NextGen Healthcare, Inc.

NextGen Healthcare, Inc.

€22.2
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Medical - Healthcare Information Services

NextGen Healthcare, Inc. (QY1.F) Q1 2014 Earnings Call Transcript

Published at 2013-07-25 16:40:07
Executives
Steven T. Plochocki - Chief Executive Officer, President and Director Paul A. Holt - Chief Financial Officer, Principal Accounting Officer and Executive Vice President Daniel J. Morefield - Chief Operating Officer and Executive Vice President Monte L. Sandler - Executive Vice President of Nextgen Practice Solutions
Analysts
Gavin Weiss - JP Morgan Chase & Co, Research Division Glen J. Santangelo - Crédit Suisse AG, Research Division Ryan Daniels - William Blair & Company L.L.C., Research Division David Larsen - Leerink Swann LLC, Research Division Jamie Stockton - Wells Fargo Securities, LLC, Research Division Michael Cherny - ISI Group Inc., Research Division Zachary William Sopcak - Morgan Stanley, Research Division Gregory T. Bolan - Sterne Agee & Leach Inc., Research Division Charles Rhyee - Cowen and Company, LLC, Research Division Richard C. Close - Avondale Partners, LLC, Research Division Steven P. Halper - Lazard Capital Markets LLC, Research Division Bret D. Jones - Oppenheimer & Co. Inc., Research Division Eric W. Coldwell - Robert W. Baird & Co. Incorporated, Research Division David H. Windley - Jefferies LLC, Research Division
Operator
Welcome to Quality Systems Incorporated Fiscal 2014 First Quarter Results Conference Call. Hosting the call today from Quality Systems is Steven T. Plochocki, President and Chief Executive Officer. Today's call is being recorded. [Operator Instructions] It is now my pleasure to turn the floor over to Steven T. Plochocki, President and Chief Executive Officer. Sir, you may begin. Steven T. Plochocki: Thank you, Paula, and welcome, everyone, to the Quality Systems fiscal 2014 first quarter results call. With me this morning are Paul Holt, our CFO; Dan Morefield, our Chief Operating Officer; and Monte Sandler, the Executive Vice President of our RCM Services business unit. Please note that the comments made on this call may include statements that are forward-looking within the meaning of securities laws, including, without limitation, statements related to anticipated industry trends, the company's plans, products, perspectives and strategies, preliminary and projected, and capital equity initiatives to the implementation of potential impacts of legal, regulatory or accounting principles. I'll provide some opening comments and then turn it over to the team. During the quarter, the company saw significant advancement in lead generation, which grew 172% year-over-year. Additionally, we are seeing significant pipeline growth for the first time in several quarters which jumped to $150.1 million, a 6% improvement versus the prior quarter. These 2 key metrics, along with a reduction in total operating expenses, are signs that the restructuring efforts the company implemented in late fiscal 2013, which included consolidation of sales and marketing efforts, cross-selling of services and solutions, as well as the centralization of shared services, are beginning to show positive momentum. Revenue from the company's RCM and EDI services grew 11% and 21%, respectively, in fiscal 2014 first quarter, compared with the same period last year, as clients continue to recognize the benefits of such services amid changing health care models and health care reform. Our management team is greatly encouraged that our restructuring plan is beginning to bear fruit. The bottom line is that our leads are up, our pipeline is up and our operating expenses are down. As the health care information technology sector continues to rapidly evolve and new models arise, we play a key role in helping our clients adapt. Quality Systems is now the only company to have achieved Stage 2 Meaningful Use certification for physicians, dentists and hospitals. In fact, the company ranks among the top 4 for MU attestations for physicians and is only -- is one of only 4 organizations in the top 12 for attestations in both inpatient and ambulatory markets. Moreover, according to CMS, in the first quarter this calendar year, NextGen Healthcare ranked #1 in terms of improvement for new physicians reaching attestation, and also ranked #1 in client retention rate at 87%. We are leading the way in the marketplace by assisting our clients in reaching important industry milestones necessary to their success. Our efforts in this area continue to be a priority for our entire organization. We also announced that the Board of Directors declared a cash dividend of $0.175 per share on the company's outstanding shares of common stock, payable to shareholders of record as of September 13, 2013, with an anticipated distribution date of October 4, 2013. The $0.175 per share cash dividend is pursuant to the company's current policy to pay a regular quarterly dividend on the company's outstanding shares of common stock, subject to further board review and approval. And establishment of record and distribution dates by the board prior to the declaration of payment of each such quarterly dividend. I'll now turn it over to Paul Holt, our CFO. Paul A. Holt: Thanks, Steve, and hello, everyone. Our consolidated June quarter revenue of $109.5 million was down 7% over the prior year quarter revenue of $118.3 million. Fully diluted earnings per share was $0.22, a decline of $0.04 or 15% from the prior year $0.26 we earned on a fully diluted basis. System sales revenue this quarter was $22.5 million, a decline of 41% compared to the prior year of $37.9 million. It's worth noting, however, on a sequential basis, the rate of decline in system sales slowed 7% while our pipeline growth gave us some reason for optimism moving forward. Consolidated maintenance, RCM media and other services revenue grew 8% to $87 million compared to $80.4 million in the year-ago quarter. Recurring revenue represented approximately 79% of total revenue compared to 68% in the prior year. All of our recurring revenue categories were up by double digits compared to the prior year with the exception of maintenance, which was impacted by the resolution of certain customer issues in both our ambulatory and Hospital Divisions impacting maintenance revenue this quarter. I'd also add that maintenance revenue this quarter is not a reflection of attrition. We've not seen any significant change in attrition rates with our maintenance customers. Building on the momentum we've been seeing in RCM, we saw revenue growth in RCM revenue of 11% compared to the prior year at $16 million versus $14.4 million. We continue to see solid growth in utilization of our patient portal, hosting and SaaS services, which are grouped in other revenue. Our consolidated gross profit margin this quarter came in at 56.1%, down from the year-ago quarter at 59.1%. Our gross margin was -- decline was primarily due to a decline in higher-margin software versus the prior year, as well as investments we're making implementation in training in support of -- in advance of expected upcoming demands related to ICD-10 and MU2. This was partially offset by improved margins out of RCM, EDI and other services revenue. Our SG&A expense, excluding amortization, declined by approximately $1.6 million at $35.1 million this quarter compared to $36.7 million a year ago. This decline was primarily driven by reductions in salaries or related benefits, as well as commissions, as well as our efforts around expense controls and efficiencies. Our R&D expense declined to $5.6 million versus $8.6 million ago -- a year ago. This decline in net expense reflects a number of factors including a larger portion of expenses being capitalized; expanded utilization of our offshore location, Bangalore, India; less reliance on third-party consultants; and a portion of expenses being reclassified between SG&A and R&D this quarter. The total amount invested in development, including amount cap -- amounts capitalized, was $12.9 million in both the current year and prior-year quarters. Our development spend reflects our ongoing commitment to invest in our products and stay ahead of the requirements of MU2 and the upcoming ICD-10 requirements. And our commitment to continually developing our products also includes the potential of acquisition, bringing new technology as well. Our effective tax rate for the June quarter was 33% compared to 33.6% a year ago. Current quarter rate declined primarily to the net benefit from the federal R&D development tax credit and a benefit related to what's known as a qualified production activities deduction. Our cash and cash equivalents plus marketable securities was -- ended the quarter at $130 million. That's up $12 million from the start of the quarter, primarily due to the significant increase in cash collections and the turnover of accounts receivable. Strong collections performance in this quarter drove significant increase in cash flows from operations, which rose 58% to $31.5 million compared to $19.9 million a year ago. Our turnover of accounts receivable measured in DSOs was 116 days compared to 118 days a year ago. Now I'm going to move on to our business unit numbers for the first quarter of fiscal 2014. NextGen Ambulatory revenue, $81.5 million, up 5 -- or down 5% over the prior year. NextGen Ambulatory operating income, $29.6 million, up 3% over the prior year. QSI Dental, $5.1 million. That's up 4% over the prior year. Dental operating income, $0.9 million. It's up 104% from the prior year. Hospital solutions, $5.5 million in revenue. It's down 52% from the prior year. And Hospital had a $2.6 million operating loss. Although I would say this was also in line with our expectations as we continue to invest in that business unit with immediate focus on customer satisfaction and long-term focus on return to profitability. RCM revenue, $17.4 million. It's up 10% over the prior year. RCM business unit revenue includes -- is primarily RCM, but also includes some other ancillary services as well. And RCM operating income, $2.8 million, up 53% over prior year. Finally, for those of you who are tracking this, I'm going to give out our selected noncash expenses for the quarter. Amortization of capitalized software is $2.7 million; amortization of intangible assets is $1.9 million; depreciation expense, $1.9 million; and stock comp expense, $0.5 million. Now our investing activities for the quarter internally generated capitalized software, $7.3 million, and fixed assets, approximately $1.9 million. I'd love to thank you all for being on this call, your interest in our company, and I'll turn things over to Dan Morefield, our Chief Operating Officer. Daniel J. Morefield: Thanks, Paul, and hello, everybody. As previously discussed, we continue to execute the restructuring of the company as announced last fall. Our financial results for the quarter reflect a reduction in expenses in multiple areas, which gives us more opportunity to invest in our growth initiatives. I'm pleased to announce that we have hired a leader for our Hospital Division. Jonathan Isaacs is a proven executive with 18 years of experience in technology and health care IT. Prior to joining QSI, John spent over 10 years in Dell Healthcare, where he provide leadership in various areas of strategy, sales, finance and analytics. He has extensive experience in dealing with both ambulatory and small hospital markets. John is quickly making an impact. I expect his leadership will accelerate the performance of the division. The quarterly results of the division are what we expected them to be when we made the decision to accelerate our investment into the sector. We hired 32 new people into the division in this last quarter, more than double the number we have hired in the prior division -- or the prior quarter. We brought live 13 hospitals in the quarter. This is the second highest number in our history. We see some seasonality here given the timing of Meaningful Use attestation. We had multiple sales during the quarter and entered this current quarter with a strong pipeline. On the ambulatory side, I am pleased to announce that we have promoted Mike Lovett to Executive Vice President and Division Manager of our flagship ambulatory division. We asked Mike to take the leadership role of the division as part of our restructuring last year. Mike has done an excellent job and look forward to future growth under his direction. Gary Voydanoff is taking some much-deserved vacation sometime, so I will provide some commentary and data points that he normally would have provided. We are pleased to say that our focused efforts on product demand and lead generation over the recent quarters are coming -- are continuing to show greater results. We continue this effort by launching new marketing programs and refining the lead generation process. The result has been an increase in our lead count in Q1 up 172% year-over-year and up 110% over the last quarter. The downstream effect of this increase is an expansion of our long-term sales funnel and a 6% increase in our sales pipeline, which now stands at $150.1 million. This increase in a pipeline is seen across all our divisions. I will end with our quarterly operating metrics that we normally report. The company executed 98 arrangements on a consolidated basis versus 118 last quarter. Of the new arrangements, 64 were greenfield and the rest were replacements. We executed 49 SaaS agreements during the quarter, which are included in the 98 arrangements. Discounting did not materially change in the quarter. As of 6/30/13, there are 112 quota-carrying sales and management positions, the same as the prior quarter. We do intend to continue to add to our sales teams in fiscal 2014. With that, I'm going to turn the call over to Monte Sandler. Monte L. Sandler: Thanks, Dan, and good morning, everyone. RCM Services revenues in the first quarter were $17.4 million, representing a 10% growth over the prior-year quarter. We continue to drive margin expansion both gross margin and operating margin by scaling the business and finding ways to be better, smarter and faster in our service delivery. Our backlog of signed deals not fully implemented remains consistently strong and our sales pipeline continues to reach new heights into our sales and marketing reorganization last fall. Through these efforts, we continue to see strong interest in the market for multiple product sales bundled as a part of our recurring revenue RCM Services offering. We also remain focused on cross-sell opportunities in our large installed NextGen customer base. Additionally, we have initiated efforts to expand our RCM Services into our small hospital and dental customer markets in the near future, as part of our overall corporate strategy. We continue to work with providers that remain concerned about their financial future as a result of pressures from ACA reforms, declining reimbursement and risk contracting. Our tailored RCM Services, driven by people, process and technology, make us a great solution to help providers position themselves successfully for future health care reimbursement models. Thank you for your time and interest in our company. Paula, I'd like to turn it over to you for questions.
Operator
[Operator Instructions] Our first question comes from Gavin Weiss of JPMorgan. Gavin Weiss - JP Morgan Chase & Co, Research Division: So I guess, just starting with the recent announcements about the board, I'm just trying to figure out, really, what changed between the board vote in the end of June and when the agreement was made with the Clinton Group in July? And really who was involved with communicating between the end of June and July? Steven T. Plochocki: Well, I mean, the process essentially was such that, as we were engaged here with this turnaround and making a great progress, the one thing that the board did not want management to be faced with would be a 2-month period of yet another proxy fight like we had last year. We're making great progress. We're moving ahead very quickly and any disruption right now would not have -- would not have served the shareholders well at all. So the view was to create a settlement, a settlement that we in management believe will be beneficial to the shareholders and the corporation. We in management are looking forward to working with the new board, and hopefully, putting them and us in a position where we can transition the company, as we had talked about, reposition it the way we're moving and create a very positive return for the shareholders. I mean, that's the mission. That's our goal. And the actual specifics in terms of negotiations, no one is going to talk about other than the fact that we believe that this is a great outcome for the company and a great outcome for shareholders. Gavin Weiss - JP Morgan Chase & Co, Research Division: Okay, that's helpful. I guess, I know you're not giving guidance, and I asked you this last quarter. But with another quarter under your belt, can you maybe give me an update on your expectations for the business in fiscal '14? I know you're hoping for improvements, but any more granularity on that? Steven T. Plochocki: Gavin, the way we can put it is that, when we began this restructuring back in our Q3 quarter of last year, the October through December quarter, we had to make a lot of changes to the organization. And those organizations -- organizational changes had really their first full quarter of operating in our fourth quarter of last fiscal year, the January through March quarter, where we started to show improvement in pipeline and leads. And then, of course, the quarter we're talking about today, we've shown even more dramatic improvement in pipeline and leads, as well as the impact of a lot of the changes that we made operationally under Dan Morefield's direction. And where our operating expenses are down, we've consolidated shared services. We've become more efficient, more effective in a lot of the ways we operate the business. So we're continually moving through this process. It's -- we're still not in a position to provide a guidance. However, our view is that if the ensuing quarters show a materialization of the pipeline, which, if you look at our 10-year history, the pipeline usually translates 2 to 3 quarters out, and it's been pretty true to form for us as a measurement stick. Then I think at some point in time, late this fiscal year or heading into the next fiscal year, we'll be prepared to provide guidance because we'll have more predictability and consistency and visibility in terms of our run rates and growth prospects.
Operator
Your next question comes from Glen Santangelo of Crédit Suisse. Glen J. Santangelo - Crédit Suisse AG, Research Division: Just a couple of quick questions. And I understand obviously, that the Clinton Group situation is somewhat sensitive, but could you maybe just give us a sense for if you view things strategically the same way as these new board members? And any sort of color around you can give us or around the variation or differences between your views would be helpful to us because you seem pretty convinced that it's a good thing for the company and a good thing for shareholders, but yet, I don't know that it's completely clear exactly what they're going to bring to the table. Steven T. Plochocki: Well, Glen, our shareholder meeting is August 15. The new board will be together for the first time that day because I believe we'll probably have a board meeting after the shareholder meeting. And I think the views in terms of a going-forward basis is that we've got an experienced board with a combination of the new members and a combination of the older members to take a look at the marketplace and make determinations and how we want to progress the company in a positive way. I have to believe that, management believes that and I think that, that's probably what we're going to see. Glen J. Santangelo - Crédit Suisse AG, Research Division: Maybe as a follow-up, maybe could -- just shifting gears for a second, could you maybe elaborate a little bit more in the pipeline, talking about this lead -- the lead generation growth and the pipeline opportunity? Can you maybe just elaborate what areas you're seeing the growth in particular? And then maybe as a last question if you could just comment as to why your maintenance revenues ticked down this quarter? Steven T. Plochocki: Well I'll talk a little bit about the pipeline. I'll give it to Dan and then Dan will give it over to Paul to talk about maintenance. But I think, as Dan elaborated, we've had a renewed and aggressive focus to enhance our search engine capabilities in marketing. Our marketing team that was a product of pulling together marketing resources under new leadership is really benefiting us in terms of creating leads. Leads equal pipeline. Pipeline 6 to 8 months down the road equals revenue. We've got to have the leads before the pipeline before the revenue. And so we're greatly encouraged by the changes we made. We're greatly encouraged by the activities we're engaged in. As a matter of fact, come this fall, we're going to introduce an entirely new website. And that website is going to give us even more enhanced capabilities as a search engine to create more lead capability for the organization. And all of that coming at exactly the right time as Stage 2 kicks in, as the replacement market starts to search for certified solutions as KLAS has cited. As you know, KLAS indicated that they believe because of the power of Stage 2 and Stage 3, and the movement towards ICD-10 and ICD-11, KLAS has indicated that as much as 50% of today's installed base will have to be replaced. And those replacements will be done by the companies sitting in the top tier. Those are companies like us. Dan, anything else on the pipeline you'd like to add? Daniel J. Morefield: No. Except -- well, yes, the one piece I would just reemphasize that I stated earlier is that we are seeing growth in the pipeline across all of our business units. And it's not -- there's not a heavy concentration of growth in any one particular unit, but it's pretty uniform across all of them. Glen J. Santangelo - Crédit Suisse AG, Research Division: And Dan, maybe the maintenance revenues that ticked down? Paul A. Holt: Yes, yes. This is Paul. Let me address that with some other comments. You saw the cash position this quarter and how we had an outstanding quarter there, grew cash $12 million. That's after we paid our dividend of over $10 million. So part of what's taking place there is that we're getting much better execution around that function and resolving and we were able to resolve variety of issues that sometimes, a part of those resolutions resulted in impacts, mind you, short -- onetime kinds of impacts that impacted that maintenance revenue line items. So I think that's the kind of color that I was prepared to give on that.
Operator
Your next question comes from Ryan Daniels of William Blair. Ryan Daniels - William Blair & Company L.L.C., Research Division: Let me start with a quick one on your sales this quarter. It sounds like exactly 50% of your agreements were for SaaS-based contracts, and I'm curious that's been trending a lot higher. I think it's the first time it hit the 50% level. Where do you see that going out over the next several quarters as you think about the pipeline and kind of what the business demands look like? Daniel J. Morefield: This is Dan. Those numbers we expect to be relatively stable over the next couple of quarters. We don't believe that there will be radical movement one way or another. Those numbers tend to be -- or those actual contracts, by and far, tend to be a smaller type of transactions than some of our core software sales. So expectations is that, most likely it'll continue to tick up as the market moves and as more of our products are SaaS-based products and as we continue to emphasize recurring quality predictable earnings. So I would expect that it would be relatively stale -- stable. And with potential kind of trends that you've seen in the past, I would see nothing that would give me an indication that those trends shouldn't continue. Ryan Daniels - William Blair & Company L.L.C., Research Division: Okay, that's helpful. And then turning to the inpatient division, I think you mentioned you had 32 new hires there. Can you talk a little bit about what the focus is? Is that more on customer service and implementation? And then as a follow-up, maybe just a little bit color on the pipeline. You said it was fairly strong. But are you slowing down sales at all there to make sure you address some of the service issues before you bring a bunch of new customers on board? Daniel J. Morefield: Sure. The staff that we have brought onboard really are focused on 3 principal areas: training implementation staff to handle the backlog of work that we had, as well as to be able to handle future business; core R&D, engineers and supporting functions within the research and development organization; and customer service. As a greater percentage of our clients come out of the training and implementation stage and into fully live, it requires a greater degree of support personnel to support that base of customers. So it's been equal across the board and I expect that to continue in the future quarters. On the sales side, I did indicate that the pipeline is stronger. The finesse that we're dealing with here is a combination of increasing client satisfaction product quality at the same time as we finesse the driving of sales. So it's a little bit of a combination of those 2. And what I'm pleased about is that we're beginning to see traction in all areas. As we've mentioned before, the strategy here is to invest into this division, and the ability to be able to drive future profitability is directly related upon our providing quality product and a quality service that directly meets the needs of our targeted client base.
Operator
Your next question comes from David Larsen of Leerink Swann. David Larsen - Leerink Swann LLC, Research Division: What were bookings in the quarter? Steven T. Plochocki: Bookings in the quarter was approximately $28 million, Dave. David Larsen - Leerink Swann LLC, Research Division: Did you say $28 million? Was that $28 million? Steven T. Plochocki: Yes. Actually, $20 million -- $27 million. Paul A. Holt: $27 million. That does not include our -- any RCM numbers. David Larsen - Leerink Swann LLC, Research Division: Okay, that's helpful. I think that was -- I think the number was $41 million last quarter. Is that right or... Paul A. Holt: That's correct. David Larsen - Leerink Swann LLC, Research Division: Okay. And then can you talk about -- I think you guys are developing a new user interface for the NextGen Ambulatory platform, is that true? And I think it's -- I've heard our techs indicate that it's much more user-friendly, much more intuitive, fewer clicks? I mean, can you just sort of talk about how far along you are on that process and is that deployed at a couple of client sites? Daniel J. Morefield: So -- this is Dan. We have mentioned on a couple of occasions in the past that as part of the normal cycle associated with software development, we are investing heavily into a new architecture and a new platform that will provide us the ability to roll enhanced products for existing clients as well as new products off that platform and architecture. One of the core components of that fraction [ph] or that architecture is an ease-of-use component, as well as the ability to manage it either on -- in the cloud or in a hosted type of environment. We have not to-date announced the specific product or enhancement of products that will roll off that platform. But we expect to do so late this year.
Operator
Your next question comes from Jamie Stockton of Wells Fargo. Jamie Stockton - Wells Fargo Securities, LLC, Research Division: I guess, maybe the first one, Dan, and I know Gary might have a better answer for this if he were on the call. But I guess, have you guys been working with this higher level of leads long enough to have the confidence that, yes, it will in fact translate into an accelerating pace of business at some point? Or is it, we really saw the top end of the funnel expand significantly 6 months ago and it hasn't translated yet, but it seems logically like it should one of these days? Daniel J. Morefield: Well, Jamie, let me go back. We started the restructuring of this company in the fall of last year. And as part of that, we put together a combined sales and marketing organization, where we made a relatively strong transition in marketing from a classic image kind of a marketing organization to one that's more focused on lead generation. That restructuring then began to show results, as we announced last quarter in the top of the pipeline. Those results on the top of the pipeline continue to expand, which we're pleased about. But we're also pleased that the next logical step of the expansion of the top of the pipeline is expansion into -- excuse me, at the top of the pipe is expansion into our pipeline. We've got a history in this organization of multiple years being able to predict a good amount of our revenue in the future based upon our pipeline. There's nothing we see in the pipeline or the business today that would give us any indication that what has happened in the past won't happen in the future. Jamie Stockton - Wells Fargo Securities, LLC, Research Division: Okay. Then I guess maybe a question for Paul on the maintenance revenue, which I know you've already talked about a lot. But from a segment standpoint, it had been coming down for the inpatient business. Can you talk about whether or not the sequential decline this quarter was concentrated on a given segment? Daniel J. Morefield: Yes, this is Dan. I'm going to respond to that because it's a little bit of both. There is a component of the reduction of the maintenance that was in the hospital sector, but the bulk of this is in the ambulatory sector. And as Paul mentioned earlier, part of this transition is that, as we accelerate the accounts receivable efforts, there are a number of issues that were, in the past, that have required sort of onetime impacts to that line item in order to accomplish. The key message that was in Paul's statements before that I want to reiterate is it's not a reflection of attrition of customers. It's a combination of accounting-type issues in combination with events associated with settling issues with clients that in many -- in some cases are multiple years old. Jamie Stockton - Wells Fargo Securities, LLC, Research Division: Okay. And then just the last one, Dan, do you have the number of dental and inpatient deals that you got signed during the quarter? Daniel J. Morefield: I don't have the dental ones, and I can get those to you later, Jamie. And the number of -- or the number of material deals in Hospital Solutions was 2 compared to last quarter of 3.
Operator
Your next question comes from Michael Cherny of ISI Group. Michael Cherny - ISI Group Inc., Research Division: So I want to dig a little bit more into some of the restructuring efforts that you have discussed. You obviously started to show up particularly with the reduction of both sales and marketing R&D. I know you're not providing specific guidance, but just in terms of, qualitatively, can we think about the reductions we saw this quarter as the new normal, the new type of run rate? Are there any fluctuations that would cause increased or even further decreased expenses over the next few quarters? Just trying to get a sense of how you see that trending over time roughly. Daniel J. Morefield: This is Dan. I'll take the first stab at this and Paul can correct me as required. As we stated earlier, our purpose for the restructure is to drive growth. And I've stated on multiple occasions that the purpose for this is to provide resources to accelerate our growth initiatives. So clearly, from a standpoint of being the new normal, it does reset the trend line for the new normal. But I just want to make sure that folks understand that our intent is to be a growth company, and growth is our number one priority. And we will continue to invest into those areas that will drive the greatest degree of growth for us in all sectors of the organization. Michael Cherny - ISI Group Inc., Research Division: Great. And then just one last question on the pipeline. I know it's been asked a few times, but do you guys look at all in terms of the conversion rate on a quarterly basis? Or your expectations in terms of the conversion of pipeline in the bookings? I'm just trying to get a sense of how that's been trending over time and how we can think about the conversion rate going forward, if you see a similar increase over the next few quarters in the pipeline that you had based on the lead generation? Daniel J. Morefield: Again, as I stated earlier, we see nothing that would give us an indication that the current pipeline would do or would lead to revenues in any material way different than it has in the past.
Operator
Your next question comes from Ricky Goldwasser of Morgan Stanley. Zachary William Sopcak - Morgan Stanley, Research Division: This is Zac Sopcak in for Ricky. And I wanted to ask a question about the pipeline looking forward and that's given your proxy recently and the potential for a strategic alternative process. Has there been any effect even though it's been short term on your pipeline or do you foresee that having any impact on your pipeline from your clients' perspective? Steven T. Plochocki: Well we haven't seen any impact negative on our pipeline. As we indicated, our pipeline is -- was up considerably quarter-on-quarter, and we've had now 2 sequential quarters of growth. As a matter of fact, our pipeline last quarter was $141.6 million. It's $150.1 million, which was a 6% increase. And when we look back on our pipelines, I don't think I could find, going back 3 to 4 years, any kind of pipeline improvement at the 6% range on sequential quarters. So this is a very positive sign for us. So I guess that the marketing efforts are creating the leads. The leads are being worked. The work leads are filtering into the categories 4, 3 and then 2 and 1 of our pipeline. And there's a 6- to 8-month selling cycle and, as Dan indicated, that pattern's been pretty true to us for quite a while. And so we're anticipating in the next 2 to 3 quarters that we're going to convert a lot of this pipeline as we continue to build it. Our goal is not to see the pipeline shrink, but to get back up there into that $170 million, $180 million, $190 million range that we think it can get to. Ryan Daniels - William Blair & Company L.L.C., Research Division: Okay. And I guess, as you think about the potential with the strategic process with the new board, have you gotten any feedback from current clients on questions about that process or questions on the direction of the company might be after the new board comes in? Steven T. Plochocki: No. Actually, we haven't. We've been so -- we in management have been sticking to the knitting to keep driving the efforts that we're talking to you about today. And as CEO, I have not had any inquiries from customers or any inquiries from prospects. As a matter of fact, we've been working with a several prospects recently and nobody has even commented on it. So my guess and desire is it'll be a nonevent and we'll have a 9-person board and we in management will work very closely with that board to improve shareholder value.
Operator
Your next question comes from Greg Bolan of Sterne Agee. Gregory T. Bolan - Sterne Agee & Leach Inc., Research Division: So just a couple of questions. Steve, I mean, and Dan, you had mentioned the belief is that Quality Systems is a growth company, but then we look at obviously the fact that you are paying the dividend. And Steve, you've talked about in the past being more aggressive with acquisitions specifically on the acute RCM side. Can you maybe just walk us through the thoughts as it relates to uses of cash going forward? Steven T. Plochocki: Well I think we've been pretty consistent. We have done 9 acquisitions in the last 5, going on 6, years now. Most of those products and services that we bought in to our organization were products and services that supplemented and complemented our existing base of business or helped us enhance and improve our technology. That's been a pattern that we have adopted and incorporated. We've been expanding different areas of our business, and I'll have Monte comment a little bit on some of his ideas and thoughts on RCM. But essentially, you have to be careful about what you buy these days. I think we're starting to see an interesting littering of some bad purchases made in our sector that have not benefited the buyer, as well as one should've -- would've hoped. However, that being said, there are still plenty of opportunities out there and at the right price at the right time and now that we're going to have a board that we could work with on a going-forward basis that may be inclined to take a look at material acquisitions on a greater basis, then we'll probably go down that path and see where it goes. But we are not going to make bad acquisitions. That has never been our culture. That's never been. Our forte is to buy something that we don't have a strong comfort level will materialize positively for the shareholder. And if that means we're a bit cautious these days, then so be it. Monte, do you want to talk a little about RCM, some of the things that you're considering? Monte L. Sandler: Sure. So from the RCM perspective, we remain focused on growth of our business unit, both in the existing NextGen Ambulatory customer base, as well as net new relationships with multi- product sales, as I mentioned in my prepared comments. And as we've talked about before, the 4 divisions that we have within the company, RCM is the one pure service organization. The other 3 are technology businesses. Today, RCM is serving our ambulatory customer base and continuing to grow and expand within that. And we have begun efforts to move into dental and small hospital RCM, looking for potential acquisitions, as well as building that ourselves. So we're open and looking at ways to continue to grow the business and, as Steve mentioned, looking for the right opportunities for us to expand the business the right way. Gregory T. Bolan - Sterne Agee & Leach Inc., Research Division: That's great. And then just looking at kind of the sales force productivity for the quota-carrying reps in NextGen pipeline, and if I just kind of look at the past year, obviously, it looks like in the third quarter, if you kind of just divide the quota-carrying reps into the NextGen pipeline kind of troughed out, and now seeing some resurgence here in the first quarter. But, Steve, you had mentioned the goal is to get back to the $170 million, $180 million, $190 million level. Do you think you can do it with 112 quota-carrying reps, I mean, just given maybe improving productivity among the sales force? Steven T. Plochocki: Well, obviously, we want to improve productivity, Greg, but Dan indicated that we are going to add sequentially to our sales organization. We're going to do it in the right areas and the right regions. And the pipeline build is across the board, and I really absolutely believe that there's going to be additional benefits that will be kicking into play such as Stage 2. Stage 2 begins January 1, 2014. We're one of the first companies certified under Stage 2 in multiple products. And there is going to be a bit of a cleansing process that'll take place. The idea that the market will start having to tackle the fact that Stage 2 and ICD-10 and then Stage 3 and ICD-11 are complex projects. And that many of the providers of software in our sector that have come on to the game lately are going to not be able to meet some of these standards. And as I said earlier, KLAS has indicated that there will be a market cleansing, whereby a lot of replacement work is going to be out there. And we believe that the fact that we are gearing up our marketing efforts, gearing up our pipeline, adding to our sales organization. We're doing it at an opportune time. Not only do we have all the right products and services. Not only are we certified, but we are also doing it at a time when macro events are taking place like Stage 2 certification, a buying base that will be coming into play and then perhaps, even a replacement base along that way. So we anticipate that all of this coming together at the right time for us will materialize nicely for us in the second half of this fiscal year. Gregory T. Bolan - Sterne Agee & Leach Inc., Research Division: Great. And sorry, just one last housekeeping. Paul talked about kind of some onetime items. It makes more sense to me now why what impacted maintenance, but -- and obviously not -- hopefully, you can maybe talk about this in a sense that just kind of qualitatively, not having to give any forward-looking guidance, but -- so would your expectation be that maintenance revenues would actually increase sequentially in the fiscal second quarter? Paul A. Holt: Well I think qualitatively, yes, I would say that. But we don't -- I'm not giving you any formal guidance. I'm giving you a qualitative expectation.
Operator
Your next question comes from Charles Rhyee of Cowen. Charles Rhyee - Cowen and Company, LLC, Research Division: Just wanted to -- Paul and Dan, just to follow up on that -- the maintenance question. Sorry to harp on it so much. Am I understanding that the accounting adjustment that you made with some past clients, does that mean, like, the receivables are basically just expensing it here and just kind of wiping it off? So maybe some past maintenance revenue that was recognized you're not collecting? And is it right to think that you're assuming a sequential uptick because there's nothing left in AR that you're concerned about that you won't be able to collect? Steven T. Plochocki: Well, again, I'll start and I'll let Paul correct me. But certainly, that's not the case. We believe that our receivables are an important asset of the company and treat them as such. But as part of the restructuring of the company, one of the things is that the operating business units have more of an involvement in interaction on the receivables part of the efforts. And in that, clearly, some of the receivables that have been there for a great period of time have some issues within them that with resolution, both provide greater client satisfaction and provide a maximum return to the organization. And some of these are very simple, little things such as minor billing errors, right, that having gone through and looked at those and fixed those, they're very straightforward. Other ones were -- they're a little bit more complicated than that. And then the third part is just having to do with some accounting components that have changed that. But the matter-of-fact is that the receivables in that whole effort is an important effort or important component to us and I wouldn't read more into it than what we've said. Charles Rhyee - Cowen and Company, LLC, Research Division: Okay. And then maybe one question on the pipeline here. If I look at -- if we think about a 6- to 9-month lead time from pipeline to revenue and just looking back the last couple of years, is it fair then -- Paul, you kind of said qualitatively, the maintenance you'd expect to tick up. But if we kind of overlay revenue growth over pipeline growth, and we see the decline in pipeline year-over-year starting in fiscal -- beginning in fiscal '13 or actually decelerating at the end of fiscal '12 into fiscal '13, is it fair to think that we should still expect couple of more quarters of declining year-over-year revenue before we start kind of ramping back out of that? Monte L. Sandler: Well, look, Q1 of last year was the toughest comp that we are going to have. So the comp is going -- comps are going to get easier every quarter. So I'll just make that statement. And I think in terms of pipeline, those are not exact particulars of any individual quarter. They're just more a higher-level direction, a lot more material to work with in terms of being able to close. So it's -- before -- you've got to have the raw materials. I think the sales guys, they've got to have the raw materials. It's got to be there to be able to close and execute. So the good news is that we're seeing a lot of potential out there as shown in the pipeline. So I think that it's higher level. And I grant you, it's not precise, but it's in the right direction. Charles Rhyee - Cowen and Company, LLC, Research Division: Right. But I understand what you're saying, but you guys were just saying earlier that pipeline directionally is a good indicator of what things are going to go in the future, 6 to 9 months. I'm just saying that in the short term then, because of the pipeline we saw last couple of quarters on a yearly basis, directionally, we should think of that way and so we should think of an improvement in revenue growth maybe as we really exit fiscal '14, is that the fair way to think about it? Monte L. Sandler: I think we're thinking about this fiscal year. The latter half of this fiscal year. Steven T. Plochocki: We would anticipate, Charles -- we would anticipate based on our Q4 in our Q1 improvement in pipeline that we should see some material improvements by the end of this fiscal year.
Operator
Your next question comes from Richard Close of Avondale Partners. Richard C. Close - Avondale Partners, LLC, Research Division: Yes, just to touch base on the pipeline, can you go over the composition of the pipeline, maybe some directions in terms of business unit and how their composition compares to last year? Daniel J. Morefield: So this is Dan. I don't have the specific composition for a year ago. But as I stated before, the overall growth in the pipeline than what we've seen over the last couple of quarters have been across all business units with not a specific business unit dominating that growth. Richard C. Close - Avondale Partners, LLC, Research Division: Okay. With respect to revenue cycle, how is that included in the pipeline in terms of, is it total contract value? Just remind us how you include that. Daniel J. Morefield: Yes. On the -- we basically look at a 1-year contract value and include that within the pipeline. One of the things that we are contemplating providing in the future periods is more color over the overall contract value of RCM, more consistent with some of our peers in the marketplace. Richard C. Close - Avondale Partners, LLC, Research Division: Okay. On system sales, is there any thought process in terms of or any type of direction you can give us or time period, I should say, where you expect system sales to maybe trough out at? Steven T. Plochocki: Could you restate that question for me? Richard C. Close - Avondale Partners, LLC, Research Division: Just as system sales continues to decline and I'm just trying to get a feel of when you expect that to turn positive? Paul A. Holt: Richard, this is Paul. There's a reason why we don't give out forward guidance because that's a difficult thing for us to predict. I think we talked about the latter half of this fiscal year with the pipeline. I think next quarter, there's certainly -- we have possibilities, but there's -- any given quarter in this businesses has historically been very tough to try to peg and it's still going to be tough to try to peg next quarter. But we're going to do -- work hard and our sales folks are going to work hard at execution and closing business. I mean, the people are very focused and unfortunately, it's just that, that's a hard thing to peg. We just -- exactly what's going to close and what's going to push. So... Steven T. Plochocki: I think, though, just in general, if our pipeline continues to improve and our lead flow continues to improve, that it's reasonable to assume that the sequential decline in system sales that we have been experiencing should begin to flatten out and reverse itself some point in the next 2 to 3 quarters. Richard C. Close - Avondale Partners, LLC, Research Division: Okay. And then finally, I guess, with respect to gross margins, obviously, gross margins in system sales have come down quite a bit and at higher costs with -- associated with implementation and training services. Is there the possibility of gross margins in system sales to ever return to the levels achieved 2, 3 years ago? Daniel J. Morefield: Well let me -- this is Dan. Let me take the first shot at this and again, I'll let Paul correct me. But a great deal of the gross margin in the calculation is based upon the percentage of our sales that are system sales, that have the greatest percentage of current quarter gross margin impact. As the percentage of our overall sales have declined in the system sales capability, that naturally compresses our gross margin. As we see a greater expansion in system sales, I would expect that our gross margins would expand concurrently. Is that correct, Paul? Paul A. Holt: Yes, that is correct. And just keep in mind, as I mentioned earlier, we are investing and keeping resources around that what we see as strong growth and demand coming around ICD-10 and MU2. So we have purposely been investing and keeping resources, not letting resources go with 2 -- with a short-term detriment to our margin, but we think it's prudent decision in the -- for the long run. And in terms of, probably, I'll just get -- I would echo what Dan -- the comments that Dan had made. The good news is that I think from here, we can -- if we see that system sales line grow, I think there's inevitable improvement in margins because our costs around that area are relatively fixed in the short run on the software side. I think you're trying to compare to a few years back. I think you have -- one other piece to keep in mind here is that, I think the whole industry as a whole, not just us, we've all had been very busy on the development side around the -- to meet the user requirements and ICD-10. And I think that is one of the reasons why the scale issue that a lot of these smaller players are dealing with, 400-plus vendors that are certified that the expectation is quite a few of those are not going to make it because you have to have a certain amount of scale to stay in this business, and I think that's just an industry thing. But it adds a little bit of color to where things are at today versus where they were a couple of years ago. Richard C. Close - Avondale Partners, LLC, Research Division: Okay. And a final question for me, I think, you said, Paul, that the R&D, I think, gross was comparable year-over-year. I believe you said $12.9 million, if I'm not mistaken. When should we think about maybe the capitalization rate declining for you guys going forward? Paul A. Holt: I wouldn't necessarily say they are declining. I think we will see the expectation of continued investment and I wouldn't -- we -- and growth, but I'm not -- I wouldn't make a prediction about capitalization rates. We expect them to be consistent. Richard C. Close - Avondale Partners, LLC, Research Division: Okay. So there is nothing associated with any new versions or anything like that coming out that would essentially change the cap rate over the next couple of quarters? Paul A. Holt: No.
Operator
Your next question comes from Steven Halper of Lazard Capital. Steven P. Halper - Lazard Capital Markets LLC, Research Division: Just to follow up on that same area of questions in terms of the capitalized software development costs in spiked last fiscal year and continues at a higher level, what is behind the increase over the last 1.5 years or so? Paul A. Holt: Well, it has to do with the stepped-up, focused investments in various areas including -- as we talked about, the ICD-10, we're putting a lot of effort there, as well as in MU2 and as well as some other enhancements around our user interfaces. And it's just a number of fronts. I think it's just really an indication of what folks are working on and there are very specific accounting rules around reaching technological feasibility and we're very consistent in how we apply those rules. But as I mentioned earlier, at this point from where I see -- I don't see any material changes in terms of it's going to change that rate going forward. But I think there is an expectation that we're going to continue to invest and grow that investment. Steven P. Halper - Lazard Capital Markets LLC, Research Division: So if you can indulge me, just from a gross perspective, it was $12.9 million in the quarter. And let's try not to differentiate between expensed and capitalized, what is the outlook for -- what's the R&D budget for fiscal year? Is that a run rate number, the 13 for the next 3 quarters? I know that's guidance, but... Paul A. Holt: Yes. I don't think we're going to actually get into the formal guidance around where our R&D budget is and get into that level of granularity, but I can tell you though that it's -- directionally where it's going, I will give you that. Ryan Daniels - William Blair & Company L.L.C., Research Division: Directionally, that... Paul A. Holt: Which is better. Ryan Daniels - William Blair & Company L.L.C., Research Division: On an annualized basis? Paul A. Holt: Yes. Is that helpful?
Operator
Your next question comes from Bret Jones of Oppenheimer. Bret D. Jones - Oppenheimer & Co. Inc., Research Division: So I don't think there's really anything left to cover on pipeline, but I did want to circle back on a couple of items. And first one I want to go back to, and I think Michael Cherny was asking about the restructuring and sustainability of the costs that have been removed. If we look at and we were just -- since we're just touching on R&D, I'll start there. If we look at gross R&D, it went down by, what, is it about $4.5 million, a little over $4.5 million quarter-over-quarter. You've talked about increasing investments and I'm just trying to better understand how much of that is a onetime drop in costs. Is this associated with the restructuring? Or is there a sustainable cost savings that we saw in this past quarter? Steven T. Plochocki: I'm going to take the lead on this one and again, I'll ask Paul to correct me. But there are number of factors that come into reviewing the quarter-over-quarter analysis. Certainly, the restructuring had some impact, but there were other components, including a catch-up in capitalization numbers in Q4, that increased that number to a higher level. But if we look at a normalized level on a year-over-year level, the majority of the reduction in R&D expenses really centered around a reduction in third-party consulting costs and a reallocation of expenses to the SG&A lines out of R&D. Bret D. Jones - Oppenheimer & Co. Inc., Research Division: Okay, great, that's helpful. I also wanted to touch on Hospital Solutions. It's been something we talked a little bit about on this call, but I wanted to get a sense for how much longer is UHS expected to be a drag on that group? It's obviously, when you -- before you even bought Opus, UHS had made the decision to make a vendor switch. I just wanted to understand, is that transition going to continue on for the next couple of quarters? Or are we almost at the end of that? Daniel J. Morefield: This is Dan. We are at the end of that. And it's certainly, that will also -- certainly, that had somewhat of an impact in the overall reduction in our maintenance line item, but we are very much at the end of it. What is left is not material. Bret D. Jones - Oppenheimer & Co. Inc., Research Division: Okay, great. And then I just wanted to get an update on Hanger. That's something, I think, Steve had kind of indicated that, that should be -- that implementation should start in the summer time frame and I just want to see if they're still on target. Daniel J. Morefield: I believe that we continue to be on target with Hanger. We believe that, that is a material opportunity for us and expect to see a greater degree of impact over the next fiscal year -- over the next year. But I think what we have talked about and announced in the past, there is nothing that would lead us to believe that those timetables have changed.
Operator
Your next question comes from Eric Coldwell of Baird. Eric W. Coldwell - Robert W. Baird & Co. Incorporated, Research Division: I guess my question at this point really is around marketing partners, channel partners. I know you've had some solution updates regarding opportunities with managed care. I think you've also had some success with private equity. I'm just curious if you can give us an update on how you're working with those various channel partners today? Steven T. Plochocki: Well we have a lot of channels that we work through. As you know, we have 42 resellers that we work with. We continue to work closely with Dell and groups like Medline. There's no question that private equity has entered into the fray quite extensively in health care in the last 2 to 3 years. And we've made a lot inroads and we continue to make inroads with some of these PE firms that have large health care portfolio. So it's a mixed bag. The areas that really grow nicely and that expand nicely for us are a compilation of the efforts that we're doing in marketing, the efforts of the sales guys are doing in cultivating these different channels, including private equity, our expansion with a lot of the large health systems that we do a lot of work with today. We have over 4200 group practices and now I just learned we've topped the 90,000 physician mark in terms of physicians that work within our system. And so it's a compilation. The consolidation of health care benefits companies like us that have large installed bases are taking advantage of that. Our early entry into Stage 2 certification we believe will give us an early start and benefit as well. And the movement towards ICD-10, Stage 3 and ICD-11, we will stay at the forefront of all 3 of those. And every one of those gives us an additional advantage and edge in the marketplace regardless of channel. So it's always a cumulative effect and I think with the centralization and consolidation of sales and marketing, we're extremely focused. We have people dedicated to all of these areas. They're held accountable for all of these areas and we're starting to make inroads that are translating, as we have been saying repeatedly on the call, into leads and pipeline. Eric W. Coldwell - Robert W. Baird & Co. Incorporated, Research Division: That's great. And then in recent quarters, you've talked about international expansion efforts. Didn't really get much an update on that today. I'm just curious if you can give us the latest status on international opportunities? Steven T. Plochocki: Well we continue to work with our strategic partner, Dell, in expansion plans. And we have a number of other opportunities that we can't speak about because we haven't brought them to fruition yet and they include other parties that wouldn't be appropriate for me to talk about right now. But there are opportunities that will be evolving for us internationally. And we believe that, that will also be quite a benefit for us over the next 2 to 3 quarters. Operator, we'll take one more call, please?
Operator
Okay. Your final question comes from Dave Windley of Jefferies. David H. Windley - Jefferies LLC, Research Division: So hope that I can sneak some short ones in here. So first of all, on RCM, Steve, you've talked a fair amount about and given a lot of attention to the growth opportunity in RCM, and I suppose 11% compared to what we're seeing from some peers seems a little small. It's certainly better than other parts of your revenue base. But I guess, I'm wondering, is 11% what you think good growth is for RCM or is it poised to accelerate from here? Steven T. Plochocki: No, it's poised to accelerate. We did 11 deals last quarter and it just -- it has to do with the mix of deals. We had a quarter before that where we had considerable growth because we did some larger deals. And so I can tell you in that pipeline, we have a lot of nice mixture of small, mid- and large opportunities and we anticipate RCM will continue to be a growth driver for us in a significant way. Particularly, and along the lines of the packaging we've talked about in the past, 3-, 5-, 7-year contracts for RCM coupled with products that will be -- that become part of that deal, is a tremendous benefit for companies like us that have 20 product offerings along with our RCM servicing. So this is going to continue to be a model of growth and expansion for us because health care now is starting to figure out and understand that the -- becoming automated, creating accountable care organizations, creating different types of consortiums in their local markets to contain cost and improve quality. All of these methodologies are evolving. And more and more of our deals in the future will be -- will entail multi-products, as well as long-term relationships, where we will continue to add products to that relationship. This, again, an enormous benefit for those of us that have scope and scale coming into this entire game of automating health care. David H. Windley - Jefferies LLC, Research Division: Are you seeing, Steve, pricing pressure in RCM? We hear a lot about some pretty aggressive pricing among the peer group? Steven T. Plochocki: Yes, of course, there's pricing pressure and there's competition, but again, we tried to build the deal in a manner that incorporates products along with RCM. Pure-play RCM, where people are just going to talk about percentages of collected revenue without the addition of products and duration of 3-, 5-, 7-year contracts, aren't necessarily the route we're taking. Most of our deals incorporate more than just RCM. They incorporate different forms of products and serving offerings. So it's -- we work everything towards a package deal where the benefit of the package outweighs any kind of pricing or discounting pressures. David H. Windley - Jefferies LLC, Research Division: Right. Are you having to throw those additional products in for free to -- is that the way you kind of match the pricing pressure? Steven T. Plochocki: If you have a deal that incorporates RCM in 3 or 4 different products and you've come to terms on the deal price point, there's no way to differentiate one from the other. Other than the fact that it's a good deal for us, it's long-term and it gives us the opportunity to sell additional products over the duration of the relationship. David H. Windley - Jefferies LLC, Research Division: Okay. And one last one on the clinical side. NextGen, you've mentioned that you have Meaningful Use 2 certification. I just want to clarify because I've heard Nick's [ph] response on this. Can a customer buy your Meaningful Use 2-certified product and implement that without further upgrading and get attestation? Our understanding is that there needs to be another upgrade. Daniel J. Morefield: So this is Dan. We have not announced a general lease of the specific version for Meaningful Use 2. It is certified already. We have a number of clients that are in the process of upgrading as part of our beta process. And we would expect announcement of the specific date associated for general lease of that certified system a little bit later this year. Steven T. Plochocki: Well we want to thank everyone for joining us today. Hopefully, we've been able to cover a lot of the points that were relative to the restructuring and the turnaround that we're effecting here. We in management are incredibly confident, and feel extremely positive about the future. It's been a long road for us the last 3 or 4 quarters, but to be able to see the progress we're making in costs, the fact that our pipeline and leads are up, our recurring base of business is growing, we're Stage 2-certified, we're starting to receive very positive feedback from CMS in terms of retention and of our physician base, according to their programming, and then, of course, the fact that all of our ancillary product lines, EDI, RCM, Patient Portal consulting, are all double-digit growth areas for us. All we've got to do is get this pipeline converted, get our fair share of deals done in the system sales area and we believe that we're going to be back on track by the second half of this year. So we like the position we're in. We're looking forward to working with our new board come August 15, and improving shareholder value and enhancing the opportunities that this sector is still in its very early stages. And we figured this is a decade-long run just to automate this sector in preparation for reform. And we're in the very early stages and we're optimally positioned for it. So thank you again. Look forward to seeing you guys in our travels, and take care. Bye now.
Operator
Thank you. This does conclude today's teleconference. If you would like to listen to a replay of today's conference, please dial (800) 585-8367, and refer to conference ID number 21310368. A webcast archive of this call can also be found at www.qsii.com. Please disconnect your lines at this time, and have a wonderful day.