TruBridge Inc (TBRG) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Computer Programs and Systems second quarter 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, July 27, 2012.

I would now like to introduce your speaker for today, Boyd Douglas, President and Chief Executive Officer with Computer Programs and Systems.

You may begin sir.

Thank you, Francis.

Good morning everyone, and thank you for joining us.

During the 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 guaranteed 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.

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

In the second quarter, we installed our financial and patient accounting system in 9 hospitals and our core clinical departmental applications at 14 facilities.

Additionally, 18 hospitals implemented nursing point of care, 35 customers went live with CPOE, and 14 facilities implemented physician documentation.

Add-on sales to existing clients were $12.8 million, or 28% of total revenue for the quarter.

At this time we expect to install our financial and patient accounting system in eight facilities in the third quarter.

We anticipate 14 new installations of our core clinical departmental modules, 17 nursing point of care implementations, installation of 14 CPOE sites, and 15 physician documentation installations.

In business management solutions during the second-quarter, we executed seven new accounts receivable management contracts, three of which were for full services and four for private pay services.

Now, to Meaningful Use.

Frankly, in looking back over my comments from prior calls, I'm at the point of running out of terms to accurately describe the success of our client base in achieving Meaningful Use and receiving stimulus payments.

In mid-July, the Department of Health and Human Services released updated data as of May 31 regarding successful attestations by vendor, for both the inpatient and ambulatory sectors.

According to that data, not only from our own analysis but that done by several other independent sources as well, 199 of our hospitals have successfully attested to meeting the stage one requirements using the CPSI EMR system.

I'd like to take a minute to put those numbers into perspective.

In terms of raw rankings, that places us tied us for third with Epic, trailing only Meta Tech and Cerner.

However, it bears noting that Meta Tech's numbers include approximately 130 HCA hospitals that use Meta Tech on a modular basis, and Cerner's numbers also included modular attestations as well.

All 199 hospitals attesting with CPSI have done so as complete inpatient EHRs.

When viewed in that light, the case can easily be made that we are tied with Epic for the most hospital attestations, when using the measure of complete EHR system attestations, which was by far the predominant model in the data, and there's more.

As a percentage of our total customer base eligible under the program, those 199 clients represent over 35% of our client base.

That percentage ties us with Cerner as the highest successful attestations rate as a percentage of eligible hospital clients among all vendors, and again, the Cerner members include both modular and complete EHR attestations.

Finally, there is this.

When compared to our typical competitors in the rural community and critical access hospital demographic, including both long-term competitors such as Health Plan and HMS, as well as the relatively recent entrance such as Prognosis, NexGen, and Razor Insights, our 199 hospitals represent 34 more successful attestations than the total attestations of all five of those vendors combined.

The message in those numbers is clear -- not only do we continue to build on the domination we've enjoyed since the start of the program over our competition in the rural community hospital demographic, we are also performing at a level comparable to the leading vendors in the large hospital space, Epic and Cerner.

We have accomplished this in a segment widely acknowledged to have significantly less technical and financial resources available than their urban counterparts.

First and foremost, this is a tribute to our customers and their efforts and support.

Partnership is a pretty loosely used term when it comes to the vendor-client relationship.

In many instances, it's something that's talked about and hoped for on both sides, but not often achieved.

I can say, though, that without a doubt that without the type of partnership relationship that we've enjoyed with our customers in this effort, there is no way they or we would have achieved the success we collectively have.

We couldn't be happier to see them enjoy the benefits of the over $172 million in funds that they've received to date.

They have certainly earned it, and I would be remiss if I didn't mention the tremendous effort of all of our CPSI employees to assist our clients with their Meaningful Use endeavors, as each division of our Company has played a significant role in this success.

From a ongoing competitive perspective looking forward, we believe our overwhelming success with stage one will be a significant advantage with stage two looming on the horizon.

By that I mean that if a hospital has not successfully attested to stage one, or possibly even struggled to do so with another vendor, what level of confidence can they have that they will be able to meet the state's two requirements, which are significantly more demanding?

Given that failing to meet the Meaningful Use requirements in reality is not an option, we believe this will put a number of hospitals in the position of evaluating their current vendor's ability to meet stage two and end stage three requirements.

We are ready to take advantage when that situation occurs, and believe our track record of success gives us the strongest argument possible as the best EMR solution available to rural and critical access hospitals.

Thanks, Boyd.

Good morning everyone.

I have a few comments and then we'll open the call for questions.

Our daily sales outstanding as of June 30 were 40 days, down four days sequentially and eight days year over year.

Depreciation expense for the second quarter was $850,000, compared with $625,000 for the second quarter last year.

Cash collections were $44.2 million for the quarter, compared with $43.9 million a year ago, and we recognized [FASB] 123R expense of $310,000.

Our employee head count as of June 30 was 1,396, up 66 over last quarter and 173 year over year.

At this time, we expected to add approximately 25 employees in the third quarter, and beginning with the fourth quarter we do not expect to add further capacity in our software implementation support division for the foreseeable future.

Since the American Recovery and Reinvestment Act was enacted in February 2009, our Company workforce has increased by 62% and our software support and implementation division has doubled in size.

Our initial hiring surge of 25%, or 216 employees in 2009 alone, is largely responsible for enabling us, from both an installation quantity and quality standpoint, to meet the demands of Phase One Meaningful Use in a way that clearly dominates our competition.

Similarly, our aggressive headcount increase over the last year has us poised to meet the remaining demand for Phase One Meaningful Use implementations, while at the same time positioning us for the substantial Phase Two and potential future phase opportunities in the years to come.

Unlike most of our competitors, all of our Company's growth remains organic, as we have not made any acquisitions in our now 33 years of existence.

We are particularly proud that 100% of our workforce consists of domestic based, fulltime employees.

We do not believe that in periods of high demand it is the best interest of our employees, shareholders, or customers, to react by outsourcing software development and support offshore, or by utilizing third-party consulting firms to assist with on-site client system implementation and training.

We instead prefer to anticipate these peak periods, and assume the risk of hiring in advance, so that we are always in a position to implement our solutions utilizing our in-house trained professionals, and subsequently support these customers post-installation with our own experienced in-house support personnel.

During the second quarter, we installed systems under contracts providing for an aggregate consideration of $4.7 million, for which a substantial majority of the consideration will be received and recognize in subsequent periods upon hospitals successfully achieving Meaningful Use designation.

In the first half of 2012, the total for new system implementations contracted under Meaningful Use installment plan terms is now $9.8 million.

Based on our internal customer Meaningful Use status tracking, we expect most of these 11 clients to successfully attest to Phase One Meaningful Use on or before October 1 of this year.

At this time, we are scheduled to install 32 new client hospitals in 2012.

As Boyd mentioned in his comments, we have eight implementations scheduled for the third quarter.

Of those eight, four are contracted under Meaningful Use installment based payment plans.

Francis, please open the call for questions.

Thank you.

(Operator Instructions)

Jamie Stockton, Wells Fargo.

I guess, maybe the first one, David, if we could talk about the deferred revenue, or whatever you want to call it.

How much of an impact did deferred revenue that you actually recognized from previous quarters have on the June quarter?

We didn't have any the quarter.

Okay, none in the quarter.

Correct.

All right.

Then the backlog number that you guys have, I think that a lot of people try to back into what you're bookings are in a given quarter, and that's become a little more difficult because that backlog number hasn't been including that deferred revenue.

You guys are starting to break it out now.

Can you give us any sense for the level of, or maybe the dollar amount of contracts that you feel like you actually signed during the June quarter that were tied to a deal where you're actually going to get paid after the implementation?

No, we don't want to give any color on what we actually signed in the quarter.

I think probably the most informative answer there was in my comments in that we have eight implementations in the third quarter and half of them are Meaningful Use.

So far this year, we've been running about 60% of our implementations and new contracts under Meaningful Use installment plans.

This is a guess, but I would expect that number to be at least 60% for the foreseeable future.

Okay.

And the eight that you have that are implementing in the third quarter, the timing of when you signed those implementations, would it be kind of half of those were signed before the June quarter, and maybe half in the June quarter?

Maybe you could do your math more quickly than I can.

We were averaging about 150 days from contracts signed and implementation right now for new installs.

Okay.

Two more quick questions.

One is on -- last year in the June quarter you guys had this phenomenon where there were a lot of hospitals that were trying to start their 90-day window in July and so you saw a good site license expansion level of business.

Did you see a similar phenomenon this year?

We did.

It wasn't to the same degree, but we did.

We ended up doing a lot more CPOE implementations in the quarter than we had projected earlier, which was for the same reason that we saw the surge last year.

So, yes we did, I would say to a similar, but not quite to the same, degree that we did last year.

Okay.

The last one for me is, is there going to be a different dynamic that we see play out with the critical access hospitals as far as how pressed they feel to essentially get all the software installed versus everybody else, with the deadlines to get the maximum incentive payments, because of the way the critical access hospitals get reimbursed?

Are you going to see some of those decisions occur kind of later in 2013 or 2014?

We think yes.

Logically, that would be the case.

I will say that the urgency that we're feeling from the critical access customers is not -- given the dynamic that you just stated, Jamie, isn't quite where you would probably think it would be.

I mean, certainly we feel as though they're all are going to get there between now and 2015, they virtually have to.

So my answer to your question is sort of a qualified yes.

David Larsen, Leerink Swann.

Sure.

You guys realized a bit of a tax benefit this quarter.

Is that included in your annual guidance?

No, it was not included in our annual guidance.

Okay.

So if we were to sort of back that out we'd -- Okay.

We weren't expecting it at the time we gave our annual guidance.

Okay, great.

Terrific.

Then in terms of the deferred payment deals, you guys had around $5 million per quarter.

Would you say that the clients, using those deals and installing those systems, are getting all the way through Stage One Meaningful Use?

When they signed those deals, is that what they're signing up for?

I'm just trying to get a sense as to when that revenue is going to actually flow through to the P&L.

Yes, absolutely.

I think without exception they're all installing everything right up front, and their goal is to achieve Meaningful Use as soon as possible.

Obviously it's in our best interest for them to do so, so we do everything we can to help them get there.

They're all on track, as David mentioned in his prepared comments, to do that.

We're monitoring that closely.

I think we've said in previous calls that we expect them to get their funds anywhere from 6 months to 12 months after installation.

Okay, great.

So we should start seeing some benefit from those deals in the second half of 2012, great.

Then in terms of your sales and marketing and G&A expenses, they were pretty stable sequentially.

Despite adding a good number of FTEs, can you just sort of comment on that?

Do expect those costs to increase, or if you don't want to comment on it, I understand, too.

Well, year-over-year, G&A was -- we had a fair amount, as you may recall, of bad debt in the second quarter of last year.

That was offset, to some degree, by the fact that our self-insure plan, which fluctuates greatly and always has, was relatively high in the second quarter of this year.

So I think that's probably all the color I can give you.

George Hill, Citigroup.

I am going to be another guy who says its good to hear you guys pound your chest a little bit on the success you're having with customers.

I don't think you guys are getting enough credit about that.

A couple quick questions.

The slowdown in CPOE projections for the next quarter, should we think of that as just you pulled forward some from this quarter so you've just got a few less scheduled for next quarter, or is there anything beyond that that we should read into that?

I think it's that, George, and I also think it's the similar phenomenon to last year where a lot of people that were going to do it and were going to gear up and go through the process did it in May and June so that they could attest this year.

I think we'll see a similar phenomenon again, especially in 2013, which is the last year that hospitals can get 100% of the money.

Okay.

That's good color.

Then with respect to the, I'll call it the contingent attestation deals, seems like we're all giving it its own name, what is the risk that you can't collect, and how should we think about that?

What is the risk that customers fail to attest?

While your attestation rate is great, it's not 100%.

How should we think around the risk of collections in revenue recognition?

We don't think that there's much, if any risk, around whether or not they will actually attest.

I think that the risk would be is that somewhere between the period of when they implement our system and the period where they would attest and receive their funds, if the hospital shuts down or goes bankrupt or one of those type events is really the core risk, which happens very infrequently, but certainly does occur in some cases.

Yes, I would imagine that that would be small.

Just one more and then I'll hop back in the queue.

If you look at some of the more recent Class data, you've had some people say that the Version 18 performance maybe not up to their complete expectations.

Is that something that appears to be isolated, or a little bit more widespread, or how are you guys feeling about the Version 18 deployments?

We felt very good about version 18 deployments.

Clearly, with 650 customers you're going to have one or two, and Class seems to be able to find them sometimes, but in general we were very pleased with Version 18 and looking forward to Version 19.

Ryan Daniels, William Blair.

I'll add to the chorus of congratulations on your success to date with Meaningful Use.

David, maybe a question for you.

I think you had a little bit of kind of the Meaningful Use contingent revenue on the books at the end of the year.

So if you booked $9.8 million of it year-to-date and didn't recognize any in Q2, is that the actual total, or is the total potentially to be recognized a little bit higher than that?

That's the total that is cut and dried, contractually.

We will recognize 100% when they achieve Meaningful Use.

Everything prior to that, we had several contingencies in place, both with new customers and with existing customers, where, as they've achieved Meaningful Use, we and/or in some cases they, can make a decision to convert a contract from a SaaS model to a license model.

In some cases, we can force it, in some cases they can choose to do it.

We didn't do any new system implementations where it was just cut and dried.

When you install our system, you essentially only pay us a nominal monthly fee until you achieve Meaningful Use and then you get the money and we get paid, we recognize the revenue.

All those have occurred in 2012.

So that number that I gave you is the total dollar figure that is absolutely in our bucket, if you will, to receive and recognize upon Meaningful Use.

Okay, that's helpful color.

Then you may not want to comment on this, but just curious.

We're kind of halfway through the year here.

You've already have your 32 core installs, which I think matched your full-year guidance, and if we look at the $10 million or so that you think you can flow through in the third and fourth quarters, that's obviously a ton of earnings power.

How are you thinking relative to the guidance you provided six months or so ago?

It seems like, not to put words in your mouth, but it seems like you're certainly ahead of plan there.

Yes, you're right.

No comment on that one.

Fair enough.

Then maybe a couple just on the marketing strategy.

Given the success you've outlined and shared with us in many regards on the Meaningful Use installment plans, I am curious if you're going back and re-engaging prospects who were unable to finance system purchases before with this new program, and I'm curious if you're seeing any competitors in the market kind of try to adopt a similar strategy, given the pretty massive success you've had in ramping up the new installs year-to-date?

We are doing that.

We are doing that.

We're not hiding the fact, at all, that we are willing to enter into a new agreement with anybody, a new customer, where they don't pay us the majority of the contract value until they achieve Meaningful Use.

It's hard to say if every competitor's offering similar terms, but to be honest, the vast majority certainly are.

We're not alone in this.

We may be recognizing the revenue differently, I don't know how everybody else is doing that, but the vast majority of our competitors are doing similar type contracts.

Okay, and then maybe two more quick ones and I'll hop off.

Just on the win rate, have you noticed your win rate starting to change or your pipeline improving, given the data?

That would be question number one, and then question number two, I don't know if you can really answer this, but for example, next quarter 50% of the clients are still just going to buy it outright, and I guess I'm a little surprised.

If you give people the option to effectively take the system for free and you'll finance it, why not see more there?

So do you expect that to go morph even higher going forward?

Thanks, guys.

I do think it could potentially morph higher going forward.

I don't think you'll see it go down, at least through the remainder of this Meaningful Use period over the next couple of years, for the same reason, Ryan, that you mentioned.

It seems logical that the majority, now that it's so public that we and other competitors are offering those type of terms, it seems like the majority would certainly take that.

I don't remember the first part -- win rate.

We have definitely noticed a -- we've always felt good about our win rate.

Over last year, we've seen a small spike that we think is due to our Meaningful Use success.

Bret Jones, Oppenheimer.

I just had a quick question on the four Meaningful Use contingent payment deals that you talked about that are going to install in this current quarter.

I assume that's also -- that's for financial, clinical, nurse point of care, and CPOE full implementations, and they'd all be --

Yes, those are all full implementations.

And they'll all be SaaS?

Across the board, if you do SaaS for financial, you're doing it for everything that you're loading in, I assume, right?

Yes.

The payment plan is for the entire system, correct.

Got you, okay.

Then I just wanted to get a better sense, and forgive me if I missed this, when you talk about the contingent payment plans that were non-Meaningful Use, the old ones, did you quantify how many of those you still have out there?

I know one converted in the first quarter, and I'm just trying to get a sense for how me more could convert downline.

We did not quantify it and I don't have that number for you.

It's a number much smaller than the $9.8 million, and there again, we may not -- in combination, we or customers may not choose to have any buyouts of any of those going forward.

So that's not a number we care to give out because it's a complete unknown.

Understand, but I assume you're in contact with these clients, you have a sense for whether they're likely to do so this year or not?

We're certainly in contact with them as they achieve Meaningful Use, and our accounting team discusses with theirs what the best collective option is, yes.

Okay.

But no, I don't -- go ahead, I'm sorry, Bret.

No, sorry.

I was actually going to move on -- if there was something else who wanted to say?

No, go ahead.

All right.

I was actually just going to ask for an update on where you are in terms of penetration for when we think about all these clinical add-ons, the CPOE, nurse point of care, and physician documentation, if you give us a sense for how penetrated the base is currently.

For the clinicals, it was 80% at the beginning of the year.

So it's probably ticked up a little bit.

You certainly can do the math on what we've -- I haven't recalculated those percentages since the beginning of year, but roughly it was 80%.

Nursing point of care I know began the year at 70%.

Obviously, the one that affords us the greatest opportunity is physician documentation.

I don't know exactly what percentage we're at now, but I'm sure it's probably somewhere around 5%.

(Multiple speakers).

Sorry.

Then CPOE is about 50%, a little bit higher now, since we've doing so many -- it was 50% at the beginning of the year.

Leo Carpio, Caris & Company.

I have two quick questions.

First on the competitive environment.

Have you still seen the same usual compares you've seen in the past, and has anyone become price aggressive recently, or is pricing still stable in the space?

Nothing really has changed on the competitive front at all.

We're still seeing the same ones, and obviously I mentioned in the prepared comments, and we've been talking about it for a year or so now, some of the newer entrants, but it hasn't changed competitively, and pricing has been stable.

Okay.

In terms of your Meaningful Use linked deals, have you provided or quantified any in terms of the EPS impact for this quarter?

While, what we've quantified is that we didn't recognize any revenue from previous periods as a result of customers achieving Meaningful Use.

We implemented $4.7 million worth of systems, for which the revenue will be recognized in future periods.

So, I mean, I think the EPS -- $4.7 million translates to approximately $0.25 a share.

Okay, thanks.

If I understand correctly from your comments on the existing customers who ordered these [demu] deals, it's sounds like they're going to attest by October, and then the recognition of revenue should happen, if I understand correctly, fourth quarter this year?

Well, the average that we've seen in the past for hospitals once they attest from the time that they receive the designation, receive their funds has been about six weeks.

So, logically, if we have some attest on October 1, if the timeframe remains the same, which is obviously beyond our control, then there would be some of that in the fourth quarter, yes.

(Operator Instructions)

Sandy Draper, Raymond James.

Actually, Leo just hit the main question I had in clearing up the timing of rev recognition.

So thanks for those comments.

Maybe, Boyd, you could talk about, I know there's some discussion just out there in the industry and on one of your competitors calls yesterday, about sort of the cloud and how important the cloud is or is not to the smaller hospital market.

Just sort of remind me, I know you guys have some cloud capabilities, where are you in terms of the cloud technology?

What are you using it for today, I guess, and then longer term, does it make sense for you guys to go to the cloud?

Then third, are you hearing that much from the customers, or is that more of a, maybe media perception or other perception from people outside the actual customer base?

Thanks.

Sure, Sandy.

I speak to the cloud.

We've certainly got a variety of cloud offerings.

We do obviously the HIS system in the cloud.

We also can do a warm server in the cloud, or we can do your backup in the cloud, or we can actually -- you can have a test server on site instead of having the live system, if you want to test server in the cloud.

So we've got all of those.

In the last year, we've got about 58 hospital customers that are in the cloud in some fashion or another, of the different things I just mentioned.

So certainly, that's an important offering for us.

Certainly in the last year, demand has picked up significantly.

I wouldn't characterize it as everybody out there wants to be in the cloud.

There's a lot of people that still want to retain control and have that computer on-site or a specific computer in a data center somewhere dedicated to just them, but certainly cloud services are important part of what we do, and it's just one more feather in our cap that we do offer those services.

Frank Sparacino.

First Analysis.

I just wanted to come back to the physician documentation and get a sense of where you are relative to expectations coming into the year.

I think at the beginning of the year you had 41 contracts secured, and it looks like through the first three quarters will be a little bit less than that, but just curious on the rate of the adoption there and whether or not Stage Two is having an impact.

Frank, Stage Two is definitely having an impact.

We're selling it pretty aggressively.

I mean, the demand is there.

We couldn't be much happier with where we are now with regard to the way our sales folks have been able to sell that system so far this year into future periods.

From an operational implementation perspective, I did some checks here in the last week or two on these 14 that we installed last quarter, and all went extremely well.

We're really pleased, and looking forward to doing the 15 this quarter.

From an implementation support perspective, it's going extremely well, too.

Maybe just a follow-up, there, guys.

I mean, once we get the final rules, would you expect that to spike like we've seen with CPOE historically, or what's your expectation?

I don't know if the final rule would affect it much.

I think more the timeline will affect it.

For customers that attested in 2011 and 2012, they'll have to have it in place by 2014.

For those that do Phase One in 2013 will have to have it in place by 2015.

So I think, as we've seen historically with Y2K and now Meaningful Use, there'll be a bigger rush towards the end of those deadlines, but I mean, I think the demand is already there.

I don't know if the final rule coming out will push it much more aggressively than it already is.

Okay, and then maybe lastly, just on the implementations during the quarter, a little bit of variance, I guess, to the downside relative to expectations in financial as well as clinical.

Anything specific you'd point out in terms of some of those accounts, Boyd or David?

We actually had a two-hospital system that was scheduled to go in in June, and due to some issues with them, they've delayed that until December, but we plan on going in in December.

It was just a timing issue with the facility.

It was actually two hospitals, so that's why there were two.

Mohan Naidu, Piper Jaffrey.

Just a quick clarification on the backlog.

Can you explain us, like how you actually [pre the SaaS and motion] deals, and I read from the press release that you don't put in the subsequent revenue that would come under [promotion] into the backlog, but how do you treat it right now?

Do you put any at all in the nonrecurring or recurring backlog?

It's in the backlog, in the nonrecurring backlog, I'm talking about these Meaningful Use installment plans.

It's in the prior to implementation, but then once it's implemented, it's no longer in the backlog because we've installed the system.

So that's why we put the comment in there with the caveat that the $9.8 million should be recognized in future periods upon achieving Meaningful Use is not included in that figure.

Got you.

So the $9.8 million was there in the backlog before implementation?

Prior to implementation, yes.

Okay, perfect.

Then a follow-up question on add-on sales.

So that's coming down this quarter, it's about 20% down year-over-year.

Is there anything to read there, or is it like add-on sales to current customers slowing down?

How do we look at that?

There's nothing to read there.

That's going to be a big number going forward because of all this Meaningful Use stuff.

We had a phenomenal quarter last year with add-on sales.

Steve Halper, Lazard Capital Markets.

So relative to the $9.8 million, and you have this October 1 expectation, six weeks, so the assumption would be most of that falls into the fourth quarter in terms of revenue recognition.

Was that factored into your guidance?

At the beginning of the year when we knew we were going to be doing a lot of this, and we when expected to do 32 implementations, we knew we were going to be doing this, and we did include a factor that we would recognize a certain percentage of the revenue under these Meaningful Use installment plans in the year, yes.

So some of that definitely is factored into the guidance, yes.

Okay, and just walk me through the cash flow implications.

When do get you paid, are you getting paid 40 days after you recognize that revenue?

What's the cash collection on that?

I mean, we've never done this before, but I would expect it to be much less than 40 days.

They get the designation, they pay us.

I mean, that's the way the contract clearly reads.

So I would expect it to be a much lower number than 40 days.

Okay, so theoretically, you should get paid in the fourth quarter, as well?

If the timing remains the same as it had so far with regard to the government processing these and releasing the funds, yes.

Fair enough.

Thank you.

We think we'll be paid with inside 30 days of them receiving the funds.

It all kind of depends on when they receive the funds, but I would think it's not unreasonable at all to expect we'd be paid within 30 days of them receiving the funds, because that's what the contract spells out.

George Hill, Citigroup.

David, I just wanted me sure I understood something right that you just said.

So when you guys sell a contingent deal, it shows up in backlog until it is deployed, and then the revenue is not recognized, and the revenue is recognized upon attestation of Meaningful Use and payment?

That is exactly correct.

All right.

I can follow things linearly.

Secondly, looking at this from the other side of the coin, why would a client ever not take the contingent deal?

Like why, I'll say financial analyst to CFO, why would I ever pay in advance?

You ask a legitimate question.

I mean, we don't force them to do it.

We lead with our traditional offering of a payment plan, the same traditional one that we've offered for the 22 years that I've been there, and if the conversation turns to a Meaningful Use type of environment, then we offer this.

So as I stated a couple times earlier, you have a legitimate question, and I don't have a good answer for you, other than we're not at all afraid to offer it at any point to any customer, given our success.

We've been running 60%, and that's why we expect that that number will not decrease, and may increase going forward.

Is there any penalty to me as a customer?

Is there a financial carry cost, is there a risk bearing cost, is there a time value money component?

No.

Mr. Douglas, there are no further questions at this time, sir.

I'll turn back the call back to you for your closing remarks.

Great.

I just want to thank everyone for their time this morning and for their interest in CPSI.

I enjoyed the call, and hope everyone has a great weekend.

Thank you.

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

We thank you all for your participation.

Have a great weekend, everyone.