TruBridge Inc (TBRG) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Computer Programs and Systems Third Quarter 2011 Earnings Conference Call.

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

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

(Operator Instructions).

As a reminder, this conference is being recorded Friday, October 28th, 2011.

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

Boyd Douglas, President and Chief Executive Officer of Computer Programs and Systems.

Please go ahead, sir.

Thank you, Frank.

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

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

We caution you that any such forward-looking statements 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 date and we undertake no obligation to update or revise 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.

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 five hospitals and our Core Clinical Departmental applications in 13 facilities.

Additionally, 13 hospitals implemented nursing Point-of-Care and 31 customers went live with CPOE.

Overall, add-on sales to existing clients made up 33% of our total revenue.

At this time, we expect to install our Financial and Patient Accounting System at two facilities in the fourth quarter.

We anticipate 14 new installations of Core Clinical Departmental modules, 14 nursing Point-of-Care implementations and 31 CPOE installations.

In Business Management Solutions during the third quarter, we executed eight new accounts receivable management contracts, three of which were for full services and five for private pay services.

During the third quarter, revenue from this segment of our Business grew 5% year-over-year.

Although we fell short of our quarterly guidance, we're certainly pleased with our third quarter results.

Our net income increased 23% over the prior year period in spite of relatively weak new systems sales.

As you can tell from our fourth quarter guidance, we expect this weakness in new system installations to continue through the end of year, yet we expect our profitability will continue to be quite strong due to the positive effects of the ARRA on the rural hospital marketplace.

Our clinical installation teams are performing extremely well during these very busy times and our business management services division continues to grow.

The national incentive program for EHR adoption continues to move in a positive direction.

Nationally, according to the latest figures available from CMS, through September, 302 hospitals have successfully attested to meet the Meaningful Use objectives.

Of these hospitals, 158 have received funds totaling over $290 million.

150 of those hospitals received both Medicaid and Medicare payments and the remaining eight received Medicare funds only.

The payment year for hospitals ended on September 30th, but the hospitals still have through November 30th to attest for 2011.

From a CPSI perspective, we're aware of at least 54 of our clients to date that have received either Medicare funds, Medicaid funds or both.

Medicare funds paid-to-date to these hospitals totaled $34.5 million and Medicaid funds totaled $18.5 million.

So users of our EMR system have been paid a total of $53 million.

In addition, there are another 34 hospitals that have successfully attested for Medicare and/or Medicaid funds and are waiting on payment.

Finally, another ten of our clients have indicated to us that they intend to attest for 2011 before the November 30th deadline.

Certainly, we are very proud of these figures and our role in helping these hospitals receive their EHR adoption payments from CMS.

I do want to point out that these figures are conservative on the total amount paid, as there are several of our hospitals that we know have been paid but we do not yet know the amounts that they have received.

Based on information we continue to receive from various sources, including the investment community, I am very confident in saying that our clients are attesting and receiving funds at a much higher rate than those of our competitors, especially in the rural and community hospital segment.

We continue to dedicate significant resources to our hospitals to this end and we believe the results of our collective efforts speak for themselves.

In addition, while the number of our clients who have attested and received funds is encouraging, we believe the bulk of the opportunity still exists.

Nationally, according to our information resource, Billions, there are some 4,325 hospitals under 100 acute care beds.

While CMS does not provide hospital name or bed size in the breakdown, it is safe to assume that a number of the hospitals attesting were larger than 100 beds, so that leaves well over 4,000 hospitals in our target market who have yet to attest.

From a CPSI current client perspective, some 569 hospitals in our user base are eligible for Meaningful Use funds.

With those that we know of who either plan to attest for 2011, have attested already, or received funds accounted for, that still leaves some 471 hospitals who can, and we believe will, participate in the program.

In the short-term, all indications are that states, too, will be delayed at least a year, until 2013.

We believe once that decision is confirmed by CMS, a number of hospitals who are currently waiting on that confirmation will immediately move forward with preparing for and attesting to Stage 1 in 2012 in order to receive the full amounts available to them.

In summary, we're very satisfied with our hospital and Company's performance with regard to the EHR adoption and the payment of funds that go with that achievement and are fully prepared for even greater success with this program in the future.

On the sales front, activity does appear to be increasing from a new client perspective.

To add some additional insight relative to factors affecting new system sales, I would like to add that through the third quarter, potential new sales activity, defined as formal system selection process, is tracking at roughly half the volume we would normally expect to see when compared to historical information.

This provides further confirmation to my previous statements that the number of hospital that are executing contracts as a result of a formal system selection process has decreased considerably from historical volumes.

This continues to be surprising to us as we feel there are significant number of hospitals across the country that are not in a position to achieve Meaningful Use with their existing IT vendor.

We are hopeful that this trend will reverse itself in the near future, and as I stated earlier and in last quarter's call, we are continuing to see signs of increased activity within our new system sales pipeline.

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

Thank you, Boyd.

Good morning, everyone.

I will run through the numbers, add a few observations about the quarter, and then we'll take the questions.

DSOs as of the end of the third quarter were 45 days.

This number represents a two year low and is down three days sequentially and nine days year-over-year.

Cash provided from operations for the quarter was $7.1 million compared with $5.2 million for the prior year period.

Free cash flow was $6.8 million compared with $4 million for the third quarter of 2010.

CapEx was $336,000 for the quarter, down from $1.131 million for the prior year quarter.

Depreciation for the third quarter was $535,000 compared with $498,000 last year.

Cash collections were a record $46.1 million for the period compared with $37 million for the prior year quarter.

We recognized stock compensation expense of $305,000 in the quarter.

Our head count as of September 30th was 1,251, an increase of 28 for the quarter and 139 year-over-year.

Before we open the call to questions, I have a couple observations about the quarter and the environment in general.

Our third quarter gross revenue fell short of our guidance for three primary reasons.

First, we had some minor slippage of previously scheduled software installations, notably one Nursing Point-of-Care and one CPOE.

Second, direct hardware sales, specifically our number and mix of customer Linux server upgrades, were less than projected.

We are seeing a trend in which more of our existing customers are electing to upgrade to Linux, utilizing our cloud computing solution, resulting in less upfront but more incremental hardware sales.

Finally, and most relevant, our inter quarter add-on software sales were significantly lower than recent quarters.

We believe that in the third quarter we experienced a profound hangover effect from the onslaught of add-on sales we received in the second quarter 2011, which was primarily a result of our customer's aggressive push to implement CPSI's EHR solutions prior to July 2011 in order to attest to Meaningful Use and receive Medicare stimulus funds in Medicare fiscal year 2011.

Furthermore, based on recent software orders and installation slot requests from both the existing and new customers, we expect a similar timing trend in 2012, whereby hospitals will push to install CPSI EHR software modules prior to July 2012.

Specifically on the new client sales front, many hospitals are requesting a full-suite implementation in the second quarter of 2012 in order to receive 2012 Medicare stimulus funds.

As we've said in the past, due to CPSI's revenue recognition practices, specifically the fact that we do not utilize percentage of completion for software sales, and only recognize software when it is live and fully functional at a client facility, our quarterly performance is difficult to accurately predict and often times lumpy.

Add to that Meaningful Use trends, especially given our competitive success in that area, and the quarterly unpredictability in swings are being exacerbated.

Given the runway left for Phase 1 Meaningful Use software sales and the implementations with Phase 2 and Phase 3 remaining, CPSI is looking forward to continued long-term growth and success.

Frank, please go ahead and open the call for questions.

Thank you.

(Operator Instructions).

Our first question comes from the line of Ryan Daniels of William Blair.

Please proceed.

Good morning, guys.

Thanks for taking my question.

And thanks for all the clarity on the bookings and system sales numbers.

Let me give a couple more follow-ups there, if I may.

First off, David, when you talked about the cross-sells and up-sells inter quarter, that's obviously hard to predict and been a big upside driver the prior two quarters, it sounds like ahead of people getting ready to attest and now that it is too late, effectively, because they didn't meet the July deadline, that's slowing down; can you actually talk about the magnitude of that?

So what kind of drop did you see sequentially in those sales from Q2 to Q3?

Good morning, Ryan.

I can't give you hard numbers, but suffice it to say that it was substantial in that -- I built into the guidance that it would drop some from the second quarter because obviously we were aware of that deadline and were made more aware of it by -- in determining why the number was so large for the second quarter.

So I considered that in the guidance, but even given that, it came in lower than we expected, obviously.

So I will say that it was -- of three things that I mentioned where we came up short of our expectations on system sales line, that was by far the biggest of the three numbers.

Okay.

And then safe to say -- the expectation is, looking into Q4, you've probably guided more conservative on that, and then you would expect that [bolus] of revenue, it sounds like, to start coming back again in the first half of 2012.

That's accurate, Ryan.

Okay.

And then, do you actually have the hardware number?

I know last quarter it was about $5 million.

I am assuming that was a lot lighter and maybe explains some revenue weakness, but why the margins were still strong?

Yes.

The hardware number was $3.7 million.

$3.7 million.

Okay.

Maybe one for Boyd, just in regards to the pipeline.

I think you talked about, last quarter, the pipeline being flat year-over-year but the maturity approaching a higher level towards final decisions.

It now sounds like in the third quarter you actually saw that pipeline shrink a little bit -- or the decisions, I think you said, are tracking 50% below.

Can you give a little bit more color on what's going on there?

Generally, if you are surprised, given all the stimulus dollars that are flowing, that that hasn't picked up?

And then any color you can have to assure us it is not more competition or that your win rate hasn't changed?

Sure.

As I said earlier, I certainly think the pipeline is maturing.

I think a lot of people have been waiting on the different factors and we've talked about all of those factors along the way.

We are seeing -- we're hearing from people, okay, we're ready to go ahead and finish this process and make a decision on a final vendor and go from there.

I have talked before about the win rate.

We're comfortable with our win rate.

It certainly is down a little bit from what it has been historically because of the phenomenon that I have talked about.

And we have experienced it as well, where a lot of hospitals are going to the market and looking and conducting a sales process even though they're satisfied, I guess you'd say, with their incumbent vendor.

They want to go look and see.

Certainly, we get pressure from the top side, from hospitals that -- maybe the little bit bigger hospitals that they see this as their chance to get a MEDITECH or a McKesson.

And then, obviously, I talked about last quarter -- on the lower side, we are seeing some competition where we didn't see historically from these bolt-on EMR vendors that are just putting an EMR, if you will, on top of whatever financial application.

I certainly don't think that's a good long-term solution and we talked about that in the last call.

While that may be a good temporary solution and it may get them Phase I funds, at least optimistically, they can use those funds to then buy a fully-integrated system from either us or one of our main competitors.

And what exactly is the 50% metric?

I want to make sure I understand that, where you said -- is that the number of decisions?

The number of -- basically the number of decisions we have seen through the third quarter, whether we got them or whether somebody else got them.

Okay.

So it isn't something specific to you?

It seems to be market specific to --

Absolutely market specific.

Okay.

That's helpful.

Thanks.

I will jump back in the queue.

Certainly.

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

Please proceed.

Good morning.

Thanks for taking my questions.

The first one, Boyd, just to be clear, in order to get the maximum incentives, your clients or new clients would have to get the software installed by, let's say, the middle of 2013 in order to be able to go ahead and use it for 90 days and then attest.

Is that accurate?

That's my understanding, yes.

Okay.

And it looks like, at least as far as new client demand is concerned, you're just going to see a [bolus] of that in 2012 or early 2013?

Short of giving guidance or anything like that, I think if you just look at the numbers and the number of hospitals I gave, and assuming that the vast majority of them are going to reach Meaningful Use, then it certainly appears that way.

Okay.

My other question was along the lines of Stage 2 -- everything we've talked about is Stage 1.

As hospitals start to think about Stage 2 -- I know you guys have talked about physician documentation as being something incremental that they're going to need to purchase.

If you can give any color around what kind of activity you expect and the timing of it -- around that?

And anything else that you think is going to be required, incrementally, by Stage 2, that would be great.

Yes, Jamie.

We actually can give maybe a little bit more color than you think on that because we have got -- a lot of our customers that have attested and received money for Phase I are obviously now finished celebrating and moving onto the next step, which is, from a software standpoint -- from a CPSI perspective, the biggest thing is physician documentation, as we've discussed before.

That is in beta right now.

It is going well.

We do have several installation slots that are full, beginning in January of next year.

And by -- definitely by the second quarter of next year, we plan to be up and running.

And I feel confident, at this point, that unless something changes with the requirements -- with regards to Meaningful Use deadlines, that our installation slots for physician documentation will be full or close to full beginning with the second quarter of next year, probably through 2014, as long as those dates stick.

So we feel real good about the questions that we're getting around that and the demand.

We had our National Users Conference in Mobile in September, and we had about 800 client -- individual customers down here.

And then that was, by far I would say, the most viewed -- most hotly talked about software module at the conference.

So we feel good about that and where we stand going forward.

Is the implementation capacity for that pretty similar to CPOE right now or will it be?

It is very similar to CPOE.

At this point, it requires slightly more resources.

As we mature in our implementation procedures, it will be approximately the same resources as CPOE, going forward.

Thank you, guys.

Thank you, Jamie.

Our next question is from Bret Jones, Oppenheimer.

Please proceed.

Thank you for taking the questions.

When we think about the implementation timeline, and I think you were just talking about slots filling up for physician documentation for Stage 2, is there any way for you to manage your customers -- for the ones that still need to achieve Stage 1?

Because you were talking about them picking back up in the beginning of 2012 for that middle year cycle.

You mean manage the timing so that everybody doesn't try to do everything in the second quarter every year?

Pretty much, yes.

Anything that can be done on that front?

Yes, I think what can be done is being done.

In that as the slots fill up in that time frame, we certainly call every customer that we know that is a module or two away from being in a situation where they can attest and let them know the situation and explain to them the slots that we do have open.

And from our perspective, we're -- we have done a lot of hiring, as you can tell, sort of slow, steady growth in hiring, and the vast majority of those people have been in the clinical physician-based software areas of our Company for the last couple quarters, so that we can -- without over burdening our installation staff, we can do as much as we possibly can around the deadlines.

So in a nutshell, Bret, we've learned from getting close to 25, 30 years experience doing this, there is only so much we can do.

They're going to buy it and they're going to install it when they are ready and capable of installing it.

We're managing it the best we can.

I understand that.

Do you have examples -- we think back to just a couple months ago, were you running into situations where you were having to turn customers away at the middle of 2011, as everybody was trying to rush hit that mid-year deadline to qualify for this year?

We did have a handful of folks that wanted CPOE that we couldn't put in in the time frame necessary to receive 2011 Medicare stimulus funds, yes.

It wasn't significant, but we did have some.

Got you.

In terms of the three buckets -- and you touched on this a little bit and you said you didn't want to quantify how much of inter quarter sales fell off but it was significant; is it safe to say that was the biggest bucket?

Yes.

And then the hardware -- the Linux upgrades -- less than expected.

Where do you stand in terms of Linux upgrades throughout your base?

We're over 90%.

That's something that's going to be a tough comp going forward, then?

It is.

Is this the first quarter where it just started to roll off?

Yeas.

It is going to be a tough comp.

However, we're offering some new solutions around a hardware redundancy standpoint that we think will -- I don't know if they will make up completely or more than make up for that, that's yet to be seen -- but some virtual server solutions off site, virtual backup solutions that we think a lot of these customers that are so dependent now on their EHR, both from a system uptime guarantee and a disaster recovery situation, we think that will probably be -- those will be hot items that we're just now starting to offer.

All right.

Thank you.

Thank you, Bret.

Our next question comes from the line of Sean Wieland, Piper Jaffray.

Please proceed.

Thanks.

Can you call out any difference in the critical access hospital market versus the small community hospital markets?

Or are the trends are pretty much the same across the two?

I think they're pretty much the same.

This is Boyd, Sean.

They're pretty much the same across the two.

Okay.

And what's the current updated thoughts on SAS conversions to license?

We have not realized any revenue from SAS conversions in any of the numbers that you have seen.

We have now had a handful of customers that have received money that are eligible for SAS conversions and we're discussing with them our options and their options at this point in time.

As Boyd has historically said, it isn't necessarily the case that we would prefer that all of the those convert to a perpetual license upon the conversion.

And we'll work with the hospital to decide what's best for us and what's best for them.

In many cases, if they want to continue paying the SAS fee, maybe they want to use that $1.8 million that they got for a 64 [sly CP] instead of buying out their system.

So we're going to work with those on an individual basis and we'll keep you updated on the quarterly calls.

Okay.

How do you factor that into your guidance, if at all?

It is not factored in.

Okay.

And then my last question is; do you think about -- how do you think about improving the visibility on this model, so we don't get these wild swings quarter-to-quarter?

I don't think about it.

I suppose we can just stop giving guidance.

I have been doing this now five quarters since I have been back, and missed it high three times, low once, and hit it once; it is tough.

And again, given the fact that we don't sign a contract and then start recognizing the revenue -- over the course of two or three or five years.

It is kind of hard for us to smooth anything out -- we recognize it as soon as it is live.

I would like to say that we're continuing to refine, but I am doing the same thing for the fourth quarter that I did for the second and third.

It is tough.

Frankly, we're really not that concerned about it.

I am trying to give you the best number that we can give you, certainly, because I prefer it to be in the range.

But long-term, we're not that concerned about it.

We feel good about where we are there.

This is Boyd.

Just to add color -- we have said and we've always said and ever since 2002 when we went public, we don't manage the Business on a quarterly basis, and we're going to be all over the place.

We're worried about how to sell new systems and how to upsell to everybody else, and one quarter to the next, frankly, we just don't get too upset or concerned about.

Okay.

Fair enough.

Thank you.

Thank you, Sean.

Our next question comes from the line of Sebastian Paquette of Goldman Sachs.

Thanks and good morning.

A question on the contracting process for new account bookings, and specifically, has a generation of new leads or RFPs maintained its trajectory with lengthening contracting process?

Or has the new lead generation rate itself dropped off?

If I understand your question, Sebastian, the lead generation began picking up slightly with the last quarter and has continued into this quarter.

Our additional color on the call concerned how many actual decisions have taken place so far in 2011.

So I would characterize it as that we have gone from a weak environment, in terms of the pipeline -- or somewhat weak to -- it's still not what we would call strong, but the lead generation is increasing, and it is continuing to increase.

And the pipeline is maturing.

The deals that are in the pipeline -- we're at least being told by these perspective customers that, yes, we are going to make a decision here in the next quarter or two quarters, whatever.

So it appears that there is going to be some coming out the other end, and that's kind of where things have been held up for a while.

Okay.

And then as we got more clarity on capital budgets for 2012, can you just talk about how your customers are thinking about capital budgeting in 2012 in small hospital space and how HGIT fits into that?

I think, in general, it is safe to say that that's right on the top, with the stimulus funds being out there.

The phenomenon that we're experiencing and what we're going through is these hospitals that are in our pipeline and the ones that really haven't started the sales process yet typically are not as well off financially as the ones that have already moved forward and adopted an EMR and have either attested or plan to attest.

So capital budgets are a huge concern.

But certainly, with the dollars that are out there, I think it makes IT a priority in much of those sites.

And final question is -- for your new hospital contract signings, are you signing Stage 2 and Stage 2 as a combined package?

Or will those two stages hit bookings separately in 2012 and 2013?

Most of the hospitals now are signing for everything including physician documentation.

So the vast majority of them, when they sign, are signing for absolutely everything, Stage 1 and Stage 2 together.

Okay.

Great.

Thanks a lot.

Certainly.

Our next question comes from the line of Brad Hoover, Sidoti & Co.

Please proceed.

Good morning.

The two new hospital inflations that you forecasted for the third quarter that didn't hit, I think the difference is five -- three and five.

What happened to those two, did you say?

No.

It was -- our new installations were in line with what we said.

There was a point-of-care and CPOE install, Brad, that slipped.

Okay, got it.

Boyd, just to go back to the pipeline again, I know that you said that you were seeing signs of increased activity in the pipeline.

If you'd help me understand those comments versus the expectation of two in the fourth quarter.

Are you talking about, basically, decisions that you said are close to being made that could install in 2012?

Is that what your comments are, as far as increased activity in the pipeline?

Yes, exactly.

Okay.

And on Business Management Services, I would have thought the revenue was going to be, at least flat sequentially, as you signed a bunch of new contracts in the second quarter.

Was it simply patient volumes that affected that number?

Or was there something else in that revenue line?

I believe that's patient volume -- that's really -- totally dependent on patient volume, so that would be the main indicator there.

Okay.

Great.

Thank you.

Thank you.

Our next question is from Sandy Draper of Raymond James.

Please proceed.

Thanks very much.

Most of my questions have been asked and answered, so I appreciate that.

Maybe Boyd, and I know that -- not trying to get to you give specific guidance -- but just as you look at the various factors that -- the inputs in terms of business, as we've talked about recently, your net new sales -- or new installs were down this year versus last year, which in many ways, in hindsight, is surprising.

If you look at what's on the business now, would you venture to say you would expect the number of new client installs next year would be flat, up or down?

Again, I know that's somewhat of a guidance question, but I'd love to get your thoughts into what you're seeing now as to how that may play out.

Thanks.

I am, Sandy, fairly confident that they'll be up.

Again, if you just look at the numbers and the hospitals that need to attest, assuming the stimulus doesn't go away or something like that, with these hospitals that need to attest, I don't see how it can't do anything but go up.

Great.

Thanks.

Sure.

Our next question comes from the line of Frank Sparacino, First Analysis.

Please proceed.

Hi, guys, Boyd or David, maybe I missed this;what was the actual number of new client adds in Q3?

We installed five new hospitals in Q3.

And then, David, I assume on the expense line, the reduction that we saw, sequentially, this quarter was primarily from bad debt, in terms of G&A?

You said primarily in terms of bad debt?

Well, the decline in G&A this quarter from last quarter, was that a reduction in -- I know there was -- bad debt had picked up in Q2.

What was the decline this quarter?

There wasn't reduction in bad debt, although the percentage of bad debt as a percentage of the total accounts receivable remained almost exactly the same.

But there was a several hundred thousand dollar reduction -- $300,000-something reduction in bad debt from Q2 to Q3.

Okay.

Thank you, guys.

You bet.

Thanks, Frank.

Our next question comes from the line of George Hill of Citigroup.

Please proceed.

Hey, guys, my audio connection kept cutting in and out, so I hope I don't ask anything that's been covered a bunch of times.

Boyd, can you talk about the demand that you guys are seeing for the add-on sales, which seemed strong this quarter.

And with respect to how you guys report revenue in the financial reporting, I am surprised to not see the implied bookings and the backlog building faster, even with respect to add-on modules.

Can you talk about how you guys think about how you build the backlog?

And how long business stays in the backlog versus what you recognized quickly?

The first part, as far as the demand, it continues to be extremely strong.

And that's evidenced by the fact -- the fourth quarter guidance, as I said in my prepared comments, that we're going to be very profitable with only two new system -- two brand new system installations.

So I have always said, if we can get those kicking up, we'll be doing very well.

As far as how the backlog works, it simply is -- when we receive a PO from that existing customer, that order gets placed and that's when it then goes into the backlog.

And I would say, and David may have color on this, too, but you can count on that being in the backlog approximately 60 to 90 days before it comes out.

Okay.

And so -- I am sorry.

I am sorry -- I was just going to add a little bit, George.

That's -- I agree with Boyd, with the exception of the upper end EHR modules -- the nursing Point-of-Care, for instance, is booked well into --

That's true.

-- the end of the first half or the beginning of the second half of next year, CPOE, et cetera.

So it varies depending on the module.

Materials management, it might go in at 45 days.

If it is CPOE, it might be ten months.

That's helpful.

And I probably missed this part, because I feel like I missed half the call.

Did you guys update what you're seeing in the competitive environment?

And whether anything has changed there?

Do you feel like the demand for new installs is a market issue, with respect to your segment of the market?

Or is it a competitive issue?

George, we did briefly.

It wouldn't hurt to go over that again.

Competitively, we really hadn't seen anything different, certainly, from the last quarter.

And I think I mentioned on the last quarter call -- on the low end of the market, we are seeing competition where we didn't see it before from these bolt-on or add-on EMR vendors that simply place an EMR on top of whatever financial and patient accounting application the hospital has.

Our stance on that is we don't think that's a good long-term solution.

I think we have proven over the years, us and our competitors, that fully-integrated systems is the only way to go for a small, rural community hospital.

But that might be just a bridge for them to at least get some funds, whether it is Medicaid or Medicare funds for Stage 1.

And then hopefully they will have plans, IT plans, to go with a fully-integrated vendor, so certainly more competition there.

Was there another part of your question?

No.

I think that's it.

[inaudible] -- no major change.

It is still all the same competitors with -- again, with the addition of the lower end, we're competing against some of these practice management systems and just true EMR systems atsome of the really, really small hospitals.

Okay.

I appreciate the color.

Certainly.

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

Please proceed.

Thank you.

Can you remind me what your clinical penetration rate is in your base of facilities for your clinical module?

Is it still 70%?

Is that correct?

Yes, it's right around 70%.

So 30% of your 700 hospitals are still going to have to buy that module, is that correct, if they want to attest to Meaningful Use?

That's correct.

But keeping in mind, not all of the hospitals are eligible for Meaningful Use.

Okay.

What percentage, just roughly speaking, of the 700 would you say are not eligible?

I gave that in my call.

I think there is 500 and -- let me find it here.

I have the number somewhere here.

Around 570 of our hospitals are eligible for Meaningful Use.

Okay.

And also, David, on the penetration, the 70% number is an average of the clinical applications like lab, radiology, nursing Order-of-entry, Nursing Point-of-Care, just south of 70%.

But CPOE is right about 50% now -- or slightly less than 50%.

Nursing Point-of-Care is under 60%.

It is about 56%.

Okay.

That's great.

Thanks very much.

Thank you, David.

(Operator Instructions).

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

Please proceed.

Thanks.

Good morning.

This question relates to the comment you made earlier on the competition.

Boyd, did I hear you correctly that you said the -- in some cases, even though your hospitals may seemingly be satisfied with their -- with your solution, that they're opening up of selection process to other bidders.

If that's true, why would they be doing that?

They do it.

They just want to -- typically what they're telling us is, yes, we're satisfied but we want to see what else is out there.

We're getting ready to make a, in most cases, close to $1 million decision.

Because, typically, they've only got the financial and patient accounting applications.

So they have Phase 1.

When you're looking at us -- probably a $750,000 quote to get them to EMR.

And basically a lot of -- not all of them, but certainly a fair number of them say, if I am going to spend $750,000, I want to go out there and look and see what's MEDITECH got, what's McKesson got, what's Health Plan or HMS, whatever, let's go out and look.

Now -- and their customers are doing that, as well.

It is kind of a change in the market.

And that was what I was talking about.

We're competing for more of our main competitor's business than we have in the past and they're competing for ours.

Now it's still an extremely sticky environment, and very seldom do we lose one and very seldom do they lose one.

It is a phenomenon that has occurred as a result of the stimulus.

Okay.

Good.

So that was really my follow-up is -- in those cases, how frequent would it be where the incumbent is actually replaced by somebody else?

You're saying it is rare.

Yes, rare.

Okay.

Thank you.

Sure.

Mr.

Douglas, there are no further questions at this time.

Please continue with your presentation or closing remarks.

I want to thank everyone for their interest in CPSI and for taking the time out for the call this morning.

And hope everyone has a great weekend.

Thank you.

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

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

Have a great day, everybody.