CPSI(US:CPSI)2021-11-09 22:08Customer Preferences and Market Trends - The company reported a significant shift in customer preferences towards the "Software as a Service" (SaaS) model, with 68% of new acute care EHR installations in 2020 being SaaS, up from 43% in 2019 and 12% in 2018[158]. - The healthcare IT market is expected to grow due to increasing pressure on healthcare organizations to reduce costs and improve quality, which may drive demand for the company's business management and consulting services[154]. - The company recognizes the ongoing risks related to the COVID-19 pandemic, market saturation, and competition from companies with greater resources[136]. Financial Performance - In the first nine months of 2021, the company generated revenues of $206.6 million, a 5% increase from $197.6 million in the same period of 2020, primarily due to improved hospital patient volumes[172]. - Operating income for the first nine months of 2021 was $17.2 million, compared to $15.1 million in the same period of 2020, reflecting improved profitability[172]. - Net income for the first nine months of 2021 was $13.0 million, an increase of $1.9 million from $11.1 million in the same period of 2020[172]. Revenue and Cost Dynamics - The company anticipates incremental margin pressure in the near term due to the transition from perpetual license arrangements to SaaS arrangements, which typically result in lower initial revenues but higher recurring revenues over time[152]. - Total revenues for Q3 2021 increased by $1.8 million, or approximately 3%, compared to Q3 2020[175]. - Total costs of sales increased by $1.9 million, or 6%, to $17.8 million in Q3 2021, with costs representing 50% of total revenues[180]. Operational Changes and Strategies - The company expects to realize approximately $3.9 million in annual savings from a reduction in force that terminated about 1.0% of its workforce, incurring expenses of approximately $2.7 million related to this action[161]. - The company engaged a consulting firm to assess its growth strategy, confirming the focus on cross-selling TruBridge services and pursuing competitive EHR opportunities in the acute and post-acute markets[151]. - The company aims to stabilize revenues and cash flows by leveraging TruBridge services as a growth agent, emphasizing the importance of maintaining and growing its recurring revenue base[150]. Impact of COVID-19 - The company expects continued negative impacts from COVID-19 on patient volumes and revenues, particularly affecting TruBridge service offerings[166]. - Cash collections have been delayed due to COVID-19, impacting the company's liquidity and cash flows from operating activities[170]. - The federal government allocated $175 billion through the CARES Act Provider Relief Fund to assist healthcare providers, with $10 billion specifically targeted for rural providers, which is significant for the company's client base[170]. Bookings and Backlog - Total bookings for the third quarter of 2021 increased by $7.8 million, or 37%, compared to the third quarter of 2020, reaching $29.322 million[233]. - Acute Care EHR bookings in the third quarter of 2021 rose by $3.8 million, or 33%, compared to the same period in 2020, totaling $15.298 million[234]. - As of September 30, 2021, the twelve-month backlog included approximately $6 million in non-recurring system purchases and approximately $272 million in recurring payments[231]. Cost Management and Expenses - Total operating expenses increased by $1.5 million, or 5%, to $19.5 million in Q3 2021, representing 44% of total revenues[188]. - General and administrative expenses increased by $4.1 million, or 12%, compared to the first nine months of 2020, mainly due to $2.5 million in severance costs and $0.9 million in transaction-related costs from the TruCode acquisition[210]. - Sales and marketing costs decreased by $2.7 million, or 15%, compared to the first nine months of 2020, driven by reduced payroll and commission expenses[207]. Capitalization and Investments - The company capitalized software development costs of $2.4 million and $6.4 million during the three and nine months ended September 30, 2021, respectively, with an estimated increase in capitalized amounts of approximately $1.1 million and $3.0 million due to a change in accounting methodology[162]. - Net cash used in investing activities increased by $61.4 million, totaling $67.0 million for the nine months ended September 30, 2021, largely due to the acquisition of TruCode[222]. Debt and Interest Rate Exposure - The company had $117.3 million of outstanding borrowings under credit facilities as of September 30, 2021, exposing it to interest rate fluctuations[243]. - A 100 basis point change in interest rates on borrowings would result in a change in interest expense of approximately $1.2 million annually[243]. - The transition from LIBOR to alternative reference rates could adversely impact the company's borrowing costs[244].