TruBridge Inc (TBRG) 2009 Q2 法說會逐字稿

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  • Operator

  • Ladies and gentlemen, thank you for standing by and welcome to Computer Programs and Systems Inc.

  • 2Q '09 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, July 24, 2009.

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

  • Boyd Douglas, President and Chief Executive Officer.

  • Please go ahead, sir.

  • Boyd Douglas - CEO & President

  • Thank you, Frank.

  • Good morning, everyone and thank you for joining us.

  • During this conference call, we may make statements regarding future operating plans, expectations and performance that constitute forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

  • We caution you that any such forward-looking statements are only predictions and are not guarantees of future performance.

  • Actual results might differ materially from those projected in the forward-looking statements as a result of risks, uncertainties and other factors, including those described in our public releases and reports filed with the Securities and Exchange Commission, including, but not limited to, our recent annual report on Form 10-K.

  • We also caution investors that the forward-looking information provided in this call represents our outlook only as of this date and we undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call.

  • Joining me on the call this morning 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 second quarter, we installed our financial and patient accounting system in five hospitals, our core clinical departmental applications at 11 facilities, nine 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 nine facilities in the third quarter.

  • We anticipate 10 new installations of our core clinical departmental modules, seven nursing point of care implementations and two ImageLink installs.

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

  • During the second quarter, revenue from this segment of our business grew 19% year-over-year.

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

  • Demand from current customers for add-on software continues to be strong.

  • For prospective clients, we continue to experience 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.

  • We have increased our headcount and our support and installation division by 90 personnel.

  • These employees began their training in May, which will give them ample time to be up to speed and fully trained as we begin to experience the increased demand that we anticipate as a result of the stimulus package.

  • We continue to be confident that we are in an excellent position within our market to capitalize on the increased demand for our software and services as a result of the ARRA.

  • Our ability to increase our capacity to this level on a proactive basis is reflective of the strength of our Company and our organization.

  • We see this as a strategic advantage for CPSI in that a comparable increase in capacity would be problematic for our smaller competitors.

  • We believe that these new opportunities on the horizon will further strengthen our position as the leading HIT provider for community hospitals.

  • We remain fully committed to meeting all certification requirements that will be required under the ARRA and we're well-prepared to help each and every one of our customers and prospective customers to achieve the meaningful use status, which will maximize their financial benefits for which they qualify under the stimulus package.

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

  • Darrell West - VP, Finance & CFO

  • Thanks, Boyd.

  • Our DSOs were 43 days for the second quarter, which is a decrease of two days from year-end and a decrease of seven days from the previous quarter.

  • Cash provided from operations for the quarter was $3.7 million compared with $5.2 million last year.

  • Free cash flow was $3.1 million for the quarter compared with $4.9 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 $594,000 compared with $266,000 for the prior year.

  • Depreciation for the quarter was $456,000 compared with $487,000 last year.

  • Cash collections for the second quarter were $31.6 million compared with $30.4 million for 2008.

  • We recognized stock compensation expense of $229,000 in the second quarter of 2009 and anticipate a charge of $229,000 again in the third quarter.

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

  • At quarter-end, our headcount was 999, an increase of 95 for the quarter.

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

  • Operator

  • (Operator Instructions).

  • Bret Jones, Brean Murray.

  • Bret Jones - Analyst

  • Thank you.

  • Good morning.

  • When we look at the last quarter's guidance, revenues were essentially in line, but the margins were considerably weaker and obviously the earnings miss.

  • Did you simply add more people than you were expecting coming into the quarter?

  • Darrell West - VP, Finance & CFO

  • It was a combination of -- while the revenue was in line, it was right at the bottom end of what our guidance was and also the additional staff.

  • We had anticipated being able to add about 60 people, but I guess based on the economic situation out there, we found there were a lot more candidates that were qualified that were available and we ended up actually hiring the 90 instead of just 60.

  • So yes, I saw a 50% increase over what I was initially planning to hire.

  • Bret Jones - Analyst

  • Okay, that's very helpful.

  • How about hardware in the quarter?

  • Was that materially higher?

  • Darrell West - VP, Finance & CFO

  • Yes, my hardware expense -- we had a couple of installs that shipped, one install, full install and then a couple of the ancillary type things that moved into the third quarter from the second quarter.

  • And all of those had equipment that was included in the quarter because we sell that equipment and recognize it at the time we ship it.

  • So the related equipment was sold and recognized in the quarter, but the revenue related to the software, which has a much higher margin, moved into the third quarter.

  • Bret Jones - Analyst

  • Is there any way to quantify that?

  • Or would you be willing to quantify that?

  • Darrell West - VP, Finance & CFO

  • That revenue -- you want quantification on the revenue that moved or the --?

  • Bret Jones - Analyst

  • The hardware revenue exactly, yes.

  • Darrell West - VP, Finance & CFO

  • I don't have a hardware revenue number right here in front of me.

  • Bret Jones - Analyst

  • Okay.

  • When we look to the guidance -- I will just ask one more question and jump back in the queue -- but when we look at the guidance for Q3, what kind of gross margin improvement are you looking for?

  • Because obviously the revenues aren't ticking up that much, but the earnings are back into that $0.37 to $0.39 level.

  • I guess what needs to happen or were there a lot of one-time costs associated with adding the additional 90 people in the last quarter?

  • Darrell West - VP, Finance & CFO

  • There were some one-time start-up costs with adding people.

  • And on the front end, hiring people, getting all that set up, there is more cost there.

  • But then moving -- there was also in the training.

  • We are still in the training phase and part of that involves some travel that they did that was not anticipated.

  • They are moving on a little quicker than we normally do.

  • So we sent them out onsite to do more training.

  • So there is an upfront cost there and the initial training cost that is incurred, but they are not yet really producing or assisting in producing any revenue for us from a support standpoint.

  • Bret Jones - Analyst

  • Sorry, I lied.

  • I'm going to follow up on that.

  • Can you give us a projection for headcount additions for the next quarter?

  • Darrell West - VP, Finance & CFO

  • At this time, we are not -- we don't have any classes scheduled to hire.

  • Looking at that, we don't have a solid number for the third quarter, but we are looking at, for the rest of the year, there will probably be some additions before the end of the year.

  • We are just not sure about the timing on that yet.

  • Bret Jones - Analyst

  • All right, great.

  • Thank you very much.

  • Operator

  • Jamie Stockton, Morgan, Keegan.

  • Jamie Stockton - Analyst

  • Yes, thanks.

  • Just following up on Bret's question about the hiring, do you still plan to ramp the new call center in Monroe in the third quarter?

  • Darrell West - VP, Finance & CFO

  • Actually, the call center, in addition to adding the new support staff, the call center actually opened in the third quarter -- I mean in the second quarter.

  • We had anticipated July 1.

  • That construction came along quicker and we were able to go ahead and get that up and running during the quarter.

  • Those people that we have hired there actually have hired through a temp agency and so they are actually not in my headcount at this time.

  • But that opened the last week of May.

  • So that was five weeks sooner than we had anticipated.

  • Jamie Stockton - Analyst

  • Okay.

  • Do you think that those people, and not that it really matters that much, but do you think that will ever be included in headcount?

  • Darrell West - VP, Finance & CFO

  • Yes, what we are doing with our business management services, there is oftentimes a lot of turnover early on in that business when you're hiring people.

  • It is a high turnover actually environment.

  • And we have moved to hiring all of our new people in business management services through a temp agency and we leave them on the temp agency for the first six months.

  • And by that time, some have left, some didn't work out and if they have made it for six months then we believe they are a keeper and are going to be around.

  • We have moved them over onto our payroll and our headcount.

  • Jamie Stockton - Analyst

  • Okay.

  • Just touching on expenses during the quarter, was there anything like - in the March quarter, I think that healthcare expenses were higher than you had expected.

  • Was there anything in the June quarter that you saw that was higher than expected like that that you wouldn't see recur in the September quarter?

  • Jamie Stockton - Analyst

  • My travel expenses were a good bit higher than projected.

  • A couple of things.

  • We are making a push on the marketing and sales side that has incurred some more expenses and also the personnel that we just hired.

  • We had sent them -- actually they all went onsite and I had not anticipated that they would be prepared to go onsite during the quarter.

  • When you put 90 people on the road that you had not anticipated for a week or two, that will incur a little more expense.

  • Jamie Stockton - Analyst

  • Okay.

  • And then, Boyd, I guess my question, kind of bigger picture, on your conversations with customers and how they are thinking about the incentive payments that they can get versus what they are going to have to spend to get there, how do you feel like that is going to shake out just as far as how compelling the whole program seems to be?

  • From my standpoint, the fact that there is a very large, fixed component of the hospital incentive payment formula seems like it is going to benefit your customers disproportionately.

  • Boyd Douglas - CEO & President

  • I would definitely agree with that.

  • So really our thoughts on that really haven't changed.

  • It is a large amount of money, which will positively affect the majority of our hospitals.

  • So we are still hearing the same thing.

  • They know they have got to meet the meaningful use criteria in order to qualify for these funds.

  • And like I said in my comments, a lot of our current customers are going ahead and moving forward.

  • They know they need to install the clinicals if they don't have those already, the point of care, if they don't have those already because the two preliminary definitions of meaningful use that have come out, both have included verbiage and language about CPOE.

  • So clearly if CPOE is going to be a part of it, which it certainly appears it will, you have got to be running at least through point of care to even be able to get to the ChartLink and CPOE package.

  • So they see it.

  • Same kind of message we are hearing, which is we know we have got to do it; we are just trying to find ways to pay for it so that we can go ahead and get those systems in place so that we will qualify for the money beginning January 1, 2011.

  • Jamie Stockton - Analyst

  • All right.

  • My last question is on the competitive dynamic.

  • Have you seen any change?

  • I know there has been some concern that maybe some of the vendors that have focused more on medium or large size hospitals might come down, down more into the less than 100 bed space.

  • Have you seen any of that occurring?

  • Boyd Douglas - CEO & President

  • We have seen nothing at all.

  • The competitive landscape is exactly the same as it has been for the last five or six years really.

  • Jamie Stockton - Analyst

  • Great.

  • I appreciate it.

  • Operator

  • Tom Carpenter, Hilliard Lyons.

  • Tom Carpenter - Analyst

  • Good morning, Boyd; good morning, Darrell.

  • You guys must feel pretty good about the demand you are seeing in '10 and '11 to go ahead and increase your staff by 10% this quarter.

  • Boyd Douglas - CEO & President

  • We certainly do.

  • Tom Carpenter - Analyst

  • In the past, you have talked about the current capacity being roughly 12 per quarter.

  • Does this take it to 15 when these folks are up and running?

  • Boyd Douglas - CEO & President

  • It takes it roughly to 16, 18 maybe, somewhere -- about a 50% increase in capacity is what we are seeing.

  • That is always -- as I have talked about before, these slots are kind of a gray area.

  • But if we can do four per month with these new hires and with the increase in our support staff and installation staff, we can probably do six a month now.

  • So increasing by about 50%.

  • Tom Carpenter - Analyst

  • Okay, that would be fantastic.

  • And when you are talking to folks out there, you are seeing the demand from the -- the existing customers are upgrading.

  • You have delivered strong numbers with the add-ons.

  • But on the news side, do you see the spigot opening in the first quarter of next year or is everybody going to rush out at once because maybe people are a little concerned about government funding issues over the long term or do you think it is going to be a pretty even upgrade in the new purchase cycle?

  • Boyd Douglas - CEO & President

  • That is the million dollar question.

  • It is just really hard to know right now exactly when that timing is going to be and whether it is going to be.

  • But obviously the closer we get to January 1 of 2011, the more it is going to be a mad rush and that is the message we are trying to get out to both our current customers and these prospective customers.

  • You really -- I don't think anybody would disagree that you have got to be running through point of care.

  • So if you're not up and running through point of care now, whether you're on CPSI or not, you certainly ought to be making plans to go ahead and be doing that to avoid the big rush that is certainly, in our opinion, bound to happen.

  • Tom Carpenter - Analyst

  • Right.

  • I think you guys might have touched on this in one of the prior calls, but given the capacity that you and I guess your three other main competitors in the 100 bed and less space have, you guys couldn't possibly upgrade everybody ahead of '11.

  • Correct?

  • People are going to -- I'm sorry -- people are going to have to go ahead and start upgrading fairly soon because the capacity is not there for the industry to upgrade everybody.

  • Boyd Douglas - CEO & President

  • I absolutely agree with that 100%.

  • Tom Carpenter - Analyst

  • Okay.

  • And Darrell, I don't want you to feel left out.

  • Did you guys put 25 folks in Louisiana?

  • I think that was the plan from the original press release and maybe to ramp it over to 100 in the next couple of years?

  • Darrell West - VP, Finance & CFO

  • At the end of June, we had 15 people over there and we are working that number up.

  • We will probably be at 25 or 30 by the end of the quarter and then, yes, over the next couple of years, ramping that up to 100 people.

  • Tom Carpenter - Analyst

  • Okay.

  • Fantastic.

  • Thank you, guys.

  • Best of luck in the quarter.

  • Operator

  • [Dan Wilmington], [Delaware Capital Management].

  • Dan Wilmington - Analyst

  • I'd like to ask quick about revenue visibility.

  • Your backlog is now $106 million, all right?

  • And in the third quarter, what percent of this, do you think, recognized revenue comes from backlog?

  • Boyd Douglas - CEO & President

  • I would say virtually all of it because we have got the contracts in place for this third quarter.

  • We may get a few add-on sales and things that haven't been ordered yet from current customers.

  • But typically, certainly any new installs and installs of the major applications have already been -- orders have already been placed, which means that that is represented in that backlog number.

  • So if I had to throw out a number, I would say 90% to 95% is coming from the backlog.

  • Dan Wilmington - Analyst

  • Okay, thank you.

  • In reference to your dividend policy, your (inaudible) at $0.36 dividend for the quarter, but your earnings were $0.32, you are paying more out in dividend than you earn for the quarter.

  • Could you rationalize that to me, please?

  • Darrell West - VP, Finance & CFO

  • Our policy regarding our dividends is, one, we are a dividend-paying company and we typically shoot to pay out our free cash flow in dividends.

  • And because there is some ups and downs in the quarterly earnings and the quarterly cash flow, we have had that number set actually a couple of years back at $0.36 and it is our goal to maintain that there.

  • We believe we have sufficient money in our cash and investments to cover that dividend, even if there is a shortfall for a few quarters.

  • But it is our desire to keep that number at $0.36.

  • Dan Wilmington - Analyst

  • Okay, thanks a million.

  • Operator

  • Corey Tobin, William Blair & Co.

  • Michael Hubbard - Analyst

  • Good morning.

  • It's Michael Hubbard for Corey.

  • Just a quick question on the tax rate, you guys said you are expecting about 39% for the full year 2009.

  • And it looks like it has come in around 35% in the first two quarters.

  • Are you expecting a significant uptick in the tax rate in the second half of the year?

  • Darrell West - VP, Finance & CFO

  • A little bit of an uptick and there were some investment credits and R&D credits that are in the numbers in the first half of the year that won't be as significant in the second half.

  • Michael Hubbard - Analyst

  • Got it.

  • Thank you.

  • Operator

  • George Hill, Leerink Swann & Co.

  • George Hill - Analyst

  • Hey, guys, good morning and thanks for taking the question.

  • Boyd, just a quick question, or Darrell, can you talk about the timing of when the employees came on during the course of the second quarter?

  • And I guess I have a couple of questions.

  • What I am trying to get to is confidence in second-quarter guidance.

  • Darrell West - VP, Finance & CFO

  • Those classes of new employees started on May 26.

  • So they were there for about a third, a little more than a third of the quarter.

  • As far as confidence in the third-quarter numbers, the process we go through to project a quarter, we have not done anything to change that.

  • There is -- we are as confident in the next quarter as we are in our guidance on a regular basis.

  • There is always the possibility, as happened this quarter, that an install may move.

  • And so we believe it is good visibility, but there is always the chance that something could shift into the following quarter.

  • George Hill - Analyst

  • Okay, because I look at the incremental revenue growth and the incremental expectation on net earnings growth and it would seem to me that the incremental margin on expected sales is very, very high.

  • Recognizing that you only had the new employees for about a third of the quarter, you do the math on what the flow-through -- just what (inaudible) whether it is the SG&A line or the cost of goods line.

  • Maybe can you help walk us through a little bit more about how you get from the change in revenue to the change in net earnings recognizing the 90 people that came on?

  • Darrell West - VP, Finance & CFO

  • Some of that factor is the shift that we had from second quarter to third quarter of an install was a fairly significant install and I had recognized all of my equipment sales, which has the majority of my expenses on it and some pretraining and other expenses that go along with that that stayed within the second quarter.

  • So my incremental margin on the revenue that shifted from the third to the fourth quarter -- I mean excuse me -- from the second to the third quarter has a much better margin on it.

  • George Hill - Analyst

  • Okay.

  • And last question, how long do we expect it will be before the new teams that are being trained are productive and we can see the step-up broadly in the number of deployments and installations?

  • Darrell West - VP, Finance & CFO

  • They will be fully productive and fully worked into the process in the fourth quarter, placed on teams and we will, at that time, have the increased capacity.

  • The question is how soon does the demand come along to fill that capacity.

  • George Hill - Analyst

  • Okay.

  • And you basically just addressed my last point that I guess as we think about the back end of the year, if we are not expecting to see a pick-up in demand until Q1, there is a risk that margins deteriorate a little bit because of the increased capacity.

  • Darrell West - VP, Finance & CFO

  • Yes, there is a risk of that.

  • George Hill - Analyst

  • Okay, thank you.

  • Operator

  • Leo Carpio, Caris & Company.

  • Leo Carpio - Analyst

  • Good morning, Boyd.

  • A couple of quick questions regarding the quarter.

  • First, regarding the staffing, could you give us a sense of what type of EPS impact that had in the quarter and what type of drag it will have in the coming quarters until the teams are placed and start working on assignments?

  • Darrell West - VP, Finance & CFO

  • Looking at the third quarter, the impact of the new hires is somewhere in the neighborhood of a net of $0.045 a share.

  • Leo Carpio - Analyst

  • Okay.

  • Darrell West - VP, Finance & CFO

  • During the second quarter, even though they were there only a portion of the quarter, it was probably half of that just from the initial start-up and the costs that go along with that.

  • Leo Carpio - Analyst

  • Okay.

  • And then turning over to the install that was delayed.

  • Could you tell us why that was delayed?

  • Was it a factor -- was it a facility that wasn't fully constructed yet or some other --?

  • Boyd Douglas - CEO & President

  • It was a facility that was being bought by a for-profit chain that we have got several of their facilities now and they bought this facility.

  • And the state that it was in -- they had some problems with the state and getting it closed and they expected it to be closed and could [access] them in June 1 and it actually didn't close until very late in June.

  • And so we went live July 1.

  • So it was just the sale of a hospital and the closing.

  • Leo Carpio - Analyst

  • Okay.

  • And then turning over to the hospital capital spending environment, it sounds like your conversations with clients have been constructive.

  • I mean what has been the conversation now that we have had this working meaningful use definition?

  • Has the conversation become more intensive as in help me to understand the rules or what do they need in terms of -- to ramp up to qualify for the rules?

  • Boyd Douglas - CEO & President

  • Yes, I definitely think -- I think as we get more clarity and every time the government comes out with either a new pre definition, if you will, or whatever, every time there is more clarity on it, I think they realize that they are that much closer to needing to go ahead and put these systems in and be getting ready and prepared for achieving meaningful use.

  • So every time we get a little bit further, it may make one or two go ahead and make that leap of faith and go ahead and buy the systems and agree to install them.

  • Leo Carpio - Analyst

  • Okay.

  • And if I am understanding you correctly, it sounds like your existing customer base is the one that is making the leap of faith.

  • Meanwhile, the new customers or potential new customers, they are just, at this point, [felt] like they are just looking at the stimulus package.

  • Is that a correct assessment?

  • Boyd Douglas - CEO & President

  • (multiple speakers).

  • We are doing new installs.

  • We did five and then we are expecting to do nine in the third quarter and certainly some of those are the result of the stimulus package.

  • So we are seeing some movement amongst our prospect hospitals, but I would say the majority of them still are still waiting on a clearer definition of meaningful use.

  • Leo Carpio - Analyst

  • Okay.

  • And in terms of the economy, has that had any impact on your customers in terms of their purchasing decision?

  • Boyd Douglas - CEO & President

  • Very little.

  • I think probably the biggest impact we have seen as a company with the economy is in the business management services, the full business management services when we run the entire business office.

  • We haven't done any of those contracts this year and it is just extremely difficult, as you can imagine in these small towns where our hospitals are, to outsource that and potentially lose 10 to 15 to 20 jobs in the community.

  • I mean that would make headlines in the local papers, so there is some certainly pushback and resistance to that.

  • There is still a lot of interest.

  • It makes a lot of sense for a lot of our hospitals and a lot of them want to do that, but they tell us they are waiting on the economy to improve where maybe they can put those people in other areas in the hospital when things improve a little bit so that we could then take over the business office for them.

  • That is really probably the biggest impact that we have seen from the bad economy.

  • Leo Carpio - Analyst

  • Okay.

  • And then regarding the whole initiative for healthcare reform, has that caused any pause or at this point, it has just been in the background?

  • Boyd Douglas - CEO & President

  • We are certainly keeping our eyes on it, but certainly haven't seen any effects and at this point, don't anticipate any.

  • I think there is still a lot of decisions that the government has to make on that.

  • So we are certainly watching that, but we don't anticipate any effect from that either way at this point.

  • Leo Carpio - Analyst

  • Okay, and then the last question, in terms of when you look at your product offerings, is there any like gaps that you think you may need to put in in the next year or two to fill in or is it pretty much you think the products that you have are good to go?

  • Boyd Douglas - CEO & President

  • The suite of products that we have, we clearly think we are the leader in the community hospital with the suite of the products, the breadth of those products and the maturity of those products.

  • We have been doing that type of thing for a long time.

  • There was a recent industry survey done that was very favorable for us in the CPOE arena.

  • To quote them, it said we were blazing the trail in CPOE for community hospitals and it mentioned that we really were the only ones giving Meditech a run for their money.

  • In fact, our utilization was higher than Meditech's in the community hospitals for CPOE.

  • So that was a very positive report for us that certainly we are trying to tell all of our current customers and prospective customers about.

  • I think we have certainly set the bar pretty high for our competition.

  • Leo Carpio - Analyst

  • Okay, well, thanks, Boyd.

  • Operator

  • Richard Close, Jefferies & Co.

  • Unidentified Participant

  • Hi, this is Dmitri for Richard.

  • I just have a question regarding the ASP offering.

  • I know many of the larger vendors have stated that the current economic environment has driven many -- has driven interest towards the ASP offering.

  • So I was wondering if you are seeing the same thing in the smaller hospitals.

  • Boyd Douglas - CEO & President

  • Certainly we are seeing more interest in it.

  • Kind of back to my comments earlier about what we are hearing from prospective customers and current customers is we know we need to put these system is in place.

  • We are just trying to find a way to pay for them and a lot of them, that is an attractive choice to do an ASP model or software as a service model until they get the funding and then maybe have some kind of buyout in there where they could then purchase the licenses once they are starting to realize those funds.

  • So I would say yes.

  • I wouldn't say it is anything significant, but certainly we are seeing more interest in that than we did say a year ago.

  • Unidentified Participant

  • So out of the new installs that you did in the second quarter, are any of those ASP or they are all license?

  • Boyd Douglas - CEO & President

  • They were all licenses.

  • Unidentified Participant

  • All licenses.

  • And how do those five new installs compare to the first quarter?

  • Boyd Douglas - CEO & President

  • First quarter, we installed -- eight in the first quarter -- financials.

  • Unidentified Participant

  • Okay.

  • You were talking about -- okay.

  • Also, I wanted to ask about the Linux upgrades.

  • I know you have been doing about 30 let's say per quarter.

  • Is that trend going at the same rate or going down?

  • Boyd Douglas - CEO & President

  • No, it is certainly staying there or actually going up.

  • We actually increased our capacity there, added a few folks over the last two quarters or so.

  • So we actually can do a few more than 30, but not significant.

  • 30 is a good number.

  • Unidentified Participant

  • Okay, great.

  • Thank you.

  • Operator

  • [Dan Meserve], [Harvest Capital].

  • Dan Meserve - Analyst

  • Good morning, Boyd and Darrell.

  • Just wanted to follow-up on guidance, and I apologize for another question on this.

  • But I have a simple model on you guys, and on the high end of your revenue guidance I need a very big jump in gross margin to get your guidance something more like 300 basis points, and that is on top of a much larger expense base with your recent hires.

  • And I hate to focus on the near-term, but you guys have missed your guidance the last two quarters, and I thought you had pretty good visibility three months out outside of these large deals.

  • And I'm just trying to figure out what I am missing in the model or if there is anything you can quantify with these delayed deals that -- I'm just concerned that we are getting set up for another potential miss.

  • And anything you can quantify there would be helpful.

  • Boyd Douglas - CEO & President

  • As far as this last quarter and the miss, I think we have explained that pretty well, situations that really all are outside of our control.

  • There were three factors.

  • One was a fairly large install at a 200-bed facility pushed from the second quarter to the third quarter because of the sale of the facility didn't go through.

  • I mean there was no way we could predict that.

  • And as Darrell said earlier, virtually all the expenses with that were expensed in the June quarter, but we didn't recognize any of the revenue because we didn't start the installation.

  • So that is a big chunk right there.

  • And certainly, as Darrell said earlier, that might happen again.

  • I think if you go back over our history as a public company, it doesn't happen that often, but it certainly does happen.

  • That was probably the biggest piece of the miss.

  • And then we had the -- we hired 30 more people than we thought and we are taking advantage of I guess what you would say is the bad economy because we certainly thought we could probably only get around 60 folks or so and we had 90 that we thought were highly qualified and would do us well.

  • We think that is money well invested.

  • So that was a piece.

  • And then we opened up -- I think it is very positive news.

  • We finished -- there are not too many construction projects that finish on time these days and we finished our construction project and went ahead and hired the people and opened our Monroe facility 30 to 40 days earlier than anticipated.

  • So I don't really have any apologies for missing that.

  • I think those are all positive things that happened to the Company looking forward.

  • As Darrell said earlier, we haven't changed the way we give guidance.

  • We certainly don't anticipate anything like that happening this quarter.

  • So I think we have been fairly consistent with our projections and we fully expect to hit our range that we have given, $0.37 to $0.39.

  • Operator

  • [Jeff Jensen], Small-Cap Strategy.

  • Jeff Jensen - Analyst

  • Yes, hi, guys.

  • Thanks for taking the call.

  • I guess -- I hate to beat the dead horse.

  • Let me come at it at a little bit different way because you guys have such good credibility based on your performance over years and years and years that I think, unfortunately, the past number of callers have focused on credibility issues, but this could hopefully explain it, Boyd.

  • I think the disconnect is you've said that there was a delay, but your deferred revenues -- I think people are looking at your deferred revenues and while it may not have come up yet, deferred revenues were actually down 6%, 7%.

  • Why wouldn't that hospital sale fall into deferred if you actually closed it before the quarter ended but you couldn't recognize it going live?

  • Darrell West - VP, Finance & CFO

  • The deferred revenue actually consists of deposits that we have on hand for future installs.

  • It is not actually revenue that -- it is not revenue necessarily that has been deferred.

  • It's we have received the cash deposits.

  • That number represents cash that customers have deposited with us for installs in the future.

  • So while this specific hospital or when a hospital moves, it doesn't necessarily affect the cash side of that deferred revenue number.

  • Jeff Jensen - Analyst

  • Great.

  • That's helpful.

  • And then what percentage of deferred is typically maintenance versus pre-deposits?

  • Darrell West - VP, Finance & CFO

  • It is rarely maintenance.

  • Most of my --.

  • Jeff Jensen - Analyst

  • It is usually deposit-based?

  • Darrell West - VP, Finance & CFO

  • It is usually deposits on installs.

  • Typically on maintenance, we receive -- it is a monthly billing and a monthly collection.

  • Most of my customers pay monthly as opposed to by the year or by the quarter.

  • Jeff Jensen - Analyst

  • Great.

  • And then one analyst just e-mailed me saying you had said you came in at the low end of the range.

  • I'm sorry.

  • I got on the call late.

  • You came in at the low end of your guidance and that was one of the reasons for the miss.

  • But he said --.

  • Darrell West - VP, Finance & CFO

  • That was the low end of the revenue guidance.

  • Jeff Jensen - Analyst

  • Right.

  • But he said you guided $30 million to $31.5 million and you came in at the mid or above the mid.

  • What was your guidance for Q2 for revenue?

  • Darrell West - VP, Finance & CFO

  • $30.5 million to $32 million.

  • Jeff Jensen - Analyst

  • And you came in at $30.8 million?

  • Darrell West - VP, Finance & CFO

  • Yes.

  • Jeff Jensen - Analyst

  • Okay, he e-mailed me saying it was $30 million to $31.5 million.

  • So that is helpful too.

  • All right, guys.

  • Keep up the good work.

  • Thank you.

  • Operator

  • Brad Hoover, Sidoti & Co.

  • Brad Hoover - Analyst

  • Hi, guys, thanks for taking my call.

  • Darrell, I just wanted to go back, you mentioned the EPS impact on the higher I guess in the second and third quarters, did you say, for this upcoming third quarter, it's going to be up $0.045 due to the 90 people that you added?

  • Darrell West - VP, Finance & CFO

  • Yes.

  • Brad Hoover - Analyst

  • And then you said for Q2, was that half of that?

  • Darrell West - VP, Finance & CFO

  • It was probably about half of that, yes.

  • Brad Hoover - Analyst

  • $0.02 or $0.03.

  • Okay, great.

  • And then I guess on the first conference call or the first-quarter conference call, you mentioned there were several installs lined up -- that you already lined up for the third and fourth quarters.

  • Just curious to know if, during this quarter, you again lined up installs maybe for the fourth quarter or maybe even into next year?

  • Just give us some more color on that.

  • Boyd Douglas - CEO & President

  • Yes, there certainly are already some installs scheduled for fourth quarter and some for first.

  • But again, like I said in the last call, don't read too much into that.

  • That is not necessarily way out of the norm, but we certainly got some, but we have got a lot of work to do to make the fourth quarter and first quarter to be good, profitable quarters.

  • Brad Hoover - Analyst

  • Sure, okay.

  • And then the five new financial installs, did they all do as well?

  • (inaudible) the clinicals and the point of care as well?

  • Boyd Douglas - CEO & President

  • You are talking about the five that we did in the quarter?

  • Brad Hoover - Analyst

  • Yes, the five financial and patient accounting systems, did they also install clinical and point of care as well?

  • Were they full installs?

  • Boyd Douglas - CEO & President

  • It looks like two of them were full installs looking at the schedule.

  • Two of them were full, all the way through point of care and another two of them were financials and clinicals.

  • And then the other one obviously was just a financial.

  • Brad Hoover - Analyst

  • Are you seeing any pricing pressure at all from any competitors or has pricing stayed relatively the same the first few quarters this year?

  • Boyd Douglas - CEO & President

  • We haven't seen any change.

  • It is obviously very competitive between us and our major competitors and we haven't seen any more or less pricing pressure than we have seen in the last several quarters.

  • Brad Hoover - Analyst

  • Okay.

  • And then one last question.

  • Just given the fact that rural hospitals, they have a much larger exposure to Medicare reimbursements, I think you had said in the past, it was closer for your clients at 60%, great than the national average of closer to 40%.

  • Are you seeing a lot of concern from either clients, prospective clients about possible cuts in reimbursement and what that might do to decisions or purchasing going forward?

  • Boyd Douglas - CEO & President

  • We are and I am not sure that isn't necessarily a positive for us because all that does is make their desire to get these stimulus funds and qualify for the stimulus funds even greater.

  • It is going to mean even more to them as a hospital to be able to be in a position and using system in a meaningful way to qualify for those funds if their traditional Medicare/Medicaid funding is going to be cut.

  • Brad Hoover - Analyst

  • Sure.

  • And I would agree with that.

  • Okay, guys.

  • Thanks for taking my questions.

  • Operator

  • James Terwilliger, Duncan Williams.

  • James Terwilliger - Analyst

  • Hey, guys.

  • I have just got two or three quick questions.

  • First of all, can you talk about the visibility regarding requests by customers for payment terms and financing?

  • That number has increased sequentially here, so could you talk about the trend in financing receivables?

  • Darrell West - VP, Finance & CFO

  • Jim, we are seeing an uptick there in requests for that and we anticipate there will continue to be some uptick there based on hospitals wanting to go ahead and install these products, but not necessarily having cash readily available.

  • So we are seeing more interest there and based on our cash position, we will most likely see an increase in that number on our balance sheet until hospitals start receiving these stimulus funds.

  • James Terwilliger - Analyst

  • Fair enough.

  • Can you go back and talk a little bit about the trend in deferred revenue?

  • It declined sequentially, but it actually has declined sequentially the last four quarters in a row.

  • Can you just talk about the deferred revenue trend from a high level?

  • Darrell West - VP, Finance & CFO

  • What I think we are seeing there is, because there are uncertainties, delays, indecision on the side of customers, potential customers, previously, we would push extremely hard to get that deposit at the time of contract signing and get that money upfront.

  • But because of the delays in the decision-making and what we are seeing as trends there, we are, I guess, not pushing as hard on getting that deposit or working with a little bit different terms for the hospitals on when they are having to give us those deposits or pay for those installs.

  • I think it is just a little bit of a shift in their economic situation.

  • James Terwilliger - Analyst

  • That's completely understandable.

  • Last quarter, there was a comment, I believe, about maybe the possibility that the sales cycle was being slightly extended.

  • Has anything changed with the sales cycle as you look at your market and your customers at this time versus last quarter?

  • Boyd Douglas - CEO & President

  • I would say at this time versus last quarter, no, there has not really been any significant change.

  • As I said a couple times now on the call that certainly we have got a fair number of our prospects that are not pushing the process real hard, kind of waiting on a definition of meaningful use.

  • So that maybe linked to it a little bit, but nothing significant.

  • I would say the length of the sales cycle is about the same as it was last quarter.

  • James Terwilliger - Analyst

  • All right.

  • And one last question.

  • There was -- this might be a crazy one.

  • There was a proposed hospital tax in Mississippi.

  • Did that impact you at all?

  • Boyd Douglas - CEO & President

  • Not that I am aware of.

  • I wasn't aware of the hospital tax in Mississippi.

  • James Terwilliger - Analyst

  • Okay, thanks a lot, guys, for taking the questions.

  • Darrell West - VP, Finance & CFO

  • Before the next question, back to a comment Jeff had earlier -- this is Darrell -- Jeff, you were correct and the sales guidance that we did include in our press release at the end of the first quarter or first-quarter results was $30 million to $31.5 million.

  • I just wanted to go back and correct myself on that, that you are -- you did have the right numbers and I misquoted there.

  • Frank, is there any more questions?

  • Operator

  • George Hill, Leerink Swann & Co.

  • George Hill - Analyst

  • Thanks for the follow-up, guys.

  • Darrell, I don't know if you can comment, with the 90 people who came on board, average salary?

  • Darrell West - VP, Finance & CFO

  • Salary benefits, the package is probably in the $35,000 to $40,000 range.

  • George Hill - Analyst

  • Okay.

  • So about where it has been historically?

  • That was it.

  • Thank you.

  • Darrell West - VP, Finance & CFO

  • Yes.

  • Operator

  • [David Larkin], Leerink Swann & Co.

  • David Larkin

  • Sorry about that.

  • I was on mute.

  • As far as CPOE goes, can you talk about the pricing of your product?

  • And then it is also my understanding that if 10% of orders are like say e-prescribing, that would qualify for a meaningful use in 2011, 2012.

  • Can you just talk about the different products that you have that your customers could use to basically meet those requirements and what the pricing is around those?

  • Boyd Douglas - CEO & President

  • I would rather not get into specifics of pricings for competitive reasons, but our CPOE is done on a per seat basis, per physician basis.

  • So it depends on the hospital.

  • It really is a subset of our ChartLink application.

  • I would be willing -- for that number at any given facility and a lot of that -- again, that is on a per seat basis too, but your ChartLink is somewhere between $100,000 and $250,000 depending on how big the facility is.

  • And as far as the 10%, I think it is more than just -- or at least our understanding is more than just the -- e-prescribing is 10% of all orders at a facility, which includes medical orders and things like that, which obviously our CPOE product can do.

  • David Larkin

  • Okay, great.

  • Thank you.

  • Operator

  • [Steve Winalski], [1111 Cap].

  • Steve Winalski - Analyst

  • Hi, how much hardware was recognized in the quarter?

  • Darrell West - VP, Finance & CFO

  • Capital expenditures were $594,000 in the quarter.

  • Steve Winalski - Analyst

  • No, I meant from your revenues.

  • Darrell West - VP, Finance & CFO

  • Oh, equipment, I don't have that number right in front of me for equipment sales.

  • Steve Winalski - Analyst

  • Okay.

  • Was it changed meaningfully from previous quarters?

  • Darrell West - VP, Finance & CFO

  • It was up from the previous quarter.

  • Steve Winalski - Analyst

  • Okay.

  • And how much gross margin impact did that have versus the new hires and did all the new hires hit in the gross margin line or was there some in the operating line?

  • Darrell West - VP, Finance & CFO

  • The new hires were all in the gross profit line and the impact on the equipment sales, while it was a real number, it is not as significant as the new hires.

  • Steve Winalski - Analyst

  • And were those -- you had mentioned that the improvement we will see next quarter in terms of license sales.

  • Were all the hardware sales or most of the hardware sales associated with new system sales or were there just some upgrades too that you were able to sell into the existing base?

  • Boyd Douglas - CEO & President

  • It is a combination of both of those.

  • Steve Winalski - Analyst

  • Okay.

  • Thanks very much, guys.

  • Operator

  • Mr.

  • Douglas, there are no further questions at this time.

  • Boyd Douglas - CEO & President

  • Certainly want to thank everyone for taking the time out.

  • Appreciate your interest in CPSI and hope everyone has a great weekend.

  • Thank you.

  • Operator

  • 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.

  • Have a great day, everybody.