TruBridge Inc (TBRG) 2010 Q3 法說會逐字稿

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

third quarter 2010 conference call.

call.

(Operator Instructions).

I would now like to turn it over to Boyd Douglas, President and Chief Executive Officer.

Please go ahead, sir.

Thank you, Operator.

Good morning, everyone and thank you for joining us on the call this morning.

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 only reflect management expectations and predictions based upon currently available information, and are not guarantees of future result or performance.

Actual results might differ materially from those expressed or implied by such forward-looking statements, as a result of known and unknown 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 most recent annual report on form 10K.

We also caution investors that the forward-looking information provided in this call represents our outlook only as of this date, and we take 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 today is David Dye, our Interim Chief Financial Officer.

David and I have a few minutes of prepared comments, and then we'll be happy to take your questions.

In the third quarter we installed our financial and patient accounting system in 13 hospitals, and our core clinical departmental applications at 15 facilities.

Additionally, 17 hospitals implemented Nursing Point of Care, and 29 customers went live with CPOE.

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 11 facilities in the fourth quarter.

We anticipate 16 new installations of our Core Clinical Departmental modules, 21 Nursing Point of Care implementations, and 35 CPOE implementations.

In business management solutions during the third quarter, we executed five new accounts receivable management contracts, two of which were for full business management services, and three for private pay collections.

During the second quarter, revenue from this segment our business grew 13% year-over-year.

I'm very pleased with our execution during the third quarter and our prospects for the fourth quarter.

The stimulus package continues to have a positive effect on our business and we are effectively taking advantage of the opportunities in our marketplace.

The staff we added over the past year to our installation support teams are performing extremely well.

I do believe it is important to note a couple of additional points related to that a topic.

One, we are continuing to add resources in those key areas to meet customer demand, and will continue to be proactive in assessing those requirements and responding appropriately.

Also, while it is certainly apparent that we are seeing the positive results of our increased implementation capacity from a business perspective, more importantly, our customers are benefiting from the fact we are able to get many more of them in position to move forward with applying for stimulus funds.

I would also like to take this opportunity to announce that we have submitted our application to CCHIT, whom we have chosen to use as our authorized testing and certification body.

Our application and security attestation been accepted and approved by CCHIT, and our goal is to complete the testing process and be officially certified by the end of the year.

From an operational perspective, we have now implemented the CPSI software update containing the functionality necessary to meet the required objectives in five beta site hospitals.

This update has, actually, already been distributed to all of our sites, but has yet to be activated.

We expect to be in a position to activate the update for those sites wanting to move forward by the end of the year.

I

I would like to emphasize that providing the necessary software functionality to meet the objectives is only half the equation.

I believe it is safe to say that all of the meaningful use objectives that hospitals are required to meet, the one that is receiving the most attention and causing the most concern for hospitals, from an implementation and compliance standpoint, is CPOE.

I would like to point out that through the end of the quarter we have now implemented our CPOE applications in 148 of our client hospitals.

CPSI has now been installing CPOE for eight years, and has substantially more hospitals and providers are utilizing our application than any other vendor in our space.

There's no doubt that our expertise and experience in this area, not only instills confidence in our current customers, but gives us a distinct advantage in competitive situations with perspective clients.

I would like to close with the report that our national user's conference that was recently held in Chicago at the end of the quarter, was an enormous success.

We had a record turnout in both the number of attendees and the number of hospitals that were represented.

The education sessions that were directed towards meeting meaningful use objectives were extremely well attended and received favorably by our clients.

We take this as further confirmation that we have the confidence of our user base, and our customers are fully engaged with us as we move towards the final steps in this process.

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

Thank you, Boyd, and good morning, everyone.

I will briefly share with you a few numbers and then we will open the call for questions.

DSOs as of September 30th were up 54 days, up three subsequently and one for the year.

Cash provided from operations for the quarter was $5.3 million, compared with a $1.3 million loss for the third quarter last year.

Free cash flow was $4 million for quarter, compared with a loss of $1.7 million for the year prior period.

CapEx was $1,130,000, up from $464,000 for the prior year quarter.

The majority of CapEx for the third quarter was attributable to the conversion of one of our main campus buildings from a customer support to a programming facility, and the completion of phase two of our new business office outsourcing location in Mobile.

With our recent facility build-out projects now finalized, we expect CapEx to return to more traditional levels of approximately $500,000 a quarter for the next several quarters.

Also, with the completion of the outsourcing facility we now recognize rent expense and utilities for the outsourcing division of the company fully in the business management services line item of our income statement.

These items were previously included in GNA.

This change accounted for a 2% decrease in the outsourcing gross margin for the quarter.

Depreciation for the third quarter was $498,000 compared with $401,000 last year.

And cash collections were $37 million for the period compared with $31.6 million for the prior year period.

We recognized stock compensation expense of $212,000 in the quarter and anticipate a charge for the same figure in the fourth quarter.

Our head count as of September 30th was 1,112, an increase of 12 for the quarter and 25 year-to-date.

And that concludes our prepared comments.

Operator, if you could please open the call for questions.

(Operator Instructions).

The first question is with Bret Jones Bren Murray.

Thank you for taking the question.

When I look at revenue out performance in the quarter, relative to your guidance and, definitely, our expectations, I was wondering if you could address where that extra revenue came from?

When I look at the implementations, it looked like a couple of things might have shifted around in terms of -- maybe was it two extra Nurse Point of Care or two fewer - two extra clincials, two few Nurse Point of Care?

Was there something in the shifting of which modules you implemented that caused it or bigger systems than you expected?

Well, first of all we had no slippage, which certainly, with you -- if you experienced with CPSI you've seen we traditionally have some, and we didn't have any in the third quarter.

And, additionally, some of the smaller clinical apps can be ordered and installed within the intra quarter, and that happened as well.

Hardware sales were strong.

I think that explains it from our standpoint.

Okay, great.

And then just on the margin front, you've achieved 28% system margin this quarter and Boyd alluded to the fact that you continued to hire resources.

I'm just wondering at what point do you expect to add increased -- add implementation capacity and should we expect the margins to be able to maintain this level?

We are addling some implementation capacity now in the fourth quarter.

Probably not a significant amount.

I think we are hiring somewhere around -- and these are for software support and implementation classes, mainly in the clinical areas, around 65 people, but only -- about 35 of those are new employees.

The rest are replacements.

So we're adding a little bit now in the CPOE area and in the physician's application area.

We are adding those in the fourth quarter because of the demand.

Okay, great.

I was just going to ask one more question.

In terms of the roll out of the latest release in the change functionality.

I was wondering how different is that release?

Will it require much training, and does that take away from any of you implementation capacity?.

It does not.

Like I said in the comments, it's already there.

Pieces of it are, actually, there and turned on, but other pieces that will be turned owned.

But we've got quite a bit of documentation and we've got the support people in-house to handle all of that.

So we are not concerned about all all, and it will not produce implementation capacity.

Okay, great.

Thank you.

Thank you.

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

Please proceed.

Yeah, thanks, guys, for taking my questions.

I guess the first one, Boyd, is on -- are you seeing a little more interest in the fast product than you have been in most recent quarters?

I wouldn't say any more.

Certainly, as compared to a year ago the interest is SAS is up.

But I don't think quarter-over-quarter we've seen any more this quarter than last quarter or maybe even the quarter before that.

Well, is there anything else that would be changing -- like are you seeing the average size of the hospital go down that you're working with incrementally or I assume the pricing is stable, if you could comment on those things?

I would say pricing is certainly stable.

Pricing is good and has been for a while.

As far as contract size, that is certainly up, but that is simply a factor of every install that is going in now, almost without expectation, is putting everything in through CPOE, because of the meaningful use.

So certainly new contracts are up.

We are still -- I still think we have room to grow as far as new installations and new contracts sign.

We're still not where I think we will be at some point, and, frankly, a little surprised at that.

If you noticed in my comments, the add-on business was 26% of revenue .

So that number has jumped back up significantly.

And if you look at the installation numbers, I imagine it will be around that number again for the fourth quarter.

So we are still real heavily on clinical applications, add-on installations for existing customers, which frankly works very well for us, because if we had both we would have implementation constraints.

So I think things are going well but certainly we look forward to in the second-- in next year, more new

Okay, my last question, in the Business Management Services Segment you saw a big spike in gross margin there last quarter.

It came back down this quarter.

It sounds like from David's comments a couple of points of that were the result of the new facilities kicking off some more expense.

Is there anything else going on in that a segment, which is causing the gross margin to fluctuate around?

No, I think its timing, Jamie, as much as anything.

We did bring out quite a few private outsourcing clients in the quarter.

So labor was up a little bit as well.

But I think last quarter was -- from an average standpoint, slightly high and I think this quarter slightly low,.

It will come in somewhere in between I think, traditionally, going forward.

All right, sounds great.

Thanks, guys.

Thank you.

Our next question from Shawn Wieland from Piper Jaffrey's.

All right, thanks.

Can you tell us what the SAS revenue was in the quarter?

I don't have that number.

I don't think David...

We can follow up with you after the call and get that number for you.

What percentage of the customers today would meet Stage One requirements of meaningful use?

Really, the way we look at it, everybody that has CPOE installed, which is back to that number that I gave earlier in the -- which was 146.

148

148.

If you got installed through CPOE, you've certainly got every application you need from us to meet Stage One.

Okay.

And remind me what is the denominator on that, total customers?

Right around 655, 660.

Okay.

And then last question, competitive landscape, what are you seeing there relative to any changes in your competitors?

No significant changes from last quarter.

I think I mentioned last quarter on the call we were seeing CERNA early on some, which is unusual.

But, typically, they are not there in the final stages when it gets narrowed down to two or three, but your traditionals, MEDITECH plan, HMS are in pretty much all the deals.

So it's much the same as it's always been?

Yeah.

Okay, great.

Thank you very much.

Sure.

The next question from Corey Tobin from Blair and Company.

Good morning, guys.

It's Jeremy for Corey.

I just want to say congratulations on the nice results.

Thank you.

I guess an open ended question, How would you characterize the bookings in the quarter in terms of was this a record level that you've seen, and would you say that accelerated as you exited the corner?

I'm just wondering your thoughts on a business momentum as the quarter progressed.

I think -- and I've always said, I think a quarter is too quick to judge anything.

So I wouldn't want to characterize anything that has happened at the last half of the quarter versus the first half.

.

But they are certainly strong.

And, again, with an emphasis towards a new system -- I'm sorry add-on installations certainly are very, very strong.

And we certainly are -- continue to anticipate an uptick in new

In terms of the forward-looking indicators in your business, are you -- would you say that as you look at the late stage pipe line, which you guys used the demo, the demonstration as the point where is, obviously, serious interest in purchasing.

How is that a trend in -- on a year-over-year basis this quarter and, I guess, maybe even after the quarter end?

It's up, from year-over-year.

I wouldn't characterize it significantly, but it's certainly up .

And its definitely up from last quarter to this

Would you say that it's accelerating or is it just consistently building?

I would characterize it as consistly building.

Okay.

And -- just okay.

And as we think about, at least our calculation of what your trailing 12-month systems bookings are relative to revenue, trailing 12 month.

It seems like there's a fairly wide disparity between the two, at least $10 million or so.

And I'm wondering -- it would seem that we would be gravitating toward that system number, the revenue number should be gravitating closer to that system revenue as you enter 2011.

So I'm wondering as we think about the revenue -- system revenue number, is this $17.5 million level as you go into 2011, something that is achievable on a step function basis, or do you think it will come back down into that mid-teens level?

I'm not real sure I followed your question there.

It just seems like the 12-month bookings that you guys have generated is higher than the trailing 12-month systems sales number.

And so part of that could be the recurring nature of the contracts that you're signing, more SASS-based bookings so that you wouldn't necessarily see a conversion to revenue as quickly as you've seen in the past.

But I'm curious that you've seen over the last three quarters the quarterly systems revenue of $9.7 million to $15 million, now $17.5 million .

So we are just trying to get a feeling for what is kind of -- as we look throughout the next several quarters, what is a more realistic number for us to expect going

Jeremy, I will take a cut at that.

And I know you know this.

I don't want to comment on anything past the next quarter.

But I will say that since I've been involved in looking forward to how our installation slots are filled, from an add-on perspective, the Point of Care, the Pharmacy, the CPOE, et cetera, this is unprecedented.

That's why the booking -- the 12-month trailing booking figure that you're calculating is so large because -- it's because we're booking -- and, obviously, because of meaningful use and, hopefully , it has something with the job we are doing here.

But this is unprecedented.

Even year Y2K, nothing that I've ever seen is -- you know, compares to what we are seeing right now.

So that's probably why you are seeing -- a large 12-month trailings bookings

So would you say -- I'd like to say there's as a business build to build that you have is probably better than it's been at this point.

Is that fair to say?

From an add-on sales perspective, yes.

Okay, Thank you.

Thank you.

Our next question comes from Frank Saricino from First Analysis.

Please proceed.

Hi, guys.

I just want to go back to the comments of adding capacity in terms of hires and I just want to be clear.

You said are you adding about 65 half new -- sort of half replacements for turnovers.

Is that accurate?

That's correct.

And can you -- it looks like over the first half, hiring was fairly modest.

Was there any discernable change in turnover or simply you are trying to get a little ahead of demand at this stage going into 2011?

We are definitely trying to get ahead of the demand.

Again, back into the physician's applications.

We continue to see increased demand.

So we are just trying to keep up with that.

Okay.

Thanks, guys.

Turnover rate has been just about the same.

Thank you, our next question comes from Leo Carpio with Caris and Company.

Please proceed.

Good morning, gentlemen.

Quickly, regarding small hospital capital spending trends, have you seen any -- I mean the booking numbers indicated there's an acceleration.

Is that a what you are seeing, that, basically, small hospitals are just getting off their benches and getting their benches and deciding to move forward and get ready for Obama?

And is per chance, maybe, the whole issue with healthcare reform also another driver and catalyst for them to move forward?

I don't think the healthcare reform really -- most hospitals are not sure what to expect from healthcare reform.

And as far as the other, certainly the stimulus is pushing, again, the existing customers to add is add-on applications.

I don't know that we have seen a significant pickup in brand new contracts yet, but certainly existing customers continue to add on the clinical applications and the position s applications.

Okay, and In terms of contract size?

Have you seen the contract size improve in terms of become larger or has it been mostly stable in the last few quarters?

Larger because the new ones that coming in are certainly buying everything up front.

And then lastly, on competition, it sounds like the competitive environment is stable, same usual players in the final bake off?

Is that correct?

That's correct.

Okay, Thank you.

Sure.

Thank you our next question comes from the line of Brad Hoover from Sidoti and Company.

Please proceed.

Hi.

Good morning.

Just on the sales and marketing, you seem to be moving up a little bit in the percent of revenue in the last couple of quarters.

that's in that number?

The main thing in that number is commissions.

You know because the revenue is up.

The head count has not changed at all in the marketing area.

That's around 30 or so?

Is that fair?

A total of 44.

That includes everyone?

That's for staff and everyone, correct that.

That hasn't changed in probably 2 or 3 years now.

On the financing receivables, they've been consistent the last three quarters, around $4.5 million.

If you are moving up a lot.

Is this fair to say this is the kind of financing you are comfortable in giving this now.

Or is it more like it's a case by case basis in the last three quarters it's not your indication of defines or just as it comes case by case?

I think it stepped up last year because our willingness increased and I think that willingness remains at the same level.

That's are getting paid down they are adding new ones.

I can't comment on exactly what it will do over the next 12 months or so, I don't know.

But I would imagine it would remain relatively stable.

Again, our willingness versus the customer demand for that service seems to be about the same now.

Question lastly, if you can provide an update of how the search is going and what the timeline is there.

Thanks.

We are comfortable, David, comfortable filling in and we just thought we would get a quarter or two or three under our belt.

We don't have necessarily a timeline because things are going so well.

We've got a lot of thing going on here.

David is doing a fantastic job.

So we're are trucking on and don't plan on doing anything before the end of the year.

Okay, thanks, Boyd.

Sure.

Our next question is from Sandy Draper from Randy James.

Just a few housekeeping questions.

A few of my bigger questions have been asked than answered.

Did you get the DNA number, David?

I may have missed that in prepared comments.

I'm not familiar with -- Oh, yes, I did give that number.

I'm sorry, $498,000 for the third quarter..

Okay, great.

In terms of that last question about the search for the CFO, were there any costs in this quarter from the resolution of the investigation or were those pretty much done in the second quarter?

Yes, there were.

It was around $175,000.

Third question, in terms of your guidance, you had commented that this quarter was strong.

You didn't see any slippage.

I would assume, based on the slightly down sequential guidance, you're going to always probably guide to have some slippage in there because you can never project that you won't have any.

Is that accurate?

That is correct.

And then the final one.

I'm not sure if this is for you, David or for Boyd.

I recognize you don't like to give long-term guidance guidance, but when you think about outsourcing, that had been growing mid-to high teens.

It's moderated down toward the lower teen side.

Do you have thoughts about what is a reasonable long-term growth rate there and as you think about where long-term margins could potentially be, -- not quarter-to-quarter, because then you got to invest and open up new facilities -- but as you keep growing that, what is a theoretical potential margin for that type of business, do you think?

First of all, growth rate, you're right we don't like to give long-term guidance but the upper teens, 20% growth there would be tough to sustain now given the penetration that we have amongst our current customers.

That being said, we are rolling out the new IT outsourcing service, and the initial reaction to that in terms of just what potential clients have said -- and, actually, we've got some business there over the course of the last month or so.

We are excited about that.

So potentially if that ramps up more than we expect, you can see that effect the overall growth rate of the outsourcing division.

In terms of gross margin -- again, I think it was -- I think I already commented on this it.

I think it was a little high last quarter and a little bit low this quarter.

I don't think there could be significant expansion in the gross margin in that a division going forward, unless our growth rate slowed to nearly a stop, and then it could possibly grow and stabilize.

But I think you will see it mid-to low '40s.

Great.

Thanks, guys and congrats on a nice quarter.

Thank you.

Thank you our next question comes from Gene Mannheimer of Auriga.

Please proceed.

Thank you, gentlemen, nice quarter.

I just want to elaborate on one of David's comments earlier that, bookings are unprecedented with respect to add-on sales.

What could we say about net new business?

Do you find the sales cycle accelerating for new opportunities?

Are customers being cautious ahead of the certification awards, or is it rather a forgone conclusion that your products will be certified?

Thank you.

For the most part it's a forgone conclusion that we will be certified.

Certainly, there are a few out there that want to see that certification.

But more -- I think more is the hesitation, in these hospitals is about whether the money will really flow?

I think I've said in the last couple of conference calls, I think that's probably the last major hurdle to get over, when the money actually flows and some of these hospitals start receiving stimulus funds.

Potentially, there's a bubble there that would burst and would propel some of these new systems to go ahead and install.

But, frankly, just from talking, in general, with prospects and talking to customers at our user group, there is certainly no small number of hospitals, that their goal is to avoid the penalties in 2015.

They are really not interested in meeting the stimulus demands to qualify for the additional funds now.

They want to avoid the penalties in '15.

Which frankly, to me, is quite surprising.

But that seems to be the thought process of -- certainly a fair number of these hospitals in our market.

Thank you.

Sure.

Thank you.

(Operator Instructions).

Our next question comes from David Larson from Leerink Swan and company.

Please proceed.

Hey guys, congratulations on a great quarter.

What was the dollar amount of hardware sales in the quarter for revenue, please?

I do not have that immediately in front of me.

But I think I can get before the end of the call.

If I don't, I will call you with that figure, Dave.

All right, and then just in terms of hardware sales, just can you maybe describe the nature of it?

If we have higher software sales for the quarter -- I mean would we naturally assume that the hardware sales would also increase?

Or can those hardware sales be significantly lumpy from quarter-to-quarter?

They can be lumpy from quarter-to-quarter, but they've been relatively consistent.

A lot of that has to do, still, with the number of customers upgrading to Lennox, and the hardware associated with that upgrade.

And I expect that to continue for the next simple quarters.

So you know -- I don't think it will be noticeably lumpy going forward, to answer your question.

Okay, that is very helpful.

And then if I heard you correctly, there was not any significant change in pricing from quarter-to-quarter, correct?

I think the big change is really the number of CPOE installs.

There really wasn't any significant change in pricing, is that a correct?

That is correct.

Next question, is David Dye's name in the hat there for the CFO search?

David Dye's hat is not in for permanent position, but I'm certainly enjoying what I'm doing right now, and doing what is necessary.

And David I do have the answer to your question about equipment sales.

It was $4.7 million from the first quarter.

Okay, and that is a little up from last quarter.

Is that correct?

That is correct.

Sorry to hear your name is not in the hat.

Thanks, David.

I appreciate it.

Our next question comes from Bo Davenport with Stifel Nicholas.

Please proceed.

Did you see any less markers in the 200 better less market last quarter?

No we did not, 200 better less.

Not over 100, between 100 and 200, I think that's probably what you are asking.

That's what I was asking.

Do you guys see an opportunity there over the next few quarters?

You know, there's always an opportunity, and there are certainly a few looking.

But not a significant change from quarters past.

Okay, great.

Thanks a lot.

Sure.

Thank you, Mr.

Douglas.

There are in further questions at this time.

I will now Turn the conference back to you.

Please continue with your presentation and closing remarks.

I appreciate everyone's time this morning and your interest in CPSI.

And I hope everyone has a great weekend, thank you.

Ladies and gentlemen that does conclude our conference call for today.

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