TruBridge Inc (TBRG) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Computer Programs and Systems year-end earnings 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, February 1, 2008.

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

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

Please go ahead, sir.

Thank you.

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 risk, 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 is Darrell West, our Chief Financial Officer.

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

In the fourth quarter, we installed our financial and patient accounting system in six hospitals; our core clinical departmental applications at nine facilities; eight hospitals implemented nursing point of care; and four customers went live with ImageLink PACS.

Add-on sales to existing clients made up 21% of total revenue.

At this time we expect to install our financial and patient accounting system at six facilities in the first quarter.

We anticipate seven new installations of our core clinical departmental modules, six nursing point of care implementations, and four ImageLink installs.

In business management solutions, during the fourth quarter, we executed 14 new accounts receivable management contracts, eleven of which were for private pay collections and four for contract management services.

During the fourth quarter, revenue from this segment of our business grew 15% year-over-year.

We anticipate around the same level of growth for the first quarter of 2008.

On the sales front, there's been no significant change of the competitive landscape.

Meditech, HMS, and Dairyland remain our top competitors.

Competition remains fierce in our market, but this is really no different of an environment than what we have experienced for the last seven to eight years.

We are proud of our position in the marketplace and we feel like we have positioned ourselves well to capitalize on any opportunities that arise.

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

Thanks, Boyd.

Our DSO's were 47 days for the fourth quarter, up two days from the third quarter and within our range of 45 to 60 days.

Cash provided from operations for the quarter was $6.2 million compared with $4.2 million last year.

Free cash flow was $5.9 million for the quarter, compared with $3.6 million for the prior-year quarter.

We define free cash flow as net cash provided by operating activities less capital expenditures.

CapEx for the fourth quarter was $332,000 compared with $597,000 in the prior-year quarter.

Depreciation for the quarter was $480,000 compared with $527,000 last year.

Cash collections remain strong at $28.5 million for the fourth quarter compared with $28.8 million for the quarter in 2006.

We recognized stock compensation expense of $146,000 in the fourth quarter of 2007, and anticipate a charge of $229,000 in the first quarter of 2008.

Our effective tax rate for 2007 was 36%.

We anticipate an effective tax rate going forward of approximately 39.5%, due to the expiration of Hurricane Katrina wage and capital expenditure credits.

Our headcount at the end of the quarter was 923, a decrease of 7 for the quarter.

[Vic], we would now like to open up the call for questions.

(OPERATOR INSTRUCTIONS).

Robert Dodd, Morgan Keegan.

Can you give us an update on sales of the new products that you've just got certifications for?

What you're doing there in terms of your approach?

And also how the sales organization on the West Coast is progressing?

Sure.

As far as our products, of course, we've only got one line of products, our system, which became CCHIT certified in November.

That has been a shot in the arm for us because some of our competitors do not have that certification yet.

So certainly that has been a positive for us.

As far as the West Coast, we remain pleased with our progress out there.

We do have a lot of interest out there.

And we've saved a significant amount of money by having our salespeople located out there instead of flying from Mobile, as we've talked about every week.

And then just one follow-up.

On the outsourcing, so is this up 15%?

Was there a deconversion or anything like that in there this quarter?

Say that again, Robert?

Did you have any contracts that rolled off on the outsourcing services side in terms of -- the growth was a bit slower than I was expecting.

No, and it was a little bit lower than we were expecting too, but if you'll recall on the last call or maybe even the last two calls, I've talked about at some point we're going to become a victim of the bigger numbers.

And that's why -- we're certainly adding people and adding capacity.

But as we add those contracts, it didn't grow as much as we wanted, again, mostly because of the bigger numbers.

But no, we did not have any roll-off.

Corey Tobin, William Blair & Company.

It's Jeremy for Corey.

Boyd, I know you've talked in the past about just sort of a lull in the end markets.

I'm wondering if you can kind of give us some thoughts on -- update us there.

And whether or not your customers are seeing any challenges with respect to the financial instability of the markets on a municipal level, given some of the things we've seen in the headlines with MBIA and Ambac and whatnot?

Sure.

As far as the lull in the market, certainly, based on these numbers, you can tell we are still in the middle of it.

We're certainly proud of how we're operating during this with our cash flow being where it is and remaining to pay the dividend.

And I think hopefully that demonstrates to the investment community how we can run this operation very efficiently in times like this.

And we're poised and ready and have a good position in the marketplace when it does pick back up.

As far as how they're doing, I don't know that I want to speak towards that.

Certainly, money is tight at facilities that do have access to capital.

What we're seeing a lot of is building expansions, whether it's adding on to the emergency room or adding a few different services here and there; not necessarily beds.

As you know, over 200 of the hospitals are critical access.

They're limited to 25 beds.

So we don't see necessarily bed capacity expanding.

In fact, that's probably reducing overall.

But certainly, they're expanding their services, expanding their physical plant in ways.

And frankly, in a lot of places IT spending is taking a back seat to those type projects.

Okay, very good.

And with respect to the headcount, I know you were down 7, is your strategy just to let attrition take its course?

Or are you guys going to maybe take a more assertive hand with the headcount?

No.

We're certainly going to let attrition take its course.

This is normal business for us.

We've done that in these times and certainly it will work for us again.

So we're confident that that's all that will be necessary in order for us to maintain the dividend and the cash flow and everything else is, we'll let attrition take itself.

It's a little misleading, that number down, because we're growing outsourcing.

So we're hiring in the outsourcing areas, but attrition is taking place in the support and installation areas.

And so that -- it's a little bit of a misleading number there if you just look at the headcount.

Okay.

And with respect to kind of -- I know you don't provide revenue guidance more than a quarter out, but is there anything we should be thinking about in terms of revenue linearity over the next couple of quarters?

Any -- to the upside or downside that we should be thinking about?

No.

(OPERATOR INSTRUCTIONS).

Sandy Draper, Raymond James.

A couple quick questions.

Boyd, on the expense side, the G&A number dropped, sales and marketing dropped.

I'm assuming sales and marketing is just a function of lower sales, but was there any specific focus on bringing those costs down or --?

I don't recall a seasonal drop-off in expenses in the fourth quarter.

No, I'll take a shot at that first and then let Darrell add.

Certainly, more of it is just a drop in sales and commissions is probably the biggest piece of that number.

I don't know, Darrell, if you've got anything to add to that?

That's part of it as well as travel expenses are down somewhat, as we've seen from moving some of our guys out west.

They're not spending as much on airfare as they were previously.

Okay.

And then the second question is a follow-up on the earlier question on outsourcing.

The growth slowed down, but also noticed the gross margin came down on the outsourcing.

And just wondering, were there any incremental investments or is -- I mean, at what point would you expect to start seeing some leverage on the gross margin line there?

Certainly, the investments that we're making, as I've just mentioned, are the people.

So, no, I certainly don't see any leverage on the near future because we are growing that.

And one reason you're seeing those outsourcing margins go down, keep in mind that the statement outsourcing, electronic billing outsourcing, we're fairly well saturated there.

So, the outsourcing that's growing is the business office outsourcing.

In particular, what we're seeing -- and you can tell from the contracts -- the private pay is going really, really well for us.

The downside of that or the bad side of that is, that requires people.

It is very labor-intensive.

There is not a lot of efficiencies there.

So that's the part of the business that's growing.

It is a lower margin.

So that's why you see the degradation in the margins.

Along those lines, have you guys ever thought about or would you ever consider moving any of that offshore?

Or does that not make sense for you?

That would not make sense for us at all.

Bret Jones, Leerink Swann.

Just a couple of quick questions.

I was wondering if you could talk about the attrition.

I was wondering if you had a goal of what you're trying to get down to?

Since you lost 7 heads and you said you're going to let attrition kind of take its course going forward.

But is there a target headcount that you're trying to achieve?

There's not a specific target.

We know what our normal attrition rates are.

And assuming those, then we're comfortable with that and we think that's the way it will go over the next several quarters.

Okay.

And you said the personnel are coming -- the attrition is coming in the place of -- I think you said deployment teams and also service.

I was wondering, can you update us?

Do you still have three full deployment teams?

I believe it was three.

Actually four installation teams for the financial area.

I believe at one time we had five, but we've basically got four now.

Okay.

So four deployment teams and then the capacity would be a max of 12 systems a quarter, is that right?

That's correct.

Richard Close, Jefferies & Company.

Boyd, I was wondering maybe longer-term, I guess Jeremy asked a question about revenue going out and whether there's anything that would necessarily impact that.

But if we look really more at longer term, is there any type of legislation or anything in the marketplace that might generate a renewed interest from your customers or your target market?

I don't know of any pending on legislation.

With that being said, we've seen it happen before.

It can happen at a moment's notice.

It can happen any time.

It can get tacked on.

Typically, what we've seen in the past is help for rural hospitals tacked on to -- you know, most recently, obviously, at the end of 2004, it was tacked on to the end of the Medicare prescription drug bill.

So, it certainly can happen; with the election coming up, who really knows.

It really just takes a senator or someone like that to take an interest in it, realize that these hospitals are going to need some funding to achieve the CMR that everybody's talking about.

And we certainly have complete confidence that that's going to happen at some point.

Obviously, the big question is when.

And we certainly don't know any more about it than anybody else does at this point, unfortunately.

Okay.

And then do you guys do any reaching out to the political leaders in terms of to push that agenda at all or --?

We do not.

We do not.

Okay.

I guess, moving on to a different question, about a year or so ago, Dairyland I guess was sold or recapped and we recently had that with HMS here in Nashville.

Are you seeing any change on the competitive environment?

I know you talked a little bit about in your remarks, opening remarks, but now that there's some capital behind those guys, are you seeing any change from that standpoint?

We have not; really none at all.

And then, clearly I guess a couple quarters ago or sometime during '07, there was a lot of chatter about McKesson and you came back pretty strongly that you're not necessarily seeing them.

Is that still the case?

That is definitely still the case.

Kind of tell you where we are with McKesson, we certainly see them early on a lot.

They're in a lot of deals early.

But typically, when it comes down and they start cutting, it cuts down to us, Meditech, HMS and Dairyland, you know, the vast majority of the sites.

And then with respect to your target market, what do you think the penetration rate is with the various systems?

I guess use a blended penetration rate of your various products.

Of our products within the market?

Well, you know, the products that you offer in terms of if you looked at your target client base, what do you think the penetration rate is of the market, I guess?

Okay.

First of all, let me talk about just in the financial arena with us, HMS, Meditech and Dairyland, I would say roughly probably 60% of the hospitals have one of the four of us and 40% don't; 45%, maybe, somewhere in there.

Roughly a little over 2,000 hospitals, probably, 2,000 to 2,500 hospitals.

So, at a global picture, that's where that stands.

As far as -- to get into some of the more advanced applications, the clinical applications, I think about half our market is running clinical applications.

Nursing point of care is probably around 30%; 30%, 35%.

Okay.

And is there any new products out -- and I apologize if I'm asking a question a second time over here -- but are there any new products out there on the horizon that you think might be applicable to your market?

I know you had the ImageLink several years ago that you began offering.

Is there anything like that that you can bring into your fold, either from a development standpoint or maybe a purchase?

I know you haven't really done acquisitions, but anything where you see maybe a growth opportunity that you don't necessarily have in your bag right now?

The two areas we see for growth right now as far as that's concerned, really, one is with the physicians.

The physicians typically -- EMR's in physician clinics is severely under -- you know, you can read in articles and things, 20%, 25% of physicians have an EMR, which obviously means 75% do not.

So we think there's tremendous potential there.

We feel like we've got an advantage over most of the competition because we have our own physician package, our own physician clinical package, and obviously, our hospital package.

And we thought, we can integrate that.

Our history has been, and what gives us a leg up on everybody is we're fully integrated.

And those products are fully integrated as well.

So that really -- we feel that puts us at a competitive advantage to take advantage of the physicians and automating a movement toward an EMR across the country.

Another area of growth, clearly, is our services area.

We're trying to grow our services as fast as we can.

They're not just limited to financial outsourcing services.

We're looking at all kind of areas where we can add additional revenue streams for the Company.

Okay.

And I guess and just a couple more questions here.

I know you don't give the number of new customers that you added in a particular quarter, but previously you talked a little bit about the trends and decisions, I believe.

Has there been any major shifts in the number of decisions in the quarter versus, I guess, the third quarter?

How has that trended over the last couple of quarters?

I'm not looking at my notes, but if we can get a feeling there.

And then in competitive situations, maybe why you win and maybe why you've lost in the last quarter.

Okay.

As far as the number of decisions, the sales process, as I've mentioned before here over the last couple of quarters, had certainly lengthened.

I mean it's -- I hate to use the word stagnant, because it's certainly not stagnant, not moving at all, but it's not moving as fast as it was, for example, 18 months ago or 24 months ago.

The pipeline remains healthy.

There's plenty of hospitals there.

There's not as many being added but there's not as many coming out the back end, either.

So that has stayed relatively stable for the last -- what we've seen -- the last, really, the last five to six quarters.

That hasn't changed much.

As far as what makes us win or lose, it's interesting to me -- I think I've said this before -- we will win a site based on the financials and we'll lose to one of our competitors, let's just, for example, say HMS.

They may say, well, we picked you because we loved your financials.

We really -- your financials were what put us over the top.

We're not as excited about your clinicals compared to HMS, but we think CPS has the best fit.

We can turn right around and a week later have a decision from a hospital that picked HMS because of their financials and they tell us they really loved their clinicals.

Where we try to set ourselves apart is our support.

Clearly, all of our competitors, and including us, have systems that work well and can run a hospital.

We've all got several hundred customers.

So we feel like support is key.

The quality of the conversion, the quality of the installation, and those are sometimes hard to measure, but we certainly do the best.

And at the end of the day, really what it comes down to is references and word-of-mouth.

I've said it plenty of times before -- we're in a word-of-mouth business here.

That's why you don't see us advertising a lot in Modern Healthcare and things like that.

It boils down to word-of-mouth and references and the support we give is ultimately what makes the decision.

Okay.

And one final one, I'm sorry.

Has your retention rate changed at all?

Have you been able to keep customers?

I would assume some of the business out there is someone that may be looking to change out an HMS or change out a Dairyland or change out a CPSI, for that matter.

How has your retention rate been?

It'd been exactly the same.

And best we can tell, that our competitors, about the same there.

We're all very good at retaining our customers.

It's a very sticky market.

Okay.

Thank you very much.

Congratulations.

Leo Carpio, Caris.

It's Leo Carpio with Caris & Company.

I had two quick questions.

First, looking at your new system sales booking, it looks like you saw about $7.1 million this quarter.

Is that correct?

Let us look at this.

About $7.7 million.

Okay, thanks.

And then the second question is, regarding the Medicare environment, the upcoming 2009 proposed PPS Rule, do you have any hope that perhaps Medicare may provide a little more extra funding to the rural hospitals this year?

Or I mean, I've seen that MedPAC is talking about trying to more closely tie Medicare compensation with quality metrics and quality data points, and thought maybe that could be like something to help you in terms of drive your growth.

Absolutely.

Obviously, Medicare has talked a lot about quality initiatives and tying that to reimbursement.

And that's something that we hope to see.

I think that would definitely be good for our business, because we do provide those metrics.

And obviously, as that program grows with Medicare, they're going to want more and more quality metrics to be submitted so that they can decide on reimbursement issues.

So, certainly that would help us and certainly we have hopes that they move forward with that.

Okay.

Just one last follow-up question.

Regarding the outsourcing market, who do you face there in terms of competition?

Is there any one or two competitors you have when you're competing for these bids?

There isn't any major competitors that we know of.

Recently, there's some smaller operations that we hit in different parts of the country.

But as far as across the board, no, there really isn't.

Corey Tobin, William Blair & Co.

Just one quick follow-up.

Darrell, can you provide the breakdown of stock comp between cost of sales, G&A, and sales and marketing, please?

Have you got that?

I don't have that right in front of me.

Okay.

Thanks.

But the -- the only -- we saw a decrease in the quarter due to a forfeiture of some restricted stock.

And that change was all in the G&A section.

Okay.

Thank you.

There are no further questions at this time.

I will now turn the call back to you.

Thank you, everyone, for your time and have a great 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.