcement about also was a combined deal for both and was a significant deal for both sides of the Company.

Great. Thank you very much.

Richard Close, Avondale Partners.

I just want to follow up on Don's question, and I think it was George with respect to the hospital's Cerner and Epic and maybe some of these enterprise deals, and just get maybe your perspective on the current competitive environment. Clearly if we go back several years, call it five years ago, you and Allscripts were the leaders in this physician Ambulatory marketplace for the most part, and had a lot of enterprise clients adopt your technologies.

And I'm just trying to get a feel whether increasingly someone like a Cerner's product has improved or an Epic is rolling out to more hospitals, whether you see it as a big risk that NextGen, or in Allscripts' case their TouchWorks products are going to be increasingly thrown out of existing clients. And maybe to tie that into the maintenance revenue, we see maintenance possibly take a hit down the road. But just overall whether you see that's a potential.

I think, Richard, as we've talked about probably for a while, I think the macro consolidation to enterprise accounts, meaning hospital systems buying up physicians and needing more infrastructure; I think on a macro basis that is positive for us because there really aren't that many enterprise quality Ambulatory products. So maybe you lose a little more to one vendor, but with the overall tide rising I feel like we are really well-positioned if you just look at the vast majority of the market and all the hospitals out there and all the partners they have.

So yes, we'll lose a few, but I think we are going to win a lot more. And the clients that we do have are pretty well entrenched at this point, and as I said that is both an objective and subjective just based on our day-to-day conversations with all of them.

Okay. And then on the greenfield EHR deals, I wasn't really sure on the answer to this. I think you said last quarter, the third quarter, it was 90% of new EHR contracts were greenfield. That compared to 87%, and I guess 80% two quarters ago. What is the number for the fourth quarter?

I don't think I actually referenced it. It was approximately 70% for fourth quarter.

Was greenfield?

Right.

Okay, that's helpful. And then with respect to the RCM Services, I understand that the backlog is dramatically improved and you have the acquisition, so you will see the growth in fiscal 2013 in the RCM Services. But it is sort of concerning to just see the flat line over the most recent fiscal year. I'm curious -- IASIS, obviously a great deal for you there. Did IASIS contribute at all in the fiscal fourth quarter?

No. I think we were in the middle of implementation. I don't believe there was very much contribution from them in the fourth quarter at all.

Okay, helpful there. And then with respect to investments on the RCM Services, I think someone mentioned it -- I forgot who it was -- that you made investments in that business in the most recent fiscal year. So you would expect notable leverage or a margin expansion in the RCM business in the upcoming fiscal year?

I think in my prepared comments I shared with you, we have been really focused on continuing to improve operating margin. Our year over year was a 37% improvement.

And so our focus has been twofold. It has been growing revenue through sales and marketing and continuing to improve margin. And I think I also in my prepared comments have stated that over the past three years, we've had significant operating margin improvement each and every year, and we expect to continue that trend in the coming year.

Okay, final question. Steve, you listed, I guess, eight initiatives for the --.

Nine.

Okay, I missed one there, so I'll have to go back on the transcript. But is there any, I guess, fear or uneasiness in terms of that is a pretty full plate for the upcoming fiscal year and that you could maybe lose focus at all in any one of these areas and have a negative situation or negative hit.

I'll put it this way. There are nine initiatives, but most of them are continuations of what we've already started. Our offshore capabilities and our back-office functionality to be moving it offshore, we started that last July. So this isn't a new initiative. It is a continuation of that.

Expanding our international distribution channel, as you've heard from Scott, we've just closed our first international distribution opportunity. We will be announcing that in a press release in the upcoming weeks, and we have many more in our pipeline.

To continue to maximize cross-selling opportunities. Almost every one of the deals we announced has more than one of our product or service offerings. The Norton deal, for example, Inpatient, Ambulatory and Dental. You mentioned IASIS. IASIS was an Ambulatory customer that Monte sold RCM Services to.

I mean, the continuation of cross-selling opportunities, I think now that we have real solid operating platforms in our business units, you are going to start seeing a lot more of those types of deals.

Expanding our RCM capabilities to dental and hospital markets, Monte is already engaged in doing some offerings to small hospital markets right now.

Moving upstream in the hospital path, I mean Steve Puckett is -- along with Poseidon and CQI before it -- we've already been putting pieces together to give us a more comprehensive offering to be able to move into larger hospital offerings in, albeit the small hospital sector, a larger piece of that pie we are looking to get.

ACO modeling, the five new products that I mentioned that we introduced at HIMSS, to aid the physicians in that effort. If we did not have the capability for development in India that we started last July, we would've never had those products ready to go in February at HIMSS. All of these things are continuation plays.

And then of course, continue to compete to win the -- to compete for the 50% of the market that has yet to adopt. And then of course the last one was to continue to acquire product and service offerings that supplement or complement our core offerings. And we are looking to do that not just domestically, but internationally. So most of these, as you can see, Richard, are continuation plays.

Okay, great. I appreciate the added detail. Thank you.

Atif Rahim, JPMorgan.

I might have missed this, because I was a couple -- a few minutes late on jumping in the call. But did you all talk about the contracts that were delayed, if and how many you might have signed post the quarter?

I'm sorry, you are cutting in and out on us here. Operator, did you hear that?

His volume is a little low. I can turn his volume up.

Let me try speaking up. The contracts that were delayed being signed in the quarter, did you discuss how many of those you might have signed post the quarter?

Well, like I said in our prepared statements, we've announced already some of those, that have already been announced. They are on our website. And there are others that are very close to being signed.

So no -- but we're not going to tell you who they are just yet, except the ones that have been announced, other than to say that they are in the seven-figure range, every one of them.

Okay. And then for Paul, the change in the services-related contract revenue, the way you are I guess classifying it into deferred, what drove that change? Could you just recap that for us?

Yes, you are talking about on our balance sheet? So yes, we just made a slight change to how we are approaching payment terms, separating out services from software, just calling out services as billed as incurred. And in that kind of a payment arrangement, you are not going to record that on your balance sheets, versus -- in prior arrangements, we've had a normal practice of including our software and services combined in our payment terms that has resulted in how we record our balance sheet, which has this gross up.

So as I always talk about every quarter, I give you a DSO number that is net of unpaid services, and then I also have a gross number. So what I am saying is as a result of that change in those payment arrangements, we are seeing a little bit -- a different presentation on the balance sheet. And I wanted to point that out so that it is understood what was driving some of the change in our accounts receivable and deferred revenue balances on our balance sheet.

Okay, understood. So the services components I guess are not being billed ahead of time now? But they are being billed; you are just not collecting the cash (multiple speakers)?

No, so what I'm saying is if you have a contract where -- you have contracted out for X amount of services, but we are saying, hey, they are going to be killed as they are being rendered. So we are not defining -- we are not saying that there is any amount owed today. That is going to be owed as services are rendered. So we are not going to record something like that on the balance sheet. That is really more of a backlog.

Okay, perfect. That covers my questions. Everything else has been answered. Thank you very much.

Dave Windley, Jefferies & Company.

There has been some discussion, some questions about trying to get some clarity on segment revenue contribution to 2013. I was hoping I could approach that more from a gating of total revenue in 2013. So I guess the essence of the question is will -- if we leave 4Q of '12 at a 12% growth rate and we are going to 22% at the midpoint, should we expect that to kind of steadily move higher through the quarters? Or is this first quarter going to be a very high growth rate because of the slippage into 1Q of '13? I am just trying to get a sense for how you would expect that growth rate to gate over the course of the four quarters of the year.

I appreciate that question. As I was saying, quarters are difficult to predict because of the timing of arrangement. Certainly that -- last quarter was exhibit A of that.

So -- and as Steve mentioned, there are -- we do have good opportunities that we are working on in the June quarter. But I have always tried to point people to please judge us on an annual basis, a more long-term basis.

And I am not -- I would not want you to sort of try to model out some kind of monster quarter in the June quarter, although let me also take back -- look, we are working as best we can, and I'm not trying to take you off in sort of like a -- downgrade any expectations about June. All I would like to say is I really don't like to try to get into the timing of individual contracts, and really sort of speak more to an annual basis.

So let's just do that. And certainly -- let me roll back as well. I don't want you to miss the fact, though, that we do have some great opportunities that we are working on and I think we've gotten a great head start here in the June quarter. But I think we live in Missouri. Let's call it the show me state.

Okay, all right. Thanks for that. So maybe then more conceptually, the comments on this call and your characterization in the press releases has been about slippage of specific deals and some revenue recognition change or delay. But in I think some recent conference commentary, Steve, you've talked about Supreme Court kind of the kissing cousins of ACA and high tech, and what sound to me like more multi-quarter overhangs than one time slippage over the end of the quarter deal closures. And I was hoping that you could kind of reconcile those two thought processes.

What I said at the conference was that in many of our larger deal opportunities, which are, as one would expect, are highly contested, that we have seen some extension of our closure cycles. Inclusive in that is the fact that if you notice many of the deals that we close, especially ones that we've announced recently, you will note that it includes and incorporates many product lines, which could be contributing to that, by the way.

So I am not -- I'm not saying all deals. I'm saying many of the deals that can make the biggest difference. And that is how I characterize that.

Now, I'm not saying that is going to happen every quarter. I am not saying that is not going to happen every quarter. What I am saying is that many of the deals that we had earmarked for our March-end quarter unfortunately didn't get done in March end-quarter. Many of those have already been done. We've already announced them. And there are others that are in the process of being completed as well.

And as Paul said, it is very difficult to gauge from quarter to quarter. And as I said in some of my statements, I've been on the Board of the Company for eight years, I have been a close to the Company for 10 years, and you go back for that 10-year period and you will see every four to six quarters something like this happens. However, during that same 10-year period, the Company delivered a 4100% return to the shareholder.

So I don't know how else to characterize that. We wish our crystal ball was precise 100% of the time; unfortunately, it is not.

The takeaway from this is that if the fundamentals have changed, that would be a different story. But our fundamentals haven't changed. Our pipeline keeps growing, categories one and two are very deep and vibrant for us this quarter. We haven't seen any fundamental change to any of the dynamics that have been feeding into our system for the last two to three years.

So following on a slightly different direction here, on your comments around intense competition, have those recent comments been directed predominately at these large deals? Or are you seeing that intense competition kind of across-the-board? And what I'm specifically thinking about is some of your comments maybe going back three, four, five, six months would have been about some intense competition around the RCM business. And it sounds like the outlook for RCM is actually pretty bright. So just wanted to get some clarification on the intensity of the competition.

Just look at the progression. We are in the second year of the stimulus. The top -- I think somebody cited on the call that the top 10 companies in our sector have 75% of the physicians on the attestation list. The top five companies in our sector, of which we are one, have 50%. The other 765 companies have the remaining 25%.

The competition I am talking about is the competition in the seven-figure, multiproduct discipline type of contracts that are incorporated in those top levels. And one would stand to reason that in the second year of the stimulus, with all this consolidation in healthcare, of course they would be competitive. I didn't think I was stating anything that would have been so surprising to folks.

No, not at all. If I could ask a last question here, on expense lines. Wondering with the three divisional name changes, brand changes, if that is going to trigger some uptick in marketing dollars to support that rebranding of three of your divisions. And two, the R&D dollar costs jumped up a little bit sequentially. Is that the stepping off point into fiscal 2013? Thanks.

Two comments, and Scott may add color on the marketing piece. I believe those costs have already been made in terms of the name change and whatnot. But in terms of the R&D spend, I don't anticipate any reduction of that commitment. But I don't know if I really want to go beyond that. Scott, do you have anything else to add?

Well, all that I would add is we continue to just be opportunistic. So you may see marketing spend increase in some of those segments, but it would be more tied to we just think there is a lot of opportunity to untap in that segment than it would be necessarily rebranding. And on the R&D front, kind of the same comment. Certainly do ROI on where the investment is. And as Steve has talked about, there is a lot of areas, A, that we are in that we want to get deeper into and a few new ones that we're just starting to get into, like analytics. So once again, you will continue to see increases on both of those expenses, but they should be tied to pretty good ROIs.

Okay. Thank you very much.

Anthony Vendetti, Maxim Group.

Steve, you've been talking a lot about the larger customer deals, 500K plus or 7 figures plus. Can you give us a general idea of the trend over the last year? What percent was greater than 500K plus, and what percent of that -- of your business now, what percent of your revenues now are greater than 500K?

Paul, can you speak to that?

If you look over time, it is relatively consistent in terms of the overall mix of deals -- arrangements and some percentage of -- a fair number of them in the less than 500K range. And then you always have a certain number of arrangements that are over that size. Although in our last quarter, as we've talked about, we had some of those that were in the larger end of that range that were delayed, and didn't happen like we wanted them to.

But I don't think if you are looking at our pipeline and what we are -- things that we are actively working on, we don't see -- I'm not seeing any kind of material change in our historical patterns.

Is it less than 20% of your sales that fit that category?

In terms of the number of transactions?

Just percent of your overall sales, is it less than 20% that are 500K plus deals?

It is going to vary from quarter to quarter, so it is a little hard to speak to an exact, precise number there. It is -- if you wanted to talk about a range, between 15% to 25%, somewhere around that, I think that is fair.

Okay. And then lastly on the RCM, I know you said there is a lot of growth opportunity out there for the RCM business. What percent of that right now -- what percent of your sales is RCM, and then what do you think the growth rate opportunity is for this fiscal year, for 2013?

In terms of RCM?

Yes (multiple speakers).

Well, you have to keep in mind there are two different -- there is an aspect of RCM that you have to remember -- that kind of a model -- revenue model is like a freight train. So I know Monte has used that term before, and I think -- and I like it. It takes a while to get the train moving. You sign an arrangement, it doesn't turn into revenue from day one. So you kind of have to factor that in.

But I think we've already talked about something north of 40% as a rough guideline there, since we've already talked about Matrix, we've talked about a backlog and the opportunities that are happening in the pipeline and whatnot. But I don't know if there is much more color to add to that than what we've already given.

Okay, great. Thanks.

Mark Fife, EnTrust Capital.

Really two questions. One, given the fact that just some deals slipped from one quarter to the next and your guidance for fiscal '13 is lower than the Street estimates had been, should I assume from that that you think that deals will continue to take longer than expected and maybe even longer than they are taking now?

And the second question along that line is any mix shift changes in fiscal '13? In other words, system sales versus maintenance, any margin implications?

And just the last question, a lot of analysts were calling for kind of a slower growth after 2012 in this whole industry. You have gone through a number of things, international and cross-selling, reasons why you think your growth will continue. Do you think over the next three or four years you can continue the pace of 20% earnings per share and revenue growth? Thank you.

I'll answer your last question first. We have been historically a 20/20 or better company for at least the last 12 years. We are earmarking this year to be the same. We anticipate that the expansion in those nine areas I addressed twice already on this call, I think, are going to give us opportunities to continue to keep that pace.

We are very -- we are very confident in that. In terms of the other questions, Paul, I think some of them were financial. You want to -- if you could repeat your first and second question again, please.

I'm just saying you say some deals are taking longer than expected, but yet fiscal '13 guidance was lower than expected. We should have -- if it was just a couple of deals, we should've thought that would be additive to fiscal '13. So I'm just wondering, do you expect that the elongation of the sales process will continue and maybe even get worse?

The several deals that took longer than we anticipated in our fourth quarter that have entered into closure cycles for our first quarter is one issue. Whether I am anticipating this to be an impact on our fiscal 2013, I would say no. It is two different issues.

Fiscal 2013, as we have it earmarked in our four divisions, with the nine points that we are going to drive, with the deals that we've closed, with the acquisitions we've already done, with our international distribution, channel distribution program now underway, we believe that we are going to be able to continue to grow at 20/20.

I think we are over -- I guess we are looking too deeply into a handful of deals that pushed, when for eight years, we would talk about deals pushing periodically. It is not a new phenomenon for our Company, especially when you have licensed-based deals that are seven figures.

So where do you think the sell side was so off on their original expectations for fiscal '13?

This is Paul. It wasn't revenue. Our guidance I don't think really took anybody's expectations down on revenue in any material way. Actually, I think the opposite.

But where there was a difference was simply in earnings per share bottom-line profit that was going to be -- that was going to result out of that revenue. So what we have guided to is a consistent operating margin. We simply said we are going to be consistent with what we've been able to deliver over the last several years. And I think some of the estimates were thinking that we were going to expand that operating margin. And all we are saying is we are looking at consistency.

And just the last question, which was the mix issue, system sales versus maintenance, should that be changing or pretty much stay the same?

Within the guidance next year?

Yes.

As I mentioned, what is in the guidance is a slight increase in the proportion of recurring revenue streams, including RCM, in our mix. So we are saying we are going to have a little bit higher mix towards the recurring and service type revenues compared to fiscal '12.

Thank you very much.

We've gone about an hour and a half now. Operator, we will take one more question, please.

Sandy Draper, Raymond James.

I'll try to make these questions brief. I'm not sure if this is -- which Steve this question is for. When you are talking about going upstream on the hospital side, I think originally you sort of targeted the under-100-bed type of market, maybe you can say under 150 bed. Can you just give me a sense of how far up are you looking at sort of 200 to 300 beds, or you already starting to think about 400 to 500 bed type hospitals?

I think we definitely are looking to expand. In fact, we have one client right now that is significantly more than 100 beds that we are working with. So we are looking to take that up to definitely the 100, 200 and maybe a little bit higher.

But the key is a lot of these rural hospitals, that represents a lot of opportunity when you get to the next level. And I think the strategy all along has been this. And what I want to point out specifically, because we have alluded to it -- I know we put a press release out yesterday -- there are two significant, significant systems that you have to have when you go into the hospital market and you start to go up from the smallest groups. And that is all the money is made in either the OR and all the admissions are done through the emergency department. And so those are two systems that either we have to go in when we go up market with a partner or we provide our own solutions.

So it is a significant piece this quarter that we are announcing the emergency department, because we have had almost all of our hospital clients ask about that, as well as it is an absolutely essential -- the workflow is very different than in the rest of the hospital, so that is why it is a unique system. And for folks who are in the business, they know this very well, the OR is the same way. And both of those are significant to moving up and going a little bit higher.

Great. That's helpful. And then the final question for Steve. I know you haven't announced it, so you can't give a lot of specifics. But on the international distribution deal, typically when you guys have distribution partners, they are buying licenses up front from you and then pushing it out and there is sort of a nonrecourse that you can take down revenue immediately. Is there anything about this deal that would run counter to that -- a traditional distribution partner deal?

The fact that we mentioned it today, and the deal is done, but we have not yet announced it in a press release -- which that press release will be made available in the next couple of weeks -- we need to honor the agreement with our partner to wait for the press release before we start forthcoming details on it.

Other than to tell you we thought -- we just closed the deal, we wish we could've had the press release before this call, Sandy, but we just didn't. But I can promise you the information will be forthcoming in a very short period of time, and I can tell you it's a beginning of what we believe is going to be a very, very big piece of our expansion over the next several years.

Fair enough. I appreciate it.

Okay. Thank you, everyone. We appreciate your time today. Hour and 35 minutes is usually longer than we like to go, but we realize that there were a lot of questions and they were all valid.

Coming off a quarter like we just came off of with all our fundamentals still intact is a difficult thing for us. We are not used to that. We believe that the current share price does not support the Company's long-term potential. But then again, it is our job to prove to you that we are right, and we fully intend to do that.

So again, thank you all for being on the call. We look forward to seeing you in our travels. Take care.

Ladies and gentlemen, this does conclude the conference call. If you would like to listen to a replay of today's conference, dial 1-800-406-7325 or 303-590-3030 and entering the access code of 453-9176. Thank you for your participation. You may now disconnect.