NextGen Healthcare, Inc. (QY1.F) Q1 2015 Earnings Call Transcript
Published at 2014-07-24 15:40:26
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 - Former Executive Vice President of Nextgen Practice Solutions Gary Voydanoff -
David Larsen - Leerink Swann LLC, Research Division Jamie Stockton - Wells Fargo Securities, LLC, Research Division Charles Rhyee - Cowen and Company, LLC, Research Division Jeffrey Garro - William Blair & Company L.L.C., Research Division Michael Cherny - ISI Group Inc., Research Division Saurabh Singh - Morgan Stanley, Research Division George Hill - Deutsche Bank AG, Research Division Garen Sarafian - Citigroup Inc, Research Division Gregory T. Bolan - Sterne Agee & Leach Inc., Research Division Bret D. Jones - Oppenheimer & Co. Inc., Research Division David K. Francis - RBC Capital Markets, LLC, Research Division Eugene Mark Mannheimer - Topeka Capital Markets Inc., Research Division Sean W. Wieland - Piper Jaffray Companies, Research Division David H. Windley - Jefferies LLC, Research Division Gavin Weiss - JP Morgan Chase & Co, Research Division
Welcome to the Quality Systems Inc. Fiscal 2015 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. You may begin. Steven T. Plochocki: Thank you, Laure. And welcome, everyone to Quality Systems fiscal 2015 first quarter results call. With me this morning are Paul Holt, our CFO; Dan Morefield, our Chief Operating Officer; Monte Sandler, the Executive Vice President of RCM Services; and Gary Voydanoff, the Executive Vice President of Sales and Marketing. 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, perspective and strategies, preliminary and projected; and capital equity initiatives to the implementation of potential impacts of legal, regulatory or accounting principles. I'll provide opening comments and then turn it over to the team. Revenue for the fiscal 2015 first quarter reached $117.9 million, an increase of 8% when compared with $109.5 million for fiscal 2014 first quarter. Net income for 2015 first quarter was $5.2 million, down from $12.9 million reported in the comparable period a year ago. On a GAAP basis, fully diluted earnings per share was $0.08 in fiscal 2015 first quarter versus fully diluted earnings per share of $0.22 for the same period last year. On a non-GAAP basis, fully diluted earnings per share for the fiscal 2015 first quarter was $0.13, a decline from $0.24 reported in the first quarter a year ago. At quarter end, the company held a strong liquidity position with $116.4 million of cash and investments. As we kickoff fiscal 2015, we are pleased that the company is demonstrating significant progress this quarter. We are beginning to realize results from all the initiatives that we've employed over the past year, including the restructuring of our functional organization, cross-selling of our products and services and the release of new solutions that cater to the changing healthcare marketplace. Areas such as revenue cycle management, Population Health, interoperability are positively impacting sales and marketing as it relates to both new net deals and cross-selling into our growing client base. During the first quarter, our pipeline hit the highest level we have seen in the past 2 years, representing the fact that these changes are now coming to fruition. We're pleased to begin the new fiscal year with a positive start. And as the healthcare information technology industry continues to evolve, Quality Systems/NextGen remains front and center in helping our clients meet necessary criteria for Meaningful Use qualifications in healthcare reform. We also announced that the -- our Board of Directors declared a quarterly cash dividend of $0.175 per share on the company's outstanding shares of common stock payable to shareholders of record as of September 12, 2014, with an anticipated distribution date of October 3, 2014. The $0.175 per share cash dividend is pursuant to the company's current practice to pay a regular quarterly dividend on the company's outstanding shares of common stock, subject to the board's review and approval, and establishment of record and distribution dates by the board prior to the declaration and payment of each such quarterly dividend. The company will also hold its 2014 Annual Shareholders Meeting on Monday, August 11, at 1:00 p.m. local time. The meeting will be held at the Irvine Marriott, 18000 Von Karman Avenue Irvine, California. Holders of record, as of June 16, 2014, are eligible to vote and attend. Proxy materials and the 2014 annual report will be made available to shareholders of record and will also be posted on the company's website. We're very positive with the progress that we've made to date. And now, I'll turn it over to Paul, who will take you through a deeper dive into the financials and then he'll turn it on to the rest of the team, where they'll give you more color on the progress that we've been making. Paul? Paul A. Holt: Thanks, Steve. I'm happy to report our consolidated first quarter revenue of $117.9 million, reflects a growth of 8% over last year. Principal driver of our revenue increases, came primarily from recurring service revenue streams. This category as a whole grew 11% to $96.9 million from $87 million in the year ago period. The largest contributors within this total were EDI, maintenance, revenue cycle, consulting services and SaaS or subscription-based revenue streams. Our subscription revenue benefit from the growth of our NextGen Patient Portal product and other SaaS offerings. We also continue to see momentum in our suite of interoperability solutions provided by our Mirth acquisition, which both have license-based and SaaS-based product offerings. Total bookings of software and services, including RCM, was $36.6 million. That's down from $42 million last quarter, but up from $29.3 million a year ago. I'm going to note on a go-forward basis, we will be refining our definition of bookings to include the full contract value of our arrangements, as opposed to just the annual run rate, which will impact reported bookings for things like RCM, SaaS, et cetera. This updated definition will reflect a trend towards longer-term contracts around our recurring revenue streams, such as RCM and SaaS. Overall, our gross profit in terms of dollars was relatively flat in comparison to the prior year period. Our consolidated gross profit margin this quarter came in at 52% versus 56% a year ago, reflecting a continued shift in our revenue mix towards recurring revenue streams, including EDI and RCM, which add lower margins compared to software revenues. Our SG&A expense increased by approximately $1.6 million to $36.7 million this quarter compared to $35.1 million a year ago. This increase was primarily driven by the inclusion of Mirth related SG&A expense, salaries and benefits, marketing expenses and other expenses, offset by a reduction in bad debt expense. Contributing to our lower bad debt expenses was a significant improvement in the turnover of our accounts receivable. Our turnover of accounts receivable by days outstanding declined to 87 days compared to 116 days a year ago, reflecting our continued focus on working capital management. Moving down to R&D expense. R&D expense increased to $16.2 million versus $5.6 million a year ago, reflecting both increased investment, as well as a small percentage of our expenses being capitalized. R&D expense as a percentage of total revenue was 13.8% versus 5.1% a year ago. Our total R&D investments for the quarter increased to $19.1 million versus $12.9 million a year ago. We capitalized approximately $2.9 million in development costs this quarter versus $7.3 million a year ago. And as I've mentioned in prior quarters, the decline in our capitalized software cost was driven by several factors, including the timing of projects, reaching technological feasibility, and the cessation of capitalization in the hospital business, due to the impairment of our tangible assets, we recorded last fiscal year. The increase in R&D expenditures, investment reflects our continued commitment towards our product offerings, both new and existing. We're excited about the opportunities to continue to leverage the Mirth interoperability platform into our product roadmap moving forward. Our effective tax rate for this June quarter was 34% compared to 33% in the prior year. The increase in our effective tax rate reflects the fact that the R&D tax credit statute has expired as of December 31, 2013, and has yet to be extended. Please write to your congressman. That's just an editorial. On a GAAP basis, our fully diluted earnings per share for fiscal 2015 was $0.08, a decrease from $0.22 per share recorded in the year ago quarter. Our year-over-year decrease in GAAP earnings, as well as our non-GAAP earnings was driven primarily by the increase in reported R&D expenses combined with a shift in our revenue mix towards our lower gross margin categories of revenue. Our cash and cash equivalents plus marketable securities ended the quarter at $116.4 million. That's up $2.6 million from $113.8 million at the start of the quarter. This reflects our continued strong performance in cash collections. And as I've mentioned prior, our turnover of receivables is 87 days compared to 116 days a year ago. Moving onto segment results. I'm going to start with Ambulatory, $91.7 million; Dental, $4.2 million. And now I'm giving you revenue numbers: the Hospital, $4.2 million revenue; and RCM $17.8 million that equates to $117.9 million in [indiscernible] consolidated revenue. Prior to this current quarter, we've been reflecting R&D and marketing costs at the business unit level. Internally, we're -- starting with this fiscal year, we're going to provide internal management reports that include operating results with and without R&D and marketing expenses. So I'm going to provide you with operating results at the segment level, both from the vantage point of our historical approach, as well as this approach that it excludes R&D and marketing. So let me give you the operating results that reflect the historical way we've been reporting this externally. NextGen, Ambulatory, operating profit of $26.2 million; our Hospital unit, an operating loss of $3.5 million; our Dental unit, loss of $0.1 million; and RCM operating profit of $1.6 million. Now moving on to operating results that reflect R&D and marketing, being a part of corporate unallocated, would give the Ambulatory unit operating profit of $40.6 million; the Hospital division operating loss of $1.1 million; dental operating profit is $0.7 million; and our RCM unit operating profit of $1.8 million. And finally, as I often provide, kind of give you those who are tracking this, some of our noncash expenses. So as I've mentioned, amortization of capitalized software, $3.6 million; amortization of intangible assets, $1.8 million; total depreciation expense, $2.1 million; and stock comp expense, $0.8 million. And in our investing activities for the quarter: capitalized software, $2.9 million; fixed assets $2.3 million. Again, I thank you for your interest in our company. I'll turn things over to Dan Morefield. Daniel J. Morefield: Thanks, Paul. And hello, everybody. I'm pleased to report that the flagship Ambulatory division, even excluding revenue from our Mirth acquisition, finished Q1 by posting the highest quarterly revenue in its history. The increased revenue was primarily driven by higher services revenue, such as implementation, consulting, SaaS and EDI revenues. As previewed on the last quarter's earnings call, increased consulting bookings led to higher revenue. This trend continues as the professional consulting group continued with strong bookings of $1.8 million this last quarter. In June, we announced the successful implementation of another interoperability offering. Through our partnership with Sure Scripts we demonstrated the ability to share critical healthcare information between NextGen systems, and in this case Epic. This along with our previously announced Cerner bi-directional certification exemplifies our continued effort to create solutions that overcome the various roadblocks to true interoperability. We also announced that Mirth Connect version 3.0.1 is compliant with ONC 2014 Edition Criteria and was certified as an Electronic Health Record, EHR module on May 1, 2014, by the Certification Commission for Health Information Technology, in accordance with the applicable, eligible providers certification criteria adopted by the Secretary of Health and Human Services. Gary Voydanoff will have additional comments about Mirth sales during his segment of the call. Mirth integration within QSI continues to go as planned, including meeting core financial and nonfinancial objectives. This includes the recent launch of NextGen Share, a national Health Information Service Provider or HISP, enabling our clients and non-NextGen Healthcare providers to exchange secure clinical data. NextGen Share is the first joint solution from NextGen Healthcare and Mirth since its acquisition by QSI last fall. Moving to Hospital Solutions. The Hospital Solutions division continues to deliver on commitments to its customer base with further progress and recovery of both top and bottom lines. There are 3 main areas of note regarding operations in the first quarter. First, the division successfully completed the upgrade process for the vast majority of its installed base with NextGen Inpatient Clinicals version 2.6. This upgrade allows for our hospital customers to continue in their participation of the attestation process for Meaningful Use Stage 2, as well as take advantage of new and enhanced workflow functionality to drive additional clinical efficiency. Secondly, we saw a material growth in hospital revenues this quarter, anchored by a large deal with HMCs/CAH consolidated to install NextGen Inpatient Clinicals in 5 of their wholly-owned critical access hospitals. The HMC opportunity is significant, and it focuses on their business models towards the focus of their business model, is to acquire and operate acute care hospitals in rural communities, including the replacement of technologies -- technology out-of-date and operational-inefficient facilities and systems. This partnership represents an opportunity for both organizations to grow. Third, the operating expenses have materially declined quarter-over-quarter, reflecting the continued redeployment of staff as implementation obligations are completed, as well as a level of reduction of headcount related to now completed upgrade processes with our customers. We believe these lower levels of expenses are sustainable without sacrificing our ability to support our client base, and in many cases, should actually lead to an improved customer experience, based on improved process, focused on automation in key areas of technology. Overall, I am pleased with the progress of the Hospital Solutions division. Switching for a moment to our Dental division. I am pleased to state that we continue to see our QSIDental Web SaaS product mature and start to be adopted by our larger enterprise clients. For example, our long-term client Park Dental has begun implementation of QSIDental Web. Park Dental has over 40 locations with approximately 140 dentists and 200 hygienists. We maintain a robust sales product, a pipeline and product roadmap containing continued enhancements. With that, I will turn the call over to Monte Sandler. Monte L. Sandler: Thanks, Dan. Good morning, everyone. Well, I have some exciting things to report to you this quarter from RCM. But before I get to them, I'll share that RCM Services revenue for the first quarter was $17.8 million, resulting in a 7% increase over the last quarter, and 2% over the prior-year quarter. As we've previously discussed, we've managed through the loss of HMA, a historically large RCM client this past year. And have successfully replaced the revenue gap from this loss. While bookings for the quarter were below expectations, we have already closed some of the deals in Q2 that pushed from Q1 and have others positioned well. To that end, I am thrilled to report that we have recently signed our largest RCM customer to a 10-year contract extension, and could not be happier to partner with them for the foreseeable future. Over the course of the next 10 years, we will no doubt see significant changes in the revenue cycle from ICD and CPT coding to risk contracting and value-based reimbursement. We're proud of the fact that they've placed their confidence in us to help them navigate these changing tides successfully. Our backlog of signed deals not implemented remains strong, giving me continued confidence in the direction of the business. And our RCM pipeline continues to grow as our customers and the overall market learn more about our comprehensive service offering. While we saw a decline in booking margin in recent quarters, we are seeing the margin on recent bookings tick back-up. We continue to invest in the marketing of RCM Services, both to our existing Ambulatory customers base and the market at large, and our overall company messaging now includes RCM as a key component of our products and services. Finally as I indicated last quarter in my prepared comments, and you no doubt saw in our recent press release, we have executed our first hospital RCM contract, where we will be providing revenue cycle outsourcing services to our hospital customer base. We went live with the customer on July 1 and have already made a huge impact on their use of our hospital technology in optimizing their revenue cycle. Expect us to continue to pursue these opportunities within our existing NextGen hospital customer base and the small rural market at large. I remain excited to bring this service to market, with a focus on helping our hospital customers optimize their revenue, and maximize the use of our hospital software similar to what we've accomplished on the Ambulatory side. We have some exciting new service offerings that we'll be bringing to market, over the course of the year, that will no doubt help our existing customers, and create new leads within the NextGen customer base and the overall market. I remain optimistic about the direction of the RCM business. I continue to feel confident that our tailored RCM Services, driven by people, process and technology, make us a great solution to help our customers successfully navigate the complex and ever-changing healthcare environment. Thank you for your time and interest in our company. I'll now turn it over to Gary.
Thank you, Monte. Good morning, everyone. We kicked off our fiscal year with a continued focus on leveraging our multi-products strength, cross-selling to both new and existing clients, our solutions for EHR, EPM, RCM, EDI, Population Health, Mirth and Dental. We've increased our marketing efforts to support lead generation for the existing products, as well as an additional focus on campaigns for RCM Services, Mirth products and our Population Health platform, campaigns to attract net new business, as well as aggressive client cross-selling. It was less than a year ago that we announced the development of our first joint NextGen-Mirth effort, NextGen Share, with the ambitious goal of connecting every NextGen client via nationwide network to facilitate the secure exchange of meaningful clinical data, in support of coordinated patient care and Meaningful Use requirements. The product has come to fruition with the general release July 1, and in the first few days, several dozen sites have signed up to deploy the product. NextGen Share puts us on the leading edge of innovation with this low-cost interoperability solution as the backbone of true collaborative care in our ACO strategies. We look forward to taking advantage of this interoperability platform to provide even more robust capabilities within and outside of our client base to support data strategies that can add value for our clients and drive revenue growth within our organization. With NextGen Share, we are well positioned to continue to innovate with connectivity solutions to support remote patient monitoring, fitness and wellness wearables, all of which fit into the goal of Patient Population and Health Management. Mirth continued to see pipeline growth and our combined development teams work on new products, such as NG7, our expanded Population Health tools, NextGen Share, our iPad and mobile solutions. As our Ambulatory sales team has become more fluent in the Mirth solution set, we continue to find and execute on cross-selling opportunities. Mirth has had a very positive impact on the NextGen clients with many reported use cases that we'll be publishing to support our Mirth marketing strategy. As I've mentioned on our previous call, the interest in Population Health continues to grow within our client base. The interest has resulted in continued pipeline growth of this product line and increasing revenue contributions, with sales across multiple specialties and all client sizes. We're pleased that enterprise clients, such as Trinity Health and United Health Services are deploying the product as part of their Meaningful Use and ACO strategies. We're excited about the client partner sites that are working with us to bring to market an expanded set of features to support the broader Population Health and ACO market. Crystal Run Healthcare, for example, is deploying the full suite of NextGen Population Health, Mirth results and Mirth care products to support their aggressive ACO strategy. And we'll be a flagship for the use of technology to support excellent patient care in a value-based environment. Our core business saw a solid EPM and EHR license sales to both net, new and existing clients in growth mode. Sales of services, Patient Portal, connectivity solutions and Population Health driven by Meaningful Use in value-based care models contributed to our Q1's success. Of note, on our RCM wins, we have recently incented the sales team to sell longer-term contracts and it's paid off with several new contracts of 5 years or longer. Our marketing team continues to do an excellent job and lead generation continues to be positive quarter-over-quarter and year-over-year. The combined division pipeline sits at $158 million today, an increase over Q4 of fiscal year '14. We kicked-off our fiscal year '15 with some positive success stories, I'd like to point out to you this morning. Our RCM growth continued to be filled with client of all sizes and specialties. Notably, this past quarter, we added University Orthopedic Center in State College Pennsylvania. On the Ambulatory front, we note the addition of Laser Spine Institute, and North Carolina Pediatric Associates. Along with the expansion of our relationship with our VAR, our VAR partner TSI Healthcare is doing a wonderful job providing NextGen Healthcare to the marketplace, and United Health Services with a significant investment in our Population Health products. The Laser Spine Institute is a national leader in advanced minimally invasive spine care with state-of-the-art facilities around the country. LSI is an example of our ability to cross-sell multiple products and services such as EPM, EHR, dashboard, Patient Portal and NextPen with professional consulting services to optimize the deployment. The Mirth success continued by adding one of the premier HIEs in the country. The Rochester Rio located in Rochester, New York, with some 70 healthcare organizations participating in the exchange of data to support collaborative care. Also of note was a cross-selling of Mirth tools into the NextGen Ambulatory base at Tenet Healthcare and Trinity Health. Finally the company executed 95 new arrangements on a consolidated basis versus 102 last quarter. 75% of the new arrangements are greenfield, 25% were replacements. Discounting did not materially change in the quarter and as of 6/30/2014, there are 136 quota-carrying sales and management positions. There was no material increase in the sales staff over Q4 fiscal year '14. With that, I'd like to thank you for your time and continued interest. And Lori, I'd like to turn it over to you for questions now.
[Operator Instructions] Your first question comes from the line of David Larsen of Leerink Partners. David Larsen - Leerink Swann LLC, Research Division: Dan, can you maybe just touch on the Hospital division, you showed, I think, really, good revenue this quarter. Can you just talk about the process that win process for that hospital clients, sort of the momentum you may have in that division? Daniel J. Morefield: Sure. The couple of key components on the recognition of revenue associated with the hospital division. First of all, that division is on a cash basis. And so, expect a little bit of a lumpy, both top line, kind of, number simply because of the accounting treatment that we have. But focusing specifically on the win, this is an existing customer upon which we have existing installations in a different place. What's material about it is this was a customer that, even during a difficult period of time, we were able to win both from a product perspective, and from a services and a mind share perspective. So the real win or the piece that's most important here was the relationship we're able to build, the expanded opportunity that it provided, and we see that as a benchmark of other things we can do with our existing client base; consistent with our overall practice of cross-selling to our existing client base is one of our key methodologies of growth.
Your next question comes from the line of Jamie Stockton of Wells Fargo. Jamie Stockton - Wells Fargo Securities, LLC, Research Division: The other services line, I think, was fairly strong during the quarter. Would it be accurate to say that, that was a combination of subscription revenue coming online and some consulting business that flowed through? Paul A. Holt: This is Paul. Yes, that would be correct. So we have included in the other category are a number of things, majority of which is subscription and SaaS-based kinds of revenue streams, but consulting is one of those revenue streams that's included. So you are correct. Jamie Stockton - Wells Fargo Securities, LLC, Research Division: Okay, that's great. And then I just had 2 other questions. I'll fire on both so you guys and think about them. One is Stage 2, the numbers thus far have not been that great. What do you think is going on with physicians? How do you think they will fare in Stage 2 based on the feedback that you've been getting from clients? Are we going to see a lot of physicians dropping out of the program at Stage 2? And then my other question is on the Health Information Exchange landscape. You guys have talked about your partnership with Sure Scripts. You have the Mirth business that you bought. How does all of this fit together? How will providers ultimately be exchanging records with each other? And what will that network landscape look like? And I'll stop there. Steven T. Plochocki: Sure. Jamie, this is Steve. The -- I'll take the Stage 2 portion of your question, and then hand the ball off to Gary to follow up on the HIE component. As we all know, Stage 2 was delayed. The -- I think the government saw that, come March or April, when they issued the delay, that there were only about 35 or 40 of us that had Stage 2-certified products out of 300-plus Stage 1-certified products. And of course, as you know, we were Stage 2-certified and ICD-10 compliant last November. I think it was just a matter of giving the -- giving them a little bit more time. If you followed the program, and I know you have from the very beginning, ever since the HITECH Act was announced in 2009, every time the government senses that they need more time, so that they don't discourage adoption or further movement towards automation, they've taken the opportunity to give the extra time. So all I basically see this for, this delay, is companies like us that have the large installed bases with the R&D capabilities will continue to be at the forefront. And there's probably going to be, as many of our third-party assessors in this sector indicate, there's going to be a washing out of smaller players, who will not be able to meet Stage 2 or ICD-10 compliance. And that, that will create the front end of the replacement market. That's actually a replacement market we're starting to see pieces of already. Gary, you want to pick up the HIE piece?
Yes. That's an interesting question, Jamie. So let me take a stab at it. So on the Mirth front, we see activity in, kind of, both the public HIE sector in that there are still some technologies that we're engaged in, in replacing. So some of the original products that were invested in, kind of aren't living up to what the expectations were. So we've got activity there. One of the interesting areas where, I think, we'll see future growth is in kind of this area of -- you can call it a private HIE, but local or regional physician -- excuse me, networks that need to collaborate in care. And so, there is a need to have an engine that supports that kind of collaborative care that can store and forward information and allow that to happen, and that's where the Mirth tool set fits in very nicely. And it's where we do see some activity there as well. And then there's the NextGen Share network. So our idea there has always been that before you could really have collaborative care, we've got to get widespread connectivity. And we had to do that in such a way that it wasn't going to be a burden from a financial standpoint on all of our clients and the folks that they connect to. So we've kind of laid that fiber optic network of NextGen Share, if you will, and then the next step is now, there are many different opportunities where folks are engaging us to say, can you provide this additional set of data? Or can you gather and do benchmarking across this kind of data? So there's going to a lot of opportunity, we think, to drive revenue and monetize the network going forward in the future. So we're excited about that. And so I think that the landscape is going to just be more and more opportunity to connect HIE to HIE to physician organization to hospital and so forth. So we see a lot of possibilities there.
Your next question comes from the line of Charles Rhyee of Cowen and Company. Charles Rhyee - Cowen and Company, LLC, Research Division: Had a -- just a 1 quick follow-up from an earlier question about, Paul on the other revenue, you said there is a subscription SaaS, some consulting. Does any of the Mirth sales go into that as well? Or is that captured elsewhere? Paul A. Holt: No. Pretty good piece of Mirth products are included there. As I've mentioned there, Mirth product suite is offered both on a SaaS basis and on a license basis. They have a very high percentage of products that are being done on a SaaS basis. So you have a -- Mirth is definitely included in -- a good part of Mirth is included in that other revenue category. Charles Rhyee - Cowen and Company, LLC, Research Division: Okay. Thanks, I just wanted to clarify that. As you think about the -- can you talk about the pipeline again? Sort of -- If I'm not mistaken, you said was $158 million. Can we talk about how the mix looks here now? You talked about a number of areas that you already -- you're seeing interest from clients, particularly in collaborative care, Population Health. Can you maybe give us a sense of the relative growth rates within the pipeline mix that you're seeing between some of your product lines?
This is Gary. So while we don't get into the details of the pipeline, I'll say it's across-the-board increases. And we've got a very diverse product line now. And that's been one of the goals that the management team is trying to establish over the last 8 quarters. So I think we're seeing the fruition of that. Charles Rhyee - Cowen and Company, LLC, Research Division: I just want to clarify that. I mean, can you give us a sense of -- is there a couple of areas that are you say -- the last quarter or 2 have been really growing faster than others? Or is it just basically even across the board? Any sort of qualitative comments would be helpful. Steven T. Plochocki: Sure. Charles, this is Steve. We've long engineered a product and service offering to cater to not only the current needs of the market, but what we're seeing is the emerging and future needs of the market. We have over 32 now product and service offerings. And I think because we've made good choices, in terms of the areas that we wanted to invest in, whether it be an acquisition or R&D, those products and service offerings are now gelling nicely into the emerging trends of the sector. So it is an across-the-board piece. That, to me, is very encouraging because we're not relying on any 1 area. We're not relying on any 1 product or service line. We're starting to see that all the things we've invest in are now being needed and wanted by our group practices and the healthcare market in general, as Gary cited, as we start moving healthcare as a sector from a fee-for-service world into a value-based accountable care world.
Your next question comes in the line of Jeff Garro of William Blair. Jeffrey Garro - William Blair & Company L.L.C., Research Division: I want to ask with the pipeline relatively steady for a few quarters now. What kind of additional visibility or maybe confidence in your close rates do you need to return to providing forward guidance? Paul A. Holt: Well, we've long said that we wanted to make sure that we could get on some basis of predictability and consistency in our forward view. We're starting to get pretty close to that point. Now that we're starting to see revenue growth that we anticipated, now that we're starting to see the pipeline grow because of the diversified product and service offering, I'm not saying that we're going to provide forward guidance, but we have provided some directional guidance, certainly, at our last Analyst Day at the beginning of June. And we're still pretty much in concert with that. My guess would be, though, in terms of just pure straightforward guidance, you won't be seeing that this fiscal year. Jeffrey Garro - William Blair & Company L.L.C., Research Division: Fair enough. And then just a follow-up on the close rates. Are you seeing those improve or, kind of, reach more of a stable metric, stable rate?
Yes, this is Gary. I would say they're stable, about the same as they've been. And again, that's really across all of those various product lines. Jeffrey Garro - William Blair & Company L.L.C., Research Division: Great. And then 1 last one, kind of on the financials. Can you guys comment on the sequential decline we saw in maintenance. After the uptick last quarter, we were expecting a little steadier pattern for that revenue line. So is there any particular source for that sequential decline? Paul A. Holt: Yes. This is Paul. So we had a couple of credits that we had this quarter relative, I would say, onetime. So not a huge deal. But occasionally, that -- you have some credits that happen and...
Your next question comes from the line of Michael Cherny of ISI Group. Michael Cherny - ISI Group Inc., Research Division: So I want to dive into the competitive environment a little bit. You talked, if I'm correct, about 25% of your deals this quarter were from replacement. When you're going through replacement market, how much of the newer, I guess, more focused sales strategy on the integrated offering is really helping as you go and try to win deals? And I guess, are you seeing any shifts or changes, and who you're going up against from a head-to-head basis?
Michael, this is Gary. I guess, the latter part of the question, first, I don't think we're seeing a material change in who we're competing with. Several, probably, calls back we started talking about some of the efforts we've had in more niche markets around behavioral health and PT and areas like that. So we might compete with some different players in those markets. But in general, it's the same competitive landscape that we slug it out with every day. To the first part, the replacement market, again, has been fairly steady. And as we look across those systems that we have replaced, there's no particular pattern right now. It is really across the board. But in general, it's, as we've predicted, kind of, those smaller players that I think people don't have confidence in as much. And those are the ones generally that we're replacing right now. Michael Cherny - ISI Group Inc., Research Division: Great. And then when you think about the long-term inpatient strategy, I guess, how expansive do you want to get? Is your goal, in 5 years, to be in-patient provider to the entire inpatient market? Or is it going to be a slow and steady build in your core market, and now see, where it develops over the next couple of years? Daniel J. Morefield: This is Dan. I think there's 2 ways to think about that, or how we think about it today. We have both the short-term focus on return to profitability, stabilizing the customer base and continuing to focus on what we have. And then the second component is how it interrelates to our overall ambulatory base and what's important to that base and how it looks in -- how the importance of that is from a strategic basis over time. We'll think more and more over time of the Hospital Solutions as more of, sort of, a facility-based businesses that expand beyond just critical hospitals, that include things like standalone emergency departments and surgical centers and such components that are very consistent with the strategic direction of our core base.
Your next question comes from the line of Ricky Goldwasser of Morgan Stanley. Saurabh Singh - Morgan Stanley, Research Division: This is Saurabh Singh sitting in for Ricky. I was wondering if you could give us the contribution of Mirth revenues to the quarter? And also, any color on how the performance of Mirth compares to its standalone performance prior to the acquisition? Are you seeing any benefits from the NextGen sales force getting behind it? Paul A. Holt: Yes. This is Paul. I'm going to take the first part of that question and I think we're going to have Gary take the second part. So we -- Mirth is becoming blended and mixed. And it's going to get -- as we've -- I think we've said prior, if we haven't, we're going to say it now, that we're not going to get into breaking out that level of detail of what's Mirth, what's not. We have so many different product lines that are there -- that we have. And I think just directionally though, it's safe to say that we're enjoying growth there in that particular revenue category.
Yes. So this is Gary. I guess in terms of the second half, just on that question, to echo Paul, it's having clearly a positive impact from a pipeline standpoint and from a revenue growth standpoint. And what's -- what we're really seeing, and I think it's in our infancy is that, that cross-selling is starting to take off. We've spent the first part of the acquisition beginning to train our team on the Mirth products. And that takes a little bit as a mindset shift from selling pure electronic health record and practice management financial systems to really understanding interoperability. And as I mentioned in my statement, we've been collecting a lot of the various use cases across our client base to then use in sales and marketing campaigns. So that's just now beginning to really come to fruition. And as I mentioned, too, in my statement, we had a couple of really nice cross-sell wins with some very large clients that we're pretty pleased with. Saurabh Singh - Morgan Stanley, Research Division: And could you maybe just give us like a big picture mix between license and SaaS sales from Mirth? Like, I mean, how should we think, it was like 50-50? Or is it more towards the SaaS side? Paul A. Holt: I'll just say it's -- this is Paul again -- I'll say it's -- that's a majority on the SaaS side, but we do have license-based sales for Mirth as well. Saurabh Singh - Morgan Stanley, Research Division: All right. And one last question, if I can get that in. And on the RCM gross margins, the last couple of quarters have been below historical norms. I don't know if that is related to entering the hospital RCM market. Could you give us some sense of the drivers there? And what do you see as a reasonable long-term target for both gross margins and operating margins for that business? Monte L. Sandler: So this is Monte. I think we've reported last quarter and we saw it again this quarter, we have some deferred revenue that isn't hitting the revenue line on the P&L. And so, the expense is fully loaded. So that's weighing on some of the gross margins. As those deferred revenue items are recognized, I'll think you see that tick back up. Our run rate for the most part is in line with historical, if you factor that deferred revenue in. There's some slight tweaking just based on margin on bookings. But as I mentioned in my prepared statement, we've seen an uptick in margin on recent bookings. So I think, aside from the deferred revenue, we're really in line with historical gross margin rates.
[Operator Instructions] Your next question comes from the line of George Hill of Deutsche Bank. George Hill - Deutsche Bank AG, Research Division: Paul, I guess first one is for you. You talked about the, I guess, the credits that occur in the maintenance line. It seems a little bit -- I don't remember hearing a lot about that before, I guess, can you give us just some examples of what drives that credit in the maintenance line and maybe just some of the moving parts behind that? Paul A. Holt: Well, George, this is -- look, credits are a part of the business. It's not anything new. We have had this in our history that you have various issues that may come up that result in credits. We've seen -- we've talked a lot about that in the hospital division, of late. But those things have been improving, to be sure, on the side of hospital. But I really think -- I'm just going to leave it at that, that we had some credits that we -- they did not reflect the underlying run rate of maintenance. I think that's what I would point you to, that these were some credits that were issued. And that's what happened on a sequential basis. If you look on a year-over-year basis, clearly it continues to show a great trend there. And I think that's about the extent that I'll comment on that. George Hill - Deutsche Bank AG, Research Division: Okay. I guess that's helpful. One of the things I was trying to get to is this like a -- we had a service issue so you get a maintenance credit? Or sign up for 4 years of maintenance -- renew for 4 years of maintenance and get the first 6 months free type? Like, I guess, I was trying to figure out if these are promotional credits or service credits or, kind of, what -- what's driving the credits to the customers? But it sounds like it's a -- it sounds like it's the former as opposed to the latter. Am I thinking about that the right way? Paul A. Holt: Yes. George Hill - Deutsche Bank AG, Research Division: Okay. And then maybe just kind of a quick follow-up. I know -- I'm hoping we're still going to see the Mirth information in the Q. But I guess, was the business up x Mirth this quarter? And maybe then just a quick comment for Steve, I guess, can you talk about the ambulatory EMR footprint just because we noticed that the CLASS scores kind of continue to slide, maybe talk a little bit about churn. And I'll hop back in the queue. Paul A. Holt: Yes. This is Paul. I think, if I'm understanding your question right, you're asking was the business up excluding Mirth? George Hill - Deutsche Bank AG, Research Division: Correct. Paul A. Holt: So just qualitatively, we said we're not going to get into breaking out that level of detail around Mirth. You also heard a comment earlier from Dan about having record revenue in the ambulatory unit, which excludes Mirth. So I think it's safe to say that, directionally, we were higher, even excluding Mirth on that basis. But I think then I'll finish with that, and we can get to the next piece of the question. Steven T. Plochocki: Yes, George. This is Steve. In terms of the areas of the class scores, I think what you see in CLASS scores and what we see in CLASS scores is, if you take a look at those companies like us who have been peddling the software for better part of 15 years now, we've got a lot of software out there in the market. A lot of that software had been customized over the years. Hence, when we started moving to more standardization through Stages 1 and 2, those softwares required a lot more work to meet those standards. So we are Stage 2 certified. We're ICD-10 compliant. We're right in the throes of the processes of getting our customers upgraded to those respective areas. And we are going through some difficult periods, for sure. However, we're working through them, and we're getting our customers up to speed and employing those standards for Stage 2 and ICD-10. I think what you're going to see on a going-forward basis in our sector is that where there's companies like us, and like I said earlier, there's about 35 or 40 of us that are Stage 2 certified out of 300, you're going to find that as we start rolling through the next year or so, we're going to continue to see that there's going to be areas of replacement, that are going to surface in a very dramatic fashion as a result of people not being able to meet those standards. And all the --- on top of all that, we continue to grow our ambulatory business. Gary cited a whole series of new deals that we brought in last quarter. We have a pipeline full of additional deals coming up. Our existing customers in ambulatory buy additional products and services. We have 32 different products and services that we've established in preparation for the current and emerging markets. So it's not hurting us in that sense, but nonetheless, we're working diligently to get all our customers up to speed under the new certification and ICD standards.
Your next question comes from the line of Garen Sarafian of Citigroup. Garen Sarafian - Citigroup Inc, Research Division: My question -- my main question, and I have a couple of follow-ups, was actually just a different way of asking the question, just prior regarding satisfaction scores. I know earlier on this year, you guys had some programs in place to improve the scores you're receiving in the external surveys. But it hasn't come to fruition yet. So do you guys have any update as to the progress on those programs and what the lag time is between what you guys are seeing and what we're seeing externally? Because I would think that customers might also see this, too. So I'm just trying to figure out how do you guys counter that if somebody brings that up? Daniel J. Morefield: Hi, this is Dan. So let me address those. This is something that I discussed at the Analyst Day Meeting in New York earlier this year. A couple of things just to remind the group. We've put in place -- first of all, we measure everything both internally and through external partners such as CLASS. And the kind of things that we have done as an example are restructuring our implementation team to better address the concerns of our clients and not through what the other clients are seeing, for instance, our large complicated clients in installations have a different methodology today than it had in the past to drive and ensure success and satisfaction. That's an example where we're beginning to see an uptick in scores from our clients on recent surveys associated with that. We also know that improvement of our product is a key component. And as we've announced before, we have continued to invest and accelerated the investment into our existing NextGen product base as well as continue the investment into the NG7 platform for material future improvements as well. So we're seeing the combination of both these things. We also spend a lot of time looking at things like our contracting process and modifying our contracting process that have a component in this. And Paul will tell you that we've had conversations with him and his team about how we bill clients. And the interaction with clients from the satisfaction -- from that standpoint. So we have touched basically every place that a client touches the organization. We have product -- or we have practices and programs in place to improve those touch points, and we're beginning to see some early responses on that. We know that it takes time to move the needle on a macro basis. But we're comfortable we're doing the right things to address that today. Garen Sarafian - Citigroup Inc, Research Division: Got it, okay. And then just moving on a couple of tactical questions. On NG7, can you just update us on the timing of GA availability? I thought it was for this fall time period? Daniel J. Morefield: Sure. So again, restating what we said before. We will bring the first product off of our NG7 platform. It will be a full EHR positioned for the small doctor practice, cloud-enabled SaaS pricing. And we expect to demo the product at our user group in November. It is powered by a combination of NextGen and Mirth technologies. We expect to be in beta later this year. We expect to have limited availability in early 2015. And we still expect to have full general release in 2015. Reminder that the full general release is expected to be Meaningfully Use compliant and ICD-10 ready and will support our RCM capabilities and services.
Your next question comes from the line of Greg Bolan of Sterne Agee. Gregory T. Bolan - Sterne Agee & Leach Inc., Research Division: A couple of questions, real quick. I know you guys obviously haven't talked about this in many moons and probably not very meaningful to you anymore. But just as your relations to your, kind of older partnership with Siemens, whatever is left, is that partnership contributing any meaningful amount of newer bookings to the platform?
This is Gary, Greg. Meaningful in terms of what it used to contribute, no. Does it still have an effect? Do we still have opportunities? Yes. I think there are some things probably that we'll announce in the next few weeks with some recent wins. So is it material like it was in the old days? No. But we continue to see opportunities right now and continue to work with the Siemens teams on opportunities. Gregory T. Bolan - Sterne Agee & Leach Inc., Research Division: Okay, that's great. And then just -- as I think about operating margin, Paul, Steve, Gary, I mean, and Dan, kind of rounding out, if you will. It seems like it's kind of finding an inflection point as is revenues, as is pipeline. What's the end goal here? As you think about your revenue mix, obviously a higher proportion of recurring revenues, less proportion of nonrecurring is kind of, I think the goal here. But as you think about, kind of, your goal, without getting in the guidance, do you feel it possible, at all, that you can, kind of, drive operating margin, assuming revenues, kind of, continue to improve anywhere close to where they were in previous years? Or is there, kind of, a new normal, if you will, in terms of where the longer-term operating margin should be given, kind of, the change in revenue mix? Paul A. Holt: Yes, this is Paul. So you're, kind of, dancing on some forward guidance there slightly. As I -- as we've mentioned or as you stated in your question, that operating margin percentage can be impacted quite a bit by the revenue mix. And as we've been talking about for some time, and as you've seen in recent quarters, a gradual shift towards the concentration around recurring service revenue lines that have lower margins, and that has had an impact on the gross margin line. And when you combine that with the fact that we are investing heavily in R&D and have been capitalizing less, that has also had an impact on our operating percentages. However, R&D is investment in the future. And to the extent that those expenses -- those investments are creating value, that's future value for the long-term business. When it comes to expectations around future profitability, I think we've stated in the past, at our Analyst Day, we talked about the opportunities that we have in -- through Mirth, as well as in RCM. I think from our point of view, we'd like to see growth in all of the above. We've got quite a diversified line of products and services. They come with a variety of profit margins. However, at the end of the day, if you're a shareholder, I think what's going to count in the long run is bottom-line profitability and returns to shareholders. So I think this is a long-winded answer to your question. But to the extent that we could drive leverage of our R&D investments in the future through continued revenue growth, we would certainly love to see some improvement in the operating percentages. And I think that would be a goal of the entire management team. However, we're not -- we're also stating we're not going to give forward guidance. So I think you got -- there's still a few variables out there in terms of mix and our ability to leverage the investments that we're making in R&D for the long run. But certainly, I think everybody here is certainly working towards greater profitability and greater operating margins in the long run.
Your next question comes from the line of Bret Jones of Oppenheimer. Bret D. Jones - Oppenheimer & Co. Inc., Research Division: I just wanted to circle back. Greg actually hit on my main question. And I think it's a fair question to talk about, given the new mix that you have of revenues, what do you think the operating margins can get to? And I know you're not going to answer that question directly but when we think about the subscription in SaaS, when that matures, what type of operating margin should that business be? Paul A. Holt: Okay. This is Paul. I'll answer that. Look, I think what's not -- we're seeing a couple of trends that I think you're all aware of, which is we've been watching this changing mix away from very high profit margin software -- upfront software license revenues towards lower-margin recurring revenues. However, you're also seeing growth in subscription and SaaS revenue lines, which we have been including in the other revenue category. Now to the extent that we had -- can continue to see success there in the long run, we can see progressively higher profitability and higher margins. However, that your SaaS revenue streams are like -- I know -- Monte has a great analogy which is, SaaS looks like a freight train and software license revenues are like Ferraris. You can go real fast in a Ferrari in terms of selling upfront license fees. But the SaaS and subscription kinds of revenue streams are more like freight trains. It takes a while to get them moving. But we are pushing the engine. The engine is on and we are pushing the freight train down the track. And as we -- if we can continue to see that success there, I think, in the longer run, we can see some better profitability. Bret D. Jones - Oppenheimer & Co. Inc., Research Division: All right. I wanted to also beat the Mirth force yet again. Can give us a sense -- and you touched on it a little bit but can you give us a better sense for the percentage of revenue that's coming from your QSII-based versus what was legacy Mirth or maybe new HIE type of opportunities? Paul A. Holt: Repeat the question please? Bret D. Jones - Oppenheimer & Co. Inc., Research Division: What I'm trying to figure out -- in terms of Mirth, where are your sales coming from? How much of this is -- when we look at the revenue of Mirth, how much that's legacy Mirth versus how much of it's new HIE that would be outside the QSI base and how much of it would be cross sell?
Oh, this is Gary. I would say it's -- the cross-sell opportunities are growing. So as I mentioned earlier, we're just now starting to get the teams up to speed and starting to build that pipeline within the NextGen base -- try to understand what are the real use cases that we can bring because it's a different type of technology sales. So that's small and still growing. But the Mirth teams themselves and they also have their own sales team that we still have out there, they're doing all types of deals across the board. They've got HIE business that we mentioned like the Rochester Rio. They have smaller interoperability engagements. They have sales to other reseller partners that they have. So I think they have a broad mix just today as they have in the past. And we're just starting to ramp up the sales within the NextGen base. Bret D. Jones - Oppenheimer & Co. Inc., Research Division: Okay, great. And then just lastly, I was just wondering, in terms of Mirth, would all of your customers be appropriate for Mirth? Or is it really -- are you targeting your in-patient customers and your large group practices or would even small physician practices be buyers of Mirth?
This is Gary again, Bret. I think pretty much everybody is a target in one way or another. And so let me kind of couch that. Firstly we have larger enterprise clients that have needs for connectivity to various different types of systems. They have needs for, again, HIE capabilities. So very strong opportunities there. And we start moving down into kind of the, what has been traditionally our sweet spot, that 25- to 100-doctor kind of organization. There's great opportunity there for just basic tools like Mirth Connect. And then also the Mirth Results, the CDR, we're seeing more and more activity there. So that's the sweet spot. And at the lower end of the market, it's where we start to see opportunity to implement like our Share platform, and once that's in place, I think we'll see some additional opportunities to help those small practices with other kind of connectivity solutions.
Your next question comes from the line of Dave Francis of RBC Capital Markets. David K. Francis - RBC Capital Markets, LLC, Research Division: Two quick questions. First, can you tell us where you guys are in the outpatient upgrade process on the 5.8/8.3 releases? And kind of how that or if that is playing in, at all, Gary, to new sales opportunities as you're going out and touching those customers a little bit more directly?
I can tell you where we're at -- in the process. So I think we're up to around 1,700 clients have gone through the 5.8 process, probably about 500 or so on the 8.3 platform. So we still got a little ways to go. But it has been moving along nicely. The 8.3, which is the clinical content, kind of, follows a little bit slower because it requires some training of the new platform and the new clinical content to physicians. So we still have a ways to go to catch the base up there. I think it's been going well in terms of bringing physicians along slowly. But how it affects us in the market right now, the platform has been well received in terms of the new look and feel, the new user interface. That's helping us on the sales front competitively out in the field. So that's kind of my basic feedback on the platform, where we're at internally and then how it's helping us in the field. David K. Francis - RBC Capital Markets, LLC, Research Division: And then in a related question, can you talk about, either Gary or Steve, kind of, where are you in terms of the customer base, the net adds or attrition? Are you flat? Are we up? Are we down? Kind of how does the customer base look today relative to when we last talked 3 months ago? Daniel J. Morefield: Hi, this is Dan. In response to that, I know this question has come up in the past and what we have said is that we continue to see the expansion of the ambulatory footprint. We do internally measure but don't report to the Street, sort of, the attrition numbers, and we remain in the same position we have been in the past with very low attrition and continued expansion of our ambulatory footprint. David K. Francis - RBC Capital Markets, LLC, Research Division: And on the inpatient side? Daniel J. Morefield: Inpatient side has been very stable. And we have talked about, sort of, the lack of a great number of new sales. But the same time, we've had a very little turnover on that as we stabilize that client base. That's also one where the cost of moving is relatively large. And so, the -- there is very -- there's actually quite little attrition associated with that base today.
Your next question comes from the line of Gene Mannheimer of Topeka. Eugene Mark Mannheimer - Topeka Capital Markets Inc., Research Division: I'd like to hit you again on Mirth, if I could. I know that when you acquired the company last September, the deferred revenue went away, under purchase accounting rules. And can you tell us, at least today, is that revenue tracking at or better than the level at which it was when you first acquired the company. Paul A. Holt: Interesting question, Gene. This is Paul. So I would say that, that level is tracking at least at or above. I can't -- I don't have the specifics, the details sitting right here in front of me. But I would say at a minimum that we're tracking there as expected. Eugene Mark Mannheimer - Topeka Capital Markets Inc., Research Division: Okay, great. And with respect to RCM, you used to provide statistics about the current penetration of RCM into your installed base. I think it was about 6% at your Analyst Day. Has that changed, at all, with the new wins? And then if we back out the headwind from HMA, what does organic growth look like for RCM this year? I know it was about 20% for your fiscal '13? Monte L. Sandler: Yes, Gene. This is Monte. So as far as penetration into the base, you referenced the headwind. I reported in my prepared comments that we've made up that loss. And so, I would tell you that we're trending about, in the same place, when you net it all out from a penetration perspective. We certainly see significant opportunity both in the base as well as net new. And our goals for this coming year would be to exceed that rate that you mentioned of 20%.
Your next question comes from the line of Sean Wieland of Piper. Sean W. Wieland - Piper Jaffray Companies, Research Division: So why the new presentation of the operating income at the segment level and the definition of bookings? Paul A. Holt: Yes. This is Paul. Look, we have more of a matrix organization. We have centralized the function of R&D around a CTO. And so, to that extent, we wanted to -- we're doing internally just to show that development organization and on a consolidated basis and at a business unit level. And so, our ability to do that internally -- our use -- our decision to do that internally meant that we needed to do that externally as well. Sean W. Wieland - Piper Jaffray Companies, Research Division: And on the booking side? Paul A. Holt: Well, on the booking side, I think the thought is to capture more of the trend around longer-term arrangements that we're making with our customers to be able to reflect that externally, to give you guys just a better view of our overall bookings activity that would reflect the full value of those bookings. Sean W. Wieland - Piper Jaffray Companies, Research Division: And do you have what that number would be this quarter? Paul A. Holt: No, we're not going to provide that at this juncture. But we're going to do that -- you can expect that -- to see that going forward in our next call. Sean W. Wieland - Piper Jaffray Companies, Research Division: Okay. And then one last thing. I heard the question was asked but I didn't hear the answer. Was there a churn rate or a customer retention rate in the quarter? Daniel J. Morefield: This is Dan. As I've said before, we've -- we track churn rate internally but we don't report them externally. And the commentary we've made before applies today is that we continue to see a very low churn rate.
Your next question comes from the line of Dave Windley of Jefferies. David H. Windley - Jefferies LLC, Research Division: Questions starting with pipeline, I think with this next quarter, you will lap -- your last year change and what you were including in pipeline adding in Dental and Mirth. Is it right to think that if I were to normalize for those items and look at this prior quarter, the one you just reported year-over-year, that the apples-to-apples compare would be about flat? Is that the right approximation? Paul A. Holt: Look, I think we'll let Gary answer this as well. I think we've stated that we're going to continue to discuss the pipeline as a whole. We've got a very broad-based suite of products. Steven T. Plochocki: Yes, Dave. This is Steve. The -- our pipeline at 158.6 that we reported today is the highest pipeline we've had in, I think, 8 or 9 quarters. And it is a combination of all the different product and service offerings that we've brought into our organization. But we started reporting that combo some time ago. So it is a good indicator of the fact that as we've entered this quarter with the best revenue number we've had in 7 quarters and now the best pipeline number we've had in 8 or 9 quarters, we think that the trends are pretty clear, and that we're feeling very confident about those trends. And I think -- and just to drift a little bit further back into Paul's component on bookings, we have transitioning, as most of our sector is, in the early heyday of license-based sales where there was a lot of upfront revenue, the idea of bookings was basically, if I remember, we use to say in the early days that, our bookings number is our revenue number. Because we use to sell licenses and that was that. But as we've been transitioning as a company, and as the sector has been transitioning more into SaaS-based modeling, recurring-based modeling, RCM and other product and service offerings that are recurring based, we felt that there's great value to portray our bookings number on a going-forward basis into contract value. Because Gary has his organization highly motivated into doing deals that have duration attached to them, 3, 5, and you heard Monte speak earlier of a 10-year contract. We think that, that's an important component for us to start addressing with you on a going-forward basis. I think you're going to be pretty impressed with what you'll hear. David H. Windley - Jefferies LLC, Research Division: Appreciate that, Steve. So -- and the point of my earlier question is to try to get comparability. So I guess, in the transition of bookings, my question there would be, will you be -- it sounds like you'll provide us with a new measure of bookings. Will you either give us the old measure as well? Or will you give us last year's number as measured by the new way so that we can understand comparability? Steven T. Plochocki: Paul, why don't you... Paul A. Holt: Yes, this is Paul. Yes, I think it's fair, we'll need to provide comparability. And so, we'll be providing the prior-year comparison. So you have -- you've got an apples-to-apples way to look at it. Steven T. Plochocki: And ability to bridge it. David H. Windley - Jefferies LLC, Research Division: Okay. That would be great. And then you mentioned the 10-year extension that Monte referred to in his remarks. I missed the timing on that. And I'm wondering where that will fall in terms of, is it in this pipeline number? Or was it in this quarter's bookings? Or will it be in next quarter's bookings? Could you clarify on that?
This is Gary. I would just say that, that it falls into the pipeline that we just discussed, the 158.6. The bookings number will show up in the next quarter as we report that. David H. Windley - Jefferies LLC, Research Division: Got it, great. And then my last question is around, kind of, DSO and cash flow. Your DSO improvement has been certainly very positive. I'm wondering if you have any thoughts about how low that can go, as it obviously has been a helper to cash flow the last couple of quarters, I think. Paul A. Holt: Certainly. My answer to that -- this is Paul. My answer to that is lower, lower [indiscernible]. We are going to continue to work on that and let's see how that goes. But we've been very happy to -- on the achievements there. And we just -- we would like to keep that forward momentum. Operator, we'll take one more question please.
Your final question comes from the line of Gavin Weiss of JPMorgan. Gavin Weiss - JP Morgan Chase & Co, Research Division: So I want to just follow up with something that George mentioned earlier and kind of look at it from a different angle. In terms of the hospital revenues, Dan, you mentioned these are recognized on a cash basis. And we've seen sales credits in that segment in the past. So revenues are better in the quarter, but is there any risk to that revenue going forward if you don't meet certain metrics for your clients? Daniel J. Morefield: Because of the methodologies, and Paul can provide greater articulation, if needed, we see much less risk associated with that revenue than we did in prior quarters, as much of the revenue today is recorded as the cash is received. We have also, as we stated in the past, taken significant reserves as we felt were necessary to accommodate and deal with expected future credits and so forth. So we think we're in a pretty good position on that today. Gavin Weiss - JP Morgan Chase & Co, Research Division: Okay. And then just one last quick one. Gary and Steve, you talked about selling more longer-term contracts, particularly on the RCM side and how that paid off. Can you walk me through why that's paying off? Have you made some concessions to clients on price to secure longer-term contracts?
This is Gary, Gavin. I'll take that. So I think the biggest change is the incentive to the sales team. We sat down with Monte and came up with some new things that we could do to incent the sales team to do longer-term contracts. And that's been very successful. And what's interesting, I think, Monte mentioned there's been that uptick we've noticed in margin. So I think it's been positive all around, longer-term contracts. And we're just -- we're able to I just think add more value and the team understands that now. And so we're not -- we don't have to drop the -- percent of collections as a result of a longer-term deal. Steven T. Plochocki: Okay. Well, thank you, everyone, for joining us today. We really appreciate it. Hopefully you picked up that the management team is highly enthusiastic about where we're at. We have growing revenue, we have growing pipeline. The product and service offerings that we have brought into the organization over the past year or so are the right products, catering to the emerging and the current market needs. And we're very enthusiastic about entering the first quarter of this fiscal year on a positive note. And we anticipate improving upon that as the year goes on. So again, thank you, all, for joining us, and we'll see you in future travels.
Thank you. That does conclude today's teleconference. If you'd like to listen to a replay of today's conference, please dial (800) 585-8367 and refer to conference ID number 73683318. 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.