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CPSI Announces Second Quarter 2018 Results

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Company Announces Quarterly Cash Dividend of $0.10 Per Share

CPSI (NASDAQ:CPSI):

Highlights for Second Quarter 2018:

  • Revenues of $67.9 million;
  • Recurring revenues up 1% sequentially, 7% year over year;
  • 12-month backlog of $267 million;
  • Quarterly bookings of $23.5 million;
  • GAAP earnings per diluted share of $0.02 and non-GAAP earnings per
    diluted share of $0.34;
  • GAAP net income of $0.3 million and non-GAAP net income of $4.7
    million;
  • Adjusted EBITDA of $8.1 million;
  • Cash provided by operations of $4.7 million; and
  • Quarterly dividend of $0.10 per share.

CPSI (NASDAQ:CPSI), a community healthcare solutions company, today
announced results for the second quarter and six months ended June 30,
2018.

The Company also announced that its Board of Directors has declared a
quarterly cash dividend of $0.10 per share, payable on August 31, 2018,
to stockholders of record as of the close of business on August 16, 2018.

Total revenues for the second quarter ended June 30, 2018, were $67.9
million, compared with total revenues of $67.7 million for the
prior-year period. Net income for the quarter ended June 30, 2018, was
$0.3 million, or $0.02 per diluted share, compared with net income of
$1.6 million, or $0.11 per diluted share, for the quarter ended June 30,
2017. Cash provided by operations for the second quarter was $4.7
million, compared with cash provided by operations of $6.2 million for
the prior-year period.

Total revenues for the six months ended June 30, 2018, were $138.8
million, compared with total revenues of $131.8 million for the
prior-year period. Net income for the six months ended June 30, 2018,
was $4.3 million, or $0.31 per diluted share, compared with $1.8
million, or $0.13 per diluted share, for the six months ended June 30,
2017. Cash provided by operations for the first six months of 2018 was
$7.8 million, compared with cash provided by operations of $15.9 million
for the prior-year period.

"Our second quarter of 2018 was led again by nice growth from our
services, business consulting and IT business, TruBridge," said Boyd
Douglas, president and chief executive officer of CPSI. "These results
include a 13% increase in TruBridge services revenue compared with the
second quarter last year and record quarterly bookings for our Revenue
Cycle Management solution. This top line growth for CPSI was accompanied
by the addition of 15 new clients, which included 11 community hospitals
and four skilled nursing facilities, bringing the total number of new
clients to 29 for the year. While total revenue this quarter was weaker
than expected, we expect to recapture it before year end."

Commenting on the Company's financial performance for the quarter, Matt
Chambless, chief financial officer of CPSI, stated, "As we shared during
our first quarter conference call, the proposed ruling from CMS allows
for a 90-day stage 3 meaningful use (MU3) attestation period in 2019
instead of the full year. This ruling effectively delayed the need for
hospitals to be prepared for MU3 attestation from the end of 2018 to
October 2019, at the latest. With this relief in timing, it is clear our
clients feel less urgency to install applications purchased before the
end of 2018. As a result, much of the remaining revenue associated with
MU3 will extend into 2019. This shift in MU3 revenue recognition and a
delayed new system implementation, along with a period of naturally
higher general and administrative costs, affected both our top and
bottom line results this quarter. However, we view these as typical
dynamics that are not uncommon in an industry bound by heavy government
regulations."

Douglas added, "Closing out the first half of 2018, we already have 18
implementations scheduled in the second half of the year, which has
created a very healthy pipeline of revenue and an expected strong finish
for the year. In addition, our continued efforts of closely managing our
combined company operations and leveraging synergies that enhance our
business and support our clients will help drive efficiencies. Based on
the 2018 expense exit run rate, we expect an estimated $10 million
incremental benefit to our bottom line in 2019, supporting our goal of
returning to 20% EBITDA margins in 2020."

CPSI will hold a live webcast to discuss second quarter 2018 results
today, Thursday, August 2, 2018, at 4:30 p.m. Eastern time. A 30-day
online replay will be available approximately one hour following the
conclusion of the live webcast. To listen to the live webcast or access
the replay, visit the Company's website, www.cpsi.com.

About CPSI

CPSI is a leading provider of healthcare solutions and services for
community hospitals, their clinics and post-acute care facilities.
Founded in 1979, CPSI is the parent of three companies – Evident, LLC,
TruBridge, LLC and American HealthTech, Inc. Our combined companies are
focused on helping improve the health of the communities we serve,
connecting communities for a better patient care experience, and
improving the financial operations of our customers. Evident provides
comprehensive EHR solutions for community hospitals and their affiliated
clinics. American HealthTech is one of the nation's largest providers of
EHR solutions and services for post-acute care facilities. TruBridge
focuses on providing business, consulting and managed IT services, along
with its complete RCM solution for all care settings. For more
information, visit www.cpsi.com.

Forward-Looking Statements

This press release contains forward-looking statements within the
meaning of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements can be
identified generally by the use of forward-looking terminology and words
such as "expects," "anticipates," "estimates," "believes," "predicts,"
"intends," "plans," "potential," "may," "continue," "should," "will" and
words of comparable meaning. Without limiting the generality of the
preceding statement, all statements in this press release relating to
estimated and projected earnings, leverage ratio, margins, costs,
expenditures, cash flows, growth rates,
the Company's level of
recurring and non-recurring revenue and backlog, the Company's
shareholder returns and future financial results are forward-looking
statements. We caution investors that any such forward-looking
statements are only predictions and are not guarantees of future
performance. Certain risks, uncertainties and other factors may cause
actual results to differ materially from those projected in the
forward-looking statements. Such factors may include: overall business
and economic conditions affecting the healthcare industry, including the
potential effects of the federal healthcare reform legislation enacted
in 2010, and implementing regulations, on the businesses of our hospital
customers; government regulation of our products and services and the
healthcare and health insurance industries, including changes in
healthcare policy affecting
Medicare and Medicaid
reimbursement rates and qualifying technological standards; changes
in customer purchasing priorities, capital expenditures and demand for
information technology systems; saturation of our target market and
hospital consolidations; general economic conditions, including changes
in the financial and credit markets that may affect the availability and
cost of credit to us or our customers; our substantial indebtedness, and
our ability to incur additional indebtedness in the future; our
potential inability to generate sufficient cash in order to meet our
debt service obligations; restrictions on our current and future
operations because of the terms of our senior secured credit facilities;
market risks related to interest rate changes; our ability to
successfully integrate the businesses of Healthland, American HealthTech
and Rycan with our business and the inherent risks associated with any
potential future acquisitions; competition with companies that have
greater financial, technical and marketing resources than we have;
failure to develop new technology and products in response to market
demands; failure of our products to function properly resulting in
claims for medical and other losses; breaches of security and viruses in
our systems resulting in customer claims against us and harm to our
reputation; failure to maintain customer satisfaction through new
product releases free of undetected errors or problems; interruptions in
our power supply and/or telecommunications capabilities, including those
caused by natural disaster; our ability to attract and retain qualified
customer service and support personnel; failure to properly manage
growth in new markets we may enter; misappropriation of our intellectual
property rights and potential intellectual property claims and
litigation against us; changes in accounting principles generally
accepted in
the United States of America; significant charge to
earnings if our goodwill or intangible assets become impaired;
fluctuations in quarterly financial performance due to, among other
factors, timing of customer installations; and other risk factors
described from time to time 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. Relative to our
dividend policy, the payment of cash dividends is subject to the
discretion of our Board of Directors and will be determined in light of
then-current conditions, including our earnings, our leverage, our
operations, our financial conditions, our capital requirements and other
factors deemed relevant by our Board of Directors. In the future, our
Board of Directors may change our dividend policy, including the
frequency or amount of any dividend, in light of then-existing
conditions. We also caution investors that the forward-looking
information described herein 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 press release.

 
COMPUTER PROGRAMS AND SYSTEMS, INC.

Unaudited Condensed Consolidated Statements of Income

(In thousands, except per share data)

 
   

Three Months Ended
June 30,

   

Six Months Ended
June 30,

2018     2017 2018     2017
Sales revenues:
System sales and support $ 42,746 $ 45,474 $ 88,498 $ 88,897
TruBridge   25,159     22,203     50,290     42,854  
Total sales revenues 67,905 67,677 138,788 131,751
 
Costs of sales:
System sales and support 19,528 19,753 37,946 39,540
TruBridge   13,531     11,933     26,910     23,520  
Total costs of sales   33,059     31,686     64,856     63,060  
 
Gross profit 34,846 35,991 73,932 68,691
 
Operating expenses:
Product development 9,314 8,414 18,071 16,492
Sales and marketing 7,518 7,607 15,232 14,734
General and administrative 13,188 12,921 25,552 24,581

Amortization of acquisition-related intangibles

  2,601     2,601     5,203     5,203  
Total operating expenses   32,621     31,543     64,058     61,010  
 
Operating income 2,225 4,448 9,874 7,681
 
Other income (expense):
Other income 194 70 392 140
Interest expense   (1,807 )   (1,938 )   (3,785 )   (3,745 )
Total other expense   (1,613 )   (1,868 )   (3,393 )   (3,605 )
 
Income before taxes 612 2,580 6,481 4,076
Provision for income taxes   284     993     2,185     2,243  
Net income $ 328   $ 1,587   $ 4,296   $ 1,833  
 

Net income per common share – basic and diluted

$ 0.02   $ 0.11   $ 0.31   $ 0.13  
 

Weighted average shares outstanding used in per common share
computations – basic and diluted

13,561 13,420 13,518 13,397
 

 
COMPUTER PROGRAMS AND SYSTEMS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

 
   

June 30,
2018

   

Dec. 31,
2017

(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,492 $ 520
Accounts receivable, net of allowance for doubtful accounts of
$3,213 and $2,654, respectively
41,216 38,061
Financing receivables, current portion, net 14,788 15,055
Inventories 1,478 1,417
Prepaid income taxes 651 -
Prepaid expenses and other   6,038     2,824  

Total current assets

65,663 57,877
 
Property and equipment, net 11,042 11,692
Financing receivables, net of current portion 13,025 11,485
Other assets, net of current portion 1,155 -
Intangible assets, net 91,510 96,713
Goodwill   140,449     140,449  
Total assets $ 322,844   $ 318,216  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,814 $ 7,620
Current portion of long-term debt 5,830 5,820
Deferred revenue 12,300 8,707
Accrued vacation 4,702 3,794
Income taxes payable - 810
Other accrued liabilities   10,160     14,098  
Total current liabilities 38,806 40,849
 
Long-term debt, less current portion 133,151 136,614
Deferred tax liabilities   6,646     4,667  
Total liabilities 178,603 182,130
 
Stockholders' Equity:
Common stock, $0.001 par value; 30,000 shares authorized; 14,086 and
13,760 shares issued and outstanding
14 14
Additional paid-in capital 159,770 155,078
Retained earnings   (15,543 )   (19,006 )
Total stockholders' equity   144,241     136,086  
Total liabilities and stockholders' equity $ 322,844   $ 318,216  
 

 
COMPUTER PROGRAMS AND SYSTEMS, INC.

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

 
   

Six Months Ended
June 30,

2018     2017
Operating activities:
Net income $ 4,296 $ 1,833
Adjustments to net income:
Provision for bad debt 1,695 473
Deferred taxes 1,404 1,920
Stock-based compensation 4,692 2,967
Depreciation 1,067 1,419
Intangible amortization 5,203 5,203
Amortization of deferred finance costs 173 365
Changes in operating assets and liabilities:
Accounts receivable (4,453 ) (3,013 )
Financing receivables (1,669 ) (4,241 )
Inventories (62 ) 622
Prepaid expenses and other (594 ) (1,014 )
Accounts payable (1,806 ) 4,588
Deferred revenue 2,363 2,724
Other liabilities (3,030 ) 2,236
Income taxes payable   (1,461 )   (191 )
Net cash provided by operating activities 7,818 15,891
 
Investing activities:
Purchases of property and equipment   (417 )   (465 )
Net cash used in investing activities (417 ) (465 )
 
Financing activities:
Dividends paid (2,803 ) (6,135 )
Proceeds from long-term debt 7,300 -
Payments of long-term debt (10,926 ) (9,771 )
Proceeds from exercise of stock options   -     1  
Net cash used in financing activities (6,429 ) (15,905 )
 
Net increase (decrease) in cash and cash equivalents 972 (479 )
 
Cash and cash equivalents, beginning of period   520     2,220  
Cash and cash equivalents, end of period $ 1,492   $ 1,741  
 

 
COMPUTER PROGRAMS AND SYSTEMS, INC.

Unaudited Other Supplemental Information

Consolidated Bookings

(In thousands)

 
   

Three Months Ended
June 30,

   

Six Months Ended
June 30,

2018     2017 2018     2017
System sales and support(1) $ 17,125 $ 24,998 $ 35,357 $ 41,953
TruBridge(2)   6,371   8,699   10,189   15,293
Total $ 23,496 $ 33,697 $ 45,546 $ 57,246
(1)   Generally calculated as the total contract price (for system sales)
and annualized contract value (for support).
(2) Generally calculated as the total contract price (for non-recurring,
project-related amounts) and annualized contract value (for
recurring amounts).
 

 
COMPUTER PROGRAMS AND SYSTEMS, INC.

Unaudited Reconciliation of Non-GAAP Financial Measures

(In thousands)

 
Adjusted EBITDA    

Three Months Ended
June 30,

   

Six Months Ended
June 30,

2018     2017 2018     2017
Net income, as reported $ 328 $ 1,587 $ 4,296 $ 1,833
Depreciation expense 538 701 1,067 1,419
Amortization of acquisition-related intangible assets 2,601 2,601 5,203 5,203
Stock-based compensation 2,753 1,685 4,692 2,967
Transaction-related costs - 4 - 9
Non-recurring severance - 1,669 - 2,066
Interest expense and other, net 1,613 1,868 3,393 3,605
Provision for income taxes   284   993   2,185   2,243
Adjusted EBITDA $ 8,117 $ 11,108 $ 20,836 $ 19,345
 

The performance measure of Adjusted EBITDA, as presented above, excludes
the cash benefits derived from the utilization of net operating loss
carryforwards acquired in the Healthland acquisition ("NOL
Utilization"), which is included as an adjustment to net income in order
to calculate Consolidated EBITDA per the terms of our credit facility.
NOL Utilization was approximately $0.8 million and $1.6 million for the
three and six months ended June 30, 2018, respectively, compared with
$2.1 million and $3.4 million for the three and six months ended June
30, 2017, respectively.

 
COMPUTER PROGRAMS AND SYSTEMS, INC.

Unaudited Reconciliation of Non-GAAP Financial Measures

(In thousands, except per share data)

 

Non-GAAP Net Income and Non-GAAP Earnings Per Share ("EPS")

   

Three Months Ended
June 30,

   

Six Months Ended
June 30,

2018     2017 2018     2017
Net income, as reported $ 328 $ 1,587 $ 4,296 $ 1,833
Pre-tax adjustments for Non-GAAP EPS:
Amortization of acquisition-related intangible assets 2,601 2,601 5,203 5,203
Stock-based compensation 2,753 1,685 4,692 2,967
Transaction-related costs - 4 - 9
Non-recurring severance - 1,669 - 2,066
Non-cash interest expense 86 183 172 365
After-tax adjustments for Non-GAAP EPS:
Tax-effect of pre-tax adjustments, at 21% and 35%, respectively (1,142 ) (2,150 ) (2,114 ) (3,714 )
Tax shortfall from stock-based compensation   32     157     394     921  
Non-GAAP net income $ 4,658   $ 5,736   $ 12,643   $ 9,650  
Weighted average shares outstanding, diluted   13,561     13,420     13,518     13,397  
Non-GAAP EPS $ 0.34   $ 0.43   $ 0.94   $ 0.72  
 

Explanation of Non-GAAP Financial Measures

We report our financial results in accordance with accounting principles
generally accepted in the United States of America, or "GAAP." However,
management believes that, in order to properly understand our short-term
and long-term financial and operational trends, investors may wish to
consider the impact of certain non-cash or non-recurring items, when
used as a supplement to financial performance measures that are prepared
in accordance with GAAP. These items result from facts and circumstances
that vary in frequency and impact on continuing operations. Management
uses these non-GAAP financial measures in order to evaluate the
operating performance of the Company and compare it against past
periods, make operating decisions, and serve as a basis for strategic
planning. These non-GAAP financial measures provide management with
additional means to understand and evaluate the operating results and
trends in our ongoing business by eliminating certain non-cash expenses
and other items that management believes might otherwise make
comparisons of our ongoing business with prior periods more difficult,
obscure trends in ongoing operations, or reduce management's ability to
make useful forecasts. In addition, management understands that some
investors and financial analysts find these non-GAAP financial measures
helpful in analyzing our financial and operational performance and
comparing this performance to our peers and competitors.

As such, to supplement the GAAP information provided, we present in this
press release the following non-GAAP financial measures: Adjusted
EBITDA, Non-GAAP net income, and Non-GAAP earnings per share ("EPS").

We calculate each of these non-GAAP financial measures as follows:

  • Adjusted EBITDA – Adjusted EBITDA
    consists of GAAP net income (loss) as reported and adjusts for: (i)
    depreciation; (ii) amortization of acquisition-related intangible
    assets; (iii) stock-based compensation; (iv) transaction-related
    costs; (v) non-recurring severance; (vi) interest expense and other,
    net; and (vii) the provision for income taxes.
  • Non-GAAP net income – Non-GAAP net income
    consists of GAAP net income (loss) as reported and adjusts for (i)
    amortization of acquisition-related intangible assets; (ii)
    stock-based compensation; (iii) transaction-related costs; (iv)
    non-recurring severance; (v) non-cash charges to interest expense and
    other; and (vi) the total tax effect of items (i) through (v).
  • Non-GAAP EPS – Non-GAAP EPS consists of
    Non-GAAP net income, as defined above, divided by weighted average
    shares outstanding (diluted) in the applicable period.

Certain of the items excluded or adjusted to arrive at these non-GAAP
financial measures are described below:

  • Amortization of acquisition-related intangible
    assets
    – Acquisition-related amortization expense is a non-cash
    expense arising primarily from the acquisition of intangible assets in
    connection with acquisitions or investments. We exclude
    acquisition-related amortization expense from non-GAAP financial
    measures because we believe (i) the amount of such expenses in any
    specific period may not directly correlate to the underlying
    performance of our business operations and (ii) such expenses can vary
    significantly between periods as a result of new acquisitions and full
    amortization of previously acquired intangible assets. Investors
    should note that the use of these intangible assets contributed to
    revenue in the periods presented and will contribute to future revenue
    generation, and the related amortization expense will recur in future
    periods.
  • Stock-based compensation – Stock-based
    compensation expense is a non-cash expense arising from the grant of
    stock-based awards. We exclude stock-based compensation expense from
    non-GAAP financial measures because we believe (i) the amount of such
    expenses in any specific period may not directly correlate to the
    underlying performance of our business operations and (ii) such
    expenses can vary significantly between periods as a result of the
    timing and valuation of grants of new stock-based awards, including
    grants in connection with acquisitions. Investors should note that
    stock-based compensation is a key incentive offered to employees whose
    efforts contributed to the operating results in the periods presented
    and are expected to contribute to operating results in future periods,
    and such expense will recur in future periods.
  • Non-recurring expenses and transaction-related
    costs
    – Non-recurring expenses relate to certain severance and
    other charges incurred in connection with activities that are
    considered one-time. Transaction-related costs are the non-recurring
    costs related to specific acquisitions (such as the Healthland
    acquisition). We exclude non-recurring expenses and
    transaction-related costs from non-GAAP financial measures because we
    believe (i) the amount of such expenses in any specific period may not
    directly correlate to the underlying performance of our business
    operations and (ii) such expenses can vary significantly between
    periods.
  • Non-cash charges to interest expense and other
    – Non-cash charges to interest expense and other includes amortization
    of deferred debt issuance costs. We exclude non-cash charges to
    interest expense and other from non-GAAP financial measures because we
    believe these non-cash amounts relate to specific transactions and, as
    such, may not directly correlate to the underlying performance of our
    business operations.
  • Tax shortfall (excess tax benefit) from
    stock-based compensation
     – ASU 2016-09, Improvements
    to Employee Share-Based Payment Accounting
    , became effective for
    the Company during the first quarter of 2017 and changes the treatment
    of tax shortfall and excess tax benefits arising from stock-based
    compensation arrangements. Prior to ASU 2016-09, these amounts were
    recorded as an increase (for excess benefits) or decrease (for
    shortfalls) to additional paid-in capital. With the adoption of ASU
    2016-09, these amounts are now captured in the period's income tax
    expense. We exclude this component of income tax expense from non-GAAP
    financial measures because we believe (i) the amount of such expenses
    or benefits in any specific period may not directly correlate to the
    underlying performance of our business operations; (ii) such expenses
    or benefits can vary significantly between periods as a result of the
    valuation of grants of new stock-based awards, the timing of vesting
    of awards, and periodic movements in the fair value of our common
    stock; and (iii) excluding these amounts assists in the comparability
    between current period results and results during periods prior to the
    adoption of ASU 2016-09.

Management considers these non-GAAP financial measures to be important
indicators of our operational strength and performance of our business
and a good measure of our historical operating trends, in particular the
extent to which ongoing operations impact our overall financial
performance. In addition, management may use Adjusted EBITDA, Non-GAAP
net income and/or Non-GAAP EPS to measure the achievement of performance
objectives under the Company's stock and cash incentive programs. Note,
however, that these non-GAAP financial measures are performance measures
only, and they do not provide any measure of cash flow or liquidity.
Non-GAAP financial measures are not alternatives for measures of
financial performance prepared in accordance with GAAP and may be
different from similarly titled non-GAAP measures presented by other
companies, limiting their usefulness as comparative measures. Non-GAAP
financial measures have limitations in that they do not reflect all of
the amounts associated with our results of operations as determined in
accordance with GAAP. Additionally, there is no certainty that we will
not incur expenses in the future that are similar to those excluded in
the calculations of the non-GAAP financial measures presented in this
press release. Investors and potential investors are encouraged to
review the "Unaudited Reconciliation of Non-GAAP Financial Measures"
above.

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