Executives
Brad Samson -VP of IR
Jeff Margolis - Chairman and CEO
Kathleen Earley - President and COO
Bob Barbieri - CFO and CAO
Analysts
Sean Wieland - Piper Jaffray
Richard Close - Jefferies
Bret Jones - Leerink Swann
Leo Carpio - Caris & Company
H. P. Johnson - Gramis
Jeremy - William Blair and Company
TriZetto Group Inc. (TZIX) Q1 2008 Earnings Call April 28, 2008 5:00 AM ET
Operator
Good afternoon and welcome to TriZetto’s first quarter of 2008 results conference call. (Operator Instructions).
I would now like to turn the call over to Mr. Brad Samson, Vice President of Investor Relations. Sir, you may begin.
Brad Samson
Thank you. Good afternoon and welcome to our first quarter 2008 call. This call is being webcast and an audio replay will be available for 30 days on the TriZetto website, as well as other third-party sites. Following initial commentary, we will open the line for questions for which the operator will provide instructions.
Please note that this call may include forward-looking statements made pursuant with the provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance and are our only prediction. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors including the number of risks outlined in detail on our SEC filings, including our annual and quarterly reports on Form 10-K and 10-Q.
These and other factors may cause our actual results to differ materially from any forward-looking statements. We do not undertake to update any forward-looking statements. Also, certain non-GAAP financial measures may be discussed during this call. Definitions of these measures and reconciliations to most comparable GAAP financial measures are included in our press release and on our website.
That said, let me introduce TriZetto's Chairman and CEO, Jeff Margolis.
Jeff Margolis
Thanks Brad. Good afternoon everyone. As we work towards completing our recently announced transaction with Apax Partners, it may seem a little odd to conduct a regular quarterly call. However, we are still a public company until such time as the transaction closes and we will continue to provide transparency and reasonable access to our investors both old and new until then.
One change that we are making, however, is that we will condense our comments on the call today, I am sure there are lots of questions, so we want to keep enough time to address as many of them as possible.
I am particularly proud of our team for delivering record bookings in the first quarter, in the midst of a variety of activities at the company. The quarter's results show that many payers are rising to the challenges being presented in their markets and part through application of information technology.
To add to the perspective of market activity, our trailing 12-month bookings stand at $568 million up 44% from $394 million at Q1 2007. One of the results of these robust bookings is that the first half of 2008, we are beginning or in the midst of several major implementations that will position these customers with a significant competitive advantage. Much like 2007, we expect an increase in software revenue in the latter part of this year as organizations prepare for 2009. US healthcare systems are under a tremendous strain and it is interesting to see who's stepping up to lead the change.
Let me also highlight my enthusiasm for the transactions with Apax. First and foremost, I think it represents a good value for investors. I heard strong support from many investors since the announcement for securing shareholder value at a time when there are so many macro and sector-specific uncertainties in the business environment.
$22 per share represents a 29% premium over the stocks' 30 day average prior to the announcement and the highest price for TriZetto stock since November of 2000. TriZetto's substantial [op] performance of the broader market since that time further underscores the value achieved for TriZetto's shareholders.
Second, this transaction also provides a good path for our customers and employees. Apax, which has focus areas in both healthcare and technology shares our view that the US healthcare system is in need of innovative change and evolution. I expect that they will help us more quickly expand our range of solutions for payers and other constituents in the healthcare supply chain. For example, I anticipate working with Apax to explore ways to leverage other healthcare assets in their portfolio domestically and internationally as well as to leverage other contacts and financial relationships around the world to generate faster and broader solutions development.
I also believe that going private will give us greater flexibility in thinking about longer-term investments in product development, acquisitions and partnerships that will benefit our customers. Under any circumstance, TriZetto will remain an independent organization, maintaining its vision, mission and focus on the creation and deployment of software and services, to enable healthcare payers to play a leading role in transforming the nation’s healthcare system through integrated healthcare management. Our commitment to our customers will not change. Blue Cross Blue Shield of Tennessee and the region's group are minority investors in this transaction. As innovative and long standing customers, their participation is a strong endorsement of TriZetto's strategy and vision.
And for my next topic today, let me provide a little more color around on the possible timeline towards closing the Apax transaction. Our initial announcement on April 11 mentioned an anticipated four to six-month period to closing. Let me start with the shorter horizon, which we hope to achieve. As a first step of the process, Apax and TriZetto filed the Hart-Scott-Rodino notices on April 18. This started a 30-day waiting period for regulatory consideration which will expire on May 19.
By May 9th coming up, we also expect to file with the SEC a preliminary proxy statement to seek stockholder approval of the deal. If the SEC chooses not to comment on the proxy, we could file a definitive proxy statement with the SEC and distribute it to shareholders near the end of May. Proxy solicitation for shareholder approval of the transaction would then take place leading up to a special meeting of stockholders which we can schedule for the end of June. From that point, a 30 day marketing period would begin to offer lenders participating interests in the financing for the deal. Closing could occur near the end of July.
Now that is our most optimist schedule. If there is any anti-trust review or the SEC comments on the proxy statement, the schedule will extend. If that happens, we expect the closing date in early October. The reason for this is that on the extended schedule, we might anticipate a mid-to-late July stockholders' meeting and approval. And I am told that as a practical matter, nobody markets [that] in August. Apparently, Wall Streets and the Hampton, yet given the limited opportunities for financing this year, August may be more active than in past years. If not, however, our marketing period wouldn't begin until after Labor Day, and we would not expect to close the transaction until early October.
I think I've covered enough for today. So at this point, let me turn the call over to our President and Chief Operating Officer, Kathleen Earley for additional highlights about TriZetto's operations.
Kathleen Earley
Thank you, Jeff. I am going to focus exclusively on our sales update today. The first quarter is always a little challenging with ticking off a new sales year, adding specialist to the sales team and a new commission structure.
And we had a really good start of the year with a $100 million Blue Shield of California booking announced in the first week in January. We also delivered a strong quarter on many fronts, producing records with software, consulting and total bookings which reached $236 million, or broadly speaking, our new integrated healthcare management, multi-constituent model is resonating with customers and it's helping drive many new discussions.
Just to give a little extra color on bookings in the quarter, broken down by major product groups, we did more than a $106 million of core admin bookings, which included $23 million for QNXT alone, $30 million of Care and Network Management bookings and $7 million of bookings for our new constituent engagement products. All of this is very healthy as these are leading indicators for our professional services posting and BPO businesses.
Our traction with government programs continues to be strong in the first quarter, building on the strong trend of 2007, $34 million of our first quarter bookings were for our customers' government-focused program. These contracts encompass many of our products and services including Facets, QNXT, CareAdvance, Hosting and BPO.
In the first quarter, we also signed contracts with four different Blue's customer, also a single quarter record [player], which included software as well as services sale, and two of those represented significant core admin competitive win-back. The evidence continues to grow that TriZetto was the preferred partner of the payer, both large and small, which were pursuing a variety of different market strategies.
In addition, we signed two new CareAdvance customers in Q1, including our first sale of the new CareAdvance Medicare product, a disease management platform content package that operates on the -- the disease management targeted towards senior populations. We also took another customer live. We finished Q1 with 19 total CareAdvance customers, 10 of which were in production. This has been a pretty good ramp for our powerful and complex enterprise software product. We also have significant new contracts and renewals for hosting and BPO as well as for consulting with a number of new and existing customers. You may remember from past calls that we have discussed the sun setting of our Facts product in 2009 and plans to encourage moving on to Facets or QNXT.
In February, a customer who has already made that transition, hosted meetings for other Facts' customers. That session provided tangible insights into the advantages of moving to Facets and we have several good prospects from that event.
We continue to grow and refine the sales team in Q1. We added two sales specialists to support CareAdvance and are adding specialist positions for network, professional services and hosting. We also expanded the benefits administration sales team with a focus on net new revenue and the premier partner program marketing efforts have generated IView as a good number of new prospects. And our ramp up of sales training continued during the first quarter with sessions for CareAdvance, core admin and professional services.
TriZetto's second quarter is always an exciting and very positive time for sales. As our annual customer conference is held in late May, we are rapidly gearing up for it as we speak. This event gives us many opportunities to showcase our new products and the latest enhancements to new versions of our software and services.
It also creates opportunities to engage people from many levels at our customers in both near-term tactical information technology discussions as well as long-term strategic use. A payer conference always creates new sales opportunities, delivers critical approved points to prospects and accelerates exciting sales efforts. Our theme this year is integrated healthcare management and I expect the comments will be very helpful in conveying the power and opportunity behind this idea to our customer partner. While we have some big goals to achieve this year, I am confident that the sales and marketing team strongly backed by the rest of the company is on track to deliver.
Now I will turn the call over to Bob Barbieri for his financial highlights.
Bob Barbieri
Thanks Kathleen. Good afternoon everyone. While I echo Jeff and Kathleen's positive views on the business, the quarter's numbers were little short of our expectation. The business is on very solid footing with the very strong plan for the year. So now let's go to the financial highlights and I will start with bookings.
First quarter new contract bookings were record $236 million and included $100 million from the Blue Shield of California contract which we announced in January. This is far above our normal expectation of $80 million to $130 million a quarter. Also, both software and consulting bookings were records. Outsourced service bookings were not a record, were the strongest we've seen in more than a year. Let me provide a couple of the booking details that I know many of you track or which were not in the release.
In the quarter, there were 52 software license contracts which include maintenance and total $76 million. These comprised 32% of the total first quarter bookings compared to 50% in the year-ago quarter. There were 16 outsourced service contracts totaling $45 million and comprised 19% of total bookings in the quarter versus 27% in the year-ago quarter. 237 consulting, and other in non-recurring service contracts generated $115 million of bookings which comprised 49% of total bookings compared to 23% in the year-ago quarter.
Our first quarter revenue of $107 million was 6% below year-ago quarter, as noted in the release. This was driven by a mix of revenue that was more heavily weighted towards consulting and outsourced services. Also, we recognized the very small portion of the Blue Shield of California contract revenue in the quarter of approximately $6 million. However, in the quarter, this contract contributed over $17 million to cash provided by operations.
Our total backlog at March 31st, 2008, was a new record of $1.1 billion up 19% compared to $965 million a year ago, and up 17% from December's year end. 12 months backlog at March 31 was also at record at $311 million up 31% compared to $237 million as of March 31st last year, and up 30% from year end 2007. At revenue below our expectations, our gross margin for the first quarter dipped to 50.9% compared to 51.7% in the year-ago quarter. Improved pricing and operating efficiencies helped to offset the lower margin mix of revenue.
We will continue to pursue gross margin expansion in 2008. We continue the refinement of pricing, compensation plans focused on disciplined pricing behavior, continued operational efficiencies and through refinement of our product and service portfolio. We are not going to give specific targets, but we believe we can continue to achieve improvements.
Our first quarter adjusted EBITDA of $20 million was in our range or below last year's $24 million. Adjusted EBITDA margin for the first quarter declined to 18.8% compared to 21% in the year-ago quarter, reflecting the lower software licensed product mix in the quarter. We believe this margin will improve during the remainder of the year and reflect performance in line with our full year revenue and adjusted EBITDA guidance.
Our EPS results were the low end of our guiding range. Basic EPS for the quarter was $0.10 compared to the $0.13 in the year-ago quarter. Diluted EPS which treat the convertible debt issuances, as if they were fully converted to equity, was $0.09 versus $0.12 a year ago.
If the convertible debt issuance which may be settled in cash or stock was treated as debt, the diluted share count for the quarter would be approximately 44 million shares versus 48 million a year-ago quarter. The company's effective tax rate was approximately 40% in the first quarter of 2008 versus 42.5% in the first quarter of 2007.
Cash, restricted cash and short-term investments totaled $162 million at March 31, 2008 versus $68 million at March 31st 2007. At the end of the quarter, the company held $72.3 million R-value of auction rate securities. The carrying value of these securities was adjusted for temporary impairment charge to shareholders equity of $3.4 million, resulting in a fair value of $68.9 million represented on our balance sheet as long-term investments. These securities are all comprised of taxable AAA rated collateralized student loans that are substantially backed by the federal government and state agencies. Although, there is no reliable trading market for these securities at present, we do not expect this to affect any of our current operating or strategic plans.
Our net cash provided by operating activities for the first quarter in 2008 was $37 million or $0.88 per basic share and $0.62 per diluted share versus $25 million or $0.56 per basic share and $0.51 per diluted share in the year-ago quarter. Capital expenditures in the first quarter 2008 were $4 million versus $7 million in the year-ago quarter. First quarter spending was effected by the timing of capital purchases. We expect CapEx to accelerate slightly and stay within our guidance range for the year. Our day sales outstanding for the first quarter of 2008 were 88 days versus 74 days in the year-ago quarter. The timing of payments from our couple of large customers as well as lower revenue in the quarter effected DSOs. As of the month of March 2008, DSO was at 70 days.
Significant uses of cash in the quarter which totaled $38 million included employee bonus payments of 401(k) match, acquisition [renewals], a letter of credit, term note interest and the last repurchase of our common stock program. They are maintaining our guidance for the year. For the full year 2008, TriZetto expects between $480 million and $500 million of revenue representing a 10% to 14% growth rate from continuing operations, and reflecting the company's planned exit from non-strategic onsite administrative BPO and claims link services, which generated approximately $15 million of revenue in 2007.
TriZetto expects diluted EPS to be in the $0.67 to $0.74 range. Basic EPS is expected to be $0.88 to $0.98 on a basic share count of approximately 43 million shares. The diluted share count for 2008, which is determined as both the company's convertible debt issuances are fully converted to equity is expected to be approximately $62 million. The issuances which may be settled in cash or stock which reduces debt, the diluted share count for 2008 would be approximately $46 million. Adjusted EBITDA for 2008 is expected to be between $115 million and $122 million, an increase of 19% to 26% over 2007 adjusted EBITDA. Our capital expenditures are expected to be between $28 million and $30 million.
So, at this time, let me turn the call back over to Jeff.
Jeff Margolis
Thank you, Bob. Your takeaway from today's call should be that TriZetto continues to have a strong business and strong prospects for future growth. Our primary focus is on serving our customers and powering integrated healthcare management in the marketplace. We are excited about starting the next chapter for the company with proposed Apax's transaction and see the acquisition is enhancing value for our investors and customers as well as our employees and other parties.
And with that operator, we will take questions.
Question-and-Answer Session
Operator
(Operator Instructions). Your first question will come from Sean Wieland from Piper Jaffray. Your line is open.
Sean Wieland - Piper Jaffray
Hello. Thank you. What are the big risks to jeopardizing the transaction with Apax and given the results this quarter, it sounds like everything is on track. If you could just reiterate that and share what you think could possibly throw the deal off.
Jeff Margolis
In a marketplace, there are a variety of factors that could influence the deal. However, we have a high confidence that this deal will complete under the definitive agreement as it has been structured. If there are any strange happenings and any regulatory approvals or things that are highly unexpected in the financing markets, I suppose those could be risked to this, but we are moving forward under the assumption that this deal will be completed.
Sean Wieland - Piper Jaffray
Okay. And from an anti-trust perspective, any red flags that have come up so far. Do you think that is going to be a pretty clean process to get Hart-Scott-Rodino approval?
Jeff Margolis
We do not see any red flags there at all.
Sean Wieland - Piper Jaffray
Okay, all right. That is it for me. Thank you very much.
Jeff Margolis
Thanks.
Operator
And your next question will come from Richard Close from Jefferies. Your line is open.
Richard Close - Jefferies
Yeah. Really quick couple of questions, Kathleen, I think you mentioned some commentary around the compensation plan restructuring there. I was just wondering if you can provide any more details on that front.
Kathleen Earley
Sure. I would be happy to. I think first and foremost, what we did this year in terms of the commission plan is for the average sale per persons. This is not the sales leadership of the sales person. Their commission is now booked based on bookings not just on revenue and the reason that is important is because we are trying to incent the long-term term license revenue as well as the perpetual license revenue. So, if you look at bookings over a five-year period of time, it is neutral between those two different transactions and so we were incenting the sales people to do that as well as drive towards the services business, hosting, professional services and BPO. And so when you look at a five-years booking methodology, it's easier to compensate them for bringing deals in on that front.
However, since revenue recognition remains very important from a shareholder perspective, the Vice Presidents and above as well as the sales specialists, so when you have CareAdvance sales specialist or you have a network sales specialist, they are paid on revenue. So, they have to deliver the end-year revenue and earn or make their commission plan as well as the bookings. However, the average sales person is more driven by the broader bookings due to a little bit longer range deals.
Jeff Margolis
Obviously you are not going to show your hand as a private company. I guess that you reserve the right to change your plan, compensation plans, once you are a private company.
Kathleen Earley
I think you could do anything you want once you are a private company.
Jeff Margolis
Yes.
Kathleen Earley
Anybody who has ever run a sales force knows that generally you only change the commission plan at the first of the year because sales people sign up on an annual basis. They do their territory plan based on that annual basis and the commission structure. There is nothing more incent changing your commission plan in the middle of the year. And the other thing I forgot to mention is in the first six months of the year, we also had very aggressive disc programs for our CareAdvance product sales, Hosting product sales, network, some of our more strategic product, they would get bonuses if they sold them in the first six months of the year.
Richard Close - Jefferies
First six months of 2008?
Kathleen Earley
Yes.
Richard Close - Jefferies
Okay. You talked a little bit about on the revenue side not necessarily meeting your expectations and I think there was a slower ramp up in the implementations. If you can maybe provide a background on that commentary?
Kathleen Earley
Now I would say that the timing of some of the bigger deals. So, if you look over the course of the last two quarters, above the fourth quarter as well as the first quarter, and you would more than look at the large deals that we have announced publicly that we sign from Blue Shield of California to Rhode Island and I cannot remember all the other ones we have announced. I think the Chinese community -- it's the timing of the deals.
It is the timing of when the deal is signed and then how fast the customer can ramp their implementation services. The other one was SSS in Puerto Rico, which was a very large deal as well. I think in the neighborhood of $26 million. So, the ramp of our pro services implementation was probably I would say a month to six weeks off of where we thought it would be in the quarter. So, we fell a little bit shorter on the pro services side. I will just tell you, I was disappointed firstly on the software license side. We probably should had a couple more deals in the quarter, but as Bob mentioned, we only got $6 million revenue credit on $100 million booking for Blue Shield of California which also made it difficult in the first quarter from the revenue side.
Richard Close - Jefferies
Okay. Regarding the competitive environment, we have heard there may be increased competitiveness out there between various vendors. However, Bob had mentioned in his comments that some of the gross margin pressure was offset by pricing and if you could provide a little background on that situation.
Bob Barbieri
Yes. First, I think we have in other settings received questions on demand and stages. First I think our bookings in our backlog had record levels, so I speak to the fact that we are not claiming to have anything tremendously unique. But we feel our situation is quite strong and that's why we are very comfortable reiterating the strength for the year. The other thing that starts to come about is when the situation is stressed, we are seeing more and more people reach out to us as a solution, maybe the challenges in the overall space that they are feeling. Though we think there is a bit of opportunity in what you may see and the payer space is the overall bit of noise that's going on there. However, we do not see anything unique in a harmful way affecting us.
All I would add to that is that there is always going to be good competition in our market space, the size of healthcare and healthcare information technology. We do benefit from the fact that we have a very high success rate in our installations and our implementations and customers do look towards us and we are able to capture some pricing value on the basis that we deliver what we promise to our customers. The other thing is as we get farther and farther into the construct of integrated healthcare management, remember Rich, we are delivering solutions for the entire enterprise, not just point solutions if you will, which also gives us some opportunity to get the proper value on our pricing. Although, we do think we deliver incredibly good value to our customers.
Richard Close - Jefferies
Okay. You mentioned Blue Cross/Blue Shield here in Tennessee and then Regence Group has been I guess strong partners as part of this deal. Maybe if you could talk to us regarding the decision process of just including those two because I would suspect there would be other longstanding clients of yours that would have been interested in this deal as well?
Jeff Margolis
Here is what I would say is, yes I do not think there was any lack of entities out there that would have enjoyed taking some sort of investments taken in TriZetto, but the relationship or the determination of Tennessee and Regence is a relationship that they developed with Apax, but not a relationship specifically that was developed through TriZetto.
Richard Close - Jefferies
Okay. Thank you very much.
Operator
Okay. Your next question will come from Bret Jones from Leerink Swann. Your line is open.
Bret Jones - Leerink Swann
Good afternoon. Jeff, my first question is for you. I guess in relation to the premium, I know that last year and even early this year you felt like your stock was fairly significantly undervalued. I know that. I felt like the company can get to a low to mid 20s valuation on it's own and I would just say with your record bookings, indeed, back to back quarters of record bookings, you had the largest deal in the company's history this quarter. You are getting a stronger footprint with CIGNA with the Great-West deal and continued progress with CareAdvance and networks. I guess I just like to hear really why this is enough of a premium for the shareholders?
Jeff Margolis
Well, it is a complex question right, but when a company receives an indication of interest we have a responsibility to veto out that interest. We did that, and actually when you consider the notion of there being enough money or could you garner more? The way you determine that is by conducting a good process. That is exactly what we did. While anyone of us might think the company should be or might be worth more at any point in time, in conjunction with our bankers and in conjunction with this process. We determine that this is fair value to the shareholders. So that's how we got there.
Bret Jones - Leerink Swann
All right. Were there any strategic and I would classify strategic not as a private equity entity or even a payor entity that were participating in the bidding process?
Jeff Margolis
Absolutely, yes. We made contact with a significant number of strategic investors, that had either expressed interest in the company previously or had some of people we thought had an ability to appreciate the value of the company, and that was included in the process.
Bret Jones - Leerink Swann
They did. And do you have any sense to what Apax's exit strategy might be, I assume that was pretty well vetoed out in due diligence?
Jeff Margolis
No, I do not know whether that is a good assumption that was vetoed out. What Apax's plans are for the company other than, I think they have a strong belief to help work with us in the facility integrated healthcare management vision and serve our customers. Try to grow the company, perhaps even more rapidly than we have been able to grow ourselves. There have not been any specific discussions about an exit plan.
Bret Jones - Leerink Swann
Okay. My last question will be in the regards to shareholders loss if that was filed. Was that filed on behalf of private shareholders or are there any active shareholders are you aware of?
Bob Barbieri
We are not aware of any active shareholders. It is almost unheard of these days to announce a sale of a public company to either a private or a strategic purchaser where there is not a lawsuit filed. So we had anticipated that a law suit might, in fact, be filed. We will defend the company vigorously in this process against any lawsuits that might come up because we feel that the process we followed was in the best interest of the shareholders.
Bret Jones - Leerink Swann
Alright. Great. Thank you.
Operator
Okay, your next question will come from Leo Carpio from Caris & Company. Your line is open.
Leo Carpio - Caris & Company
Hi, good afternoon gentlemen. Actually I have two quick questions. First question, pardon me if you may have talked about this already. What has been the managed care industry's appetite for IT services and your products for what I see. Have you seen any change or improvement in that environment as a result of the whole issue with medical cost trends?
Jeff Margolis
Well, we do not want to be too cute on this answer, but coming off of records bookings order, we are not seeing a slowdown in either the recognition or I guess the strategic intent of managed care organizations to invest. I think they are seeing a need to draw a deeper integration between core administration and cost-to-quality of care and try to rework this supply chain because they have to continually find ways to deliver value out in the market place. So at this point nothing that would indicate a slowdown.
Leo Carpio - Caris & Company
Okay. And then next question, changing to some different topic. Regarding BlueCross/BlueShield of Tennessee and The Regence Group, do they need any special approvals from the regulators to be participating in your deal or is that moved?
Jeff Margolis
I do not have, and I do not think we have any specific or particular expertise and what might be required in a specific states. Tennessee obviously operates in Tennessee and Regence operates in four states. We don’t have any specific knowledge approvals that might be required by them in order to fulfill their financial commitment with Apax, but we don’t have a particular concern about it I guess would be the answer. We know they both have strong reserves from their regulatory filings.
Leo Carpio - Caris & Company
Okay, well thanks. That’s all my questions.
Operator
(Operator Instructions). The next question will come from Stella June from Gramis. Your line is open.
H. P. Johnson - Gramis
Yes, this is H. P. Johnson for Stella. I was just wondering if you could discuss feedback that you’ve received to date from non-Blue Shield customers that compete in the market that Blue Shield Tennessee and Regence play in with respect to the transaction. Thank you.
Jeff Margolis
First of all, the feedback we’ve got has been positive from customers. I think everybody understands that they read the announcement carefully that Tennessee and Regence will have a minority interest in the company. That the ongoing mission and vision to serve customers of TriZetto is not going to change, and at this point we haven’t got any concern of great significance. You know, I think that at any time you announce any sort of change or transaction, you are going to spend a little bit more of your time out in the sales cycle, answering questions for customers about, what might this mean about the future. We are seeing a bit of more impure injecting itself into the sales process. But so far, no concerns that elevate to the level or for example CEO's are calling up my office and saying, “what the heck were you thinking?”
H. P. Johnson - Gramis
Okay. Thank you.
Operator
Next question will come from Corey Tobin from William Blair and Company. Your line is open.
Jeremy - William Blair and Company
Hi, thanks. It is Jeremy for Corey. With two obviously very robust quarters of bookings, I know you don't quantitatively talk about where you think bookings will go, however, I am wondering if you can give us some qualitative commentary on how your pipeline has changed with these two really great quarters of bookings and maybe the composition of this pipeline?
Kathleen Earley
I can talk to the pipeline, Jeremy. I would tell you that I am very confident on the full year forecasted outlook that Bob reiterated. We are actually in a stronger position at this time this year, than we were at this time last year, in terms of coverage in the pipeline. Particularly in core admin, we have an extremely robust pipeline; care management, we have a strong pipeline; and I would say networks, we also have a strong pipeline. In particular, I think we'll have very good year in both professional services as well as hosting.
We have now been able to do the due diligence around the number of hosting deals and BPO deals over the course of the last year. We have over our 60% of our core admin deals that we've done in the last year pull-through a hosting or a BPO service with them, which is pretty much a record compared to what it used to be historically. As you know, from the Triple-S contract as well as the Blue Shield of California and the Blue Cross/Blue Shield of Rhode Island, our professional services have a strong both backlog as well as pipeline of opportunities.
Jeremy - William Blair and Company
So by no means would you say have things sort of depleted since you've announced the very large deals that you have so far year to date?
Kathleen Earley
No, just to reiterate, we believe there are always two or three big deals in a year. Maybe between one and three big deals in a year, it depends. If you go back three years ago, I think we had two big deals. Last year, we had maybe two big deals. This year so far we've had one really big deal. So there are two or three big deals in any given year. It is really where do they fall and can you make them fall in individual quarters or do sometimes they fall in the same quarter and it's that the third quarter or the first quarter or the fourth and that is where it becomes a challenge in terms of saying exactly when they are going to fall.
But I have not seen the pipeline erode if anything as I said I think we are in a stronger position this year.
Jeremy - William Blair and Company
So the last two months, every since we have seen sort of these managed care, I guess speed bumps from a public-to-public company managed care companies. You have not seen really any change in your pipeline activity since then.
Kathleen Earley
No, because I want to reiterate what Jeff said. I think if anything any time they get under cost pressures one of the ways to combat that is to become more efficient, really have a better understanding of where you are spending, what are the puts and takes on your cash or on the resources in your companies that are actually driving the sources of that cash going in and out of the company.
So from a care management standpoint; getting a better care, better control of your medical costs is going to help you tremendously in getting a handle on your medical cost ratio. I would also tell you that at all those customers and there is a large of number of them that are running both Medicare lines as well as Medicaid lines. It is essential that they have good control over their costs because the government is working harder and harder to make those margins slimmer and put more regulations around it. So as we said last year in a number of our calls, we've seen a lot of customers bring up separate core admin systems around these new lines of business particularly in the Medicare business.
Jeremy - William Blair and Company
Okay. Great. Thanks. Congrats on a great start to the year.
Kathleen Earley
Thanks.
Jeff Margolis
Thank you.
Operator
And at this time I show no further questions.
Jeff Margolis
Okay. Well. I would like to thank everyone for participating on the call. It is about even odds if we will have another call here, we will get another chance to speak with u. If so, we will look forward to talking with you next time. If not, I want to express my appreciation for all of your support and feedback over the years and we will, I am sure, see each other out in the market place one way for another. Thank you very much.
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