CPSI(CPSI) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements In Q1 2022, the company reported total revenues of $77.9 million, a 15% increase year-over-year, with net income rising to $8.1 million, primarily driven by TruBridge segment growth and strategic acquisitions Condensed Consolidated Statements of Income (Unaudited) | Indicator (In thousands, except per share data) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Total sales revenues | $77,871 | $68,005 | | Gross profit | $39,815 | $34,850 | | Operating income | $8,986 | $4,914 | | Net income | $8,113 | $4,144 | | Net income per common share—diluted | $0.55 | $0.28 | Condensed Consolidated Balance Sheets (Unaudited) | Indicator (In thousands) | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $15,981 | $11,431 | | Total assets | $440,330 | $383,350 | | Long-term debt, net of current portion | $136,633 | $94,966 | | Total liabilities | $209,578 | $160,778 | | Total stockholders' equity | $230,752 | $222,572 | Condensed Consolidated Statements of Cash Flows (Unaudited) | Indicator (In thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,817 | $13,710 | | Net cash used in investing activities | ($47,680) | ($1,365) | | Net cash provided by (used in) financing activities | $40,413 | ($7,000) | | Increase in cash and cash equivalents | $4,550 | $5,345 | Notes to Condensed Consolidated Financial Statements The notes detail financial statement presentation, including a Q2 2021 accounting estimate change, the $43.4 million HRG acquisition, and a May 2022 credit facility amendment - In Q2 2021, the company changed its method for estimating labor costs for software development capitalization, moving to a methodology based on the distribution of agile workload metrics, considered a change in accounting estimate applied prospectively[21][64] - On March 1, 2022, the company acquired Healthcare Resource Group, Inc. (HRG) for a net cash consideration of $43.4 million, with preliminary purchase price allocation including $20.4 million to goodwill and $24.2 million to intangible assets[45][46][48] - The company's revenue recognition is based on ASC 606, with TruBridge revenue recognized as services are performed, and System Sales revenue recognized upon implementation for perpetual licenses or monthly for SaaS over the contract term[25][28][31][35] Segment Revenues and Adjusted EBITDA (Q1 2022 vs Q1 2021) | Segment (In thousands) | Revenues Q1 2022 | Revenues Q1 2021 | Adjusted EBITDA Q1 2022 | Adjusted EBITDA Q1 2021 | | :--- | :--- | :--- | :--- | :--- | | TruBridge | $43,108 | $31,639 | $10,789 | $6,520 | | Acute Care EHR | $30,392 | $31,890 | $5,032 | $4,684 | | Post-acute Care EHR | $4,371 | $4,476 | $332 | $620 | | Total | $77,871 | $68,005 | $16,153 | $11,824 | - On May 2, 2022, the company amended its credit agreement, increasing the revolving credit facility from $110 million to $160 million, extending the maturity date to May 2, 2027, and transitioning the benchmark interest rate from LIBOR to SOFR[136][137][140] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2022's 15% revenue growth to acquisitions and TruBridge's organic expansion, noting a strategic shift to SaaS models and strong liquidity - The company's core strategy is to drive long-term revenue growth by cross-selling TruBridge services into its EHR customer base, expanding TruBridge's market share, and pursuing competitive EHR takeaway opportunities[160] - There is a dramatic shift in customer preference from perpetual license models to SaaS arrangements, with SaaS installations for new acute care EHRs growing from 12% in 2018 to 63% in 2021 and 100% in Q1 2022, which reduces upfront revenue but increases long-term recurring revenue[169] Revenue Breakdown (Q1 2022 vs Q1 2021) | Revenue Source (In thousands) | Q1 2022 | Q1 2021 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | TruBridge | $43,108 | $31,639 | +$11,469 | +36% | | System sales and support | $34,763 | $36,366 | -$1,603 | -4% | | Total sales revenues | $77,871 | $68,005 | +$9,866 | +15% | - TruBridge revenue increased by 36% YoY, driven by organic growth in accounts receivable management, insurance, and medical coding services, as well as $3.4 million from the TruCode acquisition and $3.8 million from the HRG acquisition[192] Bookings (Q1 2022 vs Q1 2021) | Segment (In thousands) | Q1 2022 | Q1 2021 | Change % | | :--- | :--- | :--- | :--- | | TruBridge | $10,151 | $2,687 | +278% | | System sales and support | $10,246 | $6,090 | +68% | | Total bookings | $20,397 | $8,777 | +132% | - As of March 31, 2022, the company had a twelve-month backlog of approximately $330 million, consisting of $6 million from non-recurring system purchases and $324 million from recurring services, a significant increase from the $258 million total backlog a year prior[236] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate fluctuations on its $142.4 million variable-rate debt, with a 100-basis-point change impacting annual interest expense by $1.4 million - The primary market risk is from interest rate changes on the $142.4 million of outstanding variable-rate borrowings under its credit facilities as of March 31, 2022[245] - A hypothetical 100 basis point (1%) change in the interest rate would result in an approximate $1.4 million change in annual interest expense[245] - The company acknowledges the upcoming cessation of LIBOR publication after June 30, 2023, and the uncertainty regarding the transition to alternative reference rates, which could impact borrowing costs[246] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of March 31, 2022, with ongoing integration of newly acquired HRG policies and no other material internal control changes - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the company's disclosure controls and procedures are effective at the reasonable assurance level[249] - Following the acquisition of HRG on March 1, 2022, the company is in the process of integrating its policies and controls, with no other changes materially affecting, or reasonably likely to materially affect, the company's internal control over financial reporting[250] PART II. OTHER INFORMATION Legal Proceedings The company is involved in routine litigation arising in the ordinary course of business but is not currently involved in any claims considered material to its financial condition or results of operations - The company is not currently involved in any legal proceedings outside the ordinary course of business that are material to its financial condition or results of operations[254] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes have been made to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021[255] Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2022, the company repurchased 50,720 shares for tax withholdings, with approximately $28.1 million remaining available under the stock repurchase program Equity Repurchases in Q1 2022 | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2022 | 0 | N/A | | Feb 2022 | 19,448 | $29.83 | | Mar 2022 | 31,272 | $34.22 | | Total | 50,720 | $32.54 | - The 50,720 shares repurchased were to fund required tax withholdings for vested restricted stock and did not reduce the authority under the publicly announced stock repurchase program[256] - As of March 31, 2022, approximately $28.1 million remained available for repurchase under the stock repurchase program authorized through September 3, 2022[88][256] Defaults Upon Senior Securities Not applicable Mine Safety Disclosures Not applicable Other Information None Exhibits This section lists the exhibits filed with the Form 10-Q, including the Stock Purchase Agreement for the HRG acquisition and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - Key exhibits filed include the Stock Purchase Agreement for the Healthcare Resource Group, Inc. acquisition and CEO/CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[264]