Ladies and gentlemen, thank you for standing by, and welcome to the CPSI Third Quarter 2018 Earnings Conference Call. [Operator Instructions] And a quick reminder, today's conference is being recorded. It's November 1, 2018. All right. Now my pleasure to introduce Boyd Douglas, President and Chief Executive Officer of CPSI. Please go ahead, sir.

Thank you, David. 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; and Chris Fowler, Chief Operating Officer. At the conclusion of our prepared comments, the 3 of us and David Dye, our Chief Growth Officer, will be available to take any questions you may have. As you know, CPSI and our family of companies are transitioning from being a market leader of healthcare software to a leader in software products and services for the communities that we serve. As TruBridge nears the $100 million mark in services revenue, we believe there is significant opportunity ahead of us. Helping to shape and secure the future of community healthcare is what will drive this transformation and the benefit to CPSI in this process is exciting. As we…

Thanks, Boyd, and good afternoon, everyone. The healthy implementation calendar, a stable acute care EHR customer base and continued execution on the TruBridge growth strategy resulted in a terrific quarter for CPSI. Revenues, GAAP and non-GAAP EPS and adjusted EBITDA all improved both sequentially and year-over-year, with EPS amounts being further bolstered by discrete tax adjustments to the tune of roughly $0.21 per share. Total revenues are up 2% sequentially and 3% year-over-year. GAAP EPS is up by a factor of over 20% sequentially and a 141% year-over-year. Non-GAAP EPS is up 132% sequentially and 84% year-over-year, and adjusted EBITDA is up 47% sequentially and 8% year-over-year. Operating cash flows for the quarter increased for the second consecutive period to $7 million or nearly 3 times the same period last year as the combined power of our sizable recurring revenue base and cash conversion on past MU3 revenues propelled this to our best cash flow period since the first quarter of 2017, all while faced with a $4.3 million further expansion in financing receivables. Recurring revenues made up 81% of revenues for the period and 79% of trailing 12-month revenues. TruBridge bookings showed a 15% improvement over the second quarter but are down 31% from Q3 2017's record bookings, which were propelled by a high volume of high-dollar contracts. This volatility in high-dollar contracts masks a strengthening trend in our core market for TruBridge services, with bookings for contracts valued at less than $500,000, increasing 17% over the third quarter of last year to $5 million this quarter, and the past two quarters, setting high water marks for this key booking demographic. However, the software side of our business continues to experience bookings volatility, with system sales and support bookings down 33% sequentially, primarily as both net new and add-on…

Thank you, Matt, and good afternoon, everyone. As we draw near a $100 million in revenue for TruBridge by the end of this fiscal year, we have a great sense of pride. Five years ago, we were just under $50 million in revenue, and there are a number of factors that are fueling this momentum. As Boyd outlined earlier, TruBridge is a tip of the spear in our evolution to becoming a leading provider of software and services. Today, 20% of the U.S. hospital market calls TruBridge their RCM partner, but our efforts to expand the footprint of our market share over the last five years started with an emphasis on our EHR client base. The range of TruBridge services is broad but those that are driving the greatest demand right now are associated with our RCM suite of services, which include, for example, Accounts Receivable Management Services, Private Pay, medical coding and more. Each of these offerings, independently, under the umbrella of our RCM Suite, has a client penetration rate between 10% and 20%. Taking a step back and looking at this from the RCM suite level, we have penetrated 35% of our more than 4,000 clients across our acute and postacute base today. A typical contract for our RCM suite is multiyear, with an average price range of $40,000 to $50,000 each year. The opportunity solely attributed to our EHR client base is significant and has the ability to make a powerful impact for all of CPSI. These client partnerships have led to some impressive results and are the driving reasons behind the recent accolades TruBridge has been awarded by third parties, including the prestigious designation of peer review by HFMA and most recently recognized as the top-ranked provider for end-to-end RCM software technology and RCM outsourcing services…

Operator, if you could please open the call for questions.

[Operator Instructions] First question coming from the line of Jeff Garro from William Blair & Company. You may now proceed.

I want to ask how results are tracking relative to plan. Understanding the shortfall in software-type bookings and that's something, I think, we've seen from many industry participants, but just overall, on both the top line and margins and then if you could kind of translate the end-market activity demand level to what you see going forward for visibility into future results.

Yes, Jeff, this is David Dye. I think, overall, if you think about bookings, I think, we're really pleased with where we are year-to-date and for the quarter. You can always do better but we feel good about that. I think, from the EHR perspective, I think all 3 of the prepared comments mentioned that we would like to do better on that than we did in the third quarter and the things are very promising for the fourth quarter. There's a lot of activity, our win rate's good, but as I think you noted from us and from some of the other players in the marketplace, the activity is just a little slow right now, but the pipeline is very good and we feel very good about our win rate. And as Boyd mentioned, we feel really good about our 25 to 30 new installs per year that we – that's our goal and that we feel like we can track for the next several years. As far as the – as far as how we're tracking, our stated goal was to get to approximately a 20% gross margin in 2019-2020 range. Given what we have going on with recurring revenue growth and our cost-cut measures for 2019, we feel really good about that as well.

Great. And then maybe the follow-up on the bookings activity. You mentioned a high win rate, but maybe you could dive into some of the other drivers specifically? What's RFP activity like in terms of volume? And what's driving the contract size down a little bit that you mentioned? And then, maybe, also a comment on the competitive environment then – and maybe why you're seeing that high win rate?

Yes. The RFP volume is good, which is why we made the commentary about the pipeline. I would say it's not what I'd call stellar, but it's solid. Boyd mentioned that we feel good about getting the average contract size sort of backup to normal size. The contributor to a smaller-than-average size in the third quarter is that we signed a few financial-application-only deals in large epic hospitals in the Midwest, where they just putting our financials, which isn't something that – we've done some in the past, but it's not something that we typically had more than 1 in any quarter. We had, I think, 3 in the third quarter which drove that down. We don't anticipate a whole lot more of that in the next couple of quarters. I think your next question was around competition. I wouldn't say that it's changed a whole lot. We're still competing a lot with MEDITECH and Cerner, maybe a little bit less with Athena, given the situation there, that would be the – those would be the competitors that we see in almost every deal.

Great. That's helpful. One last one for me. Talking about the spike up in interest in nTrust. I'm curious if there's any particular type of facility that's become interested in that. Are they longtime clients? Are they prospects from outside your base? I know you talked about the innovation that you're delivering there. Maybe a concrete example or 2 of what's new and different that you're bringing to the table there, I think would be helpful.

Jeff, this is Chris. First part of your question, it really kind of spreads the gamut. We're seeing it both on the net new side based on the competitive market, and that is something that we're seeing specifically from one competitor. So we're seeing it on that side. And on the inside of the base, it ranges from customers that have been on the system for 15 years to those that have been on the system for just a handful. A specific example, we've got several hospitals that still are in need of our clinic software and our ED as well as the BI. And those are some of the drivers that we're starting to see hospitals really look towards the nTrust model for.

[Operator Instructions] Next question coming from the line of Mike Ott from Oppenheimer.

Last call, I believe you'd expected 18 installs here in the second half of 2018. It's now, I believe, Matt mentioned 6 were done in 3Q and the release says 13 more expected in 4Q. So if I'm doing the math right, just so I confirm that you were able to pick up 1 new install for the second half for 2019 total?

Yes. That's correct.

Okay. Excellent. And believe, last call, you guys discussed $11 million of revs related to MU3, shifting out to 2018 into 2019, was the shorter attestation period. I just wanted to confirm if that's still the case. And if so, is that – do you expect that to be more second half-weighted in 2019?

Yes. So we – on the last earnings call, the expectation was a little bit up in the air as far as what the second half of 2018 was going to hold for MU3 revenue. We're a little bit more bullish now about what's actually going to pull into 2018 for MU3. And so that naturally limits – provides a bit of a limiting factor on what's going to happen in 2019 for MU3. But just to kind of encapsulate everything MU3-related, and we booked $600,000 of MU3 bookings during Q3. And that was somewhat down from the second quarter's $1.2 million. So live to date bookings of $29.3 million. This quarter, we recognized $3.1 million of revenue, which was a topside surprise for us. That brings the live to date revenue number to $25.2 million. So that leaves us with $4.1 million for the backlog for deals that have already been captured in bookings. We think – we still think that the total potential opportunity there is in that $35 million to $40 million range. So there is still considerable go-get left out there of $5 million to $10 million. As for the timing of the remaining rev rec, we mentioned in the prepared remarks that we expect – right now, we have scheduled $1.9 million of MU3 revenue for Q4, with the potential for more to fall in 2018, but that's what's scheduled right now. So the annual spread, if we look at the total population now, the total universe of MU3, $14 million 2017. Right now, 2018 is looking like $13 million, and with the remainder of that coming in 2019 with the range somewhere between $8 million and $13 million, but a lot of that's still sales-dependent, obviously.

Next question coming from the line of Gene Mannheimer with Dougherty & Company.

I wanted to just follow up on the pushout, if you will, of some of those installs from Q3 to Q4. So if you had 8 scheduled, 2 of them slipped, so now you have 13 slated for the fourth quarter. Realistically, wouldn't we expect a few of those to slip out as well into 2019?

Gene, that's a possibility. The two that slipped are start-ups, and so best guess and what they're telling us, the client opened the doors here in Q4 and certainly they need a system to do that, but as you know, with construction projects, that potentially could happen, but given that they've already slid once, we feel confident that they're going to go into the fourth quarter.

Sure. Understood on that, but what about the other ones that you had – are on the docket for Q4? I mean, it seems like there's some slippage generally.

There aren't any others that are start-ups, so we wouldn't expect to have any slippage besides those that are potentially – than those that are start-up. The slippage of hospitals that aren't start-ups is very rare.

Okay. Good to hear that. And with respect to some of the interest you're seeing in the combined offering of EHR with RCM services, how do those margins look as you make that transition from license and maintenance to subscription? Is that – do they get compressed much?

Yes, a little bit. So overall, from a support standpoint on the Evident side or on the EHR side, they remained pretty consistent. And with the TruBridge side, we're typically around that 35% margin. And Matt's still recognizing that in the independent business unit. So it should not have any translation or any change in what you're seeing going forward.

All right. Good to hear. Great. And also with respect to some of the innovation you're putting out in your AHT business. You indicated you're installed in a 150 sites with your AHT 18. How many – what's the total number of sites there? And is this a revenue event? Or is this upgrade included in those customer maintenance agreement?

Yes. So Gene, it's Chris. We're right at 600 organizations on the AHT side. What they have gone live with is some of the infrastructure. There are some opportunities for revenue down the road. We're still finishing up some of those pieces. BI is being introduced into the AHT market, for example. So that's something that we can give additional color to as we get further into this process.

[Operator Instructions]` And next question coming from the line of Stephanie Demko from Citigroup.

This is Judy Zhang on for Stephanie. I was just wondering if you can comment on the softness on the systems sales and support side? And absent any tough macroenvironmental factors, are there any investments that you're making in your internal teams to improve on this metric?

Are you talking about on the revenue recognition side or on the booking side?

On the booking side.

Yes. We've addressed that in the previous question, but I think that, again, we were happy with our win rate. We feel good about our competitive position. It's improved. We feel good about it over the last 12 to 24 months, but it certainly improved in that period of time, I think, a lot because of the things that we've done but also from some struggles with some of the competitors. Obviously, we've got some headwinds as a result of the fact that MU3, the majority of that's been booked, and that was not the case a year ago. So that's difficult from a comp perspective. We do expect that the average contract size will go up for the reasons that I previously gave. We do feel good about the pipeline. There's a solid number from an RFP numbers perspective. And we do expect that we'll be able to continue to install 25 to 30 per year in the next several years.

All right. It appears to be no further questions queued up over the phone lines. Let me the call back over to Mr. Douglas.

Great. Thank you, David. Thanks, everyone, for your time today. In closing, I'd like to reiterate that we're very pleased with the quarter's overall results, including a steady progress and growth being shown by TruBridge and our optimism for a strong fourth quarter in 2019. Thank you for your time. Good evening.

And ladies and gentlemen, that will conclude the conference call for today. Thank you for your participation, and you may now disconnect your lines. Thank you.