UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018. March 31, 2019.
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            .
Commission file number: 000-49796
COMPUTER PROGRAMS AND SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware74-3032373
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
6600 Wall Street, Mobile, Alabama36695 
(Address of Principal Executive Offices)(Zip Code)
(251) 639-8100
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
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

As of November 5, 2018,May 7, 2019, there were 14,085,98914,355,180 shares of the issuer’s common stock outstanding.

1

COMPUTER PROGRAMS AND SYSTEMS, INC.
Quarterly Report on Form 10-Q
(For the three and nine months ended September 30, 2018)March 31, 2019)
TABLE OF CONTENTS
 
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PART I
FINANCIAL INFORMATION

Item 1.Financial Statements.

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

September 30, 2018December 31, 2017March 31, 2019December 31, 2018
Assets Assets Assets
Current assets: Current assets: Current assets:
Cash and cash equivalents Cash and cash equivalents $5,175 $520 Cash and cash equivalents$4,409 $5,732 
Accounts receivable, net of allowance for doubtful accounts of $2,203 and $2,654, respectively 41,591 38,061 
Accounts receivable, net of allowance for doubtful accounts of $2,080 and $2,124, respectivelyAccounts receivable, net of allowance for doubtful accounts of $2,080 and $2,124, respectively39,434 40,474 
Financing receivables, current portion, net Financing receivables, current portion, net 15,422 15,055 Financing receivables, current portion, net14,466 15,059 
Inventories Inventories 1,198 1,417 Inventories1,750 1,498 
Prepaid income taxes Prepaid income taxes 1,129 — Prepaid income taxes2,275 2,120 
Prepaid expenses and other Prepaid expenses and other 5,641 2,824 Prepaid expenses and other5,898 5,055 
Total current assets Total current assets 70,156 57,877 Total current assets68,232 69,938 
Property and equipment, net Property and equipment, net 11,094 11,692 Property and equipment, net10,987 10,875 
Operating lease assetsOperating lease assets5,882 — 
Financing receivables, net of current portion Financing receivables, net of current portion 15,371 11,485 Financing receivables, net of current portion19,662 19,263 
Other assets, net of current portion Other assets, net of current portion 1,004 — Other assets, net of current portion924 995 
Intangible assets, net Intangible assets, net 88,818 96,713 Intangible assets, net83,703 86,226 
Goodwill Goodwill 140,449 140,449 Goodwill140,449 140,449 
Total assets Total assets $326,892 $318,216 Total assets$329,839 $327,746 
Liabilities and Stockholders’ Equity Liabilities and Stockholders’ Equity Liabilities and Stockholders’ Equity
Current liabilities: Current liabilities: Current liabilities:
Accounts payable Accounts payable $5,979 $7,620 Accounts payable$6,907 $5,668 
Current portion of long-term debt Current portion of long-term debt 5,807 5,820 Current portion of long-term debt8,597 6,486 
Deferred revenue Deferred revenue 11,115 8,707 Deferred revenue10,899 10,201 
Accrued vacation Accrued vacation 4,637 3,794 Accrued vacation4,347 3,929 
Income taxes payable — 810 
Other accrued liabilities Other accrued liabilities 11,433 14,098 Other accrued liabilities9,061 12,219 
Total current liabilities Total current liabilities 38,971 40,849 Total current liabilities39,811 38,503 
Long-term debt, net of current portion Long-term debt, net of current portion 131,718 136,614 Long-term debt, net of current portion115,448 124,583 
Operating lease liabilities, net of current portionOperating lease liabilities, net of current portion4,608 — 
Deferred tax liabilities Deferred tax liabilities 5,011 4,667 Deferred tax liabilities5,731 4,877 
Total liabilities Total liabilities 175,700 182,130 Total liabilities165,598 167,963 
Stockholders’ equity: Stockholders’ equity: Stockholders’ equity:
Common stock, $0.001 par value; 30,000 shares authorized; 14,086 and 13,760 shares issued and outstanding, respectively 14 14 
Common stock, $0.001 par value; 30,000 shares authorized; 14,356 and 14,083 shares issued and outstanding, respectivelyCommon stock, $0.001 par value; 30,000 shares authorized; 14,356 and 14,083 shares issued and outstanding, respectively14 14 
Additional paid-in capital Additional paid-in capital 162,381 155,078 Additional paid-in capital167,229 164,793 
Accumulated deficit Accumulated deficit (11,203)(19,006)Accumulated deficit(3,002)(5,024)
Total stockholders’ equity Total stockholders’ equity 151,192 136,086 Total stockholders’ equity164,241 159,783 
Total liabilities and stockholders’ equity Total liabilities and stockholders’ equity $326,892 $318,216 Total liabilities and stockholders’ equity$329,839 $327,746 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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COMPUTER PROGRAMS AND SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended March 31,
201820172018201720192018
Sales revenues: Sales revenues: Sales revenues:
System sales and support System sales and support $44,425 $44,366 $132,923 $133,263 System sales and support$43,247 $45,751 
TruBridge TruBridge 24,872 22,747 75,162 65,601 TruBridge25,894 25,131 
Total sales revenues Total sales revenues 69,297 67,113 208,085 198,864 Total sales revenues69,141 70,882 
Costs of sales: Costs of sales: Costs of sales:
System sales and support System sales and support 19,583 19,927 57,528 59,467 System sales and support18,337 18,417 
TruBridge TruBridge 13,590 12,806 40,501 36,326 TruBridge13,689 13,380 
Total costs of sales Total costs of sales 33,173 32,733 98,029 95,793 Total costs of sales32,026 31,797 
Gross profit Gross profit 36,124 34,380 110,056 103,071 Gross profit37,115 39,085 
Operating expenses: Operating expenses: Operating expenses:
Product development Product development 9,305 8,250 27,375 24,742 Product development9,228 8,757 
Sales and marketing Sales and marketing 7,546 8,528 22,778 23,262 Sales and marketing7,492 7,714 
General and administrative General and administrative 11,220 9,379 36,772 33,960 General and administrative11,824 12,364 
Amortization of acquisition-related intangibles Amortization of acquisition-related intangibles 2,692 2,601 7,895 7,804 Amortization of acquisition-related intangibles2,523 2,602 
Total operating expenses Total operating expenses 30,763 28,758 94,820 89,768 Total operating expenses31,067 31,437 
Operating income Operating income 5,361 5,622 15,236 13,303 Operating income6,048 7,648 
Other income (expense): Other income (expense): Other income (expense):
Other income Other income 201 102 593 242 Other income248 198 
Interest expense Interest expense (1,829)(2,062)(5,615)(5,807)Interest expense(1,804)(1,978)
Total other income (expense) Total other income (expense) (1,628)(1,960)(5,022)(5,565)Total other income (expense)(1,556)(1,780)
Income before taxes Income before taxes 3,733 3,662 10,214 7,738 Income before taxes4,492 5,868 
(Benefit) provision for income taxes (2,016)1,374 170 3,617 
Provision for income taxesProvision for income taxes1,048 1,901 
Net income Net income $5,749 $2,288 $10,044 $4,121 Net income$3,444 $3,967 
Net income per common share—basic Net income per common share—basic $0.41 $0.17 $0.72 $0.30 Net income per common share—basic$0.24 $0.29 
Net income per common share—diluted Net income per common share—diluted $0.41 $0.17 $0.72 $0.30 Net income per common share—diluted$0.24 $0.29 
Weighted average shares outstanding used in per common share computations: Weighted average shares outstanding used in per common share computations: Weighted average shares outstanding used in per common share computations:
Basic Basic 13,604 13,431 13,547 13,409 Basic13,656 13,475 
Diluted Diluted 13,604 13,431 13,547 13,409 Diluted13,656 13,475 
Dividends declared per common share Dividends declared per common share $0.10 $0.30 $0.30 $0.75 Dividends declared per common share$0.10 $0.10 
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 Stock Additional Paid-in-Capital Accumulated Deficit Total Stockholders’ Equity Common StockAdditional Paid-in-CapitalAccumulated DeficitTotal Stockholders’ Equity
Common StockAccumulated DeficitTotal Stockholders’ Equity
Shares Amount SharesAmountAdditional Paid-in-CapitalAccumulated DeficitTotal Stockholders’ Equity
Balance at December 31 ,2018Balance at December 31 ,201814,083 14 164,793 (5,024)$159,783 
Net incomeNet income— — — 3,444 3,444 
Issuance of restricted stockIssuance of restricted stock273 — — — — 
Stock-based compensationStock-based compensation— — 2,436 — 2,436 
DividendsDividends— — — (1,422)(1,422)
Balance at March 31, 2019Balance at March 31, 201914,356 $14 $167,229 $(3,002)$164,241 
Balance at December 31, 2017 Balance at December 31, 2017 13,760 $14 $155,078 $(19,006)$136,086 Balance at December 31, 201713,760 $14 $155,078 $(19,006)$136,086 
Net income Net income — — — 10,044 10,044 Net income— — — 3,967 3,967 
Adoption of accounting standards (Note 2) — — — 1,970 1,970 
Adoption of accounting standardAdoption of accounting standard— — — 1,970 1,970 
Issuance of restricted stock Issuance of restricted stock 326 — — — — Issuance of restricted stock326 — — — — 
Stock-based compensation Stock-based compensation — — 7,303 — 7,303 Stock-based compensation— — 1,939 — 1,939 
Dividends Dividends — — — (4,211)(4,211)Dividends— — — (1,394)(1,394)
Balance at September 30, 2018 14,086 $14 $162,381 $(11,203)$151,192 
Balance at March 31, 2018Balance at March 31, 201814,086 $14 $157,017 $(14,463)$142,568 
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, Three Months Ended March 31,
2018201720192018
Operating Activities: Operating Activities: Operating Activities:
Net income Net income $10,044 $4,121 Net income$3,444 $3,967 
Adjustments to net income: Adjustments to net income: Adjustments to net income:
Provision for bad debt Provision for bad debt 2,366 753 Provision for bad debt1,207 646 
Deferred taxes Deferred taxes (231)3,226 Deferred taxes854 777 
Stock-based compensation Stock-based compensation 7,303 5,021 Stock-based compensation2,436 1,939 
Depreciation Depreciation 1,416 1,945 Depreciation361 529 
Amortization of acquisition-related intangibles Amortization of acquisition-related intangibles 7,895 7,804 Amortization of acquisition-related intangibles2,523 2,602 
Amortization of deferred finance costs Amortization of deferred finance costs 259 547 Amortization of deferred finance costs86 86 
Changes in operating assets and liabilities: Changes in operating assets and liabilities: Changes in operating assets and liabilities:
Accounts receivable Accounts receivable (4,174)(4,358)Accounts receivable(156)(3,004)
Financing receivables Financing receivables (5,975)(8,428)Financing receivables183 (2,432)
Inventories Inventories 219 568 Inventories(251)59 
Prepaid expenses and other Prepaid expenses and other (47)(361)Prepaid expenses and other(772)(527)
Accounts payable Accounts payable (1,641)3,770 Accounts payable1,239 118 
Deferred revenue Deferred revenue 1,178 2,748 Deferred revenue698 2,700 
Other liabilities Other liabilities (1,821)1,071 Other liabilities(3,808)(3,932)
Prepaid income taxes/income taxes payable Prepaid income taxes/income taxes payable (1,939)(110)Prepaid income taxes/income taxes payable(156)(403)
Net cash provided by operating activities Net cash provided by operating activities 14,852 18,317 Net cash provided by operating activities7,888 3,125 
Investing Activities: Investing Activities: Investing Activities:
Purchases of property and equipment Purchases of property and equipment (818)(464)Purchases of property and equipment(473)(60)
Net cash used in investing activities Net cash used in investing activities (818)(464)Net cash used in investing activities(473)(60)
Financing Activities: Financing Activities: Financing Activities:
Dividends paid Dividends paid (4,211)(10,261)Dividends paid(1,422)(1,394)
Payments of long-term debt principal Payments of long-term debt principal (11,877)(4,909)Payments of long-term debt principal(7,110)(8,794)
Payments of contingent considerationPayments of contingent consideration(206)— 
Proceeds from revolving line of creditProceeds from revolving line of credit— 8,330 
Proceeds from revolving line of credit 7,300 2,550 
Payments of revolving line of credit (591)(6,500)
Proceeds from exercise of stock options — 1 
Net cash used in financing activities Net cash used in financing activities (9,379)(19,119)Net cash used in financing activities(8,738)(1,858)
Increase (decrease) in cash and cash equivalents Increase (decrease) in cash and cash equivalents 4,655 (1,266)Increase (decrease) in cash and cash equivalents(1,323)1,207 
Cash and cash equivalents at beginning of period Cash and cash equivalents at beginning of period 520 2,220 Cash and cash equivalents at beginning of period5,732 520 
Cash and cash equivalents at end of period Cash and cash equivalents at end of period $5,175 $954 Cash and cash equivalents at end of period$4,409 $1,727 
Supplemental disclosure of cash flow information: Supplemental disclosure of cash flow information: Supplemental disclosure of cash flow information:
Cash paid for interest Cash paid for interest $5,276 $5,151 Cash paid for interest$1,289 $1,841 
Cash paid for income taxes, net of refund Cash paid for income taxes, net of refund $2,340 $501 Cash paid for income taxes, net of refund$350 $1,527 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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COMPUTER PROGRAMS AND SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.     BASIS OF PRESENTATION
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") and include all adjustments that, in the opinion of management, are necessary for a fair presentation of the results of the periods presented. All such adjustments are considered of a normal recurring nature. Quarterly results of operations are not necessarily indicative of annual results.
Certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 20172018 was derived from the audited consolidated balance sheet at that date. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements of Computer Programs and Systems, Inc. ("CPSI" or the "Company") for the year ended December 31, 20172018 and the notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.2018.
Principles of Consolidation
The condensed consolidated financial statements of CPSI include the accounts of TruBridge, LLC ("TruBridge"), Evident, LLC ("Evident"), and Healthland Holding Inc. ("HHI"), all of which are wholly-owned subsidiaries of CPSI. The accounts of HHI include those of its wholly-owned subsidiaries, Healthland Inc. ("Healthland"), Rycan Technologies, Inc. ("Rycan"), and American HealthTech, Inc. ("AHT"). All significant intercompany balances and transactions have been eliminated.
Presentation
Effective January 1, 2018, our interface services team, which provides the design, development, implementation, and support services for all interfaces for data exchange from the CPSI applications and was previously considered a part of our product development division, has been integrated with our acute care client service team. This transition has worked to create a consistent, personal, and convenient service experience for our clients characterized by transparent communication with prompt resolution. With this change, the payroll and related costs of this group of employees that were formerly included within the caption "Product development" on our condensed consolidated statements of income are now included within the caption "System sales and support - Cost of sales."
This reclassification had no effect on previously reported total sales revenues, operating income, income before taxes or net income.
Amounts presented for the three and nine months ended September 30, 2017 have been reclassified to conform to the current presentation. The following table provides the amounts reclassified for the three months ended September 30, 2017:
(In thousands) As previously reported Reclassification As reclassified 
Costs of sales: 
System sales and support $18,832 $1,095 $19,927 
Operating expenses: 
Product development $9,345 $(1,095)$8,250 

7

The following table provides the amounts reclassified for the nine months ended September 30, 2017:
(In thousands) As previously reported Reclassification As reclassified 
Costs of sales: 
System sales and support $56,621 $2,846 $59,467 
Operating expenses: 
Product development $27,588 $(2,846)$24,742 

2.     RECENT ACCOUNTING PRONOUNCEMENTS
New Accounting Standards Adopted in 20182019
In May 2014,February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers, to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes prior revenue recognition guidance. This guidance was effective for fiscal years and interim periods within those years beginning after December 15, 2017, which was effective for the Company as of the first quarter of our fiscal year ending December 31, 2018. We adopted this new accounting standard codified as Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, and the related amendments ("new revenue standard") during the first quarter of 2018 and have applied it to all contracts using the modified retrospective method, pursuant to which the cumulative effect of initially applying the new revenue standard is recognized as an adjustment to retained earnings and impacted balance sheet line items as of January 1, 2018, the date of adoption. The comparative previous period information continues to be reported under the accounting standards in effect for that period.
We completed an assessment of our systems, data, and processes that are affected by the implementation of this new revenue standard and have concluded that this standard does not significantly alter revenue recognition practices for our system sales and support and TruBridge revenue streams. The impact on our revenue recognition is limited to deferring and amortizing implementation fees over the contract life related to our Rycan revenue cycle management product, in which we previously recognized revenue as implementation was completed. Rycan implementation fees totaled $1.6 million in 2017, less than 1% of our 2017 revenues. The balance sheet impact of the deferred revenue related to these fees was an increase of $1.8 million as of the date of adoption. Also impacting deferred revenue was a decrease of $0.6 million related to previous billings which no longer required deferred recognition as of the date of adoption.
In addition to revenue recognition, the new revenue standard impacts our consolidated financial statements with respect to the capitalization of certain commissions and contract fulfillment costs which were previously expensed as incurred. Commissions and contract fulfillment costs related to the implementation of software as a service arrangements are now capitalized and amortized over the expected life of the customer. TruBridge commissions, which are paid up to twelve months in advance, are now capitalized and amortized over the prepayment period. The balance sheet impact of the prepaid assets was an increase of $3.8 million as of the date of adoption.
Due to the aforementioned changes in assets and liabilities related to the adoption of the new revenue standard, our deferred tax liability increased $0.6 million as of the date of adoption.
In total, the adoption of ASU 2014-09 resulted in a net increase in retained earnings of $2.0 million as of the date of adoption.
In accordance with the new revenue standard requirements, the disclosures of the impact of adoption on our condensed consolidated income statements and balance sheet were as follows:
8

Three Months Ended September 30, 2018 
(In thousands) As reported Balances without adoption of ASC 606 Effect of adoption increase/(decrease) 
Condensed Consolidated Statements of Income 
Revenue: TruBridge $24,872 $24,996 $(124)
Cost of sales: System sales and support 19,583 19,530 53 
Gross profit 36,124 36,301 (177)
Sales and marketing 7,546 7,389 157 
Operating income 5,361 5,695 (334)
Provision for income taxes (2,016)(1,945)(71)
Net income $5,749 $6,012 $(263)

Nine Months Ended September 30, 2018 
(In thousands) As reported Balances without adoption of ASC 606 Effect of adoption increase/(decrease) 
Condensed Consolidated Statements of Income 
Revenue: TruBridge $75,162 $75,125 $37 
Cost of sales: System sales and support 57,528 57,409 119 
Gross profit 110,056 110,138 (82)
Sales and marketing 22,778 22,124 654 
Operating income 15,236 15,972 (736)
Provision for income taxes 170 325 (155)
Net income $10,044 $10,625 $(581)

September 30, 2018
(In thousands) As reported Balances without adoption of ASC 606 Effect of adoption increase/(decrease) 
Condensed Consolidated Balance Sheet 
Prepaid assets and other $5,641 $3,643 $1,998 
Other assets, net of current 1,004 — 1,004 
Total assets 326,892 323,890 3,002 
Deferred revenue 11,115 9,921 1,194 
Deferred tax liability 5,011 4,592 419 
Total liabilities 175,700 174,087 1,613 
Retained earnings $(11,203)$(12,592)$1,389 
The effects of the changes in balance sheet accounts resulting from the adoption of the new revenue standard are primarily due to the beginning adjustments for adoption mentioned above, accompanied by incremental changes resulting from activity during the period ended September 30, 2018. Refer to Note 3 - Revenue Recognition for more information on period activity.
The new revenue standard requirements did not impact our net cash provided by or used in operating, investing, or financing cash flows on our condensed consolidated statements of cash flows, although components within changes in operating assets and liabilities were immaterially impacted by adoption.
9

In August 2016, the FASB issued ASU 2016-15, Classifications of Certain Cash Receipts and Cash Payments, which clarifies cash flow classification for eight specific issues, including debt prepayment or extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and proceeds from the settlement of corporate-owned life insurance policies. This guidance was effective for fiscal years and interim periods within those years beginning after December 15, 2017, which was effective for the Company as of the first quarter of our fiscal year ending December 31, 2018. The adoption of ASU 2016-15 did not have a material effect on our financial statements.

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

In February 2016, the FASB issued ASU 2016-02, Leases, to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The new guidance will requirerequires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. We adopted this guidance as of January 1, 2019 using the current period adjustment method. The impact on the financial statements of implementation of this standard was an increase in lease assets and lease liabilities of $4.9 million as of the adoption date, January 1, 2019. Adoption of the standard did not impact our consolidated net earnings or cash flows.
New Accounting Standards Yet to be Adopted

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

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

3.     REVENUE RECOGNITION
Revenue is recognized upon transfer of control of promised products or services to clients in an amount that reflects the consideration we expect to receive in exchange for those products and services. We enter into contracts that can include various combinations of products and services, which are generally distinct and accounted for as separate performance obligations. The Company employs the 5-step revenue recognition model under ASCAccounting Standards Codification ("ASC") 606,Revenue from Contracts with Customers, to: (1) identify the contract with the client, (2) identify the
7

performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
Revenue is recognized net of shipping charges and any taxes collected from clients, which are subsequently remitted to governmental authorities.
System Sales and Support
The Company enters into contractual obligations to sell perpetual software licenses, installation, conversion, training, hardware and software application support and hardware maintenance services to acute care and post-acute care community hospitals.
Non-recurring Revenues
•Perpetual software licenses, installation, conversion, and related training are not considered separate and distinct performance obligations due to the proprietary nature of our software and are, therefore, accounted for as a single performance obligation on a module-by-module basis. Revenue is recognized as each module's implementation is completed based on the module's stand-alone selling price ("SSP"), net of discounts. Fees for licenses, installation, conversion, and related training are typically due in three installments: (1) at placement of order, (2) upon installation of software and commencement of training, and (3) upon satisfactory completion of monthly accounting cycle or end-of-month operation by application and as applicable for each application. Often, short-term and/or long-term financing arrangements are provided for software implementations; refer to Note 9 - Financing Receivables for further information. Electronic health records ("EHR") implementations include a system warranty that terminates thirty days from the software go-live date, the date which the client begins using the system in a live environment.
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•
• Hardware revenue is recognized separately from software licenses at the point in time it is delivered to the client. The SSP of hardware is cost plus a reasonable margin. Payment is generally due upon delivery of the hardware to the client. Standard manufacturer warranties apply to hardware.
Recurring Revenues
•Software application support and hardware maintenance services sold with software licenses and hardware are separate and distinct performance obligations. Revenue for support and maintenance services is recognized based on SSP, which is the renewal price, ratably over the life of the 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 1415 - 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 services is recognized as the services are performed based on SSP. Payment is due monthly as services are performed.

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Deferred Revenue
Deferred revenue represents amounts invoiced to clients for which the services under contract have not been completed and revenue has not been recognized, including annual renewals of certain software subscriptions and customer deposits for implementations to be performed at a later date. Revenue is recognized ratably over the life of the software subscriptions as services are provided and at the point-in-time when implementations have been completed.
(In thousands) Nine Months Ended September 30, 2018 
Balance as of January 1, 2018 $9,937 
Deferred revenue recorded 15,847 
Less deferred revenue recognized as revenue (14,669)
Balance as of September 30, 2018 $11,115 
(In thousands)Three Months Ended March 31, 2019Three Months Ended March 31, 2018
Beginning balance$10,201 $9,937 
Deferred revenue recorded6,530 7,192 
Less deferred revenue recognized as revenue(5,832)(4,492)
Ending balance$10,899 $12,637 
The deferred revenue recorded during the ninethree months ended September 30, 2018March 31, 2019 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 ninethree months ended September 30,March 31, 2019 and 2018 is comprised primarily of the periodic recognition of annual renewals that were deferred until earned and deposits for future EHR installations that were deferred until earned.
Costs to Obtain and Fulfill a Contract with a Customer
Costs to obtain a contract include the commission costs related to SaaS licensing agreements, which are capitalized and amortized ratably over the expected life of the customer. As a practical expedient, we generally recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset would have been one year or less, with the exception of commissions generated from TruBridge sales. TruBridge commissions, which are paid up to
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twelve months in advance, are capitalized and amortized over the prepayment period. Costs to obtain a contract are expensed within sales and marketing expenses in the accompanying condensed consolidated statements of income.
Contract fulfillment costs related to the implementation of SaaS arrangements are capitalized and amortized ratably over the expected life of the customer. Costs to fulfill contracts consist of the payroll costs for the implementation of SaaS arrangements, including time for training, conversion, and installation that is necessary for the software to be utilized. Contract fulfillment costs are expensed within the caption "System sales and support - Cost of sales."
Costs to obtain and fulfill contracts related to SaaS arrangements are included within the "Prepaid expenses and other" and "Other assets, net of current portion" line items on our condensed consolidated balance sheets.
(In thousands) Nine Months Ended September 30, 2018 
Balance as of January 1, 2018 $3,775 
Costs to obtain and fulfill contracts capitalized 2,356 
Less costs to obtain and fulfill contracts recognized as expense (3,129)
Balance as of September 30, 2018 $3,002 
(In thousands)Three Months Ended March 31, 2019Three Months Ended March 31, 2018
Beginning balance$3,017 $3,775 
Costs to obtain and fulfill contracts capitalized1,922 883 
Less costs to obtain and fulfill contracts recognized as expense(1,134)(1,050)
Ending balance$3,805 $3,608 
Significant Judgments
Our contracts with clients often include promises to transfer multiple products and services. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
Judgment is required to determine SSP for each distinct performance obligation. We use observable SSP for items that are sold on a stand-alone basis to similarly situated clients at unit prices within a sufficiently narrow range. For performance obligations that are sold to different clients for a broad range of amounts, or for performance obligations that are never sold on a stand-alone basis, the residual method in determining SSP is applied and requires significant judgment.
Allocating the transaction price, including estimating SSP of promised goods and services for contracts with discounts or variable consideration, may require significant judgment. Due to the short time frame of the implementation cycle, discount allocation is immaterial as revenue is recognized net of discounts within the same reporting period. In scenarios where the Company enters into a contract that includes both a software license and BPS or other services that are charged based on volume of services rendered, the Company allocates variable amounts entirely to a distinct good or service. The terms of the variable payment relate specifically to the entity’s efforts to satisfy that performance obligation.
Significant judgment is required in determining the expected life of a customer, which is the amortization period for costs to obtain and fulfill a contract that have been capitalized. The Company determined that the expected life of the customer is not materially different from the initial contract term based on the characteristics of the SaaS offering.
Remaining Performance Obligations
Disclosures regarding remaining performance obligations are not considered material as the overwhelming majority of the Company's remaining performance obligations either (a) are related to contracts with an expected duration of one year or less, or (b) exhibit revenue recognition in the amount to which the Company has the right to invoice.

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4.  PROPERTY AND EQUIPMENT
Property and equipment was comprised of the following at September 30, 2018March 31, 2019 and December 31, 2017:2018:
(In thousands) (In thousands) September 30, 2018December 31, 2017(In thousands)March 31, 2019December 31, 2018
Land Land $2,848 $2,848 Land$2,848 $2,848 
Buildings and improvements Buildings and improvements 8,247 8,240 Buildings and improvements7,752 7,752 
Computer equipment Computer equipment 4,080 3,269 Computer equipment3,099 2,766 
Leasehold improvements Leasehold improvements 5,001 5,001 Leasehold improvements1,343 1,198 
Office furniture and fixtures Office furniture and fixtures 2,865 2,865 Office furniture and fixtures1,934 1,938 
Automobiles Automobiles 70 70 Automobiles18 18 
23,111 22,293 
Property and equipment, grossProperty and equipment, gross16,994 16,520 
Less: accumulated depreciation Less: accumulated depreciation (12,017)(10,601)Less: accumulated depreciation(6,007)(5,645)
Property and equipment, net Property and equipment, net $11,094 $11,692 Property and equipment, net$10,987 $10,875 

5.     OTHER ACCRUED LIABILITIES
Other accrued liabilities was comprised of the following at September 30, 2018March 31, 2019 and December 31, 2017:2018:
(In thousands) (In thousands) September 30, 2018December 31, 2017(In thousands)March 31, 2019December 31, 2018
Salaries and benefits Salaries and benefits $7,232 $8,432 Salaries and benefits$4,643 $8,722 
Severance Severance 1,244 1,139 Severance751 992 
Commissions Commissions 738 2,416 Commissions687 830 
Self-insurance reserves Self-insurance reserves 1,024 1,024 Self-insurance reserves842 1,017 
Contingent consideration Contingent consideration 615 586 Contingent consideration— 206 
Other Other 580 501 Other864 452 
Operating lease liabilities, current portionOperating lease liabilities, current portion1,274— 
Other accrued liabilities Other accrued liabilities $11,433 $14,098 Other accrued liabilities$9,061 $12,219 
The accrued contingent consideration depicted above represents the potential earnout incentive for former Rycan shareholders, relating to the purchase of Rycan by HHI in 2015. We have estimated the fair value of the contingent consideration based on the amount of revenue we expect to be earned by Rycan through the year ending December 31, 2018 in accordance with the purchase agreement between the parties.
6.     NET INCOME PER SHARE
The Company presents basic and diluted earnings per share ("EPS") data for its common stock. Basic EPS is calculated by dividing the net income attributable to stockholders of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is determined by adjusting the net income attributable to stockholders of the Company and the weighted average number of shares of common stock outstanding during the period for the effects of all dilutive potential common shares, including awards under stock-based compensation arrangements.
The Company's unvested restricted stock awards (see Note 8) are considered participating securities under FASB Codification topic, Earnings Per Share, because they entitle holders to non-forfeitable rights to dividends until the awards vest or are forfeited. When a company has a security that qualifies as a "participating security," the Codification requires the use of the two-class method when computing basic EPS. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. In determining the amount of net income to allocate to common stockholders, income is allocated to both common stock and participating securities based on their respective weighted average shares outstanding for the period, with net income attributable to common stockholders ultimately equaling net income less net income attributable to participating securities. Diluted EPS for the Company's common stock is computed using the more dilutive of the two-class method or the treasury stock method.
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The following is a calculation of the basic and diluted EPS for the Company's common stock, including a reconciliation between net income and net income attributable to common stockholders:
Three Months Ended Nine Months Ended Three Months Ended
(In thousands, except per share data) (In thousands, except per share data) September 30, 2018September 30, 2017September 30, 2018September 30, 2017(In thousands, except per share data)March 31, 2019March 31, 2018
Net income Net income $5,749 $2,288 $10,044 $4,121 Net income$3,444 $3,967 
Less: Net income attributable to participating securities Less: Net income attributable to participating securities (197)(55)(338)(94)Less: Net income attributable to participating securities(130)(121)
Net income attributable to common stockholders Net income attributable to common stockholders $5,552 $2,233 $9,706 $4,027 Net income attributable to common stockholders$3,314 $3,846 
Weighted average shares outstanding used in basic per common share computations Weighted average shares outstanding used in basic per common share computations 13,604 13,431 13,547 13,409 Weighted average shares outstanding used in basic per common share computations13,656 13,475 
Add: Dilutive potential common shares Add: Dilutive potential common shares — — — — Add: Dilutive potential common shares— — 
Weighted average shares outstanding used in diluted per common share computations Weighted average shares outstanding used in diluted per common share computations 13,604 13,431 13,547 13,409 Weighted average shares outstanding used in diluted per common share computations13,656 13,475 
Basic EPS Basic EPS $0.41 $0.17 $0.72 $0.30 Basic EPS$0.24 $0.29 
Diluted EPS Diluted EPS $0.41 $0.17 $0.72 $0.30 Diluted EPS$0.24 $0.29 
During 2018, performance share awards were granted to certain executive officers and key employees of the Company that will result in the issuance of time-vesting restricted stock if the predefined performance criteria are met. The awards provide for an aggregate target of 184,77692,386 shares, none of which have been included in the calculation of diluted EPS for the three and nine months ended September 30, 2018March 31, 2019 because the related threshold award performance level has not been achieved as of September 30, 2018.March 31, 2019. See Note 8 - Stock-based Compensation for more information.

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

Our effective tax rate for the three months ended September 30, 2018 was a tax benefit of 54% comparedMarch 31, 2019 decreased to a tax expense of 38%23.3% from 32.4% for the three months ended September 30, 2017. This significant decrease in our effective tax rate was mostly attributable to refined estimates regarding our 2017 and 2018 federal research and development (R&D) tax credit, with such estimates increasing significantly as a result of ourMarch 31, 2018. Our implementation of the Internal Revenue Service's "GuidanceService’s “Guidance for Allowance of the Credit for Increasing Research Activities under IRC Section 41 for Taxpayers that Expense Research and Development Costs on their Financial Statements pursuant to ASC 730,"” commonly referred to as the "ASC“ASC 730 Safe Harbor Directive." This Directive, provides guidance regarding the examination of certain R&D expenses under ASC 730, Research and Development, and indicates that the IRS will not challenge certain qualified research expenses (QREs) that are a taxpayer's adjusted ASC 730 financial statement R&D costs. With this guidance, taxpayers now have the option to reconcile ASC 730 with the QREs claimed on their tax return by adjusting ASC 730 financial statement R&D costs to arrive at the amount the IRS considers as qualifying for the safe harbor. The implementation of this guidance, including corresponding 2017 provision-to-return and 2018 year-to-date adjustments, resulted in an incremental 71% reduction in our effective tax rate for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The decrease in our effective tax rate from the ASC 730 Safe Harbor Directive was in addition to the beneficial rate impact of the Tax Cuts and Jobs Act, which reduced our corporate federal rate from 35% to 21% effective at the beginning of 2018.
Our effective tax rate for the nine months ended September 30, 2018 decreased to 2% from 47% for the nine months ended September 30, 2017, partially due to the reduction in our corporate federal tax rate from 35% to 21% effective at the beginning of 2018. Additionally, the effective tax rate for the nine months ended September 30, 2017 experienced a shortfall tax expense related to stock-based compensation of $1.1 million that increased the effective rate by 14%. Such shortfall” during the nine months ended September 30,second half of 2018 decreased to $0.4 million resulting in an increase in the effective rate of only 4%. Lastly, our implementation of the aforementioned ASC 730 Safe Harbor Directive has significantly increased our estimated research and development ("R&D&D") tax credits, resulting in an incremental benefit to our effective tax rate of 4.5% for the 2017 and 2018first quarter of 2019 compared to the first quarter of 2018. Additionally, we have experienced a decrease in tax years,shortfalls related to stock-based compensation, resulting in a further 25% decrease inan incremental benefit to our effective rate.tax rate of 4.3% for the first quarter of 2019 compared to the first quarter of 2018.
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8.     STOCK-BASED COMPENSATION
Stock-based compensation expense is measured at the grant date based on the fair value of the award, and is recognized as an expense over the employee's or non-employee director's requisite service period.
The following table details total stock-based compensation expense for the three and nine months ended September 30,March 31, 2019 and 2018, and 2017, included in the condensed consolidated statements of income:
Three Months Ended Nine Months Ended Three Months Ended
(In thousands) (In thousands) 2018201720182017(In thousands)20192018
Costs of sales Costs of sales $566 $492 $1,590 $1,235 Costs of sales$531 $439 
Operating expenses Operating expenses 2,044 1,562 5,713 3,786 Operating expenses1,905 1,500 
Pre-tax stock-based compensation expense Pre-tax stock-based compensation expense 2,610 2,054 7,303 5,021 Pre-tax stock-based compensation expense2,436 1,939 
Less: income tax effect Less: income tax effect (574)(801)(1,607)(1,958)Less: income tax effect(536)(427)
Net stock-based compensation expense Net stock-based compensation expense $2,036 $1,253 $5,696 $3,063 Net stock-based compensation expense$1,900 $1,512 
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The Company's stock-based compensation awards are in the form of restricted stock and performance share awards granted pursuant to the Company's 2012 Restricted Stock Plan for Non-Employee Directors, and Amended and Restated 2014 Incentive Plan and 2019 Incentive Plan (the "Plans"). As of September 30, 2018,March 31, 2019, there was $15.6$14.9 million of unrecognized compensation expense related to unvested stock-based compensation arrangements granted under the Plans, which is expected to be recognized over a weighted-average period of 2.0 years.
Restricted Stock
The Company grants restricted stock to executive officers, certain key employees and non-employee directors under the Plans with the fair value of the awards representing the fair value of the common stock on the date the restricted stock is granted. Shares of restricted stock generally vest in equal annual installments over the applicable vesting period, which ranges from one to three years. The Company records expenses for these grants on a straight-line basis over the applicable vesting periods. Shares of restricted stock may also be issued pursuant to the settlement of performance share awards, for which the Company records expenses in the manner described in the "Performance Share Awards" section below.
A summary of restricted stock activity (including shares of restricted stock issued pursuant to the settlement of performance share awards) under the Plans during the ninethree months ended September 30,March 31, 2019 and 2018 and 2017 is as follows:
Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2017 
Shares Weighted-Average
Grant Date
Fair Value Per Share 		Shares Weighted-Average
Grant Date
Fair Value Per Share 
Unvested restricted stock outstanding at beginning of period 309,195 $38.36 184,885 $54.63 
Granted 148,841 30.20 222,390 32.87 
Performance share awards settled through the issuance of restricted stock 177,395 29.94 — — 
Vested (153,424)40.81 (99,184)55.75 
Unvested restricted stock outstanding at end of period 482,007 $31.96 308,091 $38.56 
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Three Months Ended March 31, 2019Three Months Ended March 31, 2018
SharesWeighted-Average
Grant Date
Fair Value Per Share		SharesWeighted-Average
Grant Date
Fair Value Per Share
Unvested restricted stock outstanding at beginning of period475,132 $32.00 309,195 $38.36 
Granted133,936 30.89 148,841 30.20 
Performance share awards settled through the issuance of restricted stock138,566 29.80 177,395 29.94 
Vested(143,945)33.81 (55,907)54.20 
Unvested restricted stock outstanding at end of period603,689 $30.82 579,524 $32.16 
Performance Share Awards
The Company grants performance share awards to executive officers and certain key employees under the Amended and Restated 2014 Incentive Plan and the 2019 Incentive Plan. The number of shares of common stock earned and issuable under each award is determined at the end of each one-year or three-year performance period, based on the Company's achievement of performance goals predetermined by the Compensation Committee of the Board of Directors at the time of grant. The three-year performance share awards include a modifier to the total number of shares earned based on the Company's total shareholder return ("TSR") compared to an industry index. If certain levels of the performance objective are met, the award results in the issuance of shares of restricted stock or common stock corresponding to such level. 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 result in the issuance of shares of common stock that are not subject to time-based vesting at the conclusion of the three-year performance period if earned.
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.
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The recipients of performance share awards do not receive dividends or possess voting rights during the performance period and, accordingly, the fair value of the one-year performance share awards is the quoted market value of CPSI's common stock on the grant date less the present value of the expected dividends not received during the relevant period. The TSR modifier applicable to the three-year performance share awards is considered a market condition and therefore is reflected in the grant date fair value of the award. A Monte Carlo simulation has been used to account for this market condition in the grant date fair value of the award.
Expense of one-year performance share awards is recognized using the accelerated attribution (graded vesting) method over the period beginning on the date the Company determines that it is probable that the performance criteria will be achieved and ending on the last day of the vesting period for the restricted stock issued in satisfaction of such awards. Expense of three-year performance share awards is recognized using ratable straight-line amortization over the three-year performance period. In the event the Company determines it is no longer probable that the minimum performance level will be achieved, all previously recognized compensation expense related to the applicable awards is reversed in the period such a determination is made.
A summary of performance share award activity under the 2014 Incentive Plan during the ninethree months ended September 30,March 31, 2019 and 2018 and 2017 is as follows, based on the target award amounts set forth in the performance share award agreements:
Nine Months Ended September 30, 2018 Nine Months Ended September 30, 2017 Three Months Ended March 31, 2019Three Months Ended March 31, 2018
Shares Weighted-Average
Grant Date
Fair Value Per Share 		Shares Weighted-Average
Grant Date
Fair Value Per Share 		SharesWeighted-Average
Grant Date
Fair Value Per Share		SharesWeighted-Average
Grant Date
Fair Value Per Share
Performance share awards outstanding at beginning of period Performance share awards outstanding at beginning of period 189,325 $29.94 77,594 $49.64 Performance share awards outstanding at beginning of period184,776 $30.15 189,325 $29.94 
Granted Granted 184,776 30.15 189,325 29.94 Granted— — 184,776 30.15 
Forfeited or unearned (11,930)29.94 (77,594)49.64 
Adjusted for actual performance, net of forfeituresAdjusted for actual performance, net of forfeitures46,176 29.80 (11,930)29.94 
Performance share awards settled through the issuance of restricted stock Performance share awards settled through the issuance of restricted stock (177,395)29.94 — — Performance share awards settled through the issuance of restricted stock(138,566)29.80 (177,395)29.94 
Performance share awards outstanding at end of period Performance share awards outstanding at end of period 184,776 $30.15 189,325 $29.94 Performance share awards outstanding at end of period92,386 $30.50 184,776 $30.15 


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9.     FINANCING RECEIVABLES
Short-Term Payment Plans
The Company provides fixed monthly payment arrangements ("short-term payment plans") over terms ranging from three to twelve months for meaningful use stage three and other add-on software installations. As a practical expedient, we do not adjust the amount of consideration recognized as revenue for the financing component as unearned income when we expect payment within one year or less. These receivables, included in the current portion of financing receivables, were comprised of the following at September 30, 2018March 31, 2019 and December 31, 2017:2018:
(In thousands) (In thousands) September 30, 2018December 31, 2017(In thousands)March 31, 2019December 31, 2018
Short-term payment plans, gross Short-term payment plans, gross $7,463 $9,081 Short-term payment plans, gross$5,510 $5,773 
Less: allowance for losses Less: allowance for losses (373)(638)Less: allowance for losses(386)(404)
Short-term payment plans, net Short-term payment plans, net $7,090 $8,443 Short-term payment plans, net$5,124 $5,369 
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Long-Term Financing Arrangements
Additionally, the Company provides financing for purchases of its information and patient care systems to certain healthcare providers under long-term financing arrangements expiring in various years through 2025. Under long-term financing arrangements, the transaction price is adjusted by a discount rate that reflects market conditions that would be used for a separate financing transaction between the Company and licensee at contract inception, and takes into account the credit characteristics of the licensee and market interest rates as of the date of the agreement. As such, the amount of fixed fee revenue recognized at the beginning of the license term will be reduced by the calculated financing component. As payments are received from the licensee, the Company recognizes a portion of the financing component as interest income, reported as other income in the condensed consolidated statements of income. These receivables typically have terms from two to seven years.
The components of these receivables were as follows at September 30, 2018March 31, 2019 and December 31, 2017:2018:
(In thousands) (In thousands) September 30, 2018December 31, 2017(In thousands)March 31, 2019December 31, 2018
Long-term financing arrangements, gross Long-term financing arrangements, gross $27,948 $22,968 Long-term financing arrangements, gross$35,067 $34,841 
Less: allowance for losses Less: allowance for losses (1,248)(2,606)Less: allowance for losses(2,170)(2,163)
Less: unearned income Less: unearned income (2,997)(2,265)Less: unearned income(3,893)(3,725)
Long-term financing arrangements, net Long-term financing arrangements, net $23,703 $18,097 Long-term financing arrangements, net$29,004 $28,953 
Future minimum payments to be received subsequent to September 30, 2018March 31, 2019 are as follows:
(In thousands) 
Years Ended December 31, 
2018$2,787 
20198,719 
20206,127 
20214,887 
20223,437 
Thereafter 1,991 
Total minimum payments to be received 27,948 
Less: allowance for losses (1,248)
Less: unearned income (2,997)
Receivables, net $23,703 
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(In thousands)
Years Ended December 31,
2019$8,620 
202010,456 
20217,358 
20225,048 
20232,421 
Thereafter1,164 
Total minimum payments to be received35,067 
Less: allowance for losses(2,170)
Less: unearned income(3,893)
Receivables, net$29,004 
Credit Quality of Financing Receivables and Allowance for Credit Losses
The following table is a roll-forward of the allowance for financing credit losses for the ninethree months ended September 30, 2018March 31, 2019 and year ended December 31, 2017:2018:
(In thousands) Balance at Beginning of Period Provision Charge-offs Recoveries Balance at End of Period 
September 30, 2018$3,244 $1,723 $(3,346)$— $1,621 
December 31, 2017$2,198 $1,823 $(777)$— $3,244 
(In thousands)Balance at Beginning of PeriodProvisionCharge-offsRecoveriesBalance at End of Period
March 31, 2019$2,567 $(11)$— $— $2,556 
December 31, 2018$3,244 $1,691 $(2,368)$— $2,567 
The Company’s financing receivables are comprised of a single portfolio segment, as the balances are all derived from short-term payment plan arrangements and long-term financing arrangements within our target market of community hospitals. The Company evaluates the credit quality of its financing receivables based on a combination of factors, including, but not limited to, customer collection experience, economic conditions, the customer’s financial condition, and known risk characteristics impacting the respective customer base of community hospitals, the most notable of which relate to enacted and potential changes in Medicare and Medicaid reimbursement rates as community hospitals typically generate a significant portion of their revenues and related cash flows from beneficiaries of these programs. In addition to specific account identification, the Company utilizes historical collection experience to establish the allowance for credit losses. Financing receivables are written off only after the Company has exhausted all collection efforts.
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Customer payments are considered past due if a scheduled payment is not received within contractually agreed upon terms. To facilitate customer collection and credit monitoring efforts, financing receivable amounts are invoiced and reclassified to trade accounts receivable when they become due, with all invoiced amounts placed on nonaccrual status. As a result, all past due amounts related to the Company’s financing receivables are included in trade accounts receivable in the accompanying condensed consolidated balance sheets. The following is an analysis of the age of financing receivables amounts (excluding short-term payment plans) that have been reclassified to trade accounts receivable and were past due as of September 30, 2018March 31, 2019 and December 31, 2017:2018:
(In thousands) 1 to 90 Days Past Due 91 to 180 Days Past Due 181 + Days Past Due Total Past Due 
September 30, 2018$1,272 $268 $414 $1,954 
December 31, 2017$980 $171 $— $1,151 
(In thousands)1 to 90 Days Past Due91 to 180 Days Past Due181 + Days Past DueTotal Past Due
March 31, 2019$1,453 $252 $347 $2,052 
December 31, 2018$1,302 $210 $245 $1,757 
From time to time, the Company may agree to alternative payment terms outside of the terms of the original financing receivable agreement due to customer difficulties in achieving the original terms. In general, such alternative payment arrangements do not result in a re-aging of the related receivables. Rather, payments pursuant to any alternative payment arrangements are applied to the already outstanding invoices beginning with the oldest outstanding invoices as the payments are received.
Because amounts are reclassified to trade accounts receivable when they become due, there are no past due amounts included within financing receivables or financing receivables, net of current portion, in the accompanying condensed consolidated balance sheets.
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The Company utilizes an aging of trade accounts receivable as the primary credit quality indicator for its financing receivables, which is facilitated by the reclassification of customer payment amounts to trade accounts receivable when they become due. The table below categorizes customer financing receivable balances (excluding short-term payment plans), none of which are considered past due, based on the age of the oldest payment outstanding that has been reclassified to trade accounts receivable:
(In thousands) (In thousands) September 30, 2018December 31, 2017(In thousands)March 31, 2019December 31, 2018
Stratification of uninvoiced client financing receivables based on aging of related trade accounts receivable: Stratification of uninvoiced client financing receivables based on aging of related trade accounts receivable: Stratification of uninvoiced client financing receivables based on aging of related trade accounts receivable:
1 to 90 Days Past Due 1 to 90 Days Past Due $17,029 $11,300 1 to 90 Days Past Due$19,133 $17,290 
91 to 180 Days Past Due 91 to 180 Days Past Due 1,575 3,727 91 to 180 Days Past Due3,285 2,247 
181 + Days Past Due 181 + Days Past Due 614 967 181 + Days Past Due823 885 
Total uninvoiced client financing receivables balances of clients with a trade accounts receivable Total uninvoiced client financing receivables balances of clients with a trade accounts receivable $19,218 $15,994 Total uninvoiced client financing receivables balances of clients with a trade accounts receivable$23,241 $20,422 
Total uninvoiced client financing receivables of clients with no related trade accounts receivable Total uninvoiced client financing receivables of clients with no related trade accounts receivable 5,733 4,709 Total uninvoiced client financing receivables of clients with no related trade accounts receivable7,933 10,694 
Total financing receivables with contractual maturities of one year or less Total financing receivables with contractual maturities of one year or less 7,463 9,081 Total financing receivables with contractual maturities of one year or less5,510 5,773 
Less: allowance for losses Less: allowance for losses (1,621)(3,244)Less: allowance for losses(2,556)(2,567)
Total financing receivables Total financing receivables $30,793 $26,540 Total financing receivables$34,128 $34,322 








15

10.  INTANGIBLE ASSETS AND GOODWILL
Our purchased definite-lived intangible assets as of September 30, 2018March 31, 2019 and December 31, 20172018 are summarized as follows:
(In thousands) Customer Relationships Trademark Developed Technology Total 
Gross carrying amount as of December 31, 2017 and September 30, 2018 $82,300 $10,900 $24,100 $117,300 
Accumulated amortization as of December 31, 2017 (12,937)(1,682)(5,968)(20,587)
Net intangible assets as of December 31, 2017 69,363 9,218 18,132 96,713 
Accumulated amortization for the nine months ended September 30, 2018 (4,904)(728)(2,263)(7,895)
Net intangible assets as of September 30, 2018 $64,459 $8,490 $15,869 $88,818 
Weighted average remaining years of useful life 101369
(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 
Accumulated amortization as of March 31, 2019(21,111)(2,815)(9,671)(33,597)
Net intangible assets as of March 31, 2019$61,189 $8,085 $14,429 $83,703 
Weighted average remaining years of useful life101259
The following table represents the remaining amortization of definite-lived intangible assets as of September 30, 2018:March 31, 2019:
(In thousands) 
For the year ended December 31, 
2018$2,591 
201910,072 
202010,066 
202110,066 
202210,066 
Thereafter 45,957 
Total $88,818 
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(In thousands)
For the year ended December 31,
2019$7,549 
202010,066 
202110,066 
202210,066 
202310,066 
Thereafter35,890 
Total$83,703 
The following table sets forth the change in the carrying amount of goodwill by segment for the ninethree months ended September 30, 2018:March 31, 2019:
(In thousands) (In thousands) Acute Care EHR Post-acute Care EHR TruBridge Total (In thousands)Acute Care EHRPost-acute Care EHRTruBridgeTotal
Balance as of December 31, 2017 $97,095 29,570 13,784 $140,449 
Balance as of December 31, 2018Balance as of December 31, 2018$97,095 $29,570 $13,784 $140,449 
Goodwill impairment Goodwill impairment $— — Goodwill impairment— 
Balance as of September 30, 2018 $97,095 $29,570 $13,784 $140,449 
Balance as of March 31, 2019Balance as of March 31, 2019$97,095 $29,570 $13,784 $140,449 
Goodwill is evaluated for impairment annually on October 1, or more frequently if indicators of impairment are present or changes in circumstances suggest that impairment may exist. 

11.  LONG-TERM DEBT
Long-term debt was comprised of the following at September 30, 2018March 31, 2019 and December 31, 2017:2018:
(In thousands) (In thousands) September 30, 2018December 31, 2017(In thousands)March 31, 2019December 31, 2018
Term loan facility Term loan facility $103,895 $115,538 Term loan facility$95,404 $102,432 
Revolving credit facility Revolving credit facility 34,693 27,983 Revolving credit facility29,693 29,693 
Capital lease obligation 330 565 
Finance lease obligationFinance lease obligation168 250 
Debt obligations Debt obligations 138,918 144,086 Debt obligations125,265 132,375 
Less: unamortized debt issuance costs Less: unamortized debt issuance costs (1,393)(1,652)Less: unamortized debt issuance costs(1,220)(1,306)
Debt obligation, net Debt obligation, net 137,525 142,434 Debt obligation, net124,045 131,069 
Less: current portion Less: current portion (5,807)(5,820)Less: current portion(8,597)(6,486)
Long-term debt Long-term debt $131,718 $136,614 Long-term debt$115,448 $124,583 
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As of September 30, 2018,March 31, 2019, the carrying value of debt approximates the fair value due to the variable interest rate, which reflects the market rate.
Credit Agreement
In conjunction with our acquisition of HHI in January 2016, we entered into a syndicated credit agreement (the "Previous Credit Agreement") with Regions Bank ("Regions") serving as administrative agent, which provided for a $125 million term loan facility (the "Previous Term Loan Facility") and a $50 million revolving credit facility (the "Previous Revolving Credit Facility"). On October 13, 2017, we entered into a Second Amendment (the "Second Amendment") to refinance and decrease the aggregate principal amount of the credit facilities from $175 million to $162 million, which included a $117 million term loan facility (the "Amended Term Loan Facility") and a $45 million revolving credit facility (the "Amended Revolving Credit Facility" and, together with the Amended Term Loan Facility, the "Amended Credit Facilities"). 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.
Each of the Amended Credit Facilities continues to bear interest at a rate per annum equal to an applicable margin plus, at our option, either (1) the Adjusted LIBOR rate for the relevant interest period, (2) an alternate base rate determined by reference to the greater of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant interest period plus one half of one percent per annum and (c) the one month LIBOR rate plus one percent per annum, or (3) a combination of (1) and (2). The applicable margin range for LIBOR loans and the letter of credit fee ranges from 2.0% to 3.5%. The applicable margin range for base rate loans ranges from 1.0% to 2.5%, in each case based on the Company's consolidated leverage ratio.
Principal payments with respect to the Amended Term Loan Facility are due on the last day of each fiscal quarter beginning December 31, 2017, with quarterly principal payments of approximately $1.46 million through September 30, 2019, approximately $2.19 million through September 30, 2021 and approximately $2.93 million through September 30, 2022, with maturity on October 13, 2022 or such earlier date as the obligations under the Amended Credit Agreement become due and payable pursuant to the terms of the Amended Credit Agreement (the "Amended Maturity Date"). Any principal outstanding under the Amended Revolving Credit Facility is due and payable on the Amended Maturity Date.
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Anticipated annual future maturities of the Amended Term Loan Facility, Amended Revolving Credit Facility, and capital lease obligation are as follows as of September 30, 2018:March 31, 2019:
(In thousands) (In thousands) (In thousands)
2018$1,543 
201920196,831 2019$6,749 
202020208,775 20208,775 
202120219,506 20219,506 
20222022112,263 2022100,235 
20232023— 
Thereafter Thereafter — Thereafter— 
$138,918 $125,265 
The Amended Credit Facilities are secured pursuant to a Pledge and Security Agreement, dated January 8, 2016, among the parties identified as obligors therein and Regions, as collateral agent, on a first priority basis by a security interest in substantially all of the tangible and intangible assets (subject to certain exceptions) of the Company and certain subsidiaries of the Company, as guarantors (collectively, the “Subsidiary Guarantors”), including certain registered intellectual property and the capital stock of certain of the Company’s direct and indirect subsidiaries. Our obligations under the Amended Credit Agreement are also guaranteed by the Subsidiary Guarantors.
The Amended Credit Agreement, as amended by the Third Amendment, provides incremental facility capacity of $50 million, subject to certain conditions. The Amended Credit Agreement includes a number of restrictive covenants that, among other things and in each case subject to certain exceptions and baskets, impose operating and financial restrictions on the Company and the Subsidiary Guarantors, including the ability to incur additional debt; incur liens and encumbrances; make certain restricted payments, including paying dividends on the Company's equity securities or payments to redeem, repurchase or retire the Company's equity securities (which are subject to our compliance, on a pro forma basis to give effect to the restricted payment, with the fixed charge coverage ratio and consolidated leverage ratio
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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 Credit Agreement requires the Company to maintain a minimum fixed charge coverage ratio of 1.25:1.00 throughout the duration of such agreement. Under the Amended Credit Agreement, the Company is required to comply with a maximum consolidated leverage ratio of 3.95:1.00 through December 31, 2017 and 3.50:1.00 from January 1, 2018 and thereafter. The Amended Credit Agreement also contains customary representations and warranties, affirmative covenants and events of default. We believe that we were in compliance with the covenants contained in the Amended Credit Agreement as of September 30, 2018.March 31, 2019.
The Amended Credit Agreement requires the Company to mandatorily prepay the Amended Credit Facilities with (i) 75% of excess cash flow (minus certain specified other payments) during each of the fiscal years ending December 31, 2017 and December 31, 2018 and (ii) 50% of excess cash flow (minus certain specified other payments) during the fiscal year ending December 31, 2019 and thereafter. The Company is permitted to voluntarily prepay the Amended Credit Facilities at any time without penalty, subject to customary “breakage” costs with respect to prepayments of LIBOR rate loans made on a day other than the last day of any applicable interest period. The excess cash flow mandatory prepayment requirement under the Amended Credit Agreement resulted in a $7.3$7.0 million prepayment on the Amended Term Loan Facility during the first quarter of 20182019 related to excess cash flow generated by the Company during 2017. This mandatory prepayment was funded by drawing down2018.

12.     OPERATING LEASES
The Company leases office space in various locations in Alabama, Louisiana, Pennsylvania, Minnesota, Colorado, and Mississippi. These leases have terms expiring from 2019 through 2030 but do contain optional extension terms. Leases with an initial term of 12 months or less are not recorded on the Amended Revolving Credit Facility,balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
Supplemental balance sheet information related to operating leases was as excess cash flow generated byfollows:
(In thousands)March 31, 2019
Operating lease assets:
Operating lease assets$5,882 
Operating lease liabilities:
Other accrued liabilities$1,274 
Operating lease liabilities, net of current portion4,608 
Total operating lease liabilities$5,882 
Weighted average remaining lease term in years8
Weighted average discount rate5.2% 
Because our leases do not provide an implicit rate, we use our incremental borrowing rate based on the Company during 2017information available at the lease commencement date in determining the present value of lease payments. We used the incremental borrowing rate on January 1, 2019, for operating leases that commenced prior to that date.
The future minimum lease payments payable under these operating leases subsequent to March 31, 2019 are as follows:
(In thousands)
2019$886 
2020997 
2021960 
2022887 
2023844 
Thereafter2,516 
Total lease payments7,090 
Less imputed interest(1,208)
Total$5,882 
Total rent expense for the three months ended March 31, 2019 and 2018 was primarily used to voluntarily prepay amounts due under the Amended Revolving Credit Facility.$0.6 million and $0.7 million, respectively.
12.
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Total cash paid for amounts included in the measurement of lease liabilities within operating cash flows from operating leases for the three months ended March 31, 2019 was $0.4 million.
As of March 31, 2019, we had one additional office space lease that has not yet commenced with future commitments of $1.5 million. This office space in Ridgeland, MS will replace existing office space in Jackson, MS and will commence during the third quarter of 2019.

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

13.
14.     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
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value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. The Codification requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
As of March 31, 2019, we did not have any instruments that require fair value measurement.
The accrued contingent consideration depicted below represents the potential earnout incentive for former Rycan shareholders, relating to the purchase of Rycan by HHI in 2015. We have estimated the fair value of the contingent consideration based on the amount of revenue we expectexpected to be earned by Rycan through the year ending December 31, 2018 in accordance with the purchase agreement between the parties.
The following table summarizes the carrying amounts and fair value of the contingent consideration at September 30,December 31, 2018:
Fair Value at September 30, 2018 Using 
Carrying Amount at Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs 
(In thousands) 9/30/18(Level 1) (Level 2) (Level 3) 
Description 
Contingent consideration $615 $— $— $615 
Total $615 $— $— $615 
The following table summarizes the carrying amounts and fair value of the contingent consideration at December 31, 2017:
Fair Value at December 31, 2017 Using Fair Value at December 31, 2018 Using
Carrying Amount at Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Carrying Amount atQuoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant Unobservable Inputs
(In thousands) (In thousands) 12/31/2017(Level 1) (Level 2) (Level 3) (In thousands)12/31/2018(Level 1)(Level 2)(Level 3)
Description Description Description
Contingent consideration Contingent consideration $586 $— $— $586 Contingent consideration$206 $— $— $206 
Total Total $586 $— $— $586 Total$206 $— $— $206 
The carrying amounts of other financial instruments reported in the consolidated balance sheets for current assets and current liabilities approximate their fair values because of the short-term nature of these instruments.
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14.15.     SEGMENT REPORTING
Our chief operating decision makers ("CODM") utilize three operating segments, "Acute Care EHR," "Post-acute Care EHR" and "TruBridge," based on our three distinct business units with unique market dynamics and opportunities. Revenues and cost of sales are primarily derived from the provision of services and sales of our proprietary software, and our CODM assess the performance of these three segments at the gross profit level. Operating expenses and items such as interest, income tax, capital expenditures and total assets are managed at a consolidated level and thus are not included in our operating segment disclosures. Our CODM group is comprised of the Chief Executive Officer, Chief Growth Officer, Chief Operating Officer, and Chief Financial Officer. Accounting policies for each of the reportable segments are the same as those used on a consolidated basis.
The following table presents a summary of the revenues and gross profits of our three operating segments for the three and nine months ended September 30, 2018March 31, 2019 and 2017:2018:
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended March 31,
(In thousands) (In thousands) 2018201720182017(In thousands)20192018
Revenues: Revenues: Revenues:
Acute Care EHR Acute Care EHR Acute Care EHR
Recurring revenue Recurring revenue $27,393 $27,896 $83,633 $84,435 Recurring revenue$27,389 $28,134 
Non-recurring revenue Non-recurring revenue 11,514 10,865 32,664 30,850 Non-recurring revenue10,059 12,048 
Total Acute Care EHR revenue Total Acute Care EHR revenue 38,907 38,761 116,297 115,285 Total Acute Care EHR revenue37,448 40,182 
Post-acute Care EHR Post-acute Care EHR Post-acute Care EHR
Recurring revenue Recurring revenue 4,515 5,059 14,002 15,244 Recurring revenue4,478 4,831 
Non-recurring revenue Non-recurring revenue 1,003 546 2,624 2,734 Non-recurring revenue1,321 738 
Total Post-acute Care EHR revenue Total Post-acute Care EHR revenue 5,518 5,605 16,626 17,978 Total Post-acute Care EHR revenue5,799 5,569 
TruBridge TruBridge 24,872 22,747 75,162 65,601 TruBridge25,894 25,131 
Total revenues Total revenues $69,297 $67,113 $208,085 $198,864 Total revenues$69,141 $70,882 
Cost of sales: Cost of sales: Cost of sales:
Acute Care EHR Acute Care EHR $18,086 $18,163 $52,812 $53,667 Acute Care EHR$17,066 $16,756 
Post-acute Care EHR Post-acute Care EHR 1,497 1,764 4,716 5,800 Post-acute Care EHR1,271 1,661 
TruBridge TruBridge 13,590 12,806 40,501 36,326 TruBridge13,689 13,380 
Total cost of sales Total cost of sales $33,173 $32,733 $98,029 $95,793 Total cost of sales$32,026 $31,797 
Gross profit: Gross profit: Gross profit:
Acute Care EHR Acute Care EHR $20,821 $20,598 $63,485 $61,618 Acute Care EHR$20,382 $23,426 
Post-acute Care EHR Post-acute Care EHR 4,021 3,841 11,910 12,178 Post-acute Care EHR4,528 3,908 
TruBridge TruBridge 11,282 9,941 34,661 29,275 TruBridge12,205 11,751 
Total gross profit Total gross profit $36,124 $34,380 $110,056 $103,071 Total gross profit$37,115 $39,085 
Corporate operating expenses Corporate operating expenses $(30,763)$(28,758)$(94,820)$(89,768)Corporate operating expenses$(31,067)$(31,437)
Other income Other income 201 102 593 242 Other income248 198 
Interest expense Interest expense (1,829)(2,062)(5,615)(5,807)Interest expense(1,804)(1,978)
Income before taxes Income before taxes $3,733 $3,662 $10,214 $7,738 Income before taxes$4,492 $5,868 

15.
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16.     SUBSEQUENT EVENTS
On November 1, 2018,May 2, 2019, the Company announced a dividend for the fourthsecond quarter of 20182019 in the amount of $0.10 per share, payable on November 30, 2018,on May 31, 2019, to stockholders of record as of the close of business on November 15, 2018.  on May 16, 2019.
On May 3, 2019, the Company closed its acquisition of iNetXperts, Corp., a Maryland corporation doing business as Get Real Health (“Get Real Health”), pursuant to a Stock Purchase Agreement dated April 23, 2019. Based in Rockville, Maryland, Get Real Health delivers technology solutions to improve patient outcomes and engagement strategies with care providers. The contemplated total aggregate consideration to be paid by the Company is $11 million, payable in cash, subject to certain adjustments after closing, plus a contingent earnout payment of up to $14 million tied to Get Real Health’s EBITDA for 2019.

2321

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited condensed consolidated financial statements and related notes appearing elsewhere herein.

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

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

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

•
• changes in customer purchasing priorities, capital expenditures and demand for information technology systems;
•saturation of our target market and hospital consolidations;
•general economic conditions, including changes in the financial and credit markets that may affect the availability and cost of credit to us or our clients;customers;
•our substantial indebtedness, and our ability to incur additional indebtedness in the future;
•our potential inability to generate sufficient cash in order to meet our debt service obligations;
•restrictions on our current and future operations because of the terms of our senior secured credit facilities;
•market risks related to interest rate changes;
•competition with companies that have greater financial, technical and marketing resources than we have;
•failure to develop new technology and products in response to market demands;
•failure of our products to function properly resulting in claims for medical and other losses;
•breaches of security and viruses in our systems resulting in customer claims against us and harm to our reputation;
•failure to maintain customer satisfaction through new product releases free of undetected errors or problems;
•failure to convince customers to migrate to current or future releases of our products;
•interruptions in our power supply and/or telecommunications capabilities, including those caused by natural disaster;
•our ability to attract and retain qualified client service and support personnel;
•failure to properly manage growth in new markets we may enter;
•misappropriation of our intellectual property rights and potential intellectual property claims and litigation against us;
•changes in accounting principles generally accepted in the United States of America;
•significant charge to earnings if our goodwill or intangible assets become impaired; and
•fluctuations in quarterly financial performance due to, among other factors, timing of customer installations.
Additional information concerning these and other factors that could cause differences between forward-looking statements and future actual results is discussed under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2017.2018.



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Background
CPSI is a leading provider of healthcare solutions and services for community hospitals and other healthcare systems and post-acute care facilities. Founded in 1979, CPSI offers our products and services through three companies - Evident, LLC ("Evident"), TruBridge, LLC ("TruBridge"), and American HealthTech, Inc. ("AHT"). These combined companies are focused on helping improveimproving the health of the communities we serve, connecting communities for a better patient care experience, and improving the financial operations of our clients. The individual contributions of each of these companies towards this combined focus are as follows:
•Evident, 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.
• AHT provides a comprehensive post-acute care EHR solution and related services for skilled nursing and assisted living facilities.
Our companies currently support approximately 1,1001,000 acute care facilities and approximately 3,5003,300 post-acute care facilities with a geographically diverse customer mix within the domestic community healthcare market. Our clients primarily consist of community hospitals with fewer than 200 or fewer acute care beds, with hospitals having fewer than 100 or fewer beds comprising approximately 94%98% of our hospitalacute care EHR customerclient base.
We operate in three reportable segments: (1) Acute Care EHR, (2) Post-acute Care EHR and (3) TruBridge. See Note 1415 to the consolidated financial statements included herein for additional information on our segment reporting.

Acute Care EHR

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

Post-acute Care EHR

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

TruBridge

Our TruBridge segment primarily consists of business management, consulting and managed IT services sales generated by TruBridge and the sale of the TruBridge revenue cycle management workflow and automation software.three reportable segments.
Management Overview
Historically, Through much of our history, we have primarily soughtbeen able to achieve meaningful long-term revenue growth through sales of healthcare IT systems and related services to existing and new clients within our target market, a strategy that has resulted in a ten-year compounded annual growth rate in legacy revenues (i.e., revenues relatedmarket. Prospectively, our ability to our legacy Evident and TruBridge operations) of approximately 5.9% as of the end of our most recently completed fiscal year. Importantcontinue to our potential for continuedrealize long-term revenue growth is largely dependent on our ability to sell new and additional products and services to our existing customer base, including cross-selling opportunities presented withbetween our operating segments, Acute Care EHR, Post-acute Care EHR, and TruBridge. As a result, retention of existing EHR customers is a key component of our long-term growth strategy by protecting this base of potential cross-sell customers, while at the acquisitionsame time serving as a leading indicator of Healthland Holding Inc. ("HHI"),our market position and stability of revenues and cash flows.

Additionally, as we consider the parent companylong-term growth prospects of Healthland, AHTour business, we are seeking to further stabilize our revenues and Rycan Technologies, Inc. We believe thatcash flows and leverage TruBridge services as a growth agent in light of a relatively mature EHR marketplace. As a result, we are placing ever-increasing value in further developing our combinedalready significant recurring revenue base. As such, maintaining and growing recurring revenues are additional key components of our long-term growth strategy, aided by the aforementioned focus on customer base grows, theretention, and include a renewed focus on driving demand for additional products and services, including business management, consulting and managed IT services, will also continue to grow, supporting further increases in recurring revenues. We also expect to drive revenue growth from new product development that we may generate fromsubscriptions for our research and development activities.existing technology solutions.
January 2016 marked an important milestone for CPSI, as we announced the completion of our acquisition of HHI, the first major acquisition in the Company's history. This acquisition expanded our footprint for servicing acute care facilities and introduced us to the post-acute care segment, adding significantly to our already substantial recurring revenue base and further expanding our ability to generate organic recurring revenue growth through additional cross-selling opportunities now available within the combined company. We believe that the addition of HHI and its clients and products has enhanced and will continue to enhance our ability to grow our business and compete in the markets that we serve.
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Our business model is designed such that, as revenue growth materializes, earnings and profitability growth are naturally bolstered through the increased future margin realization.realization afforded us by operating leverage. Once a hospital has installed our solutions, we continue to provide support services to the customer on an ongoinga continuing basis and make available to the customer our broad portfolio of business management, consulting, and managed IT services.services, all of which contribute to recurring revenue growth. The provision of these recurring revenue services typically requires fewer resources than the initial system installation, resulting in increased overall gross margins and operating margins.
We also look to increase margins through cost containment measures where appropriate as we continue to leverage opportunities for greater operating efficiencies of the combined entity. For example, during the first quarter of 2018, we further integrated our acute care product lines into a combined client support group. Using best practices of the combined companies' implementation processes, we have decreased travel costs for our acute-careacute care installations by approximately 25%. During the fourth quarter of 2017, TruBridge eliminated approximately $0.6 million per quarter of cloud hosting service costs for the HHI customer base by utilizing in-house resources. Also, during the first quarter of 2017 and the third quarter of 2018, we instituted a limited-time, voluntary severance program offering those employees meeting certain predetermined criteria severance packages involving continuing periodic cash payments and healthcare benefits for varying periods, depending upon the individual's years of service with the Company.
Turbulence in the U.S. and worldwide economies and financial markets impacts almost all industries. While the healthcare industry is not immune to economic cycles, we believe it is more significantly affected by U.S. regulatory and
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national health projects than by the economic cycles of our economy. Additionally, healthcare organizations with a large dependency on Medicare and Medicaid populations, such as community hospitals, have been affected by the challenging financial condition of the federal government and many state governments and government programs. Accordingly, we recognize that prospective hospital clients often do not have the necessary capital to make investments in information technology. Additionally, in response to these challenges, hospitals have become more selective regarding where they invest capital, resulting in a focus on strategic spending that generates a return on their investment. Despite these challenges, we believe healthcare information technology is often viewed as more strategically beneficial to hospitals than other possible purchases because the technology also plays an important role in healthcare by improving safety and efficiency and reducing costs. Additionally, we believe most hospitals recognize that they must invest in healthcare information technology to meet current and future regulatory, compliance and government reimbursement requirements.
In recent years, there have been significant changes to provider reimbursement by the U.S. federal government, followed by commercial payers and state governments. There is increasing pressure on healthcare organizations to reduce costs and increase quality while replacing fee-for-service in part by enrolling in an advanced payment model. This pressure could further encourage adoption of healthcare IT and increase demand for business management, consulting, and managed IT services, as the future success of these healthcare providers is greatly dependent upon their ability to engage patient populations and to coordinate patient care across a multitude of settings, while optimizing operating efficiency along the way.
We have historically made financing arrangements available to clients on a case-by-case basis depending upon the various aspects of the proposed contract and customer attributes. Our system sales revenues are now weighted more heavily in the form of financed sales, compared to upfront and subscription payment modules. These financing arrangements include short-term payment plans and longer-term lease financing through us or third-party financing companies. For those clients not seeking a financing arrangement, the payment schedule of the typical contract is structured to provide for a scheduling deposit due at contract signing, with the remainder of the contracted fees due at various stages of the installation process (delivery of hardware, installation of software and commencement of training, and satisfactory completion of a monthly accounting cycle or end-of-month operation by each respective application, as applicable).
During 2017,2018, total financing receivables increased by $15.5$7.8 million which had a significant impact on operating cash flow. TheThis increase in financing arrangements was primarily due to two reasons. First, meaningful use stage three ("MU3") installations are primarily financed through short-term payment plans.plans and demand for such installation has increased since late 2017. Second, competitor financing options, primarily through accounts receivables management collections and cloud EHR arrangements, have applied pressure to reduce initial customer capital investment requirements for new EHR installations, leading to the offering of long-term lease options. For the nine months ended September 30, 2018,We expect positive cash flows from financing receivables have increased by $4.3 million primarily for the aforementioned reasons, which have been partially offset byduring 2019 as cash receipts related tofrom MU3 installations completed during 2017.in the previous year are received.
We have also historically made our software applications available to clients through "Software as a Service" or "SaaS" configurations, including our Cloud Electronic Health Record ("Cloud EHR") offering. These offerings are attractive to some clients because this configuration allows them to obtain access to advanced software products without a significant initial capital outlay. We have experienced a substantialan increase in the prevalence of such SaaS arrangements for new system installations and add-on sales to existing clients since 2015, a trend we expect to continue for the foreseeable future. Unlike our historical perpetual license arrangements under which the related revenue is recognized effectively upon installation, the SaaS arrangements result in revenue being recognized monthly as the services are provided over the term of the arrangement. As a result, the effect of this trend on the Company's financial statements is reduced system sales revenues during the period of
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installation in exchange for increased recurring periodic revenues (reflected in system sales and support revenues) over the term of the SaaS arrangement.
American Recovery and Reinvestment Act
On May 3, 2019, the Company closed its acquisition of 2009
While ongoing financial challenges facing healthcare organizations have impacted and are expected to continue to impact the community hospitals that comprise our target market, we believe that the reduced reimbursement under the American Recovery and Reinvestment Act of 2009 (the "ARRA") for those providers failing to adopt qualifying EHRs will continue to support demand for healthcare information technology and will haveiNetXperts, Corp., a positive impact on ourMaryland corporation doing business prospects through at least 2018.
While we believe that the expanded requirements for continued compliance with meaningful use rules have resulted in an expanded replacement market for EHRs, it is uncertain whether revenues generated from this replacement market will be sufficient to offset the impacts of the overall accelerated adoption and increased penetration of EHRs within our target market. As a result, our system sales revenues and profitability may be materially and adversely affected during the short-term.
Similarly, compliance with the meaningful use rules has accelerated the purchases of incremental applications by our existing clients. Consequently, our penetration rates within our existing customer base for our current menu of applications have increased significantly under the ARRA, thereby significantly narrowing the market for add-on sales to existing clients. As a result of the announcement from CMS on August 2, 2018 of a final rule changing the attestation period for 2019 and 2020 to any continuous 90-day period instead of the previously-required full year attestation period, hospitals now have until October 1, 2019 to install compliant technology in order to meet the requirements of the program during 2019, comparedas Get Real Health (“Get Real Health”), pursuant to a deadline of January 1, 2019 underStock Purchase Agreement dated April 23, 2019. Based in Rockville, Maryland, Get Real Health delivers technology solutions to improve patient outcomes and engagement strategies with care providers. Through this acquisition, the previous rule. While we believeCompany will strengthen its position in community healthcare by offering three new comprehensive patient engagement and empowerment solutions that are offered by Get Real Health. Although the stage three requirements of the meaningful use program (re-named "Promoting Interoperability" by such rule) provide a significant opportunity for add-on sales revenues through 2019, the delay by CMSacquisition is expected to delay some of the contract revenues we previously anticipated and there is a risk of further delays or reductions in the regulatory requirements imposed on hospitals, which could have an adverse effect on our revenues.
We are pursuing other strategic initiatives designedbe accretive to result in system sales revenue growth in the future in the form of selective expansion into English-speaking international markets, selective expansion within the 100 to 200 bed hospital market, and continued development of new software applications such as our Business Intelligence solution which provides community hospital leaders valuable insight into financial, operational, and clinical data. However,Adjusted EBITDA for fiscal year 2019, there can be no guaranteeassurance that such initiativesthis will prove successful or will benefitbe the Companycase. In addition, we expect to incur acquisition and integration costs in the second quarter of 2019, which may have a sufficiently timely fashion to offsetnegative effect on Adjusted EBITDA for the short-term effects of the aforementioned narrowing markets.quarter.
Results of Operations
During the ninethree months ended September 30, 2018,March 31, 2019, we generated revenues of $208.1$69.1 million from the sale of our products and services, compared to $198.9$70.9 million during the ninethree months ended September 30, 2017, an increaseMarch 31, 2018, a decrease of 5%2% that is primarily attributed to new EHR installations that were smaller in size compared to the first quarter of 2018 partially offset by continued TruBridge client growth. We view sales of TruBridge solutions within our existing EHR client base as our leading performance
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indicator. Our net income for the ninethree months ended September 30, 2018 increasedMarch 31, 2019 decreased by $5.9$0.5 million to $10.0$3.4 million from the ninethree months ended September 30, 2017March 31, 2018 as a result of lower Acute Care EHR system sales and support revenue growth accompanied with improvedleading to a gross marginsmargin of 53%54%, a 1% increasedecrease from the first ninethree months of 2017.2018. Net cash provided by operating activities decreasedincreased by $3.5$4.8 million to $14.9$7.9 million provided from operations during the ninethree months ended September 30, 2018,March 31, 2019, primarily due to a reduction of short-term liabilities and othermore advantageous changes in working capital.
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capital, most notably as it relates to accounts receivable and financing receivables.
The following table sets forth certain items included in our results of operations for the three and nine months ended September 30,March 31, 2019 and 2018, and 2017, expressed as a percentage of our total revenues for these periods:
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended March 31,
201820172018201720192018
(In thousands) (In thousands) Amount % Sales Amount % Sales Amount % Sales Amount % Sales (In thousands)Amount% 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 EHR Acute Care EHR $38,907 56.1  $38,761 57.8  $116,297 55.9  $115,285 58.0  Acute Care EHR$37,448 54.2 %$40,182 56.7 %
Post-acute Care EHR Post-acute Care EHR 5,518 8.0  5,605 8.4  16,626 8.0  17,978 9.0  Post-acute Care EHR5,799 8.4 %5,569 7.9 %
Total System sales and support Total System sales and support 44,425 64.1  44,366 66.1  132,923 63.9  133,263 67.0  Total System sales and support43,247 62.5 %45,751 64.5 %
TruBridge TruBridge 24,872 35.9  22,747 33.9  75,162 36.1  65,601 33.0  TruBridge25,894 37.5 %25,131 35.5 %
Total sales revenues Total sales revenues 69,297 100.0  67,113 100.0  208,085 100.0  198,864 100.0  Total sales revenues69,141 100.0 %70,882 100.0 %
Costs of sales: Costs of sales: Costs of sales:
System sales and support: System sales and support: System sales and support:
Acute Care EHR Acute Care EHR 18,086 26.1  18,163 27.1  52,812 25.4  53,667 27.0  Acute Care EHR17,066 24.7 %16,756 23.6 %
Post-acute Care EHR Post-acute Care EHR 1,497 2.2  1,764 2.6  4,716 2.3  5,800 2.9  Post-acute Care EHR1,271 1.8 %1,661 2.3 %
Total System sales and support Total System sales and support 19,583 28.3  19,927 29.7  57,528 27.6  59,467 29.9  Total System sales and support18,337 26.5 %18,417 26.0 %
TruBridge TruBridge 13,590 19.6  12,806 19.1  40,501 19.5  36,326 18.3  TruBridge13,689 19.8 %13,380 18.9 %
Total costs of sales Total costs of sales 33,173 47.9  32,733 48.8  98,029 47.1  95,793 48.2  Total costs of sales32,026 46.3 %31,797 44.9 %
Gross profit Gross profit 36,124 52.1  34,380 51.2  110,056 52.9  103,071 51.8  Gross profit37,115 53.7 %39,085 55.1 %
Operating expenses: Operating expenses: Operating expenses:
Product development Product development 9,305 13.4  8,250 12.3  27,375 13.2  24,742 12.4  Product development9,228 13.3 %8,757 12.4 %
Sales and marketing Sales and marketing 7,546 10.9  8,528 12.7  22,778 10.9  23,262 11.7  Sales and marketing7,492 10.8 %7,714 10.9 %
General and administrative General and administrative 11,220 16.2  9,379 14.0  36,772 17.7  33,960 17.1  General and administrative11,824 17.1 %12,364 17.4 %
Amortization of acquisition-related intangibles Amortization of acquisition-related intangibles 2,692 3.9  2,601 3.9  7,895 3.8  7,804 3.9  Amortization of acquisition-related intangibles2,523 3.6 %2,602 3.7 %
Total operating expenses Total operating expenses 30,763 44.4  28,758 42.9  94,820 45.6  89,768 45.1  Total operating expenses31,067 44.9 %31,437 44.4 %
Operating income Operating income 5,361 7.7  5,622 8.4  15,236 7.3  13,303 6.7  Operating income6,048 8.7 %7,648 10.8 %
Other income (expense): Other income (expense): Other income (expense):
Other income Other income 201 0.3  102 0.2  593 0.3  242 0.1  Other income248 0.4 %198 0.3 %
Interest expense Interest expense (1,829)(2.6) (2,062)(3.1) (5,615)(2.7) (5,807)(2.9) Interest expense(1,804)(2.6)%(1,978)(2.8)%
Total other income (expense) Total other income (expense) (1,628)(2.3) (1,960)(2.9) (5,022)(2.4) (5,565)(2.8) Total other income (expense)(1,556)(2.3)%(1,780)(2.5)%
Income before taxes Income before taxes 3,733 5.4  3,662 5.5  10,214 4.9  7,738 3.9  Income before taxes4,492 6.5 %5,868 8.3 %
(Benefit) provision for income taxes (2,016)(2.9) 1,374 2.0  170 0.1  3,617 1.8  
Provision for income taxesProvision for income taxes1,048 1.5 %1,901 2.7 %
Net income Net income $5,749 8.3  $2,288 3.4  $10,044 4.8  $4,121 2.1  Net income$3,444 5.0 %$3,967 5.6 %
Three Months Ended September 30, 2018March 31, 2019 Compared with Three Months Ended September 30, 2017March 31, 2018 
Revenues. Total revenues for the three months ended September 30, 2018 increased 3%,March 31, 2019 decreased by $1.7 million, or $2.2 million,2%, compared to the three months ended September 30, 2017.March 31, 2018.
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System sales and support revenues increased slightlydecreased by $2.5 million, or 5%, compared to the thirdfirst quarter 2017.2018. System sales and support revenues were comprised of the following:
Three Months Ended September 30, Three Months Ended March 31,
(In thousands) (In thousands) 20182017(In thousands)20192018
Recurring system sales and support revenues (1)
Recurring system sales and support revenues (1)
Recurring system sales and support revenues (1)
Acute Care EHR Acute Care EHR $27,393 $27,896 Acute Care EHR$27,389 $28,134 
Post-acute Care EHR Post-acute Care EHR 4,515 5,059 Post-acute Care EHR4,478 4,831 
Total recurring system sales and support revenues Total recurring system sales and support revenues 31,908 32,955 Total recurring system sales and support revenues31,867 32,965 
Non-recurring system sales and support revenues (2)
Non-recurring system sales and support revenues (2)
Non-recurring system sales and support revenues (2)
Acute Care EHR Acute Care EHR 11,514 10,865 Acute Care EHR10,059 12,048 
Post-acute Care EHR Post-acute Care EHR 1,003 546 Post-acute Care EHR1,321 738 
Total non-recurring system sales and support revenues Total non-recurring system sales and support revenues 12,517 11,411 Total non-recurring system sales and support revenues11,380 12,786 
Total system sales and support revenue Total system sales and support revenue $44,425 $44,366 Total system sales and support revenue$43,247 $45,751 
(1) Mostly comprised of support and maintenance, third-party subscriptions, and SaaS revenues.
(1) Mostly comprised of support and maintenance, third-party subscriptions, and SaaS revenues.
(1) Mostly comprised of support and maintenance, third-party subscriptions, and SaaS revenues.
(2) Mostly comprised of installation revenues from the sale of our acute care and post-acute care EHR solutions and related applications under a perpetual (non-subscription) licensing model.
(2) Mostly comprised of installation revenues from the sale of our acute care and post-acute care EHR solutions and related applications under a perpetual (non-subscription) licensing model.
(2) Mostly comprised of installation revenues from the sale of our acute care and post-acute care EHR solutions and related applications under a perpetual (non-subscription) licensing model.
Non-recurring system sales and support revenues increased $1.1 million, or 10%, as MU3 installations increaseddecreased by $1.4 million, from $1.7or 11%, mostly due to a $2.0 million in the third quarter 2017 to $3.1 million in the third quarter 2018. These increases were partially offset by relative weakness in non-MU3 related add-on sales and decreased new system implementation volumes, resulting in a net increasedecrease in Acute Care EHR non-recurring revenuesrevenues. New implementations of $0.6 million, or 6%. We installed our Acute Care EHR solutions at sixdecreased both in number and average contract size compared to the first quarter 2018, resulting in a $1.5 million decrease in related revenues. Our Acute Care EHR solutions were installed in five new hospital clients during the thirdfirst quarter 2019 compared to six during the first quarter 2018, (nonewith each period containing one installation under a SaaS arrangement, resulting in revenue being recognized ratably over the contractual term) compared to nine new hospital clients duringterm. Add-on sales for our Acute Care EHR segment remained relatively flat, as the third quarter 2017 (one under a SaaS arrangement) resulting in a $0.6$2.0 million decrease in new system implementationMU3-related revenues was offset by a $2.1 million increase in other add-on revenues. The relative weakness in non-MU3 related add-on sales is the result of the Company's and clients' emphasis on MU3 certification prior to the October 1, 2019 deadline. Non-recurring Post-acute Care EHR revenues increased by $0.5$0.6 million, or 84%79%, in the thirdfirst quarter 20182019 as a result of increasing new installationincreased bookings due to our ongoing product releases and aggressive efforts to make technological improvements to the AHT product line.
Recurring system sales and support revenues decreased by $1.0$1.1 million, or 3%, compared to the thirdfirst quarter 2017.2018. Acute Care EHR recurring revenues decreased $0.5by $0.7 million, or 2%3%, as attrition primarily from the Centriq customer base outweighed new Thrive customer growth and additional support fees for MU3-related add-on sales. Post-acute Care EHR recurring revenues decreased by $0.5$0.4 million, or 11%7%, due to attrition attributed to an aggressive competitive environment as we make technological improvements to the AHT product line.
TruBridge revenues increased 9%3%, or $2.1$0.8 million, compared to the thirdfirst quarter 2017.2018. Our hospital clients operate in an environment typified by rising costs and increased complexity and are increasingly seeking to alleviate themselves of the ever-increasing administrative burden of operating their own business office functions. Most notably, anour insurance services line, which includes our TruBridge services, increased by $0.8 million, or 12%, due to new RCM customer growth. We have also expanded our customer base for our accounts receivable management services resultedresulting in an increase of $2.1$0.3 million, or 32%4%, and for our medical codinginformation technology management services resulted in an increase of $0.4 million,grew by 10%, or 25%, compared to the third quarter 2017.$0.3 million. These increases were partially offset by a $0.4decrease in our medical coding services of $0.8 million, or 43%26%, decrease in consulting services as consulting opportunities related to Thrive software add-on salesa few key customers have decreased and medical coding initiatives have been completed.their demand for these services.
Costs of Sales. Total costs of sales increased by 1%, or $0.4$0.2 million, compared to the thirdfirst quarter 2017.2018. As a percentage of total revenues, costs of sales decreasedincreased to 48%46% in the thirdfirst quarter 2018,2019, compared to 49%45% in the thirdfirst quarter 2017.2018.
Costs of Acute Care EHR system sales and support decreased slightlyincreased by $0.1$0.3 million, or 2%, compared to the thirdfirst quarter 20172018 primarily due to a $0.7$1.0 million or 35%, decreaseincrease in travel costs due to improved implementation techniques.hardware expense resulting from changes in the sales mix. This decreaseincrease was partially offset by a 3%, or $0.3 million, or 3%, increasedecrease in payroll cost as headcount has been reduced and a $0.3$0.2 million or 9%, increasedecrease in third-partythird party software costs primarily due to fees implemented for use of CPT codes by the American Medical Association ("AMA") during 2018 that are passed to the customer.costs. The dual effect of increaseddecreased revenues and the decreasedincreased costs noted above resulted in the gross margin on Acute Care EHR system sales and support increasingdecreasing to 54% in the thirdfirst quarter 2018,2019, compared to 53%58% in the thirdfirst quarter 2017.
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2018.
Costs of Post-acute Care EHR system sales and support decreased by $0.3$0.4 million, or 15%23%, compared to the thirdfirst quarter 2017,2018, primarily due to reduced payroll costs of $0.2$0.1 million, or 20%15%, as the realization of HHI integration synergies over the trailing twelve months has resultedwe have been able to continue to operate more efficiently to meet current demand. Additional decreases in reduced headcount. Hardwaresoftware, hardware, travel, and other costs also decreased by $0.1combined for an
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additional $0.3 million which is consistent with decreased hardware revenue.decrease. The gross margin on Post-acute Care EHR system sales and support increased to 73%78% in the thirdfirst quarter 2018,2019, compared to 69%70% in the thirdfirst quarter 2017.2018.
Our costs associated with TruBridge sales and support increased 6%2%, or $0.8$0.3 million, with the largest contributing factor being an increase in payroll and related costs of 17%4%, or $1.4$0.4 million, as a result of adding more employees during the trailing twelve months in order to support and develop our growing customer base. Increased payroll was partially offset by an approximate $0.6 million decrease in cloud hosting costs as a result of vendor consolidation during the fourth quarter 2017 for cloud services provided to the HHI customer base. The gross margin on these services was 45%47% in the thirdfirst quarter 2018 compared to 44% in the third quarter 2017.2019 and 2018.
Product Development. Product development expenses consist primarily of compensation and other employee-related costs (including stock-based compensation) and infrastructure costs incurred, but not capitalized, for new product development and product enhancements. Product development costs increased 13%5%, or $1.1$0.5 million, compared to the thirdfirst quarter 2017,2018, primarily as a result of increased headcount dedicated to functionality additions and enhancements across the product lines, as well as integration across product lines.an increase in headcount. 
Sales and Marketing. Sales and marketing expenses decreased 12%3%, or $1.0$0.2 million, compared to the thirdfirst quarter 2017,2018, primarily due to decreased payroll costs of 8%7%, or $0.3$0.2 million, andbased on decreased commission costs of $0.8 million, or 26%. The decreased commission costs were primarily the result of the aforementioned decrease in new EHR installations and TruBridge bookings realized during the third quarter 2018 compared to the third quarter 2017.headcount.
General and Administrative. General and administrative expenses increased 20%decreased 4%, or $1.8$0.5 million, comparedas the $2.5 million in cost savings achieved through recent changes in the health benefits offered to the third quarter 2017, primarily due to anour employees through our self-insured health plans were partially offset by increases in other expense items. Most notably, we saw a $1.1 million increase in severancenon-recurring and transaction-related costs of $0.7 million as a result of a voluntary early retirement program effective during the third quarter 2018 for select employees. In addition, there was an increase of $0.4 million in badresulting from recent acquisition activity and other strategic initiatives. Bad debt expense which was negatively impacted byincreased $0.6 million, as a few of our hospital clients that have not been or may not be able to fulfill their financial obligations. There was also an increase of $0.4 million inLastly, stock compensation expense andincreased $0.3 million as a $0.2 million increase in costs related to our 401(k) matchresult of additional grants of stock made during the third quarter 2018 compared to the third quarter 2017.  trailing twelve months.
Amortization of Acquisition-Related Intangibles. Amortization expense associated with acquisition-related intangible assets increaseddecreased $0.1 million compared to the thirdfirst quarter 20172018 due to the retirement of Rycan related trademarks.trademarks during 2018. All software and services previously provided under the Rycan name now are marketed under TruBridge trademarks.
 Total Operating Expenses. As a percentage of total revenues, total operating expenses increased to 45% in the first quarter 2019, compared to 44% in the thirdfirst quarter 2018, compared to 43% in the third quarter 2017.2018.
Total Other Income (Expense). Total other income (expense) decreased from expense of $2.0$1.8 million during the thirdfirst quarter 20172018 to expense of $1.6 million during the thirdfirst quarter 2018,2019, as we have reduced our improved leverage has resulted in more favorable interest rates on ourinterest-bearing long term debt, coupled with an increase in interest income due to the expansion of long-term payment plans offered to our clients.
Income Before Taxes. As a result of the foregoing factors, income before taxes increaseddecreased by 2%23%, or $0.1$1.4 million, compared to the thirdfirst quarter 2017.2018.
Provision for Income Taxes. Our effective tax rate for the three months ended September 30, 2018 was a tax benefit of 54% comparedMarch 31, 2019 decreased to a tax expense of 38%23.3% from 32.4% for the three months ended September 30, 2017. This significant decrease in our effective tax rate was mostly attributable to refined estimates regarding our 2017 and 2018 federal research and development (R&D) tax credit, with such estimates increasing significantly as a result of ourMarch 31, 2018. Our implementation of the Internal Revenue Service's "GuidanceService’s “Guidance for Allowance of the Credit for Increasing Research Activities under IRC Section 41 for Taxpayers that Expense Research and Development Costs on their Financial Statements pursuant to ASC 730,"” commonly referred to as the "ASC“ASC 730 Safe Harbor Directive." This Directive, provides guidance regarding” during the examinationsecond half of certain R&D expenses under ASC 730, Research2018 has significantly increased our estimated research and Development, and indicates that the IRS will not challenge certain qualified research expenses (QREs) that are a taxpayer's adjusted ASC 730 financial statement development ("R&D costs. With this guidance, taxpayers now have the option to reconcile ASC 730 with the QREs claimed on their&D") 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 incremental 71% reduction inbenefit to our effective tax rate of 4.5% for the three months ended September 30, 2018first quarter 2019 compared to the three months ended September 30, 2017. Thefirst quarter 2018. Additionally, we have experienced a decrease in tax shortfalls related to stock-based compensation, resulting in an incremental benefit to our
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effective tax rate fromof 4.3% for the ASC 730 Safe Harbor Directive was in additionfirst quarter 2019 compared to the beneficial rate impact of the Tax Cuts and Jobs Act, which reduced our corporate federal rate from 35% to 21% effective at the beginning offirst quarter 2018.
Net Income. Net income for the three months ended September 30, 2018 increasedMarch 31, 2019 decreased by $3.5$0.5 million to $5.7$3.4 million, or $0.41$0.24 per basic and diluted share, compared with net income of $2.3$4.0 million, or $0.17$0.29 per basic and diluted share, for the three months ended September 30, 2017. Net income represented 8% of revenue for the three months ended September 30, 2018, compared to 3% of revenue for the three months ended September 30, 2017.
Nine Months Ended September 30, 2018 Compared with Nine Months Ended September 30, 2017 
Revenues. Total revenues for the nine months ended September 30, 2018 increased 5%, or $9.2 million, compared to the nine months ended September 30, 2017.
System sales and support revenues decreased slightly by $0.3 million from the nine months ended September 30, 2017. System sales and support revenues were comprised of the following:
Nine Months Ended September 30, 
(In thousands) 20182017
Recurring system sales and support revenues (1)
Acute Care EHR $83,633 $84,435 
Post-acute Care EHR 14,002 15,244 
Total recurring system sales and support revenues 97,635 99,679 
Non-recurring system sales and support revenues (2)
Acute Care EHR $32,664 $30,850 
Post-acute Care EHR 2,624 2,734 
Total non-recurring system sales and support revenues 35,288 33,584 
Total system sales and support revenue $132,923 $133,263 
(1) Mostly comprised of support and maintenance, third-party subscriptions, and SaaS revenues.
(2) Mostly comprised of installation revenues from the sale of our acute care and post-acute care EHR solutions and related applications under a perpetual (non-subscription) licensing model.
Non-recurring system sales and support revenues increased $1.7 million, or 5%, primarily as year-to-date revenue contributions from MU3 implementations have outpaced the negative impact of new system implementation volatility and relative weakness in non-MU3 related add-on sales, resulting in an overall increase in Acute Care EHR non-recurring revenues of $1.8 million, or 6%. MU3 implementations contributed $11.1 million of Acute Care EHR non-recurring revenue during the first nine months of 2018, compared to only $1.9 million during the first nine months of 2017. These revenue contributions were partially offset by a $4.8 million decrease in new system implementation revenues, as we installed our Acute Care EHR solutions at fifteen new hospital clients during the nine months ended September 30, 2018 (two under a SaaS arrangement), compared to twenty-two new hospital clients during the nine months ended September 30, 2017 (three under a SaaS arrangement). The relative weakness in non-MU3 related add-on sales is the result of the Company's and clients' emphasis on MU3 certification prior to the October 1, 2019 deadline. Non-recurring Post-acute Care EHR revenues decreased slightly by $0.1 million, or 4%, as a result of late 2017 and early 2018 slow new installation bookings due to aggressive competition. Our efforts to make technological improvements to the AHT product line have resulted in increased bookings and installations during the second and third quartersMarch 31, 2018.
Recurring system sales and support revenues decreased $2.0 million, or 2%, during the nine months ended September 30, 2018. Acute Care EHR recurring revenues decreased by $0.8 million, or 1%, as a result of 2017 price freezes for the existing customer base to ease the impact of MU3 implementation, coupled with attrition primarily from the Centriq customer base, which has outweighed new customer growth. Post-acute Care EHR recurring revenues decreased by $1.2 million, or 8%, due to attrition attributed to the aforementioned aggressive competitive environment.
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TruBridge revenues increased 15%, or $9.6 million, compared to the nine months ended September 30, 2017. Our hospital clients operate in an environment typified by rising costs and increased complexity and are increasingly seeking to alleviate themselves of the ever-increasing administrative burden of operating their own business office functions. Most notably, an expanded customer base for our accounts receivable management services resulted in an increase of $7.3 million, or 39%, and for our medical coding services resulted in an increase of $3.0 million, or 78%, compared to the nine months ended September 30, 2017. Our information technology management services also increased by $0.5 million, or 7%, primarily due to cloud computing services growth. These increases were partially offset by a $1.2 million, or 38%, decrease in consulting services as consulting opportunities related to Thrive software add-on sales have decreased and medical coding initiatives have been completed.
Costs of Sales. Total costs of sales increased by 2%, or $2.2 million, compared to the nine months ended September 30, 2017. As a percentage of total revenues, costs of sales decreased to 47% in the nine months ended September 30, 2018, compared to 48% in the nine months ended September 30, 2017.
Costs of Acute Care EHR system sales and support decreased by $0.9 million, or 2%, compared to the nine months ended September 30, 2017, primarily due to a $0.9 million, or 21%, decrease in equipment costs (which are minimal for MU3 implementations), and decreased travel costs of $1.6 million, or 32%, due to improved implementation techniques, partially offset by a $1.5 million, or 19%, increase in third-party software costs, primarily due to fees for use of CPT codes implemented by the AMA during 2018 that are passed to the customer. The dual effect of increased revenues and these beneficial cost improvements resulted in the gross margin on Acute Care EHR system sales and support increasing to 55% in the nine months ended September 30, 2018 compared to 53% in the nine months ended September 30, 2017.
Costs of Post-acute Care EHR system sales and support decreased by $1.1 million, or 19%, compared to the nine months ended September 30, 2017 primarily due to reduced payroll costs of $0.6 million, or 18%, as the realization of HHI integration synergies over the trailing twelve months has resulted in reduced headcount. Third-party software costs, hardware costs, and travel costs decreased by a total of $0.5 million due to the decreased installation volume mentioned above. The gross margin on Post-acute Care EHR system sales and support increased to 72% for the nine months ended September 30, 2018, compared to 68% for the nine months ended September 30, 2017.
Our costs associated with TruBridge sales and support increased 11%, or $4.2 million, with the largest contributing factor being an increase in payroll and related costs of 25%, or $5.7 million, as a result of adding more employees during the trailing twelve months in order to support and develop our growing customer base. Increased payroll was partially offset by an approximate $1.6 million decrease in cloud hosting costs primarily as a result of vendor consolidation during the fourth quarter of 2017 for cloud services provided to the HHI customer base. The gross margin on these services increased to 46% in the nine months ended September 30, 2018 compared to 45% in the nine months ended September 30, 2017.
Product Development. Product development expenses consist primarily of compensation and other employee-related costs (including stock-based compensation) and infrastructure costs incurred, but not capitalized, for new product development and product enhancements. Product development costs increased 11%, or $2.6 million, compared to the nine months ended September 30, 2017, as a result of increased headcount dedicated to functionality additions and enhancements across the product lines, as well as integration across product lines.
Sales and Marketing. Sales and marketing expenses decreased 2%, or $0.5 million, compared to the nine months ended September 30, 2017, primarily due to a 5%, or $0.4 million, reduction in payroll costs attributed to lower headcount.
General and Administrative. General and administrative expenses increased 8%, or $2.8 million, compared to the nine months ended September 30, 2017, primarily due to a $1.6 million increase in bad debt expense, a $1.1 million increase in stock compensation, and a $1.2 million increase in employee health costs during the nine months ended September 30, 2018. Bad debt was negatively impacted by a few of our hospital clients that have not been or may not be able to fulfill their financial obligations, while increased prescription drug utilization drove employee health costs higher. These notable increases were partially offset by a $1.1 million decrease in voluntary severance program expense compared to the nine months ended September 30, 2017.
Amortization of Acquisition-Related Intangibles. Amortization expense associated with acquisition-related intangible assets increased $0.1 million compared to the nine months ended 2017 due to the retirement of Rycan related trademarks. All software and services previously provided under the Rycan name now are marketed under TruBridge trademarks.
Total Operating Expenses. As a percentage of total revenues, total operating expenses increased to 46% in the nine months ended 2018, compared to 45% in the nine months ended 2017.
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Total Other Income (Expense). Total other income (expense) decreased from expense of $5.6 million during the nine months ended September 30, 2017 to expense of $5.0 million during the nine months ended September 30, 2018, as our improved leverage ratio has resulted in more favorable interest rates on our long-term debt, coupled with an increase in interest income due to the expansion of long-term payment plans offered to our clients.
Income Before Taxes. As a result of the foregoing factors, income before taxes increased by 32%, or $2.5 million, compared to the nine months ended September 30, 2017.
Provision for Income Taxes. Our effective tax rate for the nine months ended September 30, 2018 decreased to 2% from 47% for the nine months ended September 30, 2017, partially due to the reduction in our corporate federal tax rate from 35% to 21% effective at the beginning of 2018. Additionally, the effective tax rate for the nine months ended September 30, 2017 experienced a shortfall tax expense related to stock-based compensation of $1.1 million that increased the effective rate by 14%, whereas such shortfall during the nine months ended September 30, 2018 has decreased to $0.4 million, resulting in an increase in the effective rate of only 4%. Lastly, our implementation of the aforementioned ASC 730 Safe Harbor Directive has significantly increased our estimated R&D tax credits for the 2017 and 2018 tax years, resulting in a further 25% decrease in our effective rate.
Net Income. Net income for the nine months ended September 30, 2018 increased by $5.9 million to a net income of $10.0 million, or $0.72 per basic and diluted share, compared with net income of $4.1 million, or $0.30 per basic and diluted share, for the nine months ended September 30, 2017. Net income represented 5% of revenue for the ninethree months ended September 30, 2018,March 31, 2019, compared to 2%6% of revenue for the ninethree months ended September 30, 2017.March 31, 2018.
Liquidity and Capital Resources
Sources of Liquidity
As of September 30, 2018,March 31, 2019, our principal sources of liquidity consisted of cash and cash equivalents of $5.2$4.4 million and our remaining borrowing capacity under the Amended Revolving Credit Facility of $15.3$20.3 million, compared to $0.5$5.7 million of cash and cash equivalents and $17.0$20.3 million of remaining borrowing capacity under the Amended Revolving Credit Facility as of December 31, 2017.2018. In conjunction with our acquisition of HHI in January 2016, we entered into the Previous Credit Agreement which provided for the $125 million Previous Term Loan Facility and the $50 million Previous Revolving Credit Facility. On October 13, 2017, the Company entered into the Second Amendment to refinance and decrease the aggregate
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principal amount of the credit facilities from $175 million to $162 million, which included the $117 million Amended Term Loan Facility and the $45 million Amended Revolving Credit Facility. On February 8, 2018, the Company entered into the Third Amendment to increase the aggregate 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.
As of September 30, 2018,March 31, 2019, we had $138.6$125.1 million in principal amount of indebtedness outstanding under the Amended Credit Facilities. We believe that our cash and cash equivalents of $5.2$4.4 million as of September 30, 2018,March 31, 2019, the future operating cash flows of the combined entity, and our remaining borrowing capacity under the Amended Revolving Credit Facility of $15.3$20.3 million as of September 30, 2018,March 31, 2019, taken together, provide adequate resources to fund ongoing cash requirements for the next twelve months. We cannot provide assurance that our actual cash requirements will not be greater than we expect as of the date of filing of this Form 10-Q. If sources of liquidity are not available or if we cannot generate sufficient cash flow from operations during the next twelve months, we may be required to obtain additional sources of funds through additional operational improvements, capital market transactions, asset sales or financing from third parties, a combination thereof or otherwise. We cannot provide assurance that these additional sources of funds will be available or, if available, would have reasonable terms.
To finance the closing of the Get Real Health transaction, which occurred on May 3, 2019, the Company used a draw of approximately $11.0 million under its Amended Revolving Credit Facility. If the Company is required to make earnout payments (up to $14.0 million) after the end of 2019, the Company expects to use additional draws on its Amended Revolving Credit Facility.
Operating Cash Flow Activities
Net cash provided by operating activities decreased $3.4increased $4.8 million, from $18.3$3.1 million provided by operations for the ninethree months ended September 30, 2017March 31, 2018 to $14.9$7.9 million provided by operations for the ninethree months ended September 30, 2018.March 31, 2019. The decreaseincrease in cash flows provided from operations is primarily due to more cash-advantageous changes in working capital. Working capital was a $5.4 million contraction in payables and other liabilitiesnet use of cash during the nine months ended September 30,first quarter 2018 as a resultin the amount of the timing of vendor and payroll payments$7.4 million, compared to a $4.7 million expansionnet use during the nine months ended September 30, 2017. The $5.9first quarter 2019 of only $3.0 million. During the first quarter 2018, rapid revenue growth for TruBridge resulted in expansion of accounts receivable of approximately $3.0 million increase in net income was mostly offset by a combined accounts and financing receivables expansion of $10.1approximately $2.4 million, as we were still in the early-stages of the MU3 opportunity (the sales of which have been nearly all under short-term payment plans). Conversely, modest TruBridge revenue growth during the nine months ended September 30, 2018. The increase infirst quarter 2019 coupled with collections on past financing arrangements is primarily due to two reasons. First, meaningful use stage three installations are primarily financed through short-term payment plans. Second, competitor financing options, primarily accounts receivables management collections and cloud EHR arrangements, have applied pressure to reduce initial customergreatly abated the related cash flow headwinds. As a result, these components of working capital, investment requirementswhich combined for new EHR installations, leading to$5.4 million of cash flow headwinds during the offering of long-term lease options.
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first quarter 2018, were effectively cash-neutral during the first quarter 2019.
Investing Cash Flow Activities
Net cash used in investing activities increased slightly with $0.8$0.5 million used in the ninethree months ended September 30, 2018March 31, 2019 compared to $0.5$0.1 million used during the ninethree months ended September 30, 2017.March 31, 2018. We do not anticipate the need for significant capital expenditures during the remainder of 2018.2019.
Financing Cash Flow Activities
During the ninethree months ended September 30, 2018,March 31, 2019, our financing activities used net cash of $9.4$8.7 million, as we paid a net $5.2$7.1 million in long-term debt principal and declared and paid dividends in the amount of $4.2$1.4 million. During the ninethree months ended September 30, 2018,March 31, 2019, we made a $7.3$7.0 million prepayment on the Amended Term Loan Facility by drawing down on the Amended Revolving Credit Facility in accordance with the excess cash flow mandatory prepayment requirements of the Amended Credit Agreement. Financing cash flow activities used $19.1$1.9 million during the ninethree months ended September 30, 2017,March 31, 2018, primarily due to $8.9$0.5 million net paid in long-term debt principal and $10.3$1.4 million cash paid in dividends. The decrease in dividends paid is a result of moving to a fixed dividend policy during the fourth quarter of 2017.
We believe that paying dividends is an effective way of providing an investment return to our stockholders and a beneficial use of our cash. However, the declaration of dividends by CPSI is subject to compliance with the terms of our Amended Credit Agreement and the discretion of our Board of Directors, which may decide to change or terminate the Company's dividend policy at any time. Our Board of Directors will continue to take into account such matters as general business conditions, capital needs, our financial results and such other factors as our Board of Directors may deem relevant.
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Credit Agreement
As of September 30, 2018,March 31, 2019, we had $103.9$95.4 million in principal amount outstanding under the Amended Term Loan Facility and $34.7$29.7 million in principal amount outstanding under the Amended Revolving Credit Facility. Each of the Amended Credit Facilities continues to bear interest at a rate per annum equal to an applicable margin plus, at our option, either (1) the Adjusted LIBOR rate for the relevant interest period, (2) an alternate base rate determined by reference to the greater of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant interest period plus one half of one percent per annum and (c) the one month LIBOR rate plus one percent per annum, or (3) a combination of (1) and (2). The applicable margin range for LIBOR loans and the letter of credit fee ranges from 2.0% to 3.5%. The applicable margin range for base rate loans ranges from 1.0% to 2.5%, in each case based on the Company's consolidated leverage ratio.
Principal payments with respect to the Amended Term Loan Facility are due on the last day of each fiscal quarter beginning December 31, 2017, with quarterly principal payments of approximately $1.46 million through September 30, 2019, approximately $2.19 million through September 30, 2021 and approximately $2.93 million through September 30. 2022, with maturity on October 13, 2022 or such earlier date as the obligations under the Amended Credit Agreement become due and payable pursuant to the terms of the Amended Credit Agreement (the "Amended Maturity Date"). Any principal outstanding under the Amended Revolving Credit Facility is due and payable on the Amended Maturity Date.
The Amended Credit Facilities are secured pursuant to a Pledge and Security Agreement, dated January 8, 2016, among the parties identified as obligors therein and Regions, as collateral agent, on a first priority basis by a security interest in substantially all of the tangible and intangible assets (subject to certain exceptions) of the Company and certain subsidiaries of the Company, as guarantors (collectively, the “Subsidiary Guarantors”), including certain registered intellectual property and the capital stock of certain of the Company’s direct and indirect subsidiaries. Our obligations under the Amended Credit Agreement are also guaranteed by the Subsidiary Guarantors.
The Amended Credit Agreement, as amended by the Third Amendment, provides incremental facility capacity of $50 million, subject to certain conditions. The Amended Credit Agreement includes a number of restrictive covenants that, among other things and in each case subject to certain exceptions and baskets, impose operating and financial restrictions on the Company and the Subsidiary Guarantors, including the ability to incur additional debt; incur liens and encumbrances; make certain restricted payments, including paying dividends on the Company's equity securities or payments to redeem, repurchase or retire the Company's equity securities (which are subject to our compliance, on a pro forma basis to give effect to the restricted payment, with the fixed charge coverage ratio and consolidated leverage ratio described below); enter into certain restrictive agreements; make investments, loans and acquisitions; merge or consolidate with any other person; dispose of assets; enter into sale and leaseback transactions; engage in transactions with affiliates; and materially alter the business we conduct. The Amended Credit Agreement requires the Company to maintain a minimum fixed charge coverage ratio of 1.25:1.00 throughout the duration of such agreement. Under the Amended Credit Agreement, the Company is required to comply with a maximum consolidated leverage ratio of 3.95:1.00 through December 31, 2017 and 3.50:1.00 from January 1, 2018 and thereafter. The Amended Credit Agreement also contains customary representations and warranties, affirmative covenants and
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events of default. We believe that we were in compliance with the covenants contained in the Amended Credit Agreement as of September 30, 2018.March 31, 2019.
The Amended Credit Agreement requires the Company to mandatorily prepay the Amended Credit Facilities with (i) 75% of excess cash flow (minus certain specified other payments) during each of the fiscal years ending December 31, 2017 and December 31, 2018 and (ii) 50% of excess cash flow (minus certain specified other payments) during the fiscal year ending December 31, 2019 and thereafter. The Company is permitted to voluntarily prepay the Amended Credit Facilities at any time without penalty, subject to customary “breakage” costs with respect to prepayments of LIBOR rate loans made on a day other than the last day of any applicable interest period. The excess cash flow mandatory prepayment requirement under the Amended Credit Agreement resulted in a $7.3$7.0 million prepayment on the Amended Term Loan Facility during the first quarter of 20182019 related to excess cash flow generated by the Company during 2017. This mandatory prepayment was funded by drawing down on the Amended Revolving Credit Facility, as excess cash flow generated by the Company during 2017 was primarily used to voluntarily prepay amounts due under the Amended Revolving Credit Facility.2018.
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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 September 30, 2018,March 31, 2019, we had a twelve-month backlog of approximately $35approximately $17 million in connectionconnection with non-recurring system purchases and approximately $225approximately $227 million in connectionconnection with recurring payments under support and maintenance, Cloud EHR contracts, and TruBridge services. As of September 30, 2017,March 31, 2018, we had a twelve-month backlog of approximately $41$35 million in connection with non-recurring system purchases and approximately $220$230 million in connection with recurring payments under support and maintenance and TruBridge services.
Bookings
Bookings is a key operational metric used by management to assess the relative success of our sales generation efforts, and were as follows for the three and nine months ended September 30, 2018March 31, 2019 and 2017:2018:
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended March 31,
(In thousands) (In thousands) 2018201720182017(In thousands)20192018
System sales and support (1)
System sales and support (1)
System sales and support (1)
Acute Care EHR Acute Care EHR $10,699 $20,413 $44,276 $59,327 Acute Care EHR$8,285 $17,505 
Post-acute Care EHR Post-acute Care EHR 844 833 2,625 3,871 Post-acute Care EHR1,431 727 
Total system sales and support Total system sales and support 11,543 21,246 46,901 63,198 Total system sales and support9,716 18,232 
TruBridge (2)
TruBridge (2)
7,302 10,632 17,492 25,925 
TruBridge (2)
4,228 3,818 
Total bookings Total bookings $18,845 $31,878 $64,393 $89,123 Total bookings$13,944 $22,050 
(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 thirdfirst quarter 2019 decreased by $9.2 million, or 53%, from the first quarter 2018, decreased $9.7 million, or 48%, comparedmostly as net new installation bookings have been severely impaired by a lack of urgency on the part of prospective customers, resulting in a low volume of decisions for new system implementations. Management views this as a timing anomaly, and does not consider the quality of its pipeline to the third quarter 2017, and in the nine months ended September 30, 2018 decreased $15.1 million, or 25%, compared to the nine months ended September 30, 2017, mostly due to the demand dynamics related to the Company's MU3 software applications. Bookings during the three and nine months ended September 30, 2017 were heavily influenced by the then-deadline of January 1, 2018 for hospital compliance with the stage three rules. Since that time, CMS had adopted rules in August 2018 that effectively delay the deadline for compliance to October 1, 2019. While we do not believe these events significantly alter the total opportunity presented by MU3, it has impacted our periodic bookings results by naturally extending the sales cycle.have diminished materially.

Post-acute Care EHR bookings in the thirdfirst quarter 2019 increased by $0.7 million, or 97%, from the first quarter 2018, were relatively flat, compared to the third quarter 2017, and decreased $1.2 million, or 32%, compared to the nine months ended September 30, 2017. New business opportunities for this segment, which consist solely of the operations of AHT,as beneficial regulatory factors have suffered as a result of increased competition and underinvestmentworked in AHT's product offerings (particularly prior totandem with our acquisition of AHT as part of the January 2016 acquisition of HHI), making functionality and usability comparisons less favorable for AHT. Although management has formulated a strategy and enacted
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stepsrecent efforts to improve the related product functionality and usability and is confident that such measures will translate intoto drive improved future bookings performance (and, eventually, revenue growth), there can be no guarantee that this strategy will be successful. Duringdemand in both the fourth quarter of 2017, the anticipated attrition of significant customer accounts and a product development acceleration investment plan in our Post-acute Care EHR software led management to record a goodwill impairment of $28.0 million against our Post-acute Care EHR reporting unit as of December 31, 2017.
We continue to execute on our TruBridge strategy by moving up-market into larger healthcare facilities while expanding the scope of our relationships withnet new and existing clients by increasing revenue-generating touchpoints within those facilities. Our initial success in that endeavor has resulted in bookings volatility as our periodic bookings are heavily influenced by low-volume, high-value deals. Such large, enterprise client wins resulted in add-on sales enviroments.

TruBridge bookings increased $0.4 million, or 11%, as demand for the first three quarters of 2017 that were some ofremote hosting products offered by our IT Managed Services division and the highest inrevenue cycle optimization tools offered through the TruBridge history at that time, with bookings for the remainder of 2017 being heavily influenced by large, enterprise client wins. Absent any such large, enterprise client wins during the first three quarters of 2018, TruBridge bookings experienced a normalization that resulted in a decrease from the first three quarters of 2017. We continueRCM solution led to see demand for TruBridge's products and services that alleviate administrative burden on our clients and allow them to take advantage of our specialized capabilities. Particularly strong demand exists for TruBridge's accounts receivable management and medical coding services.increased deal-flow.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements, as defined by Item 303(a)(4) of SEC Regulation S-K, as of September 30, 2018.
The Company has other lease rights and obligations that it accounts for as operating leases that may be reclassified as balance sheet arrangements under accounting pronouncements recently finalized by the FASB.March 31, 2019.
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.
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In our Annual Report on Form 10-K for the year ended December 31, 2017,2018, we identified our critical accounting polices related to revenue recognition, allowance for doubtful accounts, allowance for credit losses, and estimates. During the first quarter of 2018, we adopted the new accounting standard codified as Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, and all related amendments and have applied it to all contracts using the modified retrospective method, pursuant to which the cumulative effect of initially applying the new revenue standard is recognized as an adjustment to retained earnings and impacted balance sheet line items as of January 1, 2018, the date of adoption. Refer to Note 2 - Recent Accounting Pronouncements of the Notes to Financial Statements (Part 1, Item 1 of this Form 10-Q) for further discussion.
There have been no other significant changes to these critical accounting policies during the ninethree months ended September 30, 2018.March 31, 2019.

Item 3.Quantitative and Qualitative Disclosures about Market Risk.
Our exposure to market risk relates primarily to the potential change in the British Bankers Association London Interbank Offered Rate ("LIBOR"). We had $138.6$125.1 million of outstanding borrowings under our Amended Credit Facilities with Regions Bank at September 30, 2018.March 31, 2019. The Amended Term Loan Facility and Amended Revolving Credit Facility bear interest at a rate per annum equal to an applicable margin plus (1) the Adjusted LIBOR rate for the relevant interest period, (2) an alternate base rate determined by reference to the greatest of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant interest period plus one half of one percent per annum and (c) the one month LIBOR rate plus one percent per annum, or (3) a combination of (1) and (2). Accordingly, we are exposed to fluctuations in interest rates on borrowings under the Amended Credit Facilities. A one hundred basis point change in interest rate on our borrowings outstanding as of September 30, 2018March 31, 2019 would result in a change in interest expense of approximately $1.4$1.3 million annually.
We did not have investments and do not utilize derivative financial instruments to manage our interest rate risks.

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Item 4.Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the rules and forms promulgated by the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations to the effectiveness of any system of disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that all control issues and instances of fraud, if any, with a company have been prevented or detected on a timely basis. Even disclosure controls and procedures determined to be effective can only provide reasonable assurance that their objectives are achieved.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
 There were no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended September 30, 2018March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. We implemented internal controls to ensure we adequately evaluated our contractsoperating and finance leases and properly assessed the impact of the new accounting standard related to revenue recognitionlease accounting on our financial statements to facilitate adoption on January 1, 2018.2019. There were no significant changes to our internal controls over financial reporting due to the adoption of the new standard.



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PART II
OTHER INFORMATION
 

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

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

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

Not Applicable.
 

Item 3.Defaults Upon Senior Securities.
Not applicable.
 

Item 4.Mine Safety Disclosures.
Not applicable.
 

Item 5.Other Information.
None.
 

Item 6.Exhibits.

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2.1 
2.2 
3.1 
3.2 
3.3 
31.1 
31.2 
32.1 
101 Interactive Data Files for CPSI’s Form 10-Q for the period ended September 30, 2018 March 31, 2019


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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.
November 6, 2018May 8, 2019By:/s/ J. Boyd Douglas
J. Boyd Douglas
President and Chief Executive Officer
November 6, 2018May 8, 2019By:/s/ Matt J. Chambless
Matt J. Chambless
Chief Financial Officer

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