TruBridge Inc (TBRG) 2007 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Computer Programs & Systems first-quarter 2007 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 20, 2007.

I would now like to turn the conference over to Mr.

Boyd Douglas, President and Chief Executive Officer.

Please go ahead, sir.

Think you, Don.

Good morning everyone and thank you for joining us.

During this conference call, we may 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 other 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 as 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.

With me this morning is our Chief Financial Officer, Steve Walker.

Steve and I have about 10 minutes of prepared comments and then we will take your questions.

In the first quarter, we installed our financial and patient accounting system in three new hospital clients, our core clinical departmental applications were installed at six hospitals, six facilities implemented nursing point of care and six hospitals went live with Imagelink PACs.

Add-on sales to existing clients made up 23% of total revenue.

As stated in the earnings release, in the first quarter, we signed 13 contracts for new system implementations.

We are pleased to see the number contracts earnings increase for the second consecutive quarter.

Our win rate for the first quarter remained around 60%.

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

We anticipate five new installations of our core clinical departmental modules, five nursing point of care implications and five Imagelink installs.

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

For the second quarter we're projecting 20% to 25% year-over-year growth in outsourcing revenue.

We're pleased with the growth in our outsourcing division and are confident that it will remain our fastest-growing revenue segment into the future.

I would like to take a few minutes to talk about our marketplace.

There has been a great deal of speculation in the investment community about changes in the community hospital IT market specifically related to vendors who are typically thought of as dealing with larger hospitals coming downstream into our market.

While we have recently seen more activity from these vendors in the early evaluation stages of the decision process, we have not seen an increase in their presence in the final evaluation stage of the process when the hospitals narrow down to two or three vendors.

We have no reason to expect that this will change in the foreseeable future.

This is based on our belief that the community hospital marketplace is a unique market with only a few key competitors.

As I've said many times before, the good news is that we only have a few main competitors, but the bad news is that those few like us are very good at what they do.

The fact that we're all good at what we do is also beneficial to all of us as it makes entry into our market extremely difficult.

Our two main competitors are Meditech and HMS, both of which are privately held companies.

Primarily, we see Meditech in the 100-plus bed hospitals and HMS in the under-100 bed category.

These two companies have been our primary competitors for the last several years, and again, we do not expect that to change.

Our third competitor is [Derilan], which is also privately held.

We mainly go head to head with them in hospitals that are under 50 beds.

As part of our normal sales management processes, we constantly monitor our historical performance and competitive situations.

Since January of 2006 in the 81 decisions where CPSI was a finalist, that were only three occurrences where a vendor to larger hospitals outside of our three primary competitors was also a finalist.

CPSI was the winning vendor in all three of those decisions.

In addition, we currently have nine prospects that are existing customers of vendors who cater to large hospitals.

It is obvious from these numbers that we're rarely in direct competition with these companies as a finalist vendor and when we are we fare quite well.

One more item I would like to point out on this subject is that there have been several other instances over the years where a large hospital vendor has attempted to move downstream into our marketplace.

CPSI has enjoyed continued success in each of these instances and as long as we focus on what we do well, we see no reason to expect any different this time.

Finally, as we all know, Wall Street in general likes for all companies to be included in a peer group of other similarly publicly-held companies.

Given that our top three competitors are all privately held, it is tempting to compare us to other healthcare IT vendors who are publicly available to focus on large hospitals.

And certainly, being publicly held, information on these companies is more readily available.

However, the fact of the matter is that these companies are selling systems in a market that is significantly different than ours.

We have no publicly-held peers and it is misleading and inaccurate to compare us to them.

At this time, I would like turn it over to Steve for a few comments on the financials.

Thanks, Boyd.

Our DSOs were 46 days for the first quarter, up three days from the fourth quarter and within our range of 45 to 60 days.

Cash provided from operations for the quarter was $3.4 million compared quarter $3.3 million last year.

Free cash flow was $3.1 million for the quarter and we define free cash flow as net cash provided by operating activities, less CapEx.

CapEx for the quarter was $348,000 compared with $386,000 in '06.

Depreciation for the quarter was $517,000 compared with $504,000 last year.

Cash collections for the quarter were $27.8 million compared with $29.2 million in '06.

We recognized stock comp expense of $333,000 in the first quarter of '07 compared with $262,000 in the first quarter of '06.

Our effective tax rate for 2007 will be approximately 36%.

This rate reduction was primarily derived from the Hurricane Katrina wage credit which is scheduled to expire in 2007.

Our headcount for the quarter end was 934 employees.

This increased from -- in the quarter of 37 by division or by areas as outsourcing increased 22, customer support eight and programming and IT seven.

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

(OPERATOR INSTRUCTIONS).

Sean Jackson, Avondale Partners.

Good morning and congratulations on the good bookings.

Boyd, can you talk about, you mentioned in the past about you thought that there was a down cycle in your business.

Is the new contract signings indicative of that down cycle ending?

We certainly hope so.

If you look back over the last two quarters, we signed nine contracts in the fourth quarter and then 13.

And keeping in mind that what we like to see in any given quarter is between eight than 12, and obviously with that sequential increase too, we're pleased to see that, so we certainly hope so.

So it seems, is it just a matter of the hospitals making decisions, or is it a function of there's -- the pipeline is bigger?

The pipeline is relatively the same, and I think I've described it the last quarter or two as better than average and it remains that way.

So I think actually what we're starting to see now is hospitals actually just make some decisions.

I think most of this is probably just the cyclical nature of our business, and we have a quarter or two where not as may make decisions for -- I don't know that can even pinpoint any reasons, and it seems they're starting to make decisions now.

And just lastly on the tax rate again, you said -- Steve, you said 36% in '07.

Does that go back up to 38% in '08?

If they do not extend the Katrina wage credit an additional year -- they extended it from '06 to '07, which was a little surprise to us, not to be extended, and if it is not extended, we would expect it to go back between 38% and 39%, yes.

Lastly, just on add-on sales, what is I guess the proper expectation for add-on sales for the balance of the year?

Is it going to be similar to what it was in the first quarter, or do you anticipate that gradually growing?

I think it's going to remain close to the same.

Obviously, that is really a function of new systems sales and how well we do there.

So it's really a mathematical function of that.

Personally, I would like to see add-on sales go down a little bit, because that means new systems sales are going up.

Because the way I look at it the additional -- the add-on sales, we're going to get those at some point in most cases with the way we retain customers and everybody moving to and EMR.

Those sales are going to happen.

So the more new systems sales we can get in any given time, obviously, the better off we are in the long run.

Okay, thank you.

Robert Dodd, Morgan Keegan.

Congratulations on the 13 contracts.

My question is more -- in the last quarter when you booked nine, a couple of those were booked further out into the second half of the year.

With this team, and you only expect to install sort of nine financial our nine new hospitals, my guess would be, some of those 13 are booked further out as well.

Is there a trend here in terms of hospitals deciding when they make their decision that they're going to take a longer time before they actually do the install, or is this just a timing thing and more hospitals want to do it in the second half of this year and it's not indicative of maybe being a bigger gap between signing on the line and actually installing the system?

I think it's more of a cyclical trend.

I certainly don't think it's trend that's going to sustain itself, that they're signing a contract and then not wanting to install until three or four more quarters later.

Certainly, there's been a good amount of that in the fourth quarter and then in the first quarter, but I don't see that being a long-term trend.

So the implications that you're booking up the second half of this year pretty well already, I know you don't want to give guidance out there, but anything qualitative you could say about the indications for the second half of the year would be helpful.

I would just say that we certainly got a good start on the third and fourth quarters right now new bookings-wise, new installs-wise.

So we got a good start to it, we just have to execute well and go ahead and throw in the rest of those slots.

Thank you.

[Rhett Jones], Leerink Swann.

Good morning, I'm in for George Hill.

I just wanted to get a feeling from you.

You guys signed 13 deals this quarter.

I'm wondering, what is the capacity -- what capacity do you have for installs, how many can you do per quarter?

Per quarter, we can do about -- it really depends on the size of the hospital, but as just an average number, 12 per quarter.

Average is 12, and are you adding to the implementation teams or --?

No, we're staying where we are with implementation teams right now.

We are comfortable with our capacity.

Okay.

And I just kind of wanted to move onto the dividend rate and sort of the sustainability of paying a $0.36 dividend.

I'm curious as to what your assumptions are for the number of contracts you need to sign per quarter to generate that kind of income to have that kind of payout rate.

I don't know that we correlate it like that.

The way we set the dividend is we certainly allow for a down quarter or two or even three.

We've got close to $20 million of cash in the bank, 19 -- we like to keep between let's say $18 million and $22 million in the bank, and that is a cushion for us in the down quarters when we don't make quite as much.

Okay.

You spoke quite a bit about the competitive position and you are seeing some of the larger vendors come down market, but you're not seeing them in the finals.

Is that having any effect on maybe pricing?

Are you having to price more competitively?

Actually, that helps us with pricing.

It keeps the pricing up the longer they stay in deal, because typically, they're two to three to four times as much as our system.

Okay, great, thank you.

Sandy Draper, Raymond James.

Thanks and good morning.

First, Boyd, sorry I was getting on a little bit late.

Can you just run through your installs again in the quarter?

Certainly -- that we are projecting for the quarter?

No, for the ones you did in the first quarter.

In the first quarter, it was three new hospital clients, six clinicals, six nursing point of cares and six PACs.

Okay, great.

Just a follow-up on -- Steve, on the D&A can you give us a D&A number?

Depreciation was $517,000 for the quarter.

And just so, Boyd, so I understand, the terms of the strong level of new signings, when you're looking at your pipeline, the uptick you have seen in the last two quarters, as you look at it and analyze it, do you think it's more that you're adding more people into the pipeline and your win rates are staying the same?

That some -- as you said, it sounds like some of the indecision may be coming out of the market.

I'm just trying to get another way to triangulate on how sustainable this level of business is, because obviously, if you can keep this up, that is a very encouraging sign.

So is it more just a onetime pop, or do you think you've really been filling the pipeline and you're seeing the decisions coming faster?

I will -- first of all to address the win rate, it remained around 60%.

We have not seen that change.

As far the pipeline, I would just classify it as steady.

We have some certainly coming in the front end, but they are starting to make their decisions and come out the back end.

So we certainly have no reason to believe that we can't do between eight and 12 for the next few quarters.

That's certainly our goal, and based on the pipeline being where it is, we would think that's something that's sustainable.

Great, and then just a follow-up.

Have you gotten any commentary from the clients that gives you a sense of why the decisions?

Is it anything from the government or reimbursement side or anything out there that you think you can get a sense of why all of a sudden, the decisions are starting to come a little bit more frequently than they were last year?

No, we really can't.

I said earlier in the call and you might not have been on there, I think it's one of these cyclical things that we've certainly been through in our business and there's not necessarily any rhyme or reason for it, it's just kind of the way it works in our marketplace.

Great, thanks.

Corey Tobin, William Blair.

A couple of quick housekeeping questions first if I may.

On the tax rate, Steve, just to be clear, we should expect 36% for each quarter throughout 2007.

Is that

That's correct.

And then the add-on sales number you gave, Boyd, did you say it was 23% or 28%?

23%

And that is of total revenue?

Yes.

Great.

And then real quick, breakdown of the stock comp, Steve, if you happen to have that handy, do you know where it is throughout the P&L?

Let me see if I can put my hands on that real quick, Corey.

Maybe while you look for that, I will just ask a different line of questioning if I could.

Any change -- you have mentioned before, Boyd, with the number of opportunities out there again being stable but the decision rate picking up a little bit.

So you see anything on the horizon that will make you think that the actual number of opportunities might be ticking upwards in the near future?

Frankly, no.

It looks constant to us, which is good.

Again, we are certainly pleased with eight to 12 contract signings per quarter, and obviously to generate that eight to 12 based on our 60% rate, you're looking at anywhere from 20 to 25 decisions per quarter and we certainly don't see any change there one way or another.

Great.

And then, in terms of -- two other questions if I may -- new products, any new products on the horizon that are worth highlighting?

Certainly, we're continuing to have a good bit of success with our ambulatory clinical documentation product.

That is the product that we have designed for physicians' offices, the clinical piece, the piece that was certified by CCHIT last year.

That is going extremely well.

We have gotten that installed in several facilities now and we have a couple of reference sites that we can take people to and have prospects call.

So that seems to be going well and I think we have a great opportunity for us with that.

What's the ASP on that product line?

It's tough because it's really on a per-physician basis, is how it's charged.

But I would say as a ballpark figure, $35,000 per hospital.

Great.

And then the systems margin -- the system margin seems to fluctuate, it has been fluctuating quite a bit, and I know there's sort of an inflection point around 10 or 11 million where the margins hold a little bit steadier.

But just out of curiosity, where do you anticipate system margin falling out here for the rest of the year?

Corey, I'm budgeting system to get back in the 29%-30% area for the second quarter, and hopefully improving a little bit more than that in the last two quarters.

Okay, great.

And anything on the stock comp, Steve, by any chance?

Yes, sure do.

For the first quarter, cost of sale systems, we were at $76,000; cost of sales support, $77,000; sales and marketing, $55,000; and G&A was $125,000.

And we're going to see a little bit of change in that number in the second quarter if you'd like to see those numbers also.

That would be great.

In the second quarter, we're going to total out at $297,000 of the stock comp, of which $63,000 is in cost of sales systems; $63,000 in support, cost of sales support; $53,000 is in sales and marketing and $118,000 in G&A.

Thank you very much.

Richard Close, Jeffries & Co.

Just a quick question on the outsourcing.

How are your salespeople incentivized to -- with respect to outsourcing contracts?

Obviously you had an uptick there.

They are incentivized basically the same way our salesmen [and other] are.

It's a commission base.

They're paid a base salary, but certainly the vast majority of their compensation is commission-based, based on signing new contracts.

And then the outsourcing contracts that you sold in the quarter, I assume those were all to existing clients?

That is correct.

With respect to the sales force itself, we're coming up I guess on a year from when you added or grew your sales force.

Can you talk a little bit about the productivity there?

Obviously, a nice pickup in new clients, 13.

Is that directly related to the additional sales team?

Yes, we certainly think so.

We've got -- we feel like we're doing a better job only because we've got the number of prospects out there that we're working, and because we added the extra people we've got -- the ratio of the sales personnel to the number of prospects has gone down so we feel like we can do a better job selling and being there in front of the prospective customer more face-to-face time.

And hopefully what that means is to generate more signed contracts for us.

And if we look at the 13 new customers, how much or how many of those would you put out I guess in the western U.S.?

Have you had success, increased success, in the west?

I don't think that you would say something significantly.

We certainly -- some of the 13 are out west, but I don't think you would see any significant uptick there.

Okay, and you mentioned competition, and obviously I guess [Chatter] was maybe one of your direct competitors, possibly being purchased or M&A activity in that area.

Are you seeing any opportunities related to that?

Not any more than normal, no.

And then with respect to I guess going back to -- you threw out some numbers there, and I'm not competing -- or the 81 deals I guess -- what was the date that that goes back to, 81 deals, and you've only seen a large vendor win three times?

First of all, the [date] went back to January of 2006.

It was over the last 15 months.

We actually won -- we competed head-to-head with the large vendor, but we actually won all three of those deals.

Okay, you won all of those.

And what was the differentiation in terms of checking back with the customer, why they chose you maybe over the large vendor?

Was it purely price?

No, certainly not.

A lot of it's functionality and just the whole environment of a fully integrated system.

Most of these vendors to larger hospitals have acquired products and have different lines of products and things like that.

I think the single thing that really sets us apart there is the integration.

We developed all of this in-house ourselves, so it's much easier to maintain, much easier to run.

It's a very decentralized system to run as opposed what they're selling.

Also, I believe in those three cases, what was happening, the vendor was sunsetting a product and trying move them up to their next product.

Obviously, that is one of our big selling points is, we sell perpetual license, and once you by the license to use our software, it's yours for the life of the hospital and we're contractually obligated to keep it updated and current.

Okay.

And then you mentioned I guess in your pipeline nine prospects, nine prospects that currently have large vendor systems.

How do you feel you're competing with those prospects?

Very competitively.

We feel like we're in good shape there.

Those customers are obviously out there looking and not happy with what they've got, and we feel like we have a great shot at earning their business.

Okay.

And then with respect to -- I believe you have some hospitals in the Triad system that have your systems.

Is there any risk with respect to I guess the M&A front with respect to Community putting in an offer for them?

Obviously Community I think is standardized on HMS.

What would you think the risk would be that you would maybe lose some hospitals on that front?

We only have one hospital that's owned by Triad, and they, as you spoke, they use another vendor for their systems and we've managed -- that's a customer, a longtime customer of ours, and they have stayed with us.

So who knows what the future would hold for that one hospital.

I know they're -- I talk to them on a regular basis, they're extremely pleased with us and with the services we provide.

So I know that they will do everything in their power to retain us.

Other than that, our other relationship with that is with their managed hospitals, and it's up in the air what their plans are to do with that piece of the Triad business.

I think it's fairly well-known, Community bought it to acquire the hospitals that they owned, and again, we're only in one of those.

Okay.

And then when we look at the second quarter I guess, well the first-quarter bookings were obviously noteworthy.

Would you classify the environment as being able to put up similar type of numbers for the second quarter on the new business front?

You know, that's really tough to say.

All I can say is that the pipeline is at least as strong as it was at this time when we were having a conference call a quarter ago.

So if we can execute well and get people to actually make decisions and sign contracts, then we certainly have the potential to do that.

But some of that is not in our control.

Actually, the part about getting them to actually make a decision and sign a contract sometimes is something that the Board holds off on or whatever, and there's only so much we can do to facilitate that.

Final question, I apologize, but how would you characterize your guidance in terms of conservatism for the second quarter?

Like it always is -- right down the middle of the road.

It's fully what we expect to do.

Okay, thank you.

Jeff Schmidt, Sidoti.

Most of my questions have been answered, just real quick.

The decrease in the accounts payable line sequentially -- can you guys give a little color to that?

And comment if there was any slippage into the second quarter, if that's affecting the guidance.

No, there isn't.

In accounts payable, we pay our payables here weekly, which is a little unusual, but we had five weeks in March, and therefore we made one more payment.

So our payables are a little bit lower, but there's nothing to read into that number.

Okay, thank you guys.

No slippage?

No slippage.

Thank you.

Robert Dodd, Morgan Keegan.

On the last call, you said you expected to install five financial (inaudible) new hospitals in the first quarter, and we ended up with only three.

Can you tell us what happened to the other two?

We had two that were, as deals go, fairly small deals that were new construction and they're both going in this quarter.

Thank you.

(OPERATOR INSTRUCTIONS).

Sandy Draper, Raymond James.

Boyd, when you look at the ability to install and I think you're at, what, eight slots or nine slots a quarter now -- is that correct?

For which application?

I guess for the core, for the primary system.

Core, we actually could -- again, as I said earlier, that's kind of a hard number because a lot of times, it depends on the size of the hospital.

But on average, we can do four a month, so that's 12 per quarter.

At what point, with the strong bookings you saw this quarter, how far out does that have to go and how sustainable does that have to be before you guys say, okay, we've been running at this level of slots.

At some point, we need to start considering adding an additional slot.

Is that something you're really even talking about now, or how many quarters of the stronger level of bookings do you have to see before you would really start to investigate that?

It's not something we're looking at right now.

We're completely content.

I think our capacity is fine for now, so it's not something we're looking at right now.

If that continued for several quarters in a row, then it's certainly something we would look at.

Okay, and then just the follow to that.

How long would it take you to sort get ramped up?

Is it just a decision and you do it, or do you have to sort of plan it out two or three quarters in advance, hire the people, or what's the lag time between making that decision and actually adding a slot?

I would say, that's a difficult thing to say.

Probably two to three quarters to actually have those people in a position where they can at least help us with an install.

We certainly after an install don't expect a person that has been here six months -- I'm sorry -- after someone that's hired to be able to do an install after they have been here employed six months, I mean, they're just too green, but they can help us in some of applications at that point.

We're also -- one nice part about the way we have grown our business here and the way we promote people, we have several people that are in education-type positions now, documentation-type positions that we can use to do install.

So if we really get booked up in any one quarter, we can pull some different resources from different areas that have done plenty of installs and are completely involved with the system and can continue to do that.

So that's why I say, it's not like we can hire a new class and that new class is going to do an install six months later.

That's certainly not what I mean, but six months later, with the help of them plus some people from different areas, we can add an install team.

Thanks, Boyd.

Corey Tobin, William Blair.

I just wanted to check something very quick.

I know you don't give an actual bookings number, but can you just confirm -- the systems bookings this quarter was down sequentially from Q4.

Is that correct?

That is correct, yes.

Gentlemen, there would appear to be no further questions at this time.

Great.

Thank you everyone for your time and have a good 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.