R1 RCM Inc (RCM) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Accretive Health third-quarter 2012 earnings conference call hosted by Atif Rahim. My name is Gary. I am your event coordinator today. Throughout the presentation your lines will be on listen only. (Operator Instructions).

I would now like to turn the call over to Atif to begin.

Good morning everyone, and thank you for joining us. With me on the call today are Mary Accretive Health Founder and Chief Executive Officer; John Staton, our Chief Financial Officer.

Earlier this morning we issued a press release announcing Accretive Health's third-quarter 2012 results. A copy of that result is available under the Investor Relations section of our website at accretivehealth.com.

Please note that certain statements contained in this conference call may be considered forward-looking as defined by the Private Securities Litigation Reform Act of 1995. In particular, any statements made about Accretive Health's expectations for future financial and operational performance, expected growth, new services, profitability or business outlook are all forward-looking statements.

Investors are cautioned not to place undue reliance on such forward-looking statements. No assurance can be made that the matters contained in such statements will occur, since these statements involve various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements.

The risks and uncertainties are included in those listed under the headings, Risk Factors, in the Company's quarterly report on Form 10-Q for the quarter ending June 30, 2012, filed on August 9, 2012, which is available on our website as well as the SEC website.

The forward-looking statements made on today's call are based on Accretive Health's beliefs and expectations as of today, November 7, 2012 only, and should not be relied upon as a representation of the Company's view on any subsequent date.

While the Company may elect to update these forward-looking statements at some point in the future, Accretive Health dismisses specifically any claims and obligations to do so even if our views change.

Please note that today's discussions will include references to certain non-GAAP financial measures. Please refer to today's earnings for more information on these non-GAAP measures and reconciliations to the appropriate GAAP measures. At the conclusion of Mary's and John's prepared remarks they will be available to answer your questions.

At this time I would like to turn the call over to Mary Tolan, Accretive Health's CEO and Co-Founder (sic - see press release, "Founder"). Thank you.

Thank you, and good morning everyone. Before I begin my remarks I want to welcome Atif Rahim, who has recently joined us to lead our Investor Relations role. Most of you know Atif for his expertise in covering the health care IT industry for JPMorgan, and we are delighted to have Atif onboard as a valuable resource to our Accretive Health team and to our investors.

And thank you everyone for joining us today, especially after a long say and even evening following the election results. But in any event whether your candidate won or not at least we have clarity.

With the settlement in Minnesota behind us, we are again moving forward, intently focusing on delivering the value that we have always provided to our clients, growing our customer base and broadening our service offerings. I want to share a few of our recent highlights before I talk about our third-quarter results.

Our pipeline is once again moving forward as clients and prospects realize the challenges ahead that threaten their future financial stability and the value that we can bring in partnership to them and to their enterprise. Accretive remains the only end-to-end Revenue Cycle solution that supports them by fully committing our technology, processes and people to help them fulfill their mission of providing quality care at affordable costs.

On August 29 we announced our new Quality and Total Cost of Care Agreement with Cancer Clinics of Excellence. This is an exciting new partnership for us on several fronts. Their approach to building a model that focuses on integrated and coordinated care closely aligns to the solutions offered by our Quality and Total Cost of Care approach, which is really focused on evidence-based quality care while containing costs.

And this is also a partnership that represents a new market opportunity that directly reaches physicians who have self-identified that they are embracing innovative approaches to raise the standards of their practices in order to achieve better outcomes and greater satisfaction for their patients.

And then there is our newest service offering, Intra-Stay Quality. We are pleased to report that we recently signed our first Intra-Stay Quality contract with St. John Providence Health System, where we plan a multihospital rollout.

We are particularly excited about the potential of the Intra-Stay Quality offering, because to our knowledge there is no end-to-end offering like it in the marketplace today, and ISQ addresses real and present needs for health care providers in a very large and expanding market.

Those needs are to provide defined quality and patient experience measures, to enhance efficiency while reducing redundant costs and increasing quality for inpatient hospital stays, and to provide optimal care through better coordination, best practices and advanced technology. We believe the Intra-Stay Quality offering has broad appeal and can be seamlessly deployed within the existing infrastructure of most hospitals.

On the recruiting front we continue to attract great talent. Steve Baumberger recently joined us as Vice President of Site Operations from Accenture, where he developed deep expertise in supply-chain and operations management. Steve Herman also recently joined us as Vice President of Site Operations from Accenture where he was a Senior Client Services Partner.

I would also like to welcome Miles McHugh, who has recently assumed the role of Chief Accounting Officer and Corporate Controller. Before joining us Miles had several key finance positions, including Chief Financial Officer for R.R. Donnelley & Sons.

Next I want to provide some additional color on our third-quarter financial results. Our third-quarter net services revenue was $223 million. One of our clients did not close an acquisition that they had anticipated and that would have added $50 million of PCARR in the quarter. This affected our revenue and PCARR at for the quarter and for the full year. Now despite this, PCARR grew by $41 million sequentially, and we continue to make progress moving prospective clients through the pipeline.

Our pipeline in the final contracting is $90 million to $110 million, and our solution pipeline, which is the phase before contracting, stands at $100 million to $120 million. Combined with final contracting, it gives us a line of sight, in addition to the $41 million from this quarter, to an additional $190 million to $230 million in PCARR growth.

On our last call I reaffirmed our commitment to achieving the highest standards and confidentiality of patient health information through actively pursuing the high-trust certification of our data security policies, procedures and technologies. I'm happy to report that we have completed and submitted our applications for certification, which we expect will actually be approved in the next -- by the end of the year or at the latest in the first quarter of 2013.

Now I will turn the call over to our Chief Financial Officer John Staton to review our third-quarter financial results and outlook for 2012. John.

Thanks, Mary. Good morning everyone and thanks for joining our call today. In light of the recent changes in our client base, we believe a sequential comparison is more relevant for purposes of our call commentary over the next few quarters.

Starting with PCARR. Our projected contracted annual revenue run rate, which represents the expected total net services revenue for the coming 12 months for all clients under contract as of today, PCARR is estimated to be in the range of $907 million to $925 million, an increase of approximately $41 million or 5% from our last earnings call at the midpoint of the range.

On a year-over-year basis PCARR as of September 30, 2012 is up 26% when excluding termination of contracts associated with our settlement in Minnesota. The sequential increase in PCARR reflects new contract wins in our core Revenue Cycle business and traction in our Physician Advisory Services business, along with low-single-digit contribution from each of the Cancer Clinics of Excellence and Intra-Stay Quality deals.

Turning to our income statement. Total net services revenue in the third quarter was $223 million comprised of net base fee revenues of $181 million, which was a sequential decline of $14 million resulting from terminations of contracts related to our litigation settlement in early July.

Incentive revenue, which is our share of benefits we generate for our clients, was sequentially down just slightly to $27.4 million, despite termination of contracts in Minnesota mentioned earlier. This reflects continued traction, providing value to our clients.

Other services revenue was $15 million, driven by our continued strong uptake of our Physician Advisory Services offering. The nine months through September 30, 2012 our net services revenues up 26% compared to the same period last year.

Operating margin for the quarter was $46.2 million or 20.7% of net services revenue compared with $45.3 million or 19.1% of net services revenue last quarter. Sequential growth in operating margin as a percentage of revenue is driven by our incentive revenue. We expect our existing contracts to continue to contribute to a sequential increase in operating margin in the fourth quarter of 2012.

Moving down the income statement. Our infused management and technology expense for the third quarter was $21.9 million or 9.8% of net services revenue compared with $26 million or 11% of net services revenue for the second quarter of 2012. After our litigation settlement in Minnesota we have been able to lower our stranded personnel costs which contribute to the sequential $4.1 million decrease in infused management and technology expenses.

Selling, general and administrative costs were $17.8 million for the quarter or 8% of net services revenue compared with $20.6 million or 8.7% of net services revenue for the prior quarter.

We will now turn to adjusted EBITDA, a non-GAAP measure, which we believe to be a useful metric for measuring the underlying profitability of our Company.

For the third quarter of 2012 adjusted EBITDA was $15.4 million, an increase of $8.1 million over the prior quarter. Approximately $6.4 million of the sequential increase was driven by lower one-time costs in 3Q relative to 2Q. But even excluding these, our EBITDA was up $1.7 million sequentially, a testament to the value we continue to deliver to our clients.

Our effective tax rate for the quarter was 57%, well above our normal anticipated levels because of the impact on deferred taxes of a lower effective state tax rate as a result of changing business mix and the change in our tax accrual as we finalized and filed our 2011 tax returns.

We expect the full-year tax rate for 2012 to be in the range of 44% to 48% and expect to revert to a more normalized tax rate in the 41% to 45% range for 2013.

Net income for the quarter was $2.8 million as compared to a net loss of $0.6 million in the prior quarter. Non-GAAP adjusted net income for the third quarter was $6.2 million, an increase of $3.2 million from the prior quarter. Non-GAAP adjusted diluted EPS was $0.06, up $0.03 from the second quarter of 2012.

Now turning to our balance sheet and cash flow. Our balance sheet remained solid with $196 million in cash and equivalents and no debt. This is down $5 million from the end of the second quarter, as the $13 million that we used to purchase or repurchase 1.1 million shares at an average price of $11.67 offset much of our cash flow that we generated from operations.

Cash from operations in the third quarter was $15.6 million compared with negative operating cash flow of $8.3 million in the second quarter, largely reflecting the timing of client and vendor payments. For the nine months ended September 30, 2012, we generated $21.8 million in operating cash flow compared with $2.7 million for the nine months ended September 30, 2011.

Our free cash flow, defined as operating cash flow minus capital expenditures and the acquisition of software, was $2.8 million during the first nine months of 2012 compared with negative free cash flow of negative $6.4 million for the same period last year.

Our accounts receivable totaled $137 million at the end of September, a sequential increase of $11.8 million, which led to a nine-day increase in DSO to 56 days from 48 days last quarter. The increase was driven largely by delayed payments from a few customers, and we have since the conclusion of the third quarter collected approximately $41 million of this AR, equivalent to 17 days of DSO.

Now I would like to turn to our outlook. We expect non-GAAP adjusted EBITDA and non-GAAP adjusted EPS to be at the midpoint of the prior range of $50 million to $55 million and $0.23 to $0.27 per share respectively.

In light of the factors Mary highlighted earlier, we expect revenue to come in at the low end of our prior guidance range of $948 million to $980 million. And we now expect PCARR as we exit 2012 to be in the range of $930 million to $960 million.

We see strong interest in our core Revenue Cycle offering, as well as our Quality and Total Cost of Care offerings for both Intra-Stay Quality and our population health management services. Our Quality and Total Cost of Care offerings give us a head start versus our competition, and position us for growth as the health care industry shifts to compensate providers for the quality of care provided.

We expect to sign additional clients in 2013, and we will continue to invest in this strategic and high-growth business to draw new clients and broaden our service offerings.

Operator, please provide instructions for the Q&A portion of the call. Thanks.

(Operator Instructions). Glen Santangelo, Credit Suisse.

I just wanted to follow-up, John and Mary, on some of the comments you made regarding the reduction in net base fee revenue this quarter, as well as you are trimming the PCARR guidance about -- what looks to be about $35 million to $40 million, sort of on the midpoint. And I'm thinking about that in the context where your final contracting pipeline numbers -- they haven't really changed materially, nor has the solution piece of your pipeline changed materially.

So if you could just walk us through maybe some of the moving parts within that base fee revenue and PCARR maybe, is there anything that is going out that we are not thinking of or why you are trimming that here today?

Well, it is really the point that I mentioned early. So we moved $41 million from contracting to contracted. And then we also had about $50 million that was an acquisition that one of our clients was making that on the two yard line they pulled back from and decided not to move forward with. And so even in light of that -- so it actually -- we had anticipated it would have been absent that $91 million of added PCARR in the quarter.

And so actually that is what is flowing through is the $41 million that went into the adds, the $50 million that became an acquisition that was not moving forward on the part of one of our clients, and then we still maintained the contracting and solution pipeline.

Okay, all right, fair enough. John, maybe if I could just follow up on the adjusted EBITDA for a minute. You are maintaining that guidance here of $50 million to $55 million. So if I take the midpoint of that range, and I add back all the one-time items you called out here for 2Q, 3Q and looking forward into 4Q, you get to a normalized adjusted EBITDA run rate of about $84 million.

First of all, am I thinking about that correctly or is there some adjusted EBITDA that was generated in the first quarter perhaps from Minnesota that would be repeated going forward? If you could just help us think about what a base level of an adjusted EBITDA run rate is based on your 2012 guidance as we think about 2013 that would be helpful.

Yes, I think you hit it right on the head there is that we do see, if you took away the normalized things, roughly around $84 million or so EBITDA. There is contributions from our clients in Minnesota that are fairly material to that number. But I just want to reaffirm, as we said in our last call, that the clients we had at the time of the last call we would expect to generate $78 million to $82 million on adjusted EBITDA going forward.

So that reflects our expected improvements in contract maturities. It reflected the new contract adds at that time, and also deducted out the impact of our settlement for our discontinued clients in the state of Minnesota.

All right, so I guess just to conclude, the net delta between the $84 million and the $78 million to $82 million was the Minnesota contribution?

The Minnesota contribution was actually greater than that, but there is also, again, as we look at the new contacts we have added to be accretive to our adjusted EBITDA as we look to 2013.

Okay, thank you.

Charles Rhyee, Cowen and Company.

Maybe, John, just to follow up on that last question there. When you guys gave your initial outlook of that $78 million to $82 million on the business that you had, you hadn't signed -- it didn't seem like you had signed yet Cancer Centers of Excellence or the new ISQ contract. Would those two contracts be accretive to that number? Is that fair to think that way?

Yes, that is fair to think that way. As you remember, we talked about that we had loaded in all the cost to cover and execute those contracts into that $78 million to $82 million guidance we had -- I should say a statement on what our existing contracts would have.

Right, so we should assume that the incremental contribution from the new contracts should be higher than your typical margin?

Correct, and I think -- we will provide an update on our guidance at our next quarterly call.

Okay.

And provide a lot more visibility into 2013 at the time.

All right, and just maybe following on your comments around the DSOs here, did I hear you correctly it was 57 days in the quarter, but since the quarter's end you had basically collected 17 days' worth. So if we were to include that into the quarter we would have been more like 40 days, was that the right way to hear that?

That is exactly right.

Okay. And then my last question here is when you -- Mary and John, when you talked about the acquisition that your client didn't make, can you just remind us when you think about PCARR and you give the PCARR guidance range, are you always baking in assumptions on client acquisitions? Like at what point does when a client may could decide to make an acquisition, when do you guys think about that when it should be at into PCARR? Thanks.

So there is a -- we never add anything to PCARR until it is signed, but we are asked to provide projections into the future you're than handicapping and forecasting what is flowing through your pipeline. And we are obviously very, very close to our clients, and generally when they are doing acquisitions the work that we do in Revenue Cycle to create value is probably the single biggest value driver to really produce operating synergies for the M&A activity.

So we are very, very close to them, and we know exactly when they expect to have them come on board. And so this one was -- I think it was one where they just got down to the two yard line and the deal characteristics did not materialize in the final moments the way they wanted so they walked away from it.

And they will continue to do other acquisitions and we will continue to be their partner in those, but this one wound up not being one that they were going to take on.

Okay, great. Thank a lot.

Bret Jones, Oppenheimer.

I just wanted to try to understand the final contract. You talked about the $41 million had moved out (technical difficulty) and then another $50 million moved out because a client didn't do the acquisition.

You are going in and out a little bit. The last thing I heard you say is that the $50 million had moved out because of the acquisition that didn't go forward.

Okay, great. Hopefully this is better. And I just want to make sure I understood in terms of the final contracting standing at $90 million to $110 million, does that imply -- you know, when you signed Cancer Centers of Excellence, you signed the ISQ deal, does that imply you were able to bring another $50 million into cover what left from the client not doing the acquisition?

That is right. That is what advanced from solution into final contracting.

Okay. And then if I look at the components of PCARR, the component given at the end of the quarter, it doesn't look like anything really went into the base fee piece of it. So I'm just wondering does that just reflect the Cancer Centers of Excellence and the ISQ deal, as opposed to a new RCM deal that might've come on after the quarter end?

That is correct.

Okay. And can you give us an update on what moved from the RCM side, were you able to sign -- bring in an existing client -- you know, further penetrating an existing client, whether it was Ascension, Catholic Health East or just a new RCM client you signed?

We actually had both. So we had movement in both the existing clients and new.

Okay, great. And then just lastly, I just wanted to make sure I understood. We talked about the costs that were embedded for 2013 in that $78 million to $82 million, you did say that some of the costs were associated with the ISQ and the Quality and Total Cost of Care deal. Can you give us an update on how many -- how much in terms of cost capacity you have that is predicated on additional client signings?

In the quality arena I think we shared before, John, is this -- that we can share it now?

Yes.

About almost $9 million of capacity that we have that these two deals now are throwing new revenue against. And to some of the earlier questions, that new revenue is upside from the projection in terms of the previous contracts and their role forward for the next 12 months in 2013.

Okay, great. Thank you very much.

Jamie Stockton, Wells Fargo.

I guess maybe the first question just to follow up on one thing Bret touched on, with Ascension it seems like they have got a couple of relatively large transactions that are out there that they're talking to health systems on. Could you maybe give us an update on where you stand within their existing footprint, and then how you see that relationship evolving over the next year, because it seems like they have got maybe another 25 hospitals that they're looking at adding to their network?

Yes, I think we have about two-thirds of the acute care footprint of Ascension today. And we also work with Ascension Health Care Network which is their new for-profit. Both of those are acquisitive, and we work with both of them in terms of taking a look at their new operations and being their partner.

Do you have any facilities that are live with Ascension Health Care Network right now?

I don't know that we -- we can't disclose that.

Okay. And then maybe on a totally separate topic, I think a couple of days ago Conifer bought the Revenue Cycle outsourcing portion of Dell's -- I think maybe it was the old Perot business, but I'm not sure about that.

As far as the competitive landscape is concerned, is this just a one-off consolidation, and in general the number of organizations out there that you are seeing when there are competitive deals is remaining relatively stable? Are you seeing new entrants into the market? If you could just give us an update on what you guys are seeing on that front that would be great.

Sure. In terms of the acquisition that Conifer made, we actually had never seen Perot in the Revenue Cycle business, so to the extent that there were some legacy contracts there, we actually just for whatever reason they really weren't at the table in any of the considerations with various clients that we have been talking to over the years.

And so I am not that familiar about where those contracts would be. It wouldn't surprise me if they were truly back-office and more like IT outsourcing/cost-cutting as opposed to the kind of significant value unleashing that we do through yield improvement and taking a look at the total end-to-end process.

In terms of the competitive landscape, it it continues to be a really huge market. And I am really surprised that how the fact continues to be the case that the biggest competition is usually do nothing and keeping it in-house as opposed to any significant head-to-head competition.

And that would be the case with our current pipeline as well. So I think that most of our major partners and potential new customers really have thought of us as the leader in creating the most amount of value, and their alternative is to try to do something internally, and we have not seen that particular dynamic change.

Okay, and then maybe just one more question along that front. It seems like this relationship between Conifer and Dell is evolving into maybe a -- Conifer is going to bring Revenue Cycle outsourcing to the table, Dell is going to bring IT outsourcing to the table and they're going to try to work together.

If you look at some of the Cerner deals that they have done, both with their ITWorks business and their RevWorks business, they have had some combo clients. Is that an emerging trend in the marketplace where maybe you guys would ultimately look to partner with someone on the IT outsourcing side, or is that something that is just not going to be that significant in your view?

IT outsourcing has had actually pretty low success and penetration in provider health care. I am very familiar with the arena having spent many years at Accenture. And there have been a member of big deals that actually unwound. Big systems like even some big -- some of the largest in the country in the last 10 years have had big contracts that they decided to bring back in-house. And I see that more as what some of the market leaders have done as opposed to the other direction.

So we have seen some contracts that were 7 and 10 year contracts that were not renewed, and we have not seen any significant growth in IT outsourcing.

Okay, thank you very much.

Eric Coldwell, Robert W. Baird.

I have a few questions here. First off, how did you lower the stranded personnel cost in the period with the declining revenue growth? Was this simply RIFs, and if so, could you quantify that for us?

Yes, that is primarily it. As we discussed, we did not take action in Minnesota until we got to our settlement, and as such, have taken action relative to the resources that were local in the market and focused on the clients in those areas. So given the change in revenue that we have had, we have obviously have moved to address the organization side to address it.

That was primarily yet. So we should continue -- we should see continued improvement in that as we go into Q4.

John, could you quantify for us how many net heads were reduced?

I don't have those numbers in front of me.

Okay, we can follow up on that. The next topic is I'm just curious where you stand on the receivables in Minnesota that were outstanding after the actions in that state.

Yes, we have a total of $36 million in receivables associated with our Minnesota clients. We are working through those in a very constructive and positive way, and look forward to getting those resolved in the coming quarter or two.

Great. Can I get a count of hospitals under management at the end of the quarter?

We really think and have thought long and hard about this, and believe that hospital count really doesn't reflect our outlook given our mix change toward more physician advisory services business in QTCC. And PCARR is a much more effective metric to measure our business, and the fact that we are giving base fee changes in PCARR is probably the more effective way to look at our Revenue Cycle business.

All right. And then last question. I'm really wondering on how to reconcile the implication that Fairview North Memorial and Maple Grove had about $0.25 billion of PCARR in the numbers at the end of 3Q 2011, just based on the comment that absent those relationships your PCARR grew 26%. It seems pretty high to me. I'm just curious if you can walk through those numbers a little bit.

Yes, the 26% growth, just to be specific on there, was as of September 30, when you exclude those clients. And I think as we shared with you before, we had plus or minus, a little bit around $150 million of PCARR associated with our total Minnesota business.

Okay, I will drop out. Thanks.

Ryan Daniels, William Blair.

Now the you have officially launched the Intra-Stay Quality product, can you speak a little bit more to the revenue model and potential size of a contract within a typical client, just so we can get a view of that going forward?

Sure. And this is obviously early days, but I think for -- the first thing to note is that it is a multiyear relationship, and so it is recurring revenues. The second thing to note is that it really is, again, a function of driving down costs and improving quality for our clients, and we get reimbursed for both.

And so we have really goals that we set. So for a $1 billion hospital we think that the annual run rate is about $5 million in first year, and that can grow to a run rate of $10 million. And that that would had a margin expectation in the low 20%s, and could go up from there in the second and third year. So those are the planning assumptions at this point.

Okay, that is helpful. And then as you go to market how you delineate the ISQ versus the Quality and Total Cost of Care? It seems like there may be a lot of overlap. You, just even in your comments said it would improve quality and lower costs. Is that something that you eventually see bundled into QTCOC contracts as well?

It is really -- they both have the same focus, but they are really attacking improvements in two different ways. So population health is really trying to work with physicians to help them keep their patients healthier and avoid acute care hospital admissions and the things that drive costs. So improve the quality of care so that utilization is down, and that is where the value comes from.

And then Intra-Stay Quality says for those episodes of care that nevertheless do have to take place, how do we make those episodes of care more effective? And so it is really improving right care setting, whether you're in the ICU or you are in a step-down. It is taking a look at the cost of a day in terms of the resources. And it is taking a look at the optimal length of stay. And so that is all within the episode of care. And, again, QTCOC is really trying to reduce the necessity for those types of episodes of care.

Okay, that is very helpful color. Maybe two more quick ones. Just number one, now that you're providing the solution pipeline as well, can you give us a little bit of a feel for, number one, what that pipeline looks like maybe relative to the contracting pipeline in regards to either clients or what products are in there? I am curious how similar they are.

And then the second question I would have is just if you think of the timing, I know you've talked about the typical timing in contract, but how long do they typically sit in the solutions stage as we think about how that builds into revenue? Thanks.

A great question. In terms of solution, actually the numbers we put in so far really reflect the Rev Cycle and the PAS, also your question is a good one because those conversations do include Intra-Stay Quality and QTCOC as well. It is just that we haven't gotten far enough along -- we are shaping those to put those in a quantifiable way into the solution pipeline. But it is absolutely the case that our clients are asking us to share with them all the ways we can help them with unleashing value and taking their operational excellence forward.

So good question. In terms of -- so solution is primarily right now Rev Cycle and PAS numbers, and yet those conversations absolutely include interest from the clients in QTCOC and in ISQ.

In terms of how do they flow through. The timing expectation, I think, from solution all the way to contracting could take anywhere from three months to nine months. But you always can have an outlier that can take longer, depending if it is -- in particular we find academic institutions sometimes can have a longer governance process, because you not only have the CFO organization, the physician organization, but you often also have a Dean of the School of Medicine. So those can typically be the outliers.

Okay, great. Thank you, Mary.

Sean Wieland, Piper Jaffray.

In the numbers that you gave on the financial contracting, and I think it was the solution that are basically your pipeline numbers, can you give us an idea what the mix is between net new business and existing customers?

That is a good question. I don't have that handy. It is -- I would say solution is more skewed towards the numbers-wise new, new customers that we have not worked with before, but there is also expansion within existing customers. I would say my sense is it is probably 75% new, 25% existing.

Okay. So I guess I want to get a better understanding of what level of expectation we should have for you adding net new customers. Were there any net new customers on your core RCM platform in the quarter? And what does that pipeline look like going forward?

Yes, so we mentioned earlier on the call that we had both additions from new customers and from existing customers. And your second question in terms of expectations, I think what we have said is that we have not only added the $41 million, we did have $50 million that dropped out because of an acquisition that didn't take place, but we replenished all of that $90 million, and now are still at $90 million to $110 million in final contracting, and $100 million to $120 million in solution.

Okay, so when you're talking with new customers that you don't have a relationship before, how has the tone of those conversations changed over the past three months?

I think the tone has actually been very good and we have had very, very close dialogue. And we have spent a lot of time with these clients, and they have spent a lot of time getting to know our company and spending time in visiting us and visiting other clients. And in the context of really understanding the value and our references they have been very excited about moving forward.

They're also really enthusiastic to see the way that we have been investing in compliance and in high-trust certification. Many of these clients are asking us to help them move forward with high-trust certifications as well.

Okay, thanks very much.

Deepak Chaulagai, Dougherty & Company.

Thank you for taking my questions. Most of the questions have been asked and answered. But I was curious, Mary, in terms of your pipeline, and I guess in terms of activities within your clients, particularly merger talks between two of your major clients, how does that impact your thinking on PCARR and revenue growth going forward?

Well, I think when our clients are combining it is sort of a neutral because we already in both places. It can be an exciting opportunity to unleash more value in the partnership through more -- to the extent that they haven't been in shared service and they might now want to combine their capabilities and unleash more scale opportunity.

In terms of all the M&A out in the marketplace I think we are happy that a number of our clients are the acquirers, and we see them actually sharing with us some pretty significant growth plans. So we see that as a positive development.

And I know you are not getting 2013 guidance, but in terms of outlook going forward, do you see that as a major part of your overall growth in the core business as well?

Well, it is interesting. If I think about the people who are in our pipeline they have been sharing with us that they have intentions to grow bigger and there does seem to be a bit of a rush for size and scale. And as they're taking on those considerations and pursuing their own scale strategies, the kinds of things that we work on to unleash value by getting operating excellence in key processes and bringing scale to it really dovetails.

So it is interesting. If I think about our pipeline, we do have people who are clearly telling us that they have -- here is what we currently have and here is how much more acquisition intention that we also have as part of our strategy.

That is very helpful color, and I appreciate it. And in terms of net new clients, when you're having conversations with larger health systems how often does Minnesota come up, fairly or unfairly, and how do you deal with that? And perhaps you already answered in terms of referrals you had and the tracker, but if you have any additional color there would be helpful.

I think direct and candid communication is really the best way to handle it. And so we make sure that we do -- we proactively bring it up. We address it. And we explain how the settlement is over and behind us, and how we have made investments to improve our business in important areas like health information privacy. And then we spend a lot of time in our workshops leading our prospective clients get to know us, who we are, and what kind of focus we have and what kind of values we have. And then they get to also corroborate all that by talking to existing clients. So I think it is all about communication and really letting people take a look.

Thank you for taking my questions.

We have no further questions at this time.

All right. Well, I would like to thank everyone for participate in today's call. I assure you that we are committed to positioning the Company for solid growth in 2013 and building sustainable value for our shareholders, while continuing to do great work and important work for our clients and their patients.

In closing, I look forward to seeing many of you at our investor Summit on December 3 in New York City. Thanks and have a great day.

Thank you very much, ladies and gentlemen. That now concludes your conference call for today. You may now disconnect. Thank you very much.