Greetings, and welcome to CPSI Second Quarter 2021 Earnings Conference Call. . As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Dru Anderson. Thank you. You may begin.

Good afternoon, and welcome to the CPSI Second Quarter 2021 Earnings Conference Call. 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. At this time, I will turn the call over to Mr. Boyd Douglas, President and Chief Executive Officer. Please go ahead, sir.

Thank you, Dru. Good afternoon, everyone, and thank you for joining us today. After my comments, I will hand the call over to Matt Chambless, our Chief Financial Officer, who will provide additional color regarding our second quarter results. At the conclusion of our prepared comments, the 2 of us, along with David Dye, our Chief Growth Officer; and Chris Fowler, our Chief Operating Officer, will be available to take your questions. At the midpoint of 2021, I'm extremely pleased to share that the focus, commitment and hard work across CPSI and our family of companies has delivered impressive results for the second quarter of 2021. Our 3-year transformation initiative continues to guide our efforts to achieve core growth, margin optimization and tangible upside through digital innovation. The foundation we are laying through margin optimization and sustained recurring revenue growth gives us confidence in our ability to create long-term shareholder value. I will start today by highlighting the results from our execution of core growth and margin optimization. TruBridge volumes continue to recover nicely and at a pace that has surpassed our expectations. In the second quarter, TruBridge generated $32.6 million in revenue with the newly acquired TruCode being a sizable contribution. In addition, by leveraging our established customer relationships, cross-sales of TruBridge services into our acute and post-acute EHR base improved nicely over last quarter. And while the pace of decisions for our EHR system sales did not rebound as we had hoped in the second quarter, there was a sizable improvement in EHR bookings over the first quarter. We are also encouraged by some key decisions that were recently made in our favor in both the EHR and services sales that have kicked us off to a solid booking start to the second half of the year. Another…

Thanks, Boyd, and good afternoon, everyone. On today's call, I'll provide a high-level overview of the quarter, including some additional detail on bookings performance and a brief walk through our second quarter financial results. Obviously, the pandemic's severe impact on patient volumes during the second quarter of 2020, coupled with the resumption of near-normal volumes in the second quarter of 2021, made for a nice headline against relatively easy comps. The comp issue aside, the second quarter stands out as a strong quarter in absolute terms with a few key themes driving the strong financial results. First, our customer base continues to surprise us in their resiliency with patient volumes once again exceeding our expectations, driving TruBridge to outperform internal top line expectations for the quarter. This resiliency has worked in tandem with improved retention of our hospital EHR customers to drive recurring revenue growth. Midway through 2021, our hospital EHR retention rates are at their highest levels since our acquisition of Healthland in 2016. Second, during the past quarter, we worked with external subject matter experts to adopt best practices for labor capitalization in an agile software development environment, resulting in a higher capitalization rate that we feel better reflects the investments we've been making to bring incremental functionality and features to our EHR products, including progress towards our single solution. Third, the inclusion of TruCode in the second quarter numbers brought inorganic growth to our TruBridge revenue line, adding an incremental $1.6 million of revenue absent purchase accounting adjustments and $600,000 of incremental EBITDA. These amounts represent roughly 0.5 quarter's activity with the acquisition occurring in mid-May. TruCode's revenues for the full quarter were $2.8 million with year-to-date revenues of $6.6 million. TruCode's EBITDA for the full quarter was $1 million with year-to-date EBITDA of $3.1 million. Moving…

. Our first question comes from Jeff Garro with Piper Sandler.

Congrats on the quarter. I want to ask a little bit more about the shift towards recurring revenue. I guess for starters, would like to know what the specific percentage of recurring revenue was in the quarter out of the total? And then noticing the year-to-date installs leaning heavily towards implementations. I was hoping we could get some further commentary on what's in the pipeline, what the prospective mix is of license and SaaS for the rest of the year in terms of new installs and, again, the sales pipeline decision?

Yes. So Jeff, thanks for the question. And I think we mentioned in the prepared comments that the mix of recurring revenue versus -- or recurring revenue as a percentage of total, it's about 91% for the second quarter. So that's an all-time high for CPSI. I'll turn it over to David to talk kind of about the license mix that's sitting in the pipeline right now.

Jeff, David here. In the pipeline for net new EHR, it's looking about 80-20 for 80% SaaS versus 20% license. And then in addition to that, as we continue to endeavor to sell nTrust into the existing client base, we hope to see that number increase as well.

Excellent. That helps. And also a little bit more about the end market. In the release, some positive comments on the pipeline and the start to the second half of the year and also in there a reference to the 3-year targets and the expectation that bookings will pick up in the second half. So any more comments that you could offer on the type of performance that you need in the second half to stay on track to achieve those 3-year targets? And any areas where you're expecting outsized strength, whether it's both net new EHR prospects or maybe with TruBridge success going upmarket and outside the base?

Sure, Jeff. David again. I -- we certainly have a lot of work left to do for the rest of the year, but we did get off to a good start to the third quarter. Backing up for just a second, our pipeline -- our 6-month pipeline as of June 30 of this year was up sequentially 33%. So that was certainly a positive sign. In particular, it's up in the net new EHR segment of the business. And then as we alluded to in the press release, we did have a good July. We signed 3 net new EHR deals, and we also got a large competitive TruBridge takeaway from a non-EHR hospital for TruBridge accounts receivable management services. So that was very positive as well.

Our next question is from Steve Halper with Cantor Fitzgerald.

Could you just go through the revised guidance again because I missed it.

Yes. So Steven, on the May 13 call, where we announced the TruCode deal, we adjusted the top line guidance at that time to between $275 million and $285 million. And we still feel comfortable with that range. But we are revising upward our EBITDA margin expectations to between 18% and 19% for the year.

Is that because of the higher software capitalization rate now?

That's right.

Okay. Yes. On the contribution from TruCode, you said it was $1.6 million. Is that net of the deferred revenue -- the deferred revenue item?

Yes. So there -- that is before any purchase price -- any purchasing -- purchase accounting adjustments. So there was about $158,000 deferred revenue haircut impact for the first quarter. So 1.6 minus 158. So about 1.45 would be the GAAP number that's showing up in the financials this quarter.

Got it. Okay. That's what I need to know. And then the other thing is, at one point, if I recall correctly, you were talking about share repurchase. Is that on hold? Or will that -- is that contemplated going forward?

Yes. So as we've mentioned on past calls, we definitely want to be opportunistic as we deploy our multifaceted capital allocation strategy. And maximizing that flexibility obviously means that we're not going to -- we don't necessarily want to tie ourselves to some sort of arbitrary goal on what we think annual share repurchases are going to look like because we don't necessarily know what the value of the option set is going to look like on the M&A side. So I'd say that there's probably a lean somewhat towards using capital to fund growth. And the quality and maturity of our M&A pipeline is going to dictate a lot. So stay tuned there on the share repurchase side. So it's -- it goes hand-in-hand with what happens on the M&A pipeline.

. Our next question comes from Joy Zhang with SVB Leerink.

Congrats on the quarter.

Thanks, Joy.

I guess I'll start with TruCode. Can you provide any sort of early color on how the cross-sell pipeline has been trending? And is it sort of more geared towards the stand-alone cross-sell outside? Or are they more sort of bundled with the other TruBridge offering?

Joy, for the first part of your question, I think the deal closed on May 12 or somewhere in the middle of May, and we were really happy. We got 4 cross-sell deals into the EHR base close between that and the end of the quarter. So that was certainly very positive. I didn't get the second part of your question. Chris may have.

Yes. I think -- Joy, this is Chris. I think the question is as it relates to whether it's TruCode stand-alone into the base or whether we're bundling it with other services. Is that correct?

Exactly, yes.

Okay. Yes. I would say right now, obviously, the 4 deals point to the fact that it's stand-alone. But obviously, as we continue to enable the sales force we want to continue to leverage the overall goal, which is to move as many customers to nTrust as possible. And obviously, this is just another part of that strategy.

Got it. That's very helpful. And one more housekeeping question for me on what sort of volume assumptions are baked in the guidance. Is it still at the 90% of pre-COVID level as in your prior guidance? Or has that increased, given that volumes have trended above expectations earlier this year?

Yes. So Joy, I'd say that we've increased it based off of kind of the new information that we've gotten from our patients or from our hospital customers. So I'd say we've elevated it somewhat above the 90% range and more reflective of what we're seeing right now.

We've reached the end of the question-and-answer session. I'd now like to turn the call back over to Boyd Douglas for closing comments.

Great. Thank you. I certainly want to thank everyone for their time and for being on the call today and your interest in CPSI. Clearly, we're excited about the -- our strategic direction and our execution in the first 6 months on that. And so certainly look forward to more to come. But thank you for your time, and I hope everyone has a good rest of your week.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.