TruBridge Inc (TBRG) 2011 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Computer Programs & Systems first-quarter 2011 earnings conference call.

During the presentation all participants will be in a listen-only mode and afterwards we will conduct a question-and-answer session.

(Operator Instructions).

As a reminder, this conference is being recorded Thursday, April 21, 2011 and I would now like to turn the conference over to Boyd Douglas, President and Chief Executive Officer.

Please go ahead, sir.

Thank you, Jennifer.

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

During this conference call we may make statements regarding future offering 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 on 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 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 David Dye, our Chief Financial Officer.

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

In the first quarter we installed our financial and patient accounting system in four hospitals and our core clinical departmental applications at nine facilities.

Additionally, 17 hospitals implemented nursing point of care and 30 customers went live with CPOE.

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

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

We anticipate 18 new installations of our core clinical departmental modules, 19 nursing point of care implementations and 44 CPOE installations.

In Business Management Solutions, during the first quarter we executed five new accounts receivable management contracts, three of which were for private pay services and two for insurance follow-up services.

During the first quarter revenue from this segment of our business grew 13% year over year.

We are extremely pleased with our first-quarter results and our outlook for the second quarter.

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.

At least seven of our clients have now received Medicaid stimulus fund payments.

The average payment for each of these clients is approximately $700,000.

In addition, we have at least 130 CPSI hospitals that tell us that they are intending to apply to receive Medicare funds for achieving meaningful use in 2011.

We are assisting those clients in their efforts through a designated support group in our software services division.

It is our goal for every one of these hospitals to receive their Medicare stimulus funds.

I do believe it is equally important to let both our shareholders and our clients know that CPSI is already putting significant development resources towards meeting the state's two objectives and we've been doing so for quite some time now.

I can assure you that CPSI is both capable of and committed to meeting both Stage 2 and Stage 3 criteria for meaningful use within the required time frames.

We were one of the first vendors to receive Stage 1 certification as a complete EHR not only for hospitals but for providers as well.

Our corporate goal is to again be one of the first vendors to achieve Stage 2 and Stage 3 certification for both our hospital and physicians EMR product.

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

Thanks, Boyd, and good morning, everyone.

DSOs as of the end of the first quarter were 51 days, down two days sequentially and four days year over year.

Cash provided from operations for the quarter was a record $14.3 million compared with $5.8 million for the first quarter of 2010.

Free cash flow was $14 million compared with $4.5 million for the prior year period.

CapEx was $298,000, down from $1.283 million for the prior year quarter.

Depreciation for the first quarter was $609,000 compared with $469,000 last year.

Cash collections were a record $45 million for the period compared with $32.1 million for the prior year period.

We recognized stock compensation expense of $71,000 in the first quarter.

And as a result of recent restricted stock awards for the second quarter we anticipate a pre-tax charge of $247,000 and for the third and subsequent quarters we anticipate $305,000 in stock compensation expense.

Our head count as of March 31 was 1,198, an increase of five for the quarter and 126 year over year.

Jennifer, if you'd please open the call for questions.

(Operator Instructions).

Jamie Stockton, Morgan Keegan.

Good morning, guys.

Congratulations on a good quarter.

I guess my first question -- it looks like, judging by your backlog, that you saw a little bit of a shift from nonrecurring revenue in the backlog toward recurring.

Can you give us any color on what might be going on there?

We've got a lot going on, as you know, in the Business Management Services which we count towards recurring revenue, some private pays especially that we've added in the last couple of quarters.

And then obviously with a quarter like we had in the fourth quarter with system sales, you've got all the recurring revenue, the maintenance that comes as a result of that.

So that's where that comes from, Jamie.

Okay, and there's no shift toward the lease or SaaS or ASP, whatever you want to call it, model as far as the software is concerned that would be driving any of that?

No.

Okay.

I guess along kind of those same lines, it seems like you had somewhere around a dozen hospitals last year that chose to essentially lease the system and there was no clause in their contract when they had to start buying out those leases when they started getting the incentive payments.

Do you have any feel for when that might start to impact the business?

We do not.

Clearly that would be -- with only seven hospitals receiving the stimulus funds, I don't think any of those have gotten it yet.

But we do know several of our clients have already applied for the Medicare stimulus funds, but we don't have real good feel of the when -- obviously if they'll get it and then, if they do, when those funds will flow.

So we don't really have any more color on that at this point.

I think the earliest you could see it, Jamie, would be late third quarter or early fourth quarter, that's the best case scenario.

Okay.

I guess along the lines of the Medicaid checks, it seems like some of the early states who have gotten their Medicaid programs up and running are pretty good states for you guys.

Is that impacting interest for hospitals that hadn't really made a decision yet or have you seen any --?

Yes, it is.

And we're fortunate that it was those states -- Kentucky, Louisiana, Oklahoma, Alabama -- we're strong in those states.

And certainly that's providing even more of a tail wind.

Okay, last question.

My guess is that stock option expense had something to do with it, but it seemed like you guys did a great job as far as controlling G&A expense during the quarter.

Is there any other color on that outside of stock option expense?

I don't think so, Jamie.

Okay.

All right, thank you.

George Hill, Citigroup.

Hey, guys.

Good morning, Boyd and David, and thanks for taking the questions.

I'll just say that bookings -- new business bookings came in a little bit record weaker in the quarter than I was hoping to see in my model.

I guess did you see any significant deals slip out of the quarter into the next quarter that might have signed already?

Or I guess any trend around the bookings number on the software side?

No, we didn't see anything slip.

I think one thing that probably, or not probably, that did impact the bookings a little bit is in order to get meaningful use for 2011 you really need to have CPOE installed by July 1st or 2nd, right in there in the beginning so that you can get your 90 days for Medicare fiscal year 2011.

And if you aren't going to make that then you've got a whole another year really to get Stage 1.

So certainly we had some clients that realized they weren't going to make it, mainly because we were full and didn't have any more slots.

So they were going to push back, maybe didn't order it yet or something like that.

Clearly that will happen again in 2012.

But I think that was one factor out there that affected it.

Okay.

And just a market dynamic that we've heard recently from a couple of CIOs I'll say at facilities where you guys normally displace incumbents.

Whether they've actually been advised by consultants and are working on a strategy of either trying to hit meaningful use in 2012 to give them the lead time -- a longer lead time to receive the Stage 2 funds, or are pushing first with their current vendor or best of breed strategy to achieve Stage 1 and then look to do a replacement, again kind of trying to give them a longer transition period.

Are you seeing any clients where they're coming back to you going yours is a solution that we'd like to push forward with, but we're going to wait and push until 2012 to get started because we think we might be able to attest to 90 days with what we have?

Yes, we definitely saw some clients that -- and I think the Advisory Board for one, I know I read a report that they kind of recommended wait until 2012 because they gave you a little more leeway on meeting Stage 2.

So certainly we have a certain subset of our clients that are doing that.

And as well, I'll tell you one thing that we've kind of noticed in the industry, a lot of customers that aren't ours right now look like they're going -- rather than replacing their legacy system that they've got now with us or Meditech or Health Plan or somebody is going with some of these bolt-on -- what we call bolt-on applications, clinical applications, point of care, CPOE in order to meet Stage 1.

They're kind of pushing that quicker, kind of what you eluded to in your comments, so that they can go ahead and receive the funds.

And that might be great and I think that will work and they'll probably get their stimulus funds.

But our stance is that that won't be a good long-term solution for that hospital, they really need a fully integrated system like us or one of our main competitors.

So we actually think that's almost a good thing for us.

We've always talked about capacity constraints, so those guys -- we certainly expect to come around two, three, four years down the road when they realize that that bolt-on is a lot more headache, a lot more expensive to maintain, a lot more maintenance than they were anticipating.

Yes, it seems penny wise and pound foolish, also seems like we've got the same stuff on our nightstand.

One more question to follow up on Jamie's question.

Expense control seems pretty tight despite the investment that you guys are making to make sure that the software in Stage 2 capable.

I guess can you talk about the mix of where you guys are putting money to use?

Where do you feel like you can pull back a little bit more on the expense mix given what's got to go into R&D?

We're not pulling back on the R&D effort.

I mean we're full systems ahead with making sure that we've got absolutely everything for Stage 2, obviously first and foremost, but we're already making sure we've got the groundwork laid to meet Stage 3, although certainly a lot of that is undefined.

So I wouldn't say that we're -- we're not going to hesitate to put everything we need to ensure that we're one of the first vendors to achieve Stage 2 certification and Stage 3.

I think that's real important to us as a company to be able to do that to be able to show that we're the leader in the community hospital marketplace.

And I would add to that, George, we're always looking for ways to cut expenses obviously and we'll continue to.

But we feel really good about where we are right now.

So I wouldn't look for any continued expense reduction going forward.

We're investing in the Company aggressively.

Okay, I appreciate the question, guys.

Thanks.

Ryan Daniels, William Blair.

Good morning, guys, and congrats on the quarter.

A couple of quick ones for you.

First, I think the expected CPOE installations are a record for the Company at 44.

And I'm curious if you think that's kind of going to be the peak for fiscal 2011 as people do rush to get meaningful use and then if that could slow down a little bit in the back half of the year before it picks up again in 2012?

Yes, you're exactly right.

We certainly think that will be the peak.

There were a lot of people trying to get it in, like I said, before July, earlier.

So we do think that will be the peak.

We certainly think we'll do a lot of CPOE installs for the rest of the year, but I don't think we'll do -- I don't think expect us to do this many in a quarter, again this year anyway.

Okay and then how do you balance that from an expense control standpoint?

I guess a follow-up to that question and your comments from a second ago.

If you do expect that to peak and then slow down, can you shift some of your implementation capacity into nursing point of care or new installs, etc., in the back half of the year as that demand slows down a bit?

We can do a little bit of that, but the next thing on the horizon for Stage 2 is physician documentation and that's going to take even more implementation and support personnel.

So it may be a quarter or two where we're a little bit over staffed, but that's fine.

I think we've proven in the past that that's not necessarily a bad thing and I've talked about it plenty of times before on these calls.

What we also will do with those people is go back, because we're doing so many of those installs, if anybody else needs a little extra help, need a little extra training whether they start to need more or they have some turnover, we'll have some people available to go back and make sure that those all -- that those facilities are really running well.

Because we've said it over and over, our best way to sell new systems and new CPOE is to be able to have good referenceable sites.

So we want to make sure that we do everything there.

So we'll use a little of that extra capacity to just ensure that those CPOEs are running as well as they can in the different environments.

Got you.

That makes a lot of sense.

And then maybe a final question, a little bit big picture.

On one hand you've got the states starting to cut some Medicaid payments, which is definitely driving demand particularly in those states.

On the other hand, we've got a lot of rate cuts that look to be pending for the acute-care market in the July or October timeframes (multiple speakers) just starts up.

I'm curious how that balances as you look across your client base.

And maybe a more direct way of asking it is just what's the total pipeline look like for net new accounts today?

How is that varying state-by-state?

Any color there would be great.

I don't necessarily have a lot of information on varying state-by-state.

I have said before, because certainly we saw these Medicare cuts looming and Medicaid cuts looming.

I personally think that works well for us because all that does is make the importance to get stimulus funds that much more critical for these hospitals.

They know they've got to move to an EHR to avoid the penalties in 2015 and they're going to get some stimulus funds to do so.

So what we're seeing is it's sometimes very difficult that these hospitals that don't have that strong balance sheets, but they'll figure out a way to purchase these systems and put them in so that they can receive the funds.

It just makes getting those funds that much more important to the hospital.

Okay.

And how is -- what does the pipeline look like today kind of for net new adds going forward?

It's slightly up, certainly -- and again, I've talked about this in several other calls before -- certainly not where we want it and not what we were expecting given this.

But I counterbalance that with certainly add-on sales are extremely more than we were expecting.

So obviously we're thrilled with where we are in the market, but we certainly are working on the pipeline, doing everything we can to make sure we're in every deal.

I do want to emphasize our win rate remains the same.

We're still winning the number of bills that we want to and expect to.

It's just that the net new deals aren't turning out like we thought the stimulus would do.

But as I mentioned earlier, some of those hospitals I guess that we thought would be in the pipeline that would be in a (inaudible) process right now are going to some of these bolt-on applications so that they can get Stage 1.

We sadly think that maybe by the time Stage 2 and State 3 rolls around they'll rethink their strategy.

Okay, great color.

Thanks a lot, guys.

Brad Hoover, Sidoti & Company.

Hi, good morning, Boyd; good morning, David.

Your second-quarter guidance, the seven new hospitals seems to imply that they're all full on installs.

Can you confirm that at all; do you have that in front of you?

That they're all full system installs?

Yes, the seven for the second quarter.

I believe all of them are except for one.

Okay.

And David, I know as far as intra-quarter purchasing went, last quarter you guys had a huge surge in there and you guided for a certain level in the first quarter.

I'm just wondering if you could comment kind of on -- as far as inter-quarter purchasing versus what you guided and what you actually had in the first quarter if it was higher or lower.

And then kind of what may be built into the second quarter guidance?

Well, it was only slightly higher in the first quarter than what I guided -- I guess I'm getting a little better.

I didn't really adjust much for the second quarter from what I did for the first quarter.

I think given the environment we've got a better feel now from a budgeting standpoint of what our customers are going to do intra-quarter.

And again, the majority of that, we took at look at that last night and this morning, the majority of that still is chart link, CPOE, extra point of care licenses.

Okay.

It's more utilization of the software that's necessary for an EHR within existing customers is a good majority of that intra-quarter ordering.

Okay.

And then on CapEx, I know last year you guys spent some money on converting a building to a program facility and you obviously built out your outsourcing as well.

So looking at this year's CapEx, do you expect a number more in the ballpark of $1.5 million as opposed to the $2 million or $3 million that you might have had last year?

For the year, certainly for the next couple quarters we expect it to be around $500,000.

You get out towards the end of 2011; I don't want to commit to what we might need to do from an office space capacity standpoint.

But for the next couple quarters I estimate that will be around $500,000 each quarter.

Okay, thanks.

And then last question and I'll hop off.

I think historically, as far as the sales cycle from RFP to contract signing was kind of in the eight- to 12-month range.

I'm just wondering if you're seeing this year any change in that or is that still kind of where it's at today.

That's still where it's at.

Certainly we have some that do something a little bit sooner, but I think for the most part you're still eight to 12 months.

Okay, great.

Thanks, Boyd; thanks, David, for taking my questions.

Frank Sparacino, First Analysis.

Hi, guys.

Just wanted to follow up on the hiring side.

I think, David, you had indicated it was up five sequentially.

I would have expected the hiring to be a little bit larger in Q1.

I don't know if that was sort of at expectation and what the plan would be for the remainder of the year.

We did a good bit of hiring in the fourth quarter and we've already had a couple classes start in April.

So I think the net increase in the second quarter is going to be more than five.

I'm going to guesstimate here that I'll be giving you a number somewhere in the mid 30 range increase on the next call.

Good.

And maybe just one last thing.

In terms of, Boyd, David, if you look at the 130 you talked about qualifying, or applying I should say, for that Medicare incentive, it leaves a pretty large number of the installed base for the out years.

And I don't know if you have any sense as to what that number looks like maybe in 2012.

Is it a larger number than what's currently going after 2011?

But I would also assume there's a fair amount of the base that may not try to attest for the meaningful use [salaries], but any comments around that would be helpful.

I think it would be safe to assume that that number would be significantly more, like you said.

Next year we certainly -- I would characterize our base as the vast majority of them certainly are going to go for stimulus funds at some point.

And just look at the numbers, out of 670 hospitals, if 130 are doing it, yes, you would think obviously more than that for the next couple years.

Okay, thank you, guys.

Sandy Draper, Raymond James.

Thanks.

Most of my questions have been answered.

I just want to -- I may have missed -- did you say, Boyd, that it was five -- or maybe it was David -- five outsourcing deals this quarter?

We signed five contracts last quarter.

You signed -- right, so you signed five last quarter.

What about in -- okay.

And you expect to bring on how many this quarter?

I don't have those numbers with me, Sandy.

Okay, okay.

When we sign them sometimes they're ready to go 30 days and some of them maybe have existing contracts that may have to work out for a six-month time period.

And so I don't have that installation schedule with me.

Got it.

And do you know what you did -- have anything in front of you for the fourth quarter last year?

I don't have that in my model.

I do not.

But if you want to call me afterwards, I can get that for you.

Okay.

I'm just trying to get a sense.

It seems to be -- I know the third quarter was five, there was that one sort of bump up, you had some higher numbers earlier last year.

I'm just trying to see if there's any trend going on in terms of when people are focusing on outsourcing that maybe they're not doing some of the other stuff, or if it's really just completely discrete trend lines in terms of the outsourcing growth versus what's going on in the add-ons or other clinical stuff.

Yes, I think they're two independent -- I think they're independent of each other, frankly.

Okay, great.

That was my only other follow-up.

Thanks.

Leo Carpio, Caris & Co.

Good morning, gentlemen.

Thanks for taking my question.

The question is in terms of the competition, how is the competitive environment?

Is it still the same cast of characters you're seeing or are you seeing more new players?

Because it sounds like these bolt-on systems are probably from new guys.

And if that's the case how's that affecting your pricing?

I would characterize the market as roughly the same.

I think it's fair to say, I think I mentioned it in the last call; we probably see CERN or a little bit more at least talking to hospitals.

I don't think they're -- not gaining a lot of traction.

McKesson -- probably seeing more of them than we historically have.

But our main competition remains Meditech, Health Plan, HMS and certainly, like I said, we're more focused on what they're doing and competing against them.

Yes, these bolt-ons are showing up; it has not affected our pricing at all.

Okay.

And in terms of turning over toward -- have you any of your hospitals ask about these [wholly accountable] care organizations and ACOs and getting ready for that or has not been a topic of conversation yet?

Certainly it's a topic of conversation and I think in our small communities if the ACO trend continues I think you definitely will see that and I think it will have an impact in our hospitals just because of the general nature of these small communities.

Our hospital tends to be the provider for everything.

They typically have the home health, the physicians' offices, the nursing home and the hospitals.

So I definitely look to see that that will affect our client base.

And frankly just like any kind of legislation always for us, yes, it creates work, but then again it creates an opportunity for us to sell more software.

Okay, and then last question, if there's anything right now that keeps you awake in the middle of the night in terms of concerns or fears, what would it be?

The main thing is just matching up -- I think the answer has been the same for quite a while now -- just matching up our installation capacity with the demand that's out there.

Obviously it's very dynamic, changing a lot and it's not the easiest thing in the world to hire people and train them and get them up and going.

So to match installation capacity with the demand is probably the biggest challenge we've got as a company.

All right, thanks.

And congrats on the quarter.

Sean Whiteland, Piper Jaffray.

Good morning.

I think most of my questions have been hit.

I want to needle you on the backlog number a little bit, because that one came in a little bit lower than I thought.

Do you think that -- not to back you into any specific number, but do you think that the level of backlog growth for 2011 will be at least what it was in 2010?

Yes, I don't want to answer that question directly because, as you know, we only give guidance quarter to quarter.

As Boyd stated earlier though, I definitely think just from listening to customers this quarter that we did see a bit of a slowdown because of the July 3 deadline for having the stuff installed and needing to have 30% of your physicians entering their orders electronically on that date.

We feel strongly that number will pick back up again for many reasons.

As Boyd alluded to, one of the main reasons is the physician documentation application which if Phase II stays on schedule for 2013 all these hospitals that already have CPOE reinstalled plus all the other ones that do between now and then are also going to have to have this physician documentation application installed and we have zero installations of that application right now.

So that's something we're pretty excited about.

Okay.

So just to revisit the math here.

You said that how many are going for Stage 1 in 2011?

133?

Around 130 that we know of, that's correct.

Okay.

And do you expect kind of at least the same level or more to go for Stage 1 in 2012?

I would expect more.

Again, kind back to the earlier call, with 670 customers and certainly we feel like the vast majority are going to go for meaningful use.

Just looking at the numbers it would -- you can interpolate that a lot more would be doing it in 2012.

Okay, great.

And then a separate line of questioning.

Looking at Q2 and the number of CPOE modules that you're installing, I just want to confirm -- the revenue on that software has been recognized already what's going to be installed in Q2, are there any (multiple speakers)?

No, it has not.

No, it has not been recognized at all.

I mean it will all be recognized in 2Q.

Okay, it will all shift and be recognized in Q2, perfect.

Okay and then last question.

Stage 2 meaningful use, as you look at the proposed rules as they stand now, where's the heavy lifting that's required by your customers to get to Stage 2?

And do you right now have all the capabilities required to get customers to Stage 2?

As it stands right now, yes, we do.

And physician documentation is clearly the biggest piece of that.

As David just mentioned, we have none of those installed right now.

That is a basically suit that will be on Version 18 that's due out to our customers later this year.

Okay, great.

Thank you very much.

(Operator Instructions).

Gene Mannheimer, Auriga.

Good morning and nice quarter, guys.

This question I guess relates to the last one.

Given the surge in CPOE installs in Q2 in order to meet at a station for year one, and I know I recognize you don't give guidance past one quarter.

But directionally, is it reasonable to assume that Q3 could be flattish given the bit of a hangover, if you will, from the Q2 peak?

Thank you.

The peak really is only in the CPOE installation.

So I wouldn't draw too much into that and I don't really feel comfortable answering more than that because of what you said, we don't give guidance for Q3.

Okay, fair enough.

Thank you.

David Larsen, Leerink Swann.

Congratulations on a great quarter, guys.

Within your existing base what percentage of hospitals, just roughly speaking, do you think will go for meaningful use under the Medicaid program versus the Medicare program?

Yes, that's difficult for us to say.

I don't know that I can give you a number.

It's a great question.

But because, and like we've talked about earlier in this call, because Medicaid is being -- the stimulus for Medicaid is being handled by the individual states, it's really difficult to get your arms around how many are going to be doing it and when they're going to be kicking that off.

We try to just stay in touch with our customers and as the Medicaid in that state announces that they're ready for applications, we certainly, as I mentioned in my prepared comments, have a dedicated staff here that can help them with that.

But I just don't know that I could even venture a guess at that because everything is so different in all the different states.

Given that your focus is mainly with 100 beds or smaller hospitals, do you think it will probably be a higher Medicaid population relative to the rest of the market, just roughly speaking?

Yes.

Okay.

And then do you have a number for hardware revenue this quarter?

Give me just a second, David.

$4.1 million.

Great, thanks a lot.

Thank you.

And Mr.

Douglas, there are no further questions at this time.

I'll now turn the conference back to you.

Please continue with your presentation or closing remarks.

I just want to thank everybody for being on the call this morning and I hope everyone has a great Easter weekend.

Thank you very much for your interest in CPSI.

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

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