UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


ý☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

	~~For the quarterly period ended March 31, 2019.~~

¨☐		TRANSITION 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						74-3032373
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

6600 Wall Street, Mobile, Alabama						36695
(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)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, par value $.001 per share	CPSI	The NASDAQ Stock Market LLC

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 every Interactive Data File required to be submitted 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 such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

~~Accelerated filer~~ý

Non-accelerated filer

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

~~Securities registered pursuant to Section 12(b) of the Act:~~


~~Title of each class~~	~~Trading symbol~~	~~Name of each exchange on which registered~~
~~Common Stock, par value $.001 per share~~	~~CPSI~~	~~The NASDAQ Stock Market LLC~~

As of May ~~7, 2019,~~1, 2020, there were ~~14,355,180 shar~~es14,512,105 shares of the issuer’s common stock outstanding.

COMPUTER PROGRAMS AND SYSTEMS, INC.

Quarterly Report on Form 10-Q

(For the three months ended March 31, ~~2019)~~2020)

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets (Unaudited) – March 31 ~~2019~~, 20 20 and December 31, ~~2018~~201 9

Condensed Consolidated Statements of Income (Unaudited) – Three Months Ended March 31 ~~2019~~, 20 20 and ~~2018~~20 1 9

Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) – Three Months Ended March ~~31,~~ 3 1 , 20 20 and 201 9 ~~and 2018~~

Condensed Consolidated Statements of Cash Flows (Unaudited) – Three Months Ended March 31 ~~2019~~, 20 20 and ~~2018~~201 9

Notes to Condensed Consolidated Financial Statements (Unaudited)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2223

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

3133

Item 4.

Controls and Procedures

3133

PART II. OTHER INFORMATION

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

3236

Item 3.

Defaults Upon Senior Securities

3236

Item 4.

Mine Safety Disclosures

Item 5.

Item 6.

PART I

FINANCIAL INFORMATION


Item 1.			Financial Statements.

COMPUTER PROGRAMS AND SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)


		March 31, 2019		December 31, 2018			March 31, 2020		December 31, 2019
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	4,409	$	5,732	Cash and cash equivalents	$	4,280	$	7,357
Accounts receivable, net of allowance for doubtful accounts of $2,080 and $2,124, respectively		39,434		40,474
Financing receivables, current portion, net		14,466		15,059
Accounts receivable (net of allowance for expected credit losses of $2,064 and $2,078, respectively)						Accounts receivable (net of allowance for expected credit losses of $2,064 and $2,078, respectively)	38,241		38,819
Financing receivables, current portion, net (net of allowance for expected credit losses of $165 and $165, respectively)						Financing receivables, current portion, net (net of allowance for expected credit losses of $165 and $165, respectively)	12,175		12,032
Inventories	Inventories	1,750		1,498		Inventories	1,365		1,426
Prepaid income taxes	Prepaid income taxes	2,275		2,120		Prepaid income taxes	1,208		1,337
Prepaid expenses and other	Prepaid expenses and other	5,898		5,055		Prepaid expenses and other	6,606		5,861
Total current assets	Total current assets	68,232		69,938		Total current assets	63,875		66,832
Property and equipment, net	Property and equipment, net	10,987		10,875		Property and equipment, net	13,294		11,593
Software development costs, net						Software development costs, net	883		—
Operating lease assets	Operating lease assets	5,882		—		Operating lease assets	7,522		7,800
Financing receivables, net of current portion		19,662		19,263
Financing receivables, net of current portion (net of allowance for expected credit losses of $3,140 and $2,806, respectively)						Financing receivables, net of current portion (net of allowance for expected credit losses of $3,140 and $2,806, respectively)	17,794		18,267
Other assets, net of current portion	Other assets, net of current portion	924		995		Other assets, net of current portion	2,105		1,771
Intangible assets, net	Intangible assets, net	83,703		86,226		Intangible assets, net	80,244		83,110
Goodwill	Goodwill	140,449		140,449		Goodwill	150,216		150,216

Total assets	Total assets	$	329,839	$	327,746	Total assets	$	335,933	$	339,589
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	6,907	$	5,668	Accounts payable	$	9,010	$	8,804
Current portion of long-term debt	Current portion of long-term debt	8,597		6,486		Current portion of long-term debt	8,430		8,430
Deferred revenue	Deferred revenue	10,899		10,201		Deferred revenue	7,807		8,628
Accrued vacation	Accrued vacation	4,347		3,929		Accrued vacation	4,649		4,301

Other accrued liabilities	Other accrued liabilities	9,061		12,219		Other accrued liabilities	8,714		11,767
Total current liabilities	Total current liabilities	39,811		38,503		Total current liabilities	38,610		41,930
Long-term debt, net of current portion	Long-term debt, net of current portion	115,448		124,583		Long-term debt, net of current portion	93,325		99,433
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion	4,608		—		Operating lease liabilities, net of current portion	5,950		6,256
Deferred tax liabilities	Deferred tax liabilities	5,731		4,877		Deferred tax liabilities	8,688		7,623
Total liabilities	Total liabilities	165,598		167,963		Total liabilities	146,573		155,242
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock, $0.001 par value; 30,000 shares authorized; 14,356 and 14,083 shares issued and outstanding, respectively		14		14
Common stock, $0.001 par value; 30,000 shares authorized; 14,512 and 14,356 shares issued and outstanding, respectively						Common stock, $0.001 par value; 30,000 shares authorized; 14,512 and 14,356 shares issued and outstanding, respectively	15		14
Additional paid-in capital	Additional paid-in capital	167,229		164,793		Additional paid-in capital	176,975		174,618

Accumulated deficit		(3,002)		(5,024)
Retained earnings						Retained earnings	12,370		9,715
Total stockholders’ equity	Total stockholders’ equity	164,241		159,783		Total stockholders’ equity	189,360		184,347
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	329,839	$	327,746	Total liabilities and stockholders’ equity	$	335,933	$	339,589

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

COMPUTER PROGRAMS AND SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)


		Three Months Ended March 31,							Three Months Ended March 31,
		2019		2018			2020		2019
Sales revenues:	Sales revenues:					Sales revenues:
System sales and support	System sales and support	$	43,247	$	45,751	System sales and support	$	41,186	$	43,247
TruBridge	TruBridge	25,894		25,131		TruBridge	28,571		25,894
Total sales revenues	Total sales revenues	69,141		70,882		Total sales revenues	69,757		69,141
Costs of sales:	Costs of sales:					Costs of sales:
System sales and support	System sales and support	18,337		18,417		System sales and support	18,587		18,337
TruBridge	TruBridge	13,689		13,380		TruBridge	15,057		13,689
Total costs of sales	Total costs of sales	32,026		31,797		Total costs of sales	33,644		32,026
Gross profit	Gross profit	37,115		39,085		Gross profit	36,113		37,115
Operating expenses:	Operating expenses:					Operating expenses:
Product development	Product development	9,228		8,757		Product development	8,271		9,228
Sales and marketing	Sales and marketing	7,492		7,714		Sales and marketing	6,997		7,492
General and administrative	General and administrative	11,824		12,364		General and administrative	11,847		11,824
Amortization of acquisition-related intangibles	Amortization of acquisition-related intangibles	2,523		2,602		Amortization of acquisition-related intangibles	2,866		2,523
Total operating expenses	Total operating expenses	31,067		31,437		Total operating expenses	29,981		31,067
Operating income	Operating income	6,048		7,648		Operating income	6,132		6,048
Other income (expense):	Other income (expense):					Other income (expense):
Other income	Other income	248		198		Other income	362		248
Interest expense	Interest expense	(1,804)		(1,978)		Interest expense	(1,179)		(1,804)
Total other income (expense)	Total other income (expense)	(1,556)		(1,780)		Total other income (expense)	(817)		(1,556)
Income before taxes	Income before taxes	4,492		5,868		Income before taxes	5,315		4,492
Provision for income taxes	Provision for income taxes	1,048		1,901		Provision for income taxes	1,225		1,048
Net income	Net income	$	3,444	$	3,967	Net income	$	4,090	$	3,444
Net income per common share—basic	Net income per common share—basic	$	0.24	$	0.29	Net income per common share—basic	$	0.28	$	0.24
Net income per common share—diluted	Net income per common share—diluted	$	0.24	$	0.29	Net income per common share—diluted	$	0.28	$	0.24
Weighted average shares outstanding used in per common share computations:	Weighted average shares outstanding used in per common share computations:					Weighted average shares outstanding used in per common share computations:
Basic	Basic	13,656		13,475		Basic	13,904		13,656
Diluted	Diluted	13,656		13,475		Diluted	13,904		13,656
Dividends declared per common share	Dividends declared per common share	$	0.10	$	0.10	Dividends declared per common share	$	0.10	$	0.10

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

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 (Accumulated Deficit)			Total Stockholders’ Equity
																						Common Stock													Retained Earnings (Accumulated Deficit)				Total Stockholders’ Equity
		Shares	Amount															Shares						Amount				Additional Paid-in-Capital										Retained Earnings (Accumulated Deficit)		Total Stockholders’ Equity
Balance at December 31 ,2018		14,083	14		164,793			(5,024)		$	159,783
																							Additional Paid-in-Capital							Retained Earnings (Accumulated Deficit)				Total Stockholders’ Equity

Balance at December 31, 2019												Balance at December 31, 2019	14,356				$	14			$	174,618						$	9,715						$	184,347
Net income	Net income	—	—		—			3,444		3,444		Net income	—		—				—									4,090							4,090

Issuance of restricted stock	Issuance of restricted stock	273	—		—			—		—		Issuance of restricted stock	156		1				(1)									—					—
Stock-based compensation	Stock-based compensation	—	—		2,436			—		2,436		Stock-based compensation	—		—				2,358								—					2,358
Dividends	Dividends	—	—		—			(1,422)		(1,422)		Dividends	—		—				—								(1,435)					(1,435)
Balance at March 31, 2019		14,356	$	14	$	167,229		$	(3,002)	$	164,241
Balance at March 31, 2020												Balance at March 31, 2020	14,512		$	15			$	176,975					$	12,370				$	189,360

Balance at December 31, 2017		13,760	$	14	$	155,078		$	(19,006)	$	136,086
Balance at December 31, 2018												Balance at December 31, 2018	14,083		$	14			$	164,793					$	(5,024)				$	159,783
Net income	Net income	—	—		—			3,967		3,967		Net income	—		—				—						3,444					3,444
Adoption of accounting standard		—	—		—			1,970		1,970

Issuance of restricted stock	Issuance of restricted stock	326	—		—			—		—		Issuance of restricted stock	273		—				—						—					—

Stock-based compensation	Stock-based compensation	—	—		1,939			—		1,939		Stock-based compensation	—		—				2,436						—					2,436
Dividends	Dividends	—	—		—			(1,394)		(1,394)		Dividends	—		—				—						(1,422)					(1,422)
Balance at March 31, 2018		14,086	$	14	$	157,017		$	(14,463)	$	142,568
Balance at March 31, 2019												Balance at March 31, 2019	14,356		$	14			$	167,229					$	(3,002)				$	164,241

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

COMPUTER PROGRAMS AND SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Three Months Ended March 31,
2019 2018
Operating Activities:
Net income $ 3,444 $ 3,967
Adjustments to net income:
Provision for bad debt 1,207 646
Deferred taxes 854 777
Stock-based compensation 2,436 1,939
Depreciation 361 529
Amortization of acquisition-related intangibles 2,523 2,602
Amortization of deferred finance costs 86 86
Changes in operating assets and liabilities:
Accounts receivable (156) (3,004)
Financing receivables 183 (2,432)
Inventories (251) 59
Prepaid expenses and other (772) (527)
Accounts payable 1,239 118
Deferred revenue 698 2,700
Other liabilities (3,808) (3,932)
Prepaid income taxes/income taxes payable (156) (403)
Net cash provided by operating activities 7,888 3,125
Investing Activities:
Purchases of property and equipment (473) (60)
Net cash used in investing activities (473) (60)
Financing Activities:
Dividends paid (1,422) (1,394)
Payments of long-term debt principal (7,110) (8,794)
Payments of contingent consideration (206) —
Proceeds from revolving line of credit — 8,330
Net cash used in financing activities (8,738) (1,858)
Increase (decrease) in cash and cash equivalents (1,323) 1,207
Cash and cash equivalents at beginning of period 5,732 520
Cash and cash equivalents at end of period $ 4,409 $ 1,727
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,289 $ 1,841
Cash paid for income taxes, net of refund $ 350 $ 1,527

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


	Three Months Ended March 31,
	2020		2019
Operating Activities:
Net income	$	4,090	$	3,444
Adjustments to net income:
Provision for bad debt	999		1,207
Deferred taxes	1,065		854
Stock-based compensation	2,358		2,436
Depreciation	420		361
Amortization of acquisition-related intangibles	2,866		2,523
Amortization of software development costs	38		—
Amortization of deferred finance costs	86		86
Changes in operating assets and liabilities:
Accounts receivable	(88)		(156)
Financing receivables	(4)		183
Inventories	62		(251)
Prepaid expenses and other	(1,079)		(772)
Accounts payable	206		1,239
Deferred revenue	(821)		698
Other liabilities	(2,732)		(3,808)
Prepaid income taxes/income taxes payable	128		(156)
Net cash provided by operating activities	7,594		7,888
Investing Activities:

Investment in software development	(921)		—
Purchase of property and equipment	(2,120)		(473)
Net cash used in investing activities	(3,041)		(473)
Financing Activities:
Dividends paid	(1,435)		(1,422)

Payments of long-term debt principal	(2,195)		(7,110)
Payments of contingent consideration	—		(206)

Payments of revolving line of credit	(4,000)		—

Net cash used in financing activities	(7,630)		(8,738)
Decrease in cash and cash equivalents	(3,077)		(1,323)
Cash and cash equivalents at beginning of period	7,357		5,732
Cash and cash equivalents at end of period	$	4,280	$	4,409
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,093	$	1,289
Cash paid for income taxes, net of refund	$	31	$	350
The accompanying notes are an integral part of these condensed consolidated financial statements.

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, ~~2018~~2019 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, ~~2018~~2019 and the notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

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"), and iNetXperts, Corp. d/b/a Get Real Health ("Get Real Health"), 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.

2. RECENT ACCOUNTING PRONOUNCEMENTS

New Accounting Standards Adopted in ~~2019~~2020

In ~~February~~June 2016, the Financial Accounting Standards Board ("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 requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. We adopted this guidance as of January 1, 2019 using the current period adjustment method. The impact on the financial statements of implementation of this standard was an increase in lease assets and lease liabilities of $4.9 million as of the adoption date, January 1, 2019. Adoption of the standard did not impact our consolidated net earnings or cash flows.

~~New~~ Accounting Standards ~~Yet to be Adopted~~

~~In June 2016, the FASB issued ASU~~Update ("ASU") 2016-13, Financial Instruments-Credit Losses, which ~~will require~~requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ~~This~~We adopted this guidance ~~will be effective for fiscal years and interim periods within those years beginning after December 15, 2019, which is effective for the Company~~ as of January 1, 2020. Adoption of the ~~first quarter of~~standard did not have a material impact on our ~~fiscal year ending December 31, 2020. The Company is currently evaluating the impact that the implementation of this standard will have on its~~consolidated financial statements.

New Accounting Standards Yet to be Adopted

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.

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 employs the 5-step revenue recognition model under Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, to: (1) identify the contract with the client, (2) identify the

performance obligations in the contract, (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 is recognized net of shipping charges and any taxes collected from clients, which are subsequently remitted to governmental authorities.

System Sales and Support

The Company enters into contractual obligations to sell perpetual software licenses, installation, conversion, training, hardware and software application support and hardware maintenance services to acute care and post-acute care community hospitals.

Non-recurring Revenues

•Perpetual software licenses, installation, conversion, and related training are not considered separate and distinct performance obligations due to the proprietary 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 911 - 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 on which the client begins using the system in a live environment.

•Hardware revenue is recognized separately from software licenses at the point in time it is delivered to the client. The SSP of hardware is cost plus a reasonable 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 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 contract, 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 and related conversion and training services are considered a single performance obligation. Revenue is recognized on a monthly basis as the SaaS service is provided to the client over the contract term. Payment is due monthly for SaaS services provided.

Refer to Note 1517 - Segment Reporting, for further information, including revenue by client base (acute care or post-acute care) bifurcated by recurring and non-recurring revenue.

TruBridge

TruBridge provides 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, and contract management. Fees are recognized over the period of the client contractual relationship as the services are performed based on 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.

TruBridge also provides professional IT services. Revenue from professional IT 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) Three Months Ended March 31, 2019 Three Months Ended March 31, 2018
Beginning balance $ 10,201 $ 9,937
Deferred revenue recorded 6,530 7,192
Less deferred revenue recognized as revenue (5,832) (4,492)
Ending balance $ 10,899 $ 12,637

The following table details deferred revenue for the three months ended March 31, 2020 and 2019, included in the condensed consolidated balance sheets:


(In thousands)	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Beginning balance	$	8,628	$	10,201
Deferred revenue recorded	6,194		6,530

Less deferred revenue recognized as revenue	(7,015)		(5,832)
Ending balance	$	7,807	$	10,899

The deferred revenue recorded during the three months ended March 31, ~~2019~~2020 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 three months ended March 31, ~~2019~~2020 and ~~2018~~2019 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 twelve months in advance of services performed, 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) Three Months Ended March 31, 2019 Three Months Ended March 31, 2018
Beginning balance $ 3,017 $ 3,775
Costs to obtain and fulfill contracts capitalized 1,922 883
Less costs to obtain and fulfill contracts recognized as expense (1,134) (1,050)
Ending balance $ 3,805 $ 3,608
The following table details costs to obtain and fulfill contracts with customers for the three months ended March 31, 2020 and 2019, included in the condensed consolidated balance sheets:


(In thousands)	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Beginning balance	$	4,440	$	3,017
Costs to obtain and fulfill contracts capitalized	1,888		1,922
Less costs to obtain and fulfill contracts recognized as expense	(1,285)		(1,134)
Ending balance	$	5,043	$	3,805

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.

4. BUSINESS COMBINATION

Acquisition of Get Real Health

On May 3, 2019, we acquired all of the assets and liabilities of iNetXperts, Corp., a Maryland corporation doing business as Get Real Health (“Get Real Health”), pursuant to a Stock Purchase Agreement dated April 23, 2019, as amended on May 2, 2019. Based in Rockville, Maryland, Get Real Health delivers technology solutions to improve patient outcomes and engagement strategies with care providers.

4.Consideration for the acquisition included cash (net of cash of the acquired entity) of $10.8 million (inclusive of seller's transaction expenses), plus a contingent earnout payment of up to $14.0 million tied to Get Real Health's earnings before interest, tax, depreciation, and amortization ("EBITDA") (subject to certain pro-forma adjustments) for 2019. As of December 31, 2019, the $5.0 million contingent consideration estimated in the allocation of purchase price paid was fully reversed as Get Real Health's earnings did not achieve the required level for earnout payment. During 2019, we incurred approximately $0.6 million of pre-tax acquisition costs in connection with the acquisition of Get Real Health. Acquisition costs are included in general and administrative expenses in our consolidated statements of income.

Our acquisition of Get Real Health was treated as a purchase in accordance with ASC 805, Business Combinations, 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 Get Real Health was as follows:


(In thousands)	Purchase Price Allocation
Acquired cash	$	159
Accounts receivable	364

Prepaid expenses	107
Property and equipment	365
Operating lease asset	1,285
Intangible assets	7,890
Goodwill	9,767
Accounts payable and accrued liabilities	(594)
Deferred taxes, net	(1,736)
Operating lease liability	(1,285)
Contingent consideration	(5,000)
Deferred revenue	(430)
Net assets acquired	$	10,892

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.

The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value measurement hierarchy (see Note 16 - Fair Value). Level 3 inputs included, among others, discount rates that we estimated would be used by a market participant in valuing these assets and liabilities, projections of revenues and cash flows, client attrition rates and market comparables.

5. PROPERTY AND EQUIPMENT

Property and equipment, net was comprised of the following at March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:


(In thousands)	(In thousands)	March 31, 2019		December 31, 2018		(In thousands)	March 31, 2020		December 31, 2019
Land	Land	$	2,848	$	2,848	Land	$	2,848	$	2,848
Buildings and improvements	Buildings and improvements	7,752		7,752		Buildings and improvements	8,039		8,039

Computer equipment	Computer equipment	3,099		2,766		Computer equipment	6,131		4,011
Leasehold improvements	Leasehold improvements	1,343		1,198		Leasehold improvements	1,712		1,712
Office furniture and fixtures	Office furniture and fixtures	1,934		1,938		Office furniture and fixtures	2,018		2,018
Automobiles	Automobiles	18		18		Automobiles	18		18
Property and equipment, gross	Property and equipment, gross	16,994		16,520		Property and equipment, gross	20,766		18,646
Less: accumulated depreciation	Less: accumulated depreciation	(6,007)		(5,645)		Less: accumulated depreciation	(7,472)		(7,053)
Property and equipment, net	Property and equipment, net	$	10,987	$	10,875	Property and equipment, net	$	13,294	$	11,593

5.6. SOFTWARE DEVELOPMENT

Software development costs are accounted for in accordance with ASC 350-40, Internal-Use Software. We capitalize incurred labor costs for software development from the time the preliminary project phase is completed until the software is available for general release. Research and development costs and other computer software maintenance costs related to software development are expensed as incurred. We estimate the useful life of our capitalized software and amortize its value on a straight-line basis over that estimated life, which is estimated to be five years. If the actual life is shorter than our estimated useful life, we will amortize the remaining book value over the remaining useful life or the asset may be deemed to be impaired and, accordingly, a write-down of the value of the asset may be recorded as a charge to earnings. Upon the software's availability for general release, we commence amortization of the capitalized software costs on a module-by-module basis.

Software development, net was comprised of the following at March 31, 2020 and December 31, 2019:


(In thousands)	March 31, 2020		December 31, 2019
Software development costs	$	921	$	—
Less: accumulated amortization	(38)		—
Software development costs, net	$	883	$	—

7. OTHER ACCRUED LIABILITIES

Other accrued liabilities was comprised of the following at March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:


(In thousands)	(In thousands)	March 31, 2019		December 31, 2018		(In thousands)	March 31, 2020		December 31, 2019
Salaries and benefits	Salaries and benefits	$	4,643	$	8,722	Salaries and benefits	$	4,052	$	6,946
Severance	Severance	751		992		Severance	128		329
Commissions	Commissions	687		830		Commissions	1,153		1,037
Self-insurance reserves	Self-insurance reserves	842		1,017		Self-insurance reserves	1,214		1,382
Contingent consideration		—		206

Other	Other	864		452		Other	595		529
Operating lease liabilities, current portion	Operating lease liabilities, current portion	1,274		—		Operating lease liabilities, current portion	1,572		1,544
Other accrued liabilities	Other accrued liabilities	$	9,061	$	12,219	Other accrued liabilities	$	8,714	$	11,767

8. 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)10) 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.

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 Ended							Three Months Ended March 31,
(In thousands, except per share data)	(In thousands, except per share data)	March 31, 2019		March 31, 2018		(In thousands, except per share data)	2020		2019
Net income	Net income	$	3,444	$	3,967	Net income	$	4,090	$	3,444
Less: Net income attributable to participating securities	Less: Net income attributable to participating securities	(130)		(121)		Less: Net income attributable to participating securities	(134)		(130)
Net income attributable to common stockholders	Net income attributable to common stockholders	$	3,314	$	3,846	Net income attributable to common stockholders	$	3,956	$	3,314

Weighted average shares outstanding used in basic per common share computations	Weighted average shares outstanding used in basic per common share computations	13,656		13,475		Weighted average shares outstanding used in basic per common share computations	13,904		13,656
Add: Dilutive potential common shares	Add: Dilutive potential common shares	—		—		Add: Dilutive potential common shares	—		—
Weighted average shares outstanding used in diluted per common share computations	Weighted average shares outstanding used in diluted per common share computations	13,656		13,475		Weighted average shares outstanding used in diluted per common share computations	13,904		13,656

Basic EPS	Basic EPS	$	0.24	$	0.29	Basic EPS	$	0.28	$	0.24
Diluted EPS	Diluted EPS	$	0.24	$	0.29	Diluted EPS	$	0.28	$	0.24

During 2018, 2019 and 2020, 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 ~~92,386~~252,852 shares, none of which have been included in the calculation of diluted EPS for the three months ended March 31, ~~2019~~2020 because the related threshold award performance ~~level has~~levels have not been achieved as of March 31, ~~2019.~~2020. See Note 810 - ~~Stock-based~~Stock-Based Compensation for more information.

7.9. 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 March 31, 2020 and 2019, ~~decreased to 23.3% from 32.4% for the three months ended March 31, 2018. Our implementation~~was a tax expense of the Internal Revenue Service’s “Guidance for Allowance of the Credit for Increasing Research Activities under IRC Section 41 for Taxpayers that Expense Research and Development Costs on their Financial Statements pursuant to ASC 730,” commonly referred to as the “ASC 730 Safe Harbor Directive,” during the second half of 2018 has significantly increased our estimated research and development ("R&D") tax credits, resulting in an incremental benefit to our effective tax rate of 4.5% for the first quarter of 2019 compared to the first quarter of 2018. Additionally, we have experienced a decrease in tax shortfalls related to stock-based compensation, resulting in an incremental benefit to our effective tax rate of 4.3% for the first quarter of 2019 compared to the first quarter of 2018.23%.

8.10. STOCK-BASED COMPENSATION

Stock-based compensation expense 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 months ended March 31, ~~2019~~2020 and ~~2018,~~2019, included in the condensed consolidated statements of income:

Three Months Ended
(In thousands) 2019 2018
Costs of sales $ 531 $ 439
Operating expenses 1,905 1,500
Pre-tax stock-based compensation expense 2,436 1,939
Less: income tax effect (536) (427)
Net stock-based compensation expense $ 1,900 $ 1,512


	Three Months Ended March 31,
(In thousands)	2020		2019
Costs of sales	$	528	$	531
Operating expenses	1,830		1,905
Pre-tax stock-based compensation expense	2,358		2,436
Less: income tax effect	(519)		(536)
Net stock-based compensation expense	$	1,839	$	1,900

The Company's stock-based compensation awards are in the form of restricted stock and performance share awards granted pursuant to the Company's 2012 Restricted Stock Plan for Non-Employee Directors, Amended and Restated 2014 Incentive Plan and 2019 Incentive Plan (the "Plans"). As of March 31, ~~2019, there~~2020, there was ~~$14.9~~ $13.6 million of unrecognized compensation expense related to unvested stock-based compensation arrangements granted under the Plans, which is expected to be recognized over a weighted-average period of 2.0 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 three 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 three months ended March 31, ~~2019~~2020 and ~~2018~~2019 is as follows:


		Three Months Ended March 31, 2019				Three Months Ended March 31, 2018						Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
		Shares	Weighted-Average Grant Date Fair Value Per Share		Shares	Weighted-Average Grant Date Fair Value Per Share			Shares	Weighted-Average Grant Date Fair Value Per Share		Shares	Weighted-Average Grant Date Fair Value Per Share
Unvested restricted stock outstanding at beginning of period	Unvested restricted stock outstanding at beginning of period	475,132	$	32.00	309,195	$	38.36	Unvested restricted stock outstanding at beginning of period	525,859	$	30.51	475,132	$	32.00
Granted	Granted	133,936	30.89		148,841	30.20		Granted	136,771	26.16		133,936	30.89
Performance share awards settled through the issuance of restricted stock	Performance share awards settled through the issuance of restricted stock	138,566	29.80		177,395	29.94		Performance share awards settled through the issuance of restricted stock	19,678	30.15		138,566	29.80
Vested	Vested	(143,945)	33.81		(55,907)	54.20		Vested	(202,468)	30.20		(143,945)	33.81

Unvested restricted stock outstanding at end of period	Unvested restricted stock outstanding at end of period	603,689	$	30.82	579,524	$	32.16	Unvested restricted stock outstanding at end of period	479,840	$	29.39	603,689	$	30.82

Performance Share Awards

The Company ~~grants~~granted performance share awards to executive officers and certain key employees under the Amended and Restated 2014 Incentive Plan prior to 2019 and under the 2019 Incentive ~~Plan.~~Plan beginning in 2019. The number of shares of common stock earned and issuable under each award is determined at the end of ~~each~~a 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. 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. Three-year performance share awards that 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.~~period.

In the event that the Company's financial performance meets the predetermined targets for the performance objectives of the one-year and three-year performance share awards, the Company will issue each award recipient the number of shares of restricted stock 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 targets, additional shares up to the maximum award may be issued. In the event the financial results of the Company fall below the predetermined targets, a reduced number of shares may be issued. If the financial results of the Company fall below the threshold performance levels, 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 and three-year performance share awards is the quoted market value of CPSI'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~~Plans during the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 is as follows, based on the target award amounts set forth in the performance share award agreements:


		Three Months Ended March 31, 2019				Three Months Ended March 31, 2018						Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
		Shares	Weighted-Average Grant Date Fair Value Per Share		Shares	Weighted-Average Grant Date Fair Value Per Share			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 period	Performance share awards outstanding at beginning of period	184,776	$	30.15	189,325	$	29.94	Performance share awards outstanding at beginning of period	200,709	$	30.75	184,776	$	30.15
Granted	Granted	—	—		184,776	30.15		Granted	107,298	26.96		—	—
Adjusted for actual performance, net of forfeitures	Adjusted for actual performance, net of forfeitures	46,176	29.80		(11,930)	29.94		Adjusted for actual performance, net of forfeitures	(35,477)	30.15		46,176	29.80
Performance share awards settled through the issuance of restricted stock	Performance share awards settled through the issuance of restricted stock	(138,566)	29.80		(177,395)	29.94		Performance share awards settled through the issuance of restricted stock	(19,678)	30.15		(138,566)	29.80
Performance share awards outstanding at end of period	Performance share awards outstanding at end of period	92,386	$	30.50	184,776	$	30.15	Performance share awards outstanding at end of period	252,852	$	29.27	92,386	$	30.50

9.11. FINANCING RECEIVABLES

Short-Term Payment Plans

The Company provides fixed monthly payment arrangements ("short-term payment plans") over terms ranging from three to twelve months 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, included in the current portion of financing receivables, were comprised of the following at March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:


(In thousands)	(In thousands)	March 31, 2019		December 31, 2018		(In thousands)	March 31, 2020		December 31, 2019
Short-term payment plans, gross	Short-term payment plans, gross	$	5,510	$	5,773	Short-term payment plans, gross	$	2,356	$	2,361
Less: allowance for losses	Less: allowance for losses	(386)		(404)		Less: allowance for losses	(165)		(165)
Short-term payment plans, net	Short-term payment plans, net	$	5,124	$	5,369	Short-term payment plans, net	$	2,191	$	2,196

1314

Long-Term Financing Arrangements

Additionally, the Company provides financing for purchases of its information and patient care systems to certain healthcare providers under long-term financing arrangements expiring in various years through ~~2025.~~2026. 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 inception, 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.

The components of these receivables were as follows at March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:


(In thousands)	(In thousands)	March 31, 2019		December 31, 2018		(In thousands)	March 31, 2020		December 31, 2019
Long-term financing arrangements, gross	Long-term financing arrangements, gross	$	35,067	$	34,841	Long-term financing arrangements, gross	$	34,328	$	34,483
Less: allowance for losses		(2,170)		(2,163)
Less: allowance for expected credit losses						Less: allowance for expected credit losses	(3,140)		(2,806)
Less: unearned income	Less: unearned income	(3,893)		(3,725)		Less: unearned income	(3,410)		(3,574)
Long-term financing arrangements, net	Long-term financing arrangements, net	$	29,004	$	28,953	Long-term financing arrangements, net	$	27,778	$	28,103

Future minimum payments to be received subsequent to March 31, ~~2019~~2020 are as follows:


(In thousands)	(In thousands)			(In thousands)
Years Ended December 31,
2019		$	8,620
Years Ending December 31,				Years Ending December 31,
2020	2020	10,456		2020	$	9,427
2021	2021	7,358		2021	10,806
2022	2022	5,048		2022	6,896
2023	2023	2,421		2023	4,038
2024				2024	2,403
Thereafter	Thereafter	1,164		Thereafter	758
Total minimum payments to be received	Total minimum payments to be received	35,067		Total minimum payments to be received	34,328
Less: allowance for losses		(2,170)
Less: allowance for expected credit losses				Less: allowance for expected credit losses	(3,140)
Less: unearned income	Less: unearned income	(3,893)		Less: unearned income	(3,410)
Receivables, net	Receivables, net	$	29,004	Receivables, net	$	27,778

Credit Quality of Financing Receivables and Allowance for Expected Credit Losses

The following table is a roll-forward of the allowance for ~~financing~~expected credit losses for the three months ended March 31, ~~2019~~2020 and year ended December 31, ~~2018:~~2019:

(In thousands) Balance at Beginning of Period Provision Charge-offs Recoveries Balance at End of Period
March 31, 2019 $ 2,567 $ (11) $ — $ — $ 2,556
December 31, 2018 $ 3,244 $ 1,691 $ (2,368) $ — $ 2,567


(In thousands)	Balance at Beginning of Period		Provision		Charge-offs		Recoveries		Balance at End of Period
March 31, 2020	$	2,971	$	334	$	—	$	—	$	3,305
December 31, 2019	$	2,567	$	970	$	(566)	$	—	$	2,971

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 long-term financing arrangements within our target market of 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, current and future economic conditions, the customer’s financial condition, and known risk characteristics impacting the respective customer base of community hospitals, the most notable of which relate to enacted and potential changes in Medicare and Medicaid reimbursement rates as 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 expected credit losses. Financing receivables are written off only after the Company has exhausted all collection efforts.

1415

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 March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:

(In thousands) 1 to 90 Days Past Due 91 to 180 Days Past Due 181 + Days Past Due Total Past Due
March 31, 2019 $ 1,453 $ 252 $ 347 $ 2,052
December 31, 2018 $ 1,302 $ 210 $ 245 $ 1,757


(In thousands)	1 to 90 Days Past Due		91 to 180 Days Past Due		181 + Days Past Due		Total Past Due
March 31, 2020	$	1,401	$	352	$	257	$	2,010
December 31, 2019	$	1,480	$	150	$	207	$	1,837

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, current portion, net or financing receivables, net of current portion 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)	(In thousands)	March 31, 2019		December 31, 2018		(In thousands)	March 31, 2020		December 31, 2019
Stratification of uninvoiced client financing receivables based on aging of related trade accounts receivable:	Stratification of uninvoiced client financing receivables based on aging of related trade accounts receivable:					Stratification of uninvoiced client financing receivables based on aging of related trade accounts receivable:
1 to 90 Days Past Due		$	19,133	$	17,290
91 to 180 Days Past Due		3,285		2,247
181 + Days Past Due		823		885
Uninvoiced client financing receivables related to trade accounts receivable that are 1 to 90 Days Past Due						Uninvoiced client financing receivables related to trade accounts receivable that are 1 to 90 Days Past Due	$	15,705	$	18,015
Uninvoiced client financing receivables related to trade accounts receivable that are 91 to 180 Days Past Due						Uninvoiced client financing receivables related to trade accounts receivable that are 91 to 180 Days Past Due	2,893		2,136
Uninvoiced client financing receivables related to trade accounts receivable that are 181 + Days Past Due						Uninvoiced client financing receivables related to trade accounts receivable that are 181 + Days Past Due	3,455		1,972
Total uninvoiced client financing receivables balances of clients with a trade accounts receivable	Total uninvoiced client financing receivables balances of clients with a trade accounts receivable	$	23,241	$	20,422	Total uninvoiced client financing receivables balances of clients with a trade accounts receivable	$	22,053	$	22,123
Total uninvoiced client financing receivables of clients with no related trade accounts receivable	Total uninvoiced client financing receivables of clients with no related trade accounts receivable	7,933		10,694		Total uninvoiced client financing receivables of clients with no related trade accounts receivable	8,865		8,786
Total financing receivables with contractual maturities of one year or less	Total financing receivables with contractual maturities of one year or less	5,510		5,773		Total financing receivables with contractual maturities of one year or less	2,356		2,361
Less: allowance for losses		(2,556)		(2,567)
Less: allowance for expected credit losses						Less: allowance for expected credit losses	(3,305)		(2,971)
Total financing receivables	Total financing receivables	$	34,128	$	34,322	Total financing receivables	$	29,969	$	30,299

~~10.~~12. INTANGIBLE ASSETS AND GOODWILL

Our purchased definite-lived intangible assets as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 are summarized as follows:

(In thousands) Customer Relationships Trademark Developed Technology Total
Gross carrying amount as of December 31, 2017 $ 82,300 $ 10,900 $ 24,100 $ 117,300
Accumulated amortization as of December 31, 2018 (19,476) (2,613) (8,985) (31,074)
Net intangible assets as of December 31, 2018 $ 62,824 $ 8,287 $ 15,115 $ 86,226
Gross carrying amount as of December 31, 2018 $ 82,300 $ 10,900 $ 24,100 $ 117,300
Accumulated amortization as of March 31, 2019 (21,111) (2,815) (9,671) (33,597)
Net intangible assets as of March 31, 2019 $ 61,189 $ 8,085 $ 14,429 $ 83,703
Weighted average remaining years of useful life 10 12 5 9


(In thousands)	Customer Relationships		Trademark		Developed Technology		Total
Gross carrying amount as of December 31, 2018	$	82,300	$	10,900	$	24,100	$	117,300
Intangible assets acquired for year ended December 31, 2019	2,070		220		5,600		7,890
Accumulated amortization as of December 31, 2019	(26,456)		(3,449)		(12,175)		(42,080)
Net intangible assets as of December 31, 2019	$	57,914	$	7,671	$	17,525	$	83,110

Gross carrying amount as of March 31, 2020	$	84,370	$	11,120	$	29,700	$	125,190
Net intangible assets as of December 31, 2019	57,914		7,671		17,525		83,110

Amortization expenses as of March 31, 2020	(1,800)		(212)		(854)		(2,866)
Net intangible assets as of March 31, 2020	$	56,114	$	7,459	$	16,671	$	80,244
Weighted average remaining years of useful life	9		12		5		9

The following table represents the remaining amortization of definite-lived intangible assets as of March 31, ~~2019:~~2020:


(In thousands)	(In thousands)			(In thousands)
For the year ended December 31,	For the year ended December 31,			For the year ended December 31,
2019		$	7,549
2020	2020	10,066		2020	$	8,555
2021	2021	10,066		2021	11,003
2022	2022	10,066		2022	10,904
2023		10,066
2022				2022	10,904
2024				2024	9,681
Thereafter	Thereafter	35,890		Thereafter	29,197
Total	Total	$	83,703	Total	$	80,244

The following table sets forth the change in the carrying amount of goodwill by segment for the three months ended March 31, ~~2019:~~2020:

(In thousands) Acute Care EHR Post-acute Care EHR TruBridge Total
Balance as of December 31, 2018 $ 97,095 $ 29,570 $ 13,784 $ 140,449
Goodwill impairment — — — —
Balance as of March 31, 2019 $ 97,095 $ 29,570 $ 13,784 $ 140,449


(In thousands)	Acute Care EHR		Post-acute Care EHR		TruBridge		Total
Balance as of December 31, 2019	$	97,095	$	29,570	$	23,551	$	150,216


Balance as of March 31, 2020	$	97,095	$	29,570	$	23,551	$	150,216

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.

~~11.~~13. LONG-TERM DEBT

Long-term debt was comprised of the following at March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:


(In thousands)	(In thousands)	March 31, 2019		December 31, 2018		(In thousands)	March 31, 2020		December 31, 2019
Term loan facility	Term loan facility	$	95,404	$	102,432	Term loan facility	$	86,630	$	88,823
Revolving credit facility	Revolving credit facility	29,693		29,693		Revolving credit facility	16,000		20,000
Finance lease obligation		168		250

Debt obligations	Debt obligations	125,265		132,375		Debt obligations	102,630		108,823
Less: unamortized debt issuance costs	Less: unamortized debt issuance costs	(1,220)		(1,306)		Less: unamortized debt issuance costs	(875)		(960)
Debt obligation, net	Debt obligation, net	124,045		131,069		Debt obligation, net	101,755		107,863
Less: current portion	Less: current portion	(8,597)		(6,486)		Less: current portion	(8,430)		(8,430)
Long-term debt	Long-term debt	$	115,448	$	124,583	Long-term debt	$	93,325	$	99,433

1617

As of March 31, ~~2019,~~2020, the carrying value of debt ~~approximates~~approximated the fair value due to the variable interest rate, which ~~reflects~~reflected the market rate.

Credit Agreement

In conjunction with our acquisition of HHI in January 2016, we entered into a syndicated credit agreement ~~(the "Previous Credit Agreement")~~ with Regions Bank ("Regions") serving as administrative agent, which provided for a $125 million term loan facility ~~(the "Previous Term Loan Facility")~~ and a $50 million revolving credit facility (the "Previous Revolving Credit Facility"). On October 13, 2017, we entered into a Second Amendment (the "Second Amendment") to refinance and decrease the aggregate principal amount of the credit 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 Amended Term Loan Facility, the "Amended Credit Facilities").facility. On February 8, 2018, we entered into a Third Amendment ~~(the "Third Amendment")~~ to the credit agreement ~~(as amended, the "Amended Credit Agreement") to increase~~that increased the aggregate principal amount of ~~the Amended Credit Facilities~~our credit facilities from $162 million to $167 million, which includes ~~the~~a $117 million ~~Amended Term Loan Facility~~term loan facility and a $50 million ~~Amended Revolving Credit Facility.~~revolving credit facility.

Each of ~~the Amended Credit Facilities~~our 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~~1 percent per annum, or (3) a combination of (1) and (2). The applicable margin range for LIBOR loans and the letter of credit fee ranges from 2.0% to 3.5%. The applicable margin range for base rate loans ranges from 1.0% to 2.5%, in each case based on the Company's consolidated leverage ratio.

Principal payments with respect to the ~~Amended Term Loan Facility~~term loan facility are due on the last day of each fiscal quarter beginning December 31, 2017, with quarterly principal payments of approximately ~~$1.46~~$1.5 million through September 30, 2019, approximately ~~$2.19~~$2.2 million through September 30, 2021 and approximately ~~$2.93~~$2.9 million through September 30, 2022, with maturity on October 13, 2022 or such earlier date as the obligations under the ~~Amended Credit Agreement~~credit agreement become due and payable pursuant to the terms of the ~~Amended Credit Agreement (the "Amended Maturity Date").~~credit agreement. Any principal outstanding under the ~~Amended Revolving Credit Facility~~revolving credit facility is due and payable on the ~~Amended Maturity Date.~~maturity date.

Anticipated annual future maturities of the ~~Amended Term Loan Facility, Amended Revolving Credit Facility,~~term loan facility and ~~capital lease obligation~~revolving credit facility are as follows as of March 31, ~~2019:~~2020:


(In thousands)	(In thousands)			(In thousands)
2019		$	6,749
2020	2020	8,775		2020	$	6,581
2021	2021	9,506		2021	9,506
2022	2022	100,235		2022	86,543
2023	2023	—		2023	—
2024				2024	—
Thereafter	Thereafter	—		Thereafter	—
		$	125,265		$	102,630

~~The Amended Credit Facilities~~Our credit facilities 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, 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~~credit agreement are also guaranteed by the Subsidiary Guarantors.

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. The ~~Amended Credit Agreement~~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,~~credit agreement, the Company is required to comply with a maximum consolidated leverage ratio of ~~3.95:1.00 through December 31, 2017 and~~ 3.50:~~1.00 from January 1, 2018 and thereafter.~~1.00. The ~~Amended Credit Agreement~~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~~credit agreement as of March 31, ~~2019.~~2020.

The ~~Amended Credit Agreement~~credit agreement requires the Company to mandatorily prepay the ~~Amended Credit Facilities~~credit facilities with ~~(i) 75% of excess cash flow (minus certain specified other payments) during each of the fiscal years ending December 31, 2017 and December 31, 2018 and (ii)~~ 50% of excess cash flow (minus certain specified other payments) ~~during the fiscal year ending December 31, 2019 and thereafter.~~. The Company is permitted to voluntarily prepay the ~~Amended Credit Facilities~~credit facilities 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~~credit agreement resulted in a $7.0 million prepayment on the ~~Amended Term Loan Facility~~term loan facility during the first quarter of 2019 related to excess cash flow generated by the Company during 2018. An excess cash flow prepayment was not required during the first quarter of 2020.

~~12.~~14. OPERATING LEASES

The Company leases office space in various locations in Alabama, Louisiana, Pennsylvania, Minnesota, ~~Colorado,~~Maryland, and Mississippi. These leases have terms expiring from ~~2019~~2020 through 2030 but do contain optional extension terms. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

Supplemental balance sheet information related to operating leases was as follows:

(In thousands)

March 31, ~~2019~~2020

Operating lease assets:

Operating lease assets

~~5,882~~7,522

Operating lease liabilities:

Other accrued liabilities

~~1,274~~1,572

Operating lease liabilities, net of current portion

~~4,608~~5,950

Total operating lease liabilities

~~5,882~~7,522

Weighted average remaining lease term in years

Weighted average discount rate

~~5.2%~~

5.1%

Because our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. We used the incremental borrowing rate on January 1, 2019, for operating leases that commenced prior to that date.

The future minimum lease payments payable under these operating leases subsequent to March 31, ~~2019~~2020 are as follows:


(In thousands)	(In thousands)			(In thousands)
2019		$	886
2020	2020	997		2020	$	1,177
2021	2021	960		2021	1,518
2022	2022	887		2022	1,436
2023	2023	844		2023	1,363
2024				2024	980
Thereafter	Thereafter	2,516		Thereafter	2,383
Total lease payments	Total lease payments	7,090		Total lease payments	8,857
Less imputed interest	Less imputed interest	(1,208)		Less imputed interest	(1,335)
Total	Total	$	5,882	Total	$	7,522

Total rent expense for the three months ended March 31, 2020 and 2019 was $0.4 million and ~~2018 was~~ $0.6 million, ~~and $0.7 million,~~ respectively.

Total cash paid for amounts included in the measurement of lease liabilities within operating cash flows from operating leases for the three months ended March 31, ~~2019~~2020 was $0.4 million.

As of March 31, 2019, we had one additional office space lease that has not yet commenced with future commitments of $1.5 million. This office space in Ridgeland, MS will replace existing office space in Jackson, MS and will commence during the third quarter of 2019.

~~13.~~15. 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.

~~14.~~

16. 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.

As of March 31, 2020 and December 31, 2019, we did not have any instruments that require fair value measurement.

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 estimated the fair value of the contingent consideration based on the amount of revenue we expected to be earned by Rycan through the year ending December 31, 2018 in accordance with the purchase agreement between the parties.

~~The following table summarizes the carrying amounts and fair value of the contingent consideration at December 31, 2018:~~

Fair Value at December 31, 2018 Using
Carrying Amount at Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs
(In thousands) 12/31/2018 (Level 1) (Level 2) (Level 3)
Description
Contingent consideration $ 206 $ — $ — $ 206
Total $ 206 $ — $ — $ 206

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.

1920

~~15.~~17. SEGMENT REPORTING

Our chief operating decision makers ("CODM") utilize ~~three~~3 operating segments, "Acute Care EHR," "Post-acute Care EHR" and "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.

The following table presents a summary of the revenues and gross profits of our three operating segments for the three months ended March 31, ~~2019~~2020 and ~~2018:~~2019:


		Three Months Ended March 31,							Three Months Ended March 31,
(In thousands)	(In thousands)	2019		2018		(In thousands)	2020		2019
Revenues:	Revenues:					Revenues:
Acute Care EHR	Acute Care EHR					Acute Care EHR
Recurring revenue	Recurring revenue	$	27,389	$	28,134	Recurring revenue	$	26,438	$	27,389
Non-recurring revenue	Non-recurring revenue	10,059		12,048		Non-recurring revenue	10,077		10,059
Total Acute Care EHR revenue	Total Acute Care EHR revenue	37,448		40,182		Total Acute Care EHR revenue	36,515		37,448
Post-acute Care EHR	Post-acute Care EHR					Post-acute Care EHR
Recurring revenue	Recurring revenue	4,478		4,831		Recurring revenue	4,134		4,478
Non-recurring revenue	Non-recurring revenue	1,321		738		Non-recurring revenue	537		1,321
Total Post-acute Care EHR revenue	Total Post-acute Care EHR revenue	5,799		5,569		Total Post-acute Care EHR revenue	4,671		5,799
TruBridge	TruBridge	25,894		25,131		TruBridge	28,571		25,894
Total revenues	Total revenues	$	69,141	$	70,882	Total revenues	$	69,757	$	69,141

Cost of sales:	Cost of sales:					Cost of sales:
Acute Care EHR	Acute Care EHR	$	17,066	$	16,756	Acute Care EHR	$	17,259	$	17,066
Post-acute Care EHR	Post-acute Care EHR	1,271		1,661		Post-acute Care EHR	1,328		1,271
TruBridge	TruBridge	13,689		13,380		TruBridge	15,057		13,689
Total cost of sales	Total cost of sales	$	32,026	$	31,797	Total cost of sales	$	33,644	$	32,026

Gross profit:	Gross profit:					Gross profit:
Acute Care EHR	Acute Care EHR	$	20,382	$	23,426	Acute Care EHR	$	19,256	$	20,382
Post-acute Care EHR	Post-acute Care EHR	4,528		3,908		Post-acute Care EHR	3,343		4,528
TruBridge	TruBridge	12,205		11,751		TruBridge	13,514		12,205
Total gross profit	Total gross profit	$	37,115	$	39,085	Total gross profit	$	36,113	$	37,115

Corporate operating expenses	Corporate operating expenses	$	(31,067)	$	(31,437)	Corporate operating expenses	$	(29,981)	$	(31,067)
Other income	Other income	248		198		Other income	362		248
Interest expense	Interest expense	(1,804)		(1,978)		Interest expense	(1,179)		(1,804)
Income before taxes	Income before taxes	$	4,492	$	5,868	Income before taxes	$	5,315	$	4,492

2021

~~16.~~18. SUBSEQUENT EVENTS

Dividends

On May ~~2, 2019,~~5, 2020, the Company announced a dividend for the second quarter of ~~2019~~2020 in the amount of $0.10 per share, payable onon May ~~31, 2019,~~29, 2020, to stockholders of record as of the close of business onon May ~~16, 2019.~~15, 2020.

~~On May 3, 2019,~~COVID-19

The COVID-19 pandemic has caused, and is continuing to cause, severe economic, market and other disruptions to the U.S. and global economies. Although the pandemic had a muted impact on our results for the first quarter of 2020 and financial condition as of March 31, 2020, the Company ~~closed its acquisition~~began experiencing increasingly adverse business conditions beginning in the latter half of ~~iNetXperts, Corp.,~~March and through the date of this report. Most notably:

•Travel restrictions and social distancing protocols have created an additional challenge to our on-site implementation and sales teams. Although we have shown success with remote implementation models and our sales representatives are engaging in remote contact with existing customers and prospects, we expect these restrictions and protocols to have an incrementally negative impact on implementation revenues and new sales generation.

•Patient volumes at our client hospitals have experienced a ~~Maryland corporation doing business~~severe decline from historical levels. As the overwhelming majority of TruBridge revenues are directly or indirectly correlated with client patient volumes, we expect these reduced patient volumes to negatively impact our related revenues.

•Although we have experienced no notable disruption to our operating cash flows through the date of this report, we currently expect that the aforementioned limitations on travel and decreased client patient volumes will ultimately result in decreased cash collections from our customers as ~~Get Real Health (“Get Real Health”), pursuant~~long as these conditions persist. These decreases in cash collections could be further negatively impacted by the amount and extent to ~~a Stock Purchase Agreement dated April 23, 2019. Based in Rockville, Maryland, Get Real Health delivers technology solutions to improve patient outcomes~~which the pandemic impacts the financial condition and ~~engagement strategies with care providers. The contemplated total aggregate consideration to be paid by~~liquidity of our customers.

At this time, the Company is ~~$11 million, payable~~uncertain of the potential full magnitude or duration of the business and economic impacts from the unprecedented public health efforts to contain and combat the spread of COVID-19, and while the extent to which the COVID-19 pandemic impacts the Company’s results will depend on future developments, the outbreak could result in a material impact to the Company’s future financial position, results of operations, cash ~~subject to certain adjustments after closing, plus a contingent earnout payment of up to $14 million tied to Get Real Health’s EBITDA for 2019.~~

flows and liquidity.

2122


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:

•the impact of COVID-19 and related economic disruptions could materially affect our revenue, gross margin and income, as well as our financial position and/or liquidity;

•saturation of our target market and hospital consolidations;

•changes in customer purchasing priorities, capital expenditures and demand for information technology systems;

•overall business and economic conditions affecting the healthcare industry, including the effects of the federal healthcare reform legislation enacted in 2010, and implementing regulations, on the businesses of our hospital c~~ustomers;~~customers;

•government regulation of our products and services and the healthcare and health insurance industries, including changes in healthcare policy affecting Medicare and Medicaid reimbursement rates and qualifying technological standards;

•~~changes in customer purchasing priorities, capital expenditures and demand for information technology systems;~~

•~~saturation of our target market and hospital consolidations;~~

•~~general economic conditions, including changes in the financial and credit markets that may affect the availability and cost of credit to us or our customers;~~

•~~our substantial indebtedness, and our ability to incur additional indebtedness in the future;~~

•~~our potential inability to generate sufficient cash in order to meet our debt service obligations;~~

•~~restrictions on our current and future operations because of the terms of our senior secured credit facilities;~~

•~~market risks related to interest rate changes;~~

•competition with companies that have greater financial, technical and marketing resources than we have;

•future acquisitions that may be expensive, time consuming, and subject to other inherent risks which may jeopardize our ability to realize anticipated benefits;

•our ability to attract and retain qualified client service and support personnel;

•failure to properly manage growth in new markets we may enter;

•exposure to numerous and often conflicting laws, regulations or other requirements through our international business activities and processes;

•failure to develop new technology and products in response to market demands;

•failure of our products to function properly resulting in claims for medical and other losses;

•breaches of security and viruses in our systems resulting in customer claims against us and harm to our reputation;

•failure to maintain customer satisfaction through new product releases free of undetected errors or problems;

•failure to convince c~~ustomers~~customers to migrate to current or future releases of our products;

•~~interruptions in~~failure to maintain our ~~power supply and/or telecommunications capabilities, including those caused by natural disaster;~~margins and service rates for implementation services;

•potential liability arising out of the licensing of our ~~ability to attract~~software and ~~retain qualified client service~~provision of services and ~~support personnel;~~

•~~failure to properly manage growth in new markets we may enter;~~our dependency on our licenses of rights, products and services from third parties;

•misappropriation of our intellectual property rights and potential intellectual property claims and litigation against us;

•interruptions in our power supply and/or telecommunications capabilities, including those caused by natural disaster;

•general economic conditions, including changes in the financial and credit markets that may affect the availability and cost of credit to us or our customers;

•our substantial indebtedness, and our ability to incur additional indebtedness in the future;

•our potential inability to generate sufficient cash in order to meet our debt service obligations;

•restrictions on our current and future operations because of the terms of our senior secured credit facilities;

•market risks related to interest rate changes;

•changes in accounting principles generally accepted in the United States of America; and

•significant ~~charge~~charges 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, ~~2018.~~

2019.

Background

CPSI is a leading provider of healthcare solutions and services for community hospitals and other healthcare systems and post-acute care facilities. Founded in 1979, CPSI offers ~~our~~its products and services through ~~three~~four companies - Evident, LLC ("Evident"), TruBridge, LLC ("TruBridge"), ~~and~~ American HealthTech, Inc. ("AHT"), and iNetXperts, Corp. d/b/a Get Real Health ("Get Real Health"). These combined companies are focused on improving the health of the communities we serve, connecting communities for a better patient care experience, and improving the financial operations of our clients. The individual contributions of each of these companies towards this combined focus are as follows:

•Evident, which makes up our Acute Care EHR reporting segment, provides comprehensive acute care electronic health record ("EHR") solutions, Thrive and Centriq, and related services for community hospitals and their physician clinics.

•AHT, which makes up our Post-acute Care EHR reporting segment, provides a comprehensive post-acute care EHR solution and related services for skilled nursing and assisted living facilities.

•TruBridge, our third reporting segment, focuses on providing business management, consulting, and managed IT services along with its complete revenue cycle management ("RCM") solution for all care settings, regardless of their primary healthcare information solutions provider.

•Get Real Health, included within our TruBridge segment, delivers technology solutions to improve patient outcomes and engagement strategies with care providers.

Our companies currently support approximately ~~1,000~~800 acute care facilities and approximately 3,300 post-acute care facilities with a geographically diverse customer mix within the domestic community healthcare market. Our clients primarily consist of community hospitals with fewer than 200 acute care beds, with hospitals having fewer than 100 beds comprising approximately 98% of our acute care EHR client base.

See Note 1517 to the condensed consolidated financial statements included herein for additional information on our three reportable segments.

Management Overview

Through much of our history, ~~we have~~our strategy has been ~~able~~ to achieve meaningful long-term revenue growth through sales of healthcare IT systems and related services to existing and new clients within our target market. Prospectively, our ability to continue to realize long-term revenue growth is largely dependent on our ability to sell new and additional products and services to our existing customer base, including cross-selling opportunities presented between our operating segments, Acute Care EHR, Post-acute Care EHR, and TruBridge. As a result, retention of existing EHR customers is a key component of our long-term growth strategy by protecting this base of potential cross-sell customers, while at the same time serving as a leading indicator of our market position and stability of revenues and cash flows.

Additionally, as we consider the long-term growth prospects of our business, we are seeking to further stabilize our revenues and cash flows and leverage TruBridge services as a growth agent in light of a relatively mature EHR marketplace. As a result, we are placing ever-increasing value in further developing our already significant recurring revenue base. As such,

maintaining and growing recurring revenues are additional key components of our long-term growth strategy, aided by the aforementioned focus on customer retention, and ~~include~~includes a renewed focus on driving demand for subscriptions for our existing technology ~~solutions.~~solutions and expanding the footprint for TruBridge services beyond our EHR customer base.

Our business model is designed such that, as revenue growth materializes, earnings and profitability growth are naturally bolstered through the increased margin realization afforded us by operating leverage. Once a hospital has installed our solutions, we continue to provide support services to the customer on a continuing basis and make available to the customer our broad portfolio of business management, consulting, and managed IT services, all of which contribute to recurring revenue growth. The provision of these recurring revenue services typically requires fewer resources than the initial system installation, resulting in increased overall gross margins and operating margins.

We also look to increase margins through cost containment measures where appropriate as we continue to leverage opportunities for greater operating efficiencies of the combined entity. For example, during the first quarter of 2018, we further integrated our acute care product lines into a combined client support group. Using best practices of the combined companies' implementation processes, we have decreased travel costs for our acute care installations by approximately 25%. Also, during the third quarter of 2018, we instituted a 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.

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~~initiatives than by the economic cycles of our economy. Additionally, healthcare organizations with a large dependency on Medicare and Medicaid populations, such as 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 clients 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 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.

Much of the variability in our periodic revenues and profitability has been and will continue to be due to changing demand for different license models for our technology solutions, with variability in operating cash flows further impacted by the financing decisions within those license models. Our technology solutions are generally deployed in one of two license models: (1) perpetual licenses, for which the related revenue is recognized effectively upon installation, and (2) “Software as a Service” or “SaaS” arrangements, including our Cloud Electronic Health Record (“Cloud EHR”) offering, which generally result in revenue being recognized monthly as the services are provided over the term of the arrangement.

Although the overwhelming majority of our historical installations have been under a perpetual license model, 2019 marked a dramatic shift in customer preferences in license model, with 43% of the year’s new acute care EHR installations being performed in a SaaS model, compared to only 12% in 2018. These SaaS offerings are becoming increasingly attractive to our clients because this configuration allows them to obtain access to advanced software products without a significant initial capital outlay. We expect this trend to continue for the foreseeable future, with the resulting impact on the Company’s financial statements being reduced system sales revenues in 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. This naturally places downward pressure on short-term revenue growth and profitability metrics, but benefits long-term revenue growth and profitability which, in our view, is consistent with our goal of delivering long-term shareholder value.

For customers electing to purchase our technology solutions under a perpetual license, we have historically made financing arrangements available ~~to clients~~ on a case-by-case basis, depending ~~upon~~on the various aspects of the proposed contract and customer attributes. ~~Our system sales revenues are now weighted more heavily in the form of financed sales, compared to upfront and subscription payment modules.~~ These financing arrangements continue to comprise the majority of our perpetual license installations, and include short-term payment plans and longer-term lease financing through us or third-party financing companies. During 2018, total financing receivables increased dramatically and had a significant impact on operating cash flows. This increase in financing arrangements was primarily due to two reasons. First, meaningful use stage 3 (“MU3”) installations are primarily financed through short-term payment plans and demand for such installations increased significantly in late 2017. Second, competitor financing options, primarily through accounts receivable 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. In 2019, we experienced a modest reduction in total financing receivables due to the natural exhaustion of the MU3 opportunity and the aforementioned dramatic shift in license preferences towards SaaS arrangements,

the former of which also resulted in a positive impact to operating cash flows. We expect financing receivables to continue to decrease during 2020, with a corresponding beneficial impact to operating cash flows, as the trends related to MU3 purchases and SaaS arrangements continue.

For those perpetual license clients 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 each respective application, as applicable).

During 2018, total financing receivables increased by $7.8 million which had a significant impact on operating cash flow. This 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 and demand for such installation has increased since late 2017. 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 expect positive cash flows from financing receivables during 2019 as cash receipts from MU3 installations in the previous year are received.

We have also historically made our software applications available to clients through "Software as a Service" or "SaaS" configurations, including our Cloud Electronic Health Record ("Cloud EHR") offering. These offerings are attractive to some clients because this configuration allows them to obtain access to advanced software products without a significant initial capital outlay. We have experienced an increase in the prevalence of such SaaS arrangements for new system installations and add-on sales to existing clients since 2015, a trend we expect to continue for the foreseeable future. Unlike our 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 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.

OnIn May 3, 2019, the Company closed its acquisition of ~~iNetXperts, Corp., a Maryland corporation doing business as~~ Get Real ~~Health (“Get Real Health”), pursuant to a Stock Purchase Agreement dated April 23, 2019.~~Health. Based in Rockville, Maryland, Get Real Health delivers technology solutions to improve patient outcomes and engagement strategies with care providers. Through this acquisition, the Company ~~will strengthen~~strengthened its position in community healthcare by offering three new comprehensive patient engagement and empowerment solutions that are offered by Get Real Health. ~~Although~~

COVID-19

The impacts of COVID-19 and related economic conditions on the ~~acquisition~~Company’s results are highly uncertain and outside the Company’s control. The scope, duration and magnitude of the direct and indirect effects of COVID-19 are evolving rapidly in ways that are difficult or impossible to anticipate. In addition, because COVID-19 did not begin to affect the Company’s financial results until late in the first quarter of 2020, its impact on the Company’s results in the first quarter of 2020 is not indicative of its impact on the Company’s results for the remainder of 2020. For additional information on the risks posed by COVID-19, see “The impact of COVID-19 and related economic disruptions could materially affect our revenue, gross margin and income, as well as our financial position and/or liquidity" included in “Part II-Item 1A-Risks Factors” in this Quarterly Report on Form 10-Q.

As a result of COVID-19, community hospital patient volume in the United States and other countries around the world have rapidly deteriorated. The decreased levels of our hospital clients' patient volumes will negatively impact our revenues, gross margins, and income for our TruBridge service offerings. We also expect that new EHR system installations will be negatively impacted by restrictive travel and social distancing protocols. The Company began to experience this impact in March 2020 and expects it to persist and be more significant in the second and third quarters of 2020. The Company expects these impacts to continue for the remainder of 2020 and beyond, but the degree of the impact will depend on the ability of our community hospital clients to return to normal operations and patient volume. We believe that COVID-19 has impacted, and will continue to impact, our business results in the following additional areas:

•Bookings – A decline in new business bookings as certain client purchasing decisions and projects are delayed to focus on treating patients, procuring necessary medical supplies, and managing their organization through this crisis. This decline in bookings flow through to reduced backlog and lower subsequent revenue.

•TruBridge Revenues - Decreased levels of patient volume within our community hospital client base will negatively impact our revenues for our TruBridge service offerings as the overwhelming majority of TruBridge revenues are directly or indirectly correlated with client patient volumes. This decline in revenues will have a negative impact on gross margins and income.

•Associate productivity – A decline in associate productivity, primarily for our implementation personnel, as a large amount of work is typically done at client sites, which is being impacted by travel restrictions and our clients’ focus on the pandemic. Our clients’ focus on the pandemic has also led to pauses on existing projects and postponed start dates for others, which translates into lower implementation revenues, gross margin and income. We are mitigating this by doing more work remotely than we have in the past, but we cannot fully offset the negative impact.

•Travel – Associate travel restrictions reduce client-related travel, which reduces reimbursed travel revenues and lowers our costs of sales as a percent of revenues. Such restrictions also reduce non-reimbursable travel, which lowers operating expenses.

•Cash collections – A delay in client cash collections due to COVID-19’s impact on national reimbursement processes, and client focus on managing their own organizations’ liquidity during this time, could impact our cash collections. The federal government has allocated unprecedented resources specifically designed to assist healthcare providers with their operating and capital needs during the pandemic, allocating a total of $175 billion through the Coronavirus Aid,

Relief, and Economic Security (CARES) Act Provider Relief Fund. Further, $10 billion has been specifically targeted for rural providers, which is of particular interest to our client base, which is comprised mostly of non-urban community hospitals. Of this $10 billion, the average rural hospital is expected to ~~be accretive~~receive a total of approximately $3.6 million in direct financial relief. While these funds certainly help mitigate the financial pressures our clients face, the clinical and operational challenges remain immense and are likely to ~~Adjusted EBITDA for fiscal year 2019, there can be no assurance that this will be the case. In addition,~~cause certain of our customers to more aggressively manage cash resources in order to preserve liquidity, resulting in uncharacteristic aging of our trade accounts receivable. This would translate to lower cash flows from operating activities. Lower cash flows from operating activities may impact how we ~~expect to incur acquisition~~execute under our capital allocation strategy and ~~integration costs in the second quarter of 2019, which~~ may ~~have a negative effect on Adjusted EBITDA for the quarter.~~adversely affect our financial condition.

Results of Operations

During the three months ended March 31, ~~2019,~~2020, we generated revenues of ~~$69.1~~$69.8 million from the sale of our products and services, compared to ~~$70.9~~$69.1 million during the three months ended March 31, ~~2018, a decrease~~2019, an increase of 2%1% that is primarily attributed to ~~new EHR installations that were smaller in size compared to the first quarter of 2018 partially offset by~~ continued TruBridge client growth. We view sales of TruBridge solutions within our existing EHR client base as our leading performance

indicator. Our net income for the three months ended March 31, ~~2019 decreased~~2020 increased by ~~$0.5~~$0.6 million to ~~$3.4~~$4.1 million from the three months ended March 31, ~~2018~~2019, primarily as aof result of ~~lower Acute Care EHR system sales and support revenue leading to a gross margin of 54%, a 1% decrease from the first three months of 2018.~~decreased long-term debt interest. Net cash provided by operating activities ~~increased~~decreased slightly by ~~$4.8 million to $7.9~~$0.3 million during the three months ended March 31, 2019 to $7.6 million during the three months ended March 31, 2020, primarily due to ~~more advantageous~~ changes in working ~~capital, most notably as it relates to accounts receivable and financing receivables.~~capital.

The following table sets forth certain items included in our results of operations for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, expressed as a percentage of our total revenues for these periods:


		Three Months Ended March 31,															Three Months Ended March 31,
		2019						2018							2020				2019
(In thousands)	(In thousands)	Amount		% Sales		Amount		% Sales		(In thousands)	Amount		% Sales		Amount		% Sales
INCOME DATA:	INCOME DATA:									INCOME DATA:
Sales revenues:	Sales revenues:									Sales revenues:
System sales and support:	System sales and support:									System sales and support:
Acute Care EHR	Acute Care EHR	$	37,448	54.2	%	$	40,182	56.7	%	Acute Care EHR	$	36,515	52.3	%	$	37,448	54.2	%
Post-acute Care EHR	Post-acute Care EHR	5,799		8.4	%	5,569		7.9	%	Post-acute Care EHR	4,671		6.7	%	5,799		8.4	%
Total System sales and support	Total System sales and support	43,247		62.5	%	45,751		64.5	%	Total System sales and support	41,186		59.0	%	43,247		62.5	%
TruBridge	TruBridge	25,894		37.5	%	25,131		35.5	%	TruBridge	28,571		41.0	%	25,894		37.5	%
Total sales revenues	Total sales revenues	69,141		100.0	%	70,882		100.0	%	Total sales revenues	69,757		100.0	%	69,141		100.0	%
Costs of sales:	Costs of sales:									Costs of sales:
System sales and support:	System sales and support:									System sales and support:
Acute Care EHR	Acute Care EHR	17,066		24.7	%	16,756		23.6	%	Acute Care EHR	17,259		24.7	%	17,066		24.7	%
Post-acute Care EHR	Post-acute Care EHR	1,271		1.8	%	1,661		2.3	%	Post-acute Care EHR	1,328		1.9	%	1,271		1.8	%
Total System sales and support	Total System sales and support	18,337		26.5	%	18,417		26.0	%	Total System sales and support	18,587		26.6	%	18,337		26.5	%
TruBridge	TruBridge	13,689		19.8	%	13,380		18.9	%	TruBridge	15,057		21.6	%	13,689		19.8	%
Total costs of sales	Total costs of sales	32,026		46.3	%	31,797		44.9	%	Total costs of sales	33,644		48.2	%	32,026		46.3	%
Gross profit	Gross profit	37,115		53.7	%	39,085		55.1	%	Gross profit	36,113		51.8	%	37,115		53.7	%
Operating expenses:	Operating expenses:									Operating expenses:
Product development	Product development	9,228		13.3	%	8,757		12.4	%	Product development	8,271		11.9	%	9,228		13.3	%
Sales and marketing	Sales and marketing	7,492		10.8	%	7,714		10.9	%	Sales and marketing	6,997		10.0	%	7,492		10.8	%
General and administrative	General and administrative	11,824		17.1	%	12,364		17.4	%	General and administrative	11,847		17.0	%	11,824		17.1	%
Amortization of acquisition-related intangibles	Amortization of acquisition-related intangibles	2,523		3.6	%	2,602		3.7	%	Amortization of acquisition-related intangibles	2,866		4.1	%	2,523		3.6	%
Total operating expenses	Total operating expenses	31,067		44.9	%	31,437		44.4	%	Total operating expenses	29,981		43.0	%	31,067		44.9	%
Operating income	Operating income	6,048		8.7	%	7,648		10.8	%	Operating income	6,132		8.8	%	6,048		8.7	%
Other income (expense):	Other income (expense):									Other income (expense):
Other income	Other income	248		0.4	%	198		0.3	%	Other income	362		0.5	%	248		0.4	%
Interest expense	Interest expense	(1,804)		(2.6)	%	(1,978)		(2.8)	%	Interest expense	(1,179)		(1.7)	%	(1,804)		(2.6)	%
Total other income (expense)	Total other income (expense)	(1,556)		(2.3)	%	(1,780)		(2.5)	%	Total other income (expense)	(817)		(1.2)	%	(1,556)		(2.3)	%
Income before taxes	Income before taxes	4,492		6.5	%	5,868		8.3	%	Income before taxes	5,315		7.6	%	4,492		6.5	%
Provision for income taxes	Provision for income taxes	1,048		1.5	%	1,901		2.7	%	Provision for income taxes	1,225		1.8	%	1,048		1.5	%
Net income	Net income	$	3,444	5.0	%	$	3,967	5.6	%	Net income	$	4,090	5.9	%	$	3,444	5.0	%

Three Months Ended March 31, ~~2019~~2020 Compared with Three Months Ended March 31, ~~2018~~ 2019

Revenues. Total revenues for the three months ended March 31, ~~2019 decreased~~2020 increased by ~~$1.7~~$0.6 million, or 2%1%, compared to the three months ended March 31, ~~2018.~~2019.

2528

System sales and support revenues decreased by ~~$2.5~~$2.1 million, or 5%, compared to the first quarter ~~2018.~~of 2019. System sales and support revenues were comprised of the ~~following:~~

Three Months Ended March 31,
(In thousands) 2019 2018
Recurring system sales and support revenues⁽¹⁾
Acute Care EHR $ 27,389 $ 28,134
Post-acute Care EHR 4,478 4,831
Total recurring system sales and support revenues 31,867 32,965
Non-recurring system sales and support revenues ⁽²⁾
Acute Care EHR 10,059 12,048
Post-acute Care EHR 1,321 738
Total non-recurring system sales and support revenues 11,380 12,786
Total system sales and support revenue $ 43,247 $ 45,751
⁽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 decreased by $1.4 million, or 11%, mostly due to a $2.0 million decrease in Acute Care EHR non-recurring revenues. New implementations of our Acute Care EHR solutions decreased both in number and average contract size compared to the first quarter 2018, resulting in a $1.5 million decrease in related revenues. Our Acute Care EHR solutions were installed in five new hospital clientsfollowing during the first quarter 2019 compared to six during the first quarter 2018, with each period containing one installation under a SaaS arrangement, resulting in revenue being recognized ratably over the contractual term. Add-on sales for our Acute Care EHR segment remained relatively flat, as the $2.0 million decrease in MU3-related revenues was offset by a $2.1 million increase in other add-on revenues. Non-recurring Post-acute Care EHR revenues increased by $0.6 million, or 79%, in the first quarter 2019 as a result of increased bookings due to our ongoing product releases and aggressive efforts to make technological improvements to the AHT product line.respective periods:


	Three Months Ended March 31,
(In thousands)	2020		2019
Recurring system sales and support revenues⁽¹⁾
Acute Care EHR	$	26,438	$	27,389
Post-acute Care EHR	4,134		4,478
Total recurring system sales and support revenues	30,572		31,867
Non-recurring system sales and support revenues ⁽²⁾
Acute Care EHR	10,077		10,059
Post-acute Care EHR	537		1,321
Total non-recurring system sales and support revenues	10,614		11,380
Total system sales and support revenue	$	41,186	$	43,247

⁽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.

Recurring system sales and support revenues decreased by ~~$1.1~~$1.3 million, or 3%4%, compared to the first quarter ~~2018.~~of 2019. Acute Care EHR recurring revenues decreased by ~~$0.7~~$1.0 million, or 3%, as attrition ~~primarily~~ from the Thrive and Centriq customer base outweighed new Thrive customer growth and additional support ~~fees for MU3-related add-on sales.~~fees. Post-acute Care EHR recurring revenues decreased by ~~$0.4~~$0.3 million, or 7%8%, due to attrition attributed to an aggressive competitive environment as we make technological improvements to the AHT product line.

Non-recurring system sales and support revenues decreased by $0.8 million, or 7%. Acute Care EHR non-recurring revenues were relatively flat. We installed our Acute Care EHR solutions at nine new hospital clients during the first quarter of 2020 (eight of which were under a SaaS arrangement, resulting in revenue being recognized ratably over the contract term) compared to five new hospital clients during the first quarter of 2019 (one under a SaaS arrangement). Acute Care EHR revenues from new system implementations increased by $3.0 million, but were primarily offset by a $2.4 million decrease in MU3 installation revenue as the 2019 year-end deadline for compliance has passed. In addition, other add-on sales and non-recurring revenue decreased by $0.6 million. Non-recurring Post-acute Care EHR revenues decreased by $0.8 million, or 59%, in the first quarter of 2020, as installation bookings have weakened as we continue our ongoing product releases and efforts to make technological improvements to the AHT product line.

TruBridge revenues increased 3%by 10%, or ~~$0.8~~$2.7 million, compared to the first quarter ~~2018.~~of 2019. Our hospital clients 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, ~~our insurance services line, which includes our TruBridge services, increased by $0.8 million, or 12%, due to new RCM customer growth. We have also~~an expanded ~~our~~ customer base for our accounts receivable management services ~~resulting~~resulted in a revenue increase of $1.1 million, or 12%. Additionally, continued increasing demand for hosting services resulted in an increase of $0.3 million, or 4%11%, ~~and~~in our ~~information technology~~IT management services ~~grew by 10%, or $0.3 million. These increases were partially offset by a decrease in our medical coding services~~revenues. Get Real Health, which was acquired during the second quarter of ~~$0.8~~2019, contributed $1.3 million ~~or 26%, as a few key customers have decreased their demand for these services.~~to TruBridge revenue during the first quarter of 2020.

Costs of Sales. Total costs of sales increased by 1%5%, or ~~$0.2~~$1.6 million, compared to the first quarter ~~2018.~~of 2019. As a percentage of total revenues, costs of sales ~~increased to 46%~~were 48% of revenues in the first quarter ~~2019,~~of 2020 compared to ~~45%~~46% of revenues in the first quarter ~~2018.~~of 2019.

Costs of Acute Care EHR system sales and support increased by ~~$0.3~~$0.2 million, or 2%1%, compared to the first quarter ~~2018~~of 2019, primarily due to ~~a $1.0~~increases of $0.4 million ~~increase~~ in ~~hardware expense resulting from changes~~third-party software costs and $0.5 million in ~~the sales mix. This increase was~~travel and other costs due to increased installation activity. These increases were partially offset by a ~~3%, or~~decrease of $0.3 million ~~decrease~~ in payroll ~~cost as headcount has been reduced~~ and ~~a $0.2~~$0.4 million ~~decrease~~ in ~~third party software~~hardware costs. ~~The dual effect of decreased revenues and the increased costs noted above resulted in the gross~~Gross margin on Acute Care EHR system sales and support ~~decreasing~~decreased to 53% in the first quarter of 2020, compared to 54% in the first quarter ~~2019, compared to 58% in the first quarter 2018.~~of 2019.

Costs of Post-acute Care EHR system sales and support ~~decreased~~increased by ~~$0.4~~$0.1 million, or ~~23%~~4%, compared to the first quarter ~~2018, primarily due to reduced payroll costs~~ of ~~$0.1 million, or 15%,~~2019, as we ~~have been able to continue to operate more efficiently to meet current demand. Additional decreases~~had incremental increases in ~~software, hardware, travel,~~payroll and ~~other costs combined for an~~

~~additional $0.3 million decrease.~~hardware. The gross margin on Post-acute Care EHR system sales and support ~~increased~~decreased to 72% in the first quarter of 2020, compared to 78% in the first quarter ~~2019, compared to 70% in the first quarter 2018.~~of 2019.

Our costs associated with TruBridge sales and support increased 2%by 10%, or $1.4 million, compared to the first quarter of 2019. The primary driver was a payroll increase of $1.1 million as demand for our ARMs service increases. Get Real Health, acquired in the second quarter of 2019, contributed $0.3 million ~~with the largest contributing factor being an increase~~ in ~~payroll and related~~TruBridge costs of ~~4%, or $0.4 million, as a result of adding more employees~~sales during the ~~trailing twelve months in order to support and develop our growing customer base.~~first quarter of 2020. The gross margin on these services ~~was~~remained flat at 47% in the first quarter ~~2019~~of 2020 and ~~2018.~~2019.

Product Development. Product development expenses 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 5%,~~decreased by $1.0 million, or ~~$0.5 million,~~10%, compared to the first quarter ~~2018,~~of 2019, primarily asdue to a ~~result~~decrease in payroll of $0.5 million, with an ~~increase~~additional $0.9 million of payroll capitalized for software development. Get Real Health contributed $0.6 million in ~~headcount.~~ expenses during the first quarter of 2020.

Sales and Marketing. Sales and marketing expenses decreased 3%by 7%, or ~~$0.2~~$0.5 million, compared to the first quarter ~~2018,~~of 2019, primarily due to ~~decreased~~decreases in payroll costs of ~~7%, or~~$0.1 million, travel costs of $0.2 million, ~~based on decreased headcount.~~and general marketing spend of $0.2 million. Get Real Health contributed $0.1 million in sales and marketing costs during the first quarter of 2020.

General and Administrative. General and administrative expenses ~~decreased 4%, or $0.5 million, as~~remained flat compared to the $2.5 million in cost savings achieved through recent changes in the health benefits offered to our employees through our self-insured health plans were partially offset by increases in other expense items.first quarter of 2019. Most notably, we saw a ~~$1.1~~$1.0 million ~~increase~~decrease in non-recurring ~~and~~ transaction-related costs resulting from ~~recent~~the the GRH acquisition ~~activity~~ and other strategic initiatives. Bad debt expense increased $0.6 million, as a few of our hospital clients have not been or may not be able to fulfill their financial obligations. Lastly, stock compensation expense increased $0.3 million as a result of additional grants of stock madeinitiatives which we incurred during the ~~trailing twelve months.~~first quarter of 2019. These costs were primarily offset by an increase of $0.7 million in employee health costs, along with $0.4 million contributed by Get Real Health in general and administrative costs during the first quarter of 2020.

Amortization of Acquisition-Related Intangibles. Amortization expense associated with acquisition-related intangible assets ~~decreased $0.1~~increased by $0.3 million, compared to the first quarter ~~2018~~of 2019, due to the ~~retirement~~inclusion of ~~Rycan related trademarks during 2018. All software and services previously provided under the Rycan name now are marketed under TruBridge trademarks.~~Get Real Health intangibles.

Total Operating Expenses. As a percentage of total revenues, total operating expenses ~~increased~~decreased to 43% of revenues in the first quarter of 2020, compared to 45% in the first quarter ~~2019, compared to 44% in the first quarter 2018.~~of 2019.

Total Other Income (Expense). Total other income (expense) decreased from expense of ~~$1.8 million during the first quarter 2018 to expense of~~ $1.6 million during the first quarter of 2019 to expense of $0.8 million during the first quarter of 2020, primarily as weour long-term debt and accompanying interest rate have ~~reduced our interest-bearing long term debt, coupled with an increase in interest income due to~~both decreased from the ~~expansion~~first quarter of ~~long-term payment plans offered to our clients.~~2019.

Income Before Taxes. As a result of the foregoing factors, income before taxes ~~decreased~~increased by ~~23%, or $1.4~~$0.8 million, compared to the first quarter ~~2018.~~of 2019.

Provision for Income Taxes.Our effective tax rate for the three months ended March 31 2020 and 2019, ~~decreased to 23.3% from 32.4% for the three months ended March 31, 2018. Our implementation~~was a tax expense of the Internal Revenue Service’s “Guidance for Allowance of the Credit for Increasing Research Activities under IRC Section 41 for Taxpayers that Expense Research and Development Costs on their Financial Statements pursuant to ASC 730,” commonly referred to as the “ASC 730 Safe Harbor Directive,” during the second half of 2018 has significantly increased our estimated research and development ("R&D") tax credits, resulting in an incremental benefit to our effective tax rate of 4.5% for the first quarter 2019 compared to the first quarter 2018. Additionally, we have experienced a decrease in tax shortfalls related to stock-based compensation, resulting in an incremental benefit to our effective tax rate of 4.3% for the first quarter 2019 compared to the first quarter 2018.23%.

Net Income. Net income for the three months ended March 31, ~~2019 decreased~~2020 increased by ~~$0.5~~$0.6 million to ~~$3.4~~$4.1 million, or ~~$0.24~~$0.28 per basic and diluted share, compared with net income of ~~$4.0~~$3.4 million, or ~~$0.29~~$0.24 per basic and diluted share, for the three months ended March 31, ~~2018.~~2019. Net income represented 6% of revenue for the three months ended March 31, 2020, compared to 5% of revenue for the three months ended March 31, ~~2019, compared to 6% of revenue for the three months ended March 31, 2018.~~2019.

Liquidity and Capital Resources

The Company’s liquidity and capital resources were not materially impacted by COVID-19 and related economic conditions during the first quarter of 2020. For further discussion regarding the potential future impacts of COVID-19 and related economic conditions on the Company’s liquidity and capital resources, see “COVID-19” in this Management's Discussion and Analysis of Financial Condition and Results of Operations and “Part II-Item 1A-Risk Factors” below.

Sources of Liquidity

As of March 31, ~~2019,~~2020, our principal sources of liquidity consisted of cash and cash equivalents of ~~$4.4~~$4.3 million and our remaining borrowing capacity under the ~~Amended Revolving Credit Facility~~revolving credit facility of ~~$20.3~~$34.0 million, compared to ~~$5.7~~$7.4 million of cash and cash equivalents and ~~$20.3~~$30.0 million of remaining borrowing capacity under the ~~Amended Revolving Credit Facility~~revolving credit facility as of December 31, ~~2018.~~2019. In conjunction with our acquisition of HHI in January 2016, we entered into the ~~Previous Credit Agreement~~syndicated credit agreement which provided for ~~the~~a $125 million ~~Previous Term Loan Facility~~term loan facility and ~~the~~a $50 million ~~Previous Revolving Credit Facility. On October 13, 2017, the Company entered into the Second Amendment to refinance and decrease the aggregate~~

~~principal amount of the~~revolving 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.~~facility. On February 8, 2018, the Company entered into the Third Amendment to the credit agreement to increase the aggregate principal amount of the ~~Amended Credit Facilities~~credit facilities from $162 million to $167 million, which includes ~~the~~a $117 million ~~Amended Term Loan Facility~~term loan facility and a $50 million ~~Amended Revolving Credit Facility.~~revolving credit facility.

As of March 31, ~~2019,~~2020, we had ~~$125.1~~$102.6 million in principal amount of indebtedness outstanding under the ~~Amended Credit Facilities.~~credit facilities. We believe that our cash and cash equivalents of ~~$4.4~~$4.3 million as of March 31, ~~2019,~~2020, the future operating cash flows of the combined entity, and our remaining borrowing capacity under the ~~Amended Revolving Credit Facility~~revolving credit facility of ~~$20.3~~$34.0 million as of March 31, ~~2019,~~

2020, 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.

To finance the closing of the Get Real Health transaction, which occurred on May 3, 2019, the Company used a draw of approximately $11.0 million under its Amended Revolving Credit Facility. If the Company is required to make earnout payments (up to $14.0 million) after the end of 2019, the Company expects to use additional draws on its Amended Revolving Credit Facility.

Operating Cash Flow Activities

Net cash provided by operating activities ~~increased $4.8~~decreased by $0.3 million, from ~~$3.1 million provided by operations for the three months ended March 31, 2018 to~~ $7.9 million provided by operations for the three months ended March 31, ~~2019.~~2019 to $7.6 million provided by operations for the three months ended March 31, 2020. The ~~increase~~decrease in cash flows provided from operations is primarily due to ~~more cash-advantageous~~ changes in working ~~capital.~~capital, partially offset by greater net income during the first three months of 2020. Working capital was a net use of cash during the first ~~quarter 2018~~three months of 2019 in the amount of ~~$7.4~~$3.0 million, compared to a net use of cash during the first ~~quarter 2019~~three months of ~~only $3.0~~2020 of $4.3 million. During the first quarter 2018, rapid revenue growth for TruBridge resulted in expansion of accounts receivable of approximately $3.0 million and financing receivables of approximately $2.4 million, as we were still in the early-stages of the MU3 opportunity (the sales of which have been nearly all under short-term payment plans). Conversely, modest TruBridge revenue growth during the first quarter 2019 coupled with collections on past financing receivables have greatly abated the related cash flow headwinds. As a result, these components of working capital, which combined for $5.4 million of cash flow headwinds during the first quarter 2018, were effectively cash-neutral during the first quarter 2019.

Investing Cash Flow Activities

Net cash used in investing activities increased by $2.6 million, with ~~$0.5~~$3.0 million used in the three months ended March 31, ~~2019~~2020 compared to ~~$0.1~~$0.5 million used during the three months ended March 31, ~~2018. We~~2019. The first three months of 2020 included $0.9 million in capitalized software development costs compared to none during the first three months of 2019.We do not anticipate the need for significant capital expenditures during the remainder of ~~2019.~~2020.

Financing Cash Flow Activities

During the three months ended March 31, ~~2019,~~2020, our financing activities used net cash of ~~$8.7~~$7.6 million, as we paid a net ~~$7.1~~$6.2 million in long-term debt principal and declared and paid dividends in the amount of $1.4 million. During the three months ended March 31, 2019, we made a $7.0 million prepayment on the ~~Amended Term Loan Facility~~term loan facility in accordance with the excess cash flow mandatory prepayment requirements of the ~~Amended Credit Agreement.~~credit agreement. Financing cash flow activities used ~~$1.9~~$8.7 million during the three months ended March 31, ~~2018,~~2019, primarily due to ~~$0.5~~$7.1 million net paid in long-term debt principal and $1.4 million cash paid in dividends.

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 other such ~~other~~ factors ~~as our~~the Board of Directors may deem relevant.

Credit Agreement

As of March 31, ~~2019,~~2020, we had ~~$95.4~~$86.6 million in principal amount outstanding under the ~~Amended Term Loan Facility~~term loan facility and ~~$29.7~~$16.0 million in principal amount outstanding under the ~~Amended Revolving Credit Facility.~~revolving credit facility. Each of the ~~Amended Credit Facilities~~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 range for LIBOR loans and the letter of credit fee ranges from 2.0% to 3.5%. The applicable margin range for base rate loans ranges from 1.0% to 2.5%, in each case based on the Company's consolidated leverage ratio.

Principal payments with respect to the ~~Amended Term Loan Facility~~term loan facility are due on the last day of each fiscal quarter beginning December 31, 2017, with quarterly principal payments of approximately ~~$1.46~~$1.5 million through September 30, 2019, approximately ~~$2.19~~$2.2 million through September 30, 2021 and approximately ~~$2.93~~$2.9 million through September ~~30.~~30, 2022, with maturity on October 13, 2022 or such earlier date as the obligations under the ~~Amended Credit Agreement~~credit agreement become due and payable pursuant to the terms of the ~~Amended Credit Agreement (the "Amended Maturity Date").~~credit agreement. Any principal outstanding under the ~~Amended Revolving Credit Facility~~revolving credit facility is due and payable on the ~~Amended Maturity Date.~~amended maturity date.

The ~~Amended Credit Agreement,~~credit agreement, as amended by the Third Amendment, provides incremental facility capacity of $50 million, subject to certain conditions. The ~~Amended Credit Agreement~~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. The ~~Amended Credit Agreement~~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,~~credit agreement, the Company is required to comply with a maximum consolidated leverage ratio of ~~3.95:1.00 through December 31, 2017 and~~ 3.50:~~1.00 from January 1, 2018 and thereafter.~~1.00. The ~~Amended Credit Agreement~~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~~credit agreement as of March 31, ~~2019.~~2020.

The ~~Amended Credit Agreement~~credit agreement requires the Company to mandatorily prepay the ~~Amended Credit Facilities~~credit facilities with ~~(i) 75% of excess cash flow (minus certain specified other payments) during each of the fiscal years ending December 31, 2017 and December 31, 2018 and (ii)~~ 50% of excess cash flow (minus certain specified other payments) ~~during~~. This mandatory prepayment requirement is applicable only if the ~~fiscal year ending December 31, 2019 and thereafter.~~Company's consolidated leverage ratio exceeds 2.50:1.00. The Company is permitted to voluntarily prepay the ~~Amended Credit Facilities~~credit facilities 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~~credit agreement resulted in a $7.0 million prepayment on the ~~Amended Term Loan Facility~~term loan facility during the first quarter of 2019 related to excess cash flow generated by the Company during 2018.

An excess cash flow prepayment was not required during the first quarter of 2020.

Backlog

Backlog consists of revenues we reasonably expect to recognize over the next twelve months under all existing 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 March 31, ~~2019,~~2020, we had a twelve-month backlog of approximately ~~$17~~$12 million in connection with non-recurring system purchases and approximately ~~$227~~$234 million in connection with recurring payments under support and maintenance, Cloud EHR contracts, and TruBridge services. As of March 31, ~~2018,~~2019, we had a twelve-month backlog of approximately ~~$35~~$17 million in connection with non-recurring system purchases and approximately ~~$230~~$227 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 three months ended March 31, ~~2019~~2020 and ~~2018:~~2019:


		Three Months Ended March 31,								Three Months Ended March 31,
(In thousands)	(In thousands)	2019		2018		(In thousands)		2020		2019
System sales and support ⁽¹⁾	System sales and support ⁽¹⁾					System sales and support ⁽¹⁾
Acute Care EHR	Acute Care EHR	$	8,285	$	17,505	Acute Care EHR		$	8,919	$	8,285
Post-acute Care EHR	Post-acute Care EHR	1,431		727		Post-acute Care EHR		913		1,431
Total system sales and support	Total system sales and support	9,716		18,232		Total system sales and support		9,832		9,716

TruBridge⁽²⁾	TruBridge⁽²⁾	4,228		3,818		TruBridge⁽²⁾		9,511		4,228

Total bookings	Total bookings	$	13,944	$	22,050	Total bookings		$	19,343	$	13,944

⁽¹⁾ Generally calculated as the total contract price (for system sales) and annualized contract value (for support).	⁽¹⁾ Generally calculated as the total contract price (for system sales) and annualized contract value (for support).						⁽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).	⁽²⁾ Generally calculated as the total contract price (for non-recurring, project-related amounts) and annualized contract value (for recurring amounts).						⁽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 first quarter ~~2019 decreased~~of 2020 increased by ~~$9.2~~$0.6 million, or ~~53%~~8%, ~~from~~over the first quarter ~~2018,~~of 2019, mostly ~~as net~~propelled by increased demand for new EHR installations. Acute Care EHR new installation bookings ~~have been severely impaired~~increased $2.2

million compared to the first three months of 2019. This increase was partially offset by a ~~lack~~$0.5 million decrease in MU3 related add-on sales and a $1.1 million decrease in other EHR add-on sales compared to the first quarter of urgency on the part of prospective customers, resulting in a low volume of decisions for new system implementations. Management views this as a timing anomaly, and does not consider the quality of its pipeline to have diminished materially.2019.

Post-acute Care EHR bookings in the first quarter ~~2019 increased~~of 2020 decreased by ~~$0.7~~$0.5 million, or ~~97%~~36%, from the first quarter ~~2018,~~of 2019 as ~~beneficial regulatory factors~~bookings have ~~worked in tandem with~~weakened as we continue our ~~recent~~ongoing product releases and efforts to ~~improve~~make technological improvements to the ~~related~~AHT product ~~functionality and usability to drive improved demand in both the net new and add-on sales enviroments.~~line.

TruBridge bookings in the first quarter of 2020 increased ~~$0.4~~by $5.3 million, or ~~11%~~125%, ~~as demand for~~over the ~~remote hosting products offered by~~first quarter of 2019, mostly due to our ~~IT Managed Services division and the revenue cycle optimization tools offered through the~~recently-introduced initiative to expand our TruBridge ~~RCM solution led to increased deal-flow.~~footprint outside of our traditional EHR customer base, resulting in significant client wins.

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 March 31, ~~2019.~~2020.

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, ~~2018,~~2019, we identified our critical accounting polices related to revenue recognition, allowance for doubtful accounts, allowance for credit losses, and estimates. There have been no significant changes to these critical accounting policies during the three months ended March 31, ~~2019.~~2020.


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 ~~$125.1~~$102.6 million of outstanding borrowings under our ~~Amended Credit Facilities~~credit facilities with Regions Bank at March 31, ~~2019.~~2020. The ~~Amended Term Loan Facility~~term loan facility and ~~Amended Revolving Credit Facility~~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.~~credit facilities. A one hundred basis point change in interest rate on our borrowings outstanding as of March 31, ~~2019~~2020 would result in a change in interest expense of approximately ~~$1.3~~$1.0 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.

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

There 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 March 31, ~~2019~~2020 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 operating and finance leases and properly assessed the impact of the new accounting standard related to lease accounting on our financial statements to facilitate adoption on January 1, 2019. There were no significant changes to our internal controls over financial reporting due to the adoption of the new standard.

3134

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, ~~2018,~~2019, 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. Other than as described below, there have been no material changes to the risk factors disclosed in Part I-Item 1A of the Company’s 2019 Annual Report.

The impact of COVID-19 and related economic disruptions could materially affect our revenue, gross margin and income, as well as our financial position and/or liquidity.

Beginning in March 2020, the global pandemic related to the novel coronavirus COVID-19 began to impact the global economy and our results of operations. Because of the size and breadth of this pandemic, all of the direct and indirect consequences of COVID-19 are not yet known and may not emerge for some time. Risks presented by the ongoing effects of COVID-19 include the following:

•Revenues, Gross Margins and Income. We expect that the impact of COVID-19 on our community hospital client base, and the related decrease in patient volumes, will negatively impact our variable revenues, gross margins and income driven by collection volume. We also expect that new EHR system installations will be negatively impacted by restrictive travel and social distancing protocols. We began to experience this impact in March 2020 and expect it to persist and be more significant in the second and third quarters of 2020. The Company expects these impacts to continue for the remainder of 2020 and beyond, but the degree of the impact will depend on the ability of our community hospital clients to return to normal operations and patient volume. In addition, although we have experienced no notable disruption to our operating cash flows through the date of this report, we currently expect that the aforementioned limitations on travel and decreased client patient volumes will ultimately result in decreased cash collections from our customers as long as these conditions persist. For further discussion, see “Failure to maintain our margins and services rates for implementation services could have a material adverse effect on our operating performance and financial conditions” in the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2019.

•Adverse Legislative and/or Regulatory Action. Federal, state and local government actions to address and contain the impact of COVID-19 may adversely affect us. For further discussion, see “There is significant uncertainty in the healthcare industry, both as a result of recently enacted legislation and changing government regulation, which may have a material adverse impact on the businesses of our hospital clients and ultimately on our business, financial condition and results of operations” in the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2019.

•Operational Disruptions and Heightened Cybersecurity Risks. Our operations could be disrupted if key members of our senior management or a significant percentage of our workforce or the workforce of our client community hospitals are unable to work because of illness, government directives or otherwise. Having shifted to remote working arrangements, we also face a heightened risk of cybersecurity attacks or data security incidents and are more dependent on the internet and telecommunications access and capabilities. For further discussion, see “Breaches of security and viruses in our systems could result in client claims against us and harm to our reputation causing us to

incur expenses and/or lose clients” in the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2019.

The extent to which the COVID-19 pandemic will impact our financial condition and results of operations will depend on future developments, which are highly uncertain and difficult to predict, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may experience material adverse impacts to our business as a result of the global or U.S. economic impact and any recession that has occurred or may occur in the future. There are no comparable recent events that provided guidance as to effect the COVID-19 pandemic may have, and, as a result, the ultimate impact of the pandemic on our operations and financial results is highly uncertain and subject to change.

Additionally, concerns over the economic impact of the COVID-19 pandemic have caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price and may adversely impact our ability to access capital, at all or on reasonable terms. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described under “Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2019.


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.

None.


Item 6.			Exhibits.


~~2.1~~3.1	~~Stock Purchase Agreement, dated April 23, 2019, by and among Computer Programs and Systems, Inc., iNetXperts, Corp., the~~ S ~~ellers named therein, and the Seller~~s ~~' Representative (filed as Exhibit 2.1 to CPSI's Current Report on Form 8-K dated April 24, 2019 and incorporated herein by reference)~~

~~2.2~~		~~First Amendment to Stock Purchase Agreement, dated May 2, 2019, by and among Computer Programs and Systems, Inc., iNetXperts, Corp., the Sellers named therein, and the Sellers' Representative~~

~~3.1~~		Certificate 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)

3.2		Amended 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)

3.3		Amendment to Amended and Restated Bylaws (filed as Exhibit 3.1 to CPSI's Current Report on Form 8-K dated January 22, 2019 and incorporated herein by reference)

10.1		Form of Non-Employee Director Restricted Stock Award Agreement Under the 2019 Incentive Plan

31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certifications 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

101		Interactive Data Files for CPSI’s Form 10-Q for the period ended March 31, ~~2019~~2020

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.

May ~~8, 2019~~5, 2020

By:

/s/ J. Boyd Douglas

J. Boyd Douglas

President and Chief Executive Officer

May ~~8, 2019~~5, 2020

By:

/s/ Matt J. Chambless

Matt J. Chambless

Chief Financial Officer

3437


			Fair Value at December 31, 2018 Using
	Carrying Amount at		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	12/31/2018		(Level 1)		(Level 2)		(Level 3)
Description
Contingent consideration	$	206	$	—	$	—	$	206
Total	$	206	$	—	$	—	$	206