Steven Plochocki - President and CEO John Stumpf - Interim CFO Dan Morefield - Chief Operating Officer Monte Sandler - Executive Vice President, RCM Services Gary Voydanoff - Executive Vice President, Sales and Marketing

David Larsen - Leerink Sean Dodge - Jefferies Jeff Garo - William Blair & Company Elizabeth Anderson - Evercore ISI David Francis - RBC Capital Markets Gene Mannheimer - Topeka Capital Sean Wieland - Piper Jaffray Garen Sarafian - Citigroup Sandy Draper - SunTrust Robinson and Humphrey Zack Sopcak - Morgan Stanley Steven Halper - FBR

Welcome to Quality Systems Incorporated Fiscal 2015 Fourth Quarter and Year End Results Conference Call. Hosting the call today from Quality Systems is Steven Plochocki, President and Chief Executive Officer. Today’s call is being recorded. At this time, all participants have been placed in a listen-only mode, and the floor will be opened for your questions following the presentation. [Operator Instructions] It is now my pleasure to turn the floor over to Mr. Plochocki. Please go ahead.

Thank you, Maria. And welcome everyone to the Quality Systems’ fiscal 2015 fourth quarter and year end results call. With me this morning are John Stumpf, our Interim CFO; Dan Morefield, our Chief Operating Officer; Monte Sandler, our Executive Vice President of RCM Services; and Gary Voydanoff, our 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, prospective and strategies preliminary and projected, and capital equity initiatives to the implementation of potential impacts of legal, regulatory, and accounting principles. I will provide some opening comments and then turn it over to the team. We are very pleased with the fourth quarter and fiscal 2015 results overall. This latest quarter represents the fifth consecutive one, where we delivered increases in revenue and which resulted in a new quarterly revenue record. Our revenue growth in the 2015 fourth quarter and fiscal year demonstrates the impact of our broad-based market offerings, which now span nearly 30 products and services directly aimed at the evolving value-based Accountable Care Organization modeling. As physicians strive to better manage their patients and payers seek the necessary intelligence to help control costs, while emphasizing quality of care, we believe we are well-positioned to help all those stakeholders meet the challenges that will continue to unfold. Our portfolio of products and services address the ways in which healthcare constituents communicate and manage patient populations. We believe that as we enter into our fiscal year 2016, we will be -- there will be a significant opportunity for our RCM business line, along with the Mirth interoperability and connectivity solutions that we offer. With ICD-10 fast approaching, practices seek the exact type of support QSI/NextGen brings to the table. With the sales force boasting strong cross-selling capabilities across our large installed client base and beyond, as well as our enhanced marketing capabilities and seasoned implementation teams, we stand ready to meet healthcare's rapid changing needs. Our ability to strengthen our offerings, expand our solutions and demonstrate solid growth is reflective and our agility and commitment to seamlessly serving the healthcare information technology industry. Additional information, our Board of Directors declared a quarterly cash dividend of $17.5 per share on the company's outstanding shares of common stock, payable to shareholders of record as of June 12, 2015, with an anticipated distribution date of July 6, 2015. The $17.5 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 Board review and approval, and establishment of record and distribution dates by the Board prior to the declaration and payment of each such quarterly dividend. In addition, the company will hold its 2015 Annual Shareholders' Meeting on August 11, 2015 at 1 p.m. local time. The meeting will be held at the Center Club, 650 Town Center Drive in Costa Mesa, California. Record -- holders of record as of June 16, 2015 are eligible to vote and attend. Proxy materials and the 2015 Annual Report will be made available to shareholders of record and will also be posted on our company's website. And as previously announced, we will be holding our Annual Analyst Day on Monday, June 8, 2015, from 8:30 a.m. to 1 p.m. at the at the Le Parker Meridien Hotel in New York City at 119 West 56th Street. I'll now turn the additional dialogue over to John Stumpf who will take you through a run of the numbers and the deep dive, not just on the quarter but on our entire year. John?

Thanks, Steve, and hello, everyone. This is John Stumpf. I am pleased to present you QSI’s fourth quarter financial performance on today's call. We are pleased to report that this is our fifth consecutive quarter of consolidated revenue growth. Our fourth quarter 2015 revenue of $128.4 million, represents a new revenue record for QSI. Our total fourth quarter revenue reflects an increase of 11% over prior year's $115.2 million and 4% over last quarter’s $123.4 million. The principal driver of our revenue increases on both a year-over-year and sequential basis is growth in our recurring subscription and services revenue streams. This category as a whole grew 13% to $105.6 million from $93.5 million in the year ago period. The largest contributors within this total were EDI, maintenance, revenue cycle management, staff and other subscription-based revenue streams. Other revenue, which includes subscriptions and hosting grew by 17% to $22.6 million, compared to $19.4 million a year ago. Our growth in this category continues to largely relate to our Mirth interoperability solutions and our patient portal user base. Our total bookings this quarter was $66.3 million, roughly flat compared to the previously recorded $67.2 million in Q3 of fiscal 2015 and approximately 6% lower than a year ago quarter, as a year ago period had a larger than average volume of RCM deals. Overall, gross profit grew by $3.5 million compared to last quarter and was up $10.7 million or 17% versus a year ago period. Our consolidated gross profit margin this quarter came in at 57% versus 56% for last quarter and 54% a year ago. The improvement versus a year ago period principally reflects the generation of a positive margin and implementation and training services in the current quarter, as a result of reduced headcount to better align capacity with near-term demand and higher margins achieved in software, RCM and subscriptions. SG&A including amortization of intangible assets remains relatively flat at $42.2 million for the current quarter versus $42.4 million in Q3. As compared to the year ago quarter, SG&A increased by $2.4 million, principally reflecting the fact that bad debt expense was a net credit of $1.3 million a year ago versus an expense of $0.8 million in the current quarter. This change in net bad debt cost reflects the fact that our DSO decreased dramatically in a year ago period and has essentially stabilized in the current period. R&D operating expense increased to $17.6 million versus $15.1 million a year ago, reflecting a higher level of investments, mitigated by an increase in the software capitalization rates, our net R&D expense as a percentage of total revenue for the quarter was 14% versus 13% a year ago. Total gross R&D investment for the quarter increased to $22.7 million, as compared to $17.0 million a year ago. We’ve capitalized $5.1 million in development cost this quarter versus $1.1 million a year ago. The increase in gross R&D expenditures both in absolute terms and as a percentage of revenue reflects our commitments to concurrently enhancing our legacy product portfolio, developing a new technology platform and our intent to remain at the forefront of market demands or product offerings that support the migration to value-based healthcare, including interoperability, analytics and tools in support of population health management. We will also continue to identify and act upon externally developed opportunities to complement our internally developed software. Our Q4 acquisition of Gennius serves as an example whereby this technology will be used to enhance the analytic capabilities of our Mirth product line and potentially our core ambulatory quality reporting. For fiscal 2016, we expect the net cost of our internally developed R&D to continue to grow as a percentage of revenue. I will discuss this expectation in more detail following my review of our quarterly performance. Our GAAP effective tax rate for the quarter was 13.5% compared to 28.5% year ago. This decrease in rate is primarily due to the impact of state tax planning initiatives in the current period, as well as certain deductions that benefited from the year-over-year growth in taxable income. On a GAAP basis, fully diluted earnings per share for the fiscal 2015 fourth quarter was $0.18, an increase from $0.09 per share reported in the year ago quarter. On a non-GAAP basis, fully diluted earnings per share for the fiscal 2015 fourth quarter was $0.21 compared to $0.12 for the comparable period a quarter ago. Our year-over-year increase in both GAAP and non-GAAP earnings per share was primarily driven by the increase in revenue and margins, both gross and operating, and the favorable tax rate in the current period. On a sequential basis, GAAP earnings improved by $0.07 per share and non-GAAP earnings improved by $0.05. In both cases, the majority of the improvement resulted from higher revenues and expanded gross and operating margins. The GAAP earnings improvement also benefited from a particularly low tax rate in the fourth quarter as I mentioned a moment ago. With regard to the balance sheet, we are continuing to focus on working capital management. Our turnover of receivables decreased to 77 days this quarter, representing a slight decline sequentially and a substantial decline from prior year. Our cash and cash equivalents plus marketable securities ended the quarter at $130.6 million, up $16.8 million from the start of the year. This increase reflects the impact of significant decline in DSO, coupled with the benefit of tax receivable positions that existed as of the start of the year. Product revenue by business unit is as follows: ambulatory for Q4 2015 $96.8 million, that represents a 6% improvement over $91.0 million a year ago; RCM was $21.8 million in the current quarter, a 31% improvement over the $16.6 million a year ago; dental reported $5.1 million in the current quarter, an 8% improvement over $4.7 million year ago; and hospital division reported $4.7 million, a 60% improvement over $2.9 million a year ago and again the consolidated total $128.4 million representing an 11% improvement over $115.2 million a year ago. With regard to the improvement in revenues within the hospital business unit, approximately 1.1 million of the year-over-year increase is the result of favorable movement in sales return reserves, specifically reserves were increasing in Q4 of fiscal 2014 and declining in Q4 fiscal 2015 in that business unit as a result of fact and circumstances applicable to each period. The balance of the increase in hospital reserves -- revenues, excuse me -- is largely due to incremental collections from customers who are on a cash basis of revenue recognition. I'll now move on to recap of select non-cash expenses for the quarter, which are as follows: amortization of capitalized software $2.6 million, amortization of intangible assets $1.8 million, depreciation expense $2.6 million, stock-compensation expense $0.8 million. Our investing activities for the quarter were as follows: internally generated capitalized software $5.1 million, an investment in fixed assets $1.1 million. This concludes my review of our financial performance for the quarter. With respect to the question of formal guidance that has arisen on previous earnings calls and Q&A sessions, we have given this topic serious consideration. At the present time, we are not prepared to provide formal guidance. While we are prepared to highlight that we continue to expect strong revenue growth from Mirth related subscriptions, revenue cycle management, EDI and patient portal product. Our expectation is, however, that fiscal 2016 will reflect very limited system sales revenue within our hospital business unit. Further, we feel that the continued and growing market saturation within the traditional ambulatory EHR and EPM markets will continue to weigh on sales transfer of those products. The aggregate effect of these trends suggests a revenue growth rate for fiscal 2016 that is somewhat lower than we experienced for fiscal 2015. While on the topic of revenues, I also want to point out that we are planning to present our revenue components in an improved format commencing Q1 of fiscal 2016. This new presentation is intended to better group, like-kind product and services as we acknowledge our other category of revenue has continued to become a larger percentage of total revenue. Of course, we will provide comparable prior period data. Our intent is to issue a separate press release, prior to the end of the quarter that presents the fiscal 2015 quarterly data in the new format. With regard to non-GAAP earnings per share, we want to reiterate our commitment to a level of research and development investment sufficient to ensure high levels of client satisfaction and the robustness of our full product suite, inclusive of legacy products within our ambulatory, hospital and dental business units and of newer products, such as Mirth Analytics and Mirth Care Enterprise. These investments will principally be reflected as higher core R&D spend, the result of which is a level of net R&D expenses expected to be 15% of revenues. I want to thank all of you for being on the call and for your interest in the company. I will now turn things over to Dan Morefield, EVP and COO of Quality Systems.

Thanks John and hello everybody. For the quarter ending in March, I can again announce that the Ambulatory division finished with another record revenue performance. The division grew roughly 4% over the prior period and over 6% when compared to the fourth quarter in fiscal 2014. Our number of revenue categories made significant contributions to the results of this period. Increase system sales were highlighted by large transactions with accelerated rehabilitation and another expansion with Gila River Health Center. Gary Voydanoff will offer more commentary on these and other transactions during his remarks. Implementation revenue had a material increase over the prior quarter as our billable work increased during that quarter. We also completed a fixed fee implementation at Mirth that contributed to that result. EDI revenue continues to expand. This is a category we are excited to watch as we offer our clients additional services that directly impact the efficiency of their practices. Lastly, we saw an increase in our subscription revenue with our patient portal being a key driver. The patient portal passed the 23 million patient mark and delivered over 8 million personal health records to patients during the quarter. During the quarter, the Mirth team closed deals with HealthShare Exchange of Southeastern Pennsylvania and also Solano County for the HIE Solution. We also closed a Mirth Match opportunity with Geneia which is part of the Capital BlueCross family in Harrisburg Pennsylvania. Finally, we were very excited to close our first Mirth Care Enterprise opportunity with Health First Network in Florida. Gary will have much more to say about that deal during his comments as well. Just after the end of the quarter, we released the UD2 version of our core application and the 8.3.10 version of KBM. These releases focus on our continued commitment to improve physician experience and quality improvements. The feedback from our beta client has been positive. Improving the physician/patient experience is a core tenet of our development effort and these releases represent another positive step in our product evolution. As we’ve discussed in prior calls and during various analyst meeting, the most important valuable or the most valuable part of QSI NexGen is our large progressive client base. As we continue to execute our plans to improve the services we offer to our clients, two important initiatives were launched during the fourth quarter. The first was a major change in the way we deliver client support. In February, we began to move from our traditional linear tiered call center model to more modern model known as Intelligent Swarming and Knowledge Centered Support. This methodology is used by numerous large software companies across various industries in order to provide improved services for their complex solutions. In addition to the change in methodology, we are also replacing our help desk technology. We have entered an agreement with Salesforce.com to implement their cloud or service cloud solution. This implementation will span several quarters. We have already received a great deal of positive feedback on the new support model and when combined with the new technology, we believe our client experience will be dramatically improved. Both of these initiatives are relevant for this call because they will impact the cost of sales and OpEx for the ambulatory division in fiscal 2016. Moving on to Hospital Solutions. Hospital Solutions continue to stabilize revenue and reduce costs. The group ended the year with a revenue increase over fiscal ‘14 of more than $2 million and a significant reduction in operating expenses. As we continue to move to our shared services model, the hospital system implementation services and IT resources had been moved into a corporate structure. This model provides coverage for our hospital customers and provides additional cross trained resources to support other product lines. Increases in cash collections as well as additional sales over emergency department module offset the declines in overall implementation model -- overall implementation revenues. Operating losses also continued to decline as part of our ongoing strategy to aggressively manage overall G&A expenses, while still supporting our existing installed base. Our dental operations contribute to the success of the quarter, as we were able to recognize over $1 million in revenue on a contract executed earlier in this year. This revenue was tied to specific deliverable enhancements to our QSIDental web product in the quarter. With that, I will turn it over to Monte Sandler.

Thanks, Dan. Good morning everyone. With another strong quarter in RCM services, revenue for the fourth quarter was relatively flat to last quarter at $21.8 million, which is positive considering the first calendar quarter of every year. It tends to be there was deductible resetting. When deductibles reset, payment responsibility shift to the patient thereby, delaying our collections 30 to 45 days. More importantly, Q4 revenue was 31% over the prior year quarter. Fiscal ‘15 revenue was a record $80 million, resulting in 17% growth over the prior year. Our organic growth continues to be strong as we remain focused on helping our customers optimize their revenue and achieve their goals. We had a strong quarter of bookings including an expansion of our new tenant relationship, as well as the addition of Southwestern Eye, a large ophthalmology clinic that was once a customer of a leading RCM competitor. The Southwest Eye story is a great one. They were an existing NextGen EHR customer that transitioned off of a leading RCM competitor two years ago and onto the NextGen EPM platform, where they attempted to manage the revenue cycle internally. We supported them every step of the way and were there for them when they decided that they were not achieving their desired results on their own. We have already deployed our RCM services with them and are excited to be working with them to achieve their goals. We are seeing momentum from earning the top overall RCM performer in the first class study on RCM services last quarter, resulting in a growing pipeline and leading us to invest in additional RCM domain experts for operational sales support as the focus and volume of RCM opportunities continues to grow. We are pleased that Congress has permanently repealed the SGR after 17 separate doc fixes since 2003, which secures Medicare reimbursement for the foreseeable future and is a positive for our revenue model. This legislation is being dubbed as the biggest piece of healthcare legislation to come out of Congress since the HITECH Act in 2009 and the Affordable Care Act in 2010, because it also included in the leg -- but also included in the legislation is the framework to shift in the value-based reimbursement models. We’ve already begun working on our technology enabled full service solutions to assist our customers in transforming their businesses from fee-for-service to fee for value organizations. I will share more on this in the future -- in future quarters as we progress. Because the SGR repeal did not include any delay in the adoption of ICD-10, we expect ICD-10 to be implemented on October 1. Because our recent RCM survey of hundreds of practices across 40 states resulted in only 21% of respondents being very confident in their ICD-10 readiness and 29% being not at all confident or not sure, we have released our ICD-10 guarantee in which we guarantee that our software and services will be ICD-10 compliant or we will defer our fees. This program serves as another way to realign our incentives with our customers’ outcomes. I’m also excited to announce the upcoming launch of our new and expanded provider credentialing services focused on helping providers properly enroll and reenroll with government and third-party payors in recurring service model. We expect to grow this part of the business as a standalone offering and to be a lead generator for our full service RCM services. I'm proud of everything we accomplished this year in RCM services. Top performer recognition by class where a 100% of respondents scored us as a trusted business partner and double-digit revenue growth as a result of a lot of hard work by our dedicated team. I want to thank them for the great work they do everyday, focus on helping our customers achieve their goals. Our people are our assets and none of this would be possible without them. I'm very excited about the direction of RCM services business and 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. I look forward to seeing many of you at our Analyst Day on June 8. I will now turn it over to Gary for his comments.

Thanks Monte. Good morning, everyone. Our Q4 and fiscal year 2015 success were predicated on our ability to sell our diverse product set into the evolving healthcare market and across the QSI NextGen client base of approximately 85,000 providers. The rise of value-based care is changing the market dynamic, creating new economic and clinical models, creating new customers and changing the competitive landscape. Our portfolio of over 28 products and services allowed us to successfully adapt in the past 12 months and has us positioned for fiscal year ‘16 with some exciting new products and services. Our solutions are well-positioned to take advantage with the current market trends and opportunities. Interoperability, data integration and data aggregation are seen as the key to the promise of lowering the cost of healthcare, to the sharing of digital health records. Mirth has given us the right tools at the right time to meet this challenge as evidenced by their continued growth and success in fiscal 2015. Mirth has emerged as the solid choice for technology and service in the HIE market as first generation vendors have failed and Mirth is grabbing the replacement market. With such premier HIEs as the Health Information Network of Arizona, the Rochester RHIO and the State of Arkansas Office of Health Information Technology validate Mirth as the market leader. The Mirth technology stack is the backbone of NextGen share. Our DirectTrust certified HISP, which now allows over 250,000 providers to share clinical information. NextGen share technology is connecting our providers to securely share clinical information with trading partners such as Inovalon and Merge Healthcare's iConnect platform, also validating that this platform can drive incremental transaction revenues in these B2B relationships. Value-based care necessitates the need for true population health management and fiscal ‘15 saw the release of Mirth Care Enterprise and NextGen Care to meet the needs of the NextGen client base but more importantly, the vast non-NextGen market opportunity. Mirth Care Enterprise was debut at HIMSS and showcased the capabilities with the platform, powered once again by the core Mirth technology. Mirth Care Enterprise features the powerful care coordination in chronic disease management platform. Clinical data repository that aggregates clinical and financial data from disparate sources and finally, an advanced analytics tool designed to provide relevant and actionable performance data across the healthcare organization. In April, we announced the sale of Mirth Care Enterprise to the Health First Network for population health, care coordination and risk management. Health First Network is comprised of more than 700 providers and over 200 care extenders in Northwest Florida and Mirth Care Enterprise will be a critical component of their HIT strategy. The HSN win validates our ability to compete in the non-NextGen population health and analytics market. And we look to continue to expand this product into the payor hospital, ACO and ambulatory provider space in fiscal ‘16. NextGen Care contributed to the ambulatory growth in fiscal ’15, with solid license growth over fiscal ‘14 and we are looking forward to increased growth this year with our most significant release of the product yet. NextGen Care integrates with our ambulatory EHR and PM suite, as well as our patient portal and dashboard products and it features advanced actionable patient risk scoring through our partnership with Milliman. Both Mirth Care Enterprise and NextGen Care represent our commitment to the patient population health market and our determination to become a market leader. RCM services, continues to take advantage of a market looking for a more tailored and personal revenue cycle partner. One size doesn't necessarily fit all. The RCM market continues to be driven by a number of factors, including ICD-10, shrinking physician reimbursement, increasing operating costs, shortage of talent and the substantial rise in patient pay responsibility. We are proud that our clients recognize RCM services as a true and trusted business partner, validated by our most favorable vendor ranking for overall performance in the ambulatory RCM services category for class in fiscal ’15. RCM services growth in fiscal ‘15 was fueled by notable wins such as Tenet Healthcare and Capital Women's Care. And we are excited to see the acceleration of the trend towards longer term contracts. RCM services will continue to be an area of growth in fiscal ’16, as we expand our product line to focus on value-based financial management and clinical services. Fiscal ’15 also saw the continued growth of our EDI division. This group continued to expand their service line beyond typical financial transactions and going forward they will be an integral part of the value-based services we provide to market. Fiscal '16 will see a variety of products gear to help our clients deal with the ever-expanding patient self-pay issue, which can cripple an organization financially, products that will make a huge difference in managing patient estimation and front-end collections, advances in our technology around schedule management lead to higher patient satisfaction as well as maximizing the provider schedule in the office. Our ViaTrack EDI product continues to make inroads into the non-NextGen market and we hope to greatly increase the visibility of this incredibly competitive product outside the NextGen base. Q4 of fiscal '15 was successful on a number of fronts. Mirth ended their fine year with the Solano County HIE win and additional revenue from Harris Corporation, a strong Mirth VAR. Ambulatory Division highlights include a very significant addition to our partnership with Gila River Healthcare Corporation. Accelerated Rehab made a long-term investment in NextGen as a partner as they rapidly grow their footprint in the physical therapy market. Likewise, NextCare continued their rapid expansion in the urgent care space and made a noteworthy investment in NextGen licenses. Our growth in the Community Health Center at QHC market continued with the addition of La Clínica de La Raza to the NextGen nation. Our professional services group finished off the year with the large service contract with Augusta Healthcare and our VAR group capped a fine year with additional investments by TSI, GBS, and Topaz, to name a few. RCM services had notable wins with Southwestern Eye, Grace Health, Baptist Health South Florida, South Florida, and an expansion of our Tenet Health System scope of work. Wrapping up our call this morning, I would like to report that our combined division pipeline despite the drop in the hospital contribution remains solid and sits today at 161.3 million. The company executed 66 new arrangements on a consolidated basis versus 81 the prior quarter, 69% of the arrangements were Greenfield, 31% were replacements. Discounting did not materially change in the quarter. And as of March 31, 2015, there are 129 quota carrying sales and management positions. There was no material increase in the sales staff over Q3 of fiscal year 2015. And with that, I’d like to thank you for your time and continued interest. Maria, I would like to turn it over to you now for questions.

[Operator Instructions] Thank you. Our first question comes from the line of David Larsen of Leerink.

Hey, guys. Congratulations on a good quarter and a good year. Can you talk about the Gennius deal, what capabilities that brings to Quality Systems and your evolving approach with regards to Population Health when you go to sell to clients? Thanks.

Thanks, David. And appreciate the good words. That transaction we announced early in April. And what it really brings is it enhances our enterprise analytic capabilities. And what it does is it broadens our business intelligence capabilities, especially as we are looking at new value-based care requirements going forward, as part of our Mirth Enterprise stack. So when we look at Population Health management, especially going forward, we believe that the analytical component is going to have a greater presence, and this is a core technology that we believe is important as we go forward. We are close to finishing the integration within the Mirth stack and are very pleased with what we have seen so far.

Great. And then are you signed with hospitals and physician groups with these multiple products, or is it largely big physician groups? Thanks.

We are opportunistic in nature. So we will not be limited to one specific set of target opportunities I guess is the right way to say it. However, traditionally, we have been very, very strong in the large multi-practice physician led opportunities, but again, we are opportunistic in nature and certainly have a history of going beyond that. Anything you would add, Gary?

Traditionally, NextGen has had a very large footprint with, as Dan mentioned, our large enterprise clients. Those are both hospital and ambulatory provider groups that have a large footprint in the ACO market. And so that fits right into the strategy with Mirth Care Enterprise. And particularly, the care coordination and chronic disease management capabilities will lend themselves very well to payers that offer those services to their physician clients. So it is a pretty broad base that we can bring to the market. And again, to point out that one of the key aspects is that it is system or system agnostic, vendor neutral -- however you want to phrase that. So it’s really our intention to heavily go after the non-NextGen market.

Thanks a lot.

Thank you, David.

Our next question comes from the line of Sean Dodge of Jefferies.

Hi, good morning. Thanks and congratulations on the quarter. Monte, you introduced the ICD-10 Guarantee now and you previously mentioned an expectation that revenue cycle activity would begin to pick up this summer ahead of the transition. Are you beginning to see signs of an inflection demand now or are providers still a little apprehensive to buy into the thought of ICD-10 actually happening this year?

Well, this is Monte. Thanks for the question. We know that the physician market tends to procrastinate when it comes to these types of deadlines. And I think, especially as it relates to ICD-10, since it was delayed last year. So now that the SGR has been repealed and there was no extension of ICD-10, we are definitely starting to see a lot of mobilization and panic is hurting it to set in. So we feel like we are hitting the market at the absolute right time. Providers are ready to start talking about it and focused on figuring out how they are going to solve it. And so those discussions continue to increased and become more relevant as part of our sales opportunities and within our existing customer base. So we feel like our timing is perfect. And we think we're going to have a really busy summer, making sure that we get our existing customers ready and we are able to take advantage of all of the new opportunities as it relates to groups that are not ready.

All right. Excellent. And then John, you guys have had a couple of quarters of low tax rates now. Last quarter was due to the extension of the R&D tax credit. This quarter you mentioned benefits from state tax planning initiatives. Is any portion of the state benefits sustainable? Or is a mid-30% range still the right want to think about going forward?

All right. Thanks for the question. Yes. We did have great success with the state tax planning, this quarter benefited from some activities that had multi-year benefit. That’s what compounded the benefit in the current quarter. In future quarters and years, I would not expect quite the same level of benefit. I think we will revert more to our natural long-term tax rate. I wouldn’t say mid-30s, low-30s.

Okay. Thanks again.

Our next question comes from the line of Jeff Garo of William Blair & Company.

Good morning, guys. And thanks for taking the question. I want to dig a little deeper into the kind of forward visibility that you guys have. And with 83% of revenue recurring at this point, maybe you guys could discuss kind of from the nonrecurring part, what’s kind of forecastable and not forecastable there, where is there areas that are still kind of muddy in terms of the forward outlook?

This is John. So we take a look at that. And as you got from my commentary, we are not prepared to provide formal guidance. However, I did cite the areas where we thought we’re going to have the most continued strength. Those product lines, it was difficult to predict in totality of course, is the impact of the saturation of the EHR, EPM market, while Monte has a good sentiment about the opportunities for RCM. With respect to ICD-10, what a little unfair is the timing of which the -- as he put it the panic will set in and there is obviously a lag between the day he gets booking and the day that he is actually able to capitalize that on that in terms of revenue. Let’s say it’s more about the timing of what we see rather than the extent of it in the long term.

Got you. So maybe as a follow-up, how should we think about the current pipeline? And looking at the pipeline I believe it’s up 4% year-over-year. How should we look at that as indicative of system sales growth in the next fiscal year?

Well, this is Gary. So as I mentioned, the pipeline remain solid. Despite the fact that the hospital side of the pipeline is off. So those areas that John just mentioned -- RCM, Mirth, EDI, all of those things were contributing to growth. System sales, we’ve had pretty stable and solid business over the last couple of quarters. We’re fueled by some large wins and a lot of opportunity within our base and our lead management, our opportunities continued to be very stable, so all of those things point to a stable pipeline moving into this year.

Great. Thanks for taking the question, guys.

Our next question comes from the line of Michael Cherny of Evercore ISI.

Hi. This is Elizabeth Anderson in for Michael. I had a question about your -- from your traditional EHR business. Can you talk about over the last few quarters, how the trend had moved from subscription sales versus licensed sales?

Yeah. I’ll take that one, Elizabeth. This is Gary. Good morning. The business has been largely the same over the last few quarters. We have had a mix of large sales and medium and small and so that remains the same. I think the replacement businesses, as last quarter remained about the same, about 30% or so every quarter, our placement systems, I wouldn't say that our SaaS business has grown necessarily. We still have a much higher mix of traditional licensed sales than we do actually, SaaS in that EHR market. Where we’re starting to see more SaaS sale is really on the Mirth side. That business and particularly as we talked about Mirth Care Enterprise being a big part of what we’re doing in the future, that will be much more SaaS-based revenue and so we’ll see that continue to grow.

Perfect. Now that sounds really helpful. And then my follow-up question is now that you have owned Mirth for a little while, can you talk a little bit more about where it stands competitively in the market in terms of who you’re seeing in terms of other guys you’re competing against? And sort of how you feel that your product is sort of standing out in that market?

Okay. This is Gary again. Well, without naming specific vendors, I think what has been really exciting in the last year is as I mentioned just briefly in my statement, there has been a kind of replacement market growing of, the kind of first generation HIE vendors. And those products have not stood the test of time and where Mirth is really come on is that they have a solid platform and they deliver the kind of results that people are looking for. And so they've enjoyed a lot of success in statewide opportunities with smaller, regional or hospital-based kind of closed HIE networks. And really, one of the areas that we haven’t mentioned is we are replacing our legacy HIE, NextGen community health solution with the Mirth stack and that’s going on, now will go on over the next probably 12 to 16 months. And at the end of that phase, we’re going to have north of 40 NextGen customers using the Mirth HIE plus, their own base today. So it will be one of the largest and most widely used HIE products in the market. And the other part that we’re excited about is their customers are very happy with it. So, again, replacement market, replacing our own and the technology is solid with great customer sets. So it's been a fun story.

Awesome. Great. Thanks so much.

Thank you.

Our next question comes from the line of David Francis of RBC Capital Markets.

Hey. Good morning. Wanted to shift focus to the implementation revenue and cost of goods line. I guess first, can you tell us what the dynamic was to cause the spike in revenues there on a sequential basis? And given that that's been a negative drag on margin for the last several quarters, kind of tell us beyond the headcount reductions that you mentioned, what kind of drove the margin turn there? And more importantly, is it sustainable as we go into fiscal ’16?

David. This is Dan. Thanks for the question and good to hear from you. A couple things about training implementation that we've seen over the last three years. As we’ve seen the downward trend over time of new system sales, there is a corresponding hit or impact on training implementation over time. And so what we’ve looked at is the ability to stabilize that and understand how to properly be able to respond to a relatively unsteady demand. And so what you're seeing in the difference between the third quarter and the fourth quarter is the issue of demand and timing associated with providing of services. In the third quarter, we regularly talk about the fact that we have a number of distractions, three major holidays, our big UGM user group. All of these impact our ability to deliver training implementation on a fee-for-service basis. We go into the -- we went into the fourth quarter with a number of contracts and requirements. Gary talked a little bit about some of the expectations going forward from the consulting support organization on that. But the key issue is it’s the timing of the demand and a couple of pieces that impact that. There is some issues of different parts of the year but there are other issues, such as MU2, MU3. So, we’ve got a number of clients that still have not upgraded to the right level of system in order to achieve MU2. Those folks have queued up requirements for training implementation. Gary has indicated that we’re relatively stable in the number of new implementations that we’re doing on the traditional services, all of which drive demand. So part of it, from the top end or the revenue side, it has to do with being able to capture what is not a consistent demand but is somewhat of a choppy demand. And then on the profitability standpoint is to change the support model, which we -- I think we've done very effectively to be able to be much more responsive on providing sort of just in time costs associated with these revenue opportunities.

So just to kind of put a bow on it, are you telling us that we’re still probably going to expect some choppiness from a revenue perspective, but you think you’ve got a better handle on the throttle relative to the expense side of what you’ll see coming in relative to revenues?

I believe that's a good summary.

Okay. And then a quick follow-up. It looks as though the software cap rate might be starting to sneak up a bit. You guys have been little bit more conservative relative to cap rate over the last year or so, and seen a couple million dollars start to hit the balance sheet without looking at the cash flow statement? Can you tell us kind of where, I guess, what’s driving a higher software cap rate in there, again, if that something that we should expect going forward? Thanks.

Yeah. This is John. The cap rate for the entire fiscal year ’15, I believe was around 17%, Q4 came in high at 22%, that had to do with the timing of the achievement of technological feasibility of a couple of our product, that's just timing, that is all it is. With respect to what that rate might be going forward, I really don't see why fiscal ‘16 in total would differ greatly from the fiscal ‘15 average cap rate.

Okay. Thanks, John.

Our next question comes from the line of Gene Mannheimer of Topeka Capital.

Good morning and thanks. Congrats on a solid quarter and finish to the year.

Thank you, Gene.

Steve. Sure. Steve, I wanted to ask or Gary for that matter. In your discussions with prospects, how much of the conversation is around replacing the EHRs and meaningful use or is it more about the next wave of pop heath and related to that what percentage of the time are you including Mirth in your -- in conjunction with your EHR sales?

This is Gary. I’ll take that one. There's a lot of conversation now and a lot of education I think also in pop health. So it depends on who you're talking to. As you’re talking to the larger provider groups and hospitals that have larger numbers of employed physicians there, ahead of the curve in terms of knowledge and probably, already in some cases been trying different population health solutions. The mid-market and down, there are a lot more conversations, they’re probably around training them to understand what they're going to need in terms of technology. So we'll see that part -- that segment of the market trailing a little bit. A lot of our larger higher end system sales, the things we mentioned like Gila River and those types of situations, they generally are now going to have some component of the Mirth stack whether it's just the connectivity tools, whether it might be the CDR, so quite often -- very often I should say, Mirth is in the conversation, because interoperability is on everybody's mind, everybody talks of how difficult it is. And so clearly that's one of our asset that we can bring to the table and we can make people feel a lot more comfortable about our ability to connect to other systems outside of their own EHR.

That makes sense, Garry. Thank you. And Monte one for you, I wanted to piggy back of the earlier RCM question and ICD-10? I know you are not giving guidance for the year, but I mean, RCM grew about 18% in fiscal ‘15, do you expect that to be similar or better or worse than what for next year versus what you achieved this year? Thanks.

So this is Monte. Thanks for the question. I think we can -- we continue to see a lot of momentum in the dialogue. We certainly still consider ourselves a growing business and we’ll continue to pursue that aggressively. As John indicated in his comments, around unpredictability around timing, we think there’s going to be opportunity -- significant opportunity around ICD-10. But it's hard to pinpoint exactly when that happen, is it happen before ICD-10 is implemented, which makes our summer really busy and would lead to good revenue realization for this fiscal year or does it happen after ICD-10 implementation, when cash flow dries up, when providers are struggling, when payors are struggling. And bookings at that point in the fiscal year have less impact on our current fiscal year revenue realization. So, again, we believe that you we are continuing to grow and grow aggressively, what’s uncertainly really is just what the timing is going to look like.

Thank you.

Our next question comes from the line of Sean Wieland of Piper Jaffray.

Thank you. In the hospital segment, maybe some mixed messages in there with it. Can you talk a little bit about the $1.1 million favorable movement of sales return reserves, what went into that? And then more broadly, could you update us on the number of hospital customers you have your commitment to those customers, as well as the -- your commitment to selling new hospital footprints?

This is John. I’ll talk about the revenue side of your question then turn it over to Dan for the operational side. So we have consistent sales return methodology across business units across periods. And so it's a function of a variety things, relative returns, and concessions in the given trailing period, a function of gross revenues in that period and a year ago the factors that went into math for inpatient were driving the reserve level up and the factors more recently drove it down, it's just math.

And responding to the second half of your question, we have well over 200 hospitals that we have some type of relationship within the Hospital Services Division. We have over 300 hospitals we do business across the company. So just want to distinguish those two pieces. We have continued to state that we are committed to focusing on the satisfaction of our existing client base and meeting our contractual obligations while continuing to look at opportunities within that particular division on what might be possible to increase long-term stockholder value. We haven't really said much beyond that other than the fact that we continue to be focused on providing good quality service and meeting our contractual obligations, doing in the lowest cost manner. I think we were successful last year in both a high level of collections, a high -- much higher level in client satisfaction and delivering it at a much lower cost.

Okay. Are there any plans to sunset any of those products? It doesn't seem like it’s a big contributor to growth.

We are not anyway prepared to talk about possible sun-setting of products at this point.

Okay. Last one, I’ll squeeze in. The Tenet RCM deal, can you give us any kind of sense of the contribution that in the quarter when it went live and what led to the expansion within the quarter?

This is Monte. Our tenant relationship was signed in Q2 of fiscal '15 and it went live in Q3 of fiscal '15. So we saw certainly a full quarter in our fourth quarter and I think pretty close to our fourth quarter and our third quarter. We are excited about the expansion of that relationship which were in both my and Gary’s prepared comments. Both -- the expansion is both in stroke as well as term. So there's a lot of good stuff happening with tenant and RCM services.

All right. Thanks. And then the timing of NextGen now going into general release is when?

The timing of NextGen now going into general release is currently stated for early spring of calendar 2016.

Okay. Thanks so much.

Thank you, Sean.

Our next question comes from the line of Garen Sarafian of Citigroup.

Good morning, everyone. I wanted to just touch on the revenue cycle segment in a little bit different way. You emphasized growth in the segment for multiple reasons and you are not sharing specifics. But of the growth that you do expect, how much of it is coming from market growth versus share expansion?

This is Monte. Share expansion, what do you mean by that?

Just taking a share from.

Are you saying that…

No just taking share from competitors, gaining share?

I don't know that I am prepared to give you a breakdown. We continue to see growth in all areas certainly within the existing NextGen customer base that tends to be a big, big driver of growth. We are winning opportunities in the net new market with organizations that are using other competitive RCM products and services as well as the net new customers that are doing the billing internally and have determined that it’s no longer a core competency or anything that they can really do as effective as we are able to do it on their behalf. So if I had to wait, I would say certainly more is coming from the NextGen customer base. But we are winning our share of opportunities in the net new market as well.

Got it. Fair enough. And at a higher level I understand there’s no guidance today, but you mentioned sales growth would slow versus last year. So you get the street, the consensus seems to be 6% or 7% growth versus this past 10% growth. So I guess to asking really that you to may be respond again this year, is this collective estimates on that you are comfortable with?

We are not going to get anymore specific than my prepared remarks in that point.

Fair enough. Thank you very much.

That was John.

Thank you, Garen.

Thank you. Our next question comes from the line of Sandy Draper of SunTrust Robinson and Humphrey.

Thanks. Just a few questions. I apologize if I missed answers to this earlier. I can remember somebody talked about Mirth had a fixed fee contract and I’m not sure this is what Sean was referring to. But so what I am trying to understand, was there a sort of one-time benefit that Mirth got in the quarter that would be stepped -- I am just trying to understand, what was the -- what that comment was and what the economic impact is of the Mirth fixed fee contract?

Thanks. This is Dan. The Mirth fixed fee contract was just an example that based upon that particular contract, the timing of the recognition of revenue for that particular contract was more heavily done at its completion rather than sort of assets being done. The traditional fee-for-service contract you would recognize revenue moreover very much as you complete or as you do the work versus a fixed fee. There are some components that you can't really recognize till the end. So it was just one example of how that contributed to a number of other issues that contributed to resulting in higher training implementation revenue for the quarter. I wouldn’t make much more to that -- I wouldn't make anything more of that than just what -- just what I stated.

Okay. That's helpful. And then the second question -- the commentary about -- I guess is maybe -- I can’t remember if it was around cap rate or development or something essentially that basically it sounded like the cost of goods as percentage of revenue and ambulatory is likely to go up. Did I hear that correctly? There were some comments again about some development things happening that itself would impact cost of goods in ambulatory? My interpretation of that was sounded like cost of goods is going to go up as percentage of revenue. Did I hear that right or did I completely flip that around?

This is John Stumpf. My reference was to the cost of net R&D expense in the P&L in relation to revenue, which in R&D is a separate category of OpEx. My comment was not with regard to the cost of goods sold within the ambulatory business unit.

Okay. Great. That's helpful. And then my final question, just looking at what I would consider that the Mirth business, I mean it’s not all Mirth but it's the implementation -- I mean sorry the line of NextGen that is the other line. It looks like pretty consistently you have a higher cost of goods in the first part of the year than lower in the second part. Is there is some seasonality to the -- why the gross margin is simply stronger in the second half of the year? And if again, it’s happened in the last two years, so my interpretation has to make a turn out of lower first half margin stronger second half in that other services line. What drives that or was that just completely coincidental? Thanks.

This is John. I would say it’s completely coincidental. Other services comprise quite a few thing and we have mixed shift going on. We have varying rates of growth of individual products that are within there. But I could not think of the factor that would cause it to have a heavier load in the first part of the year.

Okay. Great. Those were my questions. Thank you.

Thank you, Sandy.

Our next question comes from the line of Ricky Goldwasser of Morgan Stanley.

Hey, this is Zack Sopcak for Ricky. Thanks for the question. I wanted a follow-up on Garen’s question on RCM, really quick and just ask about, you talked about growth of RCM within the NextGen base. Is it still fair that I think I had somewhere around the 10% penetration level?

Yes. I think that still reasonable.

Okay. Good. Thanks. And then when I look at the year-over-year growth and I know you talked about the number of different drivers. Did you see any impact from an increase in utilization of their healthcare system driving from that RCM year-over-year growth?

We know that some of our customers have benefited from the Affordable Care Act and with more of their patients being insured and a little bit more predictability as it relates to the collection of some of those services. So I think the answer is yes. I wouldn't tell you that it is material. I mean, I think the material growth is just the expansion of our business and bringing on new customers and continuing to deliver the services and find ways to help our customers optimize their revenue.

Okay. Great. Thanks for the questions.

Thank you.

Our next question comes from the line of Steven Halper of FBR.

Hi. Just one point of clarification on the $1.1 million of favorable sales returns reserves, I assume that that drops all the way down to the pretax line and its non-cash item, correct?

Yes. This is John. It’s pretax, non-cash, and of the one -- I want to be a little more specific. It wasn’t that one year was 1 million and the other year was 100,000 that is probably half and half, one year went up by say 500,000 the other year, down by like a amount just for added clarity.

Fair enough. Thanks.

Thank you.

There are no further questions at this time. I would now like to turn the floor back over to Mr. Steven for any additional or closing remarks.

Great. Thank you, Maria. And thank you all for joining us today. We are going to look forward to seeing you as Gary cited on June 8th in New York at our Analyst Day where we will be able to provide a much deeper dive, a lot more color and a really strong view on all of the work that we've done to prepare for the new modeling that's emerging in healthcare. We’ve done a lot of work behind the scenes. We got a lot of work to go forward but our customer base is continuing to expand. They are starting to become actively engaged in accountable care modeling under capitation, and the different forms of shared savings. And our job is to help them with performance measurement tools, so that they can accomplish the tasks to be successful in the areas of quality appropriateness of care and efficiency of care. And we look forward to sharing a lot of that with you because we believe these are all the new beginnings of bell curves of new product and service offerings that we are going to be selling into the market. And we think that that's going to be something that we are certainly going to benefit from because of the installed base we have in place. So again thank you so much for joining us today. We look forward to seeing you on June 8th. Thank you.

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 the conference ID number 46698028. 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.