TruBridge Inc (TBRG) 2012 Q3 法說會逐字稿

Ladies and gentlemen thank you for standing by.

Welcome to the Computer Programs and Systems Third Quarter 2012 earnings conference call.

(Operator Instructions)

As a reminder this conference is being recorded Friday, October 26, 2012.

I would now like to turn the conference over to Boyd Douglas, President and Chief Executive Officer, Computer Programs and Systems.

Please go ahead, sir.

Thank you, Charlene.

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 10K.

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

Additionally, 17 hospitals implemented Nursing Point of Care, 13 customers went live with CPOE, and 13 facilities implemented Physicians Documentation.

Add-on sales to existing clients were $10.8 million, or 23% of total revenue for the quarter.

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

We anticipate 12 new installations of our core clinical departmental modules, 15 nursing point of care implementations, installation of 14 CPOE sites, and 22 Physician Documentation installations.

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

We are very pleased to report that our client success with achieving Meaningful Use continues.

According to the latest figures released by CMS, 257 CPSI clients have successfully attested for Meaningful Use.

This represents an increase of 58 hospitals since our last call.

CPSI has more hospitals that have successfully attested under the complete EHR designation than any other vendor including Epic, Cerner, and MediTech.

Our number of hospitals successfully attesting also continues to be significantly above the combined total of our traditional competitors in the rural and community hospital segment, such as HMS, Health Plan, NextGen and Prognosis.

Viewed in a different light, 19% of all hospitals who have successfully attested under the complete EHR designation, or roughly one-in-five, are CPSI clients.

I believe the final significant takeaway from these numbers is that we are by no means resting on our laurels with what we have achieved to date.

We view the continued success of our clients in achieving and maintaining Meaningful Use status as a long-term commitment from a development, implementation and support perspective.

We are confident that the evidence of this commitment as reflected by our hospitals ongoing and increasing success within the program will be a significant factor competitively for both hospitals adopting EHRs for the first time, and facilities that are looking to replace their current vendor.

From a new product perspective, we continue to be pleased with the adoption of our recently released Physician Documentation application.

To date, we have successfully installed the application in 31 facilities.

By year end, we are targeted to have 53 hospitals live with the application.

Given the challenge of successfully implementing any application that requires significant physician interaction with the system, we feel very good about where we are today.

We also believe that this will prove to be a significant advantage at the point in time that physician entered progress notes become required as a component of Meaningful Use, which is already the case as a menu item for stage II, and will without a doubt the required for stage III.

We saw this with CPOE, where our success with CPOE prior to passage of the stimulus program, played a major role in assisting our hospitals and meeting the CPOE objective for stage I.

Finally, I would like to briefly update you on our ongoing research and development projects.

With the transition to our new technology platform complete, our development efforts are now squarely focused on using the new tools afforded us in enhancing our end-user experience.

First we have introduced a new client application called ClientWare 5, and will be transitioning all of our applications to this new Client over time.

We are starting with the physician applications first, as we believe without a doubt they are our key end-users and will get the most immediate benefit from this effort.

To that end, the ClientWare 5 version of our highly successful Short Link and CPOE applications will be made available to our clients on our next release, version 19.

Without going into too much detail, the ClientWare 5 versions of these applications can really be considered a rewrite of the application with more intuitive navigation and displays, as well as new concepts such as user specific Home screen functionality that can be customized to each user's unique requirements.

In addition, all recent new developments as well as those projects currently in progress, are being done under ClientWare5.

This includes the aforementioned Physician Documentation module as well as our new emergency department application that will be available on version 19.

Also scheduled for the upcoming release under the ClientWare 5 platform are our Medical Practice EMR application, and our enterprise-wide scheduling product.

Overall, we remain very confident in our strategy of maintaining a single suite of applications that we consistently enhance and update.

This protects our customers investment by keeping their system up-to-date with current technology and ever involving end-user demands.

It also allows us to focus all of our key resources, development, implementation and support on one system.

We have no doubt this is the best long-term strategy for both retaining current clients as well as winning new clients.

At this time I am going to turn the call over to David for his comments on the financials.

Thanks Boyd, and good and good morning everyone.

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

Our day sales outstanding as of September 30, 2012 were 48, up eight days sequentially and two days year-over-year.

Depreciation expense for the third quarter was $650,000.

Cash collections were $42.7 million for the quarter compared with $46.1 million a year ago.

CapEx for the third quarter was $650,000.

We expect CapEx of approximately $2 million for the fourth quarter which includes $1.5 million in build-out expenses for our soon to be completed software support office location in Fairhope, Alabama.

When this location opens in early February 2013, it will immediately be home to 100-plus software support and implementation professionals.

Our employee headcount as of September 30, 2012 was 1,441, up 45 over last quarter and 190 year-over-year.

At this time we do not expect to add any additional software support and implementation professionals for the foreseeable future.

As I stated on the last call, since the ARA was enacted in February 2009, our total Company workforce have increased by 65% and our software support and implementation division has more than doubled.

This early and aggressive investment in support and installation staff has played a significant role in the industry dominance of our client's Meaningful Use adoption rate that Boyd mentioned a moment ago.

Additionally, we remain uniquely positioned to meet the implementation demands of the remaining phase 1 adopters while simultaneously working with all of our hospital customers to achieve stage II and future stage MU compliance in the years to come.

During the third quarter, we installed systems under contracts providing for an aggregate consideration of $2.5 million for which a substantial majority of the consideration will be received and recognized in subsequent periods under hospitals successfully achieving Meaningful Use designation.

The total accumulated unrecognized revenue related to such contracts as of September 30, 2012 is approximately $9.4 million.

Based on our customer Meaningful Use progress tracking, we expect the majority of this amount to be recognized in the fourth quarter.

As Boyd mentioned in his comments, we have seven implementations scheduled for the fourth quarter for a total of 33 new client hospital installations for the full year 2012.

Of the seven fourth quarter installs, three are contracted under Meaningful Use installment base payment plans.

Charlene, please open the call for questions.

David Larsen, Leerink Swann.

Hello.

Can you guys clarify how much revenue flowed through this quarter from deferred payment deals that were signed in 1Q or 2Q?

I think it was about $2.9 million?

Yes, Dave, good morning.

It's $2.9 million exactly.

All right.

And then I'm just kind of curious, the system sales seemed actually down sequentially and sort of flat relative to 1Q and 2Q.

If we had $3 million coming through from deferred payment deals I would have expected an uptick?

Is there any -- am I thinking about that correctly, or not?

That's your analysis.

It's just a quarter.

We feel pretty good about our system sales going forward given everything going on with Meaningful Use.

I certainly understand your logic, but we're not concerned.

Okay.

In 3Q of 2011 last year, there was a little -- I think there was a bit of a slowdown because I think this is the last 90 day period to attest for the fiscal year.

Did you see anything like that, where maybe deals have slipped, or anything like that, or not really this time around?

A little bit, but not, not nearly as much so as last year.

We didn't see the uptick in the second quarter that we saw last year, and we didn't see the down -- quite the trend as a result simply of that, of that date phenomenon that you describe.

We did not see the reaction this year.

A little bit, but not nearly as much.

Okay.

And then the majority of the $9.4 million, I think you mentioned, would probably get recognized in 4Q, maybe three deals under this deferred payment mechanism in 4Q.

Is that correct?

Yes.

Okay, great.

Thanks so much guys.

Thanks, Dave.

Jamie Stockton, Wells Fargo.

Hello, good morning.

This is Steven with questions for Jamie.

I guess my first question is are the Meaningful Use contingent revenues being triggered by just Medicare incentives?

No, Medicare and Medicaid.

Okay.

All right.

My second question is, can you guys give us some color on why maintenance and support revenue was down sequentially?

Yes.

The IT managed services component of that, which generally speaking, consist of one-time projects, was down a good bit sequentially.

Just a timing thing.

Support and maintenance total was pure actual support, and I don't know exactly how much, but was actually up quarter-over-quarter.

Okay thank you.

You bet.

Thank you, Steven.

Bret Jones, Oppenheimer.

Thank you.

I just wanted to ask, on the strong bookings at least, they appeared fairly strong with the increase in the backlog.

I just was wondering if you could comment on the mix of Meaningful Use contingent deals?

If that's' still holding in that same percentage of about 60% of the hospitals will be, will be deferring there?

(Multiple speakers)

Yes, it sounds like a broken record, Bret, but it really is still holding at right at about that 60% range.

Okay that's great.

And then I wanted to ask, where is the unrecognized revenue on the balance sheet?

I would expect it to be in the, in the deferred revenue, but I only see about $7.1 million?

It's nowhere.

It's nowhere.

(Multiple speakers) But you are -- it is in the backlog, though.

Correct?

No.

Okay, so it's not even --

It's in the backlog prior to it being installed at the hospital, and then once it's installed it goes out of backlog.

So the -- (multiple speakers -- For example, the three implementations in the fourth quarter that are under Meaningful Use implementation plans, they are in the backlog as of September 30, 2012.

But once they are installed, they go out.

I'm with you.

Okay, great.

And then I just wanted to make sure, when you said the majority of the $9.4 million you expect to be recognized in the fourth quarter, are you -- are you guys sticking with your guidance that you laid down at the beginning of the year?

Yes.

As we stated when we gave the guidance at the beginning of the year, if we see a material change, any direction, we would update.

And we haven't this point.

Nor have we reaffirmed.

Yes.

Okay great.

Thank you very much.

George Hill, Citigroup.

Hello.

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

David, I want to follow-up on Bret's -- I guess how we're looking at this from an accounting perspective.

If you guys have strong visibility on the $9 million that you are going to collect in Q4, why is that not either in receivables and deferred revenue?

I'm just trying to understand the classification here.

I think -- I don't know how much more I can say that I haven't said before.

Obviously, this is a unique situation that were very thoughtful about in conjunction with our auditors.

It's not deferred revenue in that we haven't received any cash for it.

Right.

And so, which is, traditionally, where you would see it in deferred revenue.

There is some logic and we discussed the fact that perhaps some or all of the components should be in backlog.

But, you know, backlog is not a GAAP number.

It's just this --

Right.

-- And we've continued to give it that way we've always given it in the past, which is we run an internal report that tells us, and therefore you, exactly what we have on order at that point in time that's yet to be installed and the revenue that we expect to recognize from that.

And it no longer shows up there because it's already been installed.

So from an accounting/gap perspective, we feel like we're doing it correctly because we haven't received any cash.

In the backlog, we've just continued to give you the number as we've done it since 2002.

I don't know if that's a great explanation, but that is the explanation.

I don't doubt that you guys are accounting for it under the most conservative method.

I guess I'm just trying to reconcile how -- if you've got the visibility of the $9 million how we don't, just how we don't see that.

You guys are being conservative.

But I'm just trying to -- it's basically all going to, all flow through at once and I'm kind of -- ( multiple speakers).

Well, I see your point and every time, as hospitals continue to get Meaningful Use funds, it just becomes more and more of a foregone conclusion that that's going to happen.

Right.

I suppose there's some logic to the fact that there's no guarantee that even though hospitals have attested at this point and so forth that we will get the money.

I mean, based on past experience, they certainly should and we believe most certainly will.

But I guess there's that uncertainty as well.

Okay.

And then just a follow-up question I guess, David, either for you or for Boyd.

If we're starting to look at it, it looks like we're starting to see a modest deceleration, very modest and I recognize these are lumpy in the growth of the core base.

How should we think about the arc of where we are on the Meaningful Use adoption cycle by the customer base?

And then how should we think about the growth opportunity from here as you guys develop new products and modules with respect to the ambulatory and EPA?

I guess, from the perspective that your customer base is different from the Cerner's and the Epic's of the world, I'm trying to figure out what inning, what inning of the game are we in with you guys versus where they think they are?

I'm not sure where they think they are.

First of all, back to your first point about it being modestly off.

We certainly don't concern ourselves with quarter-to-quarter and think that's just the natural fluctuations of our market and system sales.

Next year is the year, the final year, where you can still get 100% of your stage I Meaningful Use funds, so one would think the laggards out there that haven't done anything yet would do something between now and July of next year, which would point to obviously an increase in system sales if that happens and if they actually go for the funds and want to get 100%.

I mean, I guess the million dollar question is who knows how important that is, or if they are fine -- "they" being the hospital -- is fine waiting for another year, then they will only get 75% of that first year.

But that may work better for their facility because of things specific to any individual facility.

As far as what inning we're in, that's anybody's guess as well.

I think we've talked about that plenty of times.

My personal opinion is, we're probably in the fifth inning or so.

Okay.

That's what I have.

I'll hop back in the queue.

Thank you.

Thanks George.

Del [Warrington], [DelWar Cap].

Yes, if I may, I'd like to ask a question about your -- the landscape in terms of competitors.

One of your major competitors is having some problems, and I'm not too sure exactly if you think there's going to be any change over the next 24 months, what you anticipate, because -- I'm talking about Allscripts and such, and I think I'm not too sure exactly how much do you see them?

And do you anticipate seeing more of them in the future?

Yes, we've never seen more of Allscripts.

We didn't see them when they were Eclipsys before the acquisition much at all.

We certainly saw them one to two times a year maybe, and perhaps that continues at most.

But they're just in a different category of hospital size than we are.

Thanks.

You bet, thank you.

(Operator Instructions)

Frank Sparacino, First Analysis.

Hello guys, just wanted to follow-up on, Boyd, I think you were talking about, on the product side.

You know, obviously Physician Documentation should be ramping nicely over the next couple of years.

Beyond that, you talked a little bit about a new ED application, but I'm just curious in the product pipeline what you would call it in terms of Meaningful revenue stream over the next couple of years?

And new areas that are going into as well.

Certainly those two are the two large ones.

And then as far as for new software, I don't know if there's anything yet.

Certainly we'll see what stage III holds for us.

So far there's been something.

So hopefully there'll be something out there that we can write to generate some revenue from.

I don't have -- we don't have anything else really on the horizon at this point for software's sake.

Certainly what we're doing with our services and business management services and all we continue to expand that, so we're looking at expanding those services as well.

Boyd, is it too early to say where you think the price point would be for the ED application, and what the size of that opportunity would be relative to what we've seen with CPOE and perhaps Physician Documentation?

Yes, our best guess -- not really marketing it yet, so we're not real sure what the market will bear, but our estimate right now is probably about $125,000 per hospital.

And as far as penetration, in the foreseeable future in the next three years or four years, maybe 50% of our hospitals would want that.

We've got quite a few out there that already have something, and so as that rolls around and they look at evaluating those systems, hopefully we'd be able to get a seat at the table and try to sell those sites where we've currently got an interface.

But then, obviously as hospitals grow and their emergency departments grow, we certainly anticipate there being a need there.

Okay, and maybe lastly just -- and I think you talk a little bit about this.

Obviously, you had a good year in terms of new installations.

If you look at the current sales pipeline, would that suggest that new client activity again in 2013 is at healthy levels?

Yes I think at this point -- and it goes back to what Boyd said a second ago about how desperate people become to achieve 100% of the funds available for phase I Meaningful Use -- I think at this point our expectation is that the levels would be about the same at least that they were this year.

And if there is a mad dash that it could increase from that.

As you know, it's a pretty abbreviated sales cycle and the small hospital marketplace anyway, and then when you have a period of compression because of last-minute decisions like we had with Y2K, then people can enter the market and make decisions very quickly.

So it remains to be seen, but those are our general feelings at this point.

Okay.

Thank you guys.

Thanks Frank.

Sandy Draper, Raymond James.

Thanks very much.

Just a question on terms of customer attitude right now.

One of the things we noticed, we were -- I was with NGNA, and talking to doctors I felt like there is sort of a deer in the headlights mentality because of all the different regulatory changes, potential ACS, selling, buying, what are we going to do, when there is clearly a little bit of a pause in that market.

I know you guys are more in the hospital market, Boyd and David, but my sense is the really small hospitals can sometimes act more like doctors and be more reactionary and support more towards long-term.

I'd just be curious, your thoughts -- have you seen any behavior that will change around the election, all the regulatory changes coming, is that changed it in either accelerated or decelerated?

Or are the people acting pretty much the same as they've been over the last 12 months?

Thanks guys.

Yes, Sandy, they're acting pretty much the same in that, among the hospitals that haven't already moved towards Meaningful Use, you could perhaps make an argument, not because of anything we have seen or heard, but that they would mirror the physician marketplace.

And I agree with you that the actual ambulatory market regarding physician adoption of this stuff is very skittish at this point it seems to us just from our experience in the marketplace and from what we hear.

It just, it seems as though that marketplace is having the same reaction that hospitals did to CPOE seven or eight years ago.

I think the products could be perfect and it would still be very difficult for physician acceptance.

And that will come around, just as it did with CPOE.

So, but no, I mean, we certainly I think to this point have been somewhat surprised at the number of hospitals that appear to be, that are left that -- I mean, certainly there's going to be hundreds of hospitals that don't get 100% of the money that 's available, and a couple of years ago we probably wouldn't have thought that would've been the case.

We still very much believe that all of them will prior to 2015, you know, prior to the penalty phase.

So, I don't know if that answers your questions, but that's our general thoughts.

That's helpful.

Thanks.

Thanks, Sandy.

Sean Wieland, Piper Jaffray.

Hello, thanks.

So, I just want to get my head wrapped around the deferred payment plan and how that's going to impact the model.

So it was $2.9 million in the current quarter and it's $9.4 million is what you're thinking in the fourth quarter?

Did I hear that right?

No?

No.

No, $9.4 -- yes, $2.9 million as correct for the third.

$9.4 million is outstanding based on new hospital in implementations that have been done in 2012 where the revenue has been pushed out into future periods.

I don't think all of it will get recognized in the fourth quarter.

I think the majority of it will.

Obviously, we track all of our clients, but certainly our new client's implementations and we're keeping up on a weekly basis with where they are in regards to their Meaningful Use process which is why we feel confident in the majority of that.

I don't think it will be all.

Okay.

And then the remainder -- so the majority of that comes in the fourth quarter, and then the remainder would come in at some point in 2013, or early 2013?

I would say it's extremely likely that whatever is left will happen in the first quarter of 2013.

Okay.

And it was zero last quarter, correct?

And $450,000 in the first quarter?

The amount that we recognize?

Yes.

Yes, that's correct.

That's correct, Sean.

And so, and this is pretty much all profit, right?

About 90%, yes.

Okay, so then that leads me into the next question.

Why didn't we see greater performance on the EBITDA line with this, with this big contribution?

We continue to do new hospital implementations where we are sending 60 people out of town for a month to do this stuff and we're paying for airfares, rental cars, and salaries, and everything else.

I mean, it's an expensive proposition.

I think as, as -- hopefully the number is a much bigger in the fourth quarter, you would definitely see a bigger translation straight to the bottom.

Okay.

So is it -- am I not -- I mean, you're not putting a finer point on the guidance for Q4?

Is there any reason for that?

Because as of right now, it's kind of the range that you could drive a truck through.

Can you kind of lean us one way or the other?

No.

I mean that's, that -- we said that was going to be our policy at the beginning of the year and we're sticking to it.

All right.

Good enough.

Thanks a lot.

Carolyn [Lequettes], Lazard Capital Markets.

Hello.

Just one more question on the contingent payment.

The $3 million this quarter, was that considered an early pull-through for next quarter?

And would then maybe this $2.5 million this quarter likely be recognized next quarter?

Or is that something that could get pushed out to early in 2013?

Just kind of trying to understand the mechanics.

Yes, the $2.5 million, I don't think any of it will be recognized in the fourth quarter because they don't have enough time to get everything installed up to and including CPOE, and actually attest, and have the 90 day period, and get the money.

So it would be more -- it probably would begin in the second quarter of next year that we'd start to recognize some of the $2.5 million from this quarter, and then we're going to have an additional several million in the fourth quarter that probably won't get recognized until probably at least the third quarter of next year.

In answer to the first part of your question, yes, some of the revenue we recognized in this quarter was, was -- we expected to maybe have a little bit, and I think an early -- some attested perhaps slightly more aggressively then we thought.

But only slightly.

Okay.

And then just turning to products, when is version 19 expected to be released?

And have you done beta testing on that?

And what's the feedback there?

It's the middle of next year, and no we have not done the beta testing.

The beta testing will start right at the beginning of next year, probably January timeframe, January, February, with general release probably June, July.

Okay, thank you.

Thank you.

Ryan Daniels, William Blair & Company.

Hello, it's Andy O'Hare in for Ryan today.

A couple quick ones on Physician Documentation.

With about only 5% of your base of the module right now, I guess what do you guys expect the ramp to look like over the next two years ahead of stage II?

Do you expect to see kind of a large spike right before like you did with CPOE?

Or sort of a more gradual adoption there?

I think you'll see something similar to it what CPOE.

Certainly a spike going into next year.

Okay, perfect.

And then can you remind us how involved the implementation is maybe versus CPOE?

They are roughly similar.

Certainly, with the number of hospitals, we already had a fair amount of CPOE hospitals before Meaningful Use.

So over the next three years or so will be more.

So we're certainly trying to do it and become more efficient than we are with the CPOE installation, but still, when you're training multiple doctors, you certainly we found through experience, you've got to have somebody right there ar their side to help them if they've got a problem.

So, it still takes, I would say, about the same amount of people that it takes to do a CPOE installation.

We're certainly hopeful as well, in addition to being more efficient, if they're already familiar with CPOE it should make the adoption of Physician Documentation easier than it was for them with CPOE.

Yes, and a good part of that now, Andy, is the setup of the templates that the doctors use with Physician Documentation.

And as we get more and more hospitals installed, and we're able to share that information and have more customized templates available, that should help decrease the resources slightly over time as well.

Great.

Really helpful.

Thanks guys.

Richard Close, Avondale Partners.

Thank you, this is Brian standing in for Richard.

Can you talk a bit about the long-term growth opportunities you see with business outsourcing?

Specifically, are you seeing any greater interest from some of your hospitals in transitioning from either just statement and billing, or private pay services to becoming fully outsourced?

Yes.

Great question, and I can't put a whole lot of detail in it right now.

We're -- as it's been noticeable, obviously, that the growth has slowed a little bit over the last couple of years, but we do -- we have been public about the fact that we've got, we've got big plans for that division going forward.

And without giving any specifics at this point, we do think there's a lot of opportunity with that going forward and were very focused on that.

More to come.

Great.

Thank you.

You bet.

Leo Carpio, Caris & Company.

Hello.

Good morning, gentlemen.

I have a couple of quick questions.

Regarding the guidance, can you remind us what's in the guidance and what is excluded from the guidance in terms of the EPS?

I'm just wondering if the MU link deals are part of the guidance that you gave for 2012?

Yes, they were part of the guidance as when we gave the guidance at the end of January 2012, we knew that a good many of our new systems sales at that point had already been, and would continue to be, Meaningful Use contingent.

So we certainly applied some thoughts there and some of that amount is definitely, was and is, included in the guidance.

Okay.

And then turning to the political environment in terms of the industry, any concerns from your clients or customers regarding the presidential elections, or the fiscal eclipse that's coming in January?

I haven't heard one word of concerns.

I don't know, Boyd, do you agree?

Yes, I agree.

I haven't really heard any concern.

We did just come up our user group meeting in September, and certainly a lot of uncertainty and certainly opposite ends of the spectrum as far as who, but I didn't hear any specific concerns about one party or the other.

Okay, thanks.

Sure.

And there are no further questions at this time.

I'll turn the call back over to you.

Great.

I just want to thank everyone for their interest in CPSI and I hope everybody 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.