Earnings Labs

TruBridge, Inc. (TBRG)

Q3 2017 Earnings Call· Thu, Nov 2, 2017

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Transcript

Operator

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the CPSI Third Quarter 2017 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded on today's date, Thursday, November 2, 2017. It is now my pleasure to turn the conference over to Boyd Douglas, President and CEO. Please go ahead, sir. John Boyd Douglas - Computer Programs & Systems, Inc.: Thank you, Donny. Good afternoon, 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 today will be Matt Chambless, our Chief Financial Officer; Chris Fowler, Chief Operating Officer; and David Dye, our Chief Growth Officer. At the conclusion of our prepared comments, we will be available to take any questions you may have. Our third quarter…

Operator

Operator

Certainly. Looks like our first question comes from the line of Mohan Naidu with Oppenheimer. Your line is open, please proceed. Mohan Naidu - Oppenheimer & Co., Inc.: Thanks for taking my questions. Boyd, on the TruBridge bookings, which product line are you guys seeing the biggest demand for? I know, you guys have pretty strong, I guess, growing penetration between Rycan, private pay and also receivables. But, if you look at these three products, which ones are you seeing the biggest demand and what's the driver for those? Christopher L. Fowler - Computer Programs & Systems, Inc.: Hey, Mohan, this is Chris. The Rycan product, as I said in the comments, has been very steady at that $1.5 million (28:10), plus or minus a couple of hundred thousand dollars quarter-to-quarter for the last several quarters, as we look back. But the real increase we've seen lately is through the ARM service. And I think that the driver for that is just the complications that continue and the complexities for these small hospitals to stay staffed and keep up with the ever-changing regulations as it relates to billing and just stay on top of their cash. So, that's the – if I have to pick one, it would definitely be the accounts receivable service, and that's reflected in the bookings, the big deal we got this quarter, the $3.1 million, that was ARMs and coding. Mohan Naidu - Oppenheimer & Co., Inc.: Okay. And I think you guys disclosed that the penetration within that segment was about 10%, 12%, is that still in that range? Christopher L. Fowler - Computer Programs & Systems, Inc.: Yeah, that's pretty consistent. Mohan Naidu - Oppenheimer & Co., Inc.: How should we think about the margin profile with TruBridge and as you add new clients, you also need to add some resources, but can you give us a sense of what's the mature margins that you can look at within a client? Matt J. Chambless - Computer Programs & Systems, Inc.: Yeah, Mohan, this is Matt. And I think this would play out, if you look historically at TruBridge margins, it's a slight roller-coaster ride, right? So, in periods where we're investing in capacity, we'll see margins dip down in the lower 40s. And then once volumes catch up with that capacity, margins can exceed that kind of 45%, getting to the 46%, 47% range. But we expect to continue on that kind of up and down between, say, 42% and 47% depending on whether it's a growth quarter or a investment quarter. Mohan Naidu - Oppenheimer & Co., Inc.: Okay. Thanks, Matt. Matt J. Chambless - Computer Programs & Systems, Inc.: Yeah.

Operator

Operator

Thank you for your question. Our next question comes from the line of Jeff Garry (sic) [Jeff Garro] (30:00) with William Blair & Co. Please go ahead. Jeff R. Garro - William Blair & Company, L.L.C.: Yeah. Good afternoon, guys, and thanks for taking the questions. It sounds like in the discussion today, some talk of growth going forward, David speaking some on 2018 and 2019, and also the discussion of hitting that 2.5 times ratio relative to the – (30:24) in spite of the amendment of the debt financing. So, the stronger growth discussion, hitting that 2.5 times ratio, that's going to require some acceleration of growth. Could you speak a little bit to when we see the timing of that inflection in growth going forward? David A. Dye - Computer Programs & Systems, Inc.: Sure. Generally speaking, we can. We've got to – obviously, we feel like we're going to close out the year strong. I think, in summary, we said that – I certainly said that, we've got – we're scheduled for a good bit of new installed business in the fourth quarter and then, we were a little bit cautious/conservative with the MU3 delay and thinking that the majority of that would now come in maybe in 2018 or even in late 2019. We've been encouraged by our customers that have decided to go ahead and proceed with that, I mean, there are some benefits to them from a functionality standpoint and a user interface standpoint that they get with MU3 and we've been encouraged by the amount of folks that wanted to keep their install dates or even and maybe moving forward, so that we're going to have a lot of that beginning in the fourth quarter as well and certainly through the first three…

Operator

Operator

Thank you for your question. Our next question comes from the line of Sean McBride with Baird. Please go ahead. Sean P. McBride - Robert W. Baird & Co.: Hey, thanks for taking the questions and congrats on the continued sales success. So, I want to ask a question on the conversions. So, you have already gone through and converted more hospitals than you've done in, basically, the previous two years. So, can you just give some color on how these hospitals are doing following the go-live process, especially considering how you've highlighted the considerable financial issues that some of these hospitals have been going through? John Boyd Douglas - Computer Programs & Systems, Inc.: I'm not sure, (36:28) doubled the number, certainly, our number of new – if you're talking about net new or new go-live installs, they're going extremely well. Certainly, some of these hospitals have financial challenges, but that's really, frankly, nothing new to us, we've always dealt with that. But we're real pleased with our installation teams, our conversion teams and installation teams, those are actually going quite well. One of the things we've done on some recent – we've changed some of our implementation procedures and we've gotten more efficient with those both from a conversion perspective and from the number of people we send on site and how we approach that, and that's been well received by our customers as well. So, we're really pleased with our implementation teams at this point. Sean P. McBride - Robert W. Baird & Co.: Okay. Thanks. And then, just want to touch on the post-acute space. I know that much more white space and much earlier there, but from an interest there, what are you looking at in terms of timeline and market appetite and then how…

Operator

Operator

Thank you for your question. Our next question comes from the line of Gene Mannheimer with Dougherty & Co. Please go ahead. Eugene Mannheimer - Dougherty & Company LLC: Thanks. Good afternoon, and congrats on all the good progress this quarter. Just a follow-up on the last question, in the post-acute market, I appreciate that you're making investments there in anticipation of some acceleration of growth, but if you're not sure of the timing, I mean, is there some risk here that that doesn't happen? I mean, are there any catalysts or guidance to suggest that that market is going to heat up? David A. Dye - Computer Programs & Systems, Inc.: Yeah. I guess, there's always risk, Gene. But I think that the way we look at it is that these facilities in terms of their documentation processes are borderline light-years behind where we are in the inventory and in the acute care world, right? So, they're going to be fully automated at some point in the relatively near future, and we're thinking long-term here. So, if it happens in a year, it happens in two years, it happens in four years, it's going to happen. I think in terms of where we are with our investment and development, we're kind of planning on and thinking it'll be about two years from now, but if it's a little longer than that, we're thinking long-term, we don't really care. Eugene Mannheimer - Dougherty & Company LLC: Okay. Very good. Christopher L. Fowler - Computer Programs & Systems, Inc.: Hey, Gene, it's Chris. Just to add to that, another thing that kind of takes away some of the risk there is just if you think about the reimbursements going forward and how the communities are going to be valued and the…

Operator

Operator

Thank you for your question. Our next question comes from the line of Stuart Goldberg with Litespeed Partners. Please go ahead.

Stuart Goldberg - Litespeed Management LLC

Management

Good afternoon, gentlemen. Thank you very much. A couple of housekeeping questions for you. It looks like you borrowed money, I guess, against the revolver this quarter. How do we translate that going forward in the fourth quarter and 2018? Are we going to be doing borrowing more money with the new dividend strategy, I guess, maybe we don't have to? Can we address that? And then, I have one other question. Matt J. Chambless - Computer Programs & Systems, Inc.: Yeah. So, I think, we touched on it somewhat, Stuart, a little bit in the prepared commentary when we mentioned that trailing 12-month free cash flow was somewhere at what, 22.5%, 23.5% and if you add up the amount that we paid on debt commitments, and you add up the dividends, they've outpaced that somewhat. So, the heavy dividend that we paid out in the third quarter or that we paid out during the third quarter, we announced on the last call, it kind of did put a short-term crunch on cash. So, it did require a step into the revolver during the past quarter. And so that's what we meant when we are referencing taking a keen look at both the two largest uses of our free cash flow of the debt payments and the dividend payments, and tweak those somewhat and you're talking about freeing up a significant amount of cash going forward.

Stuart Goldberg - Litespeed Management LLC

Management

Right. And if I understand it correctly though, you're going to have a – under the new agreement, you're going to have a mandatory excess cash flow at 75% or payout 75% of excess cash flow. So, as you cut this dividend, you are going to be paying more down in debt though, because your – the amendment includes dividend payments as part of your excess cash flow. So, it's kind of one hand washes the other to some degree, at rate of 75%, do I have that fairly accurately? Matt J. Chambless - Computer Programs & Systems, Inc.: Well, so the 70% – the gist of that free cash flow repayment is really just to incentivize or, I guess, to de-incentivize us from just stacking up cash on the balance sheet. So, the intention there is that if we're stacking up cash on the balance sheet that there is a requirement to prepay the banks. And if you notice the formula, which is spelled out in the 8-K or in the exhibits in the 8-K that we filed on the 17th, that's calculated after dividend. So, it doesn't place any further restriction on dividends. The spirit of that is simply to sweep balance sheet cash.

Stuart Goldberg - Litespeed Management LLC

Management

Okay. But it was my understanding that it's a mandatory payment. So, if you're cutting the dividend and, let's say, you have free cash flow of X and your dividend is now half of Y, instead of Y, you're going to have to pay 75% of that difference into the sweep, is that fair? Matt J. Chambless - Computer Programs & Systems, Inc.: I mean, it's in keeping with our first priority in our capital allocation strategy which is to delever.

Stuart Goldberg - Litespeed Management LLC

Management

Okay. And then the other question I have is, moving forward, I'm trying to figure out at fourth quarter and going forward with 2018, once again, the financing receivables were a use of cash by $4.2 million this quarter, they were $4.1 million last quarter. Are we going to see that kind of level or is it going higher? I mean, because that's going to be – that's, obviously, one of the strains on cash as well. So, you've cut the dividend, but you got financing receivables. So, how should we look at that financing receivable going forward as far as cash flows go? Matt J. Chambless - Computer Programs & Systems, Inc.: Well, so, the financing receivables are going to build up for a short period of time until the cash collections start kind of flowing in on the back end. And it's probably worth mentioning that this is a relatively new market dynamic, where some new entrants into our market have really created a demand, kind of a pull of demand from the customer base for financing of solutions, whether it'd be in the SaaS arrangement or some sort of financing of perpetual license model, financing arrangements that limit that initial capital outlay. And so, that's a relatively new phenomenon, which is sparking a lot of our new system sales on the balance sheet without as much volume collected on the back end. So, once those collections start catching up with the additions we're seeing into financing receivables, particularly as we start collecting heavily on our Meaningful Use Stage 3 applications in the back end of 2018, you should see that dynamic starts swinging the other way.

Stuart Goldberg - Litespeed Management LLC

Management

Okay. Fair enough. And then last question, so, Matt, I've talked about this before, the Q is not out, but what about on those receivables, are we seeing any increase or decrease in bad debt expense or anything in the provisions? Matt J. Chambless - Computer Programs & Systems, Inc.: I'd say that, I mean, nothing material.

Stuart Goldberg - Litespeed Management LLC

Management

Okay. Great. Thank you. Thank you for the cleanup. Matt J. Chambless - Computer Programs & Systems, Inc.: Yeah. Appreciate it, Stuart.

Operator

Operator

Thank you for your question. And, Mr. Douglas, it appears we have no further questions. So, I'll turn it over to you. John Boyd Douglas - Computer Programs & Systems, Inc.: Great. Thank you. We appreciate everyone being on the call today. Thanks for your interest in CPSI and hope everyone has a good Friday and a good weekend. Thank you.

Operator

Operator

Thank you, ladies and gentlemen. That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.