Ladies and gentlemen, thank you for standing by and welcome to the CPSI Second Quarter 2017 Earnings Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, today, Thursday, August 3, 2017. I would now turn the conference over to Mr. Boyd Douglas, President and Chief Executive Officer with CPSI. Please go ahead, sir.

Thank you, Calvin. Good afternoon, everyone, and thank you for joining us. During this conference call, we may make statements regarding future operating plans, expectations and performance that constitute forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. We caution you that any such forward-looking statements only reflect management expectations and predictions based upon currently available information and are not guarantees of future results or performance. Actual results might differ materially from those expressed or implied by such forward-looking statements as a result of known and unknown risks, uncertainties, and other factors, including those described in our public releases and reports filed with the Securities and Exchange Commission including, but not limited to, our most recent Annual Report on Form 10-K. We also caution investors that the forward-looking information provided in this call represents our outlook only as of this date and we undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call. Joining me on the call today will be Matt Chambless, Chief Financial Officer; Chris Fowler, Chief Operating Officer; and David Dye, Chief Growth Officer. At the conclusion of our prepared comments, we will be available to take any questions that you may have. As we close out the first half of 2017, I'm very pleased with the consistent performance from CPSI and our family of companies. Our company achieved another quarterly record with company bookings over $33 million. And as we stated last quarter, our healthy install schedule continues to have a positive impact on our revenue this year. As expected our now larger client base is generating increased opportunity for add-on sales. We started out the year partnering with our clients to map out a reasonable…

Thanks Boyd. Good afternoon everyone. As Boyd alluded to, and as we mentioned in the earnings release a healthy Thrive implementation schedule working in tandem with TruBridge momentum, resulted in our first period of sequential revenue growth since the Healthland acquisition which translated in to growth in non-GAAP EPS and adjusted EBITDA despite a heavy dose of operating expenses during the second quarter. However, as impressive as these two indicators were during the second quarter we weren't able to fully overcome the headwinds created by the past 12 months' work down of Healthland migration opportunities resulting in revenues, non-GAAP EPS and adjusted EBITDA all coming in below prior year results. In addition to the healthy Thrive implementation schedule, and impressive TruBridge revenue growth a few other things were noticeable in this quarter's performance. First this proved to be a heavy quarter for operating expenses. This is most apparent in our general and administrative expenses for the quarter which included the lion's share of the costs associated with our one-time voluntary early retirement program that we have announced on last quarter's call and substantially all of the annual expense associated with our first combined national client conference for our family of companies which was held in May this year. Secondly, some noise in our balance sheet made us wade prominently into our cash flows as a high volume of finance system sales purchases led to a sequential expansion in financing receivables of more $4 million and combined payables and accrued liabilities expanded $6 million due to the timing of payroll and vendor payments. All told cash performance was sufficient to allow for a $1.5 million advanced payment against our revolving credit facility at the end of the quarter. Lastly, bookings came in at record $33.7 million beating the previous high mark…

Thank you, Matt and good afternoon everyone. Last quarter we provided a preview in to Q2 by sharing that in April, TruBridge has signed the largest contract in our history with the $3.1 million value. In addition this quarter TruBridge obtained a bookings record of $8.7 million. We attribute this performance and long-term upward trend to the increasing demand from hospitals needing to improve their financial operations. To add some color to the strong and solid bookings performance. TruBridge again booked $1.5 million in add-on business for Rycan Revenue Cycle Management Solutions. We expect this consistent performance of $1 million to $1.5 million of bookings, each quarter we carry through well into the future as we estimate having only penetrated approximately 15% of our entire acute care client base today. We see a clear path to achieving at least 50% penetration into our expanded base over the next two years. In addition, $5.6 million of our Q2 booking were attributed to our accounts receivable management solution which continues to build with a healthy reoccurring revenue stream for us. We're seeing a 5% growth in revenues compared to 2016 year-to-date and a 7% increase in revenues since Q1 of this year. With the sales momentum we are building for our accounts receivable management solution, we project to have 20% growth in the second half of this year, compared to the second half 2016. Looking ahead, we see a sustained level of net new and add-on sales through the second half 2017 for TruBridge. At our national client conference in May, we launched our new business intelligence dashboard. The genuine interest we are seeing across the base is a testament to our development efforts, leading to more in terms of client need. Including analytics that are integrated with their EHR delivering real-time…

Thanks, Chris. The good work of our sales teams over the past several quarters has our company positioned to experienced meaningful growth over the next several quarters. Year-to-date at June 30, of this year combined Evident Healthland and AST, EHR bookings are up 11% year-over-year, Rycan, 189%, TruBridge 39% and total CPSI bookings across all companies 21%. We are particularly excited about the last nine months of sales execution within TruBridge, Chris mentioned with these sales efforts are now translating into revenue. And as such we expect significant year-over-year and sequential growth within TruBridge over the reminder of 2017 and into 2019. In addition the TruBridge sales pipeline remain soft with the number of mid to larger accounts receivable management engagements in the mix between now and the end of the year. On the EHR side of the business, add-on sales were once again strong. In large part due to MU3 related orders. In the second quarter we closed over $10 million in MU3 sales. We expect these orders to continue in the third quarter before tapering off in the fourth . However, we also expect sales of our BI dashboard to accelerate late this year and into 2018. New hospital system sales of Thrive in the second quarter were steady, with six new deals averaging just over $1 million. Based on our current pipeline, we expect to sign six to eight new customer contracts in the third quarter. And in addition to new contracts, we now have 14 hospital customers or an additional four since the last earnings call that have previously signed a contract with the competitive vendor but after a sales implementation have return to either drive or centric. Once again, this demonstrates that a complete single source integrated product, is the only truly effective EHR for community healthcare. Calvin, please open the call for questions.

Thank you, sir. [Operating Instructions] Our first question comes from the line of Jeff Garro with William Blair and Company. Please go ahead with your question.

Yeah. Good afternoon guys. Thanks for taking the questions. I want to ask couple of questions on bookings first. The first of which is how is your win rate trending and why are organizations taking CPSI?

The win rates study Jeffrey, as it has been last couple of years. In deals where we had an opportunity to demonstrate [indiscernible] just over 50% with our win rate and that's has been steady now for years [indiscernible]. With the correspondence in the closing why they pick CPSI or in this case Evidence Thrive is that they realize that is a clear solution and this is an opportunity for them to get functional maybe in the clinical areas, but also to have all information from the clinical areas, flow down the financial so that they can improve the cash flow. I think that's typically the reason everyone.

Got it, may be another one following up. Has there been a change in average deal size and maybe more specifically are more deals including Trubridge from the start and maybe throwing that one another way you are talking about an integrated solution. Is that integrated solution included both your clinical and financial software as well as some of the services that your company can provide.

Yeah. We do have more deals that are including Trubridge. Now when I say for example that we had six deals that averaged over $1 million each, that million dollars is not including the Trubridge component. That would fall over to the Trubridge bookings themselves. I think we're running somewhere between third to a half in the given quarter of deals or include accounts receivable management when they sign on with the Evidence Thrive they're also getting Trubridge to run there back office.

Got it. One more from me before I hop back in the queue. You had very strong bookings in the quarter and you talked about the impact from that CMS final rule changing, I mean for EU stage three regulations and how that'll impact revenue recognition. But curious how you see that final rule impacting booking the activity for the rest of the year.

Yeah. I think our clients know. We've been through this and our customers have been through this now. This will be the third year along the way that we have to start demanding [ph] for each program. So I think we're all not terribly surprised but also know that it's not going away. They are still staring us down. I think there'll be some folks that do delay now on booking ME3 and through the beginning of 2018 however I think the vast majority of our customer base will commit to that. And it will shop up in bookings sometime in the third or fourth quarter this year. Q - Jeff Garro. Got it. Thanks again guy.

Thanks Jeff.

Our next question comes from the line of Jamie Stockton with Wells Fargo Securities, Please go ahead with your question.

Hi thanks for the question. This is actually Nathan in for Jamie. Give that Allscripts is buying the McKesson Hospital software business, can you talk about how often you see Paragon and Sunrise? And then I guess as a second one related to that. Do you have any thoughts on what is likely to happen in the market with that transaction? Thanks.

Yeah. Great question. We - I can't remember the last time we saw - not Paragon, would just say Horizon, it's probably been a decade - yeah Sunrise, same thing. With regard to Paragon we've competed head-to-head with them in a deal or been included with them in a deal. It's been at least 18 months. I think the knowledge that, that product was for sale. It's kind of taken them out of the market in terms of folks buying it as a replacement product. So head to head has been a long time. How do we think it'll affect? I don't know what Allscripts is going to articulate today and down the road as far as what their plans for those Paragon customers. Obviously they have a plan. We have seen, over the last, let's say 12 months a handful of Paragon sites that were maybe a bit on edge about their future and entered our sales pipeline. It remains to be seen what Allscripts plans to do about that.

Okay great and then one more question. Can you run us through your high level thoughts around how penetrated your TruBridge solutions are in the current client base? Thanks.

Yeah, - for us. So depending on what service we're talking about as I said in the prepared comments we're about 15% on right hand when we look at the accounts receivable management service which is our flagship offering, I would say we're closer to 11%. And then on the private pay services, which is the early out, we're probably right at about 18%. So there's still a tremendous amount of runway within the customer base on most all of our lines.

Okay, great, thanks.

Thanks Nathan.

Our next question comes from the line of Stuart Goldberg with Lightspeed Capital. Your line is open. Please go ahead with your question.

Yeah good afternoon. Great quarter guys, Quick - couple of quick questions just for Matt balance sheet items to clean up. Wanted to understand the financing receivables a little better, the growth there. And then the deferred revenues, I know they tend to peak in the first quarter and then you drift downward in next three quarters we expect to see the same thing over the next three quarters from here?

Yeah Stuart so first of all on the deferred revenue you're exactly right, we mentioned on the first quarter earnings call that we saw an increase in deferred revenue due to some annual subscription renewals or build out in the first quarter. And we don't see anything like that for the remainder of this year. So we should see just kind of a steady work down of deferred revenue for the rest of the year. With the financing receivables and the way that impacts the balance sheet, that's all dependent upon the volume at which - or the demand that we see from our customer base for long term financing of those solutions. And that can be - I don't want to use the word volatile but it can be variable from period to period and during the second quarter of 2017 we saw of the nine non-SaaS or non-cloud and SaaS I believe eight of those were long term finance type arrangements. So that level of financing is certainly unusual for us, but is that the explanation you're looking for?

Yeah no, that's fine. And then cash balances I think whenever you have one in front of your cash balance I was getting a little nervous and you've always carried low cash balances but now we're carrying at about a million and plus almost $2 million. Shouldn't we be carrying a little bit higher cash balances for that there's a quarter where we're light or something goes wrong?

When it comes to liquidity we look at our liquidity as coming from pre-sources so it's balance sheet cash, cash flow from operations that we project for the next quarter and then also the runway the dry powder that we have on our revolving credit facility. And that cash balance I does have a one in front of it. And I'll say that that's to a certain extent intentional. We attempt as much as we can to manage our debt balances to elevate ourselves from interest burden. So we feel as though we still have adequate liquidity from cash flow from operations and if the revolver, if necessary but it doesn't really do us any good to just maintain heavy cash on the balance sheet in an environment where interest rates are increasing on us.

Okay, and then last question, the debt-to-EBITDA calculation for your covenants, if I have it correctly it looks like you're bumping up against it. Are we asking for relief on that? Do you think you're going to be much below that and it seems to have been getting closer and closer to that 3.5 times level. Even though your quarters have been improving, it looks like we're bumping up against that what are we doing about that? And I believe it bumps down to three times in December. So as far as December's number goes we're over that but where are we going to be in as far as this covenant goes?

So the way the covenant math works out we're going to be fine for this quarter so there's not necessarily going to be for Q2 the need for covenant relief. But admittedly it is high due to the kind of the decline in trailing 12 months EBITDA that's caused by Q4 and Q1. Q4, 2016, Q1 of 2017 so something that we were obviously keeping our eye on. But we have terrific relationships with our banks and relationships that we value and they value. So we continue to monitor that and work those relationships.

Great, thank you very much. Congrats.

Thanks.

Our next question comes from the line of Dave Larsen with Leerink Partners. Your line is open please go ahead with your question.

Hey guys it's actually Matt in for Dave, just a question on OpEx, you said it was heavy in the quarter. How should we think about that the next few quarters is G&A going to come down now the voluntary retirement program is over?

Yeah so if I were thinking about that sequentially Matt $1.3 million of the sequential increase this quarter is going to come out from the voluntary retirement program. $1.1 million of the sequential increase was from the national client conference that we held and that's not going to be recurring in the second quarter, the third quarter so we should see that come down and normalize by. That combines to $2.4 million. So that's $2.4 million of our sequential increase that won't be there next quarter.

Okay great, and then SG&A our sales and market we should think about steady going forward?

Yeah I mean sales and marketing is going to be driven by commission. So as the forecast for revenue goes, so goes sales and marketing to a certain extent.

Okay and then just wanted to - I didn't I don't know if I heard this in prior quarters you gave us an update on retention rates have those been steady or improving this quarter?

Yeah I'd say that retention rates for both Evident and Healthland are materially consistent where they - what we've been announcing for the last few quarters.

Okay thank you.

Our next question comes from the line of Sean McBride with Robert W. Baird. Your line is open. Please go ahead with your question.

Hi thanks for taking the question. I want to ask about the competitive environment. So given your success in winning back a number of these clients that had previously left, how is that changing your dialog with clients and prospects and with this in mind, has the competitive process at all changed with the dialog with the competitors? Thanks.

Yeah thanks Sean. It certainly has - in terms of competition with a vendor or two that was problematic in the past. I mean certainly when you can point them too and have them have conversations with folks that maybe kind of bought into a sales pitch and the glamor of it. And then once the rubber met the road ahead and what does it mean. And the docs started uses and the nurses and their lab techs and radiology techs and the billers and their medical [indiscernible] and the cash flow suffered as the result. That's a completely different thing. So when you can give some current prospects to those folks that have tried and failed with some other systems to talk through that certainly helps us and it is helping us. Having said that it's no surprise that we've been doing this now for longer than we'd care to admit, three decades plus. In the environment out there there's a lot of good competitors. They're always helping. They are certainly all right now and so each deal is extremely competitive.

Our next question comes from the line of Gene Mannheimer with Dougherty & Company. Your line is open please go ahead.

Thanks good afternoon. Congrats on all the good progress this quarter guys. Question on the DI dashboard, how would you size that opportunity, if every one year clients were to buy it, what would the add-on opportunity look like and is that something that can scale down it's Healthland based and even AHT based?

Hi Gene. This is Chris. So I think we talked about this last quarter as well. Right now we're still working on getting those early adopters in and continuing to build out the panels that we've got in that offering. And right now we have a little incentive go to help facilitate that. Right now projected bookings are somewhere between $35,000 and $50,000. With the subscription going forward being anywhere from $12,000. And I think that's pretty consistent with both Evident and Healthland. We are looking at probably a lighter offering and as it relates to the fee base. And so we're still trying to formulate exactly how we want to deliver that just based on their operating margins and their wallet size and making sure that we're providing them what they need. Obviously not quite as complex and as many offerings needed as we need only in the acute space. So that's something that we're working from a development standpoint for the second half of the year and hopefully prepared to be able to delivering that first of 2018.

Okay, great update Chris thank you. And Boyd you led off the call with some comments around the eight ACO communities which sounds interesting. How if at all is that a monetizable event how should we be thinking about that thanks?

Yeah that -

All right, go ahead Chris.

Okay sorry I'll just take that Gene. So what we're looking at from how that's going to translate, we should have as Boyd said 35 plus hospitals participating in our ACO initiative, right have 8 ACOs that we're delivering. We're still working through the number that will actually cover, which that will than dictate the spin for us. And then also the potential for reimbursements. Starting January of 2018 we'll be collecting $4 per covered life per month from the facility. And one of those - and we will add a dollar into that as well. So for every covered life that we have CPSI will have a dollar expensed per month and we should see reimbursement or revenue opportunities starting in the third quarter of 2019. So all of 2018 and the first half of 2019 there'll be an investment on our status as well as the hospitals and then we'll start seeing that payout in the second half of 2019. But I hope to give you final numbers I think we'll be better equipped at probably on the next call as we're still ramping up the final parts of these applications and getting the full numbers of the facilities that will be included.

Okay that's terrific. I'm sorry I missed what you said, what would the PMPM see that you would collect fee?

We're going to be paying a $1 a month and we'll be collecting $4 per member per month from the facilities.

Got you. Thank you.

[Operator Instructions] Our next question comes from the line of Mike Ott with Oppenheimer. Please go ahead with your question.

Good afternoon. Thanks for taking my question. Just curious how the implementation is going on that big $3.1 million TruBridge contract you signed in April or is that complete at this time?

Yeah hi, Mike this is Chris. We're tracking along with it. Things are going well and we continue to see further opportunity with the customer. It is part of a five year deal. So the great news about that is we see that recurring over the next several years. But early indications, everything is going really well. Obviously what size of the deal we've got a lot of attention, focus on it. So making sure that there is no hiccup.

Great thanks, Chris and then I believe last call you guys mentioned a couple of implementation delays that the customers had pushed out from Q1 to Q2. Just want to see were those in the ten deals you announced this quarter?

Yeah this is Matt. One of those were. So on the last call we got it towards 11 go lives and the drop down at 10 wasn't a simpler matters it's just one slipping. There are some ins and outs there but the end result was that one side delay. But yeah so, one of the two that delayed in the first quarter, did install. The other one slipped in the third.

All right. Thanks very much.

And there are no further questions on the phone lines. I'll now turn the call back to the presenters for closing remarks.

Great. I'd just like to thank everyone for being on the call this afternoon. I appreciate it and hope everyone has a great weekend. Thank you.

And ladies and gentlemen that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your lines.