TruBridge Inc (TBRG) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the CPSI first quarter 2006 conference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards, we will conduct a question-and-answer session.

[OPERATOR INSTRUCTIONS]

As a reminder, this conference is being recorded, Friday April 21, 2006.

I would now like to turn the conference over to Mr. David Dye, President and CEO of CPSI.

Please go ahead, sir.

Thank you, Bruce, and good morning, everyone.

During this conference call we will make statements regarding future operating plans, expectations, and performance that constitute forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform act of 1995.

We caution you that any such forward-looking statements are only predictions and are not guarantees of future performance.

Actual results might differ materially from those projected in the forward-looking statements as a result of risks, uncertainties, and other factors, including those described in our public releases and reports filed with the Securities and Exchange Commission, including, but not limited to, our recent Annual Report on form 10-K.

We also caution investors that the forward-looking information provided in this call represents our outlook only of this date and we undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call.

And joining me on the call this morning is our Chief Financial Officer, Steve Walker.

Steve and I have a couple minutes of comments and then we'll take questions.

In the first quarter, we installed our financial and patient accounting system at 12 new client hospitals, our core clinical departmental applications were installed at 11 hospitals, five facilities implemented nursing point-of-care, and eight hospitals went live with ImageLink PACS.

Add-on sales to existing clients were particularly strong in the quarter, representing 19% of total revenue.

At this time, we expect to install our financial and patient accounting system at nine facilities in the second quarter.

We anticipate ten new installations of our core clinical departmental models, eight nursing point-of-care implementations and six ImageLink installs.

In outsourcing services for the first quarter, we executed six new business office outsourcing contracts, five of which were for private pay collections only and one for full business office outsourcing.

I'll turn it over to Steve for a minute and then we'll take questions.

Thanks, David.

I'd like to highlight just a few points before we open the call for questions.

Our DSO were 39 days for the first quarter, down one day from the fourth quarter and finished within our range of 45 to 60 days.

Cash provided from operations for the first quarter was $3.3 million.

Precash flow was $2.9 million for the quarter.

We define precash flow as net operating cash provided-- as net cash provided from operating activities less capital expenditures.

Capex for the quarter was $0.4 million.

The cash collections for the quarter were $29.2 million, compared with $26.4 million in '05.

We recognized the stock compensation expense of $262,000 in the first quarter of 2006, after adopting FAS 123R.

After applying income tax, net income was impacted by 160,000 or $0.01 per diluted share.

As stated in the press release, we anticipate selling quarter earnings of $0.33 to $0.35.

We project the second quarter net income impact of FAS 123R will be 207,000, or $0.02 per share.

Therefore, for comparative purposes, we anticipate earnings per share, excluding the impact of FAS 123R, to be $0.35 to $0.37, compared with $0.32 we reported for the second quarter of '05.

Our employee headcount at the quarter end was 865.

Operator, we would now like to open the call for questions.

Thank you, sir.

[OPERATOR INSTRUCTIONS]

Our first question comes from the line of Sean Jackson from Avondale Partners.

Yes, good morning, guys.

Good morning, Sean.

Can you comment on the-- the top line was substantially greater than the guidance that you gave three months ago.

And I just wanted to know what the source of that was.

Did you install more than you expected, or the add-on sales more than you expected?

Can you just go into more deal detail on that?

Yes, Sean, we really didn't have any slippage at all, which we typically account for in our guidance and we typically do have some each quarter, with a few things that we think are going to go in or that are scheduled to go in, that for what whatever reason, do not.

Typically, it's because the hospital has some key turnover-- personnel turnover, or there are other circumstances that they wish to push it back anywhere from a few months to a quarter or two.

And the other reason is that add-on sales again, which somewhat continues the trend, were particularly good.

The stuff that -- certainly we account for, to a degree, in our guidance, but it was more than we might have expected.

Intra-quarter stuff that is ordered and installed within the same quarter.

And regarding the second quarter guidance and the assumptions with that, I assume you're assuming some deal slippage, and what is the assumption on the add-on sales for that quarter?

We -- I don't have a dollar amount for you.

We prefer that our guidance would be more accurate.

Obviously, we enjoyed the problem of it coming in above, so we are continuing to try to take the add-on environment more and more into account with regard to our guidance.

If you follow what I'm saying.

We don't expect that positive add-on sales environment to slow down any time soon, just based on the continued momentum behind all the clinical software, and the EMR push nationwide.

So, we've taken it into account, probably slightly more than we did for our first quarter guidance.

But, you know, the rest -- what actually happens remains to be seen.

And this lastly, just on housekeeping items from, I think you said second quarter installs, the expectation for that, you said in nine and your patient accounting and then ten in the core clump, can you just over those numbers again?

Yes, I said nine financial patient accounting, ten for the clinical departmental model, eight point-of-care and six PACS.

All right, thank you.

Thank you, Sean.

Our next question comes from the line of George Hill from Leerink Swann, please go ahead, sir.

Good morning, guys.

Could you just remind me of what the add-on sales portion of total revenue was in Q4 and Q1 of last year?

Yes, George, the add-on sales in the fourth quarter was 15% and in the first quarter we jumped to 19%.

First quarter of last year was -- let me see if we have that.

Oh, I'm sorry, first quarter of last year was 13%.

Okay.

And I imagine it's fair to say that the add-on sales is being driven principally by the demand for clinical solutions, like you guys mentioned?

That is correct.

I know it's early, but what's the positive proposed reimbursement rate increases from CMS to rural and community hospitals?

Have you guys had any feedback yet from hospitals, I guess basically on spending plans, or, I'll say, plans to accelerate clinical IT spending, especially in the rural setting?

We have not and we probably won't.

The don't typically shared their budgetary reactions to Medicare reimbursement changes with us, but we do get an overall feel just from talking to them about the financial climate.

And I would say that the one conversation I had last week from a small hospital that was actually down in our office, was very positive.

There were very pleased with what they had read, which was not a surprise.

Okay, all right, thank you.

Thank you, George.

Our next question comes from the line of Robert Dodd from Morgan Keegan.

Please go ahead, sir.

Two questions.

Could you give us an idea-- support and maintenance was down sequentially, I haven't seen that happen, going all the way back to 2000, this is the first time I've seen a sequential decline in that revenue line item.

Can you give us a-- was anything in particular going on in that line?

That line item included several things other than maintenance and includes foreign sales, that was down sequentially, in fourth quarter, we always have a lot of W-2 sales and other items.

So that was down a couple hundred thousand dollars, and some of the other items that are in there were down a little bit also.

The the actual maintenance charges were up a little bit.

Okay.

And then on -- back on to the hospital environment, even with an improving reimbursement environment, would you expect to see any of that flow through to you, an increase flow through to you, or would it be more likely to see that in the next hospital budget cycle, which would be the end of this year, the beginning of next year?

Can you give us a feel there?

If we were going to receive a positive impact from the announcement last week, we wouldn't get it, I wouldn't think, based on prior experience, until maybe early '07.

If it actually does go through, which it seems as so it will, it will not begin affecting the hospitals until October of this year.

And I wouldn't think we'd see the improvement on their financial statements, et cetera, that they share with their boards until early '07.

The only possible exception to that is that, knowing that the environment is-- is maybe going to improve a little bit as opposed to, sometimes in the past when they know that it's going to go the other way, they have a more positive outlook and they're probably more -- they're prone to be a little more aggressive going to their board and asking for approval for such things as, our current clients were for add-on sales of some of our larger modules and for new clients for the going to the board and asking for a new system in the first place.

It can't hurt in the near term, but I wouldn't expect, if we're going to receive a positive impact, for us to really notice it until the beginning of '07.

Okay.

Thanks a lot.

Okay Robert.

Our next question comes from the line of Richard close from Jefferies & Co. Please go ahead, sir.

Yes, thank you.

Congratulations on a good quarter.

I was just curious if you could comment a little bit with respect to the competitive marketplace.

Are you seeing anyone new come down into your-- your sweet spot?

Or is it just your traditional competitors, maybe comment on that, please?

Sure, Richard.

I don't have a whole lot to offer there.

It's really unchanged from the last -- not just the last year or so, the last several years, and our primary competitors are still MEDITECH, HMS, Dairyland, we still see, of the larger public companies, we still see McKesson slightly more than a Cerner, a Siemens, or an Eclipsys.

But that really remains unchanged from certainly the last three to five years.

Have you seen Eclipsys more in your area?

We have not.

Okay.

And then with respect to what people, what your customers are really looking for, you mentioned the different systems that you sold in the quarter.

Is there any -- has there been any change in, really, any particular product that is gaining in momentum or interest from your client list?

Not really, Richard.

I think that one positive trend that we're seeing that's helping us is-- is hospitals, our current clients move toward an electronic medical record.

Many of them are starting to use products that they already have from us in other areas of the hospital.

For example, say, maybe nursing point-of-care, maybe they've used it on the MedSearch unit for a couple of years, but now they're wanting to roll out into, say, the ICU or physical therapy or that thing, or some of our -- or some departments such as those, our electronic forms module, which allows them to create their own charting mechanisms in any the departments of the hospital, we're seeing that utilized more in places like the emergency room, respiratory therapy, et cetera.

And those modules are sold on a per-seat basis.

So that certainly is at a positive impact as we've seen that rollout.

We also -- we added a little capacity, as we discussed in previous conference calls, for PACS implementations.

And we had eight of those in the first quarter, which is two more than we'd ever had before.

Okay.

And then final question and I'll turn it over.

With respect to the outsourcing, maybe if you could characterize the trends in that environment?

Obviously, I'm a little bit new to the story here, but just want to see how you would characterize your first quarter performance versus your past performance.

Any changes in the market on the outsourcing side?

Sure.

Well, our outsourcing component is really made up of three major items.

The two bedrocks, if you will, are statement outsourcing, electronic claims outsourcing, and a good bit more than half of our clients utilize us for both of those services now.

And that's in stable very slow growth mode.

The-- the variable is the business office outsourcing services that we provide.

And we're happy with that.

As we've said from the very very beginning, we've only been doing this now for coming up on four years, this full business office outsourcing, it's a hard product to sell, because even though in many cases it's a relatively easy to show a community hospital the value of our service and essentially running their business office, or at least in some cases their private pay collections, only for them, you're displacing jobs in the community and these are small communities.

And it's very, very difficult for them to get board approval to remove jobs from the hospital, and we understand that.

So it's a -- it's a -- it's a difficult sale, but one that its growing over time.

I think we now have approximately, guessing, mid-30s in terms of the total number of outsourcing -- this office outsourcing clients that we have.

So it's slowly growing and we look for that to continue.

Okay.

Thank you.

Thank you, Richard.

[OPERATOR INSTRUCTIONS] Our next question comes from the line of Del Warmington from Delwar Capital Management.

Please go ahead, sir.

Yes.

One question about your DSO, we'd have thought was extremely impressive, all right?

When compared to your competitors, what are you guys doing that makes your DSO so impressive?

And I think I miss a target [inaudible] for your DSO, long term?

Our target is 45 to 60 days, and we can't speak a whole lot about the difference, but we think it revolves a good deal around our revenue recognition practices.

And the fact that we don't recognize mainly systems sales, but conversion, installation, training, and software and hardware sales until the product is actually live and operational at the hospital.

We don't utilize percentage of completion accounting in that regard.

So we-- we also like to think that it has something to do with the fact that our-- overall our customers are reasonably satisfied and willing to pay.

Thanks a million.

Thank you.

Our next question comes from the line of Duane Pfennigwerth from Raymond James.

Please go ahead, sir.

Hi, thanks for taking my question.

Could you review headcount in professional services and sales and marketing in the quarter, and what that changed sequentially?

Yes, Duane.

The-- in marketing, the headcount is 27.

We did add one inside salesman in the quarter.

So it breaks out to be seven outside salesmen, five inside, and nine in the sales support and six in administrative area.

Great.

And then around professional services, consulting, your implementation staff?

Right.

We have approximately 400 employees in those two divisions of software and clinical areas, and we added approximately 11 in this quarter.

Do you have any sense for how we should think about the percent from existing customers going forward?

I think it's going to continue to be higher than it has been in the last several years.

I would think that -- I would think that the floor going forward for at least a while, as far as we can see anyway, would be about 15% of total revenue, and at the top end would probably be around 20% of total revenue, somewhere in that range.

Great.

Have you changed, with regards to your sales force, have you changed the way you go to market?

Are you focused-- is that part of your focus?

Yes, certainly, we have changed, and are continuing to do so.

We look to add, I would guesstimate at this point, three more FTEs between now and the end of the year, in terms of just full commission-based sales folks.

To help in that regard.

Great.

And then, can you help me understand the relationship between, as that mix comes up, what impact that has on your systems gross margin line?

It has a positive impact because typically we have a somewhat better margin on add-on sales that we do new sales.

And if you could quantify the year-over-year improvement, how much of that comes from sales to existing customers versus just a better mix of software?

That's going to be difficult to nail down, but if I had to guess, it would be about half and half.

Great.

And just lastly, sorry to make you do this, but could you review the installs by application for 1Q?

Sure.

We had 12 financial and patient accounting and 11 Clinical, five nursing point-of-care, and eight ImageLink.

Thanks very much.

Thank you, Duane.

Our next question comes from the line of Corey Tobin from William Blair and Company.

Please go ahead, sir.

Hi, good morning, David, Steve, how are you?

Morning, Corey.

A couple of quick things here.

Let's start with the revenue side.

Following upon Sean's question, on the add-on revenues, so to confirm, you're at 19% of revenue for Q1 with add-on, is that correct?

That's correct

That's 19% of total, not just systems revenue, right?

That's correct.

Okay, and so, as we look at the Q2 guidance, what percentage do have projected for add-on and Q2 guidance?

I don't have that number exactly, Corey, if I had to guesstimate, somewhere around 15 or 16%.

Okay.

So that's a potential area for upsize as we look ahead?

Right?

To the extent that that stays consistent around the 20% or so?

You can say that.

Okay, and I understand it can go the other way too, but just to clarify.

Okay.

Now the average selling price of new systems, I think you were at 7, 720,000 or so last quarter.

It's sort of fluctuated between the 500,000 level and the 900,000 level for the last, I don't know, four-plus quarters.

Do you see us moving to the higher end of that range over time, or just staying somewhere between the 500, $900,000 range?

Yes, I'd like to say we see it moving towards the higher end of that range.

We still seem to have, and this is a good thing, not a bad thing, a couple of hospitals per quarter that you really have two things there, you've got a couple that are really small, that know they've got to move towards an EMR, and the reason that they're getting CPSI is because of our clinical applications, but they aren't ready to so now, because either because they don't feel like they have the people in place yet to support the implementation of the clinical modules, or because they don't feel quite comfortable financially yet, but they go ahead and get in the financial and patient accounting with the idea that they'll be moving to our clinical application over the next several years.

And in addition to that, we still seem to have one or two, typically, per quarter, smaller, maybe specialty-type hospitals, long-term acute care and that type of thing, that really at this time only see the need for the financial and patient accounting, and maybe just some bare minimum clinical applications.

For example, they may not even have a lab within their facility, they may use a larger hospital down the road for their lab.

So, we like those type facilities.

They're relatively easy to install.

And it's the-- But on the other hand, I think over the next few years, we'll continue to see the percentage of the typical acute-care hospitals that's our bread and butter, install the vast majority of our applications up-front as opposed to phasing it in, which would tend to move it a little bit higher.

So I think to answer your question, I think over time we should see that tick more into the upper area of their brands.

Okay, just predicated upon people buying more up front?

That's correct.

That's still the -- that's still a long term goal.

So then, just come at from another way, though, do you feel that the -- I know you don't give out signings by size of customer anymore, but can you give us some commentary as to how that's trending?

Is it still staying pretty steady in the upper double-digits, the hundred bed range, or do you feel like you're gaining more traction in the 200 plus -- 150 bed and up type hospital range?

Yeah, Corey, it's staying about the same, we're still having success there.

We would like to have more.

At the same time, over the course of the last, let's say 18 months or so, the community hospital of less than 100 beds has been so active, and we think will continue to be a very active with regard to moving towards an electronic medical record, that there's -- so what we have had success in that 100 to 300 bed range and continue to, but I wouldn't say that success has increased over what it had been prior to 18 months or so ago.

It's just remained steady.

Okay, great.

On the -- switching to the expense side real quick, there was a bit of a pop in G&A this quarter.

Steve, any thoughts on, just quickly, what the picture?

I'm assuming it's audit fees and stuff like that.

But is there anything else in there?

And should that -- how should that trend here as we look at the rest of the year?

Should we expect that to tick down since sequentially?

Yes, it will it tick back down, Corey.

The -- we always have the first quarter is a higher G&A primarily because of the front-end load on the benefits, the 401K retirement, in particular was about 400,000.

We also moved the national users' group from September to January this year as a result of the Hurricane Katrina.

Oh, okay.

And that added another couple 100,000 in there.

And also, we have in there, the section, the FAS 123 R expense to the tune of about 100,000 in G&A.

Okay, and that was actually my next question, which was, is all the FAS 123, is the stock comp expense going through G&A?

No.

You have it spread out through the rest of the P&L as well?

We do.

Okay, thank you.

You bet.

Thanks, Corey.

Our next question comes from the line of Godfrey Gill from [Keele] Capital.

Please go ahead, sir.

Good morning and thanks for a great quarter, congratulations.

I have a quick nitpicky question, most of the other ones have been asked already.

Can you help me understand or appreciate the net cash provided by operating activities and the -- I guess the decline from '05, just to give you a little bit of a history lesson, as well as the free cash flow number?

Right.

Specifically DSO.

The cash with collections for the quarter were 29.2 on sales and 29.5.

So obviously, we're collecting our cash.

The main difference was in our payables and timing differences.

In the first quarter of '05, we paid down -- we increased our payables substantially by 1.8 million due to timing differences.

And this quarter we had paid down our payables significantly by $1.2 million.

And you can see on the balance sheet, our payables are down.

So it's just a matter of what we did with that cash to generate the cash flow from the working capital.

Got it, okay.

Appreciate it.

Sorry for nitpicking.

Congratulations.

Thank you.

There are no further questions at this time.

Great, thank you.

And thank everyone for your time this morning.

Have a great day and a wonderful weekend.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your lines.

Thank you and have a good day.