TruBridge Inc (TBRG) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Computer Programming Systems third quarter 2013 earnings conference call.

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

Afterwards we will discuss a question and answer session.

(Operator Instructions).

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

I would now like to turn the conference over to Mr. 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 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 third quarter, we installed our financial and patient accounting system in six hospitals and our core clinical departmental applications at five facilities.

Additionally, four hospitals implemented nursing point of care and 36 customers went live with physicians' applications which consist of ChartLink, CPOE and physician documentation.

Add-on sales to existing clients were $10.3 million or 22% of total revenue for the quarter.

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

We anticipate 10 new installations of our core clinical departmental modules, 10 nursing point-of-care implementations and 37 installations of physicians' applications.

Now that we have covered some of the metrics, I would like to share with you some overall observations.

The first item I would like to note is the return of our installation numbers to a more traditional level in the fourth quarter.

Speaking to this on our previous call, we were confident the reduced installation numbers in the third quarter were a short-term fluctuation.

Our installations that are scheduled for the fourth quarter has proven our perspective to be accurate and we certainly expect that success to continue into 2014.

Repeating the thought that I've shared with you numerous times, our market is subject to a degree of short-term volatility and the reasons for that are not always readily identifiable.

A major reason we are positive about our prospects going forward is that our track record of meaningful use success continues to grow.

We are now at 393 hospitals successfully attested, which remains significantly ahead of any of the competitors in our space and in the top three of all vendors in complete EHR certifications.

Our meaningful use stage-2 compliant version, Version 19, is already successfully installed in over 150 facilities and we fully expect to have the vast majority of our hospitals, more than 90%, on Version 19 by the end of the year.

We believe several of our competitors will struggle not only with Stage-2 certification of their systems but, even more challenging from my perspective, successful adoption and attestation by their client base.

This is where we have obviously excelled and we feel strongly that this will translate into increased opportunities for us.

We also feel positive about 2014 because of new product releases targeted for the first quarter, both of which we believe will contribute significantly to add-on sales as well as make our system even more attractive to prospective clients.

We are in alpha testing stage of a complete rewrite of our ambulatory EHR solution which we anticipate having ME Stage 2 certified by the end of the year.

We have had a tremendous amount of input and engagement from our physician community in this project and the feedback we have received from their review of the finished product has been extremely positive.

Given that many of the hospitals own some if not all of the physician practices in their community; we believe this will better position us to take advantage of this opportunity.

Also scheduled for release in the first quarter of 2014 is our emergency department application.

This application has actually been in our plans for quite some time but had to take a backseat to the MU initiative.

The project was picked back up in the latter part of 2012 and is now in alpha testing as well.

Given that the emergency department is the primary patient intake area for most of our hospitals, the need to automate and capture patient data here is significant.

All indications from our client base are that this is an application that will be very much in demand.

Now I would like to update you on the progress of our services subsidiary, TruBridge.

During the quarter, TruBridge executed 11 new accounts receivable management contracts, two of which were full services and nine for private pay and insurance follow-up services.

One of the private pay contracts is with a hospital that does not utilize CPSI as their EHR vendor.

On that front, we are excited about the pipeline of non-CPSI EHR prospects for TruBridge AR-related services.

We are well ahead of where we anticipated in this endeavor and based in our current prospects, we're looking forward to a strong quarter for those contracts.

Another area of TruBridge I would like to spend some time on is consulting.

The demand for consulting services in the rural community hospital sector is exploding.

ICD 10, DHR adoption, more stringent HIPAA requirements and a shortage of available expertise are all significant contributing factors.

We now employ 26 full-time consultants and we have seen consulting contracts and revenue increase dramatically, 68% and 45%, respectively, year-over-year.

We have no reason to expect this demand will do anything but continue to increase as market awareness about this service increases outside the CPSI client base.

All of which goes to say we are increasingly confident of the substantial business opportunity that exists for TruBridge to provide their services to all rural and community hospitals, not just the CPSI EHR system clients.

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

Thank you, Boyd, and good morning, everyone.

I have just a minute of prepared comments and then we will take questions.

Our employee headcount as of September 30 was 1420, up 10 sequentially and down 21 year-over-year.

The total accumulated unrecognized revenue related to the first generation meaningful use contracts as of September 30 was $3.7 million.

As of today, this figure is $2.8 million and is comprised of three hospitals.

We expect all of this remaining unrecognized revenue to be recognized in the fourth quarter.

Four of the six new client installs we performed in the third quarter were gen 2 contracts.

One was SaaS and one standard.

Of the eight scheduled fourth-quarter installations, five are gen 2 contracts and the remaining three are standard payment term contracts.

Since December 2012, we have performed 22 new customer installs under gen 2 contract terms.

Of those 22 implementations, 19 have successfully attested for Medicare meaningful use as of today.

In September and early October, we noticed a slowdown in the processing and payment of Medicare meaningful use funds to our client hospitals by CMS.

It is unclear if this is the result of the first threatened and then eventual government shutdown, but it would certainly appear to be related.

However, within the last two weeks, several of our customers have been paid for their Medicare meaningful use funds and several others have been moved to the locked for payment status in the CMS system, which in our experience typically means they will receive their funds within 3 to 4 weeks.

Because of this and based on our record fourth-quarter collections experience last year, we currently expect well above average cash collections in the fourth quarter.

Finally, our total backlog of $163.4 million as of the end of the third quarter is a record by $5 million.

A large component of this increase consists of software and services needed to achieve Stage 2 meaningful use objectives, both for new client hospitals and existing customer facilities.

We believe this bodes well for continued growth and execution in the fourth quarter and well into 2014.

Charlene, if you could please open the call for questions?

(Operator Instructions) Jamie Stockton, Wells Fargo.

Just to start off with the Stage 2 commentary or a couple of questions around Stage 2, it sounds like you guys are making a lot of progress with your current installed base.

Two questions -- one, for the hospitals, the 150 or so that have already implemented Stage 2 compliance software, what is the experience that they have had so far?

Can you give us any color on their experience as far as trying to hit the higher usage thresholds?

Is it something that they are generally able to do and we shouldn't ultimately see any issues with being able to meet Stage 2?

Or, do you feel like that is part of what is driving a lot of the demand for the consulting services, is helping them make sure that they are getting over those thresholds?

I feel reasonably strongly, Jamie, in saying that it is something that -- are generally able to do, and to borrow from your phraseology there.

I feel that because at this point, anybody that's trying to go from a threshold of 30% to over 60% with CPOE, and now with the implementation and utilization of [FISDOC], they have got a physician staff at the hospital that is now familiar with the look and feel of the technology.

They have experienced success with it.

And so it's a much easier hurdle to jump over than it was to go from nothing to ChartLink and then CPOE in the first place.

We certainly haven't had anybody actually attest yet, and I think that part of the reasons why the backlog jump is a lot of hospitals that are purchasing the software to be able to attest in the first half and probably, particularly, in the second and third quarters of next year, which, as you know, is the time frame in which those hospitals that attested for Stage 1 in 2011 and 2012 need to attest by October of 2014.

But we are hearing a lot of positives and very little negatives about those applications.

As for your comment about the consulting services, I do think hospitals that I think most notably don't have full-time staffing in their IT departments with clinical professionals in many cases lean on our consulting services to help them either roll out this stuff initially to their physician staff or to complement the addition of, say, a physician documentation application on top of what they already have.

Okay, and just to stick with Stage 2 and the changes in the marketplace that could be driving, it does seem like some of your competitors, like you, alluded to, or I think actually maybe Boyd alluded to our having some issues with Stage 2, hadn't gotten certified nor hadn't gotten all their systems certified yet.

Have you seen an inflection point in the number of RFPs that are coming out because of some of your competitors, legacy customers, aren't going to have a Stage 2 certified product that they are on today?

Or, is that something that you think is still to come as far as the pipeline is concerned?

An influx might be a bit strong, but we certainly have, and as recently even has yesterday, have new prospects that have attested successfully Stage 1 with another vendor that has not yet achieved Stage 2, and we think and have been told that the primary reason they are now looking at us aggressively is because we are.

The second part of your question, we do expect more of that.

I will just add a little bit to that, Jamie.

This is Boyd.

In addition to that, like David said, these hospitals have achieved Stage 1, but it was a real struggle.

And we certainly can present them with customers of ours that can demonstrate to them that it wasn't necessarily a struggle for their facility.

A lot of times the struggle -- and that's the second part of my comment.

Getting certified is one thing, but we think even the bigger challenge is the usability of the software and getting people to use it.

That's where a lot of hospitals are struggling as well.

Yes, they achieved Stage 1, but it wasn't easy.

Boyd, would you report on repeat the growth statistics that you threw out about the consulting business one more time for me?

And I will leave it at that.

Sure.

The consultants -- first of all, we have now got 26 full-time consultants.

Consulting contracts year-over-year are up 68%, the number of consulting contracts.

And the revenue from those contracts or the revenue from our consulting division is up 45% year-over-year.

Thank you.

Ryan Daniels, William Blair.

I want to follow up on your commentary on the strong demand in the consulting services.

Number one, just curious if that is both inside and outside of your customer base or if you're just focusing on your customers.

Then number two, given the growth there, are you having any difficulty ramping the workforce quick enough to have enough fully trained consultants to get on the field to meet this demand?

The consulting at this point primarily consists of existing customers.

We believe we have two customers outside the CPSI EMR customer base that have contracted for consulting services as of today, and it's certainly an area that we think there will be hopefully substantial growth in the future.

However, certainly the growth numbers that Boyd presented were primarily and substantially with the CPSI EHR base.

In terms of the second part of your question, generally speaking I would say no.

We don't have too much trouble both from combination of getting folks from -- that have worked successfully as clinicians and IT professionals in hospitals, and also, in some cases, getting folks with similar talents that have worked CPSI for any number of years that have shown the ability especially to work with clinicians and, in particular, physicians at our client facility.

So it's always a challenge to find good people to do anything, but I would say we've had a lot of success ramping those numbers up and it's not something we are particularly concerned about going forward.

We think we will be able to get good people.

Okay, great.

It certainly sounds like TruBridge -- the reception in the market and results thus far have been ahead of plan.

It sounds like Q4 has a good pipeline.

Is there anything in particular that has surprised you, especially as you have gone outside of the CPI customer base?

It sounds like you are at three facilities now, maybe seeing more demand there.

So I'm just curious if you have any color on what is driving that above your expectations.

No, nothing I don't think particularly insightful, other than the fact we thought based on our experience with Business Management Services prior to it being TruBridge within our current customer base, it appeared obvious that these services were something that small hospitals were clamoring for and that they don't necessarily need to be provided by their IT vendor.

It can be independent of that.

I think that perhaps has played out a little bit more positively than we might have hoped it would to this point.

So I think the bottom line is, if it's something that the hospitals need and you have shown success and can demonstrate very easily that you have had success providing those services, then it's a relatively easy sale.

And then two more quick ones.

In regards to the gen one meaningful use, I think you exited second-quarter at $3.82 million and you mentioned in the press release and I think your comment that was $3.7 million.

So what -- I know it's small, but the reason for the $120,000 downtick during the quarter?

The monthly payments that hospitals make to us prior to getting their meaningful use money with gen 1 contracts. .

Last question just on the pipeline -- you discussed this a little bit, but I just want to get a feel for year-over-year what you're actually seeing in the pipeline.

I don't know if you have growth metrics, you can talk about year-over-year growth.

I know you have indicated that the competitive market by be loosening with some of the meaningful use stage 2, but do you have a feel for the overall pipeline size?

I would say the biggest component, which we believe is a net positive, is it is comprised more of potential replacements because of what we already talked about with Jamie's question about folks moving to stage 2. It's more of that than just hospitals that still need to get a system in order to even attest for stage 1. So I think we would characterize it as solid, and I would say similar in number to what it was a year ago.

Are you seeing a better win rate, or is it too early to tell, again given that none of your competitors appear to be certifying --

We have definitely seen a better win rate in 2013 than we had in 2012.

Okay, perfect, thank you, guys.

David Larsen, Leerink Swann.

There was a pretty good decline in operating costs sequentially.

Can you just clarify what drove that, please?

Nothing specific.

Again, based on our first quarter experience, you know our insurance costs have continued to go down, which again, repeating, is in large part unpredictable.

401-K match is completely done for the year, essentially, so we have factors that influence the first and second quarter and they are certainly better than the third.

But other than just general cost control, that's it.

Okay, that's helpful, thanks.

Can you talk a little bit about the rewrite of ambulatory product?

Is this a new product that can go into standalone physician offices in the community, or is it more of the product that is still attached to the core hospital solution?

It certainly can go in a standalone.

We have for 20 years now not marketed it to standalone physicians.

We do market it to the hospitals that either own or manage the physician practice, and we haven't change that philosophy at all.

Certainly it can be run as standalone.

More importantly and certainly what we bring to the table that we feel like no other vendor really does is it's fully integrated.

So to your point of is it tied into the hospital, it is the hospital.

It is one big database, it is one big set of data for these patients across the continuum of care.

So that's a distinct advantage that we've got over most of our competitors that have either acquired or partnered with a third-party physicians platform.

One fully integrated platform gives you a competitive advantage in some cases.

Okay.

And then can you just talk about who you are winning share from?

Like if we assume the last 90-day window for hospitals to attest and receive 100% of Stage 1 dollars in many cases was 7/1/13 to 9/30/13, and we are now moving obviously beyond that window.

How sustainable do you see this demand for core solutions.

Who are you winning share from?

Are there still greenfield opportunities?

We don't want to comment on who we are winning share from in particular.

There's only a handful of folks that are out there, so you can probably guess.

But in terms of greenfield opportunities out there, there's not a whole lot left.

And critical access hospitals have another year here for Stage 1, so there are still some critical access hospital greenfield opportunities that will continue throughout the majority of 2014.

But in large part, after that, the greenfield opportunities have disappeared.

Which is why we have made comments on two of the last three calls or whatever about how pleased we are that our pipeline now -- the number of replacement hospitals in the pipeline in terms of -- when we say replacement, we're talking about hospitals that are on a vendor on which they either have or have the capability to get to Stage 1 meaningful use, but they're looking to someone like a CPSI to get them to Stage 2 and beyond.

Great, thanks very much.

Bret Jones, Oppenheimer Funds.

I wanted to ask quickly on the total number of core installs, it looks like it's going to hit about 31 this year.

I know at the beginning of the year you were budgeting 35.

Did that just become an unrealistic number with the 3Q installs, or did you have capacity to have potentially made the full-year number in the fourth quarter, or did the deals just slide?

The 35 was a number that I threw out in conjunction with our annual guidance in the first quarter and will do again for 2014 on the next call.

Yes, certainly the fact that we did six in the third quarter hurt our potential to reach 35.

Internally it's not something that we are particularly concerned about, it's just a metric that we like to provide the investment community; here is what we are thinking.

And I think our add-on business has certainly more than made up for it.

What we do think about internally is are we getting in the deals that are out there, are we being considered.

And certainly that's the case.

And then how are we doing competitively once we are in there's deals?

And we feel very good about that right now.

That makes sense.

I was also wondering about the ASP, if you could talk about that in this quarter.

If we look at system sales relative to the number of installs you did this quarter, it feels like the deal size had to have been larger.

I was just wondering if you -- intuitively, should we expect -- I would expect smaller deals going forward.

No, the deal size is -- has been creeping up.

I don't want to say they will go up much from what they were maybe in the third quarter, but this is -- for a relatively obvious reason, in that anybody that installs our system at this point has to install essentially all of the modules up front, because they are either installing the system in somewhat of a rush to be able to attest to Stage 1, or they have already attested to Stage 1, so certainly you have to replace all the functionality that you currently have, plus look to install the functionality that you need for Stage 2 in a relatively short time frame.

So obviously gone are the days of installing financial and patient accounting applications and then six months to a year later some clinical and then six months to a year later doing point of care and the physician apps.

Basically everything is being installed up front.

Great, and then just one last one.

I wanted to just talk on or touch on your allowance for doubtful accounts.

It's holding pretty steady.

The gen 1 deals have been pretty stubborn to roll off.

And I know you said the government shutdown might have had an issue there.

Is there anything we should be concerned about in terms of their ability to collect the generation 2 deals?

No, we are not.

We feel really good about that, especially -- I will say, to be frank, with feel a heck of a lot better about than we did two weeks ago just because the money -- when I say the money has been flowing in the last two weeks, some dam broke somewhere.

But no, we haven't had any of these go bad.

As I've said before, really the only risk is at the time that we are holding that AR out there, is if the hospital shuts down.

That hasn't happened yet.

We certainly don't expect that it would.

But our allowance as a percentage of our total AR -- that's why the number has gone up during these gen 2 deals, but we feel really good about it going forward.

As I alluded to on the call or stated on the call, we think our fourth quarter cash collection should be relatively substantial, and therefore, if that's the case, the allowance number should go down.

Great, thank you.

Sandy Draper, Raymond James.

Just a couple quick questions.

I got on the call a little bit late, so David or Boyd, I don't know if you had talked about the outsourcing was down a touch sequentially, still up nicely year-over-year.

I think it did the same thing last year.

Is there some sort of a seasonal pattern there?

Obviously, it sounds like things are growing.

I'm just trying to understand the sequential downtick, what drives that.

Yes, they are growing, and that's certainly a number that we look probably more than anything else here.

We look at year-over-year.

It really has to do with a large percentage of that revenue is a percentage of cash that we collect on behalf of our customers, whether it's private pay or we run the full business offices or some combination thereof.

And that can vary, and that was the case quarter over quarter.

But in terms of the number of overall clients both within our current EHR base and outside continues to grow.

Right, okay, so there's nothing in there that's an attrition where a couple people left and it's down because of lost customers?

That's correct.

Okay, that's the first question.

Second, maybe a little bit of a follow-up to Brent's question.

And I'm not sure, I know you guys don't fine-tune and split hairs on guidance.

But when you look at the broad range of guidance and then coming in below that 35 target, it looks to me, especially if you end up getting the full $3.7 million, I guess, of the unrecognized contingent revenue, you are going to be closer to the midpoint of guidance, would be my guess.

So I'm just trying to understand.

It sounded like maybe -- said that the new sales may have been lower than you would have wanted relative to that guidance.

But it sounds like you have made it up in other places.

Did I hear right, that it's -- is it really primarily add-on sales --

Yes.

-- Or are there other areas that caught it up?

Because I would think you would be tracking more towards the low end of guidance with the miss on the new business, just trying to understand where the different bearing points are there.

Yes, I'm trying to steer clear of commenting on the guidance.

But I've already stated that add-on sales have picked up the slack from doing less than a handful less of new installs than we might have anticipated at the beginning of the year.

The other thing too was -- also was alluded to in response to Bret's question, which is the contract size.

Even though we certainly anticipated that they would be substantial based, again, on all the applications that hospitals need to put in now rather quickly, but that perhaps has been a little better than we would have thought too, to help make up for that.

Okay, great, that's really helpful.

And then one final question.

You talked a lot in the prepared comments and some of the Q&A about folks on meaningful use Stage 2 with some of the new products and enhancements, etc.

But I'm just curious -- how much is in your pipeline, if anything, of people who haven't done really anything that -- it may not be totally greenfield, but they don't have a current system that's going to meet?

And I'm just trying to understand the potential for any new demand as people focus on October 1, 2015, we don't have a system that's certified, we start to hit the penalties.

Where does that come into play as a driver versus the folks on meaningful use on Stage 2 and some other stuff?

This wasn't the case a couple of years ago, but as of right now I know of no hospital out there that's saying we are on a system now that can't get us to meaningful use and we are just going to make sure that we have that in place prior to October 2015 so that we don't get penalized.

We do have a small amount of hospitals in the pipeline that are critical access that are looking to get a system that they can attest to Stage 1 for, before October of 2014.

So I think that -- at this point, I don't think that we think that there's going to be any implementations in Medicare fiscal year 2015 that are hospitals that are buying a system just to avoid the penalty.

That could change, but we are not aware of any.

Okay, that's helpful, thanks.

Richard Close, Avondale Partners.

I just wanted to hit on the ambulatory rewrite a little bit more.

And I apologize if I missed this.

But what is essentially the genesis of the rewrite?

Is it something where you felt that maybe your offering was deficient compared to competitive offerings?

Is it something that maybe you had lost a customer to because of the ambulatory EMR?

Just curious in terms of what led to that.

The main driver that led to that is our success with CPOE and physician documentation.

We took a lot of the processes and procedures that have been put in place there that we have been wildly successful with and have merged those, if you will, into the EMR.

But it was almost easier, or it was easier and we made the decision to basically rewrite that MP EMR portion of the system and use a lot of those technologies, tools, programming languages, whatever to do that to achieve truly one system where when the physician logs in, if they want to enter an order, for example, that order entry screen is exactly the same whether they are in the hospital or whether they are over in the clinic.

So the main driver for that, again, was the development of the physicians' applications on the hospital side.

We thought that had relevance to the physicians' clinic, so we did it that way.

On the generation 1 contracts, was the amount that you recognized in the third quarter below what you originally anticipated?

Any thoughts around that?

It was definitely below what we originally anticipated.

It was only -- as I believe we spoke about with Ryan's question -- it was only amounts that were related to monthly payments that they make prior to achieving meaningful use.

In the prepared comments -- I don't know if you were on then, Richard -- we are down now to, as of today, to 2.7, I think I said, or 2.8.

Do you think that was just timing?

I think it was delay in money flowing from the government.

I know it was.

I know when they attested and I know when they got paid.

And we have had some recently take more than 12 weeks.

That number was 6 weeks 9 months ago.

Okay.

Any thoughts around ICD-10, how your customers are dealing with that?

Is that any of the consulting and advisory services that you are offering?

Any help on that would be great.

Sure.

We are certainly, have got all the ICD-10 software out there in version 19, so it's out and available.

Absolutely it is driving a lot of the consulting business.

There's a lot of unknowns and a lot of training that we can do on the front end to help ease that.

And it really is a follow-up to Sandy's question a minute ago, as far as driving factors for people looking for systems.

I think a lot of people were overlooking what ICD-10 potentially could be for us because while there may be companies out there that can meet Stage 1, there may be some questions surrounding ICD-10, are they going to be ready for that.

At least if you look at history, that has always been a driver if there is ever a major change to the billing aspects.

That usually eliminates some of the competitors or has products get sunset because vendors are not willing to update those products to handle that.

So certainly ICD-10 is a big factor out there that I think because of all the meaningful use talk a lot of people are overlooking.

And my final question would be, given meaningful use Stage 2 and thinking about people possibly switching vendors in order to do that, you talked a little bit about that.

But as we think about 2014, and I know you're not going to give guidance, anything on this call, but conceptually as we think about 2014, do you think it's a little bit more on the decision front, front-end loaded and implementation front-end loaded the first half of the year?

Or how do you think about how things will progress throughout the year in 2014?

There's certainly an argument that it will be front-half loaded for the reasons that you are well aware of, both for new client business and add-on business.

Now, whether that comes to pass or not remains to be seen.

There will still be -- we have had 100-something customers attest to Stage 1 meaningful use in 2013 that will attest to Stage 2 meaningful use in Medicare fiscal 2015, which obviously that provides a great opportunity for us in the back half of 2014 and in the first half of 2015.

But the honest answer to your question right now is, there's certainly logic behind the fact that it would be front-half heavy.

Okay, thank you.

Sean Wieland, Piper Jaffray.

Good morning.

I want to clarify something.

Did you say that there was $10.3 million of add-on revenue in the quarter?

Let me go back to that number.

That sounds right, but let me -- where is that in my notes?

And is that -- help us break that out.

Is that all system sales revenue or is some of that support and maintenance and does some of that include TruBridge?

No, it's all system sales, and it is $10.3 million.

I'm sorry, you said it was all system sales?

Yes.

So if that's all system sales and we're looking at a system sales number of $16 million and there wasn't really the $100,000, I guess, of SaaS -- of the gen 1 conversion revenue, I guess I'm having a hard time getting down to your system sales number without taking the average selling price of the modules that you sell.

And you said that you were seeing an increase in average selling price.

So can you maybe help me figure out the system sales number a little bit?

I'm not necessarily following you.

I've got a guess right on top of my head, and I don't remember what the number David gave was, but at least one of the installs was an ASP model.

So we don't get the revenue from that when we install it.

Do you remember what the add-on revenue was last quarter?

I do not.

It would have been in my prepared comments.

David might have it.

$9.6 million.

$9.6 million.

It was $9.6 million last quarter?

Okay.

All right, great.

And then you said you didn't want to take a bait on guidance; I will try to go fishing a little bit.

Can you steer us towards the low end or the high end of the full-year range for this year?

No.

We don't do that.

And how do we think about looking into next year?

How do we think about earnings growth with this conversion?

How we think about it with this what?

With respect to earnings growth for next year, given that this high-margin conversion revenue is going to fall out of the model.

We provide guidance for next year at the first-quarter earnings release and the first-quarter call.

Okay, I will hold tight till then.

One last question, then.

A few questions to ask on the EHR.

Do you know how many physicians in total are employed by your existing customer base, and maybe how many are affiliated, just to give us a market size for that?

That would be an interesting number, frankly.

I don't think we have that.

We mention in our little about CPSI thing at the end of all our press releases that our system is utilized by 12,000 providers, but that's not broken out by how many are owned or how many are affiliated.

We might look into that; that would be a good number to know.

All right, I'll make a note to ask next quarter.

Thanks a lot.

Leo Carpio, HM Global.

Good morning, gentlemen.

I actually have two questions.

First, can you provide us an update on the competitive environment in terms of what competitors are you seeing?

Are you still seeing some of the larger players will come in?

And is consolidation a possible headwind for you?

And then the second question, in terms of the pipeline, it sounds like TruBridge is starting to make some inroads that are non-CPSI based.

Is that building up very well into next year?

The second part of your question first, it's fresh in my mind.

Yes, it's the non-EHR component of prospects within TruBridge's pipeline is certainly building into next year.

We are very excited about that for next year and beyond.

The competitive environment -- maybe two general comments, one being that the competition from what we think around as the low end of the market, those that have entered the space at the very small hospital end of the market within the last couple years has certainly decreased and has continued to decrease I think as some of those vendors have struggled substantially with implementations and getting their hospitals to Stage 1 meaningful use, much less getting their own systems certified for Stage 2 and then being able to think about their getting their hospitals to successfully attest for Stage 2. So that has been a positive for us a positive for us, both in terms of replacing some of those implementations and then not having some of those vendors as competition in new deals that we are working on now.

We are seeing, at least certainly in the last quarter, we saw a bit more Cerner than we have in the past.

I know that is a question that we have consistently gotten from the investment community.

We don't know yet if this is a trend and that will continue.

But it is something that we definitely noted in the last quarter.

I think those were your two questions.

Just one last follow-up question, in prior years, you've had a true-up in healthcare costs in the fourth quarter.

What are you seeing now in terms of your healthcare cost?

Is it a normal trend or is there some sort of true-upping or -- just wondering how that is turning into 4Q so far.

Are you talking about (multiple speakers)

Yes, your self-insurance cost.

Yes, as you saw from what happened in the first quarter and then it being so ridiculously high and then it's relatively low in the third quarter, I think it's very unpredictable.

I have no way of knowing what that number is going to be in the fourth quarter.

It depends on our claims experience.

However, as we said in the first quarter, we have met our deductible for the shock loss.

So that limits the high-end exposure somewhat.

So I certainly don't expect that it would reach a number as high as the first quarter, even in the worst case scenario.

Thank you.

Frank Sparacino, First Analysis.

Just one quick one, going back to the ambulatory side.

Boyd, I think in your comments, I'm just trying to figure out for the existing users today, will the new product be essentially a free upgrade?

I'm just trying to reconcile that with your comments around being a significant contributor to add-on sales next year.

Yes, it will.

Okay.

So is your belief, then, that there are more physicians you will be able to attract with the new product, or how do you look at the add-on contribution next year from that?

Absolutely.

We think there's lots of physicians out there that will be very interested in this product that are just -- or kind of similar parallels, but they may have met Stage 1 with whatever product they're using, but the lack of integration is very frustrating for them and they realize going forward with everything being electronic in an EMR, that lack of integration is going to be key.

We feel like we have got a great solution for them.

Okay, great, thank you, guys.

(Operator Instructions) Gene Mannheimer, B. Riley & Co.

David, just to clarify for me, the amount of revenue that has yet to be recognized from your gen 1 contracts left over from last year is $2.8 million or $3.7 million?

$2.8 million as of today.

It was $3.7 million as of September 30.

Oh, perfect, thank you.

And with respect to MU attestation, certainly last year we saw a big second quarter followed by a hangover effect, if you will, in the third quarter.

Is it shaping up to look like that again in 2014?

Again, I want to -- short of giving specific guidance.

Thank you.

Yes, I believe, as we were talking about with -- I don't remember, it was either Richard or Sandy -- there is definite logic behind the fact that 2014 could be front-half loaded.

We will see how it plays out, but it's an interesting combination of somewhat of a final opportunity for critical access hospitals to attest for Stage 1, and at the same time, hospitals that attested for Stage 1 in 2011 and 2012 needing to attest for Stage 2 and needing to install the products necessary to do that prior to the end of approximately June so that they can attest to that by October -- or so that their 90-day window can begin at the beginning of July.

So we will see how it plays out.

Okay, thanks.

Boyd, can you give us a feel for maybe the percent of customers in your base that would be likely to adopt the ED product beginning next year?

Beginning next year, I would say half.

Over the next several years, half would be -- that's what we are looking at.

Okay.

So there are certainly a portion of your base that is using some competitive ED product that they are probably not inclined to switch out of?

Certainly, yes, that's true.

There's also hospitals that don't have an ER volume large enough to justify purchasing a product from anybody.

Got you, okay, thank you.

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

I will turn the call back to you.

Please continue with your presentation or closing remarks.

Great, I appreciate everyone's time this morning.

Thanks for your interest in CPSI and I hope everyone has a great weekend.

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

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