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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            
Commission file number: 000-49796
COMPUTER PROGRAMS AND SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
74-3032373
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
54 St. Emanuel Street, Mobile, Alabama
36602
(Address of Principal Executive Offices)
(Zip Code)
(251) 639-8100
(Registrant’s Telephone Number, Including Area Code)

6600 Wall Street Mobile, Alabama 36695
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading symbol
Name of each exchange on which registered
Common Stock, par value $.001 per share
CPSI
The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨
Accelerated filer
ý
Non-accelerated filer
¨
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ý
As of May 7, 2021, there were 14,728,829 shares of the issuer’s common stock outstanding.


1











COMPUTER PROGRAMS AND SYSTEMS, INC.
Quarterly Report on Form 10-Q
(For the three months ended March 31, 2021)
TABLE OF CONTENTS
 
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



2










PART I
FINANCIAL INFORMATION

Item 1.
Financial Statements.

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

March 31,
2021
December 31, 2020
Assets
Current assets:
Cash and cash equivalents$18,016 $12,671 
Accounts receivable (net of allowance for expected credit losses of $2,088 and $1,701, respectively)
33,793 32,414 
Financing receivables, current portion, net (net of allowance for expected credit losses of $486 and $541, respectively)
9,710 10,821 
Inventories1,342 1,084 
Prepaid income taxes2,188 1,789 
Prepaid expenses and other7,833 8,365 
Total current assets72,882 67,144 
Property and equipment, net13,079 13,139 
Software development costs, net4,009 3,210 
Operating lease assets9,030 6,610 
Financing receivables, net of current portion (net of allowance for expected credit losses of $891 and $948, respectively)
10,460 11,477 
Other assets, net of current portion2,998 2,787 
Intangible assets, net68,632 71,689 
Goodwill150,216 150,216 
Total assets$331,306 $326,272 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$6,742 $7,716 
Current portion of long-term debt3,457 3,457 
Deferred revenue8,833 8,130 
Accrued vacation5,306 5,353 
Other accrued liabilities16,394 12,786 
Total current liabilities40,732 37,442 
Long-term debt, net of current portion67,496 73,360 
Operating lease liabilities, net of current portion7,527 5,092 
Deferred tax liabilities11,436 10,378 
Total liabilities127,191 126,272 
Stockholders’ equity:
Common stock, $0.001 par value; 30,000 shares authorized; 14,715 and 14,511 shares issued and outstanding, respectively
15 15 
Additional paid-in capital182,656 181,622 
Retained earnings23,768 19,624 
Treasury stock, 80 shares and 47 shares, respectively
(2,324)(1,261)
Total stockholders’ equity204,115 200,000 
Total liabilities and stockholders’ equity$331,306 $326,272 
The accompanying notes are an integral part of these condensed consolidated financial statements.


3










COMPUTER PROGRAMS AND SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended March 31,
20212020
Sales revenues:
System sales and support$36,366 $41,186 
TruBridge31,639 28,571 
Total sales revenues68,005 69,757 
Costs of sales:
System sales and support17,376 18,587 
TruBridge15,779 15,057 
Total costs of sales33,155 33,644 
Gross profit34,850 36,113 
Operating expenses:
Product development8,429 8,271 
Sales and marketing5,301 6,997 
General and administrative13,149 11,847 
Amortization of acquisition-related intangibles3,057 2,866 
Total operating expenses29,936 29,981 
Operating income4,914 6,132 
Other income (expense):
Other income814 362 
Interest expense(627)(1,179)
Total other income (expense)187 (817)
Income before taxes5,101 5,315 
Provision for income taxes957 1,225 
Net income$4,144 $4,090 
Net income per common share—basic$0.29 $0.28 
Net income per common share—diluted$0.28 $0.28 
Weighted average shares outstanding used in per common share computations:
Basic14,159 13,904 
Diluted14,221 13,904 
Dividends declared per common share$ $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 StockAdditional Paid-in-CapitalRetained EarningsTreasury StockTotal Stockholders’ Equity
SharesAmount
Three Months Ended March 31, 2021 and 2020:
Balance at December 31, 202014,511 $15 $181,622 $19,624 $(1,261)$200,000 
Net income— — — 4,144 — 4,144 
Issuance of restricted stock210 — — — — — 
Forfeiture of restricted stock(6)— — — — — 
Stock-based compensation— — 1,034 — — 1,034 
Treasury stock acquired— — — — (1,063)(1,063)
Balance at March 31, 202114,715 $15 $182,656 $23,768 $(2,324)$204,115 
Balance at December 31, 201914,356 $14 $174,618 $9,715 $ $184,347 
Net income— — — 4,090 — 4,090 
Issuance of restricted stock156 1 (1)— — — 
Stock-based compensation— — 2,358 — — 2,358 
Dividends— — — (1,435)— (1,435)
Balance at March 31, 202014,512 $15 $176,975 $12,370 $ $189,360 
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)
 
Three Months Ended March 31,
20212020
Operating Activities:
Net income$4,144 $4,090 
Adjustments to net income:
Provision for credit losses938 999 
Deferred taxes1,058 1,065 
Stock-based compensation1,034 2,358 
Depreciation553 420 
Amortization of acquisition-related intangibles3,057 2,866 
Amortization of software development costs73 38 
Amortization of deferred finance costs73 86 
Changes in operating assets and liabilities:
Accounts receivable(2,183)(88)
Financing receivables1,994 (4)
Inventories(258)62 
Prepaid expenses and other321 (1,079)
Accounts payable(974)206 
Deferred revenue703 (821)
Other liabilities3,576 (2,732)
(Prepaid income taxes)/income taxes payable(399)128 
Net cash provided by operating activities13,710 7,594 
Investing Activities:
Investment in software development(872)(921)
Purchase of property and equipment(493)(2,120)
Net cash used in investing activities(1,365)(3,041)
Financing Activities:
Dividends paid (1,435)
Payments of long-term debt principal(937)(2,195)
Payments of revolving line of credit(5,000)(4,000)
Treasury stock purchases(1,063) 
Net cash used in financing activities(7,000)(7,630)
Increase (decrease) in cash and cash equivalents5,345 (3,077)
Cash and cash equivalents at beginning of period12,671 7,357 
Cash and cash equivalents at end of period$18,016 $4,280 
Supplemental disclosure of cash flow information:
Cash paid for interest$554 $1,093 
Cash paid for income taxes, net of refund$298 $31 
The accompanying notes are an integral part of these condensed consolidated financial statements.


6










COMPUTER PROGRAMS AND SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.     BASIS OF PRESENTATION
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") and include all adjustments that, in the opinion of management, are necessary for a fair presentation of the results of the periods presented. All such adjustments are considered of a normal recurring nature. Quarterly results of operations are not necessarily indicative of annual results.
Certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2020 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, 2020 and the notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Principles of Consolidation
The condensed consolidated financial statements of CPSI include the accounts of TruBridge, LLC ("TruBridge"), Evident, LLC ("Evident"), Healthland Holding Inc. ("HHI"), and iNetXperts, Corp. d/b/a Get Real Health ("Get Real Health"), all of which are wholly-owned subsidiaries of CPSI. The accounts of HHI include those of its wholly-owned subsidiaries, Healthland Inc. ("Healthland"), Rycan Technologies, Inc. ("Rycan"), and American HealthTech, Inc. ("AHT"). All significant intercompany balances and transactions have been eliminated.

2.     RECENT ACCOUNTING PRONOUNCEMENTS
New Accounting Standards Adopted in 2021

There were no new accounting standards required to be adopted in 2021 that would have a material impact on our consolidated financial statements.
New Accounting Standards Yet to be Adopted

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

3.     REVENUE RECOGNITION
Revenue is recognized upon transfer of control of promised products or services to clients in an amount that reflects the consideration we expect to receive in exchange for those products and services. We enter into contracts that can include various combinations of products and services, which are generally distinct and accounted for as separate performance obligations. The Company employs the 5-step revenue recognition model under Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, to: (1) identify the contract with the client, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
Revenue is recognized net of shipping charges and any taxes collected from clients, which are subsequently remitted to governmental authorities.
System Sales and Support
The Company enters into contractual obligations to sell perpetual software licenses, installation, conversion, training, hardware and software application support and hardware maintenance services to acute care and post-acute care community hospitals.


7










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 10 - Financing Receivables for further information. Electronic health records ("EHR") implementations include a system warranty that terminates thirty days from the software go-live date, the date on which the client begins using the system in a live environment.
Hardware revenue is recognized separately from software licenses at the point in time it is delivered to the client. The SSP of hardware is cost plus a reasonable margin. Payment is generally due upon delivery of the hardware to the client. Standard manufacturer warranties apply to hardware.
Recurring Revenues
Software application support and hardware maintenance services sold with software licenses and hardware are separate and distinct performance obligations. Revenue for support and maintenance services is recognized based on SSP, which is the renewal price, ratably over the life of the contract, which is generally three to five years. Payment is due monthly for support services provided.
Subscriptions to third party content revenue is recognized as a separate performance obligation ratably over the subscription term based on SSP, which is cost plus a reasonable margin. Payment is due monthly for subscriptions to third party content.
Software as a Service ("SaaS") arrangements for EHR software and related conversion and training services are considered a single performance obligation. Revenue is recognized on a monthly basis as the SaaS service is provided to the client over the contract term. Payment is due monthly for SaaS services provided.
Refer to Note 16 - Segment Reporting, for further information, including revenue by client base (acute care or post-acute care) bifurcated by recurring and non-recurring revenue.
TruBridge
TruBridge provides an array of business processing services ("BPS") consisting of accounts receivable management, private pay services, insurance services, medical coding, electronic billing, statement processing, payroll processing, and contract management. Fees are recognized over the period of the client contractual relationship as the services are performed based on the SSP, net of discounts. Fees for many of these services are invoiced, and revenue recognized accordingly, based on the volume of transactions or a percentage of client accounts receivable collections. Payment is due monthly for BPS with certain amounts varying based on utilization and/or volumes.
TruBridge also provides professional IT services. Revenue from professional IT services is recognized as the services are performed based on SSP. Payment is due monthly as services are performed.
Deferred Revenue
Deferred revenue represents amounts invoiced to clients for which the services under contract have not been completed and revenue has not been recognized, including annual renewals of certain software subscriptions and customer deposits for implementations to be performed at a later date. Revenue is recognized ratably over the life of the software subscriptions as services are provided and at the point-in-time when implementations have been completed.


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The following table details deferred revenue for the three months ended March 31, 2021 and 2020, included in the condensed consolidated balance sheets:
(In thousands)Three Months Ended March 31, 2021Three Months Ended March 31, 2020
Beginning balance$8,130 $8,628 
Deferred revenue recorded5,847 6,194 
Less deferred revenue recognized as revenue(5,144)(7,015)
Ending balance$8,833 $7,807 
The deferred revenue recorded during the three months ended March 31, 2021 is comprised primarily of the annual renewals of certain software subscriptions billed during the first quarter of each year and deposits collected for future EHR installations. The deferred revenue recognized as revenue during the three months ended March 31, 2021 and 2020 is comprised primarily of the periodic recognition of annual renewals that were deferred until earned and deposits for future EHR installations that were deferred until earned.
Costs to Obtain and Fulfill a Contract with a Customer
Costs to obtain a contract include the commission costs related to SaaS licensing agreements, which are capitalized and amortized ratably over the expected life of the customer. As a practical expedient, we generally recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset would have been one year or less, with the exception of commissions generated from TruBridge sales. TruBridge commissions, which are paid up to twelve months in advance of services performed, are capitalized and amortized over the prepayment period. Costs to obtain a contract are expensed within sales and marketing expenses in the accompanying condensed consolidated statements of income.
Contract fulfillment costs related to the implementation of SaaS arrangements are capitalized and amortized ratably over the expected life of the customer. Costs to fulfill contracts consist of the payroll costs for the implementation of SaaS arrangements, including time for training, conversion and installation that is necessary for the software to be utilized. Contract fulfillment costs are expensed within the caption "System sales and support - Cost of sales" in the accompanying condensed consolidated statements of income.
Costs to obtain and fulfill contracts related to SaaS arrangements are included within the "Prepaid expenses and other" and "Other assets, net of current portion" line items on our condensed consolidated balance sheets.
The following table details costs to obtain and fulfill contracts with customers for the three months ended March 31, 2021 and 2020, included in the condensed consolidated balance sheets:
(In thousands)Three Months Ended March 31, 2021Three Months Ended March 31, 2020
Beginning balance$5,992 $4,440 
Costs to obtain and fulfill contracts capitalized1,836 1,888 
Less costs to obtain and fulfill contracts recognized as expense(1,475)(1,285)
Ending balance$6,353 $5,043 
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, net was comprised of the following at March 31, 2021 and December 31, 2020:
(In thousands)March 31,
2021
December 31, 2020
Land$2,848 $2,848 
Buildings and improvements8,538 8,242 
Computer equipment7,342 7,144 
Leasehold improvements1,283 1,283 
Office furniture and fixtures829 829 
Automobiles18 18 
Property and equipment, gross20,858 20,364 
Less: accumulated depreciation(7,779)(7,225)
Property and equipment, net$13,079 $13,139 

5. SOFTWARE DEVELOPMENT
Software development costs are accounted for in accordance with ASC 350-40, Internal-Use Software. We capitalize incurred labor costs for software development from the time the preliminary project phase is completed until the software is available for general release. Research and development costs and other computer software maintenance costs related to software development are expensed as incurred. We estimate the useful life of our capitalized software and amortize its value on a straight-line basis over that estimated life, which is estimated to be five years. We evaluate capitalized software development costs for impairment when there is an indication that the useful life has changed or that the unamortized costs may not be recoverable. A write-down of the value of the asset may be recorded as a charge to earnings. Upon the software's availability for general release, we commence amortization of the capitalized software costs on a module-by-module basis.
Software development, net was comprised of the following at March 31, 2021 and December 31, 2020:
(In thousands)March 31,
2021
December 31, 2020
Software development costs$4,200 $3,328 
Less: accumulated amortization(191)(118)
Software development costs, net$4,009 $3,210 

6.     OTHER ACCRUED LIABILITIES
Other accrued liabilities was comprised of the following at March 31, 2021 and December 31, 2020:
(In thousands)March 31,
2021
December 31, 2020
Salaries and benefits$9,891 $7,876 
Severance1,644 25 
Commissions844 1,040 
Self-insurance reserves1,929 1,776 
Other583 551 
Operating lease liabilities, current portion1,503 1,518 
Other accrued liabilities$16,394 $12,786 



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7.     NET INCOME PER SHARE
The Company presents basic and diluted earnings per share ("EPS") data for its common stock. Basic EPS is calculated by dividing the net income attributable to stockholders of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is determined by adjusting the net income attributable to stockholders of the Company and the weighted average number of shares of common stock outstanding during the period for the effects of all dilutive potential common shares, including awards under stock-based compensation arrangements.
The Company's unvested restricted stock awards (see Note 9) are considered participating securities under ASC 260, Earnings Per Share, because they entitle holders to non-forfeitable rights to dividends until the awards vest or are forfeited. When a company has a security that qualifies as a "participating security," the Codification requires the use of the two-class method when computing basic EPS. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. In determining the amount of net income to allocate to common stockholders, income is allocated to both common stock and participating securities based on their respective weighted average shares outstanding for the period, with net income attributable to common stockholders ultimately equaling net income less net income attributable to participating securities. Diluted EPS for the Company's common stock is computed using the more dilutive of the two-class method or the treasury stock method.
The following is a calculation of the basic and diluted EPS for the Company's common stock, including a reconciliation between net income and net income attributable to common stockholders:
Three Months Ended March 31,
(In thousands, except per share data)20212020
Net income$4,144 $4,090 
Less: Net income attributable to participating securities(103)(134)
Net income attributable to common stockholders$4,041 $3,956 
Weighted average shares outstanding used in basic per common share computations14,159 13,904 
Add: Dilutive potential common shares62  
Weighted average shares outstanding used in diluted per common share computations14,221 13,904 
Basic EPS$0.29 $0.28 
Diluted EPS$0.28 $0.28 
During 2019, 2020, and 2021, performance share awards were granted to certain executive officers and key employees of the Company that will result in the issuance of common stock if the predefined performance criteria are met. The awards provide for an aggregate target of 249,952 shares, of which 62,267 have been included in the calculation of diluted EPS for the three months ended March 31, 2021. The remaining 187,685 shares have been excluded from the calculation of diluted EPS because the related threshold award performance levels have not been achieved as of March 31, 2021. See Note 9 - Stock-Based Compensation and Equity for more information.
8.     INCOME TAXES
The Company determines the tax provision for interim periods using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.
Our effective tax rate for the three months ended March 31, 2021 decreased to 18.8% from 23.0% for the three months ended March 31, 2020, primarily as a result of the tax consequences of stock-based compensation. Specifically, excess tax benefits resulting from restricted stock vesting benefited our effective tax rate by 1.6% during the first quarter of 2021. Comparatively, the first quarter of 2020 experienced a tax benefit shortfall resulting from restricted stock vesting that increased our effective tax rate by 2.4% for the period.



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9.   STOCK-BASED COMPENSATION AND EQUITY
Stock-based compensation expense is measured at the grant date based on the fair value of the award, and is recognized as an expense over the employee's or non-employee director's requisite service period.
The following table details total stock-based compensation expense for the three months ended March 31, 2021 and 2020, included in the condensed consolidated statements of income:
Three Months Ended March 31,
(In thousands)20212020
Costs of sales$213 $528 
Operating expenses821 1,830 
Pre-tax stock-based compensation expense1,034 2,358 
Less: income tax effect(227)(519)
Net stock-based compensation expense$807 $1,839 
The Company's stock-based compensation awards are in the form of restricted stock and performance share awards granted pursuant to the Company's Amended and Restated 2014 Incentive Plan and 2019 Incentive Plan, as amended (the "Plans"). As of March 31, 2021, there was $11.1 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 2.4 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 have also been issued pursuant to the settlement of performance share awards with one-year performance periods, for which the Company records expenses in the manner described in the "Performance Share Awards" section below. Although no such one-year performance share awards were granted during the quarter ended March 31, 2021, shares issued pursuant to past one-year performance share awards are still subject to vesting.
A summary of restricted stock activity (including shares of restricted stock issued pursuant to the settlement of performance share awards) under the Plans during the three months ended March 31, 2021 and 2020 is as follows:
Three Months Ended March 31, 2021Three Months Ended March 31, 2020
SharesWeighted-Average
Grant Date
Fair Value Per Share
SharesWeighted-Average
Grant Date
Fair Value Per Share
Unvested restricted stock outstanding at beginning of period412,967 $28.87 525,859 $30.51 
Granted134,314 31.26 136,771 26.16 
Performance share awards settled through the issuance of restricted stock  19,678 30.15 
Vested(245,455)29.16 (202,468)30.20 
Forfeited(6,329)29.10   
Unvested restricted stock outstanding at end of period295,497 $29.71 479,840 $29.39 


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Performance Share Awards
The Company granted performance share awards to executive officers and certain key employees under the Amended and Restated 2014 Incentive Plan prior to 2019 and under the 2019 Incentive Plan beginning in 2019. The number of shares of common stock earned and issuable under each award is determined at the end of a one-year or three-year performance period, based on the Company's achievement of performance goals predetermined by the Compensation Committee of the Board of Directors at the time of grant. The three-year performance share awards include a modifier to the total number of shares earned based on the Company's total shareholder return ("TSR") compared to an industry index. If certain levels of the performance objective are met, the award results in the issuance of shares of restricted stock or common stock corresponding to such level. One-year performance share awards are then subject to time-based vesting pursuant to which the shares of restricted stock vest in equal annual installments over the applicable vesting period, which is generally three years. Three-year performance share awards that result in the issuance of shares of common stock are not subject to time-based vesting at the conclusion of the three-year performance period.
In the event that the Company's financial performance meets the predetermined targets for the performance objectives of the one-year and three-year performance share awards, the Company will issue each award recipient the number of shares of restricted stock or common stock, as applicable, equal to the target award specified in the individual's underlying performance share award agreement. In the event the financial results of the Company exceed the predetermined targets, additional shares up to the maximum award may be issued. In the event the financial results of the Company fall below the predetermined targets, a reduced number of shares may be issued. If the financial results of the Company fall below the threshold performance levels, no shares will be issued. The total number of shares issued for the three-year performance share award may be increased, decreased, or unchanged based on the TSR modifier described above.
The recipients of performance share awards do not receive dividends or possess voting rights during the performance period and, accordingly, the fair value of the one-year and three-year performance share awards is the quoted market value of CPSI's common stock on the grant date less the present value of the expected dividends not received during the relevant period. The TSR modifier applicable to the three-year performance share awards is considered a market condition and therefore is reflected in the grant date fair value of the award. A Monte Carlo simulation has been used to account for this market condition in the grant date fair value of the award.
Expense of one-year performance share awards is recognized using the accelerated attribution (graded vesting) method over the period beginning on the date the Company determines that it is probable that the performance criteria will be achieved and ending on the last day of the vesting period for the restricted stock issued in satisfaction of such awards. Expense of three-year performance share awards is recognized using ratable straight-line amortization over the three-year performance period. In the event the Company determines it is no longer probable that the minimum performance level will be achieved, all previously recognized compensation expense related to the applicable awards is reversed in the period such a determination is made.


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A summary of performance share award activity under the Plans during the three months ended March 31, 2021 and 2020 is as follows, based on the target award amounts set forth in the performance share award agreements:
Three Months Ended March 31, 2021Three Months Ended March 31, 2020
SharesWeighted-Average
Grant Date
Fair Value Per Share
SharesWeighted-Average
Grant Date
Fair Value Per Share
Performance share awards outstanding at beginning of period252,852 $29.27 200,709 $30.75 
Granted93,444 31.26 107,298 26.96 
Adjusted for actual performance, net of forfeitures(20,373)29.92 (35,477)30.15 
Performance share awards settled through the issuance of restricted stock(75,971)30.50 (19,678)30.15 
Performance share awards outstanding at end of period249,952 $29.59 252,852 $29.27 

Stock Repurchases
On September 4, 2020, our Board of Directors approved a stock repurchase program under which we may repurchase up to $30.0 million of our common stock through September 3, 2022. We repurchased 12,056 shares during the three months ended March 31, 2021 and no shares during the three months ended March 31, 2020. The approximate dollar value of shares that may yet be repurchased under the stock repurchase program was $28.3 million as of March 31, 2021. Any future stock repurchase transactions may be made through open market purchases, privately-negotiated transactions, or otherwise in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. Any repurchase activity will depend on many factors, such as the availability of shares of our common stock, general market conditions, the trading price of our common stock, alternative uses for capital, the Company’s financial performance, compliance with the terms of our Amended and Restated Credit Agreement and other factors. Concurrent with the authorization of this stock repurchase program, the Board of Directors opted to indefinitely suspend all quarterly dividends.
In addition to shares repurchased under the approved stock repurchase program, we purchased 21,444 shares during the three months ended March 31, 2021 to fund required tax withholding related to the vesting of restricted stock. Shares withheld to cover required tax withholdings related to the vesting of restricted stock do not reduce our total share repurchase authority.

10.   FINANCING RECEIVABLES
Short-Term Payment Plans
The Company provides fixed monthly payment arrangements ("short-term payment plans") over terms ranging from three to twelve months for meaningful use stage three and other add-on software installations. As a practical expedient, we do not adjust the amount of consideration recognized as revenue for the financing component as unearned income when we expect payment within one year or less. These receivables, included in the current portion of financing receivables, were comprised of the following at March 31, 2021 and December 31, 2020:
(In thousands)March 31,
2021
December 31, 2020
Short-term payment plans, gross$929 $1,973 
Less: allowance for losses(46)(99)
Short-term payment plans, net$883 $1,874 


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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 2026. Under long-term financing arrangements, the transaction price is adjusted by a discount rate that reflects market conditions that would be used for a separate financing transaction between the Company and licensee at contract inception, and takes into account the credit characteristics of the licensee and market interest rates as of the date of the agreement. As such, the amount of fixed fee revenue recognized at the beginning of the license term will be reduced by the calculated financing component. As payments are received from the licensee, the Company recognizes a portion of the financing component as interest income, reported as other income in the condensed consolidated statements of income. These receivables typically have terms from two to seven years.
The components of these receivables were as follows at March 31, 2021 and December 31, 2020:
(In thousands)March 31,
2021
December 31, 2020
Long-term financing arrangements, gross$22,696 $24,082 
Less: allowance for expected credit losses(1,331)(1,390)
Less: unearned income(2,078)(2,268)
Long-term financing arrangements, net$19,287 $20,424 
Future minimum payments to be received subsequent to March 31, 2021 are as follows:
(In thousands)
Years Ending December 31,
2021$7,893 
20226,737 
20234,278 
20242,670 
20251,106 
Thereafter12 
Total minimum payments to be received22,696 
Less: allowance for expected credit losses(1,331)
Less: unearned income(2,078)
Receivables, net$19,287 
Credit Quality of Financing Receivables and Allowance for Expected Credit Losses
The following table is a roll-forward of the allowance for expected credit losses for the three months ended March 31, 2021 and year ended December 31, 2020:
(In thousands)Balance at Beginning of PeriodProvisionCharge-offsRecoveriesBalance at End of Period
March 31, 2021$1,489 $134 $(246)$ $1,377 
December 31, 2020$2,971 $1,632 $(3,114)$ $1,489 
The Company’s financing receivables are comprised of a single portfolio segment, as the balances are all derived from short-term payment plan arrangements and long-term financing arrangements within our target market of community hospitals. The Company evaluates the credit quality of its financing receivables based on a combination of factors, including, but not limited to, customer collection experience, current and future economic conditions, the customer’s financial condition, and known risk characteristics impacting the respective customer base of community hospitals, the most notable of which relate to enacted and potential changes in Medicare and Medicaid reimbursement rates as community hospitals typically generate a significant portion of their revenues and related cash flows from beneficiaries of these programs. In addition to specific account identification, the Company utilizes historical collection experience to establish the allowance for expected credit losses. Financing receivables are written off only after the Company has exhausted all collection efforts.


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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 March 31, 2021 and December 31, 2020:
(In thousands)1 to 90 Days Past Due91 to 180 Days Past Due181 + Days Past DueTotal Past Due
March 31, 2021$917 $229 $841 $1,987 
December 31, 2020$1,270 $227 $672 $2,169 
From time to time, the Company may agree to alternative payment terms outside of the terms of the original financing receivable agreement due to customer difficulties in achieving the original terms. In general, such alternative payment arrangements do not result in a re-aging of the related receivables. Rather, payments pursuant to any alternative payment arrangements are applied to the already outstanding invoices beginning with the oldest outstanding invoices as the payments are received.
Because amounts are reclassified to trade accounts receivable when they become due, there are no past due amounts included within financing receivables, current portion, net or financing receivables, net of current portion in the accompanying condensed consolidated balance sheets.
The Company utilizes an aging of trade accounts receivable as the primary credit quality indicator for its financing receivables, which is facilitated by the reclassification of customer payment amounts to trade accounts receivable when they become due. The table below categorizes customer financing receivable balances (excluding short-term payment plans) based on the age of the oldest payment outstanding that has been reclassified to trade accounts receivable:
(In thousands)March 31,
2021
December 31, 2020
Stratification of uninvoiced client financing receivables based on aging of related trade accounts receivable:
Uninvoiced client financing receivables related to trade accounts receivable that are 1 to 90 Days Past Due$12,051 $11,719 
Uninvoiced client financing receivables related to trade accounts receivable that are 91 to 180 Days Past Due
644 1,092 
Uninvoiced client financing receivables related to trade accounts receivable that are 181 + Days Past Due
1,075 2,668 
Total uninvoiced client financing receivables balances of clients with a trade accounts receivable$13,770 $15,479 
Total uninvoiced client financing receivables of clients with no related trade accounts receivable6,848 6,335 
Total financing receivables with contractual maturities of one year or less929 1,973 
Less: allowance for expected credit losses(1,377)(1,489)
Total financing receivables$20,170 $22,298 




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11. INTANGIBLE ASSETS AND GOODWILL
Our purchased definite-lived intangible assets as of March 31, 2021 and December 31, 2020 are summarized as follows:
March 31, 2021
(In thousands)Customer RelationshipsTrademarkDeveloped TechnologyTotal
Gross carrying amount, beginning of period$84,370 $11,120 $29,700 125,190 
Accumulated amortization (35,346)(4,509)(16,703)(56,558)
Net intangible assets as of March 31, 2021
$49,024 $6,611 $12,997 $68,632 
Weighted average remaining years of useful life81248
December 31, 2020
(In thousands)Customer RelationshipsTrademarkDeveloped TechnologyTotal
Gross carrying amount, beginning of period $84,370 $11,120 $29,700 $125,190 
Accumulated amortization(33,612)(4,297)(15,592)(53,501)
Net intangible assets as of December 31, 2020
$50,758 $6,823 $14,108 $71,689 

The following table represents the remaining amortization of definite-lived intangible assets as of March 31, 2021:
(In thousands)
For the year ended December 31,
2021$8,974 
202211,932 
202310,044 
20248,510 
20258,194 
Thereafter20,978 
Total$68,632 
The following table sets forth the change in the carrying amount of goodwill by segment for the three months ended March 31, 2021:
(In thousands)Acute Care EHRPost-acute Care EHRTruBridgeTotal
Balance as of December 31, 2020
$97,095 $29,570 $23,551 $150,216 
Balance as of March 31, 2021
$97,095 $29,570 $23,551 $150,216 

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



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12. LONG-TERM DEBT
Long-term debt was comprised of the following at March 31, 2021 and December 31, 2020:
(In thousands)March 31,
2021
December 31, 2020
Term loan facility$72,188 $73,125 
Revolving credit facility 5,000 
Debt obligations72,188 78,125 
Less: unamortized debt issuance costs(1,235)(1,308)
Debt obligation, net70,953 76,817 
Less: current portion(3,457)(3,457)
Long-term debt$67,496 $73,360 
As of March 31, 2021, the carrying value of debt approximated the fair value due to the variable interest rate, which reflected the market rate.
Credit Agreement
In conjunction with our acquisition of HHI in January 2016, we entered into a syndicated credit agreement with Regions Bank ("Regions") serving as administrative agent, which provided for a $125 million term loan facility and a $50 million revolving credit facility. On June 16, 2020, we entered into an Amended and Restated Credit Agreement that increased the aggregate principal amount of our credit facilities to $185 million, which includes a $75 million term loan facility and a $110 million revolving credit facility.
Each of our credit facilities continues to bear interest at a rate per annum equal to an applicable margin plus, at our option, either (1) the Adjusted LIBOR rate for the relevant interest period, subject to a floor of 0.50%, (2) an alternate base rate determined by reference to the greater of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant interest period plus one half of one percent per annum and (c) the one month LIBOR rate, subject to the aforementioned floor, plus one percent per annum, or (3) a combination of (1) and (2). The applicable margin range for LIBOR loans and the letter of credit fee ranges from 1.8% to 3.0%. The applicable margin range for base rate loans ranges from 0.8% to 2.0%, in each case based on the Company's consolidated net leverage ratio.
Principal payments with respect to the term loan facility are due on the last day of each fiscal quarter beginning September 30, 2020, with quarterly principal payments of approximately $0.9 million through June 30, 2022, approximately $1.4 million through June 30, 2024 and approximately $1.9 million through March 31, 2025, with maturity on June 16, 2025 or such earlier date as the obligations under the Amended and Restated Credit Agreement become due and payable pursuant to the terms of such agreement. Any principal outstanding under the revolving credit facility is due and payable on the maturity date.
Anticipated annual future maturities of the term loan facility and revolving credit facility are as follows as of March 31, 2021:
(In thousands)
2021$2,813 
20224,687 
20235,625 
20246,563 
202552,500 
Thereafter 
$72,188 
Our credit facilities are secured pursuant to an Amended and Restated Pledge and Security Agreement, dated June 16, 2020, among the parties identified as obligors therein and Regions, as collateral agent, on a first priority basis by a security interest in substantially all of the tangible and intangible assets (subject to certain exceptions) of the Company and certain subsidiaries of the Company, as guarantors (collectively, the “Subsidiary Guarantors”), including certain registered


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intellectual property and the capital stock of certain of the Company’s direct and indirect subsidiaries. Our obligations under the Amended and Restated Credit Agreement are also guaranteed by the Subsidiary Guarantors.
The Amended and Restated Credit Agreement provides incremental facility capacity of $50 million, subject to certain conditions. The Amended and Restated Credit Agreement includes a number of restrictive covenants that, among other things and in each case subject to certain exceptions and baskets, impose operating and financial restrictions on the Company and the Subsidiary Guarantors, including the ability to incur additional debt; incur liens and encumbrances; make certain restricted payments, including paying dividends on the Company's equity securities or payments to redeem, repurchase or retire the Company's equity securities (which are subject to our compliance, on a pro forma basis to give effect to the restricted payment, with the fixed charge coverage ratio and consolidated net leverage ratio described below); enter into certain restrictive agreements; make investments, loans and acquisitions; merge or consolidate with any other person; dispose of assets; enter into sale and leaseback transactions; engage in transactions with affiliates; and materially alter the business we conduct. The Amended and Restated Credit Agreement requires the Company to maintain a minimum fixed charge coverage ratio of 1.25:1.00 throughout the duration of such agreement. Under the Amended and Restated Credit Agreement, the Company is required to comply with a maximum consolidated net leverage ratio of 3.50:1.00. The Amended and Restated 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 such agreement as of March 31, 2021.
The Amended and Restated Credit Agreement requires the Company to mandatorily prepay the credit facilities with 50% of excess cash flow (minus certain specified other payments). This mandatory prepayment requirement is applicable only if the Company's consolidated net leverage ratio exceeds 2.50:1.00. The Company is permitted to voluntarily prepay the 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. An excess cash flow prepayment related to excess cash flow generated during 2020 was not required during the first quarter of 2021.

13.   OPERATING LEASES
The Company leases office space in various locations in Alabama, Louisiana, Pennsylvania, Minnesota, Maryland, and Mississippi. These leases have terms expiring from 2021 through 2030 but do contain optional extension terms. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
Supplemental balance sheet information related to operating leases was as follows:
(In thousands)March 31,
2021
Operating lease assets
Operating lease assets$9,030 
Operating lease liabilities
Other accrued liabilities$1,503 
Operating lease liabilities, net of current portion7,527 
Total operating lease liabilities$9,030 
Weighted average remaining lease term in years6
Weighted average discount rate4.6%
Because our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. We used the incremental borrowing rate on January 1, 2019, for operating leases that commenced prior to that date.








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The future minimum lease payments payable under these operating leases subsequent to March 31, 2021 are as follows:
(In thousands)
2021$1,503 
20221,943 
20231,872 
20241,469 
20251,202 
Thereafter2,340 
Total lease payments10,329 
Less imputed interest(1,299)
Total$9,030 
Total lease expense for both the three months ended March 31, 2021 and 2020 was $0.4 million.
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, 2021 was $0.4 million.
14.  COMMITMENTS AND CONTINGENCIES
From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. Management does not believe it is reasonably possible that such matters will have a material adverse effect on the Company’s financial statements.

15.  FAIR VALUE
FASB Codification topic, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value and expands financial statement disclosures about fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The Codification does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. The Codification requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
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, 2021 and December 31, 2020, we did not have any instruments that require fair value measurement.



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16.  SEGMENT REPORTING
Our chief operating decision makers ("CODM") utilize three operating segments, "Acute Care EHR," "Post-acute Care EHR" and "TruBridge," based on our three distinct business units with unique market dynamics and opportunities. Revenues and cost of sales are primarily derived from the provision of services and sales of our proprietary software, and our CODM assess the performance of these three segments at the gross profit level. Operating expenses and items such as interest, income tax, capital expenditures and total assets are managed at a consolidated level and thus are not included in our operating segment disclosures. Our CODM group is comprised of the Chief Executive Officer, Chief Growth Officer, Chief Operating Officer, and Chief Financial Officer. Accounting policies for each of the reportable segments are the same as those used on a consolidated basis.
The following table presents a summary of the revenues and gross profits of our three operating segments for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31,
(In thousands)20212020
Revenues:
Acute Care EHR
Recurring revenue$27,210 $26,438 
Non-recurring revenue4,680 10,077 
Total Acute Care EHR revenue31,890 36,515 
Post-acute Care EHR
Recurring revenue4,222 4,134 
Non-recurring revenue254 537 
Total Post-acute Care EHR revenue4,476 4,671 
TruBridge31,639 28,571 
Total revenues$68,005 $69,757 
Cost of sales:
Acute Care EHR$16,212 $17,259 
Post-acute Care EHR1,164 1,328 
TruBridge15,779 15,057 
Total cost of sales$33,155 $33,644 
Gross profit:
Acute Care EHR$15,678 $19,256 
Post-acute Care EHR3,312 3,343 
TruBridge15,860 13,514 
Total gross profit$34,850 $36,113 
Corporate operating expenses$(29,936)$(29,981)
Other income814 362 
Interest expense(627)(1,179)
Income before taxes$5,101 $5,315 






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17.  SUBSEQUENT EVENTS

On April 5, 2021, the Company relocated its principal executive office pursuant to a sublease for 20,093 square feet of office space in downtown Mobile, Alabama, which sublease was signed in February 2021.

18.  COVID-19 PANDEMIC

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

The COVID-19 pandemic has caused, and is continuing to cause, severe economic, market and other disruptions to the U.S. and global economies. Although the pandemic had a muted impact on our results for the first quarter of 2020, the Company began experiencing increasingly adverse business conditions beginning in the latter half of March 2020 through the date of this report, including our results of operations for the first quarter of 2021. Most notably:
Travel restrictions and social distancing protocols have created an additional challenge to our on-site implementation and sales teams. Although we have shown success with remote implementation models and our sales representatives are engaging in remote contact with existing customers and prospects, these restrictions and protocols are expected to continue to have an incrementally negative impact on implementation revenues and new sales generation.
Although patient volumes at our client hospitals have largely recovered from the severe declines in such volumes experienced during much of 2020, there can be no guarantee as to the permanence of this recovery. As the overwhelming majority of TruBridge revenues are directly or indirectly correlated with client patient volumes, any further reduction in these patient volumes may negatively impact our related revenues.
Although we have experienced no notable disruption to our operating cash flows through the date of this report, we currently expect that the aforementioned limitations on travel and decreased client patient volumes will ultimately result in decreased cash collections from our customers as long as these conditions persist. These decreases in cash collections could be further negatively impacted by the amount and extent to which the pandemic impacts the financial condition and liquidity of our customers.

Despite these adverse business conditions, the pandemic has had a muted impact on our financial condition as of March 31, 2021.

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



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

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

This discussion and analysis contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified generally by the use of forward-looking terminology and words such as "expects," "anticipates," "estimates," "believes," "predicts," "intends," "plans," "potential," "may," "continue," "should," "will" and words of comparable meaning. Without limiting the generality of the preceding statement, all statements in this report relating to estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and future financial results are forward-looking statements. We caution investors that any such forward-looking statements are only predictions and are not guarantees of future performance. Certain risks, uncertainties and other factors may cause actual results to differ materially from those projected in the forward-looking statements. Such factors may include:
Risks Related to Our Industry
the ongoing COVID-19 pandemic and related economic disruption;
saturation of our target market and hospital consolidations;
unfavorable economic or market conditions that may cause a decline in spending for information technology and services;
significant legislative and regulatory uncertainty in the healthcare industry;
exposure to liability for failure to comply with regulatory requirements;
Risks Related to Our Business
competition with companies that have greater financial, technical and marketing resources than we have;
potential future acquisitions that may be expensive, time consuming, and subject to other inherent risks;
our ability to attract and retain qualified client service and support personnel;
disruption from periodic restructuring of our sales force;
our potential inability to manage our growth in the new markets we may enter;
exposure to numerous and often conflicting laws, regulations, policies, standards or other requirements through our international business activities;
potential litigation against us;
Risks Related to Our Products and Services
potential failure to develop new products or enhance current products that keep pace with market demands;
exposure to claims if our products fail to provide accurate and timely information for clinical decision-making;
exposure to claims for breaches of security and viruses in our systems;
undetected errors or problems in new products or enhancements;
our potential inability to convince customers to migrate to current or future releases of our products;
failure to maintain our margins and service rates;
increase in the percentage of total revenues represented by service revenues, which have lower gross margins;
exposure to liability in the event we provide inaccurate claims data to payors;
exposure to liability claims arising out of the licensing of our software and provision of services;
dependence on licenses of rights, products and services from third parties;
a failure to protect our intellectual property rights;
exposure to significant license fees or damages for intellectual property infringement;
service interruptions resulting from loss of power and/or telecommunications capabilities;

Risks Related to Our Indebtedness
our potential inability to secure additional financing on favorable terms to meet our future capital needs;
substantial indebtedness that may adversely affect our business operations;
our ability to incur substantially more debt;
pressures on cash flow to service our outstanding debt;
restrictive terms of our credit agreement on our current and future operations;

Risks Related to Our Common Stock and Other General Risks
changes in and interpretations of financial accounting matters that govern the measurement of our performance;


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the potential for our goodwill or intangible assets to become impaired;
quarterly fluctuations in our financial results due to various factors;
volatility in our stock price;
failure to maintain effective internal control over financial reporting;
lack of employment or non-competition agreements with most of our key personnel;
inherent limitations in our internal control over financial reporting;
vulnerability to significant damage from natural disasters; and
exposure to market risk related to interest rate changes.
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, 2020.
Background
CPSI is a leading provider of healthcare solutions and services for community hospitals and other healthcare systems and post-acute care facilities. Founded in 1979, CPSI offers its products and services through four companies - Evident, LLC ("Evident"), TruBridge, LLC ("TruBridge"), American HealthTech, Inc. ("AHT"), and iNetXperts, Corp. d/b/a Get Real Health ("Get Real Health"). These combined companies are focused on improving the health of the communities we serve, connecting communities for a better patient care experience, and improving the financial operations of our clients. The individual contributions of each of these companies towards this combined focus are as follows:
Evident, which makes up our Acute Care EHR reporting segment, provides comprehensive acute care electronic health record ("EHR") solutions, Thrive and Centriq, and related services for community hospitals and their physician clinics.
AHT, which makes up our Post-acute Care EHR reporting segment, provides a comprehensive post-acute care EHR solution and related services for skilled nursing and assisted living facilities.
TruBridge, our third reporting segment, focuses on providing business management, consulting, and managed IT services along with its complete revenue cycle management ("RCM") solution for all care settings, regardless of their primary healthcare information solutions provider.
Get Real Health, included within our TruBridge segment, delivers technology solutions to improve patient outcomes and engagement strategies with care providers.
Our companies currently support acute care facilities and post-acute care facilities with a geographically diverse customer mix within the domestic community healthcare market. Our target market for our acute care solutions includes community hospitals with fewer than 200 acute care beds. Our primary focus within this defined target market is on hospitals with fewer than 100 beds, which comprise approximately 98% of our acute care hospital EHR client base. The target market for our post-acute care solutions consists of approximately 15,500 skilled nursing facilities that are either independently owned or part of a larger management group with multiple facilities. Our target market for our TruBridge services includes community hospitals with fewer than 600 acute care beds.
See Note 16 to the condensed consolidated financial statements included herein for additional information on our three reportable segments.
Management Overview
Through much of our history, our strategy has been to achieve meaningful long-term revenue growth through sales of healthcare IT systems and related services to existing and new clients within our target market. Prospectively, our ability to continue to realize long-term revenue growth is largely dependent on our ability to sell new and additional products and services to our existing customer base, including cross-selling opportunities presented between our operating segments, Acute Care EHR, Post-acute Care EHR, and TruBridge. Chief among these cross-selling opportunities is the ability to continue to sell TruBridge services into our Acute Care EHR customer base. As a result, retention of existing Acute Care EHR customers is a key component of our long-term growth strategy by protecting this base of potential TruBridge customers, while at the same time serving as a leading indicator of our market position and stability of revenues and cash flows.
We determine retention rates by reference to the amount of beginning-of-period Acute Care EHR recurring revenues that have been lost due to customer attrition from our production environment customer base. Production environment customers are those that are using our applications to document live patient encounters, as opposed to legacy environment customers that have view-only access to historical patient records. Historically, these retention rates had consistently remained in the mid-to-high


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90th percentile ranges. However, fiscal years 2017 through 2019 saw retention rates decrease to the low 90th percentile ranges due to, among other factors, (i) post-acquisition customer concerns regarding our long-term commitment to the Centriq platform, acquired in January 2016, (ii) an intensified competitive market, primarily due to aggressive pricing and marketing by a highly disruptive new entrant into the Acute Care EHR marketplace, and (iii) the announced sunset of the Classic platform, also acquired in January 2016. During 2020 and through the first quarter of 2021, retention rates returned to the mid-90th percentile ranges, as (i) the lingering effects of the Centriq acquisition continue to abate, (ii) the competitive environment continues to normalize as the aforementioned disruptive new entrant into this market has since departed the market altogether, and (iii) the Classic platform was sunset in the fourth quarter of 2019, with all related customers having either changed EHR vendors or migrated to one of our EHR solutions.

As we consider the long-term growth prospects of our business, we are seeking to further stabilize our revenues and cash flows and leverage TruBridge services as a growth agent. As a result, we are placing ever-increasing value in further developing our already significant recurring revenue base. As such, maintaining and growing recurring revenues are key components of our long-term growth strategy, aided by the aforementioned focus on customer retention. This includes a renewed focus on driving demand for subscriptions for our existing technology solutions and expanding the footprint for TruBridge services beyond our EHR customer base.

During 2020, we took pause and engaged a top-tier international consulting firm to assess our company-wide growth strategy. The outcome of this eight-week effort was the confirmation of our current strategy of cross-selling TruBridge into the existing EHR base, expanding TruBridge market share with sales to new community and larger health systems, and pursuing competitive EHR takeaway opportunities in the acute and post-acute markets. We may also seek to grow through acquisitions of businesses, technologies or products if we determine that such acquisitions are likely to help us meet our strategic goals.

Our business model is designed such that, as revenue growth materializes, earnings and profitability growth are naturally bolstered through the increased margin realization afforded us by operating leverage. Once a hospital has installed our solutions, we continue to provide support services to the customer on a continuing basis and make available to the customer our broad portfolio of business management, consulting, and managed IT services, all of which contribute to recurring revenue growth. The provision of these recurring revenue services typically requires fewer resources than the initial system installation, resulting in increased overall gross margins and operating margins. We also look to increase margins through cost containment measures where appropriate as we continue to leverage opportunities for greater operating efficiencies. However, in the immediate future, we anticipate incremental margin pressure from the continued client transition from perpetual license arrangements to “Software as a Service” arrangements as described below.
Turbulence in the U.S. and worldwide economies and financial markets impacts almost all industries. While the healthcare industry is not immune to economic cycles, we believe it is more significantly affected by U.S. regulatory and national health initiatives than by the economic cycles of our economy. Additionally, healthcare organizations with a large dependency on Medicare and Medicaid populations, such as community hospitals, have been affected by the challenging financial condition of the federal government and many state governments and government programs. Accordingly, we recognize that prospective hospital clients often do not have the necessary capital to make investments in information technology. Additionally, in response to these challenges, hospitals have become more selective regarding where they invest capital, resulting in a focus on strategic spending that generates a return on their investment. Despite these challenges, we believe healthcare information technology is often viewed as more strategically beneficial to hospitals than other possible purchases because the technology also plays an important role in healthcare by improving safety and efficiency and reducing costs. Additionally, we believe most hospitals recognize that they must invest in healthcare information technology to meet current and future regulatory, compliance and government reimbursement requirements.