Equity research: Computer Programs and Systems, Inc. (Part 3 of 5)
Computer Programs and Systems, Inc. (CPSI): Management team
At CUSH, we hold a monthly investors club for area executives and other successful investors. One of the members got us excited about the idea after speaking very highly of the CPSI, sharing great insight. This, coupled with having recently read an article from Forbes[1. Forbes, “Land Shares of CPSI Cheaper Than the CFO Did.” May 21, 2012] about the high levels of insider buying by the management team of CPSI, led CUSH to do a thorough analysis of CPSI. We welcome anyone interested in joining our investors club to Contact CUSH Capital.
We at CUSH are very impressed with the executive management team of CPSI. Their average tenure is in excess of 18 years and, from our conversation with CFO David Dye, they plan to be there another ten years. Management has been purchasing the stock at levels in the mid-50s, which is higher than where the stock is currently trading. Management owns about 6.6% of the shares outstanding. 1 CEO Boyd Douglas has served in that role since 2006 and has been with CPSI since 1990, when he started as a support representative. CFO David Dye started with CPSI as support representative in 1990; he served as CEO from 1999 until 2006, and has been CFO since 2010. In 2006, he stepped down from his CEO role to focus on other activities but remained on as chairman of CPSI’s board and continues to serve as chairman to this day. Looking back to the conversation we had with CFO David Dye, we would rate it as one of the top calls we have had with an executive management team. We like to ask the question, “What sets the moral compass within your organization?” Typically, we hear a lot of management teams struggle with their response to that but that wasn’t the case with Mr. Dye:
- “I think we just try and demand it [moral integrity] by example and do not tolerate anything else. It just takes care of itself. I don’t know that I have a stock answer for that one other than that’s just the way the company has been run. It will continue to be run like that as long as the people in charge are in charge. Our goal is to pass that onto the next generation as it was passed onto us.”
This attitude is evidenced by the tenure of the management team and the “promote-from-within” attitude. CPSI seeks to create a workplace where employees are excited to come in every day, knowing that they will be the ones leading the company in the future. Everyone starts at the bottom with this company. CPSI does not recruit. Instead, they let the cream rise to the top. As a result, they have high employee retention rate, and management is excited about the future leaders. Mr. Dye spoke very highly of Christopher Fowler, who was selected to be the president of TruBridge. Mr. Fowler joined CPSI in 2000 directly out of college. He started as a support representative before moving his way up to Vice President of Business Management Services in 2008. This is the mentality that CPSI tries to instill in its people: that you and your colleagues will be the leaders of the company in the future and no one from outside will be brought in to be your boss. Almost all of the executive management team started as support representatives.
A troubling incident
We would be remiss if we did not note that the management of CPSI did have a troubling incident back in 2010. In 2010, they fired then CFO Darrell West for misappropriating company money in paying a personal tax obligation. While this is a red flag, it is also an opportunity to see how a company responds and moves forward after such a misstep by a key leader. We asked Mr. Dye what his take was on this unfortunate misstep, especially after CPSI was named to the “List of 100 Most Trustworthy Companies in America” back in 2007. He stated that before the incident Darrel West would have been one of the least likely people he thought would commit fraud and was shocked when the incident happened. While CPSI does have more controls in place now, Mr. Dye believes that you can control yourself to death but if people are going to cheat then that is what they are going to do. If CPSI were in the same position again and needed to replace their CFO, Darrel West would have been promoted again as he had done nothing but a good job up to that point (source:Forbes).
Despite this incident, we are very impressed with the current management team. CPSI has done a great job of finding and developing talent from the ground up. This is evidenced by the company’s track record of being the market leader in EHRs for hospitals in rural communities. The return on shareholders’ equity, their expanding profit margins, and the growth rates generated by CPSI speak to the job that management is doing.
The Market Realist Take
Despite the current economic environment, CPSI believes healthcare information technology is often viewed as more strategic to hospitals than other possible purchases because the technology offers possible quick returns on investment. Information technology also plays an important role in healthcare by improving safety and efficiency and reducing cost. Plus, CPSI believes most hospitals recognize that they must invest in healthcare information technology to meet current and future regulation, compliance, and government reimbursement requirements.
CPSI’s competitors include Cerner Corporation (CERN), Quality Systems Inc. (QSII), McKesson Corporation (MCK), Veeva Systems (VEEV), and Quadramed Corp (formerly QD, which was recently purchased and went private in June).
- Source: CPSI April 1, 2013 Proxy Statement ↩
Browse this series on Market Realist:
- Part 1 - Computer Programs and Systems, Inc.: Investment highlights
- Part 2 - Computer Programs and Systems, Inc.: Investment thesis
- Part 4 - Computer Programs and Systems, Inc.: Financial summary
- Information Technology