Computer Programs and Systems, Inc.
Q4 2014 Earnings Call Transcript

Published: 30 Jan 2015

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the CPSI Fourth Quarter and Year End 2014 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. After wards, we will conduct a question-and-answer session. [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.

[Boyd Douglas:]

Thank you, Benjamin. 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 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’d 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 are 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 100s 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 on October 1, 2014. We believe this caught a number of hospitals unprepared to start a year-on attestation period on October 1. With that being the case, they made the decision to completely forego 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 this situation. Finally, community hospitals in particular have invested a great deal of capital in EHR systems since 2009 for many of those even more proportionately than their large 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 other potential reimbursement changes in the future, building and preserving capital is at a forefront for community hospitals. All these factors have combined to create a post Meaningful Use market that is soft at best and with few exceptions is yet to materialize. As stated earlier, we are pleased with our execution around the factors that we can control namely our win rate in 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’ll 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. We continue to develop new products, services, and markets that will offer 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 the competitive process in which it we’d be 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 mid-term future based on the satisfaction 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 done 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 starts for the quarter beginning in April. Another recently developed product, a medical practice management her, has been favorably received and is selling well to physician clinics that are under managed by our client hospitals. As a result of this success, we’ve 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 the 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 rollout in 2015 are physician iPad app and a nursing documentation content solution that will be available on a subscription basis. And finally, with regard to the new products, I’d 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 conforms for us further not just the possibilities around the use of predictive analytics in healthcare, but the necessity of it. HHS obviously feels the same way with their announcement on 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 to broader applications around population, health, management, and new reimbursement models. What functionality and services we will make available and win will be market driven, but we fully expect to commercialize on initial offerings sometime late this year. Before I turn the call over to David, I’d like to provide a little more detail to our industry leading Meaningful Use success. From the most recent CMS figures as of November 2014, CPSI leads all vendors with a 195 hospitals through successfully attested two Stage 2 of Meaningful Use under the complete EHR inpatient hospital designation. In addition to surpassing those vendors to operate in the large hospital space, we continue to dominate our traditional competitors in the rural hospital market with more than doubled the Stage 2 attestations of any other vendor. From a more current perspective as of January 23rd, a total of 220 of our clients met and attested to Stage 2 requirements of federal fiscal year 2014. Clearly, we are very pleased with this level of success. As you may remember, a reference 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 prior hospitals who were eligible for Stage 2 in 2014 shows either not to attest in 2014 or take the exemption offered by CMS and attest the 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 concerned and there is no doubt of 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 the continuation of that performance in 2015. With that, I’m going to turn the call over to David for his comments.

[David Dye:]

Thanks, Boyd. 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 5 new installations of our core clinical departmental modules, 3 nursing Point of Care implementation, 13 instillations of physician applications and 10 ED implementation. We also expect to install our new medical practice management EHR package at 14 facilities representing 86 physician providers. Our employee headcount as of yearend was 1,372, down 14 from last year 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 in unrecognized revenue from gen 1 contracts. This amount is comprised primarily from one customer that had successfully attested to MU Stage 1. 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 multi-payments in 2015 MU expected payments, this receivable should be paid in full and recognized this revenue in 2015. Our full year financial guidance for 2015 calls for gross revenues of $196 million to $206 million and 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 percent 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 in 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 strived 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 five year revenue in EBITDA CAGR is 10% and 16% respectively. 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 result over the next 10 years, but we enjoyed over the previous decade. As stated in our earnings release, we are excited to announce the 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 in growing our cash and investments balanced to over $40 million by year end. In speaking of TruBridge, we continue to experience strong growth within all segments to the business. But in particular reasonably we have seen a surge and 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’m excited to announce that we are recently installed the CPSI EHR system for the first time outside the United States at St. Maarten Medical Center located in Dutch part of the island of St. Maarten implemented our core financial and clinical modules in December with implementation of physician applications stated from 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 has proven successful in the U.S. has the potential to be an ideal solution in other countries. Most of which appeared to be 5 to 7 years behind the U.S. and EHR penetration. With that Benjamin, please open the call for questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Dave Francis with RBC. Please proceed with your question.

[Dave Francis:]

Hi, good morning, David and Boyd. A couple of 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 kind of get to particularly the system sales contribution to the top-line and help us understand kind of 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 as you got for Q1, just help us understand that process if you could?

[David Dye:]

Yeah, good morning, Dave. Yeah, 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 at the clinical applications in 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 look at the pipeline that we have for ED for Medical Practice Management EMR, those are part of 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 trying to come over the conservative number that we expect for system sales, so, I mean it’s certainly a very detailed process.

[Dave Francis:]

Okay. So given the kind of 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, I guess 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 a sense of the relative risk in your outlook for next year versus where could - could you see other areas of softness or even potential upside as well.

[David Dye:]

Yeah, well certainly - we approached it differently than we had at least the last five years because of all of things that we mentioned in our prepared comments, you know mainly that we’ve reached closed to 100% penetration point in the 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, and then 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 to pike, so I think the long winded answer to your question is that we were conservative and when we are coming out with these numbers, we were factoring in that it’s not the same market that has been for the last five years.

[Dave Francis:]

Okay, that’s helpful. One last one and I’ll turn it over to somebody else. Last call, I believe you made a passing reference to the potential to kind of 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?

[David Dye:]

Yeah, if I made a passing reference here, Boyd, we didn’t necessarily mean to, you know, 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 - that we are looking at more so now than we had 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’s 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 generally as I can say.

[Boyd Douglas:]

And just to add to that, maybe the passing reference might have been in relation to all this big data and our partnership that we announced after the call without being - maybe that was where that was coming from them. That certainly was a project that we felt like we could write that in house, and there was no point in basically reinventing the wheel when you don’t have a lot of that logic in that being the perfect partner for what we needed to do.

[Dave Francis:]

Okay. Thanks for the comments.

[David Dye:]

Thanks, Dave.

[Operator:]

Our next question comes from the line of George Hill with Deutsche Bank. Please proceed with your question.

[George Hill:]

Hey, good morning David and Boyd and thanks for taking the questions and I appreciate kind of the color that you guys provided into the business segment growth for 2015 and the outlook for 2016. I guess Boyd or David, my first question would be, can you update us kind of on where product saturation is across the customer base, so what percentage, basically so if all the clients have the financial product, what percent have the clinicals, what percent have the Physdoc and Nursing Point of Care and could you just kind of walk us through that quickly?

[David Dye:]

Yeah, everything is above 90% except for Physdoc and the other interfaces and the patient forum was necessary for Stage 2 Meaningful Use and that number is in between 65% and 70% they have, that already leaving the rest out there for this year and next for Stage 2 Meaningful Use, that of course the ED number is something low like 5% or something along those lines same with Medical Practice Management, the EMR, those are probably the two larger applications that we have - a great deal of run way last in terms of penetration within our current customer base.

[George Hill:]

Okay. And then I guess Boyd, you characterized some of the risk averse spending environment by the customer base given everything is going in healthcare with ECI and David I think you talked about kind of a resumption to grow in fiscal ‘16, which I would assume in system sales growth in ‘16 as well. And I guess can you help us bridge the gap between the two comments, is most of 95% of hospitals having the EMR and you’re saying with the risk adverse, they don’t want to spend and the slowdown happens faster than kind of we are expected, what we accelerates that growth and then move into 16?

[David Dye:]

Yeah, well, I mean first of all it’s easier to grow off you know the number that we’re expecting in 2015, so that’s number one. What we’re talking about in ‘16 certainly wouldn’t be growth of - at least in the system sales line of course, wouldn’t be growth - what we have in 2013 or 2014, so you’re starting with the lower number first of all obviously. The second of all, we are factoring in a bit of creep up in the replacement environment and that’s not just as guessing, that’s based on our sales folks are out there - payment every day and what they are hearing they are lot of unhappy folks out there, that just have may which have already in somewhere 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 I mean it’s more than just guessing it’s based on what - the feedback and our experience from more folks that are out there in sales and some folks that are moving forward with Stage 2 with our current vendor, but on happy. There is also - we think that they are, I think everybody thinks that there is going to be some competitive product sunset out there as a result of Stage 3 Meaningful Use and we should get some details on Stage 3 later this year and we feel that based on the timeline it’s out there 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 had out there, that we haven’t begun selling the year that we think we’ll reach a very large penetration of our customer base by the time of the end of 2016 gives us a great deal of opportunity there as well.

[Boyd Douglas:]

And add one more thing of that, Stage 3 Meaningful Use and well, that had been release from the government we fully anticipate that this will be software required to meet that as well. So and that start picking in our 2016 as well.

[George Hill:]

That’s helpful guys, I appreciate taking the question. Thank you.

[David Dye:]

Thanks, George.

[Operator:]

Our next question comes from the line of David Larsen with Leerink. Please proceed with your question.

[David Larsen:]

Hi, can you remind us with the price tag is for ED solution and the medical practice management solution?

[David Dye:]

Yeah, the ED solution is about $150,000 and medical practice management solution can vary depending on the number of docs in the practice, but it can really work from the sort of the low end of - low less than $100,000 to a high end of 200 plus depending on the size of the practice.

[David Larsen:]

Okay. And then roughly how many installs are you expecting for each of those per quarter in 2015 any sense for that?

[David Dye:]

Yeah, on ED, somewhere between 10 and 12 - in the physician applications, somewhere between 10 and 15 on the physician EMR sometime through 10 and 15…

[David Larsen:]

Okay, great and then can you just talk a little bit about TruBridge, what are the main products within TruBridge, I’m assuming that is brought in business management service revenue and can you just remind us how much revenue is coming from that now and sort of what gives you the conviction that you will see pretty good growth in that business line in both ‘15 and ‘16. Thanks.

[David Dye:]

Yeah, let’s given us conviction there is the TruBridge is on fire. It’s been two years now since we separated that out and branded it under the main 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 on system installed and the answer to your question David about the income statement, business management services is TruBridge, I mean those two equal each other’s [indiscernible] revenue.

[David Larsen:]

Okay. And then, okay great. And then like within TruBridge, are you like is it like ICD-10 coding, is it billing in AR collection processes for facilities, so those kinds of product lines.

[David Dye:]

All the above, all the above, and the areas that are particularly - we are selling particularly well right now, our - the coding is taken off probably more than we would have expected, I think in conjunction with the hospital fears about ICD-10. Also just the core revenue cycle management whether it’s just running the entire business office or doing the private pay collections for hospital system particularly strong likely as well.

[Boyd Douglas:]

Within the CPSI custom rise and most measurably without outside the customer base…

[David Larsen:]

Okay. And just one last quick one, you mentioned that your retention rate is high, I mean if it sounds like you are successfully defending your physician in the market, could you just maybe talk about that retention rate, I mean some class reports have come out showing some wins and some losses for each vendor including CPSI and any discussion on what the net retention is for ’14?

[David Dye:]

Well, frankly it’s easier to quite defense now that it has been particularly 2010, 2011, 2012, that was when hospitals including our customers will having to spend 100s of 1000s of dollars to buy additional applications to get the Meaningful Use and therefore you know in many cases both our competitors, customers and our customers took the opportunity to go to RT and look at those some other things were out there. So I mean 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 who are all playing a lot of defense and you know pretty much by 2014 especially like the year as we’ve already discussed, you know the hospitals - whatever they have installed is what they have right now to get them through is at least Stage 2 Meaningful Use, so we haven’t been having the place lot of defense and as we have in the past, so part of retention has been easier than it has been in the past. So I mean I think that has something to do with the number and also you know I think a lot of it has to do with the fact that we’ve been so successful I mean to go and making all these purchases was to get through MU money as we detail anytime reporting including the day we’ve been more successful getting folks there than other vendors. I think our position on class is very clear from prior call, so I don’t know if we need to get into that.

[David Larsen:]

Thanks a lot, Dave.

[David Dye:]

Thank you, David.

[Operator:]

Our next question comes from the line of Jeff Garro with William Blair & Company. Please proceed with your question.

[Jeff Garro:]

Good morning guys and thanks for taking the questions. I want to ask about the CMS comments on moving back to a 90 day attestation period. I think this is still pretty possibly by both providers and vendors. But is it a little bit too late to have bigger impact on 2015?

[David Dye:]

Well, that’s right, even said in my prepared comments you know that the size of that really is going to be difficult to predict at this point because again [indiscernible] hospitals going into Medicare fiscal 2015 what we’re expecting the 365 day and so decided to forego that, so it will be interesting to see I don’t know that I’m in a physician confident enough to quantify what that’s going to look like, but certainly we view that as a positive.

[Jeff Garro:]

Good. None of the follow-up and we’ve seen some revenue seasonality trend developing your business, so the last couple of years late to the Meaningful Use program, do you think this potential change kind of those seasonality trend about the window for 2015?

[David Dye:]

Actually I think I had a glance at - this may go the other way, Jeff, now we have - now hospitals that had decided they weren’t going to be able to do the full year attestation period have the opportunity to backtrack the second. In prior years, we’ve had a lot of our customers to start implement products in May, June, so that they could begin their attestation period at the beginning in July, so they can get the 90 days in by September 30, so they could attest in October and November for the prior Medicare fiscal year. That 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 had a lot of hospitals this quarter ends up and just say what we want to able to start our full year on October 1st, we will just going away. Now that opportunity exists again. So I’m not saying that this is going to happen, but it creates the possibility for that seasonality to exist again in 2015.

[Jeff Garro:]

[indiscernible] visibility and there is a possibility for another very busy Q2 for you guys?

[Boyd Douglas:]

Yes, that’s what we’re saying.

[Jeff Garro:]

That’s fair. I also want to ask you, you guys have been a clear leader in Meaningful Use Stage 2 attestation, but in the last two months it did look like we’re seeing competitors’ kind of pump on closed to zero mark too, you’re making some progress with their client basis - as that improvement by our competitors in Meaningful Use 2 - Meaningful Use Stage 2 attestation tempered your statement and all about potential replacement activity.

[Boyd Douglas:]

Now, if you think about it logically that has to happen, you got - you have same thing on with Stage 1, I mean we raised to lead and then all that we had a certain amount of hospital, but we only have a final amount of customers that are prepared to meet the stage. So ours go out and meet at first and then everybody else catch that’s what happen here too.

[Jeff Garro:]

That’s it, and then two housekeeping questions and I’ll hop out, I don’t know see if there is any particular number of net new patient accounting install that’s kind of baked into your guidance there is an expectation then if you can give us kind of an updated client count?

[Boyd Douglas:]

Yeah, we don’t release a client count, we - our guidance for 2015 is includes about 12 to 15 new installs.

[Jeff Garro:]

Thanks again guys.

[Boyd Douglas:]

Thanks, Jeff.

[Operator:]

Our next question comes from the line of Jamie Stockton with Wells Fargo. Please proceed with your question.

[Jamie Stockton:]

Hi, good morning, guys. I guess maybe real quick David on the gross margin persistence sales, obviously the revenue was down a lot and then weaker than expected, they didn’t seem to be much variability in the cost there during the quarter. So I’m wondering if there was a mixed shift where hardware cause that, it seems like in the past we’ve usually seen travel cost come down and the system sales numbers have been weaker.

[David Dye:]

Yeah, I believe there was an - I’ll try and quantify this by the end of call that was a slightly higher mix of hardware in the quarter. The system sales number was so dramatically lower than we expected that obviously we got - we had salary cost that run across that, that just keep economic growth so low in relation to, also we’ve got a couple of installs in the first quarter or rather larger in size, so a lot of them picking couple of 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 the travel cost didn’t correspond one to one with the installed revenues, with the new installed revenue as well.

[Jamie Stockton:]

Okay. In the past, when you guys have had relatively low implementation activity you’ve talked about essentially reinvesting time and trying to improve to customer satisfaction and put out fires. From a cost trend standpoint even though system sales are down in 2015, should we expect the cost will be relatively flat because there is a dynamic like that it’s occurring?

[David Dye:]

I think you should expect it not well, I think you should come down some, yes, we are in the midst of a very aggressive process of utilizing our resources that would otherwise be doing implementations to this at worth and interact with our current customers to - as you said to keep the basis is extremely solid, which is again consistent what we’ve done like - times like these in the past.

[Jamie Stockton:]

Okay, my last question, the dividend you took it out, what are the software obviously you laid out a picture of growth resuming at a pretty healthy clip in 2016 or you essentially when you think about the levels of the dividend in the payout ratio, that you’re kind of looking more at where you think the business is headed in 16 and that’s what you are basing the increase on… any color on that.

[David Dye:]

Yeah, couple of points there. First of all sort of backtracking a little bit, we’ve stated now for a longtime, I can 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 sort of at some point at now we thought it would be 2015, 2016. As we said today it came over sooner than expected, when it regardless when it did come that we were going to try and manage our hiring in such a way that we had stopped our aggressive hiring a couple of years prior to the slowdown, so we went to be in a position to still make a lot of money and pay a healthy dividend and be in position to grow again when an opportunity arose. So, we’re here now and so cash flow is going up, just as we can plan, obviously we will prefer to be growing consistently low double digits or high single digits every year, but that’s not the way it always work, so here - we’re here now, number one. Number two, we - our goals to raise a dividend every year, so obviously when we make a decision on a given year, right now the decision we made for 2015 we’re taking into account that we would like to raise the dividend again in the future and we can’t pay a 100% dividend payout ratio forever we’re not at that quite at this point for our guidance on 2015 that we’re closer than we had been in prior year. So, yes that is a reflection of how strongly we feel about our future certainly.

[Jamie Stockton:]

Okay, that’s great, thanks guys.

[David Dye:]

Thanks, James.

[Operator:]

Our next question comes from the line of Mohan Naidu with Stephens. Please proceed with your question.

[Mohan Naidu:]

Boyd and Dave, thanks for taking my questions, maybe just a follow-up on Jamie’s first question. On the gross margins on systems as a whole, can you guys help you with the quantifying what level of fixed cost do you guys have there that put a bottom on the cost there.

[David Dye:]

I’m looking at Mohan, this is a rough guess, but we probably got fixed cost somewhere around the $9 million mark.

[Mohan Naidu:]

Per quarter?

[David Dye:]

Yes.

[Mohan Naidu:]

Okay, perfect. Maybe stepping on to the medical practice EHR, so you get the tracking pretty well so far, help us understand that market is that you are seeing a lot of Greenfield there are - are there existing vendors that you need to displace in those physician offices?

[David Dye:]

I’ll say it’s a little bit of both, Mohan, you know that really as I mentioned in my prepared comments just the integration that we can provide which is why we are going to focus on practices that are within the communities where we’ve got the hospital system is where we really got an advantage, I mean some of them are out there and have met stage one, but there are extremely dissatisfied with the product that got and you know the advantage we feel we’ve got in those facilities, they are already use in our software and based on our internal feedback and what we look at customer surveys and physician surveys and things, they are extremely satisfied without physician’s product, so it’s really just almost a natural extension there to put out just into their practices and that’s why we are excited about that. But I think it’s both you had some that have done on the Stage 1, but a lot have done it again just the level the satisfaction is pretty half.

[Mohan Naidu:]

Got it. And just two follow-up questions there and the 14 facilities that they are installing in Q1, are these hospital sponsored ones or the - about why the physicians practices within themselves.

[David Dye:]

At this point, the hospital sponsored.

[Mohan Naidu:]

Sponsored, okay. Ad last question I guess on TruBridge, do you provide any physician office based services?

[David Dye:]

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

[Mohan Naidu:]

Okay, thank you very much for taking my questions.

[David Dye:]

Thank you.

[Operator:]

Our next question comes from the line of Sean Wieland with Piper Jaffray. Please proceed with your question.

[Sean Wieland:]

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 Razor Insights and that acquisition by Athena.

[David Dye:]

Yeah, good morning, Cerner and we are seeing - we had a feedback, Sean, if you can.

[Sean Wieland:]

I’ll try to get new from...

[David Dye:]

We continue to see certainly Epic a little bit more Epic in the same way that we’ve seen before high ends with larger facilities in high ends that we had not seen in the increased level of that, but that’s still something that’s out there, again higher than increased level, but we’re certainly keep our your eye on it. Yeah, obviously like everybody else we were aware of and listen to the commentary around the things the acquisition of Razor Insights obviously - it’s a great company well-funded, lot of smart people, so yeah it’s definitely somebody we think will be a significant new competitor in our space. As you probably aware there’s been couple of vendors that are abandoned in this space recently and maybe try to move upstream a little bit. So - we don’t really look at it’s the total number of competitors at least over the last couple of years going up, but it is somebody that we know - we look forward to competing with, I think it’s great for the hospitals and our space, and it will interesting to watch.

[Sean Wieland:]

Okay, thanks for the comments.

[David Dye:]

Thank you, Sean.

[Operator:]

Our next question comes from the line of Donald Hooker with KeyBanc Capital Markets. Please proceed with your question.

[Donald Hooker:]

Yeah, thank you, good morning. And so watching TruBridge grow very fast here, is it thinking about utilization and issue here I mean if you - what you higher needs there kind of thinking about mid-teens growth over the next couple of years?

[David Dye:]

Yeah, well, you probably know we’ve taken a pretty good on margins there over the last 18 months because we’re aggressive hiring and what we still feel the need to higher I think we got it good of their base now, further the kind approximately mid-teens growth there that we have been close to experiencing that we expect to - experience beginning which is why I mentioned the prepared comments that we expect to see margins pick up a little bit, so yes, we will continue to be hiring, but will better position now better than worry too much ago with regards to personal.

[Donald Hooker:]

Okay, that’s helpful and then maybe just one other question of those actually not interested and if you can maybe elaborate a little bit more on the predicted analytics, partnership and maybe - economics around that kind of - over the part time, how you thinking - how you thinking about that sort of branching out overtime maybe elaborate on the topic, of those interesting.

[David Dye:]

So we got to shown, I’m not - we are not necessarily read it to give any economics over yet, I want six or seven great comment as we do expect to see some revenue from that towards the end of this year. The main power project go to mentioned was the reemission project that is going well, got that going in several facilities and at the end of comments we’re not in the lot - there is a lot of technicalities that were learn in IBM really is stepped up and we are really pleased with them as a partner and pleased with the progress we’ve made and we really think there is a lot of especially again I guess some kind of repeat myself, but given with the payment reform changes that obviously you’re coming and then manor which they are coming, we’re very excited and we think we have time that one perfectly as for us get me in on that.

[Donald Hooker:]

It seems like a big opportunity the new direction at least, is there new investment you need to make the sort of prepared for that as you grow there?

[David Dye:]

Nothing significant other than that what we’ve already done with the partnership with IBM, so…

[Donald Hooker:]

Okay, thank you.

[Boyd Douglas:]

Sure, thanks, Donald.

[Operator:]

Our next question comes from the line of Garen Sarafian with Citi Research. Please proceed with your question.

[Garen Sarafian:]

Hi, guys, thanks for taking our questions this morning. First one, if sort of high level you guys touched on it in the prepared remarks, but I guess on surprise that how quickly and the market as in float, so I’m just wondering is that truly just the debate timelines of Meaningful Use attestation or is there something that just trying to get better idea of that’s what you guys for same.

[David Dye:]

Yeah, good question Garen, its surprise us to and we feel strong that it truly is just dates and the times around meaningful use and doing some research and some vendors that are in our space, I think that you will see that as we have seen that there is others experienced in the exact same phenomenon essentially the exact same time, which is gives us even greater confidence that it just a timing - the timing with MU.

[Garen Sarafian:]

Got it, okay. And then on the international front, this - we discussed in the national opportunities before maybe we mentioned Canada and now you guys starting put into prepared remarks, so I’m wondering the size just looking for new growth opportunities, what changed since our previous conversations were you guys sort of so on to just fix the meeting and stay domestic as 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.

[David Dye:]

Yeah, well, I mean a large degree of it is you know what you already mentioned that we want to look for other opportunities in the post-MU market, but I mean 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 in the software, we are able to be successful there and sort of open our eyes, yeah, we can make this work and rest of it had to do with a good deal of research that we did our sales in 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 the international markets that there are some markets where money is a major factor there - the only company is competing in some of those spaces right now from the United States are much more expensive than we are, we have all - 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 what we are right now. Obviously this is something that we’ve been working on for quite some time for us to put it in our prepared remarks we’re very serious about it.

[Garen Sarafian:]

Got it. And do you mentioned to another question that it sound like on the M&A front, you start to see some stance, so the reasonable to do, some of you guys are planning to do this all with the internal resources.

[David Dye:]

Yes.

[Boyd Douglas:]

Great, thanks.

[Operator:]

Our next question comes from the line of Bret Jones with Oppenheimer. Please proceed with your question.

[Bret Jones:]

Hi, good morning, thanks for taking the question, actually I just have one and it’s really curious about the flexibility of our cost structure and kind of how long do you think you will way to make a decision on maybe coming back cost and rightsizing the cost structure to a lower systems sales software line, if they are replacing market doesn’t starts to materialize and how long you anticipate on waiting for that decision.

[Boyd Douglas:]

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 as some of the cost on CPSI outside, we actually can move those human resources over the TruBridge starts, we’ve been working at that, but answer your question and like I said this plenty of times before we invest awful a lot and our people we got through extensive training of all of our employees, so it would be certainty way down the road before we consider anything like that just because of the investment we’ve got and the base we’ve got as we mentioned with Jamie earlier. We take time like these and utilize those resources that aren’t necessarily been installations to go out and solidify the customer base and prove satisfaction so we thought we’ve got a lot to do with that and we’re comfortable with where the margins will be and maintain in that and certainly lot of nutrition take place which is what we’ve been doing now for two years.

[Bret Jones:]

Okay, that’s fair, I just was also wondering then how flexible is the work force because it’s one thing they move people from systems and implementation over the service, but not necessarily over to more of an outsourcing role, I just didn’t know if they are that kind of flexibility within the work force.

[Boyd Douglas:]

Yeah, absolutely, Bret. We had a lot of success in that we think that really benefits TruBridge to have that experience on the CPSI, so we think it’s very flexible.

[Bret Jones:]

Yeah.

[David Dye:]

And then I would like to reiterating with Boyd said by saying that we’ve never had any layoffs in the history of the company, we - as I stated in my prepared comments or have this management team is always got long time and we will continue to always think long-term and so that it’s specific - we’re hell of a long way for thinking about any like that.

[Bret Jones:]

Great, thank you.

[Boyd Douglas:]

Yeah, thanks, Bret.

[Operator:]

Our next question comes from the line of Eugene Mannheimer with Topeka Capital. Please proceed with your question.

[Eugene Mannheimer:]

Thanks, good morning, guys. Just looking back at the systems sales line - with the bottom there in the quarter, I would say because is based on the install schedule for Q1, which looks light as well, it sounds like it could be another leg down and system sales before you see some stability there in 2015 is that make sense?

[David Dye:]

We’ve got some nice size installs in the first quarter, but we don’t get specific numbers around any of the revenue items or any kind of guidance on the quarterly basis.

[Eugene Mannheimer:]

Okay, fair enough and from just look at it more broadly David and Boyd, do you feel like your gaining share in the market and how much you impacted and you feeling from hospital M&A or closers. Thank you.

[David Dye:]

I would say we’re creeping up in gain in market share, yes, I mean you have to do certain number of deals to have any session to gain in market share, so obviously were not doing this many as we would like, so we are gain market share, but [indiscernible] space at this point.

[Eugene Mannheimer:]

In the impact from environmental factors like M&A or bankruptcies closers you’re feeling any of that?

[David Dye:]

Minimal but yes, I don’t think we get any bankruptcies that are actually no, we didn’t have any last quarter, we have not - we have like you I’m sure heard a lot of the channel around the M&A, but we continue to experience on a 1G, 2G basis, but at the same time we pick up the hospital recently as a result of M&A would acquire at our system, so we can go both ways as in the past.

[Eugene Mannheimer:]

Okay, thank you.

[David Dye:]

Thanks, Eugene.

[Operator:]

Our next question comes from the line of [indiscernible] with Copeland Capital Management. Please proceed with your question.

[Unidentified Analyst:]

Hi, Boyd, good morning, thanks for taking my question. So we were pleased to the dividend like and I wish I think you cover this really I was going to ask I mean it was somewhat obviously with the down your EPS outlook, so it curious about rational behind this like and how that relates to what mind happen in 2016, or do you think you cover that maybe you could talk about the confidence, or kind of what those wrong I mean so clearly the payout ratio is high, your cash flow coverage of the dividend high although you mentioned I think you planned in the year with cash in the balance sheet net cash around $40 million, so what goes wrong to that in that forecast that maybe - prevent that some happening.

[Boyd Douglas:]

I don’t know that get us where goes wrong certainly we’re doing from this under is managing the expense side of the balance sheet making sure that were spend a money [indiscernible] and where we needed to grow, but not access with then I think that’s maybe the answer your question that’s our focus is certainly being successful on the sale side is always focus as I mentioned in my prepared comments or I’m pleased with that good customer satisfaction range, come outside good references and so that’s reflective in our win rate, but I talked about earlier, so certainly we keep on that, but I think is just specially important, going into this year to manage the expense side.

[David Dye:]

I know I had that as well and then we still have a quite bit of receivables out there from June 2 contacts better getting in money from CMS, 100s of 1000s of dollars now, on the weekly basis that’s to us, so I mean where we take a pretty conservative approached managing our cash in our divided, so that reflected in the number that we announced.

[Unidentified Analyst:]

Got it, okay. What was the benefit in the working capital from the collections in ’14 and what might that look like in ’15?

[David Dye:]

Sure, I understand the question.

[Unidentified Analyst:]

So you have - I think you had a lot of receivables that we are extending that did helped your cash flow in ’14 and so you just mentioned that still remained a lot outstanding something that there is some benefits with the cash flow from a receivable standpoint kind of above and beyond the cash business will generate?

[David Dye:]

Yeah, I mean I don’t have that specific number, I do know that in the couple of years prior 2014, you know usually our cash collections are equal to or slightly ahead of our revenues and that was reclassification the couple of years prior because of the MU contracts that this year - it’s couple of through some million dollars above revenue and we would expect that again this year.

[Unidentified Analyst:]

Got it. Okay, great, thank you. And then what - I’m sorry just one, what was the expected end of cash was greater than $40 million or was it net cash $40 million end of the year…

[David Dye:]

That’s greater than $40 million.

[Unidentified Analyst:]

Very good, thanks for the color, guys, good luck and everything.

[David Dye:]

Yeah, thank you.

[Operator:]

Our last question comes from the line of Richard Close with Avondale Partners and then we will turn it back over to Mr. Douglas for closing remarks. Richard, you may go ahead with your question.

[Richard Close:]

Thanks, and I’ll just keep it quick here, tax rate, can you give us a little bit of color on that, I assume I was just to catch up on R&D tax rate.

[David Dye:]

Yeah, we thought catch up on that and the work place 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 that was got up in the fourth quarter.

[Richard Close:]

Okay and then with respect to - what did you end up 2014 in terms of number of new installs, I think originally you had 28 when you said your guidance, would that end up being for the year?

[David Dye:]

I think it was 25.

[Richard Close:]

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

[David Dye:]

I guess.

[Richard Close:]

How quickly can you shift expenses?

[David Dye:]

Yes, I was thinking as you were asking the question and I was going to say that’s something that’s in process and takes time, it’s a - we’re going about doing it now, but it’s definitely going to be a yearlong creep to it and the other factors going to be at what point in the year, I mean we are 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, we all expect now from a full year attestation period to a 90, but that will certainly when we have those add-on sales as you know those are better gross margin in new system sales - have an effect on just well the timing of that.

[Richard Close:]

And then on system sales you mentioned the $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 may be done in December with respect to those larger deals is it possible to see a pretty dramatic top in the system sales margin in the first quarter?

[David Dye:]

Yeah, I don’t necessarily want to comment on it of core specific, but that the sale that Boyd mentioned in his prepared comments right now is slighter for the second quarter.

[Richard Close:]

Okay, alright, well. Thank you very much.

[David Dye:]

Thanks, Richard.

[Operator:]

We have no further questions on line at this time.

[Boyd Douglas:]

I’d like to thank everyone for their interest in CPSI and your time this morning on the call, hope everybody have a great weekend.

[Operator:]

Ladies and gentlemen, that does conclude today’s conference call. We thank you for your participation and asked you to please disconnect your lines.