TruBridge Inc (TBRG) 2008 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Computer Programs and Systems, Incorporated first quarter earnings conference call.

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

(OPERATOR INSTRUCTIONS) As a reminder, this conference is recorded on Friday, April 25, 2008.

It is my pleasure 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, Pam.

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 10K.

We also caution investors that 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 this morning is Darrell West, our Chief Financial Officer.

Darrell and I have a few minutes of prepared comments and then we'll be glad to take your questions.

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

Add-on sales to existing clients made up 20% of total revenue.

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

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

In business management solutions during the first quarter, we executed eight new accounts receivable management contracts, one of which was for full accounts receivable services, six for private pay collections, and one for contract management services.

During the first quarter, revenue from this segment of our business grew 13.5% year-over-year.

We anticipate a 10% year-over-year growth rate for the second quarter of 2008.

Demand for our business management solutions remains strong as hospitals continually looking for ways to improve processes and run their facilities in the most efficient manner possible.

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

Our move to the Linux operating system, CCHIT approval, and our full suite of business management services currently give us a distinct advantage over our competition.

Speaking of Linux, we now have completed 31 installations of the Linux operating system at our client sites.

We anticipate installing an additional 18 by the end of the second quarter.

This conversion has gone very smoothly and as you can tell by the numbers has been a huge success with our customer base and with potential clients.

This is yet another example of our ability to stay on the leading edge of technology while providing our clients with a robust but stable platform with which they can run their business most efficiently.

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

Thanks, Boyd.

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

Cash provided from operations for the quarter was $4.3 million compared with $3.4 million in the first quarter of last year.

Free cash flow was $4 million for the quarter compared with $3.1 million for the prior year quarter.

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

CapEx for the quarter was $311,000 compared with $348,000 for the prior year quarter.

Depreciation for the quarter was $478,000 compared with $517,000 last year.

Cash collections were $29 million for the first quarter compared with $27.8 million for 2007.

We recognized stock compensation expense of $224,000 in the first quarter of 2008 and anticipate a charge of $230,000 in the second quarter of 2008.

Our effective tax rate is expected to be at around 39.5% for the year of 2008.

Our headcount at quarter end was 887, a decrease of 34 from year end.

Operator, we would like to open the calls to questions at this time.

(OPERATOR INSTRUCTIONS).

Our first question comes from the line of Richard Close of Jeffries.

Please go ahead, sir, your line is open.

Yes, congratulations on a good quarter.

I wanted to touch base on the first quarter, the strength there and then as that sort of falls into the second quarter guidance, which was below what we were forecasting; was there anything that you can point to that maybe led to the over achievement in the first quarter, was there something that you expected in 2Q that actually got or was completed in 1Q, and allowed you to book higher revenue than originally anticipated?

No, Richard, there was nothing unusual in the first quarter.

Our add-on sales remained strong, but there was nothing that moved forward to create those numbers.

It was a little more upside than we had anticipated on the revenue.

Okay.

This is Boyd.

On the upside on the revenue, the only thing that--and this is little, there--obviously a lot of little things added up to be a bigger upside than what we were anticipating, but we did install a few--we did a few more Linux upgrades than we anticipated we were going to do.

So that was a little bit of the upside--explaining a little bit of the upside.

Okay, and what on the average did those upgrades sort of cost the customer?

They are somewhere in the $80,000 range.

Okay, and then so you did 31, what were those numbers again, 31 in the first quarter?

No, we have 31 total now.

I don't have the number for what we did in the first quarter.

Okay.

But you're expecting--

We're expecting doing eight more from this date between now and the end of the second quarter.

Okay, and then--so then, I guess maybe if you can walk us through the second quarter guidance.

You gave us the systems that you are going to deploy--you expect to deploy in the next quarter, and I guess trying to understand how that parlays into the second quarter guidance which is sequentially down.

First of all there's not as many of them.

There's just five installations and, I believe, Darrell do you happen to know?

Yes, and we did six in the first quarter--

On the financial patient accounting.

--probably just smaller deals.

Okay, so you have smaller deals in the second quarter.

They're just a little bit smaller deals but I would like to emphasize again, we are glad to get the business and those deals will eventually turn into add-on sales.

If they are only buying a little bit of the software up front because they don't have any money right now or for whatever reason, when you select us as your vendor, 99% of the time your goal is to move forward and eventually have a full EMR, which means you are going to buy all of our additional products from us.

So we are happy to get the contract, get the business, and do the financial install and the rest will come later.

Okay, and sort of moving on, then, with respect to the competitive environment, I believe you said real any no change there so the recaps of Dairyland and HMS haven't necessarily impacted the competitive environment?

We've seen no change at all based on those recapitalizations

Okay, and McKesson, are you seeing them increasingly?

Just like before, we see them a lot early on in the RFP stage, but we very rarely do deals comes down between us and McKesson at the end of the day.

All right and then final question for me and I appreciate the time here.

There's been a lot of chatter, I guess I would call it, with respect to the auction rate security market and maybe trouble in terms of finances for hospitals and all that, and speculation maybe that there will be a pull back with respect to IT spending.

Boyd, I was wondering if you could just give us sort of your thoughts in and around that, what you are seeing in your customer base that might be a little bit different than maybe some of the other vendors that are going after the larger non-profits; but just your general thoughts on maybe the current environment for your customers?

Okay.

As far as the credit markets and things I think that's a minor part of it.

Certainly that's a factor maybe at some of these facilities, but the market really hasn't changed.

These hospitals have been struggling now as I've been saying on all these calls for quite awhile.

I don't think it's any worse now than it was even two or three quarters ago.

It's certainly a tough environment, but at the same time I don't see any major impact from the credit issues.

Okay, and I guess a follow-up to that, what is your sense and I mean obviously you're out talking with your customers, how do they view IT?

Is it more a necessity, is it part of the cost of doing business, part of the operating expenses in the operating budget on an annual basis, or is it really still more in the capital side, do we build something or spend money on IT; is it one of those decisions?

Certainly we have hospitals that look at it both ways.

I would say more of our hospitals look at that on the operating side; but they look at, again, it's a cost of doing business and maybe the full suite of all of our products with an EMR is certainly optional for a lot of them as you can see with where we are with our client base.

Certainly have enough core system they can bills out accurately so that they can get paid; and more and more we are seeing, obviously, clinical applications being deployed because it's becoming more and more, again, part of business and they almost have to have clinical applications now.

You can see from our numbers, point of care is coming on; our add-on sales for point of care is extremely strong.

The positives I see in that are we have a lot of demand for that.

Our customers are willing to make a significant capital outlay for our point of care systems which obviously means we are doing a good job for them in the other areas and they are willing to spend more money with us and expand their IT systems.

All right.

Thank you guys very much.

Congratulations on a good quarter.

Sure, thank you, Richard.

Thank you, sir, for this question.

Continuing on.

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

Good morning, gentlemen, it's Jeremy for Corey.

Hi Boyd, I was wondering if you could give us some thoughts on the HIMSS conference.

It feels like the backlog, and if you can kind of back into where the bookings were, the net change in backlog, plus revenue.

It feels like there is somewhat of a stabilization here in terms business--in terms of the trend here, I'm wondering if you can give us your thought on the HIMSS conference, how that went for you, and whether that made any difference in the quarter for you from a selling point of view?

It hasn't made any difference yet.

I will say traffic was definitely up.

We got several more leads than we were expecting and that we have historically gotten from HIMSS.

Now whether those will actually turn into contracts remains to be seen, but we certainly got more leads on future business than we have historically.

We were very pleased with HIMSS, but again, I want to withhold judgment until we see if any of those actually turn into contracts.

It's a bit too early to kind of make a judgment on whether there's sort of an inflection point from a business standpoint that you are seeing.

Yes, definitely.

Okay.

In terms of the--to kind of follow on some Richard's questions regarding the end market, I'm wondering, have you seen any change in your customer's abilities to pay their bills or maybe even any bankruptcies in your customer base, wondering if you are seeing anything along those lines in the raw hospital space?

Yes, we have--this is Darrell.

We have seen a bit of a slow down with a few specific customers from the standpoint of collections, although our collections have remained strong, there have been a few that--things have been tough for them so we are seeing them slow down a little bit.

There was, I saw only one bankruptcy in the first quarter and it was not--it didn't impact us significantly.

We also have--we did have an increase in our bad debt expense because there are a few out there that we anticipate could become a problem unless some things turn around for them.

So, yes, we have seen some decline in their stability from some of our customers.

And any thoughts on sort of your customers exposure to Medicare and Medicaid relative to sort of the broader hospital market in terms of serving indigent or elderly?

There's some upcoming cuts to the upper payment limits and wondering if your customers are more exposed to that relative to the broader hospital community if those aren't peeled back?

Certainly.

There is certainly some exposure there.

Obviously like everything with Medicare and Medicaid reimbursement it remains to be seen what will actually happen, but absolutely, there's certainly some exposure there.

Okay, thanks, I will jump back in the queue.

Thank you.

Thank you.

Continuing on, our next question comes from the line of Del Warmington of Delwar Capital Management.

Please go ahead.

Yes, quick question, I think the first question asked about the landscape in terms of competitors and you said nothing has changed, am I right in assuming that?

That is correct.

Okay and also in terms of your sales cycle, has there been any change in terms of the length of time it takes to close (inaudible), would you say the sales cycle in the last quarter, how does it relate to the previous quarter starts or previous year in terms of time it takes to close deals?

I don't know in the last quarter if there was any significant change, but certainly over the last several quarters that sales cycle has certainly lengthened and I've talked about that on a couple other conference calls that it's certainly lengthened maybe 20% if I had to give it a number.

And last question, do you make any joint sales calls with someone like a GE or like a Siemens's or Toshiba or Phillips?

No, we do not.

Okay.

Thank you.

Sure.

Thank you.

Continuing on, our next question comes from the line of Jeff Schmidt of Sidoti & Company.

Please go ahead, sir, your line is open.

Good morning guys.

I was wondering if there was any update on your target for installations during the quarter, maybe how that relates to 2008?

I think you guys said you are between six and ten, is that still--does that still work?

As far as our target for any given quarter?

Yes.

Yes, sure, that would certainly be our goal and our target in these markets, and obviously for the second quarter we are only anticipating five.

Okay, and what about the reimbursement environment for hospitals; are you seeing any major changes there or any effects from that?

We have not seen any changes at all from that.

And then outsourcing, I know you said you were expecting 10% year-over-year growth in the second quarter.

That's down a little bit from--I believe you were guiding previously for a 20% year-over-year growth.

Are you seeing a little bit of a slow down there?

We are, we are seeing and we think that's just a result of the market and everything else.

As I mentioned we've still got a lot of people interested in it but when it gets down to the board making a decision to actually pull the trigger, people are kind of holding off, I guess seeing what this economy is going to do.

Is 20% growth in '08 still realistic?

It's to be tough to hit with only 10% coming next quarter.

So I think that's probably a little bit out of where we will be able to do.

Okay.

Just my last question, is there any unusual margin pressure you're seeing?

Is there, I know you mentioned the bad debt expense picking up a little bit, it just seems that your top line guidance and bottom line guidance don't really match up for me according to my model; is there anything unusual in there?

The biggest item was the bad debt.

Our bad debt expense for the quarter was slightly more than $0.5 million which is up significantly from previous quarters.

Okay.

Thanks, guys.

Thank you.

Continuing on, our next question comes from Leo Carpio of Caris and Company.

Please go ahead, sir, your line is open.

Good morning, gentlemen.

Following back in terms of the comments you made on the outsourcing side, when the hospital boards are holding back on their purchasing decisions what items are they tending to hold back on and what items are they going forward or executing purchases on?

Holding back is just the AR management services when they're actually turning a portion of their business office over to us.

Typically not holding back on the statement processing and electronic claims processing, those pretty much are, I guess shoe-ins for the hospital, they've got to have a vendor that does that for them whether it's us or some third party just because of the efficiencies of a third party doing the statements and the electronic claims.

But on the business office side then they tend look a little bit harder at that.

Okay, and then could you talk about the financing that's involved in a typical customer's purchase?

Do they finance this internally to current operations, or do they have to go to a local bank to receive financing for purchase?

They typically go to third party financing, not necessarily local bank.

There are several companies out there that finance for healthcare in general whether it's capital projects, building new buildings, or IT purchases, there are several companies out there.

That's the way we prefer if they are going to finance it for them to do it.

We do, as you know, some financing ourselves but we try not to.

Okay, and it sounds like so far from what you've been saying that the credit crunch hasn't impacted significantly or majorly in your space so far; is that correct?

Yes.

And if it's impacting on the tangents who is being affected on the tangents?

Is there like a particular profile for those customers?

I'm not--not that I know of.

Okay, and then lastly on the proposed Medicare fiscal '09 inpatient PPS rule, what has been your customers' feedback; has it been positive or--?

In general they certainly want to see more of an increase because they've been struggling now here for quite awhile while they see these little increases, it's certainly not enough to keep up with their ongoing expenses, salary expenses, and things like that.

Okay, but is the increase this year enough to maybe stir them to pick up potentially new sales in the coming quarters or are they just waiting to see what the final rule says?

I think they are waiting on the final rule, I think it's more the status quo for right now.

Okay, well, thanks.

Thank you.

Continuing on, our next question comes from Tom Carpenter of Hilliard Lyons.

Please go ahead, sir, your line is open.

Good morning, Boyd.

Good morning, Darrell.

Good morning, Tom.

Has there been any change to the sales head count in the last quarter or two?

No, there has not.

Okay, I know around one and a half to two years ago you guys either added or moved some sales folks out west and you may have added an installation team; is that accurate?

We moved some sales folks out west but we did not do an installation team out west.

Okay, is the installation team still the same from a couple quarters ago?

Yes, with our headcount being down, they are all down a little bit; but certainly we still have the same number of teams that we've always had.

Okay.

If there was an area or two where--that had the changes in headcount what would those predominantly be?

Actually we did see a decrease in our outsourcing headcount.

Part of that was from really, in general, there's a large turnover in that department so we do see a lot of turnover there.

So there's some timing of differences in people leaving and hiring new employees and also as we improve some of our systems, we see some efficiencies there at times that don't require as many people.

Okay.

On the customer side, any flips from competitors you want to tell us about or did you have any successes on the 150 bed hospital or bigger market?

No, we are really--not too many successes in the bigger hospital market and then as far as any blips, nothing significant, every now and then we'll have one or two that go elsewhere and every now and then we'll have one or two that come to us from one of our main competitors.

But as we've talked about before it's a very sticky business and really no change there.

Okay.

On the business outsourcing side, you guys have introduced quite a few products in the past there.

Are there any new ones on the horizon like radiology or pharmacy?

There are not at this time.

There's a couple we are looking at, but I would rather for competitive reasons not go into that; but obviously we are always looking and we do have a few things that we are working on.

Historically have you guys bated some of the new services with customers and then announced them a couple quarters later once you start getting some traction?

Yes, that's exactly how we do it.

Okay.

So you are probably bating some right now we just haven't heard of them, is that fair?

That's correct.

Okay.

To touch on the question from the last caller, do you have an early read on the magnitude that the Medicare or Medicaid reimbursement change for fiscal year '09, I know it's mostly flattish for this year, is there a number that they are bantering about?

That's about all we know is relatively flattish, so we don't have any more of a read than that.

Okay, and one final question.

Boyd, you've been in the business 20 plus year and this has been a longer spending slow down that than you've probably seen in a long time.

If there is one silver lining, and maybe we're grasping here; is that the longer the slow down, hopefully the bigger and the more pronounced rebound down the road.

I know there's a couple of things impacting the market right now, the lower Medicare/Medicaid reimbursement for this year, credit crunch and election year uncertainty.

When you look out into the future, and I want to draw on your experience in the business here, is there any indication of a timing of a rebound later this year, is it an '09 event or is it too uncertain to call?

I would certainly want to say it's too uncertain to call because we've seen it especially in the small hospital market it can happen pretty quickly; but, who knows when that pretty quickly is going to be.

We typically, just so you know we typically don't have a whole lot of warning that it's coming but all of a sudden something will pass in Congress or whatever for small rural hospitals and then we are back.

And I do agree with your statement, though, it seems that the rebound afterward is always relative to how long it lasts because there is a lot of pent up demand and we are seeing that now and I mentioned that in the sales cycle and everything else.

There is a lot of people looking, there's a lot of people wanting to move forward with an EMR, but they just don't have the funding right now.

Okay.

At some point we will get back to the 10 to 12 hospitals per quarter with this slow down if there's pent up demand.

Our goal and our hope is to get back to the 10 or 12, absolutely.

Okay, and I misspoke, I have one last question.

You guys have done a good job the past couple of years growing cash and the cash flow is fine.

I know at some point there's some quarterly fluctuations that people might get concerned about the dividend but at this point is it your and the boards expectation that you guys would like to maintain the current dividend even if you've got to drawdown cash $1 million or $2 million?

Absolutely.

As far as that goes and maybe we haven't talked about this in a couple of quarters so it might be a good time to mention it.

We a really only need about $5 million to run the Company on a day-to-day basis and we've got, what, $22 million I think in the bank right now.

So we've got over a year's worth of dividends.

Now, saying that, I'm not saying if we really hit hard times that we would run it all the way down to $5 million; but certainly with that cash cushion there and that's why that's there it gives us the ability to dividend then now basically our free cash flow or even a little bit more in times when we had these fluctuations even if they are two quarters of a fluctuation or up to a year.

As long as we feel like the outlook is good and we are going to back to that 10 to 12 and we are going to at least maintain cash where it is then we are absolutely planning on paying that dividend to our shareholders.

Okay.

Thanks for the info and surprise us with an extra deal or two in the second quarter.

Okay, great, we are working hard at it.

Thank you.

Continuing on, our next question comes from the line of Bret Jones of Leerink Swann.

Please go ahead, sir, your line is open.

Good morning.

I was wonder what percentage of your customers are currently under the host ASP model?

Are you seeing that tick up given the financial strain your customers are under?

No, that's staying relatively constant.

And with new deals?

With new deals, we probably get one a year, this ASP, maybe one or two a year and in general, I really don't have that number in front of me but it's somewhere probably--we only had one ASP customer last year.

Do you have a number of how many of our customers are ASP?

I think it's around 20 of our customers are ASP so it's a very small percentage.

Okay, so that's not how they are choosing to deal with this--with the credit crisis necessarily or with their own financial operational issues.

It is not.

How they are choosing to deal with it now as I mentioned earlier in the call is third parties most of the time, or in some cases we'll lease a system.

We would rather lease a system to them typically than do an ASP, but if the conditions are right and an ASP fits this hospital then we certainly can offer that model to them as well.

All right, and I was wondering if you could go a little bit more into bad debt?

Is that primarily associated with service and maintenance fees that--the bills that have fallen behind or is this an outsourcing or financing systems you've done?

The largest one that is a potential problem is a financing that we have done, but we are seeing a slow down on a few facilities with the outsourcing and the monthly support and maintenance.

It's really across the board, but the--I guess the largest potential there is with one financing arrangement that has slowed down significantly on the payment end.

And can you give us an idea of how much of system financing you've done in terms of dollars?

Should--most of them third party.

Most of them are third party, is it a big component?

--third party.

We have on our books currently about $3.8 million on the balance sheet that is financing receivable.

Okay, all right.

And then the percent of your customers that are running your financial administration systems that are also running core clinical and I'm just trying to think of what the add-on opportunity that's still out there is?

I believe that's around 60, 65%.

Are running both?

Are running both, right.

Of course 100% are running the financial applications.

Absolutely.

Okay, and generally how long did it take when you're looking at it and you make a new sale, how long does it generally take before they'll do an add-on for the average customer?

I guess if I have to give you an average I would say a year; but a lot of customers go in up front, of course we haven't seen a lot of that lately, but a lot go in up front with everything.

In some way we have some customers that have been customers since the 1980s that are just now adding their clinicals.

Okay, and if I can go back to bad debt for just a second I had one more question on that.

When you were evaluating the bad debt expense, is this a matter of the bills have fallen behind or are you actively monitoring the financial system within the hospitals,or situation within the hospitals?

This is a matter of falling behind.

Okay.

All right, and so is it a few of these accounts, it sounded like it was across the board, so a few of these accounts have aged or is pretty much your entire AR aged?

The entire AR has not aged, it's really some specific accounts more than globally.

Okay.

Great.

Then the last question, I was just wondering if you could break out the stock option expenses as far as the components?

You are looking for first quarter or second quarter?

First quarter, please.

First quarter?

We had $76,000 in system sales and support, $49,000 in marketing, and $99,000 in G&A.

All right.

Thank you very much.

Thank you.

Gentlemen, our final question is a follow up from Richard Close from Jeffries.

Please go ahead, sir, your line is open.

Great, thank you.

Just on the bad debt again, I think I missed some of the details on that.

The $500,000, that was in the first quarter; is that correct?

Yes.

And how did that compare to the fourth quarter?

Fourth quarter--

I don't have my model in front of me, I'm sorry.

Fourth quarter was $73,000.

Okay, and then, so did you mention what the expectation for that in the second quarter would be?

I did not but I'm projecting around $135,000 for the second quarter.

Okay, and then as you look, obviously you guys only give us one forward quarter's guidance.

Should we be thinking of that number in that $150,000 level for the remainder of the year--in each quarter, that is?

That might a little strong.

Why?

It's hard to project that out, but historically it's sort of been all over the board and it's real hospital specific.

Sometimes we have an indication that a hospital has a financial problem, and then other times it is--we may see a bankruptcy, but they've been paying us fairly current so there's not a large impact.

Okay, and then is the $500,000, I mean, I guess, Boyd, you could speak to this.

Is that level that was achieved here in the first quarter, is that the highest in the Company's history or--?

No, that is--we had back in, let's see what was that, 2004, we had a bankruptcy that occurred with a financing arrangement, I guess at a hospital that opened up, new installation, new hospital and they ran along for about six months and then closed the doors; and we took a hit for about $1 million on that.

Okay.

Okay, great.

Thank you so much and have a good day.

Thank you for taking that question, gentlemen.

I will now return the conference back to you to continue or for your concluding remarks.

We appreciate everybody's time on the conference call.

Thank you and have a good weekend.

Thank you, sir.

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 fantastic weekend.