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 SeptemberJune 30, 20192020
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            
Commission file number: 000-49796
COMPUTER PROGRAMS AND SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware74-3032373
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
6600 Wall Street, Mobile, Alabama36695
(Address of Principal Executive Offices)(Zip Code)
(251) 639-8100
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading symbolName of each exchange on which registered
Common Stock, par value $.001 per shareCPSIThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically 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 filerý
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 NovemberAugust 4, 2019,2020, there were 14,355,656 shares14,512,105 shares of the issuer’s common stock outstanding.

1


COMPUTER PROGRAMS AND SYSTEMS, INC.
Quarterly Report on Form 10-Q
(For the three and ninesix months ended SeptemberJune 30, 2019)2020)
TABLE OF CONTENTS
 
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2

PART I
FINANCIAL INFORMATION

Item 1.Financial Statements.


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

September 30, 2019December 31, 2018June 30,
2020		December 31, 2019
AssetsAssetsAssets
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$3,988  $5,732  Cash and cash equivalents$18,668  $7,357  
Accounts receivable, net of allowance for doubtful accounts of $2,121 and $2,124, respectively39,350  40,474  
Financing receivables, current portion, net12,295  15,059  
Accounts receivable (net of allowance for expected credit losses of $1,668 and $2,078, respectively)Accounts receivable (net of allowance for expected credit losses of $1,668 and $2,078, respectively)32,159  38,819  
Financing receivables, current portion, net (net of allowance for expected credit losses of $128 and $165, respectively)Financing receivables, current portion, net (net of allowance for expected credit losses of $128 and $165, respectively)11,605  12,032  
InventoriesInventories1,472  1,498  Inventories1,607  1,426  
Prepaid income taxesPrepaid income taxes2,130  2,120  Prepaid income taxes1,459  1,337  
Prepaid expenses and otherPrepaid expenses and other6,444  5,055  Prepaid expenses and other7,650  5,861  
Total current assetsTotal current assets65,679  69,938  Total current assets73,148  66,832  
Property and equipment, netProperty and equipment, net11,826  10,875  Property and equipment, net13,729  11,593  
Software development costs, netSoftware development costs, net1,429  —  
Operating lease assetsOperating lease assets8,061  —  Operating lease assets7,223  7,800  
Financing receivables, net of current portion18,214  19,263  
Financing receivables, net of current portion (net of allowance for expected credit losses of $2,221 and $2,806, respectively)Financing receivables, net of current portion (net of allowance for expected credit losses of $2,221 and $2,806, respectively)14,962  18,267  
Other assets, net of current portionOther assets, net of current portion1,139  995  Other assets, net of current portion2,159  1,771  
Intangible assets, netIntangible assets, net85,977  86,226  Intangible assets, net77,378  83,110  
GoodwillGoodwill149,960  140,449  Goodwill150,216  150,216  
Total assetsTotal assets$340,856  $327,746  Total assets$340,244  $339,589  
Liabilities and Stockholders’ EquityLiabilities and Stockholders’ EquityLiabilities and Stockholders’ Equity
Current liabilities:Current liabilities:Current liabilities:
Accounts payableAccounts payable$7,580  $5,668  Accounts payable$8,095  $8,804  
Current portion of long-term debtCurrent portion of long-term debt8,430  6,486  Current portion of long-term debt3,457  8,430  
Deferred revenueDeferred revenue8,656  10,201  Deferred revenue8,299  8,628  
Accrued vacationAccrued vacation4,324  3,929  Accrued vacation5,370  4,301  
Other accrued liabilitiesOther accrued liabilities13,984  12,219  Other accrued liabilities11,354  11,767  
Total current liabilitiesTotal current liabilities42,974  38,503  Total current liabilities36,575  41,930  
Long-term debt, net of current portionLong-term debt, net of current portion112,540  124,583  Long-term debt, net of current portion98,649  99,433  
Operating lease liabilities, net of current portionOperating lease liabilities, net of current portion6,578  —  Operating lease liabilities, net of current portion5,656  6,256  
Deferred tax liabilitiesDeferred tax liabilities6,733  4,877  Deferred tax liabilities8,439  7,623  
Total liabilitiesTotal liabilities168,825  167,963  Total liabilities149,319  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, respectively14  14  
Common stock, $0.001 par value; 30,000 shares authorized; 14,512 and 14,356 shares issued and outstanding, respectivelyCommon stock, $0.001 par value; 30,000 shares authorized; 14,512 and 14,356 shares issued and outstanding, respectively15  14  
Additional paid-in capitalAdditional paid-in capital172,093  164,793  Additional paid-in capital178,227  174,618  
Accumulated deficit(76) (5,024) 
Retained earningsRetained earnings12,683  9,715  
Total stockholders’ equityTotal stockholders’ equity172,031  159,783  Total stockholders’ equity190,925  184,347  
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$340,856  $327,746  Total liabilities and stockholders’ equity$340,244  $339,589  
The accompanying notes are an integral part of these condensed consolidated financial statements.
3

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 June 30,Six Months Ended June 30,
20192018201920182020201920202019
Sales revenues:Sales revenues:Sales revenues:
System sales and supportSystem sales and support$40,990  $44,425  $123,877  $132,923  System sales and support$34,724  $39,640  $75,910  $82,887  
TruBridgeTruBridge27,709  24,872  80,119  75,162  TruBridge24,825  26,516  53,396  52,410  
Total sales revenuesTotal sales revenues68,699  69,297  203,996  208,085  Total sales revenues59,549  66,156  129,306  135,297  
Costs of sales:Costs of sales:Costs of sales:
System sales and supportSystem sales and support18,761  19,583  54,776  57,528  System sales and support15,687  17,673  34,273  36,010  
TruBridgeTruBridge14,023  13,590  41,660  40,501  TruBridge13,756  13,948  28,813  27,637  
Total costs of salesTotal costs of sales32,784  33,173  96,436  98,029  Total costs of sales29,443  31,621  63,086  63,647  
Gross profitGross profit35,915  36,124  107,560  110,056  Gross profit30,106  34,535  66,220  71,650  
Operating expenses:Operating expenses:Operating expenses:
Product developmentProduct development9,158  9,305  27,684  27,375  Product development8,371  9,297  16,642  18,526  
Sales and marketingSales and marketing6,654  7,546  21,158  22,778  Sales and marketing5,169  7,016  12,166  14,508  
General and administrativeGeneral and administrative10,996  11,220  34,909  36,772  General and administrative10,955  12,090  22,802  23,914  
Amortization of acquisition-related intangiblesAmortization of acquisition-related intangibles3,100  2,692  8,139  7,895  Amortization of acquisition-related intangibles2,866  2,516  5,733  5,039  
Total operating expensesTotal operating expenses29,908  30,763  91,890  94,820  Total operating expenses27,361  30,919  57,343  61,987  
Operating incomeOperating income6,007  5,361  15,670  15,236  Operating income2,745  3,616  8,877  9,663  
Other income (expense):Other income (expense):Other income (expense):
Other income4  201  535  593  
Other (expense) incomeOther (expense) income(38) 283  324  532  
Loss on extinguishment of debtLoss on extinguishment of debt(202) —  (202) —  
Interest expenseInterest expense(1,702) (1,829) (5,269) (5,615) Interest expense(803) (1,763) (1,982) (3,567) 
Total other income (expense)Total other income (expense)(1,698) (1,628) (4,734) (5,022) Total other income (expense)(1,043) (1,480) (1,860) (3,035) 
Income before taxesIncome before taxes4,309  3,733  10,936  10,214  Income before taxes1,702  2,136  7,017  6,628  
Provision (benefit) for income taxes174  (2,016) 1,695  170  
(Benefit) provision for income taxes(Benefit) provision for income taxes(62) 473  1,163  1,521  
Net incomeNet income$4,135  $5,749  $9,241  $10,044  Net income$1,764  $1,663  $5,854  $5,107  
Net income per common share—basicNet income per common share—basic$0.29  $0.41  $0.65  $0.72  Net income per common share—basic$0.12  $0.12  $0.41  $0.36  
Net income per common share—dilutedNet income per common share—diluted$0.29  $0.41  $0.65  $0.72  Net income per common share—diluted$0.12  $0.12  $0.41  $0.36  
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:
BasicBasic13,829  13,604  13,760  13,547  Basic14,067  13,794  13,985  13,725  
DilutedDiluted13,829  13,604  13,760  13,547  Diluted14,067  13,794  13,985  13,725  
Dividends declared per common shareDividends declared per common share$0.10  $0.10  $0.30  $0.30  Dividends declared per common share$0.10  $0.10  $0.20  $0.20  
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

COMPUTER PROGRAMS AND SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
 
Common StockAdditional Paid-in-CapitalAccumulated DeficitTotal Stockholders’ EquityCommon StockAdditional Paid-in-CapitalRetained Earnings (Accumulated Deficit)Total Stockholders’ Equity
Common StockRetained Earnings (Accumulated Deficit)Total Stockholders’ Equity
Three Months Ended September 30, 2019 and 2018:SharesAmount
Balance at June 30, 201914,355  $14  $169,920  $(2,775) $167,159  
SharesAmountAdditional Paid-in-CapitalRetained Earnings (Accumulated Deficit)Total Stockholders’ Equity
Three Months Ended June 30, 2020 and 2019:Three Months Ended June 30, 2020 and 2019:
Balance at March 31, 2020Balance at March 31, 202014,512  $15  $176,975  $12,370  
Net incomeNet income—  —  —  4,135  4,135  Net income—  —  —  1,764  1,764  
Common stock issued upon exercise of stock options1  —  3  —  3  
Stock-based compensationStock-based compensation—  —  2,170  —  2,170  Stock-based compensation—  —  1,252  —  1,252  
DividendsDividends—  —  —  (1,436) (1,436) Dividends—  —  —  (1,451) (1,451) 
Balance at September 30, 201914,356  $14  $172,093  $(76) $172,031  
Balance at June 30, 2020Balance at June 30, 202014,512  $15  $178,227  $12,683  $190,925  
Balance at June 30, 201814,086  $14  $159,770  $(15,543) $144,241  
Balance at March 31, 2019Balance at March 31, 201914,355  $14  $167,229  $(3,002) $164,241  
Net incomeNet income—  —  —  5,749  5,749  Net income—  —  —  1,663  1,663  
Stock-based compensationStock-based compensation—  —  2,611  —  2,611  Stock-based compensation—  —  2,691  —  2,691  
DividendsDividends—  —  —  (1,409) (1,409) Dividends—  —  —  (1,436) (1,436) 
Balance at September 30, 201814,086  $14  $162,381  $(11,203) $151,192  
Balance at June 30, 2019Balance at June 30, 201914,355  $14  $169,920  $(2,775) $167,159  
Nine Months Ended September 30, 2019 and 2018:
Balance at December 31, 201814,083  $14  $164,793  $(5,024) $159,783  
Six Months Ended June 30, 2020 and 2019:Six Months Ended June 30, 2020 and 2019:
Balance at December 31, 2019Balance at December 31, 201914,356  $14  $174,618  $9,715  $184,347  
Net incomeNet income—  —  —  9,241  9,241  Net income—  —  —  5,854  5,854  
Common stock issued upon exercise of stock options1  —  3  —  3  
Issuance of restricted stockIssuance of restricted stock272  —  —  —  —  Issuance of restricted stock156  1  (1) —  —  
Stock-based compensationStock-based compensation—  —  7,297  —  7,297  Stock-based compensation—  —  3,610  —  3,610  
DividendsDividends—  —  —  (4,293) (4,293) Dividends—  —  —  (2,886) (2,886) 
Balance at September 30, 201914,356  $14  $172,093  $(76) $172,031  
Balance at June 30, 2020Balance at June 30, 202014,512  $15  $178,227  $12,683  $190,925  
Balance at December 31, 201713,760  $14  $155,078  $(19,006) $136,086  
Balance at December 31, 2018Balance at December 31, 201814,083  $14  $164,793  $(5,024) $159,783  
Net incomeNet income—  —  —  10,044  10,044  Net income—  —  —  5,107  5,107  
Adoption of accounting standard—  —  —  1,970  1,970  
Issuance of restricted stockIssuance of restricted stock326  —  —  —  —  Issuance of restricted stock272  —  —  —  —  
Stock-based compensationStock-based compensation—  —  7,303  —  7,303  Stock-based compensation—  —  5,127  —  5,127  
DividendsDividends—  —  —  (4,211) (4,211) Dividends—  —  —  (2,858) (2,858) 
Balance at September 30, 201814,086  $14  $162,381  $(11,203) $151,192  
Balance at June 30, 2019Balance at June 30, 201914,355  $14  $169,920  $(2,775) $167,159  
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

COMPUTER PROGRAMS AND SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Nine Months Ended September 30,
20192018
Operating Activities:
Net income$9,241  $10,044  
Adjustments to net income:
Provision for bad debt1,975  2,366  
Deferred taxes376  (231) 
Stock-based compensation7,297  7,303  
Depreciation1,084  1,416  
Amortization of acquisition-related intangibles8,139  7,895  
Amortization of deferred finance costs259  259  
Changes in operating assets and liabilities:
Accounts receivable(157) (4,174) 
Financing receivables3,483  (5,975) 
Inventories26  219  
Prepaid expenses and other(1,426) (47) 
Accounts payable1,318  (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 activities25,513  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 credit11,000  7,300  
Payments of revolving line of credit(9,693) (591) 
Proceeds from exercise of stock options3  —  
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 period5,732  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  
Six Months Ended June 30,
20202019
Operating Activities:
Net income$5,854  $5,107  
Adjustments to net income:
Provision for bad debt1,708  1,990  
Deferred taxes816  1,177  
Stock-based compensation3,610  5,127  
Depreciation892  730  
Amortization of acquisition-related intangibles5,733  5,039  
Amortization of software development costs55  —  
Amortization of deferred finance costs169  173  
Loss on extinguishment of debt202  —  
Changes in operating assets and liabilities:
Accounts receivable5,656  1,265  
Financing receivables3,028  2,718  
Inventories(181) (371) 
Prepaid expenses and other(2,177) (617) 
Accounts payable(709) (840) 
Deferred revenue(329) (514) 
Other liabilities633  (2,528) 
Prepaid income taxes/income taxes payable(122) (995) 
Net cash provided by operating activities24,838  17,461  
Investing Activities:
Purchase of business, net of cash received—  (10,840) 
Investment in software development(1,484) —  
Purchase of property and equipment(3,028) (1,022) 
Net cash used in investing activities(4,512) (11,862) 
Financing Activities:
Dividends paid(2,886) (2,858) 
Proceeds from long-term debt65  —  
Payments of long-term debt principal(2,194) (10,118) 
Payments of contingent consideration—  (206) 
Proceeds from revolving line of credit—  11,000  
Payments of revolving line of credit(4,000) (2,300) 
Net cash used in financing activities(9,015) (4,482) 
Increase in cash and cash equivalents11,311  1,117  
Cash and cash equivalents at beginning of period7,357  5,732  
Cash and cash equivalents at end of period$18,668  $6,849  
Supplemental disclosure of cash flow information:
Cash paid for interest$1,812  $3,388  
Cash paid for income taxes, net of refund$469  $1,339  
The accompanying notes are an integral part of these condensed consolidated financial statements.
6

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, 20182019 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, 20182019 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 20192020

In FebruaryJune 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 requirerequires 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. ThisWe 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 ofstandard 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
7

("ASC") 606, Revenue from Contracts with Customers, to: (1) identify the contract with the client, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
Revenue is recognized net of shipping charges and any taxes collected from clients, which are subsequently remitted to governmental authorities.


7

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.

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Deferred Revenue
Deferred revenue represents amounts invoiced to clients for which the services under contract have not been completed and revenue has not been recognized, including annual renewals of certain software subscriptions and customer deposits for implementations to be performed at a later date. Revenue is recognized ratably over the life of the software subscriptions as services are provided and at the point-in-time when implementations have been completed.
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The following table details deferred revenue for the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, included in the condensed consolidated balance sheets:
(In thousands)(In thousands)Nine Months Ended September 30, 2019Nine Months Ended September 30, 2018(In thousands)Six Months Ended June 30, 2020Six Months Ended June 30, 2019
Beginning balanceBeginning balance$10,201  $9,937  Beginning balance$8,628  $10,201  
Deferred revenue recordedDeferred revenue recorded13,888  15,847  Deferred revenue recorded10,195  10,116  
Deferred revenue acquiredDeferred revenue acquired430  —  Deferred revenue acquired—  430  
Less deferred revenue recognized as revenueLess deferred revenue recognized as revenue(15,863) (14,669) Less deferred revenue recognized as revenue(10,524) (10,630) 
Ending balanceEnding balance$8,656  $11,115  Ending balance$8,299  $10,117  
The deferred revenue recorded during the ninesix months ended SeptemberJune 30, 20192020 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 ninesix months ended SeptemberJune 30, 20192020 and 20182019 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 ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, included in the condensed consolidated balance sheets:
(In thousands)(In thousands)Nine Months Ended September 30, 2019Nine Months Ended September 30, 2018(In thousands)Six Months Ended June 30, 2020Six Months Ended June 30, 2019
Beginning balanceBeginning balance$3,017  $3,775  Beginning balance$4,440  $3,017  
Costs to obtain and fulfill contracts capitalizedCosts to obtain and fulfill contracts capitalized4,130  2,356  Costs to obtain and fulfill contracts capitalized3,351  2,752  
Less costs to obtain and fulfill contracts recognized as expenseLess costs to obtain and fulfill contracts recognized as expense(3,509) (3,129) Less costs to obtain and fulfill contracts recognized as expense(2,701) (2,292) 
Ending balanceEnding balance$3,638  $3,002  Ending balance$5,090  $3,477  
Remaining Performance Obligations
Disclosures regarding remaining performance obligations are not considered material as the overwhelming majority of the Company's remaining performance obligations either (a) are related to contracts with an expected duration of one year or less, or (b) exhibit revenue recognition in the amount to which the Company has the right to invoice.

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4.  BUSINESS COMBINATION
Acquisition of Get Real Health
On May 3, 2019, we acquired all of the assets and liabilities of iNetXperts, Corp., a Maryland corporation doing business as Get Real Health (“Get Real Health”), pursuant to a Stock Purchase Agreement dated April 23, 2019, as amended on May 2, 2019. Based in Rockville, Maryland, Get Real Health delivers technology solutions to improve patient outcomes and engagement strategies with care providers.
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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 bewas 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 receivable364  
Prepaid expenses107  
Property and equipment365  
Operating lease asset1,285  
Intangible assets7,890  
Goodwill9,5119,767  
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.




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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)2019201820192018
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 SeptemberJune 30, 20192020 and December 31, 2018:2019:
(In thousands)(In thousands)September 30, 2019December 31, 2018(In thousands)June 30,
2020		December 31, 2019
LandLand$2,848  $2,848  Land$2,848  $2,848  
Buildings and improvementsBuildings and improvements8,038  7,752  Buildings and improvements8,039  8,039  
Computer equipmentComputer equipment3,964  2,766  Computer equipment7,040  4,011  
Leasehold improvementsLeasehold improvements1,712  1,198  Leasehold improvements1,712  1,712  
Office furniture and fixturesOffice furniture and fixtures1,954  1,938  Office furniture and fixtures2,017  2,018  
AutomobilesAutomobiles18  18  Automobiles18  18  
Property and equipment, grossProperty and equipment, gross18,534  16,520  Property and equipment, gross21,674  18,646  
Less: accumulated depreciationLess: accumulated depreciation(6,708) (5,645) Less: accumulated depreciation(7,945) (7,053) 
Property and equipment, netProperty and equipment, net$11,826  $10,875  Property and equipment, net$13,729  $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 June 30, 2020 and December 31, 2019:





(In thousands)June 30,
2020		December 31, 2019
Software development costs$1,484 $— 
Less: accumulated amortization(55)— 
Software development costs, net$1,429 $— 

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6.7.     OTHER ACCRUED LIABILITIES
Other accrued liabilities was comprised of the following at SeptemberJune 30, 20192020 and December 31, 2018:2019:
(In thousands)(In thousands)September 30, 2019December 31, 2018(In thousands)June 30,
2020		December 31, 2019
Salaries and benefitsSalaries and benefits$4,103  $8,722  Salaries and benefits$7,273  $6,946  
SeveranceSeverance647  992  Severance43  329  
CommissionsCommissions794  830  Commissions679  1,037  
Self-insurance reservesSelf-insurance reserves1,382  1,017  Self-insurance reserves1,409  1,382  
Contingent consideration5,000  206  
OtherOther575  452  Other383  529  
Operating lease liabilities, current portionOperating lease liabilities, current portion1,483—  Operating lease liabilities, current portion1,567  1,544  
Other accrued liabilitiesOther accrued liabilities$13,984  $12,219  Other accrued liabilities$11,354  $11,767  


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7.8.     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)2019201820192018
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 computations13,829  13,604  13,760  13,547  
Add: Dilutive potential common shares—  —  —  —  
Weighted average shares outstanding used in diluted per common share computations13,829  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  
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Three Months Ended June 30,Six Months Ended June 30,
(In thousands, except per share data)2020201920202019
Net income$1,764  $1,663  $5,854  $5,107  
Less: Net income attributable to participating securities(51) (62) (181) (194) 
Net income attributable to common stockholders$1,713  $1,601  $5,673  $4,913  
Weighted average shares outstanding used in basic per common share computations14,067  13,794  13,985  13,725  
Add: Dilutive potential common shares—  —  —  —  
Weighted average shares outstanding used in diluted per common share computations14,067  13,794  13,985  13,725  
Basic EPS$0.12  $0.12  $0.41  $0.36  
Diluted EPS$0.12  $0.12  $0.41  $0.36  
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 or common stock if the predefined performance criteria are met. The awards provide for an aggregate target of 200,709252,852 shares, none of which have been included in the calculation of diluted EPS for the three and ninesix months ended SeptemberJune 30, 20192020 because the related threshold award performance levels have not been achieved as of SeptemberJune 30, 2019.2020. See Note 910 - Stock-basedStock-Based Compensation for more information.

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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 SeptemberJune 30, 2019, was2020 decreased to a taxbenefit of (3.6)% from an expense of 4% compared to a tax benefit of 54%22.1% for the three months ended SeptemberJune 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 pursuant2019, primarily due to ASC 730,” commonly referredincreased estimates related to as the "ASC 730 Safe Harbor Directive". 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, resultedcredits, resulting in an overallincremental benefit to our effective tax rate of 81% related to R&D creditsnearly 27% for the three months ended September 31, 2018. R&D credits (inclusivesecond quarter of 2018 provision-to-return adjustments) for2020 compared to the three months ended September 30, 2019 benefitedsecond quarter of 2019.
Similarly, our effective tax rate by 20% for the related period.
Our effective tax rate for the ninesix months ended SeptemberJune 30, 2020 decreased to 16.6% from 22.9% for the six months ended June 30, 2019, as increased estimates related to 15% from 2% for the nine months ended September 30, 2018. This significant increase in our effectiveR&D tax rate was primarily due to the implementation of the ASC 730 Safe Harbor Directive during the first nine months of 2018, resultingcredits resulted in an overallincremental benefit to our effective tax rate of 31% related to R&D creditsnearly 6% for the first ninesix months of 2018, inclusive2020 compared to the first six months 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.2019.

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 ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, included in the condensed consolidated statements of income:
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(In thousands)(In thousands)2019201820192018(In thousands)2020201920202019
Costs of salesCosts of sales$467  $566  $1,514  $1,590  Costs of sales$250  $516  $778  $1,047  
Operating expensesOperating expenses1,703  2,044  5,783  5,713  Operating expenses1,001  2,175  2,832  4,080  
Pre-tax stock-based compensation expensePre-tax stock-based compensation expense2,170  2,610  7,297  7,303  Pre-tax stock-based compensation expense1,251  2,691  3,610  5,127  
Less: income tax effectLess: income tax effect(477) (574) (1,605) (1,607) Less: income tax effect(275) (592) (794) (1,128) 
Net stock-based compensation expenseNet stock-based compensation expense$1,693  $2,036  $5,692  $5,696  Net stock-based compensation expense$976  $2,099  $2,816  $3,999  
The Company's stock-based compensation awards are in the form of restricted stock and performance share awards granted pursuant to the Company's Amended and Restated 2012 Restricted Stock Plan for Non-Employee Directors, Amended and Restated 2014 Incentive Plan and 2019 Incentive Plan (the "Plans"). As of SeptemberJune 30, 2019, there2020, there was $11.2 $9.6 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 1.8 years.
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Restricted Stock
The Company grants restricted stock to executive officers, certain key employees and non-employee directors under the Plans with the fair value of the awards representing the fair value of the common stock on the date the restricted stock is granted. Shares of restricted stock generally vest in equal annual installments over the applicable vesting period, which ranges from one to three years. The Company records expenses for these grants on a straight-line basis over the applicable vesting periods. Shares of restricted stock may also be issued pursuant to the settlement of performance share awards, for which the Company records expenses in the manner described in the "Performance Share Awards" section below.
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A summary of restricted stock activity (including shares of restricted stock issued pursuant to the settlement of performance share awards) under the Plans during the ninesix months ended SeptemberJune 30, 20192020 and 20182019 is as follows:
Nine Months Ended September 30, 2019Nine Months Ended September 30, 2018Six Months Ended June 30, 2020Six Months Ended June 30, 2019
SharesWeighted-Average
Grant Date
Fair Value Per Share		SharesWeighted-Average
Grant Date
Fair Value Per Share		SharesWeighted-Average
Grant Date
Fair Value Per Share		SharesWeighted-Average
Grant Date
Fair Value Per Share
Unvested restricted stock outstanding at beginning of periodUnvested restricted stock outstanding at beginning of period475,132  $32.00  309,195  $38.36  Unvested restricted stock outstanding at beginning of period525,859  $30.51  475,132  $32.00  
GrantedGranted133,936  30.89  148,841  30.20  Granted136,771  26.16  133,936  30.89  
Performance share awards settled through the issuance of restricted stockPerformance share awards settled through the issuance of restricted stock138,566  29.80  177,395  29.94  Performance share awards settled through the issuance of restricted stock19,678  30.15  138,566  29.80  
VestedVested(221,775) 33.48  (153,424) 40.81  Vested(265,518) 30.85  (221,775) 33.48  
Unvested restricted stock outstanding at end of periodUnvested restricted stock outstanding at end of period525,859  $30.51  482,007  $31.96  Unvested restricted stock outstanding at end of period416,790  $28.85  525,859  $30.51  
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.
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Expense of one-year performance share awards is recognized using the accelerated attribution (graded vesting) method over the period beginning on the date the Company determines that it is probable that the performance criteria will be achieved and ending on the last day of the vesting period for the restricted stock issued in satisfaction of such awards. Expense of three-year performance share awards is recognized using ratable straight-line amortization over the three-year performance period. In the event the Company determines it is no longer probable that the minimum performance level will be achieved, all previously recognized compensation expense related to the applicable awards is reversed in the period such a determination is made.
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A summary of performance share award activity under the Plans during the ninesix months ended SeptemberJune 30, 20192020 and 20182019 is as follows, based on the target award amounts set forth in the performance share award agreements:
Nine Months Ended September 30, 2019Nine Months Ended September 30, 2018Six Months Ended June 30, 2020Six Months Ended June 30, 2019
SharesWeighted-Average
Grant Date
Fair Value Per Share		SharesWeighted-Average
Grant Date
Fair Value Per Share		SharesWeighted-Average
Grant Date
Fair Value Per Share		SharesWeighted-Average
Grant Date
Fair Value Per Share
Performance share awards outstanding at beginning of periodPerformance share awards outstanding at beginning of period184,776  $30.15  189,325  $29.94  Performance share awards outstanding at beginning of period200,709  $30.75  184,776  $30.15  
GrantedGranted110,310  30.95  184,776  30.15  Granted107,298  26.96  110,310  30.95  
Adjusted for actual performance, net of forfeituresAdjusted for actual performance, net of forfeitures44,189  29.77  (11,930) 29.94  Adjusted for actual performance, net of forfeitures(35,477) 30.15  44,189  29.77  
Performance share awards settled through the issuance of restricted stockPerformance 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 periodPerformance share awards outstanding at end of period200,709  $30.75  184,776  $30.15  Performance share awards outstanding at end of period252,852  $29.27  200,709  $30.75  

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 SeptemberJune 30, 20192020 and December 31, 2018:2019:
(In thousands)(In thousands)September 30, 2019December 31, 2018(In thousands)June 30,
2020		December 31, 2019
Short-term payment plans, grossShort-term payment plans, gross$3,593  $5,773  Short-term payment plans, gross$1,828  $2,361  
Less: allowance for lossesLess: allowance for losses(252) (404) Less: allowance for losses(128) (165) 
Short-term payment plans, netShort-term payment plans, net$3,341  $5,369  Short-term payment plans, net$1,700  $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.
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The components of these receivables were as follows at SeptemberJune 30, 20192020 and December 31, 2018:2019:
(In thousands)(In thousands)September 30, 2019December 31, 2018(In thousands)June 30,
2020		December 31, 2019
Long-term financing arrangements, grossLong-term financing arrangements, gross$32,947  $34,841  Long-term financing arrangements, gross$30,155  $34,483  
Less: allowance for losses(2,044) (2,163) 
Less: allowance for expected credit lossesLess: allowance for expected credit losses(2,221) (2,806) 
Less: unearned incomeLess: unearned income(3,735) (3,725) Less: unearned income(3,067) (3,574) 
Long-term financing arrangements, netLong-term financing arrangements, net$27,168  $28,953  Long-term financing arrangements, net$24,867  $28,103  
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Future minimum payments to be received subsequent to SeptemberJune 30, 20192020 are as follows:
(In thousands)(In thousands)(In thousands)
Years Ending December 31,Years Ending December 31,Years Ending December 31,
2019$3,213  
2020202010,641  2020$6,385  
202120218,404  202110,200  
202220225,803  20226,666  
202320232,857  20233,846  
202420242,228  
ThereafterThereafter2,029  Thereafter830  
Total minimum payments to be receivedTotal minimum payments to be received32,947  Total minimum payments to be received30,155  
Less: allowance for losses(2,044) 
Less: allowance for expected credit lossesLess: allowance for expected credit losses(2,221) 
Less: unearned incomeLess: unearned income(3,735) Less: unearned income(3,067) 
Receivables, netReceivables, net$27,168  Receivables, net$24,867  
Credit Quality of Financing Receivables and Allowance for Expected Credit Losses
The following table is a roll-forward of the allowance for financingexpected credit losses for the ninesix months ended SeptemberJune 30, 20192020 and year ended December 31, 2018:2019:
(In thousands)Balance at Beginning of PeriodProvisionCharge-offsRecoveriesBalance 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 PeriodProvisionCharge-offsRecoveriesBalance at End of Period
June 30, 2020$2,971  $703  $(1,325) $—  $2,349  
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 SeptemberJune 30, 20192020 and December 31, 2018:2019:
(In thousands)1 to 90 Days Past Due91 to 180 Days Past Due181 + Days Past DueTotal Past Due
September 30, 2019$1,265  $168  $191  $1,624  
December 31, 2018$1,302  $210  $245  $1,757  
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(In thousands)1 to 90 Days Past Due91 to 180 Days Past Due181 + Days Past DueTotal Past Due
June 30, 2020$974  $406  $342  $1,722  
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.
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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, 2019December 31, 2018(In thousands)June 30,
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 DueUninvoiced 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$10,663  $18,015  
Uninvoiced client financing receivables related to trade accounts receivable that are 91 to 180 Days Past DueUninvoiced client financing receivables related to trade accounts receivable that are 91 to 180 Days Past Due2,136  2,247  Uninvoiced client financing receivables related to trade accounts receivable that are 91 to 180 Days Past Due2,905  2,136  
Uninvoiced client financing receivables related to trade accounts receivable that are 181 + Days Past DueUninvoiced client financing receivables related to trade accounts receivable that are 181 + Days Past Due2,714  885  Uninvoiced client financing receivables related to trade accounts receivable that are 181 + Days Past Due3,164  1,972  
Total uninvoiced client financing receivables balances of clients with a trade accounts receivableTotal uninvoiced client financing receivables balances of clients with a trade accounts receivable$20,873  $20,422  Total uninvoiced client financing receivables balances of clients with a trade accounts receivable$16,732  $22,123  
Total uninvoiced client financing receivables of clients with no related trade accounts receivableTotal uninvoiced client financing receivables of clients with no related trade accounts receivable8,339  10,694  Total uninvoiced client financing receivables of clients with no related trade accounts receivable10,356  8,786  
Total financing receivables with contractual maturities of one year or lessTotal financing receivables with contractual maturities of one year or less3,593  5,773  Total financing receivables with contractual maturities of one year or less1,828  2,361  
Less: allowance for losses(2,296) (2,567) 
Less: allowance for expected credit lossesLess: allowance for expected credit losses(2,349) (2,971) 
Total financing receivablesTotal financing receivables$30,509  $34,322  Total financing receivables$26,567  $30,299  

11.12.  INTANGIBLE ASSETS AND GOODWILL
Our purchased definite-lived intangible assets as of SeptemberJune 30, 20192020 and December 31, 20182019 are summarized as follows:
(In thousands)Customer RelationshipsTrademarkDeveloped TechnologyTotal
Gross carrying amount as of December 31, 2017$82,300  $10,900  $24,100  $117,300  
Accumulated amortization as of December 31, 2018(19,476) (2,613) (8,985) (31,074) 
Net intangible assets as of December 31, 2018$62,824  $8,287  $15,115  $86,226  
Gross carrying amount as of December 31, 2018$82,300  $10,900  $24,100  $117,300  
Intangible assets acquired2,070  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 life91369
(In thousands)Customer RelationshipsTrademarkDeveloped TechnologyTotal
Gross carrying amount as of December 31, 2018$82,300  $10,900  $24,100  $117,300  
Intangible assets acquired for year ended December 31, 20192,070  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 June 30, 2020$84,370  $11,120  $29,700  $125,190  
Net intangible assets as of December 31, 201957,914  7,671  17,525  83,110  
Amortization expenses as of June 30, 2020(3,600) (424) (1,708) (5,732) 
Net intangible assets as of June 30, 2020$54,314  $7,247  $15,817  $77,378  
Weighted average remaining years of useful life81258


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The following table represents the remaining amortization of definite-lived intangible assets as of SeptemberJune 30, 2019:2020:
(In thousands)(In thousands)(In thousands)
For the year ended December 31,For the year ended December 31,For the year ended December 31,
2019$2,866  
2020202011,421  2020$5,689  
2021202111,003  202111,003  
2022202210,904  202210,904  
2023202310,904  202310,904  
202420249,681  
ThereafterThereafter38,879  Thereafter29,197  
TotalTotal$85,977  Total$77,378  
The following table sets forth the change in the carrying amount of goodwill by segment for the ninesix months ended SeptemberJune 30, 2019:2020:
(In thousands)Acute Care EHRPost-acute Care EHRTruBridgeTotal
Balance as of December 31, 2018$97,095  $29,570  $13,784  $140,449  
Goodwill acquired—  —  9,511  9,511  
Balance as of September 30, 2019$97,095  $29,570  $23,295  $149,960  
(In thousands)Acute Care EHRPost-acute Care EHRTruBridgeTotal
Balance as of December 31, 2019$97,095  $29,570  $23,551  $150,216  
Balance as of June 30, 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 SeptemberJune 30, 20192020 and December 31, 2018:2019:
(In thousands)September 30, 2019December 31, 2018
Term loan facility$91,017  $102,432  
Revolving credit facility31,000  29,693  
Finance lease obligation—  250  
Debt obligations122,017  132,375  
Less: unamortized debt issuance costs(1,047) (1,306) 
Debt obligation, net120,970  131,069  
Less: current portion(8,430) (6,486) 
Long-term debt$112,540  $124,583  
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(In thousands)June 30,
2020		December 31, 2019
Term loan facility$75,000  $88,823  
Revolving credit facility28,561  20,000  
Debt obligations103,561  108,823  
Less: unamortized debt issuance costs(1,455) (960) 
Debt obligation, net102,106  107,863  
Less: current portion(3,457) (8,430) 
Long-term debt$98,649  $99,433  
As of SeptemberJune 30, 2019,2020, 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").facility. On October 13, 2017,June 16, 2020, we entered into a Second Amendment (the "Second Amendment") to refinancean Amended and decreaseRestated Credit Agreement that increased the aggregate principal amount of theour credit facilities from $175 million to $162$185 million, which includedincludes a $117$75 million term loan facility (the "Amended Term Loan Facility") and a $45$110 million revolving credit facility (the "Amended Revolving Credit Facility" and, together with the Amended Term Loan Facility, the "Amended Credit Facilities"). On February 8, 2018, we entered into a Third Amendment (the "Third Amendment") to the credit agreement (as amended, the "Amended Credit Agreement") to increase the aggregate principal amount of the Amended Credit Facilities from $162 million to $167 million, which includes the $117 million Amended Term Loan Facility and a $50 million Amended Revolving Credit Facility.facility.
Each of the Amended Credit Facilitiesour 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, subject to a floor of 0.50%, (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, subject to the aforementioned floor, 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%1.8% to 3.5%3.0%. The applicable margin range for base rate loans ranges from 1.0%0.8% to 2.5%2.0%, in each case based on the Company's consolidated net leverage ratio.
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Principal payments with respect to the Amended Term Loan Facilityterm loan facility are due on the last day of each fiscal quarter beginning December 31, 2017,September 30, 2020, with quarterly principal payments of approximately $1.46$0.9 million through SeptemberJune 30, 2019,2022, approximately $2.19$1.4 million through SeptemberJune 30, 20212024 and approximately $2.93$1.9 million through September 30, 2022,March 31, 2025, with maturity on October 13, 2022June 16, 2025 or such earlier date as the obligations under the Amended and Restated Credit Agreement become due and payable pursuant to the terms of the Amended Credit Agreement (the "Amended Maturity Date").such agreement. Any principal outstanding under the Amended Revolving Credit Facilityrevolving 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 obligationrevolving credit facility are as follows as of SeptemberJune 30, 2019:2020:
(In thousands)(In thousands)(In thousands)
2019$2,194  
202020208,775  2020$1,875  
202120219,506  20213,750  
20222022101,542  20224,687  
20232023—  20235,625  
202420246,563  
ThereafterThereafter—  Thereafter81,061  
$122,017  $103,561  
The Amended Credit FacilitiesOur credit facilities are secured pursuant to aan Amended and Restated Pledge and Security Agreement, dated January 8, 2016,June 16, 2020, 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 and Restated Credit Agreement are also guaranteed by the Subsidiary Guarantors.
The Amended and Restated Credit Agreement as amended by the Third Amendment, provides incremental facility capacity of $50 million, subject to certain conditions. The Amended and Restated 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 net leverage ratio
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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 and Restated 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 and Restated Credit Agreement, the Company is required to comply with a maximum consolidated net leverage ratio of 3.95:1.00 through December 31, 20173.50:1.00. The Amended and 3.50:1.00 from January 1, 2018 and thereafter. The AmendedRestated 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 Agreementsuch agreement as of SeptemberJune 30, 2019.2020.
The Amended and Restated Credit Agreement requires the Company to mandatorily prepay the Amended Credit Facilitiescredit facilities with (i) 75% of excess cash flow (minus certain specified other payments) during each of the fiscal years ending December 31, 2017 and December 31, 2018 and (ii) 50% of excess cash flow (minus certain specified other payments) during. This mandatory prepayment requirement is applicable only if the fiscal year ending December 31, 2019 and thereafter.Company's consolidated net leverage ratio exceeds 2.50:1.00. The Company is permitted to voluntarily prepay the Amended Credit Facilitiescredit 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. TheAn excess cash flow mandatory prepayment requirement under the Amended Credit Agreement resulted in a $7.0 million prepayment on the Amended Term Loan Facility during the first quarter of 2019 related to excess cash flow generated byduring 2019 was not required during the Company during 2018.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 20192020 through 2030 but do contain optional extension terms. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
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Supplemental balance sheet information related to operating leases was as follows:
(In thousands)SeptemberJune 30, 2019
2020
Operating lease assets:
Operating lease assets$8,0617,223  
Operating lease liabilities:
Other accrued liabilities$1,4831,567  
Operating lease liabilities, net of current portion6,5785,656  
Total operating lease liabilities$8,0617,223  
Weighted average remaining lease term in years76
Weighted average discount rate5.1%
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 SeptemberJune 30, 20192020 are as follows:
(In thousands)
2019$332  
20201,544  
20211,518  
20221,436  
20231,363  
Thereafter3,381  
Total lease payments9,574  
Less imputed interest(1,513) 
Total$8,061  
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(In thousands)
2020$786  
20211,519  
20221,436  
20231,363  
2024980  
Thereafter2,382  
Total lease payments8,466  
Less imputed interest(1,243) 
Total$7,223  
Total rent expense for the ninesix months ended SeptemberJune 30, 2020 and 2019 and 2018 was $1.6$0.8 million and $1.9$1.3 million, respectively.
Total cash paid for amounts included in the measurement of lease liabilities within operating cash flows from operating leases for the ninesix months ended SeptemberJune 30, 20192020 was $1.3$0.8 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, 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.
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 atQuoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant 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:
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Fair Value at December 31, 2018 Using
Carrying Amount atQuoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant Unobservable Inputs
(In thousands)12/31/2018(Level 1)(Level 2)(Level 3)
Description
Contingent consideration$206  $—  $—  $206  
Total$206  $—  $—  $206  
The carrying amountsAs of other financialJune 30, 2020 and December 31, 2019, we did not have any instruments reported in the consolidated balance sheets for current assets and current liabilities approximate theirthat require fair values because of the short-term nature of these instruments.value measurement.
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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 ninesix months ended SeptemberJune 30, 20192020 and 2018:2019:
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(In thousands)(In thousands)2019201820192018(In thousands)2020201920202019
Revenues:Revenues:Revenues:
Acute Care EHRAcute Care EHRAcute Care EHR
Recurring revenueRecurring revenue$26,982  $27,393  $81,462  $83,633  Recurring revenue$25,728  $27,091  $52,166  $54,479  
Non-recurring revenueNon-recurring revenue8,983  11,514  25,999  32,664  Non-recurring revenue4,634  6,957  14,711  17,016  
Total Acute Care EHR revenueTotal Acute Care EHR revenue35,965  38,907  107,461  116,297  Total Acute Care EHR revenue30,362  34,048  66,877  71,495  
Post-acute Care EHRPost-acute Care EHRPost-acute Care EHR
Recurring revenueRecurring revenue4,312  4,515  13,214  14,002  Recurring revenue3,997  4,424  8,131  8,902  
Non-recurring revenueNon-recurring revenue713  1,003  3,202  2,624  Non-recurring revenue365  1,168  902  2,490  
Total Post-acute Care EHR revenueTotal Post-acute Care EHR revenue5,025  5,518  16,416  16,626  Total Post-acute Care EHR revenue4,362  5,592  9,033  11,392  
TruBridgeTruBridge27,709  24,872  80,119  75,162  TruBridge24,825  26,516  53,396  52,410  
Total revenuesTotal revenues$68,699  $69,297  $203,996  $208,085  Total revenues$59,549  $66,156  $129,306  $135,297  
Cost of sales:Cost of sales:Cost of sales:
Acute Care EHRAcute Care EHR$17,382  $18,086  $50,798  $52,812  Acute Care EHR$14,542  $16,346  $31,801  $33,412  
Post-acute Care EHRPost-acute Care EHR1,379  1,497  3,978  4,716  Post-acute Care EHR1,145  1,327  2,472  2,598  
TruBridgeTruBridge14,023  13,590  41,660  40,501  TruBridge13,756  13,948  28,813  27,637  
Total cost of salesTotal cost of sales$32,784  $33,173  $96,436  $98,029  Total cost of sales$29,443  $31,621  $63,086  $63,647  
Gross profit:Gross profit:Gross profit:
Acute Care EHRAcute Care EHR$18,583  $20,821  $56,663  $63,485  Acute Care EHR$15,820  $17,702  $35,076  $38,083  
Post-acute Care EHRPost-acute Care EHR3,646  4,021  12,438  11,910  Post-acute Care EHR3,217  4,265  6,561  8,794  
TruBridgeTruBridge13,686  11,282  38,459  34,661  TruBridge11,069  12,568  24,583  24,773  
Total gross profitTotal gross profit$35,915  $36,124  $107,560  $110,056  Total gross profit$30,106  $34,535  $66,220  $71,650  
Corporate operating expensesCorporate operating expenses$(29,908) $(30,763) $(91,890) $(94,820) Corporate operating expenses$(27,361) $(30,919) $(57,343) $(61,987) 
Other income4  201  535  593  
Other (expense) incomeOther (expense) income(38) 283  324  532  
Loss on extinguishment of debtLoss on extinguishment of debt(202) —  (202) —  
Interest expenseInterest expense(1,702) (1,829) (5,269) (5,615) Interest expense(803) (1,763) (1,982) (3,567) 
Income before taxesIncome before taxes$4,309  $3,733  $10,936  $10,214  Income before taxes$1,702  $2,136  $7,017  $6,628  


17.
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18.     SUBSEQUENT EVENTS

On November 5, 2019,August 4, 2020, the Company announced a dividend for the fourththird quarter of 20192020 in the amount of $0.10 per share, payable on November 29, 2019,August 31, 2020, to stockholders of record as of the close of business on November 15, 2019.August 17, 2020.

19.     COVID-19 PANDEMIC

In December 2019, a novel coronavirus disease (“COVID-19”) was reported and in January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern. In February 2020, the WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and in March 2020, the WHO characterized COVID-19 as a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency.

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, the Company began experiencing increasingly adverse business conditions beginning in the latter half of March through the date of this report, including our results of operations for the second quarter of 2020. 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, these restrictions and protocols are expected to continue 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, these reduced patient volumes are expected to continue 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.

Despite these adverse business conditions, the pandemic has had a muted impact on our financial condition as of June 30, 2020.

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 continues to impact 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.

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

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

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

•the impact of COVID-19 and related economic disruptions have materially affected our revenue and could materially affect our 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 expenditurescompetition with companies that have greater financial, technical and demand for information technology systems;marketing resources than we have;
•saturationfuture 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 marketproducts 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;
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•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 chargecharges 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.
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2019 and this Quarterly Report on Form 10-Q.
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 1,000800 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
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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.
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Turbulence in the U.S. and worldwide economies and financial markets impacts almost all industries. While the healthcare industry is not immune to economic cycles, we believe it is more significantly affected by U.S. regulatory and national health 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 uponon 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
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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.
COVID-19
The continuing impacts of COVID-19 and related economic conditions on the 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 six months 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 have materially affected our revenue and could materially affect our 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. Although recent operational metrics indicate promising signs that these patient volumes are improving, the acquisition maypersistence of the pandemic and the unprecedented nature of the resulting challenges it has imposed on national and global healthcare and economic systems are likely to continue to negatively impact patient volumes and make uncertain the exact path to recovery for community hospitals. These decreased levels of our hospital clients' patient volumes have negatively impacted, and will continue to negatively impact, our revenues, gross margins, and income for our TruBridge service offerings. Additionally, new EHR system installations have been, and will continue to be, accretivenegatively impacted by restrictive travel and social distancing protocols. The Company began to experience this impact in March 2020, which increased in significance during the second quarter 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 and add-on 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 eventually results in 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.
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•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 earningsclient base, which is comprised mostly of non-urban community hospitals. Of this $10 billion, the 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 financial pressures our clients face, the clinical and operational challenges remain immense and are likely to cause certain of our customers to more aggressively manage cash resources in order to preserve liquidity, resulting in uncharacteristic aging of our trade accounts receivable. Additionally, the aforementioned decrease in community hospital patient volumes has had, and will continue to have, a negative impact on TruBridge billings for fiscal year 2019, there can be no assurance that this will be the case. In addition, during the first nine months of 2019,services and resulting revenues. These factors 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 ninesix months ended SeptemberJune 30, 2019,2020, we generated revenues of $204.0$129.3 million from the sale of our products and services, compared to $208.1$135.3 million during the ninesix months ended SeptemberJune 30, 2018,2019, a decrease of 2%4% that is primarily attributed to fewerreduced MU3 installationsrevenue opportunities as the October 1, 2019 MU3 compliance deadline has passed partially offset by
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continued TruBridgeand the impact of COVID-19 on client growth. We view sales of TruBridge solutions within our existing EHR client base as our leading performance indicator.purchasing and implementation plans. Our net income for the ninesix months ended SeptemberJune 30, 2019 decreased2020 increased by $0.8$0.7 million to $9.2$5.9 million from the ninesix months ended SeptemberJune 30, 20182019, primarily as aof result of a higher effective tax rate.decreased long-term debt interest. Net cash provided by operating activities increased by $10.7$7.4 million to $25.5$24.8 million during the ninesix months ended SeptemberJune 30, 2019,2020, primarily due to more advantageous changes in working capital, most notably as it relates to accounts receivable and financing receivables.capital.
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The following table sets forth certain items included in our results of operations for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, expressed as a percentage of our total revenues for these periods:
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
20192018201920182020201920202019
(In thousands)(In thousands)Amount% SalesAmount% SalesAmount% SalesAmount% Sales(In thousands)Amount% SalesAmount% SalesAmount% SalesAmount% Sales
INCOME DATA:INCOME DATA:INCOME DATA:
Sales revenues:Sales revenues:Sales revenues:
System sales and support:System sales and support:System sales and support:
Acute Care EHRAcute Care EHR$35,965  52.4 %$38,907  56.1 %$107,461  52.7 %$116,297  55.9 %Acute Care EHR$30,362  51.0 %$34,048  51.5 %$66,877  51.7 %$71,495  52.8 %
Post-acute Care EHRPost-acute Care EHR5,025  7.3 %5,518  8.0 %16,416  8.0 %16,626  8.0 %Post-acute Care EHR4,362  7.3 %5,592  8.5 %9,033  7.0 %11,392  8.4 %
Total System sales and supportTotal System sales and support40,990  59.7 %44,425  64.1 %123,877  60.7 %132,923  63.9 %Total System sales and support34,724  58.3 %39,640  59.9 %75,910  58.7 %82,887  61.3 %
TruBridgeTruBridge27,709  40.3 %24,872  35.9 %80,119  39.3 %75,162  36.1 %TruBridge24,825  41.7 %26,516  40.1 %53,396  41.3 %52,410  38.7 %
Total sales revenuesTotal sales revenues68,699  100.0 %69,297  100.0 %203,996  100.0 %208,085  100.0 %Total sales revenues59,549  100.0 %66,156  100.0 %129,306  100.0 %135,297  100.0 %
Costs of sales:Costs of sales:Costs of sales:
System sales and support:System sales and support:System sales and support:
Acute Care EHRAcute Care EHR17,382  25.3 %18,086  26.1 %50,798  24.9 %52,812  25.4 %Acute Care EHR14,542  24.4 %16,346  24.7 %31,801  24.6 %33,412  24.7 %
Post-acute Care EHRPost-acute Care EHR1,379  2.0 %1,497  2.2 %3,978  2.0 %4,716  2.3 %Post-acute Care EHR1,145  1.9 %1,327  2.0 %2,472  1.9 %2,598  1.9 %
Total System sales and supportTotal System sales and support18,761  27.3 %19,583  28.3 %54,776  26.9 %57,528  27.6 %Total System sales and support15,687  26.3 %17,673  26.7 %34,273  26.5 %36,010  26.6 %
TruBridgeTruBridge14,023  20.4 %13,590  19.6 %41,660  20.4 %40,501  19.5 %TruBridge13,756  23.1 %13,948  21.1 %28,813  22.3 %27,637  20.4 %
Total costs of salesTotal costs of sales32,784  47.7 %33,173  47.9 %96,436  47.3 %98,029  47.1 %Total costs of sales29,443  49.4 %31,621  47.8 %63,086  48.8 %63,647  47.0 %
Gross profitGross profit35,915  52.3 %36,124  52.1 %107,560  52.7 %110,056  52.9 %Gross profit30,106  50.6 %34,535  52.2 %66,220  51.2 %71,650  53.0 %
Operating expenses:Operating expenses:Operating expenses:
Product developmentProduct development9,158  13.3 %9,305  13.4 %27,684  13.6 %27,375  13.2 %Product development8,371  14.1 %9,297  14.1 %16,642  12.9 %18,526  13.7 %
Sales and marketingSales and marketing6,654  9.7 %7,546  10.9 %21,158  10.4 %22,778  10.9 %Sales and marketing5,169  8.7 %7,016  10.6 %12,166  9.4 %14,508  10.7 %
General and administrativeGeneral and administrative10,996  16.0 %11,220  16.2 %34,909  17.1 %36,772  17.7 %General and administrative10,955  18.4 %12,090  18.3 %22,802  17.6 %23,914  17.7 %
Amortization of acquisition-related intangiblesAmortization of acquisition-related intangibles3,100  4.5 %2,692  3.9 %8,139  4.0 %7,895  3.8 %Amortization of acquisition-related intangibles2,866  4.8 %2,516  3.8 %5,733  4.4 %5,039  3.7 %
Total operating expensesTotal operating expenses29,908  43.5 %30,763  44.4 %91,890  45.0 %94,820  45.6 %Total operating expenses27,361  45.9 %30,919  46.7 %57,343  44.3 %61,987  45.8 %
Operating incomeOperating income6,007  8.7 %5,361  7.7 %15,670  7.7 %15,236  7.3 %Operating income2,745  4.6 %3,616  5.5 %8,877  6.9 %9,663  7.1 %
Other income (expense):Other income (expense):Other income (expense):
Other income4  — %201  0.3 %535  0.3 %593  0.3 %
Other (expense) incomeOther (expense) income(38) (0.1)%283  0.4 %324  0.3 %532  0.4 %
Loss on extinguishment of debtLoss on extinguishment of debt(202) (0.3)%—  — %(202) (0.2)%—  — %
Interest expenseInterest expense(1,702) (2.5)%(1,829) (2.6)%(5,269) (2.6)%(5,615) (2.7)%Interest expense(803) (1.3)%(1,763) (2.7)%(1,982) (1.5)%(3,567) (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)(1,043) (1.8)%(1,480) (2.2)%(1,860) (1.4)%(3,035) (2.2)%
Income before taxesIncome before taxes4,309  6.3 %3,733  5.4 %10,936  5.4 %10,214  4.9 %Income before taxes1,702  2.9 %2,136  3.2 %7,017  5.4 %6,628  4.9 %
Provision (benefit) for income taxes174  0.3 %(2,016) (2.9)%1,695  0.8 %170  0.1 %
(Benefit) provision for income taxes(Benefit) provision for income taxes(62) (0.1)%473  0.7 %1,163  0.9 %1,521  1.1 %
Net incomeNet income$4,135  6.0 %$5,749  8.3 %$9,241  4.5 %$10,044  4.8 %Net income$1,764  3.0 %$1,663  2.5 %$5,854  4.5 %$5,107  3.8 %

Three Months Ended SeptemberJune 30, 20192020 Compared with Three Months Ended SeptemberJune 30, 20182019
Revenues. Revenues
Total revenues for the three months ended SeptemberJune 30, 20192020 decreased by $0.6$6.6 million, or 1%10%, compared to the three months ended SeptemberJune 30, 2018.
2019.
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System sales and support revenues decreased by $3.4$4.9 million, or 8%12%, compared to the thirdsecond 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 June 30,
(In thousands)(In thousands)20192018(In thousands)20202019
Recurring system sales and support revenues (1)
Recurring system sales and support revenues (1)
Recurring system sales and support revenues (1)
Acute Care EHRAcute Care EHR$26,982  $27,393  Acute Care EHR$25,728  $27,091  
Post-acute Care EHRPost-acute Care EHR4,312  4,515  Post-acute Care EHR3,997  4,424  
Total recurring system sales and support revenuesTotal recurring system sales and support revenues31,294  31,908  Total recurring system sales and support revenues29,725  31,515  
Non-recurring system sales and support revenues (2)
Non-recurring system sales and support revenues (2)
Non-recurring system sales and support revenues (2)
Acute Care EHRAcute Care EHR8,983  11,514  Acute Care EHR4,634  6,957  
Post-acute Care EHRPost-acute Care EHR713  1,003  Post-acute Care EHR365  1,168  
Total non-recurring system sales and support revenuesTotal non-recurring system sales and support revenues9,696  12,517  Total non-recurring system sales and support revenues4,999  8,125  
Total system sales and support revenueTotal system sales and support revenue$40,990  $44,425  Total system sales and support revenue$34,724  $39,640  
(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$1.8 million, or 2%6%, compared to the thirdsecond quarter of 2018.2019. Acute Care EHR recurring revenues decreased by $0.4$1.4 million, or 2%5%, 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$0.4 million, or 4%10%, 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$3.1 million, or 23%, primarily due to a $2.5 million decrease in38%. Acute Care EHR non-recurring revenues. revenues decreased by $2.3 million, or 33%. We installed our Acute Care EHR solutions at five new hospital clients during the thirdsecond quarter of 2019 (one 2020 (three of which waswere under a SaaS arrangement, resulting in revenue being recognized ratably over the contract term) compared to six new hospital clients during the thirdsecond quarter of 2018 (none2019 (three under a SaaS arrangement). This decrease in non-SaaS installation activity resulted in non-recurringAcute Care EHR revenues from new system implementations decreasingdecreased by $1.4$0.8 million, from the third quarter of 2018. Additionally, the impending 2019 year-end deadline for compliance with the related Promoting Interoperability (“PI”, formerly “Meaningful Use”) program administeredand were further exacerbated by Centers for Medicare and Medicaid Services ("CMS") resulted in a $1.9 million decrease in related MU3 installation revenues,add-on sales to existing customers, nearly half of which were partially offset by robust sales of other add-on applications, which increased $0.8 million comparedis attributable to the third quarter of 2018. aforementioned reduced revenue opportunity for MU3 applications. Non-recurring Post-acute Care EHR revenues decreased by $0.3$0.8 million, or 29%69%, as compliance catalysts in the third quarter ofplace during 2019 despite increased bookings due to 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.largely abated.
TruBridge revenues increased 11%decreased by 6%, or $2.8$1.7 million, compared to the thirdsecond quarter of 2018. Our2019. This revenue decrease was primarily attributable to the impact of COVID-19 on the patient volumes of our community hospital clients operatecustomers. With the overwhelming majority of TruBridge revenues based on such volumes, resulting revenue declines were experienced in an environment typified by rising costs and increased complexity and are increasingly seeking to alleviate themselvesnearly all of the ever-increasing administrative burden of operating their own business office functions.our revenue sources. Most notably, an expanded customer base for our accounts receivable management services resulted in a revenue increase of $1.2revenues decreased $1.3 million, or 14%. Additionally,, and revenues from our insuranceprivate pay 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 ofoffering decreased $0.4 million, or 12%, in our IT management services revenues. Get Real Health contributed $0.5 million to TruBridge revenue during the third quarter of 2019.11%.
Costs of Sales.
Total costs of sales decreased by 1%7%, or $0.4$2.2 million, compared to the thirdsecond quarter of 2018.2019. As a percentage of total revenues, costs of sales remained flat at 48%increased to 49% of revenues in the thirdsecond quarter of 2019 and 2018.2020 compared to 48% of revenues in the second quarter of 2019.
Costs of Acute Care EHR system sales and support decreased by $0.7$1.8 million, or 4%11%, compared to the thirdsecond quarter of 20182019, primarily due to travel costs savings of approximately $1.0 million due to the impact of COVID-19 on associate travel, while hardware costs decreased $0.4 million due to a $0.8 million decreasedecline in payroll cost as we have implemented measures to become more efficient with our resources. Grossrelated revenues. The gross margin on Acute Care EHR system sales and support decreased toremained relatively consistent at 52% in the third quarter of 2019 compared to 53% in the third quarter of 2018.for both periods.
Costs of Post-acute Care EHR system sales and support decreased by $0.1$0.2 million, or 8%14%, compared to the thirdsecond quarter of 2018, as we have been able2019, primarily due to operate more efficientlytravel costs savings due to meet current demand by decreasing software costs compared to the
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third quarter impact of 2018.COVID-19 on associate travel. The gross margin on Post-acute Care EHR system sales and support remained flat at 73%decreased to 74% in the thirdsecond quarter of 2019 and 2018.2020, compared to 76% in the second quarter of 2019.
Our costs associated with TruBridge sales and support increased 3%decreased by 1%, or $0.4$0.2 million, compared to the thirdsecond quarter of 2018. Legacy TruBridge2019, primarily due to travel costs remained flat when comparedsavings due to the impact of COVID-19 on associate travel. At the onset of the pandemic,
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we notified our employees, including those whose roles were negatively impacted by the declining patient volumes at our community hospital clients, that we would not execute any payroll cost mitigation efforts in response to COVID-19 through July 31, 2020. As a result, we have not executed any reduction-in-force or furlough action plans as a result of the pandemic, which severely limited our ability to offset revenue declines with the third quarter of 2018. Get Real Health contributed $0.4 million in TruBridge costs of sales during the third quarter of 2019.cost savings. The gross margin on these services increased to 49% in the third quarter of 2019 compareddecreased to 45% in the thirdsecond quarter of 2018.2020, compared to 47% in the second quarter of 2019.
Product Development. 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 $0.1by $0.9 million, or 2%10%, compared to the thirdsecond quarter of 2018,2019, primarily asdue to a $0.4 million decrease in payroll and stock compensation costs were partially offset by $0.4 million in productthird-party development costs, related to Get Real Health during the third quarterwith an additional $0.6 million of 2019.payroll capitalized for software development.
Sales and Marketing.Marketing
Sales and marketing expenses decreased 12%, or $0.9 million, compared to the third quarter of 2018, primarily due to decreased payroll costs of 10%, or $0.3 million, based on decreased headcount. Our commission expense decreased as a result of lower installation revenue, as noted above, by $0.5$1.8 million, or 32%26%, compared to the thirdsecond quarter of 2018. Get Real Health contributed $0.32019, mostly due to the varying impacts of COVID-19 on our sales execution. Specifically, stock-based compensation expense decreased by $0.5 million as the expected impact of the pandemic on our operations has resulted in a reduced near-term outlook, resulting in reduced expected achievement levels for performance share awards granted to executives and certain key employees in 2018 through 2020. Commission expense decreased by $0.5 million due to the aforementioned decline in revenues, which are partly attributable to the pandemic. Lastly, travel costs decreased by $0.5 million, as travel restrictions and social distancing guidelines pose challenges to in-person sales and marketing costs during the third quarter of 2019.efforts.
General and Administrative.Administrative
General and administrative expenses decreased 2%, or $0.2 million. Most notably, we sawby $1.1 million, mostly due to a $0.7$1 million decrease in non-recurring severance as a result of the one-time voluntary retirement program offeredcosts associated with our annual client conference. This conference, typically held during the thirdsecond quarter of 2018, whicheach year, was partially offset by an $0.4 million increase in non-recurring transaction-related costs resulting from recent acquisition activity and other strategic initiatives. Bad debt expense decreased $0.7 million comparedoriginally scheduled for May 2020. In response to the third quarter of 2018 but was offset by a $0.6 million increase in employee health costs. Get Real Health contributed $0.2 million in general and administrative costs duringCOVID-19 pandemic, we initially postponed the third quarter of 2019.conference until August 2020, subsequently cancelling the 2020 event altogether.
Amortization of Acquisition-Related Intangibles. Intangibles
Amortization expense associated with acquisition-related intangible assets increased by $0.4 million, compared to the thirdsecond quarter of 20182019, due to the additioninclusion 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. Expenses
As a percentage of total revenues, total operating expenses remained flat at 44%decreased to 46% of revenues in the thirdsecond quarter of 2019 and 2018.2020, compared to 47% in the second quarter of 2019.
Total Other Income (Expense).
Total other income (expense) increased fromdecreased by $0.4 million to an expense of $1.6$1.0 million duringin the thirdsecond quarter of 20182020 compared to expense of $1.7$1.5 million duringin the thirdsecond quarter of 2019, primarily as our long-term debt and accompanying interest income resultingrate 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 second quarter of 2019.
Income Before Taxes. Taxes
As a result of the foregoing factors, income before taxes increaseddecreased by $0.6$0.4 million, compared to the thirdsecond quarter of 2018.2019.
Provision for Income Taxes. Taxes
Our effective tax rate for the three months ended SeptemberJune 30, 2019, was2020 decreased to a taxbenefit of (3.6)% from an expense of 4% compared to a tax benefit of 54%22.1% for the three months ended SeptemberJune 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 pursuant2019, primarily due to ASC 730,” commonly referredincreased estimates related to as the "ASC 730 Safe Harbor Directive". 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, resultedcredits, resulting in an overallincremental benefit to our effective tax rate of 81% related to R&D creditsnearly 27% for the three months ended September 31, 2018. R&D credits (inclusivesecond quarter of 2018 provision-to-return adjustments) for2020 compared to the three months ended September 30, 2019 benefited our effective tax rate by 20% for the related period.second quarter of 2019.
Net Income.
Net income for the three months ended SeptemberJune 30, 2019 decreased2020 increased by $1.6$0.1 million to $4.1$1.8 million, or $0.29$0.12 per basic and diluted share, compared with net income of $5.7$1.7 million, or $0.41$0.12 per basic and diluted share, for the three months ended SeptemberJune 30, 2018.2019. Net income represented 6%3% of revenue for the three months ended SeptemberJune 30, 2019, compared to 8% of revenue for the three months ended September2020 and June 30, 2018.

2019.
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NineSix Months Ended SeptemberJune 30, 20192020 Compared with NineSix Months Ended SeptemberJune 30, 20182019
Revenues. Revenues
Total revenues for the ninesix months ended SeptemberJune 30, 20192020 decreased by $4.1$6.0 million, or 2%4%, compared to the ninesix months ended SeptemberJune 30, 2018.2019.
System sales and support revenues decreased by $9.0$7.0 million, or 7%8%, compared to the ninesix months ended SeptemberJune 30, 2018.2019. System sales and support revenues were comprised of the following:following during the respective periods:
Nine Months Ended September 30,Six Months Ended June 30,
(In thousands)(In thousands)20192018(In thousands)20202019
Recurring system sales and support revenues (1)
Recurring system sales and support revenues (1)
Recurring system sales and support revenues (1)
Acute Care EHRAcute Care EHR$81,462  $83,633  Acute Care EHR$52,166  $54,479  
Post-acute Care EHRPost-acute Care EHR13,214  14,002  Post-acute Care EHR8,131  8,902  
Total recurring system sales and support revenuesTotal recurring system sales and support revenues94,676  97,635  Total recurring system sales and support revenues60,297  63,381  
Non-recurring system sales and support revenues (2)
Non-recurring system sales and support revenues (2)
Non-recurring system sales and support revenues (2)
Acute Care EHRAcute Care EHR25,999  32,664  Acute Care EHR14,711  17,016  
Post-acute Care EHRPost-acute Care EHR3,202  2,624  Post-acute Care EHR902  2,490  
Total non-recurring system sales and support revenuesTotal non-recurring system sales and support revenues29,201  35,288  Total non-recurring system sales and support revenues15,613  19,506  
Total system sales and support revenueTotal system sales and support revenue$123,877  $132,923  Total system sales and support revenue$75,910  $82,887  
(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 $3.0$3.1 million, or 3%5%, compared to the first ninesix months of 2018.ended June 30, 2019. Acute Care EHR recurring revenues decreased by $2.2$2.3 million, or 3%4%, 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 $0.8 million, or 6%9%, 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$3.9 million, or 17%, primarily due to a $6.7 million decrease in20%. Acute Care EHR non-recurring revenues. revenues decreased by $2.3 million, or 14%, mostly due to a $3.3 million decrease in revenues for MU3 applications due to the aforementioned reduced revenue opportunities. We installed our Acute Care EHR solutions at sixteen14 new hospital clients during the first ninesix months of 2019 (five2020 (11 of which were under a SaaS arrangement)arrangement, resulting in revenue being recognized ratably over the contract term) compared to fifteen11 new hospital clients during the first ninesix months of 2018 (two2019 (four of which were 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 increaseddecreased by $0.6$1.6 million, or 22%64%, as compliance catalysts in the nine months ended September 30,place during 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.have largely abated.
TruBridge revenues increased 7%,by $1.0 million, or $5.0 million,2%, compared to the six months ended June 30, 2019. Get Real Health, which was acquired during the second quarter of 2019, contributed $1.7 million of revenues during the first ninesix months of 2018. Our hospital clients operate2020 compared to only $0.2 million during the first six months of 2019. This $1.5 million increase in an environment typifiedGet Real Health revenues were largely offset by rising costsdeclining revenues in nearly all other revenue sources resulting from the COVID-19 pandemic 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 baseresulting impact on patient volumes for our accounts receivable management services resulted in a revenue increase of $2.2 million, or 8%. Additionally,community hospital customers. Most notably, revenues from our insuranceprivate pay services division increased $1.9offering decreased by $0.7 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, 2019..
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Costs of Sales.
Total costs of sales decreased by 2%1%, or $1.6$0.6 million, compared to the first ninesix months of 2018.ended June 30, 2019. As a percentage of total revenues, costs of sales remained at 47%were 49% of revenues in the ninesix months ended SeptemberJune 30, 2019 and 2018.2020 compared to 47% of revenues in the six months ended June 30, 2019.
Costs of Acute Care EHR system sales and support decreased by $2.0$1.6 million, or 4%5%, compared to the first ninesix months of 2018 primarily2019, as hardware costs decreased by $0.9 million due to a 6%, or $2.0 million, decreasedecline in payroll cost as we have implemented measures to become more efficient with our resources, coupled with a $0.7 million decreaserelated revenues. Additionally, the impact of COVID-19 on associate travel resulted in third party software costs and a $0.4 million decrease inreduced 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$0.8 million. The gross margin on Acute Care EHR system sales and support decreasingdecreased to 52% during the first six months of 2020 from 53% induring the ninefirst six months ended September 30, 2019, compared to 55% in the nine months ended September 30, 2018.of 2019.
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Costs of Post-acute Care EHR system sales and support decreased by $0.7$0.1 million, or 16%5%, compared to the first ninesix months of 2018,2019, primarily due to reduced softwaretravel costs savings due to the impact 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.COVID-19 on associate travel. The gross margin on Post-acute Care EHR system sales and support increaseddecreased to 76% in73% for the ninefirst six months ended September 30, 2019,of 2020, compared to 72% in77% for the ninefirst six months ended September 30, 2018.of 2019.
Our costs associated with TruBridge sales and support increased 3%by 4%, or $1.2 million, duecompared to general increases resulting fromthe first six months of 2019, despite declining revenues. The primary driver was a larger customer base.payroll increase of $1.5 million, propelled by increasing demand in the second half of 2019 and early 2020 for our accounts receivable management services. At the onset of the pandemic, we notified our employees, including those whose roles were negatively impacted by the declining patient volumes at our community hospital clients, that we would not execute any payroll cost mitigation efforts in response to COVID-19 through July 31, 2020. As a result, we have not executed any reduction-in-force or furlough action plans as a result of the pandemic, which severely limited our ability to offset revenue declines with cost savings. The gross margin on these services was 48% in the nine months ended September 30, 2019 compareddecreased to 46% in the ninefirst six months ended September 30, 2018. Get Real Health contributed $0.5 millionof 2020, compared to TruBridge cost47% in the first six months of sales during the nine months ended September 30, 2019.
Product Development. 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%,decreased by $1.9 million, or $0.3 million,10%, compared to the ninefirst six months ended September 30, 2018. Get Real Health contributedof 2019, primarily due to a $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 third-party development costs, with an additional $1.4 million of payroll stock compensation, and other costs.capitalized for software development.
Sales and Marketing.Marketing
Sales and marketing expenses decreased 7%,by $2.3 million, or $1.6 million,16%, compared to the first ninesix months of 2018, primarily2019, mostly due to the varying impacts of COVID-19 on our sales execution. Specifically, stock-based compensation expense decreased payroll costsby $0.6 million as the expected impact of 11%, or $1.0the pandemic on our operations has resulted in a reduced near-term outlook, resulting in reduced expected achievement levels for performance share awards granted to executives and certain key employees in 2018 through 2020. Commission expense decreased by $0.6 million based on decreased headcount. In addition, commissiondue to the aforementioned decline in revenues, which are partly attributable to the pandemic. Lastly, travel costs decreased $0.5by $0.6 million as travel restrictions and other costssocial distancing guidelines pose challenges to in-person sales efforts and general marketing program spend 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.by $0.4 million.
General and Administrative.Administrative
General and administrative expenses decreased 5%, or $1.9by $1.1 million, as the $3.9$1.9 million increase in cost savings achieved through recent changes in theemployee health benefits offeredclaims related to our employees through our self-insured health plans were partiallybenefits plan for our employees have largely been offset by increasesdecreases in other expense items. Most notably, we saw a $1.8 million increase in non-recurringnonrecurring severance and transaction-related expenses and decreased costs resulting from recent acquisition activityassociated with our annual client conference. Severance and other strategic initiatives. Bad debt expensetransaction-related expenses decreased $0.4by $2.2 million, comparedmostly due to the first nine months in 2018.closing of our acquisition of Get Real Health contributed $0.4 million to general and administrative costsin the first six months of 2019. Costs associated with our annual client conference decreased by $0.8 million. This conference, typically held during the nine months ended September 30, 2019.second quarter of each year, was originally scheduled for May 2020. In response to the COVID-19 pandemic, we initially postponed the conference until August 2020, subsequently cancelling the 2020 event altogether.
Amortization of Acquisition-Related Intangibles. Intangibles
Amortization expense associated with acquisition-related intangible assets increased $0.2by $0.7 million, compared to the first ninesix months of 20182019, due to the additioninclusion 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.intangibles.
Total Operating Expenses. Expenses
As a percentage of total revenues, total operating expenses decreased to 45%44% of revenues in the ninefirst six months ended September 30, 2019of 2020, compared to 46% in the ninefirst six months ended September 30, 2018.of 2019.
Total Other Income (Expense).
Total other income (expense) decreased fromby $1.2 million to an expense of $5.0$1.9 million during the ninefirst six months ended September 30, 2018of 2020 compared to expense of $4.7$3.0 million during the ninefirst six months ended September 30,of 2019, primarily as our long-term debt and accompanying interest rate on long term debt has been reduced.have both decreased from the first six months of 2019.
Income Before Taxes. Taxes
As a result of the foregoing factors, income before taxes increased by 7%, or $0.7$0.4 million, compared to the first ninesix months of 2018.2019.
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Provision for Income Taxes.Taxes
Our effective tax rate for the ninesix months ended SeptemberJune 30, 2020 decreased to 16.6% from 22.9% for the six months ended June 30, 2019, as increased estimates related to 15% from 2% for the nine months ended September 30, 2018. This significant increase in our effectiveR&D tax rate was primarily due to the implementation of the ASC 730 Safe Harbor Directive during the first nine months of 2018, resultingcredits resulted in an overallincremental benefit to our effective tax rate of 31% related to R&D creditsnearly 6% for the first ninesix months of 2018, inclusive2020 compared to the first six months of 2017 provision-to-return2019.
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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 ninesix months ended SeptemberJune 30, 2019 decreased2020 increased by $0.8$0.7 million to $9.2$5.9 million, or $0.65$0.41 per basic and diluted share, compared with net income of $10.0$5.1 million, or $0.72$0.36 million per basic and diluted share, for the ninesix months ended SeptemberJune 30, 2018.2019. Net income represented 5% of revenue for the ninesix months ended SeptemberJune 30, 2019 and 2018.2020, compared to 4% of revenue for the six months ended June 30, 2019.
Liquidity and Capital Resources
The Company’s liquidity and capital resources were not materially impacted by COVID-19 and related economic conditions during the the six months ended June 30, 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 SeptemberJune 30, 2019,2020, our principal sources of liquidity consisted of cash and cash equivalents of $4.0$18.7 million and our remaining borrowing capacity under the Amended Revolving Credit Facilityrevolving credit facility of $19.0$81.4 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 Facilityrevolving credit facility as of December 31, 2018.2019. In conjunction with our acquisition of HHI in January 2016, we entered into the Previous Credit Agreementa syndicated credit agreement which provided for thea $125 million Previous Term Loan Facilityterm loan facility and thea $50 million Previous Revolving Credit Facility.revolving credit facility. On October 13, 2017, the CompanyJune 16, 2020, we entered into the Second Amendment to refinancean Amended and decreaseRestated Credit Agreement that increased the aggregate principal amount of theour credit facilities from $175 million to $162 million, which included the $117 million Amended Term Loan Facility and the $45 million Amended Revolving Credit Facility. On February 8, 2018, the Company entered into the Third Amendment to increase the aggregate principal amount of the Amended Credit Facilities from $162 million to $167$185 million, which includes the $117a $75 million Amended Term Loan Facilityterm loan facility and a $50$110 million Amended Revolving Credit Facility.revolving credit facility.
As of SeptemberJune 30, 2019,2020, we had $122.0$103.6 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$18.7 million as of SeptemberJune 30, 2019,2020, the future operating cash flows of the combined entity, and our remaining borrowing capacity under the Amended Revolving Credit Facilityrevolving credit facility of $19.0$81.4 million as of SeptemberJune 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 $10.7by $7.4 million from $14.9$17.5 million provided by operations for the ninesix months ended SeptemberJune 30, 20182019 to $25.5$24.8 million provided by operations for the ninesix months ended SeptemberJune 30, 2019.2020. The increase in cash flows provided fromby operations is primarily due to more cash-advantageousadvantageous changes in working capital. Working capital, which was a net use of cash during the first ninesix months of 20182019 in the amount of $14.2$1.9 million, compared to a net useinflow of cash during the first ninesix months of 20192020 of only $2.9$5.8 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 $11.6decreased by $7.4 million, with $12.4$4.5 million used in the ninesix months ended SeptemberJune 30, 20192020 compared to $0.8$11.9 million used during the ninesix months ended SeptemberJune 30, 2018. We completed2019. Most notably, we used $10.8 million of cash during the first six months of 2019 to fund our $10.9 million acquisition of Get Real HealthHealth. The first six months of 2020 included $1.5 million in capitalized software development costs compared to none during the second quarterfirst six months of 2019. Cash outflows for purchases of property and equipment increased from $1.0 million in the first six months of 2019 to $3.0 million during the first six months of 2020, mostly due to the addition of a West Coast data center to enhance our remote hosting capabilities. We do not anticipate the need for significant capital expenditures during the remainder of 2019.
2020.
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Financing Cash Flow Activities
During the ninesix months ended SeptemberJune 30, 2019,2020, our financing activities used net cash of $14.9$9.0 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$2.9 million. During the ninesix months ended SeptemberJune 30, 2019, we made a $7.0 million prepayment on the Amended Term Loan Facilityterm 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$4.5 million during the ninesix months ended SeptemberJune 30, 2018,2019, primarily due to $5.2$1.4 million net paid in long-term debt principal and $4.2$2.9 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 and Restated 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 SeptemberJune 30, 2019,2020, we had $91.0$75.0 million in principal amount outstanding under the Amended Term Loan Facilityterm loan facility and $31.0$28.6 million in principal amount outstanding under the Amended Revolving Credit Facility.revolving credit facility. Each of the Amended Credit Facilitiesour 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, subject to a floor of 0.50%, (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, subject to the aforementioned floor, 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%1.8% to 3.5%3.0%. The applicable margin range for base rate loans ranges from 1.0%0.8% to 2.5%2.0%, in each case based on the Company's consolidated net leverage ratio.
Principal payments with respect to the Amended Term Loan Facilityterm loan facility are due on the last day of each fiscal quarter beginning December 31, 2017,September 30, 2020, with quarterly principal payments of approximately $1.46$0.9 million through SeptemberJune 30, 2019,2022, approximately $2.19$1.4 million through SeptemberJune 30, 20212024 and approximately $2.93$1.9 million through September 30, 2022,March 31, 2025, with maturity on October 13, 2022June 16, 2025 or such earlier date as the obligations under the Amended and Restated Credit Agreement become due and payable pursuant to the terms of the Amended Credit Agreement (the "Amended Maturity Date").such agreement. Any principal outstanding under the Amended Revolving Credit Facilityrevolving credit facility is due and payable on the Amended Maturity Date.maturity date.
The Amended Credit FacilitiesOur credit facilities are secured pursuant to aan Amended and Restated Pledge and Security Agreement, dated January 8, 2016,June 16, 2020, 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 and Restated Credit Agreement are also guaranteed by the Subsidiary Guarantors.
The Amended and Restated Credit Agreement as amended by the Third Amendment, provides incremental facility capacity of $50 million, subject to certain conditions. The Amended and Restated 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 net 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 and Restated 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 and Restated Credit Agreement, the Company is required to comply with a maximum consolidated net leverage ratio of 3.95:1.00 through December 31, 20173.50:1.00. The Amended and 3.50:1.00 from January 1, 2018 and thereafter. The AmendedRestated 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 Agreementsuch agreement as of SeptemberJune 30, 2019.2020.
The Amended and Restated Credit Agreement requires the Company to mandatorily prepay the Amended Credit Facilitiescredit facilities with (i) 75% of excess cash flow (minus certain specified other payments) during each of the fiscal years ending December 31, 2017 and December 31, 2018 and (ii) 50% of excess cash flow (minus certain specified other payments) during. This mandatory prepayment requirement is applicable only if the fiscal year ending December 31, 2019 and thereafter.Company's consolidated net leverage ratio exceeds 2.50:1.00. The Company is permitted to voluntarily prepay the Amended Credit Facilitiescredit facilities at any time
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without penalty, subject to customary “breakage” costs with respect to prepayments of LIBOR rate loans made on a day other than the last day of any applicable interest period. TheAn excess cash flow mandatory prepayment requirement under the Amended Credit Agreement resulted in a $7.0 million prepayment on the Amended Term Loan Facility during the first quarter of 2019 related to excess cash flow generated byduring 2019 was not required during the Company during 2018.first quarter of 2020.
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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 SeptemberJune 30, 2019,2020, we had a twelve-month backlog of approximately $14 million in connection with non-recurring system purchases and approximately $231$220 million in connection with recurring payments under support and maintenance, Cloud EHR contracts, and TruBridge services. As of SeptemberJune 30, 2018,2019, 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 ninesix months ended SeptemberJune 30, 20192020 and 2018:2019:
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(In thousands)(In thousands)2019201820192018(In thousands)2020201920202019
System sales and support (1)
System sales and support (1)
System sales and support (1)
Acute Care EHRAcute Care EHR$12,299  $10,699  $30,436  $44,276  Acute Care EHR$11,933  $9,851  $20,852  $18,135  
Post-acute Care EHRPost-acute Care EHR1,066  844  4,232  2,625  Post-acute Care EHR2,166  1,735  3,079  3,166  
Total system sales and supportTotal system sales and support13,365  11,543  34,668  46,901  Total system sales and support14,099  11,586  23,931  21,301  
TruBridge (2)
TruBridge (2)
10,248  7,302  17,572  17,492  
TruBridge (2)
5,905  3,096  15,416  7,324  
Total bookingsTotal bookings$23,613  $18,845  $52,240  $64,393  Total bookings$20,004  $14,682  $39,347  $28,625  
(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 thirdsecond quarter of 2020 increased by $2.1 million, or 21%, over the second quarter of 2019, and increased by $1.6$2.7 million, or 15%, over the third quarter of 2018,year-to-date 2020 compared to year-to-date 2019, mostly propelled by increased demand for non-MU3-related add on sales to existing customers. Acute Carenew EHR installations. New EHR installation bookings duringincreased by $1.6 million over the second quarter of 2019 and $3.8 million over the first ninesix months of 2019, decreased $13.8 million, or 31%, compared towith the first ninesix months of 2018 as net new installation bookings have been severely2019 being negatively impacted by a lack of urgency on the part of prospective customers, resulting$1.8 million decrease 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.MU3-related bookings.

Post-acute Care EHR bookings in the thirdsecond quarter of 2020 increased by $0.4 million, or 25%, over the second quarter of 2019, and were relatively flat in the first six months of 2020 compared to the first six months of 2019. The increase in bookings during the second quarter of 2020 was mostly attributable to successful execution of a particularly large EHR opportunity.

TruBridge bookings increased by $0.2$2.8 million, or 26%91%, fromover the thirdsecond quarter of 2018,2019, and increased by $1.6$8.1 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 the related product functionality and usability to drive improved demand in both the net new and add-on sales environments.

TruBridge bookings in the third quarter of 2019 increased by $2.9 million, or 40%110%, over the third quarterfirst six months of 2018,2019. These increases are mostly due to the combined impacts of (1) our recently-introduced initiative to expand our TruBridge footprint outside of our traditional EHR customercustomers base, resulting in significant client wins.Fromwins, and (2) a year-to-date perspective,poor sales environment during the first half of 2019 driven by a lack of urgency on the part of prospective customers, impacting the timing of customer decisions for purchasing TruBridge bookings have increased by $0.1 million, or less than 1%.services.

Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements, as defined by Item 303(a)(4) of SEC Regulation S-K, as of SeptemberJune 30, 2019.
2020.
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Critical Accounting Policies and Estimates
Our Management Discussion and Analysis is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make subjective or complex judgments that may affect the reported financial condition and results of operations. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the reported values of assets, liabilities, revenues, expenses and other financial amounts that are not readily apparent from other sources. Actual results may differ from these estimates and these estimates may differ under different assumptions or conditions. We continually evaluate the information used to make these estimates as our business and the economic environment changes.
In our Annual Report on Form 10-K for the year ended December 31, 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 ninesix months ended SeptemberJune 30, 2019.2020.

Item 3.Quantitative and Qualitative Disclosures about Market Risk.
Our exposure to market risk relates primarily to the potential change in the British Bankers Association London Interbank Offered Rate ("LIBOR"). We had $122.0$103.6 million of outstanding borrowings under our Amended Credit Facilitiescredit facilities with Regions Bank at SeptemberJune 30, 2019.2020. The Amended Term Loan Facilityterm loan facility and Amended Revolving Credit Facilityrevolving credit facility bear interest at a rate per annum equal to an applicable margin plus, at our option, either (1) the Adjusted LIBOR rate for the relevant interest period, subject to a floor of 0.50%, (2) an alternate base rate determined by reference to the greatestgreater 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, subject to the aforementioned floor, 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 SeptemberJune 30, 20192020 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 SeptemberJune 30, 20192020 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.

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PART II
OTHER INFORMATION
 

Item 1.Legal Proceedings.
From time to time, we are involved in routine litigation that arises in the ordinary course of business. We are not currently involved in any claims outside the ordinary course of business that are material to our financial condition or results of operations. 

Item 1A.Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 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. Risk Factors" in our Annual Report on Form 10-K.
The impact of COVID-19 and related economic disruptions have materially affected our revenue and could materially affect our 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. The impact of COVID-19 on our community hospital client base, and the related decrease in patient volumes, have negatively impacted, and will continue to negatively impact, our variable revenues, gross margins and income driven by collection volume. Additionally, new EHR system installations have been, and will continue to be, negatively impacted by restrictive travel and social distancing protocols. We began to experience this impact in March 2020, which increased in significance in the second quarter 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
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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.
 
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Item 6.Exhibits.

3.1
3.2
3.3
31.1 10.1
10.2
31.1
31.2
32.1
101Interactive Data Files for CPSI’s Form 10-Q for the period ended SeptemberJune 30, 20192020

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
COMPUTER PROGRAMS AND SYSTEMS, INC.
NovemberAugust 5, 20192020By:/s/ J. Boyd Douglas
J. Boyd Douglas
President and Chief Executive Officer
NovemberAugust 5, 20192020By:/s/ Matt J. Chambless
Matt J. Chambless
Chief Financial Officer

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