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CPSI Announces Third Quarter 2022 Results

Highlights for Third Quarter 2022:

  • Revenues of $82.8 million;
  • GAAP net income of $2.2 million and non-GAAP net income of $8.2 million;
  • GAAP earnings per diluted share of $0.15 and non-GAAP earnings per diluted share of $0.57;
  • Adjusted EBITDA of $13.3 million;
  • Bookings of $20.5 million;
  • Cash provided by operations of $11.1 million; and
  • Net debt of $124.8 million.

MOBILE, ALA. (November 1, 2022) – CPSI (NASDAQ: CPSI), a healthcare solutions company, today announced results for the third quarter and nine months ended September 30, 2022.

Total revenues for the third quarter ended September 30, 2022, were $82.8 million, compared with total revenues of $70.1 million for the prior-year quarter. GAAP net income for the quarter ended September 30, 2022, was $2.2 million, or $0.15 per diluted share, compared with $2.7 million, or $0.19 per diluted share, for the quarter ended September 30, 2021. Cash provided by operations for the third quarter of 2022 was $11.1 million, compared with $1.3 million for the prior-year quarter. Net debt at September 30, 2022, was $124.8 million compared to $98.1 million at September 30, 2021.

Total revenues for the nine months ended September 30, 2022, were $243.4 million, compared with total revenues of $206.6 million for the prior-year period. GAAP net income for the nine months ended September 30, 2022, was $13.4 million, or $0.91 per diluted share, compared with $13.0 million, or $0.89 per diluted share, for the nine months ended September 30, 2021. Cash provided by operations for the first nine months of 2022 was $30.2 million, compared with $34.5 million for the prior-year period.

Matt Chambless, chief financial officer of CPSI, commented, “We were pleased to deliver 18% revenue growth year-over-year, which was driven largely by the contribution from Healthcare Resource Group, Inc., which we acquired in March. Our TruBridge segment once again saw outstanding cross-selling traction, as we increased TruBridge sales to the CPSI customer base by 30% sequentially and tripled our pipeline over the prior-year period. We are also thrilled to appoint new leaders of our business units who will propel CPSI toward its next chapter. This new alignment of our leadership team will more effectively support our core EHR base with value-added tools for revenue cycle management and patient engagement that will help our customers thrive in an uncertain and evolving healthcare environment.”

CPSI will hold a live webcast to discuss third quarter 2022 results today, Tuesday, November 1, 2022, at 4:30 p.m. Eastern time. A 30-day online replay will be available approximately one hour following the conclusion of the live webcast. To listen to the live webcast or access the replay, visit the Company’s website, www.cpsi.com.

About CPSI
CPSI is a leading provider of healthcare solutions and services for community hospitals, their clinics and post-acute care facilities. Founded in 1979, CPSI is the parent of five companies – Evident, LLC, American HealthTech, Inc., TruBridge, LLC, iNetXperts, Corp. d/b/a Get Real Health and TruCode LLC. Our combined companies are focused on helping improve the health of the communities we serve, connecting communities for a better patient care experience, and improving the financial operations of our customers. Evident provides comprehensive EHR solutions for community hospitals and their affiliated clinics. American HealthTech is one of the nation’s largest providers of EHR solutions and services for post-acute care facilities. TruBridge focuses on providing business, consulting and managed IT services, along with its complete RCM solution, for all care settings. Get Real Health focuses on solutions aimed at improving patient engagement for individuals and healthcare providers. TruCode provides medical coding software that enables complete and accurate code assignment for optimal reimbursement. For more information, visit www.cpsi.com.

Forward-Looking Statements
This press release 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 press release relating to the Company’s future financial and operational 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: the impact of the ongoing COVID-19 pandemic and related economic disruptions which have materially affected CPSI’s revenue and could materially affect CPSI’s gross margin and income, as well as CPSI’s financial position and/or liquidity; federal, state and local government actions to address and contain the impact of COVID-19 and their impact on us and our hospital clients; operational disruptions and heightened cybersecurity risks due to a significant percentage of our workforce working remotely; 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; 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; potential inability to properly manage growth in 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 reliance on an international workforce which exposes us to various business disruptions; potential failure to develop new products or enhance current products that keep pace with market demands; failure to develop new technology and products in response to market demands; failure of our products to function properly resulting in claims for medical and other losses; breaches of security and viruses in our systems resulting in customer claims against us and harm to our reputation; failure to maintain customer satisfaction through new product releases free of undetected errors or problems; failure 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; misappropriation of our intellectual property rights and potential intellectual property claims and litigation against us; interruptions in our power supply and/or telecommunications capabilities, including those caused by natural disaster; general economic conditions, including changes in the financial and credit markets that may affect the availability and cost of credit to us or our customers; potential inability to secure additional financing on favorable terms to meet our future capital needs; our substantial indebtedness, and our ability to incur additional indebtedness in the future; pressures on cash flow to service our outstanding debt; restrictive terms of our credit agreement on our current and future operations; changes in and interpretations of financial accounting matters that govern the measurement of our performance; significant charges to earnings if our goodwill or intangible assets become impaired; fluctuations in quarterly financial performance due to, among other factors, timing of customer installations; volatility in our stock price; failure to maintain effective internal control over financial reporting; lack of employment or non-competition agreement with most of our key personnel; inherent limitations in our internal control over financial reporting; vulnerability to significant damage from natural disasters; market risks related to interest rate changes; and other risk factors described from time to time 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. Relative to our dividend policy, the payment of cash dividends is subject to the discretion of our Board of Directors and will be determined in light of then-current conditions, including our earnings, our leverage, our operations, our financial conditions, our capital requirements and other factors deemed relevant by our Board of Directors. In the future, our Board of Directors may change our dividend policy, including the frequency or amount of any dividend, in light of then-existing conditions. We also caution investors that the forward-looking information described herein 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 press release.

Computer Programs and Systems, Inc.
Condensed Consolidated Statements of Income
(In '000s, except per share data)
(Unaudited)
 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Sales revenues:
TruBridge

$

47,878

 

$

34,531

 

$

139,569

 

$

98,736

 

System sales and support

 

34,949

 

 

35,560

 

 

103,855

 

 

107,893

 

Total sales revenues

 

82,827

 

 

70,091

 

 

243,424

 

 

206,629

 

 
Costs of sales:
TruBridge

 

26,190

 

 

17,377

 

 

73,863

 

 

50,349

 

System sales and support

 

18,619

 

 

17,425

 

 

52,278

 

 

52,250

 

Total costs of sales

 

44,809

 

 

34,802

 

 

126,141

 

 

102,599

 

 
Gross profit

 

38,018

 

 

35,289

 

 

117,283

 

 

104,030

 

 
Operating expenses:
Product development

 

7,822

 

 

7,700

 

 

22,036

 

 

22,598

 

Sales and marketing

 

7,309

 

 

5,200

 

 

22,578

 

 

15,813

 

General and administrative

 

13,458

 

 

14,184

 

 

41,235

 

 

38,322

 

Amortization of acquisition-related intangibles

 

4,486

 

 

3,674

 

 

12,917

 

 

10,114

 

Total operating expenses

 

33,075

 

 

30,758

 

 

98,766

 

 

86,847

 

 
Operating income

 

4,943

 

 

4,531

 

 

18,517

 

 

17,183

 

 
Other income (expense):
Other income

 

355

 

 

123

 

 

914

 

 

1,160

 

(Loss) gain on contingent consideration

 

(589)

 

-

 

 

992

 

 

-

 

Loss on extinguishment of debt

 

-

 

 

-

 

 

(125)

 

-

 

Interest expense

 

(1,771)

 

(825)

 

(4,044)

 

(2,249)

Total other income (expense)

 

(2,005)

 

(702)

 

(2,263)

 

(1,089)

 
Income before taxes

 

2,938

 

 

3,829

 

 

16,254

 

 

16,094

 

 
Provision for income taxes

 

777

 

 

1,085

 

 

2,904

 

 

3,065

 

 
Net income

$

2,161

 

$

2,744

 

$

13,350

 

$

13,029

 

 
Net income per common share—basic

$

0.15

 

$

0.19

 

$

0.91

 

$

0.89

 

Net income per common share—diluted

$

0.15

 

$

0.19

 

$

0.91

 

$

0.89

 

 
Weighted average shares outstanding used in per common share computations:
Basic

 

14,365

 

 

14,334

 

 

14,405

 

 

14,276

 

Diluted

 

14,365

 

 

14,343

 

 

14,405

 

 

14,303

 

 

Computer Programs and Systems, Inc.
Condensed Consolidated Balance Sheets
(In '000s, except per share data)
 

September 30, 2022

(unaudited)

Dec. 31, 2021

Assets
Current assets
Cash and cash equivalents

$

15,558

 

$

11,431

 

Accounts receivable, net of allowance for doubtful accounts of $2,565 and $1,826, respectively

 

45,627

 

 

34,431

 

Financing receivables, current portion, net

 

5,028

 

 

6,488

 

Inventories

 

1,754

 

 

855

 

Prepaid income taxes

 

955

 

 

4,599

 

Prepaid expenses and other

 

11,890

 

 

11,194

 

Total current assets

 

80,812

 

 

68,998

 

 
Property & equipment, net

 

10,301

 

 

11,590

 

Software development costs, net

 

23,955

 

 

11,644

 

Operating lease assets

 

7,999

 

 

7,097

 

Financing receivables, net of current portion

 

4,227

 

 

7,231

 

Other assets, net of current portion

 

5,631

 

 

3,874

 

Intangible assets, net

 

106,486

 

 

95,203

 

Goodwill

 

198,584

 

 

177,713

 

Total assets

$

437,995

 

$

383,350

 

 
Liabilities & Stockholders' Equity
Current liabilities
Accounts payable

$

7,476

 

$

8,079

 

Current portion of long-term debt

 

3,141

 

 

4,394

 

Deferred revenue

 

12,255

 

 

11,529

 

Accrued vacation

 

6,350

 

 

5,262

 

Other accrued liabilities

 

16,181

 

 

17,163

 

Total current liabilities

 

45,403

 

 

46,427

 

 
Long-term debt, less current portion

 

137,174

 

 

94,966

 

Operating lease liabilities, net of current portion

 

6,088

 

 

5,505

 

Deferred tax liabilities

 

16,372

 

 

13,880

 

Total liabilities

 

205,037

 

 

160,778

 

 
Stockholders' Equity
Common stock, $0.001 par value; 30,000 shares authorized; 14,914 and 14,734 shares issued

 

15

 

 

15

 

Treasury stock, 354 and 89 shares

 

(10,824)

 

(2,576)

Additional paid-in capital

 

192,363

 

 

187,079

 

Retained earnings

 

51,404

 

 

38,054

 

Total stockholders' equity

 

232,958

 

 

222,572

 

 
Total liabilities and stockholders' equity

$

437,995

 

$

383,350

 

 

Computer Programs and Systems, Inc.
Condensed Consolidated Statements of Cash Flows
(In '000s)
(Unaudited)
 

Nine Months Ended September 30,

 

2022

 

 

 

2021

 

Operating activities:
Net income

$

13,350

 

$

13,029

 

Adjustments to net income:
Provision for bad debt

 

1,202

 

 

2,080

 

Deferred taxes

 

(3,073)

 

2,306

 

Stock-based compensation

 

5,284

 

 

4,179

 

Depreciation

 

1,890

 

 

1,641

 

Loss on extinguishment of debt

 

125

 

 

-

 

Amortization of acquisition-related intangibles

 

12,917

 

 

10,114

 

Amortization of software development costs

 

2,283

 

 

527

 

Amortization of deferred finance costs

 

242

 

 

220

 

Gain on contingent consideration

 

(992)

 

-

 

Loss on disposal of PP&E

 

-

 

 

313

 

Changes in operating assets and liabilities:
Accounts receivable

 

(6,877)

 

1,304

 

Financing receivables

 

4,598

 

 

5,962

 

Inventories

 

(899)

 

(67)

Prepaid expenses and other

 

(1,982)

 

(2,892)

Accounts payable

 

(988)

 

(2,723)

Deferred revenue

 

726

 

 

1,414

 

Other liabilities

 

(1,239)

 

(666)

Prepaid income taxes

 

3,644

 

 

(2,267)

Net cash provided by operating activities

 

30,211

 

 

34,474

 

 
Investing activities:
Purchase of business, net of cash received

 

(43,696)

 

(59,634)

Investment in software development

 

(14,594)

 

(6,447)

Purchases of property and equipment

 

(134)

 

(915)

Net cash used in investing activities

 

(58,424)

 

(66,996)

 
Financing activities:
Treasury stock purchases

 

(8,248)

 

(1,222)

Proceeds from long-term debt

 

575

 

 

-

 

Payments of long-term debt principal

 

(2,687)

 

(2,813)

Proceeds from revolving line of credit

 

48,000

 

 

61,000

 

Payments of revolving line of credit

 

(5,300)

 

(20,000)

Net cash provided by (used in) financing activities

 

32,340

 

 

36,965

 

 
Net increase in cash and cash equivalents

 

4,127

 

 

4,443

 

 
Cash and cash equivalents, beginning of period

 

11,431

 

 

12,671

 

Cash and cash equivalents, end of period

$

15,558

 

$

17,114

 

 

Computer Programs and Systems, Inc.

Consolidated Bookings

(In '000s)

 
Three Months Ended Nine Months Ended
In '000s 9/30/2022 9/30/2021 9/30/2022 9/30/2021
TruBridge(1)

$

11,532

$

13,073

$

37,260

$

22,009

System sales and support(2)

 

9,006

 

16,249

 

27,474

 

32,641

 
Total

$

20,538

$

29,322

$

64,734

$

54,650

 

(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).

 

Computer Programs and Systems, Inc.

Bookings Composition
(In '000s, except per share data)
(Unaudited)
 
Three Months Ended Nine Months Ended
9/30/2022 9/30/2021 9/30/2022 9/30/2021
TruBridge
Net new(1)

$

897

$

4,794

$

9,657

$

6,278

Cross-sell(1)

 

10,059

 

2,824

 

21,872

 

8,398

Get Real Health

 

260

 

5,352

 

2,568

 

6,760

TruCode

 

316

 

103

 

3,163

 

573

System sales and support
Non-subscription sales(2)

 

4,550

 

2,929

 

12,689

 

10,145

Subscription revenue(3)

 

3,053

 

12,437

 

11,507

 

19,029

Other

 

1,403

 

883

 

3,278

 

3,467

 
Total

$

20,538

$

29,322

$

64,734

$

54,650

 

(1)

“Net new” represents bookings from outside the Company’s core EHR client base, and “Cross-sell” represents bookings from existing EHR customers. In each case, generally comprised of recurring revenues to be recognized ratably over a one-year period and an average timeframe for commencement of bookings-to-revenue conversion of four to six months following contract execution.

(2)

Represents nonrecurring revenues that generally exhibit a timeframe for bookings-to-revenue conversion of five to six months following contract execution.

(3)

Represents recurring revenues to be recognized on a monthly basis over a weighted-average contract period of five years, with a start date in the next 12 months and an average timeframe for commencement of bookings-to-revenue conversion of five to six months following contract execution.

 

Computer Programs and Systems, Inc.

Bookings Composition
(In '000s, except per share data)
(Unaudited)
 
Three Months Ended Nine Months Ended
9/30/2022 9/30/2021 9/30/2022 9/30/2021
TruBridge
Net new(1)

$

897

$

4,794

$

9,657

$

6,278

Cross-sell(1)

 

10,059

 

2,824

 

21,872

 

8,398

Get Real Health

 

260

 

5,352

 

2,568

 

6,760

TruCode

 

316

 

103

 

3,163

 

573

System sales and support
Non-subscription sales(2)

 

4,550

 

2,929

 

12,689

 

10,145

Subscription revenue(3)

 

3,053

 

12,437

 

11,507

 

19,029

Other

 

1,403

 

883

 

3,278

 

3,467

 
Total

$

20,538

$

29,322

$

64,734

$

54,650

 

(1)

“Net new” represents bookings from outside the Company’s core EHR client base, and “Cross-sell” represents bookings from existing EHR customers. In each case, generally comprised of recurring revenues to be recognized ratably over a one-year period and an average timeframe for commencement of bookings-to-revenue conversion of four to six months following contract execution.

(2)

Represents nonrecurring revenues that generally exhibit a timeframe for bookings-to-revenue conversion of five to six months following contract execution.

(3)

Represents recurring revenues to be recognized on a monthly basis over a weighted-average contract period of five years, with a start date in the next 12 months and an average timeframe for commencement of bookings-to-revenue conversion of five to six months following contract execution.

 

Computer Programs and Systems, Inc.
Acute Care EHR Net New License Mix
 

Three Months Ended

 

Nine Months Ended

9/30/2022

9/30/2021

 

9/30/2022

9/30/2021

SaaS(1)

6

2

16

8

Perpetual license(2)

-

3

-

7

 
Total

6

5

16

15

 

(1)

Exhibit revenue attribution that is recurring in nature.

(2)

Exhibit revenue attribution that is nonrecurring in nature.

 

Computer Programs and Systems, Inc.
System Sales and Support Revenue Composition
(In '000s)
(Unaudited)
 

Three Months Ended September 30,

 

Nine Months Ended September 30,

2022

 

2021

 

2022

 

2021

Recurring revenues - system sales and support
Acute Care EHR

$

27,237

$

26,775

$

81,333

$

80,792

Post-acute Care EHR

 

3,817

 

4,010

 

11,504

 

12,402

Total recurring revenues - system sales and support

 

31,054

 

30,785

 

92,837

 

93,194

 
Nonrecurring revenues - system sales and support
Acute Care EHR

 

3,500

 

4,351

 

9,467

 

13,786

Post-acute Care EHR

 

395

 

424

 

1,551

 

913

Total nonrecurring revenues - system sales and support

 

3,895

 

4,775

 

11,018

 

14,699

 
 
Total system sales and support revenues

$

34,949

$

35,560

$

103,855

$

107,893

 

Computer Programs and Systems, Inc.
Adjusted EBITDA - by Segment
(In '000s)
 

Three Months Ended

 

Nine Months Ended

In '000s

9/30/2022

 

9/30/2021

 

9/30/2022

 

9/30/2021

TruBridge

$

8,060

$

6,840

$

27,609

$

20,216

Acute Care EHR

 

4,584

 

4,773

 

13,915

 

15,650

Post-acute Care EHR

 

705

 

624

 

1,147

 

2,487

 
Total

$

13,349

$

12,237

$

42,671

$

38,353

 

Computer Programs and Systems, Inc.
Reconciliation of Non-GAAP Financial Measures
(In '000s)
(Unaudited)
 

Three Months Ended September 30,

 

Nine Months Ended September 30,

Adjusted EBITDA:

2022

 

2021

 

2022

 

2021

Net income, as reported

$

2,161

$

2,744

$

13,350

 

$

13,029

 
Deferred revenue and other acquisition-related adjustments

 

-

 

388

 

109

 

 

546

Depreciation expense

 

622

 

525

 

1,890

 

 

1,641

Amortization of software development costs

 

1,024

 

262

 

2,283

 

 

527

Amortization of acquisition-related intangible assets

 

4,486

 

3,674

 

12,917

 

 

10,114

Stock-based compensation

 

1,864

 

1,700

 

5,284

 

 

4,178

Severance and other nonrecurring charges

 

410

 

1,157

 

1,671

 

 

4,164

Interest expense and other, net

 

1,416

 

702

 

3,255

 

 

1,089

Gain on contingent consideration

 

589

 

-

 

(992)

 

-

Provision for income taxes

 

777

 

1,085

 

2,904

 

 

3,065

 
Adjusted EBITDA

$

13,349

$

12,237

$

42,671

 

$

38,353

 

Computer Programs and Systems, Inc.
Reconciliation of Non-GAAP Financial Measures
(In '000s, except per share data)
(Unaudited)
 

Three Months Ended September 30,

 

Nine Months Ended September 30,

Non-GAAP Net Income and Non-GAAP EPS:

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Net income, as reported

$

2,161

 

$

2,744

 

$

13,350

 

$

13,029

 

 
Pre-tax adjustments for Non-GAAP EPS:
Deferred revenue and other acquisition-related adjustments

 

-

 

 

388

 

 

109

 

 

546

 

Amortization of acquisition-related intangible assets

 

4,486

 

 

3,674

 

 

12,917

 

 

10,114

 

Stock-based compensation

 

1,864

 

 

1,700

 

 

5,284

 

 

4,178

 

Severance and other nonrecurring charges

 

410

 

 

1,157

 

 

1,671

 

 

4,164

 

Non-operating loss from lease termination (non-cash)

 

-

 

 

313

 

 

-

 

 

313

 

Non-cash interest expense

 

90

 

 

73

 

 

242

 

 

220

 

Loss on extinguishment of debt

 

-

 

 

-

 

 

125

 

 

-

 

After-tax adjustments for Non-GAAP EPS:
Tax-effect of pre-tax adjustments, at 21%

 

(1,439)

 

(1,534)

 

(4,273)

 

(4,102)

Tax shortfall (windfall) from stock-based compensation

 

-

 

 

-

 

 

(112)

 

(84)

Gain on contingent consideration

 

589

 

 

-

 

 

(992)

 

-

 

 
Non-GAAP net income

$

8,161

 

$

8,515

 

$

28,321

 

$

28,378

 

 
Weighted average shares outstanding, diluted

 

14,365

 

 

14,343

 

 

14,405

 

 

14,303

 

 
Non-GAAP EPS

$

0.57

 

$

0.59

 

$

1.97

 

$

1.98

 

 

Explanation of Non-GAAP Financial Measures
We report our financial results in accordance with accounting principles generally accepted in the United States of America, or “GAAP.” However, management believes that, in order to properly understand our short-term and long-term financial and operational trends, investors may wish to consider the impact of certain non-cash or non-recurring items, when used as a supplement to financial performance measures that are prepared in accordance with GAAP. These items result from facts and circumstances that vary in frequency and impact on continuing operations. Management uses these non-GAAP financial measures in order to evaluate the operating performance of the Company and compare it against past periods, make operating decisions, and serve as a basis for strategic planning. These non-GAAP financial measures provide management with additional means to understand and evaluate the operating results and trends in our ongoing business by eliminating certain non-cash expenses and other items that management believes might otherwise make comparisons of our ongoing business with prior periods more difficult, obscure trends in ongoing operations, or reduce management’s ability to make useful forecasts. In addition, management understands that some investors and financial analysts find these non-GAAP financial measures helpful in analyzing our financial and operational performance and comparing this performance to our peers and competitors.

As such, to supplement the GAAP information provided, we present in this press release and during the live webcast discussing our financial results the following non-GAAP financial measures: Adjusted EBITDA, Non-GAAP net income, and Non-GAAP earnings per share (“EPS”).

We calculate each of these non-GAAP financial measures as follows:

  • 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.
  • Non-GAAP net income – Non-GAAP net income 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) amortization of acquisition-related intangible assets; (iii) stock-based compensation; (iv) severance and other non-recurring charges; (v) non-operating loss from lease termination (non-cash); (vi) non-cash interest expense; (vii) loss on extinguishment of debt and (viii) the total tax effect of items (i) through (vii). Adjustments to Non-GAAP net income also include the after-tax effect of the shortfall (windfall) from stock-based compensation and gain on contingent consideration.
  • Non-GAAP EPS – Non-GAAP EPS consists of Non-GAAP net income, as defined above, divided by weighted average shares outstanding (diluted) in the applicable period. Certain of the items excluded or adjusted to arrive at these non-GAAP financial measures are described below:
  • Deferred revenue purchase accounting adjustments – Deferred revenue purchase accounting 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 balances as of the acquisition date. We add back deferred revenue and other adjustments for non-GAAP financial measures because we believe the inclusion of this amount directly correlates to the underlying performance of our operations.
  • Amortization of acquisition-related intangible assets – Acquisition-related amortization expense is a non-cash expense arising primarily from the acquisition of intangible assets in connection with acquisitions or investments. We exclude acquisition-related amortization expense from non-GAAP financial measures 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. Investors should note that the use of these intangible assets contributed to revenue in the periods presented and will contribute to future revenue generation, and the related amortization expense will recur in future periods.
  • 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 non-GAAP financial measures 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. Investors should note that stock-based compensation is a key incentive offered to employees whose efforts contributed to the operating results in the periods presented and are expected to contribute to operating results in future periods, and such expense will recur in future periods.
  • Severance and other non-recurring charges – Non-recurring charges relate to certain severance and other charges incurred in connection with activities that are considered one-time. We exclude non- recurring expenses (primarily related to costs associated with our recent business transformation initiative and one-time lease terminations costs) and transaction-related costs from non-GAAP financial measures 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.
  • Non-operating loss from lease termination (non-cash) – Non-operating loss from lease termination relates solely to the write-off of the remaining net book value of leasehold improvements and other property and equipment associated with operating leases terminated as a result of specific actions taken during the period. We exclude such non-operating lease termination losses from non-GAAP financial measures 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.
  • Non-cash interest expense – Non-cash interest expense includes amortization of deferred debt issuance costs. We exclude non-cash interest expense from non-GAAP financial measures because we believe these non-cash amounts relate to specific transactions and, as such, may not directly correlate to the underlying performance of our business operations.
  • Tax shortfall (windfall) from stock-based compensation – ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, became effective for the Company during the third quarter of 2017 and changes the treatment of tax shortfall and excess tax benefits arising from stock-based compensation arrangements. Prior to ASU 2016-09, these amounts were recorded as an increase (for excess benefits) or decrease (for shortfalls) to additional paid-in capital. With the adoption of ASU 2016-09, these amounts are now captured in the period’s income tax expense. We exclude this component of income tax expense from non-GAAP financial measures because we believe (i) the amount of such expenses or benefits in any specific period may not directly correlate to the underlying performance of our business operations; and (ii) such expenses or benefits can vary significantly between periods as a result of the valuation of grants of new stock-based awards, the timing of vesting of awards, and periodic movements in the fair value of our common stock.
  • Gain on contingent consideration – The purchase agreement for our acquisition of TruCode in 2021 contained contingent consideration, or “earnout,” provisions whereby the previous shareholders of TruCode would receive additional consideration at the conclusion of a one-year period beginning on the acquisition date and ending on the first anniversary of the acquisition date, depending on the achievement of certain profitability targets. After the initial measurement period, U.S. GAAP requires that any adjustments to the estimated fair value of this contingent liability, including upon final determination of amounts due, should be recorded in the relevant period’s earnings. We exclude gains on contingent consideration from non-GAAP financial measures because we believe (i) the amount of such gains in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such gains can vary significantly between periods.

Management considers these non-GAAP financial measures to be important indicators of our operational strength and performance of our business and a good measure of our historical operating trends, in particular the extent to which ongoing operations impact our overall financial performance. In addition, management may use Adjusted EBITDA, Non-GAAP net income and/or Non-GAAP EPS to measure the achievement of performance objectives under the Company’s stock and cash incentive programs. Note, however, that these non-GAAP financial measures are performance measures only, and they do not provide any measure of cash flow or liquidity. Non-GAAP financial measures are not alternatives for measures of financial performance prepared in accordance with GAAP and may be different from similarly titled non-GAAP measures presented by other companies, limiting their usefulness as comparative measures. Non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP. Additionally, there is no certainty that we will not incur expenses in the future that are similar to those excluded in the calculations of the non-GAAP financial measures presented in this press release. Investors and potential investors are encouraged to review the “Unaudited Reconciliation of Non-GAAP Financial Measures” above.

CONTACT Tracey Schroeder Chief Marketing Officer Tracey.schroeder@cpsi.com (251) 639-8100

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