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Edited Transcript of CPSI earnings conference call or presentation 11-Feb-20 9:30pm GMT

Q4 2019 Computer Programs and Systems Inc Earnings Call

MOBILE Feb 19, 2020 (Thomson StreetEvents) -- Edited Transcript of Computer Programs and Systems Inc earnings conference call or presentation Tuesday, February 11, 2020 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David A. Dye

Computer Programs and Systems, Inc. - Chief Growth Officer & Director

* John Boyd Douglas

Computer Programs and Systems, Inc. - President, CEO & Director

* Matt J. Chambless

Computer Programs and Systems, Inc. - CFO, Secretary & Treasurer

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Conference Call Participants

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* Eugene Mark Mannheimer

Dougherty & Company LLC, Research Division - Senior Research Analyst of Healthcare

* George Robert Hill

Deutsche Bank AG, Research Division - MD & Equity Research Analyst

* James John Stockton

Wells Fargo Securities, LLC, Research Division - Director & Senior Equity Research Analyst

* Jeffrey Robert Garro

William Blair & Company L.L.C., Research Division - Research Analyst

* Sean William Wieland

Piper Sandler & Co., Research Division - MD & Senior Research Analyst

* Stanislav Berenshteyn

SunTrust Robinson Humphrey, Inc., Research Division - Associate

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Presentation

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Operator [1]

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Good afternoon, and welcome to the CPSI Fourth Quarter and Year-End 2019 Conference Call. (Operator Instructions)

Please note, today's event is being recorded.

I'd now like to turn the conference over to Drew Anderson. Please go ahead.

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Unidentified Participant, [2]

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Good afternoon, and welcome to the CPSI Fourth 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 management 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.

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John Boyd Douglas, Computer Programs and Systems, Inc. - President, CEO & Director [3]

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Thanks, Drew. Good afternoon, everyone, and thank you for joining us. Joining me on the call today is Matt Chambless, our Chief Financial Officer. At the conclusion of our prepared comments, David Dye, Chief Growth Officer, will join us for the Q&A session. Chris Fowler will not be on the call today as he is out sick with the flu.

We are very pleased with the performance in the second half of the year on a number of levels. An important highlight was our strong bookings that totaled $51 million in the second half of the year, a more than 20% increase over the second half of 2018. In looking at our nearly $18 million in software system bookings in the fourth quarter, it is worth noting that we have seen an increase in the average contract price, which we believe is being driven by a shift in competition as well as our increasing product competitiveness as we continue to make progress delivering on our single platform solution.

2019 also reinforced our optimism around the growth opportunity outside the U.S. We signed a $2.1 million acute EHR contract in the Caribbean in 2019 and added another Caribbean contract to bookings in the first quarter of 2020.

In addition, during the fourth quarter of 2019, we announced our partnership with Sunnybrook Health Sciences Centre to create a first of its kind, Canadian-made, hospital information system solution. This strengthens our prospects for pursuing the robust Canadian EHR replacement market over the next 5 to 10 years.

Finally, while it will take time to realize, we are seeing genuine interest from international government health agencies in our Get Real Health patient engagement solutions, including in Canada, where GRH's existing footprint could help further accelerate our EHR prospects.

Central to our growth strategy, our services business, TruBridge, had another impressive quarter with $9.6 million in total bookings, a 24% increase year-over-year and over $109 million in 2019 revenue, a 9% increase year-over-year.

Our nTrust offering, which combines TruBridge with our EHR SaaS platform continues to build sales momentum. During 2019, we converted 10 EHR customers to nTrust packages, and we expect to convert 16 existing customers to nTrust deals in 2020. We continue to refine our approach to cross-selling TruBridge services into our acute and post-acute EHR basis, and to invest in reaching independent hospitals with less than 600 beds that don't use CPSI EHRs. Our growing client base in this latter market is realizing real value from TruBridge services, and we're excited about our prospects here for 2020.

With a total market opportunity of $400 million in cross sales and an estimated total addressable market of more than $1 billion in the net new hospital segment that we target, we are increasingly confident about the long-term growth prospects for TruBridge over the next 3 years.

One last important highlight from 2019 was our fourth quarter operating cash flows, which reached an all-time high of $18 million and brought total year-to-date amounts to nearly twice that of 2018. This strength in cash flows allowed for further delevering during the quarter as we exited 2019 at close to a 2x leverage ratio.

Now with leverage at a comfortable level and the expectation of continued strength in operating cash flows, we are in an enviable position in terms of available capital to deploy more opportunistically. The targets we set for ourselves in late 2017, namely, of reaching 2.5x leverage have been surpassed, and there are ongoing discussions at the management and board level regarding our capital allocation strategy with an emphasis on driving shareholder value.

CPSI remains focused on creating long-term growth and profitability for our shareholders. The drivers behind our confidence and the potential of long-term growth include: continued conversion of our EHR revenue to a subscription model; a total addressable market for TruBridge that is greater than $1 billion; a robust market outside the U.S., including those opportunities specific to Get Real Health; and finally, a strong balance sheet and healthy cash flow that support a more opportunistic capital allocation strategy.

With these drivers in mind, we expect to achieve a 3-year average annual organic recurring revenue growth rate of 5% to 8%. We are focused on growing recurring revenue as we seek to build a more stable and predictable business and meet customer demand for new services and contract arrangements.

In particular, customer preferences have rapidly shift from license to SaaS, with 12% of new EHR deals sold as SaaS in 2018, 43% in 2019 and more than 50% expected in 2020. This transition to a larger percentage of SaaS contracts will have a positive impact on recurring revenue, but will slightly suppress EBITDA margins in their near term.

With that, I would like to turn the call over to Matt.

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Matt J. Chambless, Computer Programs and Systems, Inc. - CFO, Secretary & Treasurer [4]

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Thanks, Boyd, and good afternoon, everyone. On today's call, I'll provide a high-level overview of the quarter, including some additional detail on bookings performance, a brief walk through our fourth quarter financial results and our outlook for 2020 and beyond.

Boyd already shared some of the highlights for the quarter, strong bookings, increasing SaaS mix, continued growth in TruBridge and record operating cash flows.

So let's jump right into bookings. Total bookings for the quarter of $27.3 million increased 15.5%, both sequentially and over the fourth quarter of 2018. System sales and support bookings saw increases of 32% sequentially and 11% year-over-year, both driven by the net new EHR category. Absent the impact from MU3, system sales and support bookings were $17.5 million, our second highest mark of the past 3 years and within $100,000 of the $17.6 million of comparable bookings in the first quarter of 2018, the current high mark.

TruBridge posted yet another stellar bookings period arriving at $9.6 million, a slight reduction from the third quarter's $10.2 million of bookings, which were the second highest in company history, and 24% above the fourth quarter of last year. Propelling this growth was $2.5 million of bookings from customers outside of our traditional EHR base with the patient engagement solutions from Get Real Health gaining traction and adding $1.7 million to the quarter's bookings.

Note that we have included information on the composition and revenue conversion time frames for quarterly bookings in the tables to the earnings release, so I won't provide commentary on the call.

Along the same lines, commentary we formerly gave in our prepared remarks regarding the historical net new Thrive acute care implementations will now be provided in the earnings release, so we direct you to those tables for the relevant metrics. With regard to near-term outlook for this metric, we currently anticipate 10 new client facilities going live with our Thrive solution in the first quarter of 2020 with 8 expected to go live in a cloud or SaaS environment.

Turning to the financial results for the period. Quarterly adjusted EBITDA and non-GAAP net income measures were effectively in line with the prior year, despite a 2% reduction in revenues driven by TruBridge growth and our cost control efforts. For full year 2019, we managed to increase adjusted EBITDA by 4% and non-GAAP net income by 2% despite a similar 2% reduction in revenues.

TruBridge posted results that were up 5% sequentially and 16% over the fourth quarter of 2018. The sequential improvement was driven by strong upsell for GRH's patient engagement solutions, which posted revenues of $2.7 million in the fourth quarter of 2019 compared to $0.5 million in the third quarter. The strong GRH showing was slightly offset by lowered revenue contributions from the large AR work down opportunity we discussed at length on the last earnings call.

Excluding GRH, TruBridge revenues increased 5.6% over the fourth quarter of 2018. The volume declines for a few specific customers that we've noted throughout the past year created $700,000 of headwinds against TruBridge revenue growth for the quarter. Without these headwinds, TruBridge would've posted 8.5% organic growth over the fourth quarter of 2018.

TruBridge gross margins remained relatively flat at 49% during the fourth quarter compared to the third quarter, increasing from the 43% margin during the fourth quarter of 2018. Absent the impact of GRH, TruBridge gross margins were 45% during the fourth quarter.

Next, system sales and support revenues increased $500,000 sequentially, but decreased $5.8 million from the fourth quarter of 2018 as nonrecurring revenues were pressured by the work down of the MU3 opportunity and the shift in SaaS mix. As Boyd mentioned, our efforts to convert more of our net new EHR opportunities into recurring revenue arrangements have paid off with a SaaS mix of 54% and 43% for the fourth quarter and year-to-date, respectively, compared to an 8% SaaS mix in the fourth quarter of 2018 and 12% for the full 2018 year. Overall, MU3 revenues decreased $2.9 million to only $200,000 during the past quarter, while nonrecurring revenues from net new implementations decreased $2 million.

From a margin standpoint, gross margins of 54% were relatively in line with the third quarter, whereas the decline in nonrecurring revenues and lower margin mix within those nonrecurring revenues made for headwinds against the fourth quarter of 2018's 61% margins.

Moving on to operating expenses. Product development costs were flat sequentially, and up 2% from the fourth quarter of 2018, mostly due to the addition of GRH. Sales and marketing costs were also flat sequentially, but down 17% from the fourth quarter of 2018, mostly as commissions decreased with the decline in nonrecurring system sales and support revenues. General and administrative costs were down $2 million sequentially and $1.5 million from the fourth quarter of 2018, mostly due to planned design changes in our employee health benefits offerings intended to drive down costs, while still providing competitive benefits to our employees and their families.

Lastly, on the income statement, our effective tax rate during the quarter was 12%. Going forward, we continue to expect an effective tax rate of 16% to 17% normalized for discrete items. Lastly, operating cash flows during the fourth quarter were just over $18 million. This record quarter was fueled by our stable yet growing recurring revenue base coupled with the abatement of financing receivables headwinds that served as a drag on cash flows for most of 2017 and 2018.

Full year operating cash flows were almost double that of 2018 and represented nearly 90% of adjusted EBITDA for the year. This strength in cash flow allowed for a net reduction in bank debt of over $13 million for the quarter and $23 million for the year.

The trends that Boyd and I have discussed, strong bookings, increasing recurring revenues, which made up nearly 84% of total 2019 revenues, shift towards SaaS revenues, a stabilizing competitive environment and growing confidence in the opportunities for TruBridge and international have led management and the Board to decide to reintroduce long-term targets and annual guidance.

Our 3-year outlook calls for average annual organic growth in recurring revenues of 5% to 8%, driven by continued growth in TruBridge, a further shift towards SaaS EHR arrangement, which we believe could reach as high as 80% over the forecast period as we work towards more -- moving exclusively to SaaS contracts and international expansion. For 2020, we expect recurring revenue growth to be towards the low end of that range and anticipate total revenue of $280 million to $290 million as there remains significant uncertainty about the near-term pace of the SaaS mix shift.

On adjusted EBITDA margins, although, we previously stated a goal of returning to 20% margins by 2020, the near-term impact of this shift in SaaS mix has caused us to reassess near-term adjusted EBITDA margins. As a result, we envision 2020 margins to land within a range of 18% to 19% but expect to work toward the 20% goal over the longer term.

In terms of cash generation, we expect 2020 operating cash flows to represent roughly 80% to 85% of adjusted EBITDA. Finally, although we won't be providing quarterly guidance, we expect next quarter to show a meaningful mismatch in revenue and expense recognition that will shift more profits to the remainder of the year.

Headwinds from the lumpiness of GRH revenues and the 80% SaaS mix expected for net new Thrive go-lives will keep total revenues muted, both sequentially and versus the prior year, while the seasonality of certain general and administrative expenses should result in incremental costs.

In 2017, we shared our leverage target of 2.5x following the Healthland acquisition. The strength in cash flows during the past year has allowed us to achieve and surpass that target with leverage near 2x as of the end of 2019. With strong cash flow generation expected to continue for the foreseeable future and ample capacity under our existing credit facilities, we now have significant capital available to pursue more opportunistic capital allocation priorities. As Boyd mentioned, our Board and management continue to monitor potential uses of our capital with an emphasis on driving shareholder value.

To close, we're proud of what we accomplished during 2019 and excited for 2020 and beyond. We have a clear strategy for growth, articulated by Boyd in his opening remarks, and feel confident in our ability to deliver on our long-term targets, with recurring revenues and adjusted EBITDA gradually increasing over time.

And with that, we'd like to open up the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Today's first question comes from George Hill with Deutsche Bank.

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George Robert Hill, Deutsche Bank AG, Research Division - MD & Equity Research Analyst [2]

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I guess, first on -- I know you guys aren't going to give explicit Q1 guidance. But is there any way to kind of frame up or put some goalposts around the mismatch between the flat revenue that's expected in Q1 versus Q4 and year-over-year versus the expense pull forward?

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Matt J. Chambless, Computer Programs and Systems, Inc. - CFO, Secretary & Treasurer [3]

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Yes. So George, thanks for joining us on the call. The mechanics of our 401(k) match program result in very little expense in the fourth quarter of every year. That with legal and accounting fees, which are seasonal, with the timing of our audit and proxy season, vacation utilization is always a bit of a tailwind to the fourth quarter, which makes for a tough comp moving into the first quarter of every year. So those 3 items should result in incremental G&A cost somewhere between $2 million to $2.5 million.

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George Robert Hill, Deutsche Bank AG, Research Division - MD & Equity Research Analyst [4]

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Okay. That's super helpful. And then, I guess, maybe just because you guys provided a little bit of the long-term growth guidance. It sounds like 2020 is going to come in at the low end of the long-term growth target and kind of accelerates beyond 2020. I guess, the 2 questions I would ask is, number one, kind of what should we think of as the pricing component of long-term growth, particularly, as it relates to the TruBridge services business? And I guess, is there anything that you're seeing that kind of gives you the comfort that 2021 picks back up, given what looks like is going to be a little bit softness in 2020?

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David A. Dye, Computer Programs and Systems, Inc. - Chief Growth Officer & Director [5]

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Yes. The primary reason that 2020 has guided, George, towards the low end of the 3-year recurring revenue target is the increase in SaaS mix going from '18 into '19 and then more prolifically in '20, and then we expect that rate to continue or even accelerate into '21 and '22. So as we build up those recurring revenues from the new sales to come via SaaS as opposed to previously, 80%, 90% were licensed, that will give us the tailwind to have better recurring revenue growth in those outer years.

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George Robert Hill, Deutsche Bank AG, Research Division - MD & Equity Research Analyst [6]

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Maybe I'll just ask one more, Boyd, if you don't mind, is just kind of where are we now in the SaaS mix versus the license mix?

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Matt J. Chambless, Computer Programs and Systems, Inc. - CFO, Secretary & Treasurer [7]

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Yes. So George, this is Matt. I think we mentioned in the opening remarks that for the fourth quarter, we came in at a 54% SaaS mix, which is a big shift from last year. I think last year, in the fourth quarter, we were somewhere closer to around a 12% SaaS mix. And when we take a look at bookings over the, say, the past 12 months, it really does look like, from a bookings standpoint, what's in the pipeline right now that -- closer to that 50-50 split with a slight lean more towards the SaaS arrangement, is kind of what we see going forward. So to that point, we do see this as being kind of a seminal moment in CPSI's history that this shift is here and is permanent and should only increase going forward.

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David A. Dye, Computer Programs and Systems, Inc. - Chief Growth Officer & Director [8]

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And I'll add to that, George. Again, this is David. We expect, as Boyd mentioned in his prepared comments, we expect to increase the nTrust sales into our current customer base from 10 in 2019 to 16 in 2020, which will help accelerate the ability for us to grow that recurring revenue into '21 and '22 as well.

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Operator [9]

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And our next question today comes from Jeff Garro with William Blair & Company.

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Jeffrey Robert Garro, William Blair & Company L.L.C., Research Division - Research Analyst [10]

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Maybe a couple more for me on the long-term outlook. You're pointing us to a range for the recurring revenue mix. So hoping for a little bit more cover on the nonrecurring portion, maybe a total dollar amount or a percentage of revenue that you expect that to hit? And then either be sustainable or whether you expect it to deteriorate further on a go-forward basis?

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Matt J. Chambless, Computer Programs and Systems, Inc. - CFO, Secretary & Treasurer [11]

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Yes. So over the 3-year horizon, I don't think we quite want to zero-in on an exact dollar amount. But as far as the overall mix and revenue, when we take a look at 2019, we came in at right around 84% recurring. And what we see over the 3-year horizon is that increasing to anywhere between 87% to 89% by the end of the 3-year time frame.

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Jeffrey Robert Garro, William Blair & Company L.L.C., Research Division - Research Analyst [12]

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Great. That helps. And then maybe to add some layers to the margin discussion. You talked about the near-term dynamics in 2020, and then continuing to march towards 20% longer term. Again, thinking about the nonrecurring piece. Just want to hear a little bit more from you on how volatility in that nonrecurring piece might impact the progress towards your long-term margin goal as we think beyond 2020.

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Matt J. Chambless, Computer Programs and Systems, Inc. - CFO, Secretary & Treasurer [13]

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Yes. So the volatility with the nonrecurring piece is certainly a part that's here with us until we're 100% completely away from this perpetual license model that we've seen. But going forward, we certainly see the evidence that there's definitely more of a tilt towards SaaS mix, which should alleviate some of that volatility. But you're right, some of that is still here with us and the lumpiness is going to be here to stay until we reach 100% Saas.

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Jeffrey Robert Garro, William Blair & Company L.L.C., Research Division - Research Analyst [14]

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Great. And then one more follow-up for me on the margin front. If we do focus on the recurring portions of the business, the subscription software piece and the TruBridge piece and combined together as nTrust in some circumstances, how can we think about the scalability of that part of the business? And as it grows and as you become more efficient ability to expand gross margins for that recurring piece of the business?

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Matt J. Chambless, Computer Programs and Systems, Inc. - CFO, Secretary & Treasurer [15]

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Yes. The ability to expand margins towards the high end of that range, and then into the 20s and perhaps slightly above does increase significantly, especially once we get past this kind of 3-year horizon that we're looking at right now. The unintended consequence of this shift to SaaS is that in the short term, at least, and over this 3-year term, we will see a dynamic unfold where this high periodic margin nonrecurring revenue is, obviously, going to be replaced with this long term -- higher long-term value recurring revenue from SaaS. So over the 2- to 3-year mix, it may actually end up being slightly neutral on a 3-year time frame. But the further we get out on that time frame, the higher the margin profile increases.

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Operator [16]

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Our next question today comes from Jamie Stockton of Wells Fargo.

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James John Stockton, Wells Fargo Securities, LLC, Research Division - Director & Senior Equity Research Analyst [17]

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I guess, maybe the first one. I think it was in Boyd's prepared remarks about the competitive dynamic kind of changing a little bit, and you're seeing a little better pricing as a result of that. Is that really just a comment on athena not being as present in the marketplace? Outside of them, should we assume that things have remained relatively stable?

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David A. Dye, Computer Programs and Systems, Inc. - Chief Growth Officer & Director [18]

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Jamie, David here. I would say 80% plus of the way you framed your question is affirmative, yes. It's primarily Athena's exit from competing for new business. We alluded to this on the last call as well. It also appears to us that Cerner is less interested in the small hospital space at this point. We've kind of seen them move in and out of the market over the last several years, but there's a lot going on, I think, in their market. So we're not seeing as much activity from them right now, either. That remains to be seen whether that continues.

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James John Stockton, Wells Fargo Securities, LLC, Research Division - Director & Senior Equity Research Analyst [19]

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Okay. And then just a couple more quick ones. So TruBridge, it sounds like there was a lump of Get Real Health revenue in Q4, just -- and I know George already kind of touched on what your expectations were sequentially in Q1, but how should we think about that line trending? Maybe that onetime revenue from Get Real Health going away? On top of that, do we see seasonality that maybe brings the core TruBridge business down a little bit sequentially? Just anything there would be great.

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Matt J. Chambless, Computer Programs and Systems, Inc. - CFO, Secretary & Treasurer [20]

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Yes. So Jamie, on the -- at least in terms of the next 90 days, there will be some headwinds from the nonrecurring revenues from GRH. But over the long term, 2019 -- or 2020, we definitely see the pipeline growing there. So there's a lot of topside for 2020. And we just reiterate that this is still relatively a subscale business that has yet to reach anywhere close to maturity, and we think that the sky is the limit for as far as what we can do there.

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David A. Dye, Computer Programs and Systems, Inc. - Chief Growth Officer & Director [21]

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Yes. And I'll add on, Jamie, the TruBridge bookings that we had in the back half of 2019. Our turn to revenue from bookings is typically about 6 to 7 months with TruBridge. And so we'll start seeing a lot of those in the first half of 2020. The job now, obviously, is to continue with that strength going into the first half of 2020 and with the pipeline, the way it is, we feel confident we can do that. We really have had a good deal of success in the back half of '19 that we think we can continue with regard to TruBridge sales into non-CPA -- sorry, non-CPSI EHR facilities, especially in that sort of 100 to 400 bed acute care space, that's sort of the MEDITECH sweet spot, and we look for that to continue.

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James John Stockton, Wells Fargo Securities, LLC, Research Division - Director & Senior Equity Research Analyst [22]

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Okay. And then Matt, kind of front run my last question a little bit. But as far as Get Real Health is concerned, and kind of what you guys have articulated for 2020, I mean, how conservative or aggressive do you feel like you've been for what you've built in for it, maybe compared to what it did in 2019?

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Matt J. Chambless, Computer Programs and Systems, Inc. - CFO, Secretary & Treasurer [23]

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Yes. So Jamie, definitely, we have a wide range of expected outcomes for GRH. I mean, it's -- just given the lumpiness of the business and the size of the opportunities that are out there. But holistically, when we take a look at the revenue range that we gave for the year, we feel like that we appropriately accommodated that uncertainty with the range that we've provided.

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Operator [24]

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And our next question today comes from Sean Wieland of Piper Sandler.

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Sean William Wieland, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [25]

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A couple of more on Get Real Health. Might have been buried in your prepared remarks. So I might have missed it, but what was the full year revenue and EBITDA contribution from that business? And how much of that was onetime versus -- I think it was all onetime.

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Matt J. Chambless, Computer Programs and Systems, Inc. - CFO, Secretary & Treasurer [26]

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Yes. So Sean, the fourth quarter revenues for GRH were about $2.7 million with a quarterly adjusted EBITDA of $1.3 million from GRH. That brings the full year impact of GRH to $3.4 million of revenue and effectively neutral to adjusted EBITDA. And we ended the year with a recurring versus nonrecurring revenue split of actually about 50-50.

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Sean William Wieland, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [27]

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Okay. And why wouldn't that business continue to skew more towards recurring revenue? Is there something unique about that, that would prevent that?

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Matt J. Chambless, Computer Programs and Systems, Inc. - CFO, Secretary & Treasurer [28]

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Yes. So the licensing model there is primarily through resellers. So it's -- and it's primarily upselling to existing customer arrangements that we already have in place, they have perpetual contracts in place. So while we do see the opportunity potentially down the road to push more SaaS or subscription-type revenue, these upsells to existing customers kind of follow that, the existing contract rev rec. So that's kind of the explanation for at least the historical results that we've seen so far.

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David A. Dye, Computer Programs and Systems, Inc. - Chief Growth Officer & Director [29]

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Yes. And Sean, David here. More than half of the opportunities that we have, the significant opportunities that we have in the Get Real Health pipeline right now, primarily around, sort of nationalized health care systems that want to roll out patient engagement platforms to their population, consumers or the RFP is calling for a SaaS model. So we do expect it will -- similar to our EHR business, the Get Real Health will transition over time to more of a recurring revenue mix.

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Sean William Wieland, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [30]

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Okay. And then your comments around deploying capital. Is Get Real Health kind of a template to use going forward? Or are you thinking about doing something bigger? What's most important to you when you are evaluating potential inorganic opportunities?

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John Boyd Douglas, Computer Programs and Systems, Inc. - President, CEO & Director [31]

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Well, one of the things, obviously, tuck-in opportunities is one of the things we've talked about in the past. But also from a capital allocation perspective, everything, frankly, is on the table, whether it's stock buybacks or, again, there's more tuck-in opportunities. And there's a variety of things that the Board and management are looking into for that, especially with the cash flow that we're expecting this year.

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Matt J. Chambless, Computer Programs and Systems, Inc. - CFO, Secretary & Treasurer [32]

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And I'll follow-up on that. As Boyd and I both commented on in our prepared remarks, we do consider ourselves to be in an enviable position when it comes to capital allocation right now, and that's a situation that's changed a lot over the last, say, 2.5 years. Right now, at nearly 2x leverage, we have the debt capacity to lever up another 1.5% of EBITDA and remain in good standing with our bank group, and that equates to around $75 million of capital. You add to that our considerable operating cash flows, which -- because we're not capital intensive, effectively equals free cash flow, and it's understandable that we're considering all options.

We continue to think the tuck-in acquisitions that complement or enhance our product or service offerings will continue to play a role, but we also have to make sure that we're disciplined with any future M&A activity that we pursue. And other options that the Board and management continue to consider would be share repurchases, assuming that the valuation makes sense.

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Operator [33]

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Our next question today comes from Sandy Draper at SunTrust.

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Stanislav Berenshteyn, SunTrust Robinson Humphrey, Inc., Research Division - Associate [34]

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This is Stan on for Sandy. Maybe a quick one on TruBridge. Just trying to understand, what gets someone outside the CPSI installed base to use TruBridge? And then maybe specifically looking at the 200- to 500-bed hospital market, since typically, that cohort will have EHR vendors that already have RCM offerings?

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David A. Dye, Computer Programs and Systems, Inc. - Chief Growth Officer & Director [35]

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Yes. In large part, they don't have EHR vendors, at least in our view, that have the offerings. And now -- we now have customer -- we have MEDITECH customers, Epic customers, Cerner customers, where we have -- where we manage the entire business operation through our cancer field management program. So we've got referenceable clients. And as we know, the trend slowly continues to shift towards the hospitals focusing solely on patient care as the reimbursement model changes and wanting to outsource anything that doesn't have to do with that clinical care focus. So as that occurs, we continue -- we've essentially increased our sales capacity in that space that you just mentioned, about 2.5 fold in the last 12 months. So our sales coverage has increased. The awareness of TruBridge as someone that operates efficiently in that market continues to increase with our referenceable base. And so the opportunity is there, and we're capitalizing on it.

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Operator [36]

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And our next question today comes from Gene Mannheimer of Dougherty & Company.

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Eugene Mark Mannheimer, Dougherty & Company LLC, Research Division - Senior Research Analyst of Healthcare [37]

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Congrats on the strong finish to the year. I wanted to ask about the trend you're seeing towards the higher SaaS mix. As you called out, Boyd and Matt, that's much more pronounced than in prior years. I guess, I'm wondering how much of that is driven by CPSI, the vendor pushing that approach versus the preference of the client? And then a separate question, can you just remind us of the revenue thresholds that needed to be attained for the Get Real Health earn-outs to kick in?

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David A. Dye, Computer Programs and Systems, Inc. - Chief Growth Officer & Director [38]

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Yes. I'll handle the first part of your question, Gene. It's Dave. We'll let Matt handle the second. But we have been offering the SaaS mix and the perpetual license mix and now the nTrust for -- the SaaS mix and the license mix for 5 years plus and add the nTrust mix to that for about the last 15 months or so to all of our clients. We present them with a menu of options, and we continue to do that. So I would say it would be a bit of a stretch to say that CPSI is responsible for the pushing of the mix more towards SaaS. Although there's certainly probably a bit of that. We have incentivized our sales force to increase the SaaS mix as much as possible. So there's a lean in on their part towards that, but we want the customer to have the choice.

I would say that it's very likely that athenahealth's entrée into the market, aggressive, as you know, and the awareness of them in their model, moving from the ambulatory care space into the inpatient space with the SaaS model, increased the awareness of that and perhaps the popularity of that, and we're capitalizing on that now.

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Matt J. Chambless, Computer Programs and Systems, Inc. - CFO, Secretary & Treasurer [39]

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Yes. And Gene, the second part of your question was around the performance of GRH versus the earnout levels, is that right?

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Eugene Mark Mannheimer, Dougherty & Company LLC, Research Division - Senior Research Analyst of Healthcare [40]

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Yes.

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Matt J. Chambless, Computer Programs and Systems, Inc. - CFO, Secretary & Treasurer [41]

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Yes. So we stated earlier that adjusted EBITDA for GRH for the year ended up being relatively breakeven. And with -- in the 8-K that had the purchase agreement, I believe the step on for the earnout was somewhere around $3 million of EBITDA, so fell short of that. So the earnout doesn't look like it's going to be achieved. And that's now a good time to explain something that you will likely see on the face of the income statement, that's a $5 million gain from contingent consideration.

And when we acquired GRH, we estimated the fair value of the earnout clause based on a probability weighted scenario analysis, and the end result of that analysis was in purchase accounting, a $5 million increase in the purchase price and GAAP requires that any adjustments to those determinations down the road run through the income statement if those adjustments happen outside of the measurement period. So any questions about that $5 million or specifically related to the earnout, not being considered earned.

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Operator [42]

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And ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to Mr. Douglas for any final remarks.

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John Boyd Douglas, Computer Programs and Systems, Inc. - President, CEO & Director [43]

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Great. Thank you, Rocco. In closing, I would like to welcome Chris Hjelm to the CPSI Board of Directors. Chris has an extensive and impressive background in technology and innovation, bringing us -- bringing to us over 25 years of experience as a C-level technology leader. He recently retired from The Kroger Company, where he served as the Executive Vice President and Chief Information Officer. We look forward to working with Chris as his previous IT leadership experience will contribute greatly to our evolution as a leading community health care solutions company.

And lastly, I'd like to take a minute to thank all of the employees of CPSI all across the country that work hard to help us make a difference as we continue on our journey of advancing community health care. Their commitment and passion make a real difference every day, and their efforts are very much appreciated not only by me, but most importantly, by our clients. With that, I'd like to thank everyone for taking the time to join us on the call today. And I hope everyone has a great evening.

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Operator [44]

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Today's conference has now concluded. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful evening.