TruBridge Inc (TBRG) 2007 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Computer Programs and Systems third-quarter 2007 conference call.

During this presentation, all participants are in a listen-only mode.

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

(OPERATOR INSTRUCTIONS).

As a reminder, today's Conference is being recorded on Friday, October 19, 2007.

It's my honor to turn the conference over to Mr.

Boyd Douglas, President and Chief Executive Officer at Computer Programs and Systems, Incorporated.

Please go ahead, sir.

Thank you, [Pema].

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 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 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.

Joining me on the call this morning are Steve Walker and Darrell West.

Darrell and I have about five minutes of prepared comments, and then we will be glad to take your questions.

As we have previously released, Steve Walker will be retiring on October 31.

Darrell West, who has been with the Company since January of 2002, will be assuming the role of Chief Financial Officer.

We have recently hired James [Britton] to take Darrell's former position of Controller.

In the third quarter, we installed our financial and patient accounting system in eight hospitals, our core clinical departmental applications at nine facilities.

Five hospitals implemented nursing Point of Care, and five customers went live with ImageLink PACS.

Add-on sales to existing clients made up 26% of total revenue.

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

We anticipate 11 new installations of our core clinical departmental modules, seven nursing Point of Care implementations, and four ImageLink installs.

In Business Management Services, what was formally known as Outsourcing Services, for the third quarter, we executed eight new Accounts Receivable management contracts, three of which were for private pay collections only, four for insurance follow-up services, and one for full accounts receivable management.

For the fourth quarter, we are projecting approximately 20% year-over-year growth in the Business Management Services revenue.

This remains the fastest-growing division within our company, and we continue to be excited about its potential.

I'm sure that you have noticed that we have not released a number of new contracts that we signed during the third quarter.

As I've discussed many times on these calls, our main competitors, MediTech, HMS and Dairlyland, are all privately-held companies.

While being public is advantageous in some ways, it has its disadvantages in a competitive environment, especially where dissemination of certain information is concerned.

Quarterly fluctuations in contracts signings are part of the natural ebb and flow in our marketplace.

It is plainly and that this information has been and continues to be used by our competitors against us.

Therefore, it is our determination that making this information readily available can be detrimental to our company and its shareholders, and we've decided to discontinue this practice.

Our guidance for the fourth quarter is strong, and we're pleased with our performance, given the soft market conditions in which we are currently operating.

We have seen no major changes in the competitive landscape.

We've experienced this type of market several times in our history, and we will operate the Company the way we have in the past during similar conditions.

That is, first, we will focus on giving our current customers the very best support that we can offer.

We have allocated available resources to regional training workshops and additional on-site training visits to assist our clients in maximizing the utilization of their CPSI applications.

Secondly, we will ensure that we're taking full advantage of cross-sales opportunities to existing clients.

Finally, we will continue to dedicate resources to our Business Management division in response to the continued accelerated growth rate in that segment of our business.

We remain confident about our future and are looking forward to a strong fourth quarter, and we're excited about the opportunities that will be before us in 2008.

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

Thanks, Boyd.

Our DSOs were 45 days for the third quarter, down 1 day from the second quarter and within our range of 45 to 60 days.

Cash provided from operations for the quarter was $4.3 million, compared with $3.3 million last year.

Free cash flow was $4 million for the quarter.

We define free cash flow as net cash provided by operating activities, less CapEx.

CapEx for the quarter was $234,000 compared with $515,000 in 2006.

Depreciation for the quarter was $443,000, compared with $457,000 last year.

Cash collections were $28.7 million for the third quarter, compared with $27.7 million in 2006.

We recognized stock compensation expense of $237,000 in the third quarter of 2007 and anticipate a charge of $237,000 in the fourth quarter.

Our effective tax rate for 2007 is 36%.

This rate reduction from prior years is primarily derived from the Hurricane Katrina wage credits which will expire at the end of this year.

Our headcount at quarter end was 930, a decrease of 2 from the prior quarter.

[Pema], we would like to open the call to questions at this time.

Certainly, sir.

Ladies and gentlemen, we welcome your questions and/or comments.

(OPERATOR INSTRUCTIONS).

Benjamin Green, Avondale Partners.

Good morning, guys.

I know you're not going to be commenting on obviously the number of contracts signings you get.

Will you provide any kind of color on remaining pipeline opportunities?

Specifically, you've spoken about the eight large opportunities you have out there.

I'm not sure what you're referring to, the eight large opportunities.

In the last few calls, and I think you've signed one last quarter; there were large opportunities that were current customers of competitors.

Is that not --?

Does that not ring a bell?

That doesn't ring a bell.

I know, at one point, we had talked about we had some of our main competitors out there looking, and I think that number was around eight at one point.

As far as the pipeline, the only comment that I'd like to make on that is it's where it has been for awhile.

I mean, we're confident that it's (multiple speakers).

(multiple speakers) I appreciate it.

One other question -- on your Systems sales margin, it looks like it came in around 20% again.

Is that something we can -- trying to look out towards 2008 at current revenue run rates for Systems sales, is that something we can kind of count on?

Is there any guidance you can give us there?

Yes, we anticipate that should remain around that 20% mark.

Okay, thanks very much.

Corey Tobin, William Blair & Co.

It's Jeremy for Corey.

I'm wondering.

Boyd, you kind of made a comment related sort of alluding to the win rate.

Is it safe to say that it is kind of within kind of the regular range has been or --?

I'd rather -- we're going to not comment on that any more as well.

Okay, I'm sorry.

I don't want to push that.

With respect to the PACS market, are you guys seeing any change in the PACS market?

It sounds like we're getting some kind of headlines or kind of starting to turn negative again in the industry.

I'm wondering if you guys are seeing anything relating to that.

We haven't really seen any major changes there.

You know, as I've said, we are anticipating installing four PACS, which originally our goal was eight a quarter.

I do know that, in the last several quarters, we've ever done eight, but it remains consistent, I would say.

I don't think anything has changed a lot in that marketplace.

Okay.

Not to [knit] but can you guys provide a breakdown of the stock comp by line item, cost line item?

Sure, Jeremy.

The system sale, cost of system sales is $38,000; the cost of sales support, $38,000.; sales and marketing, $50,000; and G&A, $111,000.

Jeff Schmidt.

Can you discuss more on what you're seeing more out of the EMR market, kind of what the sales channels look like there?

That looks very good.

There's a lot of interest in that market, and we've got several people dedicated to that.

We are excited, very excited about that opportunity.

Are you seeing any hesitation on actually signing in the contracts, or are people just sitting in the pipeline right now?

No, that is flowing fairly well, actually.

Okay.

Just my last question -- a couple of quarters ago, you gave us the number of deals that came to market and the number of deals signed.

Would you guys be able to provide that this quarter?

No, we are not.

Okay, thanks, guys.

Paul Joiner, Jefferies & Co.

Yes, you said you are excited about the opportunities in '08.

Is there anything specifically that you can point to in '08 that makes you excited, other than the pipeline building up?

Is there any particular inflow of money from like IT grants for rural health or anything you can point at?

There's nothing specific that we can point at.

Basically, the comment is we are happy with what we're doing now; we certainly look forward to this soft market getting better.

Hopefully, that will happen in '08 and we are excited about the opportunity of that happening.

Then in the press, there has been some of press releases trickling out about grants here and there about for rural health and rural (technical difficulty).

Are you all participating in those programs, and is there anything of any size?

We are not directly participating.

We have assisted some future clients or prospects in that area, and there is a significant amount of that going on right now.

We are seeing that both for new system sales and also some of our existing clients for add-on sales are able to get some grants to pay for some of this software.

So we do think that is encouraging.

All right, thank you very much.

Robert Dodd, Morgan Keegan.

Two questions, one on -- just kind of going back to the outlook for next year, now that most of your client hospitals and your prospect hospitals have completed their budgeting process, I mean is there any color you can give us on what you're hearing from them or what your sales guys are hearing from them, in terms of what their budget appetite is for IT next year?

It's still pretty tight.

You know, reimbursement, as I've mentioned I believe on these calls before, you know, reimbursement hasn't significantly changed since '04 with the passage of the Medicare Prescription Drug Bill.

You know, we've had almost three years, or it has been three years now since then.

So inflation and wage increases for specifically pharmacists and nurses is making these hospitals' budgets tight.

So I think they are certainly looking forward to a tight year as of right now.

Okay.

Then can you give us an idea on how the West Coast is going for you right now?

We are pleased, very pleased with the changes that we made.

It has been very beneficial to us.

(OPERATOR INSTRUCTIONS).

Bret Jones, Leerink Swann.

This is Bret Jones in for George Hill.

I was wondering if you could comment a little bit more on the soft market conditions.

I don't remember you using necessarily those words before.

When you talk about the pipeline is building, that has sort of been fairly consistent for the last couple of quarters.

I was just wondering how you rectify the two of those statements or --.

I said the pipeline was building; that would be inaccurate.

The pipeline is remaining steady.

You know, there's not a lot of movement there, and that's why the market is fairly soft.

Again, I think it's mostly related to what I just talked about with the Medicare reimbursement.

There just hasn't been any major changes to it since '04.

All right, when you talk about the sales cycle, is that lengthening out?

A little bit, certainly, because, again, a lot of people in the pipeline have been in there for quite awhile, so I would say it is certainly lengthening.

Okay.

I wanted to kind of go back to the EMR market question.

I was wondering if the deals you're seeing, are they strictly related to Stark or are you going out and pursuing some of the deals outside of your -- instead of going through the hospital base?

We are certainly still targeted to the hospital base right now, but Stark has had very little -- we've seen very little changes based on the Stark.

That doesn't seem to be having an impact at all.

But we've certainly got, out of our 625 or so hospitals, obviously there are several thousand or hundreds of clinics out there that are looking for systems.

So they are looking and we do market it to the hospital, but as far as the Stark law having an impact, we really hadn't seen much of an impact at all.

Okay.

As you are marketing that, are you being assisted by your hospital customer base or are you having to go out individually after all of these clinics?

No, we are certainly assisted by our hospital base.

Okay, great.

The last question and I would jump back into queue -- I was just wondering if you could talk a little bit about headcount.

I believe you talked in the past about adding additional personnel to Service and Maintenance and maybe sales.

I was wondering where those people fell out from and are there plans to continue to add Service and Maintenance personnel or sales personnel and even implementation capacity?

In general, if you want to get specific numbers, I will refer that to Darrell.

But in general, the outsourcing headcount is growing as that division of our company grows.

The Support and maintenance divisions we are not hiring currently right now, and so there is some attrition taking place.

So that's where the decrease in headcount.

As far as for Sales and Marketing, we have no plans to either increase or decrease the Sales and Marketing headcount.

It's still at 44, where it has been for at least a year now.

Tom Carpenter, Hilliard Lyons.

Good morning, Boyd, Darrell, and Steve.

Boyd, I think you guys are rolling out a new -- I know you -- I think you guys do the updates once or twice a year to you software.

You guys are rolling out Version 15 between October and the end of the year.

Can you give us an idea of some of the new functionality on that and how that may help you guys compete more in the 100 to 200-bed hospital range?

Sure.

In general, basically what we're doing obviously is trying fill in every little gap we can for the Electronic Medical Record, trying to help all of our hospitals be completely paperless.

While that's a goal, you know, I would say that's difficult for most hospitals to attain just because of the amounts of paper.

But we've done a lot to our CPOE product to make it easier to use.

The MedVerify product continues to improve.

So several things in the clinical areas really is where we've been concentrating most of our R&D resources and the changes on Version 15.

Do you think, with some of these changes, that they can help you compete more in the 100 to 200-bed range, or are there any -- are these big changes or are these just more incremental like singles and doubles, to use some baseball terms?

I would say these are more singles and doubles at this point in time.

But keeping in mind that we do have a full suite of products for all the different areas, and there are no -- every now and then, we will actually rewrite an application, and there are no rewrites of any applications.

Another big change that we've made on Version 15 that we are real excited about that's really helping the workflow and making nurses' jobs easier is we've got what's known as a Virtual Chart for our Point of Care application, which really ties in -- you know, our ChartLink product was originally designed for the positions.

Basically, Virtual Chart brings ChartLink to the nurses.

Okay.

Without giving away any competitive information that you guys are worried about, can you maybe give us some general ideas of some of the new products you guys are working on in Outsourcing Services, and maybe a broad timeframe, I mean, when we might see those?

Sure.

Well, we've got several that we are actually selling now that are in their infancy, that we've got less than a handful of sites that are running.

Contract management would be one; payroll outsourcing is something that is still in its infancy.

You know, private-pay collections has been a big boost for us and in that light, we're working on insurance follow-up services.

So really what we're trying to do is anything in the business office (technical difficulty) kind of have an a la carte menu, if you will, where you can pick and choose the services that you need to help run your business office.

We are constantly talking to our customers and asking them what ways can we help you to better run your business and more efficiently run your business office.

Okay.

So, with some of these new ones that you are rolling out now and some ones that might come out next year, you would foresee the outsourcing kind of maintaining a steady 20% to 25% growth rate over the next year or two?

Yes.

Our goal is to continue to grow it around the 20% range.

In order to do that, just because of the numbers and the general environment that that's in, we're certainly going to have to offer new services in order to be able to maintain 20%.

Okay.

One of the things I think we talked about before was, right now, you guys like -- 99% you sell to -- you try and cross-sell to existing clients.

Have you guys considered maybe going after some of the installed bases of other IT vendors that have a huge footprint in the U.S.?

For the Outsourcing Services?

Yes.

Yes.

We definitely have plans to expand outside of our customer base for our Outsourcing Services.

We're working on that now.

We have a few that are in the pipeline -- not in the pipeline.

We have a few that are actually running now, but we're working with them and honing our processes before we go with a full marketing campaign.

Okay, thank you.

Thank you very much, sir.

That appears to be the final question that we have today from our audience.

Sir, I will return the presentation back to you to continue or for your concluding remarks.

Thank you.

Great.

Thanks, everyone, for your time this morning and have a good weekend.

Thank you.

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

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

Thank you once again.

Have a great day.