TruBridge Inc (TBRG) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Computer Programs and Systems, Inc.

Year End 2010 Earnings Conference Call.

(Operator Instructions) As a reminder this conference is being recorded Friday, January 28th, 2011.And I would now like to turn the conference over to Mr.

Boyd Douglas, President and Chief Executive Officer.

Please go ahead, Mr.

Douglas.

Thank you, Chantelle.

Good morning, everyone.

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 only reflect management expectations and predictions based upon currently available information and are not guarantees of future results 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 10-K.

We also caution investors that the forward-looking information provided in this call represents our outlook only as of this day and 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 David Dye, our interim Chief Financial Officer.

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

In the fourth quarter, we installed our financial inpatient accounting system in 11 hospitals, our core clinical departmental applications at 17 facilities; additionally 20 hospitals implemented nursing point of care and 34 customers went live with CPOE.

Add-on sales to existing clients made up 29% of total revenue for the year.

I am also happy to report that we added a total of 44 new client hospitals to our customer base.

We performed 50 core clinical system installations, 61 point of care installations and 89 CPOE.

At this time, we expect to install our financial inpatient accounting system at 4 facilities in the first quarter.

We anticipate 10 new installations of our core clinical departmental modules, 18 nursing point of care implementations and 33 CPOE installations.

In business management solutions during the fourth quarter, we executed six new accounts receivable management contacts.

Two of which were for full business management services and four for private pay collections.

One of the private pay contacts is a two year renewal of an existing contract.

During the fourth quarter, revenue from this segment of our business grew 4% year-over-year and 11.3% for the year.

As you can well imagine, based on our results, we're extremely pleased with our execution during the fourth quarter.

Looking forward, we also feel positive about our prospects for 2011 and our ability to take full advantage of the opportunities that are in front of us.

The stimulus package continues to have a positive effect on our business and we have no reason to expect this to change as long as hospitals and physicians are intent on receiving the funds available under the EHR adoption program.

The support and implementation personnel we have added over the past 18 months are performing at a high level and continue to improve in effectiveness as they gain experience.

While I believe this is more likely old news to most, if not all of you, I do believe that it's worthwhile noting that our hospital and provider EMR products have now been certified as complete EHR's by an ONC authorized testing and certification body, CCHIT.

These certifications are continuing proof of our long-standing commitment to provide a single vendor solution that addresses the EHR needs of not only our client hospitals but their physician providers as well.

CPSI is one of the very few vendors that have certified EHR solutions for both hospitals and providers, and one of a small number, still, of those whose systems are internally developed.

Our success in achieving both of these certifications, in such an advantageous timeframe for our customers and company, is another example of our leadership in providing a truly integrated healthcare technology solutions to rural and community hospitals and their physician providers.

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

Thanks, Boyd.

Good morning, everybody.

DSOs at the end of the year were 53 days, down one day sequentially with no change year-over-year.

Cash provider from operations for the fourth quarter was $5.7 million, compared with $3.4 million for the fourth quarter of last year.

Free cash flow was $5.2 million for the quarter, compared with $3.2 million for the prior-year period.

CapEx was $522,000, up from $183,000 for the prior-year quarter.

Depreciation for the fourth quarter was $343,000 compared with $478,000 last year.

Cash collections were $42 million for the period, compared to $33.2 million for the prior-year period.

We recognize stock compensation expense of $212,000 in the quarter and anticipate a charge of approximately $100,000 in the first quarter of 2011.

Our head count as of December 31st was 1,171; an increase of 59 for the quarter and 84 for the full year.

The increase for the quarter is due to a mixture of the conversion of temp labor to permanent in hire business management services, and hiring in the physician application departments like CPOE and medical practice EMR.

That is it for our prepared remarks.

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

(Operator Instructions)Our first question comes from the line of Corey Tobin with William Blair & Company.

Please go ahead.

Good morning.

Congrats on a very nice quarter.

I have three relatively quick questions.

The first would be, have any of your customers that you know of received stimulus funds yet?

Not yet, Corey.We do have some that have applied in Oklahoma.

And I forget the other state right now where the Medicaid funds had started to apply.

And the reason I know they applied is because we had to sign a letter certifying that we were a certified system.

And they said that that was one of the final steps in them applying.

Hopefully here soon we will get one to actually receive some funds, but as of now, we do not know of any.

Do you think that would be more of a three-month type timeframe, or longer than that in order for them to receive it?

All of this is changing so fast, I wouldn't want to even try to guess.

Okay.

Based on your conversations with prospects, do you still continue to believe that some of the hospitals receiving money might be a catalyst for others to take action?

Absolutely.

No change on that front.

That's correct.

And two others, if I could.

Pipeline, you had a very strong quarter in the bookings.

Can you give us a sense for how the pipeline looks at this point?

It's relatively unchanged from last time, which, obviously, we signed some contracts and did a few installs.

So as lease they're coming in as fast as they're going out.

Frankly, it's not -- and I think I've said this the last couple of quarters -- not where we initially anticipated it being.And maybe what you just mentioned as far as maybe some hospitals getting some funding will increase the pipeline some.

But it's certainly very healthy, about where it has been for the last several quarters.

Is it possible to give us, if you would, where that pipeline stands at the end of 2010 versus where it was at the end of 2009, even if it's just a rough approximation?

It's up maybe 10%.

Okay.

And last one on leverage, there was some nice leverage that obviously flowed through the P&L this quarter.

Any reason to expect that that won't continue?

It's really the question of, should we expect to see operating expenses ramp here in the near-term?

Certainly no more so than we experienced in the fourth quarter, Corey.That was sort of the perfect storm.I think we can maintain the levels but certainly I wouldn't expect to see those margins increase any further.

Okay, great.

Thank you very much.

Our next question is from the line of Bret Jones with Brean Murray & Co.

Please go ahead, Mr.

Jones.

Thank you for taking the question.

And good morning.

The first question I have is just trying to reconcile what you actually were able to accomplish with the $43 million of total revenue versus what you're guiding.

When I look at the install, they seem like they're relatively in line so I'm just trying to figure out where the upside came from.Were these just larger deals than you anticipated?

The majority of it came from no slippage whatsoever in terms of what was slated to install and the fact that our intra quarter orders for the smaller applications, especially the smaller clinical applications, are, I characterize it as through the roof, for lack of the better term.

Which is, obviously, in large part, due to all of the stimulus anticipation and what is coming in the years to follow.

And, we expect that trend to continue.

Certainly we don't know whether or not the no slippage trend will continue, but the fact that we typically guide for a little bit of slippage and intra quarter levels are up so high, that is the reason for the miss.

And then just looking into Q1, I just want to make sure I heard this correctly, for the core financial systems, you're expecting four, is that correct?

No, that was patient accounting systems.

Financials was four.

Clinicals was -- .

It was 10, right?

That's correct.

Okay.

Obviously that is a pretty material step-down, at least on the financial side.

And, actually, on the clinical, as well.

And you're guiding to the revenues to have a little decline, but not as material as I would have thought given the fewer installs on the core financial and clinical side.Are these larger deals than we typically see?

Or is it, again, the pick up in the smaller clinical apps that is picking up the slack?

It's continued pick up in the smaller clinical apps.

Okay, great.

And then just a last question on the margin front.

On the business process outsourcing, the margin went up pretty dramatically.

You talked about converting a lot of temp labor over to full time.

I was wondering, is that why we saw that benefit?

Or would we expect those additional heads to compress margins going forward on the BPO side?

That is why you saw it.

And we've gained some efficiencies in that division.

So we haven't been hiring as many temps here in the last quarter because we converted a lot over to permanent but then we didn't necessarily replace those as far as temps, because we have become more efficient in several areas, automated some things down there.

So we're excited about our operations down there.

All right, great, thank you.

Our next question is from the line of George Hill with Citigroup.

Please go ahead, Mr.

Hill.

Hello, good morning.

Thanks for taking the question.

Boyd, you had said that none of the current customers had received stimulus funds yet.

Do you have a sense for what percentage of the customer base has achieved technological certification to the point where they're eligible?

We're pushing, I think it's 200 CPOE installations, people that have already installed CPOE.

So, in theory, all of those are positioned extremely well to receive stimulus funds.

About a third of our customer base.

Okay.

And then speaking of the upsell opportunity, do you have a sense for in between the 700-ish total customers and the 200 that are up on CPOE, how many customers on the core administration and financials are using somebody else's clinical components to try to get the Meaningful Use?

None that we know of.But if you install our financial system, are not typically -- if you have our financials, then the path is to do our clinicals.

Okay.

All right.

Thank you.

And our next question is from the line of Mohan Naidu with Piper Jaffrey, please go ahead.

Congratulations on a great quarter.Quick couple of questions.

On the implementation capacity right now, what can you handle right now per quarter, basically?

I would have to break that down, really, by the four phases.

On the financial side, we're probably down a little bit.

We had ramped up to six per month and we're probably at four per month, five per month, somewhere in there.

Not to say one particular month we couldn't do six, if we needed to.

But we have let that part, let attrition take its place in that area just because that hadn't filled in, as we talked about earlier.

Our clinicals is six per month, point of care is six per month, and CPOEs is very close to 18 per month.

18 per month.

Are there any other plans to expand on the CPOE implementation capacity, especially given that a lot of your customers are going to try to get CPOE sooner?

That is why we're ramping it up.

We have gone from 12 to 18.

We're not quite at the 18 yet.

We're probably at 14 or so right now, but certainly a quarter from now we'll be up at 18.

And, if we see the pipeline increase and the orders increase from existing customers, then certainly, I think history has shown and we're certainly not afraid to ramp that up even more if that is what we need to do to meet the demand.

Can you comment on the new IT (inaudible) services business, how did it do in Q4 and is any of that revenue in Q1 guidance so far?

There is some.

We actually, we're very pleased with our progress there.

As you know, we just announced that service.

We have already signed three of our customers to CPOE installation consultation, if you will.

These are about 13-week engagements.

And we have signed one, we have several other Meaningful Use engagements that are in the hopper.

So, we're very pleased with where we are at that point.

At this point with that.

Okay.

And on the SAS, did you guys give a SAS presentation in the quarter?How many clients have SAS versus regular?

How many of them?

Yes.

Any change in the quarter versus the previous quarters?

It was just very few, one or two that I recall.

It wasn't a significant number.

Okay.

And there are no SAS contracts left converting to regular contracts, right?

-- since none of them actually received --

None converted.

That is correct.

None.

Okay.

And lastly, on the cost of revenues on systems sales line, can you give us your perspective on what is fixed versus variable?

R&D and (inaudible) is fixed, and the travel and other costs associated with implementation is variable.Can you give us an idea of what percentage was fixed versus variable?

Fixed versus variable in cost of revenue.

I think you got it.

The variables is travel and the fixed is the portion of the salaries that we allocate to installations along with overhead and everything else.I don't know if that answers your question.

That is good enough.

And last question, any changes in the competition that you're seeing?

Any new players, old players, you're seeing more or less of?

No, still the same, predominantly Meditech Health Plan and HMS.

Then next in line, but certainly on a whole different level, we'll see McKesson with their Paragon product.

And then another level below that would be Cerner.

But very rarely do we see them.

We are seeing Next-Gen and Prognosis a little bit in some of the smaller facilities, as well.

Okay.

Thanks a lot for taking the questions.

Again, congratulations on a good quarter.

And our next question is from the line of James Quinto with Madison Williams.

Please go ahead.

Hello, it's James Kumpel.

Again, congratulations.

You took some heat last year, Boyd, for making the investments in the dance of the anticipated uptick in demand in the small hospital space.

Obviously, you're seeing the benefits of that.

How long do you think you can go with your existing infrastructure before you start bumping up into capacity and implementation limitations?

It's very difficult to say.

It's really a matter of monitoring the pipeline and seeing where it is.

We commented earlier about the size of the pipeline.

Right now it's relatively stable, maybe up a little bit from where it was at the end of last year.

As long as that stays there.

And then, obviously, part of the pipeline is existing customers and where they are.

We feel like we stay real close to the position of customers and have a good idea of which ones are going to go for Meaningful Use, which ones need to install more applications.

It's really just the idea is monitoring all of that and then ramping up.

In some of these areas, if we're hiring nurses, physicians assistants, things like that, we can ramp people like that up a lot quicker on the system than we can if it's just somebody straight out of college that we really need to teach a lot about hospitals and systems and things like.

We can vary our mix of who we hire.

Some of those people we can have ready in six to eight weeks, and some of them take four to six months.

It just depends.

And we mix and match with our existing people here on our teams so we've got well-rounded teams.

That is a long answer, and really the answer is it's just monitoring and we don't really know how long we can go.

We're very comfortable with where we are right now.

In the last year or two we have seen hospitals go through the eye of the needle and it seems you come out okay in 2010 from a financial perspective.

All of the headlines about the fiscal crises in the states and concerns about FNEP renewals and the like.

Are you getting any feedback from your target hospital clients about concerns about reimbursement?

And what does that translate into in terms of the opportunity for you?

Certainly there is concern there.

There is a lot of concern with healthcare reform and what that means to our hospitals.

And, frankly, I don't know that anybody really knows.

You can make a case that it's actually going to be better for our hospitals because they do have a lot of uncompensated care that they give and now they'll actually be getting something for it.The flip side is Medicaid budgets, as you know, are extremely strained in a lot of these states.

I think it translates into, frankly, a good situation for us because it makes the stimulus funds even more important for these hospitals to go after the stimulus funds and achieve them.

They may need them to keep the doors open.

So, obviously, that is a good thing for our Company.

Did you see any kind of a change in the demand dynamics in terms of your outsourcing offerings and maybe some of your non-traditional service offerings that we ought to keep an eye out for in 2011?

Not really.

Not anything that we had not already spoken about.

Certainly, we're very excited about the IT services that we're offering now, the consultation services we're offering for CPOE and Meaningful Use.

And certainly, we look to expand those and expand any other services.

That is really the focus of 2011 will be on growing those two lines.

And then finally, from the way you have monitored the market, can you talk about whether you think you have taken share in the small hospital arena in 2010?Can you talk a little bit about the forklift upgrade on Meditech and whether or not that has borne some fruit for you in 2010 and in the years ahead?

As far as we have taken share, I would say about the same amount we have done.

Our historical win rate is roughly the same, maybe down a little bit only because -- and we have talked about this before -- we're experiencing what our competitors are experiencing, as well.

A lot of our existing customers that have, say only phase one or maybe phase one and phase two, before they make the decision to purchase phase three and four, they're actually starting a selection process.

Some of them will do a full selection process, some of them somewhat of an abbreviated.

But they are going through a selection process with demonstrations, on-site visits and things like that.

And certainly, it's always been true in the industry and always will, retention's very high, and we have done quite well with those customers that are looking.

But WHEN I TALK about the effect of our win rate, Health Plan's customers are doing it, HMS's customers are doing it, Meditech's customers are doing it.We're competing probably for a few more deals a year but it's Meditech customers, Health Plan customers.And it's very difficult to get those from those vendors because once you have a relationship established, it's very hard to unseat an incumbent vendor.

Very sticky relationships.Thanks so much.

Congratulations.

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

Please go ahead.

Good morning, congratulations on a good quarter.

Boyd, my first question is on the bookings in the quarter.

They seem to be pretty strong.

I was wondering if you guys saw any deals that you signed during the quarter that you also implemented during the quarter, which I think is not typical?Or is this just you continuing to build out business into the out-quarters?

It's continuing to build out business in the out-quarters.

I'm not aware of any installs that we signed and did intra quarter.

Okay.

And my other question was on the FAS deals or lease-type deals.

You signed, I don't know, I think somewhere around 10 or 12 of those in 2010.

And my understanding is that as those hospitals start to get their incentive payments, that they convert to a more traditional deal and you essentially get bought out.

Do you have any feel for when that might start to happen?

I really don't.

That goes back to an earlier question of do I have a feel for when hospitals will actually receive their stimulus funds.

I do not, at this point, have a feel for that.

Okay.

My last question, there was a little change, it seemed like, from the Office of National Coordinator, as far as their requirements for the incentive payments were concerned, where the software functionality that is optional that you don't have to implement for stage one, you still have to purchase it.

Which I think was something a lot of providers and software vendors weren't fully expecting.

Has that changed anything as far as demand is concerned?

Have you seen hospitals have to come back and say -- oh, well, we thought there was this module that we weren't going have to go ahead and buy on the front end of this program but we're going to buy it now and maybe implement it later on down the road?

We have had lots of discussions about that, and a lot of customers are concerned about it.

It's open to a variety of interpretations.

But I would say, given that with our integration and the way we package these systems and the way we're selling them, it really hasn't been a big factor in a lot of our hospitals.

Because typically those are bundled in with larger packages.

If you buy the core clinical departmental modules, you're getting all that anyway.

Whether you install it or not is really up to you.

So that hasn't had the impact.I think that is having more impact at hospital that are in the best-of-breed type environment where they have different vendors for different things.

And there is lots of questions about what you need to buy.

But from us, because of the way everything is packaged, that hasn't had a very big impact at all on our customers.

All right, thanks for taking my questions, congratulations.

Our next question is from Sandy Draper with Raymond James.

Please go ahead.

Thanks very much.

Most of my questions have already been asked but I will also toss in my congratulations, Boyd and David.

Maybe one follow-up.

On the competitive landscape, Boyd, you talked on this, you get asked this all the time, I know it drives you crazy.

Maybe it's an observation.

Tell me if you think this is maybe accurate.We certainly hear more discussion chatter from the competitors but also from consultants that the Cerners, even the Epics of the world are winning more deals in the small end.

I wonder, is there is a situation where, a couple of years ago, there wasn't much going on in the market.

So, let's just pick a number and say there were 10 deals happening.

Now, with the stimulus, there might be 100 deals happening, so Cerner winning five and Epic winning five, it still means there are 80 more deals for you than there used to be.

So I'm just wondering if the volume of deals is increasing so much that even if some of these guys are winning some, it's not impacting because you keep saying you're not seeing them.

They keep saying we're winning more.

But it looks like to me the market may be just opening up more for both of you.

I think that is a good observation.

I would agree with that.

The other thing that is going on that we're seeing, and I think I mentioned this on the last call or two ago, this is a trend we see come and go.

And right now it's a little more in vogue, especially with the consultants and things, with these smaller hospitals that are in our market, partnering with the bigger hospital that is maybe 100 miles down the road.

And typically, as soon as those conversations start, one of the first things that they identify -- that is, the bigger facility -- is IT systems, we can really help you out, you can piggyback on the top of ours.

So, we're seeing a little bit of that.

It's not a trend that is overly worrisome to us.

We have seen it happen in the past.

It's kind of the fad of the day.

But at the end, the hospital really loses a lot of their autonomy.

And, they find out, at least what we've experienced with our customers going through that, that it's not something that three, four, five years they look back and maybe that wasn't the best decision.

And they actually try to go back and go it standalone again.

So, we are seeing a little bit of that.

I think that certainly bleeds over into it.

I think a combination of your observation and then that trend is probably why you're hearing more from Epic and Cerner.

Okay, great.And then just last question.On the outsourcing side, I know there were comp questions about the margin.

But in terms of the revenue, it was down a little bit sequentially.

That certainly has happened before.

Anything to notice in terms of customer attrition?

Or, my other question along that lines is, since this is outsourcing on the billing side, did weather, how much of an impact can weather have?

Obviously, the Southeast got, that may have been this quarter, hit, but there have been some weather issues.

So, can weather have an impact in terms of just slowing down the amount of billings because you see a little bit lower level of utilization at these smaller hospitals?

Just trying to understand what the dynamic is there.

The only effect the weather would have is just what you just said, maybe utilization at some of our client hospitals could potentially be down because of the weather.

But I don't think that is a big factor.

I don't think that there is anything, any trend that is bothering us there.

I think that is just the natural ebbs and flows of that division.

I have talked several times before that the attrition there certainly is higher than in our core system, system sales and support and things like that.

Only because, if you have turnover specifically at the CFO level, a lot of times the new CFO will come in and question why we're outsourcing, why are we doing private pay, we can bring this in-house and do it cheaper.

We have several examples now of hospitals that that has happened, the decision was made, they discontinued our service, tried to take it on in-house.

And six to 12 months later try to call us back and realize that we were actually doing a very good job for them, and they'll actually restart the service.

It's just a little bit different business model than our traditional software sales support and service.

Got it.

So you would stick by the comment that that's still a business you expect to grow over time but just not at that old 20% target?

Absolutely.

I have been saying now, we lasted around 15% a whole lot longer than I thought we would.

As long as we're selling into our existing customer base, you're going to see the rate of growth slow.

But certainly we look for true growth out of that division, for sure.

Okay, great.

Thanks.

Our next question is from the line of Frank Sparacino with First Analysis.

Please go ahead.

Hi, just one thing.

On the new clients adds this years, 44, Boy, I think you commented on, can you remind me what that figure was in 2009?

I don't know that I have that number, but I can guesstimate that it was around, between 35 and -- Wait, I do have it -- 34.

Okay.

And is the current expectation, Boyd, it sounds like you're not expecting a significant jump in 2011 with the new client activity.

Is that fair?

I think that is fair to say at this point, just based on my comments earlier about the pipeline is about the same.

And typically, it takes, a sales process is eight to 12 months.

So given that the pipeline is about the same and the process is eight to 12 months.

One thing that could change that is if the money really starts slowing, a lot of hospitals start seeing it, they may have through the sales process but just shortened process.

Certainly that would help and we would do more installations.

But at this point, I think it's fair to say we would expect about the same number.

And just one follow-up on that.

I haven't looked at the states that from a Medicaid perspective are actually making payments.

I know there are quite a few that are behind and not expected to roll out until maybe later this year.

Has that been an issue with any of your clients in terms of any particular concentration in the states where Medicaid is not able to make incentive payments at this point?

Not that we're aware of.

Okay.

Thank you.

Our next question is from the line of Leo Carpio with Caris & Company.

Please go ahead.

Good morning, gentlemen.

First, congratulations on a great quarter.

I have a couple of quick questions.

Regarding hospital capital spending, we have been hearing a lot of these hospitals, the smaller hospitals, being concerned over the economy and recession and it sounds like they're moving forward aggressively with high-tech and getting ready for it.

Besides EMR and your systems, have they mentioned any other priorities that they're looking at in the next couple of months?

No.

I think they're squarely focused on the EMRs and getting to Meaningful Use.

And following up on that, I guess outsourcing probably would be a very attractive and appealing option for them, especially in terms of IT staffing limitations on their side?Every hospital's different.

Some of them, that's certainly a need of theirs and that helps us that we have that to bring to the table.

Whereas other vendors may not have it.

But there's certainly a fair number of hospitals out there that are adequately staffed IT-wise and they really don't have a need for those services at all.

Okay.

And changing gears here a little bit.

In terms of the high-tech program and the Republican house, any concerns that the Republicans may come after the bill or try to stop the funding in one form or another?

Just curious.

No, not from our -- really, this whole push for patient safety and EMR started with the Republicans when President Bush was in office.

So I think this is the one subject that I think both Democrats and Republicans alike can agree on, is the need for an EMR and how much better care can be given with an EMR, how much more efficient a hospital can be run.

So there is really no concern on our part about that.

In terms of future leverage, I remember the prior quarters, your staff utilization rate was a bit below your expectations.

And now it sounds like you're pretty close to maxing out.

Is that a correct statement or is there still some capacity still available in terms of staff utilization?

That is correct except for on the phase ones.

We're certainly not running at capacity there with only doing four in the quarter when we can do really four a month, easily.

And then lastly, any interest in making acquisitions or filling in your platform?

And the question comes from the fact that there is a fair amount of buzz about integrated systems and wanting (inaudible) to connect with the physician side.

I was just wondering if that has been a topic that your customers have asked?

Our customers are thrilled with the fact that we have both, we have the software for their whole enterprise, whether it's for the hospital or the physicians, clinic or the home health agency, or the nursing home.

We have software for all of those.

It's all fully integrated.

And, as I said in my prepared comments, it's all been developed here internally.

It works very well together.

And it really is the true definition of integration, whereas a lot of our competitors are making acquisitions and then they interface those systems.

We point out to our current customers and prospective customers the difference between what really true integration is and what interfacing is.

Okay, great.

Again, congratulations on the quarter.

Our next question comes from the line of Gene Mannheimer with Auriga.

Please proceed.

Thank you, a great quarter.

Two quick ones.

First, with respect to the rate of CPOE installations, certainly the rates increased dramatically, particularly from 2010 and more so from 2009.

If we were to extrapolate forward and assume that the rate of CPOE installs continues in 33, 34 quarter, is it reasonable then it would take about three more years until your existing client base was completely migrated over?

Yes.

Okay.

And with respect to the Q1 guidance, certainly down from Q4 and roughly flat with your Q3 performance.

Is there an air of conservatism around that guide, or is it normal seasonality related to Q1 of the year?

Thank you.

I looked at that, Gene.I went back and looked 12 years, and 10 of the last 12 years the first quarter was down sequentially from the fourth quarter.

And it's a question -- Boyd and I talked about this -- that we have been asked over the years and I don't think we've ever really had a good answer to, as to why that's the case.

And the most logical one is that the majority of our hospitals operate on a fiscal year begin of October 1 because that is the Medicare fiscal year, as well, and so they try to cram a bunch of stuff in at the beginning of the fiscal year.The direct answer to your question is no, we're not concerned based on that and what we have seen in the past.

Thanks, David.

(Operator Instructions)Our next question is a follow-up question from the line of George Hill with Citigroup.

Please go ahead, Mr.

Hill.

All of my follow-ups were gotten to.

Thanks.

Our next question is a follow-up question from the line of Mohan Naidu with Piper Jaffrey., Please go ahead.

Boyd, forgive me for (inaudible) in this aspect, for the tax credit, is this something you have to renew every year?

The R&D tax credit?

Right.

No, that was legislation that was passed in December that had been in effect for 2009 that was not in effect for 2010.

And when it was passed, it was retroactive for the full-year 2010 and it also extends into 2011.

So we're going to apply a tax rate each quarter in 2011, consistent with the passage of the R&D tax credit.

Okay.

So for full-year 2011, we can expect similar full year tax through 2010?

That's correct.

Okay.

Thanks a lot.

Our next question is from the line of David Larsen with Leerink Swann.

Please go ahead.

Congratulations on a great quarter.

As far as your total sales go, what percentage would you say are from new footprints?

We give the add-on number.

I guess you could back into it.

That is what I was doing.

So 75% new footprints, 26% add on.

So of all your sales, 75% are now hospitals.

$12.4 million of our sales was add-on sales.

And system sales total for the quarter was $32 million.

So about $20 million or so was new.

That is very helpful.

That is impressive, in my mind, that's great.

Last quarter on the call, there was some discussion about having the functionality necessary to meet the required objectives in five beta site hospitals.

And that functionality had already been distributed to all the sites but just hadn't been activated.

Can you just maybe reaffirm, what percentage of your base has that functionality installed now?

Is it really just the CPOE piece that they are waiting for?

Or is there anything more to that necessarily to meet Meaningful Use?

CPOE certainly is a piece of it.

But the piece that we were talking about that was new was the med management piece, some of the real particulars of meeting Meaningful Use, and getting that out there.

And that still is going extremely well in those beta sites.And to answer your question, all the sites have that functionality on their system now, it's just a matter of turning it on.

And we're still making minor tweaks to all of that, making sure it's ready to go and then we can turn it on for whoever thinks it's necessary.

That's great.

And then just one more question.What was the hardware revenue in the quarter, if you have that?

Give me a second, Dave.

I can circle up with you later.

No, we have it right here.

It was right at $4.5 million.

Okay, terrific.And then with the 10 nursing installs projected for next quarter, it sounds like you expect that to ramp back up through the course of next year, right?

It's 18 nursing installs for the quarter.

It's 10 core clinicals.

That's all your order entry and results reporting departments -- lab, radiology, pharmacy.

And then it's 18 nursing point and care.

Can do six per month.

Six a month, so you can do 18, and you're projecting 10 clinical installs for the first quarter of fiscal '11.

And it sounds like it's just a seasonality thing and you would expect that to tick back up in fiscal '11 in the later quarters, right?

Slightly.Maybe, but I'm not sure we'd expect a big tick up.

You have to realize that probably close to 75% of our customers have already installed the core clinicals.

A little better than 70%.

Frankly, the ones that haven't are the ones that are really struggling.

The 25% that haven't installed core clinicals at this point, most of those, the reason is it's a financial reason.

That is where we're extending SASes and things like that to try to make it affordable for them.

I don't know that I would expect the core clinicals, really, to tick up a whole lot.

That is for existing customers.

Obviously any new customers that we sell that are going to achieve Meaningful Use, clearly almost all of them now are going in with full systems, and certainly core clinicals is a piece of that.

Great.

Thanks so much.

Our next question is a follow-up question from the line of Leo Carpio with Caris & Company.

Please go ahead.

Good morning.

Just two follow-up questions.

Quickly, on the pricing environment, have you seen any changes in that environment or is pricing pretty much holding firm?

Pricing is holding firm and actually maybe even getting a little bit better.

Pricing is great.

And better in terms of, is it because of the presence of the Cerners of the world stepping down into your space?

No, just because of the demand that's out there.

And then turning over, I think you had indicated there was a significant amount of add-on module sales in the quarter.

Any sense what was the size of those deals?

Were they small, as in $50,000 size?

Or just any color would be helpful.

It just really depends on what they add on.

If you have a customer that's only on phase one and they add on phase two, three, and four, you're talking anywhere from $500,000 to $750,000.

But if you're talking about somebody that's just adding CPOE, you're probably talking $75,000.

So it really just depends on what each customer is adding on.

Okay great.

Thanks and congrats on the quarter.

And our next question is a follow-up question from the line of George Hill with Citigroup.

Please go ahead, Mr.

Hill.

Sorry about that, I did have one way and then I'll let you go.

Is it safe to assume -- and I think you answered this already -- is it safe to assume that everybody who is signing up now for the four new core clinicals, core financials that are going to come on in the first quarter, new customers that are coming now are basically signing up for everything.

That's correct.

And not starting with financial and then moving down the line.Okay, that was it.

Thank you.

And all four of those, I am sitting here looking at the schedule, really all four of those are installing all the way through point of care.

All right, thank you.

And, Mr.

Douglas, we seem to have no more questions on the telephone lines at the moment.

I will now turn the call back to you and please continue with your presentation or closing remarks.

We appreciate everyone's time this morning.Thank you for your interest in CPSI.

And hope everyone has a great weekend.

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

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

Have a great weekend, everyone.