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Quality Systems, Inc (NASDAQ:QSII)

F3Q 2013 Earnings Call

January 24, 2013 10:00 am ET

Executives

Steven Plochocki – Chief Executive Officer

Paul Holt – Chief Financial Officer

Dan Morefield – EVP, Chief Operating Officer

Donn Neufeld – SVP, General Manager

Monte Sandler – EVP, NextGen Practice Solutions

Analysts

Michael Cherny – ISI Group

Ricky Goldwasser – Morgan Stanley

Charles Rhyee – Cowen & Company

Gavin Weiss – JP Morgan

Jamie Stockton – Wells Fargo

Greg Bolan – Sterne Agee

Andy O’Hara – William Blair

Bret Jones – Oppenheimer

Richard Close – Avondale Partners

George Hill – Citigroup

Sean Daj – Jefferies

Operator

Welcome to the Quality Systems Fiscal 2013 Third Quarter Results Conference Call. (Operator Instructions) This conference is being recorded today, Thursday, January 24, 2013. At this time, I would like to turn the conference over to Steven Plochocki, CEO, of Quality Systems. Please go ahead, sir.

Steven Plochocki

Thank you, Tadeo, and welcome, everyone, to the Quality Systems 2013 Fiscal Third Quarter Results Call. With me this morning are Paul Holt, our CFO; Dan Morefield, our Chief Operating Officer; Steve Puckett, Executive Vice President of NextGen Hospital Solutions and our CTO; Donn Neufeld, Executive Vice President of Dental and EDI; and Monte Sandler, Executive Vice President of RCM Services.

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 some opening comments and then turn it over to the team.

We continue to execute on the restructuring plan we laid out and began in October, 2012 which included the centralization of our sales and marketing efforts, as well as the business development and technology functions of the organization. In addition, we’ve been strengthening our operational structure under the direction of recently-appointed Chief Operating Officer, Dan Morefield.

All these initiatives are starting to gain traction. We are confident in the anticipated benefits of these organization changes and their impact on top line, in our cost structure, and then that translation into the bottom line. Albeit early, we are beginning to see some impact from our reorganization as we continue to maximize and leverage our multi-product offering within the Healthcare Information Technology marketplace.

We have set a new date for our analyst’s day. Originally scheduled to be held in November, 2012 but postponed due to Hurricane Sandy, the meeting has been rescheduled for Monday, May 6, 2013 at the Le Parker Meridien Hotel in New York City. More details will follow.

We also announced that the company’s board of directors declared a quarterly cash dividend of $0.1750 per share on the company’s outstanding shares of common stock. Payment to the shareholders of record, as of March 15, 2013, with an anticipated distribution date of April 5, 2013. The $0.1750 per share cash dividend is pursuant to the company’s current policy to pay a regular quarterly dividend on the company’s outstanding shares of common stock, subject to further board review and approval and establishment of record and distribution dates by the board prior to declaration and payment of each such quarterly dividend.

Our strategy to capture market opportunities for continued revenue and earnings growth in our marketplace is sound. We will continue to pursue significant opportunities to sell our Electronic Health Record and complementary solutions. Industry estimates indicate that the addressable market for the HR solution is 35% for physicians and hospitals on a greenfield basis. We are in the third year of government incentive payments to physicians and hospitals and we anticipate continued opportunity in this market as incentive payments drive further adoption.

NextGen’s Ambulatory EHR currently is fourth out of 400 competitors and Medicare attestations showing its strength in enabling our customers to demonstrate Meaningful Use. As the government’s requirements for achieving Meaningful Use and receiving incentive payments become ever more stringent, with Stage 2 certification and ICD-10 coding compliance, we believe proven vendors like NextGen will separate from the pack as physician groups replace systems by vendors that simply cannot meet these requirements. We see significant potential for cross selling new solutions to our existing customer base and bundling multiple solutions for sales to new customers. This will continue to be a major emphasis for the company.

Over the last several years we have established four business units led by experienced managers to provide focused leadership, to develop business plans, technology infrastructure required to successfully introduce new complementary software and services. At the same time we have worked to tightly integrate many of these new solutions with our existing software to further strengthen our ability to cross sell within our existing customer base for each of our product lines and win multi-solution deals with new customers.

QSI is that the forefront of enabling the new Healthcare delivery models that are rapidly emerging, namely the Accountable Care Organizations. Our New Patient Population Management Solution allows physicians to monitor patient compliance with treatment plans and to track, capture and process revenue associated with proactive patient communication and care. Our Performance Management Suite provides sophisticated self-service analytics to keep Healthcare organizations meeting reporting needs for regulatory clinical and key financial performance indicators.

We see opportunity to grow our RCM service business as the industry seeks to reduce costs by outsourcing billing and collection activities. Management is actively looking to capitalize on the growth and potential we see in this line of business, in particular by extending our current RCM capabilities into the Dental and hospital markets of which we are actively pursuing at this moment. This will clearly be a fast growing segment for us and a major emphasis in the upcoming fiscal year.

With nine acquisitions in the last four years we continually evaluate acquisition opportunities of all sizes. Our core part of the acquisition strategy is to use bolt-on acquisitions to fill a strategic gap or kick start an entree into a newer business line. For example we recently acquired Matrix Management Solutions to expand our RCM offering. And we acquired The Poseidon Group to expand the emergency department capabilities of our Hospital Solution customers. We also have considered and will continue to consider larger, more-transformative transactions. Regardless of the size of the transaction, we will continue to focus on those deals that will provide strategic benefits to the company and make financial sense for our shareholders.

Again, in the past four years, we have made nine acquisitions that have helped grow the company and solidify its market position. At the same time, we have been disciplined in the pursuit of acquired businesses and have rejected acquisitions, both large and small, because they were strategically or culturally incompatible or not financially accretive. Acquisitions will continue to be an important part of our growth strategy as we move into our next fiscal year.

As we look ahead to capture growth opportunities, we’re working to achieve cost efficiencies that will increase margins. Our expanding use of offshore capabilities in particular for software development and other back-office functions is one example. Our growing Technology Innovation Center in Bangalore, India currently employed more than 225 technologists and engineers, significantly increasing the breadth and efficiency of our product development expertise.

International expansion is another area of focus in our growth strategy as evidenced by our first international distribution partnership that we’ve spoken to your about with Dell and Puerto Rico Hospital. These initiatives will allow us to move towards a successful long-term future in light of current market conditions that are changing. I’ll now turn it over to Paul.

Paul Holt

Thanks, Steve, and hello, everyone. The company recorded consolidated revenue of $114.5 million for our fiscal 2013 third quarter, an increase of 2% compared to a year-ago quarter of revenue of $112.8 million. Our revenue results reflect growth in our recurring services revenue including maintenance, RCI, EDI, and other services being offset by a decline in systems sales.

Total services revenue grew 20% on a year-over-year basis to $85.3 million in the current quarter versus $71.1 million a year ago. Total system sales declined by 30% to $29.2 million versus $41.6 million a year ago. Our services revenue is almost entirely recurring and represented about 75% of total revenue in the December quarter versus 63% a year ago. We’re reported fully-diluted earnings per share of $0.26 versus $0.36 a year ago.

Our earnings decline primarily reflects a mix change in revenue away from system sales to recurring services revenue including RCM and EDI which have lower gross margin compared to software. Our results were also impacted by investments we’re making in our Hospital business unit to build out infrastructure to support our growing customer base and capitalize on the opportunities in the small hospital space. While we’re pleased with our growth in services revenue, we have significant opportunities to further penetrate our customer base as many of our service offerings have not yet achieved a significant amount of penetration to date. Monte and Donn will provide more details on many of these opportunities later on our call.

Consolidated gross profit margin this quarter came in at 59.3%, down from 66% in the same-quarter of last year. Our gross margin was down primarily due to the decline in high-margin software revenue and a change in revenue mix – those recurring revenue streams that I mentioned earlier.

Our total SG&A expense grew by approximately $2.4 million compared to last year reflecting added SG&A expenses primarily from higher headcounts and other expenses, partially offset by lower commissions’ expenses. Going forward, we’re going continue to diligently manage our operating expenditures, balancing our goals of achieving high operating efficiency while maintaining our ongoing commitment to investing in the future.

R&D expense declined approximately 6% to $7.8 million this quarter compared to $8.3 million in the prior year. This decline in expense reflects a higher rate of capitalization of software development expenditures. Total development spend in the current quarter, including amounts capitalized, was up 18% over prior-year at $13.8 million compared to $11.7 million a year ago.

Moving on to taxes, our effective tax rate for the December quarter came in at 32.9% versus 34.8% a year ago. Our current period tax rate reflects a larger benefit from the domestic manufacturer’s tax credit, as well as lower state income taxes compared to the prior year. It’s worth noting that our current quarter tax rate does not reflect any federal research and development tax credits. An extension of the tax credit was passed in January 2013. And as a result, we will be entitled to take a full-year of R&D credit next quarter. However, we’re not including any benefit in our current tax provision.

I’m now going to turn over to our segment review and operating income performance. Note that as we progress in our process of restructuring our company, our segment reporting may change or be modified in the future consistent with how we ultimately structure the company.

Moving on, NextGen Ambulatory revenue, $85.8 million, it’s flat over the prior year; NextGen Ambulatory operating income, $31 million, down 12% over the prior year; QSI Dental revenue, $5.1 million, up 5% over prior year; QSI operating income, $1.3 million, up 104% over prior year; Hospital Solutions, $7.4 million, down 26% over prior year; and Hospital Solutions reported an operating loss of $1.3 million. Note those results also reflect investments being made in that business unit. RCM Services revenue $16.3 million up 35% over prior-year; RCM operating income $2.1 million up 69% over prior-year.

Moving on to our balance sheet, we ended the quarter with $106.7 million in cash and marketable securities equal to about $1.80 per share which is down from $122 million, or $2.05 per share at the start of the quarter. Note that at the end of this quarter we elected to pay our fourth quarter dividend of $10.4 million prior to the end of the quarter as opposed to immediately after the quarter, resulting in our paying out dividend payments of approximately $20.8 million or $0.35 per share instead of our historical $0.175 per share or $10.4 million. In addition, our current quarter also reflects approximately $1.4 million in cash payments related to earn-outs for some of our prior acquisitions.

Total accounts receivable as of December 31 was $151.5 million. A turnover of accounts receivable was 121 days. That’s down eight days versus same quarter year-ago and up just two days versus the prior quarter. Current deferred revenue declined $63 million compared to approximately $68 million last quarter. Primary driver of this decline in deferred revenue stems from a reduced amount of deferred implementation services consistent with a drop in systems sales which we’ve been experiencing in recent quarters.

Finally, I’m going to provide some non-cash expenses for the quarter. Total amortization of capitalized software were $2.4 million, amortization of tangible assets $1.9 million, total depreciation expense $1.7 million, and stock compensation expense $0.6 million. Investing activities for the quarter internally generated capitalized software $6.0 million and fixed assets was $2.3 million.

I want to thank you all for being on our call and your interest in our company. I’m going to turn things over to Dan Morefield.

Dan Morefield

Thanks, Paul, and hello, to everybody. While NextGen Ambulatory revenue is flat over the prior-year, we are pleased that our Services revenue continues to grow at 20% over the prior-year same quarter. This is attributed to solid execution of our cross-selling efforts in EDI, annual licenses, subscriptions, hosting, and other service offerings. We are also happy to report that the pilot program with Hangar continues to go well and we expect to start the deployment later this year.

I was pleased to announce this quarter the appointment of NextGen and Healthcare IT veteran, Mike Lovett as Senior Vice President and General Manager of our Ambulatory Business Unit NextGen Healthcare. This move is a continuation of the company restructuring announced last year. Mike has over 25 years of Healthcare IT experience including four years as a senior member of our sales organization. Mike brings unique skill and experience depth that includes intimate knowledge of our products, services and customers. Additionally, Mike has been added to the company’s executive committee.

As discussed in the Q&A session of the last earnings call, as part of our restructuring we continue to review our overall cost structure commensurate with the decelerating pace of our earnings growth. In particular we are closely looking at our opportunities from cross-business unit efficiencies. At our user group meeting in November, which, by the way, included over 4,500 attendees and was our largest user group ever, we announced the Gen release of our newest EHR content, Version 8.1.

With a new user interface, standardized framework for all templates and streamlined navigation, the 8 Series EHR content is faster and easier to use. This version will help providers set the stage for patient-centric care and other emerging delivery models. With the launch of the revolutionary 8 Series EHR content we have provided our clients with the best possible solution to meet their medical, administrative and financial needs while preparing them for critical industry initiatives such as Meaningful Use Stage 2, ICD-10, collaborative care and shifting reimbursement models.

Now for a few of our quarterly operating metrics that we normally report on this call. The company executed 131 arrangements on a consolidated basis versus 117 last quarter. Of the new arrangements, 74% were greenfield and the rest were replacements. We executed 46 staffed agreements during the quarter which are included in the total of 131 arrangements. Discounting did not materially change in the quarter. As of 12/31 we had 110 quota carrying sales and management positions just slightly lower than the prior-quarter of 112 quota carrying sales in the entrant positions. Our pipeline is approximately $138 million in line with last quarter’s $140 million. That includes Ambulatory, RCM and Inpatient.

I’d like to thank all of you, our clients and our staff who continue to work extremely hard as we pursue multiple opportunities and challenges across our industry. With that I’m going to turn the call over to Steve Puckett.

Steve Puckett

Okay. Thank you, Dan. The Hospital Solutions division sold another five hospitals this past quarter and also had add-on sales of our ancillary systems including our Surgical Products Suite and new emergency department systems. We continue to see our customer base growing well past 200 hospital clients now and most of the non-specialty hospitals have purchased our Ambulatory Product Suite as well. We now have about 60% of our installed hospital base installed side-by-side with our Ambulatory product. Specialty hospitals continue to be a great match for our product portfolio and they provide us opportunities to expand into urban and metropolitan markets as well as our traditional rural areas.

Notably this past quarter is the release of a new version of our Hospital Products Suite with additional functionality that will allow us to enter the greater-than-100 bed hospital market. We are currently implementing this version with our first community hospital of this size and expect to have them live this year in order to obtain their Meaningful Use incentive payments. This marks a significant achievement in the evolution of the product line and we’re excited about the potential of entering this expanded market. I mentioned last quarter that we were on track for all of our qualifying hospitals to achieve their Meaningful Use incentive payments and I’m proud to report that we currently have a 100% at-a-station rate for all of those that qualify and have attempted out-of-station. Currently we are working with these same hospitals to allow them to achieve their Stage 2 incentive payments at the end of this calendar year.

In closing, we continue to focus on the rural and community hospital market and specialty hospitals and we have now started the cross training between the hospital sales force and the established Ambulatory one. With the addition of more and more feet on the street we believe we will be included in many additional new opportunities than ever before. Thank you for your time and attention and now I’d like to turn it over to Donn.

Donn Neufeld

Thank you, Steve. Good morning, everyone. We had continued success selling NextGen Electronic Dental Record with the NextGen EHR and EPM, adding ten new joint clients in the quarter. The quarter was also aided by the expansion of our large dental practice management company clients. The QSI Dental pipeline is approximately $6.8 million. EDI had record revenues in Q3. We continued to grow our core products of claims and statements and have continued acceptance of our newer offerings across all of our business lines.

I’ll now turn things over to Monte Sandler.

Monte Sandler

Thanks, Donn. Good morning, everyone. RCM Services revenue for the third quarter was $16.3 million, representing a 35% growth over the prior-year quarter. Operating income grew 69% over the same period. We continue to grow operating margin through revenue enhancement and cost reduction initiatives led in large part to increased adoption of automation and the evolution of our best practice methodology that is focused on continuous improvement of service delivered to our customers. We signed several new deals during the quarter driven by our ability to help our customers optimize revenue and maximize the use of our products. Our backlog of signed deals not fully implemented remains strong and our sales pipeline is yet again the highest it has been to date thanks in large part to our growing sales focus and recent sales reorganization.

We continue to see that practices are concerned about their financial future as a result of pressures from ACA reforms and ICD-10, to name a few. Our tailored RCM services, driven by people, process and technology make us a great solution to help providers position themselves for future healthcare reimbursement models. I’m confident that we remain well positioned to help our providers navigate the changing environment and optimize their revenue cycle with our full service, all payer best practice solution that’s built on NextGen’s industry leading software platform. Thank you for your time and interest in our company. Today, we’d like to take questions at this time.

Question-and-Answer Session

Operator

Thank you, ladies and gentlemen. (Operator Instructions) Our first question is from the line of Michael Cherny with ISI Group. Please, go ahead.

Michael Cherny – ISI Group

Good morning, guys.

Steven Plochocki

Morning.

Michael Cherny – ISI Group

So I just want to dig in a little bit on the software weakness. It seems to have come down another 8% sequentially. As you look ahead to the business as you focus particularly on the re-organization of the company, how do you get some clarity or visibility around a return to growth, particularly within the system sales metric?

Steven Plochocki

Well the initiative that we rolled out beginning in October by combining our leadership under sales and marketing under one individual was to try to create a more enhanced ability to develop leads through a series of new initiatives. Now, we know that there’s a number of issues that are going to be facing the sector. The high end of the market, whether it be hospital or it be physicians has pretty much made purchasing decisions already. So we’re dealing with the mid-size to lower end of the markets in both of those categories and I think some of the initiatives that we’ll be rolling out that we’ll be talking to you about very specifically in May will get us back on track in terms of at least upgrading our capabilities to be involved in more of these deals.

Now the, what’s happening on the tail end of this though is that we also now have an enhanced marketing expansion because we’re dealing with two issues. We’re trying to get the rest of health care electronically based; at the same time, ACOs are exploding all over the country. We’ve got, I think there’s 225 ACOs now. At the beginning of the month there were 125 and at the tail end of last quarter I think the first four reached certification. So if you want to see a fast moving area it’s Accountable Care Organizations.

And we’re deeply engaged in providing software and product for them because as you know, the physician base is going to be the key to a successful ACO, managing patients in low cost settings, keeping them out of higher cost settings is going to be the key, and many of our large group practices are either ACOs themselves or are highly instrumental and important in ACOs that are being formed today. So we think that we’re going to see an expansion in terms of our capabilities to sell software as these ACO models continue to expand. And like I said there’s still 35% of the market that has not yet adopted.

Michael Cherny – ISI Group

Great. And just along those lines if you’d talk a bit about investing as you refocus the company and the re-organization. As you think about kind of some of the restructuring plans you do are there any kind of cost cut targets that you’re focused on or is it more of an offset of investing and growth versus kind of rationalizing some of the kind of less necessary costs? Any specific financial targets on that front you could give would be great.

Dan Morefield

This is Dan. We are not providing any specific targets associated with cost cutting or efficiencies. Cost cutting and efficiencies and cost rationalization is really a culture. And from our perspective, I really look at sort of the three C’s associated with these which is the culture of expending and being prudent in your expenditures following by putting in good controls within the organization, both of which we have really moved the needle on, and then the third one is really looking at the cross division efficiencies and consistent with the restructuring of the company, from an organization that was really run as four independent business units to one efficient organization of where we can get not only the cost efficiencies but the revenue efficiencies that come from cross selling and selling multiple products every time we interact with a client. So again, we have stated no and don’t plan at this point to outline specific cost reduction targets.

Michael Cherny – ISI Group

Okay. Thanks.

Dan Morefield

Thank you.

Operator

Thank you. Our next question is from the line of Ricky Goldwasser with Morgan Stanley. Please, go ahead.

Ricky Goldwasser – Morgan Stanley

Good morning.

Steven Plochocki

Morning.

Ricky Goldwasser – Morgan Stanley

Can you provide us an update on your retention rate with HMA customer’s year-to-date as they transition to Athena started? And in the past I think you expected to retain some of these clients so have your thought processes of this changed in any way?

Steven Plochocki

The HMA, which we talked about on the last call – just to give a little history on HMA – in 2007 we received the opportunity to work with HMA physicians owned and affiliated, of which there are over 1,200. In that period of time we were affiliated and still continue to be affiliated with them. We’ve gained about 400 physicians on our software and a little over 500 physicians that were engaged in our revenue cycle management processes. New management came into HMA and wanted to expand the offering capabilities to their owned and affiliated physicians, selected Athena, and they’re engaged now in that process.

It’s early in the process. There have been some conversions. There are other physician group practices that have stayed with us and I guess are resisting the move and there are some conversions taking place on the RCM side. It’s too early to tell what the full impact of this could be, but yes, we’ve lost some business through that transition. But I always say as in all of these deals you have to take a look at them about a year out to see where the dust settles and the smoke clears.

Ricky Goldwasser – Morgan Stanley

Okay. And then I know that on the hospital side some investment impacted profitability but if you excluded investment, what was the operating profit on the segment or where the margins?

Paul Holt

Yeah. This is Paul. We’re not going to get down to that level of granularity. I think that business unit is in a mode of expansion and we’re building that infrastructure, we’re gaining efficiencies, there’s work to be done there but I think at this point we’re not going to really get into that kind of pro forma discussion.

Ricky Goldwasser – Morgan Stanley

Okay. Thank you.

Steven Plochocki

Thank you, Ricky.

Operator

Thank you. Our next question is from the line of Charles Rhyee with Cowen & Company. Please, go ahead.

Charles Rhyee – Cowen & Company

Yeah, thanks. Good morning, guys.

Steven Plochocki

Morning.

Charles Rhyee – Cowen & Company

Just a couple quick questions here, first on the NextGen pipeline, $138 million. And I think you mentioned that it includes Inpatient, Ambulatory, and RCM. When did you starting putting the – or just to remind me – when did you start putting the RCM also into the pipeline? Because if I recall, that was maybe only the last few quarters, is that right to think of it that way?

Steven Plochocki

No, Charles. The RCM became part of the pipeline when we brought RCM into the system back in 2008.

Charles Rhyee – Cowen & Company

Okay. So then it was always in that number then.

Steven Plochocki

Yeah. It was always part of our pipeline. Yes. The only area we don’t include in the pipeline is our Dental operations.

Charles Rhyee – Cowen & Company

Okay. And then, when I look at the – if I look at what you kind of just mentioned here for the NextGen Ambulatory revenue, $85.8 million, and it sounded like you’re saying that the Services piece was up 20%. When I think about – I should think of EDI and maintenance and other that kind of suggests that the System sales piece of Ambulatory was down. It was around $24 million. Is that approximately right?

Steven Plochocki

Yeah. That holds true that what happened there is you had a shift from System sales – what was lost in System sales was replaced by the Service revenues.

Charles Rhyee – Cowen & Company

Right. So then what about like the SaaS piece does that show up in the other revenue line or would that still show up in the Software?

Steven Plochocki

That’s in other. And there were a few others...

Charles Rhyee – Cowen & Company

That was...

Steven Plochocki

Yeah. And there are a number of other types of recurring subscription types of services that we have in that other category.

Charles Rhyee – Cowen & Company

And can you remind me what the year-ago SaaS agreements were? The number of SaaS engagements? I mean I guess I can go back and look it up but I was just curious if you had that handy?

Steven Plochocki

No. Not handy. I would go back to the transcript to the prior-year – prior call.

Charles Rhyee – Cowen & Company

Okay. And then last question, on RCM, can you just remind us what percent of the existing NextGen base is using your RCM services? And then, maybe, the – yeah, that’s the first question or that is the question.

Steven Plochocki

You’re asking the penetration rate for RCM into our current base?

Charles Rhyee – Cowen & Company

Yeah. Yep.

Monte Sandler

Chip, this is Monte. It still remains low. It’s in the single-digits. Again with our reorganization of the sales and the company, our focus is to continue to penetrate that customer base. So we see large opportunity to continue to grow both within the existing customer base, as well as net new customers that are out in the market looking for our services.

Charles Rhyee – Cowen & Company

Do you have a percentage for the number of the new engagements in the quarter? How many of your new client wins include both EHR Practice Management, and RCM?

Monte Sandler

I don’t know if we have that for you. I think we can take that one as a follow up. I’ll tell you from the RCM perspective, the majority of the deals that we’re working on are within the existing customer base and we continue to be part of the discussion on net new opportunities as well.

Charles Rhyee – Cowen & Company

Okay, great. Thank you.

Steven Plochocki

And just a follow-up to that, Charles, the restructuring and consolidation of our sales organization under a singular head is specifically going to benefit us in the cross selling opportunities and the multi-product selling opportunities. We have been disappointed in the past in our ability to do that and now we’re going to see, we believe we’re seeing the beginning signs of some really strong traction in terms of our 120-sales-person organization doing a much better job of cross selling into our large installed base as well as doing more multi-product sales. This is going to be a key part of our strategy on a going forward basis and I’m starting to like the progress we’re making as more and more of our sales organization gets cross trained in these respective areas.

Operator

Thank you. Our next question is from the line of Gavin Weiss with JP Morgan. Please, go ahead.

Gavin Weiss – JP Morgan

Hi. Thank you for taking my question. As I look at the sales force, head count went down slightly, but if I look at software sales per rep that’s obviously down significantly and the pipeline doesn’t really seem to be picking up here. What’s really holding the sales force back? Is it still customer demand is waiting for more clarity on what they choose going forward or is it just that you’re still ramping up the new sales structure?

Dan Morefield

This is Dan. I’m going to take a quick shot at that. First of all we don’t see the change in commission sales person number to be material. The difference between 110 and 112 is really not a material number. It will fluctuate depending on hiring patterns and so forth. To your second question we have been relatively straightforward in highlighting that the reduction in large software sales has been declining as the adoption into that specific market, the penetration has continued to go up. And so the natural math will then be that we’ll see a greater deal of smaller sales reflected in the sales force. I would look at it just as a macro trend from the industry as a whole and one where, consistent with everything that we have said and announced.

Gavin Weiss – JP Morgan

Okay. And then in terms of your Medline partnership will you be training their sales force or how will that work going forward?

Steven Plochocki

Yeah. In Medline, right now we’re actively engaged with Medline in cross training their 1,000 plus sales organization and our 112 plus sales organization, so we’re right now in the throes of that cross training both ways.

Gavin Weiss – JP Morgan

Okay. And have you seen any ramp up in that yet or is it still

Steven Plochocki

No. We just literally the ink just dried on the deal about 40 days ago and we’re moving very rapidly towards the cross training elements. We’ll have more to report on that once we get some traction and actually get some material impact from it.

Gavin Weiss – JP Morgan

Okay, great. Thank you.

Steven Plochocki

Thanks, Gavin.

Operator

Thank you. Our next question is from the line of Jamie Stockton with Wells Fargo. Please go ahead.

Jamie Stockton – Wells Fargo

Yeah. Good morning. Thanks, for taking my questions. Maybe the first one, I don’t know if Dan you want to take this or someone else does but if you could give us an update on the new single data base, web-based software platform – I think you guys have maybe been calling it NG 7, where does that stand, when do you think it’s going to go into beta, when would you expect it at this point to be released?

Steven Puckett

Okay. This is Steve. I’m very familiar with that and we are obviously very excited about that platform. We are not giving specific details out but that platform is substantially underway and has been now for some time. One of the things I was going to mention is we are moving very forward with the new 8 Series part of our KBM product which works with our current application which is really fine tuned to be a predecessor right into that. So we’re excited about that because it’s part of a natural evolution of what we’re doing between the products. So we’ll give further details and maybe even some in the conference in May.

Jamie Stockton – Wells Fargo

Okay. And then maybe just as a follow up to that could you touch on your thoughts around how you’re going to go through the transition? Are you going to be essentially pushing client server version of all your solutions alongside a more-true SaaS single database version at the same time? Are we going to be at a point in a year or two where the SaaS version or single database version is going to be the main thing you’re pushing?

Steven Puckett

Well, obviously we see the synergies of what you can do with that kind of a platform and I think that’s also a great thing that we’ll look into maybe discussing in May in more detail.

Dan Morefield

And Jamie, Dan here, I would just add one more thing is what we will do is look very carefully at the demand that we see from the market and what this technology does is it gives us flexibility. And so the key would be is we will be able to provide multiple components but really focused on the demand of the market.

Jamie Stockton – Wells Fargo

Okay. And then, maybe just one last one for Steve Puckett on the Inpatient, you talked about new functionality that was allowing you to go above 100 beds. Is there any color you can give us on that? And I’ll stop there.

Steven Puckett

Well, I’ll just say in some of the acquisitions that we’ve done we had a great opportunity to kind of move into the greater-than-100 bed market. When you do that you obviously have more of a sophisticated feature set that’s required when you get up to ICU units and those kind of things and the different interdepartmentals. And I think we have been spending, haven’t talked much about it on these calls but over the last year or so we’ve been enhancing the product line quite a bit on the Inpatient side to be able to move up-market in that capacity. So we’re excited to have a partner in that process and are looking forward to having that come to fruition very shortly so that the Meaningful Use they’re looking to do can be achieved this year.

Jamie Stockton – Wells Fargo

Thank you.

Steven Puckett

Thank you.

Operator

Thank you. Our next question is from the line of Greg Bolan with Sterne, Agee. Please, go ahead.

Greg Bolan – Sterne Agee

Hey. Thanks. Just going back to Charles’ question just to clarify so system sales within NextGen division looks like they were up about 25%, 26% sequentially?

Steven Puckett

Sequentially? I think – we didn’t discuss – we’ve been talking about year-over-year results. You’re asking about the just Ambulatory sequential?

Greg Bolan – Sterne Agee

Movement in system sales. So $24 million, $23.5 million, $24 million is the number that was discussed, just wanted to clarify?

Steven Puckett

Yeah. Give me a little, circle back, give me a minute to pull that up. We’ve been talking about year-over-year stuff and haven’t gotten into sequential, so.

Greg Bolan – Sterne Agee

That actually dollar number, is that correct for NextGen Ambulatory System sales?

Steven Puckett

Well you should have that – we reported that last quarter. You should already have that, that number from our prior Q. And you’ll get it when we get the Q filed here shortly.

Greg Bolan – Sterne Agee

Okay. All right. And then, Steve, going back to the comment around five new hospitals added this quarter, I think you had added around nine this time last year. And it’s – this division, I know was kind of somewhat of a growth catalyst over the coming years. And it seems like it’s softening I bit I mean is there – is the saturation within the Critical Access up to all the way to say the 50-bed hospital marketplace increasing to the point where it’s kind of pushing you I guess up in terms of number of beds? And maybe this is a transition period and we should expect Hospital Solution revenues to start to reaccelerate or any comments there?

Steven Plochocki

Yeah. A Couple of comments, first off, that market is wide open and I don’t see any change and that’s not impacting us in any way as far as the market availability there. I think if you look at the pure numbers that last year we brought to a live state which was astronomical to me I mean compared to the other folks in the industry. We’ve – right now, I think we’ve done and I haven’t mentioned a whole lot about it – we have a couple of SaaS deals in the play and things like that. There’s a lot of effort going into some different models that we have out there right now. And I would say our Group is heavily invested right now in getting the deals that we have actually sold actually installed and completed out there as well.

But I see, for us, I mentioned also that we are looking very forward to opening this up because quite frankly the way I feel about it is there are a lot of deals that are happening that they don’t even know about us. And so, that’s the real opportunity that I think, and including the market segment you’re talking about, the smaller market as we have a lot of feet on the Street over those 100-and-some people. They’re all interconnected right now almost to touch every single hospital that’s out there. There’s a couple of people apart from that. I’m looking forward to that. We’ve just now got that underway where we’ve done the cross-training. It is a different kind of sale between the Hospital and the Ambulatory so we’re looking forward to seeing a lot of opportunities from that. So I don’t see a significant shift to answer your question.

Greg Bolan – Sterne Agee

Okay. I mean I guess is it fair to say that in your pipeline that the Hospital end market pipeline, is it growing?

Steven Plochocki

Yeah. Well I think you will see it growing as we get more folks on the street and we’ve also expanded the marketing just since last quarter in those areas. So I think you will see some of that.

Greg Bolan – Sterne Agee

All right, great. Thanks. Just last one, Steve, kind of just thinking about your comments on potential acquisitions. I guess over the past year you’ve talked a little bit about specifically towards the revenue cycle technology side within the acute setting. Are there, I’m assuming conversations continue to be ongoing. Any color you’d like to share just in terms of, are these, is it kind of transitioning to smaller assets to fill the strategic holes like you had spoken about? Smaller bolt-on as you had historically done? Or are you really starting to lean towards something quite transformational? And any commentary on that would be great. Thanks.

Steven Plochocki

Well, Greg, in our prepared statements I think we are pretty clear on the fact that we’re not going to be reckless. We have a history of doing acquisitions that we can assimilate, integrate into our organization where it doesn’t create a lot of disruption. But we also have left the door open for doing something more transformational. We think revenue cycle management is going to be an explosive area because of the, not just the ICD-10 but then the movement to ICD-11.

And then you’ve got to remember, we’re less than a year away from Obamacare and nobody knows what that’s really going to mean. But what we’re seeing more and more in our large, installed base of physicians is their concern over cash flow as a result of ICD-10 and maybe some of the nuances of healthcare reform under Obamacare. So it’s going to be an explosive area. We want to continue to grow it. We want to continue to expand it and we’ve always said that we wanted this year to get into the revenue cycle management sector relative to dental as well as hospitals and we are engaged in discussions in those areas right now.

Greg Bolan – Sterne Agee

Okay, great. Thanks, guys.

Paul Holt

Let me follow-up your other question. I’ve got the answer here. So next to the Ambulatory system sales last quarter was $27 million, $24.5 million this quarter. That’s your sequential system sales numbers there.

Greg Bolan – Sterne Agee

Okay, great. Thanks, guys.

Steven Plochocki

Thank you.

Operator

Thank you. Our next question is from the line of Ryan Daniels with William Blair. Please go ahead.

Andy O’Hara – William Blair

Hey, guys. It’s Andy O’Hara in for Ryan this morning.

Steven Plochocki

Andy.

Andy O’Hara – William Blair

Hey. I had a quick question going back to the RCM services. Can you just give any more color sort of specifically with regard to selling into the hospital market?

Monte Sandler

I’m sorry, for RCM Services?

Andy O’Hara – William Blair

Yeah, selling into the hospital market.

Monte Sandler

With our Hospital Solutions Group?

Andy O’Hara – William Blair

Right.

Monte Sandler

Okay. Yeah. So we believe that there’s a lot of opportunity in that market segment in those customers. Our services and our focus are really around revenue optimization and providing services to help our customers achieve that as well as getting the most out of our software platforms. So we think there’s a large opportunity in the hospital base to reduce costs, optimize revenue and maximize the use of our technology and again, with our sales reorganization we’re starting to see a lot of growth and penetration through all of those segments.

Steven Plochocki

Okay. Cool.

Andy O’Hara – William Blair

And then of the 200 some hospital customers you guys have, roughly how many are using RCM Services at this point?

Monte Sandler

We don’t have any today that are using our RCM Services.

Steven Plochocki

Yeah. Just for clarity purposes, I want to make sure you understand we want to become engaged in the RCM sector for hospitals. We are not engaged in that presently but we want to get into it. I just want to make sure you understood that.

Andy O’Hara – William Blair

Okay.

Steven Plochocki

We are, Monte does have some strategic alliance relationships with RCM companies that engage in hospitals where we do co-bidding on our physician side with their hospital side to try to win deals but we want our own opportunities in the hospital side and that’s where we’re engaged in discussions presently.

Andy O’Hara – William Blair

Okay. That’s helpful. And then can we get any more color on your patient portal? Have you guys seen an uptick following the final Stage 2 rules or are a lot of customers still holding off because of the delay.

Steven Plochocki

No. We are seeing an uptick there. That portal product, not only does it help satisfy Meaningful Use rules, it also creates efficiencies inside the practice and encourages greater engagement with patients. So we have been seeing an uptick and that is part of the growth that you’re seeing in the Other Services revenue line.

Andy O’Hara – William Blair

All right. Thanks, a lot guys.

Steven Plochocki

Thank you.

Operator

Thank you. Our next question is from the line of Bret Jones with Oppenheimer. Please go ahead.

Bret Jones – Oppenheimer

Good morning and thank you for taking the questions. I wanted to start, I wanted to go back to the idea of software sales and kind of where we are in terms of them bottoming and get a sense for what you’re thinking. You talked about the Ambulatory market, you know, having shifted away from the large physician practices, et cetera. It sounds like on the inpatient side you’re trying to move up-market. You know, is this a demand issue? Is the demand still there on your mind? Or if we can kind of rank, like what are the issues on the demand side? Is it, you know, is it demand or is it the product that you need to realign, or is it a service issue?

Steven Plochocki

Well, let me give you – Bret, this is Steve – let me paint the picture a little bit. As we all know, and hopefully most of us know on this call, the – there’s about 35% of the market on the hospital and combined physician side that are not yet adopted. The high end of the hospital market and the high end of the physician group practice market have pretty much made purchasing decisions. So we’re taking out of the market these seven-figure opportunities and we’re working more now with six-figure opportunities.

However, the evolution of Accountable Care Organizations and their rapid expansion, and with the fact that we have such a large installed base of large group practices around the country that are basic – they’re the primary movers of these ACOs, they’re expanding and growing and adding group practice, adding smaller practices, adding specialties, adding all the components they need to fulfill ACO requirement. So we are continuing to capture the mid to small market, which is, you know, just through our normal processes of responding to RFPs, our sales processes in local markets, the regional extension centers, the 62 that had been set up around the country where we’re the third-most applied software through regional extension center support that the government has outlined.

And if you take a look at the, again, I’m going to point to the, you know, the CMS reports on attestation. There’s 462 companies represented on those attestation reports. We ranked fourth in terms of physicians that have attested. So we have a very strong position with over 4,200 group practices that are going to need additional products and services. And let me give you a flavor on ACO. ACOs have five principal products that they need, and we provide those – patient management, population management, analytics tools, regulatory reporting tools, and clinical reporting tools. Those are the five principals that are needed in ACO systems. And for companies like us that have a large installed base, that’s a whole new sales element for us in the market.

So as the adoption curve for the platform of electronic medical records is reaching fruition throughout the next year or two with the evolution of the accountable care organization is creating an entirely new selling opportunity for companies – particularly companies like us that have existing installed bases. And I’m going to reiterate that a lot in the next year because the installed base is the reason that we believe we’re going to have a great opportunity through cross-selling, multi-product selling, ACO product selling over the next year. And it’s also the same reason that those companies that don’t have large install bases – the smaller providers, the ones who don’t have the critical mass in their software development to meet ICD-10 standards or Stage 2 certification – that’s going to create entire reselling market for large companies like us. So we think there’s a lot of changes coming down the path that are a little different then maybe the last two to three years. But they’re all opportunities that’ll benefit a company like us.

Bret Jones – Oppenheimer

Okay, that’s helpful. So just to sum that up, is it right to say that EHR – we should expect EHR demand to continue to soften but you expect to cross off whether it’s population management, reporting or analytics – that’s going to start to pick up? Is that the right way to think of it?

Steven Plochocki

Yeah. I think as one thing starts winding down other pieces start rolling up. And don’t lose sight of the fact that because we’ve consolidated our organization in terms of sales and marketing as Monte cited revenue cycle management is going to be a huge growth area for us.

Bret Jones – Oppenheimer

Can you give us a sense from what demand you’re seeing in terms of population management tools and reporting and analytics? Obviously still very early in the ACO life cycle so are they six months away from demand really picking up? Maybe even 12 to 18 months?

Steven Plochocki

I think – like I said if you look at the evolution of ACOs – two months ago there were four certified ACOs. Around Christmas time there were 125 and now there’s 245. So you’re talking about something that’s evolving extremely fast. Patient management and population management are the two key tools because the key to an accountable care organization being successful and being paid on a capitated basis is that ensure that patients are managed extremely well in low cost settings. So in other words you do not want a patient to escalate into specialty care or the hospital which means you have to do a great job of managing them at the primary care level. And it’s at that level that the software is the instrument by which the management of that patient will be attained. So I – we find this stuff is exploding all around us; it’s growing very rapidly. And again, we’re at the very end and early stages of ACO modeling and expansion.

Bret Jones – Oppenheimer

Okay, great. Is there any way you can give us a sense for the demand you’re seeing, whether it’s in terms of revenue or maybe it’s too early for revenue, it’s in the pipeline in terms of these new tools?

Paul Holt

Well I mean, like I said, it’s early to be able to say that it’s a material impact for a $460 million company like us. We can’t make that statement yet. But we see that as one of the areas that’ll grow very nicely for us in the upcoming 12 to 24 months.

Bret Jones – Oppenheimer

All right great. Thank you very much.

Steven Plochocki

Thanks.

Operator

Thank you. Our next question is from the line of Richard Close with Avondale Partners. Please, go ahead.

Richard Close – Avondale Partners

Yes, thank you for taking the questions. With respect to the RCM pipeline, I think you said that was record level. Is there any way as your business is transitioning that you could give us the percentage of the total pipeline that RCM is currently or a rough estimate?

Dan Morefield

This is Dan. At this point in time, we are not prepared to do that. And again, consistent with the fact that these opportunities tend to cross divisional lines. As Steve Puckett indicated, we have a great percentage of our hospital clients also have ambulatory solutions so when we look at the pipeline, understanding that, those pipeline figures go across division lines. So it’s not something at this particular point in time that we think is something we’re going to do is to provide that level of detail.

Richard Close – Avondale Partners

Okay well since the model’s transitioning from a service – or from software to more service, it would be helpful, you know, to investors and analysts, if we could get some of that granularity. How about on the number of arrangements, you had 131 in the quarter. How many of those were multiple product sales?

Paul Holt

Yeah, hey, Richard, this is Paul. At least the significant majority, high majority, say three quarters, are going to be – when you say multi-product, I’m talking about both the EPM and EHR products. Is that what you’re referring to?

Richard Close – Avondale Partners

I’m really referring to some of the buy end practice management in EHR and also they’re also buying the revenue cycle services or a hospital that might be buying Inpatient and the Ambulatory. What is the percentage of, I guess, multi-product sales looking at it that way.

Steven Puckett

I mean – this is Steve Puckett. I can talk to you from the hospital side it almost – eight out of ten times we are dealing with Ambulatory because where there are hospitals there are clinics almost always associated with it so for us that’s – I can tell you that much from our side.

Richard Close – Avondale Partners

Okay. And then I guess to piggyback finally on Bret’s question, is there any sense in terms of magnitude of the market size of these ACO tools in terms of what the potential revenue is? As we look at the decline in the Electronic Health Record opportunity and the software revenue associated from that, is the revenue potential from these ACO tools at the same size as the EHR and, thus, can sort of plug the hole as the boats leaking? Just trying to get a better feel where software potential goes over the next year or so.

Steven Plochocki

Well, I think it’s difficult for all of us to predict that. Other than the fact that you’ve got one-fifth of the economy that is moving towards ACO modeling, and that’s healthcare, the – every one of the physician groups and hospitals and outpatient facilities are going to become engaged in the next 36 to 48 months in an ACO model and I just gave you the stats earlier on how fast it’s evolving. I mean – every one of them are going to have to have these tools to participate in an ACO model. ACO modeling is just evolving now. So I have not really seen, Richard, to that point I have not seen anybody put out figures on what that can mean in terms of overall sales to the sector. But I would venture to guess it’s a multi, multi-billion dollar opportunity for the sector.

Richard Close – Avondale Partners

And those ACO products are those software as a service? Or are those licensed software sales? Just trying to get a feel of if that – all of a sudden you start seeing an increased demand and success selling these ACO products, will it have the same margin profile as your Electronic Health Records license margins?

Paul Holt

Yeah. Richard, this is Paul. There should be some – maybe some of both. There may be some products that are more of a subscription type of a deal and so maybe a software component. So you may have some recurring type revenue opportunities there as well as software opportunities, but it’s still a little early.

Richard Close – Avondale Partners

Okay. Thank you.

Steven Plochocki

Thank you.

Operator

Thank you. Our next question is from the line of George Hill with Citigroup. Please, go ahead.

George Hill – Citigroup

Hey good morning, guys, and thanks, for taking the questions.

Steven Plochocki

Sure.

George Hill – Citigroup

Maybe, Steve, just start with a big picture question. Can you tell us what portion of the company from NextGen system sales are coming from what I would call a health system clients and just kind of tax onto the question where I guess you were asked about HMA just because we’re seeing a lot of health systems move towards the integrated infrastructure you guys have? HMA has gone away, Scott & White will likely go away but there’s still like Banard Ventist and Baptist. So what’s the company’s exposure to health systems at this point?

Scott Decker

Well we have 4,200 group practices. Many of them are part of health systems, yes. The ones that were – it’s very difficult to assess on a moving playing field exactly where everybody’s going to end up or what everybody’s going to do. Our active engagement with our large customers have them all continuing to buy additional software, additional products, additional services as they’re moving rapidly toward some basis of creating ACO modeling.

So I imagine there’s always some form of attrition. I think if we were to tell you in our replacements who we’re replacing you might be a little surprised. There’s a lot of movement in the market but again companies like us who have large installed basis I would venture to guess that almost every one of our large customers are buying additional software almost every quarter. So it’s difficult to tell. I mean I don’t know. Anything’s possible but I will say though that we’re starting, not just starting, we’re continuing to see the additional growth of our largest customers expanding and trying, just as we are, trying to navigate the waters and figure out where they fit in healthcare and how they can get ahead of the curve to capturing a certification on accountable care so they become actively engaged in this modern era of healthcare.

George Hill – Citigroup

Okay. That’s helpful. And a couple of bean counting questions for Paul. Paul, with respect to the NextGen system sales in the quarter, were there any big outliers that contributed I guess outside to the quarter like Hanger was mentioned during the call. I know people are kind of highlighting the sequential improvement in NextGen system sales. I’m trying to figure out if there were kind of any one-off contributors in the quarter.

Paul Holt

Wait a second. I think that’s incorrect. There was not a sequential improvement in NextGen ambulatory system sales. What I mentioned earlier was prior quarter $27 million versus $24.5 million this quarter. So I’m not sure that’s understood. And no I don’t have any large outliers to report. Hanger is still something that we’re looking at in the future.

George Hill – Citigroup

Okay...

Steven Plochocki

Well, as we had indicated on Hanger and I think Dan alluded to, is that we anticipate getting software benefit from Hanger beginning probably late in our fourth quarter or certainly by early summer next year.

George Hill – Citigroup

Okay. And then just, what is the – I guess what is the average revenue recognition duration of the software that’s being sold at this point? And how has it changed with the – as the mix of business has evolved? Because if I look at the software and hardware sales in the quarter of just shy of $22 million and if I look at that compared to the year-ago period of $35 million, has the duration – has the rev rec duration changed much given the mix of business?

Steven Plochocki

Well, no, there – if you – we don’t have a big shift. No, there is no sort of change in revenue recognition. Revenue recognition can be – certain arrangements may have elements that will have you defer your revenue, but those are more on a case-by-case basis. You can’t really get into some kind of a systematic discussion or generalization. We have – we did have one opportunity that was structured a little differently that will push revenue out over a longer period of time, but that was kind of a more unique situation, so it’s a little hard to make generalizations like that about how revenue recognition is being stretched or changing. The SaaS – the number of SaaS arrangements I think is encouraging for that long term, but that kind of revenue, as I’ve talked about from time to time, is something more of a freight train; it takes a while to really get the train moving and it’s still not a huge contributor to revenue. However, it is slowly growing. And that is the kind of revenue that’s recurring and has better visibility.

George Hill – Citigroup

Okay. That’s helpful. Thank you.

Steven Plochocki

Tadeo, we’ll take one more question, please.

Operator

Thank you. Our last question is going to be from the line of Dave Windley with Jefferies & Co. Please go ahead.

Sean Daj – Jefferies

Hey. Good morning. It’s Sean Daj on for Dave. Recently, one of your larger competitors debuted a full-service RCM solution for 2.9% of collections. I’m just curious how that compares to what your current pricing is? And is this a factor – the aggressiveness is a factor, does that affect your outlook on RCM at all?

Monte Sandler

This is Monte. So I think the devil’s in the details. I think you really have to look at what the service offering includes and doesn’t include, the level of service. I would tell you that our offering, as you’ve heard me speak about every quarter in my prepared comments is a full service tailored approach. Its backbone is our award-winning software that is high-feature, high-function. And our service offering is very comprehensive. That said, I will tell you that our pricing is extremely competitive in the marketplace.

And we go head to head against competitors that have scaled-down offerings, cookie-cutter offerings all the time. And we’re winning those deals on both price service, return on investment, et cetera. So we’re very competitive. Our offering is much more comprehensive. And again, you’ve also heard me report that our margin expansion continues to improve every quarter. So we continue to make strides to get more efficient and effective through automation, through best practice methodology and remain truly competitive at the market.

Sean Daj – Jefferies

Okay. And then if we look at the RCM revenue for the quarter and actually comment on the year-to-date basis and I’d back out what the contribution you guys outlined from Matrix, it looks like organically the growth there has been pretty slow. Is that because Matrix isn’t growing as quick as you saw it? Or is that because the core RCM business isn’t performing as expected?

Steven Plochocki

Well I think we’re focused on our sales and marketing average. We restructured that throughout the organization. You continue to hear us talk about cross-selling and multi-product sales, again, the reorganization of that team. So I think you’re going to see that continue to improve. Our pipeline has improved tremendously through those efforts. And I think you’re going to continue to see growth. The market is more interested everyday in our offering and our ability to allow our customers to focus on achieving meaningful use, adoption of ICD-10, while we take care of back office RCM services. So we’re making a lot of strides in our rework, in our pipeline. And we have a heavy focus on that moving forward.

Sean Daj – Jefferies

Okay. And then just lastly going back to the comment on your expectation for more, smaller deals in the future, is that kind of – suggest to me it necessitates the need for a larger sales force rather than a smaller. Is some considerable hiring on the horizon there?

Steven Plochocki

Well, we have our addressing of mid to small group practices has always been part of our pattern. We have an inside sales organization that deals directly with leads off of that. We have the, we are one of the three primary software’s that are applied through the 62 regional extension centers around the United States. If you remember, the regional extension centers were primarily set up by the government to aid and assist the standalone or small group practice. And then, of course, we have 42 re-seller arrangements. And in a re-seller arrangement, we sell bulk blocks of our licenses to resellers and the majority of the application of those licenses are to small doctors and small practices. If you they do engage in something larger, they typically hand the ball off to us. So we’ve had active, proactive initiatives towards that mid to small practice all along. And we of course through our consolidation of sales and through our new marketing initiatives that we will talk more in detail about in May, we’ll be even having a stronger approach to that remaining 35% of the market that has yet to adopt.

Sean Daj – Jefferies

All right. That’s been helpful. Thank you very much.

Steven Plochocki

Thank you. All right. Well thank you, everyone, for today. I think general things to take away from the things that we’re working on. First off, we began our restructuring in October. Extended it into November, and even Dan this morning announced an addition to our executive committee, Mike Lovett, in our Ambulatory sector. So we are still engaged in the process of restructuring the company. So we’re early in that process. But I think the things to point to and the things that we feel very confident in is that the restructuring of the sales organization under a singular head, selling all products and services and being cross-trained in those areas will improve our growth.

In fact, the areas that are being address through Dan and his organization and his team and the division leaders, in terms of cost savings and cost efficiencies, in bringing certain elements of our organization together operationally will result in a lower cost base for it. And that those two combinations will enhance our bottom line. And we will give you far more detail on that on May 6 when we see all of you at the Meridien in New York. So again, thank you for your support and we look forward to seeing you in our future travels. Thanks.

Operator

Thank you. And ladies and gentlemen, that does conclude our conference for today. If you’d like to listen to a replay of today’s conference, please dial 303-590-3030 or 1-800-406-7325. Pass code is 4591712 followed by the pound sign. Thank you for your participation. You may now disconnect.

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