Operator: Good afternoon.
My name is (Jeff). And I will be your conference facilitator today. At this time, I would like to
welcome everyone to the Quality Systems Fourth Quarter and Fiscal Year-End 2002 Results 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 that time, simply press star, then the number 1 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.
Lou Silverman: Thanks, (Jeff). And thanks everyone on the line for joining today's call. Joining us today from the Company are Greg Flynn, Executive Vice President and General Manager of our QSI Division; Paul Holt, the Company's CFO; and Pat Cline, President of our NextGen Healthcare Information Systems Division.
Comments made on this call may include statements that are forward-looking within the meaning of the Securities laws, including statements related to anticipated industry trends, the Company's plans and strategies, and projected operating results. Actual results may differ materially from our expectations and projections. You should refer to our SEC Forms 10K and 10Q for discussions of the risk factors that could impact our actual performance.
For the fiscal fourth quarter, the Company had record revenues of $12 million, which was up 12% over the prior year. Earnings per share at 24 cents was also a record and represents a 26% increase over the same quarter prior year. EBITDA at $2.9 million was also a record for the Company.
For the fiscal year, the Company had record revenues of $44.4 million, which was up 11% over the prior year. Earnings per share at 84 cents was up 47% over the prior year. Fiscal year 2002 EBITDA was $9.9 million. As will be described in more detail a bit later in the call, our quarter and fiscal year results were driven by record revenue performance in both our NextGen Healthcare Information Systems and EDI units, and, as well, continued strong profit performance in the QSI Division.
Collections activity was also very strong during the quarter, as DSO's dropped slightly to 104 days, which means that we held and in fact improved on the progress we've made in this area during the past several quarters. Cash and cash equivalents and short-term investments increased to $25.7 million during the quarter. Annualized revenue per employee stood at $205K.
In addition to the continued strong financial performance that the Company had during the quarter, it was an equally strong quarter from a non-financial perspective. We recently announced via press release that our NextGen EPM and EMR products enjoyed a very successful TEPR Conference earlier this month with two firsts and a second place showing in the annual software competition.
As we have discussed in prior quarters leading up to this one, we have been working on our NextGen PDA product. And we're pleased to announce that we began shipment of that product late in the March quarter. Product rollouts also continued in our flagship EPM and EMR products, as well as products emanating from our dental project Sequoia initiative.
The Company has talked in prior calls about enhanced sales and marketing initiatives. And those are continuing to pay dividends all across the Company, particularly in our fastest growing NextGen and EDI units, but also at the QSI unit level, where we focused on client outreach and client retention initiatives.
Looking back over fiscal year 2002, we have every reason to be pleased with our overall results and we are. I want to take a quick moment to recognize the contributions of our entire staff whose hard work, vision and dedication makes our record results possible and lays the foundation for the strong future performance that we aspire to.
That concludes my opening remarks. And at this time, I'd like to turn things over to Paul Holt for additional comments on our financial statements.
Paul Holt: Thanks, Lou. And greetings to all of you who've joined us today. I'm going to discuss our fourth quarter results first. Then I'm going to comment on our year-end numbers.
It's exciting to be able to report strong results once again this quarter. I'm pleased to report strong growth in our systems sales revenues, which grew to $6.4 million this quarter, an increase of 15% compared to the prior year.
In terms of profitability, the Company's 12-1/2% net after-tax profit margin this quarter was equal to our prior quarter's record-setting margin. As Lou mentioned earlier, we are continuing to see improvements in our cash collections efforts, resulting in our DSO number improving to 104 days, compared to 106 days prior quarter and 114 days in the year-ago quarter.
QSI generated $2.3 million in cash from operations this quarter. At year-end, the Company had approximately $25.7 million or $4.21 per share in cash and cash equivalents. This compares to $18.7 million or $3.13 per share at the start of the year. At the end of the day, it's satisfying to be able to account for our earnings with actual cash, which our Company has proven its ability to achieve.
One of the drivers of our record-setting profitability has been the fact that total SG&A; expenses remain flat, while revenues have increased. Total SG&A; expense represented 29% of revenue in the March quarter, compared to 33% of revenue in the March quarter of last year.
A controlled approach to investments being made in the NextGen Division, combined with a lower provision for bad debt compared to the year ago quarter, has kept our overall SG&A; expenses in check. Our gross profit margins continue to stay within our historical range coming in at 57.6% for the March quarter.
The NextGen Division continues to win new customers and expand its customer base, while reporting its highest ever quarterly revenue of $7.7 million, an increase of 22% compared to the prior year, and record operating income of $1.5 million, an increase of 40% compared to the prior year operating income of $1.1 million.
As the NextGen Division continues to expand the size of its customer base, we are continuing to benefit from follow-on revenue in the form of maintenance and EDI. And we fully expect this trend to continue as we add customers each quarter. Total Maintenance and Other revenue in the NextGen Division surpassed $2.1 million this quarter, also a record.
EDI revenue in the NextGen Division was up more than 200% over prior year's quarter at $283,000.
QSI's Dental Division reported revenue of $4.3 million and operating income of $1.3 million. Operating income was up 29% compared to prior year as a result of QSI's lean cost structure.
Investment income declined 64% in the March quarter to $100,0000, compared to $274,000 in the year-ago quarter. This decline is attributable to the drop in short-term interest rates.
Now I'm going to move on to the fiscal year discussion. Fiscal year 2002 revenue, as Lou mentioned, was a record $44.4 million. Net income at $5.3 million -84 cents per share - , was 50% higher than fiscal year 2001. Gross margins in fiscal 2002 remained consistent with 2001, coming in at 56.7%.
Total SG&A; expense in fiscal 2002 declined by 4% to $13.1 million, compared to $13.6 million in fiscal year 2001. As a percentage of revenue, SG&A; expense declined to 29% of revenue compared to 34% in 2001. Again, the Company has taken a very controlled approach to its spending. It also has benefited from improved credit and collections activities resulting in lower bad debt expense.
Investment income in 2002 declined by 38% compared to 2001. As discussed earlier, we're being impacted in this area by short-term interest rates.
I'd like to thank everyone on this call for your interest in our company. I'm going to turn things over to Greg Flynn, Executive Vice President and General Manager of our QSI Division - dental division - who will provide an update in that area.
Greg Flynn: Thank you, Paul. Good day to you all. Revenues of the QSI Division were approximately $4.3 million for the quarter and approximately $17.2 million for the year. Our operating income for the quarter was approximately $1.3 million. This represents an increase of 29% quarter over quarter versus the prior year's quarter and 61% year over year. I believe our FY 02 earnings represents a record.
As Lou said, our overall EDI business grew 5% over the prior quarter and 19% over the prior year. In particular, EDI sales growth within the NextGen client base was in excess of 210%. We're proud of this growth and look to continue expanding revenues significantly in this area.
On the new product front, I am pleased to report the first two product developments from our Sequoia project have begun successful rollout to our client base. Through the quarter's end, 13 clients had purchased our new EUI screens. That's our new front-end screens for our product, which are Windows- like.
And 15 clients had purchased our reporting tool - Data Miner. We believe that this reflects acceptance of our efforts to continue to modernize our QSI software products. As you know, the dental consolidator market remains challenging. Our sales pipeline is virtually unchanged at $5.5 million.
I would like to take this opportunity to thank our loyal and dedicated employees for their contributions during the prior year and would like to particularly acknowledge our QSI Division employees for their many efforts toward this success.
We look forward to fiscal year 2003. Now I would like to turn the call over to Pat Cline, President of our NextGen Division. And Pat, again, congratulations on NextGen's quarter and year.
Pat Cline: Thank you, Greg. Hi, everyone. As you've heard, NextGen performed very well, both on a quarterly basis and a year-over-year basis. During the fourth quarter, we executed 16 agreements with new customers and 23 agreements in total. I'm pleased with NextGen's growth in new sales and also with the growth in recurring revenues that Paul had mentioned.
On the product front, we released NextGen EPM version 2.75 and NextGen EMR version 3.7 last quarter. Both of these were major new releases with dozens of software features added. NextGen PDA is being shipped, as we've previously reported. We've received orders for over 100 units to date.
The product is going over very well with those physicians who've started to use it. They're requesting more enhancements, of course, which is normal for a young product. But overall, we're very pleased with our progress on NextGen PDA.
With respect to our marketing efforts, last quarter we achieved success with our exhibit at the HIMSS Conference. And in the current quarter, as Lou mentioned, we had a very nice showing at the TEPR Conference, which is the most significant conference on electronic medical records. We took first place again in the awards competition in the two EMR categories that we entered, which were comprehensive ambulatory EMR and the best EMR for a specialty or department.
This year we also entered NextGen EPM into the competition for practice management systems and we won second place. And while there are hundreds of practice management systems on the market, we're not real pleased with second place and we're going to work harder to take first place next year.
In addition to these successful exhibits and successful industry conferences, we've also enjoyed many positive comments and results from our new advertising campaign and from our new Web site at www.nextgen.com.
We've seen a significant upturn also in the amount of trade press coverage that we're receiving. Within the last few months, NextGen's been covered or mentioned in numerous industry publications and articles, in publications like Health Data Management, Healthcare Informatics, Technology in Practice, and others.
We were also just featured in a study sponsored by the American Academy of Family Practice and by Microsoft, where we were ranked in first place relative to company strength and tied for first place relative to product features. That study looked at practice management systems and NextGen EPM.
Microsoft has also expressed a higher level of interest lately in NextGen and has recently commissioned a case study of one of our customers and the results they've achieved with our products. That study should be published very soon.
On the sales front, we stand today with a staff of 18, including sales reps and managers. And we anticipate making offers to two new salespeople within the next two weeks and we remain focused on the direction of increasing the sales force as we move forward.
Our pipeline remains at $26 million but we do anticipate an increase in the pipeline as leads from the conferences, HIMSS and TEPR, move through the sales cycle.
In closing, I'm going to say that I'm very proud to work with such an excellent team here at NextGen and I feel very good about our ability as a team to continue with our positive results. At this point, I think we're ready for questions.
Operator: At this time, I would like to remind everyone - in order to ask a question, please press star, then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A; roster.
Your first question comes from (Mike Crawford) with B. Riley and Company.
(Mike Crawford): Lou, good morning. I noticed that gross margin went up. Now, when NextGen's - if NextGen continues to go at a faster rate than QSI, what do you expect - the gross margin to decline or stay where it is?
Lou Silverman: We've historically lived in a relatively narrow band, Mike. I would say the easiest forecast is that we'll continue to be in the band that we've lived in. Our gross margin each quarter is impacted by how much hardware we sell in a given quarter, the mix of EDI business versus total revenues, et cetera, et cetera.
And so we're not forecasting any significant changes in our gross margin going forward, other than to say we'd expect to be somewhere in our historical band out over time.
(Mike Crawford): Okay, and then maybe, Pat, could you talk a little bit about how - first of all, if Logician has changed at all, now that GE owns the assets, and also how NextGen compares and contrasts with other systems like AutoChart from Misys or Epicare?
Pat Cline: First, we consider all those companies competitors, though we think that competition remains weak, product-wise. And in many cases with the smaller competitors, not the ones you mentioned, but the low-end competitors, companies remain financially weak as well.
Epic has a good product. AutoChart's a good product. Logician's a good product. But they just don't measure up to the products that we have. We still feel very strong that we're out ahead. We compete with Epic at the high end. We don't compete often with either the Logician product or the Misys product. The Misys product, AutoChart, is sold solely to Misys customers. As you know, the practice management market is fragmented. Even though Misys has a nice customer base, it's still a small subset of the market. So, limiting their sales solely to their own customers, I think, is why we don't see them very much.
With respect to the first part of your question and that is - have things changed with MedicaLogic, now that GE has picked them up? I would say - no. They continue to compete with us on deals from time to time. We're not seeing them any more often than we did previously. I believe most of the management team and a lot of the employees made the transition over to GE. We feel strongly that we'll be able to continue to compete very successfully against them.
(Mike Crawford): Okay, and one final question - how does Microsoft fit into this space?
Pat Cline: Microsoft has a healthcare group and they've been increasingly interested in the healthcare space. You can go to the Microsoft Web site and see a lot of their efforts including their marketing and case studies and those types of things. This is, by the way, an area that we're doing a much better job in. This is, in turn, getting Microsoft's attention to the kind of numbers that we're doing with respect to their database technology and their operating systems and Microsoft Exchange. They're really starting to take notice of our company and have expressed interest in doing some joint marketing, and as I mentioned, case studies and those types of things.
(Mike Crawford): Great, thank you very much.
Operator: Your next question comes from (Iona Yomen) with Sedoti.
(Iona Yomen): Hi, congratulations on the good quarter. My question is - you guys have been building up cash relatively quickly. Can you give an idea as to some possible uses of it in the near term?
Lou Silverman: We can give you many ideas on possible uses for it in the near term. And this has been discussed, (Iona), on a number of our prior calls. I'd say the management team continues to work with our Board to put forth our ideas for what ought to be done with the cash. I think the Board continues to consider those options and perhaps others. And that's basically where we are.
We certainly think that having cash is an asset. It's nothing to be ashamed of. We also recognize that there are a lot of things that we could do with the cash. And as I inferred, we are working with our Board to continue to put forth our ideas for things that we could do, be it acquisitions or things of that nature. And the discussions are ongoing.
(Iona Yomen): Thanks, Lou. One more question - in terms of the PDA, you spoke about it being a way to extend client interest. Has the PDA helped you get specific contracts this past quarter?
Pat Cline: Yes, it has extended client interest. It's very difficult for me to quantify for you whether we were able to sign a particular contract based on the strength of our PDA. I would tell you that it has not hurt us at all. In fact, it has helped us. A lot of clients, both existing and prospective clients, are excited by the product. I would say that we think it helps contribute to our success.
(Iona Yomen): Thanks very much.
Pat Cline: Sure.
Operator: Your next question comes from (Andrew Shapiro) with Lawndale Capital Management.
(Andrew Shapiro): Hi, good morning. I have a few questions. I'll back out of the queue and re-enter it, because I'll come back. We have a bunch of them here. The first one - on the corporate side, I've noticed over the last several quarters now that R&D; as a percent of revenues has dropped down into the 9% - 9-1/2% range, where historically it had been up into the 10% range.
Is this a meaningful switch in the maturation of your R&D; efforts in products? Or is it a result of economies of scale or it's just in the interim and R&D; expenditures will go back up to the previous levels of sales?
Lou Silverman: (Andy), I'll take that one. No, it does not reflect a change in the strategy at all. What you're seeing is the fact that our revenues are ramping up at a faster rate than what we're spending on R&D.; What you also see is that some of our R&D; efforts result in additions to capitalized software. So I wouldn't take that to mean that we're reducing any of our efforts in the future development of the products.
(Andrew Shapiro): Are you capitalizing at a more aggressive rate than before? I don't think so.
Paul Holt: No.
(Andrew Shapiro): Okay, so then it's just a function of your revenue growth and gaining scale?
Paul Holt: I would probably attribute it to that, yes.
(Andrew Shapiro): So if that is the case, then going forward, do you expect the pace of your R&D; expenditures to either keep pace with revenues or grow at a slower pace? Thus, there'll be additional margin enhancement coming from - gaining scale? Or will your R&D; expenditures expect to kick up and go back up to the 10% of revenue level?
Lou Silverman: On a going-forward basis, and without trying to provide specific guidance, I think it's fair to say that our R&D; expenditures should not drop on a hard dollar basis. And they may, in fact, go up. And where that leaves us on a percentage of revenue basis is really a function of revenue figures that are as yet unknown.
But in terms of our commitment to R&D; and our outlook, we have no interest and no plan and no intention to reduce our commitment to R&D; and new product development. And in fact, we'll have and we'll continue to look for opportunities to increase our commitment there with an eye toward also continuing to focus very specifically on projects that we think have the highest payback.
(Andrew Shapiro): I'm trying to get at - in multiple quarters now - I know that in any given quarter, revenues aren't predictable as it is. But in multiple quarters now, we - I'm wondering if you folks believe internally - is that we've gotten a company now to a scale whereby, while increasing your R&D; expenditures, we can start looking for and seeing the R&D; as a percent of sales in the 9's, where historically we had been seeing it in the 10's or higher, because the size of the company was so small.
Lou Silverman: Again, I think the way we'd like to look at R&D; is on a hard dollar basis. And we've been between $1 million and a $1.1 million over the last many quarters. I've got five quarters in front of me. And it probably goes back further than that.
And again, I think that in terms of hard dollars, I don't see us decreasing. I don't see the dollar figure going below that at all. And certainly if we have opportunities to increase that, we'll look at those real hard. So�
(Andrew Shapiro): But if they're growing at a slower pace than the growth of sales, then we can become accustomed to or accept that you're in the 9% range or maybe lower down the road, but in the 9% of sales range, even though it is an increasing number on an absolute basis.
Lou Silverman: I understand the math. But all I'm saying is that our dollar commitment's going to stay at or above where it is or move up. And where that leaves us on a percentage basis is what we'll be able to look at it in retrospect. But it's hard to project.
(Andrew Shapiro): Okay. Next - EDI - I think you gave us NextGen's EDI was at around 280,000. But I don't think QSI EDI or total EDI came out. Or if it did, I missed it.
Paul Holt: (Andy), the QSI EDI number's $1,352k . NextGen was $283k.
(Andrew Shapiro): Okay, that'll give us the aggregate. Thank you. And sales reps on the dental side - that's working on the pipeline of $5-1/2 million. Is it still 5 or is it up or down?
Greg Flynn: It's five.
(Andrew Shapiro): Five - and Pat gave us the numbers there on the medical side. On the new NextGen site, there is a page and there's discussion of what you guys represent or talk as NextGen Consulting. Has this developed into anything meaningful?
And of the NextGen revenues that come through, are they of a recurring nature? Or are they a one-shot system, like sales kind of items when you do book some?
Pat Cline: They're more the one-shot deals, though revenues from consulting, which includes report development, product recommendations, custom interfaces, data conversions, and those kinds of things, remains fairly steady, and in fact, there's a slight increase over time.
The total revenue from our consulting services is probably between $400,000 and $500,000 a year but it's an area within the Company that we want to focus on, and hopefully move it more toward something that's a little bit more visible with respect to revenue and the bottom line.
(Andrew Shapiro): Right, also on the NextGen site, you have a very nice listing or page of events where you'll be presenting. And it looks like the next one is at the ASCRS. And then you have several additional shows. Is this show schedule that's up there increased from last year's show schedule?
Pat Cline: No, it's about the same, Andy.
(Andrew Shapiro): Okay, and of the upcoming shows, after you had HIMSS and TEPR, of the ones that are left on the event schedule for the year, which ones are the more meaningful ones in opportunities for the Company?
Pat Cline: Well, the one that you mentioned, the ASCRS show is one that we're paying a lot of attention to. It is in one of our target specialty markets, which is ophthalmology. And that show tends to attract�
(Andrew Shapiro): It's on your home turf, too
Pat Cline: the more lucrative practices within that specialty so that's one we're paying a lot of attention to. Then things sort of quiet down over the summer relative to shows and pick up again in the fall.
(Andrew Shapiro): Okay. Thanks. Please come back to us. We'll have some more questions. But we'll get out of the queue here.
Operator: Your next question comes from (Gene Mannheimer) with Roth Capital.
(Gene Mannheimer): Great quarter, guys. I wanted to ask about maintenance revenue. It appears essentially flat from previous quarter. And I would expect that it would have gone up a bit more proportionately with revenues. Were there any customers who discontinued support in the quarter?
Paul Holt: Gene, that maintenance number you're looking at includes maintenance and other. So I wouldn't attribute any decline in maintenance revenues. Actually to the contrary, we had some nice growth. There are other types of revenues that go into that total figure.
(Gene Mannheimer): Okay. Thank you. And secondly, the CPOE interface that you're piloting at a hospital in Pennsylvania - can you discuss the status of that and what your timeframe might be for general release of that?
Pat Cline: Sure, the status is - things are going very well. We're continuing to look at the market and make internal decisions, relative to the amount of resources, both development resources and marketing resources that we should employ near term and long term. We've got a couple of potential customers expressing interest in it. And we do hope to make another couple of sales prior to any marketing launch or any real product launch.
The system that is in place in pilot form, while it is doing very well, is a highly customized system. And we need to move it to a more flexible, commercially viable product and add features and these types of things. So I'll try to get to the bottom line of your question. I wouldn't look for any major launch in that area over the next couple of quarters.
(Gene Mannheimer): Okay, thank you very much.
Operator: Your next question comes from (Sheila Cunningham) with Compass Group.
(Sheila Cunningham): Hi. Pat, the 16 agreements with new customers in the quarter - what was kind of the average selling price there? And how does that number compare with, say, last quarter and what your targets might be for the next quarter or two?
Pat Cline: I don't have a calculator in front of me to get to the average selling price. But I may lean on our CFO, who's sitting 3000 miles away from me, but I'm going to guess has one of those devices handy - to maybe give you the average selling price.
But with respect to the trend, (the number of new agreements is) down relative to the last couple of quarters but I don't see it as a trend. We had a couple of salespeople focusing on larger deals that they felt they had a good opportunity to close. And as luck would have it, they turned out to be right. And I think you'll see us continue to play - in the near term in that historical average, somewhere between the high teens and low to mid 20's, with respect to the number of new customer contracts.
(Sheila Cunningham): Okay, were there any surprises in that group. Maybe I'm just feeding into what you talk about - these larger deals - surprises or sort of different - the group - different composition from prior quarters?
Pat Cline: No, not really. Traditionally, we've had a number of relatively large deals in our pipeline. That remains the case today. And we were able to successfully bring a couple of those home. I would say - no surprises.
(Sheila Cunningham): Okay.
Paul Holt: In answer to your question about average deal size, typically our average deal sizes range anywhere around $200,000 per contract. And as you would expect, Pat quoted us a lower number of deals. So, as expected, the average deal size this past quarter was larger. I don't have that exact number in front of me. But I can�
(Sheila Cunningham): Well, that's good enough. That's good enough. I just - I got what I need. Thank you.
Operator: Next you have a follow-up question from (Andrew Shapiro).
(Andrew Shapiro): Yes, Pat, when you won TEPR last year, there's an adoption cycle that takes place and the notice by the physicians that take place. And I think you shared before that it had an impact in terms of adoption and follow-through. Do you feel winning it two years in a row as Best of Show carries with it any greater weight or speed on adoption cycle?
Were the visitors to the show in your booth people who were closer to making purchases than they might have been from last year's show, when people come to the booth? Is the industry and your target customers - are they maturing towards all of this?
Pat Cline: I would say very subjectively, the answer to your question would be - yes. We haven't, however, had a chance to go back and look at what we think is very good data that will give us something more objective.
For example, we had most of the people that came to our booth fill out a survey that had questions like - are they interested in buying an EMR within the next zero to three months or three to six months or these types of things. At the larger shows, we do giveaways of fairly large prizes. And to enter, we have these forms filled out. We haven't yet had a chance to analyze that data.
Just listening to the prospects on the floor, I would say the quality of lead that we got this year is better. And whether that has a lot to do with the awards or whether it's a market trend in general, I can't tell you. But either way, it's positive news.
On winning the award for the second year, and what impact that might have, I'll tell you that we don't feel we did a very good job last year of promoting the fact that we won the award, what the award was about, and what the process was about. You didn't find a lot about the awards on our Web site and in our marketing. This year we're committed to doing a much better job of that. So, we're hoping to see better results this year, though last year, the results were very positive.
Lou Silverman: (Andy), this is Lou. I would also mention that we've begun to see some industry-based surveys that have confirmed some of the theses in back of your question, which is that EMR purchases and the like are becoming increasingly important in the minds of prospective purchasers.
That doesn't absolutely, as you know, translate to writing checks in the next quarter. But when asked what the most important things were that various decision makers at large practices and the like were working with in terms of business issues, electronic medical records and the kinds of things that we do were at or near the very top of their priority list. We hope that that translates to an accelerated purchase path and accelerated adoption plans.
But, there's no bad news there. Everybody seems to be thinking increasingly about the kinds of things that we have been and continue to work on.
(Andrew Shapiro): Okay, another question is - in the - since we last were grouped here for a conference call, it's been awhile, because it's fiscal year end. And the Company's got a few new analysts that are now - picked up coverage of the Company. Yet we still suffer from a multiple far less than the rest of the industry, yet the financials are seeing better.
What is - what's next on your agenda? Where are your - I guess, what cities are you going to visit with respect to doing investor road shows and the like?
Lou Silverman: We've got a fairly full schedule set up for the next couple of months. I've got a couple of West Coast trips planned, one in the early part of June to northern California, followed up with a couple of day trips through the Los Angeles and San Diego markets. I don't recall the specific dates.
In the early to middle part of June, I'll be making a trip to the East Coast. This June trip will have me in Boston and New York for a few days. Right now that's what is scheduled. The appointments are being scheduled as we speak. And so far, interest has been high. .
(Andrew Shapiro): Right, okay, I'll back out in the queue again. Thanks.
Operator: Next, you have a follow-up question from (Sheila Cunningham).
(Sheila Cunningham): Hi, a couple of sales questions - you said that you're about to make offers to two new salespeople.
Pat Cline: Yes.
(Sheila Cunningham): Is that right? And then what happens after that? Or do you have some more sales slots that you'd like to fill?
Pat Cline: Yes, we have four or five additional slots that we would like to fill over the next three or so quarters. That will completely depend upon our ability to recruit what we feel are top people. But that's the overall goal.
(Sheila Cunningham): That's four or five on top of the two?
Pat Cline: Yes.
(Sheila Cunningham): Great, and these are all quota carrying?
Pat Cline: Yes.
(Sheila Cunningham): Okay, another quickie - I'm not familiar with the Philadelphia conference. What are your goals for that? What makes you come away from the conference feeling like this has been a winner? Is it more the leads? Or is there something else different than say TEPR?
Pat Cline: I would say the primary answer is - leads. But there are a number of additional wins to take away from a show like this. One is potential sales, where prospects that have been in the sales pipeline happen to be in the show and may make a purchase decision on the spot. That happens with these physician specialty conferences fairly often.
Another win is - we as a company get to receive all kinds of good feedback from the market and from prospects on what they'd like to see in products and where they're going to be spending and these types of things. It's very important for us to keep our fingers on the pulse of the market. That's another thing that we look to get out of this show and many shows like this, where we're talking directly to physicians.
(Sheila Cunningham): Okay. And then I have a question about the PDA's. You said there were like 100 sold.
Pat Cline: Yes.
(Sheila Cunningham): How broad spread was that? Was that just a couple of practices? Or how were those kind of distributed?
Paul Holt: I don't know the exact answer. But I'm going to say it was probably between seven and ten customers. I think that would be a reasonable guess.
(Sheila Cunningham): Okay.
Pat Cline: Now, we haven't yet really started to promote this product hard. We're in the early stages. While it has gone into general release, we are still making what we think are significant enhancements to the product, based on early feedback. The product's been met with very positive feedback from the early users. We want to release it in the proper fashion, and get a couple of these important enhancements done before we really start pushing hard promoting the product.
You also may know that our strategy includes initially selling the product just to our own customer base and not selling it on a stand-alone basis, and later moving to a place where we can feel comfortable selling the product on a stand-alone basis - comfortable with respect to the product and comfortable with respect to the business model.
(Sheila Cunningham): And what is later is that like next year or late this year or
Pat Cline: I would say I would like to see it happen this year.
(Sheila Cunningham): Okay. So I don't know how to think about the 100 PDA's. Is that a lot or a little? Did you want to get 1000 out this year? I need a little perspective upon�
Pat Cline: We'd like to get 1000 out this year. We do have a promotion going to try to achieve that. I think it's a very aggressive goal but I would like to get there.
(Sheila Cunningham): And how much are they?
Pat Cline: We're actually experimenting with different pricing models. We put one pricing model out that includes the free license up front and a higher per physician per month fee. And we've also sold it on larger up-front license fee and a very low maintenance fee. I would say the pricing, while it's nailed down for our sales force at this point, is something that we're still playing with.
(Sheila Cunningham): Got you - and these 100 PDA's - the people who hold them are, I gather, in regular conversation with you guys giving you that feedback.
Pat Cline: Yes.
(Sheila Cunningham): Okay. Thanks.
Operator: Next, you have a follow up question from (Gene Mannheimer).
(Gene Mannheimer): Thank you. In a typical sales situation, if you were narrowed down to say two or three finalists in an EMR sale, whether it be against Epic or Misys or other, do you track your win-loss ratio in those cases? And what is that?
Pat Cline: I would say when we're narrowed down to two or three, we win more than we lose. We track it but I don't have the statistic in front of me.
Very often still in this young market, a customer will narrow the field to two or three and then not make a decision or make a decision to wait six months or wait a year or have trouble with funding, because perhaps budgets are reallocated. We went through that during the Y2K phase and we're going through it to an extent relative to HIPAA. People are trying to get ready for the pending transaction set mandates and rule sets that go into effect this October, so we're seeing some budgets being directed toward shoring things up within the billing systems to meet the HIPAA regs.
(Gene Mannheimer): Okay, great, so do you feel that as the HIPAA regulations become more defined and imminent, that the no-action decision would be less frequent and that that decision will be made one way or the other?
Pat Cline: As time goes on and the marketplace matures, certainly. I'm not sure about the HIPAA effect. I think that as budgets from the transaction-related HIPAA expenditures are able to be redirected, those people that have spending in EMR at the forefront of their minds actually move forward to a decision.
(Gene Mannheimer): Thanks very much.
Pat Cline: Sure.
Operator: Next, you have a follow up question from (Andrew Shapiro).
(Andrew Shapiro): Hi, I don't think this was in your script. And we need to get the numbers to follow it. Is your depreciation and amortization for the quarter and the year, as well as the cap ex and the capitalized software for the quarter and the year?
Paul Holt: I've got some quarterly figures here.
(Andrew Shapiro): Okay.
Paul Holt: We had for the quarter, $209,000 in depreciation and $320,000 in amortization of intangibles. The depreciation figure breaks down to $156,000 for NextGen and $53,000 for dental, $235,000 in amortization for NextGen, and $85,000 for dental.
And in terms of investments, we've got $223,000 in investments in fixed assets for NextGen. In capitalized software, we've got $88,000 for the Dental division and $333,000 for NextGen.
(Andrew Shapiro): Three hundred thirty-three.
Paul Holt: Yes.
(Andrew Shapiro): Okay, so it looks like then, trailing year or year-end EBITDA is almost 10 million.
Lou Silverman: It's $9,948 k.
(Andrew Shapiro): Nine nine four eight. And the end of year total assets was what again here - was 53 - 52.9 million, and 26 million of that's cash.
Paul Holt: That's correct.
(Andrew Shapiro): Okay, so the non-cash assets generated that EBITDA of almost 10 million. Okay. The amount of the deferred service revenues that are in receivables, because deferred services revenue's a liability. And a portion of that amount is in your receivable balances. About what portion is that for this quarter? Is it around the same 60% of deferred service revenue that was in receivables last quarter?
Paul Holt: Yes, I'll say that. And also I'll mention that in our 10K, which is coming up, we will have that as a footnote disclosure item.
(Andrew Shapiro): A breakout, oh, excellent.
Paul Holt: Yes.
(Andrew Shapiro): Okay. And the DSO's for the respective businesses - is that something you have available to - I know that medical is a lot higher than dental. But I was just trying to kind of track and see if there's any trend going on there.
Paul Holt: Yes. , The DSO number for the NextGen division was 122 days. And I'll have to get back to you on the dental division days.
(Andrew Shapiro): Yeah, but the medical division DSO number's down quite a bit. And is that a function of sales mix, collection process, anything in particular you attributed that to?
Paul Holt: It's a number of things. I'd say a lot of basic blocking and tackling in terms of credit and collections activities, as well as putting a little bit more of an emphasis on collections activities company-wide, and thinking more about payment terms on new deals. We've added some resources a few quarters ago in credit collections. And we're seeing the dividends.
(Andrew Shapiro): Is the bulk of the deferred service revenue tied to medical or NextGen or dental - in particular, the bulk of the service revenue that is in receivables tied to one of the divisions versus the other?
Paul Holt: I'd say more that it would be tied to the NextGen Division, because the NextGen Division has around 2/3 of the deferred service revenue.
(Andrew Shapiro): Okay, great, thank you.
Operator: Next, you have a follow up question from (Mike Crawford).
(Mike Crawford): Lou, with the - I calculated your return on non-cash assets at 34% for the quarter, which is outstanding. But if you look at the return on your cash, that's like 1.6%. So when is the Board - the Board's been kicking this around for a couple years and not doing anything. I don't think you've bought any stock back in a long time. When do you think a decision is going to be made on this issue?
Lou Silverman: Just to take your question in a couple of parts - you're correct. One number that has not been discussed as yet - we did not repurchase any stock in the most recent quarter.
And in terms of predicting what the future outcome is going to be in terms of a strategy for using the cash, it's very hard for me to project and probably inappropriate for me to project. I can tell you that at the last Board meeting we had, which was a couple of days ago - it felt like the topic at least was picking up a little momentum. That's not to say that we got particularly closer to a conclusion on what exactly we were going to do.
But it is my sense that the topic has gotten increased attention at the Board level this past meeting. And hopefully that will continue through in the next couple of Board meetings.
I would add that if you project out our future Board meeting schedule, we have another Board meeting scheduled for late July, relative to the end of our June quarter. And then sometime in the late August early September period, we have our annual shareholder meeting. So there's at least the opportunity for the Board to sustain some momentum on discussions of what to do with the cash on a go-forward basis.
I think it's difficult for me to speak for the Board or provide any kind of a timetable that says, "Gee, on this particular date certain, we're going to be able to announce to the world what we're going to do with our cash." I hope we can do that. But I don't know that we're going to get there.
(Mike Crawford): Thanks, Lou.
Lou Silverman: Okay.
Operator: At this time, there are no further questions.
Lou Silverman: This is Lou. I'd like to thank everybody on the call for their interest and participation. If you have questions down the road, feel free to call us at any time. We'll look forward to catching up with you with the results for our June quarter sometime toward the latter part of July. Thanks again.
Operator: Thank you for joining today's Quality Systems Fourth Quarter and Fiscal Year-End 2002 Results Conference Call. You may now disconnect.
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