TruBridge Inc (TBRG) 2009 Q1 法說會逐字稿

Welcome to the Computer Programs and Systems, Inc.

conference call.

(Operator Instructions).

At this time I would like to turn the call over to Boyd Douglas, President and Chief Executive Officer.

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 are forward looking statements and safe harbor provisions of the private securities and litigation act of 1995.

Any such forward looking statements are only predictions and 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 is Darrell West our Chief Financial Officer.

Darrell and I have a few minutes of prepared comments and then we will be happy to take your questions.

In the first quarter we installed our financial and patient accounting systems in eight hospitals our core clinical department applications at nine facilities, seven hospitals implemented nursing point of care and eight customers went live with image link packs.

Add on sales to existing clients made up 18% of total revenue.

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

We anticipate twelve new installations of our core clinical departmental modules, ten nursing point of care implementations and three image link installs.

In business management solutions during the first quarter we executed four new accounts receivable management accounts contracts all of which were for private pay collections.

During the first quarter revenue from this segment of our business grew 16% year-over-year.

On the sales front we are beginning to see some movement as a result of the ARRA, especially amongst our existing client base.

Demand from current customers for add-on software is certainly on the rise as indicated by our second quarter installation numbers that I mentioned previously.

As far as perspective new clients we are experiencing what we believe to be a temporary increase in the length of the sales cycle as hospital executives are assessing the potential financial impact of the stimulus plan on their facilities.

As I have stated in previous calls we are well positioned in the community hospital market place to take full advantage of the opportunities that will arise over the coming months.

As a Company, we are fully committed to meeting all certification requirements that will be required under the ARRA and we are well prepared to help each and everyone of our customers to achieve the meaningful use status.

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

Thanks, Boyd.

Our DSOs were 50 days for the first quarter which is an increase of five days from year end.

Cash provided from operations for the quarter was $3.7 million compared with $4.3 million last year.

Free cash flow was $3.3 million for the quarter, compared with $4 million for the prior year quarter.

We defined free cash flow as net cash provided by operating activities less cap X.

Capital expenditures for the quarter was 328,000 compared with 311,000 for the prior year quarter.

Depreciation for the quarter was 437,000, compared with 478,000 last year.

Cash collections for the first quarter were $29.5 million compared with $29 million in 2008.

We recognized stock compensation expense of 229,000 in the first quarter of 2009 and anticipate a charge of 229,000 in the second quarter.

Our effective tax rate for 2009 is projected to be 39%.

Our head count at quarter end was 904, an increase of 33 for the quarter.

Erica, we would like to open the call to questions at this time.

Thank you, sir.

(Operator Instructions).

Our first question comes the line of Richard Close with Jefferies and Company.

Go ahead.

With respect to the systems that you expect to implement in the second quarter, how should we think about that when those systems were actually sold in terms of when they were bookings?

Are you talking about the six financial installations?

Yes, the six, the twelve clinical, ten nursing point of care and three packs or images.

The majority of them were contracted for or orders were placed if it was an existing customer in the first quarter.

So it's typically in the quarter before you expect to implement them that you sell them?

Typically, you know, we have a 60 to 90 day lead time so typically the quarter before is when we either get the contract -- have an executed contractor either the order is placed.

Okay.

Then when you say you are beginning to see interest from existing customers on add-on sales, if we look at what you are expecting to implement next quarter, how should we think about the level of those systems in terms of -- from existing customers?

Well, let's see if this answers your question.

Five of the six installations include our clinicals as well.

Actually it includes the clinical and point of care.

They are full system installs.

The other ones obviously would be add on installs.

Okay.

So when you are saying --

At least this quarter -- that varies from quarter to quarter but this quarter -- coming up on our second quarter five of the six installations are full system installations.

And then when we think about the most -- the March quarter, I guess backing into the numbers it looks like you guys did about $7.4 million in new bookings, if I'm doing the math correct, how should we think about how the quarter progressed in terms of January and February versus March?

In talking with people in the sector, it sounded as though January and February were really difficult months.

I'm trying to gauge how much improvement occurred in March or how March was as compared to those first two months of the quarter and then if you can elaborate a little bit with respect to your thoughts on the sales cycle and new clients with a temporary -- I think you said temporary increase in the sales cycle based on the stimulus.

First of all, I think you are accurate on that as far as the January and February were a little bit tougher.

48% of our system sales in the quarter were in March.

March was a really good month for us.

The affects of that two things.

One, you notice our DSOs were up.

They are up 50.

Part of that was because March was so full.

The second thing is of the reasons for the revenue March ended up being so full that we didn't have as many as -- I use the term add-on -- the installations of software that we didn't require slots for because we had so many people doing our traditional installations of clinicals and points of care and our financial systems.

I think that's partly because the revenue -- we didn't get where we wanted because we didn't have as much add-ons as we typically get because March was so full with normal installs if that makes sense.

As far as the -- we are seeing a lot of hospitals have not stopped the process but slowed down, just want to digest a little bit more of the stimulus package, make sure it is what they think it is before they pull the trigger.

We are seeing a little bit of that.

We are obviously still installing six facilities as far as financials in the second quarter and five of them are full systems.

People who are installing want to put everything in because they want to be in position to qualify for the money under the stimulus package.

That's why I said it is temporary.

I don't think it is anything way out of the norm but certainly we are seeing a little bit of that and we thought it was worth mentioning.

Okay.

And then when we think about the 48% of system sales in the quarter coming in the month of March, how does that compare typically in terms of how bookings flow in any one quarter?

Is that 48% significantly higher than on average in terms of the percent of bookings coming in one month?

I would say on average it is always pretty even.

You have about 33% in any given month.

We have abnormalities every now and then and I'm not sure there is anything you can really credit this to.

Obviously you said other vendors have seen similar trends.

I don't know that I can point to one thing that made March stronger other than maybe just the overall feeling about the economy.

Maybe people are feeling a little better.

Typically it is very well -- very evenly spread over the three months in any given quarter.

And then just one final question, everyone seems to be viewing the stimulus obviously optimistically.

When do you think that people start really pulling the trigger and you see an acceleration in bookings coming from the stimulus?

You know, that's a tough question.

We don't really know.

That's why in my prepared comments, I wanted to say we are certainly prepared for it and ready when it does happen.

We will point out it is only 20 months from now.

But I think everybody -- a lot of people are waiting on the federal government who said by the end of this year, they are going to further define these definitions.

My best guess would be ones these definition -- once these definitions are made by the federal government.

Are customers coming to you and saying "hey, we are definitely not going to purchase, make the decision to purchase until we get clarity on these outstanding points"?

I think that's a little strong.

I don't know if they are saying we are definitely not.

They are treading lightly may be a better way to say it.

There is still movement with the process but they are still keeping a keen eye on it and may be not make a final decision until we get further clarifications.

Thanks, Boyd.

Our next question comes from the line of Jamie Stockton with Morgan Keegan.

Please proceed with your question sir.

Thank you.

Hi guys.

Thanks for taking my questions.

Sure.

The particular up in head count sequentially, is that you growing head count for the out sourcing business or is that you do some initial preparation to prepare for what I think a lot of people expect to be a surge in demand at some point related to the federal stimulus?

Jamie, on the head count issue, those increases were actually not in the out sourcing business.

We had 17 increase in clinical and a 5 head count increase in our ITS department and in product development we added 18 people.

Okay.

Product development, I guess -- I think Boyd touched on this in his comments -- you guys feel you are well positioned as anybody to satisfy whatever the definition of a qualified electronic healthcare record ends up being?

Absolutely.

Last quarter it seemed like there was a lot of focus on the financing receivables ticking up.

It looks like they came down in this quarter.

Any commentary or any additional color on what the trends look like on that front?

It looked to me like there was basically not much, if any, incremental self financing that you did during the quarter.

Going forward, I think we will as we mentioned on the last quarter most likely see an up tick there.

We have had a lot of requests in that area and it is something were evaluating with a lot of the sales effort.

I do believe we will see an up tick over the next couple quarters in the financing receivables.

Add to that, this is Boyd, a lot of these especially perspective customers are saying we know we need -- to purchase your system we know we need to get an EMR that is going to be certified but we are trying to figure out ways to fund it.

To add a little color, we hear a lot of that right now.

Are you seeing any trends towards more of an ASP -- I am sorry- are you seeing trends more toward a subscription type solution?

We are seeing it all over the board.

We are going out to find third party financing to asking us to finance it, to there is some ASP software service type talk out there.

You are seeing a little bit of everything.

My last question is on hosting trends.

Are you seeing more hospitals want you guys to host the software and the data out of your facility versus them doing it at their premises?

No, not at all.

Not at all.

Ok guys.

Thanks.

Sure.

Our next question comes from the line of Tom Carpenter with Hilliard and Lyons.

Please proceed with your question.

Good morning Boyd, good morning Darrell.

Did you say there were a couple add-on sales that slipped from the first quarter to the March quarter because you ran out of time because you were so busy in March.

It wasn't because we were so busy.

We did have one clinical that pushed into the second quarter and we had one point of care that pushed into the second quarter.

Did any of the deals in the first quarter or the outlooks in the second quarter any hospitals over 100 beds?

Yes, we have one of the financial installation -- one of those full system installs is a larger facility.

That's -- What was that?

200 beds.

That's phenomenal.

We are pleased with that.

Were the majority of them clinical access hospitals?

I don't know about the majority.

Sitting here looking at them, top of my head, maybe 30%, 40%.

I don't want to forget about Darrell.

Darrell, you did a hell of a job on expense control in the quarter.

Thanks, Tom.

One thing on the expense side with the decreased revenue, we would have been much closer to our bottom line number had we not had some negative experience on health insurance.

During the first quarter our claims were up about 45% over the normal trend.

But for that, we would have been right in line with our estimates for the quarter on EPS.

What is it about 350 or 400,000?

About 450,000 on the healthcare insurance that was abnormal.

We have seen during the first couple weeks of April that that has trended back down to more normal levels.

We hope to not see that going forward.

My experience in the past is that you guys in the first quarter expenses go up from the fourth quarter I think you guys went up -- I don't know if it was 401K matching or you book raises and stuff like that.

In this quarter you actually went down even with that 450 charge.

Should we see a normal step down in expenses this year on a quarterly basis as we have seen in the past?

During the second quarter, it is not going to step down as much with some of the hiring that we have done, the increase in head count and a few other things that we are doing.

We probably won't see as drastic a decrease as we have seen in the past.

When should we expect the head count for the new Louisiana facility to ramp?

July 1 is our projected opening date there and we are hoping to start out with about 40 people in that office.

That's fantastic.

Thank you, guys.

Thanks, Tom.

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

Please proceed with your question.

Thanks for taking my question.

A couple things here.

Going back to the expenses, it seems -- to try to approach this from another angle it does seem given the revenue guidance you have for next quarter, the EPS guidance is slightly higher than I would have expected.

Is there anything else going on in the cost structure besides the normal margin improvement as the year moves on or greater mix towards the out sourcing side of things, is there anything that might change the margins at the systems business at the end of the day is what I'm driving toward?

The biggest drive there is head count.

We did see an increase in head count of 33 in the first quarter and are anticipating adding some additional people during the second quarter that will push up my head count pay roll costs.

That's really the only expenses trending upward that we are looking at in the second quarter.

If we were to look at staffing utilization on the teams, safe to say it was lower than normal in January and February or running about the historical average rate?

Pretty close to historical average.

January was certainly about average.

February was probably a little lower than normal.

When you start talking about that, we have so many fluctuations month to month that it is kind of hard to point to any trends but certainly February was a little lighter than certainly we like to see a month.

And if there is an up tick in demand as the industry is all sort of expecting, how much capacity do you have with the current sort of install teams before you have to start aggressively adding head count?

We have talked about that before.

Our current capacities right now are four financial installations per month, four clinicals and three point of cares per month.

But that's always kind of got an asterisk beside it because as I have talked about it before because of our policy only promoting within and hiring everyone at an entry level position, we have a lot of people that are in a lot of different roles here at the Company that can be used to do an installation if we need to.

Just to give you an example if we have some certain month even though we have four slots for financial, if we have a month that for some reason we need to put in five or even six in any given month, we can pull together the people to do that.

We couldn't do that month after month after month.

We feel we are in good position to grow as these hospitals start realizing it.

We can see the trends early enough that we can hire appropriately when we need to.

Just to be clear it was four financial, four clinical and three nursing point of care?

That's correct, per month.

Per month, got it and then finally, on the sales cycle we have heard this from a couple of companies now on the space and wanted to get your take.

When you use the word "temporary" which implies that you can see an end to it or you can see how long the duration has extended.

I guess, can you give us more commentary on why you think it is temporary and to what extent -- what gives you the confidence that this might not be a phenomena that is prolonged a little bit here given we still don't know what the criteria will be for a certified system and meaningful user.

Thanks.

We certainly will know the definitions we believe, the government is telling us the definitions before the end of the year.

I think as those things get clearer, that's when -- that's why we call that temporary because at the latest it will be end of this year before we get those definitions.

That's why we are saying temporary.

Ok Great.Thank you.

Our next question comes from the line of Leo Carpio with Caris and Company.

Please go ahead.

Good morning, Boyd and Darrell.

Couple quick questions.

Going back to the sales environment and in terms of the sales cycle, what has been the typical length of the sales cycle for your customers and what is it looking now in terms of months from initial contract to install?

The typical sales cycle is 8 to 12 months.

We are in the middle of it.

I don't know if I would say 9 to 13 or 10 to 14 right now or anything.

But I'm saying we saw several hospitals that are in the sales process right now that are slowing down the process and not going to make a decision by the date they thought and what the overall impact of that will be, I don't know yet.

The typical sales cycle is 8 to 12 months.

Okay.

In terms of the competitive environment, have you seen any changes in there in terms of competitors coming from the higher end of the spectrum coming down or any pricing competition in your space so far?

No, we haven't.

No changes so far whatsoever, either from new people coming in or from the ones that are always there.

In terms of your outsourcing and billing, have you seen any interest from your customers regarding the whole COBRA opportunity that is the whole COBRA subsidy thats in the Obama package and hospitals the positives as an incentive for them to install billing capabilities.

No, we haven't seen anything.

Lastly the question on the health insurance, the spike you saw.

Can you give us more color on?

What was driving the increase?

Was it just the utilization increase, or was it employees who were insured and their spouses or family members being unemployed and uninsured and driving the spike?

We did not see much of a change in the actual head count or covered lives that is covered under our policies.

What we saw was an increase in the dollar amount of an average claim and we also had several out liars during the quarter with a couple preemie babies and liver transplant and heart attack/stroke type things that are typically abnormal high costs.

It was more of a higher dollar, higher average per claim cost that we saw, not necessarily an increase in covered lives or covered procedures.

Great.

Thanks for the info.

Our next question comes from the line of James Druwilliger with Duncan Williams.

Please proceed with your question.

Thanks.

I have four quick questions.

The first one is housekeeping.

On the tax rate, we should be modeling for a 39% tax rate in 2009 ; is that correct?

Yes.

Is there any visibility of any additional tax credits?

Is that a possibility or -- we are going to model for 39%, is there any visibility of maybe any tax credits in 2009?

There are not any that we are aware of that haven't been considered in that rate already.

Okay.

The second question would be to you, Boyd, when you say you are seeing a somewhat longer sales cycle, I think earlier in the call you said typically 8 to 12 months.

When that sales cycle based on your experience when that sales cycle starts to get longer, extend, how long is that process?

Is it -- Q2 looks great but would the extension of the sales cycle you saw in Q1 would that become more visible in the second half of 2009?

Optimistically, I don't know that you will ever see a bump.

Because you have to know even at this time we have already got installations scheduled for the third quarter and actually for the fourth quarter right now.

Just because it lengths in doesn't translate a one-to-one correlation to a particular slow down at a particular time later on just because of the way the averages of everything works out.

Just because some are slowing down, doesn't mean everybody is slowing down.

We have some scheduled further out anyway.

As of now I don't see it having an impact on any particular quarter.

My next question -- I think it was touched on before -- I will go back to it -- when you talk about the sales cycle and the 48% of sales in March for the quarter, again could you talk a little bit about are you seeing any pricing pressure from either competitors or from hospitals themselves and what are the competitors, how are they behaving in this type of market?

Competitors, we are all competing like we always have.

We are good to each other.

I don't think there is any more pricing pressure then there has been as far as from the hospitals, in the small hospital marketplace, there is always pressure from the hospitals to make it as affordable as we can.

We haven't seen any changes to those trends.

You haven't seen any -- the competitors are holding price and the hospitals, they are not asking for any type of additional discounts more than what they typically ask for?

That's correct.

What you are saying is the market itself is behaving very rational.

That is absolutely correct.

Alright, thanks guys.

I have one last question.

Could you walk me through the process of in house between Boyd and Darrell and everybody else on the CPSI team how you go through the process of financing a hospital customer.

A hospital is out there.

They have your system they love your system.

You have a relationship with this particular hospital.

Maybe they are having financial difficulties.

Walk me through that process and how you decide yes or no.

That's my last question and I will thank you in advance.

Thank you.

We typically start is we would like them to pay for it all themselves and us not be involved in the financing side.

The next step when it is determined they will need some assistance, we have some relationships with some lenders in the healthcare IT market that specialize specifically in lending to hospitals.

We will hook them up with those guys to try to work that out.

As we progress past that, if that doesn't work or doesn't seem like it is going to be the most beneficial thing for them, we will then consider doing a financing arrangement for them.

On that typically we shoot for a short-term, something less than a year is what we normally try to get.

Under various circumstances and looking at it, we will go out three or four years and actually lease the system to them when it becomes evident that that's the only way that we can close the deal on it.

Do you hold any type of -- is it against maybe accounts receivable or is there any collateral that you hold on those type of structures?

Typically there is not any collateral on those.

In most cases the hospital has already collateralized their AR on some construction project or something else that they have going on at the hospital.

Ok guys.

Thanks for your time.

Our next question comes from the line of Brad Hoover with CW and Company.

Hi guys, thanks for taking my call.

Just quickly you mentioned four accounts receivable management contracts.

Was that private pay, is that what you said?

That's correct.

All four.

I know the opening of the office in Louisiana.

I was wondering if you can expand a little bit more on that.

Besides the stimulus package is there more specific grants or stimulus for the state of Louisiana or is there more important for the state of Louisiana.

There has been for the last two years the Louisiana rural health coalition has a lot of grant money that is available to small rural community hospitals so there has been a lot of activity in Louisiana even before the stimulus package and we needed a place to grow our outsourcing.

Monroe turned out to be a good place.

The labor that was there that was available to us we thought would be good and the Louisiana economic development commission really worked with us and made a very attractive deal with us to get the space.

From a lot of different fronts it made since that would be the next place we would open up another office.

Okay, great, I believe my other questions were answered so thanks for taking my questions.

(Operator Instructions).

Our next question comes from the line of Sandy Draper with Raymond James.

Please proceed.

Thank you very much and I apologize I got on the call a little bit late so I missed your comments and I am came in half way through I think Richard's question, I think he was asking one of mine -- based on your revenue recognition, you generally have pretty good visibility to at least one quarter out.

In terms of the shortfall to your guidance, it sounded like you said a lot of that variance came from add-on stuff at the end of the quarter and you ended up getting busy on traditional installs so you couldn't do that.

I want just want to make sure I understand what exactly caused that shortfall relative to your guidance?

A couple different factors.

One we did have answers ansilary installation that pushed into the second quarter that was scheduled for the first, we also had a point of care installation that was scheduled for the first that pushed to the second and then -- there is a lot of application that is we install that don't necessarily require a team installation approach, maybe one person here and there and March was really full with normal installs as far as financial, clinicals, point of cares.

Even the image links were full and because all of the people were out deployed doing those -- the types of installations I'm talking about, just to give you the example, right now for June that's an estimate that Darrell makes about how many of those things we will do.

We ended up not doing as many of those because the people were busy doing the other stuff.

But, all of those factors together cause the slight shortfall, if you call it that.

Ok Great.

That's helpful.

Second question, this will be more sort of broader.

Obviously one of the big questions out there is about meaningful use relative to the stimulus plan and what that means.

In talking to some folks around the industry, I have heard that one of your primary competitors in the smaller end doesn't necessarily fair as well in terms of actual clinical utilization of the products stronger financially.

Want to get your sense, how do you feel like you stack up from the clinical side?

Do you think you would have a distinct advantage if meaningful use came out in a very restrictive manner requires doctors to enter orders?

Do you think any of your competitors could be materially disadvantaged because they would have a harder time getting their clients to meaningful use?

Absolutely.

What we are hoping for the most is the most stringent requirement that would be the best thing for CPSI as a Company.

On two fronts.

One, it would require customers to buy even more of our software and secondly, we feel we are stronger in that area.

Financial are financials.

Our competitors have obviously financial systems that function well in a hospital.

Where we feel we differentiates ourselves is in the clinical areas and the point of care.

We have pointed out before, we are the only vendor who created our impact system in house.

We are very strong clinically and that would bode well for us.

The more stringent those requirements, the better it will be for us.

Okay, great.Thanks.

Mr.

Douglas, there are no further questions at this time.

I will turn the call back to you sir.

We appreciate everyone's time this morning.

Thank you 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.