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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 June 30, 2019
For the quarterly period ended June 30, 2018.
o☐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)

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

(251) 639-8100
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading symbolName of each exchange on which registered
Common Stock, par value $.001 per shareCPSIThe 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer"filer," "smaller reporting company," and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨Accelerated filerý
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company¨☐
Emerging Growth Companygrowth company
¨

☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨☐    No  ý
As of August 6, 2018 there w7, 2019, theere 14,085,989 share were 14,355,180 sharreses of the issuer’s common stock outstanding.

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COMPUTER PROGRAMS AND SYSTEMS, INC.
Quarterly Report on Form 10-Q
(For the three and six months ended June 30, 2018)2019)
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PART I
FINANCIAL INFORMATION

Item 1.Financial Statements.

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


June 30, 2018December 31, 2017
Assets
Current assets:
Cash and cash equivalents$1,492 $520 
Accounts receivable, net of allowance for doubtful accounts of $3,213 and $2,654, respectively41,216 38,061 
Financing receivables, current portion, net14,788 15,055 
Inventories1,478 1,417 
Prepaid income taxes651 — 
Prepaid expenses and other6,038 2,824 
Total current assets65,663 57,877 
Property and equipment, net11,042 11,692 
Financing receivables, net of current portion13,025 11,485 
Other assets, net of current portion1,155 — 
Intangible assets, net91,510 96,713 
Goodwill140,449 140,449 
Total assets$322,844 $318,216 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$5,814 $7,620 
Current portion of long-term debt5,830 5,820 
Deferred revenue12,300 8,707 
Accrued vacation4,702 3,794 
Income taxes payable— 810 
Other accrued liabilities10,160 14,098 
Total current liabilities38,806 40,849 
Long-term debt, net of current portion133,151 136,614 
Deferred tax liabilities6,646 4,667 
Total liabilities178,603 182,130 
Stockholders’ equity:
Common stock, $0.001 par value; 30,000 shares authorized; 14,086 and 13,760 shares issued and outstanding, respectively14 14 
Additional paid-in capital159,770 155,078 
Accumulated deficit(15,543)(19,006)
Total stockholders’ equity144,241 136,086 
Total liabilities and stockholders’ equity$322,844 $318,216 

June 30, 2019December 31, 2018
Assets
Current assets:
Cash and cash equivalents$6,849 $5,732 
Accounts receivable, net of allowance for doubtful accounts of $2,008 and $2,124, respectively37,748 40,474 
Financing receivables, current portion, net13,243 15,059 
Inventories1,869 1,498 
Prepaid income taxes3,115 2,120 
Prepaid expenses and other5,800 5,055 
Total current assets68,624 69,938 
Property and equipment, net11,532 10,875 
Operating lease assets6,909 — 
Financing receivables, net of current portion18,196 19,263 
Other assets, net of current portion974 995 
Intangible assets, net88,987 86,226 
Goodwill149,869 140,449 
Total assets$345,091 $327,746 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$5,422 $5,668 
Current portion of long-term debt7,783 6,486 
Deferred revenue10,117 10,201 
Accrued vacation4,395 3,929 
Other accrued liabilities15,282 12,219 
Total current liabilities42,999 38,503 
Long-term debt, net of current portion122,040 124,583 
Operating lease liabilities, net of current portion5,646 — 
Deferred tax liabilities7,247 4,877 
Total liabilities177,932 167,963 
Stockholders’ equity:
Common stock, $0.001 par value; 30,000 shares authorized; 14,355 and 14,083 shares issued and outstanding, respectively14 14 
Additional paid-in capital169,920 164,793 
Accumulated deficit(2,775)(5,024)
Total stockholders’ equity167,159 159,783 
Total liabilities and stockholders’ equity$345,091 $327,746 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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COMPUTER PROGRAMS AND SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended June 30,Six Months Ended June 30,
2018201720182017
Sales revenues:
System sales and support$42,746 $45,474 $88,498 $88,897 
TruBridge25,159 22,203 50,290 42,854 
Total sales revenues67,905 67,677 138,788 131,751 
Costs of sales:
System sales and support19,528 19,753 37,946 39,540 
TruBridge13,531 11,933 26,910 23,520 
Total costs of sales33,059 31,686 64,856 63,060 
Gross profit34,846 35,991 73,932 68,691 
Operating expenses:
Product development9,314 8,414 18,071 16,492 
Sales and marketing7,518 7,607 15,232 14,734 
General and administrative13,188 12,921 25,552 24,581 
Amortization of acquisition-related intangibles2,601 2,601 5,203 5,203 
Total operating expenses32,621 31,543 64,058 61,010 
Operating income2,225 4,448 9,874 7,681 
Other income (expense):
Other income194 70 392 140 
Interest expense(1,807)(1,938)(3,785)(3,745)
Total other income (expense)(1,613)(1,868)(3,393)(3,605)
Income before taxes612 2,580 6,481 4,076 
Provision for income taxes284 993 2,185 2,243 
Net income$328 $1,587 $4,296 $1,833 
Net income per common share—basic$0.02 $0.11 $0.31 $0.13 
Net income per common share—diluted$0.02 $0.11 $0.31 $0.13 
Weighted average shares outstanding used in per common share computations:
Basic13,561 13,420 13,518 13,397 
Diluted13,561 13,420 13,518 13,397 
Dividends declared per common share$0.10 $0.20 $0.20 $0.45 

Three Months Ended June 30,Six Months Ended June 30,
2019201820192018
Sales revenues:
System sales and support$39,640 $42,746 $82,887 $88,498 
TruBridge26,516 25,159 52,410 50,290 
Total sales revenues66,156 67,905 135,297 138,788 
Costs of sales:
System sales and support17,673 19,528 36,010 37,946 
TruBridge13,948 13,531 27,637 26,910 
Total costs of sales31,621 33,059 63,647 64,856 
Gross profit34,535 34,846 71,650 73,932 
Operating expenses:
Product development9,297 9,314 18,526 18,071 
Sales and marketing7,016 7,518 14,508 15,232 
General and administrative12,090 13,188 23,914 25,552 
Amortization of acquisition-related intangibles2,516 2,601 5,039 5,203 
Total operating expenses30,919 32,621 61,987 64,058 
Operating income3,616 2,225 9,663 9,874 
Other income (expense):
Other income283 194 532 392 
Interest expense(1,763)(1,807)(3,567)(3,785)
Total other income (expense)(1,480)(1,613)(3,035)(3,393)
Income before taxes2,136 612 6,628 6,481 
Provision for income taxes473 284 1,521 2,185 
Net income$1,663 $328 $5,107 $4,296 
Net income per common share—basic$0.12 $0.02 $0.36 $0.31 
Net income per common share—diluted$0.12 $0.02 $0.36 $0.31 
Weighted average shares outstanding used in per common share computations:
Basic13,794 13,561 13,725 13,518 
Diluted13,794 13,561 13,725 13,518 
Dividends declared per common share$0.10 $0.10 $0.20 $0.20 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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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
SharesAmount
Balance at December 31, 201713,760 $14 $155,078 $(19,006)$136,086 
Net income— — — 4,296 4,296 
Adoption of accounting standards (Note 2)— — — 1,970 1,970 
Issuance of restricted stock326 — — — — 
Stock-based compensation— — 4,692 — 4,692 
Dividends— — — (2,803)(2,803)
Balance at June 30, 201814,086 $14 $159,770 $(15,543)$144,241 

Common StockAdditional Paid-in-CapitalAccumulated DeficitTotal Stockholders’ Equity
Three Months Ended June 30, 2019 and 2018:SharesAmount
Balance at March 31, 201914,355 $14 $167,229 $(3,002)$164,241 
Net income— — — 1,663 1,663 
Stock-based compensation— — 2,691 — 2,691 
Dividends— — — (1,436)(1,436)
Balance at June 30, 201914,355 $14 $169,920 $(2,775)$167,159 
Balance at March 31, 201814,086 $14 $157,017 $(14,463)$142,568 
Net income— — — 328 328 
Stock-based compensation— — 2,753 — 2,753 
Dividends— — — (1,408)(1,408)
Balance at June 30, 201814,086 $14 $159,770 $(15,543)$144,241 
Six Months Ended June 30, 2019 and 2018:
Balance at December 31, 201814,083 $14 $164,793 $(5,024)$159,783 
Net income— — — 5,107 5,107 
Issuance of restricted stock272 — — — — 
Stock-based compensation— — 5,127 — 5,127 
Dividends— — — (2,858)(2,858)
Balance at June 30, 201914,355 $14 $169,920 $(2,775)$167,159 
Balance at December 31, 201713,760 $14 $155,078 $(19,006)$136,086 
Net income— — — 4,296 4,296 
Adoption of accounting standard— — — 1,970 1,970 
Issuance of restricted stock326 — — — — 
Stock-based compensation— — 4,692 — 4,692 
Dividends— — — (2,803)(2,803)
Balance at June 30, 201814,086 $14 $159,770 $(15,543)$144,241 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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COMPUTER PROGRAMS AND SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 

Six Months Ended June 30,
20182017
Operating Activities:
Net income$4,296 $1,833 
Adjustments to net income:
Provision for bad debt1,695 473 
Deferred taxes1,404 1,920 
Stock-based compensation4,692 2,967 
Depreciation1,067 1,419 
Amortization of acquisition-related intangibles5,203 5,203 
Amortization of deferred finance costs173 365 
Changes in operating assets and liabilities:
Accounts receivable(4,453)(3,013)
Financing receivables(1,669)(4,241)
Inventories(62)622 
Prepaid expenses and other(594)(1,014)
Accounts payable(1,806)4,588 
Deferred revenue2,363 2,724 
Other liabilities(3,030)2,236 
Prepaid income taxes/income taxes payable(1,461)(191)
Net cash provided by operating activities7,818 15,891 
Investing Activities:
Purchases of property and equipment(417)(465)
Net cash used in investing activities(417)(465)
Financing Activities:
Dividends paid(2,803)(6,135)
Payments of long-term debt principal(10,335)(3,271)
Proceeds from revolving line of credit7,300 — 
Payments of revolving line of credit(591)(6,500)
Proceeds from exercise of stock options— 1 
Net cash used in financing activities(6,429)(15,905)
Increase (decrease) in cash and cash equivalents972 (479)
Cash and cash equivalents at beginning of period520 2,220 
Cash and cash equivalents at end of period$1,492 $1,741 
Supplemental disclosure of cash flow information:
Cash paid for interest$3,539 $3,355 
Cash paid for income taxes, net of refund$2,242 $514 
The accompanying notes are an integral part of these condensed consolidated financial statements.
Six Months Ended June 30,
20192018
Operating Activities:
Net income$5,107 $4,296 
Adjustments to net income:
Provision for bad debt1,990 1,695 
Deferred taxes1,177 1,404 
Stock-based compensation5,127 4,692 
Depreciation730 1,067 
Amortization of acquisition-related intangibles5,039 5,203 
Amortization of deferred finance costs173 173 
Changes in operating assets and liabilities:
Accounts receivable1,265 (4,453)
Financing receivables2,718 (1,669)
Inventories(371)(62)
Prepaid expenses and other(617)(594)
Accounts payable(840)(1,806)
Deferred revenue(514)2,363 
Other liabilities(2,528)(3,030)
Prepaid income taxes/income taxes payable(995)(1,461)
Net cash provided by operating activities17,461 7,818 
Investing Activities:
Purchase of business, net of cash received(10,840)— 
Purchase of property and equipment(1,022)(417)
Net cash used in investing activities(11,862)(417)
Financing Activities:
Dividends paid(2,858)(2,803)
Payments of long-term debt principal(10,118)(10,335)
Payments of contingent consideration(206)— 
Proceeds from revolving line of credit11,000 7,300 
Payments of revolving line of credit(2,300)(591)
Net cash used in financing activities(4,482)(6,429)
Increase in cash and cash equivalents1,117 972 
Cash and cash equivalents at beginning of period5,732 520 
Cash and cash equivalents at end of period$6,849 $1,492 
Supplemental disclosure of cash flow information:
Cash paid for interest$3,388 $3,539 
Cash paid for income taxes, net of refund$1,339 $2,242 
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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, 20172018 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, 20172018 and the notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.2018.
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.
Presentation
Effective January 1, 2018, our interface services team, which provides the design, development, implementation, and support services for all interfaces for data exchange from the CPSI applications, was previously considered a part of our product development division and has been integrated with our acute care client service team. This transition will work to create a consistent, personal, and convenient service experience for our clients characterized by transparent communication with prompt resolution. With this change, the payroll and related costs of this group of employees that were formerly included within the caption "Product development" on our condensed consolidated statements of income are now included within the caption "System sales and support - Cost of sales."
This reclassification had no effect on previously reported total sales revenues, operating income, income before taxes or net income.
Amounts presented for the three and six months ended June 30, 2017 have been reclassified to conform to the current presentation. The following table provides the amounts reclassified for the three months ended June 30, 2017:
(In thousands)As previously reportedReclassificationAs reclassified
Costs of sales:
System sales and support$18,859 $894 $19,753 
Operating expenses:
Product development$9,308 $(894)$8,414 






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 The following table provides the amounts reclassified for the six months ended June 30, 2017:
(In thousands)As previously reportedReclassificationAs reclassified
Costs of sales:
System sales and support$37,789 $1,751 $39,540 
Operating expenses:
Product development$18,243 $(1,751)$16,492 

2.     RECENT ACCOUNTING PRONOUNCEMENTS
New Accounting Standards Adopted in 2018
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes prior revenue recognition guidance. This guidance was effective for fiscal years and interim periods within those years beginning after December 15, 2017, which was effective for the Company as of the first quarter of our fiscal year ending December 31, 2018. We adopted this new accounting standard codified as Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, and the related amendments ("new revenue standard") during the first quarter of 2018 and have applied it to all contracts using the modified retrospective method, pursuant to which the cumulative effect of initially applying the new revenue standard is recognized as an adjustment to retained earnings and impacted balance sheet line items as of January 1, 2018, the date of adoption. The comparative previous period information continues to be reported under the accounting standards in effect for that period.
We completed an assessment of our systems, data, and processes that are affected by the implementation of this new revenue standard and have concluded that this standard does not significantly alter revenue recognition practices for our system sales and support and TruBridge revenue streams. The impact on our revenue recognition is limited to deferring and amortizing implementation fees over the contract life related to our Rycan revenue cycle management product, in which we previously recognized revenue as implementation was completed. Rycan implementation fees totaled $1.6 million in 2017, less than 1% of our 2017 revenues. The balance sheet impact of the deferred revenue related to these fees was an increase of $1.8 million as of the date of adoption. Also impacting deferred revenue was a decrease of $0.6 million related to previous billings which no longer required deferred recognition as of the date of adoption.
In addition to revenue recognition, the new revenue standard impacts our consolidated financial statements with respect to the capitalization of certain commissions and contract fulfillment costs which were previously expensed as incurred. Commissions and contract fulfillment costs related to the implementation of software as a service arrangements are now capitalized and amortized over the expected life of the customer. TruBridge commissions, which are paid up to twelve months in advance, are now capitalized and amortized over the prepayment period. The balance sheet impact of the prepaid assets was an increase of $3.8 million as of the date of adoption.
Due to the aforementioned changes in assets and liabilities related to the adoption of the new revenue standard, our deferred tax liability increased $0.6 million as of the date of adoption.
In total, the adoption of ASU 2014-09 resulted in a net increase in retained earnings of $2.0 million as of the date of adoption.
In accordance with the new revenue standard requirements, the disclosures of the impact of adoption on our condensed consolidated income statements and balance sheet were as follows:
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Three Months Ended June 30, 2018
(In thousands)As reportedBalances without adoption of ASC 606Effect of adoption increase/(decrease)
Condensed Consolidated Statements of Income
Revenue: TruBridge$25,159 $25,057 $102 
Cost of sales: System sales and support19,528 19,529 (1)
Gross profit34,846 34,743 103 
Sales and marketing7,518 7,121 397 
Operating income2,225 2,519 (294)
Provision for income taxes284 346 (62)
Net income$328 $560 $(232)

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

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

The effects of the changes in balance sheet accounts resulting from the adoption of the new revenue standard are primarily due to the beginning adjustments for adoption mentioned above, accompanied by incremental changes resulting from activity during the period ending June 30, 2018. Refer to Note 3 - Revenue Recognition for more information on period activity.
The new revenue standard requirements did not impact our net cash provided by or used in operating, investing, or financing cash flows on our condensed consolidated statements of cash flows, although components within changes in operating assets and liabilities were immaterially impacted by adoption.
In August 2016, the FASB issued ASU 2016-15, Classifications of Certain Cash Receipts and Cash Payments, which clarifies cash flow classification for eight specific issues, including debt prepayment or extinguishment costs, contingent
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consideration payments made after a business combination, proceeds from the settlement of insurance claims, and proceeds from settlement of corporate-owned life insurance policies. This guidance was effective for fiscal years and interim periods within those years beginning after December 15, 2017, which was effective for the Company as of the first quarter of our fiscal year ending December 31, 2018. The adoption of ASU 2016-15 did not have a material effect on our financial statements.

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

2019
In February 2016, the FASBFinancial Accounting Standards Board ("FASB") issued ASUAccounting Standards Update ("ASU") 2016-02, Leases, to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The new guidance will requirerequires 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 significantly impact our consolidated net earnings or cash flows.
New Accounting Standards Yet to be Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses, which will require 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 guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2018,2019, which will beis effective for the Company as of the first quarter of our fiscal year ending December 31, 2019.2020. The Company is currently evaluating the method of adoption and potential utilization of practical expedients. The estimated impact onthat the financial statements of implementation of this standard is increased lease assets and lease liabilities in the range of $4 to $6 million as of the anticipated adoption date, January 1, 2019.will have on its consolidated financial statements.

We do not believe that any other recently issued but not yet effective accounting standards, if adopted, would have a material impact on our consolidated financial statements.

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 ASCAccounting Standards Codification
7

("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 910 - 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.
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• 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 contact,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 1416 - 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.

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Deferred Revenue
Deferred revenue represents amounts invoiced to clients for which the services under contract have not been completed and revenue has not been recognized, including annual renewals of certain software subscriptions and customer deposits for implementations to be performed at a later date. Revenue is recognized ratably over the life of the software subscriptions as services are provided and at the point-in-time when implementations have been completed.
(In thousands)Six Months Ended June 30, 2018
Balance as of January 1, 2018$9,937 
Deferred revenue recorded11,700 
Less deferred revenue recognized as revenue(9,337)
Balance as of June 30, 2018$12,300 
The following table details deferred revenue for the six months ended June 30, 2019 and 2018, included in the condensed consolidated balance sheets:

(In thousands)Six Months Ended June 30, 2019Six Months Ended June 30, 2018
Beginning balance$10,201 $9,937 
Deferred revenue recorded10,116 11,700 
Deferred revenue acquired430 — 
Less deferred revenue recognized as revenue(10,630)(9,337)
Ending balance$10,117 $12,300 
The $11.7 million of deferred revenue recorded during the six months ended June 30, 20182019 is comprised primarily of the annual renewals of certain software subscriptions billed during the first quarter of each year and deposits collected for future EHR installations. The deferred revenue recognized as revenue during the six months ended June 30, 2019 and 2018 is comprised primarily of the periodic recognition of annual renewals that were deferred until earned and deposits for future EHR installations that were deferred until earned.
Costs to Obtain and Fulfill a Contract with a Customer
Costs to obtain a contract include the commission costs related to SaaS licensing agreements, which are capitalized and amortized ratably over the expected life of the customer. As a practical expedient, we generally recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset would have been one year or less, with the exception of commissions generated from TruBridge sales. TruBridge commissions, which are paid up to
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twelve months in advance 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) Six Months Ended June 30, 2018
Balance as of January 1, 2018 $3,775 
Costs to obtain and fulfill contracts recorded1,562 
Less costs to obtain and fulfill contracts recognized as expense(2,125)
Balance as of June 30, 2018 $3,212 

Significant Judgments
Our contracts with clients often include promises to transfer multiple products and services. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
Judgment is required to determine SSP for each distinct performance obligation. We use observable SSP for items that are sold on a stand-alone basis to similarly situated clients at unit prices within a sufficiently narrow range. For performance obligations that are sold to different clients for a broad range of amounts, or for performance obligations that are never sold on a stand-alone basis, the residual method in determining SSP is applied and requires significant judgment.
Allocating the transaction price, including estimating SSP of promised goods and services for contracts with discounts or variable consideration, may require significant judgment. Due to the short time frame of the implementation cycle, discount allocation is immaterial as revenue is recognized net of discounts within the same reporting period. In scenarios where the Company enters into a contract that includes both a software license and BPS or other services that are charged based on volume of services rendered, the Company allocates variable amounts entirely to a distinct good or service. The terms of the variable payment relate specifically to the entity’s efforts to satisfy that performance obligation.
Significant judgment is required in determining the expected life of a customer, which is the amortization period forfollowing table details costs to obtain and fulfill a contract that have been capitalized. The Company determined thatcontracts with customers for the expected life ofsix months ended June 30, 2019 and 2018, included in the customer is not materially different from the initial contract term based on the characteristics of the SaaS offering.condensed consolidated balance sheets:
(In thousands)Six Months Ended June 30, 2019Six Months Ended June 30, 2018
Beginning balance$3,017 $3,775 
Costs to obtain and fulfill contracts capitalized2,752 1,562 
Less costs to obtain and fulfill contracts recognized as expense(2,292)(2,125)
Ending balance$3,477 $3,212 
Remaining Performance Obligations
Disclosures regarding remaining performance obligations are not considered material as the overwhelming majority of the Company's remaining performance obligations either (a) are related to contracts with an expected duration of one year or less, or (b) exhibit revenue recognition in the amount to which the Company has the right to invoice.

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4.  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.

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. During 2019, we have incurred approximately $0.4 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 will be 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 is based on management's judgment after evaluating several factors, including a preliminary valuation assessment. The allocation is preliminary and subject to changes, which could be significant, as additional information becomes available and appraisals of intangible assets and deferred tax positions are finalized.

The preliminary allocation of the purchase price paid for Get Real Health of June 30, 2019 was as follows:


(In thousands)Purchase Price Allocation
Acquired cash$159 
Accounts receivable364 
Prepaid expenses107 
Property and equipment365 
Operating lease asset1,285 
Intangible assets7,800 
Goodwill9,420 
Accounts payable and accrued liabilities(594)
Deferred taxes, net(1,192)
Operating lease liability(1,285)
Contingent consideration(5,000)
Deferred revenue(430)
Net assets acquired$10,999 

The intangible assets in the table above are being amortized on a straight-line basis over their estimated useful lives. The amortization is included in amortization of acquisition-related intangibles in our condensed consolidated statements of income.

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 15 - 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.

Our condensed consolidated statement of operations for the three months ended June 30, 2019 includes revenues of approximately $0.2 million and pre-tax loss of approximately $0.7 million attributed to the acquired business since the May 3, 2019 acquisition date.

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The following unaudited pro forma revenue, net loss and earnings per share amounts for the three and six months ended June 30, 2019 and 2018 give effect to the Get Real Health acquisition as if it had been completed on January 1, 2018. The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of what the operating results actually would have been during the periods presented had the Get Real Health acquisition been completed during the periods presented. In addition, the unaudited pro forma financial information does not purport to project future operating results. The pro forma information does not fully reflect: (1) any anticipated synergies (or costs to achieve synergies) or (2) the impact of non-recurring items directly related to the Get Real Health acquisition.


Three Months Ended June 30,Six Months Ended June 30,
(In thousands, except per share data)2019201820192018
Pro forma revenues$66,501 $68,462 $136,885 $140,257 
Pro forma net income (loss)$815 $(811)$4,053 $2,491 
Pro forma diluted earnings (loss) per share$0.06 $(0.06)$0.30 $0.18 

Pro forma net income (loss) was calculated by adjusting the results for the applicable period to reflect (i) the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied on January 1, 2018 and (ii) adjustments to amortized revenue during fiscal 2019 and 2018 as a result of the acquisition date valuation of assumed deferred revenue.

5.  PROPERTY AND EQUIPMENT
Property and equipment, net was comprised of the following at June 30, 20182019 and December 31, 2017:2018:
(In thousands)(In thousands)June 30, 2018December 31, 2017(In thousands)June 30, 2019December 31, 2018
LandLand$2,848 $2,848 Land$2,848 $2,848 
Buildings and improvementsBuildings and improvements8,247 8,240 Buildings and improvements7,866 7,752 
Computer equipmentComputer equipment3,679 3,269 Computer equipment3,503 2,766 
Leasehold improvementsLeasehold improvements5,001 5,001 Leasehold improvements1,734 1,198 
Office furniture and fixturesOffice furniture and fixtures2,865 2,865 Office furniture and fixtures1,943 1,938 
AutomobilesAutomobiles70 70 Automobiles18 18 
22,710 22,293 
Property and equipment, grossProperty and equipment, gross17,912 16,520 
Less: accumulated depreciationLess: accumulated depreciation(11,668)(10,601)Less: accumulated depreciation(6,380)(5,645)
Property and equipment, netProperty and equipment, net$11,042 $11,692 Property and equipment, net$11,532 $10,875 

5.6.     OTHER ACCRUED LIABILITIES
Other accrued liabilities was comprised of the following at June 30, 20182019 and December 31, 2017:2018:
(In thousands)(In thousands)June 30, 2018December 31, 2017(In thousands)June 30, 2019December 31, 2018
Salaries and benefitsSalaries and benefits$6,706 $8,432 Salaries and benefits$5,685 $8,722 
SeveranceSeverance507 1,139 Severance972 992 
CommissionsCommissions713 2,416 Commissions755 830 
Self-insurance reservesSelf-insurance reserves1,037 1,024 Self-insurance reserves1,042 1,017 
Contingent considerationContingent consideration615 586 Contingent consideration5,000 206 
OtherOther582 501 Other565 452 
Other Accrued Liabilities $10,160 $14,098 
Operating lease liabilities, current portionOperating lease liabilities, current portion1,263— 
Other accrued liabilitiesOther accrued liabilities$15,282 $12,219 

The accrued contingent consideration depicted above represents the potential earnout incentive for former Rycan shareholders, relating to the purchase of Rycan by HHI in 2015. We have estimated the fair value of the contingent consideration based on the amount of revenue we expect to be earned by Rycan through the year ending December 31, 2018 in accordance with the purchase agreement between the parties.
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6.7.     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)9) are considered participating securities under FASB Codification topic, Earnings Per Share, because they entitle holders to non-forfeitable rights to dividends until the awards vest or are forfeited. When a company has a security that qualifies as a "participating security," the Codification requires the use of the two-class method when computing basic EPS. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. In determining the amount of net income to allocate to common stockholders, income is allocated to both common stock and participating securities based on their respective weighted average shares outstanding for the period, with net income attributable to common stockholders ultimately equaling net income less net income attributable to participating securities. Diluted EPS for the Company's common stock is computed using the more dilutive of the two-class method or the treasury stock method.
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The following is a calculation of the basic and diluted EPS for the Company's common stock, including a reconciliation between net income and net income attributable to common stockholders:
Three Months EndedSix Months Ended
(In thousands, except per share data)June 30, 2018June 30, 2017June 30, 2018June 30, 2017
Net income$328 $1,587 $4,296 $1,833 
Less: Net income attributable to participating securities(8)(45)(144)(41)
Net income attributable to common stockholders$320 $1,542 $4,152 $1,792 
Weighted average shares outstanding used in basic per common share computations13,561 13,420 13,518 13,397 
Add: Dilutive potential common shares— — — — 
Weighted average shares outstanding used in diluted per common share computations13,561 13,420 13,518 13,397 
Basic EPS$0.02 $0.11 $0.31 $0.13 
Diluted EPS$0.02 $0.11 $0.31 $0.13 

Three Months Ended June 30,Six Months Ended June 30,
(In thousands, except per share data)2019201820192018
Net income$1,663 $328 $5,107 $4,296 
Less: Net income attributable to participating securities(62)(8)(194)(144)
Net income attributable to common stockholders$1,601 $320 $4,913 $4,152 
Weighted average shares outstanding used in basic per common share computations13,794 13,561 13,725 13,518 
Add: Dilutive potential common shares— — — — 
Weighted average shares outstanding used in diluted per common share computations13,794 13,561 13,725 13,518 
Basic EPS$0.12 $0.02 $0.36 $0.31 
Diluted EPS$0.12 $0.02 $0.36 $0.31 
During 2018 and 2019, 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 184,776200,709 shares, none of which have been included in the calculation of diluted EPS for the three and six months ended June 30, 20182019 because the related threshold award performance level has not been achieved as of June 30, 2018.2019. See Note 89 - Stock-based Compensation for more information.

7.
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8.     INCOME TAXES
The Company determines the tax provision for interim periods using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.

Our effective tax rate for the three months ended June 30, 2018 increased2019 decreased to 46%22.1% from 38%46.4% for the three months ended June 30, 2017.2018. Our implementation 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 9.9% for the second quarter of 2019 compared to the second quarter of 2018. Additionally, our effective tax rate for the three months ended June 30, 2018 was heavily impacted by the year-to-date impact of changing state income allocation determinations among our various subsidiaries from entities with lower effective state rates to entities with higher effective state rates. TheThis year-to-date adjustment, whenwhich was recorded in a three-month period of significantly lower net income before taxes compared to the immediately preceding period, had an outsized impact on our effective tax rate for the period. There was no such adjustment recorded during the second quarter of 2019, resulting in a 25% increase20.7% reduction in theour effective tax rate. This increase was partially offset byrate for the tax benefitsthree months ended June 30, 2019 compared to the second quarter of the Tax Cuts and Jobs Act, which reduced our corporate federal rate from 35% to 21% effective at the beginning of 2018.
Our effective tax rate for the six months ended June 30, 20182019 decreased to 34%22.9% from 55%33.7% for the six months ended June 30, 2017.2018. Our implementation of the aforementioned 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 6.3% for the first six months ended June 30, 2018 was impacted byof 2019 compared to the Tax Cuts and Jobs Act, which reduced our corporate federal rate from 35% to 21% effective at the beginningfirst six months of 2018. The six months ended June 30, 2018 also includedAdditionally, we have experienced a $0.4 million shortfalldecrease in tax expenseshortfalls related to stock-based compensation, that increasedresulting in an incremental benefit to our effective tax rate of 3.3% for the effective rate by 6%. During thefirst six months ended June 30, 2017 we experienced a shortfall tax expense relatedof 2019 compared to stock-based compensationthe first six months of $0.9 million that increased the effective rate by 23%.2018.

8.9.     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 and six months ended June 30, 20182019 and 2017,2018, included in the condensed consolidated statements of income:

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Three Months EndedSix Months Ended
(In thousands)2018201720182017
Costs of sales$585 $425 $1,024 $743 
Operating expenses2,168 1,261 3,668 2,224 
Pre-tax stock-based compensation expense2,753 1,686 4,692 2,967 
Less: income tax effect(606)(658)(1,032)(1,157)
Net stock-based compensation expense$2,147 $1,028 $3,660 $1,810 

Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2019201820192018
Costs of sales$516 $585 $1,047 $1,024 
Operating expenses2,175 2,168 4,080 3,668 
Pre-tax stock-based compensation expense2,691 2,753 5,127 4,692 
Less: income tax effect(592)(606)(1,128)(1,032)
Net stock-based compensation expense$2,099 $2,147 $3,999 $3,660 
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, and Amended and Restated 2014 Incentive Plan and 2019 Incentive Plan (the "Plans"). As of June 30, 2018,2019, there was $17.6$14.9 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 2.2 1.9 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.
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A summary of restricted stock activity (including shares of restricted stock issued pursuant to the settlement of performance share awards) under the Plans during the six months ended June 30, 20182019 and 20172018 is as follows:

Six Months Ended June 30, 2018Six Months Ended June 30, 2017
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 period309,195 $38.36 184,885 $54.63 
Granted148,841 30.20 222,390 32.87 
Performance share awards settled through the issuance of restricted stock177,395 29.94 — — 
Vested(153,424)40.81 (80,558)55.34 
Unvested restricted stock outstanding at end of period482,007 $31.96 326,717 $39.64 

Six Months Ended June 30, 2019Six Months Ended June 30, 2018
SharesWeighted-Average
Grant Date
Fair Value Per Share		SharesWeighted-Average
Grant Date
Fair Value Per Share
Unvested restricted stock outstanding at beginning of period475,132 $32.00 309,195 $38.36 
Granted133,936 30.89 148,841 30.20 
Performance share awards settled through the issuance of restricted stock138,566 29.80 177,395 29.94 
Vested(221,775)33.48 (153,424)40.81 
Unvested restricted stock outstanding at end of period525,859 $30.51 482,007 $31.96 
Performance Share Awards
The Company grants performance share awards to executive officers and certain key employees under the Amended and Restated 2014 Incentive Plan and the 2019 Incentive Plan. The number of shares of common stock earned and issuable under each award is determined at the end of eacha one-year or three-year performance period, as applicable, 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.
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In the event that the Company's financial performance meets the predetermined targettargets for the performance objectiveobjectives 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 target,targets, additional shares up to the maximum award may be issued. In the event the financial results of the Company fall below the predetermined target,targets, a reduced number of shares may be issued. If the financial results of the Company fall below the threshold performance level,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 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.
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A summary of performance share award activity under the 2014 Incentive PlanPlans during the six months ended June 30, 20182019 and 20172018 is as follows, based on the target award amounts set forth in the performance share award agreements:

Six Months Ended June 30, 2018Six Months Ended June 30, 2017Six Months Ended June 30, 2019Six Months Ended June 30, 2018
Shares
Weighted-Average
Grant Date
Fair Value Per Share
Shares
Weighted-Average
Grant Date
Fair Value Per Share
SharesWeighted-Average
Grant Date
Fair Value Per Share		SharesWeighted-Average
Grant Date
Fair Value Per Share
Performance share awards outstanding at beginning of periodPerformance share awards outstanding at beginning of period189,325 $29.94 77,594 $49.64 Performance share awards outstanding at beginning of period184,776 $30.15 189,325 $29.94 
GrantedGranted184,776 30.15 189,325 29.94 Granted110,310 30.95 184,776 30.15 
Forfeited or unearned(11,930)29.94 (77,594)49.64 
Adjusted for actual performance, net of forfeituresAdjusted for actual performance, net of forfeitures44,189 29.77 (11,930)29.94 
Performance share awards settled through the issuance of restricted stockPerformance share awards settled through the issuance of restricted stock(177,395)29.94 — — Performance share awards settled through the issuance of restricted stock(138,566)29.80 (177,395)29.94 
Performance share awards outstanding at end of periodPerformance share awards outstanding at end of period184,776 $30.15 189,325 $29.94 Performance share awards outstanding at end of period200,709 $30.75 184,776 $30.15 

9.10.     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 June 30, 20182019 and December 31, 2017:2018:

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

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(In thousands)June 30, 2019December 31, 2018
Short-term payment plans, gross$3,887 $5,773 
Less: allowance for losses(272)(404)
Short-term payment plans, net$3,615 $5,369 
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 conception,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 June 30, 20182019 and December 31, 2017:2018:
(In thousands)(In thousands)June 30, 2018December 31, 2017(In thousands)June 30, 2019December 31, 2018
Long-term financing arrangements, grossLong-term financing arrangements, gross$25,604 $22,968 Long-term financing arrangements, gross$33,840 $34,841 
Less: allowance for lossesLess: allowance for losses(1,922)(2,606)Less: allowance for losses(2,090)(2,163)
Less: unearned incomeLess: unearned income(2,753)(2,265)Less: unearned income(3,926)(3,725)
Long-term financing arrangements, netLong-term financing arrangements, net$20,929 $18,097 Long-term financing arrangements, net$27,824 $28,953 
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Future minimum payments to be received subsequent to June 30, 20182019 are as follows:

(In thousands)
Years Ended December 31,
2018$4,778 
20197,874 
20205,080 
20214,042 
20222,656 
Thereafter1,174 
Total minimum payments to be received25,604 
Less: allowance for losses(1,922)
Less: unearned income(2,753)
Receivables, net$20,929 

(In thousands)
Years Ending December 31,
2019$6,110 
202010,667 
20217,679 
20225,397 
20232,498 
Thereafter1,489 
Total minimum payments to be received33,840 
Less: allowance for losses(2,090)
Less: unearned income(3,926)
Receivables, net$27,824 
Credit Quality of Financing Receivables and Allowance for Credit Losses
The following table is a roll-forward of the allowance for financing credit losses for the six months ended June 30, 20182019 and year ended December 31, 2017:2018:
(In thousands)Balance at Beginning of PeriodProvisionCharge-offsRecoveriesBalance at End of Period
June 30, 2018$3,244 $397 $(1,196)$— $2,445 
December 31, 2017$2,198 $1,823 $(777)$— $3,244 

(In thousands)Balance at Beginning of PeriodProvisionCharge-offsRecoveriesBalance at End of Period
June 30, 2019$2,567 $165 $(370)$— $2,362 
December 31, 2018$3,244 $1,691 $(2,368)$— $2,567 
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, 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 credit losses.
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Financing receivables are written off only after the Company has exhausted all collection efforts. The Company has been successful in collecting its financing receivables and considers the credit quality of such arrangements to be good.
Customer payments are considered past due if a scheduled payment is not received within contractually agreed upon terms. To facilitate customer collection and credit monitoring efforts, financing receivable amounts are invoiced and reclassified to trade accounts receivable when they become due, with all invoiced amounts placed on nonaccrual status. As a result, all past due amounts related to the Company’s financing receivables are included in trade accounts receivable in the accompanying condensed consolidated balance sheets. The following is an analysis of the age of financing receivables amounts (excluding short-term payment plans) that have been reclassified to trade accounts receivable and were past due as of June 30, 20182019 and December 31, 2017:2018:

(In thousands)
1 to 90 Days
Past Due
91 to 180 Days
Past Due
181 + Days
Past Due
Total
Past Due
June 30, 2018$1,322 $332 $291 $1,945 
December 31, 2017$980 $171 $— $1,151 

(In thousands)1 to 90 Days Past Due91 to 180 Days Past Due181 + Days Past DueTotal Past Due
June 30, 2019$1,341 $340 $166 $1,847 
December 31, 2018$1,302 $210 $245 $1,757 
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 or financing receivables, net of current portion, in the accompanying condensed consolidated balance sheets.
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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)June 30, 2018December 31, 2017(In thousands)June 30, 2019December 31, 2018
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$13,797 $11,300 
91 to 180 Days Past Due3,579 3,727 
181 + Days Past Due1,890 967 
Uninvoiced client financing receivables related to trade accounts receivable that are 1 to 90 Days Past DueUninvoiced client financing receivables related to trade accounts receivable that are 1 to 90 Days Past Due$19,018 $17,290 
Uninvoiced client financing receivables related to trade accounts receivable that are 91 to 180 Days Past DueUninvoiced client financing receivables related to trade accounts receivable that are 91 to 180 Days Past Due4,914 2,247 
Uninvoiced client financing receivables related to trade accounts receivable that are 181 + Days Past DueUninvoiced client financing receivables related to trade accounts receivable that are 181 + Days Past Due1,528 885 
Total uninvoiced client financing receivables balances of clients with a trade accounts receivableTotal uninvoiced client financing receivables balances of clients with a trade accounts receivable$19,266 $15,994 Total uninvoiced client financing receivables balances of clients with a trade accounts receivable$25,460 $20,422 
Total uninvoiced client financing receivables of clients with no related trade accounts receivableTotal uninvoiced client financing receivables of clients with no related trade accounts receivable3,585 4,709 Total uninvoiced client financing receivables of clients with no related trade accounts receivable4,454 10,694 
Total financing receivables with contractual maturities of one year or lessTotal financing receivables with contractual maturities of one year or less7,407 9,081 Total financing receivables with contractual maturities of one year or less3,887 5,773 
Less: allowance for lossesLess: allowance for losses(2,445)(3,244)Less: allowance for losses(2,362)(2,567)
Total financing receivablesTotal financing receivables$27,813 $26,540 Total financing receivables$31,439 $34,322 

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10.11.  INTANGIBLE ASSETS AND GOODWILL
Our purchased definite-lived intangible assets as of June 30, 20182019 and December 31, 20172018 are summarized as follows:

(In thousands)Customer RelationshipsTrademarkDeveloped TechnologyTotal
Gross carrying amount as of December 31, 2017 and June 30, 2018$82,300 $10,900 $24,100 $117,300 
Accumulated amortization as of December 31, 2017(12,937)(1,682)(5,968)(20,587)
Net intangible assets as of December 31, 201769,363 9,218 18,132 96,713 
Accumulated amortization for the six months ended June 30, 2018(3,270)(424)(1,509)(5,203)
Net intangible assets as of June 30, 2018$66,093 $8,794 $16,623 $91,510 
Weighted average remaining years of useful life1013610

(In thousands)Customer RelationshipsTrademarkDeveloped TechnologyTotal
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 
Intangible assets acquired2,200 200 5,400 7,800 
Accumulated amortization as of June 30, 2019(22,746)(3,017)(10,350)(36,113)
Net intangible assets as of June 30, 2019$61,754 $8,083 $19,150 $88,987 
Weighted average remaining years of useful life91359
The following table represents the remaining amortization of definite-lived intangible assets as of June 30, 2018:2019:
(In thousands)
For the year ended December 31,
2019$6,104 
202011,672 
202111,289 
202211,097 
202311,097 
Thereafter37,728 
Total$88,987 
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(In thousands)
For the year ended December 31,
2018$5,203 
201910,112 
202010,106 
202110,066 
202210,066 
Thereafter45,957 
Total$91,510 

The following table sets forth the change in the carrying amount of goodwill by segment for the six months ended June 30, 2018:2019:
(In thousands)Acute Care EHRPost-acute Care EHRTruBridgeTotal
Balance as of December 31, 2017$97,095 29,570 13,784 $140,449 
Goodwill impairment$— — — — 
Balance as of June 30, 2018$97,095 $29,570 $13,784 $140,449 

(In thousands)Acute Care EHRPost-acute Care EHRTruBridgeTotal
Balance as of December 31, 2018$97,095 $29,570 $13,784 $140,449 
Goodwill acquired— — 9,420 9,420 
Balance as of June 30, 2019$97,095 $29,570 $23,204 $149,869 
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.

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11.12.  LONG-TERM DEBT
Long-term debt was comprised of the following at June 30, 20182019 and December 31, 2017:2018:
(In thousands)June 30, 2018December 31, 2017
Term loan facility$105,357 $115,538 
Revolving credit facility34,693 27,983 
Capital lease obligation410 565 
Debt obligations140,460 144,086 
Less: unamortized debt issuance costs(1,479)(1,652)
Debt obligation, net138,981 142,434 
Less: current portion(5,830)(5,820)
Long-term debt$133,151 $136,614 

(In thousands)June 30, 2019December 31, 2018
Term loan facility$92,479 $102,432 
Revolving credit facility38,393 29,693 
Finance lease obligation85 250 
Debt obligations130,957 132,375 
Less: unamortized debt issuance costs(1,134)(1,306)
Debt obligation, net129,823 131,069 
Less: current portion(7,783)(6,486)
Long-term debt$122,040 $124,583 
As of June 30, 2018,2019, the carrying value of debt approximates the fair value due to the variable interest rate, which reflects the market rate.
Credit Agreement
In conjunction with our acquisition of HHI 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 committed sizeprincipal 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"). On February 8, 2018, we entered into a Third Amendment (the "Third Amendment") to the Amendedcredit agreement (as amended, the "Amended Credit AgreementAgreement") to increase the aggregate principleprincipal amount of the Amended Credit Facilities from $162 million to $167 million, which includes the $117 million Amended Term Loan Facility and a $50 million Amended Revolving Credit Facility.
Each of the Amended Credit Facilities continues to bear interest at a rate per annum equal to an applicable margin plus, at our option, either (1) the Adjusted LIBOR rate for the relevant interest period, (2) an alternate base rate determined by reference to the greater of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant interest period plus one half of one percent per annum and (c) the one month LIBOR rate plus one percent per annum, or (3) a combination of (1) and (2). The applicable margin range for LIBOR loans and the letter of credit fee ranges from 2.00%2.0% to 3.50%3.5%. The applicable margin range for base rate loans ranges from 1.00%1.0% to 2.50%2.5%, in each case based on the Company's consolidated leverage ratio.
Principal payments with respect to the Amended 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 million through September 30, 2019, approximately $2.19 million through September 30, 2021 and approximately $2.93 million through September 30, 2022, with the maturity on October 13, 2022 or such earlier date as the obligations under the Amended Credit Agreement
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become due and payable pursuant to the terms of the Amended Credit Agreement (the "Amended Maturity Date"). Any principal outstanding under the Amended Revolving Credit Facility is due and payable on the Amended Maturity Date.
Anticipated annual future maturities of the Amended Term Loan Facility, Amended Revolving Credit Facility, and capital lease obligation are as follows as of June 30, 2018:2019:
(In thousands)
2018$3,085 
20196,831 
20208,775 
20219,506 
2022112,263 
Thereafter— 
$140,460 

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(In thousands)
2019$3,741 
20208,775 
20219,506 
2022108,935 
2023— 
Thereafter— 
$130,957 
The Amended 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 are also guaranteed by the Subsidiary Guarantors.
The Amended Credit Agreement, as amended by the Third Amendment, provides incremental facility capacity of $50 million, subject to certain conditions. The Amended Credit Agreement includes a number of restrictive covenants that, among other things and in each case subject to certain exceptions and baskets, impose operating and financial restrictions on the Company and the Subsidiary Guarantors, including the ability to incur additional debt; incur liens and encumbrances; make certain restricted payments, including paying dividends on the Company's equity securities or payments to redeem, repurchase or retire the Company's equity securities (which are subject to our compliance, on a pro forma basis to give effect to the restricted payment, with the fixed charge coverage ratio and consolidated leverage ratio described below); enter into certain restrictive agreements; make investments, loans and acquisitions; merge or consolidate with any other person; dispose of assets; enter into sale and leaseback transactions; engage in transactions with affiliates; and materially alter the business we conduct. The Amended Credit Agreement requires the Company to maintain a minimum fixed charge coverage ratio of 1.25:1.00 throughout the duration of such agreement. Under the Amended Credit Agreement, the Company is required to comply with a maximum consolidated leverage ratio of 3.95:1.00 through December 31, 2017 and 3.50:1.00 from January 1, 2018 and thereafter. The Amended Credit Agreement also contains customary representations and warranties, affirmative covenants and events of default. We believe that we were in compliance with the covenants contained in the Amended Credit Agreement as of June 30, 2018.2019.
The Amended Credit Agreement requires the Company to mandatorily prepay the Amended 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 at any time without penalty, subject to customary “breakage” costs with respect to prepayments of LIBOR rate loans made on a day other than the last day of any applicable interest period. The excess cash flow mandatory prepayment requirement under the Amended Credit Agreement resulted in a $7.3$7.0 million prepayment on the Amended Term Loan Facility during the first quarter of 20182019 related to excess cash flow generated by the Company during 2017. This mandatory prepayment was funded by drawing down on the Amended Revolving Credit Facility, as excess cash flow generated by the Company during 2017 was primarily used to voluntarily prepay amounts due under the Amended Revolving Credit Facility.2018.

12.13.     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 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.


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Supplemental balance sheet information related to operating leases was as follows:
(In thousands)June 30, 2019
Operating lease assets:
Operating lease assets$6,909 
Operating lease liabilities:
Other accrued liabilities$1,263 
Operating lease liabilities, net of current portion5,646 
Total operating lease liabilities$6,909 
Weighted average remaining lease term in years7
Weighted average discount rate5.2% 
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 June 30, 2019 are as follows:
(In thousands)
2019$634 
20201,286 
20211,257 
20221,191 
20231,157 
Thereafter2,724 
Total lease payments8,249 
Less imputed interest(1,340)
Total$6,909 
Total rent expense for the six months ended June 30, 2019 and 2018 was $1.3 million and $1.4 million, respectively.
Total cash paid for amounts included in the measurement of lease liabilities within operating cash flows from operating leases for the six months ended June 30, 2019 was $0.9 million.
As of June 30, 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.

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

13.15.     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:
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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 June 30, 2019, we measured the fair value of contingent consideration that represents the potential earnout incentive for Get Real Health's former equity holders. We estimated the fair value of the contingent consideration based on the probability of Get Real Health meeting EBITDA (subject to certain pro-forma adjustments) targets. We did not have any other instruments that require fair value measurement as of June 30, 2019.
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TableThe following table summarizes the carrying amounts and fair value of Contentsthe contingent consideration at June 30, 2019:
Fair Value at June 30, 2019 Using
Carrying Amount atQuoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant Unobservable Inputs
(In thousands)6/30/2019(Level 1)(Level 2)(Level 3)
Description
Contingent consideration$5,000 $— $— $5,000 
Total$5,000 $— $— $5,000 
The accrued contingent consideration depicted below represents the potential earnout incentive for former Rycan shareholders, relating to the purchase of Rycan by HHI in 2015. We have estimated the fair value of the contingent consideration based on the amount of revenue we expectexpected 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 June 30,December 31, 2018:

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

The following table summarizes the carrying amounts and fair value of the contingent consideration at December 31, 2017:

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

Fair Value at December 31, 2018 Using
Carrying Amount atQuoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant 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.
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14.16.     SEGMENT REPORTING
Our chief operating decision makers ("CODM") utilize three 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 and six months ended June 30, 20182019 and 2017:2018:

Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
(In thousands)(In thousands)2018201720182017(In thousands)2019201820192018
Revenues:Revenues:Revenues:
Acute Care EHRAcute Care EHRAcute Care EHR
Recurring revenueRecurring revenue$28,342 $28,001 $56,477 $56,539 Recurring revenue$27,091 $28,342 $54,479 $56,477 
Non-recurring revenueNon-recurring revenue8,865 11,393 20,913 19,985 Non-recurring revenue6,957 8,865 17,016 20,913 
Total Acute Care EHR revenueTotal Acute Care EHR revenue37,207 39,394 77,390 76,524 Total Acute Care EHR revenue34,048 37,207 71,495 77,390 
Post-acute Care EHRPost-acute Care EHRPost-acute Care EHR
Recurring revenueRecurring revenue4,656 5,108 9,487 10,186 Recurring revenue4,424 4,656 8,902 9,487 
Non-recurring revenueNon-recurring revenue883 972 1,621 2,187 Non-recurring revenue1,168 883 2,490 1,621 
Total Post-acute Care EHR revenueTotal Post-acute Care EHR revenue5,539 6,080 11,108 12,373 Total Post-acute Care EHR revenue5,592 5,539 11,392 11,108 
TruBridgeTruBridge25,159 22,203 50,290 42,854 TruBridge26,516 25,159 52,410 50,290 
Total revenuesTotal revenues$67,905 $67,677 $138,788 $131,751 Total revenues$66,156 $67,905 $135,297 $138,788 
Cost of sales:Cost of sales:Cost of sales:
Acute Care EHRAcute Care EHR$17,970 $17,730 $34,727 $35,504 Acute Care EHR$16,346 $17,970 $33,412 $34,727 
Post-acute Care EHRPost-acute Care EHR1,558 2,023 3,219 4,036 Post-acute Care EHR1,327 1,558 2,598 3,219 
TruBridgeTruBridge13,531 11,933 26,910 23,520 TruBridge13,948 13,531 27,637 26,910 
Total cost of salesTotal cost of sales$33,059 $31,686 $64,856 $63,060 Total cost of sales$31,621 $33,059 $63,647 $64,856 
Gross profit:Gross profit:Gross profit:
Acute Care EHRAcute Care EHR$19,237 $21,664 $42,663 $41,020 Acute Care EHR$17,702 $19,237 $38,083 $42,663 
Post-acute Care EHRPost-acute Care EHR3,981 4,057 7,889 8,337 Post-acute Care EHR4,265 3,981 8,794 7,889 
TruBridgeTruBridge11,628 10,270 23,380 19,334 TruBridge12,568 11,628 24,773 23,380 
Total gross profitTotal gross profit$34,846 $35,991 $73,932 $68,691 Total gross profit$34,535 $34,846 $71,650 $73,932 
Corporate operating expensesCorporate operating expenses$(32,621)$(31,543)$(64,058)$(61,010)Corporate operating expenses$(30,919)$(32,621)$(61,987)$(64,058)
Other incomeOther income194 70 392 140 Other income283 194 532 392 
Interest expenseInterest expense(1,807)(1,938)(3,785)(3,745)Interest expense(1,763)(1,807)(3,567)(3,785)
Income before taxesIncome before taxes$612 $2,580 $6,481 $4,076 Income before taxes$2,136 $612 $6,628 $6,481 

15.17.     SUBSEQUENT EVENTS
OnOn August 2, 2018,6, 2019, the Company announced a dividend for the third quarter of 20182019 in the amount of $0.10 per share, payable on August 31, 2018,30, 2019, to stockholders of record as of the close of business on August 16, 2018. 

2019.

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

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

This discussion and analysis contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified generally by the use of forward-looking terminology and words such as "expects," "anticipates," "estimates," "believes," "predicts," "intends," "plans," "potential," "may," "continue," "should," "will" and words of comparable meaning. Without limiting the generality of the preceding statement, all statements in this report relating to estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and future financial results are forward-looking statements. We caution investors that any such forward-looking statements are only predictions and are not guarantees of future performance. Certain risks, uncertainties and other factors may cause actual results to differ materially from those projected in the forward-looking statements. Such factors may include:

•overall business and economic conditions affecting the healthcare industry, including the effects of the federal healthcare reform legislation enacted in 2010, and implementing regulations, on the businesses of our hospital clients;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 clients;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;
•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 customers to migrate to current or future releases of our products;
•interruptions in our power supply and/or telecommunications capabilities, including those caused by natural disaster;
•our ability to attract and retain qualified client service and support personnel;
•failure to properly manage growth in new markets we may enter;
•misappropriation of our intellectual property rights and potential intellectual property claims and litigation against us;
•changes in accounting principles generally accepted in the United States of America;
•significant charge to earnings if our goodwill or intangible assets become impaired; 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, 2017.


2018.
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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 ourits products and services through four companies - Evident, LLC ("Evident"), TruBridge, LLC ("TruBridge"), Healthland Inc. ("Healthland"), and American HealthTech, Inc. ("AHT"), and iNetXperts, Corp. d/b/a Get Real Health ("Get Real Health"). These combined companies are focused on helping improveimproving 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, formed in April 2015,which makes up our Acute Care EHR reporting segment, provides a comprehensive acute care electronic health record ("EHR") solution,solutions, Thrive and related services for community hospitals and their physician clinics.
• Healthland provides a comprehensive acute care EHR solution, 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.
• AHT provides a comprehensive post-acuteGet Real Health, included within our TruBridge segment, delivers technology solutions to improve patient outcomes and engagement strategies with care EHR solution and related services for skilled nursing and assisted living facilities.providers.
Our companies currently support approximately 1,1001,000 acute care facilities and approximately 3,5003,300 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 or fewer acute care beds, with hospitals having fewer than 100 or fewer beds comprising approximately 94%98% of our hospitalacute care EHR customerclient base.
We operate in three reportable segments: (1) Acute Care EHR, (2) Post-acute Care EHR and (3) TruBridge. See Note 1416 to the condensed consolidated financial statements included herein for additional information on our segment reporting.

Acute Care EHR

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

Post-acute Care EHR

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

TruBridge

Our TruBridge segment primarily consists of business management, consulting and managed IT services sales generated by TruBridge and the sale of the Rycan revenue cycle management workflow and automation software.three reportable segments.
Management Overview
Historically, we have primarily soughtThrough much of our history, our strategy has been 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, a strategy that has resulted in a ten-year compounded annual growth rate in legacy revenues (i.e., revenues relatedmarket. Prospectively, our ability to our legacy Evident and TruBridge operations) of approximately 5.9% as of the end of our most recently completed fiscal year. Importantcontinue to our potential for continuedrealize 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 withbetween 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 acquisitionsame time serving as a leading indicator of Healthland Holding Inc. ("HHI"),our market position and stability of revenues and cash flows.

Additionally, as we consider the parent companylong-term growth prospects of Healthland, AHTour business, we are seeking to further stabilize our revenues and Rycan Technologies, Inc. We believe thatcash 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 combinedalready 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 base grows, theretention, and includes a renewed focus on driving demand for additional products and services, including business management, consulting and managed IT services, will also continue to grow, supporting further increases in recurring revenues. We also expect to drive revenue growth from new product development that we may generate fromsubscriptions for our research and development activities.existing technology solutions.
January 2016 marked an important milestone for CPSI, as we announced the completion of our acquisition of HHI, the first major acquisition in the Company's history. This acquisition expanded our footprint for servicing acute care facilities and introduced us to the post-acute care segment, adding significantly to our already substantial recurring revenue base and further expanding our ability to generate organic recurring revenue growth through additional cross-selling opportunities now available
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within the combined company. We believe that the addition of HHI and its clients and products has enhanced and will continue to enhance our ability to grow our business and compete in the markets that we serve.
Our business model is designed such that, as revenue growth materializes, earnings and profitability growth are naturally bolstered through the increased future margin realization.realization afforded us by operating leverage. Once a hospital has installed our solutions, we continue to provide support services to the customer on an ongoinga continuing basis and make available to the customer our broad portfolio of business management, consulting, and managed IT services.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-careacute care installations by approximately 25%. During the fourth quarter of 2017, TruBridge eliminated approximately $0.6 million per quarter of cloud hosting service costs for the HHI customer base by utilizing in-house resources. Also, during the firstthird quarter of 2017,2018, 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.
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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 projectsinitiatives 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.
We have historically made financing arrangements available to clients on a case-by-case basis, depending upon 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 include short-term payment plans and longer-term lease financing through us or third-party financing companies. For those 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 2017,2018, total financing receivables increased by $15.5$7.8 million, which had a significant impact on operating cash flow. TheThis 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.plans and demand for such installation has increased since late 2017. Second, competitor financing options, primarily through accounts receivablesreceivable 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 a substantialan 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 historical perpetual license arrangements under which the related revenue is recognized effectively upon installation, the SaaS arrangements result in revenue being recognized monthly as the services are provided over the term of the arrangement. As a
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result, the effect of this trend on the Company's financial statements is reduced system sales revenues during the period of installation in exchange for increased recurring periodic revenues (reflected in system sales and support revenues) over the term of the SaaS arrangement.
American Recovery and Reinvestment Act
On May 3, 2019, the Company closed its acquisition of 2009
While ongoing financial challenges facing healthcare organizations have impacted and are expected to continue to impact the community hospitals that comprise our target market, we believe that the reduced reimbursement under the American Recovery and Reinvestment Act of 2009 (the "ARRA") for those providers failing to adopt qualifying EHRs will continue to support demand for healthcare information technology and will have a positive impact on our business prospects through at least 2018.
While we believe that the expanded requirements for continued compliance with meaningful use rules have resulted in an expanded replacement market for EHRs, it is uncertain whether revenues generated from this replacement market will be sufficient to offset the impacts of the overall accelerated adoption and increased penetration of EHRs within our target market. As a result, our system sales revenues and profitability may be materially and adversely affected during the short-term.
Similarly, compliance with the meaningful use rules has accelerated the purchases of incremental applications by our existing clients. Consequently, our penetration rates within our existing customer base for our current menu of applications have increased significantly under the ARRA, thereby significantly narrowing the market for add-on sales to existing clients. As a result of the announcement from CMS on August 2, 2018 of a final rule that changes the attestation period for 2019 and 2020 to any continuous 90-day period instead of the previously-required full year attestation period, hospitals now have until October 1, 2019 to install compliant technology in order to meet the requirements of the program during 2019, comparedGet Real Health pursuant to a deadline of January 1,Stock Purchase Agreement dated April 23, 2019, underas 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. Through this acquisition, the previous rule. While we believeCompany will strengthen its position in community healthcare by offering three new comprehensive patient engagement and empowerment solutions that are offered by Get Real Health. Although the stage three requirements of the meaningful use program (re-named "Promoting Interoperability" by such rule) provide a significant opportunity for add-on sales revenues through 2019, the delay by CMSacquisition is expected to delay some of the contract revenues we previously anticipated and there is a risk of further delays or reductions in the regulatory requirements imposed on hospitals, which could have an adverse effect onbe accretive to our revenues.
Although we are pursuing other strategic initiatives designed to result in system sales revenue growth in the future in the form of selective expansion into English-speaking international markets, selective expansion within the 100 to 200 bed hospital market, and continued development of new software applications such as our Business Intelligence solution which provides community hospital leaders valuable insight into financial, operational, and clinical data,earnings for fiscal year 2019, there can be no guaranteeassurance that such initiativesthis will prove successful or will benefitbe the Companycase. In addition, during the first six months of 2019, we incurred approximately $0.4 million of pre-tax acquisition costs in a sufficiently timely fashion to offsetconnection with the short-term effectsacquisition of the aforementioned narrowing markets.Get Real Health.
Results of Operations
During the six months ended June 30, 2018,2019, we generated revenues of $138.8$135.3 million from the sale of our products and services, compared to $131.8$138.8 million during the six months ended June 30, 2017, an increase2018, a decrease of 5%3% that is primarily attributed to fewer MU3 installations as the MU3 deadline approaches partially offset by continued TruBridge client growth. We view sales
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of TruBridge solutions within our existing EHR client base as our leading performance indicator. Our net income for the six months ended June 30, 20182019 increased by $2.5$0.8 million to $4.3$5.1 million from the six months ended June 30, 20172018 as a result of revenue growth accompanied with improved gross margins of 53%, a 1% increase from the first six months of 2017.lower effective tax rate. Net cash provided by operating activities decreasedincreased by $8.1$9.6 million to $7.8$17.5 million provided from operations during the six months ended June 30, 2018,2019, primarily due to a reduction of short-term liabilities and othermore advantageous changes in working capital.

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capital, most notably as it relates to accounts receivable and financing receivables.
The following table sets forth certain items included in our results of operations for the three and six months ended June 30, 20182019 and 2017,2018, expressed as a percentage of our total revenues for these periods:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
20182017201820172019201820192018
(In thousands)(In thousands)Amount% SalesAmount% SalesAmount% SalesAmount% Sales(In thousands)Amount% SalesAmount% SalesAmount% SalesAmount% 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 EHRAcute Care EHR$37,207 54.8  $39,394 58.2  $77,390 55.8  $76,524 58.1  Acute Care EHR$34,048 51.5 %$37,207 54.8 %$71,495 52.8 %$77,390 55.8 %
Post-acute Care EHRPost-acute Care EHR5,539 8.2  6,080 9.0  11,108 8.0  12,373 9.4  Post-acute Care EHR5,592 8.5 %5,539 8.2 %11,392 8.4 %11,108 8.0 %
Total System sales and supportTotal System sales and support42,746 62.9  45,474 67.2  88,498 63.8  88,897 67.5  Total System sales and support39,640 59.9 %42,746 62.9 %82,887 61.3 %88,498 63.8 %
TruBridgeTruBridge25,159 37.1  22,203 32.8  50,290 36.2  42,854 32.5  TruBridge26,516 40.1 %25,159 37.1 %52,410 38.7 %50,290 36.2 %
Total sales revenuesTotal sales revenues67,905 100.0  67,677 100.0  138,788 100.0  131,751 100.0  Total sales revenues66,156 100.0 %67,905 100.0 %135,297 100.0 %138,788 100.0 %
Costs of sales:Costs of sales:Costs of sales:
System sales and support:System sales and support:System sales and support:
Acute Care EHRAcute Care EHR17,970 26.5  17,730 26.2  34,727 25.0  35,504 26.9  Acute Care EHR16,346 24.7 %17,970 26.5 %33,412 24.7 %34,727 25.0 %
Post-acute Care EHRPost-acute Care EHR1,558 2.3  2,023 3.0  3,219 2.3  4,036 3.1  Post-acute Care EHR1,327 2.0 %1,558 2.3 %2,598 1.9 %3,219 2.3 %
Total System sales and supportTotal System sales and support19,528 28.8  19,753 29.2  37,946 27.3  39,540 30.0  Total System sales and support17,673 26.7 %19,528 28.8 %36,010 26.6 %37,946 27.3 %
TruBridgeTruBridge13,531 19.9  11,933 17.6  26,910 19.4  23,520 17.9  TruBridge13,948 21.1 %13,531 19.9 %27,637 20.4 %26,910 19.4 %
Total costs of salesTotal costs of sales33,059 48.7  31,686 46.8  64,856 46.7  63,060 47.9  Total costs of sales31,621 47.8 %33,059 48.7 %63,647 47.0 %64,856 46.7 %
Gross profitGross profit34,846 51.3  35,991 53.2  73,932 53.3  68,691 52.1  Gross profit34,535 52.2 %34,846 51.3 %71,650 53.0 %73,932 53.3 %
Operating expenses:Operating expenses:Operating expenses:
Product developmentProduct development9,314 13.7  8,414 12.4  18,071 13.0  16,492 12.5  Product development9,297 14.1 %9,314 13.7 %18,526 13.7 %18,071 13.0 %
Sales and marketingSales and marketing7,518 11.1  7,607 11.2  15,232 11.0  14,734 11.2  Sales and marketing7,016 10.6 %7,518 11.1 %14,508 10.7 %15,232 11.0 %
General and administrativeGeneral and administrative13,188 19.4  12,921 19.1  25,552 18.4  24,581 18.7  General and administrative12,090 18.3 %13,188 19.4 %23,914 17.7 %25,552 18.4 %
Amortization of acquisition-related intangiblesAmortization of acquisition-related intangibles2,601 3.8  2,601 3.8  5,203 3.7  5,203 3.9  Amortization of acquisition-related intangibles2,516 3.8 %2,601 3.8 %5,039 3.7 %5,203 3.7 %
Total operating expensesTotal operating expenses32,621 48.0  31,543 46.6  64,058 46.2  61,010 46.3  Total operating expenses30,919 46.7 %32,621 48.0 %61,987 45.8 %64,058 46.2 %
Operating incomeOperating income2,225 3.3  4,448 6.6  9,874 7.1  7,681 5.8  Operating income3,616 5.5 %2,225 3.3 %9,663 7.1 %9,874 7.1 %
Other income (expense):Other income (expense):Other income (expense):
Other incomeOther income194 0.3  70 0.1  392 0.3  140 0.1  Other income283 0.4 %194 0.3 %532 0.4 %392 0.3 %
Interest expenseInterest expense(1,807)(2.7) (1,938)(2.9) (3,785)(2.7) (3,745)(2.8) Interest expense(1,763)(2.7)%(1,807)(2.7)%(3,567)(2.6)%(3,785)(2.7)%
Total other income (expense)Total other income (expense)(1,613)(2.4) (1,868)(2.8) (3,393)(2.4) (3,605)(2.7) Total other income (expense)(1,480)(2.2)%(1,613)(2.4)%(3,035)(2.2)%(3,393)(2.4)%
Income before taxesIncome before taxes612 0.9  2,580 3.8  6,481 4.7  4,076 3.1  Income before taxes2,136 3.2 %612 0.9 %6,628 4.9 %6,481 4.7 %
Provision for income taxesProvision for income taxes284 0.4  993 1.5  2,185 1.6  2,243 1.7  Provision for income taxes473 0.7 %284 0.4 %1,521 1.1 %2,185 1.6 %
Net incomeNet income$328 0.5  $1,587 2.3  $4,296 3.1  $1,833 1.4  Net income$1,663 2.5 %$328 0.5 %$5,107 3.8 %$4,296 3.1 %


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Three Months Ended June 30, 20182019 Compared with Three Months Ended June 30, 2017 2018
Revenues. Total revenues for the three months ended June 30, 2018 increased slightly $0.22019 decreased by $1.7 million, or 3%, compared to the three months ended June 30, 2017.2018.
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System sales and support revenues decreased by 6%,$3.1 million, or $2.7 million,7%, compared to the second quarter 2017.2018. System sales and support revenues were comprised of the following:following during the respective periods:
Three Months Ended June 30,Three Months Ended June 30,
(In thousands)(In thousands)20182017(In thousands)20192018
Recurring system sales and support revenues (1)
Recurring system sales and support revenues (1)
Recurring system sales and support revenues (1)
Acute Care EHRAcute Care EHR$28,342 $28,001 Acute Care EHR$27,091 $28,342 
Post-acute Care EHRPost-acute Care EHR4,656 5,108 Post-acute Care EHR4,424 4,656 
Total recurring system sales and support revenuesTotal recurring system sales and support revenues32,998 33,109 Total recurring system sales and support revenues31,515 32,998 
Non-recurring system sales and support revenues (2)
Non-recurring system sales and support revenues (2)
Non-recurring system sales and support revenues (2)
Acute Care EHRAcute Care EHR8,865 11,393 Acute Care EHR6,957 8,865 
Post-acute Care EHRPost-acute Care EHR883 972 Post-acute Care EHR1,168 883 
Total non-recurring system sales and support revenuesTotal non-recurring system sales and support revenues9,748 12,365 Total non-recurring system sales and support revenues8,125 9,748 
Total system sales and support revenueTotal system sales and support revenue$42,746 $45,474 Total system sales and support revenue$39,640 $42,746 
(1) Mostly comprised of support and maintenance, third-party subscriptions, and SaaS revenues.

(1) Mostly comprised of support and maintenance, third-party subscriptions, and SaaS revenues.

(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.
(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.
(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-recurringRecurring system sales and support revenues decreased $2.6by $1.5 million, or 21%4%, compared to the second quarter of 2018. Acute Care EHR recurring revenues decreased by $1.3 million, or 4%, as volatility inattrition primarily from the timing ofCentriq customer base outweighed new Thrive customer installations coupled with relative weakness in non-MU3 relatedgrowth and additional support fees for MU3-related add-on sales. Post-acute Care EHR recurring revenues decreased by $0.2 million, or 5%, due to attrition attributed to an aggressive competitive environment as we make technological improvements to the AHT product line.
Non-recurring system sales resulted inand support revenues decreased by $1.6 million, or 17%, primarily due to a $1.9 million decrease in Acute Care EHR non-recurring revenues of $2.5 million, or 22%. revenues. We installed our Acute Care EHR solutions at threesix new hospital clients during the second quarter 2018 (oneof 2019 (three of which were under a SaaS arrangement, resulting in revenue being recognized ratably over the contractualcontract term) compared to tenthree new hospital clients during the second quarter 2017of 2018 (one under a SaaS arrangement). The tenDespite this increase in non-SaaS installation activity, a decrease in average contract value for the related installations, driven by comparative facility sizes, resulted in non-recurring EHR revenues from new hospital clientsystem implementations duringdecreasing $1.0 million from the second quarter 2017 markedof 2018. Additionally, the highest during a quarter sinceimpending 2019 year-end deadline for compliance with the HHI acquisition, presenting a particularly difficult comparison versus the current quarter's results and resultingrelated Promoting Interoperability (“PI”, formerly “Meaningful Use”) program from CMS resulted in a $3.7$2.7 million or 60%, decrease in new system implementation revenues. This decrease in new system implementationrelated MU3 installation revenues, waswhich were partially offset by a $3.4 million increase in MU3 implementations from $0.2 million in the second quarter 2017 to $3.6 million in the second quarter 2018. However, the impact on our resultsrobust sales of these increased MU3 implementation volumes was muted by relative weakness in non-MU3 relatedother add-on sales as a result of the Company's and clients' emphasis on MU3 certification prior to the October 1, 2019 deadline.applications. Non-recurring Post-acute Care EHR revenues decreasedincreased by $0.1$0.3 million, or 9%32%, in the second quarter of 20182019 as a result of slowing new installationincreased bookings due to our ongoing product releases and aggressive competition during our effortefforts to make technological improvements to the AHT product line.
Recurring system sales and support revenues were relatively flat, decreasing slightly from $33.1 million in the second quarter of 2017 to $33.0 million in the second quarter of 2018. Acute Care EHR recurring revenues increased $0.3 million, or 1%, as new Thrive customer growth and additional support fees for MU3-related add-on sales have outweighed attrition primarily from the Healthland customer base. Post-acute Care EHR recurring revenues decreased by $0.5 million, or 9%, due to attrition attributed to the aforementioned aggressive competitive environment.
TruBridge revenues increased 13%5%, or $3.0$1.4 million, compared to the second quarter 2017.of 2018. 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, mostfunctions. Most notably, resulting in anour insurance services line, which includes our TruBridge services, increased by $0.4 million, or 5%, due to new RCM customer growth. We have also expanded our customer base for our accounts receivable management services increasing $2.4resulting in an increase of $0.6 million, or 38%7%, and our medical codinginformation technology management services increasing $1.1 million,grew by 10%, or 89%, compared to the second quarter 2017. $0.3 million. These increases were partially offset by a $0.6decrease in our medical coding services of $0.1 million, or 52%4%, decrease in consulting services as consulting opportunities related to Thrive software add-on salesoperational decisions made by a few key customers have decreased their related patient volume and, medical coding initiatives have been completed.consequently, had a negative impact on our service revenues. Get Real Health contributed $0.2 million in TruBridge revenue during the second quarter of 2019.
Costs of Sales. Total costs of sales increaseddecreased by 4%, or $1.4 million, compared to the second quarter 2017.of 2018. As a percentage of total revenues, costs of sales increaseddecreased to 48% in the second quarter of 2019, compared to 49% in the second quarter 2018, compared to 47% in the second quarter 2017.of 2018.
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Costs of Acute Care EHR system sales and support increaseddecreased by $0.2$1.6 million, or 1%9%, compared to the second quarter 2017of 2018 primarily due to a $1.0$0.8 million or 41%, increase in third-party software costs, primarily due to fees implemented for use of CPT codes by the American Medical Association ("AMA") during 2018 that are passed to the customer. This increase was partially offset by a $0.6 million, or 34%, decrease in travel costs duepayroll cost as we have implemented measures to improved implementation techniquesbecome more efficient with our resources and decreased equipment costs (which are minimal for MU3 implementations) of $0.1a $0.9 million or 11%. The dual effect of decreased revenues and increased third-partydecrease in third party software costs resulted in the grosscosts. Gross margin on Acute Care EHR system sales and support decreasing towas flat at 52% in the second quarter 2018, compared to 55% in the second quarter 2017.of 2019 and 2018.
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Costs of Post-acute Care EHR system sales and support decreased by $0.5$0.2 million, or 23%15%, compared to the second quarter 2017, primarily dueof 2018, as we have been able to reducedcontinue to operate more efficiently to meet current demand. Decreases in payroll, software, hardware, and other costs of $0.2 million, or 19%, ascombined for the realization of HHI integration synergies over the trailing twelve months has resulted in reduced headcount. Third-party software costs, hardware costs, and travel costs decreased by a total of $0.3 million due to the decreased installation volume mentioned above.decrease. The gross margin on Post-acute Care EHR system sales and support increased to 76% in the second quarter of 2019, compared to 72% in the second quarter 2018, compared to 67% in the second quarter 2017.of 2018.
Our costs associated with TruBridge sales and support increased 13%3%, or $1.6$0.4 million, with the largest contributing factor being annonrecurring costs related to replacing office computers. This increase was partially offset by a decrease in payroll and related costs of 29%2%, or $2.1$0.2 million, as a result of adding more employees duringa 3% reduction in headcount compared to the trailing twelve months in order to support and develop our growing customer base. Increased payroll was partially offset by an approximate $0.6 million decrease in cloud hosting costs as a result of moving to in-house resources during the fourthsecond quarter of 2017 for cloud services provided to the HHI customer base.2019. The grossgross margin on these services wasincreased to 47% in the second quarter of 2019 compared to 46% in the second quartersquarter of 2018 and 2017.2018. Get Real Health contributed $0.1 million in TruBridge cost of sales during the second quarter of 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 11%, or $0.9 million,remained relatively flat compared to the second quarter 2017,of 2018, primarily as a resultdecrease in payroll and stock compensation costs were offset as newly acquired Get Real Health contributed $0.3 million in product development costs during the second quarter of increased headcount dedicated to functionality additions and enhancements across the product lines, as well as integration across product lines.2019.
Sales and Marketing. Sales and marketing expenses decreased 1%7%, or $0.1$0.5 million, compared to the second quarter 2017,of 2018, primarily due to decreased payroll costs of 10%15%, or $0.4 million, based on decreased headcount. We also reduced our general spend by $0.3 million, partially offset by increased TruBridge-specific and MU3 commissions expenseor 24%, compared to the second quarter 2017.of 2018. Get Real Health contributed $0.2 million in sales and marketing costs during the second quarter of 2019.
General and Administrative. General and administrative expenses increased 2%decreased 8%, or $1.1 million, as the $2.1 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. Most notably, we saw a $1.1 million increase in non-recurring severance and transaction-related costs resulting from our recent acquisition of Get Real Health. Bad debt expense decreased $0.3 million, or 25%, compared to the second quarter 2017, primarily due to a $0.8of 2018. Get Real Health contributed $0.2 million increase in bad debt expense, a $0.6 million, or 17%, increase in employee healthgeneral and administrative costs and a $0.4 million increase in stock compensation expense during the second quarter 2018. Bad debt was negatively impacted by a few of our hospital clients that have not been or may not be able to fulfill their financial obligations, while increased prescription drug utilization drove employee health costs higher. These increases were partially offset by a $1.5 million decrease in voluntary severance program expense compared to the second quarter 2017.2019.
Amortization of Acquisition-Related Intangibles. Amortization expense associated with acquisition-related intangible assets was unchangeddecreased $0.1 million compared to the second quarter 2017.of 2018 due to the retirement of Rycan related trademarks during 2018. All software and services previously provided under the Rycan name now are marketed under TruBridge trademarks.
Total Operating Expenses. As a percentage of total revenues, total operating expenses increaseddecreased to 47% in the second quarter of 2019, compared to 48% in the second quarter 2018, compared to 47% in the second quarter 2017.of 2018.
Total Other Income (Expense). Total other income (expense) decreased from expense of $1.9 million during the second quarter 2017 to expense of $1.6 million during the second quarter of 2018 to expense of $1.5 million during the second quarter of 2019, as our long-term debt interest rate on long term debt was reduced whenas we have reached our target consolidated leverage ratio fell below the target ratio, coupled with an increase in interest income due to the expansion of long-term payment plans offered to our clients.
Income Before Taxes. As a result of the foregoing factors, income before taxes decreasedincreased by 76%, or $2.0$1.5 million, compared to the second quarter 2017.of 2018.
Provision for Income Taxes. Our effective tax rate for the three months ended June 30, 2018 increased2019 decreased to 46%22.1% from 38%46.4% for the three months ended June 30, 2017.2018. Our implementation 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 9.9% for the second quarter of 2019 compared to the second quarter of 2018. Additionally, our effective tax rate for the three months ended June 30, 2018 was heavily impacted by the year-to-date impact of changing state income allocation determinations among our various subsidiaries from entities with lower effective state rates to entities with higher effective state rates. TheThis year-to-date adjustment, whenwhich was recorded in a three-month period of significantly lower net income before taxes compared to the immediately preceding period, had an outsized impact on our effective tax rate for the period. There was no such adjustment recorded during the second quarter of 2019, resulting in a 25% increase20.7% reduction in theour effective tax rate. This increase was partially offset byrate for the tax benefits ofthree months ended June 30, 2019 compared to the Tax Cuts and Jobs Act, which reduced our corporate federal rate from 35% to 21% effective at the beginningsecond quarter of 2018.
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Net Income. Net income for the three months endedended June 30, 2018 decreased by2019 increased by $1.3 million to $0.3$1.7 million, or $0.02$0.12 per basic and diluted share, compared with net income of $1.6$0.3 million, or $0.11$0.02 per basic and diluted share, for the three months
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ended June 30, 2017.2018. Net income represented 3% of revenue for the three months ended June 30, 2019, compared to less than 1% of revenue for the three months ended June 30, 2018, compared to 2% of revenue for the three months ended June 30, 2017.2018.
Six Months Ended June 30, 20182019 Compared with Six Months Ended June 30, 2017 2018
Revenues. Total revenues for the six months ended June 30, 2018 increased 5%,2019 decreased by $3.5 million, or $7.0 million,3%, compared to the six months ended June 30, 2017.2018.
System sales and support revenues decreased slightly by $0.4$5.6 million, fromor 6%, compared to the six months ended June 30, 2017.2018. System sales and support revenues were comprised of the following:
Six Months Ended June 30,Six Months Ended June 30,
(In thousands)(In thousands)20182017(In thousands)20192018
Recurring system sales and support revenues (1)
Recurring system sales and support revenues (1)
Recurring system sales and support revenues (1)
Acute Care EHRAcute Care EHR$56,477 $56,539 Acute Care EHR$54,479 $56,477 
Post-acute Care EHRPost-acute Care EHR9,487 10,186 Post-acute Care EHR8,902 9,487 
Total recurring system sales and support revenuesTotal recurring system sales and support revenues65,964 66,725 Total recurring system sales and support revenues63,381 65,964 
Non-recurring system sales and support revenues (2)
Non-recurring system sales and support revenues (2)
Non-recurring system sales and support revenues (2)
Acute Care EHRAcute Care EHR$20,913 $19,985 Acute Care EHR17,016 20,913 
Post-acute Care EHRPost-acute Care EHR1,621 2,187 Post-acute Care EHR2,490 1,621 
Total non-recurring system sales and support revenuesTotal non-recurring system sales and support revenues22,534 22,172 Total non-recurring system sales and support revenues19,506 22,534 
Total system sales and support revenueTotal system sales and support revenue$88,498 $88,897 Total system sales and support revenue$82,887 $88,498 
(1) Mostly comprised of support and maintenance, third-party subscriptions, and SaaS revenues.

(1) Mostly comprised of support and maintenance, third-party subscriptions, and SaaS revenues.

(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.
(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.
(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-recurringRecurring system sales and support revenues increased $0.4decreased by $2.6 million, or 2%4%, compared to the first six months of 2018. Acute Care EHR recurring revenues decreased by $2.0 million, or 4%, as attrition primarily from the Centriq customer base outweighed new Thrive customer growth and additional support fees for MU3-related add-on sales. Post-acute Care EHR recurring revenues decreased by $0.6 million, or 6%, 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 $3.0 million, or 13%, primarily as year-to-date revenue contributions from MU3 implementations have outpaced the negative impact of new system implementation volatility and relative weakness in non-MU3 related add-on sales, resulting in an overall increasedue to a $3.9 million decrease in Acute Care EHR non-recurring revenues of $0.9 million, or 5%. MU3 implementations contributed $7.9 million ofrevenues. We installed our Acute Care EHR non-recurring revenuesolutions at 11 new hospital clients during the first six months of 2019 (four of which were under a SaaS arrangement) compared to nine new hospital clients during the first six months of 2018 compared to only $0.2(two under a SaaS arrangement). Despite the similar experience in non-SaaS installation activity, a decrease in average contract value for the related installations resulted in non-recurring EHR revenues from new system implementations decreasing $2.5 million duringfrom the first six months of 2017. These revenue contributions2018. Additionally, the impending 2019 year-end deadline for compliance with the related PI (formerly “Meaningful Use”) program from CMS resulted in a $4.7 million decrease in related MU3 installation revenues, which were partially offset by a $4.1robust sales of other add-on applications. Non-recurring Post-acute Care EHR revenues increased by $0.9 million, or 44%54%, decrease in new system implementation revenues, as we installed our Acute Care EHR solutions at nine new hospital clients during the six months ended June 30, 2018 (two under a SaaS arrangement), compared to thirteen new hospital clients during the six months ended June 30, 2017 (two under a SaaS arrangement). Further mitigating the significant impact of MU3 implementation revenues has been the relative weakness in non-MU3 related add-on sales2019 as a result of the Company's and clients' emphasis on MU3 certification prior to the October 1, 2019 deadline. Non-recurring Post-acute Care EHR revenues decreased by $0.6 million, or 26%, as a result of slowing new installationincreased bookings due to our ongoing product releases and aggressive competition during our effortefforts to make technological improvements to the AHT product line.
Recurring system sales and support revenues decreased $0.8 million, or 1%, during the six months ended June 30, 2018. Acute Care EHR recurring revenues decreased slightly by $0.1 million as a result of 2017 price freezes for the existing customer base to ease the impact of MU3 implementation, coupled with attrition primarily from the Healthland customer base, outweighing new customer growth. Post-acute Care EHR recurring revenues decreased by $0.7 million, or 7%, due to attrition attributed to the aforementioned aggressive competitive environment.
TruBridge revenues increased 17%4%, or $7.4$2.1 million, compared to the first six months ended June 30, 2017.of 2018. 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, mostfunctions. Most notably, resulting in anour insurance services line, which includes our TruBridge services, increased by $1.2 million, or 9%, due to new RCM customer growth. We have also expanded our customer base for our accounts receivable management services, increasing $5.2resulting in an increase of $1.0 million, or 42%6%, and our medical codinginformation technology management services increasing $2.6 million,grew by 10%, or 120%, compared to the six months ended June 30, 2017.$0.6 million. These increases were partially offset by a $0.7decrease in our medical coding services of $0.9 million, or 35%16%, decrease in consulting services as consulting opportunities related to Thrive software add-on salesoperational decisions made by a few key customers have decreased their related patient volume and, medical coding initiatives have been completed.
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consequently, had a negative impact on our service revenues. Get Real Health contributed $0.2 million in TruBridge revenue during the six months ended June 30, 2019.
Costs of Sales. Total costs of sales increaseddecreased by 3%2%, or $1.8$1.2 million, compared to the sixfirst sixth months ended June 30, 2017.of 2018. As a percentage of total revenues, costs of sales decreased toremained at 47% in the six months ended June 30, 2018, compared to 48% in the six months ended June 30, 2017.2019 and 2018.
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Costs of Acute Care EHR system sales and support decreased by $0.8$1.3 million, or 2%4%, compared to the sixfirst sixth months ended June 30, 2017,of 2018 primarily due to a $1.05%, or $1.1 million, or 36%, decrease in equipment costs (which are minimal for MU3 implementations),payroll cost as we have implemented measures to become more efficient with our resources and decreased travel costs of $1.0a $1.1 million or 30%, due to improved implementation techniques,decrease in third party software costs. This decrease was partially offset by a $1.3$1.1 million or 25%, increase in third-party software costs, primarily duehardware expense resulting from changes in the sales mix. The decrease in Acute Care cost of sales were not able to fees for use of CPT codes implemented byoffset the AMA during 2018 that are passed to the customer. The dual effect of increased revenues and these beneficial cost improvementsdecrease in revenue noted above, which resulted in the gross margin on Acute Care EHR system sales and support increasingdecreasing to 53% in the six months ended June 30, 2019, compared to 55% in the six months ended June 30, 2018 compared to 54% in the six months ended June 30, 2017.2018.
Costs of Post-acute Care EHR system sales and support decreased by $0.8$0.6 million, or 20%19%, compared to the first six months ended June 30, 2017of 2018, primarily due to reduced payroll costs of $0.2 million, or 9%, as we have been able to continue to operate more efficiently to meet current demand. Additional decreases in software, hardware, travel, and other costs combined for an additional $0.4 million or 18%, as the realization of HHI integration synergies over the trailing twelve months has resulted in reduced headcount. Third-party software costs, hardware costs, and travel costs decreased by a total of $0.5 million due to the decreased installation volume mentioned above.decrease. The gross margin on Post-acute Care EHR system sales and support increased to 71% for77% in the six months ended June 30, 2018,2019, compared to 67% for71% in the six months ended June 30, 2017.2018.
Our costs associated with TruBridge sales and support increased 14%increased 3%, or $3.4$0.7 million, with the largest contributing factor being an increase in payroll and related costs of 29%, or $4.3 million,general increases as a result of adding more employees during the trailing twelve months in order to support and develop our growing customer base. Increased payroll was partially offset by an approximate $1.2 million decrease in cloud hosting costs as a result of moving to in-house resources during the fourth quarter of 2017 for cloud services provided to the HHIlarger customer base. The gross margin on these services increasedwas 47% in the six months ended June 30, 2019 compared to 46% in the six months ended June 30, 2018 compared to 45%2018. Get Real Health contributed $0.1 million in TruBridge cost of sales during the six months ended June 30, 2017, primarily attributed to the realization of 2017 bookings to revenue in which the aforementioned accompanying payroll costs constricted margins during 2017.2019.
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 10%, or $1.6 million, compared to the six months ended June 30, 2017, as a result of increased headcount dedicated to functionality additions and enhancements across the product lines, as well as integration across product lines.
Sales and Marketing. Sales and marketing expenses increased 3%, or $0.5 million, compared to the six months ended June 30, 2017,2018, primarily as a result of an increase in headcount. Get Real Health contributed $0.3 million in product development costs during the six months ended June 30, 2019.
Sales and Marketing. Sales and marketing expenses decreased 5%, or $0.7 million, compared to the first six months of 2018, primarily due to increased TruBridge-specificdecreased payroll costs of 11%, or $0.7 million, based on decreased headcount. Get Real Health contributed $0.2 million in sales and MU3 commissions expense.marketing costs during the six months ended June 30, 2019.
General and Administrative. General and administrative expenses increased 4%decreased 6%, or $1.0$1.6 million, comparedas the $4.5 million in cost savings achieved through recent changes in the health benefits offered to the six months ended June 30, 2017, primarily due toour employees through our self-insured health plans were partially offset by increases in other expense items. Most notably, we saw a $1.2$2.1 million increase in badnon-recurring severance and transaction-related costs resulting from recent acquisition activity and other strategic initiatives. Bad debt expense and a $1.3increased $0.3 million, or 20%, increase in employee health costs during the six months ended June 30, 2018. Bad debt was negatively impacted byas a few of our hospital clients that have not been or may not be able to fulfill their financial obligations, whileobligations. Lastly, stock compensation expense increased prescription drug utilization drove employee health$0.4 million as a result of additional grants of stock-based awards made during the trailing twelve months. Get Real Health contributed $0.2 million in general and administrative costs higher. These notable increases were partially offset by a $1.9 million decrease in voluntary severance program expense compared toduring the six months ended June 30, 2017.2019.
Amortization of Acquisition-Related Intangibles. Amortization expense associated with acquisition-related intangible assets was unchangeddecreased $0.2 million compared to the first six months ended June 30, 2017.of 2018 due to the retirement of Rycan related trademarks during 2018. All software and services previously provided under the Rycan name now are marketed under TruBridge trademarks.
Total Operating Expenses. As a percentage of total revenues, total operating expenses remained flat at 46% for bothin the six month periods.months ended June 30, 2019 and 2018.
Total Other Income (Expense). Total other income (expense) decreased from expense of $3.6 million during the six months ended June 30, 2017 to expense of $3.4 million during the six months ended June 30, 2018 to expense of $3.0 million during the six months ended June 30, 2019, as our interest rate on long term debt was reduced as we have reached our target consolidated leverage ratio, coupled with an increase in interest income has increased due to the expansion of long-term payment plans offered to our clients.
Income Before Taxes. As a result of the foregoing factors, income before taxes increased by 59%2%, or $2.4$0.1 million, compared to the first six months ended June 30, 2017.of 2018.
Provision for Income Taxes. Our effective tax rate for the six months ended June 30, 20182019 decreased to 34%22.9% from 55%33.7% for the six months ended June 30, 2017.2018. Our implementation of the aforementioned 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 6.3% for the first six months ended June 30, 2018 was impacted byof 2019 compared to the Tax Cuts and Jobs Act, which reduced our corporate federal rate from 35% to 21% effective at the beginning of 2018. Thefirst six months ended June 30, 2018 also included2018. Additionally, we have experienced a $0.4 million shortfalldecrease in tax expenseshortfalls related to stock-based compensation, thatresulting in an incremental benefit to our effective tax rate of 3.3% for the first six months 2019 compared to the first six months 2018.
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increased the effective rate by 6%. During the six months ended June 30, 2017 we experienced a shortfall tax expense related to stock-based compensation of $0.9 million that increased the effective rate by 23%.
Net Income. Net income for the six months ended June 30, 20182019 increased by $2.5$0.8 million to a$5.1 million, or $0.36 per basic and diluted share, compared with net income of $4.3 million, or $0.31 per basic and diluted share, compared with net income of $1.8 million, or $0.13 per basic and diluted share, for the six months ended June 30, 2017.2018. Net income represented 4% of revenue for the six months ended June 30, 2019, compared to 3% of revenue for the six months ended June 30, 2018, compared to 1% of revenue for the six months ended June 30, 2017.2018.
Liquidity and Capital Resources
Sources of Liquidity
As of June 30, 2018,2019, our principal sources of liquidity consisted of cash and cash equivalents of $1.5$6.8 million and our remaining borrowing capacity under the Amended Revolving Credit Facility of $15.3$11.6 million, compared to $0.5$5.7 million of cash and cash equivalents and $17.0$20.3 million of remaining borrowing capacity under the Amended Revolving Credit Facility as of December 31, 2017.2018. In conjunction with our acquisition of HHI in January 2016, we entered into the Previous Credit Agreement which provided for the $125 million Previous Term Loan Facility and the $50 million Previous Revolving Credit Facility. On October 13, 2017, the Company entered into the Second Amendment to refinance and decrease the aggregate committed sizeprincipal amount of the credit facilities from $175 million to $162 million, which included the $117 million Amended Term Loan Facility and the $45 million Amended Revolving Credit Facility. On February 8, 2018, the Company entered into the Third Amendment to increase the aggregate principleprincipal amount of the Amended Credit Facilities from $162 million to $167 million, which includes the $117 million Amended Term Loan Facility and a $50 million Amended Revolving Credit Facility.
As of June 30, 2018,2019, we had $140.1$130.9 million in principal amount of indebtedness outstanding under the Amended Credit Facilities. We believe that our cash and cash equivalents of $1.5$6.8 million as of June 30, 2018,2019, the future operating cash flows of the combined entity, and our remaining borrowing capacity under the Amended Revolving Credit Facility of $15.3$11.6 million as of June 30, 2018,2019, 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 to fund any such earnout payments. The Company has measured the fair value of the potential earnout payment at $5.0 million as of June 30, 2019.
Operating Cash Flow Activities
Net cash provided by operating activities decreased $8.1increased $9.6 million, from $15.9 million provided by operations for the six months ended June 30, 2017 to $7.8 million provided by operations for the six months ended June 30, 2018.2018 to $17.5 million provided by operations for the six months ended June 30, 2019. The decreaseincrease in cash flows provided from operations is primarily due to more cash-advantageous changes in working capital. Working capital was a $6.3 million contraction in payables and other liabilitiesnet use of cash during the first six months ended June 30, 2018 as a resultin the amount of the timing of vendor and payroll payments$10.7 million, compared to a $6.6 million expansionnet use of cash during the first six months ended June 30, 2017. The $2.52019 of only $1.9 million. During the first six months 2018, rapid revenue growth for TruBridge resulted in expansion of accounts receivable of approximately $4.5 million increase in net income was mostly offset by a combined accounts and financing receivables expansion of approximately $1.7 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 six months 2019 coupled with collections on past financing receivables have greatly abated the related cash collection timing delays. As a result, these components of working capital, which combined for $6.1 million of cash collection deferrals during the first six months ended June 30, 2018. The increase in financing arrangements is primarily due2018, combined to two reasons. First, meaningful use stage three installations are primarily financed through short-term payment plans. Second, competitor financing options, primarily accounts receivables management collections and cloud EHR arrangements, have applied pressure to reduce initial customer capital investment requirements for new EHR installations, leading tobe $4.0 million cash positive during the offering of long-term lease options.first six months 2019.
Investing Cash Flow Activities
Net cash used in investing activities remained relatively flatincreased $11.4 million, with $0.4$11.9 million used in the six months ended June 30, 20182019 compared to $0.5$0.4 million used during the six months ended June 30, 2017.2018. We completed our $11.0 million acquisition of Get Real Health during the second quarter 2019. We do not anticipate the need for significant capital expenditures during the remainder of 2018.2019.
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Financing Cash Flow Activities
During the six months ended June 30, 2018,2019, our financing activities used net cash of $6.4$4.5 million, as we paid a net $3.6$1.4 million in long-term debt principal and declared and paid dividends in the amount of $2.8$2.9 million. During the six months ended June 30, 2018,2019, we made a $7.3$7.0 million prepayment on the Amended Term Loan Facility by drawing down on the Amended Revolving Credit Facility in accordance with the excess cash flow mandatory prepayment requirements of the Amended Credit Agreement. Financing cash flow activities used $15.9$6.4 million during the six months ended June 30, 2017,2018, primarily due to $9.8$3.6 million net paid in long-term debt principal and $6.1$2.8 million cash paid in dividends. The decrease in dividends paid is a result of moving to a fixed dividend policy during the fourth quarter of 2017.
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We believe that paying dividends is an effective way of providing an investment return to our stockholders and a beneficial use of our cash. However, the declaration of dividends by CPSI is subject to compliance with the terms of our Amended Credit Agreement and the discretion of our Board of Directors, which may decide to change or terminate the Company's dividend policy at any time. Our Board of Directors will continue to take into account such matters as general business conditions, capital needs, our financial results and other such other factors as ourthe Board of Directors may deem relevant.
Credit Agreement
As of June 30, 2018,2019, we had $105.4$92.5 million in principal amount outstanding under the Amended Term Loan Facility and $34.7$38.4 million in principal amount outstanding under the Amended Revolving Credit Facility. Each of the Amended Credit Facilities continues to bear interest at a rate per annum equal to an applicable margin plus, at our option, either (1) the Adjusted LIBOR rate for the relevant interest period, (2) an alternate base rate determined by reference to the greater of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant interest period plus one half of one percent per annum and (c) the one month LIBOR rate plus one percent per annum, or (3) a combination of (1) and (2). The applicable margin range for LIBOR loans and the letter of credit fee ranges from 2.00%2.0% to 3.50%3.5%. The applicable margin range for base rate loans ranges from 1.00%1.0% to 2.50%2.5%, in each case based on the Company's consolidated leverage ratio.
Principal payments with respect to the Amended 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 million through September 30, 2019, approximately $2.19 million through September 30, 2021 and approximately $2.93 million through September 30.30, 2022, with the maturity on October 13, 2022 or such earlier date as the obligations under the Amended Credit Agreement become due and payable pursuant to the terms of the Amended Credit Agreement (the "Amended Maturity Date"). Any principal outstanding under the Amended Revolving Credit Facility is due and payable on the Amended Maturity Date.
The Amended 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 are also guaranteed by the Subsidiary Guarantors.
The Amended Credit Agreement, as amended by the Third Amendment, provides incremental facility capacity of $50 million, subject to certain conditions. The Amended Credit Agreement includes a number of restrictive covenants that, among other things and in each case subject to certain exceptions and baskets, impose operating and financial restrictions on the Company and the Subsidiary Guarantors, including the ability to incur additional debt; incur liens and encumbrances; make certain restricted payments, including paying dividends on the Company's equity securities or payments to redeem, repurchase or retire the Company's equity securities (which are subject to our compliance, on a pro forma basis to give effect to the restricted payment, with the fixed charge coverage ratio and consolidated leverage ratio described below); enter into certain restrictive agreements; make investments, loans and acquisitions; merge or consolidate with any other person; dispose of assets; enter into sale and leaseback transactions; engage in transactions with affiliates; and materially alter the business we conduct. The Amended Credit Agreement requires the Company to maintain a minimum fixed charge coverage ratio of 1.25:1.00 throughout the duration of such agreement. Under the Amended Credit Agreement, the Company is required to comply with a maximum consolidated leverage ratio of 3.95:1.00 through December 31, 2017 and 3.50:1.00 from January 1, 2018 and thereafter. The Amended Credit Agreement also contains customary representations and warranties, affirmative covenants and events of default. We believe that we were in compliance with the covenants contained in the Amended Credit Agreement as of June 30, 2018.2019.
The Amended Credit Agreement requires the Company to mandatorily prepay the Amended 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 at any time
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without penalty, subject to customary “breakage” costs with respect to prepayments of LIBOR rate loans made on a day other than the last day of any applicable interest period. The excess cash flow mandatory prepayment requirement under the Amended Credit Agreement resulted in a $7.3$7.0 million prepayment on the Amended Term Loan Facility during the first quarter of 20182019 related to excess cash flow generated by the Company during 2017. This mandatory prepayment was funded by drawing down on the Amended Revolving Credit Facility, as excess cash flow generated by the Company during 2017 was primarily used to voluntarily prepay amounts due under the Amended Revolving Credit Facility.

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2018.
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 June 30, 2018,2019, we had a twelve-month backlog of approximately $38$17 million in connection with non-recurring system purchases and approximately $229$227 million in connection with recurring payments under support and maintenance, Cloud EHR contracts, and TruBridge services. As of June 30, 2017,2018, we had a twelve-month backlog of approximately $37$38 million in connection with non-recurring system purchases and approximately $217$229 million in connection with recurring payments under support and maintenance and TruBridge services.
Bookings
Bookings is a key operational metric used by management to assess the relative success of our sales generation efforts, and were as follows for the periods endingthree and six months ended June 30, 20182019 and 2017, respectively:2018:
Three Months EndedSix Months EndedThree Months Ended June 30,Six Months Ended June 30,
(In thousands)(In thousands)June 30, 2018June 30, 2017June 30, 2018June 30, 2017(In thousands)2019201820192018
System sales and support (1)
System sales and support (1)
System sales and support (1)
Acute Care EHRAcute Care EHR$16,071 $23,871 $33,576 $38,914 Acute Care EHR$9,851 $16,071 $18,135 $33,576 
Post-acute Care EHRPost-acute Care EHR1,054 1,127 1,781 3,039 Post-acute Care EHR1,735 1,054 3,166 1,781 
Total system sales and supportTotal system sales and support17,125 24,998 35,357 41,953 Total system sales and support11,586 17,125 21,301 35,357 
TruBridge (2)
TruBridge (2)
6,371 8,699 10,189 15,293 
TruBridge (2)
3,096 6,371 7,324 10,189 
Total bookingsTotal bookings$23,496 $33,697 $45,546 $57,246 Total bookings$14,682 $23,496 $28,625 $45,546 
(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 second quarter 20182019 decreased $7.8by $6.2 million, or 33%39%, compared tofrom the second quarter 2017,2018, and in the six months ended June 30, 2018 decreased $5.3by $15.4 million, or 14%46%, year-to-date 2019 compared to year-to-date 2018, mostly as net new installation bookings have been severely impaired by a lack of urgency on the six months ended June 30, 2017, mostly due topart of prospective customers, resulting in a low volume of decisions for new system implementations. This lack of urgency has largely been the demand dynamics related tonatural result of the Company's MU3 software applications. Bookings duringMeaningful Use era reaching the threeend of its life cycle, resulting in lessened prospective regulatory challenges and six months ended June 30, 2017 were heavily influenced by the then-deadline of January 1, 2018 for hospital compliance with the stage three rules. Since that time, CMS has announced two rules (the most recent of which was proposedgeneral fatigue in April 2018) that would effectively delay the deadline for compliance to October 1, 2019. Whileour markets towards additional investment in EHR technology. Despite these developments, we do not believe these events significantly alterconsider the total opportunity presented by MU3, it has impactedquality of our periodic bookings results by naturally extending the sales cycle.pipeline to have diminished materially.

Post-acute Care EHR bookings in the second quarter 2018 decreased $0.12019 increased by $0.7 million, or 6%65%, compared tofrom the second quarter 2017,2018, and decreased $1.3increased by $1.4 million, or 41%78%, year-to-date 2019 compared to the six months ended June 30, 2017. New business opportunities for this segment, which consist solely of the operations of AHT,year-to-date 2018, as beneficial regulatory factors have suffered as a result of increased competition and underinvestmentworked in AHT's product offerings (particularly prior totandem with our acquisition of AHT as part of the January 2016 acquisition of HHI), making functionality and usability comparisons less favorable for AHT. Although management has formulated a strategy and enacted stepsrecent efforts to improve the related product functionality and usability to drive improved demand in both the net new and is confident that such measures will translate into improved futureadd-on sales environments.

TruBridge bookings performance (and, eventually, revenue growth)in the second quarter 2019 decreased $3.3 million, or 51%, there can be no guarantee that this strategy will be successful. Duringfrom the fourthsecond quarter 2018, and decreased $2.9 million, or 28%, year-to-date 2019 compared to year-to-date 2018, as the aforementioned lack of 2017, the anticipated attrition of significant customer accounts and a product development acceleration investment plan in our Post-acuteurgency related to Acute Care EHR software led management to record a goodwill impairmentnet new installation bookings is also having an adverse impact on the timing of $28.0 million against our Post-acute Care EHR reporting unit as of December 31, 2017.
We continue to execute on ourcustomer decisions for purchasing TruBridge strategy by moving up-market into larger healthcare facilities while expanding the scope of our relationships with new and existing clients by increasing revenue-generating touchpoints within those facilities. Our initial success in that endeavor has resulted in bookings volatility as our periodic bookings are heavily influenced by low-volume, high-value deals. Such large, enterprise client wins resulted in TruBridge bookings for the first two quarters of 2017 that were some of the highest in TruBridge history at that time, with bookings for the remainder of 2017 being heavily influenced by large, enterprise client wins. Absent any such large, enterprise client wins during the first two quarters of 2018, TruBridge bookings experienced a normalization that resulted in a decrease from the first two quarters of 2017. We continue to see demand for TruBridge's products and services that alleviate administrative burden on our clients and allow them to take
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advantage of our specialized capabilities. Particularly strong demand exists for TruBridge's accounts receivable management and medical coding services.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements, as defined by Item 303(a)(4) of SEC Regulation S-K, as of June 30, 2018.2019.
The Company has other lease rights and obligations that it accounts for as operating leases that may be reclassified as balance sheet arrangements under accounting pronouncements recently finalized by the FASB.
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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, 2017,2018, we identified our critical accounting polices related to revenue recognition, allowance for doubtful accounts, allowance for credit losses, and estimates. During the first quarter of 2018, we adopted the new accounting standard codified as Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, and all related amendments and have applied it to all contracts using the modified retrospective method, pursuant to which the cumulative effect of initially applying the new revenue standard is recognized as an adjustment to retained earnings and impacted balance sheet line items as of January 1, 2018, the date of adoption. Refer to Note 2 - Recent Accounting Pronouncements of the Notes to Financial Statements (Part 1, Item 1 of this Form 10-Q) for further discussion.
There have been no other significant changes to these critical accounting policies during the six months ended June 30, 2018.

2019.

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 $140.1$130.9 million of outstanding borrowings under our Amended Credit Facilities with Regions Bank at June 30, 2018.2019. The Amended Term Loan Facility and Amended Revolving Credit Facility bear interest at a rate per annum equal to an applicable margin plus (1) the Adjusted LIBOR rate for the relevant interest period, (2) an alternate base rate determined by reference to the greatest of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant interest period plus one half of one percent per annum and (c) the one month LIBOR rate plus one percent per annum, or (3) a combination of (1) and (2). Accordingly, we are exposed to fluctuations in interest rates on borrowings under the Amended Credit Facilities. A one hundred basis point change in interest rate on our borrowings outstanding as of June 30, 20182019 would result in a change in interest expense of approximately $1.4$1.3 million annually.
We did not have investments and do not utilize derivative financial instruments to manage our interest rate risks.


Item 4.Controls and Procedures.

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Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the rules and forms promulgated by the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations to the effectiveness of any system of disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that all control issues and instances of fraud, if any, with a company have been prevented or detected on a timely basis. Even disclosure controls and procedures determined to be effective can only provide reasonable assurance that their objectives are achieved.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
On May 3, 2019, we acquired Get Real Health, as further described in Note 4 of the notes to the condensed consolidated financial statements. We continue to integrate policies, processes, people, technology, and operations for our combined operations, and we will continue to evaluate the impact of any related changes to internal control over financial reporting during the fiscal year. 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 June 30, 20182019 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 contractsoperating and finance leases and properly assessed the impact of the new accounting standard related to revenue recognitionlease accounting on our financial statements to facilitate adoption on January 1, 2018.2019. There were no significant changes to our internal controls over financial reporting due to the adoption of the new standard.



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PART II
OTHER INFORMATION
 

Item 1.Legal Proceedings.

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

Item 1A.Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2017,2018, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may materially adversely affect our business, financial condition or operating results.

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


Not Applicable.
 

Item 3.Defaults Upon Senior Securities.

Not applicable.
 

Item 4.Mine Safety Disclosures.

Not applicable.
 

Item 5.Other Information.

None.
 

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Item 6.Exhibits.

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2.1 
2.2 
3.1 
3.2 
3.3 
10.1 
10.2 
10.3 
10.4 
31.1 
31.2 
32.1 
101 Interactive Data Files for CPSI’s Form 10-Q for the period ended June 30, 20182019


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

COMPUTER PROGRAMS AND SYSTEMS, INC.
August 7, 20189, 2019By:/s/ J. Boyd Douglas
J. Boyd Douglas
President and Chief Executive Officer
August 7, 20189, 2019By:
/S/s/ Matt J. Chambless
Matt J. Chambless
Chief Financial Officer

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