TruBridge Inc (TBRG) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Computer Programs & Systems year-end earnings conference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards we will conduct a question-and-answer session.

(Operator Instructions).

As a reminder, this conference is being recorded today, Friday, January 29, 2010.

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

Boyd Douglas, President and Chief Executive Officer.

Please go ahead, sir.

Thank you, Tamika.

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

During this conference call, we may make status 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 happy to take your questions.

In the fourth quarter, we installed our financial and patient accounting system in 11 hospitals, our core clinical departmental applications at 11 facilities, 10 hospitals implemented nursing point of care, and two customers went live with ImageLink PACS.

Add-on sales to existing clients made up 26% 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 nine new installations of our core clinical departmental modules, nine nursing point-of-care and limitations, and two ImageLink installs.

In Business Management Solutions during the fourth quarter we executed 12 new accounts receivable management contracts, two of which were for full business management services and the remaining 10 for partial business management services.

During the fourth quarter, revenue from this segment of our business grew 20% 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 the temporary increase in the length of the sales cycles as hospital executives are assessing the potential financial impact of the stimulus can plan on their facilities.

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

We remain fully committed to meeting all certification requirements that will be required under the ARRA and we are well prepared to help each and every one of our customers and prospective customers achieve the meaningful use status thus maximizing the financial benefits for which they qualify under the ARRA.

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

Thanks, Boyd.

Our DSOs were 53 days for the fourth quarter, which was an increase of eight days from the previous year, but the same as the third quarter.

Cash provided by operations for the quarter was $3.4 million compared with $3.4 million from the previous year quarter.

Free cash flow was $3.2 million for the quarter compared with $3 million from the prior year quarter.

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

Capital expenditures for the quarter was $183,000 compared with $329,000 for the prior year quarter.

Depreciation for the quarter was $478,000 compared with $442,000 last year.

Cash collections were $32.3 million for the fourth quarter, compared with $29.1 million in 2008.

We recognized stock comp expense of $229,000 in the fourth quarter and anticipate that same charge of $229,000 in the first quarter of 2010.

Our effective tax rate for 2010 is projected to be 39%.

Our headcount at quarter end was 1087, an increase of 81 for the quarter.

Tamika, at this time, we would like to open up the call for questions.

(Operator Instructions) Jamie Stockton, Morgan Keegan.

Good morning, guys.

Thanks for taking my questions.

I guess, Boyd, the first question is when you look at where earnings came in versus where you got it, what was the difference there in your mind?

Were there incremental investments that you decided to make during the quarter that changed the situation or was it hardware as a bigger proponent -- component of system sales?

If you could talk about that I would appreciate it.

Jamie, this is Darrell.

The two biggest items that caused the variance were the mix of sales.

Our equipment sales were $900,000 more than we had anticipated, so the mix there was more on the equipment side.

The cost on that was around $600,000.

So my costs were higher than anticipated due to that mix of equipment versus license fees.

The other big area was travel.

We spent a significant amount of -- more on travel than I had projected.

A number of factors there was the mix of clinical installations.

Also we have, as we've talked about on previous calls, some of the changes that we have made on the customer service side of things to -- we are spending more time with customers who are interested in what it's going to take to get them to meaningful use.

So we've got a lot more people on the road in front of them, really hand holding them through this process, showing them what they need as well as helping them to get ready.

And as well on the marketing side, lots and lots of interest.

So we are out on the road in front of people, but a lot of that still we're waiting to turn in into orders.

Okay.

I think that on the implementation you guys thought you would do 13 new financial in the quarter and it sounds like a couple of those got pushed out maybe a couple of clinical as well.

Could you talk about what drove that?

Is it just timing, didn't get it in by the end of the quarter?

Or is there some other factor going on?

No, on the financial side on the new installations, there were two that did push and they were both construction issues.

They are both new hospitals and so they pushed.

They are being installed in the current quarter.

The clinical installations came in just about where we thought.

In fact we had, if I remember right, I think we had two ImageLink installs and we were projecting zero at the time of the call last time.

All right, and I guess the last question I have, Boyd, is in the conversations that you are having with these hospitals, you are out trying to talk to them about what they're going to have to do to get the incentive payments from the government, what software they are going to have to install.

What is your sense for when demand will start to accelerate?

Of course that's the million-dollar question that you all have been asking now for several quarters and we ask that too.

I would say at this point what we are surprised about is that the number of prospective clients have not turned into orders -- new customers.

So that's a little bit less than what we thought right now.

But the current customers are actually exceeding our demand a little bit, which is why we've talked about the headcount increasing.

We've actually added a few more people in our clinical areas because we are seeing just increased demand from our current customer base.

So the way I read into it from talking to our sales guys, I think there's obviously there's hesitation on the part of new system sales.

Some of that is coming from waiting on again while we have got the interim final rule, we still don't have the final final rule and I think frankly there's some degree of skepticism out there amongst some of these hospitals about whether the money is really available, whether they really think they can meet meaningful use, things like that.

And I think that will certainly turn once you start seeing some money flow.

But hopefully it will turn sooner than that.

Okay, my last question, the increase in headcount, where did that come from?

It was about half and half.

About 40 of those people were installation and support personnel mainly in the clinical areas and then the other half was in our business management services.

And most of that was we started a new way of hiring those people.

We actually hired temps for a six-month period and then once they are here we pick which ones that are working well for us and that we want to keep it and then that's when they become a permanent employee.

So we had a wave of those that came through.

That would be the other one.

Okay.

Thanks, guys.

Bret Jones, Brean Murray.

Good morning, thank you for taking the question.

I just want to build off of one of Jamie's earlier questions.

You know, when I look at the guidance that you -- preinstalls that you laid out for Q4, it looks like the finances were down two.

Clinical were also down two and nurse were down two.

And you talked about two financials pushing due to construction.

I was wondering were you also expecting putting clinical and nurse and those slipped into Q1?

I don't believe so.

I believe the two that again were new facilities, so those two were construction and they were not full system installations.

I don't have the numbers back from what we projected.

My information was that those were the same.

Okay, and then I guess if I'm looking at Q1 and the projections for Q1 considering two financials slipped out, it looks a little light and I know you guys have talk about the sales cycle lengthening.

But as I look at the bookings, the bookings have been pretty decent the last three quarters.

Backlog has continued to build.

And I am just wondering is there an issue on installation times increasing or sliding?

Is there something on the customer side that's causing delays?

Or are these bigger installs that are taking longer than you expected?

I don't know that it's -- it's certainly not bigger installs.

I think we are seeing more of a -- and Darrell can help me here -- but we're seeing more demand from our current customers, which shows up in the bookings number.

So I think that's where maybe the disconnect is.

Okay, that's helpful.

Just lastly, I guess the cost structure has obviously changed with the additional personnel.

Given the additional headcount, how many core systems would we have to expect to be implemented in order to return to a gross margin in the mid-40s?

I don't know if you have done that calculation but just a sense, a ballpark number?

I haven't done that calculation precisely, but with the staff that we have added on the financial side, we are I guess in the first quarter about at half capacity and so if we could bring that number back up to the four a month, I think we get back to that number.

Four per month would get you back to a mid-40s gross margin?

Yes.

Okay.

In your capacity, was it 18.

Do you know what your capacity is now for implementations -- with the additional people?

That is what we had moved to on the financial side.

We had gone from 12 to 18.

Okay, so it's still at 18.

Yes.

All right.

Great.

Thank you very much.

To follow up on the first question, we did one of those installs I was incorrect was a full system installation, so we did have an order entry and a point-of-care installation slide until the first quarter because it was going to be a full implementation.

Great, thank you.

George Hill, Leerink Swann.

Good morning, thanks for taking the call.

Darrell, first of all just a point of clarification.

When you said you'd increased travel I just want to make sure that I understand you're talking about trouble related to sales and marketing, not travel relating to your teams in the field doing customer deployments.

Actually it's a combination of both of those with the mix of sales that we had for the quarter and what we've seen the last couple of quarters is we have had with the add-on sales, that's on the clinical side of things, so we've seen more clinical installs versus the financial Phase I and Phase II.

And those are more intensive on the number of people that are required.

So when I have a mix shift that is more heavily clinical, the travel moves up related to that.

Okay, can I ask why the travel that's related to system deployment isn't a pass-through?

Say that again.

Can you explain why the travel that is related to sites that you guys are working on where the client is engaged is not a pass-through as opposed to something that you guys have to absorb the cost on, as I would expect in a marketing situation?

I would suspect that your teams that are traveling for doing deployments are billing the customers for their travel.

Yes, in some instances, but in some of that, we are sending some more people.

A lot of times we bid that out on a fixed cost, a fixed fee on the travel and expenses.

And depending on the situation or the available people, we will oftentimes send more than were initially included.

And also with fluctuating travel costs, it could have been a customer that actually bought the product or I say bought the product -- placed the order six months or more ago.

And there has been a change in the -- the base cost as well as the number of people that we send.

Okay, that's helpful.

Thank you.

Two other quick questions.

Number one, simply any observable change of the competitive environment, any of the bigger iron vendors coming down market or seeing any change within your normal competitive space?

And the other question then I will hop off and hop back in the queue is with respect to meaningful use and HIE connectivity, how do you feel like your technology is set up to facilitate local or regional connectivity based upon how the platform is developed right now?

First of all on your -- I've forgotten your first question now.

The competitive environment.

Oh, the competitive environment has not changed at all.

We have not seen any of the bigger players anymore than we historically had, which is very, very little.

Sometimes upfront we may see a McKesson with their Paragon product and the RFP process, but our main competitors continue to be probably in the order we see them, MEDITECH first, Healthland second, and HMS third at this point.

But that still all the same.

As far as the IAG and things like that or the health information exchanges, that we just finished and we actually did a press release yesterday about our participation for the fourth year in the Connectathon.

If you will look, most of our main competitors I just mentioned are not part of that.

But we have done that for several years and I think that certainly demonstrates to the marketplace our ability with the technology we have to connect with really any information system that's out there, send data to people as they need it, and also accept data into our system.

So we are very confident in our ability to meet any kind of requirements that come forth as a result of the stimulus package to meet those HIE requirements.

Thanks.

I appreciate the color, guys.

Thank you.

Richard Close, Jefferies & Co.

Yes, thank you, Richard Close here.

A couple questions, with respect to, Darrell, just getting back to this travel that George was talking about, should we think on a go forward basis that maybe the contracts that you sign because you are using more people out in the field at those implementations that the margin structure of these deals has changed permanently?

No, not necessarily that the margin structure has changed permanently.

It's an issue of the mix really if I have a full schedule or more on the Phase I financial installs, the number of people there doesn't run my travel number up as high because it doesn't require as many people on the ground.

And so really the mix of revenue impacts the cost on the travel site and in my projections I must've had that awful low.

I'm used -- had been estimating that based on a mix that wasn't as heavy clinical.

Now moving into the first quarter, and into the second quarter, we may see that simila4r mix.

And until we see more movement on the new sales side, we are going to experience the higher travel relative to revenue.

Okay, so if I look at in the opening comments I think you're projecting, what, seven patient financial, nine clinical, nine nursing?

So when we're thinking about the stimulus then over the next couple of years, isn't it plausible to say that the mix is going to be more on the clinical side or am I misunderstanding that?

Yes, I'll say yes, you are correct.

There will probably be more on the clinical side but we do anticipate a filling up of the financial side.

The other part of that is as we move forward into this, we feel we will be able to adjust our pricing structure based on demand so that my margin can improve strictly based on demand or the higher demand that we anticipate to be there.

Okay, Boyd, I was wondering if you could comment a little bit on the add-on sales and obviously you are having success there and that's picking up as we progress through the year.

Is there any type of target or percentage of total sales that you are looking at to add onto commenting?

Is it going to be mid-30s, or is it going to stay here in the mid-20s?

I wouldn't expect it to go up into the mid-30s.

Obviously it is a function of when these prospective business -- when we start signing those up.

Frankly, I would like to see the add-on sales percentage go down because that means we are installing more new systems, which gives us revenue opportunities both for add-on installs and for our business management services.

We certainly look for new contracts and obviously that's how we handle our install capacity to install both the add-ons and the new system sales.

That mix is something that we talk about daily and work on daily and adjust our personnel for.

One thing I would like to go back to just because I think we've kind of gotten off-track with these travel expenses, I don't think anybody should underestimate the amount of travel we are doing to our existing customer base both for retrains to get them up to snuff and to talk to them about the applications they need to purchase.

This isn't necessarily sales and marketing trips.

These are our installation and support personnel who obviously are well-versed in what our hospitals need to meet meaningful use.

So we're doing a tremendous amount of travel that isn't always reimbursed.

Again for those retrains, for facility evaluations, and to evaluate where they are as far as meaningful use and what they need to add.

So I think that's where you are seeing a bigger percentage of the travel increase is due to that as opposed to this mix of clinical installs versus financial installs.

Okay, so a follow-on to that would be you incurred all these expenses here in the fourth quarter, maybe in the first quarter as well.

And then could we see that the travel, the retrains, the education process, that that leads to sales maybe towards the second half of 2010?

Sure, it's leading to new sales now and will continue in the future.

I think the other thing that is important that I've talked about on these conference calls before maybe not in the last several but this is one way we've always operated this business.

When we don't have as many -- we have overcapacity especially in the financial areas, we spend a lot of money.

We send the people out that would normally be doing these installations and we do send them out to these customers to get them up to speed.

It's a good time for us we think to get in front of the customers, spend a week or two with them.

Historically there's a lot of turnover at our facilities, so by and large, every time we show up at a facility, there's new department managers that we're talking to and training.

And we think that's money well spent down the road because again, it does put us in a position to sell more add-on software.

Okay.

And then with respect to the competitive environment just a final tie up on that.

Have you seen your win rate change at all I guess with respect to MEDITECH, HMS, and Healthland?

It is up from where it has been in 2007 and 2008.

If you go back to total number of deals that we saw, go down where we got to demonstrate our software and then ultimately there was a decision to make a system purchase, that number is actually down.

That number was 60 hospitals in 2009 this past year for comparison, that number was 69 deals in 2008 and it was 59 deals for 2007.

So if you look at it from that point of view, and how well we did with our topline by growing it on significantly fewer deals, we are pleased with our win rate.

Okay, thank you very much.

I appreciate it.

Sean Wieland, Piper Jaffray.

Thanks, so you guys seem a little unfazed by the miss here and so I just want to ask you in your eyes did anything really go wrong in the quarter?

We have been talking about how things shifted around a little bit.

And then to add to that over the past three months, what has changed and what remains the same versus three months ago?

As far as -- I am positive about the quarter.

I hate that we missed.

We certainly have prided ourselves on coming in within our narrow range.

You look at the reasons why we came right in on the top behind even with an installation pushing.

We came in well there and we are positioning ourselves.

We think we are an extremely strong positioned to take advantage of this opportunity that as we see is a once-in-a-lifetime opportunity for this Company.

We think we are in great shape.

I guess the critics could say we got ready maybe a quarter or two quarters early or something like that, but I would certainly rather be a little bit early and ready to go as opposed to behind the eight ball and scrambling and not being prepared to do quality installations when that number increases.

We are going to be ready and we feel real good about our opportunity to go out to our existing customer base and really spend some time with them and get them in a good position so that they can meet meaningful use.

As far as the three months, very, very little has changed.

We did get the interim final rule.

It was published in the Federal Register in the middle of this month.

But we haven't seen any psychological change I guess if you will on the part of the hospitals yet based on that final rule being published.

I think part of the reason is that there's still a lot of unknowns in that.

You know, from our review of that document, there are several things and I think other vendors agree with us that really seemed pretty onerous, not necessarily from a development point of view, but for the hospital's sake.

Some of the auditing things that are going to be required as far as who has access to personal records and things like that when the hospital certainly technologically is not a problem, but just keeping track of that and being able to -- and having the disk space and things like that to do some of the regulations that have come from the government seem to be a little onerous.

And again, it's going to be onerous on the hospitals, not necessarily on us as a Company.

Okay, thanks for your comments.

Gene Mannheimer, Auriga.

Thanks for taking the question and this is really sort of a follow-up to the previous one.

You know, in your view was there perhaps a misconception on how the timing of the stimulus would affect you?

Or with perfect hindsight, would it had been more prudent to ramp up the install and support staff more gradually as the signs of the stimulus became more visible to you?

Or are you pleased with the way you have executed so far?

We're pleased with the way we have executed.

The way we do -- we do all of our own internal training here and things like and so for the resources we take, it would be difficult for us to ramp up, say, 10 people a month or 15 people a month to conduct that many classes at one time and the classroom space and things like that would be extremely difficult.

And be more expensive.

So certainly I think the way we did it we are pleased with and like I said, I think we're already reaping the benefits of it by the fact that we can go out to these -- to our her current customer base and help them along better than we would've been able to if we weren't to this capacity yet.

Okay.

Very good, Boyd.

Then just a clarification with respect to the earlier comments on travel expense.

This period of education where you're out in the field showing customers how to qualify and what they need to do to achieve meaningful use, it sounds like this will expect to run a couple more quarters.

So is it correct to assume that margins may pick up then in the second half of 2010?

Yes.

Okay, very good.

Thank you.

Corey Tobin, William Blair.

Guys, good morning.

I want to connect on -- just visit this headcount addition issue one more time.

If my math is correct, you have added something like 215 or 220 people in the last three quarters.

Does that sound about right?

We went from at the end of the first quarter we had 904 people, so we've gone up almost 200 since the end of the first quarter.

Since the end of Q1?

Okay.

Q1, yes.

So we're looking at somewhere between a 20%, 22% increase, somewhere in that ballpark.

Yes.

And the questions I have related to this or how much more headcount do you think you need at this point?

Right now we feel like we are in great shape.

You know, if obviously we start seeing the schedule fill in and don't think that we've got the install capacity to do it, then we certainly won't be afraid to pull the trigger and add more.

But right now we feel pretty confident, as confident as we can be for the remainder of this year that we are fine.

Obviously we've got factors like turnover -- with hiring this many, our turnover ratio may go up a little bit.

Typically if we lose an employee it's usually within their first year of employment.

Once they are here, 12 to 18 months, they are usually here for a pretty long time just because we think we have great employee benefit plans and pay them well and things like that.

So for now, we feel very comfortable with where we are.

Got it, so is that to say that Q1 we won't necessarily see the kind of additions in the over 50 range that we have seen in the last two quarters?

That's correct, we will not.

Okay, great.

Now looking at it from the other side, what kind of a revenue ramp would you expect to be able to support with an over 20% increase in headcount?

Or asked another way, would you expect that revenue should go up less than, equal to, or greater than sort of the 20% to 25% increase in headcount over the next year or so?

On the system sales line, I think that with that headcount increase that we should -- are able to see that 25% or so increase on that system sales line.

On the support and maintenance and outsourcing lines, those run in a little bit different dynamic from that, but we believe the capacity is there and that we will see that -- numbers in a similar range on the increase in system sales.

Understood, so then the question was more pointed toward system sales but the punch line is overall you should expect to see -- we should expect to see that accelerated growth here over the next couple of years.

Yes, definitely.

Great.

Then finally just recognizing again the customer base is moving slower than I think you or most of the industry would like to see, from your perspective, is there any change to the long-term positive impact that you expect to see on the clinical add-on sales side or even new system sales side due to the stimulus funding?

Not at all.

As it draws out, it looks like maybe it's not going to be -- as big of a bubble right there in the beginning that everybody was thinking and it will go a little bit longer kind of the tailwind type thing.

But certainly we are as excited as we've ever been about it and frankly that would be better for us over the long term is to not have this huge rush of business where we don't have the capacity to handle it all and we've got some more time to do these installations.

You know, I think another thing, Corey, that I meant to mention earlier as far as what people are waiting on, things like that, there's still really not very much information at all on the certification process as far as certifying vendors to be able to provide these EHR systems.

So if you kind of look at the calendar and when people can start applying, I think it's going to be interesting to see how that all falls out and where these certifying bodies come from and what they've got to do to get themselves certified or ratified by the government before they can even begin to certify companies such as us and our software.

Okay, great.

Thank you much.

[Charlie Rasmussen], [Insight Capital].

Hey guys.

I appreciate the color and obviously the hope is Q1 is just an anomaly and the rest of 2010 is much better.

Along that line, Boyd, and I know you've been pretty generous answering so many questions, but given all the hires and the incremental 200 heads that have been added since Q1, you guys were 50% over budget, 95 heads in Q2 and just looking back last night at the transcript, you were pretty confident that we would start to see the fruits of those additions in Q4 and specifically ramping the year starting Q1 '10.

And just help us reconcile -- when I look at deferred revenues, I understand and I guess this speaks to my question, is there a bigger issue at the Company than maybe is in the press release and the numbers or even the guidance.

But deferred revenues were down year-over-year in what was arguably the most difficult selling environment, system sales were also down year-over-year and you were comping the easiest selling environment.

Q4 '08 was a catastrophe, so comps should have been much better just against that selling environment.

And I guess have you guys made change -- have there been payments term changes with regard to how you are collecting the maintenance for recurring piece on the system sales?

That also -- sorry for the long-winded question, but the other question I had was it looks like you financed roughly -- you had an incremental change in the balance sheet roughly 20% on finance receivables, which comprised more than 100% of your system sale changes.

Is that something you plan to do more of?

If so, have you seen any kind of bad debt expense?

Let me take a shot first.

That was a long question.

Let me answer part of it and then I will let Darrell follow up.

Certainly we have seen a shift and part of it is due to the stimulus packets that there are a lot of people wanting to purchase this software.

But the problem that has been all along within our marketplaces is the funds that these hospitals have.

They don't have the money in a lot of cases to buy these systems.

And so we are doing more up front.

We're doing more ASP-type deals.

We're doing more Software-as-a-Service and in a lot of those cases, they are not paying us that 10% deposit that is under our normal payment plan, which is what you are looking at in the deferred revenue.

So I think in a lot of ways that answers your question.

Yes, the payment terms are definitely different and I will let Darrell will speak to the bad debt and things, but certainly you can see our DSOs have gone up.

Payments are slower and as far as for the future, you know, we wish we never had to finance the deal.

I've said plenty of times we're a technology company and we are not a finance company.

But in a lot of cases or at least in some cases in order to sell the software, the last option sometimes is for us to finance it for them and we finance the ones that we feel comfortable doing.

Certainly like I said, we would rather someone else finance it or for them to pay for it up front, but that's just not the environment we're in right now.

And I think a lot of hospitals are feeling this pressure to install these systems, purchase these systems so that they can be in a position to meet meaningful use.

And a lot of times they are doing it without necessarily the capital that they would like to have in order to proceed on with that.

So that's kind of my version of it and I will get -- Darrell can kind of give you his take on it as well.

On the bad debt side, bad debt expense for the year was right at $1.1 million and that was down about $200,000 from the previous year.

So our bad debt position has not -- it actually was little better than the prior year.

But we are seeing, as Boyd mentioned, some slowdown in payments, some -- I guess adjusting of our standard terms.

And then on the deferred revenue part of that, when we -- if we are financing a deal, oftentimes nothing hits deferred revenue because I'm not getting any upfront payments.

Whereas in the -- if I had a very strong -- if I was projecting a very strong first quarter, oftentimes I may have 40% of the funds prior to install.

So there is a couple factors there that are affecting the deferred revenue.

Okay, that's really helpful, guys.

Just one final question as it relates to that backlog.

Is there a chance we actually see backlog negative on a sequential basis in Q1?

I don't -- that's a possibility, but I don't think we would see a negative backlog there.

But the trend of deceleration I assume just given the weak -- just the difficult environment, we shouldn't expect it to reaccelerate from the 6% to the 1% to the 0.8%.

Should we kind of just model that trends as you decouple from the rest of the industry?

I think what we anticipate or what we have built our whole model on here going forward with the new hires and everything is that in the first quarter we see some more decision-making, some more prospects turning into orders that would allow that backlog to continue to move in the positive direction.

Great.

Thanks for the patience in taking all my questions, guys.

(Operator Instructions) Brad Hoover, Sidoti & Co.

Good morning, guys.

I just wanted to get back to the installs and your average deal size.

In the fourth quarter and then also in the first quarter guidance, do you know how many were under 50 beds and how many might have been over 150 beds for the new installs?

I do not.

I don't think there are any over 150 beds.

Okay, for both quarters?

Correct.

I'm just trying to get a sense to understand -- I guess the last year or so, is the reason -- it seems maybe the new deal size is going down, is that just because you've been doing more installs under 50 beds and also maybe more installs that are just doing financials up front?

Is that more or less the reason or are there other parts to that?

That is definitely the reason.

That is the two reasons.

Okay.

And then on the headcount, just to touch on the salesforce, are you guys still at 30 for salesforce?

Has that changed at all?

Darrell has got that number.

It's higher than that.

The last time I recall it was 44.

Total marketing is 44, but that includes support people as well.

But we have not -- we did not see any change in the quarter in our sales staff.

Okay.

And then do you expect to hire in sales in 2010?

No, we don't.

Okay, and then just over to the business management services, the margin jumped up a little bit to 44%.

I know historically you have kind of been in more of the 40% to 42% gross margin.

Was that just a one-time thing in this past fourth quarter or do you expect to be able to keep that margin in the maybe 43% or 44% range?

No.

We think it will go back down to more historical ranges.

I think that was just an anomaly.

Just an anomaly, okay.

And then just lastly, since there was a definition coming out about three weeks ago and obviously you've been in touch of your customer base, what have you been doing to talk with them?

What has been the general feedback and reaction from the real hospitals with that definition?

I think everybody came in pretty much like everybody expected.

I don't think there was any -- certainly no major changes to it.

Our major surprise is in the definition and we've got customers all across the spectrum.

We've got some customers that don't seem to be too motivated at all about it for a variety of reasons and then we've got other customers that are chomping at the bit, pushing us to make sure that they've got everything in place so that when the final rule does come out that they are in great shape and can go ahead and qualify or apply for their money as soon as they can.

Okay, thanks.

And is really -- is meaningful use maybe the only focus?

Are they asking about certification and wondering where that's going?

Are you talking about certification for us?

Yes, for vendors.

We get very little questions about that at all.

I think our customer base and prospective customers realize our position in the marketplace and our abilities and technological abilities and there's no doubt that we'll be able to be certified.

Yes, and I agree with that.

Okay, guys.

Thanks for taking my questions.

Thank you.

There are no further questions at this time.

I will now turn the conference back to you, Mr.

Douglas, to continue with your presentation or closing remarks.

Great.

We certainly appreciate everyone's time this morning.

Thank you for your time and have a great weekend.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation and we ask that you please disconnect your lines.