Greetings and welcome to the CPSI Second Quarter 2019 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, Tuesday, August 6th, 2019.I would now like to turn the conference over to Dree Anderson [ph]. Please go ahead.

Thank you. Good afternoon, and welcome to the CPSI second quarter 2019 earnings conference call. During this 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 managements' expectations and predictions based upon currently available information and are not guarantees of future results or performance.Actual results may 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 now turn the call over to Mr. Boyd Douglas, President and Chief Executive Officer. Please go ahead, sir.

Thank you, Dree. Good afternoon, everyone, and thank you for joining us. Joining me on the call today will be Matt Chambless, our Chief Financial Officer. At the conclusion of our prepared comments, the two of us, along with David Dye, our Chief Growth Officer; and Chris Fowler, our Chief Operating Officer, will be available to take any questions you may have.Once again, our Q2 revenue and earnings were relatively aligned with expectations based on our near-term installation schedule heading into the quarter. Bookings continue to be challenged by extended decision-making timeframes and a lack of urgency among new and existing customers.From a services perspective, relative to our TruBridge business, for the second quarter in a row we have experienced a couple of hurdles in the sales process. First, smaller hospitals have personal connections at play when making the decision to outsource their business office. Many times the hospital employee's friends, neighbors and family within their business office and therefore, the decision to outsource that function creates uncertainty in terms of community impact and perception.To aid in the community hospital's goal of keeping jobs local, TruBridge has the flexibility to permanently place those existing resources on site. We have clients where we manage 100% remote, on-site and off-site hybrids where we hire or subcontract local employees and supplement them remotely. An important component to this hiring program is the training we provide to the existing on-site employees to help develop their skills.The second hurdle is specific to larger hospitals that are outside the CPSI client base. Their greatest challenge typically revolves around the proceeds, pain and changing vendors.To combat this dynamic and proceeds fear, we target hospitals that are experiencing significant financial struggles because for them the idea of changing RCM vendors becomes more palatable.TruBridge with its broad range of…

Thanks Boyd and good afternoon everyone. On today's call I'll cover some high level themes for the quarter that we want to be sure to highlight, including some additional color around our acquisition of Get Real, or GRH, followed by some additional detail on bookings performance, major nonfinancial metrics and a walk through the period's financial results.As we shared on the conference call last quarter, our first quarter bookings performance and the timing of our National Client Conference made for a challenging second quarter as expected. And while this slow pace of decision making has continued, we remain excited about our future growth prospects based on the strength of our pipeline as Boyd has pointed out.In the meantime, we've made strides towards improved profitability by identifying $10 million of cost savings during 2018 and $3 million during 2019. All $13 million have been decisioned and are flowing through our income statement, which has allowed CPSI to not only preserve but to increase profitability in the face of revenue fluctuations.Expense categories included in our measure of adjusting EBITDA have decreased $4 million or 7% compared to the second quarter of 2018 and are down $5.6 million or 5% on a year-to-date basis. Despite a nearly 3% decrease in revenues from the second quarter of 2018, adjusted EBITDA has increased 28%, while non-GAAP net income has increased 48%.From a year-to-date perspective, revenues are similarly down 3%, while adjusted EBITDA has increased 10% and non-GAAP net income has increased 21%. This higher profitability coupled with abating headwinds from financing receivables, has led to significant improvements in our cash flow, with financing receivables contributing a net $2.5 million tailwind to cash flow.The second quarter of 2019 saw operating cash flows of $9.6 million, marking our second highest level since the acquisition of Healthland in…

Thank you. [Operator Instructions]The first question comes from the line of Jeff Garro with William Blair & Company.

Yes, good afternoon and thanks for taking the question. Maybe I'll start it off with one on the end market. I was hoping that you could help us think about how much regulatory changes and related deadlines are having on decision-making? And then maybe the other side of it, what's within your control to keep prospects moving through the pipeline?

Yes. Jeff, David here. The first part of your question, really with the exception of the post-acute market, there isn't anything regulatory that's driving any decisions or lack thereof right now, except for the fact that, as we've mentioned the nauseam that we no longer have an MU environment. So, in the post-acute world, of course, there's some changes effective October 1st this year that are driving some to go to market if they feel like they'd have a solution that may not meet that -- their needs from a reimbursement perspective. But that's been relatively minimal because AHT and the other major players are certainly addressing those concerns.And the second part of your question -- what was the second part of your question? Do we have anything under our control to help with the timeline? Essentially, the summary answer to that question is, no.In decades of doing this, it's our job as a sales and marketing organization to be in contact with our customer base and potential customer base in such a way that when they are ready to make a decision that we're at the forefront of the minds based on their awareness of what our company can do and deliver for them. It's proven to be ineffective to try and push people to make decisions sooner.

Understood. So, maybe try to boil that down into a little bit of a quantifiable expectation. You guys have talked about 25 to 30 facilities been an appropriate number of installs on an annual basis. Is that still a good expectation for a number of new facilities to install during the year?

Yes, we still feel good -- maybe more closer to the 25 level. We still feel good about that range. We're going to do around that number this year. A lot of that, of course, is based on the success that we had last year. But based on what we see in the pipeline right now, we still feel it's very realistic to achieve that next year as well.

Great. And maybe I'll switch gears to the TruBridge side. You talked about some client operating decisions creating a bit of a headwind there. Maybe you could discuss whether those were kind of discrete issues? Or maybe representative of the customer base as a whole that there could be more client operating decisions that could impact the TruBridge business?

Yes. So, Jeff, this is Matt. I wouldn't say that it's indicative of potential decisions that are out there throughout our population of customers. It's more -- and I think Chris had handed this on the last earnings call, but a bit of a growing pain that come along which -- with pushing TruBridge services somewhat upstream in the larger facilities where -- when these onesie and twosie operational decisions do take place that can have kind of an exponential impact on our P&L just given our size. So, I wouldn't say it's symptomatic and would view it as being somewhat isolated.

Great, that's helpful. And last for me, following up on TruBridge. You mentioned the excitement within the company about cross selling opportunity. I have to assume that really refers to TruBridge. So, maybe an update on kind of overall penetration within the client base and the need from your existing clients to adopt more of your TruBridge business management services.

Yes. Hey Jeff, this is Chris. So, from a TruBridge-RCM standpoint, we're rapidly moving our customer base from our legacy electronic billing platform of clearinghouse onto TruBridge RCM.And I would say, virtually every deal -- every new hospital deal that we get in to those 25-ish a year, we're getting some portion of TruBridge RCM that goes along with that. So, that's kind of a no-brainer tag along there as it relates to opportunities.When you look down into the medical coding, the private pay service, thoroughly out-service, and then the full accounts receivable management, we still have huge opportunities to convert those customers onto those services.Obviously, a big initiative that we've got going right now is the nTrust. And I think both Boyd and Matt referenced that, that -- it feels like there's a little bit of a tag on with the hangover from the EHR decisions kind of elongating.I think that now that there's not that regulatory driver to force somebody to do something, they're enjoying the opportunity to be able to take a break. I do think that we are getting better in scenarios or situations like the Chronic Care Management Service, allows us to bring in value-adds through nTrust to not just replace apples to apples. So, right now our hospital has a billing office.So, they're seeing it as just a bottom-line, what am I paying right now to collect on my dollar compared to what I would be paying you. So, bringing in opportunities like the Chronic Care Management Service to where we would bring additional revenue as well. I think we're going to see some continued momentum around that. But obviously, we're early there. But excited to see how that continues to grow.

Great. That helps. Thanks guys. I'll hop back in the queue.

Thanks Jeff.

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

Hey good evening. Thanks for taking my questions. Maybe just a couple. The first one on the competitive environment, athena, obviously, things have changed over there. Can you just give us any insight into what you guys are seeing from them in the marketplace? I mean what's your understanding of what private equity plans to do with that business, if you could start there that'd be great.

Yes. I'd probably rather hear from you on that second part there Jamie. But -- you may know better than us. But as you know and have probably heard they're definitely not active in any new sales opportunities.If it's a hospital on any other system, they're not active in trying to pursue that opportunity. It continues to be us versus Cerner and MEDITECH, et cetera. They are making an effort to retain their current customers. We have seen increased activity among their current customers. I think a little bit of a skittishness as to what the future may hold. But that would be my summary of the situation.

Okay, that's great. And then maybe just one other one, maybe for Matt. The $3 million of cost saves that you guys talked about on the Q1 call. It sounds like $1 million of that was synergies that you expect from Get Real Health. Is -- the quarter costs were pretty tight. Is it fair for us to assume that basically the other kind of $2 million of annualized cost saves were reflective in the Q2 numbers or outside of the Get Real number, is there still some cost saves to go from here?

Yes. So, Jamie, we're nearly there on having all $13 million of the total identified cost savings flowing through the P&L. We still have about $600,000 of quarterly run rate. So, $2.4 million annualized, that just start benefiting the P&L in Q3.I mentioned in my opening remarks that year-to-date, EBITDA expenses are down $5.6 million. So, if you annualize that and add $2.4 million annual run rate that starts benefiting the P&L in the third quarter, it gets you to $13.6 million, which post the math home for the $13 million.

All right. That's great. Thank you.

Thanks Jaime.

We now have a question from the line of Stephanie Demko with Citi. Please go ahead.

Hey guys. Thanks for taking my questions. Just given the cloud bookings environment, how should we think about the mix of recurring revenue? And so as a baseline business, if bookings do not come through for the rest of the year just thinking about 2020, 2021?

Yes. So, Stephanie, naturally, most of the booking, particularly on the system sales side of the house, do -- does come -- does tend to come in the form of nonrecurring revenue opportunities for us. So, as non-recurring comes down, the recurring revenue mix as a percentage of overall will go up.So, again, this past quarter, recurring revenues were $57 million. The gradual growth curve on that makes us think that Q4 and Q1 of next year would expect dramatic increase there. So, with that staying relatively stable, the movements around in non-recurring bookings can certainly shift overall sales mix towards higher recurring.

Understood. So, how could we think about growth as we look at the out years? Is it going to be more challenging, just given where the bookings are? Do you think there's an opportunity to kind of backfill on the second half of the year?

Yes. We -- obviously, it's challenging given the way we've performed in the first half of year, Stephanie, from a bookings perspective. Boyd mentioned the quarter-to-date $9 million plus that -- where we are with our bookings so far this quarter. Obviously, we've got a lot of work left to do.But based on the fact that our overall pipeline as of the end of the first quarter and as of the end of the second quarter of this year increased rather significantly more than the shortfall from what we booked compared to what we would think that we would've booked and what our target was internally. So, the opportunities there is just up to, obviously, we have to perform to close to it.And then we hope that the lag and time frame that we've experienced, means that some of these deals are ready to close and it appears they are. So, it really -- our growth -- to answer your question, our growth that we hope to achieve in 2020 is now in large part depended on how we perform from a sales perspective through the rest of this year.

Okay. You're talking of a timing issue. And then one last one for me, just seeing the demand, I think the patient portal's onboarding solutions and the Get Real Health acquisition. I was hoping you would walk us through any forthcoming innovation and the consolidated patient portal like a payment solutions kind of onboarding, anything like that?

Stephanie, this is Chris -- go ahead, go ahead, Boyd.

No. You go ahead.

So, we are continuing to look to add into the Get Real Health solution set, whether that'd be from a strategic partnership or internal development. Obviously, the current offering from Get Real Health offers a very complete solution with some adds that we did not have in our current set from an innovation standpoint. There are still some things that we're looking and very excited about bringing in not just to the EHR base but also from a TruBridge services standpoint.So when we're thinking about being able to go into the upmarket, obviously, there's some opportunity for us to be able to capitalize there. It doesn't seem like to us if there's anybody that's really put that together from a technology and services side from that patient engagement.So, it's just a matter of coupling all those pieces together to where we could bring that to market, which we're not there today, but hopefully, very soon expect to see something that with the way that Get Real Health is setup that we should be able to action relatively quickly.

I'll keep an eye for that. Thank you guys for taking my questions. appreciate it.

Thanks Stephanie.

The next question comes from the line of Mike Ott from Oppenheimer. Please go ahead.

Good afternoon. Thanks for taking my questions. Appreciate all the color on TruBridge today. Just curious if you're still expecting upper single-digit revenue growth from them this year?

Matt, you want to start that one and I'll finish it.

Yes. So, naturally -- yes, so two quarters in a row does make for a steep hill to climb to get to the upper single-digits. So, we're thinking TruBridge this year realistically somewhere between 5% to 7%.

Something to add in there Mike. I think it was in Boyd's remarks; it was the $9 million quarter-to-date. There is a $2 million bookings opportunity that we closed 2 weeks ago, that is a cleanup project similar to one that I think we announced last year that we expect to recognize all of that in the second half of this year.We also are very excited about the way the TruBridge upsell -- the TruBridge's standalone market, the pipeline is growing. So, not any big onetime deals like the one that we just signed, but some nice incremental growth that we should see coming through.

Clear, very helpful, Chris and Matt. Thank you. And then wondering if you could also expand on what you hope to get from GRH's recent integration with Microsoft HealthVault?

So, I think from our -- from that standpoint, it's more about just continuing the conversation and making the product and the portal available for the patient population. So, it's just one more way for patients to interact with our services and our systems.So, as the Microsoft brand -- as they're changing their business and giving us the opportunity to capitalize on that, I think what we'll see is that it's another way for patients to separate from their hospital market as their thinking about their personal health and be able to make that portal.

Okay, very helpful. Thanks very much.

[Operator Instructions]We now have a question from the line of Donald Hooker with KeyBanc. Please go ahead.

Great. Good afternoon. Just I understand the headwind from the MU3 sales being down. Is there another leg up there just so we don't -- so we just make sure we're aligned with -- properly with the timing of these license sales of -- I thought I understood the third quarter might be a big step-up there for MU3 revenue. And is that sort of then it for that software 101?

Yes. So Don, just to kind of recap where we are on MU3. To-date, we've recognized about $31.5 million of MU3-related revenue. Out of life to date bookings of just over $32 million. So, obviously, we're nearing the end of that incremental opportunity. But we do see perhaps somewhat close to maybe $3 million sort of opportunity remaining, but obviously that's nearly all still sales dependent.Bookings this past quarter were roughly $1.4 million, so doubling the Q1 amount. But as far as the timing of the rev rec on that remaining potential opportunity we see, we expect the overwhelming majority of that to fall in Q3 just knowing what the regulatory time frames are to the extent that those remaining bookings opportunities to materialize.So, we're still optimistic that a good portion of that $3 million could convert to revenue in Q3 because as far as the delivery time frame for us, it's a very compressed time frame between bookings to potential rev rec on that.

Got you. And then in terms of the free cash flow, obviously, strong financial receivables were down. You still have a fair amount of those financial receivables left. And would love to hear if there's an opportunity for that receivable -- financing receivables balance to continue to go down or can you talk to us about that? There's a lot of cash being held up there on the balance sheet that could be released. Can -- is there anything you'd do to cause that to happen?

Yes. Don, so the good news is there that there's not really any positive action on our part but just a natural cycle with these MU3-related sales. We still have a lot of MU3 revenue over the past 12 months that has largely been parked on the balance sheet in these 12-month payment plans that show up in the current portion of financing receivables.So, we do expect for the remainder of the year financing receivable to contribute cash. And once we work out this kind of onetime opportunity on MU3, going forward we should be relatively neutral on that item.

Okay. And maybe one last question for me. The Get Real Health, I think you mentioned there were $4.5 million of revenue in 2018. And I know it's lumpy. Was that -- is that pre-ASC 606, that $4.5 million? Would -- is that the right bogey to think about kind of it'll move up and down in 2019 and 2020. But I assume there's some general upward trajectory and growth there. But is that $4.5 million ASC 605 or ASC 606?

Yes. So, that was under ASC 605. GRH was a private company. So, 606 became effective for them beginning 2019, and we haven't really undertaken the effort to restate -- to recast 2018 numbers.

Okay, that's fair. Thank you.

Thanks Don.

The next question comes from the line of David Windley with Jefferies. Please go ahead.

Hi, good afternoon. Thanks for taking my question. My question is around kind of customer profile. As you talked earlier in your prepared remarks about -- in the context of Get Real Health population management and value-based care. I'm interested in kind of the typical profile or the cut point at which your clients become sensitive to that or entrusted or motivated by that. I figure it's not all of them.And just wondering if there's a typical profile or a side, a bed size or something that you could describe that kind of dictates where they get interested in that -- need to be interested in that?

I don't know that there's any hay take of a profile for that. As far as a bed size or anything, some of them -- obviously the ones that are moving more quickly towards that are the ones that are more progressive hospitals.Obviously, if you got a lot of customers they're progressive and progressive with us, with the system, with adoption of the system and TruBridge service and everything else and also forward-looking and ready to dive into new things, like value-based care. And then obviously, the majority probably lag behind.And I think in general, it certainly safe to say that the smaller our customer base, the smaller hospitals typically are not near -- as penetrated with value-based care as the larger facilities.

Okay. Thank you for that.

David, just a little bit to add there. This is Chris. So, the other thing too is that of note, as you're thinking about from -- is there a cut. At our National Conference, where we had roughly 35% of our customers there, whether it was our largest 5% of the customer base from a volume size or some of the smaller hospitals that we have. The feedback that we got around Get Real Health and that acquisition was amazingly positive.And what we found out was that, there were a lot of conversations happening in all of our organizations regarding what they were doing from a patient engagement standpoint. So, I think the timing of us doing this while still a little bit early on seeing it across the board, I think it's right on time for whether it's -- they were thinking about it and they were looking to make a decision or it's something that we can bundle up as a service and deliver to them to help them over that line, which I think is why we've seen TruBridge be so successful as our ability to do that, to look forward a little bit and take something that needs to happen or pulling them forward and using a service to do that.I think that we're going to see no real cutline in the demand for that. While I think the cut becomes if whether it's something that they can stand up the operations to do it themselves or if they're going to need assistance via TruBridge to deliver those solutions to their customer base.

Got it. I appreciate that elaboration. So, as a follow-up to that triggers. I know Get Real Health not that big, and you mentioned in the prepared remarks the kind of three different things, patient engagement, management of chronic disease, kind of outcomes-based chronic disease and kind of full-ups so to care-type stuff.And then outcomes-based reimbursements, can those things be engaged individually? And if so, is there one of those that is kind of leading the way and then the rest follow?

It's an interesting question. We're looking at the Chronic Care Management in the existing customer base to be more of a driver for the nTrust. Again, so you go back to the example where chronically a hospital has a business office in place and we're presenting an option to outsource that.The first step is to look at apples to apples and just what's their cost today compared to costs going forward. The Chronic Care Management offers us the ability to bring in that value-add to that dynamic to change the math just a little bit.Chronic Care Management may not be the thing four or five years from now. But it's obvious to us that the direction that the government is going is pushing the care out of the organizations.And so this is a good first step for us to help engage the patient through the hospital, through these additional services and start that process. So, I think that's a big driver internally.I think when we look on the outside market, I think the portal itself and the patient engagement platform for the larger facilities that we're competing for business with, I think is a great way for us to bring in additional services that we can stand up.So, using the patient engagement or the portal as the -- as a tool that allows us to be more successful at delivering early out solutions to where we look at it holistically versus a hospital having to manage seven relationships for their portal for an online payment system for the patient payments for other various operations that they would put in there. So, I think it depends on the size of the market of what we would say the driver is. But we're equally excited about all of them.

Got it. Very good. Thank you for the answers. Appreciate it.

Absolutely. Thank you, David.

There are no further questions at this time. I'll now turn the call back to you, please continue with the presentation and/or closing remarks.

Yes. So, I want to thank everyone for being on the call today. We appreciate your interest in CPSI. Have a great rest of your week.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.