TruBridge Inc (TBRG) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Computer Programs and Systems' second-quarter 2013 earnings conference call.

During the presentation, all participants will 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 26, 2013.

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, Myra.

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

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

We caution you that any such forward-looking statements only reflect Management expectations and predictions based upon currently available information and are not guarantees of future results or performance.

Actual results might differ materially from those expressed or implied by such forward-looking statements as a result of known and unknown risks, uncertainties and other factors.

Including those described in our public releases and reports filed with the Securities and Exchange Commission, including but not limited to our most recent annual report on form 10-K.

We also caution investors that the forward-looking information provided in this call represents our outlook only as of the 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 second quarter, we installed our financial information accounting system in chain hospitals, and our core clinical departmental applications at 15 facilities.

Additionally, 13 hospitals implemented nursing point of care, and 39 customers went live with positions applications, which consists of ChartLink, CPOE and position documentation.

Add-on sales to existing clients were $9.6 million or 18% of total revenue for the quarter.

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

We anticipate five new installations of the core clinical departmental modules, three nursing point of care implementations and 38 installations of positions applications.

You certainly notice that our software implementations for the third quarter are less than what we would normally would expect when compared to prior quarters.

We believe this can be attributed to two factors.

One, which we've mentioned on several prior occasions, is the inherent cyclical nature of our market.

We feel certain that the most significant factor has been the necessity to implement the applications required for meeting the MU Stage 1 Objectives' reported July 1 cut-off date, in order to receive the full reimbursement available.

We expect the installation numbers to return to more traditional levels in the fourth quarter.

Keeping on the topic of Meaningful Use, we are very proud that Version 19 of our EHR system has been certified for compliance with ONC 2014 addition criteria for both Stage 1 and Stage 2 of Meaningful Use by CCHIT.

As you are well aware, our clients have experienced extraordinary success in meeting Stage 1 objectives for Meaningful Use of an EHR.

To date, over 340 hospitals have attained Stage 1 adoption using the CPSI EHR system, and they have collectively received an estimated $350 million in payments for doing so.

As we welcome Stage 1, CPSI is one of the very first EHR vendors to receive Stage 2 certification.

We have continually assured our clients that our commitment to their successful participation in the EHR adoption initiative goes far beyond Stage 1. Our early certification for Stage 2 is noteworthy evidence of that commitment.

Now to address our new subsidiary services company, TruBridge.

During the quarter, TruBridge executed 13 new accounts receivable management contracts, 3 of which were for full services, and 10 for private pay and insurance follow-up services.

Of particular significance is that 2 of these 13 contracts are with hospitals that do not utilize CPSI as their EHR vendor.

We are confident there is a substantial business opportunity for TruBridge to provide their services to all rural and community hospitals not with the CPSI EHR system compliance.

Our early success of designing contract with non-CPSI hospitals only stands to solidify that belief.

With that, I would like to turn the call over now to David for his comments.

Thanks, Boyd, and good morning, everyone.

My prepared comments are very brief this morning, and then we will take questions.

Our employee headcount as of June 30 was 1,410, down 13 sequentially, and 31 year-over-year.

We expect our total employee headcount, inclusive of TruBridge, to stabilize around 1,400 for the remainder of 2013 and first half of 2014.

The total accumulated unrecognized revenue related to first-generation Meaningful Use contracts as of June 30 was $3.9 million.

This $3.9 million is made up primarily of amounts outstanding from four hospital implementations.

Two of the four have already attested in open payment, and the other two are attesting in August.

We anticipate the amounts outstanding from these remaining first-generation MU contracts to be recognized in the third quarter or early fourth quarter of this year.

All 10 of the new customer system implementations in the second quarter were Generation 2 Meaningful Use contracts.

Since December of 2012, we have performed 18 new client installation under Gen 2 contract arrangements.

Of those 18, 7 have either recently attested or will attest August 1, four will attest September 1, and seven will attest on October 1. As a result, we expect our cash collections to experience a significant uptick in the fourth quarter of this year, just as they did in the fourth quarter of 2012.

Some of you may have seen the press release Wednesday announcing that CPSI and Sunquest have joined the CommonWell Health Alliance.

Along with the founding member company, CPSI and Sunquest will participate in the pilot program later this year with the goal of achieving meaningful interoperability results by HEMS 2014.

CPSI's inclusion in this project ensures that rural hospitals will be relevant in the development of the alliance.

Myra, if you would please open the call for questions.

Thank you.

(Operator Instructions)

Jamie Stockton with Wells Fargo.

The first one, there was a big uptick sequentially in the Business Management Services.

I suspect that, that is a combination of the traction you guys have had with both CPSI and non-CPSI clients lately.

But is there anything else?

I know we had a little revenue recast from sport maintenance last quarter into Business Management Services.

Could you just give us some color on what is going on?

Yes, Jamie, good morning.

It's more to do with what we have continued to sell to our existing EHR customer base.

The three contracts in the first half of the year that were outside of our EHR clients, revenue from that will begin to be recognized in the second half of the year.

But it is a result of the renewed focus that we put on TruBridge as we announced that, and being more aggressive from a sales standpoint.

And notably, too, a result of more of our consulting services.

More specifically, our clinical consulting being utilized by our existing customer base.

So we are pretty fired up about it, given that we are seeing growth within our current customer base, but we're selling into the non-current CPSI customer base more successfully than we thought we probably would have at this point.

So we're pretty excited about where that is headed for the future.

Just so we don't get ahead of ourselves as analysts when we're modeling this thing out, is there any component of the clinical consulting that could fade some in the second half as implementation activity pulls back a little bit after we got past this July deadline to get live?

Or would you expect it to be more of a recurring revenue stream?

I would expect it to be more recurring, because a lot of it is around assisting our clients with their move towards Meaningful Use.

And it's not a one-to-one relationship with how many installs we are doing in a given period of time.

Okay.

And then, David, the G&A expense was high last quarter.

You guys had some relatively high healthcare costs.

It came down a little sequentially, but not quite as much as I thought it would.

Is there anything notable going on in that G&A line that could unwind as the rest of the year progresses?

Yes, perhaps the insurance cost did come down back in line more with the norm.

Our bad debt is a flat percentage of our total accounts receivable, including short-term receivables that you see there on the balance sheet.

And obviously that has grown because of the Gen 2 contracts.

So that is the majority of what you're seeing there in G&A.

In addition, we had a huge conference down at the beach.

All of our regional conferences were combined into one conference this year for the first time in this quarter.

In which we -- it was successful beyond our wildest imagination.

And because of that, we spent a good deal of money on that as well.

But those are the two primary items that were slight outliers.

The previous regional conferences, have they been spread out throughout the year historically and then they all got concentrated?

Yes, spread throughout the first half of the year.

And we didn't have quite the attendance that we had this year as well, so we didn't have the expense.

Okay, thank you very much.

You bet.

Thanks, Jamie.

[Jeff Garrell] with William Blair.

I wanted to see if you guys have already started to see any advantages of your early announcement that Version 19 is Stage 2- or year 2014-certified.

While we have noticed that some of your peers have not yet achieved that certification.

Yes, I think it is probably too early, because it was just in the last week or two that we did make that announcement.

But we certainly expect that to drive sales of prospects and just be one more feather in our cap, I guess you could say, that we can use to point to our continued success with Meaningful Use.

Yes.

And to add to that, to Boyd's comment, there is some uncertainty out there with some vendors whether their current version is going to get you to Stage 2, or if you are going to have to upgrade to a newer version.

Of course, we are quick to point out that while we only have one version of our system, and that all of our customers will have the same version of the system where they can achieve Stage 2 Meaningful Use.

And we think that is a plus as well.

So can you describe the revenue opportunity within your base, upgrading people to Version 19?

I thought the press release reference, there is some kind of revenue potential there, and also outside of your base.

I know that is a much bigger opportunity.

The Version 19 release, there is no revenue associated with that for existing clients.

That is part of our professional license.

But as long as you maintain being a customer and paying us software support and maintenance, that all upgrades to your software or new releases are at no cost you.

Great.

Then to just transition quickly to -- so we will talk about the competitive landscape.

And if we want to think about the cyclical nature that you discussed, but might we see that changed little bit as you are getting new clients onto a test for Stage 1, but there might also be a more robust replacement cycle to get clients that are on other vendors' systems to attest for Stage 2 using your system?

I know [Suran] yesterday commented that they think 2014 will be a big replacement year.

I wanted to see if you guys shared those thoughts.

I don't know that I could -- really willing to quantify at this point.

But I certainly think there is a possibility there.

I don't think it's any secret that certainly some of our competitors are struggling, and to say that [mission] a couple of them, you know, it's unclear whether their current version is even going to be Stage 2-compatible or not.

So there is a lot of uncertainty.

And I think another thing that a lot of people don't talk about, which is interesting, is ICD-10 coming up.

That's [to be] a catalyst for people to switch systems as well.

It certainly historically has been, when there is a major change to the billing like that, that vendors either [sun-tuck] products or they are perceived that their products are not going to be able to help them comply with ICD-10.

So both of those things I think bodes well for a healthy replacement market in 2014, and really in even in '15 as well.

So with that IC-10 deadline coming up October 1 of next year, should we think about Q2 being a big sales period and Q3 being a big install period?

Or is there any other seasonality aspects we should be thinking of for 2014?

That's all I'm aware of.

Certainly the potential exists there.

We will see.

Great.

And then one last question on the compatibility environment.

You talked about some of your traditional competitors struggling.

But is that being balanced out at all by some of the traditionally larger system-facing vendors coming downstream at all?

We are not seeing any more of that now than we have even a year ago.

We see very little of that.

Great.

Thanks for taking the questions, guys.

Certainly.

Sean Wieland with Piper Jaffray.

Just wanted to get my numbers straight on the accumulated unrecognized revenue.

So you recognized in the quarter about $1.4 million from that versus $1.9 million last quarter.

Do I have those numbers right?

I am showing $1.3 million, Sean.

Okay.

So does your text in the release says $3.8 million, but you said $3.9 million on the call.

Am I looking at the right numbers?

Because I am a little bit confused.

I am pulling it up.

The total remaining accumulated unrecognized revenue related to such contracts as of June 30 was approximately $3.8 million.

But I think you said $3.9 million.

I don't mean to split hairs, but I just want to make sure I'm looking at the right numbers.

Yes, I said $3.9 million.

$3.8 million was right.

So, I think it was $3.82 million, which is probably why I rounded incorrectly.

Okay.

So you are right.

$1.4 million is the number then.

You're right.

Okay, that's helpful.

And then I missed it, the number of core clinical apps that you installed in the quarter?

In the second quarter we installed clinical applications -- 15.

15.

Got it, okay.

Then really my other question is, we hear a lot of these other -- a lot of your peers talk about growth initiatives, thinking beyond the EHR, thinking about how to monetize the data through population health management and other initiatives.

How do you think about that opportunity?

Does that opportunity exist within your customer base?

I think it certainly exists.

I think there is still a lot of unknowns out there.

And being of a conservative nature, we don't speculate too much.

[you are getting too much] into speculation.

But I certainly think there is the potential there, and [it's really] with around 650 hospitals [Dave] and everything, and the government wanting access to it, that there is certainly some revenue opportunities there, of course.

All right, super.

Thanks so much.

Thanks, Sean.

Bret Jones with Oppenheimer.

This is Rohit in for Bret Jones.

So on the gross margin, it looks like the core business, ex-MU payments, was up substantially.

Is there anything going on there?

If I am looking at system sales ex-MU -- and I know you said it was a 90% margin, but just to assume 100% margin for simplicity, it looks like it was up about $2 million sequentially.

But COGS stayed flat.

What was going on with the improved margin?

This has happened in the past for us.

You know, our costs are reasonably fixed.

And so when system sales hit a certain point and then grow beyond that, a much larger percentage of it falls to the bottom line.

And when we have a quarter like we did in the second quarter, that's where you see the margin improvement there.

And that is what happened here.

Okay.

So there was no pricing or anything like that?

That's correct.

Okay.

And the headcount reductions.

Are they part of a natural attrition that you talked about, rather than a layoff?

And are they trending to where you want them to be?

They are certainly not part of a layoff.

They are absolutely just natural attrition.

And it is exactly what we have been telling you for the last several years, is that we would, at some point, stop hiring at least for a period of time.

And we stopped at the end of the September quarter of 2012.

And we might and we have done a small amount of replacement hiring over time, based on attrition.

But we expect -- as I said on the -- we expect that number to maybe trend down a tiny bit more and then stabilize.

But any downward trend is just attrition, certainly not layoffs.

Okay.

And then on the financing receivables.

I am assuming that is all Gen 2 contracts.

Is that correct?

So if I'm looking at it, it's $23.3 million in the first half, $7.7 million in the first quarter.

So it looks like an additional $15 million to $16 million of financing receivables.

But then you booked $19 million of bookings.

So is most of that finance?

Am I thinking about that right?

Yes, you are.

It is all Gen 2 contract stuff.

Okay.

And the competitive environment -- the last question is, the competitive environment that you mentioned last quarter, you had talked about competitors struggling.

Did you notice anything -- business from that in this quarter?

Any successes there?

Yes, we certainly stated last quarter that the prospect hospitals that are entering the pipeline, we are seeing more from current competitors than from legacy vendors.

And that has continued, and as a result of the struggles of some of the long-time competitors in the space.

So we are encouraged by that.

I will just echo what we said last quarter.

We think that bodes well for potential replacement business in, as Boyd said, 2014 and into '15 and '16.

Okay.

Thanks for taking the questions.

Thanks, Rohit.

David Larsen with Leerink Swann,

Congratulations on a good quarter.

Is there any update to the 35 installs that I think was guided to for 2013?

Yes, we've got 27 on the books right now, and we are still looking to achieve 35.

That remains to be seen.

But based on what we have in the pipeline and where they are from a maturity standpoint, we think that is still very possible.

Okay.

Because I think, didn't we do seven in 1Q, 10 in 2Q?

You're going to do six in 3Q, which means so you need to do 13 in 4Q.

Is that correct or not?

I don't know.

We did seven in the first quarter, 10 in the second, we got six in the third.

Your math is -- you can probably add in your head more quickly that I can, on a kindergarten level.

What is that?

I think that means --

23.

Yes, there you go.

So that would be 12 in the fourth quarter.

Okay.

So you are comfortable with doing 12 new installs in the fourth quarter?

I didn't say that.

I said I think it still remains a possibility, based on where the pipeline is.

Okay.

And then, in terms of the number of new clinical installs for 3Q, the five figure.

Was there anything unusual there?

I understand that there is cyclicality there, given the timing in Meaningful Use payments.

Did any deals push into 4Q or anything like that?

Or at this time, is it really just the timing of the Meaningful Use?

No, there were no deals pushed.

It is simply the timing of the Meaningful Use.

Okay.

And then just my last question.

In terms of the bad debt, I understand the way that you estimate it is a percent in your AR.

Has the actual write-off amount increased at all, given these next gen payment models?

Or have you pretty much been collecting on everything you thought you would?

No, we have been collecting on everything that we thought we would.

So it's not a result of anything in particular going bad, as such.

It is just a result of the overall percentage of what is outstanding.

Okay, thanks very much.

Thanks, Dave.

Sandy Draper with Raymond James.

Two questions.

The first one relates to support maintenance.

I can't remember, David, if you have gone to the revenue recognition on these new Gen 2 contracts.

If I remember correctly, the software and [assisted] the install portion [municipal] is recognized [if the] system goes live.

But then, obviously payment comes later.

Can you remind me in terms of maintenance support, is that start-up, normally when you start collecting cash and recognizing it, is that delayed?

I'm just trying to think.

You're generally pretty flat sequentially support maintenance, but your are starting to install more.

I'm just trying to see if there is a lag there, too.

Or trying to understand the trend line there.

Yes, we are -- with the Gen 2 contracts, the customer does not pay support us for support and maintenance until they achieve Meaningful Use.

However, we allocate -- based on accounting rules -- we allocate a portion of what would otherwise have been a system sales to the support and maintenance on a monthly basis until they achieve Meaningful Use.

So I think that is what you're seeing there.

Okay.

So you should see some very modest growth, but as people start to come on, once they have achieved Meaningful Use, then you will start to see the more normalized growth rate of just adding customers and going into maintenance support line?

That is exactly correct.

Okay, great, thanks.

Second question, taking a very conservative view, obviously you pointed out the cash balance and what happened there.

Helpful to hear the timing expectation.

But just from a management and maybe Board level, if things don't -- if a customer for whatever reason can't attest, something goes wrong, at what point do you guys look at saying -- okay, let's hold off on the dividend or bring down the dividend, because this transition is a little bit bumpy.

We need to take off a couple quarters.

Once we get there, we are okay.

But is there a cash level which you think -- okay, we need to hold off here just to be prudent?

I don't think so, Sandy.

We have looked at this very closely, and based on prior experience, and looked at worst-case scenario -- what is more probable -- and best case scenario.

And we feel very confident in our dividend going forward.

Okay, great.

Thanks very much.

You bet.

Thanks, Sandy.

Gene Mannheimer with B. Riley and Company.

Congrats on a good quarter.

Let's see, couple of quick ones related to -- I just want to go back to the unrecognized revenue from the prior year.

It looks like you got good visibility through about half of it, given that two of the hospitals have attested.

But how does one get comfortable that you get paid on the other two hospitals by Q4?

Well, because we know exactly where they stand in their attestation process and within their 90 days.

I think I mentioned on the call that the other two are attesting in August.

With all of these hospitals, we monitor in partnership with them exactly how they stand with regard to this whole process of achieving Stage 1 Meaningful Use beyond just the implementation of the products -- when they begin their period and how they are doing with the measures during the period.

And then obviously, with all of our experience now getting hundreds of hospitals are helping.

Hundreds of hospitals achieved this successfully.

We can fill them in on what we have learned from other clients on the best ways to attest and how to time it, and the hurdles they might have to overcome.

So getting two more hospitals to attest after the hundreds that we've already gotten there is not a hurdle.

We are pretty confident it will happen.

Okay, fair enough.

And then, David, given how you are tracking on your installation schedule year to date, are there any deviations from your guidance that you presented earlier in the year?

Is there a bias to the high or low end at this point?

I think it would be very difficult for us to install more than 35 systems this year.

As I said -- I believe it was Dave's question earlier -- I think it is very possible, based on the number that we already have to date booked, which is 27.

And based on where we are with our pipeline, I think it is very possible that we can do 35.

But to be much over that would be, at this point, difficult and not likely.

Sure, very reasonable.

Okay.

And then, last thing.

The physician applications that you installed -- I think there were 39 of them.

Is it fair to say that roughly two-thirds were physician documentations, consistent with prior quarters?

Yes.

Okay, thank you.

You bet.

Thanks, Gene.

(Operator Instructions)

Caroline LeCates with Lazard Capital Markets.

A while back, you discussed emergency department systems.

And I think the penetration was still very low, like under 1% of the base.

I was just wondering if there was any update there, or whether the sales focus has been on physician applications at this point?

We are -- the ED application is on Version 19, which we are beginning to roll out now.

We are dotting I's and crossing the T's, putting on some finishing touches on it.

And I believe as we said in previous calls, we expect to have it out at least in (technical difficulty) form certainly before the end of the year.

So there has been no revenue from it at this point.

But it is tracking well.

We are real pleased with where we are with the ED applications.

And like I said, before the end of the year, we should have several out there and deployed.

Thank you.

Sure.

Neil Chatterji with Sidoti & Company.

Actually, my question was also on the ED applications.

Just in terms of impact, so if it rolls out back half of the year, are you anticipating more of an impact second half of 2014, or would start to hit that first half?

I think, Neil, there will be a positive impact in the first half.

Certainly I think it will be more positive in the second half, but it should be full-blown -- late part of the first quarter into the second quarter of next year we should be installing that at a nice pace.

Okay.

And then just secondly, on the CommonWell Health piece that you had announced, in terms of any timing with any interoperability benefit there.

I mean, the pilot is going to start later this year.

Would you start to see some of that benefit next year then, or is it post-pilot?

The -- I'm not -- maybe quantify --

(multiple speakers) Probability in terms of working with some of the other systems through that alliance?

Yes, the pilot is just a test, right?

So the true actual benefit in terms of quality of patient care, I think it would be very optimistic to say we would see anything.

I think when we say the CommonWell alliance looks to achieve meaningful results by HEMS, that is meaningful in that it can be demonstrated this could be beneficial and that it actually works.

I don't care to speculate at this point when we could see meaningful results and interoperability that actually improve -- the end result here, which is to improve the quality of patient care based on interoperability -- so all that remains to be seen.

I think the important take-away is that we applauded CommonWell when it was announced and think it is a great concept and immediately we strived to be a part of it.

And we are now, and we are excited about it.

We think it is the right thing to do.

Whether or not it helps us -- certainly we are in the business of making money.

But whether or not this actually ends up helping us sell systems are not remains to be seen.

It is just the right thing to do.

Okay, that's helpful.

That's it for me, thanks.

Thanks, Neil.

Brian Hoffman with CPSI.

This is Brian Hoffman with Avondale, not CPSI.

Could you describe -- how you would characterize the RFP pipeline looking?

Specifically for patient and financial accounting and clinical solutions.

Are you starting to see any slowdown there?

No.

We saw a slowdown, a slight slowdown in the back half of last year.

It has remained steady since then.

I think that what we are seeing is, the total number is remaining steady, but the percentage that is replacement of existing vendors that were capable of helping hospitals achieve Stage 1, that is a higher percentage than it ever has been before.

In other words, the replacements of the old legacy systems, the number of vendors that are coming off those -- the number of hospitals that are coming off those type of vendors that are in the market, is down.

But the number of existing competitive replacements potentially that are in the pipeline continues to go up.

And is any one stronger than the other of patient [at franklin] accounting versus clinical?

It is virtually all clinical.

No one is in the market now because they are -- generally speaking, at least -- because they are unhappy with their patient and financial accounting system.

It is all based on who has the best clinical system and who can best help me achieve Meaningful Use and who makes the doctors the happiest.

It is all in the clinical arena right now.

Okay, thank you.

You bet.

Thanks, Brian.

Bret Jones with Oppenheimer.

I'm sorry, this is Rohit again.

I just had an additional question on the G&A.

Is there any way you could -- I think last quarter you said that the shock-loss plans were about $1 million.

And the 401k came at about $1 million.

Can you quantify how much the extra costs were from concentrating the businesses that the regional conferences all into one for the quarter?

It was about $0.5 million.

$0.5 million?

I'm sorry, what was the other?

You listed two reasons for the elevated cost.

What was the other?

It was a bad debt?

A bad debt.

A bad debt?

Okay, all right, thanks.

You bet.

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

I will turn the conference back to you.

Please continue with your presentation or closing remarks.

Great.

I would certainly want to thank everyone for their time this morning, and thank you for your interest in CPSI.

I hope everyone has a great weekend.

Thank you, ladies and gentleman.

That concludes our conference call for today.

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

Have a good day.