Streamline Health Solutions Inc (STRM) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2007 Streamline Health Solutions, Inc. earnings conference call. My name is Katina and I'll be your coordinator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS). I would now like to turn the presentation over to your host for today's call, Mr. Paul Bridge, Chief Financial Officer. Please proceed.

Thank you very much, operator, and good morning, everyone. With me today to discuss the second-quarter and first six months operating results are Brian Patsy, President and Chief Executive Officer, and Bill Geers, our Chief Operating Officer. Brian, Bill and I will be available to answer questions during the question-and-answer session.

We have arranged for the webcast of this conference call to be recorded and will be available at the website listed in the quarterly press release for the next 30 days. Before I begin our discussions I would like to read the Safe Harbor statement.

Statements made by Streamline Health that are not historical facts are forward-looking statements that are subject to risks and uncertainties. Future financial performance could differ materially from expectations of management and the results reported now or in the past.

Factors that could cause the financial performance to so differ include, but are not limited to -- the extended length of sales cycle; the timing of the signing and implementation of new agreements; the impact of revenue recognition rules; development of new channels of distribution and competitive products and pricing; product development; reliance on strategic alliances; availability of products procured from third party vendors and the healthcare regulatory environment. Fluctuation and operating results and other risks are detailed from time to time in our filings with the U.S. Securities and Exchange Commission.

Yesterday we released our second-quarter and first six months' financial results. This morning I would like to highlight the more significant aspects of those results. Total revenues were $3.2 million compared with $4.6 million in the second quarter of last year. System sales declined for the quarter and year-to-date compared to the comparable prior periods because of the continuing delay in closing contracts and the inability to recognize during the second quarter software licensing revenue on a major contract until such time as the site-specific integration of our standard software required by the customer can be completed.

Because of the significant impact of this delay in revenue recognition, we have provided in our press release certain non-GAAP supplemental financial information as if this revenue had been recognized in the quarter and year-to-date. You are encouraged to review this supplemental information contained in our press release which is available at our website.

Both our services, maintenance and support revenues and our application hosting services revenues increased 11% on a year-to-date basis when compared to the comparable prior year and continue to have strong operating margins. Our operating loss for the quarter was $1.1 million and year-to-date $1.5 million compared to modest profits for the comparable periods in last year. As previously noted the inability to recognize in the second quarter certain software licensing revenues significantly impacted the GAAP results.

GAAP revenues for the quarter were $3.2 million and the year-to-date $6.9 million. When the $1.1 million in software licensing revenues are included the non-GAAP reported revenues are $4.3 million compared to $4.6 million in the prior second quarter and $8.1 million year-to-date compared to $8.4 million year-to-date last year. GAAP operating results for the quarter was a loss of $1.1 million and for the year a loss of $1.5 million.

When the $1.1 million in software licensing revenues are included the non-GAAP reported results of operations are earnings of $46,000 compared to $241,000 in the prior second quarter and a loss of $400,000 year-to-date compared to $169,000 in earnings year-to-date last year. As you can see, this one contract had a significant and dramatic effect on our reported GAAP results.

At April 30, 2007, the end of our first quarter, our backlog was approximately $13.9 million and has increased to $15.8 million at July 31, 2007 to include the $2.1 million contract signed in Q2. The component breakdown in comparison to our first-quarter backlog is included at the end of the press release and you are encouraged to review this supplemental data.

We continue to monitor our expenses, cash balances and receivables carefully to ensure that they are on plan vis-a-vis our revenues, both GAAP and non-GAAP. I would like to turn the call over to Brian Patsy who will discuss in greater detail some of the significant factors that affected the quarter and the prospects for the remainder of the year.

Thank you, Paul and good morning. This morning I will comment briefly on our financial results and then discuss our reporting of non-GAAP measures as a supplemental indication of our performance; significant milestones and contracts signed during our second quarter; our sales, marketing and business development activities; and finally, a change in our policy regarding earnings guidance. After my remarks we will conduct our question-and-answer session.

Regarding our financial performance -- when considering our results using both GAAP and non-GAAP measures our financial results for the quarter and year-to-date were below management's expectations and very disappointing. We expected to close more than just one large contract in the second quarter from among the three large contracts where Streamline Health has been selected as vendor of choice and where we have been in extended contract negotiations for several quarters either directly or through our largest distribution partner.

Of the three anticipated opportunities two are through our largest distribution partner and one through our direct sales organization. We are very glad to report that we successfully closed the direct sales opportunity in the second quarter.

Regarding the remaining two indirect opportunities, we expected to close them in the first half of our fiscal year; unfortunately we do not have direct control of the contract negotiations process and therefore it is very difficult to determine the timing for closure of these types of transactions. However, it is important to note that the remaining transactions are still expected and contract negotiations are continuing through our distribution partner.

Because the Company was able to recognize the software licensing revenues on the contract we did sign in the second quarter due to the provision of future site-specific integration of our standard software, we have provided supplemental financial information on a non-GAAP basis. Management utilizes a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of our business, for making operating decisions and for forecasting and planning for future periods.

We believe the use of non-GAAP information is helpful in understanding the performance of our business and measuring our growth because it includes software revenue that can't be recognized on a GAAP basis due to the provision of product roadmaps or future software deliverables required as a part of the selling process or contract terms and conditions.

As discussed in prior earnings calls, accounting rules prevent us from reporting licensing revenue for standard software under these circumstances. Accordingly we consider the use of non-GAAP supplemental financial information helpful in assessing our performance, particularly because these non-GAAP measures are inclusive of software revenue that generate cash but can't be recognized.

Furthermore, management believes that providing non-GAAP information allows the users of our financial statements to review both GAAP financial statements for the period as well as the non-GAAP items thus providing for enhanced understanding of our historic and future financial results. Of course non-GAAP financial information is supplemental information for your consideration and is not a substitute for GAAP financial information.

At this point I would like to highlight some of the significant milestones and contracts signed in our second quarter. We signed a site license agreement with Children's Medical Center of Dallas for our enterprise suite of solutions including workflow solutions for health information management, patient financial services and administrative services. We were selected among numerous vendors participating in a formal RFP process primarily because Streamline uniquely provided an enterprise solution for managing all of Children's Medical Centers' document centric processes across all departments and information system vendors.

An important key to our win was our ability to seamlessly integrate with their existing information system providers including Epic and Cerner in clinical and billing departments and Lawson in the administrative departments. Regarding Lawson, implementation plans involve seamless integration of our workflows with the medical center's administrative applications to improve process efficiencies in the document intensive administrative areas of Accounts Payable, Human Resources and Materials Management. We have also created a virtual medical record by electronically linking Children's new legacy hospital located in Plano, Texas which will open in 2008.

In Q2 we also announced the signing of a new strategic business partner agreement with HERAE which stands for Healthcare Electronic Remittance Advice Exchange. HERAE provides a fully automated reconciliation platform that accepts electronic funds transfers and electronic remittance advice directly from payers. Streamline will combine its revenue cycle workflows and Optical Character Recognition technology with HERAE's remittance processing solution to offer a newly branded solution called Remittance Process Management, or RPM for short. RPM will allow healthcare providers to streamline their financial services processes through more timely and efficient medical claims reconciliation.

And finally, this year Streamline Health was again listed in Fortune's Small Business Magazine list of America's fastest-growing small companies for 2007.

At this point I would like to briefly comment on our sales and market development activities. On the marketing front we have been featured recently in numerous high-profile trade industry journal articles including Health Informatics, the April and June issues of this year; Healthcare Financial News, the May and July issues; Advance for Health Information Management Executives, the May issue; and finally Healthcare IT news, the February, April and August issues.

In addition to our journal exposure we have in motion multimedia campaigns to specifically target the GE Centricity Business, Epic and Eclipsys markets. And finally, we've launched Google search based ads to help increase our qualified sales pipeline of opportunities.

On the direct sales front we recently expanded our direct sales organization by adding another highly experienced account executive with a solid track record of success. Regarding our qualified sales pipeline, our total qualified sales pipeline continues to be strong and has grown from last quarter to over 80 million. Also our software maintenance pipeline is remaining steady in the $60 million range.

Let me conclude my remarks by discussing a change in our policy regarding earnings call guidance. You may be aware that a growing number of public companies are deciding not to provide earnings guidance for a variety of reasons. Our decision to follow suit was made in part because of the potential large size of individual transactions relative to our quarterly and annual revenues and operating results. Accordingly our results can and do vary greatly when large transactions slip one or more quarters.

While we have always highlighted the potential volatility in our financial performance due to these factors, our ability to forecast with a reasonable degree of accuracy is further hindered due to the increasing complexity of accounting treatment as previously discussed. Therefore we have determined not to provide earnings guidance on a going forward basis as we believe that a more focused long-term approach to our performance and growth opportunities is more appropriate.

Clearly our biggest challenge this year has been closing contracts where we were selected vendor of choice and not the size or quality of the pipeline itself. As mentioned earlier, part of the challenge is not having direct involvement or control of the contract negotiation process in some cases. In order to mitigate these circumstances we plan to increase the number of our direct opportunities and better diversify our distribution partnerships. In order to increase the number of direct opportunities we have added to our direct sales staff. Furthermore, for the remainder of the year and beyond, we are committed to making whatever organizational or strategic changes necessary to deliver on our growth objectives.

This concludes my formal remarks. I would like to now turn the call over to Paul for the question-and-answer session.

Thank you, Brian. Operator, may we have the first question please?

(OPERATOR INSTRUCTIONS). [Mark Cahill].

Good morning, gentlemen, and congratulations on the Children's win. Could to give us a little idea of where the GE pipeline stands?

Yes, I can give you further insight. Obviously we have been hampered by closing some indirect deals and in terms of our choice as vendor of choice, last quarter we actually had five deals in the pipeline where we were selected vendor of choice, one of which we closed which was Children's as mentioned. Of the remaining four, one is a large direct deal and three are very large indirect deals. So in terms of size and scope they're in the seven figure range and very large.

Good. Of the $60 million in the software, is that one-third coming from the GE pipeline?

Of the $60 million it's less than half and it's more than 25%. It's more in the range, yes.

In general is GE winning deals against Cerner and their other competitors?

I think overall GE is holding their own against their competitors. I don't think they're falling behind or jumping ahead; they're winning their share of deals. Obviously our challenge is not having direct control of the negotiation process and both GE and Streamline are dealing with revenue recognition challenges which, frankly, slow down the contract process.

Are the lawyers trying to reword the contracts to get around those issues?

I won't go that far other than to say it's challenging to negotiate a contract and try to keep out future product deliverables.

How about the hosting opportunities through GE and the other partners, are you getting any progress there?

Yes. We have one deal that we closed earlier this year that was a hosting deal through GE and that particular deal we weren't permitted to disclose the name of the organization, but it was a large ASP deal. Because GE's hosting center isn't quite ready to accept our software, they're still working on their own GE Centricity software, we provided the services to that hospital through our hosting center. The intent long-term is to ultimately provide those sources through the GE hosting center when they're ready to accept us. And we have at least one other large transaction in the pipeline that is a hosted deal through GE.

Good. And that doesn't fall into the revenue recognition problem does it?

No, it shouldn't.

How about the other parts of GE? The EMR and I think there's a third one, I just can't remember off the top of my head. But are you making progress in the business development as to the other GE divisions?

As a matter of fact, Mark, we are. As we speak a good number of our staff are in Boston for the annual GE user's conference and I just got a report this morning; it was an excellent show for us. We made a lot of progress in terms of penetrating the other divisions of GE where we don't have a direct relationship. And specifically those divisions are the GE Centricity Business and the GE Centricity EMR markets.

And just as a reminder, Centricity businesses are the very large physician practices and ambulatory sector and Centricity EMR is the smaller physician practice. And again as a reminder, we have a reseller arrangement with GE Centricity Enterprise which is the large inpatient hospital market, but we have more of an indirect relationship with the other divisions because they offer alternate solutions to Streamline Health.

Our goal all alone short of getting them to remarket our software in those other divisions -- which I might add are larger than the GE Centricity Enterprise division, both of them -- was to indirectly promote our software through their sales organization by finding -- first of all integrating our software to those solutions and then finding opportunities in their customer base and in the prospect base. The key to that was the integration which we have completed. So this is a reference market, as we all know, so we have successfully completed integration to Centricity business at the University of Virginia Medical Center and recently we finished integration to the Centricity EMR.

So we're basically aggressively promoting the fact that we are now integrated to those two solutions as the GE user's conference and we've got a lot of traction as a result. So we are going to now be working very collaboratively with the GE sales organization to promote our solution in lieu of some of the other alternatives. We hope that will generate a lot of new pipeline activity for us that we didn't enjoy previously because we didn't have the integration.

Right. I assume the Centricity business will encounter the same kind of revenue recognition problems?

All software companies have the same challenges.

Right. Can you give us an update on the Standard Register partnership and do they have -- are you running into problems because of their layoffs?

First of all, I need to say candidly that both Standard Register and Streamline are disappointed in the results of the relationship. And so we got together several months ago to analyze what we could do to improve our opportunities in the marketplace at the highest levels. Basically the general manager of the Standard Register division that we work with and myself sat down with our support staff and we looked at how the arrangement was working, what was working, what wasn't working and we determined that there was some fine-tuning that we needed to do in the relationship.

Here's where the relationship went wrong is that the original arrangement was for us to -- Streamline Health to remarket a product that Standard Register provided which was called clearly Patient LinkUp Enterprise in the registration areas of our hospitals. And in return Standard Register would remarket our accessANYwhere solution as a repository. The problem with that, as we realized as we got into the relationship, was that the value proposition for storage and retrieval is a tough one, that's generally considered a commodity in the marketplace for document management, repository scanning and indexing. And so we weren't generating a lot of enthusiasm in the market for just being able to store and retrieve documents.

So we've gone back to the drawing board and we've refocused our efforts over the last several months to promoting and providing stand-alone workflows where there is a very excellent value proposition so that the Standard Register sales organization can sell something that has a very quick payback. There are some challenges to providing a stand-alone workflow solution in terms of our architecture. We hope to initially provide it through our ASP offering which helps lower the cost, but ultimately we need to provide some architectural changes to our product to make it affordable as a stand-alone solution, so that's our goal between now and the end of the year.

As a result of this retooling of our relationship we're re-energized. In fact, Joe Morgan, who is a general manager of that organization, and myself have personally gone out into our mutual installed base to tell our story and we're having some success with that. So we are committed to getting that relationship going and to deliver demonstrable results between now and the end of the year.

So it sounds like you're going to need about another six months to get that thing turned around?

Realistically, yes.

Okay. Regarding HERAE, that sounds like a pretty good partnership set up there. Can you give us a little more meat on that? What's the size of a typical deal?

Yes, we are very excited about this. In the past this has been termed various terms; one is medical banking, the other one is the electronic remittance processing, or ERP. We felt that was confusing, so we have branded another term for this which is Remittance Process Management or RPM.

Essentially what this is is addressing a very difficult problem in healthcare right now and that is the reconciliation of electronic claims with paper claims. There's an electronic funds transfer between the payers and the banks and the hospital for electronic claims, whether they be 835 for 837 transactions. Then there are some paper claims that hospitals have to deal with unfortunately because not all the payers have gone to an electronic format.

We have had and continue to have a solution that addresses the paper claims problem which is an Optical Character Recognition technology where we literally scan the machine printed claims and we extract the data, which is called computer-aided data entry, automatically grab the information, total it and import it into the billing system to save a lot of employee time. So we have the paper processing that we automated, but there's still a problem in the healthcare organization of reconciling between the electronic and the paper.

And so this HERAE solution is one of the best on the market to address this fundamental problem of reconciliation where you can see all of the information electronically in one place. And so we're very excited. We've dedicated one of our resources full-time to going after this market and we have the partnerships in place now and we're very aggressively making sales calls to get this off the ground.

To answer your question in terms of the size, a typical opportunity, which by the way is recurring revenue through our ASP services, is in the range of between $200,000 and $500,000 a year for a typical opportunity -- recurring revenue.

Right. Is this a triangular relationship between the banks, insurance companies and companies like yourself?

Well, indirectly, yes. HERAE has formed the relationships with the banks and the insurance companies which is not our strength and that's why we're excited about this relationship. What we bring to the table is the strength of the healthcare hospital marketplace, so the combination of all -- of our two parties allows us to triangulate among all three parties and that's a breakthrough for us and for HERAE.

I checked the HERAE website; I couldn't get an idea of the size of that company.

They're a private organization and they are smaller than we are, but they're growing very rapidly.

They have a small salesforce?

They have a small salesforce but actually it's about equivalent to ours. For their size it's large -- relative to their size. We are making joint sales calls with them and we hope to have some demonstrable results before the end of the year.

Good. Regarding the international partner you've mentioned in the past, is there any update on that?

Yes, we're moving along quite nicely in terms of negotiating that relationship and we're hopeful to have some positive news before the end of the year.

Good. Are you getting stuck because of lawyers talking or what's the delay?

Well, it's a very large relationship of the size and scope of what we had with GE Healthcare. So those types of opportunities take time.

Bureaucracy, okay. You said you've hired a new salesperson. Do you have plans to beef up the direct salesforce before the end of the year?

We are watching that very closely, Mark. And because we've fallen behind in terms of our goals for the year, as I said, we have hired one, but we want to be cautious and make sure that we manage our expenses very closely. To the degree that we add a new strategic business partner to open up new marketing and sales opportunities, and to the degree that the Standard Register and HERAE relationships kick off and create some revenue for us, we will add additional resources. But we want to do it as an "if then" relationship where things pick up and we add them accordingly just to make sure we manage our expenses appropriately.

Can you give us an update on the IBM partnership and the portal product?

Yes. We still have a solid relationship with IBM. The relationship is basically in a suspended state simply because we need to get some traction in the portal marketplace in order to be able to leverage the relationship with the IBM sales reps. We have integrated IBM technology into our solutions, some WebSphere technology, but now we're trying to pursue a portal opportunity and once we do that we believe we can engage the IBM salesforce. So between now and the end of the year our goal is to get a portal opportunity and next year leverage the IBM sales organization as a result.

Okay. Just out of curiosity, is your win rate still around 30 to 35%?

Well, if you look at vendor of choice, yes; but as you can see, we've not been successful in consummating those contracts. So that's where we really need to focus.

You still have that big gap between the win rate and the close rate?

Right.

Just out of curiosity, what's the implementation schedule for the Children's deal?

It's already underway. So cash is coming in.

Will you get that fully implemented within a year?

Yes.

Oh, that's good. All right, that's it for me then.

Within a year from now.

Right, right. That's it for me. Thank you.

Alan Shore, AFA Financial Group.

Good morning, gentlemen. Would you explain to us what you mean by vendor of choice?

Typically, Alan, we go through a bidding process where they send out a request for proposal to typically between five and 10 vendors. They'll respond, they narrow the list down to typically two different cuts, down to three or four and then down to two and they start negotiations with one. And we were selected as the vendor of choice in the RFP process, which means we are in contract negotiations with respect to those deals.

Once you get to that level what's the percentage of deals that actually fall out that you don't close?

Typically rarely do we lose those deals in terms of not being able to close them, it's a matter of timing. I can remember one case in the 17 years of our history where we were selected vendor of choice, went through contract negotiations and did not close the deal at all. That example was where they basically pulled the budget and the project was killed.

Would it be safe to say that, based upon what you said earlier, you've got two contracts that are still hung over, but you said you have four deals in the pipeline that you've -- you actually had five but you've got four left where you're vendor of choice -- all four of those should close sometime in the future?

Sometime in the future I'm very confident that all four will close, yes.

Okay. You also mentioned management changes. Would you please explain a little bit more about the details of what you're talking about?

Recently we reorganized our staff and brought in a vice president of product strategy. We wanted to better align our strategic planning functions in one organization and our operational functions in another. So the gentlemen's name is Gary [Winzenried] and he has an extensive background in software and Business Process Management and technical aspects of our business. And so we brought him in and we are in the process of realigning some of our functions within the Company and that's as far as I can go with that right now because it's a work in process.

You also mentioned that the policy of Streamline from this point forward is not to give guidance, is that correct?

That's correct.

But would you still stick by what you said at the beginning of the year, the end of last quarter as far as your growth rate of sales and revenue this year?

If I repeated that right now then that would be violating the policy. What I'd like to suggest to the markets is let the numbers speak for themselves the remainder of the year.

I think it's obviously no secret that the stock price has been cut by 50% since the beginning of the year. And I also assume that the executives and the management team will probably still receive bonuses this year, is that correct?

The executive management team will probably not receive bonuses this year -- well, unless we deliver on our plan. And so we certainly are focused on doing just that.

All right, that answers my questions currently.

Tom Carpenter, Hilliard Lyons.

Some of my questions have already been answered, but just to clarify -- you have four deals in the pipeline and two of those are vendor of choice with your large remarketing partner, the other two are not vendor of choice?

No, actually there are four deals in the pipeline where we are vendor of choice. There are other deals in the pipeline, but of the deals in the pipeline, four remaining vendor of choice deals, three of which are through our remarketing partner, one is direct.

Is the expectation at this time that we'll see those by the end of the year?

I'll repeat what I said to Alan Shore and that is our expectation is to close those deals sometime in the future.

You have a pretty patient investor base that's watched you guys miss four quarters in a row. So I guess the question is when, when do you guys deliver results and actually close the deals and increase shareholder value? I don't think it's too much to ask that we see some of those close by the end of the year versus closing in '08.

I would agree with that.

You guys have to help me understand one of the accounting issues here. My understanding of the matching principal is you match expenses to revenue. And if you guys aren't going to recognize the revenue from a large software deal until it closes, why are you recognizing -- it looks like you're recognizing expenses for that deal. So you're going to have two quarters where the accounting is off; this quarter you recognize expenses and no revenue; and in the future when you recognize the revenue but there's no matching expenses, that seems kind of unusual to me.

The revenue recognition rules -- the expense associated primarily with software licensing is the amortization of the capitalized software cost. And we do that on a straight line basis every quarter over three years. So whether or not we have revenue we do have the expense and that's generally accepted accounting principles for amortization of capitalized software. There's very little additional expense associated with the software revenue. I mean, if we had the commissions which we paid to the salesforce.

Right, which is not insignificant, but when you actually finalize a deal and you can recognize the revenue there's going to be almost no expenses associated with that. That seems to go against the matching principal.

Well, I don't write the rules. And unfortunately I can see where you're coming from, but that's the current set of rules as they exist right now.

And that's something I would talk to the accounting firm about because that just seems very unnatural. It messes up two quarters worth of reporting versus one.

We review of our contracts in detail with our accounting firm and this is an industry practice and this is an industry problem. I discussed these same issues with my counterparts in other software companies and they have the same conundrum.

The international opportunity you guys are working on, Brian, would that be straight software or would that be ASP if it's consummated?

It most likely would be both.

Okay. Is there an RFP outstanding for that?

For what?

International opportunity?

There is no RFP outstanding for the relationship with the new partner. There is an outstanding RFP related to a customer of the partner. But we are very actively engaged in a selling process as well as a relationship process.

Do you have a formal relationship with that partner? I'm trying to understand exactly how this works. You've talked about this for a couple quarters, but the details have been very sketchy.

We do not have a formal relationship as of today with that partner.

Do you need a formal relationship to close a deal or be in the RFP?

Most likely, yes.

The reason why I'm asking is because we've heard several other things in the past for deals that have been talked about, but haven't panned out as you guys want. It sounds like there are some delays to IBM, major delays. Can you update us on the VPN which is where we're supposed to see some revenue this year and so far there's been none broken out?

That was part of the reason for bringing our new VP of product strategy into the organization. And he is now very actively engaged in trying to close up to three VPN transactions in the foreseeable future.

These are separate from your vendor of choice deals?

Yes, they are.

But there are three potential outstanding deals?

Our goal is to close three deals in the foreseeable future to kick off our VPN market activities.

Are these deals where there's an RFP or is this just calling on potential or existing customers?

It's primarily focused on calling on existing customers where we have solid C level relationships. And what we are doing is looking at internal business processes of these organizations to identify process friction points where we can either apply existing solutions or develop new ones.

Can you just talk about the integration modules that went live in the second quarter?

Let me talk in broad brush terms in terms of the integration projects that are very active right now. The first and probably the most important is we've finished integration to the GE Centricity business at the University of Virginia which I mentioned earlier. We also have further integration with GE Centricity Enterprise which is the large-scale hospitals. We've gone to Phase II of that integration which is specifically a physician in box integration.

We also have integrated with Epic's EpicCare system and it is live at Oregon Health Science University. We have an opportunity to implement integration to Eclipsys Sunrise Clinical Manager at one of our sites and that's planned to go live in the very near future, within weeks. And we've also completed integration with McKesson at one of our sites, but apparently that site now is making a change to another provider, so we're not sure of the status of that going forward. And as I mentioned earlier, we also have integration completed with GE EMR, that's beta ready now and we're seeking a beta partner -- actually I think we have one lined up.

I'm sorry, I was writing the McKesson thing down. What was the last one?

GE EMR is beta ready, the integration is finished and we are seeking a beta partner which we have a live one.

Is PeopleSoft still slated for 4Q '06?

It's slated for some time early next year. The integration that we plan in the immediate future in terms of the administrative areas is with Lawson, as I mentioned earlier.

I was just reviewing what you guys said on the last call and I said PeopleSoft would be available 4Q '06.

We have one site that utilizes PeopleSoft and many sites that utilize Lawson. Timing wise Lawson will most likely go first.

Right. So McKesson, you guys are working on a physician portal for their CIS product, is that correct?

Yes, in one of our sites. But as I mentioned a few moments ago, there may be a change in terms of their relationship with McKesson.

Okay. Was this something you needed to have the IBM relationship?

No, it was not related to the IBM relationship.

Okay. Are there any other steps that you guys can do besides closing deals to enhance shareholder value? Have there been any buyout or takeover opportunities presented to the Board?

I can't address that; all I can say is that we are committed to meeting our operating plans for the year and we'll take whatever steps necessary to do that.

You're the largest or one of the largest shareholders of the firm, one of the co-founders. Stock price ran up to the mid or high 8's in the first or second quarter of last year. You've got to be frustrated that now we're below $3. This is impacting your wallet as well as all the shareholders and employees.

Believe me, I'm as frustrated and committed to improving shareholder wealth, including my own, as a result. As a large shareholder, believe me, I understand what needs to be done and we're going to get it done.

From the outside looking in, it seems like there have been a lot of delays, not just on the sale side but also on the product development side in some of the integration. Can you address that and what the impacts of some of these changes are going to be to fix those issues?

We have had some product delays this year that have impacted our professional services revenues. We have addressed that situation and we plan on getting back on track between now and the end of the year.

So you're fairly confident we're going to see much better results across the board in the second half of the year?

I'm confident that we will have an opportunity to accelerate our professional services revenues as a result of these changes.

What about the other -- since you're going from zero to something, that's not going to impact the firm that much. But what about the rest of the areas of the firm where the big revenue is?

I don't want to provide additional guidance in terms of our expectations for the year other than to say that we certainly intend to accelerate our professional services revenues.

No one is looking for guidance, but we would like to hear some confidence that you're going to close some deals between now and the end of the year.

As I said earlier, I'm confident of the four deals in the pipeline, that those will close in the foreseeable future. There are other deals in the pipeline where we are in good position, just haven't reached the stage of vendor of choice just yet. And those deals that are vendor of choice are very large transactions.

Is T.J. Sampson, the ASP deal, going to go live in the third quarter?

Let me ask Bill Geers that question.

It will go live between now and the end of the year.

That one has been delayed by a quarter or two and it sounds like you guys might go -- there might be another delay. Can you guys give us some color on what the holdup is there?

Well, the comment -- and this is Bill, Tom -- the comment that Brian made earlier implies that T.J. Simpson, from a product point of view we did have a delay which has been corrected and now the implementation is moving forward. One of the challenges with any implementation is that we of course must have the available resources, which we do, but the client needs to have the available resources as well. We can't do it without their help. And so that's where we are with T.J. Sampson.

Is the legacy system that you're going to integrate with there, is it some type of Siemens?

Personally I'm not aware of what clinical information system they're using there.

Off the top of my head, Tom, I don't recall that there's a Siemens' system there.

Okay. A few final questions real quick. Let's talk about GE Healthcare, and I know the delays have hampered what may be a decent relationship there, but for one and a half years we've heard how great the relationship is, how you guys have put a lot of resources into developing this and apparently have a business development person that's worked on moving the relationship forward. However if you look at the results, which is one or maybe two closed deals over the past year, which is the objective I go by, it hasn't passed muster.

Well, let me say this -- last year GE contributed 20% of our revenues which was the highest percentage since the relationship started. This year there are three large GE transactions where we are vendor of choice in addition to one that we closed earlier in the year, which is significantly more than last year. And those deals are very large so you can draw your own conclusions in terms of the relationship.

But last year your system sales were down 30% over '05, so I don't know if that's something to brag about.

That's true, but again this year I think we'll have more contribution from GE than last year.

I guess going forward as you look at potential remarketing partners, what are you guys going to do differently than what you've done in the past? In the past year you guys have signed three new ones and it doesn't look like there's been much revenue contribution from those? Are you going to change some of the parameters or maybe only sign deals with people you're very, very confident that contribute to revenue?

Well, clearly I've asked our business development staff to focus on the larger revenue potential relationships. Clearly GE is the largest of all. We've spent a lot of cycles in, one, preserving the relationship when IDX was purchased by GE and that was very challenging simply because the management team at GE changed over two or three times over the last two years and we had to start from scratch.

Secondly, we've put a lot of cycles in terms of working with the other divisions of GE. That took an awful long time simply because we had to get the integration done in order to get some traction in the marketplace. We've completed that task and we're really aggressively going after those other divisions of GE now starting with this week, the kickoff at the GE user's conference. So I expect that the types of deals that we've enjoyed in the past from GE will continue and we hope to have incremental new revenue from GE from these other divisions.

Regarding, I believe we also need another large distribution partner of the ilk of GE in order to mitigate some of our risk of having too much revenue from one large partner. We're also focused on HERAE because that's a very large upside opportunity and it's an emerging market. So that's another one. And thirdly, we're focused on Standard Register which, because of their size and scope and their large presence in healthcare, could generate a significant revenue once we get this relationship ironed out. Those are the three that we're focusing on.

Would you prefer -- if you had a large distribution partner besides GE that you just mentioned, would you prefer it to be a CIS vendor?

I'd rather not comment on the type of relationship until it's announced. It's just a large organization and it should have a very positive impact on our organization.

Got it. I know you guys can't answer this, but just accept it for what it's worth? It'd be very nice to see senior management step up to the plate this week and buy some shares in the open market with the stock under $3 to show your commitment to -- that you think the stock is under valued here based on what you're going to deliver over the next couple of quarters.

Duly noted.

Gentlemen, there are no further questions at this time. I would now like to turn the call back to Paul Bridge for closing remarks.

I thank everyone for joining us and wish to advise you that the third-quarter 2007 earnings release is currently scheduled for release on Monday, November 26, 2007 and the corresponding conference call is currently scheduled for Tuesday, November 27th at 10 AM Eastern Time. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your presentation; you may now disconnect. Have a good day.