TruBridge Inc (TBRG) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Computer Programs and Systems' fourth-quarter and year-end 2012 earnings conference call.

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

(Operator Instructions).

As a reminder, this conference is being recorded Friday, February 1, 2013.

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

Please go ahead, sir.

Thank you, Carlos.

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's 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 to 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 will be happy to take your questions.

In the fourth quarter we installed our financial and patient accounting system at eight hospitals and our core clinical departmental applications at 12 facilities.

Additionally, 16 hospitals implemented Nursing Point of Care, 14 customers went live with CPOE and 21 facilities implemented Physician Documentation.

Add-on sales to existing clients were $13.5 million or 28% of total revenue for the quarter.

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

We anticipate 15 new installations of our core clinical departmental modules, 15 Nursing Point of Care implementations and 39 installations of physician applications, which consist of CPOE and Physician Documentation.

In Business Management Solutions during the fourth quarter, we executed seven new Accounts Receivable management contracts, two of which were for full services and five for private pay and insurance follow-up services.

I spent a good deal of time on our Meaningful Use success in the previous call so I am going to scale back some today.

Basically the message is that the beat goes on.

From the CMS data as of December 31, 2012, 302 of our clients have successfully tested for Meaningful Use under the complete EHR designation.

This trails only Epic with 308 and the significant gap that has existed between CPSI and our competitors in the rural and community hospital space since the start of the program remains.

The one takeaway from these numbers I would like to leave you with is that we are seeing tangible evidence of the positive effect of our dominance is having on new client sales.

For instance, we have budgeted for 35 new client installations for 2013.

To date, we have already signed contracts to fill 16 of those slots.

In closing my comments, I would like to briefly discuss two more items.

Sales of our Physician Documentation application continue to track at a high level and we expect that to increase as the reality of stage two Meaningful Use compliance comes closer.

Also in 2013, we will be bringing our Emergency Department application to the market.

While a small number of our hospitals have implemented third-party ED systems, the majority of our clients recognize the particular importance of integration with regard to that area and have waited patiently for CPSI to bring our product to market.

Because we will be the only vendor that offers a truly integrated ED/HIS system, we feel that the opportunity here is substantial.

As you can tell, the news continues to be positive on all fronts.

With that, I am going to turn the call over to David for his comments.

Thanks, Boyd, and good morning, everyone.

Our DSOs as of year end were 38, down 10 days sequentially and seven days year over year.

Cash collections for the fourth quarter were a record $53.2 million.

Collections for 2013 totaled $184 million, marking the second consecutive year that our cash collections exceeded our gross revenues.

Both of these metrics highlight our comparably conservative revenue recognition practices.

Depreciation expense was $820,000 for the quarter and $3.2 million for the year.

CAPEX for the fourth quarter was $2 million, primarily due to the build out of our new Fairhope software support office location which is set to open later this month and will initially house 100 plus software support and installation professionals.

We expect CAPEX of approximately $750,000 for the first quarter and $500,000 per quarter for the remaining quarters in 2013.

Our employee headcount as of December 31 was 1,443 up 2 over last quarter and 178 year over year.

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

We expect our total employee headcount, inclusive of TruBridge, to remain below 1,450 employees for the remainder of 2013.

The total accumulated unrecognized revenue-related Meaningful Use contract as of December 31 was $7.1 million.

This $7.1 million is made up of amounts outstanding from nine hospital implementations and includes $0.5 million in installations from the fourth quarter.

As of today, five of the nine hospitals have successfully attested and we expect the remaining four to attest in early 2013.

Therefore we expect the unrecognized revenue related to Meaningful Use to be substantially less by the end of the first quarter and zero by the end of the September quarter 2013.

This will mark an end to what I will call the first generation of Meaningful Use contracts.

Under these first-generation arrangements, GAAP required us to delay revenue recognition until Meaningful Use is achieved, as otherwise contractual payment terms stretched over a period of greater than five years.

Beginning with two implementations in the fourth quarter, and all new installations in 2013, revenue from Meaningful Use implementations will be recognized upon go live for each individual software application.

This change is due to significantly more aggressive payment terms in our recent and all future Meaningful Use contracts which I will refer to as second-generation Meaningful Use agreements.

In the new agreements the maximum time elapsed before amounts due for the system will be paid in full by the customer is three years, regardless of whether or not the customer achieves Meaningful Use.

Additionally, customers must complete Meaningful Use attestation within the next 90 days reporting period available after implementation of CPSI's EHR applications.

And as with the first generation contracts, any and all Meaningful Use funds received by the hospital are payable to CPSI immediately until the balance required to pay for the system is satisfied.

Our financial performance for the fourth quarter and year fell slightly below our expectations.

This is due primarily to our overestimating the timeliness with which new hospital implementations contracted under our first-generation Meaningful Use contracts would attest for Meaningful Use destination, therefore allowing us to recognize the revenue for those implementations.

As just stated, we expect to recognize all the revenue from these contracts within the first nine months of 2013.

Additionally, several of the fourth-quarter implementations installed only base financial and patient accounting applications in the quarter and deferred go live of the clinical EHR applications until the first quarter of 2013.

During the fourth quarter, we were excited to reward our shareholders with a one-time dividend of $1.00 a share, over and above our record quarterly 2012 dividend of $0.46 per share.

As mentioned in the press release, our quarterly dividend has been increased to $0.51 per share and our goal remains to continue to reward our long-term shareholders with further dividend increases in the future.

Before turning the call over to questions, I would like to spend a couple of minutes talking about Monday's announcement of the formation of TruBridge.

As most of you know, CPSI's Business Management Services division has provided back office solutions to our existing customer base for more than a dozen years, beginning with patient statement outsourcing in 2000.

Since then, we have steadily and successfully grown this segment of our business by providing additional services and increasing our penetration within our existing EMR customer base.

Today, more than 90% of CPSI's existing EMR customers utilize one or more of TruBridge's services.

And in 2012, the services accounted for $42.1 million or 23% of CPSI's gross revenue.

Our current business, IT and consulting services include private pay collections, Accounts Receivable management, claims eligibility, payroll outsourcing, revenue cycle consulting, clinical consulting, IT consulting, cloud computing and security services.

As we evaluated this business over the last several years, three findings rose to the forefront.

Number one, we consistently do a good job providing these services to our customers.

Number two, these business services are consistently profitable for CPSI, and number three, we are limiting our growth by restricting our customer base only to healthcare entities that have installed the CPSI system.

Additionally, our research of the available market opportunities beyond our existing customer base indicated an additional 2,200 community hospitals that are potential prospects for our service offerings.

Importantly, none of our core competitors in the community hospital information system industry offer competitive or even similar products in the services arena.

And finally, before rolling out our service offerings to the broader market, we decided to combine all of our business, IT and consulting services into a new entity with its own identity and unique brand.

The result, TruBridge, will operate as a wholly owned subsidiary of CPSI.

Our corporate financial reporting will remain unchanged other than a few components, namely consulting and IT-managed services that have previously been reported under support and maintenance and will now be included as components of TruBridge.

The revenue for these components totaled $4.4 million in 2012.

Please note that CPSI's guidance for 2013 does not include any impact from TruBridge's reach outside of CPSI's existing customer base as this potential financial benefit is unknown both quantitatively and from a timing perspective in 2013.

Any positive impact in 2013 would not be realized until the third quarter at the earliest.

The long-term prospects for TruBridge or formidable.

We believe that as the reimbursement and revenue cycle environment continues to grow more challenging, and the IT environment continues to become more complex with increasing use of high-end clinical systems in the forthcoming Meaningful Use phases, the demand for TruBridge's services will steadily grow.

I am confident TruBridge President Chris Fowler and his leadership team will leverage CPSI's 30 years of community hospital operational experience to study growth this exciting new business in the years to come.

With TruBridge off and running and with CPSI's EMR product continuing to lead the committee Hospital industry, we are excited about our prospects for 2013 and beyond.

And, Carlos, if you would, please open the call for questions.

(Operator Instructions).

Jamie Stockton, Wells Fargo.

Good morning.

Thanks for taking my questions.

I guess, Boyd or David, I don't know who wants to take the first one, but when you think about the pace of deals that you expect to find in 2013, I think you said that you were basing guidance on 35 new clients, 16 had already been filled.

Do you think that given that July is the drop-dead date for a hospital to -- at least a non-critical access hospital to get the full Meaningful Use incentives, do you think we are going to see a very strong first half from a new deal standpoint like we did last year, maybe even a stronger first half and then a real deceleration in the second half of the year?

No, I don't necessarily see a deceleration.

I think it's certainly logical to think that if there is going to be 35 installs that more of them, more than 50% might be done in the first half, but I don't think it is anything significant.

Just if you look at the hospital and the way the pipeline is, I just don't see that.

I don't see a huge first half and then a real big decline in the second half based on where prospects are now in the pipeline.

And I would also add to that, I think a slightly higher percentage of them right now are critical access than has been in the past, which I think that accounts for Boyd's answer to some degree as well.

Well then, and maybe just as a follow-up on that, the incentives work differently for the critical access hospitals.

It seems like they have maybe another year or two than most hospitals do to get the full incentives, at least from Medicare, that are available.

Are you seeing a lot less pressure on those facilities to try to get this stuff done and therefore you are going to see maybe an even higher mix of critical access hospitals implementing in the second half of 2013 or into 2014?

Yes, I think that's accurate.

And then maybe on the emergency department solution, is there a point during the year when we should be thinking about -- David, I think you said that in the third quarter that might be where we start to see some of the Business Management Services with non-CPSI customers start to kick in.

Is there a point where we should be thinking about emergency departments starting to kick in as far as clients implementing that solution?

I think you may see a little bit in the third.

I think that would be the earliest you would see it.

We certainly don't have a specific date for yet, but hopefully to get it out there in the second quarter.

So you may see a little impact in the third and then, obviously, more impact in the fourth quarter from the ED side of things.

Last question, tax rate for 2013, David?

36%.

Okay, thank you.

David Larsen, Leerink Swann.

How much revenue did you recognize in the quarter from deals that were signed earlier in the year that pulled through in the quarter?

Did you disclose that number?

I'm not sure I understand the question.

So if you signed deals like $5 million in 1Q, $5 million in Q2, where you incurred costs but didn't recognize any of the revenue in the fourth quarter, how much of that revenue flowed through at like about the higher 90% margin rate?

Approximately 2 mill -- I think I know what you are asking now.

Approximately $2 million.

Great.

Thanks very much.

And then also your SG&A declined nicely, sequentially by I think about $1.4 million.

Is any -- is that just expense controls, or --?

Yes.

Any additional color on what that was or just general across-the-board stuff?

No additional color.

It's just like always we are managing our expenses and I think a lot of it indirectly relates to the fact that we essentially stopped hiring at the end of the third quarter.

Thanks very much.

Appreciate it.

Ryan Daniels, William Blair.

I am curious, with the new version of the Meaningful Use installment plans, the second generation, if you will, has that changed anything with the appetite of the customers given that it now requires them to pay in a three-year period regardless of if they get the funds or not?

Or are they pretty comfortable they are going to get it so this isn't really changing anything from their standpoint?

We haven't seen it have any negative effect whatsoever.

I think there's a general understanding between both us and our potential and existing customers that we are all going for the same goal here and that is to get to Meaningful Use and to get the money and for them to have the money for us to get paid for our system.

So we haven't seen any -- we haven't seen that affect the sale from a reluctant standpoint at all.

Great.

If you look at the pipeline, obviously, it looks pretty good and your nonrecurring revenue backlog looks good, the 35 installs look good.

What is really driving that?

Is that mostly greenfield opportunities or are you actually starting to see more replacement opportunities in the market?

Just any color there would be helpful.

It is mostly I guess what you would call greenfield.

Certainly I always clarify greenfield.

Everybody has got some kind of billing system, but and we have talked about it before, replacing a lot of vendors that you have never heard of, lot of small regional mom-and-pop type vendors.

But mixed in there, we certainly are seeing some replacements of these hospitals that went for stage one with some kind of bolt-on application and now they are starting to realize that maybe that isn't the best long-term solution.

So we are seeing some of those intermingled in there with the greenfield opportunities.

That's helpful.

Then last one just on the IT front, I think version 19 was scheduled for beta launch sometime in early 2013.

Has that gone out yet and any update there or color you can provide?

Yes, we have got a few hospitals on that now and that is going well and it is still early in it, but things are going well with version 19.

Great.

Thanks.

(Operator Instructions).

George Hill, Citigroup.

Good morning.

Appreciate you taking the questions.

David, I just want to make sure I understand some of the moving parts of the accounting right between the first-generation deals and the second-generation deals.

I will call them the contingent revenue deals.

So under the generation one deals you guys would sell the software, install the software, incur the costs, not recognize any of the revenue and not collect the cash until the -- until Meaningful Use had been achieved, the customer had been paid and that was when you guys got paid, contingent on them getting the deals done.

And now it's you guys are going to sell the software, deploy the software, recognize revenue at go live, collect the cash at the point where -- collect the cash after the client achieves Meaningful Use and has been paid under a period not to exceed three years.

That's correct.

The maximum period is not to exceed three years and that is protection for us if the customer dillydallies surround and doesn't do their part to get the Meaningful Use then we have to be paid within a three-year period.

If as soon as -- which we think will happen in 100% of the cases, of course.

But as soon as they do achieve Meaningful Use we get paid.

But your explanation of both generations is entirely correct.

So then from an accounting perspective what we are going to understand, right, is that then in fiscal 2013 there's going to be $7 million [issued in] revenue that is pulled forward from last year's deals as we expect those folks to get paid, but we are also going to -- (multiple speakers)

Go ahead, I'm sorry.

Yes, but then there's -- but then we are also going to be collecting revenue this year from contingent deals that are sold where we haven't been paid yet.

So there is kind of a $7 million earnings tailwind in calendar 2013 that isn't going to be lapped by the new contingent deals.

So calendar '13 is actually artificially strong at the earnings line by that $7 million?

Correct.

Well, not necessarily the earnings line.

Well, 90% of that, yes, it is.

Because we capitalize some of the hardware.

So the vast majority of your description is correct.

Okay, and, all right, that's all I had.

Thank you.

Richard Close, Avondale Partners.

Thank you.

I just wanted to better understand the deferred revenue.

So, we -- I guess we ended the third quarter at $9.4 million and so to get to the -- I guess on the fourth quarter, we were looking for about $6.9 million in recognized deferred revenue.

And I am just trying to understand why we only recognized the $2 million.

Yes, that didn't happen.

Because we had a handful of customers that were slower with the attestation process.

We assumed that the majority of them that hadn't already attested right at the beginning of October were doing so over the course of the month and certainly early November.

And a few more than we anticipated delayed.

It is not -- as I said these are made up of nine hospitals.

We are tracking each one of them individually, we know exactly where they stand in the attestation process.

It is nothing that we are worried about over the long term, but we were -- we completely missed the timing of when we thought it would happen.

And so -- and then the comments with respect to the first quarter so should that, the rest of that what was coming in in the fourth quarter come in in the first quarter?

Is that what we are saying?

A lot of it definitely will.

A lot of it.

Okay.

And then as we think about the first quarter, the R&D tax credit, can you give us any type of magnitude historically what your R&D tax credits have been?

Because we will get the full year from calendar 2012, I guess, since the fiscal cliff announcement, right?

Yes.

We'll get somewhere just north of $300,000 that we will get to book in the first quarter for the full effect of the full-year 2012 plus the effect within the quarter for the first year.

First-quarter 2013.

Helpful there.

And then Physician Documentation where are we in terms of penetration?

Boyd had mentioned high level and continuing to expand in 2013.

So if you could give us the penetration on CPOE and Physician Documentation that would be helpful.

And I apologize if you did that earlier.

I somehow got disconnected and came on the call late.

Yes, CPOE is approaching 70% and Physician Documentation is just slightly south of 10%.

Okay.

And then, when we think about the 35 new clients baked into the guidance, 16 have already signed, how would you characterize the, I guess, the pipeline in terms of -- is it going to be increasingly tougher to get the additional 16, 17 new clients?

Or is the pipeline there?

It's always tough, but given the pipeline now we definitely think it is there.

Both in terms of the numbers and in terms of our win rate which continues to improve because of our Meaningful Use success.

Okay.

And do you feel like your -- is there any competitors that are stumbling that you are able to take advantage of?

Anything from a competitive standpoint that you would like to characterize for us?

Nothing specifically, but yes, we deftly think that is occurring essentially with the non-integrated vendors that tried to make a push over the last couple of years into the space.

As we have said before it is one thing to demo, it is another thing to install it.

And as we think about margins, I assume that the last six months you have been investing in TruBridge.

You did the marketing, or the brand research, and spent some money there probably spent some money in terms of build out of various -- of this subsidiary.

How should we think about what the impact on outsourcing margins was in the quarter?

And as we think about the first half of 2013, any incremental investments?

We don't have a whole lot of further incremental investments in 2013 for TruBridge as you can see from the margins in 2012.

We are just now at the point where we can really explain why, but we have been investing a lot in the branding and the personnel to get ready for the announcement for Monday.

We don't have a whole lot more to spend there.

I think the margins should improve slightly over time.

Not necessarily saying which quarters these things will occur in, but it should improve slightly over time.

And as we have success going outside of our traditional customer base, they should improve even more.

Okay, and then, with respect to the shift in revenue you made light of I guess $4.4 million support and maintenance that will get moved to a TruBridge line item and I assume that is pretty linear in terms -- or just $1.1 million shipped out on a quarterly basis from our support and maintenance down to TruBridge?

Yes.

Correct.

Okay.

That's all I have.

Thank you very much.

Carolyn Lequettes, Lazard Capital Markets.

Just curious also about operating expenses.

Since you are not making any additional hires this year, would you expect that ratio to go down a little bit this year?

Yes.

That's the plan.

And then also just in terms of earnings rather than revenue distribution, would we expect to see a stronger first half based on having a more beneficial system sales margin from recognizing those Meaningful Use deals in the first quarter?

As those -- as we recognize revenue from those deals they will certainly have a positive impact and we expect the majority of that to be in the first half of the year.

There will probably be some in the third quarter, but the majority should be in the first half of the year, yes.

Thank you.

Sean Wieland, Piper Jaffray.

Can you talk about how your change in payment terms is going to affect your win rate?

Specifically how many hospitals today do you think that have chosen CPSI chose CPSI in part due to your flexible payment terms?

Certainly a lot of them do, but I don't think the change in payment terms as we talked about earlier really is going to affect it really because of our track record with Meaningful Use.

So as David talked about earlier their whole goal is to meet Meaningful Use and obviously our interest are aligned with theirs.

We want them to meet Meaningful Use as well so that we will get paid.

So we fully expect 100% of them to meet Meaningful Use within that before three years is up.

But that just for the accounting perspective of it, I guess, the three-year thing is what -- the reason the GAAP changes the way the revenue is recognized.

But as far as effect on our win rate, we don't obviously expect it to affect that at all.

And I will add to that that we are not unique in our offering here.

We may be slightly more aggressive in pushing it out, but the competition is doing the same thing.

So what are -- what's your ability now with third-party lease financing companies to offer payment terms through that vehicle?

We don't partner with any third-party financing terms.

Obviously we have a few names that have been successful in financing with our hospitals in the past that we can throw out to our hospital -- potential hospital customers when they ask us, but we don't have anything close to a formal relationship with any vendors.

For the most part, essentially, we are becoming the financing arm for these hospitals that are achieving -- that are looking to achieve Meaningful Use.

Do you have a customer count at the end of the quarter?

I don't have.

I do not have a customer count.

It is just north of 650.

And last question is the -- I call them SAAS conversions, we all call them something different.

But about $2 million in the quarter plus the $7 million in the first nine months of 2013 was quite a bit below what we were thinking you were gathering up over the past several quarters, year and a half or so.

So did we just model that wrong or did anything change there?

Because it just looks like the aggregate amount of these delayed payments seems like it is less than what we thought it was.

We have been giving the amount as of the end of each quarter starting with the beginning of last year.

So I don't know how there could be any secret with just the pure new hospital sale implementation and potential conversions now.

There have been in the past some additional -- what I have referred to as SAAS conversions where we had contracts, mostly with existing customers that had done some add-on software with us to get to Meaningful Use where CPSI had -- and in some cases these varied -- the hospitals had the option to buy out the SAAS after they -- or as they achieved Meaningful Use.

And those amounts have always been substantially less than we have had available with the traditional new implementation Meaningful Use installations and because there's always been a doubt as to whether or not those would convert, we have never quantified those.

And we have had some of those in previous quarters and we may still continue to have a few from time to time.

I don't expect at any one given quarter going forward any SAAS conversions will in aggregate be more than, say, a $500,000 benefit in any one quarter.

If that provides any (multiple speakers).

Yes, you cut out on that last number that you gave.

It was my fault.

Yes, what I said was I don't expect that any future SAAS, what I refer to as SAAS conversions, which is over and above this $7.1 million that is outstanding now would total any more than say $0.5 million in any one quarter.

Got it.

Thanks so much.

Frank Sparacino, First Analysis.

David, on the breakout you gave for the $4.4 million on the consulting and managed IT services figure, do you know what that number was in 2011?

I don't.

I don't.

I can get that for you off-line.

That's fine.

And I may be able to figure it out for you while we are still on the call.

If I do I will jump back in.

Sure.

And then on TruBridge, I'm trying to get a sense of the market opportunity there.

Could you help me?

First is, if you had a hospital of, say, a 50-bed hospital that was utilizing all of the services from TruBridge, do you have a sense what that would equate to in annual revenue?

That's hard.

The best way I think to summarize it is the most complete offering that we have and therefore the greatest revenue opportunity is when we manage the entire Accounts Receivable or manage the entire business office for one of our customers.

And you know, would say a 50-bed hospital that is going to run somewhere around say $400,000 a year, $500,000 a year in revenue.

And the reason I say that is because we have several subset services that can make up that full business office management offering.

For example, we could do just private pay collections and that may run $120,000 to $180,000 a year for a 40- or 50-bed hospital.

And then, we have just statement outsourcing.

We have, but I think the biggest opportunity for say a 40- or so bed hospital would be if we did the whole business office which is about $0.5 million a year.

I mean, one way I like to look at it is, is it's a $42 million business now.

We have got 650 hospitals that we obviously feel like we can penetrate at a much greater rate than we are to have now, but if you multiply, if you take that and multiply it by 4.5 or 5 to get to the total number of community hospitals out there, then I feel like well, it certainly signifies that long-term it could be a $150 million to $200 million annual opportunity if we were to have the same success rate among the community hospital marketplace as a whole.

I mean, obviously, I am speaking long term, but that is the way we look at the opportunity.

Sure.

And as you -- last question -- as you go into that marketplace, particularly in a non-CPSI hospital, I don't know.

Have you had any initial discussions yet with one of those that is using a competing EMR?

We've had lots of discussions.

You know that's -- we agonized and spent a lot of time thinking about the best way to go about this effort and whether to do it under CPSI or whether to go out under a new brand, et cetera, and in that process we talked to many, many hospitals that both do have CPSIs or EMR product and those that don't.

Thank you.

That's helpful.

Sandy Draper, Raymond James.

Good morning.

Just a couple of questions.

Most of mine have been asked.

One, David, in terms of the impact in the fourth quarter for '13, in terms of you guys buying out the -- you guys owning, being owners of [the facilities] did that have an impact on the expenses in the fourth quarter?

How much gain do you get in 2013 in terms of that?

In terms of our buying of the CPSI headquarters in the fourth quarter of 2011?

Yes.

I mean is there any -- I mean once you've done, is there any initial benefit for is that pretty much all done?

Because what I'm trying to get at there wasn't any -- that was not a function in the fourth quarter for what happened in terms of the expenses or wasn't something that all of a sudden changed and so you are now getting an ongoing benefit there?

No.

It was not.

Good.

That's awful.

And the other follow-up just going back to I think George's question, to make sure I understand, when you said you are going to recognize the revenue once you have implemented, do you recognize all the revenue or does it get spread out over the three years or do you potentially have a three-year receivable on that?

I am just trying to understand that dynamic.

We recognize all of it.

So you recognize all of it.

And then so you will recognize that and then you just -- your receivable we start to potentially have a long-term receivable then that you may have out there, how you decide when is long-term versus say the current receivable?

Yes.

I think some of it will definitely be long term and some of it will remain short term.

The way we look at it is they are required to attest -- they are required to install all the applications from the first application go live even if that is a general ledger, they are required to install all of the applications to get to, they are required to attest the meaningful use within 90 days.

And then, they are required to begin the attestation process immediately in the first available period thereafter.

So we think in us, again, as I said, these terms are much more aggressive.

And if they don't hit any of those milestones the entire contract becomes due immediately.

So, I think, the long-term edge that this thing will go from go live to when they achieve meaningful use and get paid and therefore we get paid will be nine months on these new deals.

So you are seeing this term within a year.

You are not seeing most of them extend out beyond the year?

That's correct.

Great.

Those were my two questions.

Thanks.

(Operator Instructions).

Bret Jones, Oppenheimer.

Thanks for taking the question and good morning.

I just wanted to check on the math a little bit on these Meaningful Use deferred deals.

I thought I heard you say that essentially $0.5 million was added in this quarter.

Is that correct?

Yes.

Under the old-style Meaningful Use contracts, yes, $0.5 million was added.

And were there some new contracts under the new second-generation contracting?

Yes.

Two.

So, when you -- that's what I was going to check on because you had three hospitals guided for installs on your guidance for the fourth quarter were expected to be these Meaningful Use deferred deals.

So two of them became the new revenue recognition method?

Yes, in looking at the accounting ramifications and talking with our auditors, those two switched over to the new style.

I got you.

And just to make sure I have the math, so we have got a $2.3 million drawdown in the accumulated unrecognized revenue, right?

So it went from $9.4 million to $7.1 million.

You increased it by $0.5 million.

Doesn't it mean you recognized $2.8 million or am I missing something?

Are the new deals throwing me off a little bit?

No.

You got it.

So it is $2.8 million was recognized in this quarter?

That's correct.

And just to read through the lines on the new contracting, is it your concern that some of the hospitals will elect to -- will install the software, but elect to push off Meaningful Use attestation for a long time and that is the reason behind the change in the accounting method?

I would say based on our experience with the first-generation contracts, as I said, as those -- we think those things will be completely washed out to which I think we are all happy about by the end of the third quarter of this year.

So, I think -- I feel confident we are pointed get to 100% success rate with all those contracts.

Having said that, we felt the need and beginning with the second half of last year for our customers and CPSI to be even more aligned in terms of our desire to get this done as quickly as possible, which is why we pushed for the new terms in the contract to get this done and to require them to do this on a much more timely basis contractually.

Or else the entire amounts for the system comes due.

I don't know if that answered your question.

I mean, certainly, -- well I -- we are not concerned that these hospitals under these new contracts aren't going to attest to Meaningful Use.

I mean, they essentially have to.

Well, that's what I was going to get at because it does seem like they were wrapping up with in an 18-month window.

So I was curious as to the need to push for more aggressive terms, but --.

We weren't happy with that.

I got you.

And then, just the last question, I want to make sure when we think about the cost structure, you are guiding for about 35 installs.

Historically, you have said you have implementation capacity of about I believe it is six per month, 18 per quarter.

Clearly you are running underneath that.

Have you shifted implementation capacity into more of the service area or are there areas to reduce some of the cost structure?

We have shifted some capacity from the financial and clinical applications over into -- done a lot of retraining of some of our people and trained them to install the higher end clinical applications, the physicians applications and things like that.

Yes.

So do you believe you are running at the right implementation capacity across all of your obligations right now?

Or is there room to maybe take some of that -- take some of that headcount and maybe shift it toward some of other new areas whether it is TruBridge or something else?

No.

I think we are pleased with where we are right now.

Great.

Thank you.

Richard Close, Avondale Partners.

You just answered my questions.

Thanks.

Great.

Thanks.

There are no further questions at this time.

I will now turn the call back to you, sir.

Please continue with your presentation or closing remarks.

I want to thank everyone for their time this morning and hope everyone has a great weekend.

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

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