Operator: Good afternoon, my name is Marsha. And, I will be your conference
facilitator today.
At this time, I would like to welcome everyone to the Quality Systems Third
Quarter Fiscal 2004 Earnings Conference Call. All lines have been placed on
mute to prevent any background noise.
After the speakers� remarks, there will be a question and answer period. If
you would like to ask a question during this time, simply press star, then the
number one on your telephone keypad.
If you would like to withdraw your question, press the pound key. Thank you.
Mr. Silverman, you may begin your conference.
Louis Silverman: Thank you, Marsha. Welcome to Quality Systems Fiscal 2004 Third Quarter
Conference Call. Joining me on today�s call are Greg Flynn, Executive Vice
President and General Manager of our QSI Division; Paul Holt our CFO; and
Pat Cline, President of our NextGen Healthcare Information Systems
Division.
Please note that comments made on this call may include statements that are
forward looking within the meaning of the securities laws including without
limitation statements related to anticipated industry trends, the company�s
plans, products, and strategies and projected operating results.
Actual results may differ materially from our expectations and projections.
And, you should refer to our SEC filings including our Forms 10K and 10Q
for discussions of the risk factors, management�s discussion and analysis, and
other information that could impact our actual performance.
We undertake no obligation to update such projections or forward looking
statements in the future. Please also note that the company�s past
performance is not necessarily indicative of future performance.
For the 14th time in the past 15 quarters, the company achieved record
revenue performance. For the quarter, the company also set a new earnings
record. Revenues totaled $18.2 million up 26% over the prior year. Fully
diluted earnings per share at 40 cents, exceeded prior year by 33%.
As noted in our press release, the quarter�s top line results were largely driven
by record revenue performance at NextGen. The $14 million in revenues
attained by the division for the quarter represents a 40% increase on a year
over year basis.
Company profitability was driven by strong performance at both the QSI and
NextGen divisions. Operating income at NextGen came in at 68% ahead of
the prior years total and was the second highest in division history.
At the QSI division, operating income was at the higher end of its recent
performance band on a hard dollar and percentage basis. The division�s 32%
operating margin contributed nicely to overall company performance and was
our highest since the December quarter of two years ago.
The QSI division�s revenues came in at $4.2 million which was within our
historical band. Our EDI unit set a revenue record with growth at the
NextGen unit offsetting a slight decline in the QSI division�s year over year
revenue performance.
I�ll once again remind listeners that EDI revenues are reported as part of
divisional totals each quarter and are broken out in this part of the discussion
for your analytical convenience.
Corporate expenses moderated just a bit from our highest historical levels. I
would comment that there continues to be an increasing demand for corporate
expenditures principally in the area of professional services, staffing, and
insurance coverage.
Cash and cash equivalents increased to a record $45.3 million during the
quarter, up from $40.6 million in the prior quarter and $33.1 million in the
prior year. Head count at quarter end was 301, which taken with revenues for
the quarter generated annualized revenue per employee of $242,000. That
was a record, although it was a record by a very narrow margin.
There were no stock re-purchases during the quarter. Note that the company�s
re-purchase authorization expired on September 24, 2003, the date of the 2003
annual shareholder�s meeting.
At present, the company is scheduled to participate in the Roth Capital
Investor Conference in February and the B. Riley Conference in March. The
company met with investment professionals in New York in November and
Boston last month.
On board related matters, particularly those that have come up on our most
recent calls, the independent directors of the company have elected Bud Small
as lead director.
The composition of the board�s four standing committees has been
established. And, the audit, compensation, transaction and nominating
committees have all been expanded to include four independent directors on
each committee.
The board has continued to receive input regarding the optimum use for the
company�s cash. To my knowledge, no specific plans have been made for
utilizing the cash.
In closing my prepared comments for this morning�s call, I�d like to point out
that the performance of the company for the December quarter, as was the
case for the two prior quarters, significantly exceeded our internal
expectations. This was particularly true for the NextGen Division.
I would like to express my continued appreciation to each and every member
of our team for his or her individual and the collective contributions that
people have made to these results.
I also want to again clearly point out to current and/or perspective investors
that while we are extremely pleased with the quarter�s performance, there are
absolutely no guarantees that the company or either of its divisions will
sustain or exceed the level of performance turned in during this quarter during
future periods.
Further, there is what feels to be an increasing amount of publicity
surrounding some of the markets we serve including particularly the EMR
(electronic medical record) market place.
We are certainly pleased that more and more people are talking about the
advantages of such products. But, I want to remind everyone that heightened
publicity and financial results are not directly linked.
I also want to reiterate a couple of points that have been made on any number
of prior calls. Those points are that; 1) we do not give out financial guidance
to the investment community and 2) we don�t comment on the guidance
advanced by members of the financial community.
I�ll now turn the call over to Paul Holt, our CFO, for additional financial
details on the quarter.
Paul Holt: Greetings, once again, to everybody who�s participating. I�m going to first
talk about the major points of interest on our income statement for the quarter,
and, then move on to discuss key balance sheet items.
As Lou mentioned, we reported record consolidated revenues of $18.2
million. This result included a strong performance in consolidated systems
sales, as well as, record consolidated maintenance and other revenues.
Consolidated systems sales came in 29% ahead of the same quarter last year at
approximately $9.9 million, while consolidated maintenance and other
revenues, at $8.3 million, represented a 24% increase over the same period a
year ago.
Our growth in maintenance and other revenue was driven primarily by the
continued growth in the NextGen base of installed users which drove
maintenance, EDI, and other revenue in that division to record levels.
Included in that maintenance and other category are the revenues from our
EDI unit. Consolidated EDI revenue grew to approximately $2.188 million in
the quarter, an increase of 19% compared to a year ago.
As this has been asked for on prior calls, I�m going to break that total down by
division. The QSI Division, $1.325 million and NextGen $863,000. That
NextGen number represents an 87% increase over the year ago quarter.
Our gross profit margins this quarter came in around the higher end of our
historical range at 58.7% of revenue. And, as I routinely mention in our calls,
the primary factor influencing those gross margins are the level of hardware
and third party software content included in our systems sales, which
fluctuates from quarter to quarter.
This quarter had a relatively lower amount of hardware and third party
software content included in our systems sales. However, it was still well
within our historical band.
SG&A; expense as a percentage of revenue was slightly lower this quarter at
26.9% compared to 27.2% in the year ago quarter. Total SG&A; expense
increased to $4.9 million this quarter compared to $3.9 million a year ago.
The largest contributor to this increase in SG&A; expense was an increase in
sales and marketing related expenses in the NextGen Division, as well as
higher corporate related expenses.
Total corporate expenses this quarter was $994,000. That compared to
$817,000 a year ago. Moving down to interest income, interest income
declined to $95,000 this quarter. That compares to $109,000 a year ago.
That was driven lower due to relatively lower short term interest rates on the
company�s cash. R &D; expense grew 21% compared to the prior year
quarter. At $1.6 million, that compared to $1.3 million a year ago. All of this
increase in R&D; expense was related to increased investment in the NextGen
Division product line.
The company�s effective income tax rate was significantly higher compared to
the prior year quarter. At 38.4% this quarter, that compares to 33.1% a year
ago. The rate was higher this quarter due to the fact that in the year ago
quarter, the company recorded a catch up tax benefit related to R&D; tax
credits, which resulted in a much lower rate in the year ago quarter.
Moving over to divisional performance, the NextGen Division reported its
highest ever quarterly revenue of $14 million which represents a 40% increase
over the year ago quarter.
NextGen�s operating income of $3.789 million narrowly missed another
record, while representing a 68% improvement over the year ago quarter
operating income of $2.259 million.
The QSI Dental Division reported revenue of $4.2 million and operating
income of $1.351 million. QSI Division had a lower amount of hardware
content in its sales, which resulted in higher gross profit margins for the
division. As a result, operating margins in the division were 32% this quarter
versus 30% a year ago.
Moving over to the balance sheet, I�m going to highlight three notable areas:
accounts receivable, deferred revenue, and cash.
A strong collections performance this quarter helped move our DSO�s down a
couple of days to 108 days versus 110 in the prior quarter. Breaking this
down by division, we had 77 DSO days at the QSI Division and 117 at the
NextGen Division.
Both divisional DSO�s were within the range reported in the last several
quarters, although they both had slight declines compared to last quarter.
DSO�s at the QSI Division declined by two days, while the NextGen Division
declined by three.
Reflecting the growth in the customer base at the NextGen Division, the
company�s total deferred maintenance and services grew to $16.3 million.
That compared to $15.1 million at the start of the quarter.
The quarter-end cash grew by approximately $4.8 million to $45.3 million or
$7.23 a share. That compared to $40.6 million or $6.57 a share at the start of
the quarter. The company collected $786,000 in cash from stock option
exercises this quarter.
Also, the company generated $5 million in cash from operations this quarter.
That compared to $3.9 million a year ago.
I�m now going to break down, as I usually do in these calls, our non-cash
expenses for the quarter.
As a result of certain in the money stock options granted during the quarter,
the company recorded $202,000 in non-cash expense related to stock options.
That breaks down as follows: $130,000 in corporate, $23,000 for the QSI
Division, and $49,000 for the NextGen Division.
Other non-cash expenses break down as follows: total amortization expense
$369,000; that�s $52,000 for the QSI Division and $317,000 for NextGen.
Total depreciation expense, $214,000; that�s $40,000 for the QSI Division and
$174,000 for the NextGen Division.
Our investing activities for the quarter were as follows: $672,000 in
capitalized software; that breaks down to $70,000 for the QSI Division and
$602,000 for the NextGen Division.
Total Fixed Assets, $336,000; $191,000 at the QSI Division and $145,000 at
NextGen.
On a personal note, I�d like to congratulate Lou, Pat, and Greg and the rest of
the Quality Systems staff for their dedication and hard work on behalf of the
company. It�s a privilege to be able to work with such capable colleagues. I
want to thank you all for being on this call and your interest in our company.
And, I�m going to turn things over to Greg Flynn, Executive Vice President
and General Manager of our QSI Division.
Greg Flynn: Thanks Paul. Good day to you all. You�ve heard the financial numbers for
the QSI Division, so I won�t provide more than a quick recap here. Our
revenues were virtually unchanged over the prior quarter at approximately
$4.2 million and our operating income percentage increased on a quarter over
quarter basis this quarter from approximately 30.7% to approximately 32.2%.
I will mention again, as in the past, that one determining and variable
component of our profitability is the mix of software versus hardware sales in
any given quarter.
Also, as noted, our EDI sales to the NextGen client base grew approximately
87% on a year over year basis, again, validating our strategy to market these
beneficial services into this expanding client base. As you know, these EDI
services are facilitated through the QSI Division.
The quarter also again saw several new clients and expanded client
implementations for our CPS product, the dental equivalent of EMR.
A number of recent product innovations were of note during the quarter as
well. Our reporting product, which we call Data Miner, our enhanced user
interface software, and our laser printer generated office forms, continued
sales penetration within our base.
Our QSI scan and QSI image products, recently introduced, further continued
to generate interest among our clients. These products allow users to manage
digital images whether they be x-rays, interoral or scanned, in addition to
other images such as insurance cards and explanation of benefits
communications, typically called EOB�s, without the need for the full CPS
product.
And, just being introduced is our electronic signature capability with the CPS
product. Practitioners and/or patients may now create signature authorizations
by a signature pad device, such as you would see at a Lowe�s or a Home
Depot for example, or via a tablet PC, which can even be wireless.
This new offering demo�d very well at the recent American Academy of
Dental Group Practice (which we term as the AADGP) meeting in Las Vegas.
I would add that this meeting itself was encouraging based on our booth
traffic with both existing clients and several new opportunities.
As to our current sales pipeline, as I always report, with certain sales
opportunities prosecuted in the quarter, our pipeline is down slightly to $3.7
million. We define our pipeline as sales situations where QSI is in the final
three purchase choices and we believe that the sale will occur within 180 days.
Our sales staffing level again remains unchanged.
As reinforced by the AADGP meeting, I would like at this time to thank the
long term, medium term, and new customers who have made their
commitment to the products, services, and team here at the QSI Division.
And, of course, I would like to thank our shareholders for their continued
support of our company. And, thanks, as always, to the dedicated QSI staff.
Now, I�ll turn the call over to Pat Cline, President of our NextGen Division.
Pat Cline: Thanks Greg. Hi everyone, NextGen had another terrific quarter. During the
quarter, our expenses were increased somewhat related to the migration of our
practice management customers to our latest software version which allows
them to better comply with HIPPA regulations. Some of these expenses
related to the use of outside consultants which we�ve largely phased out of the
project at this point.
Last quarter we signed 45 agreements, a significant increase over the prior
quarter.
Thirty-four of these were with new customers. Our sales force now numbers
24 people. And, we hope to continue to grow the sales force, adding a couple
of more people in the very near future.
The market for NextGen EMR still seems very solid and the market for
NextGen�s practice management system, NextGen EPM, also remains strong.
Our pipeline has increased to about $35 million.
We�re entering trade show season at this point with HIMSS coming up in
Orlando this quarter. And, we�re also doing preparation for TEPR and other
shows next quarter.
In closing and as usual, I�d like to thank the entire NextGen team for helping
to achieve terrific results for us once again. Marsha, we�re ready for
questions.
Operator: Thank you, sir. At this time, I would like to remind everyone, in order to ask
a question, please press star then the number one on your telephone keypad.
We�ll pause for just a moment to compile the Q&A; roster. Your first question
comes from Sean Wieland.
Sean Wieland: Good morning, guys. A question on the industry landscape, if you could
comment on what seems like a trend of third party funding, if you will, of
physician investment and electronic medical records pointing specifically to
the announcement by Wellpoint but other kind of discussions. How�s that
affecting, in your view, the industry, your competitive landscape, the
positioning of NextGen, and how you�re selling the product.
Pat Cline: Well, you�re right, there is a lot of talk about third party finance, whether it�s
organizations like Wellpoint or discussions about the federal government
perhaps somehow figuring out how to achieve more widespread adoption of
the electronic health record by perhaps paying physicians more money if
they�re using such systems.
As Lou mentioned earlier, there�s been a lot of talk. I think it helps to float all
the boats. I think it�s helped us in bringing focus to the market and focus to
the product and the kinds of returns and results that these products can
achieve. But, I�m not prepared yet to point to any specific initiatives that we
have going on relative to such financing.
Sean Wieland: How are your physician customers reacting to announcements like
Wellpoint�s? Are they � do you see any holding off their investment waiting
for someone else to step in? Or, do you feel like if a doc�s going to use it,
they got � they should probably be the ones that are buying it?
Pat Cline: To This point, we haven�t seen or heard of anyone holding off hoping that
somebody else is going to pay for the system. The discussion that�s been out
there has been nothing but a positive force.
Sean Wieland: Okay. And, Paul a quick question for you, in the schedule in your last Q, you
put out the amortization software development costs. In 2005, it looked like
they�re supposed to go up quite a bit just for kind of one year spike. Can you
comment on perhaps why that is? And, also, how we should model that in
over the quarters in fiscal 2005?
Paul Holt: Sean, we don�t give out any forward type guidance like that. You know, I
typically report the actual amortization expense we had in each quarter. But,
that�s about as far as we go.
Louis Silverman: Sean, it might help if you re-asked your question. Because, the way it came
through is you had referenced something we put out that showed a spike in
2005. And, so it�s leaving us scratching our heads here.
Sean Wieland: Okay, I have the Q here in front of me. Of course, now I can�t find it. I�ll
circle back with you when I find it and reference what I�m looking it.
Louis Silverman: Okay, thank you.
Sean Wieland: Okay, thanks.
Operator: Your next question comes from Mike Crawford.
Mike Crawford: Good morning. Could you comment more on the competitive landscape and
on the KLAS ranking data that NextGen slipped a little bit? And, I�m
wondering what the differences are you�ve seen from IDX and Athena and
others or what changes you might have �might be undertaking to address, at
least that opinion?
Pat Cline: First, let me say that I don�t think we have a big problem with our KLAS
standings. KLAS focuses on the Top 20. We�re proud to be part of the Top
20. And, we�re proud to be very close to the top in the categories that matter.
Though, we�re not the top, we do strive to be at the top. And, we have a
number of different initiatives that we�ve had ongoing for some time to render
the best support and service in our business.
What you�ll find with the KLAS report is that the companies that present on
the list relatively recently tend to have high marks. And, over time, those
companies have trended a little bit lower.
And, if you go back through history of years, you�d see that happening. A lot
of that has to do with the investigation that KLAS does on their own into
companies, customers, and references in asking questions and how companies
are allowed, when they get started with KLAS, to provide the names of their
reference accounts.
Michael Crawford: Okay, so you�re not undertaking any initiatives based on any comments
that were highlighted out of this most recent?
Pat Cline: We pay attention to all of those comments. And, we do, as I mentioned, have
a number of initiatives going on to make sure that we do render the best
service and support available in our business.
We�re not perfect. But, we�re doing very well. And, in fact, over the last
couple of years, our numbers have improved. Our response time is down.
And, our problem resolution time is down.
I don�t want to comment on specific comments that were mentioned in the
KLAS reports, but, I think, the initiatives that we have ongoing are working
for us pretty well.
Michael Crawford: Okay, thanks Pat. And, one final question for you is, you know, the EMR
adoption rate, it�s estimated anywhere between 5 and 25%, that seems like just
such a huge band. And, I�m wondering what your thoughts are on what it
actually is?
Pat Cline: Are you referencing the percentage of the market that has EMR systems
today?
Michael Crawford: Yes.
Pat Cline: I�d peg it at more like 15, 16, 17%.
Michael Crawford: Okay, great, thank you. And, then on the QSI side, are you seeing any
more attraction with the clinical product suite? Or, is most of it demand for
things that used to be a component of that product?
Greg Flynn: No, actually to characterize it without being specific, I would say I have seen
an upturn in interest on that product. And, that�s the total CPS suite. We have
modularized it somewhat, as you�re referencing, but without being specific by
client, there is an upturn there.
Michael Crawford: Okay, great, thank you.
Operator: Your next question comes from Brandon Osten.
Brandon Osten: Hi guys, how you doing?
Louis Silverman: Hey Brandon.
Brandon Osten: Just on the deferred revenues, relative to accounts receivable, how much of
the accounts receivable is out of deferred revenues?
Paul Holt: Brandon, that�s $9.2 million. It�s going to be in the Q as well.
Brandon Osten: Nine point two million of the receivables is deferred revenues?
Paul Holt: Yes.
Brandon Osten: And, in terms of deferred revenues, how much of that is maintenance related?
And, how much of that is sort of business yet to be recognized into revenues?
Paul Holt: Well, Brandon, we typically don�t � we haven�t in the past, given out that
level of detail. But, just that in general terms, it�s both maintenance and
services as well with the majority of that amount going to deferred services.
Brandon Osten: Okay. In terms of system sales, they were a bit down from Q2�s. What
exactly was the cause of that?
Pat Cline: I don�t think there was any particular cause. We�re doing very well. But,
we�re still a relatively small company. And, where you have an average sales
size that can be in the hundreds of thousands of dollars, one sale can make a
big difference. But, overall, I�d say, we�re very pleased with the results at the
top line and continuing to set records.
Brandon Osten: Right, and I guess, that kind of plays into my next question, which is relative
to scalability. Do you guys � I guess, you�re 40% over last year, you know,
forgetting about what�s, you know, what might close or what could happen.
How fast do you feel you�re capable of growing if all the various business
factors were there to allow you to grow as fast as you can?
Pat Cline: I would say we�re capable of growing 10 or 20% faster than we�re growing
now. However, I would add � and, more importantly, that we are also
engaging in a number of internal initiatives to be able to scale much more
quickly.
I�ll give you one example of that and that�s a new computer based training
program that we�re developing right now. Our systems are sold with many,
many hours, typically hundreds of hours of installation and training services.
And, we�re looking at these areas and saying, how can we � if we move to
selling 100 systems a quarter, 200 systems a quarter render these training
services without throwing more bodies at it or as many bodies at it, as we have
now.
So, we�re developing training programs to augment the face to face training
with computer based programs. That�s an initiative that we kicked off some
time ago. It�s going rather well but probably still has six months or a year to
go. But, those are the kinds of things that we�re looking at. Again, I won�t
get into all of them, just wanted to provide an example.
Brandon Osten: Okay, thanks. Sorry, could you just repeat what the pipeline number was for
NextGen?
Pat Cline: Thirty-five million.
Brandon Osten: Thirty-five million, okay. And, on the capitalized software, did you say it was
$700,000 in the quarter?
Louis Silverman: Paul�s getting that number right now.
Brandon Osten: Right, and I think, you said amortization was $400,000?
Paul Holt: Six hundred and seventy-two thousand is the total capitalized this quarter.
Brandon Osten: Okay, and that�s versus amortization of $400,000?
Paul Holt: Yes, $369,000.
Brandon Osten: Okay, and did you � did I hear that correctly that the majority of that was for
the QSI Division?
Paul Holt: No, I�m sorry, that would be for the NextGen.
Brandon Osten: For the NextGen, okay, so I got it backwards, all right. And, in terms of
average deal size, pricing, pressure type issues, are you seeing any of that on
the NextGen side?
I just noticed the average deal sizes down a touch from Q2 but still above Q1,
which was below Q4 like � is that kind of a number that�s going to keep
jumping around on you? Or, is there a trend there to be made aware of?
Pat Cline: I think, that�s it�s a number that�s going to keep jumping around. It has for
many, many quarters, in fact, years. Going out into the future years and not
quarters, I think, you will see the average deal size coming down and the
number of deals done going up, as the early adopters, the larger practice
market becomes a little more saturated. And as the smaller practice market
opens up more, that�s what I think you�ll see.
Brandon Osten: Okay, and of the 24 sales people that you�ve got, how many of those guys
would you say are sort of at full quota at this point, you know, have been there
for more than nine months?
Pat Cline: Oh boy, anything I tell you would be just a guess. I�m going to guess at less
than half of them.
Brandon Osten: Okay, and are you still going on that � it looks like you�re trying to add one
salesperson per quarter. Is that the plan or�
Pat Cline: We actually are trying to add two per quarter. The result has been more like
one per quarter. In fact, in the last quarter we added two and lost one.
Brandon Osten: Okay, and has anything changed on the competitive landscape? Anyone new
you�re seeing? Anyone you�re seeing less often or more often?
Pat Cline: Not really, no. All the usual suspects. We have seen a couple of newcomers
come into the market struggling along. Whenever you have a market like this
that�s a solid market that�s hot and it�s in its infancy, you�ll have new
competitors pop up from time to time but nobody that we�re concerned about.
Brandon Osten: Great, thanks a lot guys.
Pat Cline: Thank you.
Operator: Your next question comes from Gene Mannheimer.
Gene Mannheimer: Good morning and congratulations on a nice quarter, guys.
Pat Cline: Thank you.
Gene Mannheimer: A couple of questions. One on QSI, it looks like sales were relatively flat
at $4.2 sequentially. But, this is amid some new product introductions last
time including QSI Scan and QSI Image. Can you just comment on the sales
cycle involved in selling these modules and your strategy on increasing
revenue per customer?
Greg Flynn: Let me take the question a little bit in reverse for you. Our strategy is to get
the word out on our new products, such as we�re doing through a variety of
means including the AADGP show. It�s probably our most important show of
the year, where the large group practices are.
We�re looking to introduce new client products within the base, obviously,
since it�s a fairly well captured base, I guess, to use that term. Sales cycle
typically on these types of products � we don�t have enough track record with
it. But, I would say it�s anywhere from two months to six months. There is
an education process and typically there�s full adoption throughout the group.
So, it�s not an instantaneous type of switch.
Louis Silverman: I would add, Gene, that these are not huge ticket items that we�re talking
about here. The point of these additions are that they enhance functionality
and, therefore, seek to enhance the types of relationships that we have with
our customers. They�re client retention tools, as well as, enhancements to the
product. And, both of those are significant and in many ways, more
significant than the top line impact.
Gene Mannheimer: Okay, thank you. And, Lou, can you just provide us with sort of an update
on the acquisition strategy that has been ongoing?
Louis Silverman: I would echo the same words that I�ve used in the past few calls. The search
goes on. It�s at a fairly low level. The funnel is less full than I�d like it to be
due more to a bit of a shortage of interesting opportunities than a desire to
look at interesting opportunities.
But, we do continue to look at some things from time to time. I have a
number of items in the funnel right now. But, it would be premature to hint or
suggest that we�re close to doing anything with anyone. The opportunities in
the funnel are still at a very early stage.
Gene Mannheimer: Okay.
Louis Silverman: The funnel is not in an early stage but the opportunities that are in it are in an
early stage. So, I�m continuing to look and churn through some things but it�s
a slow moving process.
Gene Mannheimer: Okay, thanks very much.
Louis Silverman: Thanks Gene.
Operator: Your next question comes from Andrew Shapiro.
Andrew Shapiro: Hi, part of follow up on Gene�s issue is that cash at Quality Systems has been
more than 50% of the companies assets for well over two years and maybe
even four years.
And, that raises a risk of the company being subject to the onerous burdens of
the Investment Company Act. And, I�m trying to understand, what steps does
the company take to avoid this? And, what are the costs to the company of
doing so?
Lou Silverman: Andy, we have worked to ensure that the money that we have, the cash that
we have is deployed in the appropriate investment vehicles to be in
compliance with the act that you site, the Investment Banking Act of 1940, I
believe, is the official name.
In addition to that, the board has continued to be reminded of the importance
of investigating the appropriate use of cash and making sure that its exercising
it�s responsibility to ensure that the assets that we have are employed in a
responsible fashion.
Andrew Shapiro: Well, what do you think it cost the company in lowered returns on the cash
assets you have to invest in versus what you might be able to earn on, we�ll
call it, higher yielding cash investments or marketable securities that you can�t
invest in because you have so much cash?
Lou Silverman: I think, I�d decline to speculate on that, Andy. I think, different people could
make their own assumptions and come up with whatever the number is. But, I
feel like it�s inappropriate for me to just engage in wanton speculation like
that.
Andrew Shapiro: Okay. I noticed that in the immediate days after last quarter�s conference call,
the disclosure of deep in the money option grants that were made, as well as, a
lot of insider selling that all of a sudden took place.
I just want to know, then, what is the trading window policy for the
company�s insiders from Mr. Razin on down to management with respect to
your earnings announcements and disclosures? What�s the timing windows
here?
Lou Silverman: We have a policy that�s in force, Andy. And, I would just leave it at that. I
don�t believe that we�
Andrew Shapiro: Shouldn�t the public be available or be allowed to know what the policy is?
When insiders can or cannot be selling?
Lou Silverman: It�s a fair question. I think, people could probably back into it from looking at
the dates and times. But, at this point, I don�t feel that I would be giving that
out.
Andrew Shapiro: Okay, fair enough, thank you.
Operator: Your next question comes from Corey Tobin.
Corey Tobin: On the NextGen side, can you please provide some insight into which practice
areas are buying? Are most of the sales the general practitioners or are there
one or two specialties that are highly represented in the sales base?
Pat Cline: Our sales tend to spread across a number of specialty areas. We do quite a lot
with primary care. We do quite a lot with multi-specialty practices, those
practices that are, in fact, specialty practices but encompass a number of
different specialties that is.
And, there are four or five individual specialties that we tend to do very well
within. They would include Cardiology, Ophthalmology, Orthopedic Surgery,
and a couple of others.
Corey Tobin: Just to try to quantify that a little bit, would you say 50% or so of the sales in
any quarter are typically the general practitioners and then 50% the
specialists? Or, how would you sort of � how would you cut the pie?
Pat Cline: I�d rather not place a guess at that. I may try to be a little more prepared to
answer that on our next call. But, I don�t have the individual sales here in
front of me to venture what I�ll preface by saying is a wild guess. I�m going
to say it�s a pretty even split.
Corey Tobin: Between general practitioner and then specialties as a whole?
Paul Cline: And, specialties, yes.
Corey Tobin: Okay. Okay, great, thanks.
Operator: Once again, if you wish to ask a question, please press star then the number
one on your telephone keypad. We�ll pause for just a moment to compile the
Q&A; roster. Your next question comes from Rick Leggett.
Rick Leggett: Good morning, gentlemen, Arbor Capital. I�m curious, on the Board of
Directors � neither Mr. Silverman nor Mr. Cline�s on the Board, is that
correct?
Louis Silverman: That is correct.
Rick Leggett: Given the importance of NextGen and the role that Mr. Cline has, I guess, I
direct the question that the Chairman of the Board of Directors, what is the
thinking here? And, are there prospects for this to change in the near future?
Louis Silverman: The prospect for a management representation on the Board?
Rick Leggett: Exactly.
Louis Silverman: I think, that your question is appropriately directed to the Board of Directors.
It�s difficult for Pat or I to comment on the plans that the Board may or may
not have on really any topic.
Rick Leggett: Are they accessible?
Louis Silverman: I believe, the answer to that is yes. It�s hard for me to speak for them. I
would suggest if you had an interest in speaking to a particular Board member
that you could certainly call the company and leave a message for them at the
switchboard. And, we would see to it that the message is forwarded directly
to the particular individuals in a prompt fashion.
Rick Leggett: Okay, well you�re doing a nice job. I just � I think, that�s very relevant.
Louis Silverman: Appreciate the question.
Pat Cline: Thank you.
Operator: There are no further questions at this time.
Louis Silverman: I would like to thank everybody for participating in today�s call. And, we will
see you next quarter.
Pat Cline: Thank you everyone.
Greg Flynn: Thanks.
Operator: This concludes today�s conference call. You may now disconnect.
END
