Ladies and gentlemen, thank you for standing by. Welcome to the CPSI Second Quarter 2016 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded today, Thursday, August 4, 2016. I will now turn the conference over to Boyd Douglas, President and Chief Executive Officer of CPSI. Please go ahead, sir.

Thank you, George. 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 expectation 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 risk, 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, our Chief Financial Officer; David Dye, Chief Growth Officer; and Chris Fowler, our Chief Operating Officer. At the conclusion of our prepared comments, we will be available to take any questions you may have. Clearly, we are not satisfied with this quarter's performance and with 2016 thus far. While the net new sales pipeline is as robust as it has been in a number of years, we are also seeing a longer sales process, which has delayed some signings. I will say that overall we view this extended decision process as a positive competitive development. Simply put, the more due diligent is a hospital to us, the better off we are. We want hospitals to look at…

Thanks, Boyd and good afternoon, everyone. As Boyd alluded to during the early portion of his prepared remarks, second quarter 2016 certainly didn't land where we had aimed. Although we're continuing to execute on our cost containment strategies and the Healthland integration efforts are yielding exactly the synergies we've been expecting, the story of this past quarter has been stubborn revenue growth, particularly within non-recurring system sales. Given our cost structure, the relative pluses and minuses on the top-line fall heavily to the bottom-line, resulting in revenues, adjusted EBITDA and non-GAAP EPS all falling below our expectations for the quarter. The confidence that we displayed in our expectations regarding cost on the last earnings call appear to have been well founded as our non-EBITDA costs have fallen directly in line with our expectations. Obviously, the revenue side of the earnings equation has been a different story as we're still acclimatizing to the current dynamics within the community and rural healthcare marketplace and shifting through the noise of the acquisition. Now on to some non-financial metrics. In the second quarter, we installed the Thrive financial and patient accounting system in five hospitals none of which were installed in a cloud environment. We installed our core clinical departmental applications at seven facilities, six hospitals implemented Thrive point-of-care, five installed our Thrive Emergency Department Information System and six customers went live with physician applications. Thrive Provider EHR was installed in 10 facilities. At this time, we expect to install Thrive financial and patient accounting systems in six new client facilities in the third quarter 2016. We anticipate five installations of our core clinical departmental applications, five installations of Thrive point-of-care, four installations of our Thrive Emergency Department Information System and seven installations of physician applications. Thrive Provider EHR is expected to be installed…

Thanks, Matt. As Boyd mentioned, we are extremely disappointed in our poor revenue performance in the first half of 2016. However, there's justification for optimism for solid growth to resume at the end of this year and into full year 2017. First, TruBridge bookings for the quarter established a new record high of $5.7 million. This included $1.3 million in TruBridge sales into the Healthland customer base, proving that the potential for revenue synergies of the combined companies is real. In addition, we expect TruBridge bookings to continue to grow in future periods as more of our new Thrive customers sign entrust agreements that include the utilization of TruBridge for their accounts receivable management. Accordingly, we look for upper-teen to 20% year-over-year TruBridge growth in 2017. We continue to be excited about the potential for growth via Rycan, as our demonstrations of the Rycan product to the Evident customer base have been well received. Rycan bookings were nearly $400,000 for the quarter and we expect double that figure in Rycan bookings for the third quarter 2016. AHT bookings are up 18% year-over-year thus far in 2016, at $5.3 million versus $4.5 million a year ago. As Boyd mentioned, we are investing significantly in additional AHT development resources as we believe the post-acute care EHR market is right for growth in years ahead. Sales of add-on software modules to the existing Evident and Healthland customer base continues to be difficult due to the saturations of our market. We do expect add-on sales to increase later this year and into 2017 primarily from license sales of our analytics dashboard solutions and in late 2017 and early 2018 as a result of pending Stage 3 MU requirements. On the new business front, in the second quarter we executed five new hospital EHR contracts,…

Certainly. And our first question comes from the line of Mohan Naidu with the Oppenheimer. Please go ahead.

All right. Thank you so much for taking my questions. Dave, on the comments that you just made around Athena's no commitment deals (28:03), are you seeing any pressure from prospects asking you guys to do something similar?

Mohan, no. That's a great question. No, I can't say. We have – I think there's an understanding that our system exists now and what we're selling is something that we have in the field in hundreds and hundreds of hospitals. And essentially, our take is that what they're selling is they signed here and you get a installation – you get in line for an installation shot – slot in the future, should you decide that at that point you do want to implement based on what you're seeing with our successor like thereof with the ones we've installed prior to that. So I think, the answer to that question is no.

Okay. And maybe – because you're seeing more subscription deals, can you help us understand the pricing or the revenue submission comparison between license model versus the subscription model?

Yeah. The majority of our subscription models now, Mohan, were proposing our entrust agreement, which is a percentage of net revenue. In another words, a percentage of the cash that we collect. And with that, that's inclusive with what the hospital pays us with that percentage is inclusive of the system itself. And payment to us for those services that we provide via both Evident and TruBridge. So that's the most common subscription agreement that we're seeing. The licensed agreement typically is a hospital that wants to – at this point they don't want to – they want to keep their business office in-house and they're just interested in the software that we provide.

Okay. Maybe one last question, Matt. On the revenue miss in Q2, can you help us understand what portion of the miss came from weaker add-on sales versus weaker new software installations are like Healthland in the quarter?

For the most part Mohan, the revenue miss in the second quarter versus what our expectations were showing were primarily within the add-on sales. There was a slight miss on the top move (30:32) with the new customer installations but the largest chunk of that's within add-on sales from the weakness we've seen in that area.

Okay. Maybe I'll sneak one last one in. Are you guys still sticking with your targets that around the revenue from Healthland for the full year? I thought you just had about $120 million target from Healthland contribution?

I think we made it clear. We're kind of backing off on guidance altogether, and that would include getting kind of disaggregated on the revenue lines. I mean, I would say that Healthland's performance during the second quarter was not materially different from what we thought it would be.

Okay. Thank you so much for taking my questions.

Thank you, Mohan.

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

Hi. Good evening. Thanks for taking my questions. I guess maybe the first one. Boyd, I didn't catch the numbers around the number of hospitals. I think you may have said like 150 that you think will make decisions in some period of time. Could you just repeat that for me, please?

Yeah. I said within the next six months to 18 months, and there was 150 hospitals that are not on a good long-term solution, that either they don't have confidence – usually, one of three things is that they don't have confidence that it's going to – the system they're on, or systems they're on, which is usually the case, we'll be able to get them to Meaningful Use 3. Or, they're not going to be able to help them with the new value based reimbursement methodologies that are coming; or thirdly, and this is probably all equal, but probably most importantly is physician satisfaction, end user satisfaction. Frankly, they put in systems that weren't long-term good solutions. Yes, it was good enough to get them Meaningful Use money, but the physicians and other caregivers aren't particularly happy with the functionality.

Okay. That's great. Well, you answered my follow-up on that one. As far as the retention rate that you guys have quoted, what is the period of time you're looking at the 97% for Evident and the 92% for Healthland?

At the beginning of 2015, Jamie.

Okay. And then, I understand you're tracking guidance given the volatility in the system sales right now. Are there any kind of long-term goals that you would like us to keep in mind, that you guys have still, as far as growth or profitability are concerned?

Yeah. Jamie, I mean our goal, long-term goal, will be to grow the company 10%. That's been the case for some time. Obviously, we have not achieved that over the last couple of years and that's what we want to get back to. Obviously inclusive in that, and inclusive in shareholder value, is going to be, as we grow profitabilities, generating cash and paying the dividend, but the goal from a top-line perspective is to grow the overall company 10% long-term.

Okay. That's great. And maybe just one more. Matt, I thought that there was, I think, $1.7 million or so of deferred revenue adjustment during the quarter. Can you help us understand how we should be bucketing that, between the system sales and TruBridge segments?

And so Jamie, that deferred revenue adjustment, so that's all falling out of the purchase price accounting and the fair value adjustment that we had to take on the significant deferred revenue balances that came over in the Healthland acquisition. So none of those are related to any TruBridge revenues. They all fall into the system sales and support line.

Okay. All right. All right. That's great. Yeah, that makes perfect sense. Okay, thank you.

Thanks, Jamie.

Our next question comes from the line of Donald Hooker with KeyBanc Capital Markets. Please go ahead.

Hi. Good afternoon. So I missed, did you – there was a range of numbers you guys provided, the bookings from Healthland, did you mention that?

The TruBridge number that we gave, that was a result of – from Healthland. The booking – TruBridge bookings that came from the Healthland base in the quarter was $1.3 million.

Got you. I'm just trying to think; the total – it looks like the total bookings for the quarter was $24.2 million? So, I was just curious like if, what portion of that – if I think about it, what number in there is Healthland?

Yeah. Donald, hi. This is Matt. Healthland came in at $2.9 million worth of bookings for system sales and support, which was a pretty healthy jump from the first quarter, mostly because we had a completely new – what we would term, a net new install win during the second quarter for Healthland.

Got you. Okay. And then, I guess you guys mentioned seeing a little bit more Cerner in your stakes which is – I would think of them as tending to target some of the larger institutions, or as you guys kind of have a tailored solution for smaller hospitals? I mean is there a – when we think about competition with Cerner and even Epic, at what point they sort of stayed off as you move down the sort of curb on hospital in terms of size. I mean, do they tend to – you see them more 100-bed plus or you've seen them more down in the 50-bed area?

Yeah. With regard to Epic first, which is secondary part of your question, but we rarely see them at all unless it's involving a smaller hospital potentially tying in with a larger hospital that's geographically nearby. And that happens when we compete against that scenario a handful of times per year. At this point, we are seeing Cerner competitively in any size hospital. With their CommunityWorks product and in terms of some pricing reductions that, in our view, they've done recently, they've become – although that's still significantly more than us, they've become more price competitive in smaller hospitals and we are seeing that they've increased their sales effort in all size hospitals including the smallest of hospitals.

Got you. Okay. And then maybe one last one from me. I think you guys have emphasized well that for the post-acute care market is kind of an interesting area for you guys for expansion with Healthland and some of the cross-sell opportunities. Maybe my last question, can you help us think about how nursing homes think about, IT systems? I guess there's not a stimulus program there. I guess there're other factors that drive them to wanting to adapt (37:57). What's the catalyst that gets one of these post-acute care operators to pull the trigger with you guys?

Yeah. I'd say, right. We don't have a lot of historical knowledge about this, but we're gaining it very quickly as a result now having AHT. And the bundled payment system that we're moving to in healthcare in general, it is certainly at the forefront of the minds of the post-acute care operators and having the both the clinical and the financial and patient accounting systems to track that is at the forefront of their mind right now. So I would say, from what we've seen, that is largely the number one driver for those that are in the market at this point.

Okay. Thank you very much.

Thanks, Donald.

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

Hey, guys. Thanks for taking the questions. I'm on for Matt Gillmor. Just a quick numbers question. Can you give us the recurring and non-recurring backlog numbers?

Yeah. So recurring backlog as of 6/30 is $210.8 million, non-recurring, $15.5 million.

Okay. Thanks. And then, one other question. The last couple of quarters you've been pointing towards the Canadian market. How have you seen that market relative to the U.S. market in your decision making process?

We continue to be extremely pleased with our positioning there. Actually, in all of the English speaking provinces. It moves slowly. Since we've been involved in the market now for aggressively at least for the last year-and-a-half, and a little bit before then less aggressively, but there really have been no decisions made up there. But there are number – without getting into any details, there're a number of individual facility decisions that we think will occur within the next 12 months and there's a couple of provinces that are looking at systems as a whole as well that we are involved in. So it's not something that we think we're going to see a change in necessarily in the next quarter or two, but certainly in the next 12 months, we'll have a good idea of where we stand in Canada and all the work that we've been doing will come to fruition.

Great. Thanks.

You bet. Thank you, Sean.

Our next question comes from the line of Andrew Cooper with Raymond James and Associates. Please go ahead.

Hey, guys. Actually I was going to ask on a few that have already been asked. But I guess in regards to your last comment on the Canadian market, when you said provinces looking at systems as a whole. Could you just go into a little bit more color on what exactly you mean by that?

Not a whole lot. There's a couple English speaking provinces up there that are – their health authorities are evaluating what they have in house and what their long-term strategy is, whether that's to have one system for the entire province or to have different systems for the various regions of the province depending on the size of the facilities and so forth. So, we're involved in a lot of those discussions.

Great. Thanks.

You bet.

There are no further questions at this time. Pardon me, we have one question from Tessa Romero with Leerink Partners. Please go ahead.

Hi there. Hi. I'm in today on David Larsen's behalf. Thank you so much taking my question. I know you mentioned value-based care and sort of how you are excited about some of top health solutions that CPSI is working on. Could you provide us a little bit more color on that. What you're working on and sort of how you're tracking in the space overall?

Hey, Tessa. This is Chris Fowler. We press released a partnership with Caravan Health several weeks ago, which is our pilot entry into the population health and trying to help our providers that community hospitals understand the value-based reimbursement and what their opportunities are there. So we're excited to see how that progresses and, yeah, that's our first step.

That's great. I will definitely look into that. Thank you so much.

There are no other questions at this time.

Okay. Great. This is Boyd. I just want to thank everyone for their time today. I appreciate your interest in CPSI and thanks a lot. And have a great weekend.

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