UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~September 30, 2019~~March 31, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-49796

COMPUTER PROGRAMS AND SYSTEMS, INC.

(Exact Name of Registrant as Specified in Its Charter)


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

6600 Wall Street, Mobile, Alabama						36695
(Address of Principal Executive Offices)						(Zip Code)

(251) 639-8100

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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


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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of ~~November 4, 2019,~~May 1, 2020, there were ~~14,355,656 shar~~es14,512,105 shares of the issuer’s common stock outstanding.

COMPUTER PROGRAMS AND SYSTEMS, INC.

Quarterly Report on Form 10-Q

(For the three ~~and nine~~ months ended ~~September 30, 2019)~~March 31, 2020)

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets (Unaudited) – ~~September~~March 31 ~~30, 2019~~, 20 20 and December 31, ~~2018~~201 9

Condensed Consolidated Statements of Income (Unaudited) – Three ~~and~~ ~~Nine~~Months Ended ~~September~~March ~~30, 2019~~31 , 20 20 and ~~2018~~20 1 9

Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) – Three ~~and~~ ~~Nine~~ Months Ended ~~September~~March ~~30, 2019~~3 1 , 20 20 and ~~2018~~201 9

Condensed Consolidated Statements of Cash Flows (Unaudited) – ~~Nine~~Three Months Ended ~~September~~March 31 , 20 20 ~~30, 2019~~ and ~~2018~~201 9

Notes to Condensed Consolidated Financial Statements (Unaudited)

Item 2.

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

2423

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

3533

Item 4.

Controls and Procedures

3533

PART II. OTHER INFORMATION

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

PART I

FINANCIAL INFORMATION


Item 1.			Financial Statements.

COMPUTER PROGRAMS AND SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)


		September 30, 2019		December 31, 2018			March 31, 2020		December 31, 2019
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	3,988	$	5,732	Cash and cash equivalents	$	4,280	$	7,357
Accounts receivable, net of allowance for doubtful accounts of $2,121 and $2,124, respectively		39,350		40,474
Financing receivables, current portion, net		12,295		15,059
Accounts receivable (net of allowance for expected credit losses of $2,064 and $2,078, respectively)						Accounts receivable (net of allowance for expected credit losses of $2,064 and $2,078, respectively)	38,241		38,819
Financing receivables, current portion, net (net of allowance for expected credit losses of $165 and $165, respectively)						Financing receivables, current portion, net (net of allowance for expected credit losses of $165 and $165, respectively)	12,175		12,032
Inventories	Inventories	1,472		1,498		Inventories	1,365		1,426
Prepaid income taxes	Prepaid income taxes	2,130		2,120		Prepaid income taxes	1,208		1,337
Prepaid expenses and other	Prepaid expenses and other	6,444		5,055		Prepaid expenses and other	6,606		5,861
Total current assets	Total current assets	65,679		69,938		Total current assets	63,875		66,832
Property and equipment, net	Property and equipment, net	11,826		10,875		Property and equipment, net	13,294		11,593
Software development costs, net						Software development costs, net	883		—
Operating lease assets	Operating lease assets	8,061		—		Operating lease assets	7,522		7,800
Financing receivables, net of current portion		18,214		19,263
Financing receivables, net of current portion (net of allowance for expected credit losses of $3,140 and $2,806, respectively)						Financing receivables, net of current portion (net of allowance for expected credit losses of $3,140 and $2,806, respectively)	17,794		18,267
Other assets, net of current portion	Other assets, net of current portion	1,139		995		Other assets, net of current portion	2,105		1,771
Intangible assets, net	Intangible assets, net	85,977		86,226		Intangible assets, net	80,244		83,110
Goodwill	Goodwill	149,960		140,449		Goodwill	150,216		150,216

Total assets	Total assets	$	340,856	$	327,746	Total assets	$	335,933	$	339,589
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	7,580	$	5,668	Accounts payable	$	9,010	$	8,804
Current portion of long-term debt	Current portion of long-term debt	8,430		6,486		Current portion of long-term debt	8,430		8,430
Deferred revenue	Deferred revenue	8,656		10,201		Deferred revenue	7,807		8,628
Accrued vacation	Accrued vacation	4,324		3,929		Accrued vacation	4,649		4,301

Other accrued liabilities	Other accrued liabilities	13,984		12,219		Other accrued liabilities	8,714		11,767
Total current liabilities	Total current liabilities	42,974		38,503		Total current liabilities	38,610		41,930
Long-term debt, net of current portion	Long-term debt, net of current portion	112,540		124,583		Long-term debt, net of current portion	93,325		99,433
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion	6,578		—		Operating lease liabilities, net of current portion	5,950		6,256
Deferred tax liabilities	Deferred tax liabilities	6,733		4,877		Deferred tax liabilities	8,688		7,623
Total liabilities	Total liabilities	168,825		167,963		Total liabilities	146,573		155,242
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock, $0.001 par value; 30,000 shares authorized; 14,356 and 14,083 shares issued and outstanding, respectively		14		14
Common stock, $0.001 par value; 30,000 shares authorized; 14,512 and 14,356 shares issued and outstanding, respectively						Common stock, $0.001 par value; 30,000 shares authorized; 14,512 and 14,356 shares issued and outstanding, respectively	15		14
Additional paid-in capital	Additional paid-in capital	172,093		164,793		Additional paid-in capital	176,975		174,618

Accumulated deficit		(76)		(5,024)
Retained earnings						Retained earnings	12,370		9,715
Total stockholders’ equity	Total stockholders’ equity	172,031		159,783		Total stockholders’ equity	189,360		184,347
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	340,856	$	327,746	Total liabilities and stockholders’ equity	$	335,933	$	339,589

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

COMPUTER PROGRAMS AND SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
		2019		2018		2019		2018			2020		2019
Sales revenues:	Sales revenues:									Sales revenues:
System sales and support	System sales and support	$	40,990	$	44,425	$	123,877	$	132,923	System sales and support	$	41,186	$	43,247
TruBridge	TruBridge	27,709		24,872		80,119		75,162		TruBridge	28,571		25,894
Total sales revenues	Total sales revenues	68,699		69,297		203,996		208,085		Total sales revenues	69,757		69,141
Costs of sales:	Costs of sales:									Costs of sales:
System sales and support	System sales and support	18,761		19,583		54,776		57,528		System sales and support	18,587		18,337
TruBridge	TruBridge	14,023		13,590		41,660		40,501		TruBridge	15,057		13,689
Total costs of sales	Total costs of sales	32,784		33,173		96,436		98,029		Total costs of sales	33,644		32,026
Gross profit	Gross profit	35,915		36,124		107,560		110,056		Gross profit	36,113		37,115
Operating expenses:	Operating expenses:									Operating expenses:
Product development	Product development	9,158		9,305		27,684		27,375		Product development	8,271		9,228
Sales and marketing	Sales and marketing	6,654		7,546		21,158		22,778		Sales and marketing	6,997		7,492
General and administrative	General and administrative	10,996		11,220		34,909		36,772		General and administrative	11,847		11,824
Amortization of acquisition-related intangibles	Amortization of acquisition-related intangibles	3,100		2,692		8,139		7,895		Amortization of acquisition-related intangibles	2,866		2,523
Total operating expenses	Total operating expenses	29,908		30,763		91,890		94,820		Total operating expenses	29,981		31,067
Operating income	Operating income	6,007		5,361		15,670		15,236		Operating income	6,132		6,048
Other income (expense):	Other income (expense):									Other income (expense):
Other income	Other income	4		201		535		593		Other income	362		248
Interest expense	Interest expense	(1,702)		(1,829)		(5,269)		(5,615)		Interest expense	(1,179)		(1,804)
Total other income (expense)	Total other income (expense)	(1,698)		(1,628)		(4,734)		(5,022)		Total other income (expense)	(817)		(1,556)
Income before taxes	Income before taxes	4,309		3,733		10,936		10,214		Income before taxes	5,315		4,492
Provision (benefit) for income taxes		174		(2,016)		1,695		170
Provision for income taxes										Provision for income taxes	1,225		1,048
Net income	Net income	$	4,135	$	5,749	$	9,241	$	10,044	Net income	$	4,090	$	3,444
Net income per common share—basic	Net income per common share—basic	$	0.29	$	0.41	$	0.65	$	0.72	Net income per common share—basic	$	0.28	$	0.24
Net income per common share—diluted	Net income per common share—diluted	$	0.29	$	0.41	$	0.65	$	0.72	Net income per common share—diluted	$	0.28	$	0.24
Weighted average shares outstanding used in per common share computations:	Weighted average shares outstanding used in per common share computations:									Weighted average shares outstanding used in per common share computations:
Basic	Basic	13,829		13,604		13,760		13,547		Basic	13,904		13,656
Diluted	Diluted	13,829		13,604		13,760		13,547		Diluted	13,904		13,656
Dividends declared per common share	Dividends declared per common share	$	0.10	$	0.10	$	0.30	$	0.30	Dividends declared per common share	$	0.10	$	0.10

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

COMPUTER PROGRAMS AND SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


		Common Stock							Additional Paid-in-Capital					Accumulated Deficit				Total Stockholders’ Equity

Three Months Ended September 30, 2019 and 2018:					Shares			Amount
Balance at June 30, 2019		14,355	$	14		$	169,920					$	(2,775)						$	167,159
Net income		—	—			—				4,135				4,135
Common stock issued upon exercise of stock options		1	—			3				—				3

Stock-based compensation		—	—			2,170				—				2,170
Dividends		—	—			—				(1,436)				(1,436)
Balance at September 30, 2019		14,356	$	14		$	172,093			$	(76)			$	172,031

Balance at June 30, 2018		14,086	$	14		$	159,770			$	(15,543)			$	144,241
Net income		—	—			—				5,749				5,749

																	Common Stock										Additional Paid-in-Capital				Retained Earnings (Accumulated Deficit)			Total Stockholders’ Equity

																							Shares			Amount
Stock-based compensation		—	—			2,611				—				2,611
Dividends		—	—			—				(1,409)				(1,409)
Balance at September 30, 2018		14,086	$	14		$	162,381			$	(11,203)			$	151,192
																												Additional Paid-in-Capital					Retained Earnings (Accumulated Deficit)		Total Stockholders’ Equity
Nine Months Ended September 30, 2019 and 2018:
Balance at December 31, 2018		14,083	$	14		$	164,793			$	(5,024)			$	159,783

Balance at December 31, 2019																Balance at December 31, 2019	14,356				$	14		$	174,618						$	9,715				$	184,347
Net income	Net income	—	—			—				9,241				9,241		Net income	—				—			—					4,090		4,090
Common stock issued upon exercise of stock options		1	—			3				—				3

Issuance of restricted stock	Issuance of restricted stock	272	—			—				—				—		Issuance of restricted stock	156				1			(1)					—		—
Stock-based compensation	Stock-based compensation	—	—			7,297				—				7,297		Stock-based compensation	—				—			2,358					—		2,358
Dividends	Dividends	—	—			—				(4,293)				(4,293)		Dividends	—				—			—					(1,435)		(1,435)
Balance at September 30, 2019		14,356	$	14		$	172,093			$	(76)			$	172,031
Balance at March 31, 2020																Balance at March 31, 2020	14,512				$	15		$	176,975				$	12,370	$	189,360

Balance at December 31, 2017		13,760	$	14		$	155,078			$	(19,006)			$	136,086
Balance at December 31, 2018																Balance at December 31, 2018	14,083				$	14		$	164,793				$	(5,024)	$	159,783
Net income	Net income	—	—			—				10,044				10,044		Net income	—				—			—					3,444		3,444
Adoption of accounting standard		—	—			—				1,970				1,970

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

Stock-based compensation	Stock-based compensation	—	—			7,303				—				7,303		Stock-based compensation	—				—			2,436					—		2,436
Dividends	Dividends	—	—			—				(4,211)				(4,211)		Dividends	—				—			—					(1,422)		(1,422)
Balance at September 30, 2018		14,086	$	14		$	162,381			$	(11,203)			$	151,192
Balance at March 31, 2019																Balance at March 31, 2019	14,356				$	14		$	167,229				$	(3,002)	$	164,241

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

COMPUTER PROGRAMS AND SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended September 30,
2019 2018
Operating Activities:
Net income $ 9,241 $ 10,044
Adjustments to net income:
Provision for bad debt 1,975 2,366
Deferred taxes 376 (231)
Stock-based compensation 7,297 7,303
Depreciation 1,084 1,416
Amortization of acquisition-related intangibles 8,139 7,895
Amortization of deferred finance costs 259 259
Changes in operating assets and liabilities:
Accounts receivable (157) (4,174)
Financing receivables 3,483 (5,975)
Inventories 26 219
Prepaid expenses and other (1,426) (47)
Accounts payable 1,318 (1,641)
Deferred revenue (1,975) 1,178
Other liabilities (4,116) (1,821)
Prepaid income taxes/income taxes payable (11) (1,939)
Net cash provided by operating activities 25,513 14,852
Investing Activities:
Purchase of business, net of cash received (10,733) —
Purchase of property and equipment (1,670) (818)
Net cash used in investing activities (12,403) (818)
Financing Activities:
Dividends paid (4,293) (4,211)
Payments of long-term debt principal (11,665) (11,877)
Payments of contingent consideration (206) —
Proceeds from revolving line of credit 11,000 7,300
Payments of revolving line of credit (9,693) (591)
Proceeds from exercise of stock options 3 —
Net cash used in financing activities (14,854) (9,379)
(Decrease) Increase in cash and cash equivalents (1,744) 4,655
Cash and cash equivalents at beginning of period 5,732 520
Cash and cash equivalents at end of period $ 3,988 $ 5,175
Supplemental disclosure of cash flow information:
Cash paid for interest $ 5,003 $ 5,276
Cash paid for income taxes, net of refund $ 1,330 $ 2,340


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

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

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

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

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

COMPUTER PROGRAMS AND SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") and include all adjustments that, in the opinion of management, are necessary for a fair presentation of the results of the periods presented. All such adjustments are considered of a normal recurring nature. Quarterly results of operations are not necessarily indicative of annual results.

Certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted. The condensed consolidated balance sheet as of December 31, ~~2018~~2019 was derived from the audited consolidated balance sheet at that date. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements of Computer Programs and Systems, Inc. ("CPSI" or the "Company") for the year ended December 31, ~~2018~~2019 and the notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Principles of Consolidation

The condensed consolidated financial statements of CPSI include the accounts of TruBridge, LLC ("TruBridge"), Evident, LLC ("Evident"), Healthland Holding Inc. ("HHI"), and iNetXperts, Corp. d/b/a Get Real Health ("Get Real Health"), all of which are wholly-owned subsidiaries of CPSI. The accounts of HHI include those of its wholly-owned subsidiaries, Healthland Inc. ("Healthland"), Rycan Technologies, Inc. ("Rycan"), and American HealthTech, Inc. ("AHT"). All significant intercompany balances and transactions have been eliminated.

2. RECENT ACCOUNTING PRONOUNCEMENTS

New Accounting Standards Adopted in ~~2019~~2020

In ~~February~~June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting 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 requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. We adopted this guidance as of January 1, 2019 using the current period adjustment method. The impact on the financial statements of implementation of this standard was an increase in lease assets and lease liabilities of $4.9 million as of the adoption date, January 1, 2019. Adoption of the standard did not 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~~requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ~~This~~We adopted this guidance ~~will be effective for fiscal years and interim periods within those years beginning after December 15, 2019, which is effective for the Company~~ as of January 1, 2020. Adoption of the ~~first quarter of~~standard did not have a material impact on our ~~fiscal year ending December 31, 2020. The Company is currently evaluating the impact that the implementation of this standard will have on its~~ consolidated financial statements.

New Accounting Standards Yet to be Adopted

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

3. REVENUE RECOGNITION

Revenue is recognized upon transfer of control of promised products or services to clients in an amount that reflects the consideration we expect to receive in exchange for those products and services. We enter into contracts that can include various combinations of products and services, which are generally distinct and accounted for as separate performance obligations. The Company employs the 5-step revenue recognition model under Accounting Standards Codification

("ASC") 606, Revenue from Contracts with Customers, to: (1) identify the contract with the client, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

Revenue is recognized net of shipping charges and any taxes collected from clients, which are subsequently remitted to governmental authorities.

System Sales and Support

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

Non-recurring Revenues

•Perpetual software licenses, installation, conversion, and related training are not considered separate and distinct performance obligations due to the proprietary nature of our software and are, therefore, accounted for as a single performance obligation on a module-by-module basis. Revenue is recognized as each module's implementation is completed based on the module's stand-alone selling price ("SSP"), net of discounts. Fees for licenses, installation, conversion, and related training are typically due in three installments: (1) at placement of order, (2) upon installation of software and commencement of training, and (3) upon satisfactory completion of monthly accounting cycle or end-of-month operation by application and as applicable for each application. Often, short-term and/or long-term financing arrangements are provided for software implementations; refer to Note 1011 - Financing Receivables for further information. Electronic health records ("EHR") implementations include a system warranty that terminates thirty days from the software go-live date, the date on which the client begins using the system in a live environment.

•Hardware revenue is recognized separately from software licenses at the point in time it is delivered to the client. The SSP of hardware is cost plus a reasonable margin. Payment is generally due upon delivery of the hardware to the client. Standard manufacturer warranties apply to hardware.

Recurring Revenues

•Software application support and hardware maintenance services sold with software licenses and hardware are separate and distinct performance obligations. Revenue for support and maintenance services is recognized based on SSP, which is the renewal price, ratably over the life of the contract, which is generally three to five years. Payment is due monthly for support services provided.

•Subscriptions to third party content revenue is recognized as a separate performance obligation ratably over the subscription term based on SSP, which is cost plus a reasonable margin. Payment is due monthly for subscriptions to third party content.

•Software as a Service ("SaaS") arrangements for EHR software and related conversion and training services are considered a single performance obligation. Revenue is recognized on a monthly basis as the SaaS service is provided to the client over the contract term. Payment is due monthly for SaaS services provided.

Refer to Note 1617 - Segment Reporting, for further information, including revenue by client base (acute care or post-acute care) bifurcated by recurring and non-recurring revenue.

TruBridge

TruBridge provides an array of business processing services ("BPS") consisting of accounts receivable management, private pay services, insurance services, medical coding, electronic billing, statement processing, payroll processing, and contract management. Fees are recognized over the period of the client contractual relationship as the services are performed based on the SSP, net of discounts. Fees for many of these services are invoiced, and revenue recognized accordingly, based on the volume of transactions or a percentage of client accounts receivable collections. Payment is due monthly for BPS with certain amounts varying based on utilization and/or volumes.

TruBridge also provides professional IT services. Revenue from professional IT services is recognized as the services are performed based on SSP. Payment is due monthly as services are performed.

Deferred Revenue

Deferred revenue represents amounts invoiced to clients for which the services under contract have not been completed and revenue has not been recognized, including annual renewals of certain software subscriptions and customer deposits for implementations to be performed at a later date. Revenue is recognized ratably over the life of the software subscriptions as services are provided and at the point-in-time when implementations have been completed.

The following table details deferred revenue for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ included in the condensed consolidated balance sheets:


(In thousands)	(In thousands)	Nine Months Ended September 30, 2019		Nine Months Ended September 30, 2018		(In thousands)	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Beginning balance	Beginning balance	$	10,201	$	9,937	Beginning balance	$	8,628	$	10,201
Deferred revenue recorded	Deferred revenue recorded	13,888		15,847		Deferred revenue recorded	6,194		6,530
Deferred revenue acquired		430		—

Less deferred revenue recognized as revenue	Less deferred revenue recognized as revenue	(15,863)		(14,669)		Less deferred revenue recognized as revenue	(7,015)		(5,832)
Ending balance	Ending balance	$	8,656	$	11,115	Ending balance	$	7,807	$	10,899

The deferred revenue recorded during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 is comprised primarily of the annual renewals of certain software subscriptions billed during the first quarter of each year and deposits collected for future EHR installations. The deferred revenue recognized as revenue during the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 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 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.

The following table details costs to obtain and fulfill contracts with customers for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ included in the condensed consolidated balance sheets:


(In thousands)	(In thousands)	Nine Months Ended September 30, 2019		Nine Months Ended September 30, 2018		(In thousands)	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Beginning balance	Beginning balance	$	3,017	$	3,775	Beginning balance	$	4,440	$	3,017
Costs to obtain and fulfill contracts capitalized	Costs to obtain and fulfill contracts capitalized	4,130		2,356		Costs to obtain and fulfill contracts capitalized	1,888		1,922
Less costs to obtain and fulfill contracts recognized as expense	Less costs to obtain and fulfill contracts recognized as expense	(3,509)		(3,129)		Less costs to obtain and fulfill contracts recognized as expense	(1,285)		(1,134)
Ending balance	Ending balance	$	3,638	$	3,002	Ending balance	$	5,043	$	3,805

Remaining Performance Obligations

Disclosures regarding remaining performance obligations are not considered material as the overwhelming majority of the Company's remaining performance obligations either (a) are related to contracts with an expected duration of one year or less, or (b) exhibit revenue recognition in the amount to which the Company has the right to invoice.

4. BUSINESS COMBINATION

Acquisition of Get Real Health

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

Consideration for the acquisition included cash (net of cash of the acquired entity) of $10.8 million (inclusive of seller's transaction expenses), plus a contingent earnout payment of up to $14.0 million tied to Get Real Health's earnings before interest, tax, depreciation, and amortization ("EBITDA") (subject to certain pro-forma adjustments) for 2019. As of December 31, 2019, the $5.0 million contingent consideration estimated in the allocation of purchase price paid was fully reversed as Get Real Health's earnings did not achieve the required level for earnout payment. During 2019, we ~~have~~ incurred approximately ~~$0.5~~$0.6 million of pre-tax acquisition costs in connection with the acquisition of Get Real Health. Acquisition costs are included in general and administrative expenses in our consolidated statements of income.

Our acquisition of Get Real Health ~~will be~~was treated as a purchase in accordance with ASC 805, Business Combinations, which requires allocation of the purchase price to the estimated fair values of assets and liabilities acquired in the transaction. Our allocation of the purchase price iswas 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 ~~as of September 30, 2019~~ was as follows:


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

Prepaid expenses	107
Property and equipment	365
Operating lease asset	1,285
Intangible assets	7,890
Goodwill	~~9,511~~9,767
Accounts payable and accrued liabilities	(594)
Deferred taxes, net	~~(1,480)~~(1,736)
Operating lease liability	(1,285)
Contingent consideration	(5,000)
Deferred revenue	(430)
Net assets acquired	$	10,892

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

The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value measurement hierarchy (see Note 1516 - 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 and nine months ended September 30, 2019 includes revenues of approximately $0.5 million and $0.7 million, respectively, and pre-tax loss of approximately $0.7 million and $1.4 million, respectively, attributed to the acquired business since the May 3, 2019 acquisition date.

The following unaudited pro forma revenue, net loss and earnings per share amounts for the three and nine months ended September 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 September 30, Nine Months Ended September 30,
(In thousands, except per share data) 2019 2018 2019 2018
Pro forma revenues $ 68,699 $ 70,365 $ 205,459 $ 210,622
Pro forma net income $ 3,486 $ 5,208 $ 7,519 $ 7,516
Pro forma diluted earnings per share $ 0.25 $ 0.38 $ 0.55 $ 0.55

Pro forma net income 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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:


(In thousands)	(In thousands)	September 30, 2019		December 31, 2018		(In thousands)	March 31, 2020		December 31, 2019
Land	Land	$	2,848	$	2,848	Land	$	2,848	$	2,848
Buildings and improvements	Buildings and improvements	8,038		7,752		Buildings and improvements	8,039		8,039

Computer equipment	Computer equipment	3,964		2,766		Computer equipment	6,131		4,011
Leasehold improvements	Leasehold improvements	1,712		1,198		Leasehold improvements	1,712		1,712
Office furniture and fixtures	Office furniture and fixtures	1,954		1,938		Office furniture and fixtures	2,018		2,018
Automobiles	Automobiles	18		18		Automobiles	18		18
Property and equipment, gross	Property and equipment, gross	18,534		16,520		Property and equipment, gross	20,766		18,646
Less: accumulated depreciation	Less: accumulated depreciation	(6,708)		(5,645)		Less: accumulated depreciation	(7,472)		(7,053)
Property and equipment, net	Property and equipment, net	$	11,826	$	10,875	Property and equipment, net	$	13,294	$	11,593

6. SOFTWARE DEVELOPMENT

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

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


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

6.7. OTHER ACCRUED LIABILITIES

Other accrued liabilities was comprised of the following at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:


(In thousands)	(In thousands)	September 30, 2019		December 31, 2018		(In thousands)	March 31, 2020		December 31, 2019
Salaries and benefits	Salaries and benefits	$	4,103	$	8,722	Salaries and benefits	$	4,052	$	6,946
Severance	Severance	647		992		Severance	128		329
Commissions	Commissions	794		830		Commissions	1,153		1,037
Self-insurance reserves	Self-insurance reserves	1,382		1,017		Self-insurance reserves	1,214		1,382
Contingent consideration		5,000		206

Other	Other	575		452		Other	595		529
Operating lease liabilities, current portion	Operating lease liabilities, current portion	1,483		—		Operating lease liabilities, current portion	1,572		1,544
Other accrued liabilities	Other accrued liabilities	$	13,984	$	12,219	Other accrued liabilities	$	8,714	$	11,767

8. NET INCOME PER SHARE

The Company presents basic and diluted earnings per share ("EPS") data for its common stock. Basic EPS is calculated by dividing the net income attributable to stockholders of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is determined by adjusting the net income attributable to stockholders of the Company and the weighted average number of shares of common stock outstanding during the period for the effects of all dilutive potential common shares, including awards under stock-based compensation arrangements.

The Company's unvested restricted stock awards (see Note 9)10) are considered participating securities under FASB Codification topic, Earnings Per Share, because they entitle holders to non-forfeitable rights to dividends until the awards vest or are forfeited. When a company has a security that qualifies as a "participating security," the Codification requires the use of the two-class method when computing basic EPS. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. In determining the amount of net income to allocate to common stockholders, income is allocated to both common stock and participating securities based on their respective weighted average shares outstanding for the period, with net income attributable to common stockholders ultimately equaling net income less net income attributable to participating securities. Diluted EPS for the Company's common stock is computed using the more dilutive of the two-class method or the treasury stock method.

The following is a calculation of the basic and diluted EPS for the Company's common stock, including a reconciliation between net income and net income attributable to common stockholders:

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands, except per share data) 2019 2018 2019 2018
Net income $ 4,135 $ 5,749 $ 9,241 $ 10,044
Less: Net income attributable to participating securities (151) (197) (347) (338)
Net income attributable to common stockholders $ 3,984 $ 5,552 $ 8,894 $ 9,706
Weighted average shares outstanding used in basic per common share computations 13,829 13,604 13,760 13,547
Add: Dilutive potential common shares — — — —
Weighted average shares outstanding used in diluted per common share computations 13,829 13,604 13,760 13,547
Basic EPS $ 0.29 $ 0.41 $ 0.65 $ 0.72
Diluted EPS $ 0.29 $ 0.41 $ 0.65 $ 0.72


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

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

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

During 2018, 2019 and ~~2019,~~2020, performance share awards were granted to certain executive officers and key employees of the Company that will result in the issuance of time-vesting restricted stock if the predefined performance criteria are met. The awards provide for an aggregate target of ~~200,709~~252,852 shares, none of which have been included in the calculation of diluted EPS for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 because the related threshold award performance levels have not been achieved as of ~~September 30, 2019.~~March 31, 2020. See Note 910 - ~~Stock-based~~Stock-Based Compensation for more information.

8.9. INCOME TAXES

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

Our effective tax rate for the three months ended ~~September 30,~~March 31, 2020 and 2019, was a tax expense of 4% compared to a tax benefit of 54% for the three months ended September 30, 2018. During the third quarter of 2018, we implemented 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"23%. ~~This Directive provides guidance regarding the examination of certain research and development ("R&D") expenses under ASC 730,~~ ~~Research and Development~~, and indicates that the IRS will not challenge certain qualified research expenses (QREs) that are characterized as a taxpayer’s adjusted ASC 730 financial statement R&D costs. Under this guidance, taxpayers now have the option to reconcile ASC 730 with the QREs claimed on their tax return by adjusting ASC 730 financial statement R&D costs to arrive at the amount the IRS considers as qualifying for the safe harbor. The implementation of this guidance, including corresponding 2017 provision-to-return and 2018 year-to-date adjustments, resulted in an overall benefit to our effective tax rate of 81% related to R&D credits for the three months ended September 31, 2018. R&D credits (inclusive of 2018 provision-to-return adjustments) for the three months ended September 30, 2019 benefited our effective tax rate by 20% for the related period.

Our effective tax rate for the nine months ended September 30, 2019 increased to 15% from 2% for the nine months ended September 30, 2018. This significant increase in our effective tax rate was primarily due to the implementation of the ASC 730 Safe Harbor Directive during the first nine months of 2018, resulting in an overall benefit to our effective tax rate of 31% related to R&D credits for the first nine months of 2018, inclusive of 2017 provision-to-return adjustments. R&D credits (inclusive of 2018 provision-to-return adjustments) for the nine months ended September 30, 2019 benefited our effective tax rate by 13% for the related period.

9.10. STOCK-BASED COMPENSATION

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

The following table details total stock-based compensation expense for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ included in the condensed consolidated statements of income:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
(In thousands)	(In thousands)	2019		2018		2019		2018		(In thousands)	2020		2019
Costs of sales	Costs of sales	$	467	$	566	$	1,514	$	1,590	Costs of sales	$	528	$	531
Operating expenses	Operating expenses	1,703		2,044		5,783		5,713		Operating expenses	1,830		1,905
Pre-tax stock-based compensation expense	Pre-tax stock-based compensation expense	2,170		2,610		7,297		7,303		Pre-tax stock-based compensation expense	2,358		2,436
Less: income tax effect	Less: income tax effect	(477)		(574)		(1,605)		(1,607)		Less: income tax effect	(519)		(536)
Net stock-based compensation expense	Net stock-based compensation expense	$	1,693	$	2,036	$	5,692	$	5,696	Net stock-based compensation expense	$	1,839	$	1,900

The Company's stock-based compensation awards are in the form of restricted stock and performance share awards granted pursuant to the Company's 2012 Restricted Stock Plan for Non-Employee Directors, Amended and Restated 2014 Incentive Plan and 2019 Incentive Plan (the "Plans"). As of ~~September 30, 2019, there~~March 31, 2020, there was ~~$11.2~~ $13.6 million of unrecognized compensation expense related to unvested stock-based compensation arrangements granted under the Plans, which is expected to be recognized over a weighted-average period of ~~1.7~~ 2.0 years.

Restricted Stock

The Company grants restricted stock to executive officers, certain key employees and non-employee directors under the Plans with the fair value of the awards representing the fair value of the common stock on the date the restricted stock is granted. Shares of restricted stock generally vest in equal annual installments over the applicable vesting period, which ranges from one to three years. The Company records expenses for these grants on a straight-line basis over the applicable vesting periods. Shares of restricted stock may also be issued pursuant to the settlement of performance share awards, for which the Company records expenses in the manner described in the "Performance Share Awards" section below.

A summary of restricted stock activity (including shares of restricted stock issued pursuant to the settlement of performance share awards) under the Plans during the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ is as follows:


		Nine Months Ended September 30, 2019				Nine Months Ended September 30, 2018						Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
		Shares	Weighted-Average Grant Date Fair Value Per Share		Shares	Weighted-Average Grant Date Fair Value Per Share			Shares	Weighted-Average Grant Date Fair Value Per Share		Shares	Weighted-Average Grant Date Fair Value Per Share
Unvested restricted stock outstanding at beginning of period	Unvested restricted stock outstanding at beginning of period	475,132	$	32.00	309,195	$	38.36	Unvested restricted stock outstanding at beginning of period	525,859	$	30.51	475,132	$	32.00
Granted	Granted	133,936	30.89		148,841	30.20		Granted	136,771	26.16		133,936	30.89
Performance share awards settled through the issuance of restricted stock	Performance share awards settled through the issuance of restricted stock	138,566	29.80		177,395	29.94		Performance share awards settled through the issuance of restricted stock	19,678	30.15		138,566	29.80
Vested	Vested	(221,775)	33.48		(153,424)	40.81		Vested	(202,468)	30.20		(143,945)	33.81

Unvested restricted stock outstanding at end of period	Unvested restricted stock outstanding at end of period	525,859	$	30.51	482,007	$	31.96	Unvested restricted stock outstanding at end of period	479,840	$	29.39	603,689	$	30.82

Performance Share Awards

The Company granted performance share awards to executive officers and certain key employees under the Amended and Restated 2014 Incentive Plan prior to 2019 and under the 2019 Incentive Plan beginning in 2019. The number of shares of common stock earned and issuable under each award is determined at the end of a 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 are not subject to time-based vesting at the conclusion of the three-year performance period.

In the event that the Company's financial performance meets the predetermined targets for the performance objectives of the one-year and three-year performance share awards, the Company will issue each award recipient the number of shares of restricted stock or common stock, as applicable, equal to the target award specified in the individual's underlying performance share award agreement. In the event the financial results of the Company exceed the predetermined targets, additional shares up to the maximum award may be issued. In the event the financial results of the Company fall below the predetermined targets, a reduced number of shares may be issued. If the financial results of the Company fall below the threshold performance levels, no shares will be issued. The total number of shares issued for the three-year performance share award may be increased, decreased, or unchanged based on the TSR modifier described above.

The recipients of performance share awards do not receive dividends or possess voting rights during the performance period and, accordingly, the fair value of the one-year and three-year performance share awards is the quoted market value of CPSI's common stock on the grant date less the present value of the expected dividends not received during the relevant period. The TSR modifier applicable to the three-year performance share awards is considered a market condition and therefore is reflected in the grant date fair value of the award. A Monte Carlo simulation has been used to account for this market condition in the grant date fair value of the award.

Expense of one-year performance share awards is recognized using the accelerated attribution (graded vesting) method over the period beginning on the date the Company determines that it is probable that the performance criteria will be achieved and ending on the last day of the vesting period for the restricted stock issued in satisfaction of such awards. Expense of three-year performance share awards is recognized using ratable straight-line amortization over the three-year performance period. In the event the Company determines it is no longer probable that the minimum performance level will be achieved, all previously recognized compensation expense related to the applicable awards is reversed in the period such a determination is made.

A summary of performance share award activity under the Plans during the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ is as follows, based on the target award amounts set forth in the performance share award agreements:


		Nine Months Ended September 30, 2019				Nine Months Ended September 30, 2018						Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
		Shares	Weighted-Average Grant Date Fair Value Per Share		Shares	Weighted-Average Grant Date Fair Value Per Share			Shares	Weighted-Average Grant Date Fair Value Per Share		Shares	Weighted-Average Grant Date Fair Value Per Share
Performance share awards outstanding at beginning of period	Performance share awards outstanding at beginning of period	184,776	$	30.15	189,325	$	29.94	Performance share awards outstanding at beginning of period	200,709	$	30.75	184,776	$	30.15
Granted	Granted	110,310	30.95		184,776	30.15		Granted	107,298	26.96		—	—
Adjusted for actual performance, net of forfeitures	Adjusted for actual performance, net of forfeitures	44,189	29.77		(11,930)	29.94		Adjusted for actual performance, net of forfeitures	(35,477)	30.15		46,176	29.80
Performance share awards settled through the issuance of restricted stock	Performance share awards settled through the issuance of restricted stock	(138,566)	29.80		(177,395)	29.94		Performance share awards settled through the issuance of restricted stock	(19,678)	30.15		(138,566)	29.80
Performance share awards outstanding at end of period	Performance share awards outstanding at end of period	200,709	$	30.75	184,776	$	30.15	Performance share awards outstanding at end of period	252,852	$	29.27	92,386	$	30.50

~~10.~~11. FINANCING RECEIVABLES

Short-Term Payment Plans

The Company provides fixed monthly payment arrangements ("short-term payment plans") over terms ranging from three to twelve months for meaningful use stage three and other add-on software installations. As a practical expedient, we do not adjust the amount of consideration recognized as revenue for the financing component as unearned income when we expect payment within one year or less. These receivables, included in the current portion of financing receivables, were comprised of the following at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:


(In thousands)	(In thousands)	September 30, 2019		December 31, 2018		(In thousands)	March 31, 2020		December 31, 2019
Short-term payment plans, gross	Short-term payment plans, gross	$	3,593	$	5,773	Short-term payment plans, gross	$	2,356	$	2,361
Less: allowance for losses	Less: allowance for losses	(252)		(404)		Less: allowance for losses	(165)		(165)
Short-term payment plans, net	Short-term payment plans, net	$	3,341	$	5,369	Short-term payment plans, net	$	2,191	$	2,196

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 2026. Under long-term financing arrangements, the transaction price is adjusted by a discount rate that reflects market conditions that would be used for a separate financing transaction between the Company and licensee at contract inception, and takes into account the credit characteristics of the licensee and market interest rates as of the date of the agreement. As such, the amount of fixed fee revenue recognized at the beginning of the license term will be reduced by the calculated financing component. As payments are received from the licensee, the Company recognizes a portion of the financing component as interest income, reported as other income in the condensed consolidated statements of income. These receivables typically have terms from two to seven years.

The components of these receivables were as follows at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:


(In thousands)	(In thousands)	September 30, 2019		December 31, 2018		(In thousands)	March 31, 2020		December 31, 2019
Long-term financing arrangements, gross	Long-term financing arrangements, gross	$	32,947	$	34,841	Long-term financing arrangements, gross	$	34,328	$	34,483
Less: allowance for losses		(2,044)		(2,163)
Less: allowance for expected credit losses						Less: allowance for expected credit losses	(3,140)		(2,806)
Less: unearned income	Less: unearned income	(3,735)		(3,725)		Less: unearned income	(3,410)		(3,574)
Long-term financing arrangements, net	Long-term financing arrangements, net	$	27,168	$	28,953	Long-term financing arrangements, net	$	27,778	$	28,103

Future minimum payments to be received subsequent to ~~September 30, 2019~~March 31, 2020 are as follows:


(In thousands)	(In thousands)			(In thousands)
Years Ending December 31,	Years Ending December 31,			Years Ending December 31,
2019		$	3,213
2020	2020	10,641		2020	$	9,427
2021	2021	8,404		2021	10,806
2022	2022	5,803		2022	6,896
2023	2023	2,857		2023	4,038
2024				2024	2,403
Thereafter	Thereafter	2,029		Thereafter	758
Total minimum payments to be received	Total minimum payments to be received	32,947		Total minimum payments to be received	34,328
Less: allowance for losses		(2,044)
Less: allowance for expected credit losses				Less: allowance for expected credit losses	(3,140)
Less: unearned income	Less: unearned income	(3,735)		Less: unearned income	(3,410)
Receivables, net	Receivables, net	$	27,168	Receivables, net	$	27,778

Credit Quality of Financing Receivables and Allowance for Expected Credit Losses

The following table is a roll-forward of the allowance for ~~financing~~expected credit losses for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and year ended December 31, ~~2018:~~2019:

(In thousands) Balance at Beginning of Period Provision Charge-offs Recoveries Balance at End of Period
September 30, 2019 $ 2,567 $ 329 $ (600) $ — $ 2,296
December 31, 2018 $ 3,244 $ 1,691 $ (2,368) $ — $ 2,567


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

The Company’s financing receivables are comprised of a single portfolio segment, as the balances are all derived from short-term payment plan arrangements and long-term financing arrangements within our target market of community hospitals. The Company evaluates the credit quality of its financing receivables based on a combination of factors, including, but not limited to, customer collection experience, current and future economic conditions, the customer’s financial condition, and known risk characteristics impacting the respective customer base of community hospitals, the most notable of which relate to enacted and potential changes in Medicare and Medicaid reimbursement rates as community hospitals typically generate a significant portion of their revenues and related cash flows from beneficiaries of these programs. In addition to specific account identification, the Company utilizes historical collection experience to establish the allowance for expected credit losses. Financing receivables are written off only after the Company has exhausted all collection efforts.

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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:

(In thousands) 1 to 90 Days Past Due 91 to 180 Days Past Due 181 + Days Past Due Total Past Due
September 30, 2019 $ 1,265 $ 168 $ 191 $ 1,624
December 31, 2018 $ 1,302 $ 210 $ 245 $ 1,757


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

From time to time, the Company may agree to alternative payment terms outside of the terms of the original financing receivable agreement due to customer difficulties in achieving the original terms. In general, such alternative payment arrangements do not result in a re-aging of the related receivables. Rather, payments pursuant to any alternative payment arrangements are applied to the already outstanding invoices beginning with the oldest outstanding invoices as the payments are received.

Because amounts are reclassified to trade accounts receivable when they become due, there are no past due amounts included within financing receivables, current portion, net or financing receivables, net of current portion in the accompanying condensed consolidated balance sheets.

The Company utilizes an aging of trade accounts receivable as the primary credit quality indicator for its financing receivables, which is facilitated by the reclassification of customer payment amounts to trade accounts receivable when they become due. The table below categorizes customer financing receivable balances (excluding short-term payment plans), based on the age of the oldest payment outstanding that has been reclassified to trade accounts receivable:


(In thousands)	(In thousands)	September 30, 2019		December 31, 2018		(In thousands)	March 31, 2020		December 31, 2019
Stratification of uninvoiced client financing receivables based on aging of related trade accounts receivable:	Stratification of uninvoiced client financing receivables based on aging of related trade accounts receivable:					Stratification of uninvoiced client financing receivables based on aging of related trade accounts receivable:
Uninvoiced client financing receivables related to trade accounts receivable that are 1 to 90 Days Past Due	Uninvoiced client financing receivables related to trade accounts receivable that are 1 to 90 Days Past Due	$	16,023	$	17,290	Uninvoiced client financing receivables related to trade accounts receivable that are 1 to 90 Days Past Due	$	15,705	$	18,015
Uninvoiced client financing receivables related to trade accounts receivable that are 91 to 180 Days Past Due	Uninvoiced client financing receivables related to trade accounts receivable that are 91 to 180 Days Past Due	2,136		2,247		Uninvoiced client financing receivables related to trade accounts receivable that are 91 to 180 Days Past Due	2,893		2,136
Uninvoiced client financing receivables related to trade accounts receivable that are 181 + Days Past Due	Uninvoiced client financing receivables related to trade accounts receivable that are 181 + Days Past Due	2,714		885		Uninvoiced client financing receivables related to trade accounts receivable that are 181 + Days Past Due	3,455		1,972
Total uninvoiced client financing receivables balances of clients with a trade accounts receivable	Total uninvoiced client financing receivables balances of clients with a trade accounts receivable	$	20,873	$	20,422	Total uninvoiced client financing receivables balances of clients with a trade accounts receivable	$	22,053	$	22,123
Total uninvoiced client financing receivables of clients with no related trade accounts receivable	Total uninvoiced client financing receivables of clients with no related trade accounts receivable	8,339		10,694		Total uninvoiced client financing receivables of clients with no related trade accounts receivable	8,865		8,786
Total financing receivables with contractual maturities of one year or less	Total financing receivables with contractual maturities of one year or less	3,593		5,773		Total financing receivables with contractual maturities of one year or less	2,356		2,361
Less: allowance for losses		(2,296)		(2,567)
Less: allowance for expected credit losses						Less: allowance for expected credit losses	(3,305)		(2,971)
Total financing receivables	Total financing receivables	$	30,509	$	34,322	Total financing receivables	$	29,969	$	30,299

~~11.~~12. INTANGIBLE ASSETS AND GOODWILL

Our purchased definite-lived intangible assets as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are summarized as follows:

(In thousands) Customer Relationships Trademark Developed Technology Total
Gross carrying amount as of December 31, 2017 $ 82,300 $ 10,900 $ 24,100 $ 117,300
Accumulated amortization as of December 31, 2018 (19,476) (2,613) (8,985) (31,074)
Net intangible assets as of December 31, 2018 $ 62,824 $ 8,287 $ 15,115 $ 86,226
Gross carrying amount as of December 31, 2018 $ 82,300 $ 10,900 $ 24,100 $ 117,300
Intangible assets acquired 2,070 220 5,600 7,890
Accumulated amortization as of September 30, 2019 (24,656) (3,236) (11,321) (39,213)
Net intangible assets as of September 30, 2019 $ 59,714 $ 7,884 $ 18,379 $ 85,977
Weighted average remaining years of useful life 9 13 6 9

1716


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

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

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

The following table represents the remaining amortization of definite-lived intangible assets as of ~~September 30, 2019:~~March 31, 2020:


(In thousands)	(In thousands)			(In thousands)
For the year ended December 31,	For the year ended December 31,			For the year ended December 31,
2019		$	2,866
2020	2020	11,421		2020	$	8,555
2021	2021	11,003		2021	11,003
2022	2022	10,904		2022	10,904
2023		10,904
2022				2022	10,904
2024				2024	9,681
Thereafter	Thereafter	38,879		Thereafter	29,197
Total	Total	$	85,977	Total	$	80,244

The following table sets forth the change in the carrying amount of goodwill by segment for the ~~nine~~three months ended ~~September 30, 2019:~~March 31, 2020:

(In thousands) Acute Care EHR Post-acute Care EHR TruBridge Total
Balance as of December 31, 2018 $ 97,095 $ 29,570 $ 13,784 $ 140,449
Goodwill acquired — — 9,511 9,511
Balance as of September 30, 2019 $ 97,095 $ 29,570 $ 23,295 $ 149,960


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


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

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

~~12.~~13. LONG-TERM DEBT

Long-term debt was comprised of the following at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:


(In thousands)	(In thousands)	September 30, 2019		December 31, 2018		(In thousands)	March 31, 2020		December 31, 2019
Term loan facility	Term loan facility	$	91,017	$	102,432	Term loan facility	$	86,630	$	88,823
Revolving credit facility	Revolving credit facility	31,000		29,693		Revolving credit facility	16,000		20,000
Finance lease obligation		—		250

Debt obligations	Debt obligations	122,017		132,375		Debt obligations	102,630		108,823
Less: unamortized debt issuance costs	Less: unamortized debt issuance costs	(1,047)		(1,306)		Less: unamortized debt issuance costs	(875)		(960)
Debt obligation, net	Debt obligation, net	120,970		131,069		Debt obligation, net	101,755		107,863
Less: current portion	Less: current portion	(8,430)		(6,486)		Less: current portion	(8,430)		(8,430)
Long-term debt	Long-term debt	$	112,540	$	124,583	Long-term debt	$	93,325	$	99,433

1817

As of ~~September 30, 2019,~~March 31, 2020, the carrying value of debt approximated the fair value due to the variable interest rate, which reflected the market rate.

Credit Agreement

In conjunction with our acquisition of HHI in January 2016, we entered into a syndicated credit agreement ~~(the "Previous Credit Agreement")~~ with Regions Bank ("Regions") serving as administrative agent, which provided for a $125 million term loan facility ~~(the "Previous Term Loan Facility")~~ and a $50 million revolving credit facility (the "Previous Revolving Credit Facility"). On October 13, 2017, we entered into a Second Amendment (the "Second Amendment") to refinance and decrease the aggregate principal amount of the credit facilities from $175 million to $162 million, which included a $117 million term loan facility (the "Amended Term Loan Facility") and a $45 million revolving credit facility (the "Amended Revolving Credit Facility" and, together with the Amended Term Loan Facility, the "Amended Credit Facilities").facility. On February 8, 2018, we entered into a Third Amendment ~~(the "Third Amendment")~~ to the credit agreement ~~(as amended, the "Amended Credit Agreement") to increase~~that increased the aggregate principal amount of ~~the Amended Credit Facilities~~our credit facilities from $162 million to $167 million, which includes ~~the~~a $117 million ~~Amended Term Loan Facility~~term loan facility and a $50 million ~~Amended Revolving Credit Facility.~~revolving credit facility.

Each of ~~the Amended Credit Facilities~~our credit facilities continues to bear interest at a rate per annum equal to an applicable margin plus, at our option, either (1) the Adjusted LIBOR rate for the relevant interest period, (2) an alternate base rate determined by reference to the greater of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant interest period plus one half of one percent per annum and (c) the one month LIBOR rate plus 1 percent per annum, or (3) a combination of (1) and (2). The applicable margin range for LIBOR loans and the letter of credit fee ranges from 2.0% to 3.5%. The applicable margin range for base rate loans ranges from 1.0% to 2.5%, in each case based on the Company's consolidated leverage ratio.

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

Anticipated annual future maturities of the ~~Amended Term Loan Facility, Amended Revolving Credit Facility,~~term loan facility and ~~capital lease obligation~~revolving credit facility are as follows as of ~~September 30, 2019:~~March 31, 2020:


(In thousands)	(In thousands)			(In thousands)
2019		$	2,194
2020	2020	8,775		2020	$	6,581
2021	2021	9,506		2021	9,506
2022	2022	101,542		2022	86,543
2023	2023	—		2023	—
2024				2024	—
Thereafter	Thereafter	—		Thereafter	—
		$	122,017		$	102,630

~~The Amended Credit Facilities~~Our credit facilities are secured pursuant to a Pledge and Security Agreement, dated January 8, 2016, among the parties identified as obligors therein and Regions, as collateral agent, on a first priority basis by a security interest in substantially all of the tangible and intangible assets (subject to certain exceptions) of the Company and certain subsidiaries of the Company, as guarantors (collectively, the “Subsidiary Guarantors”), including certain registered intellectual property and the capital stock of certain of the Company’s direct and indirect subsidiaries. Our obligations under the ~~Amended Credit Agreement~~credit agreement are also guaranteed by the Subsidiary Guarantors.

described below); enter into certain restrictive agreements; make investments, loans and acquisitions; merge or consolidate with any other person; dispose of assets; enter into sale and leaseback transactions; engage in transactions with affiliates; and materially alter the business we conduct. The ~~Amended Credit Agreement~~credit agreement requires the Company to maintain a minimum fixed charge coverage ratio of 1.25:1.00 throughout the duration of such agreement. Under the ~~Amended Credit Agreement,~~credit agreement, the Company is required to comply with a maximum consolidated leverage ratio of ~~3.95:1.00 through December 31, 2017 and~~ 3.50:~~1.00 from January 1, 2018 and thereafter.~~1.00. The ~~Amended Credit Agreement~~credit agreement also contains customary representations and warranties, affirmative covenants and events of default. We believe that we were in compliance with the covenants contained in the ~~Amended Credit Agreement~~credit agreement as of ~~September 30, 2019.~~March 31, 2020.

The ~~Amended Credit Agreement~~credit agreement requires the Company to mandatorily prepay the ~~Amended Credit Facilities~~credit facilities with ~~(i) 75% of excess cash flow (minus certain specified other payments) during each of the fiscal years ending December 31, 2017 and December 31, 2018 and (ii)~~ 50% of excess cash flow (minus certain specified other payments) ~~during the fiscal year ending December 31, 2019 and thereafter.~~. The Company is permitted to voluntarily prepay the ~~Amended Credit Facilities~~credit facilities at any time without penalty, subject to customary “breakage” costs with respect to prepayments of LIBOR rate loans made on a day other than the last day of any applicable interest period. The excess cash flow mandatory prepayment requirement under the ~~Amended Credit Agreement~~credit agreement resulted in a $7.0 million prepayment on the ~~Amended Term Loan Facility~~term loan facility during the first quarter of 2019 related to excess cash flow generated by the Company during 2018. An excess cash flow prepayment was not required during the first quarter of 2020.

~~13.~~14. OPERATING LEASES

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

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

(In thousands)

~~September 30, 2019~~March 31, 2020

Operating lease assets:

Operating lease assets

~~8,061~~7,522

Operating lease liabilities:

Other accrued liabilities

~~1,483~~1,572

Operating lease liabilities, net of current portion

~~6,578~~5,950

Total operating lease liabilities

~~8,061~~7,522

Weighted average remaining lease term in years

Weighted average discount rate

5.1%

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

The future minimum lease payments payable under these operating leases subsequent to ~~September 30, 2019~~March 31, 2020 are as follows:

(In thousands)
2019 $ 332
2020 1,544
2021 1,518
2022 1,436
2023 1,363
Thereafter 3,381
Total lease payments 9,574
Less imputed interest (1,513)
Total $ 8,061


(In thousands)
2020	$	1,177
2021	1,518
2022	1,436
2023	1,363
2024	980
Thereafter	2,383
Total lease payments	8,857
Less imputed interest	(1,335)
Total	$	7,522

Total rent expense for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ was ~~$1.6~~$0.4 million and ~~$1.9~~$0.6 million, respectively.

Total cash paid for amounts included in the measurement of lease liabilities within operating cash flows from operating leases for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 was ~~$1.3~~$0.4 million.

~~14.~~15. COMMITMENTS AND CONTINGENCIES

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

~~15.~~

16. FAIR VALUE

FASB Codification topic, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value and expands financial statement disclosures about fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The Codification does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. The Codification requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

As of ~~September 30,~~March 31, 2020 and December 31, 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 September 30, 2019.~~measurement.

~~The following table summarizes the carrying amounts and fair value of the contingent consideration at September 30, 2019:~~

Fair Value at September 30, 2019 Using
Carrying Amount at Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs
(In thousands) 9/30/2019 (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 estimated the fair value of the contingent consideration based on the amount of revenue we expected to be earned by Rycan through the year ending December 31, 2018 in accordance with the purchase agreement between the parties.

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

2120

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

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

~~16.~~17. SEGMENT REPORTING

Our chief operating decision makers ("CODM") utilize 3 operating segments, "Acute Care EHR," "Post-acute Care EHR" and "TruBridge," based on our three distinct business units with unique market dynamics and opportunities. Revenues and cost of sales are primarily derived from the provision of services and sales of our proprietary software, and our CODM assess the performance of these three segments at the gross profit level. Operating expenses and items such as interest, income tax, capital expenditures and total assets are managed at a consolidated level and thus are not included in our operating segment disclosures. Our CODM group is comprised of the Chief Executive Officer, Chief Growth Officer, Chief Operating Officer, and Chief Financial Officer. Accounting policies for each of the reportable segments are the same as those used on a consolidated basis.

The following table presents a summary of the revenues and gross profits of our three operating segments for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
(In thousands)	(In thousands)	2019		2018		2019		2018		(In thousands)	2020		2019
Revenues:	Revenues:									Revenues:
Acute Care EHR	Acute Care EHR									Acute Care EHR
Recurring revenue	Recurring revenue	$	26,982	$	27,393	$	81,462	$	83,633	Recurring revenue	$	26,438	$	27,389
Non-recurring revenue	Non-recurring revenue	8,983		11,514		25,999		32,664		Non-recurring revenue	10,077		10,059
Total Acute Care EHR revenue	Total Acute Care EHR revenue	35,965		38,907		107,461		116,297		Total Acute Care EHR revenue	36,515		37,448
Post-acute Care EHR	Post-acute Care EHR									Post-acute Care EHR
Recurring revenue	Recurring revenue	4,312		4,515		13,214		14,002		Recurring revenue	4,134		4,478
Non-recurring revenue	Non-recurring revenue	713		1,003		3,202		2,624		Non-recurring revenue	537		1,321
Total Post-acute Care EHR revenue	Total Post-acute Care EHR revenue	5,025		5,518		16,416		16,626		Total Post-acute Care EHR revenue	4,671		5,799
TruBridge	TruBridge	27,709		24,872		80,119		75,162		TruBridge	28,571		25,894
Total revenues	Total revenues	$	68,699	$	69,297	$	203,996	$	208,085	Total revenues	$	69,757	$	69,141

Cost of sales:	Cost of sales:									Cost of sales:
Acute Care EHR	Acute Care EHR	$	17,382	$	18,086	$	50,798	$	52,812	Acute Care EHR	$	17,259	$	17,066
Post-acute Care EHR	Post-acute Care EHR	1,379		1,497		3,978		4,716		Post-acute Care EHR	1,328		1,271
TruBridge	TruBridge	14,023		13,590		41,660		40,501		TruBridge	15,057		13,689
Total cost of sales	Total cost of sales	$	32,784	$	33,173	$	96,436	$	98,029	Total cost of sales	$	33,644	$	32,026

Gross profit:	Gross profit:									Gross profit:
Acute Care EHR	Acute Care EHR	$	18,583	$	20,821	$	56,663	$	63,485	Acute Care EHR	$	19,256	$	20,382
Post-acute Care EHR	Post-acute Care EHR	3,646		4,021		12,438		11,910		Post-acute Care EHR	3,343		4,528
TruBridge	TruBridge	13,686		11,282		38,459		34,661		TruBridge	13,514		12,205
Total gross profit	Total gross profit	$	35,915	$	36,124	$	107,560	$	110,056	Total gross profit	$	36,113	$	37,115

Corporate operating expenses	Corporate operating expenses	$	(29,908)	$	(30,763)	$	(91,890)	$	(94,820)	Corporate operating expenses	$	(29,981)	$	(31,067)
Other income	Other income	4		201		535		593		Other income	362		248
Interest expense	Interest expense	(1,702)		(1,829)		(5,269)		(5,615)		Interest expense	(1,179)		(1,804)
Income before taxes	Income before taxes	$	4,309	$	3,733	$	10,936	$	10,214	Income before taxes	$	5,315	$	4,492

~~17.~~

18. SUBSEQUENT EVENTS

Dividends

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

COVID-19

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

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

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

•Although we have experienced no notable disruption to our operating cash flows through the date of this report, we currently expect that the aforementioned limitations on travel and decreased client patient volumes will ultimately result in decreased cash collections from our customers as long as these conditions persist. These decreases in cash collections could be further negatively impacted by the amount and extent to which the pandemic impacts the financial condition and liquidity of our customers.

At this time, the Company is uncertain of the potential full magnitude or duration of the business and economic impacts from the unprecedented public health efforts to contain and combat the spread of COVID-19, and while the extent to which the COVID-19 pandemic impacts the Company’s results will depend on future developments, the outbreak could result in a material impact to the Company’s future financial position, results of operations, cash flows and liquidity.

2322


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

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

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

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

•saturation of our target market and hospital consolidations;

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

•overall business and economic conditions affecting the healthcare industry, including the effects of the federal healthcare reform legislation enacted in 2010, and implementing regulations, on the businesses of our hospital 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~~competition with companies that have greater financial, technical and ~~demand for information technology systems;~~marketing resources than we have;

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

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

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

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

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

•failure of our ~~target market~~products to function properly resulting in claims for medical and ~~hospital consolidations;~~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;

•failure to maintain our margins and service rates for implementation services;

•potential liability arising out of the licensing of our software and provision of services and our dependency on our licenses of rights, products and services from third parties;

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

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

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

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

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

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

•market risks related to interest rate changes;

•~~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; and

•significant ~~charge~~charges to earnings if our goodwill or intangible assets become impaired; and

•fluctuations in quarterly financial performance due to, among other factors, timing of customer installations.

Additional information concerning these and other factors that could cause differences between forward-looking statements and future actual results is discussed under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~

2019.

Background

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

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

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

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

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

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

See Note 1617 to the condensed consolidated financial statements included herein for additional information on our three reportable segments.

Management Overview

Through 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. Prospectively, our ability to continue to realize long-term revenue growth is largely dependent on our ability to sell new and additional products and services to our existing customer base, including cross-selling opportunities presented between our operating segments, Acute Care EHR, Post-acute Care EHR, and TruBridge. As a result, retention of existing EHR customers is a key component of our long-term growth strategy by protecting this base of potential cross-sell customers, while at the same time serving as a leading indicator of our market position and stability of revenues and cash flows.

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

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

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

We also look to increase margins through cost containment measures where appropriate as we continue to leverage opportunities for greater operating efficiencies of the combined entity. For example, during the first quarter of 2018, we further integrated our acute care product lines into a combined client support group. Using best practices of the combined companies' implementation processes, we have decreased travel costs for our acute care installations by approximately 25%. Also, during the third quarter of 2018, we instituted a limited-time, voluntary severance program offering those employees meeting certain predetermined criteria severance packages involving continuing periodic cash payments and healthcare benefits for varying periods, depending upon the individual's years of service with the Company.

Turbulence in the U.S. and worldwide economies and financial markets impacts almost all industries. While the healthcare industry is not immune to economic cycles, we believe it is more significantly affected by U.S. regulatory and national health initiatives than by the economic cycles of our economy. Additionally, healthcare organizations with a large dependency on Medicare and Medicaid populations, such as community hospitals, have been affected by the challenging financial condition of the federal government and many state governments and government programs. Accordingly, we recognize that prospective hospital clients often do not have the necessary capital to make investments in information technology. Additionally, in response to these challenges, hospitals have become more selective regarding where they invest capital, resulting in a focus on strategic spending that generates a return on their investment. Despite these challenges, we believe healthcare information technology is often viewed as more strategically beneficial to hospitals than other possible purchases because the technology also plays an important role in healthcare by improving safety and efficiency and reducing costs. Additionally, we believe most hospitals recognize that they must invest in healthcare information technology to meet current and future regulatory, compliance and government reimbursement requirements.

In recent years, there have been significant changes to provider reimbursement by the U.S. federal government, followed by commercial payers and state governments. There is increasing pressure on healthcare organizations to reduce costs and increase quality while replacing fee-for-service in part by enrolling in an advanced payment model. This pressure could further encourage adoption of healthcare IT and increase demand for business management, consulting, and managed IT services, as the future success of these healthcare providers is greatly dependent upon their ability to engage patient populations and to coordinate patient care across a multitude of settings, while optimizing operating efficiency along the way.

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

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

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

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

For those perpetual license clients not seeking a financing arrangement, the payment schedule of the typical contract is structured to provide for a scheduling deposit due at contract signing, with the remainder of the contracted fees due at various stages of the installation process (delivery of hardware, installation of software and commencement of training, and satisfactory completion of a monthly accounting cycle or end-of-month operation by each respective application, as applicable).

During 2018, total financing receivables increased by $7.8 million, which had a significant impact on operating cash flow. This increase in financing arrangements was primarily due to two reasons. First, meaningful use stage three ("MU3") installations are primarily financed through short-term payment plans and demand for such installation has increased since late 2017. Second, competitor financing options, primarily through accounts receivable management collections and cloud EHR arrangements, have applied pressure to reduce initial customer capital investment requirements for new EHR installations, leading to the offering of long-term lease options. We have experienced and continue to expect positive cash flows from financing receivables during 2019 as cash receipts from MU3 installations in the previous year are received.

We have also historically made our software applications available to clients through "Software as a Service" or "SaaS" configurations, including our Cloud Electronic Health Record ("Cloud EHR") offering. These offerings are attractive to some clients because this configuration allows them to obtain access to advanced software products without a significant initial capital outlay. We have experienced an increase in the prevalence of such SaaS arrangements for new system installations and add-on sales to existing clients since 2015, a trend we expect to continue for the foreseeable future. Unlike our perpetual license arrangements under which the related revenue is recognized effectively upon installation, the SaaS arrangements result in revenue being recognized monthly as the services are provided over the term of the arrangement. As a result, the effect of this trend on the Company's financial statements is reduced system sales revenues during the period of installation in exchange for increased recurring periodic revenues (reflected in system sales and support revenues) over the term of the SaaS arrangement.

OnIn May 3, 2019, the Company closed its acquisition of Get Real ~~Health pursuant to a Stock Purchase Agreement dated April 23, 2019, as amended on May 2, 2019.~~Health. Based in Rockville, Maryland, Get Real Health delivers technology solutions to improve patient outcomes and engagement strategies with care providers. Through this acquisition, the Company strengthened its position in community healthcare by offering three new comprehensive patient engagement and empowerment solutions that are offered by Get Real Health. ~~Although~~

COVID-19

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

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

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

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

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

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

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

Relief, and Economic Security (CARES) Act Provider Relief Fund. Further, $10 billion has been specifically targeted for rural providers, which is of particular interest to our ~~earnings for fiscal year 2019, there can be no assurance that~~client base, which is comprised mostly of non-urban community hospitals. Of this ~~will be~~$10 billion, the ~~case. In addition, during~~average rural hospital is expected to receive a total of approximately $3.6 million in direct financial relief. While these funds certainly help mitigate the ~~first nine months~~financial pressures our clients face, the clinical and operational challenges remain immense and are likely to cause certain of ~~2019,~~our customers to more aggressively manage cash resources in order to preserve liquidity, resulting in uncharacteristic aging of our trade accounts receivable. This would translate to lower cash flows from operating activities. Lower cash flows from operating activities may impact how we ~~incurred approximately $0.5 million of pre-tax acquisition costs in connection with the acquisition of Get Real Health.~~execute under our capital allocation strategy and may adversely affect our financial condition.

Results of Operations

During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we generated revenues of ~~$204.0~~$69.8 million from the sale of our products and services, compared to ~~$208.1~~$69.1 million during the ~~nine~~three months ended ~~September 30, 2018, a decrease~~March 31, 2019, an increase of 2%1% that is primarily attributed to ~~fewer MU3 installations as the October 1, 2019 MU3 compliance deadline passed partially offset by~~

continued TruBridge client growth. We view sales of TruBridge solutions within our existing EHR client base as our leading performance indicator. Our net income for the ~~nine~~three months ended ~~September 30, 2019 decreased~~March 31, 2020 increased by ~~$0.8~~$0.6 million to ~~$9.2~~$4.1 million from the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019, primarily as aof result of ~~a higher effective tax rate.~~decreased long-term debt interest. Net cash provided by operating activities ~~increased~~decreased slightly by ~~$10.7 million to $25.5~~$0.3 million during the ~~nine~~three months ended ~~September 30,~~March 31, 2019 to $7.6 million during the three months ended March 31, 2020, primarily due to ~~more advantageous~~ changes in working ~~capital, most notably as it relates to accounts receivable and financing receivables.~~capital.

The following table sets forth certain items included in our results of operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ expressed as a percentage of our total revenues for these periods:


		Three Months Ended September 30,														Nine Months Ended September 30,													Three Months Ended March 31,
		2019						2018						2019					2018									2020		2019
(In thousands)	(In thousands)	Amount		% Sales		Amount		% Sales		Amount		% Sales		Amount		% Sales		(In thousands)		Amount		% Sales		Amount		% Sales
INCOME DATA:	INCOME DATA:																	INCOME DATA:
Sales revenues:	Sales revenues:																	Sales revenues:
System sales and support:	System sales and support:																	System sales and support:
Acute Care EHR	Acute Care EHR	$	35,965	52.4	%	$	38,907	56.1	%	$	107,461	52.7	%	$	116,297	55.9	%	Acute Care EHR		$	36,515	52.3	%	$	37,448	54.2	%
Post-acute Care EHR	Post-acute Care EHR	5,025		7.3	%	5,518		8.0	%	16,416		8.0	%	16,626		8.0	%	Post-acute Care EHR		4,671		6.7	%	5,799		8.4	%
Total System sales and support	Total System sales and support	40,990		59.7	%	44,425		64.1	%	123,877		60.7	%	132,923		63.9	%	Total System sales and support		41,186		59.0	%	43,247		62.5	%
TruBridge	TruBridge	27,709		40.3	%	24,872		35.9	%	80,119		39.3	%	75,162		36.1	%	TruBridge		28,571		41.0	%	25,894		37.5	%
Total sales revenues	Total sales revenues	68,699		100.0	%	69,297		100.0	%	203,996		100.0	%	208,085		100.0	%	Total sales revenues		69,757		100.0	%	69,141		100.0	%
Costs of sales:	Costs of sales:																	Costs of sales:
System sales and support:	System sales and support:																	System sales and support:
Acute Care EHR	Acute Care EHR	17,382		25.3	%	18,086		26.1	%	50,798		24.9	%	52,812		25.4	%	Acute Care EHR		17,259		24.7	%	17,066		24.7	%
Post-acute Care EHR	Post-acute Care EHR	1,379		2.0	%	1,497		2.2	%	3,978		2.0	%	4,716		2.3	%	Post-acute Care EHR		1,328		1.9	%	1,271		1.8	%
Total System sales and support	Total System sales and support	18,761		27.3	%	19,583		28.3	%	54,776		26.9	%	57,528		27.6	%	Total System sales and support		18,587		26.6	%	18,337		26.5	%
TruBridge	TruBridge	14,023		20.4	%	13,590		19.6	%	41,660		20.4	%	40,501		19.5	%	TruBridge		15,057		21.6	%	13,689		19.8	%
Total costs of sales	Total costs of sales	32,784		47.7	%	33,173		47.9	%	96,436		47.3	%	98,029		47.1	%	Total costs of sales		33,644		48.2	%	32,026		46.3	%
Gross profit	Gross profit	35,915		52.3	%	36,124		52.1	%	107,560		52.7	%	110,056		52.9	%	Gross profit		36,113		51.8	%	37,115		53.7	%
Operating expenses:	Operating expenses:																	Operating expenses:
Product development	Product development	9,158		13.3	%	9,305		13.4	%	27,684		13.6	%	27,375		13.2	%	Product development		8,271		11.9	%	9,228		13.3	%
Sales and marketing	Sales and marketing	6,654		9.7	%	7,546		10.9	%	21,158		10.4	%	22,778		10.9	%	Sales and marketing		6,997		10.0	%	7,492		10.8	%
General and administrative	General and administrative	10,996		16.0	%	11,220		16.2	%	34,909		17.1	%	36,772		17.7	%	General and administrative		11,847		17.0	%	11,824		17.1	%
Amortization of acquisition-related intangibles	Amortization of acquisition-related intangibles	3,100		4.5	%	2,692		3.9	%	8,139		4.0	%	7,895		3.8	%	Amortization of acquisition-related intangibles		2,866		4.1	%	2,523		3.6	%
Total operating expenses	Total operating expenses	29,908		43.5	%	30,763		44.4	%	91,890		45.0	%	94,820		45.6	%	Total operating expenses		29,981		43.0	%	31,067		44.9	%
Operating income	Operating income	6,007		8.7	%	5,361		7.7	%	15,670		7.7	%	15,236		7.3	%	Operating income		6,132		8.8	%	6,048		8.7	%
Other income (expense):	Other income (expense):																	Other income (expense):
Other income	Other income	4		—	%	201		0.3	%	535		0.3	%	593		0.3	%	Other income		362		0.5	%	248		0.4	%
Interest expense	Interest expense	(1,702)		(2.5)	%	(1,829)		(2.6)	%	(5,269)		(2.6)	%	(5,615)		(2.7)	%	Interest expense		(1,179)		(1.7)	%	(1,804)		(2.6)	%
Total other income (expense)	Total other income (expense)	(1,698)		(2.5)	%	(1,628)		(2.3)	%	(4,734)		(2.3)	%	(5,022)		(2.4)	%	Total other income (expense)		(817)		(1.2)	%	(1,556)		(2.3)	%
Income before taxes	Income before taxes	4,309		6.3	%	3,733		5.4	%	10,936		5.4	%	10,214		4.9	%	Income before taxes		5,315		7.6	%	4,492		6.5	%
Provision (benefit) for income taxes		174		0.3	%	(2,016)		(2.9)	%	1,695		0.8	%	170		0.1	%
Provision for income taxes																		Provision for income taxes		1,225		1.8	%	1,048		1.5	%
Net income	Net income	$	4,135	6.0	%	$	5,749	8.3	%	$	9,241	4.5	%	$	10,044	4.8	%	Net income		$	4,090	5.9	%	$	3,444	5.0	%

Three Months Ended ~~September 30, 2019~~March 31, 2020 Compared with Three Months Ended ~~September 30, 2018~~March 31, 2019

Revenues. Total revenues for the three months ended ~~September 30, 2019 decreased~~March 31, 2020 increased by $0.6 million, or 1%, compared to the three months ended ~~September 30, 2018.~~March 31, 2019.

2728

System sales and support revenues decreased by ~~$3.4~~$2.1 million, or 8%5%, compared to the ~~third~~first quarter of ~~2018.~~2019. System sales and support revenues were comprised of the following during the respective periods:


		Three Months Ended September 30,							Three Months Ended March 31,
(In thousands)	(In thousands)	2019		2018		(In thousands)	2020		2019
Recurring system sales and support revenues⁽¹⁾	Recurring system sales and support revenues⁽¹⁾					Recurring system sales and support revenues⁽¹⁾
Acute Care EHR	Acute Care EHR	$	26,982	$	27,393	Acute Care EHR	$	26,438	$	27,389
Post-acute Care EHR	Post-acute Care EHR	4,312		4,515		Post-acute Care EHR	4,134		4,478
Total recurring system sales and support revenues	Total recurring system sales and support revenues	31,294		31,908		Total recurring system sales and support revenues	30,572		31,867
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 EHR	Acute Care EHR	8,983		11,514		Acute Care EHR	10,077		10,059
Post-acute Care EHR	Post-acute Care EHR	713		1,003		Post-acute Care EHR	537		1,321
Total non-recurring system sales and support revenues	Total non-recurring system sales and support revenues	9,696		12,517		Total non-recurring system sales and support revenues	10,614		11,380
Total system sales and support revenue	Total system sales and support revenue	$	40,990	$	44,425	Total system sales and support revenue	$	41,186	$	43,247

⁽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.

Recurring system sales and support revenues decreased by ~~$0.6~~$1.3 million, or 2%4%, compared to the ~~third~~first quarter of ~~2018.~~2019. Acute Care EHR recurring revenues decreased by ~~$0.4~~$1.0 million, or 2%3%, as attrition ~~primarily~~ from the Thrive and Centriq customer base outweighed new Thrive customer growth and additional support ~~fees for MU3-related add-on sales.~~fees. Post-acute Care EHR recurring revenues decreased by ~~$0.2~~$0.3 million, or 4%8%, due to attrition attributed to an aggressive competitive environment as we make technological improvements to the AHT product line.

Non-recurring system sales and support revenues decreased by ~~$2.8~~$0.8 million, or ~~23%, primarily due to a $2.5 million decrease in~~7%. Acute Care EHR non-recurring ~~revenues.~~revenues were relatively flat. We installed our Acute Care EHR solutions at ~~five~~nine new hospital clients during the ~~third~~first quarter of ~~2019 (one~~2020 (eight of which ~~was~~were under a SaaS arrangement, resulting in revenue being recognized ratably over the contract term) compared to ~~six~~five new hospital clients during the ~~third~~first quarter of ~~2018 (none~~2019 (one under a SaaS arrangement). ~~This decrease in non-SaaS installation activity resulted in non-recurring~~Acute Care EHR revenues from new system implementations ~~decreasing~~increased by ~~$1.4~~$3.0 million, ~~from~~but were primarily offset by a $2.4 million decrease in MU3 installation revenue as the ~~third quarter of 2018. Additionally, the impending~~ 2019 year-end deadline for compliance with the related Promoting Interoperability (“PI”, formerly “Meaningful Use”) program administered by Centers for Medicare and Medicaid Services ("CMS") resulted in a $1.9 million decrease in related MU3 installation revenues, which were partially offset by robust sales ofhas passed. In addition, other add-on ~~applications, which increased $0.8 million compared to the third quarter of 2018.~~sales and non-recurring revenue decreased by $0.6 million. Non-recurring Post-acute Care EHR revenues decreased by ~~$0.3~~$0.8 million, or ~~29%~~59%, in the ~~third~~first quarter of ~~2019, despite increased~~2020, as installation bookings ~~due to~~have weakened as we continue our ongoing product releases and ~~aggressive~~ efforts to make technological improvements to the AHT product ~~line, as implementations from recent bookings have taken longer to complete due to multiple sites under contract.~~line.

TruBridge revenues increased ~~11%~~by 10%, or ~~$2.8~~$2.7 million, compared to the ~~third~~first quarter of ~~2018.~~2019. Our hospital clients operate in an environment typified by rising costs and increased complexity and are increasingly seeking to alleviate themselves of the ever-increasing administrative burden of operating their own business office functions. Most notably, an expanded customer base for our accounts receivable management services resulted in a revenue increase of ~~$1.2~~$1.1 million, or ~~14%~~12%. Additionally, ~~revenues from our insurance services division increased $0.7 million, or 9%, due to~~ continued ~~increased demand for our TruBridge RCM solution. Continued~~ increasing demand for hosting services resulted in an increase of ~~$0.4~~$0.3 million, or ~~12%~~11%, in our IT management services revenues. Get Real Health, which was acquired during the second quarter of 2019, contributed ~~$0.5~~$1.3 million to TruBridge revenue during the ~~third~~first quarter of ~~2019.~~2020.

Costs of Sales. Total costs of sales ~~decreased~~increased by 1%5%, or ~~$0.4~~$1.6 million, compared to the ~~third~~first quarter of ~~2018.~~2019. As a percentage of total revenues, costs of sales ~~remained flat at~~were 48% of revenues in the ~~third~~first quarter of ~~2019 and 2018.~~2020 compared to 46% of revenues in the first quarter of 2019.

Costs of Acute Care EHR system sales and support ~~decreased~~increased by ~~$0.7~~$0.2 million, or 4%1%, compared to the ~~third~~first quarter of ~~2018~~2019, primarily due to increases of $0.4 million in third-party software costs and $0.5 million in travel and other costs due to increased installation activity. These increases were partially offset by a ~~$0.8~~decrease of $0.3 million ~~decrease~~ in payroll ~~cost as we have implemented measures to become more efficient with our resources.~~and $0.4 million in hardware costs. Gross margin on Acute Care EHR system sales and support decreased to ~~52% in the third quarter of 2019 compared to~~ 53% in the ~~third~~first quarter of ~~2018.~~2020, compared to 54% in the first quarter of 2019.

Costs of Post-acute Care EHR system sales and support ~~decreased~~increased by $0.1 million, or 8%4%, compared to the ~~third~~first quarter of ~~2018,~~2019, as we ~~have been able to operate more efficiently to meet current demand by decreasing software costs compared to the~~

~~third quarter of 2018.~~had incremental increases in payroll and hardware. The gross margin on Post-acute Care EHR system sales and support ~~remained flat at 73%~~decreased to 72% in the ~~third~~first quarter of ~~2019 and 2018.~~2020, compared to 78% in the first quarter of 2019.

Our costs associated with TruBridge sales and support increased 3%by 10%, or ~~$0.4~~$1.4 million, compared to the ~~third~~first quarter of ~~2018. Legacy TruBridge costs remained flat when compared with the third quarter~~2019. The primary driver was a payroll increase of ~~2018.~~$1.1 million as demand for our ARMs service increases. Get Real Health, acquired in the second quarter of 2019, contributed ~~$0.4~~$0.3 million in TruBridge costs of sales during the ~~third~~first quarter of ~~2019.~~2020. The gross margin on these services ~~increased to 49%~~remained flat at 47% in the ~~third~~first quarter of ~~2019 compared to 45% in the third quarter of 2018.~~2020 and 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 decreased ~~$0.1~~by $1.0 million, or 2%10%, compared to the ~~third~~first quarter of ~~2018,~~2019, primarily asdue to a decrease in payroll ~~and stock compensation costs were partially offset by $0.4~~of $0.5 million, ~~in product development costs related to~~with an additional $0.9 million of payroll capitalized for software development. Get Real Health contributed $0.6 million in expenses during the ~~third~~first quarter of ~~2019.~~2020.

Sales and Marketing. Sales and marketing expenses decreased ~~12%~~by 7%, or ~~$0.9~~$0.5 million, compared to the ~~third~~first quarter of ~~2018,~~2019, primarily due to ~~decreased~~decreases in payroll costs of ~~10%, or $0.3~~$0.1 million, ~~based on decreased headcount. Our commission expense decreased as a result~~travel costs of ~~lower installation revenue, as noted above, by $0.5~~$0.2 million, ~~or 32%, compared to the third quarter~~and general marketing spend of ~~2018.~~$0.2 million. Get Real Health contributed ~~$0.3~~$0.1 million in sales and marketing costs during the ~~third~~first quarter of ~~2019.~~2020.

General and Administrative. General and administrative expenses ~~decreased 2%, or $0.2 million.~~remained flat compared to the first quarter of 2019. Most notably, we saw a ~~$0.7~~$1.0 million decrease ~~in non-recurring severance as a result of the one-time voluntary retirement program offered during the third quarter of 2018, which was partially offset by an $0.4 million increase~~ in non-recurring transaction-related costs resulting from ~~recent~~the the GRH acquisition ~~activity~~ and other strategic ~~initiatives. Bad debt expense decreased~~initiatives which we incurred during the first quarter of 2019. These costs were primarily offset by an increase of $0.7 million ~~compared to the third quarter of 2018 but was offset by a $0.6 million increase~~ in employee health ~~costs.~~costs, along with $0.4 million contributed by Get Real Health ~~contributed $0.2 million~~ in general and administrative costs during the ~~third~~first quarter of ~~2019.~~2020.

Amortization of Acquisition-Related Intangibles. Amortization expense associated with acquisition-related intangible assets increased ~~$0.4~~by $0.3 million, compared to the ~~third~~first quarter of ~~2018~~2019, due to the ~~addition~~inclusion of Get Real Health intangible assets acquired on May 3, 2019, and partially offset by the retirement of Rycan related trademarks during 2018. All software and services previously provided under the Rycan name now are marketed under TruBridge trademarks.intangibles.

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

Total Other Income (Expense). Total other income (expense) ~~increased~~decreased from expense of $1.6 million during the ~~third~~first quarter of ~~2018~~2019 to expense of ~~$1.7~~$0.8 million during the ~~third~~first quarter of ~~2019,~~2020, primarily as our long-term debt and accompanying interest ~~income resulting~~rate have both decreased from ~~long-term payment plans offered to our clients was mostly offset by expenses related to our corroborative agreement with Caravan Health related to our Rural ACO initiative.~~the first quarter of 2019.

Income Before Taxes. As a result of the foregoing factors, income before taxes increased by ~~$0.6~~$0.8 million, compared to the ~~third~~first quarter of ~~2018.~~2019.

Provision for Income Taxes. Our effective tax rate for the three months ended ~~September 30,~~March 31 2020 and 2019, was a tax expense of 4% compared to a tax benefit of 54% for the three months ended September 30, 2018. During the third quarter of 2018, we implemented 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"23%. ~~This Directive provides guidance regarding the examination of certain research and development ("R&D") expenses under ASC 730,~~ ~~Research and Development~~, and indicates that the IRS will not challenge certain qualified research expenses (QREs) that are characterized as a taxpayer’s adjusted ASC 730 financial statement R&D costs. Under this guidance, taxpayers now have the option to reconcile ASC 730 with the QREs claimed on their tax return by adjusting ASC 730 financial statement R&D costs to arrive at the amount the IRS considers as qualifying for the safe harbor. The implementation of this guidance, including corresponding 2017 provision-to-return and 2018 year-to-date adjustments, resulted in an overall benefit to our effective tax rate of 81% related to R&D credits for the three months ended September 31, 2018. R&D credits (inclusive of 2018 provision-to-return adjustments) for the three months ended September 30, 2019 benefited our effective tax rate by 20% for the related period.

Net Income. Net income for the three months ended ~~September 30, 2019 decreased~~March 31, 2020 increased by ~~$1.6~~$0.6 million to $4.1 million, or ~~$0.29~~$0.28 per basic and diluted share, compared with net income of ~~$5.7~~$3.4 million, or ~~$0.41~~$0.24 per basic and diluted share, for the three months ended ~~September 30, 2018.~~March 31, 2019. Net income represented 6% of revenue for the three months ended ~~September 30, 2019,~~March 31, 2020, compared to 8%5% of revenue for the three months ended ~~September 30, 2018.~~

~~Nine Months Ended September 30, 2019 Compared with Nine Months Ended September 30, 2018~~

~~Revenues.~~ ~~Total revenues for the nine months ended September 30, 2019 decreased by $4.1 million, or 2%, compared to the nine months ended September 30, 2018.~~

~~System sales and support revenues decreased by $9.0 million, or 7%, compared to the nine months ended September 30, 2018. System sales and support revenues were comprised of the following:~~

Nine Months Ended September 30,
(In thousands) 2019 2018
Recurring system sales and support revenues⁽¹⁾
Acute Care EHR $ 81,462 $ 83,633
Post-acute Care EHR 13,214 14,002
Total recurring system sales and support revenues 94,676 97,635
Non-recurring system sales and support revenues ⁽²⁾
Acute Care EHR 25,999 32,664
Post-acute Care EHR 3,202 2,624
Total non-recurring system sales and support revenues 29,201 35,288
Total system sales and support revenue $ 123,877 $ 132,923
⁽¹⁾ Mostly comprised of support and maintenance, third-party subscriptions, and SaaS revenues.
⁽²⁾ Mostly comprised of installation revenues from the sale of our acute care and post-acute care EHR solutions and related applications under a perpetual (non-subscription) licensing model.

Recurring system sales and support revenues decreased by $3.0 million, or 3%, compared to the first nine months of 2018. Acute Care EHR recurring revenues decreased by $2.2 million, or 3%, 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 $0.8 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 $6.1 million, or 17%, primarily due to a $6.7 million decrease in Acute Care EHR non-recurring revenues.~~ We installed our Acute Care EHR solutions at sixteen new hospital clients during the first nine months of 2019 (five of which were under a SaaS arrangement) compared to fifteen new hospital clients during the first nine months of 2018 (two under a SaaS arrangement). A decrease in non-SaaS installation activity, along with a decrease in average contract value for the related installations, driven by smaller comparative facility sizes, resulted in non-recurring EHR revenues from new system implementations decreasing by $3.8 million from the first nine months of 2018. Additionally, the impending 2019 year-end deadline for compliance with the related PI (formerly “Meaningful Use”) program administered by CMS resulted in a $6.6 million decrease in related MU3 installation revenues, which were partially offset by robust sales of other add-on applications that increased $3.7 million compared to the first nine months of 2018. Non-recurring Post-acute Care EHR revenues increased by $0.6 million, or 22%, in the nine months ended September 30, 2019 as a result of increased bookings due to our ongoing product releases and aggressive efforts to make technological improvements to the AHT product line.

TruBridge revenues increased 7%, or $5.0 million, compared to the first nine months 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. Most notably, an expanded customer base for our accounts receivable management services resulted in a revenue increase of $2.2 million, or 8%. Additionally, revenues from our insurance services division increased $1.9 million, or 9%, due to continued customer growth for our TruBridge RCM solution. Continued increasing demand for hosting services resulted in an increase of $0.9 million, or 11%, in our IT management services revenues. These increases were partially offset by a decrease in our medical coding services revenues of $0.8 million, or 10%, as operational decisions by a few key customers have decreased their related patient volumes and, consequently, had a negative impact on our service revenues. Get Real Health contributed $0.7 million to TruBridge revenue during the nine months ended September 30,March 31, 2019.

~~Costs of Sales~~. Total costs of sales decreased by 2%, or $1.6 million, compared to the first nine months of 2018. As a percentage of total revenues, costs of sales remained at 47% in the nine months ended September 30, 2019 and 2018.

Costs of Acute Care EHR system sales and support decreased by $2.0 million, or 4%, compared to the first nine months of 2018 primarily due to a 6%, or $2.0 million, decrease in payroll cost as we have implemented measures to become more efficient with our resources, coupled with a $0.7 million decrease in third party software costs and a $0.4 million decrease in travel costs. These decreases were offset by a $0.9 million increase in hardware expense resulting from changes in the sales mix and a $0.2 million increase in other costs. The decrease in Acute Care EHR costs of sales was not able to offset the decrease in revenue noted above, which resulted in the gross margin on Acute Care EHR system sales and support decreasing to 53% in the nine months ended September 30, 2019, compared to 55% in the nine months ended September 30, 2018.

Costs of Post-acute Care EHR system sales and support decreased by $0.7 million, or 16%, compared to the first nine months of 2018, primarily due to reduced software costs of $0.4 million, or 28%, and reduced payroll costs of $0.1 million, or 4%, as we have been able to operate more efficiently to meet current demand. Additional decreases in hardware, travel, and other costs combined for an additional $0.2 million decrease. The gross margin on Post-acute Care EHR system sales and support increased to 76% in the nine months ended September 30, 2019, compared to 72% in the nine months ended September 30, 2018.

Our costs associated with TruBridge sales and support increased 3%, or $1.2 million, due to general increases resulting from a larger customer base. The gross margin on these services was 48% in the nine months ended September 30, 2019 compared to 46% in the nine months ended September 30, 2018. Get Real Health contributed $0.5 million to TruBridge cost of sales during the nine months ended September 30, 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 1%, or $0.3 million, compared to the nine months ended September 30, 2018. Get Real Health contributed $0.7 million to product development costs during the nine months ended September 30, 2019, which were partially offset by a combined $0.4 million decrease in payroll, stock compensation, and other costs.

~~Sales and Marketing.~~ Sales and marketing expenses decreased 7%, or $1.6 million, compared to the first nine months of 2018, primarily due to decreased payroll costs of 11%, or $1.0 million, based on decreased headcount. In addition, commission costs decreased $0.5 million and other costs decreased $0.7 million compared to the first nine months of 2018. Get Real Health contributed $0.5 million to sales and marketing costs during the nine months ended September 30, 2019.

~~General and Administrative.~~ General and administrative expenses decreased 5%, or $1.9 million, as the $3.9 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 $1.8 million increase in non-recurring severance and transaction-related costs resulting from recent acquisition activity and other strategic initiatives. Bad debt expense decreased $0.4 million compared to the first nine months in 2018. Get Real Health contributed $0.4 million to general and administrative costs during the nine months ended September 30, 2019.

~~Amortization of Acquisition-Related Intangibles.~~ Amortization expense associated with acquisition-related intangible assets increased $0.2 million compared to the first nine months of 2018 due to the addition of Get Real Health intangible assets acquired on May 3, 2019, partially offset by 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 decreased to 45% of revenues in the nine months ended September 30, 2019 compared to 46% in the nine months ended September 30, 2018.~~

~~Total Other Income (Expense).~~ Total other income (expense) decreased from expense of $5.0 million during the nine months ended September 30, 2018 to expense of $4.7 million during the nine months ended September 30, 2019, as our interest rate on long term debt has been reduced.

~~Income Before Taxes.~~ ~~As a result of the foregoing factors, income before taxes increased by 7%, or $0.7 million, compared to the first nine months of 2018.~~

~~Provision for Income Taxes.~~ Our effective tax rate for the nine months ended September 30, 2019 increased to 15% from 2% for the nine months ended September 30, 2018. This significant increase in our effective tax rate was primarily due to the implementation of the ASC 730 Safe Harbor Directive during the first nine months of 2018, resulting in an overall benefit to our effective tax rate of 31% related to R&D credits for the first nine months of 2018, inclusive of 2017 provision-to-return

~~adjustments. R&D credits (inclusive of 2018 provision-to-return adjustments) for the nine months ended September 30, 2019 benefited our effective tax rate by 13% for the related period.~~

~~Net Income~~. Net income for the nine months ended September 30, 2019 decreased by $0.8 million to $9.2 million, or $0.65 per basic and diluted share, compared with net income of $10.0 million, or $0.72 per basic and diluted share, for the nine months ended September 30, 2018. Net income represented 5% of revenue for the nine months ended September 30, 2019 and 2018.

Liquidity and Capital Resources

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

Sources of Liquidity

As of ~~September 30, 2019,~~March 31, 2020, our principal sources of liquidity consisted of cash and cash equivalents of ~~$4.0~~$4.3 million and our remaining borrowing capacity under the ~~Amended Revolving Credit Facility~~revolving credit facility of ~~$19.0~~$34.0 million, compared to ~~$5.7~~$7.4 million of cash and cash equivalents and ~~$20.3~~$30.0 million of remaining borrowing capacity under the ~~Amended Revolving Credit Facility~~revolving credit facility as of December 31, ~~2018.~~2019. In conjunction with our acquisition of HHI in January 2016, we entered into the ~~Previous Credit Agreement~~syndicated credit agreement which provided for ~~the~~a $125 million ~~Previous Term Loan Facility~~term loan facility and ~~the~~a $50 million ~~Previous Revolving Credit Facility. On October 13, 2017, the Company entered into the Second Amendment to refinance and decrease the aggregate principal amount of the~~revolving credit ~~facilities from $175 million to $162 million, which included the $117 million Amended Term Loan Facility and the $45 million Amended Revolving Credit Facility.~~facility. On February 8, 2018, the Company entered into the Third Amendment to the credit agreement to increase the aggregate principal amount of the ~~Amended Credit Facilities~~credit facilities from $162 million to $167 million, which includes ~~the~~a $117 million ~~Amended Term Loan Facility~~term loan facility and a $50 million ~~Amended Revolving Credit Facility.~~revolving credit facility.

As of ~~September 30, 2019,~~March 31, 2020, we had ~~$122.0~~$102.6 million in principal amount of indebtedness outstanding under the ~~Amended Credit Facilities.~~credit facilities. We believe that our cash and cash equivalents of ~~$4.0~~$4.3 million as of ~~September 30, 2019,~~March 31, 2020, the future operating cash flows of the combined entity, and our remaining borrowing capacity under the ~~Amended Revolving Credit Facility~~revolving credit facility of ~~$19.0~~$34.0 million as of ~~September~~ March 31,

30 ~~2019,~~

2020, taken together, provide adequate resources to fund ongoing cash requirements for the next twelve months. We cannot provide assurance that our actual cash requirements will not be greater than we expect as of the date of filing of this Form 10-Q. If sources of liquidity are not available or if we cannot generate sufficient cash flow from operations during the next twelve months, we may be required to obtain additional sources of funds through additional operational improvements, capital market transactions, asset sales or financing from third parties, a combination thereof or otherwise. We cannot provide assurance that these additional sources of funds will be available or, if available, would have reasonable terms.

To finance the closing of the Get Real Health transaction, which occurred on May 3, 2019, the Company used a draw of approximately $11.0 million under its Amended Revolving Credit Facility. If the Company is required to make earnout payments (up to $14.0 million) after the end of 2019, the Company expects to use additional draws on its Amended Revolving Credit Facility to fund any such earnout payments. The Company has measured the fair value of the potential earnout payment at $5.0 million as of September 30, 2019.

Operating Cash Flow Activities

Net cash provided by operating activities ~~increased $10.7~~decreased by $0.3 million, from ~~$14.9~~$7.9 million provided by operations for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 to ~~$25.5~~$7.6 million provided by operations for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. The ~~increase~~decrease in cash flows provided from operations is primarily due to ~~more cash-advantageous~~ changes in working ~~capital.~~capital, partially offset by greater net income during the first three months of 2020. Working capital was a net use of cash during the first ~~nine~~three months of ~~2018~~2019 in the amount of ~~$14.2~~$3.0 million, compared to a net use of cash during the first ~~nine~~three months of ~~2019~~2020 of ~~only $2.9~~$4.3 million. During the first nine months of 2018, rapid revenue growth for TruBridge resulted in expansion of accounts receivable of approximately $4.2 million and financing receivables of approximately $6.0 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 nine months of 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 $10.1 million of cash collection deferrals during the first nine months of 2018, combined to be $3.3 million cash positive during the first nine months of 2019.

Investing Cash Flow Activities

Net cash used in investing activities increased ~~$11.6~~by $2.6 million, with ~~$12.4~~$3.0 million used in the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 compared to ~~$0.8~~$0.5 million used during the ~~nine~~three months ended ~~September 30, 2018. We completed our $10.9~~March 31, 2019. The first three months of 2020 included $0.9 million ~~acquisition of Get Real Health~~in capitalized software development costs compared to none during the ~~second quarter~~first three months of ~~2019. We~~2019.We do not anticipate the need for significant capital expenditures during the remainder of ~~2019.~~

2020.

Financing Cash Flow Activities

During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, our financing activities used net cash of ~~$14.9~~$7.6 million, as we paid a net ~~$10.4~~$6.2 million in long-term debt principal and declared and paid dividends in the amount of ~~$4.3~~$1.4 million. During the ~~nine~~three months ended ~~September 30,~~March 31, 2019, we made a $7.0 million prepayment on the ~~Amended Term Loan Facility~~term loan facility in accordance with the excess cash flow mandatory prepayment requirements of the ~~Amended Credit Agreement.~~credit agreement. Financing cash flow activities used ~~$9.4~~$8.7 million during the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, primarily due to ~~$5.2~~$7.1 million net paid in long-term debt principal and ~~$4.2~~$1.4 million cash paid in dividends.

We believe that paying dividends is an effective way of providing an investment return to our stockholders and a beneficial use of our cash. However, the declaration of dividends by CPSI is subject to compliance with the terms of our Amended Credit Agreement and the discretion of our Board of Directors, which may decide to change or terminate the Company's dividend policy at any time. Our Board of Directors will continue to take into account such matters as general business conditions, capital needs, our financial results and other such factors the Board of Directors may deem relevant.

Credit Agreement

As of ~~September 30, 2019,~~March 31, 2020, we had ~~$91.0~~$86.6 million in principal amount outstanding under the ~~Amended Term Loan Facility~~term loan facility and ~~$31.0~~$16.0 million in principal amount outstanding under the ~~Amended Revolving Credit Facility.~~revolving credit facility. Each of the ~~Amended Credit Facilities~~credit facilities continues to bear interest at a rate per annum equal to an applicable margin plus, at our option, either (1) the Adjusted LIBOR rate for the relevant interest period, (2) an alternate base rate determined by reference to the greater of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant interest period plus one half of one percent per annum and (c) the one month LIBOR rate plus one percent per annum, or (3) a combination of (1) and (2). The applicable margin range for LIBOR loans and the letter of credit fee ranges from 2.0% to 3.5%. The applicable margin range for base rate loans ranges from 1.0% to 2.5%, in each case based on the Company's consolidated leverage ratio.

The ~~Amended Credit Agreement,~~credit agreement, as amended by the Third Amendment, provides incremental facility capacity of $50 million, subject to certain conditions. The ~~Amended Credit Agreement~~credit agreement includes a number of restrictive covenants that, among other things and in each case subject to certain exceptions and baskets, impose operating and financial restrictions on the Company and the Subsidiary Guarantors, including the ability to incur additional debt; incur liens and encumbrances; make certain restricted payments, including paying dividends on the Company's equity securities or payments to redeem, repurchase or retire the Company's equity securities (which are subject to our compliance, on a pro forma basis to give effect to the restricted payment, with the fixed charge coverage ratio and consolidated leverage ratio described below); enter into certain restrictive agreements; make investments, loans and acquisitions; merge or consolidate with any other person; dispose of assets; enter into sale and leaseback transactions; engage in transactions with affiliates; and materially alter the business we conduct. The ~~Amended Credit Agreement~~credit agreement requires the Company to maintain a minimum fixed charge coverage ratio of 1.25:1.00 throughout the duration of such agreement. Under the ~~Amended Credit Agreement,~~credit agreement, the Company is required to comply with a maximum consolidated leverage ratio of ~~3.95:1.00 through December 31, 2017 and~~ 3.50:~~1.00 from January 1, 2018 and thereafter.~~1.00. The ~~Amended Credit Agreement~~credit agreement also contains customary representations and warranties, affirmative covenants and events of default. We believe that we were in compliance with the covenants contained in the ~~Amended Credit Agreement~~credit agreement as of ~~September 30, 2019.~~March 31, 2020.

without penalty, subject to customary “breakage” costs with respect to prepayments of LIBOR rate loans made on a day other than the last day of any applicable interest period. The excess cash flow mandatory prepayment requirement under the ~~Amended Credit Agreement~~credit agreement resulted in a $7.0 million prepayment on the ~~Amended Term Loan Facility~~term loan facility during the first quarter of 2019 related to excess cash flow generated by the Company during 2018. An excess cash flow prepayment was not required during the first quarter of 2020.

Backlog

Backlog consists of revenues we reasonably expect to recognize over the next twelve months under all existing contracts, including those with remaining performance obligations that have original expected durations of one year or less and those with fees that are variable in which we estimate future revenues. The revenues to be recognized may relate to a combination of one-time fees for system sales and recurring fees for support and maintenance and TruBridge services. As of ~~September 30, 2019,~~March 31, 2020, we had a twelve-month backlog of approximately ~~$14~~$12 million in connection with non-recurring system purchases and approximately ~~$231~~$234 million in connection with recurring payments under support and maintenance, Cloud EHR contracts, and TruBridge services. As of ~~September 30, 2018,~~March 31, 2019, we had a twelve-month backlog of approximately ~~$35~~$17 million in connection with non-recurring system purchases and approximately ~~$225~~$227 million in connection with recurring payments under support and maintenance and TruBridge services.

Bookings

Bookings is a key operational metric used by management to assess the relative success of our sales generation efforts, and were as follows for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
(In thousands)	(In thousands)	2019		2018		2019		2018		(In thousands)	2020		2019
System sales and support ⁽¹⁾	System sales and support ⁽¹⁾									System sales and support ⁽¹⁾
Acute Care EHR	Acute Care EHR	$	12,299	$	10,699	$	30,436	$	44,276	Acute Care EHR	$	8,919	$	8,285
Post-acute Care EHR	Post-acute Care EHR	1,066		844		4,232		2,625		Post-acute Care EHR	913		1,431
Total system sales and support	Total system sales and support	13,365		11,543		34,668		46,901		Total system sales and support	9,832		9,716

TruBridge⁽²⁾	TruBridge⁽²⁾	10,248		7,302		17,572		17,492		TruBridge⁽²⁾	9,511		4,228

Total bookings	Total bookings	$	23,613	$	18,845	$	52,240	$	64,393	Total bookings	$	19,343	$	13,944

⁽¹⁾ Generally calculated as the total contract price (for system sales) and annualized contract value (for support).	⁽¹⁾ Generally calculated as the total contract price (for system sales) and annualized contract value (for support).													⁽¹⁾ Generally calculated as the total contract price (for system sales) and annualized contract value (for support).
⁽²⁾ Generally calculated as the total contract price (for non-recurring, project-related amounts) and annualized contract value (for recurring amounts).	⁽²⁾ Generally calculated as the total contract price (for non-recurring, project-related amounts) and annualized contract value (for recurring amounts).													⁽²⁾ Generally calculated as the total contract price (for non-recurring, project-related amounts) and annualized contract value (for recurring amounts).

Acute Care EHR bookings in the ~~third~~first quarter of ~~2019~~2020 increased by ~~$1.6~~$0.6 million, or ~~15%~~8%, over the ~~third~~first quarter of ~~2018,~~2019, mostly propelled by increased demand for ~~non-MU3-related add on sales to existing customers.~~new EHR installations. Acute Care EHR new installation bookings ~~during the first nine months of 2019 decreased $13.8~~ increased $2.2

million ~~or 31%,~~ compared to the first ~~nine~~three months of ~~2018 as net new installation bookings have been severely impacted~~2019. This increase was partially offset by a ~~lack~~$0.5 million decrease in MU3 related add-on sales and a $1.1 million decrease in other EHR add-on sales compared to the first quarter of ~~urgency~~ on the part of prospective customers, resulting in a low volume of decisions related to new system implementations. This lack of urgency has largely been the natural result of the Meaningful Use era reaching the end of its life cycle, resulting in lessened prospective regulatory IT challenges and general fatigue in our markets towards additional investment in EHR technology. Despite these developments, we do not consider the quality of our pipeline to have diminished materially.2019.

Post-acute Care EHR bookings in the ~~third~~first quarter of 2020 decreased by $0.5 million, or 36%, from the first quarter of 2019 ~~increased by $0.2 million, or 26%, from the third quarter of 2018,~~as bookings have weakened as we continue our ongoing product releases and ~~increased by $1.6 million, or 61%, year-to-date 2019 compared to year-to-date 2018, as beneficial regulatory factors have worked in tandem with our recent~~ efforts to ~~improve~~make technological improvements to the ~~related~~AHT product ~~functionality and usability to drive improved demand in both the net new and add-on sales environments.~~line.

TruBridge bookings in the ~~third~~first quarter of ~~2019~~2020 increased by ~~$2.9~~$5.3 million, or ~~40%~~125%, over the ~~third~~first quarter of ~~2018,~~2019, mostly due to our recently-introduced initiative to expand our TruBridge footprint outside of our traditional EHR customer base, resulting in significant client wins.~~From a year-to-date perspective, TruBridge bookings have increased by $0.1 million, or less than 1%.~~

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 ~~September 30, 2019.~~

March 31, 2020.

Critical Accounting Policies and Estimates

Our Management Discussion and Analysis is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make subjective or complex judgments that may affect the reported financial condition and results of operations. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the reported values of assets, liabilities, revenues, expenses and other financial amounts that are not readily apparent from other sources. Actual results may differ from these estimates and these estimates may differ under different assumptions or conditions. We continually evaluate the information used to make these estimates as our business and the economic environment changes.

In our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, we identified our critical accounting polices related to revenue recognition, allowance for doubtful accounts, allowance for credit losses, and estimates. There have been no significant changes to these critical accounting policies during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.


Item 3.			Quantitative and Qualitative Disclosures about Market Risk.

Our exposure to market risk relates primarily to the potential change in the British Bankers Association London Interbank Offered Rate ("LIBOR"). We had ~~$122.0~~$102.6 million of outstanding borrowings under our ~~Amended Credit Facilities~~credit facilities with Regions Bank at ~~September 30, 2019.~~March 31, 2020. The ~~Amended Term Loan Facility~~term loan facility and ~~Amended Revolving Credit Facility~~revolving credit facility bear interest at a rate per annum equal to an applicable margin plus (1) the Adjusted LIBOR rate for the relevant interest period, (2) an alternate base rate determined by reference to the greatest of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant interest period plus one half of one percent per annum and (c) the one month LIBOR rate plus one percent per annum, or (3) a combination of (1) and (2). Accordingly, we are exposed to fluctuations in interest rates on borrowings under the ~~Amended Credit Facilities.~~credit facilities. A one hundred basis point change in interest rate on our borrowings outstanding as of ~~September 30, 2019~~March 31, 2020 would result in a change in interest expense of approximately ~~$1.3~~$1.0 million annually.

We did not have investments and do not utilize derivative financial instruments to manage our interest rate risks.


Item 4.			Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the rules and forms promulgated by the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations to the effectiveness of any system of disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that all control issues and instances of fraud, if any, with a company have been prevented or detected on a timely basis. Even disclosure controls and procedures determined to be effective can only provide reasonable assurance that their objectives are achieved.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

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 ~~September 30, 2019~~March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. We implemented internal controls to ensure we adequately evaluated our operating and finance leases and properly assessed the impact of the new accounting standard related to lease accounting on our financial statements to facilitate adoption on January 1, 2019. There were no significant changes to our internal controls over financial reporting due to the adoption of the new standard.

3534

PART II

OTHER INFORMATION


Item 1.			Legal Proceedings.

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


Item 1A.			Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may materially adversely affect our business, financial condition or operating results. Other than as described below, there have been no material changes to the risk factors disclosed in Part I-Item 1A of the Company’s 2019 Annual Report.

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

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

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

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

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

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

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

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


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

Not Applicable.


Item 3.			Defaults Upon Senior Securities.

Not applicable.


Item 4.			Mine Safety Disclosures.

Not applicable.


Item 5.			Other Information.

None.


Item 6.			Exhibits.


3.1						Certificate of Incorporation (filed as Exhibit 3.4 to CPSI’s Registration Statement on Form S-1 (Registration No. 333-84726) and incorporated herein by reference)

3.2						Amended and Restated Bylaws (filed as Exhibit 3 to CPSI’s Current Report on Form 8-K dated October 28, 2013 and incorporated herein by reference)

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

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

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

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

32.1						Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101						Interactive Data Files for CPSI’s Form 10-Q for the period ended ~~September 30, 2019~~March 31, 2020

SIGNATURES

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

COMPUTER PROGRAMS AND SYSTEMS, INC.

~~November~~May 5, ~~2019~~2020

By:

/s/ J. Boyd Douglas

J. Boyd Douglas

President and Chief Executive Officer

~~November~~May 5, ~~2019~~2020

By:

/s/ Matt J. Chambless

Matt J. Chambless

Chief Financial Officer


			Fair Value at September 30, 2019 Using
	Carrying Amount at		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	9/30/2019		(Level 1)		(Level 2)		(Level 3)
Description
Contingent consideration	$	5,000	$	—	$	—	$	5,000
Total	$	5,000	$	—	$	—	$	5,000


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