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Operator
Ladies and gentlemen, thank you for standing by and welcome to the Computer Programs and Systems, Inc.
year-end 2008 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, January 30, 2009.
It is now my pleasure to introduce Boyd Douglas, President and Chief Executive Officer.
Please go ahead, sir.
Boyd Douglas - President & CEO
Thank you, France.
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 a few 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 nine hospitals, our core clinical departmental applications at 10 facilities; 9 hospitals implemented nursing point of care; and 5 customers went live with Imagelink PACS.
Add-on sales to existing clients made up 20% of total revenue.
For the year, add-on sales to existing clients was 21.4% of total revenue.
At this time, we expect to install our financial and patient accounting system at seven facilities in the first quarter.
We anticipate 10 new installations of our core clinical departmental modules, eight nursing point-of-care implementations, and seven Imagelink installs.
In business management solutions doing the fourth quarter, we executed 13 new accounts receivable management contracts, three of which were for full accounts receivable services, nine for private pay collections, and one for insurance follow-up services.
During the fourth quarter, revenue from this segment of our business grew 18% year-over-year.
For the entire year, revenue from the accounts receivable management services grew 14.9%.
Demand for our business management solutions continues to be strong, and we're very pleased with our operations in this division of our company.
On the sales front, there have been no significant changes in the competitive landscape.
We continue to be excited about our position in the community hospital marketplace.
The current economic crisis that is paralyzing our country continues to have little impact on our operations.
As you can tell from our guidance, we do not anticipate a material impact from the crisis as we enter the first quarter of 2009.
Our customers continue to pursue their strategic plans and IT objectives, and we are hopeful that we can continue our strong performance throughout the coming year.
In closing, we are excited about our recent performance and feel like we are in a great position within our marketplace.
We're expecting another strong quarter and are happy about our momentum as we enter the new year.
At this time, I would like to turn things over to Darrell for a few comments on the financials.
Darrell West - VP & CFO
Thanks, Boyd.
Our days sales outstanding were 45 days for the fourth quarter, which was the same as DSOs in the third quarter.
Cash provided from operations for the quarter was $3.4 million compared with $6.2 million in the previous year.
Free cash flow was $3 million for the quarter compared with $5.9 million for the prior-year quarter.
We define free cash flow as net cash provided by operating activities less capital expenditures.
Capital expenditures for the quarter were $329,000 compared with $332,000 for the prior-year quarter.
We recorded depreciation expense in the quarter of $442,000 compared with $480,000 in the prior year.
Cash collections remain strong at $29.1 million for the fourth quarter compared with $28.5 million in the fourth quarter of 2007.
We recognized stock compensation expense of $229,000 in the fourth quarter of 2008, and anticipate a charge of $229,000 in the first quarter of 2009.
We anticipate an effective tax rate for 2009 to be 39%.
In the fourth quarter, our effective tax rate was 35.9%, which was down significantly from our historical levels.
This decrease was related to additional, I guess, renewed Katrina credits that were passed as part of the TARP legislation.
That legislation went back and retroactively and allowed hiring credits in the Katrina GO Zone back to August of 2007.
So in the fourth quarter, we recognized the benefit of that for the past 16 months.
That legislation does continue throughout 2009, and we expect that to have our rate -- effective tax rate at 39%.
Our headcount at quarter-end was 871, which was an increase of 8 for the quarter.
Operator, we would like to open the call for questions at this time.
Operator
(Operator Instructions) Bret Jones, Leerink Swann.
Winston Kotzan - Analyst
Good morning.
This is Winston Kotzan calling in for Bret.
Judging by your new -- your system sales and the backlog, we're estimating that you added about $9.2 million in new system backlog for the quarter, which would be the lightest for the year.
So we just want to know, did you see any slowdowns in purchases of new system sales?
Boyd Douglas - President & CEO
Compared to the second quarter, certainly.
We talked -- I believe that was the second quarter that we had such a strong system sale.
So certainly down, but we were certainly pleased with the number of contracts we signed during the fourth quarter.
Winston Kotzan - Analyst
Okay.
Well, have you experienced any change in cancellations this quarter?
Boyd Douglas - President & CEO
We have not.
In fact, that was one reason our numbers came in a little higher than what we thought.
We were expecting maybe a little bit of slippage, but there was actually none at all.
And in fact, we were able to add a couple add-on sales that we weren't really expecting.
So that's why the number ended up being a little better than the guidance we gave.
Winston Kotzan - Analyst
Okay.
Well, just in case you have like cancellation, like how are your contracts structured?
What sort of protections do you have in your contracts?
Boyd Douglas - President & CEO
It really varies contract to contract.
We do have some that there are penalties where we set the installation month and if that isn't met, then there are penalties for the hospital, maybe as some of the discounts get taken back or whatever.
So they're all structured a little bit differently, but most of them do have some sort of penalty for the hospital if they don't go in and set.
As you know, the way our business is structured, we have a certain number of limited resources and we can only do so many installs per month.
So it's very important to us to get those in.
So we are protected contractually.
Winston Kotzan - Analyst
Okay.
And looking at your balance sheet, it also appears that you're doing some more financing.
Are you seeing more of your customers seeking vendor financing because they're having trouble accessing other credit lines?
Darrell West - VP & CFO
Yes, we have seen a little more activity there.
It's not, I guess, significantly more than what we've seen the past, but there have been some.
And we anticipate that that trend is likely to continue, at least for the short term.
Winston Kotzan - Analyst
Okay.
And finally, we noticed that your allowance for doubtful accounts has gone down a little bit, and it sort of puzzles us that you would take it down in the time when there's all this economic stress.
Could you explain that a little bit?
Darrell West - VP & CFO
The methodology we use in calculating that has remained consistent.
The reason it went down, as we had a couple of specific accounts that were reserved for.
And due to tax implications, we wrote those accounts off against the reserves so that we could take a tax deduction for those for 2008.
But as far as how we evaluate our AR, we have not changed our methodology there.
Winston Kotzan - Analyst
Okay, thank you very much.
Operator
Jamie Stockton, Morgan Keegan.
Jamie Stockton - Analyst
Thanks for taking my questions, and congratulations on being able to execute in a pretty brutal environment.
I've got a couple of them.
One is on the healthcare stimulus legislation that's been out there.
Have you had a chance to look at it, and do you have any thoughts about how it might impact your business?
Boyd Douglas - President & CEO
Certainly, we're aware of it.
We're reading the same things that you all are reading, and certainly we're looking forward to it.
I think it's got some good things in there for us, but it is just legislation at this point.
So we, like we talked about before, we are positioning ourselves well that if it does pass and then indeed it is funded, we will be in a great position to take advantage of it whenever that happens to occur.
Jamie Stockton - Analyst
Okay.
And then the other question I had was just on the business management services.
It seems like that business accelerated there.
Is that something that you -- do you think that's being driven by the environment, and is that a trend that you expect to continue, I guess?
Was there any seasonality that impacted that?
Where there any hospitals that decided to outsource more as the year was ending?
If you could give us any indication of what's going on there, that would be great.
Boyd Douglas - President & CEO
Sure.
I don't think there's necessarily any seasonality.
I do think there's a little bit to it that I think hospitals are realizing private pay collections are becoming even more important, and the more effort you put into it, the more success you're going to have.
And we certainly have the resources to do that for them.
And we've proven time and again that our services more than pay for themselves when you contract with us to do your private pay services.
So I think we have seen a little uptick, and certainly we hope that's a trend that continues.
That's what we're out there telling our customers now, how important it is, and we think it's going to become even more important to collect ever bit you can from your private pay.
Now that's going to be more difficult clearly with the economic conditions that we're under, but we think it's important.
So we do see a little bit of an uptick there.
Some of it may just be the natural ebbs and flows of that business.
I wouldn't read a whole lot into it, and we're not expecting any kind of substantial changes.
Jamie Stockton - Analyst
I guess the last one, you've done a great job of controlling costs, or at least I think so, on the headcount front.
How do you see that changing over the next quarter or two?
Boyd Douglas - President & CEO
We're going to try to leave it relatively stable.
We certainly don't have any plans to increase our install.
We're very happy with our install capacity where it is right now.
We certainly can handle an uptick if that happens to come our way.
So we're happy with our headcount and we don't plan on making any major changes to it.
Jamie Stockton - Analyst
All right.
Thanks, guys.
Operator
Tom Carpenter, Hilliard Lyons.
Tom Carpenter - Analyst
Good morning, guys.
It's refreshing to see a company that's executing well in this environment.
Can you, Boyd, real quick, can you give the PACS number -- I didn't write that down quick enough -- for fourth quarter?
Darrell West - VP & CFO
We had five PACS installs in the fourth quarter.
Tom Carpenter - Analyst
Okay, great.
Boyd Douglas - President & CEO
We're anticipating seven in the first quarter.
Tom Carpenter - Analyst
When you look at cash and investments, we're down almost $500,000 this quarter.
Is that something you expect to reverse itself in one quarter, the first quarter with collections on the AR and financing receivables?
Darrell West - VP & CFO
I would expect it to probably stay stable where it's at.
That $0.5 million swing there is -- I don't see that as being significant and eating into our cash reserves at this time.
But I believe we should be able to maintain our cash position in the first quarter.
Tom Carpenter - Analyst
Okay.
I was just trying to get at if it was just a one or two-quarter phenomenon that would reverse itself.
Darrell West - VP & CFO
A lot of it will be driven by new signings, new installs, and how that's set up, as well as what happens on the financing front.
If we do enter into a few more financing deals, that would inhibit our ability to bring that cash balance back up.
Tom Carpenter - Analyst
Okay, that's good.
That dovetails off one of your earlier comments.
Can you give us an idea then of maybe how many self-financing wins you guys have done in the past couple of years, and contrast that with this year?
Do you have those numbers, or maybe I can get them offline?
Darrell West - VP & CFO
That's something I could probably get you offline.
I don't have it right on hand.
We do currently have 22 financing deals.
That is compared to 17 at the end of '07.
So it is up some.
Tom Carpenter - Analyst
And you expect that to maybe, given the current environment and the funding out there, you expect that maybe a little bit of an uptick again in '09 as part of the pitches?
Darrell West - VP & CFO
I would say that that would be a likely scenario for '09 as well.
Tom Carpenter - Analyst
Okay, that's fair.
Boyd Douglas - President & CEO
Tom, just to add on to that, we're fortunate to be in the cash position we're in, so it does allow us to do a little bit more financing and get creative with some of these people that need some help.
And certainly we're diligent in how we do these deals and who we do it for.
But it certainly gives us a little bit of leverage there on what we can do.
Darrell West - VP & CFO
One of the -- in giving consideration to a financing deal, we are cognizant of our cash position and how we want to maintain that to meet our dividend needs and other operating needs.
So we're not going to jeopardize our cash position to finance a deal for someone.
Tom Carpenter - Analyst
Oh, sure.
I was just asking more for informational purposes.
And not to belabor the point, can you give it, maybe just educational wise, tell us how those deals are structured or whether you guys have any recourse?
I'm just kind of curious how you guys structure those with hospitals.
Darrell West - VP & CFO
We do have recourse, and each one is a different deal and they can range anywhere from two to four years depending on the situation.
So each one -- there's not a standard deal on those financing arrangements, and we evaluate each one separately.
Tom Carpenter - Analyst
Okay.
And last question, I'll jump back in the queue, and this is for Boyd.
Clearly, Boyd, you guys did extremely well the second half of '08.
Can you give us an idea of the number of decisions out there in '08?
It looks like they ticked up quite a bit versus '07, and your all's win rate, because we're just trying to get a handle on the sustainability of what's going on in the community hospitals today.
Boyd Douglas - President & CEO
Right, the number of decisions definitely kicked up back to '06 levels, ride around in there, certainly not back to the levels that we experienced in '05.
But certainly there was an uptick there, and we had an uptick in our win rate as well.
We did some really good installs in the last 24 months or so, and there's been a lot of other change in our industry and I think a lot of that has helped us, and our win rate has certainly improved.
Tom Carpenter - Analyst
Did you see any of your competition pull -- I would imagine that Dairyland/Healthlands got more competitive over the last year or two since they partnered with Francisco Ventures.
But did HMS or Metatec pull back in the 50-bed or less hospital?
Boyd Douglas - President & CEO
No.
We really -- Dairyland, HMS, Metatec and us, all four of us typically, or at least in the beginning, we're in every deal.
We're against each other in every single deal.
We haven't seen any pullback at all, and we really didn't see Dairyland anymore once they were -- they were in every deal anyway.
So really no change there at all.
Tom Carpenter - Analyst
Okay, great.
Thanks guys.
Operator
(Operator Instructions).
Corey Tobin, William Blair.
Corey Tobin - Analyst
Good morning.
A couple things.
I'll start with a housekeeping question.
Can you provide the stock comp breakdown across the various different expense line items?
Darrell West - VP & CFO
Corey, I don't have that readily in front of me, but it has not changed in the last three quarters.
So it's still the $230,000 in the fourth quarter, and the breakdown is the same as it was in the second and third quarters.
Corey Tobin - Analyst
Okay.
So consistent with Q2, basically?
Darrell West - VP & CFO
Yes.
Corey Tobin - Analyst
Or Q3 rather, okay.
Shifting to the backlog for a second, we noticed that the systems bookings were slightly down sequentially as well.
Was any of that due to a greater number of clients shifting to more of an ASP type model?
Or asked another way, what sort of traction have you seen for the ASP offering over the traditional licensing offering?
Boyd Douglas - President & CEO
Really no change there.
We do very, very little of the ASP offerings.
I don't recall -- we had one in the fourth quarter.
Corey Tobin - Analyst
The total -- I guess if you look at it in your total customer base, what percentage now are currently on ASP?
Boyd Douglas - President & CEO
It's a very, very small number.
I don't -- Darrell, do you --?
Darrell West - VP & CFO
I think we have about 20 customers that are on the ASP model.
Corey Tobin - Analyst
20 in total?
Boyd Douglas - President & CEO
20 out of the 650, correct.
Darrell West - VP & CFO
Yes.
Corey Tobin - Analyst
Great.
Now looking at the cost side for a second.
Your systems margin looks like it had a very nice increase here on not a huge lift in revenue.
Just curious, was there anything going up on the cost side at the systems -- in the systems area that would have popped the margins a little bit more than normal?
Darrell West - VP & CFO
There was nothing unusual there, but we did see from third to fourth quarter, systems sales did increase $1 million.
And because so much of that cost is fixed with being employees, depending on the mix of equipment sales versus software sales, if it's strictly an increase in software we'll see a big uptick in the margin.
Corey Tobin - Analyst
Great, sounds good.
Thank you.
Congrats again on a good quarter.
Operator
Mr.
Douglas, there are no further questions at this time.
I'll turn it back to you for closing remarks, sir.
Boyd Douglas - President & CEO
Thank everyone for taking the time out and thank you for your interest in CPSI, and I hope everyone has a great weekend.
Operator
Thank you, ladies and gentlemen.
This does conclude the conference call for today.
We thank you all for your participation and kindly ask that you please disconnect your lines.
Have a great weekend, everyone.