Louis Silverman - President and CEO Paul Holt - CFO Greg Flynn - EVP and General Manager, QSI Division Pat Cline - President, NextGen Healthcare Information Services

Richard Close Sandy Traper Lynn Graft Brendan Nathan Mike Turney Richard Adams Eugene Mannheimer George Hill Vald Avatamina Ashley Bernard Vella Rosha Vincent Lowes

Good afternoon. My name is Gerona and I will be your conference operator today. At this time, I would like to welcome everyone to the Quality Systems Second Quarter Fiscal Year 2007 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. Mr. Silverman, you may begin your conference.

Thank you, Gerona and welcome, everyone to Quality Systems fiscal 2007 second quarter conference call. Paul Holt, our CFO; Greg Flynn, our Executive Vice President and General Manager of the QSI division, and Pat Cline, President of our NextGen Healthcare Information Services Division once again joined me on this afternoons call. Please note that the comments made on this call may include statements that are forward-looking within the meaning of the Securities Laws including, without, limitation, statement related to anticipated industry trends. The company's plans, product and strategies , projected operating results, capital and equity initiative, pending litigation and the implementation of core potential impact of those legal, regulatory and accounting requirement. Actual events or results made differ materially from our expectations and projections, and you should refer to our prior SEC filings including our Form 8-K, 10-K and 10-Q for discussion of the risk factors, management discussion and analysis and other information that could impact our actual performance. We undertake no obligation to update any projections or forward-looking statements in the future. Also as I have mentioned on each and every calls for the past many quarters, please continue to know that the company's past performance is not necessarily indicative of future performance. I'll now provide some summary comments on the quarter. Paul, Greg and Pat will follow with additional details. For the September quarter, company revenue totaled 37.5 million up approximately 27% over the prior year. Fully diluted earning per share at $0.30 was up 43% over the $0.21 earned in the same quarter of the prior year. The $0.30 reported for the quarter is inclusive of an approximate $0.02 per share expense tied to the adoption of FAS 123R which is the accounting pronouncement related to accounting for stock options. NextGen Healthcare’s revenues for the quarter of $32.5 million, represents the 31% year-over-year increase. The NextGen Division’s operating income of 14.1 million represents a 43% increase over prior year. The QSI Division’s revenue and operating income performance was essentially even with the prior year's performance. Corporate expenses were up 6% year-over-year to $2.3 million. Please again note, that the current quarter figure include FAS 123R expense and prior year figures do not include such expenses. EDI revenues for the quarter came in at $4.1 million, up 28% over the prior year. I'll once again remind listeners that EDI revenue is reported as part of divisional revenue totals each quarter for each division. Cash and cash equivalent was $74.7 million at quarter end, up from $67 million in the prior quarter. Headcount at quarter-end was 582. Regarding investor conferences during the quarter, the company presented at the Thomas Weisel conference, the Bear Stearns conference and the UBS conference in the next couples of months, we have presently scheduled to present at the Credit Suisse, JMP, and Piper conferences. In closing my prepared comments for this afternoon’s call, I want to once again clearly point out, as I have over the past many quarters, that there are no guarantees that the company or either of its divisions will meet or exceed their current level of performance in future periods. It’s possible that this quarter’s performance will cause investors or analysts to set new short, medium, or long-term expectations for the company. In response to this possibility, please continue to note that we don’t give out financial guidance to the investment community and we don’t comment on guidance advanced by members of the financial community. Once again, my sincere thanks go out to Pat, Paul, and Greg for their leadership and to all team members for the dedicated service. I will now turn things over to Paul Holt.

Thanks, Lou and hello everybody. Consolidated revenue increased to 37.5 million this quarter, an increase of 27% compared to $29.5 million that we recorded a year ago. Consolidated system sales rose to $19.6 million this quarter, an increase of 17% compared to $16.7 million in the prior year quarter. Maintenance, EDI, and other services revenue rose 39% to $17.9 million compared to $12.9 million in the prior year quarter. I would add that revenue generated from existing customers increased significantly this quarter versus the prior year quarter. Our consolidated gross profit margin this quarter came in at 68.4%, up from 67.5% a year ago. The increase in our gross margin of last year is primary due relatively lower amount of hardware and third party software as a percentage of revenue compared to last year. Total SG&A expense increased by approximately $1.1 million to $10 million in the second quarter compared to $8.9 million a year ago. The increase in SG&A was primarily from the NextGen Division and consisted of increases in the selling and related expenses. SG&A expense as a percentage of revenue decreased to 26.7% compared with 30.2% in the prior year quarter. The company's effective tax rate this quarter was slightly higher compared to the year ago quarter at 39.8% compared with 39% last year. The reason for the increase was primarily due to couple of factors, the expiration of the R&D tax credit statute this year, as well as the addition of certain non-deductible stock option expenses related to the company's adoption of FASB 123R. And before I move onto divisional performance, I would also note that second quarter results included approximately 913,000 in pre-tax expenses relating to stock options, the after-tax impact of stock option expensing for the quarter was 612,000 or $0.02 per diluted share. Note that the prior year quarter does not include expensing of stock options under FASB 123R. In terms of divisional performance, our system sales of NextGen Division rose 17% to 18.9 million this quarter, compared to 16.1 million a year ago, and again continued growth NextGen's base of installed users drove maintenance, EDI, and other revenue in that division 55% higher compared to last year and $14.6 million versus $9.4 million last year. Operating income in the NextGen division it was up 43% to $14,055,000 compared to $9,853,000 a year ago. Our QSI division reported a slight decrease in reported revenue of at $3,972,000 compared to $4,018,000 in the prior year. Operating income for the QSI division was $1,245,000. Moving on to our balance sheet, our cash increased by approximately $7.7 million this quarter to $74.7 million or $2.77 per share. That compares to 67 million or $2.50 at the end of the prior quarter. This quarter our DSOs were at 135 days versus 126 days in the prior year. DSOs net of unpaid deferred revenue was 81 days versus 71 days a year ago. One of the factors impacting DSOs this quarter is a customer concentration and account receivable which will be disclosed in our upcoming September quarter 10-Q filing. Siemens represented 13% of our gross accounts receivable as of September 30, 2006. Siemens did not constitute more than 10% of our revenue, however, due to required revenue deferrals. DSOs by division were 84 days for the QSI division and 141 days for the NextGen division. Deferred maintenance and services revenue stood at $39.4 million as of September 30, that’s up from 2.6 million in the prior quarter and up 3.5 million compared to the start of the fiscal year. Again, the primary drivers of the growth in deferred revenue has been our deferred implementation, training as well as maintenance services in the NextGen division. And like I always do, I’m going to give out our non-cash expenses for the quarter, which breakdown as follows. Total amortization expense $772,000; $36,000 for QSI, $736,000 for NextGen. Depreciation expense $440,000; $57,000 for QSI, $383,000 for NextGen, non-cash stock option expense $913,000, and capitalized software $1,130,000, that's $49,000 for QSI and $1,081,000 for NextGen. And finally, our investments in the fixed assets, we are at 679,000 for the quarter, that's 32,000 for QSI and 647,000 for NextGen. I'd like to thank you all again for being on this call and your interest in our company. And I'll turn things over to Greg Flynn, who will provide an update on the QSI Division.

Thank you, Paul, and thanks to those of you on the call for joining us. The QSI division and EDI numbers have been addressed in detail by Lou and Paul, so I’d like to touch briefly first on key software development achievements for the division and then other historical areas of interest for these calls. I’m proud of our team for their software development and implementation efforts for the quarter. In particular, we added a number of development to our Clinical Product Suite offering, which is the dental electronic record equivalent of EMR. These developments were focused on five areas. One; taking advantage of new enabling technologies that dramatically improve image resolution to X-rays, to charting and the like. Two, improving the products ability to concurrently display multiple-chart record elements. Three; continuing to increase the number of practice management features available to practitioners in the ambulatory. Four; streamlining the input, decision-making flow for staff, hoping to ensure rapid and consistent office processes. And five; maintaining the unique scalability features of our CPS, so necessary within our large multi-office environments. I think that CPS saw a good developmental progression this quarter. Now following the line of historical questions or comment on our sales, staffing and pipeline. Our sales staffing remains unchanged from last quarter and our pipeline is approximately $3.5 million. Our pipeline is to find a sale situations or QSI's in the final three-purchase choices and we believe that the sale will occur within 180 days. With this report, I'll turn the call over to Pat Cline, as you know, President of our NextGen Division. And thanks again for your interest in our company.

Thanks, Greg. Hi, everyone. In the second quarter, NextGen executed approximately 50 customer agreements. Well, this number is a little bit lower than the last couple of quarters based on activity and orders already signed in the current quarter, we expect the number to improve again significantly. We are also very pleased with our overall sales performance as Paul mentioned, license orders from existing customers were up representing evidence that our systems are delivering positive results. This further validation and we recently congratulated yet another NextGen customer, Cardiology of Tulsa for winning the prestigious Davies Award for the real results they have achieved with their NextGen systems. Also about a week ago a different NextGen customer, Dr. Hal Teitelbaum won MGMA's Physician Executive of the Year Award. Dr. Teitelbaum has grown Crystal Run Healthcare in New York, over 600% to about 150 providers in the last five years, which is approximately the same amount of time they have been live using NextGen solutions. Our sales force grew slight over the last quarter to 52 people and our pipeline remains steady at about 65 million. As I mentioned on the last call, the market for our products remains very strong. NextGen continues to win key sales in the marketplace and we feel that we are very well positioned to continue to do so. We are looking forward to our Annual Users meeting this quarter, where we will present new industry leading software capabilities and service offerings to more than 2,000 people attending that meeting. Stopping short of giving guidance, I will say that we feel very good about the current quarter and about the company's future in general. And in closing, I’d like to once again thank NextGen's employees for their hard work and our customers for their continued confidence. Gerona, we are ready for questions.

(Operator Instructions). Your first question comes from Richard Close.

Yes. Congratulations on a great quarter. Pat, I was wondering if you could talk a little bit more about the agreements, I guess, 15 new agreements and just remind us what that compared to last year and why you think that was lower than, I guess, previous quarters?

Yeah. The new agreements of 50, I think compared with -- I don’t have it in front of me, but I think I recall about 70 last quarter. I am not sure what it was the prior year. As you may know, there is some seasonality to things. In the summer quarter, lead slowdown a little bit. There aren’t as many trade shows primarily the summer slowdown, is vacations, vacations on the part of customers and selection committees and in fact our sales people and that kind of thing too. We typically try to make up for that in various ways as other companies in our business do. So a little bit of it is seasonal. Though, I wouldn’t say that’s 100% of it. In about half of the year, the fiscal year, is going back many years, the summer quarter, the number of sales is actually a little bit down. I think the real question is how's NextGen doing in the marketplace? Is the number of new customers sold in one quarter significant or representing a trend in not like, as I've said, I think based on what we've already seen in the current quarter that is deal signed and additional activity that number will improve in the current quarter.

Okay and then, I guess a general question with respect to Siemens. Obviously, they've had a couple of pretty decent announcements, I guess with your NextGen product, although, you guys didn’t put out a formal press release. I was wondering if you can comment at all on that in terms of when we see announcements like that. How long is the implementation periods maybe with respect to the couple of announcements out there? Is it one to three year process or --

I won't go into a deal-by-deal situation, but maybe I can give you a little bit of texture.

That would be helpful.

Very often, when a very large contract is signed it is a multi-year rollout and it's extremely we hear that a company can take all the revenue and was often a multi-million dollar deal and recognizes all upfront is a lot to do over an extended period of time. So, again without getting into individual deals or revenue recognition on particular deals or those kinds of things, they work significant deals. I think they are going to pave the road for additional business downstream, and I think that’s great for the company and its shareholders.

Okay and does that -- those type of contracts when they are signed, do they come out of your pipeline, and then you've refilled your pipeline obviously it's standing flat at 65 million?

That’s correct.

Okay. So, those deals, could you comment whether those deals were in the pipeline previously --

I don’t want to do it on a deal-by-deal basis, but you have it right. I think and that is if for example, I have $2 million deal in my pipeline a few months ago, and that $2 million deal happens to sign a contract, even if we don’t recognize all that revenue, that entire deal comes out of the pipeline and we constantly back filling with new leads and new prospects.

Okay. Thank you very much, congratulations.

Thank you.

Thanks. One follow up to Richard's question and then a broader industry question. Pat would it be fair to say that -- obviously you delivered a good revenue number even though the new customer deals were down. You did comment that the -- and you got more add-on sales, but would -- do you also see any increase in deal size or really did the new add-on sales to existing customers make up for the slightly lower number of deals?

Though, I haven’t done an average deal size calculation because there are so many moving parts in that calculation and frankly, what you call a new customer versus an existing customer, especially when you have reseller relationships and multiple people splitting-off from practices and joining and merging and things become kind of difficult. So I don't, get all that granular. I'll say, I personally didn’t notice a big difference in the average deal size, so part of that certainly is additional sales to existing customers. And as I mentioned, I think that that is testimony to the fact that our software is out there working and delivering solid results. Otherwise these customers wouldn’t be calling and ordering more licenses.

Okay. And so this is based on situation where you may have $10 or $20 or $30 practice and then they only bought it for four [DOCS] upfront or three or whatever the number is, then they go a live and they say, it's working we like it, let's add to other [DOCS], is that what these add-ons are, is it additional modules?

That would be a typical situation and other typical situation, you're right is, is that may be an add-on module or another products. Somebody might go live with the electronic medical record product and decide a year later that it's time to replace our practice management system with something that's fully integrated with the electronic health record system and buy another module or like start with practice management and add EMR later if their relationship and results with the company have been strong.

Okay, great. Then one final question, I will get back in the queue, from a broader industry perspective and I'd realize this is early but we had the official historical relaxation come though about month or so ago, and at the same time some of that the hospital vendors certainly seem to be talking more aggressively, have you seen any change in the way customers are reacting because of stock loss and then also of their competitive landscape or is it really too early to tell on either situation?

We have seen a little bit more activity level on the part of some of the larger health systems, in part because of the relaxation of the Stark and what has been done with the Safe Harbor rules, but frankly that’s one driver of many that are going on right now and sort of putting wind under our wings so to speak the government actions are part of it that might include grants and seed money from different things, you see that with the government and with private industry payers are getting into the game, there is just a lot more talk and a lot more buzz, and frankly the folks that are out there implementing these systems are seeing results and that’s translating into a better harder market. On the hospital IT company part of your question you mentioned that they are may be gearing up or talking about competing more in the ambulatory space. We have seen them compete for a long, long time, and we feel pretty confident Lee that NextGen's products are superior to the products of our hospital based competitors. Without mentioning names, I think you know the kind of companies that I'm talking about. And while the big health systems will typically look at their incumbent vendor, they'll also typically look at what the marketplace has to offer. And as physicians get involved in decisions, whether it's working for a large health system, or a smaller or midsize practice, they're going to look at systems, and whether they can use the systems, whether the systems will deliver the results. And so NextGen is winning a lot of those types of deals. Recently I would also say more than ever, NextGen is replacing the systems of some of these larger hospital IT companies that they've tried to put out into the ambulatory communities out of these hospitals or -- they realize what the system can do relative to physician linkage and results, but they haven’t had success with a lot of the systems that they've been trying to implement from these larger competitors of ours. And so increasingly they’re putting them aside, and going with the system like NextGen's.

Great. Thank you. That’s very helpful commentary Pat, and congratulations on the good quarter.

Thanks a lot.

Your next question comes from [Lynn Graft].

Hi guys. Congratulations on a really good quarter. A few questions on this end, and Sean's not available, so he couldn’t make it. Could you comment generally on the pricing in the marketplace and what you're seeing from the various group sizes that you're pursuing?

I don’t see the major change in the pricing in the marketplace. We have noticed over the last maybe 6 or 9 months that certain competitors are pricing a little bit lower maybe getting a little more -- bit more aggressive with [these accounting] levels but I don’t see that that’s eroding anything that we are doing. NextGen is typically priced closer to the higher end we are used to for years and years having our system be more expansive than most of our competition or many of our competitors anyway and we try to sell value and have people focus more on the return on investments than the actual cost or the price of the system. And the more sophisticated purchasers and customers look more at the return and more at the value than just simply what the system cost; you can buy electronic health record system for $200 or $300. So you really have to look at what the value is when you are comparing that to a system that might cost 10 or 15 or $20,000 per provider.

Are you doing anything different today in terms of selling the value propositions than you were last year?

No, I don’t think so.

Okay. And again is it competitors in private companies or is it one of your public competitors that sort of pricing more aggressively I guess both?

It's both.

Okay. Thanks, and then one quick question on SG&A, it seem like I guess we are modeling for a bit higher in the quarter, can you comment on kind of the I guess the lower than expected SG&A expenses in the quarter?

[Pat] you want to take that?

Yeah. I will take it. We had a couple of revisions to certain -- some of our compliance that resulted in some slightly less costs going into that category. So it should be that to that answer -- that's the answer I'd give you.

Yeah. The other thing Lynn that we've done is our percentage of revenue basis.

Yeah.

We had -- corporate expenses were up modestly year-over-year, but that’s in the context of on a percentage of revenue basis. So that's going to account for a couple of things so we had -- we had a little more legal activity and plus Paul and I track the situation so that could also account for some of that.

Okay. This is Pat. I'll show you one more piece of information when Paul talked about changes in compliance, I'll mention that, that includes executive compliance.

One final question, I promise I'll hop back into the queue. Could you just comment on some of the recent activity around Stark?

We have really no comment. We were watching the same thing that you were.

I guess maybe to any specific or any insight or activity?

This is Pat. I'll say that our [venture a guess] that we are often as amazed as other people are as we watch what the Stark does, and what moves might or might not be based upon.

Okay. Thanks very much for your time.

Lynn I would just say that clearly with -- with the executives were certainly very well aware of our reporting requirements and policies, and also if that was the nature of your question, we are acutely aware of when we are leading files from [fours] and aware of the company policies et cetera, et cetera?

No, that wasn't in the nature. But that's fine. Thanks again for you time and congratulations on a really, really good quarter.

Thank you.

Thanks a lot.

The next question comes from [Brendan Nathan].

Hi, guys how are you doing? I must be a little lot of out of I guess haven't kept in touch as closely as I thought I had, what's other revenue?

Other revenue includes add-on services, we add something, reimburse travel, we have some other type of third party software subscription fees, that sort of thing makes up that category.

Okay. I am looking at the implementation number, it seems to be somewhat flat over time and I remember two years ago you went through this period where the software really kept going up and the hardware wasn't as big focus and is it software just easier to install by the customer now that the implementation isn't going up at the same rate as the software products?

Yes, that's a true statement. Our software has become far easier to install and far easier to implement. We have done quite a lot as a company over the last couple of years to make it that way. The most significant of which is releasing new versions of our content or knowledge base that allows people to install the products more out of the box. There is still services required, but we are trying to streamline that as I mentioned on a few prior calls over the years, we've had these initiatives in place to look at and to support our scale as a company, so we are constantly asking ourselves questions like how do we move from selling 50 or 70 systems a quarter to 100 or 200 systems a quarter and one of the answers is we streamline the implementations to make it easier to implement and to use the system and to get the results out of the systems.

Okay and the stock-based comp, Paul is that buried in the SG&A?

Dark-based comp?

Stock based.

Oh, stock based. Yeah, it's well, it's in cost of goods sold in SG&A, it's in all three of those categories, which I believe we have a disclosure put out in our financial statements which you will see in our 10-Q, which I will lay all that out for you.

Okay and last question, I guess this one's for Pat. A couple of years ago, we use to discuss you guys really ramping up on the smaller sort of sub 10 doctor markets with maybe a scale down product for [quick] implementation. Is that initiatives still underway and if so, can you give me a sense of what your success has been in that area?

We haven’t been as aggressive over the last couple of quarters with respect to the small practices, but we do still have the initiative underway and we are constantly learning and [massaging] things in that area, again in the implementation area to make it easier and faster and to bring the cost of the sales or the system down for the small practice while we keep profitability in the sale for the company.

Great quarter guys, thanks a lot.

Thank you.

Your next question comes from [Ross Wilkin].

Hey guys, this is [Mike Turney] here for Ross. Congratulations on a strong quarter.

Thanks.

I just want to go into one quick questions, I think most of it has been kind of covered already, but we regarding the QSI division, it seems that it keeps steadily chugging along and now that we have spoken in the past, you said that it doesn’t take much management resources, but at what point do you start to consider that maybe this certainly is distracting a little on that, something maybe to consider options on, so you can focus more on the extra division.

Yeah, this is Lou. As I said many times over many years, we continue to value the QSI division for its contribution to the company's financial performance that is profitable and it's cash flow positive and as you've referenced, it continues to not be any type of management distraction. No, we are not forecasting --it is hard to forecast what the future will hold, but it seems to me as long as those things continue to be true, our -- that part of the business is status quo, so would our perspective on the division remains status quo. So, those are the guide poles that we use and I would mention I guess at least in the short run, that those are the guide posts that will continue to use in looking at this.

Sounds good. Congratulations again on the quarter. Good work.

Thank you.

Your next question comes from [Richard Adams].

Hi, I was just wondering if you can just comment on the sales force restructuring, and how that’s going.

Doing -- going rather well. It's little bit early for me to say that it was a complete success, but early indications and all indications are that it's going well.

And, I think you hired 10 or so reps in the June quarter. Can you just talk about their productivity and whether those are starting to make sales and how that’s going?

I can't give you a lot of detail, but I will tell you that whenever you hire 10 reps, three or four typically washout a couple early and a couple over the kind of timeframe that you talking about. Couple of others will still be in training and starting to do some things and there will be a couple of people that you get good indications on. But it's early to tell on that as well. We hope the folks that we haven’t washed out will grow into our performers.

Okay. Alright, thank you.

Your next question comes from Eugene Mannheimer.

Thank you. Nice quarter. Just to continue the thought on the small practice, you mentioned Pat you've focused less of your efforts on that market last couple of quarters. Why is that? Is it because you don’t see it as a great of an opportunity or you are -- the current demand is such that you are -- you have remained focused on the mid-to-large size practice? Thank you.

I think it's more demand-based, Eugene. When you have a finite number of sales reps and you have a good number of leads coming into the pipeline, those -- and depending obviously on have the compensation plan is structured, those sales reps have in the past tended to focus on the larger deals and there is certainly once school of thought that -- that's what they should be doing. That's good for the company, is good for the shareholders. They are more profitable deals. But on a more macro level, our hope is to continue to expand in the small practice area as well as maintaining our focus on the mid-range and high-end. As I have said in the past, we don't want to shift our focus to the low-end or small practices, but we want to expand to that area. And it's just that expansion, I think it's going a little bit slower than we had hoped.

Okay. Thanks, Pat and one last one. Can you just talk a little about the role of e-prescribing in your systems? Is that available to clients and do you see that as a revenueable opportunity? Thanks for taking the question.

The e-prescribing is a part of our system. It's a part of our system that most of our providers use. It's a component that many of them will try to implement early on in the cycle, but we are not a company that breaks out a lot of its components and does a lot of free trials with just an e-prescribing type of system. We'll tend to sell the complete solution and have the e-prescribing integrated with the rest of the product. We have considered lighter versions of the product, express versions of the product with e-prescribing and four or five other modules, and we continue to talk about that kind of thing. But we don’t believe that it would be a good thing for us to break out a product that -- which sell for $100 a month or in some cases less, as we look around the market and the competitive landscape with just an e-prescribing solutions.

Thank you.

Your next question comes from the Richard Close.

Yes, I was wondering with respect to your implementation teams, people out there installing the product. Are you comfortable with the size of that part of your business? Are you recruiting now, maybe a little bit more clarity on the size of that and expected growth there?

We continue to grow our implementation team. And yes to answer other part of your question, we are recruiting. We are recruiting in that area and in many other areas of the company. I think our headcount is up over the last year, a year and a half by more than a couple of hundred people. So, it’s a company that is growing quickly. Part of your question, I think was getting at our -- are we comfortable with the size of that department? We are this point, but again we are recruiting. And the reason I say we are at this point is that we also have partnerships and relationships with third-party firms who are trained and certified to implement our system. So, we should -- we need to lean on them. We can lean on them without staffing for peaks.

Okay. And then getting back to I guess, the seasonality, or somewhat seasonality in the business or the 50 new clients, did you see the -- was there anything like the number of overall deals, did that go down in the quarter, maybe, versus the second quarter, or did your win rate change at all in the quarter versus previously?

I don’t think the win rate changed. We do take a look at those things pretty often, and no, I don’t believe that the total number of deals went down. I don’t want to get into reporting the total number of deals each quarter, but I will say that each quarter there are literally hundreds of orders processed, obviously, most of them from existing customers.

Okay, thanks very much. Congratulations.

Thank you.

Your next question comes from George Hill.

Hi, good afternoon guys. First a couple of housekeeping items, I don’t know if I missed these numbers, what were our free cash flow and cash flow from operations in the quarter?

That will be in our 10Qs filing, just look at our statement of cash flows that to be filed shortly.

Okay and I had suspected that maintenance in revenue might be flat to slightly up from the previous quarter, could you maybe talk about why it declined? I mean by my model, this is the first time in a very long time that we've seen a sequential decline in maintenance and other?

Well there's a few moving parts in there. You've got maintenance, you have EDI, and you have other. Now, some -- what goes into other has to do with various -- with add-on services there, we have some subscriptions with some third party to software that I know that we sell, and those things can have some amount of fluctuation from quarter-to-quarter. But if you look at the EDI numbers and the maintenance numbers those were not down sequentially, those were up.

Okay, you talked about wanting to be able to do more than, we will say, somewhere 50 and 70 deals or we will say deployments of quarter, do you guys feel like your capacity constrained on the deployment side?

No, I think we are at a reasonable balance today. If we were doing north of 100 deals or 200 deals a quarter, we would certainly with the current staff be capacity constrained, but we don’t want to hire an implementation team and train an implementation team to do 200 it's more of the slow steady balanced ramp.

I also think George the spirit of past comment was that we are -- we continue to try to hire in a responsible manner looking towards the future.

Okay and I guess speaking to the future, I think this is the tough question that somebody try allude to earlier, I guess Pat with the company's future looking so bright I know a lot of investors are interested and why you would choose to liquidate your position at this time and would you choose to put any color on that?

I'll give you a little bit on that as you know people in my position have pretty serious restrictions on when stock is traded or how stock is traded. So a lot of people use 10b51 trading plans and in my case the stock went through price threshold that I'd said, hence I have no idea when the threshold was set that the stock would hit that threshold or when it might hit that threshold as for my personal investment or diversification strategy, I just don’t want to get into that, but as I've said on this call, I feel good about the company, the current quarter, and how the company is positioned, and on into the future.

Okay. And I guess the last thing that I might ask you guys to speak about big picture is, it looks like the 5% cut to Medicare reimbursement to the physician practices who's going to stick. I'll say how do you guys think about that and the selling process going forward and the foot side of that being does your agreement with Siemens given the relaxations in the Stark Law kind of protect you or offset you from anything like that?

The way we look at it and the way we try to communicate it to our perspective customers is that they cut in Medicare reimbursement is all the more reason to implement a NextGen system that can help that practice see a solid return on the investment can help that practice collect more of the money that they are building and streamline their work flow and enhance their productivity, and with electronic health record systems again impacting -- positively impacting the financial side of the business. I think it's those practices that’s going to implement sophisticated systems that are going to really feel the pinch of Medicare and other payer cuts that might follow the ones that have the foresight to go after these systems, get them in and realize the results are going to be the ones that will fair well into the future.

Okay. Thank you.

Thank you.

Your next question comes from [Vald Avatamina].

Hi, guys. I have three questions for you. First of all, first one is on the revision of the comp plan, is this revision going to decrease the compensation expense on an annual basis? That's one. The second question is if you could give, what percent of revenue is from Siemens and break out Siemens account receivables, I guess growth as well on a sequential and year-over-year basis? And third, I was wondering when you said that trading threshold that you mentioned that triggered the sales of the shares? Thanks.

Okay. This is Lou. I'll take a couple of those relative to the comp plan and its projected impacts on the financials. It's impossible to predict and we won't predict. I mean that it is the compensation plan is tied to certain performance criteria and whether we hit those criteria or not is not certain at this time. So, therefore the overall cost of the plan is not something we can speculate on at this point in time.

But is it fair to say that for modeling purposes, it's probably true. It's probably correction model. It's model [that’s] -- as before in terms of the annual number kind of on an old fact that people were expecting?

We have a longstanding policy of not providing guidance and so unfortunately while I appreciate your question, it's just not --

Okay.

-- not something that we are prepared to --.

Well let me ask it then the other way. Is it compensation expense or is it going to [chop] in the next few quarters?

Same answer.

Okay. What was done, I guess in the current quarter?

Again, what's your question?

My question is what is the benefit of the [salvation] on the comp plan for the current quarter -- for the September quarter?

We are not going to go into a blow-by-blow description of each part of the income statement. I appreciate the question but --

Right. I mean, I just thought since you've highlighted it on the call that is an important item you had given. You would --

Well, we wanted to do.

Given your [American customers] --

We don’t touch here on the SG&A question that was asked about the reduction in SG&A, but to get into the individual buckets and to say the revision of the compensation plans equaled to X dollars is something that we are not willing or able to do. There were revisions to the compensation plans that contributed to the drop in SG&A, whether those plans get revised again six months from now or year from now or frankly next week is anybody's guess. I hope that helps because that’s all we can give you.

On your next question relative to -- I will try to jot it down. You packed a lot of questions into a short amount of air time. But it sounds like you were looking for some granularity on specific revenue performance from Siemens and --

Correct.

Unfortunately, once again we have a longstanding practice of not breaking out any particular customer in a granular fashion. So, we will perpetually maintain that policy.

Right. What if this -- will this be broke out in a 10-Q, given that it’s a significant customer?

If it gets to the point where we have any 10% customers or greater we have an obligation to and -- to disclose that and would do so appropriately.

Okay. So, is it fair to say that Siemens was under 10% there?

It is fair to say that at present it's under 10%.

Okay. And the same thing on accounts receivable what would you assume?

We - and Paul's prepared comments, he did reference a concentration in accounts receivable with Siemens that was approximately 13% of gross accounts received.

I see. Got it.

And then I think you had a third question, Pat you may or may not likely answer relative to --

I mean, I like not to go into any more detail on my personal trade of the stock, what the thresholds were set at and when they were set and the dates of the plan and when the plan was put into place and when it would have expired, and those kind of things. I also appreciate the question and the curiosity but outside of the curiosity, the real key is, how do I feel about the company and the company's prospects for the future and those types of things. I think, as I've said, I feel pretty good about those things. You also may know that I continue to hold some additional stock options in the company.

Right, okay. Fair enough. And, I am just looking at the Form 4 and trying to find that it -- that the sale was done under the plan and can't find any notes there.

You should.

I can't tell you that it was done under a 10B/51 trading plan as to what it shows on the copy that you've got, I can't comment.

Okay, I just saw in the note there in my remarks. Thanks.

Thank you.

Thank you.

Your next question comes from [Ashley Bernard].

Thanks, actually all my questions have been answered.

Your next question comes from Richard Close.

Yeah, just one final one. Paul, I missed the depreciation, if you could hit me with that again, the total and then the breakout. I am sorry.

No, it tells me that somebody is actually paying attention. $679,000 -- I am sorry you asked for depreciation expense.

Yeah.

440,000 consolidated, 57,000 for QSI and 383,000 for NextGen.

Okay. Thank you very much.

Your next question comes from [Vella Rosha].

Hey guys, thanks for taking the question, I am sorry if you answered this already. But what exactly changed with the executive compensation plan?

I think that’s in all details that we are prepared to go in.

There were some changes; we are not going to get into the granular details.

Okay. And what is management currently -- what are the bonuses based on and just internal targets, financial targets?

We put out an 8-K on this, I don't remember the exact date, but I am guessing it was -- help me out with this guys, late July perhaps, which gave you -- gives you this plenty of details there and just we don't -- for everybody who is going through position-by-position with the top four, our named executive officers. I would just point your attention to the 8-K, which goes through for Pat, myself, Paul Holt and Greg Flynn, some information on the individual plan.

Okay, great. And then on just on the DSOs were excluding Siemens, where the DSOs up as well?

We are not going to breakout DSOs ex-particular accounts. We've given you our DSO numbers, we've given you -- as we typically do in our filings the DSOs, let's be -- what we have taken a -- kind of growth in that and it was 135 tons to 81, but we are not going to be at a size where we start breaking out of variations on the same.

Okay, what about just current trends, do we expect that to comeback down in the December quarter or --?

We don't provide for guidance, we do have a lot of effort and activity in the company related to collections and related activities in terms of where the numbers falls, there are many moving parts to that calculation and I would be not in favor of issuing projections or prognostications on that.

Okay. Fair enough and then Pat you mentioned the option, do you own stock at all, right now?

I can honestly tell you that as of this moment, I don’t know the answer to that question.

Okay, fair enough. Thanks guys.

Thank you.

Your next question comes from [Vincent Lowes].

Hi, can you hear me?

Yeah.

I will just follow-up on those question, why you can't disclose the change to management compensation?

We could, we just have elected not to.

I am just curious why you've elected not to?

We have filed the plans themselves or the basic elements of the plans in the 8-K that I reference and in terms of getting more granular from that, we just chose not to.

There is actually not much of an answer that we could provide even if we wanted to because as you probably know the plans have significant components for many of us that are performance based so outside if you are looking at the major elements of the plan and in the filing it's very difficult for us to say this is what's going to happen this quarter or next quarter, the quarter after that.

And just Pat, why don’t you -- I presumably after this, you are done selling your stock, are you going to own any of it, outside of --

I don’t think, I'll get in -- I don't think, I'll get into making that prediction.

Any reason why not, I mean I understand the diversification, but not sure as why you wouldn't want to be owning any of the stock?

I didn’t say I didn’t want to own any of the stock.

Okay.

And, I am going to stop there.

Okay, great. Thanks guys.

Thank you.

Your next question comes from George Hill.

Hey guys, thanks for the follow-up-- I think I'll try to make this simple. Was SG&A this quarter lower than some people's expectations or lower than your plan because of a change in the management compensation plan whereby expectations weren’t hit and you guys were paid less?

In terms of other people's expectation George, I really haven’t made it a practice. Or --

Well, I think, I think you guys said that it came in below your expectations.

I think, what we've said that it came in less than the year prior on a percentage of revenue basis and we pointed few changes in compensation plans as one of the drivers of that.

Okay, thank you.

At this time, there are no further questions.

Thank you everyone. I appreciate your attendance on the call, your interest in the company, and we'll hope to chat with you in the future quarter. Thank you.

And this concludes the conference call, you may disconnect.