TruBridge Inc (TBRG) 2014 Q4 法說會逐字稿

Welcome to the CPSI fourth-quarter and year-end 2014 earnings conference call.

(Operator Instructions) As a reminder, this conference is being recorded Friday, January 30, 2015.

I would now like to turn the conference over to Boyd Douglas.

Please go ahead, sir.

Thank you, Benjamin.

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

During this conference call, we may make statements regarding future operating plans, expectation, 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 risk, 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.

I would like to begin by taking a few minutes to speak in some depth about our fourth-quarter and full-year 2014 results.

Clearly, our system sales results for the fourth quarter fell below expectations.

However, while we were disappointed with our end-of-year financial performance, we are more than satisfied with our execution during the five years since the passage of the ARRA.

Meaningful Use represented an accelerated paradigm shift in electronic health record adoption for hospitals and providers.

Not only did we meet this challenge, we excelled, as our numbers have borne out since day one, with the most important of those numbers being the hundreds of millions of dollars received by our customers for achieving Meaningful Use success.

The slowdown in system sales we had anticipated occurred sooner and more dramatically than we expected.

With the benefit of a large degree of hindsight, we can point to several reasons that this occurred.

As many of you are aware, the Meaningful Use attestation period for 2015 was increased from 90 days to 365 days.

The 2015 attestation period for hospitals began October 1 of 2014.

We believe this caught a number of hospitals unprepared to start a year-long attestation period on October 1.

With that being the case, they made the decision to completely forgo attestation for 2015 and focus on attestation in 2016 instead, resulting in a delay of software purchases necessary to meet the Stage 2 requirements.

It's worth noting that CMS announced yesterday their intent to consider a change in the attestation period for 2015 back to 90 days.

Should this occur, and all signs indicate that it will, we believe this will positively impact attestations in 2015, though to what degree remains to be seen.

Also by midyear of 2014, the vast majority of hospitals in the country, including rural and community hospitals, had implemented an EHR system in order to take advantage of the Meaningful Use program.

Based on this fact alone, greenfield opportunities for new system sales are few and far between.

In addition, there are a couple of additional factors that are acting to further exacerbate the situation.

Obviously, all of these hospitals have at least attested to Stage 1 Year 1, and many are in their second or third year of Meaningful Use attestation.

Therefore, there is great reluctance to undergo a conversion process and new system implementation in the midst of a year-long attestation period that would put at risk losing Meaningful Use funds for the year.

However, the CMS announcement yesterday could also have a positive impact on the situation.

Finally, community hospitals in particular have invested a great deal of capital in EHR systems since 2009.

For many of those, even more proportionally than their larger counterparts.

Given that level of investment, they are hesitant to spend additional funds and resources on a new system at this time, regardless of what their level of dissatisfaction may be with their current vendor.

With the uncertainties around the effects of the Affordable Care Act and the other potential reimbursement changes in the future, building and preserving capital is at the forefront for community hospitals.

All these factors have combined to create a post Meaningful Use market that is soft at best and with various few exceptions, has yet to materialize.

As stated earlier, we are pleased with our execution around the factors that we can control.

Namely, our win rate and competitive new client deals and our current client retention rate were both at five-year highs during 2014.

Our continued success with Meaningful Use Stage 2, which I will detail in a moment, remains the best in the healthcare IT industry.

Impressive TruBridge growth, which David will address in his comments, continues as a result of execution, both within and outside of the CPSI customer base.

And we continue to develop new products, services, and markets that will allow for future system sales growth in 2016 and beyond.

Regarding new customer contracts, we continue to win more than 50% of the deals we are involved in.

Earlier this week, we executed a system purchase agreement in excess of $2 million as a result of a competitive process in which we beat a long-time competitor and are displacing another.

But as I stated before, these competitive deals are few and far between.

We do expect the displacement market to heat up at some point in the short to midterm future, based on dissatisfaction levels with current EHR vendors and expected vendor product version sunsets in conjunction with Stage 3 Meaningful Use.

Regarding new products, our recent implementations of our emergency department system have gone extremely well and as a result, the install schedule for this application is picking up steam, with 10 installs scheduled for the first quarter and a potential 12 slots per quarter beginning in April.

Another recently developed product, our medical practice management EHR, has been favorably received and is selling well to physician clinics that are owned or managed by our client hospitals.

As a result of this success, we have made the decision to offer the products to the standalone physician practice market in several different models, with the primary one being a single monthly fee cloud-based offering.

Our initial target market will be all of those practices in the communities where our hospitals are located.

We believe our ability to offer integration with the hospital EHR, thereby ensuring a single patient record and a consistent user experience for the physicians between their practice and the hospital, will give us a significant competitive advantage.

Two additional products currently in development that we plan to roll out in 2015 are a physician iPad app and a nursing documentation content solution that will be available on a subscription basis.

And finally, with regard to new products, I would like to spend a moment on the progress of our predictive analytics project.

We are making good headway and expanding our knowledge base of the technical aspects involved in manipulating and using Big Data every day.

Every day also confirms for us further not just the possibilities around the use of predictive analytics and healthcare, but the necessity of it.

HHS obviously feels the same way, with their announcement Monday of their intent to move away from fee-for-service to quality-of-care based payments at a very accelerated pace.

The use of data analytics is going to be a key component for providers in transitioning to this payment model.

Our immediate focus is around some acknowledged needs, such as identifying patients most likely for readmission at or before discharge.

We believe potential applications, though, are wide and far-ranging, from day-to-day operations and revenue cycle management and enhancing clinical decision support broader applications around population and health management and new reimbursement models.

What functionality and services we will make available and when will be market-driven, but we fully expect to commercialize our initial offerings sometime late this year.

Before I turn the call over to David, I would like to provide a little more detail to our industry-leading Meaningful Use success.

From the most recent CMS figures as of November of 2014, CPSI leads all vendors, with 195 hospitals who have successfully attested to Stage 2 of Meaningful Use under the complete EHR inpatient hospital designation.

In addition to surpassing those vendors who operate in the large hospital space, we continue to dominate our traditional competitors in the rural hospital market, with more than double the Stage 2 attestations of any other vendor.

From a more current perspective, as of January 23, a total of 220 of our clients met and attested to Stage 2 requirements for federal fiscal year 2014.

Clearly, we are very pleased with this level of success.

As you may remember, I've referenced before the significantly higher standard that is required to achieve Stage 2 of Meaningful Use.

As a follow-on to that, it is interesting to note that approximately 20% of our client hospitals who were eligible for Stage 2 in 2014 chose either not to attest in 2014 or take the exemption offered by CMS and attest to Stage 1 objectives.

Without a doubt, this is indicative of the increased difficulty in meeting the Stage 2 measures.

We also were certain the 365 day reporting period for 2015 was going to have a detrimental effect on attestation numbers for the upcoming year.

With the CMS decision to revert to a 90 day reporting period, this is no longer a concern and is no doubt a positive development.

Regardless, we are extremely proud of the 80% of Stage 2 eligible customers who accepted the challenge and achieved Stage 2 in 2014.

We are more than confident our success rate compares favorably across the industry and fully expect a continuation of that performance in 2015.

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

Thanks, Boyd, and good morning, everyone.

In the fourth quarter, we installed our financial and patient accounting system in two hospitals and our core clinical departmental applications at five facilities.

Additionally, 6 hospitals implemented nursing point of care, 4 installed our new emergency department application, and 22 customers went live with physician applications, which consist of ChartLink, CPOE, and physician documentation.

Add-on sales to existing clients were $8.4 million or 18% of total revenue for the quarter.

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

We anticipate five new installations of our core clinical departmental modules, 3 nursing point of care implementations, 13 installations of physician applications, and 10 ED implementations.

We also expect to install our new medical practice management EHR package at 14 facilities, representing 86 physician providers.

Our employee headcount as of year end was 1,372, down 14 from last quarter and 18 year over year.

CapEx for the quarter was $722,000 compared with $310,000 for the same quarter last year.

As stated in the earnings release, we have $500,000 remaining and unrecognized revenue from gen 1 contracts.

This amount is comprised primarily from one customer that has successfully attested to MU Stage I.

However, the MU payments that the hospital received in the fourth quarter did not cover the amount due to us for the system.

The hospital is reducing its MU receivable monthly and between the monthly payments and 2015 MU expected payments, this receivable should be paid in full and recognized as revenue in 2015.

Our full-year financial guidance for 2015 calls for gross revenues of $196 million to $206 million, a net income of $2.62 to $2.77 per share.

This guidance is based on a 25% to 30% year-over-year decline in system sales, a 7% increase in support and maintenance, and a 15%-plus increase in TruBridge revenue.

In 2016, we anticipate resuming year-over-year growth in system sales revenue along with continued growth in support and maintenance and TruBridge revenue, which, as a result of continued expense controls, would result in a 10% to 15% top-line and a 20% to 25% bottom-line growth in 2016 over 2015.

As we have stated many times since going public in 2002, our primary financial focus is on long-term growth.

As such, we strive to grow both the top and bottom lines of our Company at a compound annual growth rate of 10% over any 5- and 10-year period.

Inclusive of 2014, our 10-year gross revenue in EBITDA CAGR is 9% and 15%, respectively.

And our 5-year revenue in EBITDA CAGR is 10% and 16%, respectfully.

While we are disappointed in our 2015 outlook, we are confident that with resumed growth in 2016 and beyond, CPSI will experience the same positive long-term results over the next 10 years that we enjoyed over the previous decade.

As stated in our earnings release, we are excited to announce a 12% increase in our regular quarterly dividend, from $0.57 to $0.64 per share.

Because of expected expense control throughout the Company and margin improvement within TruBridge, we anticipate continuing to invest in the aforementioned new products and services in 2015 while paying this increased dividend and growing our cash and investments balance to over $40 million by year end.

And speaking of TruBridge, we continue to experience strong growth within all segments of the business, but in particular, recently, we have seen a surge in demand from outside the CPSI EHR customer base for RCM services.

Our 2015 goals for TruBridge include top-line growth of more than 15% and improvement in gross margins of 2% to 3%.

Finally, before turning the call over for questions, I am excited to announce that we recently installed the CPSI EHR system for the first time outside the United States, as St.

Maarten Medical Center, located on the Dutch part of the island of St.

Maarten, implemented our core financial and clinical modules in December, with implementation of the physician applications slated for March.

With this installation, we have begun researching potential opportunities for our system in other English-speaking international markets.

We feel that the same relatively low-cost integrated software solution that has proven successful in the US has the potential to be an ideal solution in other countries, most of which appear to be five to seven years behind the US in EHR penetration.

And with that, Benjamin, please open the call for questions.

(Operator Instructions) Dave Francis, RBC.

A couple quick questions.

First, as you look at -- and I appreciate the commentary on where the business is right now.

As you look at your guidance for 2015, can you walk us through a little bit of the process that you guys have gone through to get to, particularly the system sales contribution to the top line and help us understand how you guys get comfortable with the level that you are stepping things down to right now, particularly in light of the relatively modest implementation schedule that you've got for Q1?

Just help us understand that process, if you could.

Good morning, Dave.

Yes, we go into quite a bit of detail in looking at, of course, how many new implementations -- new client installations that we expect to have.

And then even more detail in looking at what amount of add-on applications to current customers we expect to sell.

Obviously, the applications that we've had for quite some time, like the clinical applications and the nursing point of care, but as you know, because of the acceleration with Meaningful Use over the last five years, most of that is close to fully penetrated.

So then we take a look at the number of hospitals that have yet to install, the applications necessary for Stage 2 Meaningful Use, like patient portal and physician documentation, what percentage of those that we expect to attest in 2015.

In addition to that, of course, the pipeline -- we'd look at the pipeline that we have for ED, for medical practice management EMR.

Those are probably the easiest of all the detailed things that we do.

And then beyond that, we take a look at the new things that we're going to be rolling out, like, for example, the physician iPad app and some of the stuff that Boyd mentioned, when that's going to roll out during the year, how much of it we expect to sell and be able to implement within 2015 and then try and come up with a conservative number that we expect for system sales.

So it's certainly a very detailed process.

Okay.

So given the fairly significant change in the marketplace that you guys have been dealing with here in the last several months, is the process that you've gone through kind of -- how would you characterize the way that you test the old way of looking at things versus what the market environment looks like right now?

And I guess I'm trying to get at a sense of the relative risk in your outlook for next year versus where could you see other areas of softness or even potential upside as well?

Yes.

Well certainly, we approached it differently than we had at least the last five years because of all the things that we mentioned in our prepared comments.

Namely that we have reached a close to 100% penetration point with no greenfield opportunities.

And we're all, at least in the low end of the market here with smaller hospitals, I think we're in the same boat here in that we are sort of waiting for the replacement market to heat up as a result of what might occur with system sunsets or dissatisfaction with current vendors or anything else that comes down the pike.

So I think the long-winded answer to your question is that we were conservative in that we -- when we were coming up with these numbers, we were factoring in that it's not the same market that it has been for the last five years.

Okay, that's helpful.

All right, one last one and I'll turn it over to somebody else.

The last call I believe you made a passing reference to the potential to get out of your comfort zone and potentially entertain the thought of strategic investments or acquisitions to either help out the revenue base or expand the solution portfolio.

Is that something that you guys are continuing to consider as a potential use of capital here in the future or is that not something that we should be thinking about going forward?

Yes, if I made a passing reference or if Boyd did, we didn't necessarily mean to.

Dave, I think our consistent answer always is that you never say never.

It's hard for us to say that it's something that we're looking at more so now than we have in the past.

Obviously, we've never done it before.

The two primary reasons that you would do something like that would be to buy a product that you don't have.

And we always just choose to write it ourselves or to buy market share.

And typically, we like our chances to win what we can with new deals as opposed to buying the right to compete.

I don't know that that has changed last quarter or this quarter.

We have looked at stuff in the past and I'm sure we will continue to look at stuff, but I think that's just generally as I can say it.

And just add to that, maybe the passing reference might've been in relation to all this Big Data and our partnership that we announced after the call with IBM.

So maybe that was where that was coming from.

That certainly was a project that we felt like we couldn't write that in-house and there was no point in basically reinventing the wheel when IBM had a lot of that logic and they ended up being the perfect partner for what we needed to do.

Thanks for the comments.

George Hill, Deutsche Bank.

I appreciate kind of the color that you guys provided into the business segment growth for 2015 and the outlook for 2016.

Boyd or David, my first question would be can you update us on where product saturation is across the customer base?

So what percentage -- basically, so if all the clients have the financials product, what percent have the clinicals, what percent have the phys doc and the nursing point of care, and could you just kind of walk us through that quickly?

Yes.

Everything is above 90%, except for phys doc and the other interfaces and a patient portal that's necessary for Stage 2 Meaningful Use.

And that number is I think between 65% and 70% that have that already, leaving the rest out there for this year and next for Stage 2 Meaningful Use.

Of course, the ED number is certainly absurdly something low, like 5% or something along those lines.

Same with medical price management EMR.

Those are probably the two larger applications that we have a great deal of runway left in terms of penetration within our current customer base.

Okay.

And then I guess Boyd, you characterized a risk averse spending environment by the customer base, given everything that's going on in healthcare with ACA.

And David, I think you talked about a resumption to growth in fiscal 2016, which I would assume would mean system sales growth in 2016 is well.

And I guess can you help us bridge the gap between two comments is -- if north of 95% of hospitals have an EMR and you are saying that they're risk adverse and they don't want to spend and the slow down happened faster than we all expected, what reaccelerates that growth as we move into 2016?

Yes, well, first of all, it's easier to grow off if we know the number that we are expecting in 2015, so that's number one.

What we're talking about in 2016 certainly wouldn't be growth over -- at least in the system sales line, of course, wouldn't be growth over what we had in 2013 or 2014.

So you're starting with a lower number, first of all, obviously.

Second of all, we are factoring in a bit of a creep up in the replacement environment and that's not just us guessing.

That's based on our sales folks that are out there pounding the pavement every day and what they are hearing.

There are a lot of unhappy folks out there that just have -- many of which are already in somewhat of a process, but they just had to pull the trigger because of all this work that they are having to do for Stage 2 Meaningful Use.

So it's more than just us guessing, it's based on what are the feedback and our experience from our folks that are out there in sales and folks that are moving forward with Stage 2 with their current vendor, but aren't happy.

There's also -- we think that they're -- I think everybody thinks that there's going to be some competitive product sunsets out there as a result of Stage 3 Meaningful Use and we should get some of the details on Stage 3 later this year.

And we feel that based on the timeline that's out there that that would begin some folks turning a bit in 2016 and certainly more into 2017.

We also -- Boyd went into a pretty good amount of detail on some of the new stuff that we have out there that we haven't begun selling yet that we think will reach a very large penetration of our customer base by the time of the end of 2016 that gives us a great deal of opportunity there as well.

And to add one more thing to that -- in Stage 3 Meaningful Use and while that hadn't been released from the government, we fully anticipate that there's going to be software required to meet that as well.

And that will start kicking in in 2016 as well.

All right.

That's helpful, guys.

I appreciate you taking the question.

Thank you.

David Larsen, Leerink.

Can you remind us what the price tag is for the ED solution and the medical practice management solution?

Yes, the ED solution is about $150,000.

And the medical price management solution can vary depending on the number of docs in the practice, but it can be anywhere from sort of a low end of a little less than $100,000 to a high end of $200,000-plus depending on the size of the practice.

Okay.

And then roughly how many installs are you expecting for each of those per quarter in 2015?

Any sense for that?

Yes, on ED, somewhere between 10 and 12.

On the physician applications, somewhere between 10 and 15.

On the physician EMR, sometime between 10 and 15.

Okay, great.

And then can you just talk a little bit about TruBridge?

What are the main products within TruBridge?

I'm assuming that that is booked in business management service revenue.

And can you just remind us of how much revenue is coming from that now and what gives you the conviction that you will see pretty good growth in that business line in both 2015 and 2016?

Thanks.

Yes.

What has given us conviction there is that TruBridge is on fire.

It's been two years now since we separated that out and branded it under the name TruBridge.

And we are now more successful than ever at selling those products and services in -- services, in particular, to hospitals that don't already have the CPSI EHR system installed.

And in answer to your question, David, about the income statement, business management services is TruBridge.

Those two equal each other, so there's your revenue.

Okay.

Okay, great.

And then like within TruBridge, are you -- is it like ICD-10 coding?

Is it billing and AR collection processes for facilities?

Is that -- are those pretty much the products line or -- ?

All the above.

All the above.

Okay.

And the areas that are particularly -- we are selling particularly well right now are -- the coding is taking off probably more than we would've expected, I think, in conjunction with hospital fears about ICD-10.

Also, just the core revenue cycle management, whether it's just running the entire business office or are doing the private pay collections for hospitals, has been particularly strong lately as well.

And as we said in the prepared comments, within the CPSI customer base and most notably outside the customer base of CPSI.

Okay.

And then just one last quick one.

You mentioned that your retention rate is high.

It sounds like you are successfully defending your position in the market.

Can you just maybe talk about that retention rate?

Some class reports have come out showing some wins and some losses for each vendor, including CPSI.

Any discussion on what the net retention is for 2014?

Well, frankly, it's easier to play defense now than it has been, particularly 2010, 2011, 2012.

That was when hospitals, including our customers, were having to spend hundreds of thousands of dollars to buy additional applications to get to Meaningful Use.

And therefore, in many cases, both our competitors' customers and our customers took the opportunity to go to RFP and look at some other things that were out there.

So it was -- in addition to all the new business that we were all getting, both new clients and add-on business to our current customers, we were all playing a lot of defense.

And pretty much by 2014, especially late in the year, as we've already discussed, a hospital's -- whatever they have installed is what they have right now to get them to through at least Stage 2 Meaningful Use.

So we haven't been having to play a lot of defense as we have in the past.

So part of retention has been easier than it has been in the past.

So I think that has something to do with the number.

Also, I think a lot of it has to do with the fact that we've been so successful.

The goal in making all these purchases was to get your MU money.

And as we've detailed many times before, including today, we've been more successful at getting folks there than other vendors.

I think our position on class is very clear from prior calls, so I don't know if we need to get into that.

Thanks a lot, Dave.

Jeff Garro, William Blair and Company.

I want to ask about the CMS comments on moving back to a 90-day attestation period.

I think this is viewed pretty positively by both providers and vendors, but is it a little bit too late to have a bigger impact on 2015?

Well, that's why I even said in my prepared comments, the size of that really is going to be difficult to predict at this point.

Because again, a lot of our hospitals going into Medicare fiscal year 2015 were expecting the 365 day and so decided to forgo that.

So it will be interesting to see.

I don't know that I'm in a position and confident enough to quantify what that is going to look like.

But certainly we view that as a positive.

Great.

And I also have a follow-up.

We've seen some revenue seasonality trends develop in your business the last couple of years related to the Meaningful Use program.

Do you think this potential change throws those seasonality trends out the window for 2015?

Actually, I think at a glance, it may go the other way, Jeff.

Now we have -- now hospitals that had decided that they weren't going to be able to do the full-year attestation period have the opportunity to -- let me backtrack a second.

In prior years, we've had a lot of our customers implement products in May, June so that they could begin their attestation period at the beginning July so they could get their 90 days in by September 30 so they could attest in October and November for the prior Medicare fiscal year.

We didn't think that was going to be the case this year.

You were going to be unable to do that.

Now -- so we have had a lot of hospitals just throw their hands up and just say you know what, we weren't able to start our full year on October 1, so we're just going to wait.

Now that opportunity exists again.

So I'm not saying that it's going to happen, but it creates the possibility for that seasonality to exist again in 2015.

So you don't have visibility into it yet, but there's a possibility for another very busy Q2 for you guys?

Yes, that's what we're saying.

That's fair.

And I also want to ask, you guys have been a clear leader in Meaningful Use Stage 2 attestations.

But in the last two months, it did look like we've seen competitors come from close to zero mark to you making some progress with their client basis.

Has that improvement by your competitors in Meaningful Use Stage 2 attestations tempered your excitement at all about potential replacement activity?

No.

If you think about it logically, that has to happen.

You've got -- same thing happened with Stage I. We raced to a lead and then all -- that we have a certain amount of -- we only have a finite amount customers that are prepared to the meet each stage.

So ours go out and meet at first and then everybody else catches up.

That's what happened here, too.

That's fair.

And then two housekeeping questions and I'll hop off.

I want to see if there's any particular number of net new patient accounting install sets baked into your guidance as an expectation?

Then if you could give us kind of an updated client count?

Yes.

We don't release a client count.

We -- our guidance for 2015 includes about 12 to 15 new installs.

Thanks again, guys.

Jamie Stockton, Wells Fargo.

I guess maybe real quick, David, on the gross margin per system sales, obviously the revenue was down a lot and weaker than expected.

There didn't seem to be much variability in the costs there during the quarter.

So I'm wondering if there was a mix shift toward hardware that caused that.

It seems like in the past, we have usually seen travel costs come down when the system sales numbers have been week.

Yes, I believe there was -- and I will try and quantify this by the end of the call.

There was a slightly higher mix of hardware in the quarter.

The system sales number was so dramatically lower than we expected that obviously we've got -- we had salary costs that run across that that just keep it -- it can only go so low in relation to.

Also, we do have a -- the couple of installs in the first quarter are rather large in size.

And so a lot of -- I think in a couple cases, we had as many as 60 people out in December doing some pre-implementations for installs we had in the quarter, too.

So I don't know if the -- the travel cost didn't correspond one-to-one with the install revenue -- with the new install revenues as well.

Okay.

In the past, when you guys have had relatively low implementation activity, you talked about essentially reinvesting time into trying to improve customer satisfaction and put out fires.

From a cost trend standpoint, even though system sales are down in 2015, should we expect the cost to be relatively flat because there's a dynamic like that that's occurring?

I think you should expect it to not be real -- it should come down some, but yes, we are in the midst of a very aggressive process of utilizing our resources that would otherwise be doing implementations to visit with and interact with our current customers.

To -- as you said, to keep the basis extremely solid, which is, again, consistent with what we've done in times like these in the past.

Okay.

My last question, the dividend.

You took it up.

What are the thoughts there?

Obviously, you laid out a picture of growth resuming at a pretty healthy clip in 2016.

Are you essentially -- when you think about the level of the dividend and the payout ratio, is it that you're looking more at where you think the business is headed in 2016 and that's what you are basing the increase on?

Any color around that.

Yes, a couple points there.

First of all, sort of backtracking a little bit.

We've stated now for a long time -- I came back on board middle of 2010 and I remember saying it beginning immediately then -- that there was going to be a slowdown that was going to occur at some point.

Then we thought it would be 2014, 2015.

As we sit today, it came a little sooner than expected.

But regardless, when it did come, that we were going to try manage our hiring in such a way that we had stopped our aggressive hiring a couple years prior to the slowdown so that we would be in a position to still make a lot of money and pay a healthy dividend and be in position to grow again when that opportunity arose.

So we here now.

And so cash flow is going up just as we had planned.

Obviously, we would prefer to be growing consistently low double digits or high single digits every year, but that's not the way it always works.

So we are here now, number one.

Number two, our goal is to raise the dividend every year.

So obviously when we make a decision on a given year, like now with the decision we made for 2015, we're taking into account that we would like to raise the dividend again in the future.

We can't pay 100% dividend payout ratio forever.

We're not at that quite at this point for our guidance on 2015.

But we're closer than we have been in prior years.

So yes, that is a reflection of how strongly we feel about our future, certainly.

Okay, that's great.

Thanks, guys.

Mohan Naidu, Stephens.

Maybe just to follow up on Jamie's first question.

On the gross margins on system sales, can you guys help us with the quantifying what level of fixed cost you guys have there that put a bottom on the cost there?

I'm looking at it, Mohan.

This is a rough guess, but we've probably got fixed cost somewhere around the $9 million mark.

Per quarter?

Yes.

Okay, perfect.

Maybe stepping onto the medical practice EHR.

So you guys are tracking pretty well so far.

Help us understand that market.

Is that -- you are seeing a lot of greenfield there or are there existing vendors that you need to displace in those physician offices?

I would say it's a little bit of both, Mohan.

But really, as I mentioned in my prepared comments, just the integration that we can provide, which is why we're going to focus on practices that are within the communities where we've got the hospital system is where we really got an advantage.

Some of them are out there and have met Stage I, but they are extremely dissatisfied with the product they've got.

The advantage we feel we've got in those facilities, they are already using our software and based on our internal feedback and what we look at -- customer surveys and physician surveys and things -- they are extremely satisfied with our physicians product.

So it's really just almost a natural extension to put our system into their practices.

And so that's why we are excited about that.

But I think it's both.

You have some that haven't done the Stage I, but a lot have done it.

And again, just the level of dissatisfaction is pretty high.

Got it.

And just two follow up questions there.

The 14 facilities that are installing in Q1, are these hospital-sponsored ones or are they bought by the physicians' practices by themselves?

At this point, they're hospital-sponsored.

Sponsored.

Okay, okay.

And last question, I guess -- on TruBridge, do you provide any physician office-based services?

Yes.

We do have revenue cycle management services for clinics that we are currently doing and we are continuing to pursue those.

Okay.

Thank you very much for taking my questions.

Sean Wieland, Piper Jaffray.

Thanks, good morning.

So how about on the competitive landscape?

Are you seeing Cerner, Epic coming down into your market and what are your -- do you have any incremental thoughts on RazorInsights and that acquisition by Athena?

Yes.

Morning, Sean.

Cerner -- we are seeing -- I'm getting feedback, Sean.

I don't know if you can --

I will try to hit mute on my end.

We continue to see Cerner and Epic -- a little bit more Epic in the same way that we've seen them before, with tie-ins with larger facilities and IDNs.

We have not seen an increased level of that, but that's still something that is out there.

Again, not at an increased level, but we are certainly keeping our eye on it.

Yes, obviously, like everybody else, we were aware of and listened to the commentary around Athena's acquisition of RazorInsights.

Obviously, Athena is a great company, well funded, with a lot of smart people, so it's definitely somebody that we think will be a significant new competitor in our space.

As you probably are aware, there's been a couple vendors that have abandoned the space recently and maybe tried to move upstream a little bit.

So it's -- we don't really look at it as the total number of competitors, at least over the last couple of years going up, but it is somebody that we look forward to competing with.

We think it's great for the hospitals in our space and it will be interesting to watch.

Okay, thanks for the comments.

Donald Hooker, KeyBanc Capital Markets.

So watching TruBridge grow very fast here, is thinking about utilization an issue here?

What are your hiring needs there, thinking about mid-teens growth over the next couple years?

Well, as you probably know, we've taken a pretty good hit on the margins there over the next 18 months because of our aggressive hiring.

And while we still feel the need to hire, I think we've got a good -- a better base now for the kind of approximately mid-teens growth there that we've been close to experiencing and that we expect to experience in the beginning, which is why I mentioned in the prepared comments that we expect to see margins tick up a little bit.

So yes, we will continue to be hiring, but we are better positioned now there than we were 18 months ago with regards to personnel.

Okay, that's helpful.

And then maybe just one other question was I was actually most interested in if you can maybe elaborate a little bit more on the predictive analytics partnership.

Maybe some economics around that -- where the pilots are and how are you thinking about that branching out over time?

Maybe elaborate on that topic, because I thought that was interesting.

Sure, be glad to, Sean.

We're not necessarily ready to give any economics of it yet.

I want to stick to what I said in prepared comments, as we do expect to see some revenue from that toward the end of this year.

The main pilot project that I mentioned is the readmission project.

That is going well.

We've got that going in several facilities.

And as I said in the comments, we are learning a lot.

There's a lot of technicalities that we're learning, but IBM really has stepped up and we are real pleased with them as a partner and pleased with the progress we've made.

And we really think there's a lot of specialty -- again, I guess I'm repeating myself, but given with the payment reform changes that obviously are coming and in the manner in which they are coming, we are real excited and we think we timed that one perfectly as far as getting in on that.

Well, it seems like a big opportunity -- a new direction, at least.

Is there a new investment you need to make to prepare for that as you grow there?

Nothing significant, other than what we've already done with the partnership with IBM.

So no.

Okay.

Thank you.

Garen Sarafian, Citi Research.

First one, it's sort of a high level.

You guys touched on it in the prepared remarks, but I guess I'm surprised at how quickly the market has slowed.

So I'm just wondering, is it truly just the dates and the timelines of Meaningful Use attestation or is there something else?

Just trying to get a better idea of what you guys were seeing.

Yes, good question, Garen.

It surprised us, too.

And we feel strongly that it truly is just the dates and the times around Meaningful Use.

And in doing some research in some vendors that are in our space, I think that you'll see that, as we have seen, that is others experiencing the exact same phenomenon at essentially the exact same time.

Which gives us even greater confidence that it's just the timing with MU.

Got it, okay.

And then on the international front, this -- we discussed international opportunities before.

You've been mentioning Canada.

And now you guys are starting to put it into prepared remarks.

So I'm wondering besides just looking for new growth opportunities, what's changed since our previous conversations where you guys sort of still wanted to just stick to your knitting and stay domestic?

Has anything else changed about your outlook on some of the other regions or maybe some capabilities that you guys wanted to develop first?

Anything you can comment on there?

Yes, well, a large degree of it is what you already mentioned, that we want to look for other opportunities in the post-MU market.

But frankly, some portion of it is the fact that we somewhat stumbled on an opportunity that has worked out well, I think, for us and for our first international customer.

And with some changes that we were able to make to the software, we were able to be successful there and it opened our eyes that yes, we can make this work.

And the rest of it had to do with a good deal of research that we did ourselves and some third-party research that we had done with some international markets.

One in particular that really pointed to the fact that our type of -- as I said in the prepared comments -- relatively low cost, completely integrated solution would fit very well in international markets.

That there are some markets where money is a major factor.

There -- the only companies competing in some of those spaces right now from the United States are much more expensive than we are.

We have -- all or the majority of all the capabilities that they have, and so if we can get our foot in the door and compete, we have one hell of an opportunity.

So that's where we are right now.

Obviously, this is something that we've been working on for quite some time and for us to put it in our prepared remarks, we are very serious about it.

Got it.

And you mentioned to an earlier question that it sounds like on M&A front, you still have the same stance.

So is it reasonable to assume that you guys are planning to do this all with internal resources?

Yes.

All right, great.

Bret Jones, Oppenheimer.

Actually, I just have one.

And I was really curious about the flexibility of your cost structure and how long do you think you will wait to make a decision on maybe trimming back costs and then rightsizing the cost structure to a lower system sale software line if the replacement work -- it doesn't start to materialize.

How long do you anticipate on waiting for that decision?

I would think -- we're doing a lot of looking at those costs.

And as we've mentioned before, we've been ramping up TruBridge, some of the costs on the CPSI side, we actually can move those human resources over to the TruBridge side.

So we've been working at that.

But to answer your question -- and I think I said this plenty of times before -- we invest an awful lot in our people.

We go through extensive training for all of our employees, so it would be certainly way down the road before we considered anything like that, just because of the investment we've got in them and the base we've got, as we've mentioned with Jamie earlier.

We take times like these and utilize those resources that aren't necessarily doing installations to go out and solidify the customer base and improve satisfaction.

So we feel like we've got a lot to do with that.

And we are comfortable with where the margins will be in maintaining that and certainly letting attrition take place, which is what we've been doing now for two years.

Okay, that's fair.

I just was also wondering, then, how flexible is the workforce?

Because it's one thing to move people from systems implementation over to service, but not necessarily over to more of an outsourcing role.

I just didn't know if they were -- you had that kind of flexibility within your workforce.

We absolutely do.

We've had a lot of success.

In fact, we think that really benefits TruBridge to have that experience on the CPSI side.

So we think of them as very flexible.

Yes.

And I would like to just reiterate what Boyd said by saying that we've never had any layoffs in the history the Company.

We -- as I stated in my prepared comments are -- have -- this management team has always thought long term and will continue to always think long term.

And so specific answer, we are hell of a long way from thinking about anything like that.

All right.

Great, thank you.

Gene Mannheimer, Topeka Capital.

Just looking back at the systems sales line, would you say we've hit the bottom there in the quarter?

I say this because based on the install schedule for Q1, which looks light as well, it sounds like there could be another leg down in system sales before you see some stability there in 2015.

Does that make sense?

We've got some nice-sized installs in the first quarter, but we don't give specific numbers around any of the revenue items or any kind of guidance on a quarterly basis.

Okay, fair enough.

And from just looking at it more broadly, David and Boyd, do you feel like you're gaining share in the market?

And how much impact, if any, are you feeling from hospital M&A or closures?

Thank you.

I would say we are creeping up and gaining market share, yes.

You have to do a certain number of deals to have any substantive gain in market share, so obviously we are not doing as many as we would like.

So we are gaining market share, but at a snail's pace at this point.

Okay.

And the impact from environmental factors, like M&A or bankruptcies, closures, are you feeling any of that?

Minimal, but yes, I don't think we had any bankruptcies it all -- and actually I know we didn't have any last quarter.

We have not -- we have, like you, I'm sure, heard a lot of chatter around the M&A, but we continue to experience on a onesie, twosie basis.

But at the same time, we picked up a hospital recently as a result of M&A, where the acquirer had our system.

So it can go both ways, as it has in the past.

Okay.

Thank you.

Jeff Walkenhorst, Copeland Capital Management.

So we were pleased to see the dividend hike.

And I think you covered this earlier.

I was going to ask -- it was somewhat at odds, obviously, with the down -- your EPS outlook, so I was curious about the rationale behind the div hike and how that relates to what might happen in 2016.

While I do think you covered that, maybe you could talk about the -- your confidence or what goes wrong.

So clearly, the payout ratio is high.

Your cash flow coverage of the div isn't that high, although you mentioned I think you plan to end the year with cash on the balance sheet -- net cash of around $40 million.

So what goes wrong to that -- in that forecast that maybe worries you or would prevent that from happening?

I don't know that we look at it as what goes wrong.

Certainly, what we're doing from this end is managing the expense side of the balance sheet and making sure that we are spending money wisely and where we need and where we need it to grow, but not excessively.

And I think that's -- maybe to answer your question, that's where our focus is.

Certainly being successful on the sales side is always a focus, as I mentioned in my prepared comments.

I'm pleased with that.

We've got good customer satisfaction ratings from our side and good references and so -- and that's reflective in our win rate that I talked about earlier.

So certainly, we keep our eye on that, but I think it's especially important going into this year to manage the expense side.

Yes, and I'll add to that as well.

We still have quite a bit of receivables out there from gen 2 contracts that are getting in money from CMS.

Hundreds of thousands of dollars now on a weekly basis that's coming to us.

We are -- we take a pretty conservative approach to managing our cash in our dividends, so that is reflective in the number that we announced.

Got it, okay.

What was the benefit in the working capital from the collections in 2014 and what might that look like in 2015?

Not sure I understand the question.

So you had -- I think you had a lot of receivables that were outstanding that helps your cash flow in 2014.

So you just mentioned there still remain a lot outstanding, so there's some benefit to the cash flow from a receivable standpoint, kind of above and beyond that the cash of the business would generate.

Yes, I don't have that specific number.

I do know that in a couple of years prior to 2014, usually our cash collections are equal to or slightly ahead of our revenues and that wasn't the case in the couple years prior because of the MU contracts.

But this year, it's a couple -- $3 million or so above revenue and we would expect that again this year.

Got it.

Okay, great, thank you.

And then what was the expected ended cash?

Was it greater than $40 million or was it or at -- was it net cash of $40 million at the end of 2015?

I said greater than $40 million.

Very good.

Thanks for the color, guys.

Good luck with everything.

Richard Close, Avondale Partners.

Excellent.

I'll just keep it quick here.

Tax rate -- can you give us a little bit of color on that?

I assume it was just the catch-up on the R&D tax credit?

Yes, it was the catch-up on that and the workplace opportunity tax credit as well.

As we've increased our hiring within TruBridge, that's had more of an effect on our tax rate.

But all that was caught up in the fourth quarter.

Okay.

And then with respect to -- where did you end up 2014 in terms of number of new installs?

I think originally, you had 28 when you set your guidance.

What did that end up being for the year?

I think it was 25.

Okay.

And with respect to the margins for system sales and understand that you can shift costs from CPSI to TruBridge, any type of commentary with respect to how we should think about system sales margins as we progress through the four quarters of 2015?

I guess how quickly can you shift expenses?

Yes, I was thinking as you were asking the question that I was going to say that is something that is in process and takes time.

It's a -- we're going about doing it now, but it's definitely going to be a year-long creep to it.

And then the other factor is going to be at what point in the year -- we're certainly going to get some amount of customers that are going to install applications for Stage 2 Meaningful Use in some amount of bunches at some point during the year that we don't know exactly when that is.

As we talked about earlier, that might have just been affected by the shift -- the probable shift that we expect -- that we all expect now from a full-year attestation period to a 90 day, but that will certainly -- when we have those add-on sales, as you know, those are at a better gross margin than new system sales.

So that will have an effect on it as well, the timing of that.

And then on system sales, you mentioned a $2 million win.

That seems large on average for you guys.

Is that in the first quarter?

And I guess gauging how much work was maybe done in December with respect to those larger deals, is it possible to see a pretty dramatic pop in the system sales margin in the first quarter?

Yes, I don't necessarily want to comment on it quarter-specific, but the sale that we -- that Boyd mentioned in his prepared comments right now is slated for the second quarter.

Okay.

All right.

Well, thank you very much.

We have no further questions from the phone lines at this time.

We would like to thank everyone for their interest in CPSI and your time this morning on the call.

Hope everybody has a great weekend.

Ladies and gentlemen, that does conclude today's conference call.

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