Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017.2018.
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            .
Commission file number: 000-49796

COMPUTER PROGRAMS AND SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware

Delaware74-3032373
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
6600 Wall Street, Mobile, Alabama36695
(Address of Principal Executive Offices)(Zip Code)

(251) 639-8100
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨Accelerated filerý
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company¨
Emerging Growth Company
¨

Large accelerated filer¨Accelerated filerý
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company¨
Emerging Growth Company
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
As of August 7, 2017,6, 2018 there were 13,755,726 shareswere 14,085,989 shares of the issuer’s common stock outstanding.


1

COMPUTER PROGRAMS AND SYSTEMS, INC.
Quarterly Report on Form 10-Q
(For the three and six months ended June 30, 2017)2018)
TABLE OF CONTENTS
 

Item 1.
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1.1A.
Item 1A.2.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


2

PART I
FINANCIAL INFORMATION

Item 1.Financial Statements.

COMPUTER PROGRAMS AND SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)



June 30,
2017
 December 31,
2016
June 30, 2018December 31, 2017
Assets   Assets
Current assets:   Current assets:
Cash and cash equivalents$1,741
 $2,220
Cash and cash equivalents$1,492 $520 
Accounts receivable, net of allowance for doubtful accounts of $2,566 and $2,370, respectively34,655
 31,812
Accounts receivable, net of allowance for doubtful accounts of $3,213 and $2,654, respectivelyAccounts receivable, net of allowance for doubtful accounts of $3,213 and $2,654, respectively41,216 38,061 
Financing receivables, current portion, net5,899
 5,459
Financing receivables, current portion, net14,788 15,055 
Inventories1,075
 1,697
Inventories1,478 1,417 
Prepaid income taxes758
 567
Prepaid income taxes651 — 
Prepaid expenses and other3,808
 2,794
Prepaid expenses and other6,038 2,824 
Total current assets47,936
 44,549
Total current assets65,663 57,877 
Property and equipment, net12,485
 13,439
Property and equipment, net11,042 11,692 
Financing receivables, net of current portion9,093
 5,595
Financing receivables, net of current portion13,025 11,485 
Other assets, net of current portionOther assets, net of current portion1,155 — 
Intangible assets, net101,915
 107,118
Intangible assets, net91,510 96,713 
Goodwill168,449
 168,449
Goodwill140,449 140,449 
Total assets$339,878
 $339,150
Total assets$322,844 $318,216 
Liabilities and Stockholders’ Equity   Liabilities and Stockholders’ Equity
Current liabilities:   Current liabilities:
Accounts payable$11,429
 $6,841
Accounts payable$5,814 $7,620 
Current portion of long-term debt7,389
 5,817
Current portion of long-term debt5,830 5,820 
Deferred revenue8,564
 5,840
Deferred revenue12,300 8,707 
Accrued vacation4,604
 3,650
Accrued vacation4,702 3,794 
Income taxes payableIncome taxes payable— 810 
Other accrued liabilities10,079
 8,797
Other accrued liabilities10,160 14,098 
Total current liabilities42,065
 30,945
Total current liabilities38,806 40,849 
Long-term debt, less current portion136,011
 146,989
Long-term debt, net of current portionLong-term debt, net of current portion133,151 136,614 
Deferred tax liabilities5,166
 3,246
Deferred tax liabilities6,646 4,667 
Total liabilities183,242
 181,180
Total liabilities178,603 182,130 
Stockholders’ equity:   Stockholders’ equity:
Common stock, $0.001 par value; 30,000 shares authorized; 13,756 and 13,533 shares issued and outstanding14
 13
Common stock, $0.001 par value; 30,000 shares authorized; 14,086 and 13,760 shares issued and outstanding, respectivelyCommon stock, $0.001 par value; 30,000 shares authorized; 14,086 and 13,760 shares issued and outstanding, respectively14 14 
Additional paid-in capital150,878
 147,911
Additional paid-in capital159,770 155,078 
Retained earnings5,744
 10,046
Accumulated deficitAccumulated deficit(15,543)(19,006)
Total stockholders’ equity156,636
 157,970
Total stockholders’ equity144,241 136,086 
Total liabilities and stockholders’ equity$339,878
 $339,150
Total liabilities and stockholders’ equity$322,844 $318,216 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Table of Contents
COMPUTER PROGRAMS AND SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
2017 2016 2017 20162018201720182017
Sales revenues:
 
    Sales revenues:
System sales and support$45,474
 $47,719
 $88,897
 $97,428
System sales and support$42,746 $45,474 $88,498 $88,897 
TruBridge22,203
 20,696
 42,854
 40,630
TruBridge25,159 22,203 50,290 42,854 
Total sales revenues67,677
 68,415
 131,751
 138,058
Total sales revenues67,905 67,677 138,788 131,751 
Costs of sales:
      Costs of sales:
System sales and support18,859
 21,886
 37,789
 44,153
System sales and support19,528 19,753 37,946 39,540 
TruBridge11,933
 11,616
 23,520
 22,903
TruBridge13,531 11,933 26,910 23,520 
Total costs of sales30,792
 33,502
 61,309
 67,056
Total costs of sales33,059 31,686 64,856 63,060 
Gross profit36,885
 34,913
 70,442
 71,002
Gross profit34,846 35,991 73,932 68,691 
Operating expenses:       Operating expenses:
Product development9,308
 8,179
 18,243
 15,369
Product development9,314 8,414 18,071 16,492 
Sales and marketing7,607
 6,717
 14,734
 13,447
Sales and marketing7,518 7,607 15,232 14,734 
General and administrative12,921
 12,130
 24,581
 31,168
General and administrative13,188 12,921 25,552 24,581 
Amortization of acquisition-related intangibles2,601
 2,624
 5,203
 4,979
Amortization of acquisition-related intangibles2,601 2,601 5,203 5,203 
Total operating expenses32,437
 29,650
 62,761
 64,963
Total operating expenses32,621 31,543 64,058 61,010 
Operating income4,448
 5,263
 7,681
 6,039
Operating income2,225 4,448 9,874 7,681 
Other income (expense):       Other income (expense):
Other income70
 69
 140
 68
Other income194 70 392 140 
Interest expense(1,938) (1,642) (3,745) (3,110)Interest expense(1,807)(1,938)(3,785)(3,745)
Total other income (expense)(1,868) (1,573) (3,605) (3,042)Total other income (expense)(1,613)(1,868)(3,393)(3,605)
Income before taxes2,580
 3,690
 4,076
 2,997
Income before taxes612 2,580 6,481 4,076 
Provision for income taxes993
 1,694
 2,243
 2,664
Provision for income taxes284 993 2,185 2,243 
Net income$1,587
 $1,996
 $1,833
 $333
Net income$328 $1,587 $4,296 $1,833 
Net income per common share—basic$0.11
 $0.15
 $0.13
 $0.03
Net income per common share—basic$0.02 $0.11 $0.31 $0.13 
Net income per common share—diluted$0.11
 $0.15
 $0.13
 $0.03
Net income per common share—diluted$0.02 $0.11 $0.31 $0.13 
Weighted average shares outstanding used in per common share computations:       Weighted average shares outstanding used in per common share computations:
Basic13,420
 13,317
 13,397
 13,171
Basic13,561 13,420 13,518 13,397 
Diluted13,420
 13,365
 13,397
 13,227
Diluted13,561 13,420 13,518 13,397 
Dividends declared per common share$0.20
 $0.64
 $0.45
 $1.28
Dividends declared per common share$0.10 $0.20 $0.20 $0.45 

The accompanying notes are an integral part of these condensed consolidated financial statements.

COMPUTER PROGRAMS AND SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
4

 Three Months Ended June 30, Six Months Ended June 30,
 2017 2016 2017 2016
Net income$1,587
 $1,996
 $1,833
 $333
Other comprehensive income, net of tax       
Change in unrealized income with realized income on the Statement of Income


 6
 
 38
Total other comprehensive income, net of tax
 6
 
 38
Comprehensive income$1,587
 $2,002
 $1,833
 $371
The accompanying notes are an integral partTable of these condensed consolidated financial statements.Contents

COMPUTER PROGRAMS AND SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
 

Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
Common Stock 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Total
Stockholders’
Equity
 SharesAmount
Balance at December 31, 2017Balance at December 31, 201713,760 $14 $155,078 $(19,006)$136,086 
Net incomeNet income— — — 4,296 4,296 
Adoption of accounting standards (Note 2)Adoption of accounting standards (Note 2)— — — 1,970 1,970 
Shares Amount 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Total
Stockholders’
Equity
Balance at December 31, 201613,533
 $13
 
Net income
 
 
Common stock issued upon exercise of stock options
 
 1
 
 1
Issuance of restricted stock223
 1
 (1) 
 
Issuance of restricted stock326 — — — — 
Stock-based compensation
 
 2,967
 
 2,967
Stock-based compensation— — 4,692 — 4,692 
Dividends
 
 
 (6,135) (6,135)Dividends— — — (2,803)(2,803)
Balance at June 30, 201713,756
 $14
 $150,878
 $5,744
 $156,636
Balance at June 30, 2018Balance at June 30, 201814,086 $14 $159,770 $(15,543)$144,241 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Table of Contents
COMPUTER PROGRAMS AND SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 

Six Months Ended June 30,Six Months Ended June 30,
2017 201620182017
Operating Activities:   Operating Activities:
Net income1,833
 $333
Net income$4,296 $1,833 
Adjustments to net income:   Adjustments to net income:
Provision for bad debt473
 451
Provision for bad debt1,695 473 
Deferred taxes1,920
 1,748
Deferred taxes1,404 1,920 
Stock-based compensation2,967
 2,877
Stock-based compensation4,692 2,967 
Excess tax benefit from stock-based compensation
 (244)
Depreciation1,419
 1,740
Depreciation1,067 1,419 
Amortization of acquisition-related intangibles5,203
 4,979
Amortization of acquisition-related intangibles5,203 5,203 
Amortization of deferred finance costs365
 330
Amortization of deferred finance costs173 365 
Changes in operating assets and liabilities (net of acquired assets and liabilities):   
Changes in operating assets and liabilities:Changes in operating assets and liabilities:
Accounts receivable(3,013) (2,564)Accounts receivable(4,453)(3,013)
Financing receivables(4,241) (574)Financing receivables(1,669)(4,241)
Inventories622
 (10)Inventories(62)622 
Prepaid expenses and other(1,014) 242
Prepaid expenses and other(594)(1,014)
Accounts payable4,588
 (4,260)Accounts payable(1,806)4,588 
Deferred revenue2,724
 (8,573)Deferred revenue2,363 2,724 
Other liabilities2,236
 (5,825)Other liabilities(3,030)2,236 
Prepaid income taxes/income taxes payable(191) 868
Prepaid income taxes/income taxes payable(1,461)(191)
Net cash provided by (used in) operating activities15,891
 (8,482)
Net cash provided by operating activitiesNet cash provided by operating activities7,818 15,891 
Investing Activities:   Investing Activities:
Purchases of property and equipment(465) (39)Purchases of property and equipment(417)(465)
Purchase of business, net of cash received
 (162,611)
Sale of investments
 10,861
Net cash used in investing activities(465) (151,789)Net cash used in investing activities(417)(465)
Financing Activities:   Financing Activities:
Dividends paid(6,135) (17,244)Dividends paid(2,803)(6,135)
Proceeds from long-term debt
 156,572
Payments of long-term debt principal(9,771) (1,562)Payments of long-term debt principal(10,335)(3,271)
Proceeds from revolving line of creditProceeds from revolving line of credit7,300 — 
Payments of revolving line of creditPayments of revolving line of credit(591)(6,500)
Proceeds from exercise of stock options1
 1,134
Proceeds from exercise of stock options— 
Excess tax benefit from stock-based compensation
 244
Net cash provided by (used in) financing activities(15,905) 139,144
Decrease in cash and cash equivalents(479) (21,127)
Net cash used in financing activitiesNet cash used in financing activities(6,429)(15,905)
Increase (decrease) in cash and cash equivalentsIncrease (decrease) in cash and cash equivalents972 (479)
Cash and cash equivalents at beginning of period2,220
 24,951
Cash and cash equivalents at beginning of period520 2,220 
Cash and cash equivalents at end of period$1,741
 $3,824
Cash and cash equivalents at end of period$1,492 $1,741 
Supplemental disclosure of cash flow information:   Supplemental disclosure of cash flow information:
Cash paid for interest$3,355
 $2,780
Cash paid for interest$3,539 $3,355 
Cash paid for income taxes, net of refund$514
 $
Cash paid for income taxes, net of refund$2,242 $514 
Supplemental disclosure of non-cash information:   
Fair value of common stock and options issued as consideration for acquisition of HHI$
 $97,017
Write-off of fully depreciated assets$
 $2,769
The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Table of Contents
COMPUTER PROGRAMS AND SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.    BASIS OF PRESENTATION
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") and include all adjustments that, in the opinion of management, are necessary for a fair presentation of the results of the periods presented. All such adjustments are considered of a normal recurring nature. Quarterly results of operations are not necessarily indicative of annual results.
Certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 20162017 was derived from the audited consolidated balance sheet at that date. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements of Computer Programs and Systems, Inc. ("CPSI" or the "Company") for the year ended December 31, 20162017 and the notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2017.
Principles of Consolidation
The condensed consolidated financial statements of CPSI include the accounts of TruBridge, LLC ("TruBridge"), Evident, LLC ("Evident"), and Healthland Holding Inc. ("HHI"), all of which are wholly-owned subsidiaries of CPSI. The accounts of HHI include those of its wholly-owned subsidiaries, Healthland Inc. ("Healthland"), Rycan Technologies, Inc. ("Rycan"), and American HealthTech, Inc. ("AHT"). All significant intercompany balances and transactions have been eliminated.
Presentation
Effective January 1, 2017, we adopted2018, our interface services team, which provides the design, development, implementation, and support services for all interfaces for data exchange from the CPSI applications, was previously considered a revised presentationpart of sales revenuesour product development division and has been integrated with our acute care client service team. This transition will work to create a consistent, personal, and convenient service experience for our clients characterized by transparent communication with prompt resolution. With this change, the associatedpayroll and related costs of sales inthis group of employees that were formerly included within the caption "Product development" on our condensed consolidated statements of income which we believe is better aligned with and representative of the amount and profitability of our revenue streams, as well as the way we manage our business, review our operating performance and market our products. Specifically:
The Company's sales revenues and costs of sales amounts formerly presented with the caption "Business management, consulting, and managed IT services" are now presented within the caption "TruBridge" within the condensed consolidated statements of income;
Rycan's sales revenues and costs of sales amounts formerly included within the caption "Systems sales and support" are now included within the caption "TruBridge" within the condensed consolidated statements of income;
Healthland and AHT revenues and costs of sales related to hosting services formerly included within the caption "Systems"System sales and support" are now included within the caption "TruBridge" within the condensed consolidated statementssupport - Cost of income; andsales."
Certain Rycan expenses formerly included within the caption "General and administrative" are now included in cost of sales with the caption "TruBridge" within the condensed consolidated statements of income.
These reclassificationsThis reclassification had no effect on previously reported total sales revenues, operating income, income before taxes or net income.

Amounts presented for the three and six months ended June 30, 20162017 have been reclassified to conform to the current presentation. The following table provides the amounts reclassified for the three months ended June 30, 2016:2017:
(In thousands)As previously reportedReclassificationAs reclassified
Costs of sales:
System sales and support$18,859 $894 $19,753 
Operating expenses:
Product development$9,308 $(894)$8,414 






7

Table of Contents
(In thousands)As previously reported Reclassifications As reclassified
Sales revenues:     
System sales$50,561
 $(2,842) $47,719
TruBridge17,854
 2,842
 20,696
Costs of sales:     
System Sales23,367
 (1,481) 21,886
TruBridge9,913
 1,703
 11,616
Operating expenses:     
General and administrative12,352
 (222) 12,130
The following table provides the amounts reclassified for the six months ended June 30, 2016:2017:
(In thousands)As previously reportedReclassificationAs reclassified
Costs of sales:
System sales and support$37,789 $1,751 $39,540 
Operating expenses:
Product development$18,243 $(1,751)$16,492 
(In thousands)As previously reported Reclassifications As reclassified
Sales revenues:     
System sales$102,941
 $(5,513) $97,428
TruBridge35,117
 5,513
 40,630
Costs of sales:     
System Sales47,229
 (3,076) 44,153
TruBridge19,440
 3,463
 22,903
Operating expenses:     
General and administrative31,555
 (387) 31,168

2.    BUSINESS COMBINATIONRECENT ACCOUNTING PRONOUNCEMENTS
Acquisition of HHINew Accounting Standards Adopted in 2018
On January 8, 2016, we acquired allIn May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes prior revenue recognition guidance. This guidance was effective for fiscal years and interim periods within those years beginning after December 15, 2017, which was effective for the Company as of the first quarter of our fiscal year ending December 31, 2018. We adopted this new accounting standard codified as Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, and the related amendments ("new revenue standard") during the first quarter of 2018 and have applied it to all contracts using the modified retrospective method, pursuant to which the cumulative effect of initially applying the new revenue standard is recognized as an adjustment to retained earnings and impacted balance sheet line items as of January 1, 2018, the date of adoption. The comparative previous period information continues to be reported under the accounting standards in effect for that period.
We completed an assessment of our systems, data, and processes that are affected by the implementation of this new revenue standard and have concluded that this standard does not significantly alter revenue recognition practices for our system sales and support and TruBridge revenue streams. The impact on our revenue recognition is limited to deferring and amortizing implementation fees over the contract life related to our Rycan revenue cycle management product, in which we previously recognized revenue as implementation was completed. Rycan implementation fees totaled $1.6 million in 2017, less than 1% of our 2017 revenues. The balance sheet impact of the deferred revenue related to these fees was an increase of $1.8 million as of the date of adoption. Also impacting deferred revenue was a decrease of $0.6 million related to previous billings which no longer required deferred recognition as of the date of adoption.
In addition to revenue recognition, the new revenue standard impacts our consolidated financial statements with respect to the capitalization of certain commissions and contract fulfillment costs which were previously expensed as incurred. Commissions and contract fulfillment costs related to the implementation of software as a service arrangements are now capitalized and amortized over the expected life of the customer. TruBridge commissions, which are paid up to twelve months in advance, are now capitalized and amortized over the prepayment period. The balance sheet impact of the prepaid assets was an increase of $3.8 million as of the date of adoption.
Due to the aforementioned changes in assets and liabilities of HHI, including its wholly-owned subsidiaries, Healthland, AHT and Rycan. Healthland provides electronic health records ("EHR") and clinical information management solutions to over 350 hospital customers at the time of acquisition. AHT is a provider of clinical and financial solutions in the post-acute care market, serving over 3,300 skilled nursing facilities at the time of acquisition. Rycan offered SaaS-based revenue cycle management workflow and automation software to over 290 hospital customers at the time of acquisition.
We believe the acquisition of HHI:
strengthened our position in providing healthcare information systems to community healthcare organizations with approximately 1,200 combined hospital customers at the time of acquisition;
introduced CPSIrelated to the post-acute care market; andadoption of the new revenue standard, our deferred tax liability increased $0.6 million as of the date of adoption.
expandedIn total, the products offered by and capabilitiesadoption of TruBridgeASU 2014-09 resulted in a net increase in retained earnings of $2.0 million as of the date of adoption.
In accordance with the addition of Rycan and its suite ofnew revenue cycle management software products.
These factors, combined withstandard requirements, the synergies and economies of scale expected from combining the operations of CPSI and HHI, were the basis for the acquisition.
Consideration for the acquisition included cash (net of cashdisclosures of the acquired entities)impact of $162.6 million (inclusiveadoption on our condensed consolidated income statements and balance sheet were as follows:
8

Table of seller's transaction expenses), 1,973,880 sharesContents
Three Months Ended June 30, 2018
(In thousands)As reportedBalances without adoption of ASC 606Effect of adoption increase/(decrease)
Condensed Consolidated Statements of Income
Revenue: TruBridge$25,159 $25,057 $102 
Cost of sales: System sales and support19,528 19,529 (1)
Gross profit34,846 34,743 103 
Sales and marketing7,518 7,121 397 
Operating income2,225 2,519 (294)
Provision for income taxes284 346 (62)
Net income$328 $560 $(232)

Six Months Ended June 30, 2018
(In thousands)As reportedBalances without adoption of ASC 606Effect of adoption increase/(decrease)
Condensed Consolidated Statements of Income
Revenue: TruBridge$50,290 $50,129 $161 
Cost of sales: System sales and support37,946 37,880 66 
Gross profit73,932 73,837 95 
Sales and marketing15,232 14,735 497 
Operating income9,874 10,276 (402)
Provision for income taxes2,185 2,269 (84)
Net income$4,296 $4,614 $(318)

June 30, 2018
(In thousands)As reportedBalances without adoption of ASC 606Effect of adoption increase/(decrease)
Condensed Consolidated Balance Sheet
Prepaid assets and other$6,038 $3,981 $2,057 
Other assets, net of current1,155 — 1,155 
Total assets322,844 319,632 3,212 
Deferred revenue12,300 11,230 1,070 
Deferred tax liability6,646 6,156 490 
Total liabilities178,603 177,043 1,560 
Retained earnings$(15,543)$(17,195)$1,652 

The effects of common stockthe changes in balance sheet accounts resulting from the adoption of CPSI ("CPSI Common Stock"), and the assumptionnew revenue standard are primarily due to the beginning adjustments for adoption mentioned above, accompanied by CPSI of stock options that became exercisable for 174,972 shares of CPSI Common Stock. Duringincremental changes resulting from activity during the three and six months endedperiod ending June 30, 2016, we incurred approximately $0.5 million and $8.0 million, respectively, of pre-tax acquisition costs2018. Refer to Note 3 - Revenue Recognition for more information on period activity.
The new revenue standard requirements did not impact our net cash provided by or used in connection with the acquisition of HHI. Acquisition costs are included in general and administrative expenses inoperating, investing, or financing cash flows on our condensed consolidated statements of income.

(In thousands)
Purchase Price

Cash consideration, net of acquired cash received

$162,611
Fair value of common stock and options issued as consideration97,017
Total consideration

$259,628
Our acquisition of HHI was treated as a purchasecash flows, although components within changes in accordance with Accounting Standards Codification (the "Codification") 805, Business Combinations, of the Financial Accounting Standards Board ("FASB"), which requires allocation of the purchase price to the estimated fair values of assets and liabilities acquired in the transaction. Our allocation of the purchase price was based on management's judgment after evaluating several factors, including a valuation assessment.
The allocation of the purchase price paid for HHI was as follows:
(In thousands)Purchase Price Allocation
Acquired cash$5,371
Accounts receivable5,789
Financing receivables2,184
Inventories216
Prepaid expenses3,228
Property and equipment1,263
Intangible assets117,300
Goodwill168,449
Accounts payable and accrued liabilities(17,490)
Deferred taxes, net(4,010)
Contingent consideration(1,620)
Deferred revenue(15,681)
Net assets acquired$264,999
The intangible assets in the table above are being amortized on a straight-line basis over their estimated useful lives. The amortization is included in amortization of acquisition-related intangibles in our condensed consolidated statements of income. Of the goodwill acquired, $23.3 million is expected to be tax deductible.
The fair value measurements of tangible and intangibleoperating assets and liabilities were basedimmaterially impacted by adoption.
In August 2016, the FASB issued ASU 2016-15, Classifications of Certain Cash Receipts and Cash Payments, which clarifies cash flow classification for eight specific issues, including debt prepayment or extinguishment costs, contingent
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consideration payments made after a business combination, proceeds from the settlement of insurance claims, and proceeds from settlement of corporate-owned life insurance policies. This guidance was effective for fiscal years and interim periods within those years beginning after December 15, 2017, which was effective for the Company as of the first quarter of our fiscal year ending December 31, 2018. The adoption of ASU 2016-15 did not have a material effect on significant inputsour financial statements.

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, to assist an entity in evaluating when a set of transferred assets and activities is a business. The guidance was effective for fiscal years and interim periods within those years beginning after December 15, 2017, and will be applied prospectively to any transactions occurring following adoption. The adoption of ASU 2017-01 did not observablehave a material effect on our financial statements.
New Accounting Standards Yet to be Adopted

In February 2016, the FASB issued ASU 2016-02, Leases, to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The new guidance will require the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. This guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2018, which will be effective for the Company as of the first quarter of our fiscal year ending December 31, 2019. The Company is currently evaluating the method of adoption and potential utilization of practical expedients. The estimated impact on the financial statements of implementation of this standard is increased lease assets and lease liabilities in the market and thus represent Level 3 measurements withinrange of $4 to $6 million as of the fair value measurement hierarchy (see Note 13). Level 3 inputs included, among others, discount ratesanticipated adoption date, January 1, 2019.

We do not believe that we estimatedany other recently issued but not yet effective accounting standards, if adopted, would be used byhave a market participant in valuing these assets and liabilities, projections of revenues and cash flows, client attrition rates and market comparables.material impact on our consolidated financial statements.
The gross contractual amount of accounts receivable of HHI at the date of acquisition was $9.4 million.
3.    REVENUE RECOGNITION
Revenue is recognized upon transfer of control of promised products or services to clients in an amount that reflects the consideration we expect to receive in exchange for those products and services. We enter into contracts that can include various combinations of products and services, which are generally distinct and accounted for as separate performance obligations. The Company recognizesemploys the 5-step revenue recognition model under ASC 606 to: (1) identify the contract with the client, (2) identify the performance obligations in accordance with U.S. GAAP, principally those required by the Software topiccontract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
Revenue Recognition subtopicis recognized net of the FASB Codificationshipping charges and those prescribed by the SEC.
The Company's revenue is generatedany taxes collected from two sources:
System Salesand Support - the sale of information systems and the provision of system support services. The sale of information systems includes perpetual software licenses, conversion, installation and training services, hardware and peripherals, "Software as a Service" (or "SaaS") services, and forms and supplies. System support services includes software application support, hardware maintenance, and continuing education.
TruBridge - the provision of business management services,clients, which includes electronic billing, statement processing, payroll processing, accounts receivable management, contract management and insurance services, as

well as Internet service provider ("ISP") services and consulting and managed IT services (collectively, "other professional IT services").are subsequently remitted to governmental authorities.
System Sales and Support
The Company enters into contractual obligations to sell perpetual software licenses, installation, conversion, installation and training, services, hardware and software application support and hardware maintenance services. On average, the Company is ableservices to complete a systemacute care and post-acute care community hospitals.
Non-recurring Revenues
• Perpetual software licenses, installation, in three to four weeks. The methods employed by the Company to recognize revenue, whichconversion, and related training are discussed by element below, achieve results materially consistent with the provisions of Accounting Standards Update ("ASU") 2009-13, Multiple-Deliverable Revenue Arrangements,not considered separate and distinct performance obligations due to the relatively short period duringproprietary nature of our software and are, therefore, accounted for as a single performance obligation on a module-by-module basis. Revenue is recognized as each module's implementation is completed based on the module's stand-alone selling price ("SSP"), net of discounts. Fees for licenses, installation, conversion, and related training are typically due in three installments: (1) at placement of order, (2) upon installation of software and commencement of training, and (3) upon satisfactory completion of monthly accounting cycle or end-of-month operation by application and as applicable for each application. Often, short-term and/or long-term financing arrangements are provided for software implementations; refer to Note 9 - Financing Receivables for further information. Electronic health records ("EHR") implementations include a system warranty that terminates thirty days from the software go-live date, the date which there are multiple undelivered elements, the relatively small amount of non-software related elements inclient begins using the system sale arrangements, and the limited numberin a live environment.
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Table of contracts in-processContents
• Hardware revenue is recognized separately from software licenses at the end of each reporting period.point in time it is delivered to the client. The Company recognizes revenue on the elements noted above as follows:
Perpetual software licenses and conversion, installation and training services – The selling price of perpetual software licenses and conversion, installation and training services is based on management’s best estimate of selling price. In determining management’s best estimate of selling price, we consider the following: (1) competitor pricing, (2) supply and demand of installation staff, (3) overall economic conditions, and (4) our pricing practices as they relate to discounts. The method of recognizing revenue for the perpetual license of the associated modules included in the arrangement, and the related conversion, installation and training services over the term the services are performed, is on a module by module basis as the related perpetual licenses are delivered and the respective conversion, installation and training for each specific module is completed, as this is representative of the pattern of provision of these services.
Hardware – We recognize revenue for hardware upon shipment. The selling priceSSP of hardware is based on management’s best estimate of selling price, which consists of cost plus a targetedreasonable margin. Payment is generally due upon delivery of the hardware to the client. Standard manufacturer warranties apply to hardware.
Recurring Revenues
Software application support and hardware maintenance – We have established vendor-specific objective evidence ("VSOE")services sold with software licenses and hardware are separate and distinct performance obligations. Revenue for support and maintenance services is recognized based on SSP, which is the renewal price, ratably over the life of the fair value of ourcontact, which is generally three to five years. Payment is due monthly for support services provided.
• Subscriptions to third party content revenue is recognized as a separate performance obligation ratably over the subscription term based on SSP, which is cost plus a reasonable margin. Payment is due monthly for subscriptions to third party content.
• Software as a Service ("SaaS") arrangements for EHR software application support and hardware maintenancerelated conversion and training services by reference to the price our customers are required to pay for the services when sold separately via renewals. Support and maintenance revenueconsidered a single performance obligation. Revenue is recognized on a straight-linemonthly basis as the SaaS service is provided to the client over the term of the maintenance contract whichterm. Payment is generally three to five years.
due monthly for SaaS services provided.
Refer to Note 14 - The Company accountsSegment Reporting, for SaaS arrangements in accordance with the requirements of the Hosting Arrangement section under the Software topicfurther information, including revenue by client base (acute care or post-acute care) bifurcated by recurring and Revenue Recognition subtopic of the Codification. The Codification states that the software elements of SaaS services should not be accounted for as a hosting arrangement "if the customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty and it is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software." Each SaaS contract entered into by the Company includes a system purchase and buyout clause, and this clause specifies the total amount of the system buyout. In addition, a clause is included in the contract which states that should the system be bought out by the customer, the customer would be required to enter into a general support agreement (for post-contract support services) for the remainder of the original SaaS term. Accordingly, the Company has concluded that SaaS customers do not have the right to take possession of the system without significant penalty (i.e., the purchase price of the system), resulting in the determination that these contracts are service contracts for which revenue is recognized when the services are performed.
non-recurring revenue.
TruBridge
TruBridge consistsprovides an array of business processing services ("BPS") consisting of accounts receivable management, private pay services, insurance services, medical coding, electronic billing, statement processing, payroll processing, accounts receivable management,and contract management and insurance services. While TruBridge arrangementsmanagement. Fees are contracts separate fromrecognized over the system sale and support contracts, these contracts are often executed within a short time frame of each other. The amountperiod of the total arrangement consideration allocated to these services is based on VSOE of fair value by reference to the rate at which our customers renew as wellclient contractual relationship as the rate at which the services are sold to customers when the TruBridge agreement is not executed within a short time frame of the system sale and support contracts. If VSOE of fair value does not exist for these services, we allocate arrangement consideration based on third-party evidence ("TPE") of selling price or, if neither VSOE nor TPE is available, estimated selling price. Because the pricing is transaction based (per unit pricing), customers are billed and revenue recognized as services are performed based on transaction levels.the SSP, net of discounts. Fees for many of these services are invoiced, and revenue recognized accordingly, based on the volume of transactions or a percentage of client accounts receivable collections. Payment is due monthly for BPS with certain amounts varying based on utilization and/or volumes.
The Company will occasionally provide ISP and otherTruBridge also provides professional IT services. Depending on the nature of the services provided, these services may be considered software elements or non-software elements. The selling price of services

considered to be software elements is based on VSOE of the fair value of the services by reference to the price our customers are required to pay for the services when sold separately. The selling price of services considered to be non-software elements is based on third-party evidence of selling price of similar services. Revenue from these elementsprofessional services is recognized as the services are performed based on SSP. Payment is due monthly as services are performed.
Deferred Revenue
Deferred revenue represents amounts invoiced to clients for which the services under contract have not been completed and revenue has not been recognized, including annual renewals of certain software subscriptions and customer deposits for implementations to be performed at a later date. Revenue is recognized ratably over the life of the software subscriptions as services are provided and at the point-in-time when implementations have been completed.
(In thousands)Six Months Ended June 30, 2018
Balance as of January 1, 2018$9,937 
Deferred revenue recorded11,700 
Less deferred revenue recognized as revenue(9,337)
Balance as of June 30, 2018$12,300 

The $11.7 million of deferred revenue recorded during the six months ended June 30, 2018 is comprised primarily of the annual renewals of certain software subscriptions billed during the first quarter of each year and deposits collected for future EHR installations. The deferred revenue recognized as revenue during the six months ended June 30, 2018 is comprised primarily of the periodic recognition of annual renewals that were deferred until earned and deposits for future EHR installations that were deferred until earned.
Costs to Obtain and Fulfill a Contract with a Customer
Costs to obtain a contract include the commission costs related to SaaS licensing agreements, which are capitalized and amortized ratably over the expected life of the customer. As a practical expedient, we generally recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset would have been one year or less, with the exception of commissions generated from TruBridge sales. TruBridge commissions, which are paid up to
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twelve months in advance, are capitalized and amortized over the prepayment period. Costs to obtain a contract are expensed within sales and marketing expenses in the accompanying condensed consolidated statements of income.
Contract fulfillment costs related to the implementation of SaaS arrangements are capitalized and amortized ratably over the expected life of the customer. Costs to fulfill contracts consist of the payroll costs for the implementation of SaaS arrangements, including time for training, conversion, and installation that is necessary for the software to be utilized. Contract fulfillment costs are expensed within the caption "System sales and support - Cost of sales."
Costs to obtain and fulfill contracts related to SaaS arrangements are included within the "Prepaid expenses and other" and "Other assets, net of current portion" line items on our condensed consolidated balance sheets.
(In thousands) Six Months Ended June 30, 2018
Balance as of January 1, 2018 $3,775 
Costs to obtain and fulfill contracts recorded1,562 
Less costs to obtain and fulfill contracts recognized as expense(2,125)
Balance as of June 30, 2018 $3,212 

Significant Judgments
Our contracts with clients often include promises to transfer multiple products and services. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
Judgment is required to determine SSP for each distinct performance obligation. We use observable SSP for items that are sold on a stand-alone basis to similarly situated clients at unit prices within a sufficiently narrow range. For performance obligations that are sold to different clients for a broad range of amounts, or for performance obligations that are never sold on a stand-alone basis, the residual method in determining SSP is applied and requires significant judgment.
Allocating the transaction price, including estimating SSP of promised goods and services for contracts with discounts or variable consideration, may require significant judgment. Due to the short time frame of the implementation cycle, discount allocation is immaterial as revenue is recognized net of discounts within the same reporting period. In scenarios where the Company enters into a contract that includes both a software license and BPS or other services that are charged based on volume of services rendered, the Company allocates variable amounts entirely to a distinct good or service. The terms of the variable payment relate specifically to the entity’s efforts to satisfy that performance obligation.
Significant judgment is required in determining the expected life of a customer, which is the amortization period for costs to obtain and fulfill a contract that have been capitalized. The Company determined that the expected life of the customer is not materially different from the initial contract term based on the characteristics of the SaaS offering.
Remaining Performance Obligations
Disclosures regarding remaining performance obligations are not considered material as the overwhelming majority of the Company's remaining performance obligations either (a) are related to contracts with an expected duration of one year or less, or (b) exhibit revenue recognition in the amount to which the Company has the right to invoice.

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4. PROPERTY AND EQUIPMENT
Property and equipment werewas comprised of the following at June 30, 20172018 and December 31, 2016:2017:
(In thousands)June 30, 2018December 31, 2017
Land$2,848 $2,848 
Buildings and improvements8,247 8,240 
Computer equipment3,679 3,269 
Leasehold improvements5,001 5,001 
Office furniture and fixtures2,865 2,865 
Automobiles70 70 
22,710 22,293 
Less: accumulated depreciation(11,668)(10,601)
Property and equipment, net$11,042 $11,692 
(In thousands)June 30,
2017
 December 31,
2016
Land$2,848
 $2,848
Buildings and improvements9,432
 9,432
Maintenance equipment802
 802
Computer equipment5,639
 5,174
Leasehold improvements5,007
 5,007
Office furniture and fixtures3,591
 3,591
Automobiles335
 335
 27,654
 27,189
Less: accumulated depreciation(15,169) (13,750)
Property and equipment, net$12,485
 $13,439

5.     OTHER ACCRUED LIABILITIES
Other accrued liabilities werewas comprised of the following at June 30, 20172018 and December 31, 2016:2017:
(In thousands)June 30, 2018December 31, 2017
Salaries and benefits$6,706 $8,432 
Severance507 1,139 
Commissions713 2,416 
Self-insurance reserves1,037 1,024 
Contingent consideration615 586 
Other582 501 
Other Accrued Liabilities $10,160 $14,098 
(In thousands)June 30,
2017
 December 31,
2016
Salaries and benefits$4,098
 $5,397
Severance2,129
 337
Commissions1,082
 518
Self-insurance reserves1,029
 887
Contingent consideration1,120
 1,120
Other621
 538
 $10,079
 $8,797

The accrued contingent consideration depicted above represents the potential earnout incentive for former Rycan shareholders.shareholders, relating to the purchase of Rycan by HHI in 2015. We have estimated the fair value of the contingent consideration based on the amount of revenue we expect to be earned by Rycan through the year ending December 31, 2018.2018 in accordance with the purchase agreement between the parties.

6.    NET INCOME PER SHARE
The Company presents basic and diluted earnings per share ("EPS") data for its common stock. Basic EPS is calculated by dividing the net income attributable to stockholders of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is determined by adjusting the net income attributable to stockholders of the Company and the weighted average number of shares of common stock outstanding during the period for the effects of all dilutive potential common shares, including awards under stock-based compensation arrangements.
The Company's unvested restricted stock awards (see Note 8) are considered participating securities under FASB Codification topic, Earnings Per Share, because they entitle holders to non-forfeitable rights to dividends until the awards vest or are forfeited. When a company has a security that qualifies as a "participating security," the Codification requires the use of the two-class method when computing basic EPS. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. In determining the amount of net income to allocate to common stockholders, income is allocated to both common stock and participating securities based on their respective weighted average shares outstanding for the period, with net income attributable to common stockholders ultimately

equaling net income less net income attributable to participating securities. Diluted EPS for the Company's common stock is computed using the more dilutive of the two-class method or the treasury stock method.
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The following is a calculation of the basic and diluted EPS for the Company's common stock, including a reconciliation between net income and net income attributable to common stockholders:
Three Months EndedSix Months Ended
(In thousands, except per share data)June 30, 2018June 30, 2017June 30, 2018June 30, 2017
Net income$328 $1,587 $4,296 $1,833 
Less: Net income attributable to participating securities(8)(45)(144)(41)
Net income attributable to common stockholders$320 $1,542 $4,152 $1,792 
Weighted average shares outstanding used in basic per common share computations13,561 13,420 13,518 13,397 
Add: Dilutive potential common shares— — — — 
Weighted average shares outstanding used in diluted per common share computations13,561 13,420 13,518 13,397 
Basic EPS$0.02 $0.11 $0.31 $0.13 
Diluted EPS$0.02 $0.11 $0.31 $0.13 
 Three Months Ended Six Months Ended
(in thousands, except per share data)June 30, 2017 June 30, 2016 June 30, 2017 June 30, 2016
Net income$1,587
 $1,996
 $1,833
 $333
Less: Net (income) loss attributable to participating securities(45) (32) (41) 15
Net income attributable to common stockholders$1,542
 $1,964
 $1,792
 $348
        
Weighted average shares outstanding used in basic per common share computations13,420
 13,317
 13,397
 13,171
Add: Dilutive potential common shares
 48
 
 56
Weighted average shares outstanding used in diluted per common share computations13,420
 13,365
 13,397
 13,227
        
Basic EPS$0.11
 $0.15
 $0.13
 $0.03
Diluted EPS$0.11
 $0.15
 $0.13
 $0.03

During 2017,2018, performance share awards were granted to certain executive officers and key employees of the Company that will result in the issuance of time-vesting restricted stock if the predefined performance criteria are met. The awards provide for an aggregate target of 189,325184,776 shares, none of which have been included in the calculation of diluted EPS for the three and six months ended June 30, 20172018 because the related threshold award performance level has not been achieved as of June 30, 2017.2018. See Note 8.8 - Stock-based Compensation for more information.

7.    INCOME TAXES
The Company determines the tax provision for interim periods using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.
Our effective tax rate for the three months ended June 30, 2017 decreased2018 increased to 38.5%46% from 45.9%38% for the three months ended June 30, 2016. During2017. Our effective tax rate for the three months ended June 30, 20162018 was heavily impacted by the identificationyear-to-date impact of nondeductible facilitative transaction costs and adjustmentschanging state income allocation determinations among our various subsidiaries from entities with lower effective state rates to entities with higher effective state rates. The year-to-date adjustment, when recorded in a three-month period of significantly lower net income before taxes compared to the immediately preceding period, had an outsized impact on our estimated state effective tax rate, resultedresulting in combined additional income tax expense of $0.4 million, increasinga 25% increase in the period's effective tax rate. This increase was partially offset by the tax benefits of the Tax Cuts and Jobs Act, which reduced our corporate federal rate by 11.2%. Conversely, duringfrom 35% to 21% effective at the three months ended June 30, 2017 we experienced a shortfall tax expense related to restricted stockbeginning of $0.2 million that increased the effective rate by 6.1% due to the adoption of ASU 2016-09 as detailed in Note 15.2018.
Our effective tax rate for the six months ended June 30, 20172018 decreased to 55.0% compared to 88.9%34% from 55% for the six months ended June 30, 2016. During2017. Our effective tax rate for the six months ended June 30, 20162018 was impacted by the identificationTax Cuts and Jobs Act, which reduced our corporate federal rate from 35% to 21% effective at the beginning of nondeductible facilitative transaction costs resulted in additional income2018. The six months ended June 30, 2018 also included a $0.4 million shortfall tax expense of $1.4 million, increasingrelated to stock-based compensation that increased the period's effective tax rate by 49.1%6%. Conversely, duringDuring the six months ended June 30, 2017 we experienced a shortfall tax expense related to restricted stockstock-based compensation of $0.9 million that increased the effective tax rate by 22.6% due to the adoption of ASU 2016-09 as detailed in Note 15.23%.

8.    STOCK-BASED COMPENSATION
Stock-based compensation costexpense is measured at the grant date based on the fair value of the award, and is recognized as an expense over the employee's or non-employee director's requisite service period.

The following table details total stock-based compensation expense for the three and six months ended June 30, 20172018 and 2016,2017, included in the condensed consolidated statements of income:

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Three Months Ended Six Months EndedThree Months EndedSix Months Ended
(In thousands)June 30, 2017 June 30, 2016 June 30, 2017 June 30, 2016(In thousands)2018201720182017
Costs of sales$425
 $374
 $743
 $773
Costs of sales$585 $425 $1,024 $743 
Operating expenses1,261
 1,120
 2,224
 2,104
Operating expenses2,168 1,261 3,668 2,224 
Pre-tax stock-based compensation expense1,686
 1,494
 2,967
 2,877
Pre-tax stock-based compensation expense2,753 1,686 4,692 2,967 
Less: income tax effect(658) (583) (1,157) (1,122)Less: income tax effect(606)(658)(1,032)(1,157)
Net stock-based compensation expense$1,028
 $911
 $1,810
 $1,755
Net stock-based compensation expense$2,147 $1,028 $3,660 $1,810 

The Company's stock-based compensation awards are in the form of restricted stock and performance share awards madegranted pursuant to the Company's 2005 Restricted Stock Plan, 2012 Restricted Stock Plan for Non-Employee Directors and the Amended and Restated 2014 Incentive Plan (the "Plans"). As of June 30, 2017,2018, there was $14.1$17.6 million of unrecognized compensation costexpense related to non-vestedunvested stock-based compensation arrangements granted under the Plans, which is expected to be recognized over a weighted-average period of 2.4 2.2 years.
Restricted Stock
The Company grants restricted stock to executive officers, certain key employees and non-employee directors under the Plans with the fair value of the awards representing the fair value of the common stock on the date the restricted stock is granted. Shares of restricted stock generally vest in equal annual installments over the applicable vesting period, which ranges from one to fivethree years. The Company records expenses for these grants on a straight-line basis over the applicable vesting periods. Shares of restricted stock may also be issued pursuant to the settlement of performance share awards, for which the Company records expenses in the manner described in the "Performance Share Awards" section below.
A summary of restricted stock activity (including shares of restricted stock issued pursuant to the settlement of performance share awards) under the Plans during the six months endedJune 30, 20172018 and 20162017 is as follows:

Six Months Ended June 30, 2018Six Months Ended June 30, 2017
Six Months Ended June 30, 2017 Six Months Ended June 30, 2016Shares
Weighted-Average
Grant Date
Fair Value Per Share
Shares
Weighted-Average
Grant Date
Fair Value Per Share
Unvested restricted stock outstanding at beginning of periodUnvested restricted stock outstanding at beginning of period309,195 $38.36 184,885 $54.63 
GrantedGranted148,841 30.20 222,390 32.87 
Performance share awards settled through the issuance of restricted stockPerformance share awards settled through the issuance of restricted stock177,395 29.94 — — 
VestedVested(153,424)40.81 (80,558)55.34 
Shares Weighted-Average
Grant Date
Fair Value Per Share
 Shares Weighted-Average
Grant Date
Fair Value Per Share
Nonvested restricted stock outstanding at beginning of period184,885
 $54.63
 191,397
 $57.12
Granted222,390
 32.87
 86,984
 52.21
Vested(80,558) 55.34
 (72,393) 57.75
Nonvested restricted stock outstanding at end of period326,717
 $39.64
 205,988
 $54.82
Unvested restricted stock outstanding at end of periodUnvested restricted stock outstanding at end of period482,007 $31.96 326,717 $39.64 

Performance Share Awards
In 2014, theThe Company began to grantgrants performance share awards to executive officers and certain key employees under the Amended and Restated 2014 Incentive Plan ("2014 Incentive Plan").Plan. The number of shares of common stock earned and issuable under theeach award is determined at the end of each one-year or three-year performance period, based on the Company's achievement of performance goals predetermined by the Compensation Committee of the Board of Directors at the time of grant. The three-year performance share awards include a modifier to the total number of shares earned based on the Company's total shareholder return ("TSR") compared to an industry index. If certain levels of the performance objective are met, the award results in the issuance of shares of restricted stock or common stock corresponding to such level, which shareslevel. One-year performance share awards are then subject to time-based vesting pursuant to which the shares of restricted stock vest in equal annual installments over the applicable vesting period, which is generally three years for restricted stock issued pursuant to years. Three-year performance share awards.awards result in the issuance of shares of common stock that are not subject to time-based vesting at the conclusion of the three-year performance period if earned.

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In the event that the Company's financial performance meets the predetermined target for the performance objective of the one-year and three-year performance share awards, the Company will issue each award recipient the number of shares of restricted sharesstock or common stock, as applicable, equal to the target award specified in the individual's underlying performance share award agreement. In the event the financial results of the Company exceed the predetermined target, additional shares up to the maximum award may be issued. In the event the financial results of the Company fall below the predetermined target, a reduced number of shares may be issued. If the financial results of the Company fall below the threshold performance level, no shares will be issued. The total number of shares issued for the three-year performance share award may be increased, decreased, or unchanged based on the TSR modifier described above.
The recipients of performance share awards do not receive dividends or possess voting rights during the performance period and, accordingly, the fair value of the one-year performance share awards is the quoted market value of CPSI Common StockCPSI's common stock on the grant date less the present value of the expected dividends not received during the relevant period. The TSR modifier applicable to the three-year performance share awards is considered a market condition and therefore is reflected in the grant date fair value of the award. A Monte Carlo simulation has been used to account for this market condition in the grant date fair value of the award.
Expense of one-year performance share awards is recognized using the accelerated attribution (graded vesting) method over the period beginning on the date the Company determines that it is probable that the performance criteria will be achieved and ending on the last day of the vesting period for the restricted stock issued in satisfaction of such awards. Expense of three-year performance share awards is recognized using ratable straight-line amortization over the three-year performance period. In the event the Company determines it is no longer probable that the minimum performance level will be achieved, all previously recognized compensation expense related to the applicable awards is reversed in the period such a determination is made.
A summary of performance share award activity under the 2014 Incentive Plan during the six months endedJune 30, 20172018 and 20162017 is as follows, based on the target award amounts set forth in the performance share award agreements:

Six Months Ended June 30, 2017 Six Months Ended June 30, 2016Six Months Ended June 30, 2018Six Months Ended June 30, 2017
Shares Weighted-Average
Grant Date
Fair Value
 Shares Weighted-Average
Grant Date
Fair Value
Shares
Weighted-Average
Grant Date
Fair Value Per Share
Shares
Weighted-Average
Grant Date
Fair Value Per Share
Performance share awards outstanding at beginning of period77,594
 $49.64
 49,471
 $49.29
Performance share awards outstanding at beginning of period189,325 $29.94 77,594 $49.64 
Granted189,325
 29.94
 77,594
 49.64
Granted184,776 30.15 189,325 29.94 
Forfeited or unearned(77,594) 49.64
 (49,471) 49.29
Forfeited or unearned(11,930)29.94 (77,594)49.64 
Performance share awards settled through the issuance of restricted stockPerformance share awards settled through the issuance of restricted stock(177,395)29.94 — — 
Performance share awards outstanding at end of period189,325
 $29.94
 77,594
 $49.64
Performance share awards outstanding at end of period184,776 $30.15 189,325 $29.94 



9.    FINANCING RECEIVABLES
Short-Term Payment Plans
The Company has sold information and patient care systems to certain healthcare providers under Second Generation Meaningful Use Installment Plans (see below) with maximum contractual terms of three years and expected terms of less than one year and other arrangements requiringprovides fixed monthly paymentspayment arrangements ("short-term payment plans") over terms ranging from three to 12twelve months ("Fixed Periodic Payment Plans").for meaningful use stage three and other add-on software installations. As a practical expedient, we do not adjust the amount of consideration recognized as revenue for the financing component as unearned income when we expect payment within one year or less. These receivables, collectively referred to as short-term payment plans and included in the current portion of financing receivables, were comprised of the following at June 30, 20172018 and December 31, 2016:2017:

(In thousands)June 30, 2018December 31, 2017
Short-term payment plans, gross$7,407 $9,081 
Less: allowance for losses(523)(638)
Short-term payment plans, net$6,884 $8,443 

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(In thousands)June 30,
2017
 December 31,
2016
Second Generation Meaningful Use Installment Plans, gross$320
 $3,080
Fixed Periodic Payment Plans, gross1,384
 1,988
Short-term payment plans, gross$1,704
 $5,068
    
Less: allowance for losses(317) (1,796)
Short-term payment plans, net$1,387
 $3,272
Long-Term Financing Arrangements
Sales-Type Leases
Additionally, the Company leasesprovides financing for purchases of its information and patient care systems to certain healthcare providers under sales-type leaseslong-term financing arrangements expiring in various years through 2024.2025. Under long-term financing arrangements, the transaction price is adjusted by a discount rate that reflects market conditions that would be used for a separate financing transaction between the Company and licensee at contract conception, and takes into account the credit characteristics of the licensee and market interest rates as of the date of the agreement. As such, the amount of fixed fee revenue recognized at the beginning of the license term will be reduced by the calculated financing component. As payments are received from the licensee, the Company recognizes a portion of the financing component as interest income, reported as other income in the condensed consolidated statements of income. These receivables typically have terms from two to seven years, bear interest at various rates, and are usually collateralized by a security interest in the underlying assets. Since the Company has a history of successfully collecting amounts due under the original payment terms of these extended payment arrangements without making any concessions to its customers, the Company satisfies the requirement for revenue recognition. The Company’s history with these types of extended payment term arrangements supports management’s assertion that revenues are fixed and determinable and collection is probable. years.
The components of these lease receivables were as follows at June 30, 20172018 and December 31, 2016:2017:
(In thousands)June 30, 2018December 31, 2017
Long-term financing arrangements, gross$25,604 $22,968 
Less: allowance for losses(1,922)(2,606)
Less: unearned income(2,753)(2,265)
Long-term financing arrangements, net$20,929 $18,097 
(In thousands)June 30,
2017
 December 31,
2016
Sales-type leases, gross$16,727
 $8,981
Less: allowance for losses(1,612) (402)
Less: unearned income(1,510) (797)
Sales-type leases, net$13,605
 $7,782

Future minimum lease payments to be received subsequent to June 30, 20172018 are as follows:

(In thousands) (In thousands)
Years Ended December 31, Years Ended December 31,
2017$3,001
20184,071
2018$4,778 
20193,398
20197,874 
20202,914
20205,080 
20212,123
20214,042 
202220222,656 
Thereafter1,220
Thereafter1,174 
 
Total minimum lease payments to be received16,727
Total minimum payments to be receivedTotal minimum payments to be received25,604 
Less: allowance for losses(1,612)Less: allowance for losses(1,922)
Less: unearned income(1,510)Less: unearned income(2,753)
Receivables, netReceivables, net$20,929 
 
Lease receivables, net$13,605
 


Credit Quality of Financing Receivables and Allowance for Credit Losses
The following table is a roll-forward of the allowance for financing credit losses for the six months ended June 30, 20172018 and year ended December 31, 2016:2017:
(In thousands)Balance at Beginning of PeriodProvisionCharge-offsRecoveriesBalance at End of Period
June 30, 2018$3,244 $397 $(1,196)$— $2,445 
December 31, 2017$2,198 $1,823 $(777)$— $3,244 
(In thousands)Balance at Beginning of Period Provision Charge-offs Recoveries Balance at End of Period
June 30, 2017$2,198
 $303
 $(572) $
 $1,929
December 31, 2016$654
 $1,762
 $(218) $
 $2,198

The Company’s financing receivables are comprised of a single portfolio segment, as the balances are all derived from short-term payment plan arrangements and sales-type leasinglong-term financing arrangements within our target market of rural and community hospitals. The Company evaluates the credit quality of its financing receivables based on a combination of factors, including, but not limited to, customer collection experience, economic conditions, the customer’s financial condition, and known risk characteristics impacting the respective customer base of rural and community hospitals, the most notable of which relate to enacted and potential changes in Medicare and Medicaid reimbursement rates as rural and community hospitals typically generate a significant portion of their revenues and related cash flows from beneficiaries of these programs. In addition to specific account identification, the Company utilizes historical collection experience to establish the allowance for credit losses.
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Financing receivables are written off only after the Company has exhausted all collection efforts. The Company has been successful in collecting its financing receivables and considers the credit quality of such arrangements to be good, especially as the underlying assets act as collateral for the receivables.good.
Customer payments are considered past due if a scheduled payment is not received within contractually agreed upon terms. To facilitate customer collection and credit monitoring efforts, financing receivable amounts are invoiced and reclassified to trade accounts receivable when they become due, with all invoiced amounts placed on nonaccrual status. As a result, all past due amounts related to the Company’s financing receivables are included in trade accounts receivable in the accompanying condensed consolidated balance sheets. The following is an analysis of the age of financing receivables amounts (excluding short-term payment plans) that have been reclassified to trade accounts receivable and were past due as of June 30, 20172018 and December 31, 2016:2017:

(In thousands)
1 to 90 Days
Past Due
 
91 to 180 Days
Past Due
 
181 + Days
Past Due
 
Total
Past Due
June 30, 2017$384
 $33
 $42
 $459
December 31, 2016$228
 $31
 $34
 $293
(In thousands)
1 to 90 Days
Past Due
91 to 180 Days
Past Due
181 + Days
Past Due
Total
Past Due
June 30, 2018$1,322 $332 $291 $1,945 
December 31, 2017$980 $171 $— $1,151 

From time to time, the Company may agree to alternative payment terms outside of the terms of the original financing receivable agreement due to customer difficulties in achieving the original terms. In general, such alternative payment arrangements do not result in a re-aging of the related receivables. Rather, payments pursuant to any alternative payment arrangements are applied to the already outstanding invoices beginning with the oldest outstanding invoices as the payments are received.
Because amounts are reclassified to trade accounts receivable when they become due, there are no past due amounts included within financing receivables or the financing receivables, net of current portion, net amount in the accompanying condensed consolidated balance sheets.

The Company utilizes an aging of trade accounts receivable as the primary credit quality indicator for its financing receivables, which is facilitated by the reclassification of customer payment amounts to trade accounts receivable when they become due. The table below categorizes customer financing receivable balances (excluding short-term payment plans), none of which are considered past due, based on the age of the oldest payment outstanding that has been reclassified to trade accounts receivable:
(In thousands)June 30, 2018December 31, 2017
Stratification of uninvoiced client financing receivables based on aging of related trade accounts receivable:
1 to 90 Days Past Due$13,797 $11,300 
91 to 180 Days Past Due3,579 3,727 
181 + Days Past Due1,890 967 
Total uninvoiced client financing receivables balances of clients with a trade accounts receivable$19,266 $15,994 
Total uninvoiced client financing receivables of clients with no related trade accounts receivable3,585 4,709 
Total financing receivables with contractual maturities of one year or less7,407 9,081 
Less: allowance for losses(2,445)(3,244)
Total financing receivables$27,813 $26,540 

(In thousands)June 30,
2017
 December 31,
2016
Customer balances with amounts reclassified to trade accounts receivable that are:   
1 to 90 Days Past Due$8,632
 $6,167
91 to 180 Days Past Due1,511
 550
181 + Days Past Due827
 273
Total customer balances with past due amounts reclassified to trade accounts receivable$10,970
 $6,990
Total customer balances with no past due amounts reclassified to trade accounts receivable4,247
 1,194
Total financing receivables with contractual maturities of one year or less1,704
 5,068
Less: allowance for losses(1,929) (2,198)
Total financing receivables$14,992
 $11,054
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Second Generation Meaningful Use Installment Plans
Beginning in the fourth quarterTable of 2012, we offered to our customers license agreements with payment terms that provided us with greater visibility into and control over the customer’s meaningful use attestation process and significantly reduced the maximum timeframe over which customers must satisfy their full payment obligations in purchasing our system (“Second Generation Meaningful Use Installment Plans”). As the overall payment period durations of the Second Generation Meaningful Use Installment Plans are consistent with that of our historical system sale financing arrangements, revenues under the Second Generation Meaningful Use Installment Plans are recognized upon installation of our EHR solution. Although these arrangements provide for a maximum payment term of three years, management has determined the expected term for these arrangements to be less than one year due to (a) historical collection patterns of required EHR incentive payment amounts and (b) the estimated significance of those amounts, the receipt of which is expected to result in minimal or no remaining balance for the related arrangements. As a result, all related amounts are included as a component of financing receivables, current portion, net in the accompanying condensed consolidated balance sheets and as a component of short-term payment plans within this note.Contents

10.  INTANGIBLE ASSETS AND GOODWILL
Our purchased definite-lived intangible assets as of June 30, 2018 and December 31, 2017 are summarized as follows:

(In thousands)Customer Relationships Trademark Developed Technology Total
Gross carrying amount$82,300
 $10,900
 $24,100
 $117,300
Accumulated amortization(9,668) (1,257) (4,460) (15,385)
Net intangible assets$72,632
 $9,643
 $19,640
 $101,915
Weighted average remaining years of useful life11 14 7 11
(In thousands)Customer RelationshipsTrademarkDeveloped TechnologyTotal
Gross carrying amount as of December 31, 2017 and June 30, 2018$82,300 $10,900 $24,100 $117,300 
Accumulated amortization as of December 31, 2017(12,937)(1,682)(5,968)(20,587)
Net intangible assets as of December 31, 201769,363 9,218 18,132 96,713 
Accumulated amortization for the six months ended June 30, 2018(3,270)(424)(1,509)(5,203)
Net intangible assets as of June 30, 2018$66,093 $8,794 $16,623 $91,510 
Weighted average remaining years of useful life1013610

The following table represents the remaining amortization of definite-lived intangible assets as of June 30, 2017:2018:

(In thousands) (In thousands)
For the year ended December 31, For the year ended December 31,
2017$5,202
201810,406
2018$5,203 
201910,112
201910,112 
202010,106
202010,106 
202110,066
202110,066 
Due thereafter56,023
2022202210,066 
ThereafterThereafter45,957 
Total$101,915
Total$91,510 

The following table sets forth the change in the carrying amount of goodwill by segment for the six months ended June 30, 2017:2018:
(In thousands)Acute Care EHRPost-acute Care EHRTruBridgeTotal
Balance as of December 31, 2017$97,095 29,570 13,784 $140,449 
Goodwill impairment$— — — — 
Balance as of June 30, 2018$97,095 $29,570 $13,784 $140,449 
(In thousands)Acute Care EHRPost-acute Care EHRTruBridgeTotal
Balance as of December 31, 2016$97,095
$57,570
$13,784
$168,449
Goodwill acquired



Balance as of June 30, 2017$97,095
$57,570
$13,784
$168,449

Goodwill is evaluated for impairment annually on October 1, or more frequently if indicators of impairment are present or changes in circumstances suggest that impairment may exist. As

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Table of June 30, 2017, there was no impairment to goodwill.Contents

11.  LONG-TERM DEBT
Long-term debt was comprised of the following at June 30, 20172018 and December 31, 2016:2017:
(In thousands)June 30, 2018December 31, 2017
Term loan facility$105,357 $115,538 
Revolving credit facility34,693 27,983 
Capital lease obligation410 565 
Debt obligations140,460 144,086 
Less: unamortized debt issuance costs(1,479)(1,652)
Debt obligation, net138,981 142,434 
Less: current portion(5,830)(5,820)
Long-term debt$133,151 $136,614 
(In thousands)June 30, 2017 December 31, 2016
Term loan facility$118,750
 $121,875
Revolving credit facility26,500
 33,000
Capital lease obligation716
 861
Debt obligations145,966
 155,736
Less: unamortized debt issuance costs(2,566) (2,930)
Debt obligation, net143,400
 152,806
Less: current portion(7,389) (5,817)
Long-term debt$136,011
 $146,989

As of June 30, 2017,2018, the carrying value of debt approximates the fair value due to the variable interest rate, which reflects the market rate.
Credit Agreement
In conjunction with our acquisition of HHI onin January 8, 2016, we entered into a syndicated credit agreement on the same date (the "Credit"Previous Credit Agreement"), with Regions Bank ("Regions") serving as administrative agent, which provided for a  $125,000,000$125 million term loan facility (the "Term"Previous Term Loan Facility") and a $50,000,000$50 million revolving credit facility ("(the "Previous Revolving Credit Facility"). The cash portionOn October 13, 2017, we entered into a Second Amendment (the "Second Amendment") to refinance and decrease the aggregate committed size of the purchase price for HHI was partially funded bycredit facilities from $175 million to $162 million, which included a $117 million term loan facility (the "Amended Term Loan Facility") and a $45 million revolving credit facility (the "Amended Revolving Credit Facility" and, together with the $125,000,000Amended Term Loan Facility, the "Amended Credit Facilities"). On February 8, 2018, we entered into a Third Amendment (the "Third Amendment") to the Amended Credit Agreement to increase the aggregate principle amount of the Amended Credit Facilities from $162 million to $167 million which includes the $117 million Amended Term Loan Facility and $25,000,000 borrowed under thea $50 million Amended Revolving Credit Facility.
The Term Loan Facility bearsEach of the Amended Credit Facilities continues to bear interest at a rate per annum equal to an applicable margin plus, at our option, either (1) the Adjusted LIBOR rate for the relevant interest period, (2) an alternate base rate determined by reference to the greater of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant interest period plus one half of one percent per annum and (c) the one-monthone month LIBOR rate plus one percent per annum, or (3) a combination of (1) and (2). InterestThe applicable margin range for LIBOR loans and the letter of credit fee ranges from 2.00% to 3.50%. The applicable margin range for base rate loans ranges from 1.00% to 2.50%, in each case based on the outstanding principal ofCompany's consolidated leverage ratio.
Principal payments with respect to the Amended Term Loan Facility is payable on the last day of each month, in the case of each base rate loan, and on the last day of each interest period (but no less frequently than every three months), in the case of LIBOR loans. Principal payments are due on the last day of each fiscal quarter beginning MarchDecember 31, 2016,2017, with quarterly principal payments of approximately $1.46 million through September 30, 2019, approximately $2.19 million through September 30, 2021 and approximately $2.93 million through September 30, 2022, with the remainder due at maturity on January 8, 2021October 13, 2022 or such earlier date as the obligations under the Amended Credit Agreement become due and payable pursuant to the terms of the Amended Credit Agreement (the "Maturity"Amended Maturity Date"). Any principal outstanding under the Amended Revolving Credit Facility is due and payable on the Amended Maturity Date.
Anticipated annual future maturities of the Amended Term Loan Facility, Amended Revolving Credit Facility, and capital lease obligation are as follows as of June 30, 2017:2018:
(In thousands)
2018$3,085 
20196,831 
20208,775 
20219,506 
2022112,263 
Thereafter— 
$140,460 

20

(In thousands) 
2017$3,276
20189,690
201912,750
202015,625
2021104,625
Thereafter
 $145,966
Borrowings under the Revolving Credit Facility bear interest at a rate similar to thatTable of the Term Loan Facility, with interest payment dates similar to that of the Term Loan Facility. The Revolving Credit Facility includes a $5 million swingline sublimit, with swingline loans bearing interest at the alternate base rate plus the applicable margin. Any principal outstanding under the Revolving Credit Facility is due and payable on the Maturity Date.Contents
The Term Loan Facility and amounts borrowed under the RevolvingAmended Credit FacilityFacilities are secured pursuant to a Pledge and Security Agreement, dated January 8, 2016, among the parties identified as Obligorsobligors therein and Regions, as collateral agent, (the “Security Agreement”), on a first priority basis by a security interest in substantially all of the tangible and intangible assets (subject to certain exceptions) of the Company and certain subsidiaries of the Company, as guarantors (collectively, the “Subsidiary Guarantors”), including certain registered intellectual property and the capital stock of certain

of the Company’s direct and indirect subsidiaries. Our obligations under the Amended Credit Agreement are also guaranteed by the Subsidiary Guarantors.
The Amended Credit Agreement, as amended by the Third Amendment, provides incremental facility capacity of $50 million, subject to certain conditions. The Amended Credit Agreement includes a number of restrictive covenants that, among other things and in each case subject to certain exceptions and baskets, impose operating and financial restrictions on the Company and the Subsidiary Guarantors, including the ability to incur additional debt; incur liens and encumbrances; make certain restricted payments, including paying dividends on itsthe Company's equity securities or payments to redeem, repurchase or retire itsthe Company's equity securities;securities (which are subject to our compliance, on a pro forma basis to give effect to the restricted payment, with the fixed charge coverage ratio and consolidated leverage ratio described below); enter into certain restrictive agreements; make investments, loans and acquisitions; merge or consolidate with any other entity;person; dispose of assets; enter into sale and leaseback transactions; engage in transactions with its affiliates; and materially alter the business it conducts. In addition,we conduct. The Amended Credit Agreement requires the Company to maintain a minimum fixed charge coverage ratio of 1.25:1.00 throughout the duration of such agreement. Under the Amended Credit Agreement, the Company is required to comply with a minimum fixed charge coverage ratio throughout the duration of the Credit Agreement and a maximum consolidated leverage ratio.ratio of 3.95:1.00 through December 31, 2017 and 3.50:1.00 from January 1, 2018 and thereafter. The Amended Credit Agreement also contains customary representations and warranties, affirmative covenants and events of default. We believe that we were in compliance with the covenants contained in the Amended Credit Agreement as of June 30, 2018.
The Amended Credit Agreement requires the Company to mandatorily prepay the Term Loan Facility and amounts borrowed under the RevolvingAmended Credit FacilityFacilities with (i) 100%75% of netexcess cash proceeds fromflow (minus certain sales and dispositions, subject to certain reinvestment rights, (ii) 100%specified other payments) during each of net cash proceeds from certain issuances or incurrences of additional debt, (iii) 50% of net cash proceeds from certain issuances or sales of equity securities, subject to a step down to 0% if the Company’s consolidated leverage ratio is no greater than 2.50:1.0, and (iv) beginning with the fiscal yearyears ending December 31, 2016,2017 and December 31, 2018 and (ii) 50% of excess cash flow (minus certain specified other payments), subject to a step down to 0% of excess cash flow if during the Company’s consolidated leverage ratio is no greater than 2.50:1.0.fiscal year ending December 31, 2019 and thereafter. The Company is permitted to voluntarily prepay the Term Loan Facility and amounts borrowed under the RevolvingAmended Credit FacilityFacilities at any time without penalty, subject to customary “breakage” costs with respect to prepayments of LIBOR rate loans made on a day other than the last day of any applicable interest period. AsThe excess cash flow mandatory prepayment requirement under the Amended Credit Agreement resulted in a $7.3 million prepayment on the Amended Term Loan Facility during the first quarter of June 30,2018 related to excess cash flow generated by the Company during 2017. This mandatory prepayment was funded by drawing down on the Amended Revolving Credit Facility, as excess cash flow generated by the Company during 2017 we believe that we were in compliance with all debt covenants contained inwas primarily used to voluntarily prepay amounts due under the Amended Revolving Credit Agreement.Facility.

12.  COMMITMENTS AND CONTINGENCIES
From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. Management does not believe it is reasonably possible that such matters will have a material adverse effect on the Company’s financial statements.

13.  FAIR VALUE
FASB Codification topic, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value and expands financial statement disclosures about fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The Codification does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. The Codification requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.


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The accrued contingent consideration depicted below represents the potential earnout incentive for former Rycan shareholders, relating to the purchase of Rycan by HHI in 2015. We have estimated the fair value of the contingent consideration based on the amount of revenue we expect to be earned by Rycan through the year ending December 31, 2018.2018 in accordance with the purchase agreement between the parties.
The following table summarizes the carrying amounts and fair valuesvalue of certain liabilitiesthe contingent consideration at June 30, 2017:2018:

  Fair Value at June 30, 2017 UsingFair Value at June 30, 2018 Using
Carrying Amount at Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable InputsCarrying Amount atQuoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant Unobservable Inputs
(In thousands)6/30/2017 (Level 1) (Level 2) (Level 3)(In thousands)6/30/2018(Level 1)(Level 2)(Level 3)
Description       Description
Contingent consideration$1,120
 $
 $
 $1,120
Contingent consideration$615 $— $— $615 
Total$1,120
 $
 $
 $1,120
Total$615 $— $— $615 

The following table summarizes the carrying amounts and fair valuesvalue of certain liabilitiesthe contingent consideration at December 31, 2016:2017:

  Fair Value at December 31, 2016 UsingFair Value at December 31, 2017 Using
Carrying Amount at Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable InputsCarrying Amount atQuoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant Unobservable Inputs
(In thousands)12/31/2016 (Level 1) (Level 2) (Level 3)(In thousands)12/31/2017(Level 1)(Level 2)(Level 3)
Description       Description
Contingent consideration$1,120
 $
 $
 $1,120
Contingent consideration$586 $— $— $586 
Total$1,120
 $
 $
 $1,120
Total$586 $— $— $586 

The carrying amounts of other financial instruments reported in the consolidated balance sheets for current assets and current liabilities approximate their fair values because of the short-term nature of these instruments.

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14.  SEGMENT REPORTING
Our chief operating decision makers ("CODM") utilize three operating segments, "Acute Care EHR",EHR," "Post-acute Care EHR" and "TruBridge","TruBridge," based on our three distinct business units with unique market dynamics and opportunities. Revenues and cost of sales are primarily derived from the provision of services and sales of our proprietary software, and our CODM assess the performance of these three segments at the gross profit level. Operating expenses and items such as interest, income tax, capital expenditures and total assets are managed at a consolidated level and thus are not included in our operating segment disclosures. Our CODM group is comprised of the Chief Executive Officer, Chief Growth Officer, Chief Operating Officer, and Chief Financial Officer. Accounting policies for each of the reportable segments are the same as those used on a consolidated basis.
As of January 1, 2017, the operating segment formerly identified as "TruBridge, Rycan, and Other Outsourcing" is now identified as "TruBridge".
The following table presents a summary of the revenues and gross profits of our three operating segments for the three and six months ended June 30, 20172018 and 2016:2017:

Three Months Ended June 30, Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2017 2016 2017 2016(In thousands)2018201720182017
Revenues:       Revenues:
Acute Care EHR$39,394
 $40,754
 $76,525
 $83,494
Acute Care EHR
Recurring revenueRecurring revenue$28,342 $28,001 $56,477 $56,539 
Non-recurring revenueNon-recurring revenue8,865 11,393 20,913 19,985 
Total Acute Care EHR revenueTotal Acute Care EHR revenue37,207 39,394 77,390 76,524 
Post-acute Care EHR6,080
 6,965
 12,372
 13,934
Post-acute Care EHR
Recurring revenueRecurring revenue4,656 5,108 9,487 10,186 
Non-recurring revenueNon-recurring revenue883 972 1,621 2,187 
Total Post-acute Care EHR revenueTotal Post-acute Care EHR revenue5,539 6,080 11,108 12,373 
TruBridge22,203
 20,696
 42,854
 40,630
TruBridge25,159 22,203 50,290 42,854 
Total revenues$67,677
 $68,415
 $131,751
 $138,058
Total revenues$67,905 $67,677 $138,788 $131,751 
       
Cost of sales:       Cost of sales:
Acute Care EHR$16,836
 $19,364
 33,753
 39,250
Acute Care EHR$17,970 $17,730 $34,727 $35,504 
Post-acute Care EHR2,023
 2,522
 4,036
 4,903
Post-acute Care EHR1,558 2,023 3,219 4,036 
TruBridge11,933
 11,616
 23,520
 22,903
TruBridge13,531 11,933 26,910 23,520 
Total cost of sales$30,792
 $33,502
 $61,309
 $67,056
Total cost of sales$33,059 $31,686 $64,856 $63,060 
       
Gross profit:       Gross profit:
Acute Care EHR$22,558
 $21,390
 42,772
 44,244
Acute Care EHR$19,237 $21,664 $42,663 $41,020 
Post-acute Care EHR4,057
 4,443
 8,336
 9,031
Post-acute Care EHR3,981 4,057 7,889 8,337 
TruBridge10,270
 9,080
 19,334
 17,727
TruBridge11,628 10,270 23,380 19,334 
Total gross profit$36,885
 $34,913
 $70,442
 $71,002
Total gross profit$34,846 $35,991 $73,932 $68,691 
       
Corporate operating expenses$(32,437) (29,650) (62,761) (64,963)Corporate operating expenses$(32,621)$(31,543)$(64,058)$(61,010)
Other income70
 69
 140
 68
Other income194 70 392 140 
Interest expense(1,938) (1,642) (3,745) (3,110)Interest expense(1,807)(1,938)(3,785)(3,745)
Income before taxes$2,580
 $3,690
 $4,076
 $2,997
Income before taxes$612 $2,580 $6,481 $4,076 

15.     RECENT ACCOUNTING PRONOUNCEMENTS
New Accounting Standards Adopted in 2017

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. The amended guidance requires entities to measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The requirement would replace the current lower of cost or market evaluation. Accounting guidance is unchanged for inventory measured using last-in, first-out (“LIFO”) or the retail method. The amended guidance will be effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15,

2017. The amended guidance should be applied prospectively with earlier application permitted. The adoption of ASU 2015-11 did not have a material effect on our financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and the classification of awards on the statement of cash flows. This guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2016, which is effective for the Company as of the first quarter of our fiscal year ending December 31, 2017. The adoption of ASU 2016-09 had a material effect on our financial statements in the period of adoption and is disclosed in Note 7 of the financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, that removes step two of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the new guidance, a goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The guidance is effective for annual and interim periods in fiscal years beginning after December 15, 2019 with early adoption permitted for any goodwill impairment tests performed after January 1, 2017. The guidance is to be applied prospectively.

We have elected to early adopt ASU 2017-04 and the guidance will be applied for all goodwill impairment tests performed after January 1, 2017. The adoption of ASU 2017-04 may have a material impact on our financial statements if one or more of our reporting unit's carrying value exceeds its fair value at the time of impairment assessment.
New Accounting Standards Yet to be Adopted
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most current revenue recognition guidance. This guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2017, which is effective for the Company as of the first quarter of our fiscal year ending December 31, 2018. Although we have not fully completed the assessment of our systems, data, and processes that will be affected by the implementation of this standard, we currently anticipate that this standard will not significantly alter revenue recognition practices for our system sales and support and TruBridge revenue streams but may have a material impact on our consolidated financial statements with respect to the capitalization of certain commissions and contract fulfillment costs which are currently expensed as incurred. We intend to adopt this standard using the modified retrospective method, in which the cumulative effect of initially applying the guidance will be recognized as an adjustment to retained earnings or impacted balance sheet line items as of January 1, 2018, the date of adoption.

In February 2016, the FASB issued ASU 2016-02, Leases, to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The new guidance will require the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. This guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2018, which is effective for the Company as of the first quarter of our fiscal year ending December 31, 2019. The Company is currently evaluating the impact that the implementation of this standard will have on its financial statements.

In August 2016, the FASB issued ASU 2016-15, Classifications of Certain Cash Receipts and Cash Payments, which clarifies cash flow classification for eight specific issues, including debt prepayment or extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and proceeds from settlement of corporate-owned life insurance policies. This guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2017, which is effective for the Company as of the first quarter of our fiscal year ending December 31, 2018. The Company is currently evaluating the impact that the implementation of this standard will have on its financial statements.

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, to assist an entity in evaluating when a set of transferred assets and activities is a business. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 and should be applied prospectively to any transactions occurring within the period of adoption. Early adoption is permitted, including for interim or annual periods in which the

financial statements have not been issued or made available for issuance. The Company is currently evaluating the impact that the implementation of this standard will have on its financial statements.

We do not believe that any other recently issued, but not yet effective accounting standards, if adopted, would have a material impact on our consolidated financial statements.
16.     SUBSEQUENT EVENTS
OnOn August 3, 2017,2, 2018, the Company announced a dividend for the third quarter of 20172018 in the amount of $0.30$0.10 per share, payable on September 1, 2017,August 31, 2018, to stockholders of record as of the close of business on August 17, 2017.16, 2018. 



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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited condensed consolidated financial statements and related notes appearing elsewhere herein.

This discussion and analysis 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 report relating to estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates 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;clients;
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;clients;
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 Inc., American HealthTech, Inc., and Rycan Technologies, Inc. with our business and the inherent risks associated with any potential future acquisitions;
our ability to remediate a material weakness in our internal control over financial reporting;
competition with companies that have greater financial, technical and marketing resources than we have;
failure to develop new or enhance current 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 or enhancements 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 client service and keysupport 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; and
fluctuations in quarterly financial performance due to, among other factors, timing of customer installations.
Additional information concerning these and other factors that could cause differences between forward-looking statements and future actual results is discussed under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2016.2017.


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Background
CPSI founded in 1979, is a leading provider of healthcare information technology ("IT") solutions and services for ruralcommunity hospitals and community hospitalsother healthcare systems and post-acute care facilities. WithFounded in 1979, CPSI offers our January 2016 acquisition of Healthland Holding Inc. ("HHI"), CPSI is now the parent of fiveproducts and services through four companies - Evident, LLC ("Evident"), TruBridge, LLC ("TruBridge"), Healthland Inc. ("Healthland"), and American HealthTech, Inc. ("AHT"), and Rycan Technologies, Inc. ("Rycan"). OurThese 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.clients. The individual contributions of each of our five wholly-owned subsidiariesthese companies towards this combined focus are as follows:
Evident, formed in April 2015, provides a comprehensive acute care electronic health record ("EHR") solutionssolution, Thrive, and related services for rural and community hospitals including those solutions previously sold under the CPSI name as well as an expanded range of offerings targeted specifically at rural and their physician clinics.
• Healthland provides a comprehensive acute care EHR solution, Centriq, and related services for community healthcare organizations.hospitals and their physician clinics.
TruBridge focuses exclusively on providing business management, consulting, and managed IT services to rural and community healthcare organizations,along with its complete revenue cycle management ("RCM") solution for all care settings, regardless of their IT vendor.primary healthcare information solutions provider.
Healthland, acquired in the acquisition of HHI,• AHT provides integrated technology solutionsa comprehensive post-acute care EHR solution and services to small rural, community, and critical access hospitals.
AHT, acquired in the acquisition of HHI, is one of the nation's largest providers of financial and clinical technology solutions andrelated services for post-acute careskilled nursing and assisted living facilities.
Rycan, acquired in the acquisition of HHI, provides revenue cycle management workflow and automation software to rural and community hospitals, healthcare systems, and skilled nursing organizations.
The combined companyOur companies currently supports support approximately 1,300 1,100 acute care facilities and over 3,300approximately 3,500 post-acute care facilities with a geographically diverse customer mix within the domestic rural and community healthcare market. Our customersclients primarily consist of rural and community hospitals with 300200 or fewer acute care beds, with hospitals having 100 or fewer beds comprising approximately 95%94% of our hospital EHR customer base.
As discussedWe operate in this Item under “Results of Operations by Segment” below, we now manage our operations using three operating segments which are also our reportable segments: (1) acute careAcute Care EHR, (2) post-acute carePost-acute Care EHR and (3) TruBridge. See Note 14 to the consolidated financial statements included herein for additional information on our segment reporting.


Acute Care EHR


Our Acute Care EHR segment consists of acute care software solutions and support sales generated by Evident and Healthand.Healthland.


Post-acute Care EHR


Our Post-acute Care EHR segment consists of post-acute care software solutions and support sales generated by AHT.


TruBridge


Our TruBridge segment primarily consists of business management, consulting and managed IT services sales generated by TruBridge and the sale of Rycan'sthe Rycan revenue cycle management workflow and automation software.
Management Overview
Historically, we have primarily sought revenue growth through sales of healthcare IT systems and related services to existing and new customersclients within our target market, a strategy that has resulted in a ten-year compounded annual growth rate in legacy revenues (i.e., revenues related to our legacy Evident and TruBridge operations) of approximately 4.5%5.9% as of the end of our most recently completed fiscal year. Important to our potential for continued long-term revenue growth is our ability to

sell new and additional products and services to our existing customer base, including cross-selling opportunities presented with the acquisition of HHI.Healthland Holding Inc. ("HHI"), the parent company of Healthland, AHT and Rycan Technologies, Inc. We believe that as our combined customer base grows, the demand for additional products and services, including business management, consulting and managed IT services, will also continue to grow, supporting further increases in recurring revenues. We also expect to drive revenue growth from new product development that we may generate from our research and development activities.
January 2016 marked an important milestone for CPSI, as we announced the completion of our acquisition of HHI, the first major acquisition in the Company's history. With thisThis acquisition CPSI now has a presence in well over 1,000 ruralexpanded our footprint for servicing acute care facilities and community hospitals and over 3,300introduced us to the post-acute care facilities,segment, adding significantly to our already substantial recurring revenue base and further expanding our ability to generate organic recurring revenue growth through additional cross-selling opportunities now available
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within the combined company. We believe that the addition of HHI and its clients and products has enhanced and will continue to enhance our ability to grow our business and compete in the markets that we serve.
Our business model is designed such that, as revenue growth materializes, earnings and profitability growth are naturally bolstered through increased future margin realization. Once a hospital has installed our solutions, we continue to provide support services to the customer on an ongoing basis and make available to the customer our broad portfolio of business management, consulting, and managed IT services. The provision of these services typically requires fewer resources than the initial system installation, resulting in increased overall gross margins.
We also look to increase margins through cost containment measures where appropriate.appropriate as we continue to leverage opportunities for greater operating efficiencies of the combined entity. For example, during 2016the first quarter of 2018, we instituted several changes related tofurther integrated our employee benefits offerings, includingacute care product lines into a spousal carve-outcombined client support group. Using best practices of the combined companies' implementation processes, we have decreased travel costs for healthcare benefits. Additionally,our acute-care installations by approximately 25%. During the fourth quarter of 2017, TruBridge eliminated approximately $0.6 million per quarter of cloud hosting service costs for the HHI customer base by utilizing in-house resources. Also, during the first quarter of 2017, we instituted a one-time,limited-time, voluntary severance program offering those employees meeting certain predetermined criteria severance packages involving continuing periodic cash payments and healthcare benefits for varying periods, depending upon the individual's years of service with the Company. Lastly, the acquisition of HHI in January of 2016 presents us with additional opportunities to leverage the greater operating efficiencies of the combined entity in order to drive further earnings and profitability growth in the future.
Turbulence in the U.S. and worldwide economies and financial markets impacts almost all industries. While the healthcare industry is not immune to economic cycles, we believe it is more significantly affected by U.S. regulatory and national health projects than by the economic cycles of our economy. Additionally, healthcare organizations with a large dependency on Medicare and Medicaid populations, such as rural and community hospitals, have been affected by the challenging financial condition of the federal government and many state governments and government programs. Accordingly, we recognize that prospective hospital customersclients often do not have the necessary capital to make investments in information technology. Additionally, in response to these challenges, hospitals have become more selective regarding where they invest capital, resulting in a focus on strategic spending that generates a return on their investment. Despite these challenges, we believe healthcare information technology is often viewed as more strategically beneficial to hospitals than other possible purchases because the technology offers the possibility of a quick return on investment. Information technology also plays an important role in healthcare by improving safety and efficiency and reducing costs. Additionally, we believe most hospitals recognize that they must invest in healthcare information technology to meet current and future regulatory, compliance and government reimbursement requirements.
In recent years, there have been significant changes to provider reimbursement by the U.S. federal government, followed by commercial payers and state governments. There is increasing pressure on healthcare organizations to reduce costs and increase quality while replacing fee-for-service in part by enrolling in an advanced payment model. This pressure could further encourage adoption of healthcare IT and increase demand for business management, consulting, and managed IT services as the future success of these healthcare providers is greatly dependent upon their ability to engage patient populations and to coordinate patient care across a multitude of settings, while optimizing operating efficiency along the way.
We have historically made financing arrangements available to customersclients on a case-by-case basis depending upon the various aspects of the proposed contract and customer attributes. These financing arrangements include other short-term payment plans and longer-term lease financing through us or third-party financing companies. For those customersclients not seeking a financing arrangement, the payment schedule of the typical contract is structured to provide for a scheduling deposit due at contract signing, with the remainder of the contracted fees due at various stages of the installation process (delivery of hardware, installation of software and commencement of training, and satisfactory completion of a monthly accounting cycle or end-of-month operation by and as applicable for each respective application)application, as applicable).
During 2017, total financing receivables increased by $15.5 million, which had a significant impact on operating cash flow. The increase in financing arrangements was primarily due to two reasons. First, meaningful use stage three ("MU3") installations are primarily financed through short-term payment plans. Second, competitor financing options, primarily through accounts receivables management collections and cloud EHR arrangements, have applied pressure to reduce initial customer capital investment requirements for new EHR installations, leading to the offering of long-term lease options.
We have also historically made our software applications available to customersclients through "Software as a Service" or "SaaS" configurations, including our Cloud Electronic Health Record ("Cloud EHR") offering. These offerings are attractive to some customersclients because this configuration allows them to obtain access to advanced software products without a significant initial capital outlay. Although the broader enterprise software marketplace has been experiencing an increasing trend of SaaS

arrangementsWe have experienced a substantial increase in the past few years, this trend has been slower to develop within our marketprevalence of such SaaS arrangements for new system installations and add-on sales to existing customers. However, we experienced a substantial increase in the prevalence of such arrangements within our system sales arrangements inclients since 2015, a trend which continued in 2016 and we expect to continue for the foreseeable future. Unlike our historical perpetual license arrangements under which the related revenue is recognized effectively upon installation, the SaaS arrangements result in revenue being recognized monthly as the services are provided over the term of the arrangement. As a
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result, the effect of this trend on the Company's financial statements is reduced system sales revenues during the period of installation in exchange for increased recurring periodic revenues (reflected in system sales and support revenues) over the term of the SaaS arrangement.
American Recovery and Reinvestment Act of 2009
While ongoing financial challenges facing healthcare organizations have impacted and are expected to continue to impact the rural and community hospitals that comprise our target market, we believe that the financial incentives and penalties offered byreduced reimbursement under the American Recovery and Reinvestment Act of 2009 (the "ARRA") for the adoption ofthose providers failing to adopt qualifying EHRs have increased and will continue to support demand for healthcare information technology and will have a positive impact on our business prospects through at least 2018. As of June 30, 2017, incentive payments totaling over $37 billion have been made to aid healthcare organizations in modernizing their operations through
While we believe that the acquisition and wide-spread use of healthcare information technology. Eligible hospitals could begin receiving these incentive payments in any year from 2011 through 2015, but the total incentive payment is decreasedexpanded requirements for hospitals that started receiving payments in 2014 and later. Additionally, reimbursements under Medicare have been reduced for those eligible healthcare providers that did not begin to demonstratecontinued compliance with meaningful use rules have resulted in an expanded replacement market for EHRs, it is uncertain whether revenues generated from this replacement market will be sufficient to offset the impacts of an EHR by October 1, 2014.
Thethe overall accelerated adoption and increased penetration of EHRs resulting fromwithin our target market. As a result, our system sales revenues and profitability may be materially and adversely affected during the ARRA's EHR incentive program has resulted in a narrowing market for new system installations andshort-term.
Similarly, compliance with the meaningful use rules has accelerated the purchases of incremental applications by our existing clients. Consequently, our penetration rates within our existing customer base to satisfyfor our current menu of applications have increased significantly under the current meaningful use rules,ARRA, thereby alsosignificantly narrowing the market for add-on sales to existing customersclients. As a result of the announcement from CMS on August 2, 2018 of a final rule that changes the attestation period for meaningful use stage two-related incremental applications. Despite these narrowing markets,2019 and 2020 to any continuous 90-day period instead of the previously-required full year attestation period, hospitals now have until October 1, 2019 to install compliant technology in order to meet the requirements of the program during 2019, compared to a deadline of January 1, 2019 under the previous rule. While we expect to continue to benefit from the ARRA's EHR incentive program as the expanded requirements for continued eligibility for incentive payments and related payment adjustments for those healthcare providers not in compliance with meaningful use rules are expected to result in both an expanded replacement market for EHRs and additional orders from our existing customer base to purchase incremental applications necessary to satisfy such expanded requirements, particularly as the stage three meaningful use rules become effective. The stage three requirements are optional for 2017 and 2018, with all providers required to comply withbelieve that the stage three requirements beginning in 2019. However, asof the EHR replacement market is not likely to develop rapidly and revenues frommeaningful use program (re-named "Promoting Interoperability" by such rule) provide a significant opportunity for add-on sales to existing customers for incremental stage three-related applications are not likely to significantly materialize untilrevenues through 2019, the related stage three rules become effective, our system sales revenues and profitability are expected to be materially and adversely affected during the short-term. Although we are pursuing other strategic initiatives designed to result in system sales revenue growth in the future in the form of selective expansion into English-speaking international markets, selective expansion within the 100 to 300 bed hospital market and targeted expansion for our ambulatory solutions, there can be no guarantee that such initiatives will prove successful or will benefit the Company in a sufficiently timely fashion to offset the short-term effects of the aforementioned narrowing markets. On August 2, 2017, the Centers for Medicare and Medicaid Services ("CMS") announced a final rule that effectively delays the requirement for stage three compliance from the first day of 2018 to the first day of 2019. The delay by the CMS is expected to delay some of the contract revenues we previously anticipated and there is a risk of further delays or reductions in the regulatory requirements imposed on hospitals, which could have an adverse effect on our revenues.
Health Care Reform
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, collectively referredAlthough we are pursuing other strategic initiatives designed to as the "Health Reform Laws." This sweeping legislation implemented changes to the healthcare and health insurance industries from 2010 through 2015, requiring substantially all U.S. citizens and legal residents to have qualifying health insurance coverage startingresult in 2014 and providing the means by which it will be made available to them. The Health Reform Laws have had little direct impact on our internal operation and do not appear to have had a significant impact on the businesses of our hospital customers to date. However, we have not been able to determine at this point whether the ultimate impact will be positive, negative or neutral; it is likely that the Health Reform Laws will affect hospitals differently depending upon the populations they service. Rural and community hospitals typically service higher uninsured populations than larger urban hospitals and rely more heavily on Medicare and Medicaid for reimbursement. It remains to be seen whether the increasesystem sales revenue growth in the insured populations for ruralfuture in the form of selective expansion into English-speaking international markets, selective expansion within the 100 to 200 bed hospital market, and continued development of new software applications such as our Business Intelligence solution which provides community hospitals, as well ashospital leaders valuable insight into financial, operational, and clinical data, there can be no guarantee that such initiatives will prove successful or will benefit the increaseCompany in Medicare and Medicaid reimbursements under the ARRA for hospitals that implement EHR technology, will be enougha sufficiently timely fashion to offset cuts in Medicare and Medicaid reimbursements contained in the Health Reform Laws or as a resultshort-term effects of sequestration or other federal legislation.

We believe healthcare reform initiatives will continue during the foreseeable future. If adopted, some aspects of previously proposed reforms, such as further reductions in Medicare and Medicaid payments, could adversely affect the businesses of our customers and thereby harm our business.aforementioned narrowing markets.
Results of Operations
Despite impressive growth inDuring the six months ended June 30, 2018, we generated revenues of $138.8 million from the sale of our TruBridgeproducts and services, which management views as the primary agent for long-term revenue growth for CPSI, revenue challenges faced by our system sales and support operations have resulted in decreased total revenues as,compared to $131.8 million during the six months ended June 30, 2017, we generated revenuesan increase of $131.8 million from the sales of our products and services, compared to $138.1 million during the six months ended June 30, 2016, a decrease of 4.6%. This decrease in revenues5% that is primarily attributed to (1) the continuing challenging environment for add-onTruBridge client growth. We view sales of TruBridge solutions within our acute careexisting EHR customerclient base (2) the exhaustion of migration revenue opportunities for Healthland customers moving from the legacy Classic platform to Healthland’s flagship Centriq platform, (3) the revenue impact of 2016-reported attrition within the Healthland customer base, and (4) decreased installation volumes of AHT’s post-acute EHR solution. Despite the decrease in total revenues,as our leading performance indicator. Our net income for the six months ended June 30, 2018 increased by $2.5 million to $4.3 million from the six months ended June 30, 2017 increased 450.4% due to the realizationas a result of acquisition-related synergies over the trailing twelve months and the lackrevenue growth accompanied with improved gross margins of any significant transaction-related costs during53%, a 1% increase from the first six months of 2017. This improved profitability, coupled with more cash-advantageousNet cash provided by operating activities decreased by $8.1 million to $7.8 million provided from operations during the six months ended June 30, 2018, primarily due to a reduction of short-term liabilities and other changes in working capital, resulted in an improvement in cash flow from operations, increasing from cash used in operationscapital.

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Table of $8.5 million during the first six months of 2016 to cash provided by operations of $15.9 million during the first six months of 2017.Contents
The following table sets forth certain items included in our results of operations for the three and six months ended June 30, 20172018 and 2016,2017, expressed as a percentage of our total revenues for these periods:
Three Months Ended June 30,Six Months Ended June 30,
2018201720182017
(In thousands)Amount% SalesAmount% SalesAmount% SalesAmount% Sales
INCOME DATA:
Sales revenues:
System sales and support:
Acute Care EHR$37,207 54.8  $39,394 58.2  $77,390 55.8  $76,524 58.1  
Post-acute Care EHR5,539 8.2  6,080 9.0  11,108 8.0  12,373 9.4  
Total System sales and support42,746 62.9  45,474 67.2  88,498 63.8  88,897 67.5  
TruBridge25,159 37.1  22,203 32.8  50,290 36.2  42,854 32.5  
Total sales revenues67,905 100.0  67,677 100.0  138,788 100.0  131,751 100.0  
Costs of sales:
System sales and support:
Acute Care EHR17,970 26.5  17,730 26.2  34,727 25.0  35,504 26.9  
Post-acute Care EHR1,558 2.3  2,023 3.0  3,219 2.3  4,036 3.1  
Total System sales and support19,528 28.8  19,753 29.2  37,946 27.3  39,540 30.0  
TruBridge13,531 19.9  11,933 17.6  26,910 19.4  23,520 17.9  
Total costs of sales33,059 48.7  31,686 46.8  64,856 46.7  63,060 47.9  
Gross profit34,846 51.3  35,991 53.2  73,932 53.3  68,691 52.1  
Operating expenses:
Product development9,314 13.7  8,414 12.4  18,071 13.0  16,492 12.5  
Sales and marketing7,518 11.1  7,607 11.2  15,232 11.0  14,734 11.2  
General and administrative13,188 19.4  12,921 19.1  25,552 18.4  24,581 18.7  
Amortization of acquisition-related intangibles2,601 3.8  2,601 3.8  5,203 3.7  5,203 3.9  
Total operating expenses32,621 48.0  31,543 46.6  64,058 46.2  61,010 46.3  
Operating income2,225 3.3  4,448 6.6  9,874 7.1  7,681 5.8  
Other income (expense):
Other income194 0.3  70 0.1  392 0.3  140 0.1  
Interest expense(1,807)(2.7) (1,938)(2.9) (3,785)(2.7) (3,745)(2.8) 
Total other income (expense)(1,613)(2.4) (1,868)(2.8) (3,393)(2.4) (3,605)(2.7) 
Income before taxes612 0.9  2,580 3.8  6,481 4.7  4,076 3.1  
Provision for income taxes284 0.4  993 1.5  2,185 1.6  2,243 1.7  
Net income$328 0.5  $1,587 2.3  $4,296 3.1  $1,833 1.4  


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 Three Months Ended June 30, Six Months Ended June 30,
 2017 2016 2017 2016
(In thousands)Amount % Sales Amount % Sales Amount % Sales Amount % Sales
INCOME DATA:               
Sales revenues:               
System sales and support$45,474
 67.2 % $47,719
 69.7 % $88,897
 67.5 % $97,428
 70.6 %
TruBridge22,203
 32.8 % 20,696
 30.3 % 42,854
 32.5 % 40,630
 29.4 %
Total sales revenues67,677
 100.0 % 68,415
 100.0 % 131,751
 100.0 % 138,058
 100.0 %
Costs of sales:               
System sales and support18,859
 27.9 % 21,886
 32.0 % 37,789
 28.7 % 44,153
 32.0 %
TruBridge11,933
 17.6 % 11,616
 17.0 % 23,520
 17.9 % 22,903
 16.6 %
Total costs of sales30,792
 45.5 % 33,502
 49.0 % 61,309
 46.5 % 67,056
 48.6 %
Gross profit36,885
 54.5 % 34,913
 51.0 % 70,442
 53.5 % 71,002
 51.4 %
Operating expenses:               
Product development9,308
 13.8 % 8,179
 12.0 % 18,243
 13.8 % 15,369
 11.1 %
Sales and marketing7,607
 11.2 % 6,717
 9.8 % 14,734
 11.2 % 13,447
 9.7 %
General and administrative12,921
 19.1 % 12,130
 17.7 % 24,581
 18.7 % 31,168
 22.6 %
Amortization of acquisition-related intangibles2,601
 3.8 % 2,624
 3.8 % 5,203
 3.9 % 4,979
 3.6 %
Total operating expenses32,437
 47.9 % 29,650
 43.3 % 62,761
 47.6 % 64,963
 47.1 %
Operating income4,448
 6.6 % 5,263
 7.7 % 7,681
 5.8 % 6,039
 4.4 %
Other income (expense):               
Other income70
 0.1 % 69
 0.1 % 140
 0.1 % 68
  %
Interest expense(1,938) (2.9)% (1,642) (2.4)% (3,745) (2.8)% (3,110) (2.3)%
Total other income (expense)(1,868) (2.8)% (1,573) (2.3)% (3,605) (2.7)% (3,042) (2.2)%
Income before taxes2,580
 3.8 % 3,690
 5.4 % 4,076
 3.1 % 2,997
 2.2 %
Provision for income taxes993
 1.5 % 1,694
 2.5 % 2,243
 1.7 % 2,664
 1.9 %
Net income$1,587
 2.3 % $1,996
 2.9 % $1,833
 1.4 % $333
 0.2 %

Three Months Ended June 30, 20172018 Compared with Three Months Ended June 30, 20162017 
Revenues. Total revenues for the three months ended June 30, 2017 decreased 1.1%, or $0.72018 increased slightly $0.2 million, compared to the three months ended June 30, 2016.2017.
System sales and support revenues decreased by 4.7%6%, or $2.2$2.7 million, fromcompared to the three months ended June 30, 2016.second quarter 2017. System sales and support revenues were comprised of the following for the three months ended June 30, 2017 and 2016.following:
Three Months Ended June 30,
(In thousands)20182017
Recurring system sales and support revenues (1)
Acute Care EHR$28,342 $28,001 
Post-acute Care EHR4,656 5,108 
Total recurring system sales and support revenues32,998 33,109 
Non-recurring system sales and support revenues (2)
Acute Care EHR8,865 11,393 
Post-acute Care EHR883 972 
Total non-recurring system sales and support revenues9,748 12,365 
Total system sales and support revenue$42,746 $45,474 
(1) Mostly comprised of support and maintenance, third-party subscriptions, and SaaS revenues.

(2) Mostly comprised of installation revenues from the sale of our acute care and post-acute care EHR solutions and related applications under a perpetual (non-subscription) licensing model.
 Three Months Ended
(In thousands)June 30, 2017 June 30, 2016
Recurring system sales and support revenues (1)
$33,109
 $34,236
Non-recurring system sales and support revenues (2)
12,365
 13,483
Total system sales and support revenue$45,474
 $47,719
    
(1) Mostly comprised of support and maintenance, subscriptions, and SaaS revenues.

   
    
(2) Mostly comprised of installation revenues from the sale of our acute and post-acute EHR solutions and related applications under a perpetual (non-subscription) licensing model.
   

Nonrecurring          Non-recurring system sales and support revenues decreased $1.1$2.6 million, or 8.2%21%, primarily as Evident’svolatility in the timing of new customer installations coupled with relative weakness in non-MU3 related add-on volumes decreased andsales resulted in a decrease in Acute Care EHR non-recurring revenues of $2.5 million, or 22%. We installed our Acute Care EHR solutions at three new hospital clients during the market for Healthland migrations fromsecond quarter 2018 (one under a SaaS arrangement, resulting in revenue being recognized ratably over the legacy Classic platformcontractual term) compared to Healthland’s flagship Centriq platform continues to decrease. Related to Evident’s new system installation volumes, we completed installation of our Thrive EHR solution at ten new hospital clients during the three months ended June 30,second quarter 2017 (one of which was under a Cloud EHR arrangement, under which the related costs are all captured in the period of installation with the resulting revenue recognized ratably over the contractual term as the services are provided) compared to fiveSaaS arrangement). The ten new hospital client implementations during the three months ended June 30, 2016 (none of which were undersecond quarter 2017 marked the highest during a Cloud EHR arrangement), withquarter since the HHI acquisition, presenting a resulting revenue increase of $2.8 million. Evident’s add-on sales decreased by $0.9 million due to lower installation volumes of Emergency Department Information Systemsparticularly difficult comparison versus the current quarter's results and Thrive Provider EHR. Platform migration opportunities for Healthland customers moving from Classic to Centriq are naturally decreasing over time as we have completed most migrations for this finite population, resulting in a $1.7$3.7 million, or 60%, decrease in nonrecurringnew system implementation revenues. This decrease in new system implementation revenues was partially offset by a $3.4 million increase in MU3 implementations from our Healthland operations as we completed three migrations during the three months ended June 30, 2016 compared to one$0.2 million in the three months ended June 30, 2017. Thesesecond quarter 2017 to $3.6 million in the second quarter 2018. However, the impact on our results of these increased MU3 implementation volumes was muted by relative weakness in non-MU3 related add-on sales as a result of the Company's and clients' emphasis on MU3 certification prior to the October 1, 2019 deadline. Non-recurring Post-acute Care EHR revenues decreased by $0.1 million, or 9%, in the second quarter of 2018 as a result of slowing new installation revenues at Evident and Healthland have been compounded by decreased installations of AHT’s post-acute EHR solution, resulting in a $0.9 million decrease in related revenues.bookings due to aggressive competition during our effort to make technological improvements to the AHT product line.
Recurring system sales and support revenues decreased $1.1were relatively flat, decreasing slightly from $33.1 million in the second quarter of 2017 to $33.0 million in the second quarter of 2018. Acute Care EHR recurring revenues increased $0.3 million, or 3.3%. Our recently acquired1%, as new Thrive customer growth and additional support fees for MU3-related add-on sales have outweighed attrition primarily from the Healthland customer base contains a heavy concentration of calendar year-end support and maintenance renewal terms. As a result,base. Post-acute Care EHR recurring revenues decreased by $0.5 million, or 9%, due to attrition attributed to the majority of the revenue impact related to Healthland attrition through 2016 customer support terminations did not materialize until the first quarter of 2017.aforementioned aggressive competitive environment.
TruBridge revenues increased 7.3%13%, or $1.5$3.0 million, fromcompared to the three months ended June 30, 2016.second quarter 2017. Our hospital customersclients operate in an environment typified by rising costs and increased complexity and are increasingly seeking to alleviate themselves of the ever-increasing administrative burden of operating their own business office functions, most notably resulting in an expanded customer base for our accounts receivable management services, (increasing 5.2%increasing $2.4 million, or 38%, or $0.3 million). Our insurance services revenues have increased 15.7%, or $0.7 million, primarily asand our recent acquisition of HHI exposes Rycan’s solutions, which we consider to be best-of-breed, to a broader and more robust sales channel. Our IT managed services revenues have increased 19.5%, or $0.4 million, as we continue to see increasing demand for remote hosting for our acute and post-acute EHR solutions. Our medical coding services, have increased 31.4%increasing $1.1 million, or 89%, or $0.3 million, as new key customers have been added. compared to the second quarter 2017. These increases have beenwere partially offset by a 12.2%,$0.6 million, or $0.1 million,52%, decrease in consulting revenuesservices as ICD-10consulting opportunities related projectsto Thrive software add-on sales have decreased based on the related regulatory compliance deadline and decreased implementations of our Computerized Practitioner Order Entry (“CPOE”) and Physician Documentation applicationsmedical coding initiatives have limited the related consulting opportunities.been completed.
Costs of Sales. Total costs of sales decreasedincreased by 8.1%4%, or $2.7$1.4 million, fromcompared to the second quarter of 2016.2017. As a percentage of total revenues, costs of sales decreased from 49.0%increased to 49% in the second quarter of 20162018, compared to 45.5%47% in the second quarter 2017.
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Costs of Acute Care EHR system sales and support increased by $0.2 million, or 1%, compared to the second quarter 2017 primarily due to a $1.0 million, or 41%, increase in third-party software costs, primarily due to fees implemented for use of CPT codes by the American Medical Association ("AMA") during 2018 that are passed to the customer. This increase was partially offset by a $0.6 million, or 34%, decrease in travel costs due to improved implementation techniques and decreased equipment costs (which are minimal for MU3 implementations) of $0.1 million, or 11%. The dual effect of decreased revenues and increased third-party software costs resulted in the gross margin on Acute Care EHR system sales and support decreasing to 52% in the second quarter 2018, compared to 55% in the second quarter 2017.
Costs of Post-acute Care EHR system sales and support decreased by 13.8%$0.5 million, or 23%, or $3.0 million, fromcompared to the three months ended June 30, 2016second quarter 2017, primarily due to decreased equipmentreduced payroll costs and travel associated with the overall decrease in nonrecurring system sales revenues discussed above, leading to a combined $1.6 million decrease. Payroll and related costs decreased by $1.5of $0.2 million, or 12.3%19%, primarily as the realization of HHI acquisitionintegration synergies over the trailing twelve months havehas resulted in reduced headcount. Third-party software costs, hardware costs, and travel costs decreased by a decrease in

associated headcount. As a result,total of $0.3 million due to the decreased installation volume mentioned above. The gross margin on Post-acute Care EHR system sales and support increased to 58.5%72% in the three months ended June 30, 2017 from 54.1%second quarter 2018, compared to 67% in the three months ended June 30, 2016.second quarter 2017.
Our costs associated with TruBridge sales and support increased 2.7%13%, or $0.3$1.6 million, in the three months ended June 30, 2017 with the largest contributing factor being an increase in payroll and related costs of 8.7%29%, or $0.6$2.1 million, as a result of adding more employees during the trailing twelve months in order to support and develop our growing customer base. Increased payroll was partially offset by an approximate $0.6 million decrease in cloud hosting costs as a result of moving to in-house resources during the fourth quarter of 2017 for cloud services provided to the HHI customer base and increase capacity in advance of anticipated future increases in demand.base. The grossgross margin on these services increased to 46.3%was 46% in the three months ended June 30, 2017 from 43.9% in the three months ended June 30, 2016. This margin improvement is the resultsecond quarters of revenues materializing during the second quarter of 2017 for which the related investments in capacity had been made in prior periods.2018 and 2017.
Product Development Costs. Development. Product development expense consistsexpenses consist primarily of compensation and other employee-related costs (including stock-based compensation) and infrastructure costs incurred, but not capitalized, for new product development and product enhancements. Product development costs increased 13.8%11%, or $1.1$0.9 million, fromcompared to the three months ended June 30, 2016,second quarter 2017, as a result of increased headcount dedicated to functionality additions and enhancements across the product lines, as well as integration across product lines.
Sales and Marketing Expenses.Marketing. Sales and marketing expense increased 13.2%expenses decreased 1%, or $0.9$0.1 million, from the three months ended June 30, 2016, with the largest contributing factor being a $0.6 million increase in commission expense resulting from the aforementioned increase in Evident’s new system implementation volumes and related revenues and continued bookings growth for TruBridge. Addingcompared to the increased commission expense was an approximately $0.4 million increase in marketing program expensessecond quarter 2017, primarily due to more aggressive marketingdecreased payroll costs of our family of community healthcare companies as we continue10%, or $0.3 million, partially offset by increased TruBridge-specific and MU3 commissions expense compared to mature our brand positioning after the HHI acquisition.second quarter 2017.
General and Administrative Expenses.Administrative. General and administrative expenses increased 6.5%2%, or $0.3 million, compared to the second quarter 2017, primarily due to a $0.8 million from the three months ended June 30, 2016, mostly due to $1.7increase in bad debt expense, a $0.6 million, ofor 17%, increase in employee health costs, and a $0.4 million increase in stock compensation expense associated with a one-time, voluntary severance program that, although initiated during the first quarter of 2017, concluded during the second quarter 2018. Bad debt was negatively impacted by a few of 2017. Additionally, our three separate national user conferences held during the second and third quarters of 2016 were combined into a single national user conference across our entire customer base for 2017. This newly combined conference took place during the second quarter of 2017, resulting in an increase in related expenses of $0.4 million. This combined $2.1 million increase in severance and national user conference expenseshospital clients that have not been or may not be able to fulfill their financial obligations, while increased prescription drug utilization drove employee health costs higher. These increases were partially offset by a $0.6$1.5 million decrease in legal and accounting primarily as a result of litigation-related insurance proceeds, a $0.4 million decrease in HHI transaction costs, and a $0.5 million decrease in payroll and related costs duevoluntary severance program expense compared to the realization of synergies during the trailing twelve months from the HHI acquisition.second quarter 2017.
Amortization of Acquisition-Related Intangibles. Amortization expense associated with acquisition-related intangible assets remained relativelywas unchanged fromcompared to the second quarter of 2016.2017.
Total Operating Expenses. As a percentage of total revenues, total operating expenses increased to 47.9%48% in the second quarter of 20172018, compared to 43.3%47% in the second quarter of 2016.2017.
Total Other Income (Expense). Total other income (expense) increaseddecreased from expense of $1.9 million during the second quarter 2017 to expense of $1.6 million during the three months ended June 30, 2016second quarter 2018, as our long-term debt interest rate was reduced when our leverage ratio fell below the target ratio coupled with an increase in interest income due to expensethe expansion of $1.9 million during the three months ended June 30, 2017, as market conditions have resulted in increased interest rates paid onlong-term payment plans offered to our variable-rate debt obligations.clients.
Income Before Taxes. As a result of the foregoing factors, income before taxes decreased by 30.1%76%, or $1.1$2.0 million, fromcompared to the three months ended June 30, 2016.second quarter 2017.
  Provision for Income Taxes. Our effective income tax ratesrate for the three months ended June 30, 2017 and 2016 were 38.5% and 45.9%, respectively. During2018 increased to 46% from 38% for the three months ended June 30, 2016 the identification of nondeductible facilitative transaction costs and adjustments in our estimated state2017. Our effective tax rate resulted in combined additional income tax expense of $0.4 million, increasing the period's effective tax rate by 11.2%. Conversely, duringfor the three months ended June 30, 2017 we experienced2018 was heavily impacted by the year-to-date impact of changing state income allocation determinations among our various subsidiaries from entities with lower effective state rates to entities with higher effective state rates. The year-to-date adjustment, when recorded in a shortfallthree-month period of significantly lower net income before taxes compared to the immediately preceding period, had an outsized impact on our effective tax expense related to restricted stock of $0.2 million that increasedrate, resulting in a 25% increase in the effective tax rate. This increase was partially offset by the tax benefits of the Tax Cuts and Jobs Act, which reduced our corporate federal rate by 6.1% duefrom 35% to 21% effective at the adoptionbeginning of ASU 2016-09.2018.
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Net Income. Net income for the three months endedended June 30, 20172018 decreased by $0.4by $1.3 million to a$0.3 million, or $0.02 per basic and diluted share, compared with net income of $1.6 million, or $0.11 per basic and diluted share, compared with net income of $2.0 million, or $0.15 per basic and diluted share, for the three months ended June 30, 2016.2017. Net income represented 2.3%less than 1% of revenue for the three months ended June 30, 2017,2018, compared to 2.9%2% of revenue for the three months ended June 30, 2016.2017.

Six Months Ended June 30, 2018 Compared with Six Months Ended June 30, 2017 
ResultsRevenues. Total revenues for the six months ended June 30, 2018 increased 5%, or $7.0 million, compared to the six months ended June 30, 2017.
System sales and support revenues decreased slightly by $0.4 million from the six months ended June 30, 2017. System sales and support revenues were comprised of Operations by Segment. We operatethe following:
Six Months Ended June 30,
(In thousands)20182017
Recurring system sales and support revenues (1)
Acute Care EHR$56,477 $56,539 
Post-acute Care EHR9,487 10,186 
Total recurring system sales and support revenues65,964 66,725 
Non-recurring system sales and support revenues (2)
Acute Care EHR$20,913 $19,985 
Post-acute Care EHR1,621 2,187 
Total non-recurring system sales and support revenues22,534 22,172 
Total system sales and support revenue$88,498 $88,897 
(1) Mostly comprised of support and maintenance, third-party subscriptions, and SaaS revenues.

(2) Mostly comprised of installation revenues from the sale of our acute care and post-acute care EHR solutions and related applications under a perpetual (non-subscription) licensing model.

Non-recurring system sales and support revenues increased $0.4 million, or 2%, primarily as year-to-date revenue contributions from MU3 implementations have outpaced the negative impact of new system implementation volatility and relative weakness in three reportable segments: (1)non-MU3 related add-on sales, resulting in an overall increase in Acute Care EHR (2) Post-acutenon-recurring revenues of $0.9 million, or 5%. MU3 implementations contributed $7.9 million of Acute Care EHR and (3) TruBridge. See Note 14 above for additional information onnon-recurring revenue during the first six months of 2018, compared to only $0.2 million during the first six months of 2017. These revenue contributions were partially offset by a $4.1 million, or 44%, decrease in new system implementation revenues, as we installed our segment reporting. The following table presentsAcute Care EHR solutions at nine new hospital clients during the six months ended June 30, 2018 (two under a summary of our operating segment information forSaaS arrangement), compared to thirteen new hospital clients during the threesix months ended June 30, 2017 (two under a SaaS arrangement). Further mitigating the significant impact of MU3 implementation revenues has been the relative weakness in non-MU3 related add-on sales as a result of the Company's and 2016, respectively:
 Three Months Ended
(In thousands)June 30, 2017 June 30, 2016
Sales revenues:   
Acute Care EHR$39,394
 $40,754
Post-acute Care EHR6,080
 6,965
TruBridge22,203
 20,696
Total revenues$67,677
 $68,415
    
Costs of sales:   
Acute Care EHR$16,836
 $19,364
Post-acute Care EHR2,023
 2,522
TruBridge

11,933
 11,616
Total costs of sales$30,792
 $33,502
    
Gross profit:   
Acute Care EHR$22,558
 $21,390
Post-acute Care EHR4,057
 4,443
TruBridge

10,270
 9,080
Total gross profit$36,885
 $34,913
Acute Care EHR
Acuteclients' emphasis on MU3 certification prior to the October 1, 2019 deadline. Non-recurring Post-acute Care EHR revenues decreased $1.4by $0.6 million, or 3.3%26%, primarily as Evident’s add-on volumesa result of slowing new installation bookings due to aggressive competition during our effort to make technological improvements to the AHT product line.
Recurring system sales and support revenues decreased and the market for Healthland migrations from the legacy Classic platform to Healthland’s flagship Centriq platform continues to decrease. Related to Evident’s new system installation volumes, we completed installation of our Thrive EHR solution at ten new hospital clients$0.8 million, or 1%, during the threesix months ended June 30, 2018. Acute Care EHR recurring revenues decreased slightly by $0.1 million as a result of 2017 (oneprice freezes for the existing customer base to ease the impact of which was under a CloudMU3 implementation, coupled with attrition primarily from the Healthland customer base, outweighing new customer growth. Post-acute Care EHR arrangement)recurring revenues decreased by $0.7 million, or 7%, due to attrition attributed to the aforementioned aggressive competitive environment.
TruBridge revenues increased 17%, or $7.4 million, compared to five during the three months ended June 30, 2016 (none of which were under a Cloud EHR arrangement), with a resulting revenue increase of $2.8 million. Evident’s add-on sales decreased by $0.9 million due to lower installation volumes of Emergency Department Information Systems and Thrive Provider EHR. Platform migration opportunities for Healthland customers moving from Classic to Centriq are naturally decreasing over time as we have completed most migrations for this finite population, resulting in a $1.7 million decrease in nonrecurring revenues from our Healthland operations as we completed three migrations during the three months ended June 30, 2016 compared to one in the threesix months ended June 30, 2017. Recurring Acute Care revenues decreased $1.2 million, or 4.0%. Our recently acquired Healthland customer base contains a heavy concentration of calendar year-end support and maintenance renewal terms. As a result, the majority of the revenue impact related to Healthland attrition through 2016 customer support terminations did not materialize until the first quarter of 2017 and we continued to experience that impact in the second quarter.
Acute Care EHR costs of sales decreased by 13.1%, or $2.5 million, from the second quarter of 2016, primarily due to decreased equipment costs and travel associated with the decrease in nonrecurring sales revenues discussed above, leading to a combined $1.5 million decrease. Payroll and related costs decreased by $1.0 million, or 9.0%, primarily as the realization of HHI acquisition synergies over the trailing twelve months have resulted in a decrease in associated headcount. As a result, the gross margin on Acute Care EHR revenues increased to 57.3% in the three months ended June 30, 2017 from 52.5% in the three months ended June 30, 2016.
Post-acute Care EHR
Post-cute Care EHR revenues decreased by 12.7%, or $0.9 million, from the three months ended June 30, 2016, due to decreased AHT product line installations during the three months ended June 30, 2017.
Post-acute Care EHR costs of sales decreased by 19.8%, or $0.5 million, from the three months ended June 30, 2016, primarily due to reduced associated headcount resulting from acquisition-related synergies captured during the trailing twelve months combined with the repurposing of certain individuals to our corporate-wide product development teams.

The gross margin on Post-acute Care EHR revenues increased from 63.8% during the three months ended June 30, 2016 to 66.7% during the three months ended June 30, 2017 due to the aforementioned cost of sales reductions.
TruBridge
TruBridge revenues increased 7.3%, or $1.5 million, from the three months ended June 30, 2016. Our hospital customersclients operate in an environment typified by rising costs and increased complexity and are increasingly seeking to alleviate themselves of the ever-increasing administrative burden of operating their own business office functions, most notably resulting in an expanded customer base for our accounts receivable management services, (increasing 5.2%increasing $5.2 million, or 42%, or $0.3 million). Our insurance services revenues have increased 15.7%, or $0.7 million, primarily asand our recent acquisition of HHI exposes Rycan’s solutions, which we consider to be best-of-breed, to a broader and more robust sales channel. Our IT managed services revenues have increased 19.5%, or $0.4 million, as we continue to see increasing demand for remote hosting for our acute and post-acute EHR solutions. Our medical coding services, have increased 31.4%increasing $2.6 million, or 120%, or $0.3 million, as new key customers have been added.compared to the six months ended June 30, 2017. These increases have beenwere partially offset by a 12.2%$0.7 million, or 35%, decrease in consulting services as consulting opportunities related to Thrive software add-on sales have decreased and medical coding initiatives have been completed.
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Costs of Sales. Total costs of sales increased by 3%, or $0.1$1.8 million, compared to the six months ended June 30, 2017. As a percentage of total revenues, costs of sales decreased to 47% in the six months ended June 30, 2018, compared to 48% in the six months ended June 30, 2017.
Costs of Acute Care EHR system sales and support decreased by $0.8 million, or 2%, compared to the six months ended June 30, 2017, primarily due to a $1.0 million, or 36%, decrease in consulting revenues as ICD-10 related projects have decreased based on the related regulatory compliance deadlineequipment costs (which are minimal for MU3 implementations), and decreased implementationstravel costs of our Computerized Practitioner Order Entry (“CPOE”)$1.0 million, or 30%, due to improved implementation techniques, partially offset by a $1.3 million, or 25%, increase in third-party software costs, primarily due to fees for use of CPT codes implemented by the AMA during 2018 that are passed to the customer. The dual effect of increased revenues and Physician Documentation applications have limitedthese beneficial cost improvements resulted in the related consulting opportunities.gross margin on Acute Care EHR system sales and support increasing to 55% in the six months ended June 30, 2018 compared to 54% in the six months ended June 30, 2017.
Costs of Post-acute Care EHR system sales and support decreased by $0.8 million, or 20%, compared to the six months ended June 30, 2017 primarily due to reduced payroll costs of $0.4 million, or 18%, as the realization of HHI integration synergies over the trailing twelve months has resulted in reduced headcount. Third-party software costs, hardware costs, and travel costs decreased by a total of $0.5 million due to the decreased installation volume mentioned above. The gross margin on Post-acute Care EHR system sales and support increased to 71% for the six months ended June 30, 2018, compared to 67% for the six months ended June 30, 2017.
Our costs associated with TruBridge increased 2.7%sales and support increased 14%, or $0.3$3.4 million, in the three months ended June 30, 2017 with the largest contributing factor being an increase in payroll and related costs of 8.7%29%, or $0.6$4.3 million, as a result of adding more employees during the trailing twelve months in order to support and develop our growing customer base and increase capacitybase. Increased payroll was partially offset by an approximate $1.2 million decrease in advancecloud hosting costs as a result of anticipated future increases in demand.moving to in-house resources during the fourth quarter of 2017 for cloud services provided to the HHI customer base. The gross margin on these services increased to 46.3% in the three months ended June 30, 2017 from 43.9% in the three months ended June 30, 2016. This margin improvement is the result of revenues materializing during the second quarter of 2017 for which the related investments in capacity had been made in prior periods.
Six Months Ended June 30, 2017 Compared with Six Months Ended June 30, 2016
Revenues. Total revenues for the six months ended June 30, 2017 decreased 4.6%, or $6.3 million, compared to the six months ended June 30, 2016.
System sales and support revenues decreased by 8.8%, or $8.5 million, from the six months ended June 30, 2016. System sales and support revenues were comprised of the following for the six months ended June 30, 2017 and June 30, 2016:
 Six Months Ended
(In thousands)June 30, 2017 June 30, 2016
Recurring system sales and support revenues (1)
66,725
 68,735
Non-recurring system sales and support revenues (2)
22,172
 28,693
Total system sales and support revenue$88,897
 $97,428
    
(1) Mostly comprised of support and maintenance, subscriptions, and SaaS revenues.

   
    
(2) Mostly comprised of installation revenues from the sale of our acute and post-acute EHR solutions and related applications under a perpetual (non-subscription) licensing model.
   
Nonrecurring system sales and support revenues decreased $6.5 million, or 22.7%, primarily as Evident’s system add-on volumes decreased and the market for Healthland migrations from the legacy Classic platform to Healthland’s flagship Centriq platform continues to decrease. Related to Evident’s new system installation volumes, we completed installation of our Thrive EHR solution at thirteen new hospital clients during the six months ended June 30, 2017 (two of which were under a Cloud EHR arrangement) compared to eleven new hospital clients during the six months ended June 30, 2016 (one of which was under a Cloud EHR arrangement), with a resulting revenue increase of $1.4 million. Evident’s add-on sales decreased by $2.6 million due to lower installation volumes of Emergency Department Information Systems and Thrive Provider EHR. Platform migration opportunities for Healthland customers moving from Classic to Centriq are naturally decreasing over time as we have completed most migrations for this finite population, resulting in a $3.0 million decrease in nonrecurring revenues from our Healthland operations as we completed six migrations during the six months ended June 30, 2016 compared to one46% in the six months ended June 30, 2017. These decreased installation revenues at Evident and Healthland have been compounded by decreased installations of AHT’s post-acute EHR solution, resulting in a $1.7 million decrease in related revenues.

Recurring system sales and support revenues decreased $2.0 million, or 2.9%. Our recently acquired Healthland customer base contains a heavy concentration of calendar year-end support and maintenance renewal terms. As a result, the majority of the revenue impact related2018 compared to Healthland attrition through 2016 customer support terminations did not materialize until the first quarter of 2017.
TruBridge revenues increased 5.5%, or $2.2 million, from the six months ended June 30, 2016. The current environment has resulted in an expanded customer base for our private pay services (increasing 3.3%, or $0.2 million) and accounts receivable management services (increasing 5.0%, or $0.6 million). Our insurance services revenues have increased 12.0%, or $1.1 million, primarily as our recent acquisition of HHI exposes Rycan’s solutions, which we consider to be best-of-breed, to a broader and more robust sales channel. Our IT managed services revenues have increased 18.5%, or $0.8 million, as we continue to see increasing demand for remote hosting for our acute and post-acute EHR solutions. Our medical coding services have increased 16.9%, or $0.3 million, as new key customers have been added. These increases have been partially offset by a 22.3%, or $0.5 million, decrease in consulting revenues as ICD-10 related projects have decreased based on the related regulatory compliance deadline and decreased implementations of our Computerized Practitioner Order Entry (“CPOE”) and Physician Documentation applications have limited the related consulting opportunities.
Costs of Sales. Total costs of sales decreased by 8.6%, or $5.7 million, from the six months ended June 30, 2016. As a percentage of total revenues, costs of sales decreased from 48.6% in the six months ended June 30, 2016 to 46.5% in the six months ended June 30, 2017.
Costs of system sales and support decreased by 14.4%, or $6.4 million, from the six months ended June 30, 2016 primarily due to decreased equipment costs and travel associated with the overall decrease in nonrecurring system sales revenues discussed above, leading to a combined $3.2 million decrease. Payroll and related costs decreased by $2.1 million, or 8.7%, primarily as the realization of HHI acquisition synergies over the trailing twelve months have resulted in a decrease in associated headcount. As a result, the gross margin on system sales and support increased to 57.5%45% in the six months ended June 30, 2017, from 54.7% inprimarily attributed to the six months ended June 30, 2016.
Our costs associated with TruBridge increased 2.7%, or $0.6 million, with the largest contributing factor being an increase in payroll and related costs of 8.3%, or $1.1 million, as a result of adding more employees during the trailing twelve months in order to support and develop our growing customer base and increase capacity in advance of anticipated future increases in demand. The gross margin on these services increased to 45.1% in the six months ended June 30, 2017 from 43.6% in the six months ended June 30, 2016. This margin improvement is the result of revenues materializing during the second quarterrealization of 2017 forbookings to revenue in which the related investments in capacity had been made in prior periods.aforementioned accompanying payroll costs constricted margins during 2017.
Product Development Costs. Development. Product development expense consistsexpenses consist primarily of compensation and other employee-related costs (including stock-based compensation) and infrastructure costs incurred, but not capitalized, for new product development and product enhancements. Product development costs increased 18.7%10%, or $2.9$1.6 million, fromcompared to the six months ended June 30, 2016,2017, as a result of increased headcount dedicated to functionality additions and enhancements across the product lines, as well as integration across product lines.
Sales and Marketing Expenses.Marketing. Sales and marketing expenseexpenses increased 9.6%3%, or $1.3$0.5 million, fromcompared to the six months ended June 30, 2016, with the largest contributing factor being a $0.9 million increase in commission expense resulting from the aforementioned increase in Evident’s new system implementation volumes and related revenues and continued bookings growth for TruBridge. Adding to the increased commission expense was an approximately $0.7 million increase in marketing program expenses2017, primarily due to more aggressive marketing of our family of community healthcare companies as we continue to mature our brand positioning after the HHI acquisition.increased TruBridge-specific and MU3 commissions expense.
General and Administrative Expenses.Administrative. General and administrative expenses decreased 21.1%increased 4%, or $6.6$1.0 million, fromcompared to the six months ended June 30, 2016,2017, primarily due to $8.0a $1.2 million increase in HHI transaction costs incurred during the six months ended June 30, 2016 with no suchbad debt expense and a $1.3 million, or 20%, increase in employee health costs during the six months ended June 30, 2017. Adding2018. Bad debt was negatively impacted by a few of our hospital clients that have not been or may not be able to the decrease in HHI transactionfulfill their financial obligations, while increased prescription drug utilization drove employee health costs ishigher. These notable increases were partially offset by a $0.7$1.9 million decrease in costs associated with the employer match portion of our defined contribution retirement plan resulting from changes to plan design to achieve better distribution of employer match throughout the year and a $2.3 million decrease in payroll and related costs duevoluntary severance program expense compared to the realization of synergies during the trailing twelve months from the HHI acquisition. Partially offsetting this combined $11.1 million decrease in HHI transaction costs, employer match expenses, and payroll and related costs has been $2.1 million of expense associated with a one-time, voluntary retirement program that was concluded during the first six months ofended June 30, 2017. Additionally, our three separate national user conferences held during the second and third quarters of 2016 were combined into a single national user conference across our entire customer base for 2017. This newly combined conference took place during the second quarter of 2017, resulting in an increase in related expenses of $0.4 million.

Amortization of Acquisition-Related Intangibles. Amortization expense associated with acquisition-related intangible assets increased by 4.5%, or $0.2 million, fromwas unchanged compared to the six months ended June 30, 2016. This is due to seven additional days of amortization during the six months ended June 30, 2017 due to the closing date of the HHI acquisition.2017.
Total Operating Expenses. As a percentage of total revenues, total operating expenses increased to 47.6% in theremained flat at 46% for both six months ended June 30, 2017 compared to 47.1% in the six months ended June 30, 2016.month periods.
Total Other Income (Expense). Total other income (expense) increaseddecreased from expense of $3.0 million during the six months ended June 30, 2016 to expense of $3.6 million during the six months ended June 30, 2017 to expense of $3.4 million during the six months ended June 30, 2018, as market conditions have resulted ininterest income has increased interest rates paid ondue to the expansion of long-term payment plans offered to our variable-rate debt obligations.clients.
Income Before Taxes. As a result of the foregoing factors, income before taxes increased by 36.0%59%, or $1.1$2.4 million, fromcompared to the six months ended June 30, 2016.2017.
  Provision for Income Taxes. Our effective income tax ratesrate for the six months ended June 30, 2017 and 2016 were 55.0% and 88.9%, respectively. During2018 decreased to 34% from 55% for the six months ended June 30, 2016 the identification of nondeductible facilitative transaction costs resulted in additional income tax expense of $1.5 million, increasing the period's2017. Our effective tax rate for the six months ended June 30, 2018 was impacted by 49.1%the Tax Cuts and Jobs Act, which reduced our corporate federal rate from 35% to 21% effective at the beginning of 2018. The six months ended June 30, 2018 also included a $0.4 million shortfall tax expense related to stock-based compensation that
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increased the effective rate by 6%. Conversely, duringDuring the six months ended June 30, 2017 we experienced a shortfall tax expense related to restricted stockstock-based compensation of $0.9 million that increased the effective tax rate by 22.6% due to the adoption of ASU 2016-09.23%.
Net Income. Net income for the six months ended June 30, 20172018 increased by $1.5$2.5 million to a net income of $4.3 million, or $0.31 per basic and diluted share, compared with net income of $1.8 million, or $0.13 per basic and diluted share, compared with net income of $0.3 million, or $0.03 per basic and diluted share, for the six months ended June 30, 2016.2017. Net income represented 1.4%3% of revenue for the six months ended June 30, 2017,2018, compared to 0.2%1% of revenue for the six months ended June 30, 2016.
Results of Operations by Segment. We operate in three reportable segments: (1) Acute Care EHR, (2) Post-acute Care EHR and (3) TruBridge. See Note 14 above for additional information on our segment reporting. The following table presents a summary of our operating segment information for the six months ended June 30, 2017 and 2016, respectively:
 Six Months Ended
(In thousands)June 30, 2017 June 30, 2016
Sales revenues:   
Acute Care EHR$76,525
 $83,494
Post-acute Care EHR12,372
 13,934
TruBridge42,854
 40,630
Total revenues$131,751
 $138,058
    
Costs of sales:   
Acute Care EHR33,753
 39,250
Post-acute Care EHR4,036
 4,903
TruBridge

23,520
 22,903
Total costs of sales$61,309
 $67,056
    
Gross profit:   
Acute Care EHR42,772
 44,244
Post-acute Care EHR8,336
 9,031
TruBridge

19,334
 17,727
Total gross profit$70,442
 $71,002

Acute Care EHR
Acute Care EHR revenues decreased $7.0 million, or 8.3%, primarily as Evident’s system add-on volumes decreased and the market for Healthland migrations from the legacy Classic platform to Healthland’s flagship Centriq platform continues to decrease. Related to Evident’s new system installation volumes, we completed installation of our Thrive EHR solution at thirteen new hospital clients during the six months ended June 30, 2017 (two of which were under a Cloud EHR arrangement) compared to eleven new hospital clients during the six months ended June 30, 2016 (one of which was under a Cloud EHR arrangement), with a resulting revenue increase of $1.4 million. Evident’s add-on sales decreased by $2.6 million due to lower installation volumes of Emergency Department Information Systems and Thrive Provider EHR. Platform migration opportunities for Healthland customers moving from Classic to Centriq are naturally decreasing over time as we have completed most migrations for this finite population, resulting in a $3.0 million decrease in nonrecurring revenues from our Healthland operations as we completed six migrations during the six months ended June 30, 2016 compared to one in the six months ended June 30, 2017. Recurring Acute Care revenues decreased $2.1 million, or 3.6%. Our recently acquired Healthland customer base contains a heavy concentration of calendar year-end support and maintenance renewal terms. As a result, the majority of the revenue impact related to Healthland attrition through 2016 customer support terminations did not materialize until the first quarter of 2017.
Acute Care EHR costs of sales decreased by 14.0%, or $5.5 million, from the six months ended June 30, 2016, primarily due to decreased equipment costs and travel associated with the decrease in nonrecurring sales revenues discussed above, leading to a combined $2.8 million decrease. Payroll and related costs decreased by $1.7 million, or 7.9%, primarily as the realization of HHI acquisition synergies over the trailing twelve months have resulted in a decrease in associated headcount. As a result, the gross margin on Acute Care EHR revenues increased to 55.9% in the six months ended June 30, 2017 from 53.0% in the six months ended June 30, 2016.
Post-acute Care EHR
Post-cute Care EHR revenues decreased by 11.2%, or $1.6 million, from the six months ended June 30, 2016, due to decreased AHT product line installations during the six months ended June 30, 2017.
Post-acute Care EHR costs of sales decreased by 17.7%, or $0.9 million, from the six months ended June 30, 2016, primarily due to a $0.4 million decrease in equipment costs and travel expenses associated with the decreased system sales volumes discussed above, coupled with reduced associated headcount resulting from acquisition-related synergies captured during the trailing twelve months combined with the repurposing of certain individuals to our corporate-wide product development teams.
The gross margin on Post-acute Care EHR revenues increased from 64.8% during the six months ended June 30, 2016 to 67.4% during the six months ended June 30, 2017 due to the aforementioned cost of sales reductions.
TruBridge
TruBridge revenues increased 5.5%, or $2.2 million, from the six months ended June 30, 2016. Our hospital customers operate in an environment typified by rising costs and increased complexity and are increasingly seeking to alleviate themselves of the ever increasing administrative burden of operating their own business office functions, resulting in an expanded customer base for our private pay services (increasing 3.3%, or $0.2 million) and accounts receivable management services (increasing 5.0%, or $0.6 million). Our insurance services revenues have increased 12.0%, or $1.1 million, primarily as our recent acquisition of HHI exposes Rycan’s solutions, which we consider to be best-of-breed, to a broader and more robust sales channel. Our IT managed services revenues have increased 18.5%, or $0.8 million, as we continue to see increasing demand for remote hosting for our acute and post-acute EHR solutions. Our medical coding services have increased 16.9%, or $0.3 million, as new key customers have been added. These increases have been partially offset by a 22.3%, or $0.5 million decrease in consulting revenues as ICD-10 related projects have decreased based on the related regulatory compliance deadline and decreased implementations of our Computerized Practitioner Order Entry (“CPOE”) and Physician Documentation applications have limited the related consulting opportunities.
Our costs associated with TruBridge increased 2.7%, or $0.6 million, with the largest contributing factor being an increase in payroll and related costs of 8.3%, or $1.1 million, as a result of adding more employees during the trailing twelve months in order to support and develop our growing customer base and increase capacity in advance of anticipated future increases in demand. The gross margin on these services increased to 45.1% in the six months ended June 30, 2017 from 43.6% in the six months ended June 30, 2016. This margin improvement is the result of revenues materializing during the second quarter of 2017 for which the related investments in capacity had been made in prior periods.

Liquidity and Capital Resources
Sources of Liquidity
As of June 30, 2017,2018, our principal sources of liquidity consisted of cash and cash equivalents of $1.7$1.5 million and our remaining borrowing capacity under the Amended Revolving Credit Facility (as defined below)of $15.3 million, compared to $2.2$0.5 million of cash and cash equivalents and $17.0 million of remaining borrowing capacity under the Amended Revolving Credit Facility as of December 31, 2016. As noted previously,2017. In conjunction with our acquisition of HHI in January 2016, we completed our acquisition of HHI. In conjunction with the acquisition, we entered into a syndicated credit agreement (the "Creditthe Previous Credit Agreement") described further below, with Regions Bank ("Regions") serving as administrative agent, which provided for athe $125 million term loan facility (the "TermPrevious Term Loan Facility")Facility and the $50 million Previous Revolving Credit Facility. On October 13, 2017, the Company entered into the Second Amendment to refinance and decrease the aggregate committed size of the credit facilities from $175 million to $162 million, which included the $117 million Amended Term Loan Facility and the $45 million Amended Revolving Credit Facility. On February 8, 2018, the Company entered into the Third Amendment to increase the aggregate principle amount of the Amended Credit Facilities from $162 million to $167 million, which includes the $117 million Amended Term Loan Facility and a $50 million revolving credit facility (the "Revolving Credit Facility" and, together with the Term Loan Facility, the "Credit Facilities"). The cash portion of the purchase price for our acquisition of HHI was primarily funded by the $125 million Term Loan Facility and $25 million borrowed under theAmended Revolving Credit Facility.
As of June 30, 2017,2018, we had $145.3$140.1 million in principal amount of indebtedness outstanding under the Amended Credit Facilities.
We believe that our cash and cash equivalents of $1.7$1.5 million as of June 30, 2017,2018, the future operating cash flows of the combined entity, and our remaining borrowing capacity under the Amended Revolving Credit Facility of $23.5$15.3 million as of June 30, 2017,2018, taken together, provide adequate resources to fund ongoing cash requirements for the next twelve months. We cannot provide assurance that our actual cash requirements will not be greater than we expect as of the date of filing of this Form 10-Q. If sources of liquidity are not available or if we cannot generate sufficient cash flow from operations during the next twelve months, we may be required to obtain additional sources of funds through additional operational improvements, capital market transactions, asset sales or financing from third parties, a combination thereof or otherwise. We cannot provide assurance that these additional sources of funds will be available or, if available, would have reasonable terms.
Operating Cash Flow Activities
Net cash provided by operating activities increased $24.4decreased $8.1 million, from $8.5 million used in operations for the six months ended 2016 to $15.9 million provided by operations for the six months ended 2017. This increaseJune 30, 2017 to $7.8 million provided by operations for the six months ended June 30, 2018. The decrease in cash flows provided from operations is primarily due to the aforementioned $1.5a $6.3 million increasecontraction in net income and more cash-advantageous changes in working capital. During the first six months of 2016, we invested heavily in improving the working capital of the HHI entities post-acquisition in order to normalize the aging of vendor payables and improve acquired vendor relationships, resulting in a combined cash outflow of $10.1 million during the first six months of 2016. Comparatively, the timing of vendor payments during the first six months of 2017 resulted in expansion of theseother liabilities and a resulting benefit to cash flows of $6.8 million, for a total beneficial swing in cash flows from these working capital components of $16.9 million.
Additionally, our acquisition of HHI in January 2016 included significant deferred revenue balances, the amortization of which benefited revenues during the first six months of 2016 with no corresponding cash benefit. Conversely, deferred revenue balances grew during the six months ended June 30, 2017 due2018 as a result of the timing of vendor and payroll payments compared to a high volume of advance billings for third party subscriptions, providing cash benefits with no related revenue impact. These deferred revenue dynamics alone resulted$6.6 million expansion during the six months ended June 30, 2017. The $2.5 million increase in an $11.3 million improvement in cash flows as displayed in the condensed consolidated statement of cash flows.
These cash flow improvements have been partiallynet income was mostly offset by an increasing level of customer financing arrangements for the purchase of our EHR systems. The first six months of 2017 sawa combined accounts and financing receivables expansion that was $3.7of $6.1 million more than such expansion during the first six months ended June 30, 2018. The increase in financing arrangements is primarily due to two reasons. First, meaningful use stage three installations are primarily financed through short-term payment plans. Second, competitor financing options, primarily accounts receivables management collections and cloud EHR arrangements, have applied pressure to reduce initial customer capital investment requirements for new EHR installations, leading to the offering of 2016.long-term lease options.
Investing Cash Flow Activities
Net cash used in investing activities decreased to $0.5remained relatively flat with $0.4 million used in the six months ended June 30, 2017 from $151.82018 compared to $0.5 million used during the six months ended June 30, 2016. We utilized cash (net of cash acquired) of $162.6 million for the acquisition of HHI during the six months ended June 30, 2016, partially offset by sales of investments in available-for-sale securities of $10.9 million during this period.2017. We do not anticipate the need for significant capital expenditures during the remainder of 2017.2018.
Financing Cash Flow Activities
During the six months ended June 30, 2017,2018, our financing activities used net cash of $15.9$6.4 million, as we paid $9.8a net $3.6 million in long termlong-term debt principleprincipal and we declared and paid dividends in the amount of $6.1$2.8 million. During the six months ended June 30, 2018, we made a $7.3 million prepayment on the Amended Term Loan Facility by drawing down on the Amended Revolving Credit Facility, in accordance with the excess cash flow mandatory prepayment requirements of the Amended Credit Agreement. Financing cash flow activities provided $139.1used $15.9 million during the six months ended June 30, 2016,2017, primarily due to the proceeds of the aforementioned credit facility of $156.6$9.8 million partially offset by $17.2paid in long-term debt principal and $6.1 million cash paid in dividends. The decrease in dividends paid is a result of moving to a fixed dividend policy during the fourth quarter of 2017.
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We believe that paying dividends is an effective way of providing an investment return to our stockholders and a beneficial use of our cash. However, the declaration of dividends by CPSI is subject to compliance with the terms of our Amended Credit Agreement and the discretion of our Board of Directors, which may decide to change or terminate the Company's dividend

policy at any time. Our Board of Directors will continue to take into account such matters as general business conditions, capital needs, our financial results and such other factors as our Board of Directors may deem relevant.
Credit Agreement
As noted above, in conjunction with our acquisition of HHI in January 2016, we entered into a Credit Agreement which provided for a $125 million Term Loan Facility and a $50 million Revolving Credit Facility. As of June 30, 2017,2018, we had $118.8$105.4 million in principal amount outstanding under the Amended Term Loan Facility and $26.5$34.7 million in principal amount outstanding under the Amended Revolving Credit Facility.
The Term Loan Facility bears Each of the Amended Credit Facilities continues to bear interest at a rate per annum equal to an applicable margin plus, at our option, either (1) the Adjusted LIBOR rate for the relevant interest period, (2) an alternate base rate determined by reference to the greater of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant interest period plus one half of one percent per annum and (c) the one month LIBOR rate plus one percent per annum, or (3) a combination of (1) and (2). The applicable margin will range from 2.25% to 3.50% for LIBOR loans and 1.25%the letter of credit fee ranges from 2.00% to 2.50%3.50%. The applicable margin range for base rate loans ranges from 1.00% to 2.50%, in each case based on ourthe Company's consolidated leverage ratio (as defined inratio.
Principal payments with respect to the Credit Agreement). Interest on the outstanding principal of theAmended Term Loan Facility will be payable on the last day of each month, in the case of each base rate loan, and on the last day of each interest period (but no less frequently than every three months), in the case of LIBOR loans. Principal payments are due on the last day of each fiscal quarter beginning MarchDecember 31, 2016,2017, with quarterly principal payments of approximately $0.8$1.46 million in 2016,through September 30, 2019, approximately $1.6$2.19 million in 2017, approximately $2.3 million in 2018, approximately $3.1 million in 2019through September 30, 2021 and approximately $3.9$2.93 million in 2020,through September 30. 2022, with the remainder due at maturity on January 8, 2021October 13, 2022 or such earlier date as the obligations under the Amended Credit Agreement become due and payable pursuant to the terms of the Amended Credit Agreement (the “Maturity Date”"Amended Maturity Date").
Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to an applicable margin plus, at our option, either (1) the Adjusted LIBOR rate for the relevant interest period or (2) an alternate base rate determined by reference to the greatest of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant interest period plus one half of one percent per annum and (c) the one month LIBOR rate plus one percent per annum. The applicable margin will range from 2.25% to 3.50% for LIBOR loans and 1.25% to 2.50% for base rate loans, in each case based on our consolidated leverage ratio. Interest on borrowings under the Revolving Credit Facility is payable on the last day of each month, in the case of each base rate loan, and on the last day of each interest period (but no less frequently than every three months), in the case of LIBOR loans. The Revolving Credit Facility includes a $5 million swingline sublimit, with swingline loans bearing interest at the alternate base rate plus the applicable margin. Any principal outstanding under the Amended Revolving Credit Facility is due and payable on the Amended Maturity Date.
The Term Loan Facility and amounts borrowed under the RevolvingAmended Credit FacilityFacilities are secured pursuant to a Pledge and Security Agreement, dated January 8, 2016, among the parties identified as obligors therein and Regions, as collateral agent, (the “Security Agreement”), on a first priority basis by a security interest in substantially all of the tangible and intangible assets (subject to certain exceptions) of the Company and certain subsidiaries of the Company, as guarantors (collectively, the “Subsidiary Guarantors”), including certain registered intellectual property and the capital stock of certain of the Company’s direct and indirect subsidiaries. Our obligations under the Amended Credit Agreement are also guaranteed by the Subsidiary Guarantors.
The Amended Credit Agreement, as amended by the Third Amendment, provides incremental facility capacity of $50 million, subject to certain conditions. The Amended Credit Agreement includes a number of restrictive covenants that, among other things and in each case subject to certain exceptions and baskets, impose operating and financial restrictions on the Company and the Subsidiary Guarantors, including the ability to incur additional debt; incur liens and encumbrances; make certain restricted payments, including paying dividends on the Company's equity securities or payments to redeem, repurchase or retire the Company's equity securities (which are subject to our compliance, on a pro forma basis to give effect to the restricted payment, with the fixed charge coverage ratio and consolidated leverage ratio described below); enter into certain restrictive agreements; make investments, loans and acquisitions; merge or consolidate with any other person; dispose of assets; enter into sale and leaseback transactions; engage in transactions with affiliates; and materially alter the business we conduct. In addition,The Amended Credit Agreement requires the Company to maintain a minimum fixed charge coverage ratio of 1.25:1.00 throughout the duration of such agreement. Under the Amended Credit Agreement, the Company is required to comply with a minimum fixed charge coverage ratio of 1.25:1.0 throughout the duration of the Credit Agreement and a maximum consolidated leverage ratio (as defined in the Credit Agreement, as amended) of 3.50:1.03.95:1.00 through September 30,December 31, 2017 3.00:1.0and 3.50:1.00 from OctoberJanuary 1, 2017 through September 30, 2018 and 2.50:1.0 thereafter. The Amended Credit Agreement also contains customary representations and warranties, affirmative covenants and events of default. We believe that we were in compliance with the covenants contained in the Amended Credit Agreement as of June 30, 2017.2018.
The Amended Credit Agreement requires the Company to mandatorily prepay the Term Loan Facility and amounts borrowed under the RevolvingAmended Credit FacilityFacilities with (i) 100%75% of netexcess cash proceeds fromflow (minus certain sales and dispositions, subject to certain reinvestment rights, (ii) 100%specified other payments) during each of net cash proceeds from certain issuances or incurrences of additional debt, (iii) 50% of net cash proceeds from certain issuances or sales of equity securities, subject to a step down to 0% if the Company’s consolidated

leverage ratio is no greater than 2.50:1.0, and (iv) beginning with the fiscal yearyears ending December 31, 2016,2017 and December 31, 2018 and (ii) 50% of excess cash flow (minus certain specified other payments), subject to a step down to 0% of excess cash flow if during the Company’s consolidated leverage ratio is no greater than 2.50:1.0.fiscal year ending December 31, 2019 and thereafter. The Company is permitted to voluntarily prepay the Term Loan Facility and amounts borrowed under the RevolvingAmended Credit FacilityFacilities at any time without penalty, subject to customary “breakage” costs with respect to prepayments of LIBOR rate loans made on a day other than the last day of any applicable interest period. The excess cash flow mandatory prepayment requirement under the Amended Credit Agreement resulted in a $7.3 million prepayment on the Amended Term Loan Facility during the first quarter of 2018 related to excess cash flow generated by the Company during 2017. This mandatory prepayment was funded by drawing down on the Amended Revolving Credit Facility, as excess cash flow generated by the Company during 2017 was primarily used to voluntarily prepay amounts due under the Amended Revolving Credit Facility.

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Backlog
Backlog consists of revenues we reasonably expect to recognize over the next 12twelve months under all existing contracts.contracts, including those with remaining performance obligations that have original expected durations of one year or less and those with fees that are variable in which we estimate future revenues. The revenues to be recognized may relate to a combination of one-time fees for system sales and recurring fees for support and maintenance and TruBridge services. As of June 30, 2017,2018, we had a totaltwelve-month backlog of approximately $37.2$38 million in connection with non-recurring system purchases and approximately $217.2$229 million in connection with recurring payments under support and maintenance, Cloud EHR contracts, and TruBridge services. Of the $37.2 million in non-recurring backlog asAs of June 30, 2017, approximately $16.1 million represents firm orders for incremental applications associated with stage three meaningful use requirements of the ARRA’s EHR incentive program. On August 2, 2017, the CMS announced a final rule that effectively delays the requirement for stage three compliance from the first day of 2018 to the first day of 2019. As a result, we are unable to estimate with a reasonable amount of certainty what amount of the stage three backlog is expected to be recognized as revenue over the next twelve months. As of June 30, 2016, we had a twelve-month backlog of approximately $15.5$37 million in connection with non-recurring system purchases and approximately $210.8$217 million in connection with recurring payments under support and maintenance and TruBridge services.
Bookings
Bookings is a key operational metric used by management to assess the relative success of our sales generation efforts, and were as follows for the periods ending June 30, 2018 and 2017, respectively:
Three Months EndedSix Months Ended
(In thousands)June 30, 2018June 30, 2017June 30, 2018June 30, 2017
System sales and support (1)
Acute Care EHR$16,071 $23,871 $33,576 $38,914 
Post-acute Care EHR1,054 1,127 1,781 3,039 
Total system sales and support17,125 24,998 35,357 41,953 
TruBridge (2)
6,371 8,699 10,189 15,293 
Total bookings$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).

Acute Care EHR bookings in the second quarter 2018 decreased $7.8 million, or 33%, compared to the second quarter 2017, and in the six months ended June 30, 2018 decreased $5.3 million, or 14%, compared to the six months ended June 30, 2017, mostly due to the demand dynamics related to the Company's MU3 software applications. Bookings during the three and six months ended June 30, 2017 were heavily influenced by the then-deadline of January 1, 2018 for hospital compliance with the stage three rules. Since that time, CMS has announced two rules (the most recent of which was proposed in April 2018) that would effectively delay the deadline for compliance to October 1, 2019. While we do not believe these events significantly alter the total opportunity presented by MU3, it has impacted our periodic bookings results by naturally extending the sales cycle.
Post-acute Care EHR bookings in the second quarter 2018 decreased $0.1 million, or 6%, compared to the second quarter 2017, and decreased $1.3 million, or 41%, compared to the six months ended June 30, 2017. New business opportunities for this segment, which consist solely of the operations of AHT, have suffered as a result of increased competition and underinvestment in AHT's product offerings (particularly prior to our acquisition of AHT as part of the January 2016 acquisition of HHI), making functionality and usability comparisons less favorable for AHT. Although management has formulated a strategy and enacted steps to improve the related product functionality and usability and is confident that such measures will translate into improved future bookings performance (and, eventually, revenue growth), there can be no guarantee that this strategy will be successful. During the fourth quarter of 2017, the anticipated attrition of significant customer accounts and a product development acceleration investment plan in our Post-acute Care EHR software led management to record a goodwill impairment of $28.0 million against our Post-acute Care EHR reporting unit as of December 31, 2017.
We continue to execute on our TruBridge strategy by moving up-market into larger healthcare facilities while expanding the scope of our relationships with new and existing clients by increasing revenue-generating touchpoints within those facilities. Our initial success in that endeavor has resulted in bookings volatility as our periodic bookings are heavily influenced by low-volume, high-value deals. Such large, enterprise client wins resulted in TruBridge bookings for the first two quarters of 2017 that were some of the highest in TruBridge history at that time, with bookings for the remainder of 2017 being heavily influenced by large, enterprise client wins. Absent any such large, enterprise client wins during the first two quarters of 2018, TruBridge bookings experienced a normalization that resulted in a decrease from the first two quarters of 2017. We continue to see demand for TruBridge's products and services that alleviate administrative burden on our clients and allow them to take
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advantage of our specialized capabilities. Particularly strong demand exists for TruBridge's accounts receivable management and medical coding services.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements, as defined by Item 303(a)(4) of SEC Regulation S-K, as of June 30, 2017.2018.
The Company has other lease rights and obligations that it accounts for as operating leases that may be reclassified as balance sheet arrangements under accounting pronouncements recently finalized by the FASB.
Critical Accounting Policies and Estimates
Our Management Discussion and Analysis is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make subjective or complex judgments that may affect the reported financial condition and results of operations. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the reported values of assets, liabilities, revenues, expenses and other financial amounts that are not readily apparent from other sources. Actual results may differ from these estimates and these estimates may differ under different assumptions or conditions. We continually evaluate the information used to make these estimates as our business and the economic environment changes.
In our Annual Report on Form 10-K for the year ended December 31, 2016,2017, we identified our critical accounting polices related to revenue recognition, allowance for doubtful accounts, allowance for credit losses, and estimates. During the first quarter of 2018, we adopted the new accounting standard codified as Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, and all related amendments and have applied it to all contracts using the modified retrospective method, pursuant to which the cumulative effect of initially applying the new revenue standard is recognized as an adjustment to retained earnings and impacted balance sheet line items as of January 1, 2018, the date of adoption. Refer to Note 2 - Recent Accounting Pronouncements of the Notes to Financial Statements (Part 1, Item 1 of this Form 10-Q) for further discussion.
There have been no other significant changes to these critical accounting policies during the six months ended June 30, 2017.2018.


Item 3.Quantitative and Qualitative Disclosures about Market Risk.

Our exposure to market risk relates primarily to the potential change in the British Bankers Association London Interbank Offered Rate ("LIBOR"). We had $145.3$140.1 million of outstanding borrowings under our Amended Credit Facilities with Regions Bank at June 30, 2017.2018. The Amended Term Loan Facility and Amended Revolving Credit Facility bear interest at a rate per annum equal to an applicable margin plus (1) the Adjusted LIBOR rate for the relevant interest period, (2) an alternate base rate determined by reference to the greatest of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant interest period plus one half of one percent per annum and (c) the one month LIBOR rate plus one percent per annum, or (3) a combination of (1) and (2). Accordingly, we are exposed to fluctuations in interest rates on borrowings under the Amended Credit Facilities. A one hundred basis point change in interest rate on our borrowings outstanding as of June 30, 20172018 would result in a change in interest expense of approximately $1.5$1.4 million annually.
We did not have investments and do not utilize derivative financial instruments to manage our interest rate risks.



Item 4.Controls and Procedures.

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Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the rules and forms promulgated by the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations to the effectiveness of any system of disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that all control issues and instances of fraud, if any, with a company have been prevented or detected on a timely basis. Even disclosure controls and procedures determined to be effective can only provide reasonable assurance that their objectives are achieved.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
As previously disclosed under "Item 9A - Controls and Procedures" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, the Company identified a material weakness related to the Company's business combination process. The Company identified deficiencies in its internal controls over review of third-party valuations and properly establishing and accounting for opening balance sheet amounts. The Company has taken actions to remediate the material weakness related to our internal control over financial reporting. We have made improvements to the design of the related controls, including standardized review procedures over third-party valuations. We intend to supplement our in-house accounting and financial reporting functions with third-party consultants with extensive experience in accounting for complex business combinations. However, as the Company did not complete another acquisition, neither we nor our external auditors tested the operating effectiveness of these newly designed controls.
Successful remediation of the material weakness described above requires review and evidence of the effectiveness of the related internal control processes as part of our periodic assessments of our internal control over financial reporting. As we continue to evaluate and work to enhance our internal control over financial reporting, we may determine that additional measures should be taken to address the material weakness described above or other control deficiencies, or that we should modify the remediation plan.
Except as noted in the preceding paragraphs, thereThere were no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended June 30, 20172018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. We implemented internal controls to ensure we adequately evaluated our contracts and properly assessed the impact of the new accounting standard related to revenue recognition on our financial statements to facilitate adoption on January 1, 2018. There were no significant changes to our internal controls over financial reporting due to the adoption of the new standard.






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PART II
OTHER INFORMATION
 

Item 1.Legal Proceedings.

From time to time, we are involved in routine litigation that arises in the ordinary course of business. We are not currently involved in any claims outside the ordinary course of business that are material to our financial condition or results of operations.

Item 1A.Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2016,2017, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may materially adversely affect our business, financial condition or operating results.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.



Not Applicable.
 

Item 3.Defaults Upon Senior Securities.

Not applicable.
 

Item 4.Mine Safety Disclosures.

Not applicable.
 

Item 5.Other Information.


As previously reported, at the 2017 Annual Meeting of Stockholders (the “Annual Meeting”) held on May 11, 2017, the Company’s stockholders approved the 2014 Plan to increase the number of shares of common stock available for grant under the 2014 Plan from 700,000 to 2,100,000 shares. A more detailed summary of the principal features of the 2014 Plan can be found in the Company’s definitive proxy statement for the Annual Meeting, as filed with the Securities and Exchange Commission on March 31, 2017 (the “Proxy”). The foregoing description does not purport to be complete and is qualified in its entirety by reference to such summary and the full text of the 2014 Plan filed as Appendix A to the Proxy and incorporated herein by reference.None.

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Item 6.Exhibits.
3.1Item 6.Exhibits.


3.1 
3.2
10.131.1 Computer Programs and Systems, Inc. Amended and Restated 2014 Incentive Plan (filed as Appendix A to CPSI's Schedule 14A dated March 31, 2017 and incorporated herein by reference)
31.1
31.2
32.1
101Interactive Data Files for CPSI’s Form 10-Q for the period ended June 30, 20172018



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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 

COMPUTER PROGRAMS AND SYSTEMS, INC.
August 7, 2018COMPUTER PROGRAMS AND SYSTEMS, INC.
By:
Date: August 8, 2017By:/s/ J. Boyd Douglas
J. Boyd Douglas
President and Chief Executive Officer
Date: August 8, 2017By:
/S/ Matt J. Chambless
Matt J. Chambless
Chief Financial Officer

Exhibit Index
No.Exhibit
August 7, 2018By:
/S/ Matt J. Chambless
3.1Certificate of Incorporation (filed as Exhibit 3.4 to CPSI’s Registration Statement on Form S-1 (Registration No. 333-84726) and incorporated herein by reference)Matt J. Chambless
3.2Amended and Restated Bylaws (filed as Exhibit 3 to CPSI’s Current Report on Form 8-K dated October 28, 2013 and incorporated herein by reference)
10.1Computer Programs and Systems, Inc. Amended and Restated 2014 Incentive Plan (filed as Appendix A to CPSI's Schedule 14A dated March 31, 2017 and incorporated herein by reference)
31.1Certification of the Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2Certification of the Chief Financial Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101Interactive Data Files for CPSI’s Form 10-Q for the period ended June 30, 2017


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