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Computer Programs & Systems Inc. – ‘10-Q’ for 6/30/22

On:  Monday, 8/8/22, at 4:06pm ET   ·   For:  6/30/22   ·   Accession #:  1169445-22-10   ·   File #:  0-49796

Previous ‘10-Q’:  ‘10-Q’ on 5/10/22 for 3/31/22   ·   Next:  ‘10-Q’ on 11/7/22 for 9/30/22   ·   Latest:  ‘10-Q’ on 11/9/23 for 9/30/23   ·   6 References:   

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  As Of               Filer                 Filing    For·On·As Docs:Size

 8/08/22  Computer Programs & Systems Inc.  10-Q        6/30/22   89:7.9M

Quarterly Report   —   Form 10-Q

Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML   1.72M 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     28K 
 3: EX-31.2     Certification -- §302 - SOA'02                      HTML     27K 
 4: EX-32.1     Certification -- §906 - SOA'02                      HTML     24K 
10: R1          Cover                                               HTML     76K 
11: R2          Condensed Consolidated Balance Sheets               HTML    129K 
12: R3          Condensed Consolidated Balance Sheets               HTML     42K 
                (Parenthetical)                                                  
13: R4          Condensed Consolidated Statements of Income         HTML    119K 
14: R5          Condensed Consolidated Statement of Stockholders?   HTML     70K 
                Equity                                                           
15: R6          Condensed Consolidated Statements of Cash Flows     HTML    124K 
16: R7          Basis of Presentation                               HTML     29K 
17: R8          Recent Accounting Pronouncements                    HTML     36K 
18: R9          Revenue Recognition                                 HTML     55K 
19: R10         Business Combination                                HTML     60K 
20: R11         Property and Equipment                              HTML     37K 
21: R12         Software Development                                HTML     34K 
22: R13         Other Accrued Liabilities                           HTML     35K 
23: R14         Net Income Per Share                                HTML     49K 
24: R15         Income Taxes                                        HTML     28K 
25: R16         Stock-Based Compensation and Equity                 HTML     78K 
26: R17         Financing Receivables                               HTML     78K 
27: R18         Intangible Assets and Goodwill                      HTML     70K 
28: R19         Long-Term Debt                                      HTML     50K 
29: R20         Operating Leases                                    HTML     39K 
30: R21         Commitments and Contingencies                       HTML     26K 
31: R22         Fair Value                                          HTML     48K 
32: R23         Segment Reporting                                   HTML     95K 
33: R24         Subsequent Events                                   HTML     25K 
34: R25         Basis of Presentation (Policies)                    HTML     67K 
35: R26         Revenue Recognition (Tables)                        HTML     41K 
36: R27         Business Combination (Tables)                       HTML     53K 
37: R28         Property and Equipment (Tables)                     HTML     36K 
38: R29         Software Development (Tables)                       HTML     30K 
39: R30         Other Accrued Liabilities (Tables)                  HTML     34K 
40: R31         Net Income Per Share (Tables)                       HTML     45K 
41: R32         Stock-Based Compensation and Equity (Tables)        HTML     72K 
42: R33         Financing Receivables (Tables)                      HTML     81K 
43: R34         Intangible Assets and Goodwill (Tables)             HTML     77K 
44: R35         Long-Term Debt (Tables)                             HTML     44K 
45: R36         Operating Leases (Tables)                           HTML     39K 
46: R37         Fair Value (Tables)                                 HTML     45K 
47: R38         Segment Reporting (Tables)                          HTML     88K 
48: R39         Revenue Recognition (Detail)                        HTML     28K 
49: R40         Revenue Recognition Deferred Revenue (Details)      HTML     32K 
50: R41         REVENUE RECOGNITION Costs to Obtain and Fulfill     HTML     29K 
                Contracts (Details)                                              
51: R42         BUSINESS COMBINATION - Narrative (Details)          HTML     58K 
52: R43         BUSINESS COMBINATION - Pro Forma Information        HTML     32K 
                (Details)                                                        
53: R44         BUSINESS COMBINATION - Preliminary Allocation of    HTML     65K 
                the Purchase Price Paid (Details)                                
54: R45         Property and Equipment (Details)                    HTML     44K 
55: R46         SOFTWARE DEVELOPMENT - Narrative (Details)          HTML     31K 
56: R47         SOFTWARE DEVELOPMENT - Schedule of Software         HTML     29K 
                Development Costs, Net (Details)                                 
57: R48         Other Accrued Liabilities (Details)                 HTML     40K 
58: R49         Net Income Per Share (Details)                      HTML     65K 
59: R50         Net Income Per Share - Narrative (Details)          HTML     28K 
60: R51         Income Taxes (Details)                              HTML     25K 
61: R52         STOCK-BASED COMPENSATION AND EQUITY - Total         HTML     40K 
                Stock-Based Compensation Expense (Details)                       
62: R53         STOCK-BASED COMPENSATION AND EQUITY - Summary of    HTML     56K 
                Restricted Stock Activity (Details)                              
63: R54         STOCK-BASED COMPENSATION AND EQUITY - Summary of    HTML     54K 
                Performance Share Awards (Details)                               
64: R55         STOCK-BASED COMPENSATION AND EQUITY - Stock         HTML     32K 
                Repurchases (Details)                                            
65: R56         FINANCING RECEIVABLES - Narrative (Details)         HTML     36K 
66: R57         FINANCING RECEIVABLES - Short term Payment Plans    HTML     34K 
                (Details)                                                        
67: R58         FINANCING RECEIVABLES - Components of Receivables   HTML     39K 
                (Details)                                                        
68: R59         FINANCING RECEIVABLES - Future Minimum Lease        HTML     51K 
                Payments (Details)                                               
69: R60         FINANCING RECEIVABLES - Allowance for Financing     HTML     35K 
                Credit Losses (Details)                                          
70: R61         FINANCING RECEIVABLES - Analysis of Age of          HTML     36K 
                Financing Receivables Amounts (Details)                          
71: R62         FINANCING RECEIVABLES - Summary of Financing        HTML     55K 
                Receivables (Details)                                            
72: R63         INTANGIBLE ASSETS AND GOODWILL - Definite-lived     HTML     50K 
                Intangible Assets (Details)                                      
73: R64         INTANGIBLE ASSETS AND GOODWILL - Remaining          HTML     38K 
                Amortization of Definite-lived Intangible Assets                 
                (Details)                                                        
74: R65         INTANGIBLE ASSETS AND GOODWILL - Schedule of        HTML     38K 
                Goodwill (Details)                                               
75: R66         LONG-TERM DEBT - Schedule of Long-term Debt         HTML     40K 
                (Details)                                                        
76: R67         LONG-TERM DEBT - Narrative (Details)                HTML     67K 
77: R68         LONG-TERM DEBT - Annual Future Maturities           HTML     43K 
                (Details)                                                        
78: R69         OPERATING LEASES - Narrative (Details)              HTML     27K 
79: R70         OPERATING LEASES - Supplemental Balance Sheet       HTML     39K 
                Information (Details)                                            
80: R71         OPERATING LEASES - Future Minimum Lease Payments    HTML     41K 
                Payable Under these Operating Leases (Details)                   
81: R72         Fair Value (Details)                                HTML     37K 
82: R73         SEGMENT REPORTING - Summary of Revenues and EBITDA  HTML     50K 
                by Segment (Details)                                             
83: R74         SEGMENT REPORTING - Reconciliation of Adjusted      HTML     60K 
                Income (Loss) From Before Interest, Taxes,                       
                Depreciation And Amortization (Details)                          
84: R75         Subsequent Events (Details)                         HTML     37K 
87: XML         IDEA XML File -- Filing Summary                      XML    160K 
85: XML         XBRL Instance -- cpsi-20220630_htm                   XML   2.00M 
86: EXCEL       IDEA Workbook of Financial Reports                  XLSX    150K 
 6: EX-101.CAL  XBRL Calculations -- cpsi-20220630_cal               XML    237K 
 7: EX-101.DEF  XBRL Definitions -- cpsi-20220630_def                XML    525K 
 8: EX-101.LAB  XBRL Labels -- cpsi-20220630_lab                     XML   1.42M 
 9: EX-101.PRE  XBRL Presentations -- cpsi-20220630_pre              XML    917K 
 5: EX-101.SCH  XBRL Schema -- cpsi-20220630                         XSD    155K 
88: JSON        XBRL Instance as JSON Data -- MetaLinks              394±   591K 
89: ZIP         XBRL Zipped Folder -- 0001169445-22-000010-xbrl      Zip    383K 


‘10-Q’   —   Quarterly Report

Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Part I. Financial Information
"Financial Statements
"Condensed Consolidated Balance Sheets (Unaudited)
"June
"2022 and December 31, 2021
"Condensed Consolidated Statements of Income (Unaudited) -- Three
"And Six
"Months Ended
"2022 and 2021
"Condensed Consolidated Statement of Stockholders' Equity (Unaudited) -- Three
"Condensed Consolidated Statements of Cash Flows (Unaudited)
"Six
"Notes to Condensed Consolidated Financial Statements (Unaudited)
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Quantitative and Qualitative Disclosures about Market Risk
"Controls and Procedures
"Part Ii. Other Information
"Legal Proceedings
"Risk Factors
"Unregistered Sales of Equity Securities and Use of Proceeds
"Defaults Upon Senior Securities
"Mine Safety Disclosures
"Other Information
"Exhibits

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM  i 10-Q
 i 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended  i June 30, 2022
 i 
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:  i 000-49796
 i COMPUTER PROGRAMS AND SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
 i Delaware
 i 74-3032373
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
 i 54 St. Emanuel Street,  i Mobile,  i Alabama
 i 36602
(Address of Principal Executive Offices)
(Zip Code)
( i 251)  i 639-8100
(Registrant’s Telephone Number, Including Area Code)

N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol
Name of each exchange on which registered
 i Common Stock, par value $.001 per share
 i CPSI
 i 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.     i 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).     i 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¨
 i Accelerated filer
ý
Non-accelerated filer
¨
Smaller reporting company
 i 
Emerging growth company
 i 
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   i ý
As of August 5, 2022, there were  i 14,691,473 shares of the issuer’s common stock outstanding.


1









COMPUTER PROGRAMS AND SYSTEMS, INC.
Quarterly Report on Form 10-Q
(For the three and six months ended June 30, 2022)
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) 
June 30,
2022
December 31, 2021
Assets
Current assets:
Cash and cash equivalents$ i 15,107 $ i 11,431 
Accounts receivable (net of allowance for expected credit losses of $ i 2,885 and $ i 1,826, respectively)
 i 48,782  i 34,431 
Financing receivables, current portion, net (net of allowance for expected credit losses of $ i 257 and $ i 325, respectively)
 i 5,137  i 6,488 
Inventories i 1,128  i 855 
Prepaid income taxes i 2,142  i 4,599 
Prepaid expenses and other i 14,669  i 11,194 
Total current assets i 86,965  i 68,998 
Property and equipment, net i 10,876  i 11,590 
Software development costs, net i 19,124  i 11,644 
Operating lease assets i 8,304  i 7,097 
Financing receivables, net of current portion (net of allowance for expected credit losses of $ i 429 and $ i 397, respectively)
 i 5,242  i 7,231 
Other assets, net of current portion i 5,417  i 3,874 
Intangible assets, net i 110,973  i 95,203 
Goodwill i 198,586  i 177,713 
Total assets$ i 445,487 $ i 383,350 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$ i 7,995 $ i 8,079 
Current portion of long-term debt i 3,141  i 4,394 
Deferred revenue i 14,154  i 11,529 
Accrued vacation i 6,203  i 5,262 
Other accrued liabilities i 17,221  i 17,163 
Total current liabilities i 48,714  i 46,427 
Long-term debt, net of current portion i 137,958  i 94,966 
Operating lease liabilities, net of current portion i 6,827  i 5,505 
Deferred tax liabilities i 19,055  i 13,880 
Total liabilities i 212,554  i 160,778 
Stockholders’ equity:
Common stock, $ i  i 0.001 /  par value;  i  i 30,000 /  shares authorized;  i  i 14,897 /  and  i  i 14,734 /  shares issued and outstanding, respectively
 i 15  i 15 
Additional paid-in capital i 190,499  i 187,079 
Retained earnings i 49,243  i 38,054 
Treasury stock,  i 221 shares and  i 89 shares, respectively
( i 6,824)( i 2,576)
Total stockholders’ equity i 232,933  i 222,572 
Total liabilities and stockholders’ equity$ i 445,487 $ i 383,350 
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 June 30,Six Months Ended June 30,
2022202120222021
Sales revenues:
TruBridge$ i 48,583 $ i 32,566 $ i 91,692 $ i 64,205 
System sales and support i 34,143  i 35,967  i 68,905  i 72,333 
Total sales revenues i 82,726  i 68,533  i 160,597  i 136,538 
Costs of sales:
TruBridge i 26,346  i 17,196  i 47,700  i 32,975 
System sales and support i 16,976  i 17,449  i 33,659  i 34,825 
Total costs of sales i 43,322  i 34,645  i 81,359  i 67,800 
Gross profit i 39,404  i 33,888  i 79,238  i 68,738 
Operating expenses:
Product development i 7,094  i 6,469  i 14,214  i 14,899 
Sales and marketing i 8,227  i 5,312  i 15,269  i 10,613 
General and administrative i 14,737  i 10,986  i 27,751  i 24,135 
Amortization of acquisition-related intangibles i 4,758  i 3,383  i 8,430  i 6,440 
Total operating expenses i 34,816  i 26,150  i 65,664  i 56,087 
Operating income i 4,588  i 7,738  i 13,574  i 12,651 
Other income (expense):
Other income i 278  i 224  i 435  i 1,038 
Gain on contingent consideration i 330  i   i 1,580  i  
Loss on extinguishment of debt( i 125) i  ( i 125) i  
Interest expense( i 1,232)( i 797)( i 2,149)( i 1,424)
Total other income (expense)( i 749)( i 573)( i 259)( i 386)
Income before taxes i 3,839  i 7,165  i 13,315  i 12,265 
Provision for income taxes i 763  i 1,024  i 2,126  i 1,980 
Net income$ i 3,076 $ i 6,141 $ i 11,189 $ i 10,285 
Net income per common share—basic$ i 0.21 $ i 0.42 $ i 0.76 $ i 0.71 
Net income per common share—diluted$ i 0.21 $ i 0.42 $ i 0.76 $ i 0.70 
Weighted average shares outstanding used in per common share computations:
Basic i 14,469  i 14,335  i 14,425  i 14,247 
Diluted i 14,469  i 14,344  i 14,425  i 14,282 
Dividends declared per common share$ i  $ i  $ i  $ i  
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 June 30, 2022 and 2021:
Balance at March 31, 2022 i 14,906 $ i 15 $ i 188,796 $ i 46,167 $( i 4,226)$ i 230,752 
Net income— — —  i 3,076 —  i 3,076 
Forfeiture of common stock( i 9)— — — — — 
Stock-based compensation— —  i 1,703 — —  i 1,703 
Treasury stock acquired— — — — ( i 2,598)( i 2,598)
Balance at June 30, 2022 i 14,897 $ i 15 $ i 190,499 $ i 49,243 $( i 6,824)$ i 232,933 
Balance at March 31, 2021 i 14,715 $ i 15 $ i 182,656 $ i 23,768 $( i 2,324)$ i 204,115 
Net income— — —  i 6,141 —  i 6,141 
Issuance of restricted stock i 19 — — — — — 
Stock-based compensation— —  i 1,445 — —  i 1,445 
Treasury stock acquired— — — — ( i 159)( i 159)
Balance at June 30, 2021 i 14,734 $ i 15 $ i 184,101 $ i 29,909 $( i 2,483)$ i 211,542 
Six Months Ended June 30, 2022 and 2021:
Balance at December 31, 2021 i 14,734 $ i 15 $ i 187,079 $ i 38,054 $( i 2,576)$ i 222,572 
Net income— — —  i 11,189 —  i 11,189 
Issuance of restricted stock i 171 — — — — — 
Forfeiture of restricted stock( i 9)— — — — — 
Stock-based compensation— —  i 3,420 — —  i 3,420 
Treasury stock acquired— — — — ( i 4,248)( i 4,248)
Balance at June 30, 2022 i 14,897 $ i 15 $ i 190,499 $ i 49,243 $( i 6,824)$ i 232,933 
Balance at December 31, 2020 i 14,511 $ i 15 $ i 181,622 $ i 19,624 $( i 1,261)$ i 200,000 
Net income— — —  i 10,285 —  i 10,285 
Issuance of restricted stock i 229  i   i  — —  i  
Forfeiture of common stock( i 6)— — — — — 
Stock-based compensation— —  i 2,479 — —  i 2,479 
Treasury stock acquired— — — — ( i 1,222)( i 1,222)
Balance at June 30, 2021 i 14,734 $ i 15 $ i 184,101 $ i 29,909 $( i 2,483)$ i 211,542 
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)
 
Six Months Ended June 30,
20222021
Operating Activities:
Net income$ i 11,189 $ i 10,285 
Adjustments to net income:
Provision for credit losses i 1,202  i 1,294 
Deferred taxes( i 724) i 1,735 
Stock-based compensation i 3,420  i 2,479 
Depreciation i 1,269  i 1,116 
Loss on extinguishment of debt i 125  i  
Amortization of acquisition-related intangibles i 8,430  i 6,440 
Amortization of software development costs i 1,259  i 265 
Amortization of deferred finance costs i 152  i 147 
Gain on contingent consideration( i 1,580) i  
Changes in operating assets and liabilities:
Accounts receivable( i 9,934) i 1,149 
Financing receivables i 3,376  i 4,236 
Inventories( i 273)( i 339)
Prepaid expenses and other( i 4,547)( i 1,176)
Accounts payable( i 469)( i 1,274)
Deferred revenue i 2,625  i 1,545 
Other liabilities i 1,126  i 6,706 
Prepaid income taxes i 2,457 ( i 1,464)
Net cash provided by operating activities i 19,103  i 33,144 
Investing Activities:
Purchase of business, net of cash acquired( i 43,814)( i 59,839)
Investment in software development( i 8,739)( i 4,063)
Purchase of property and equipment( i 88)( i 685)
Net cash used in investing activities( i 52,641)( i 64,587)
Financing Activities:
Proceeds from long-term debt i 575  i  
Payments of long-term debt principal( i 1,813)( i 1,875)
Proceeds from revolving line of credit i 48,000  i 61,000 
Payments of revolving line of credit( i 5,300)( i 20,000)
Treasury stock purchases( i 4,248)( i 1,222)
Net cash provided by financing activities i 37,214  i 37,903 
Increase in cash and cash equivalents i 3,676  i 6,460 
Cash and cash equivalents at beginning of period i 11,431  i 12,671 
Cash and cash equivalents at end of period$ i 15,107 $ i 19,131 
Supplemental disclosure of cash flow information:
Cash paid for interest$ i 1,996 $ i 1,277 
Cash paid for income taxes, net of refund$ i 376 $ i 1,717 
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.      i BASIS OF PRESENTATION
 i 
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, 2021 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, 2021 and the notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

 i During the second quarter of 2021, we elected to change our method of estimating the labor costs incurred in developing software assets requiring capitalization under Accounting Standards Codification ("ASC") 350-40, Internal Use Software. Prior to this change, we estimated the associated labor costs using an estimated time-equivalent for workload metrics commonly utilized within agile software development environments. With this change, we now estimate these labor costs using the distribution of these agile workload metrics between capitalizable and non-capitalizable units of work. We believe this change is preferable as the new methodology better estimates capitalizable labor costs and is consistent with industry best practices. We have determined that this change is a change in accounting estimate effected by a change in accounting principle and, as such, has been accounted for on a prospective basis. See Note 6, “Software Development,” for further information.
 i 
Principles of Consolidation
The condensed consolidated financial statements of CPSI include the accounts of TruBridge, LLC ("TruBridge"), Evident, LLC ("Evident"), Healthland Holding Inc. ("HHI"), iNetXperts, Corp. d/b/a Get Real Health ("Get Real Health"), TruCode LLC ("TruCode"), and Healthcare Resource Group, Inc. ("HRG"), 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.      i  i RECENT ACCOUNTING PRONOUNCEMENTS / 
New Accounting Standards Adopted in 2022

There were no new accounting standards required to be adopted in 2022 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.      i REVENUE RECOGNITION
 i 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 ASC 606, Revenue from Contracts with Customers, to: (1) identify the contract with the client, (2) identify the performance obligations in the contract, (3)


7








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.
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 stand-alone selling price ("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.
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 community hospitals and post-acute care providers.
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 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 11 - 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  i 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 17 - Segment Reporting, for further information, including revenue by client base (acute care or post-acute care) bifurcated by recurring and non-recurring revenue.


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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.
 i The following table details deferred revenue for the six months ended June 30, 2022 and 2021, included in the condensed consolidated balance sheets:
(In thousands)Six Months Ended June 30, 2022Six Months Ended June 30, 2021
Beginning balance$ i 11,529 $ i 8,130 
Deferred revenue recorded i 15,329  i 11,011 
Deferred revenue acquired i   i 1,700 
Less deferred revenue recognized as revenue( i 12,704)( i 9,466)
Ending balance$ i 14,154 $ i 11,375 
 / 
The deferred revenue recorded during the six months ended June 30, 2022 is comprised primarily of the annual renewals of certain software subscriptions billed during the first quarter of each year and deposits collected for future EHR installations. The deferred revenue recognized as revenue during the six months ended June 30, 2022 and 2021 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.
 i The following table details costs to obtain and fulfill contracts with customers for the six months ended June 30, 2022 and 2021, included in the condensed consolidated balance sheets:
(In thousands)Six Months Ended June 30, 2022Six Months Ended June 30, 2021
Beginning balance$ i 7,312 $ i 5,992 
Costs to obtain and fulfill contracts capitalized i 5,390  i 3,355 
Less costs to obtain and fulfill contracts recognized as expense( i 3,419)( i 2,985)
Ending balance$ i 9,283 $ i 6,362 
 / 
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.      i BUSINESS COMBINATION
Acquisition of Healthcare Resource Group
On March 1, 2022, we acquired all of the assets and liabilities of Healthcare Resource Group, Inc., a Washington corporation ("HRG"), pursuant to a Stock Purchase Agreement dated March 1, 2022. Based in Spokane, Washington, HRG is a leading provider of customized revenue cycle management ("RCM") solutions and consulting services that enable hospitals and clinics to improve efficiency, profitability, and patient satisfaction.

Consideration for the acquisition included cash (net of cash of the acquired entity) of $ i 43.6 million (inclusive of seller's transaction expenses). During 2022, we have incurred approximately $ i 0.8 million of pre-tax acquisition costs in connection with the acquisition of HRG. Acquisition costs are included in general and administrative expenses in our consolidated statements of income.

Our acquisition of HRG will be treated as a purchase in accordance with ASC 805, Business Combinations, which requires allocation of the purchase price to the estimated fair values of assets and liabilities acquired in the transaction. Our allocation of the purchase price is based on management's judgment after evaluating several factors, including a preliminary valuation assessment. The allocation is preliminary and subject to changes, which could be significant, as additional information becomes available and appraisals of intangible assets and deferred tax positions are finalized.

 i 
The preliminary allocation of the purchase price paid for HRG as of June 30, 2022 was as follows:

(In thousands)Purchase Price Allocation
Acquired cash$ i 3,989 
Accounts receivable i 5,655
Prepaid expenses i 398
Property and equipment i 467
Other assets i 73
Intangible assets i 24,200
Operating lease assets i 1,315
Goodwill i 21,083
Accounts payable and accrued liabilities( i 2,403)
Deferred taxes, net( i 5,899)
Operating lease liability( i 1,315)
Net assets acquired$ i 47,563 
 / 

The intangible assets in the table above are being amortized on a straight-line basis over their estimated useful lives, which range from four to  i nine years. The amortization is included in amortization of acquisition-related intangibles in our condensed consolidated statements of income.

The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value measurement hierarchy (see Note 16 - Fair Value). Level 3 inputs included, among others, discount rates that we estimated would be used by a market participant in valuing these assets and liabilities, projections of revenues and cash flows, client attrition rates and market comparables.

Our condensed consolidated statement of operations for the six months ended June 30, 2022 includes revenues of approximately $ i 14.6 million and pre-tax net income of approximately $ i 2.0 million attributed to the acquired business since the March 1, 2022 acquisition date.

 i The following unaudited pro forma revenue, net income and earnings per share amounts for the three and six months ended June 30, 2022 give effect to the HRG acquisition as if it had been completed on January 1, 2021. The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of what the operating results actually would have been during the periods presented had the HRG acquisition been completed during the periods presented. In addition, the unaudited pro forma financial information does not purport to project future operating results.


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The pro forma information does not fully reflect: (1) any anticipated synergies (or costs to achieve synergies) or (2) the impact of non-recurring items directly related to the HRG acquisition.

Three Months Ended
June 30,
Six Months Ended
June 30,
(In thousands, except per share data)2022202120222021
Pro forma revenues$ i 82,726 $ i 76,966 $ i 166,937 $ i 152,654 
Pro forma net income $ i 3,323 $ i 5,713 $ i 11,687 $ i 9,374 
Pro forma diluted earnings per share$ i 0.23 $ i 0.39 $ i 0.79 $ i 0.64 

Pro forma net income was calculated by adjusting the results for the applicable period to reflect the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied on January 1, 2021 and other miscellaneous, immaterial adjustments.
Acquisition of TruCode
On May 12, 2021, we acquired all of the assets and liabilities of TruCode LLC, a Virginia limited liability company (“TruCode”), pursuant to a Stock Purchase Agreement dated May 12, 2021. Based in Alpharetta, Georgia, TruCode provides configurable, knowledge-based software that gives coders, clinical documentation improvement specialists and auditors the flexibility to code according to their knowledge, preferences and experience. The cloud-based medical coding solution has been bundled with the TruBridge solutions and services to enhance revenue cycle performance for healthcare organizations of all sizes.

Consideration for the acquisition included cash (net of cash of the acquired entity) of $ i 59.9 million (inclusive of sellers' transaction expenses), plus a contingent earnout payment of up to $ i 15.0 million tied to TruCode's earnings before interest, tax, depreciation, and amortization ("EBITDA") (subject to certain pro-forma adjustments) for the  i twelve-month period concluding on the anniversary date of the acquisition (the "earnout period"). As of June 30, 2022, $ i 1.6 million of the original $ i 2.5 million contingent consideration estimated in determining the purchase price was reversed as TruCode's earnings over the earnout period were less than estimated at the date of acquisition. During 2021, we incurred approximately $ i 0.9 million of pre-tax acquisition costs in connection with the acquisition of TruCode. Acquisition costs are included in general and administrative expenses in our consolidated statements of income.

Our acquisition of TruCode was treated as a purchase in accordance with ASC 805, Business Combinations, which requires allocation of the purchase price to the estimated fair values of assets and liabilities acquired in the transaction. Our allocation of the purchase price is based on management's judgment after evaluating several factors, including a valuation assessment.

The allocation of the purchase price paid for TruCode was as follows:

(In thousands)Purchase Price Allocation
Acquired cash$ i 4,249 
Accounts receivable i 924
Prepaid expenses i 2
Intangible assets i 37,300
Goodwill i 27,287
Accounts payable and accrued liabilities( i 1,840)
Contingent consideration( i 2,500)
Deferred revenue( i 1,300)
Net assets acquired$ i 64,122 

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


11









The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value measurement hierarchy (see Note 16 - Fair Value). Level 3 inputs included, among others, discount rates that we estimated would be used by a market participant in valuing these assets and liabilities, projections of revenues and cash flows, client attrition rates and market comparables.

5.  i PROPERTY AND EQUIPMENT
 i Property and equipment, net was comprised of the following at June 30, 2022 and December 31, 2021:
(In thousands)June 30,
2022
December 31, 2021
Land$ i 2,848 $ i 2,848 
Buildings and improvements i 8,279  i 8,269 
Computer equipment i 8,086  i 7,868 
Leasehold improvements i 783  i 783 
Office furniture and fixtures i 1,008  i 682 
Automobiles i 18  i 18 
Property and equipment, gross i 21,022  i 20,468 
Less: accumulated depreciation( i 10,146)( i 8,878)
Property and equipment, net$ i 10,876 $ i 11,590 
 / 

6.  i 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  i five years. If the actual life of the asset is deemed to be impaired, a write-down of the value of the asset may be recorded as a charge to earnings. Amortization begins when the related software features are placed in service.
During the second quarter of 2021, our ongoing monitoring activities associated with the capitalization of software development costs and the related correlation between capitalization rates and operational metrics designed to reflect the distribution of work revealed that our then-current labor capitalization methodology did not fully reflect all of the critical activities necessary to develop software assets. Consequently, during the second quarter of 2021, we elected to change our method of estimating the labor costs incurred in developing software assets. Prior to this change, we estimated the associated labor costs using an estimated time-equivalent for workload metrics commonly utilized within agile software development environments. With this change, we now estimate these labor costs using the distribution of these agile workload metrics between capitalizable and non-capitalizable units of work. We believe this change is preferable as the new methodology better estimates capitalizable labor costs and is consistent with industry best practices. We have determined that this change in accounting for software development costs is a change in accounting estimate effected by a change in accounting principle and, as such, has been accounted for on a prospective basis. In connection with this change, we capitalized software development costs of $ i 8.8 million during the year ended December 31, 2021. We estimate that the effect of this change was to increase capitalized amounts by approximately $ i 4.6 million for the year ended December 31, 2021, with a corresponding decrease to product development costs.
 i Software development costs, net was comprised of the following at June 30, 2022 and December 31, 2021:
(In thousands)June 30,
2022
December 31, 2021
Software development costs$ i 21,432 $ i 12,693 
Less: accumulated amortization( i 2,308)( i 1,049)
Software development costs, net$ i 19,124 $ i 11,644 
 / 



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7.      i OTHER ACCRUED LIABILITIES
 i Other accrued liabilities was comprised of the following at June 30, 2022 and December 31, 2021:
(In thousands)June 30,
2022
December 31, 2021
Salaries and benefits$ i 10,382 $ i 8,482 
Severance i 272  i 236 
Commissions i 1,147  i 1,158 
Self-insurance reserves i 1,313  i 1,409 
Contingent consideration i 920  i 2,500 
Operating lease liabilities, current portion i 1,477  i 1,592 
Other i 1,710  i 1,786 
Other accrued liabilities$ i 17,221 $ i 17,163 
 / 

8.      i NET INCOME PER SHARE
 i 
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 10) 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.


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 i 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 June 30,Six Months Ended June 30,
(In thousands, except per share data)2022202120222021
Net income$ i 3,076 $ i 6,141 $ i 11,189 $ i 10,285 
Less: Net income attributable to participating securities( i 58)( i 129)( i 219)( i 236)
Net income attributable to common stockholders$ i 3,018 $ i 6,012 $ i 10,970 $ i 10,049 
Weighted average shares outstanding used in basic per common share computations i 14,469  i 14,335  i 14,425  i 14,247 
Add: Dilutive potential common shares i   i 9  i   i 35 
Weighted average shares outstanding used in diluted per common share computations i 14,469  i 14,344  i 14,425  i 14,282 
Basic EPS$ i 0.21 $ i 0.42 $ i 0.76 $ i 0.71 
Diluted EPS$ i 0.21 $ i 0.42 $ i 0.76 $ i 0.70 
 / 
During 2020, 2021, and 2022, 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  i 279,374 shares, of which  i none have been included in the calculation of diluted EPS for the three or six months ended June 30, 2022 because the related threshold award performance levels have not been achieved as of June 30, 2022. See Note 10 - Stock-Based Compensation and Equity for more information.

9.      i INCOME TAXES
 i The Company determines the tax provision for interim periods using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.
Our effective tax rate for the three months ended June 30, 2022 increased to  i 19.9% from  i 14.3% for the three months ended June 30, 2021. Our effective tax rate during the second quarter of 2021 benefited from changing estimates regarding certain state effective tax rates, with no such changes in estimated rates during the second quarter of 2022.
Our effective tax rate for the six months ended June 30, 2022 remained relatively unchanged from the effective tax rate for the six months ended June 30, 2021, decreasing slightly to  i 16.0% from i 16.1%.

10.    i 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.


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 i The following table details total stock-based compensation expense for the three and six months ended June 30, 2022 and 2021, included in the condensed consolidated statements of income:
Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2022202120222021
Costs of sales$ i 291 $ i 269 $ i 577 $ i 482 
Operating expenses i 1,412  i 1,175  i 2,843  i 1,997 
Pre-tax stock-based compensation expense i 1,703  i 1,444  i 3,420  i 2,479 
Less: income tax effect( i 375)( i 318)( i 752)( i 545)
Net stock-based compensation expense$ i 1,328 $ i 1,126 $ i 2,668 $ i 1,934 
 / 
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 2019 Incentive Plan (the "Plan"), as amended. As of June 30, 2022, there was $ i 13.4 million of unrecognized compensation expense related to unvested and unearned stock-based compensation arrangements granted under the Plan, which is expected to be recognized over a weighted-average period of  i 2.2 years.
Restricted Stock
The Company grants restricted stock to executive officers, certain key employees and non-employee directors under the Plan 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  i three years. The Company records expenses for these grants on a straight-line basis over the applicable vesting periods.
 i 
A summary of restricted stock activity under the Plan during the six months ended June 30, 2022 and 2021 is as follows:
Six Months Ended June 30, 2022Six Months Ended June 30, 2021
SharesWeighted-Average
Grant Date
Fair Value Per Share
SharesWeighted-Average
Grant Date
Fair Value Per Share
Unvested restricted stock outstanding at beginning of period i 314,883 $ i 29.79  i 412,967 $ i 28.87 
Granted i 144,064  i 34.44  i 153,700  i 31.22 
Vested( i 181,405) i 29.79 ( i 245,455) i 29.16 
Forfeited( i 8,936) i 31.60 ( i 6,329) i 29.10 
Unvested restricted stock outstanding at end of period i 268,606 $ i 32.22  i 314,883 $ i 29.79 
 / 
Performance Share Awards
The Company grants performance share awards to executive officers and certain key employees under the Plan, with the number of shares of common stock earned and issuable under each award determined at the end of a  i 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. These 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 common stock corresponding to such level. 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  i three-year performance period.


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In the event that the Company's financial performance meets the predetermined targets for the performance objectives of the performance share awards, the Company will issue each award recipient the number of shares of common stock 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 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 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 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 related to performance share awards is recognized using ratable straight-line amortization over the  i 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.
 i 
A summary of performance share award activity under the Plan during the six months ended June 30, 2022 and 2021 is as follows, based on the target award amounts set forth in the performance share award agreements:
Six Months Ended June 30, 2022Six Months Ended June 30, 2021
SharesWeighted-Average
Grant Date
Fair Value Per Share
SharesWeighted-Average
Grant Date
Fair Value Per Share
Performance share awards outstanding at beginning of period i 249,952 $ i 29.59  i 252,852 $ i 29.27 
Granted i 101,799  i 37.98  i 93,444  i 31.26 
Forfeited or unearned( i 45,060) i 31.70 ( i 20,373) i 29.92 
Earned and issued( i 27,317) i 31.75 ( i 75,971) i 30.50 
Performance share awards outstanding at end of period i 279,374 $ i 32.09  i 249,952 $ i 29.59 
 / 

Stock Repurchases
On September 4, 2020, our Board of Directors approved a stock repurchase program under which we may repurchase up to $ i 30.0 million of our common stock through September 3, 2022. On July 27, 2022, the Board of Directors extended the expiration date of the stock repurchase program to September 4, 2024. We repurchased  i 78,779 shares during the six months ended June 30, 2022 and  i 17,387 shares during the six months ended June 30, 2021. The approximate dollar value of shares that may yet be repurchased under the stock repurchase program was $ i 25.6 million as of June 30, 2022. 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  i 52,905 shares during the six months ended June 30, 2022 and  i 21,444 shares during the six months ended June 30, 2021 to fund required tax withholdings 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.



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11.    i FINANCING RECEIVABLES
Short-Term Payment Plans
The Company provides fixed monthly payment arrangements ("short-term payment plans") over terms ranging from three to  i twelve months for certain 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.  i These receivables, included in the current portion of financing receivables, were comprised of the following at June 30, 2022 and December 31, 2021:
(In thousands)June 30,
2022
December 31, 2021
Short-term payment plans, gross$ i 56 $ i 121 
Less: allowance for losses( i 3)( i 6)
Short-term payment plans, net$ i 53 $ i 115 

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 2028. 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  i seven years.
The decrease in long-term financing arrangement balances during the six months ended June 30, 2022 is primarily a result of the continued evolution of customer licensing preferences. Although the overwhelming majority of our historical EHR installations prior to 2019 were made under a perpetual license model, the dramatic shift in customer preferences to a SaaS license model began during 2019 with  i 49% of the year's new acute care EHR installations being performed in a SaaS model, compared to only  i 12% in 2018. The shift in customer preference toward a SaaS model has since continued, with SaaS installations representing approximately  i 68% of new acute care EHR installations in 2020,  i 63% in 2021 and  i 100% in the first half of 2022. Due to the nature of the revenue recognition requirements for SaaS arrangements coupled with recurring monthly payments, these arrangements do not give rise to long-term financing arrangements.
 i The components of these receivables were as follows at June 30, 2022 and December 31, 2021:
(In thousands)June 30,
2022
December 31, 2021
Long-term financing arrangements, gross$ i 11,935 $ i 15,659 
Less: allowance for expected credit losses( i 683)( i 716)
Less: unearned income( i 926)( i 1,339)
Long-term financing arrangements, net$ i 10,326 $ i 13,604 
 / 


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 i 
Future minimum payments to be received subsequent to June 30, 2022 are as follows:
(In thousands)
Years Ending December 31,
2022$ i 3,147 
2023 i 4,632 
2024 i 2,670 
2025 i 1,309 
2026 i 153 
Thereafter i 24 
Total minimum payments to be received i 11,935 
Less: allowance for expected credit losses( i 683)
Less: unearned income( i 926)
Receivables, net$ i 10,326 
 / 
Credit Quality of Financing Receivables and Allowance for Expected Credit Losses
 i The following table is a roll-forward of the allowance for expected credit losses for the six months ended June 30, 2022 and year ended December 31, 2021:
(In thousands)Balance at Beginning of PeriodProvisionCharge-offsRecoveriesBalance at End of Period
June 30, 2022$ i 722 $( i 36)$ i  $ i  $ i 686 
December 31, 2021$ i 1,489 $ i 481 $( i 1,248)$ i  $ i 722 
 / 
The Company’s financing receivables are comprised of a single portfolio segment, as the balances are all derived from short-term payment plan arrangements and long-term financing arrangements within our target market of community hospitals. The Company evaluates the credit quality of its financing receivables based on a combination of factors, including, but not limited to, customer collection experience, current and future economic conditions, the customer’s financial condition, and known risk characteristics impacting the respective customer base of community hospitals, the most notable of which relate to enacted and potential changes in Medicare and Medicaid reimbursement rates as community hospitals typically generate a significant portion of their revenues and related cash flows from beneficiaries of these programs. In addition to specific account identification, the Company utilizes historical collection experience to establish the allowance for expected credit losses. Financing receivables are written off only after the Company has exhausted all collection efforts.
Customer payments are considered past due if a scheduled payment is not received within contractually agreed upon terms. To facilitate customer collection and credit monitoring efforts, financing receivable amounts are invoiced and reclassified to trade accounts receivable when they become due, with all invoiced amounts placed on nonaccrual status. As a result, all past due amounts related to the Company’s financing receivables are included in trade accounts receivable in the accompanying condensed consolidated balance sheets.  i The following is an analysis of the age of financing receivables amounts (excluding short-term payment plans) that have been reclassified to trade accounts receivable and were past due as of June 30, 2022 and December 31, 2021:
(In thousands)1 to 90 Days Past Due91 to 180 Days Past Due181 + Days Past DueTotal Past Due
June 30, 2022$ i 928 $ i 169 $ i 449 $ i 1,546 
December 31, 2021$ i 713 $ i 78 $ i 73 $ i 864 
From time to time, the Company may agree to alternative payment terms outside of the terms of the original financing receivable agreement due to customer difficulties in achieving the original terms. In general, such alternative payment arrangements do not result in a re-aging of the related receivables. Rather, payments pursuant to any alternative payment arrangements are applied to the already outstanding invoices beginning with the oldest outstanding invoices as the payments are received.


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Because amounts are reclassified to trade accounts receivable when they become due, there are no past due amounts included within financing receivables, current portion, net or financing receivables, net of current portion in the accompanying condensed consolidated balance sheets.
The Company utilizes an aging of trade accounts receivable as the primary credit quality indicator for its financing receivables, which is facilitated by the reclassification of customer payment amounts to trade accounts receivable when they become due.  i 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)June 30,
2022
December 31, 2021
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$ i 5,890 $ i 9,100 
Uninvoiced client financing receivables related to trade accounts receivable that are 91 to 180 Days Past Due
 i 1,927  i 329 
Uninvoiced client financing receivables related to trade accounts receivable that are 181 + Days Past Due
 i 864  i 386 
Total uninvoiced client financing receivables balances of clients with a trade accounts receivable$ i 8,681 $ i 9,815 
Total uninvoiced client financing receivables of clients with no related trade accounts receivable i 2,328  i 4,505 
Total financing receivables with contractual maturities of one year or less i 56  i 121 
Less: allowance for expected credit losses( i 686)( i 722)
Total financing receivables$ i 10,379 $ i 13,719 

12.  i INTANGIBLE ASSETS AND GOODWILL
 i Our purchased definite-lived intangible assets as of June 30, 2022 and December 31, 2021 are summarized as follows:
(In thousands)Customer RelationshipsTrademarkDeveloped TechnologyNon-Compete AgreementsTotal
Gross carrying amount, beginning of period$ i 112,570 $ i 12,320 $ i 37,600 $ i  $ i 162,490 
Intangible assets acquired i 19,600  i   i 3,200  i 1,400  i 24,200 
Accumulated amortization ( i 46,874)( i 5,626)( i 23,124)( i 93)( i 75,717)
Net intangible assets as of June 30, 2022
$ i 85,296 $ i 6,694 $ i 17,676 $ i 1,307 $ i 110,973 
Weighted average remaining years of useful life i 9 i 13 i 8 i 5 i 10
(In thousands)Customer RelationshipsTrademarkDeveloped TechnologyNon-Compete AgreementsTotal
Gross carrying amount, beginning of period $ i 84,370 $ i 11,120 $ i 29,700 $ i  $ i 125,190 
Intangible assets acquired  i 28,200  i 1,200  i 7,900  i   i 37,300 
Accumulated amortization( i 41,738)( i 5,177)( i 20,372) i  ( i 67,287)
Net intangible assets as of December 31, 2021
$ i 70,832 $ i 7,143 $ i 17,228 $ i  $ i 95,203 
 / 


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 i The following table represents the remaining amortization of definite-lived intangible assets as of June 30, 2022:
(In thousands)
For the year ended December 31,
2022$ i 8,973 
2023 i 16,058 
2024 i 14,523 
2025 i 14,208 
2026 i 12,919 
Thereafter i 44,292 
Total$ i 110,973 
 i The following table sets forth the change in the carrying amount of goodwill by segment for the six months ended June 30, 2022:
(In thousands)Acute Care EHRPost-acute Care EHRTruBridgeTotal
Balance as of December 31, 2021
$ i 97,095 $ i 29,570 $ i 51,048 $ i 177,713 
Goodwill acquired i   i   i 20,873  i 20,873 
Balance as of June 30, 2022
$ i 97,095 $ i 29,570 $ i 71,921 $ i 198,586 
 / 

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.

13.  i LONG-TERM DEBT
 i Long-term debt was comprised of the following at June 30, 2022 and December 31, 2021:
(In thousands)June 30,
2022
December 31, 2021
Term loan facility$ i 69,125 $ i 69,375 
Revolving credit facility i 73,700  i 31,000 
Debt obligations i 142,825  i 100,375 
Less: unamortized debt issuance costs( i 1,726)( i 1,015)
Debt obligation, net i 141,099  i 99,360 
Less: current portion( i 3,141)( i 4,394)
Long-term debt$ i 137,958 $ i 94,966 
 / 
As of June 30, 2022, 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 $ i 125 million term loan facility and a $ i 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 $ i 185 million, including a $ i 75 million term loan facility and a $ i 110 million revolving credit facility. On May 2, 2022, we entered into a First Amendment (the "First Amendment") to the Amended and Restated Credit Agreement, that increased the aggregate principal amount of our credit facilities to $ i 230 million, which includes a $ i 70 million term loan facility and a $ i 160 million revolving credit facility. In addition, the interest rate provisions of the First Amendment reflect the transition from the London Interbank Offered Rate (" LIBOR") to the Secured Overnight Financing Rate ("SOFR") as the new benchmark interest rate for each loan.
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 SOFR rate for the relevant interest period, subject to a floor of  i 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


20








interest period plus one half of one percent per annum and (c) the one month SOFR rate, subject to the aforementioned floor, plus  i one percent per annum, or (3) a combination of (1) and (2). The applicable margin range for SOFR loans and the letter of credit fee ranges from  i 1.8% to  i 3.0%. The applicable margin range for base rate loans ranges from  i 0.8% to  i 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 June 30, 2022, with quarterly principal payments of approximately $ i 0.9 million through March 31, 2027, with maturity on May 2, 2027 or such earlier date as the obligations under the Amended and Restated Credit Agreement as amended by the First Amendment 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.
 i Anticipated annual future maturities of the term loan facility and revolving credit facility are as follows as of June 30, 2022:
(In thousands)
2022$ i 1,750 
2023 i 3,500 
2024 i 3,500 
2025 i 3,500 
2026 i 3,500 
Thereafter i 127,075 
$ i 142,825 
 / 
Our credit facilities are secured pursuant to the Amended and Restated Credit Agreement, dated as of June 16, 2020, among the parties identified as obligors therein and Regions, as collateral agent, on a first priority basis by a security interest in substantially all of the tangible and intangible assets (subject to certain exceptions) of the Company and certain subsidiaries of the Company, as guarantors (collectively, the “Subsidiary Guarantors”), including certain registered intellectual property and the capital stock of certain of the Company’s direct and indirect subsidiaries. Our obligations under the Amended and Restated Credit Agreement are also guaranteed by the Subsidiary Guarantors.
The First Amendment provides incremental facility capacity of $ i 75 million, subject to certain conditions. The Amended and Restated Credit Agreement, as amended by the First Amendment, 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 First Amendment requires the Company to maintain a minimum fixed charge coverage ratio of  i 1.25:1.00 throughout the duration of such agreement. Under the First Amendment, the Company is required to comply with a maximum consolidated net leverage ratio of  i 3.75:1.00 for each quarter through March 31, 2023, after which time the maximum consolidated net leverage ratio will be  i 3.50:1.00. Further, under the First Amendment, in connection with any acquisition by the Company exceeding $ i 25 million, the Company may elect to increase the maximum permitted consolidated net leverage ratio for the fiscal quarter in which the acquisition occurs and each of the following three fiscal quarters by  i 0.50:1.00 above the otherwise permitted maximum. If the consolidated net leverage ratio is less than  i 2.50:1.00, there is no limit on the amount of incremental facilities. 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 June 30, 2022.
The First Amendment removed the requirement that the Company mandatorily prepay the credit facilities with excess cash flow generated during the prior fiscal year. 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 SOFR rate loans made on a day other than the last day of any applicable interest period.



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14.    i OPERATING LEASES
The Company leases office space in various locations in Alabama, Pennsylvania, Minnesota, Maryland, Mississippi, and Washington. These leases have terms expiring from 2022 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.
 i Supplemental balance sheet information related to operating leases was as follows:
(In thousands)June 30,
2022
Operating lease assets
Operating lease assets$ i 8,304 
Operating lease liabilities
Other accrued liabilities i 1,477 
Operating lease liabilities, net of current portion i 6,827 
Total operating lease liabilities$ i 8,304 
Weighted average remaining lease term in years i 6
Weighted average discount rate i 4.3%
 / 
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.
 i The future minimum lease payments payable under these operating leases subsequent to June 30, 2022 are as follows:
(In thousands)
2022$ i 990 
2023 i 1,967 
2024 i 1,898 
2025 i 1,202 
2026 i 1,225 
Thereafter i 2,065 
Total lease payments i 9,347 
Less imputed interest( i 1,043)
Total$ i 8,304 
 / 
Total lease expense for the six months ended June 30, 2022 and 2021 was $ i 0.9 million and $ i 1.0 million, respectively.
Total cash paid for amounts included in the measurement of lease liabilities within operating cash flows from operating leases for the six months ended June 30, 2022 was $ i 0.9 million.

15.   i 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.

16.   i FAIR VALUE
 i 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


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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 June 30, 2022, we measured the fair value of contingent consideration that represents the potential earnout incentive for TruCode's former equity holders. We estimated the fair value of the contingent consideration based on the probability of TruCode meeting EBITDA targets (subject to certain pro-forma adjustments). We did not have any other instruments that required fair value measurement as of June 30, 2022.
 i 
The following tables summarize the carrying amounts and fair value of the contingent consideration at June 30, 2022 and December 31, 2021, respectively:
Fair Value at June 30, 2022 Using
Carrying Amount atQuoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant Unobservable Inputs
(In thousands)6/30/2022(Level 1)(Level 2)(Level 3)
Description
Contingent consideration$ i 920 $ i  $ i  $ i 920 
Total$ i 920 $ i  $ i  $ i 920 
Fair Value at December 31, 2021 Using
Carrying Amount atQuoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant Unobservable Inputs
(In thousands)12/31/2021(Level 1)(Level 2)(Level 3)
Description
Contingent consideration$ i 2,500 $ i  $ i  $ i 2,500 
Total$ i 2,500 $ i  $ i  $ i 2,500 
 / 

17.   i SEGMENT REPORTING
Our chief operating decision makers ("CODM") utilize  i three operating segments, "TruBridge," "Acute Care EHR," and "Post-acute Care EHR" based on our  i three distinct business units with unique market dynamics and opportunities. These segments represent the components of the Company for which separate financial information is available that is utilized on a regular basis by the CODM in assessing segment performance and in allocating the Company's resources. Management evaluates the performance of the segments based on revenues and adjusted EBITDA. The Company previously evaluated the performance of the segments based on segment gross profit. Management believes adjusted EBITDA is a useful measure to assess the performance and liquidity of the Company as it provides meaningful operating results by excluding the effects of expenses that are not reflective of its operating business performance. Our CODM group is comprised of the Chief Executive Officer, Chief Growth Officer, and Chief Financial Officer. Accounting policies for each of the reportable segments are the same as those used on a consolidated basis.
Adjusted EBITDA consists of GAAP net income as reported and adjusts for (i) deferred revenue purchase accounting adjustments arising from purchase allocation adjustments related to business acquisitions; (ii) depreciation expense; (iii) amortization of software development costs; (iv) amortization of acquisition-related intangible assets; (v) stock-based compensation; (vi) severance and other non-recurring charges; (vii) interest expense and other, net; (viii) gain on contingent consideration; and (ix) the provision for income taxes. There are no intersegment revenues to be eliminated in computing segment revenue.


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The CODM do not evaluate operating segments nor make decisions regarding operating segments based on assets. Consequently, we do not disclose total assets by reportable segment.
 i The following table presents a summary of the revenues and adjusted EBITDA of our  i three operating segments for the three and six months ended June 30, 2022 and 2021:
Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2022202120222021
Revenues by segment:
TruBridge$ i 48,583 $ i 32,566  i 91,692  i 64,205 
Acute Care EHR
Recurring revenue i 26,732  i 26,807 $ i 54,097 $ i 54,017 
Non-recurring revenue i 2,939  i 4,755  i 5,966  i 9,435 
Total Acute Care EHR revenue i 29,671  i 31,562  i 60,063  i 63,452 
Post-acute Care EHR
Recurring revenue i 3,792  i 4,170  i 7,687  i 8,392 
Non-recurring revenue i 680  i 235  i 1,155  i 489 
Total Post-acute Care EHR revenue i 4,472  i 4,405  i 8,842  i 8,881 
Total revenues$ i 82,726 $ i 68,533 $ i 160,597 $ i 136,538 
Adjusted EBITDA by segment:
TruBridge i 8,744  i 6,860  i 19,549  i 13,378 
Acute Care EHR i 4,311  i 6,190  i 9,332  i 10,876 
Post-acute Care EHR i 114  i 1,242  i 442  i 1,862 
Total adjusted EBITDA$ i 13,169 $ i 14,292 $ i 29,323 $ i 26,116 
 / 
 i The following table reconciles net income from continuing operations to adjusted EBITDA:
Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2022202120222021
Net income, as reported$ i 3,076 $ i 6,141  i 11,189  i 10,285 
Deferred revenue and other acquisition-related adjustments i 30  i 158  i 109  i 158 
Depreciation expense i 690  i 563  i 1,269  i 1,116 
Amortization of software development costs i 733  i 192  i 1,259  i 265 
Amortization of acquisition-related intangibles i 4,758  i 3,383  i 8,430  i 6,440 
Stock-based compensation i 1,703  i 1,444  i 3,420  i 2,479 
Severance and other non-recurring charges i 667  i 814  i 1,262  i 3,007 
Interest expense and other, net i 1,079  i 573  i 1,839  i 386 
Gain on contingent consideration( i 330) i  ( i 1,580) i  
Provision for income taxes i 763  i 1,024  i 2,126  i 1,980 
Total adjusted EBITDA$ i 13,169 $ i 14,292 $ i 29,323 $ i 26,116 
 / 
Certain of the items excluded or adjusted to arrive at adjusted EBITDA are described below:
Deferred revenue and other acquisition-related adjustments - Deferred revenue and other acquisition-related adjustments includes acquisition-related deferred revenue adjustments, which reflect the fair value adjustments to deferred revenues acquired in business acquisitions. The fair value of deferred revenue represents an amount equivalent to the estimated cost plus an appropriate profit margin, to perform services related to the acquiree's software and product support, which assumes a legal obligation to do so, based on the deferred revenue balance as of the acquisition date. We add back deferred revenue and other adjustments for adjusted EBITDA because we believe the inclusion of this amount directly correlates to the underlying performance of our operations.


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Amortization of acquisition-related intangibles - Acquisition related amortization expense is a non-cash expense arising primarily from the acquisition of intangibles in connection with acquisitions or investments. We exclude acquisition-related amortization expense from adjusted EBITDA because we believe (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired intangible assets.
Stock-based compensation - Stock-based compensation expense is a non-cash expense arising from the grant of stock-based awards. We exclude stock-based compensation expense from adjusted EBITDA because we believe (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of the timing and valuation of grants of new stock-based awards, including grants in connection with acquisitions.
Severance and other non-recurring charges - Non-recurring charges relate to certain severance and other charges incurred in connection with activities that are considered non-recurring. We exclude non-recurring expenses (primarily related to costs associated with our recent business transformation initiative and non-recurring lease termination costs) and transaction-related costs from adjusted EBITDA because we believe (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods.

18.   i SUBSEQUENT EVENTS

On July 27, 2022, our Board of Directors extended the expiration date of the Company's existing $ i 30 million stock repurchase program to September 4, 2024. The repurchase program was originally approved by the Company's Board of Directors on September 4, 2020, and was set to expire on September 4, 2022, prior to this extension. Under this program, the Company has repurchased  i 146,200 shares of common stock as of August 3, 2022, with an aggregate value of $ i 4.4 million, and $ i 25.6 million remains authorized for future repurchases.



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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;
our use of offshore third-party resources;
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, 2021.
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 six companies - TruBridge, LLC ("TruBridge"), Evident, LLC ("Evident"), American HealthTech, Inc. ("AHT"), iNetXperts, Corp. d/b/a Get Real Health ("Get Real Health"), TruCode LLC ("TruCode"), and Healthcare Resource Group, Inc. ("HRG"). 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:
TruBridge provides 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.
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.
Get Real Health, included within our TruBridge segment, delivers technology solutions to improve patient outcomes and engagement strategies with care providers.
TruCode, included within our TruBridge segment, provides configurable, knowledge-based software that gives coders, CDI specialists and auditors the flexibility to code according to their knowledge, preferences and experience.
HRG, included within our TruBridge segment, provides customized RCM solutions and consulting services that enable hospitals and clinics to improve efficiency, profitability, and patient satisfaction.
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 TruBridge services includes community hospitals with fewer than 600 acute care beds. 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.
See Note 17 to the condensed consolidated financial statements included herein for additional information on our three reportable segments.
Management Overview
Strategy
Our core strategy is to achieve meaningful long-term revenue growth by cross-selling TruBridge services into our existing EHR customer base, expanding TruBridge market share with sales to new community hospitals 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.


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The opportunity to cross-sell TruBridge services is greatest within our Acute Care EHR customer base. As such, 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 not 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 90th percentile ranges and have not materially deviated from this range during 2021 or the first six months of 2022.
As we pursue meaningful long-term revenue growth by leveraging TruBridge as a growth agent, we are placing ever-increasing value in further developing our already significant recurring revenue base to further stabilize our revenues and cash flows. 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.
While the combination of revenue growth and operating leverage results in increased margin realization, we also look to increase margins through specific 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.
Industry Dynamics
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. 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 the fee-for-service reimbursement model in part by enrolling in an advanced payment model that incentivizes high-quality, cost effective-care via value-based reimbursement. 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.
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 while those with the necessary capital have become more selective in their investments. Despite these challenges, we believe healthcare IT will be an area of continued investment due to its unique potential to improve safety and efficiency and reduce costs while meeting current and future regulatory, compliance and government reimbursement requirements.
License Model Preferences
Much of the variability in our periodic revenues and profitability has been and will continue to be due to changing demand for different license models for our technology solutions, with variability in operating cash flows further impacted by the financing decisions within those license models. Our technology solutions are generally deployed in one of two license models: (1) perpetual licenses, for which the related revenue is recognized effectively upon installation, and (2) “Software as a Service” or “SaaS” arrangements, including our Cloud Electronic Health Record (“Cloud EHR”) offering, which generally result in revenue being recognized monthly as the services are provided over the term of the arrangement.
The overwhelming majority of our historical installations have been under a perpetual license model, but new customer demand has dramatically shifted towards a SaaS license model in the past several years. SaaS license models made up 12% of annual new acute care EHR installations in 2018, increasing to 63% during 2021 and 100% for the first six months of 2022. These SaaS offerings are becoming increasingly attractive to our clients because this configuration allows them to obtain access to advanced software products without a significant initial capital outlay. We expect this trend to continue for the foreseeable future, with the resulting impact on the Company’s financial statements being reduced system sales revenues in the period of installation in exchange for increased recurring periodic revenues (reflected in system sales and support revenues) over the term of the SaaS arrangement. This naturally places downward pressure on short-term revenue growth and profitability metrics, but benefits long-term revenue growth and profitability which, in our view, is consistent with our goal of delivering long-term shareholder value.


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For customers electing to purchase our technology solutions under a perpetual license, we have historically made financing arrangements available on a case-by-case basis, depending on the various aspects of the proposed contract and customer attributes. These financing arrangements continue to comprise the majority of our perpetual license installations, and include short-term payment plans and longer-term lease financing through us or third-party financing companies. The aforementioned shift in customer preference towards SaaS arrangements has significantly reduced the frequency of new financing arrangements for customer purchases under a perpetual license. When combined with scheduled payments on existing financing arrangements, the reduced frequency of new financing arrangements has resulted in a substantial reduction in financing receivables during 2021 and the first six months of 2022.
For those perpetual license clients not seeking a financing arrangement, the payment schedule of the typical contract is structured to provide for a scheduling deposit due at contract signing, with the remainder of the contracted fees due at various stages of the installation process (delivery of hardware, installation of software and commencement of training, and satisfactory completion of a monthly accounting cycle or end-of-month operation by each respective application, as applicable).
Margin Optimization Efforts
Our core growth strategy includes an element geared towards margin optimization by identifying opportunities to further improve our cost structure by executing against initiatives related to organizational realignment, expanded use of offshore partnerships and the use of automation to increase the efficiency and value of our associates' efforts.
Regarding the organizational realignment, on February 1, 2021, we committed to a reduction in force that resulted in the termination of approximately 1.0% of our workforce (21 employees). The reduction in force was a component of a broader strategic review of the Company's operations that was intended to more effectively align our resources with business priorities. Substantially all of the employees impacted by the reduction in force exited the Company in the first quarter of 2021, with the last of the impacted employees exiting in the third quarter of 2021. The Company incurred expenses of approximately $2.7 million related to the reduction in force. These expenses consisted of one-time termination benefits to the affected employees, including but not limited to severance payments, healthcare benefits, and payments for accrued vacation time. As a result of the reduction in force, the Company realized approximately $3.9 million in annual savings compared to prior expense levels.
The remaining margin optimization initiatives of enhanced leveraging of offshore partnerships and automation have commenced and, to date, have provided meaningful efficiencies to our operations, particularly within TruBridge. As a service organization, TruBridge's cost structure is heavily dependent upon human capital, subjecting TruBridge to the complexities and risks associated with this resource. Chief among these complexities and risks is the ever-present pressure of wage inflation, which has recently become a reality as national and international economies recover from the economic downturn caused by the COVID-19 pandemic and has compelled the Company to make compensation adjustments that are outside of historical norms. We believe that our efforts towards margin optimization are well-timed, enabling a rapid response to actual or expected wage inflation in order to preserve TruBridge gross margins, but we cannot guarantee that these efforts will fully eliminate any related margin deterioration.
In addition to wage inflation, we are a party to contracts with certain third-party suppliers and vendors that allow for annual price adjustments indexed to inflation. While we continually seek to proactively manage controllable expenses, inflationary pressure on costs could lead to erosion of margins.
Labor Capitalization
During the second quarter of 2021, our ongoing monitoring activities associated with the capitalization of software development costs and the related correlation between capitalization rates and operational metrics designed to reflect the distribution of work revealed that our then-current labor capitalization methodology did not fully reflect all of the critical activities necessary to develop software assets. Consequently, during the second quarter of 2021, we elected to change our method of estimating the labor costs incurred in developing software assets requiring capitalization under ASC 350-40, Internal Use of Software. Prior to this change, we estimated the associated labor costs using an estimated time-equivalent for workload metrics commonly utilized within agile software development environments. With this change, we now estimate these labor costs using the distribution of these agile workload metrics between capitalizable and non-capitalizable units of work. We believe this change is preferable as the new methodology better estimates capitalizable labor costs and is consistent with industry best practices. We have determined that this change in accounting for software development costs is a change in accounting estimate effected by a change in accounting principle and, as such, has been accounted for on a prospective basis. In connection with this change, we capitalized $8.8 million of software development costs during 2021. We estimate that the effect of this change was to increase capitalized amounts by approximately $4.6 million during 2021 with a corresponding decrease to product development costs. The additional capitalized amounts will be amortized over an average of 5 years, leading to increased amortization expense in future years.


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COVID-19
The impact of the COVID-19 pandemic on our operations has been broad-sweeping, most notably causing severe deterioration in United States community hospital patient volumes that negatively impacted the revenues, gross margins, and income of our TruBridge service offerings. While patient volumes have continued to recover and are largely in line with pre-COVID-19 levels, the impact of the COVID-19 pandemic is fluid and continues to evolve. We cannot predict the extent to which our business, results of operations, financial condition or liquidity will ultimately be impacted, including as a result of macro-economic impacts to the global supply chain, labor shortages, and inflationary pressures. However, we continue to assess its impact on our business and continue to actively manage our response. For further details on the potential impact of COVID-19 on our business, refer to "Risk Factors," in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Results of Operations
During the first six months of 2022, we generated revenues of $160.6 million from the sale of our products and services, compared to $136.5 million during the first six months of 2021, an increase of 18% that is due to the combination of inorganic growth through our recent acquisitions of TruCode and HRG and organic growth for TruBridge as revenue cycle solutions continue to gain traction in the domestic healthcare landscape. This increase in revenues is the primary driver behind the corresponding increase in net income, which increased by $0.9 to $11.2 million for the first six months of 2022 from the prior-year period. Net cash provided by operating activities decreased by $14.0 million, from $33.1 million during the first six months of 2021 to $19.1 million during the first six months of 2022, primarily due to less cash-advantageous changes in working capital, most notably as it relates to expansion in accounts receivable.


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The following table sets forth certain items included in our results of operations for the three and six months ended June 30, 2022 and 2021, expressed as a percentage of our total revenues for these periods:
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
(In thousands)Amount% SalesAmount% SalesAmount% SalesAmount% Sales
INCOME DATA:
Sales revenues:
TruBridge$48,583 58.7 %$32,566 47.5 %$91,692 57.1 %$64,205 47.0 %
System sales and support:
Acute Care EHR29,671 35.9 %31,562 46.1 %60,063 37.4 %63,452 46.5 %
Post-acute Care EHR4,472 5.4 %4,405 6.4 %8,842 5.5 %8,881 6.5 %
Total System sales and support34,143 41.3 %35,967 52.5 %68,905 42.9 %72,333 53.0 %
Total sales revenues82,726 100 %68,533 100 %160,597 100 %136,538 100 %
Costs of sales:
TruBridge26,346 31.8 %17,196 25.1 %47,700 29.7 %32,975 24.2 %
System sales and support:
Acute Care EHR15,447 18.7 %16,233 23.7 %30,793 19.2 %32,445 23.8 %
Post-acute Care EHR1,529 1.8 %1,216 1.8 %2,866 1.8 %2,380 1.7 %
Total System sales and support16,976 20.5 %17,449 25.5 %33,659 21.0 %34,825 25.5 %
Total costs of sales43,322 52.4 %34,645 50.6 %81,359 50.7 %67,800 49.7 %
Gross profit39,404 47.6 %33,888 49.4 %79,238 49.3 %68,738 50.3 %
Operating expenses:
Product development7,094 8.6 %6,469 9.4 %14,214 8.9 %14,899 10.9 %
Sales and marketing8,227 9.9 %5,312 7.8 %15,269 9.5 %10,613 7.8 %
General and administrative14,737 17.8 %10,986 16.0 %27,751 17.3 %24,135 17.7 %
Amortization of acquisition-related intangibles4,758 5.8 %3,383 4.9 %8,430 5.2 %6,440 4.7 %
Total operating expenses34,816 42.1 %26,150 38.2 %65,664 40.9 %56,087 41.1 %
Operating income4,588 5.5 %7,738 11.3 %13,574 8.5 %12,651 9.3 %
Other income (expense):
Other income278 0.3 %224 0.3 %435 0.3 %1,038 0.8 %
Gain on contingent consideration330 0.4 %— — %1,580 1.0 %— — %
Loss on extinguishment of debt(125)(0.2)%— — %(125)(0.1)%— — %
Interest expense(1,232)(1.5)%(797)(1.2)%(2,149)(1.3)%(1,424)(1.0)%
Total other income (expense)(749)(0.9)%(573)(0.8)%(259)(0.2)%(386)(0.3)%
Income before taxes3,839 4.6 %7,165 10.5 %13,315 8.3 %12,265 9.0 %
Provision for income taxes763 0.9 %1,024 1.5 %2,126 1.3 %1,980 1.5 %
Net income$3,076 3.7 %$6,141 9.0 %$11,189 7.0 %$10,285 7.5 %
Three Months Ended June 30, 2022 Compared with Three Months Ended June 30, 2021
Revenues
Total revenues for the three months ended June 30, 2022 increased by $14.2 million, or approximately 21%, compared to the three months ended June 30, 2021.
TruBridge revenues increased by $16.0 million, or 49%, compared to the second quarter of 2021, as acquisition-fueled growth added to the organic growth of our revenue cycle service and patient engagement offerings. TruCode, acquired in May 2021, contributed $3.3 million of revenues during the second quarter of 2022, compared to only $1.5 million of revenues during the


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second quarter of 2021, which reflects only a partial-quarter's activity. Our acquisition of HRG in March 2022 provided further inorganic revenue growth, contributing $10.8 million of revenues during the second quarter of 2022. We have also experienced substantial organic revenue growth, as 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. This increasing demand for services, coupled with the positive impact of improving hospital patient volumes on TruBridge revenues, resulted in revenue increases of $2.1 million, or 18%, for our accounts receivable management services and $0.4 million, or 16%, for our medical coding services. Other sources of organic revenue growth included GRH, where escalating demand for patient engagement solutions caused related revenues to more than double from the second quarter of 2021, an increase of $0.9 million.
System sales and support revenues decreased by $1.8 million, or 5%, compared to the second quarter of 2021. System sales and support revenues were comprised of the following during the respective periods:
Three Months Ended June 30,
(In thousands)20222021
Recurring system sales and support revenues (1)
Acute Care EHR$26,732 $26,807 
Post-acute Care EHR3,792 4,170 
Total recurring system sales and support revenues30,524 30,977 
Non-recurring system sales and support revenues (2)
Acute Care EHR2,939 4,755 
Post-acute Care EHR680 235 
Total non-recurring system sales and support revenues3,619 4,990 
Total system sales and support revenue$34,143 $35,967 
(1) Mostly comprised of support and maintenance, third-party subscriptions, and SaaS revenues.
(2) Mostly comprised of installation revenues from the sale of our acute care and post-acute care EHR solutions and related applications under a perpetual (non-subscription) licensing model.
Recurring system sales and support revenues decreased by $0.5 million, or 1%, compared to the second quarter of 2021. Acute Care EHR recurring revenues were effectively flat from the second quarter of 2021, decreasing less than $0.1 million. Post-acute Care EHR recurring revenues decreased $0.4 million, or 9%, due to the loss of certain significant customers during early 2022.
Non-recurring system sales and support revenues decreased by $1.4 million, or 27%, compared to the second quarter of 2021. Acute Care EHR non-recurring revenues decreased by $1.8 million compared to the second quarter of 2021, due mostly to a decrease in the number of perpetual license installations of our Acute Care EHR solutions. We installed our Acute Care EHR solutions at seven new hospital clients during the second quarter of 2022 (all of which are under SaaS arrangements, resulting in revenue being recognized ratably over the contract term) compared to five new hospital clients during the second quarter of 2021 (four under a SaaS arrangement). This decrease in perpetual license activity for new hospital installations resulted in a $0.7 million decrease in revenues from the second quarter of 2021. High penetration rates within our Acute Care EHR customer base for our suite of complementary applications resulted in a $0.7 million decrease in the related revenues from add-on sales, while project-specific development revenues decreased $0.4 million due to the conclusion of those arrangements. Lastly, Post-acute Care EHR nonrecurring revenues increased by $0.4 million compared to the second quarter of 2021 due to a temporarily beneficial shift in license mix, with more perpetual license installations in the second quarter of 2022 compared to the second quarter of 2021.
Costs of Sales
Total costs of sales increased by $8.7 million, or 25%, compared to the second quarter of 2021. As a percentage of total revenues, costs of sales increased to 52% of revenues during the second quarter of 2022 compared to 51% during the second quarter of 2021.


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Our costs associated with TruBridge sales and support increased by $9.2 million, or 53%, compared to the second quarter of 2021, primarily driven by our recent acquisitions of TruCode and HRG, which contributed total expenses of $0.8 million and $7.7 million, respectively, to the second quarter of 2022. Comparatively, the second quarter of 2021 included only $0.6 million of expenses associated with TruCode, representing a partial-quarter's activity. The remaining cost increases for TruBridge are organic in nature, caused by resource expansion necessitated by the growing customer base and improved patient volumes. The gross margin on these services decreased slightly to 46% in the second quarter of 2022 compared to 47% in the second quarter of 2021 due to the addition of HRG, which is mostly comprised of lower margin services.
Costs of Acute Care EHR system sales and support decreased by $0.8 million, or 5%, compared to the second quarter of 2021, as the continuing shift in customer preferences towards a SaaS license model resulted in increased capitalization of contract fulfillment costs. Additionally, labor costs have decreased due to natural workforce attrition and reduced incentive compensation expense. The gross margin on Acute Care EHR system sales and support decreased slightly to 48% in the second quarter of 2022, compared to 49% in the second quarter of 2021, as the decrease in revenues outpaced the related decrease in costs of sales.
Costs of Post-acute Care EHR system sales and support increased by $0.3 million, or 26%, compared to the second quarter of 2021, with increased labor and travel costs comprising the majority of the increase. The gross margin on Post-acute Care EHR system sales and support decreased to 66% in the second quarter of 2022, compared to 72% in the second quarter of 2021, as the increase in costs of sales outpaced the related increase in revenues.
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 by $0.6 million, or 10%, compared to the second quarter of 2021, due mostly to increased costs associated with our public cloud strategy. Combined, our recent acquisitions of TruCode and HRG resulted in $0.5 million of product development expenses during the second quarter of 2022, compared to only $0.2 million during the second quarter of 2021.
Sales and Marketing
Sales and marketing costs increased by $2.9 million, or 55%, compared to the second quarter of 2021. The second quarter of 2022 marked the return of our in-person National Client Conference, which had migrated to virtual-only sessions since the onset of the COVID-19 pandemic, resulting in incremental expense of $0.9 million. Resource expansion resulted in a $0.2 million increase in payroll costs and an improved sales environment resulted in a $0.3 million increase in commission expenses. Marketing program costs increased $0.4 million due to more aggressive marketing of our solutions and services combined with specific campaigns to increase brand awareness for our portfolio of companies. Lastly, our recent acquisitions of TruCode and HRG resulted in combined sales and marketing expense of $0.6 million during the second quarter of 2022, compared to only $0.1 million during the second quarter of 2021.
General and Administrative
General and administrative expenses increased by $3.8 million, or 34%, compared to the second quarter of 2021. Our general and administrative expenses include the employee benefits costs related to our entire employee base of more than 2,400 individuals. Recent growth in the overall size of our employee base, combined with volatility in employee health claims severity, drove employee benefits costs to increase by $2.2 million over the second quarter of 2021. Similarly, increasing scale caused legal and accounting costs to increase by $0.4 million. Combined, our recent acquisitions of TruCode and HRG resulted in $1.2 million of general and administrative expenses during the second quarter of 2022, compared to only $0.2 million during the second quarter of 2021.
Amortization of Acquisition-Related Intangibles
Amortization expense associated with acquisition-related intangible assets increased by $1.4 million, or 41%, compared to the second quarter of 2021, due mostly to the amortization of intangibles acquired in the TruCode and HRG acquisitions.
Total Operating Expenses
Total operating expenses increased by $8.7 million, or 33%, compared to the second quarter of 2021. As a percentage of total revenues, total operating expenses increased to 42% of revenues in the second quarter of 2022, compared to 38% in the second quarter of 2021.


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Total Other Income (Expense)
Total other income (expense) increased to expense of $0.7 million during the second quarter of 2022 compared to expense of $0.6 million during the second quarter of 2021, due mostly to a $0.6 million increase in interest expense caused by a rising interest rate environment and a higher level of funded debt. This increased interest expense was partially offset by a $0.3 million gain on contingent consideration. Our acquisition of TruCode in May 2021 included a contingent earnout payment of up to $15 million tied to TruCode's earnings before interest, tax, depreciation, and amortization ("EBITDA") (subject to certain pro-forma adjustments) for the twelve month period concluding on the anniversary date of the acquisition (the "earnout period"). During the second quarter of 2022, we reduced our estimate of the eventual earnout payment as our estimates of TruCode's earnings over the earnout period have declined since the date of acquisition.
Income Before Taxes
As a result of the foregoing factors, income before taxes decreased by $3.3 million in the second quarter of 2022 compared to the second quarter of 2021.
Provision for Income Taxes
Our effective tax rate for the three months ended June 30, 2022 increased to 19.9% from 14.3% for the three months ended June 30, 2021. Our effective tax rate during the second quarter of 2021 benefited from changing estimates regarding certain state effective tax rates, with no such changes in estimated rates during the second quarter of 2022.
Net Income
Net income for the second quarter of 2022 decreased by $3.1 million to $3.1 million, or $0.21 per basic and diluted share, compared with net income of $6.1 million, or $0.42 per basic and diluted share, for the second quarter of 2021. Net income represented 3.7% of revenue for the second quarter of 2022, compared to 9.0% of revenue for the second quarter of 2021.
Six Months Ended June 30, 2022 Compared with Six Months Ended June 30, 2021
Revenues
Total revenues for the first six months of 2022 increased by $24.1 million, or approximately 18%, compared to the first six months of 2021.
TruBridge revenues increased by $27.5 million, or 43%, compared to the first six months 2021, as acquisition-fueled growth added to the organic growth of our revenue cycle service and patient engagement offerings. TruCode, acquired in May 2021, contributed $6.6 million of revenues during the first six months of 2022, compared to only $1.5 million of revenues during the first six months of 2021, which reflects less than two months' activity. Our acquisition of HRG in March 2022 provided further inorganic revenue growth, contributing $14.6 million of revenues during the first six months of 2022. We have also experienced substantial organic revenue growth, as 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. This increasing demand for services, coupled with the positive impact of improving hospital patient volumes on TruBridge revenues, resulted in revenue increases of $4.1 million, or 17%, for our accounts receivable management services and $0.8 million, or 15%, for our medical coding services. Other sources of organic revenue growth included GRH, where escalating demand for patient engagement solutions caused related revenues to more than double from the first six months of 2021, an increase of $2.3 million.


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System sales and support revenues decreased by $3.4 million, or 5%, compared to the first six months of 2021. System sales and support revenues were comprised of the following during the respective periods:
Six Months Ended June 30,
(In thousands)20222021
Recurring system sales and support revenues (1)
Acute Care EHR$54,097 $54,017 
Post-acute Care EHR7,687 8,392 
Total recurring system sales and support revenues61,784 62,409 
Non-recurring system sales and support revenues (2)
Acute Care EHR5,966 9,435 
Post-acute Care EHR1,155 489 
Total non-recurring system sales and support revenues7,121 9,924 
Total system sales and support revenue$68,905 $72,333 
(1) Mostly comprised of support and maintenance, third-party subscriptions, and SaaS revenues.
(2) Mostly comprised of installation revenues from the sale of our acute care and post-acute care EHR solutions and related applications under a perpetual (non-subscription) licensing model.
Recurring system sales and support revenues decreased by $0.6 million, or 1%, compared to the first six months of 2021. Acute Care EHR recurring revenues were effectively flat from the first six months of 2021, increasing less than $0.1 million. Post-acute Care EHR recurring revenues decreased by $0.7 million, or 8%, due to the loss of certain significant customers during early 2022.
Non-recurring system sales and support revenues decreased by $2.8 million, or 28%, compared to the first six months of 2021. Acute Care EHR non-recurring revenues decreased by $3.5 million compared to the first six months of 2021, due mostly to a decrease in the number of perpetual license installations of our Acute Care EHR solutions. We installed our Acute Care EHR solutions at ten new hospital clients during the first six months of 2022 (all of which are under SaaS arrangements, resulting in revenue being recognized ratably over the contract term) compared to ten new hospital clients during the first six months of 2021 (six under a SaaS arrangement). Post-acute Care EHR nonrecurring revenues increased by $0.7 million compared to the first six months of 2021 due to a temporarily beneficial shift in license mix.
Costs of Sales
Total costs of sales increased by $13.6 million, or 20%, compared to the first six months of 2021. As a percentage of total revenues, costs of sales increased to 51% of revenues during the first six months of 2022 compared to 50% during the first six months of 2021.
Our costs associated with TruBridge sales and support increased by $14.7 million, or 45%, compared to the first six months of 2021, primarily driven by our recent acquisitions of TruCode and HRG, which contributed total expenses of $1.7 million and $10.3 million, respectively, to the first six months of 2022. Comparatively, the first six months of 2021 included only $0.6 million of expenses associated with TruCode, which reflects less than two months' activity. The remaining cost increases for TruBridge are organic in nature, caused by resource expansion necessitated by the growing customer base and improved patient volumes. The gross margin on these services decreased slightly to 48% in the first six months of 2022 compared to 49% in the first six months of 2021 due to the addition of HRG, which is mostly comprised of lower margin services.
Costs of Acute Care EHR system sales and support decreased by $1.7 million, or 5%, compared to the first six months of 2021, as the continuing shift in customer preferences towards a SaaS license model resulted in increased capitalization of contract fulfillment costs. Additionally, labor costs have decreased due to natural workforce attrition and reduced incentive compensation expense. The gross margin on Acute Care EHR system sales and support remained flat at 49% for each of the comparative periods.
Costs of Post-acute Care EHR system sales and support increased by $0.5 million, or 20%, compared to the first six months of 2021, with increased labor and travel costs comprising the majority of the increase. The gross margin on Post-acute Care EHR system sales and support decreased to 68% in the first six months of 2022, compared to 73% in the first six months of 2021, as the increase in costs of sales outpaced the related increase in revenues.


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Product Development
Product development costs decreased by $0.7 million, or 5%, compared to the first six months of 2021, with the primary driver being a $4.7 million, or 115%, increase in product development labor capitalization pursuant to the aforementioned change in our method of estimating the labor costs incurred in developing software assets requiring capitalization under ASC 350-40, Internal Use Software. This increased capitalization rate was partially offset by increased amortization of the related assets and increased costs related to our public cloud strategy. Combined, our recent acquisitions of TruCode and HRG resulted in $0.9 million of product development expenses during the first six months of 2022, compared to only $0.2 million during the first six months of 2021.
Sales and Marketing
Sales and marketing costs increased by $4.7 million, or 44%, compared to the first six months of 2021. The first six months of 2022 marked the return of our in-person National Client Conference, which had migrated to virtual-only sessions since the onset of the COVID-19 pandemic, resulting in incremental expense of $0.9 million. Resource expansion resulted in a $0.4 million increase in payroll costs and an improved sales environment resulted in a $0.8 million increase in commission expenses. Similarly, travel costs have increased $0.2 million as travel patterns return to pre-COVID-19 levels. Marketing program costs increased $0.6 million due to more aggressive marketing of our solutions and services combined with specific campaigns to increase brand awareness for our portfolio of companies. Improved confidence in achievement of long-term incentive targets resutled in an increase in stock-based compensation costs of $0.4 million. Lastly, our recent acquisitions of TruCode and HRG resulted in combined sales and marketing expense of $1.0 million during the first six months of 2022, compared to only $0.1 million during the first six months of 2021.
General and Administrative
General and administrative expenses increased by $3.6 million, or 15%, compared to the first six months of 2021. Volatility in employee health claims coupled with an expanding employee base resulted in a $2.5 million increase in employee benefits costs while expanding resources drove payroll to an increase of $0.6 million and improved confidence in achievement of long-term incentive targets resutled in an increase in stock-based compensation costs of $0.6 million. Combined, our recent acquisitions of TruCode and HRG resulted in $1.9 million of general and administrative expenses during the first six months of 2022, compared to only $0.2 million during the first six months of 2021. These increases in general and administrative expenses were partially offset by a decrease of $1.8 million in severance costs as the aforementioned margin optimization efforts resulted in a significant reduction-in-force during the first six months of 2021, with no initiatives of such scale during the first six months of 2022.
Amortization of Acquisition-Related Intangibles
Amortization expense associated with acquisition-related intangible assets increased by $2.0 million, or 31%, compared to the first six months of 2021, due mostly to the amortization of intangibles acquired in the TruCode and HRG acquisitions.
Total Operating Expenses
Total operating expenses increased by $9.6 million, or 17%, compared to the first six months of 2021. As a percentage of total revenues, total operating expenses remained relatively flat at 41% during each of the comparative periods.
Total Other Income (Expense)
Total other income (expense) decreased slightly to expense of $0.3 million during the first six months of 2022 compared to expense of $0.4 million during the first six months of 2021. Our acquisition of TruCode in May 2021 included a contingent earnout payment of up to $15 million tied to TruCode's earnings before interest, tax, depreciation, and amortization ("EBITDA") (subject to certain pro-forma adjustments) for the twelve month period concluding on the anniversary date of the acquisition (the "earnout period"). During the first six months of 2022, $1.6 million of the original $2.5 million contingent consideration estimated in determining the purchase price was reversed as our estimates of TruCode's earnings over the earnout period were less than estimated at the date of acquisition. This gain on contingent consideration was partially offset by increased interest expense, caused by a rising interest rate environment and a higher level of funded debt, and decreased other income as interest income on our portfolio of financing receivables has decreased with the corresponding decrease in the asset class balances.


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Income Before Taxes
As a result of the foregoing factors, income before taxes increased by $1.1 million in the first six months of 2022 compared to the first six months of 2021.
Provision for Income Taxes
Our effective tax rate for the six months ended June 30, 2022 remained relatively unchanged from the effective tax rate for the six months ended June 30, 2021, decreasing slightly to 16.0% from 16.1%.
Net Income
Net income for the first six months of 2022 increased by $0.9 million to $11.2 million, or $0.76 per basic and diluted share, compared with net income of $10.3 million, or $0.71 per basic and $0.70 per diluted share, for the first six months of 2021. Net income represented 7% of revenue for the first six months of 2022, compared to 8% of revenue for the first six months of 2021.
Supplemental Segment Information
Our reportable segments have been determined in accordance with ASC 280 - Segment Reporting. We have three reportable operating segments: TruBridge, Acute Care EHR and Post-acute Care EHR. We evaluate each of our three operating segments based on segment revenues and segment adjusted EBITDA.
Adjusted EBITDA consists of GAAP net income as reported and adjusts for (i) deferred revenue purchase accounting adjustments arising from purchase allocation adjustments related to business acquisitions; (ii) depreciation expense; (iii) amortization of software development costs; (iv) amortization of acquisition-related intangible assets; (v) stock-based compensation; (vi) severance and other non-recurring charges; (vii) interest expense and other, net; (viii) gain on contingent consideration; and (ix) the provision for income taxes. The segment measurements provided to and evaluated by the chief operating decision makers ("CODM") are described in Note 17. These results should be considered in addition to, and not as a substitute for, results reported in accordance with GAAP.
The following table presents a summary of the revenues and adjusted EBITDA of our three operating segments for the three and six months ended June 30, 2022 and 2021:
Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20222021$%20222021$%
(In thousands)
Revenues by segment:
TruBridge$48,583 $32,566 $16,017 49 %$91,692 $64,205 $27,487 43 %
Acute Care EHR29,671 31,562 (1,891)(6)%60,063 63,452 (3,389)(5)%
Post-acute Care EHR4,472 4,405 67 %8,842 8,881 (39)— %
Adjusted EBITDA by segment:
TruBridge$8,744 $6,860 $1,884 27 %$19,549 $13,378 $6,171 46 %
Acute Care EHR4,311 6,190 (1,879)(30)%9,332 10,876 (1,544)(14)%
Post-acute Care EHR114 1,242 (1,128)(91)%442 1,862 (1,420)(76)%
Segment Revenues
Refer to the corresponding discussion of revenues for each of our reportable segments previously provided under the Revenues heading of this Management's Discussion and Analysis. There are no intersegment revenues to be eliminated in computing segment revenue.
Segment Adjusted EBITDA - Three Months Ended June 30, 2022 Compared with Three Months Ended June 30, 2021
TruBridge adjusted EBITDA increased by $1.9 million, or 27%, compared to the second quarter of 2021. Revenue growth of of 49% was partially offset by a 143 basis point decrease in gross margins, as growth materialized from lower-margin, resource-intensive service lines. This decrease in gross margins combined with expanded operating expenses to limit adjusted EBITDA growth in light of this dramatic increase in revenues.


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Acute Care EHR adjusted EBITDA decreased by $1.9 million, or 30%. The aforementioned decrease in non-recurring revenues caused a $1.1 million decrease in gross profit, while the resumption of our in-person National Client Conference and increased benefits costs led to increased operating expenses.
Post-acute Care EHR adjusted EBITDA decreased by $1.1 million, or 91%, as revenues were effectively flat over the comparative periods while labor and travel costs led to increased costs of sales and our product development resources experienced an unfavorable shift in workload mix away from capitalizable projects and towards support functions, resulting in increased operating expenses.
Segment Adjusted EBITDA - Six Months Ended June 30, 2022 Compared with Six Months Ended June 30, 2021
TruBridge adjusted EBITDA increased by $6.2 million, or 46%, compared to the first six months of 2021. With costs of sales increasing in proportion with the increase in revenues, adjusted EBITDA expansion was driven by moderate operating leverage that allowed for a more efficient use of operating expense functions in the first six months of 2022 compared to the first six months of 2021.
Acute Care EHR adjusted EBITDA decreased by $1.5 million, or 14%, as gross margins decreased only 14 basis points but overall operating costs remained relatively unchanged as improved labor capitalization rates drove product development expenses lower, mostly offsetting increased costs associated with our sales and marketing efforts (including the resumption of our in-person National Client Conference) and increased benefits costs.
Post-acute Care EHR adjusted EBITDA decreased by $1.4 million, or 76%. Despite only a slight decrease in related revenues, adjusted EBITDA suffered from the aforementioned gross margin compression of our post-acute care EHR business and increased operating expenses as our product development resources experienced an unfavorable shift in workload mix away from capitalizable projects and towards support functions.
Liquidity and Capital Resources
The Company’s liquidity and capital resources were not materially impacted by COVID-19 and related economic conditions during the six months ended June 30, 2022. For further discussion regarding the potential future impacts of COVID-19 and related economic conditions on the Company’s liquidity and capital resources, see “COVID-19” in this Management's Discussion and Analysis of Financial Condition and Results of Operations and Part I, "Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.
Sources of Liquidity
As of June 30, 2022, our principal sources of liquidity consisted of cash and cash equivalents of $15.1 million and our remaining borrowing capacity under the revolving credit facility of $86.3 million, compared to $11.4 million of cash and cash equivalents and $79.0 million of remaining borrowing capacity under the revolving credit facility as of December 31, 2021. In conjunction with our acquisition of HHI in January 2016, we entered into a syndicated credit agreement 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, including a $75 million term loan facility and a $110 million revolving credit facility. On May 2, 2022, we entered into a First Amendment to the Amended and Restated Credit Agreement that further increased the aggregate principal amount of our credit facilities to $260 million, which includes a $70 million term loan facility and a $160 million revolving credit facility.
As of June 30, 2022, we had $142.8 million in principal amount of indebtedness outstanding under the credit facilities. In addition, we had operating lease liabilities totaling approximately $8.3 million payable over the next eight years. We believe that our cash and cash equivalents of $15.1 million as of June 30, 2022, the future operating cash flows of the combined entity, and our remaining borrowing capacity under the revolving credit facility of $86.3 million as of June 30, 2022, taken together, provide adequate resources to fund ongoing cash requirements for the next twelve months and beyond. 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.
Operating Cash Flow Activities
Net cash provided by operating activities decreased by $14.0 million from $33.1 million provided by operations for the six months ended June 30, 2021 to $19.1 million provided by operations for the six months ended June 30, 2022. The decrease in


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cash flows provided by operations is primarily due to disadvantageous changes in working capital, most notably as it relates to an expansion in accounts receivable. Accounts receivable contracted during the first six months of 2021, resulting in a benefit to operating cash flows of $1.1 million. Comparatively, accounts receivable expanded significantly during the first six months of 2022 due to revenue growth and timing of customer payments, resulting in an $11.1 million detrimental impact to operating cash flows.
Investing Cash Flow Activities
Net cash used in investing activities decreased by $11.9 million, with $52.6 million used in the six months ended June 30, 2022 compared to $64.6 million used during the six months ended June 30, 2021. We completed our $43.8 million acquisition of HRG during the first quarter of 2022. The HRG acquisition was funded through a draw of $48.0 million on our credit facilities. Conversely, we completed our $59.8 million acquisition of TruCode during the second quarter of 2021. In addition, cash outflows for the investment in software development increased from $4.1 million during the first six months of 2021 to $8.7 million during the first six months of 2022 due to the aforementioned change in methodology for estimating labor costs eligible for capitalization.
Financing Cash Flow Activities
During the six months ended June 30, 2022, our financing activities were a net source of cash in the amount of $37.2 million, as $48.0 million in borrowings from our revolving line of credit were partially offset by long-term debt principal payments of $7.1 million and $4.2 million used to repurchase shares of our common stock, which are treated as treasury stock. Financing activities were a net source of cash in the amount of $37.9 million during the six months ended June 30, 2021, as $61.0 million in borrowings from our revolving line of credit were partially offset by long-term debt principal payments of $21.9 million and $1.2 million used to repurchase shares of our common stock.
On September 4, 2020, our Board of Directors approved a stock repurchase program to repurchase up to $30.0 million in aggregate amount of the Company's outstanding shares of common stock through open market purchases, privately-negotiated transactions, or otherwise in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. On July 27, 2022, our Board of Directors extended the expiration of the stock repurchase program to September 24, 2024. These shares may be purchased from time to time throughout the duration of the stock repurchase program depending upon market conditions. Our ability to repurchase shares is subject to compliance with the terms of our Amended and Restated Credit Agreement. Concurrent with the authorization of this stock repurchase program, the Board of Directors opted to indefinitely suspend all quarterly dividends.
Credit Agreement
As of June 30, 2022, we had $69.1 million in principal amount outstanding under the term loan facility and $73.7 million million in principal amount outstanding under the 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 SOFR 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 SOFR rate, subject to the aforementioned floor, plus one percent per annum, or (3) a combination of (1) and (2). The applicable margin range for SOFR 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 June 30, 2022, with quarterly principal payments of approximately $0.9 million through March 31, 2027, with maturity on May 2, 2027 or or such earlier date as the obligations under the Amended and Restated Credit Agreement as amended by the First Amendment 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.
Our credit facilities are secured pursuant to the Amended and Restated Credit Agreement, dated as of June 16, 2020, among the parties identified as obligors therein and Regions, as collateral agent, on a first priority basis by a security interest in substantially all of the tangible and intangible assets (subject to certain exceptions) of the Company and certain subsidiaries of the Company, as guarantors (collectively, the “Subsidiary Guarantors”), including certain registered intellectual property and the capital stock of certain of the Company’s direct and indirect subsidiaries. Our obligations under the Amended and Restated Credit Agreement are also guaranteed by the Subsidiary Guarantors.
The First Amendment provides incremental facility capacity of $75 million, subject to certain conditions. The Amended and Restated Credit Agreement, as amended by the First Amendment, 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


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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 First Amendment requires the Company to maintain a minimum fixed charge coverage ratio of 1.25:1.00 throughout the duration of such agreement. Under the First Amendment, the Company is required to comply with a maximum consolidated net leverage ratio of 3.75:1.00 for each quarter through March 31, 2023, after which time the maximum consolidated net leverage ratio will be 3.50:1.00. Further, under the First Amendment, in connection with any acquisition by the Company exceeding $25 million, the Company may elect to increase the maximum permitted consolidated net leverage ratio for the fiscal quarter in which the acquisition occurs and each of the following three fiscal quarters by 0.50:1.00 above the otherwise permitted maximum. If the consolidated net leverage ratio is less than 2.50:1:00, there is no limit on incremental facilities. 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 June 30, 2022.
The First Amendment removed the requirement that the Company mandatorily prepay the credit facilities with excess cash flow generated during the prior fiscal year. 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 SOFR rate loans made on a day other than the last day of any applicable interest period.
Backlog
Backlog consists of revenues we reasonably expect to recognize over the next twelve months under all existing contracts, including those with remaining performance obligations that have original expected durations of one year or less and those with fees that are variable in which we estimate future revenues. The revenues to be recognized may relate to a combination of one-time fees for system sales and recurring fees for support and maintenance and TruBridge services. As of June 30, 2022, we had a twelve-month backlog of approximately $6 million in connection with non-recurring system purchases and approximately $321 million in connection with recurring payments under support and maintenance, Cloud EHR contracts, and TruBridge services, $34 million of which was attributable to HRG. As of June 30, 2021, we had a twelve-month backlog of approximately $8 million in connection with non-recurring system purchases and approximately $259 million in connection with recurring payments under support and maintenance, Cloud EHR contracts, 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 six months ended June 30, 2022 and 2021:
Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2022202120222021
TruBridge (1)
$15,577 $6,249 25,728 8,936 
System sales and support (2)
Acute Care EHR7,497 9,697 $16,583 $15,139 
Post-acute Care EHR725 605 1,885 1,253 
Total system sales and support8,222 10,302 18,468 16,392 
Total bookings$23,799 $16,551 $44,196 $25,328 
(1) 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 system sales) and annualized contract value (for support).

Sales activities during the first six months of 2021 suffered from a number of incremental headwinds, chief among them being (a) COVID-19 related distractions, including increased infection rates for certain geographies and widespread focus on eventual vaccine rollouts, (b) reorganization transitions related to our February 2021 reduction-in-force, and (c) lower-value regulatory purchases required by the Centers for Medicare and Medicaid Services' Hospital Price Transparency mandate requiring hospitals to provide clear, accessible pricing information online. These topics disproportionately dominated sales discussions and resources. Such headwinds began dissipating during the third quarter of 2021, resulting in overall bookings growth during the second quarter of 2022 of $7.2 million, or 44%, over the second quarter of 2021.


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TruBridge bookings during the second quarter of 2022 increased by $9.3 million, or 149%, over the second quarter of 2021 as the aforementioned improvement in the sales environment drove bookings from our existing EHR customer base to an increase of $4.2 million, or 90%. Bookings were further supported by large contract signings for encoder solutions from our recently-acquired TruCode business and sales execution from our recent acquisition of HRG, resulting in a $5.1 million, or more than 300% increase in bookings from hospitals outside of our EHR customer base. These same dynamics have resulted in TruBridge bookings for the first six months of 2022 increasing $16.8 million, or nearly 190% over the first six months of 2021.

Acute Care EHR bookings during the second quarter of 2022 decreased by $2.2 million, or 23%, from the second quarter of 2021. This decrease is attributed to general volatility in bookings for add-on applications to existing customers. Acute Care EHR bookings for the first six months of 2022 increased by $1.4 million, or 10%, over the first six months of 2021, due mostly to the aforementioned improvement in the sales environment.

Post-acute Care EHR bookings increased by $0.1 million, or 20%, over the second quarter of 2021 and $0.6 million, or 50%, over the first six months of 2021 as the improved sales environment worked in tandem with recent product innovations designed to improve the competitive position of our AHT products.
Critical Accounting Policies and Estimates
Our Management Discussion and Analysis is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make subjective or complex judgments that may affect the reported financial condition and results of operations. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the reported values of assets, liabilities, revenues, expenses and other financial amounts that are not readily apparent from other sources. Actual results may differ from these estimates and these estimates may differ under different assumptions or conditions. We continually evaluate the information used to make these estimates as our business and the economic environment changes.
In our Annual Report on Form 10-K for the year ended December 31, 2021, we identified our critical accounting polices and estimates related to revenue recognition, allowance for credit losses, income taxes, business combinations, including purchased intangible assets, and software development costs. There have been no significant changes to these critical accounting policies during the six months ended June 30, 2022.


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Item 3.
Quantitative and Qualitative Disclosures about Market Risk.
Our exposure to market risk relates primarily to the potential change in the Secured Overnight Financing Rate ("SOFR"), which replaced the British Bankers Association London Interbank Offered Rate ("LIBOR") as the new banchmark interest rate for our credit facililties. We had $142.8 million of outstanding borrowings under our credit facilities with Regions Bank at June 30, 2022. The term loan facility and revolving credit facility bear interest at a rate per annum equal to an applicable margin plus, at our option, either (1) the Adjusted SOFR 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 SOFR rate, subject to the aforementioned floor, plus one percent per annum, or (3) a combination of (1) and (2). Accordingly, we are exposed to fluctuations in interest rates on borrowings under the credit facilities. A one hundred basis point change in interest rate on our borrowings outstanding as of June 30, 2022 would result in a change in interest expense of approximately $1.4 million annually.
We did not have investments and do not utilize derivative financial instruments to manage our interest rate risks.

Item 4.
Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the rules and forms promulgated by the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations to the effectiveness of any system of disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that all control issues and instances of fraud, if any, with a company have been prevented or detected on a timely basis. Even disclosure controls and procedures determined to be effective can only provide reasonable assurance that their objectives are achieved.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
On March 1, 2022, we acquired HRG, as further described in Note 4 of the notes to the condensed consolidated financial statements. We continue to integrate policies, processes, people, technology, and operations for our combined operations, and we will continue to evaluate the impact of any related changes to internal control over financial reporting during the fiscal year. There were no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


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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, 2021, 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. There have been no material changes to the risk factors disclosed in Part 1, "Item 1A. Risk Factors" in our Annual Report on Form 10-K.

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

Repurchases of Equity Securities

The following table provides information about our repurchases of common stock during the three months ended June 30, 2022:
Period
Total Number of Shares Purchased(1)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(3)
Beginning of Period$28,091,554 
April 1, 2022 - April 30, 2022— $— — 28,091,554 
May 1, 2022 - May 31, 20222,185 31.34 — 28,091,554 
June 1, 2022 - June 30, 202278,779 32.11 78,799 $25,562,194 
Total80,964 $32.09 78,799 
(1) We repurchased 2,185 shares during the three months ended June 30, 2022 that were not made pursuant to our previously announced stock repurchase program, but were purchased 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.
(2) Shares purchased during the three months ended June 30, 2022 pursuant to our previously announced stock repurchase program.
(3) 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. On July 27, 2022, the Board of Directors extended the expiration date of the stock repurchase program to September 4, 2024. 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.

Item 3.
Defaults Upon Senior Securities.
Not applicable.
 
Item 4.
Mine Safety Disclosures.
Not applicable.
 


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Item 5.
Other Information.

None.



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Item 6.
Exhibits.
3.1
3.2
3.3
10.1
10.2
10.3
31.1
31.2
32.1
101Interactive Data Files for CPSI’s Form 10-Q for the period ended June 30, 2022
*Certain annexes and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. CPSI hereby agrees to furnish supplementally copies of any of the omitted documents to the SEC upon its request.



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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.
8/8/2022By:/s/ Christopher L. Fowler
Christopher L. Fowler
President and Chief Executive Officer
8/8/2022By:/s/ Matt J. Chambless
Matt J. Chambless
Chief Financial Officer



46

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
5/2/27
3/31/27
9/24/24
9/4/24
3/31/23
12/31/22
9/4/22
9/3/22
Filed on:8/8/22
8/5/22
8/3/22
7/27/22
For Period end:6/30/22
6/1/22
5/31/22
5/2/224,  8-K
5/1/22
4/30/22
4/1/224
3/31/2210-Q
3/1/224,  8-K
12/31/2110-K,  5
6/30/2110-Q
5/12/218-K
3/31/2110-Q,  DEF 14A,  DEFA14A
2/1/214
1/1/21
12/31/2010-K
9/4/20
6/16/208-K
1/1/19
 List all Filings 


6 Previous Filings that this Filing References

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 5/16/22  Computer Programs & Systems Inc.  8-K:5,9     5/12/22   11:301K                                   Donnelley … Solutions/FA
 5/03/22  Computer Programs & Systems Inc.  8-K:1,2,9   5/02/22   11:1.2M                                   Donnelley … Solutions/FA
 5/02/22  Computer Programs & Systems Inc.  8-K:5,7,9   4/27/22   12:244K                                   Donnelley … Solutions/FA
 1/22/19  Computer Programs & Systems Inc.  8-K:5,8,9   1/22/19    3:27K                                    Donnelley … Solutions/FA
10/29/13  Computer Programs & Systems Inc.  8-K:5,9    10/28/13    2:160K
 3/21/02  Computer Programs & Systems Inc.  S-1                   10:335K                                   Donnelley Fin’l S… 10/FA
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