Document
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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018.
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            .
Commission file number: 000-49796

COMPUTER PROGRAMS AND SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware74-3032373
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
6600 Wall Street, Mobile, Alabama36695 
(Address of Principal Executive Offices)(Zip Code)

(251) 639-8100
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨
Accelerated filer
ý
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company¨
Emerging Growth Company
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
As of August 6, 2018 there were 14,085,989 shares of the issuer’s common stock outstanding.

1

Table of Contents
COMPUTER PROGRAMS AND SYSTEMS, INC.
Quarterly Report on Form 10-Q
(For the three and six months ended June 30, 2018)
TABLE OF CONTENTS
 

Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

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PART I
FINANCIAL INFORMATION

Item 1.Financial Statements.

COMPUTER PROGRAMS AND SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited) 


June 30, 2018December 31, 2017
Assets
Current assets:
Cash and cash equivalents$1,492 $520 
Accounts receivable, net of allowance for doubtful accounts of $3,213 and $2,654, respectively
41,216 38,061 
Financing receivables, current portion, net14,788 15,055 
Inventories1,478 1,417 
Prepaid income taxes651  
Prepaid expenses and other6,038 2,824 
Total current assets65,663 57,877 
Property and equipment, net11,042 11,692 
Financing receivables, net of current portion13,025 11,485 
Other assets, net of current portion1,155  
Intangible assets, net91,510 96,713 
Goodwill140,449 140,449 
Total assets$322,844 $318,216 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$5,814 $7,620 
Current portion of long-term debt5,830 5,820 
Deferred revenue12,300 8,707 
Accrued vacation4,702 3,794 
Income taxes payable 810 
Other accrued liabilities10,160 14,098 
Total current liabilities38,806 40,849 
Long-term debt, net of current portion133,151 136,614 
Deferred tax liabilities6,646 4,667 
Total liabilities178,603 182,130 
Stockholders’ equity:
Common stock, $0.001 par value; 30,000 shares authorized; 14,086 and 13,760 shares issued and outstanding, respectively
14 14 
Additional paid-in capital159,770 155,078 
Accumulated deficit(15,543)(19,006)
Total stockholders’ equity144,241 136,086 
Total liabilities and stockholders’ equity$322,844 $318,216 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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COMPUTER PROGRAMS AND SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended June 30,Six Months Ended June 30,
2018201720182017
Sales revenues:
System sales and support$42,746 $45,474 $88,498 $88,897 
TruBridge25,159 22,203 50,290 42,854 
Total sales revenues67,905 67,677 138,788 131,751 
Costs of sales:
System sales and support19,528 19,753 37,946 39,540 
TruBridge13,531 11,933 26,910 23,520 
Total costs of sales33,059 31,686 64,856 63,060 
Gross profit34,846 35,991 73,932 68,691 
Operating expenses:
Product development9,314 8,414 18,071 16,492 
Sales and marketing7,518 7,607 15,232 14,734 
General and administrative13,188 12,921 25,552 24,581 
Amortization of acquisition-related intangibles2,601 2,601 5,203 5,203 
Total operating expenses32,621 31,543 64,058 61,010 
Operating income2,225 4,448 9,874 7,681 
Other income (expense):
Other income194 70 392 140 
Interest expense(1,807)(1,938)(3,785)(3,745)
Total other income (expense)(1,613)(1,868)(3,393)(3,605)
Income before taxes612 2,580 6,481 4,076 
Provision for income taxes284 993 2,185 2,243 
Net income$328 $1,587 $4,296 $1,833 
Net income per common share—basic$0.02 $0.11 $0.31 $0.13 
Net income per common share—diluted$0.02 $0.11 $0.31 $0.13 
Weighted average shares outstanding used in per common share computations:
Basic13,561 13,420 13,518 13,397 
Diluted13,561 13,420 13,518 13,397 
Dividends declared per common share$0.10 $0.20 $0.20 $0.45 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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Table of Contents
COMPUTER PROGRAMS AND SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
 

Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 201713,760 $14 $155,078 $(19,006)$136,086 
Net income— — — 4,296 4,296 
Adoption of accounting standards (Note 2)— — — 1,970 1,970 
Issuance of restricted stock326 — — —  
Stock-based compensation— — 4,692 — 4,692 
Dividends— — — (2,803)(2,803)
Balance at June 30, 201814,086 $14 $159,770 $(15,543)$144,241 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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Table of Contents
COMPUTER PROGRAMS AND SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 

Six Months Ended June 30,
20182017
Operating Activities:
Net income$4,296 $1,833 
Adjustments to net income:
Provision for bad debt1,695 473 
Deferred taxes1,404 1,920 
Stock-based compensation4,692 2,967 
Depreciation1,067 1,419 
Amortization of acquisition-related intangibles5,203 5,203 
Amortization of deferred finance costs173 365 
Changes in operating assets and liabilities:
Accounts receivable(4,453)(3,013)
Financing receivables(1,669)(4,241)
Inventories(62)622 
Prepaid expenses and other(594)(1,014)
Accounts payable(1,806)4,588 
Deferred revenue2,363 2,724 
Other liabilities(3,030)2,236 
Prepaid income taxes/income taxes payable(1,461)(191)
Net cash provided by operating activities7,818 15,891 
Investing Activities:
Purchases of property and equipment(417)(465)
Net cash used in investing activities(417)(465)
Financing Activities:
Dividends paid(2,803)(6,135)
Payments of long-term debt principal(10,335)(3,271)
Proceeds from revolving line of credit7,300  
Payments of revolving line of credit(591)(6,500)
Proceeds from exercise of stock options
 1 
Net cash used in financing activities(6,429)(15,905)
Increase (decrease) in cash and cash equivalents972 (479)
Cash and cash equivalents at beginning of period520 2,220 
Cash and cash equivalents at end of period$1,492 $1,741 
Supplemental disclosure of cash flow information:
Cash paid for interest$3,539 $3,355 
Cash paid for income taxes, net of refund$2,242 $514 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Table of Contents
COMPUTER PROGRAMS AND SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.    BASIS OF PRESENTATION
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") and include all adjustments that, in the opinion of management, are necessary for a fair presentation of the results of the periods presented. All such adjustments are considered of a normal recurring nature. Quarterly results of operations are not necessarily indicative of annual results.
Certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2017 was derived from the audited consolidated balance sheet at that date. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements of Computer Programs and Systems, Inc. ("CPSI" or the "Company") for the year ended December 31, 2017 and the notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
Principles of Consolidation
The condensed consolidated financial statements of CPSI include the accounts of TruBridge, LLC ("TruBridge"), Evident, LLC ("Evident"), and Healthland Holding Inc. ("HHI"), all of which are wholly-owned subsidiaries of CPSI. The accounts of HHI include those of its wholly-owned subsidiaries, Healthland Inc. ("Healthland"), Rycan Technologies, Inc. ("Rycan"), and American HealthTech, Inc. ("AHT"). All significant intercompany balances and transactions have been eliminated.
Presentation
Effective January 1, 2018, our interface services team, which provides the design, development, implementation, and support services for all interfaces for data exchange from the CPSI applications, was previously considered a part of our product development division and has been integrated with our acute care client service team. This transition will work to create a consistent, personal, and convenient service experience for our clients characterized by transparent communication with prompt resolution. With this change, the payroll and related costs of this group of employees that were formerly included within the caption "Product development" on our condensed consolidated statements of income are now included within the caption "System sales and support - Cost of sales."
This reclassification had no effect on previously reported total sales revenues, operating income, income before taxes or net income.
Amounts presented for the three and six months ended June 30, 2017 have been reclassified to conform to the current presentation. The following table provides the amounts reclassified for the three months ended June 30, 2017:
(In thousands)As previously reportedReclassificationAs reclassified
Costs of sales:
System sales and support$18,859 $894 $19,753 
Operating expenses:
Product development$9,308 $(894)$8,414 






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 The following table provides the amounts reclassified for the six months ended June 30, 2017:
(In thousands)As previously reported
Reclassification
As reclassified
Costs of sales:
System sales and support$37,789 $1,751 $39,540 
Operating expenses:
Product development$18,243 $(1,751)$16,492 

2.    RECENT ACCOUNTING PRONOUNCEMENTS
New Accounting Standards Adopted in 2018
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes prior revenue recognition guidance. This guidance was effective for fiscal years and interim periods within those years beginning after December 15, 2017, which was effective for the Company as of the first quarter of our fiscal year ending December 31, 2018. We adopted this new accounting standard codified as Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, and the related amendments ("new revenue standard") during the first quarter of 2018 and have applied it to all contracts using the modified retrospective method, pursuant to which the cumulative effect of initially applying the new revenue standard is recognized as an adjustment to retained earnings and impacted balance sheet line items as of January 1, 2018, the date of adoption. The comparative previous period information continues to be reported under the accounting standards in effect for that period.
We completed an assessment of our systems, data, and processes that are affected by the implementation of this new revenue standard and have concluded that this standard does not significantly alter revenue recognition practices for our system sales and support and TruBridge revenue streams. The impact on our revenue recognition is limited to deferring and amortizing implementation fees over the contract life related to our Rycan revenue cycle management product, in which we previously recognized revenue as implementation was completed. Rycan implementation fees totaled $1.6 million in 2017, less than 1% of our 2017 revenues. The balance sheet impact of the deferred revenue related to these fees was an increase of $1.8 million as of the date of adoption. Also impacting deferred revenue was a decrease of $0.6 million related to previous billings which no longer required deferred recognition as of the date of adoption.
In addition to revenue recognition, the new revenue standard impacts our consolidated financial statements with respect to the capitalization of certain commissions and contract fulfillment costs which were previously expensed as incurred. Commissions and contract fulfillment costs related to the implementation of software as a service arrangements are now capitalized and amortized over the expected life of the customer. TruBridge commissions, which are paid up to twelve months in advance, are now capitalized and amortized over the prepayment period. The balance sheet impact of the prepaid assets was an increase of $3.8 million as of the date of adoption.
Due to the aforementioned changes in assets and liabilities related to the adoption of the new revenue standard, our deferred tax liability increased $0.6 million as of the date of adoption.
In total, the adoption of ASU 2014-09 resulted in a net increase in retained earnings of $2.0 million as of the date of adoption.
In accordance with the new revenue standard requirements, the disclosures of the impact of adoption on our condensed consolidated income statements and balance sheet were as follows:
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Three Months Ended June 30, 2018
(In thousands)As reportedBalances without adoption of ASC 606Effect of adoption increase/(decrease)
Condensed Consolidated Statements of Income
Revenue: TruBridge$25,159 $25,057 $102 
Cost of sales: System sales and support19,528 19,529 (1)
Gross profit34,846 34,743 103 
Sales and marketing7,518 7,121 397 
Operating income2,225 2,519 (294)
Provision for income taxes284 346 (62)
Net income$328 $560 $(232)

Six Months Ended June 30, 2018
(In thousands)As reportedBalances without adoption of ASC 606Effect of adoption increase/(decrease)
Condensed Consolidated Statements of Income
Revenue: TruBridge$50,290 $50,129 $161 
Cost of sales: System sales and support37,946 37,880 66 
Gross profit73,932 73,837 95 
Sales and marketing15,232 14,735 497 
Operating income9,874 10,276 (402)
Provision for income taxes2,185 2,269 (84)
Net income$4,296 $4,614 $(318)

June 30, 2018
(In thousands)As reportedBalances without adoption of ASC 606Effect of adoption increase/(decrease)
Condensed Consolidated Balance Sheet
Prepaid assets and other$6,038 $3,981 $2,057 
Other assets, net of current1,155  1,155 
Total assets322,844 319,632 3,212 
Deferred revenue12,300 11,230 1,070 
Deferred tax liability6,646 6,156 490 
Total liabilities178,603 177,043 1,560 
Retained earnings$(15,543)$(17,195)$1,652 

The effects of the changes in balance sheet accounts resulting from the adoption of the new revenue standard are primarily due to the beginning adjustments for adoption mentioned above, accompanied by incremental changes resulting from activity during the period ending June 30, 2018. Refer to Note 3 - Revenue Recognition for more information on period activity.
The new revenue standard requirements did not impact our net cash provided by or used in operating, investing, or financing cash flows on our condensed consolidated statements of cash flows, although components within changes in operating assets and liabilities were immaterially impacted by adoption.
In August 2016, the FASB issued ASU 2016-15, Classifications of Certain Cash Receipts and Cash Payments, which clarifies cash flow classification for eight specific issues, including debt prepayment or extinguishment costs, contingent
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consideration payments made after a business combination, proceeds from the settlement of insurance claims, and proceeds from settlement of corporate-owned life insurance policies. This guidance was effective for fiscal years and interim periods within those years beginning after December 15, 2017, which was effective for the Company as of the first quarter of our fiscal year ending December 31, 2018. The adoption of ASU 2016-15 did not have a material effect on our financial statements.

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, to assist an entity in evaluating when a set of transferred assets and activities is a business. The guidance was effective for fiscal years and interim periods within those years beginning after December 15, 2017, and will be applied prospectively to any transactions occurring following adoption. The adoption of ASU 2017-01 did not have a material effect on our financial statements.
New Accounting Standards Yet to be Adopted

In February 2016, the FASB issued ASU 2016-02, Leases, to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The new guidance will require the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. This guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2018, which will be effective for the Company as of the first quarter of our fiscal year ending December 31, 2019. The Company is currently evaluating the method of adoption and potential utilization of practical expedients. The estimated impact on the financial statements of implementation of this standard is increased lease assets and lease liabilities in the range of $4 to $6 million as of the anticipated adoption date, January 1, 2019.

We do not believe that any other recently issued but not yet effective accounting standards, if adopted, would have a material impact on our consolidated financial statements.

3.    REVENUE RECOGNITION
Revenue is recognized upon transfer of control of promised products or services to clients in an amount that reflects the consideration we expect to receive in exchange for those products and services. We enter into contracts that can include various combinations of products and services, which are generally distinct and accounted for as separate performance obligations. The Company employs the 5-step revenue recognition model under ASC 606 to: (1) identify the contract with the client, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
Revenue is recognized net of shipping charges and any taxes collected from clients, which are subsequently remitted to governmental authorities.
System Sales and Support
The Company enters into contractual obligations to sell perpetual software licenses, installation, conversion, training, hardware and software application support and hardware maintenance services to acute care and post-acute care community hospitals.
Non-recurring Revenues
• Perpetual software licenses, installation, conversion, and related training are not considered separate and distinct performance obligations due to the proprietary nature of our software and are, therefore, accounted for as a single performance obligation on a module-by-module basis. Revenue is recognized as each module's implementation is completed based on the module's stand-alone selling price ("SSP"), net of discounts. Fees for licenses, installation, conversion, and related training are typically due in three installments: (1) at placement of order, (2) upon installation of software and commencement of training, and (3) upon satisfactory completion of monthly accounting cycle or end-of-month operation by application and as applicable for each application. Often, short-term and/or long-term financing arrangements are provided for software implementations; refer to Note 9 - Financing Receivables for further information. Electronic health records ("EHR") implementations include a system warranty that terminates thirty days from the software go-live date, the date which the client begins using the system in a live environment.
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• Hardware revenue is recognized separately from software licenses at the point in time it is delivered to the client. The SSP of hardware is cost plus a reasonable margin. Payment is generally due upon delivery of the hardware to the client. Standard manufacturer warranties apply to hardware.
Recurring Revenues
• Software application support and hardware maintenance services sold with software licenses and hardware are separate and distinct performance obligations. Revenue for support and maintenance services is recognized based on SSP, which is the renewal price, ratably over the life of the contact, which is generally three to five years. Payment is due monthly for support services provided.
• Subscriptions to third party content revenue is recognized as a separate performance obligation ratably over the subscription term based on SSP, which is cost plus a reasonable margin. Payment is due monthly for subscriptions to third party content.
• Software as a Service ("SaaS") arrangements for EHR software and related conversion and training services are considered a single performance obligation. Revenue is recognized on a monthly basis as the SaaS service is provided to the client over the contract term. Payment is due monthly for SaaS services provided.
Refer to Note 14 - Segment Reporting, for further information, including revenue by client base (acute care or post-acute care) bifurcated by recurring and non-recurring revenue.
TruBridge
TruBridge provides an array of business processing services ("BPS") consisting of accounts receivable management, private pay services, insurance services, medical coding, electronic billing, statement processing, payroll processing, and contract management. Fees are recognized over the period of the client contractual relationship as the services are performed based on the SSP, net of discounts. Fees for many of these services are invoiced, and revenue recognized accordingly, based on the volume of transactions or a percentage of client accounts receivable collections. Payment is due monthly for BPS with certain amounts varying based on utilization and/or volumes.
TruBridge also provides professional IT services. Revenue from professional services is recognized as the services are performed based on SSP. Payment is due monthly as services are performed.
Deferred Revenue
Deferred revenue represents amounts invoiced to clients for which the services under contract have not been completed and revenue has not been recognized, including annual renewals of certain software subscriptions and customer deposits for implementations to be performed at a later date. Revenue is recognized ratably over the life of the software subscriptions as services are provided and at the point-in-time when implementations have been completed.
(In thousands)Six Months Ended June 30, 2018
Balance as of January 1, 2018
$9,937 
Deferred revenue recorded11,700 
Less deferred revenue recognized as revenue(9,337)
Balance as of June 30, 2018$12,300 

The $11.7 million of deferred revenue recorded during the six months ended June 30, 2018 is comprised primarily of the annual renewals of certain software subscriptions billed during the first quarter of each year and deposits collected for future EHR installations. The deferred revenue recognized as revenue during the six months ended June 30, 2018 is comprised primarily of the periodic recognition of annual renewals that were deferred until earned and deposits for future EHR installations that were deferred until earned.
Costs to Obtain and Fulfill a Contract with a Customer
Costs to obtain a contract include the commission costs related to SaaS licensing agreements, which are capitalized and amortized ratably over the expected life of the customer. As a practical expedient, we generally recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset would have been one year or less, with the exception of commissions generated from TruBridge sales. TruBridge commissions, which are paid up to
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twelve months in advance, are capitalized and amortized over the prepayment period. Costs to obtain a contract are expensed within sales and marketing expenses in the accompanying condensed consolidated statements of income.
Contract fulfillment costs related to the implementation of SaaS arrangements are capitalized and amortized ratably over the expected life of the customer. Costs to fulfill contracts consist of the payroll costs for the implementation of SaaS arrangements, including time for training, conversion, and installation that is necessary for the software to be utilized. Contract fulfillment costs are expensed within the caption "System sales and support - Cost of sales."
Costs to obtain and fulfill contracts related to SaaS arrangements are included within the "Prepaid expenses and other" and "Other assets, net of current portion" line items on our condensed consolidated balance sheets.
(In thousands) Six Months Ended June 30, 2018
Balance as of January 1, 2018 $3,775 
Costs to obtain and fulfill contracts recorded1,562 
Less costs to obtain and fulfill contracts recognized as expense(2,125)
Balance as of June 30, 2018 $3,212 

Significant Judgments
Our contracts with clients often include promises to transfer multiple products and services. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
Judgment is required to determine SSP for each distinct performance obligation. We use observable SSP for items that are sold on a stand-alone basis to similarly situated clients at unit prices within a sufficiently narrow range. For performance obligations that are sold to different clients for a broad range of amounts, or for performance obligations that are never sold on a stand-alone basis, the residual method in determining SSP is applied and requires significant judgment.
Allocating the transaction price, including estimating SSP of promised goods and services for contracts with discounts or variable consideration, may require significant judgment. Due to the short time frame of the implementation cycle, discount allocation is immaterial as revenue is recognized net of discounts within the same reporting period. In scenarios where the Company enters into a contract that includes both a software license and BPS or other services that are charged based on volume of services rendered, the Company allocates variable amounts entirely to a distinct good or service. The terms of the variable payment relate specifically to the entity’s efforts to satisfy that performance obligation.
Significant judgment is required in determining the expected life of a customer, which is the amortization period for costs to obtain and fulfill a contract that have been capitalized. The Company determined that the expected life of the customer is not materially different from the initial contract term based on the characteristics of the SaaS offering.
Remaining Performance Obligations
Disclosures regarding remaining performance obligations are not considered material as the overwhelming majority of the Company's remaining performance obligations either (a) are related to contracts with an expected duration of one year or less, or (b) exhibit revenue recognition in the amount to which the Company has the right to invoice.

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4. PROPERTY AND EQUIPMENT
Property and equipment was comprised of the following at June 30, 2018 and December 31, 2017:
(In thousands)June 30, 2018December 31, 2017
Land$2,848 $2,848 
Buildings and improvements8,247 8,240 
Computer equipment3,679 3,269 
Leasehold improvements5,001 5,001 
Office furniture and fixtures2,865 2,865 
Automobiles70 70 
22,710 22,293 
Less: accumulated depreciation(11,668)(10,601)
Property and equipment, net$11,042 $11,692 

5.     OTHER ACCRUED LIABILITIES
Other accrued liabilities was comprised of the following at June 30, 2018 and December 31, 2017:
(In thousands)June 30, 2018December 31, 2017
Salaries and benefits$6,706 $8,432 
Severance507 1,139 
Commissions713 2,416 
Self-insurance reserves1,037 1,024 
Contingent consideration615 586 
Other582 501 
Other Accrued Liabilities $10,160 $14,098 

The accrued contingent consideration depicted above represents the potential earnout incentive for former Rycan shareholders, relating to the purchase of Rycan by HHI in 2015. We have estimated the fair value of the contingent consideration based on the amount of revenue we expect to be earned by Rycan through the year ending December 31, 2018 in accordance with the purchase agreement between the parties.

6.    NET INCOME PER SHARE
The Company presents basic and diluted earnings per share ("EPS") data for its common stock. Basic EPS is calculated by dividing the net income attributable to stockholders of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is determined by adjusting the net income attributable to stockholders of the Company and the weighted average number of shares of common stock outstanding during the period for the effects of all dilutive potential common shares, including awards under stock-based compensation arrangements.
The Company's unvested restricted stock awards (see Note 8) are considered participating securities under FASB Codification topic, Earnings Per Share, because they entitle holders to non-forfeitable rights to dividends until the awards vest or are forfeited. When a company has a security that qualifies as a "participating security," the Codification requires the use of the two-class method when computing basic EPS. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. In determining the amount of net income to allocate to common stockholders, income is allocated to both common stock and participating securities based on their respective weighted average shares outstanding for the period, with net income attributable to common stockholders ultimately equaling net income less net income attributable to participating securities. Diluted EPS for the Company's common stock is computed using the more dilutive of the two-class method or the treasury stock method.
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The following is a calculation of the basic and diluted EPS for the Company's common stock, including a reconciliation between net income and net income attributable to common stockholders:
Three Months EndedSix Months Ended
(In thousands, except per share data)June 30, 2018June 30, 2017June 30, 2018June 30, 2017
Net income$328 $1,587 $4,296 $1,833 
Less: Net income attributable to participating securities(8)(45)(144)(41)
Net income attributable to common stockholders$320 $1,542 $4,152 $1,792 
Weighted average shares outstanding used in basic per common share computations13,561 13,420 13,518 13,397 
Add: Dilutive potential common shares    
Weighted average shares outstanding used in diluted per common share computations13,561 13,420 13,518 13,397 
Basic EPS$0.02 $0.11 $0.31 $0.13 
Diluted EPS$0.02 $0.11 $0.31 $0.13 

During 2018, performance share awards were granted to certain executive officers and key employees of the Company that will result in the issuance of time-vesting restricted stock if the predefined performance criteria are met. The awards provide for an aggregate target of 184,776 shares, none of which have been included in the calculation of diluted EPS for the three and six months ended June 30, 2018 because the related threshold award performance level has not been achieved as of June 30, 2018. See Note 8 - Stock-based Compensation for more information.

7.    INCOME TAXES
The Company determines the tax provision for interim periods using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.
Our effective tax rate for the three months ended June 30, 2018 increased to 46% from 38% for the three months ended June 30, 2017. Our effective tax rate for the three months ended June 30, 2018 was heavily impacted by the year-to-date impact of changing state income allocation determinations among our various subsidiaries from entities with lower effective state rates to entities with higher effective state rates. The year-to-date adjustment, when recorded in a three-month period of significantly lower net income before taxes compared to the immediately preceding period, had an outsized impact on our effective tax rate, resulting in a 25% increase in the effective tax rate. This increase was partially offset by the tax benefits of the Tax Cuts and Jobs Act, which reduced our corporate federal rate from 35% to 21% effective at the beginning of 2018.
Our effective tax rate for the six months ended June 30, 2018 decreased to 34% from 55% for the six months ended June 30, 2017. Our effective tax rate for the six months ended June 30, 2018 was impacted by the Tax Cuts and Jobs Act, which reduced our corporate federal rate from 35% to 21% effective at the beginning of 2018. The six months ended June 30, 2018 also included a $0.4 million shortfall tax expense related to stock-based compensation that increased the effective rate by 6%. During the six months ended June 30, 2017 we experienced a shortfall tax expense related to stock-based compensation of $0.9 million that increased the effective rate by 23%.

8.    STOCK-BASED COMPENSATION
Stock-based compensation expense is measured at the grant date based on the fair value of the award, and is recognized as an expense over the employee's or non-employee director's requisite service period.
The following table details total stock-based compensation expense for the three and six months ended June 30, 2018 and 2017, included in the condensed consolidated statements of income:

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Three Months EndedSix Months Ended
(In thousands)2018201720182017
Costs of sales$585 $425 $1,024 $743 
Operating expenses2,168 1,261 3,668 2,224 
Pre-tax stock-based compensation expense2,753 1,686 4,692 2,967 
Less: income tax effect(606)(658)(1,032)(1,157)
Net stock-based compensation expense$2,147 $1,028 $3,660 $1,810 

The Company's stock-based compensation awards are in the form of restricted stock and performance share awards granted pursuant to the Company's 2012 Restricted Stock Plan for Non-Employee Directors and Amended and Restated 2014 Incentive Plan (the "Plans"). As of June 30, 2018, there was $17.6 million of unrecognized compensation expense related to unvested stock-based compensation arrangements granted under the Plans, which is expected to be recognized over a weighted-average period of 2.2 years.
Restricted Stock
The Company grants restricted stock to executive officers, certain key employees and non-employee directors under the Plans with the fair value of the awards representing the fair value of the common stock on the date the restricted stock is granted. Shares of restricted stock generally vest in equal annual installments over the applicable vesting period, which ranges from one to three years. The Company records expenses for these grants on a straight-line basis over the applicable vesting periods. Shares of restricted stock may also be issued pursuant to the settlement of performance share awards, for which the Company records expenses in the manner described in the "Performance Share Awards" section below.
A summary of restricted stock activity (including shares of restricted stock issued pursuant to the settlement of performance share awards) under the Plans during the six months ended June 30, 2018 and 2017 is as follows:

Six Months Ended June 30, 2018Six Months Ended June 30, 2017
Shares
Weighted-Average
Grant Date
Fair Value Per Share
Shares
Weighted-Average
Grant Date
Fair Value Per Share
Unvested restricted stock outstanding at beginning of period309,195 $38.36 184,885 $54.63 
Granted148,841 30.20 222,390 32.87 
Performance share awards settled through the issuance of restricted stock177,395 29.94   
Vested(153,424)40.81 (80,558)55.34 
Unvested restricted stock outstanding at end of period482,007 $31.96 326,717 $39.64 

Performance Share Awards
The Company grants performance share awards to executive officers and certain key employees under the Amended and Restated 2014 Incentive Plan. The number of shares of common stock earned and issuable under each award is determined at the end of each one-year or three-year performance period, based on the Company's achievement of performance goals predetermined by the Compensation Committee of the Board of Directors at the time of grant. The three-year performance share awards include a modifier to the total number of shares earned based on the Company's total shareholder return ("TSR") compared to an industry index. If certain levels of the performance objective are met, the award results in the issuance of shares of restricted stock or common stock corresponding to such level. One-year performance share awards are then subject to time-based vesting pursuant to which the shares of restricted stock vest in equal annual installments over the applicable vesting period, which is generally three years. Three-year performance share awards result in the issuance of shares of common stock that are not subject to time-based vesting at the conclusion of the three-year performance period if earned.
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In the event that the Company's financial performance meets the predetermined target for the performance objective of the one-year and three-year performance share awards, the Company will issue each award recipient the number of shares of restricted stock or common stock, as applicable, equal to the target award specified in the individual's underlying performance share award agreement. In the event the financial results of the Company exceed the predetermined target, additional shares up to the maximum award may be issued. In the event the financial results of the Company fall below the predetermined target, a reduced number of shares may be issued. If the financial results of the Company fall below the threshold performance level, no shares will be issued. The total number of shares issued for the three-year performance share award may be increased, decreased, or unchanged based on the TSR modifier described above.
The recipients of performance share awards do not receive dividends or possess voting rights during the performance period and, accordingly, the fair value of the one-year performance share awards is the quoted market value of CPSI's common stock on the grant date less the present value of the expected dividends not received during the relevant period. The TSR modifier applicable to the three-year performance share awards is considered a market condition and therefore is reflected in the grant date fair value of the award. A Monte Carlo simulation has been used to account for this market condition in the grant date fair value of the award.
Expense of one-year performance share awards is recognized using the accelerated attribution (graded vesting) method over the period beginning on the date the Company determines that it is probable that the performance criteria will be achieved and ending on the last day of the vesting period for the restricted stock issued in satisfaction of such awards. Expense of three-year performance share awards is recognized using ratable straight-line amortization over the three-year performance period. In the event the Company determines it is no longer probable that the minimum performance level will be achieved, all previously recognized compensation expense related to the applicable awards is reversed in the period such a determination is made.
A summary of performance share award activity under the 2014 Incentive Plan during the six months ended June 30, 2018 and 2017 is as follows, based on the target award amounts set forth in the performance share award agreements:

Six Months Ended June 30, 2018Six Months Ended June 30, 2017
Shares
Weighted-Average
Grant Date
Fair Value Per Share
Shares
Weighted-Average
Grant Date
Fair Value Per Share
Performance share awards outstanding at beginning of period189,325 $29.94 77,594 $49.64 
Granted184,776 30.15 189,325 29.94 
Forfeited or unearned(11,930)29.94 (77,594)49.64 
Performance share awards settled through the issuance of restricted stock(177,395)29.94   
Performance share awards outstanding at end of period184,776 $30.15 189,325 $29.94 

9.    FINANCING RECEIVABLES
Short-Term Payment Plans
The Company provides fixed monthly payment arrangements ("short-term payment plans") over terms ranging from three to twelve months for meaningful use stage three and other add-on software installations. As a practical expedient, we do not adjust the amount of consideration recognized as revenue for the financing component as unearned income when we expect payment within one year or less. These receivables, included in the current portion of financing receivables, were comprised of the following at June 30, 2018 and December 31, 2017:

(In thousands)June 30, 2018December 31, 2017
Short-term payment plans, gross$7,407 $9,081 
Less: allowance for losses(523)(638)
Short-term payment plans, net$6,884 $8,443 

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Long-Term Financing Arrangements
Additionally, the Company provides financing for purchases of its information and patient care systems to certain healthcare providers under long-term financing arrangements expiring in various years through 2025. Under long-term financing arrangements, the transaction price is adjusted by a discount rate that reflects market conditions that would be used for a separate financing transaction between the Company and licensee at contract conception, and takes into account the credit characteristics of the licensee and market interest rates as of the date of the agreement. As such, the amount of fixed fee revenue recognized at the beginning of the license term will be reduced by the calculated financing component. As payments are received from the licensee, the Company recognizes a portion of the financing component as interest income, reported as other income in the condensed consolidated statements of income. These receivables typically have terms from two to seven years.
The components of these receivables were as follows at June 30, 2018 and December 31, 2017:
(In thousands)June 30, 2018December 31, 2017
Long-term financing arrangements, gross$25,604 $22,968 
Less: allowance for losses(1,922)(2,606)
Less: unearned income(2,753)(2,265)
Long-term financing arrangements, net$20,929 $18,097 

Future minimum payments to be received subsequent to June 30, 2018 are as follows:

(In thousands)
Years Ended December 31,
2018$4,778 
20197,874 
20205,080 
20214,042 
20222,656 
Thereafter1,174 
Total minimum payments to be received25,604 
Less: allowance for losses(1,922)
Less: unearned income(2,753)
Receivables, net$20,929 

Credit Quality of Financing Receivables and Allowance for Credit Losses
The following table is a roll-forward of the allowance for financing credit losses for the six months ended June 30, 2018 and year ended December 31, 2017:
(In thousands)Balance at Beginning of PeriodProvisionCharge-offsRecoveriesBalance at End of Period
June 30, 2018$3,244 $397 $(1,196)$ $2,445 
December 31, 2017$2,198 $1,823 $(777)$ $3,244 

The Company’s financing receivables are comprised of a single portfolio segment, as the balances are all derived from short-term payment plan arrangements and long-term financing arrangements within our target market of community hospitals. The Company evaluates the credit quality of its financing receivables based on a combination of factors, including, but not limited to, customer collection experience, economic conditions, the customer’s financial condition, and known risk characteristics impacting the respective customer base of community hospitals, the most notable of which relate to enacted and potential changes in Medicare and Medicaid reimbursement rates as community hospitals typically generate a significant portion of their revenues and related cash flows from beneficiaries of these programs. In addition to specific account identification, the Company utilizes historical collection experience to establish the allowance for credit losses.
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Financing receivables are written off only after the Company has exhausted all collection efforts. The Company has been successful in collecting its financing receivables and considers the credit quality of such arrangements to be good.
Customer payments are considered past due if a scheduled payment is not received within contractually agreed upon terms. To facilitate customer collection and credit monitoring efforts, financing receivable amounts are invoiced and reclassified to trade accounts receivable when they become due, with all invoiced amounts placed on nonaccrual status. As a result, all past due amounts related to the Company’s financing receivables are included in trade accounts receivable in the accompanying condensed consolidated balance sheets. The following is an analysis of the age of financing receivables amounts (excluding short-term payment plans) that have been reclassified to trade accounts receivable and were past due as of June 30, 2018 and December 31, 2017:

(In thousands)
1 to 90 Days
Past Due
91 to 180 Days
Past Due
181 + Days
Past Due
Total
Past Due
June 30, 2018$1,322 $332 $291 $1,945 
December 31, 2017$980 $171 $ $1,151 

From time to time, the Company may agree to alternative payment terms outside of the terms of the original financing receivable agreement due to customer difficulties in achieving the original terms. In general, such alternative payment arrangements do not result in a re-aging of the related receivables. Rather, payments pursuant to any alternative payment arrangements are applied to the already outstanding invoices beginning with the oldest outstanding invoices as the payments are received.
Because amounts are reclassified to trade accounts receivable when they become due, there are no past due amounts included within financing receivables or financing receivables, net of current portion, in the accompanying condensed consolidated balance sheets.
The Company utilizes an aging of trade accounts receivable as the primary credit quality indicator for its financing receivables, which is facilitated by the reclassification of customer payment amounts to trade accounts receivable when they become due. The table below categorizes customer financing receivable balances (excluding short-term payment plans), none of which are considered past due, based on the age of the oldest payment outstanding that has been reclassified to trade accounts receivable:
(In thousands)June 30, 2018December 31, 2017
Stratification of uninvoiced client financing receivables based on aging of related trade accounts receivable:
1 to 90 Days Past Due$13,797 $11,300 
91 to 180 Days Past Due3,579 3,727 
181 + Days Past Due1,890 967 
Total uninvoiced client financing receivables balances of clients with a trade accounts receivable$19,266 $15,994 
Total uninvoiced client financing receivables of clients with no related trade accounts receivable3,585 4,709 
Total financing receivables with contractual maturities of one year or less