NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016
1. NATURE OF OPERATIONS
Computer Programs and Systems, Inc. ("CPSI" or the "Company") is a healthcare information technology solutions provider which was formed and commenced operations in 1979. The Company provides, on an integrated basis, enterprise-wide clinical management, access management, patient financial management, health information management, strategic decision support, resource planning management and enterprise application integration solutions to healthcare organizations throughout the United States. Additionally, CPSI provides other information technology solutions, including business management services, remote hosting, networking technologies and other related services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The 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, 2016, we adopted a revised presentation of sales revenues and the associated costs of sales in our consolidated statements of income, which we believe is better aligned with and representative of the amount and profitability of our revenue streams, as well as the way we manage our business, review our operating performance and market our products. Specifically:
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•
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The Company's sales revenues and costs of sales amounts formerly included within the captions "System sales" and "Support and maintenance" are now included within the caption "System sales and support" within the consolidated statements of income;
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•
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The Company's product development costs formerly included within the captions of "System sales" and "Support and maintenance" within the "Costs of sales" section of the consolidated statements of income are now included within the caption "Product development" within the "Operating expenses" section of the consolidated statements of income; and
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•
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The Company's sales-facilitative costs associated with business management, consulting and managed IT services formerly included within the caption "Business management, consulting and managed IT services" within the "Costs of sales" section of the consolidated statements of income are now included within the caption "Sales and marketing" within the "Operating expenses" section of the consolidated statements of income.
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These reclassifications had no effect on previously reported total sales revenues, operating income, income before taxes or net income. In addition, in 2016, we changed the rounding of our financial statements from ones to thousands.
Amounts presented for the years ending December 31, 2015 and 2014, respectively, have been reclassified to conform to the current presentation. The following table provides the amounts reclassified for the year ended December 31, 2015:
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(In thousands)
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As previously reported
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Reclassifications
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As reclassified
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Sales revenues:
|
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|
|
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System sales
|
$
|
42,994
|
|
|
$
|
(42,994
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)
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$
|
—
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Support and maintenance
|
75,391
|
|
|
(75,391
|
)
|
|
—
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System sales and support
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—
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118,385
|
|
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118,385
|
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Costs of sales:
|
|
|
|
|
|
System sales
|
39,515
|
|
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(39,515
|
)
|
|
—
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|
Support and maintenance
|
27,214
|
|
|
(27,214
|
)
|
|
—
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|
System sales and support
|
—
|
|
|
52,500
|
|
|
52,500
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Business management, consulting and managed IT services
|
41,337
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|
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(6,121
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)
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35,216
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Operating expenses:
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Product development
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—
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|
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14,229
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|
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14,229
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Sales and marketing
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12,212
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6,121
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18,333
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The following table provides the amounts reclassified for the year ended December 31, 2014:
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(In thousands)
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As previously reported
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Reclassifications
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As reclassified
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Sales revenues:
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System sales
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$
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75,099
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$
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(75,099
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)
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$
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—
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Support and maintenance
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73,553
|
|
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(73,553
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)
|
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—
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System sales and support
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—
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148,652
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148,652
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Costs of sales:
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System sales
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44,620
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(44,620
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)
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—
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Support and maintenance
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29,081
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(29,081
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)
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—
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System sales and support
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—
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59,079
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59,079
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Business management, consulting and managed IT services
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37,066
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(5,350
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)
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31,716
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Operating expenses:
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Product development
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—
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14,622
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14,622
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Sales and marketing
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14,370
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5,350
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19,720
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Cash and Cash Equivalents
Cash and cash equivalents can include time deposits and certificates of deposit with original maturities of three months or less that are highly liquid and readily convertible to a known amount of cash. These assets are stated at cost, which approximates market value, due to their short duration or liquid nature.
Investments
The Company accounts for investments in accordance with Financial Accounting Standards Board ("FASB") Codification topic,
Investments – Debt and Equity Securities.
Accordingly, investments are classified as available-for-sale securities and are reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of stockholders’ equity. The Company’s management determines the appropriate classifications of investments in fixed maturity securities at the time of acquisition and re-evaluates the classifications at each balance sheet date. An average cost method is used for purposes of determining the cost of investments sold.
Income Taxes
We account for income taxes in accordance with FASB Codification topic,
Income Taxes
. Under this topic, deferred income taxes are determined utilizing the asset and liability approach. This method gives consideration to the future tax consequences associated with differences between financial accounting and tax bases of assets and liabilities. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We recognize interest and penalties accrued related to unrecognized tax benefits in the consolidated statements of income as a component of the provision for income taxes.
We also make a provision for uncertain income tax positions in accordance with the
Income Taxes
Codification topic. These provisions require that a tax position taken in a tax return be recognized in the financial statements when it is more likely than not (i.e., a likelihood of more than
fifty percent
) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than
fifty
percent likely of being realized upon settlement. The topic also requires that changes in judgment that result in subsequent recognition, derecognition, or change in a measurement date of a tax position taken in a prior annual period (including any related interest and penalties) be recognized as a discrete item in the interim period in which the change occurs.
Valuation allowance are recorded when, in the opinion of management, it is more likely than not that all or a portion of the deferred tax assets will not be realized. These valuation allowances can be impacted by changes in tax laws, changes to statutory tax rates, and future taxable income, and are based on our judgment, estimates, and assumptions.
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are stated at the amount the Company expects to collect and do not bear interest. The Company establishes a general allowance for doubtful accounts based on collections history. In the case of a bankruptcy filing or other similar event indicating the collectability of specific customer accounts is no longer probable, a specific reserve for bad debt may be recorded to reduce the related receivable to the amount expected to be recovered.
Financing Receivables
Financing receivables are comprised of short-term payment plans and sales-type leases. Short-term payment plans are stated at the amount the Company expects to collect and do not bear interest. Sales-type leases are initially recorded at the present value of the related minimum lease payments, computed at the interest rate implicit in the lease, and are presented net of unearned income. Unearned income is amortized over the lease term to produce a constant periodic rate of return on the net investment in the lease (the interest method).
An allowance for credit losses has been established for our financing receivables based on the historical level of customer defaults under such arrangements. In the case of a bankruptcy filing or other similar event indicating the collectability of specific customer accounts is no longer probable, a specific reserve may be recorded to reduce the related receivable to the amount expected to be recovered. Customer payments are considered past due if a scheduled payment is not received within contractually agreed upon terms, with amounts reclassified to accounts receivable when they become due. As a result, we evaluate the credit quality of our financing receivables on an ongoing basis utilizing an aging of receivables and write-offs, customer collection experience, the customer’s financial condition and known risk characteristics impacting the respective customer base, as well as existing economic conditions, to determine if any further allowance is necessary. Amounts are specifically charged off once all available means of collection have been exhausted.
Inventories
Inventories are stated at lower of cost or market using the average cost method. The Company’s inventories are comprised of computer equipment, forms and supplies. For cash flow presentation, inventory used by the Company and capitalized as property and equipment is shown as a change in inventory.
Property and Equipment
Property and equipment is recorded at cost, less accumulated depreciation. Additions and improvements to property and equipment that materially increase productive capacity or extend the life of an asset are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. Upon retirement or other disposition of such assets, the related costs and accumulated depreciation are removed from the respective accounts and any resulting gain or loss is included in the results of operations.
Depreciation expense is computed using the straight-line method over the asset’s useful life, which is generally
5 years
for computer equipment, furniture, and fixtures and
30 years
for buildings. Leasehold improvements are depreciated over the shorter of the asset’s useful life or the remaining lease term. The Company reviews for the possible impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Depreciation expense is reported in the consolidated statements of income as a component of costs of sales and operating expenses.
Goodwill
Goodwill is recorded as the difference between the aggregate consideration paid for the acquisition of a business and the fair value of the identifiable net tangible and intangible assets acquired. Goodwill is not amortized but is evaluated for impairment annually or more frequently if indicators of impairment are present or changes in circumstances suggest that impairment may exist. We evaluate the carrying value of our goodwill annually on October 1. The first step of the goodwill impairment test compares the fair value of the reporting unit with its carrying amount, including goodwill. If fair value of our reporting unit exceeds its carrying amount, the goodwill of the reporting unit is not considered impaired. If the carrying amount of our reporting unit exceeds its fair value, a second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the affected reporting unit's goodwill with the carrying amount of that goodwill. No impairments have been recognized.
Purchased Intangible Assets
Purchased intangible assets are acquired in connection with a business acquisition, and are amortized over their estimated useful lives based on the pattern of economic benefit expected from each asset. We concluded for certain purchased intangible assets that the pattern of economic benefit approximated the straight-line method, and therefore, the use of the straight-line method was appropriate, as the majority of the cash flows will be recognized ratably over the estimated useful lives and there is no degradation of the cash flows over time.
Business Combinations
We apply business combination accounting when we acquire a business. Business combinations are accounted for at fair value. The associated acquisition costs are expensed as incurred and recorded in general and administrative expenses; restructuring costs associated with a business combination are expenses; contingent consideration is measured at fair value at the acquisition date, with changes in fair value after the acquisition date affecting earnings; changes in deferred tax asset valuation allowances and income tax uncertainties after the measurement period affect income tax expense; and goodwill is determined as the excess of the fair value of the consideration conveyed in the acquisition over the fair value of the net assets acquired. The accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets and liabilities acquired. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, are based on management's estimates and assumptions, including valuations that utilize customary valuation procedures and techniques. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill, or require acceleration of the amortization expense of finite-lived intangible assets. The results of the acquired businesses' operations are included in the Consolidated Statements of Income of the combined entity beginning on the date of the acquisition. We have applied this acquisition method to the transactions described in Note 3 - Business Combinations.
Deferred Revenue
Deferred revenue represents amounts received from customers under licensing agreements and implementation fees for which the revenue recognition process has not been completed.
Revenue Recognition
The Company recognizes revenue in accordance with U.S. GAAP, principally those required by the
Software
topic and
Revenue Recognition
subtopic of the FASB Codification and those prescribed by the SEC.
The Company's revenue is generated from two sources:
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System Sales
and Support
- the sale of information systems and the provision of system support services. The sale of information systems includes perpetual software licenses, conversion, installation and training services,
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hardware and peripherals, "Software as a Service" (or "SaaS") services, and forms and supplies. System support services includes software application support, hardware maintenance, and continuing education.
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Business Management, Consulting and Managed IT Services
- the provision of business management services, which includes electronic billing, statement processing, payroll processing, accounts receivable management, contract management and insurance services, as well as Internet service provider ("ISP") services and consulting and managed IT services (collectively, "other professional IT services").
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System Sales and Support
The Company enters into contractual obligations to sell perpetual software licenses, conversion, installation and training services, hardware and software application support and hardware maintenance services. On average, the Company is able to complete a system installation in three to four weeks. The methods employed by the Company to recognize revenue, which are discussed by element below, achieve results materially consistent with the provisions of Accounting Standards Update ("ASU") 2009-13,
Multiple-Deliverable Revenue Arrangements
, due to the relatively short period during which there are multiple undelivered elements, the relatively small amount of non-software related elements in the system sale arrangements, and the limited number of contracts in-process at the end of each reporting period. The Company recognizes revenue on the elements noted above as follows:
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Perpetual software licenses and conversion, installation and training services – The selling price of perpetual software licenses and conversion, installation and training services is based on management’s best estimate of selling price. In determining management’s best estimate of selling price, we consider the following: (1) competitor pricing, (2) supply and demand of installation staff, (3) overall economic conditions, and (4) our pricing practices as they relate to discounts. With the exception of certain arrangements with extended payment terms that were entered into in 2012 and that are not comparable to our historical or current arrangements (see Note 11), the method of recognizing revenue for the perpetual license of the associated modules included in the arrangement, and the related conversion, installation and training services over the term the services are performed, is on a module by module basis as the related perpetual licenses are delivered and the respective conversion, installation and training for each specific module is completed, as this is representative of the pattern of provision of these services.
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Hardware – We recognize revenue for hardware upon shipment. The selling price of hardware is based on management’s best estimate of selling price, which consists of cost plus a targeted margin.
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Software application support and hardware maintenance – We have established vendor-specific objective evidence ("VSOE") of the fair value of our software application support and hardware maintenance services by reference to the price our customers are required to pay for the services when sold separately via renewals. Support and maintenance revenue is recognized on a straight-line basis over the term of the maintenance contract, which is generally three to five years.
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SaaS services - The Company accounts for SaaS arrangements in accordance with the requirements of the
Hosting Arrangemen
t section under the
Software
topic and
Revenue Recognition
subtopic of the Codification. The Codification states that the software elements of SaaS services should not be accounted for as a hosting arrangement "if the customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty and it is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software." Each SaaS contract entered into by the Company includes a system purchase and buyout clause, and this clause specifies the total amount of the system buyout. In addition, a clause is included in the contract which states that should the system be bought out by the customer, the customer would be required to enter into a general support agreement (for post-contract support services) for the remainder of the original SaaS term. Accordingly, the Company has concluded that SaaS customers do not have the right to take possession of the system without significant penalty (i.e., the purchase price of the system), resulting in the determination that these contracts are service contracts for which revenue is recognized when the services are performed.
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Business Management, Consulting and Managed IT Services
Business management services consist of electronic billing, statement processing, payroll processing, accounts receivable management, contract management and insurance services. While business management service arrangements are contracts separate from the system sale and support contracts, these contracts are often executed within a short time frame of each other. The amount of the total arrangement consideration allocated to these services is based on VSOE of fair value by
reference to the rate at which our customers renew as well as the rate at which the services are sold to customers when the business management services agreement is not executed within a short time frame of the system sale and support contracts. If VSOE of fair value does not exist for these services, we allocate arrangement consideration based on third-party evidence ("TPE") of selling price or, if neither VSOE nor TPE is available, estimated selling price. Because the pricing is transaction based (per unit pricing), customers are billed and revenue recognized as services are performed based on transaction levels.
The Company will occasionally provide ISP and other professional IT services. Depending on the nature of the services provided, these services may be considered software elements or non-software elements. The selling price of services considered to be software elements is based on VSOE of the fair value of the services by reference to the price our customers are required to pay for the services when sold separately. The selling price of services considered to be non-software elements is based on third-party evidence of selling price of similar services. Revenue from these elements is recognized as the services are performed.
Stock-Based Compensation
The Company accounts for stock-based compensation according to the provisions of FASB Codification topic,
Compensation – Stock Compensation,
which establishes accounting for stock-based awards exchanged for employee services. Accordingly, stock-based compensation cost 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.
Product Development Costs
Product development costs are expensed as incurred. Product development costs totaled approximately
$32.6 million
,
$14.2 million
, and
$14.6 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was approximately
$0.2 million
,
$0.2 million
, and
$0.1 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively, and is recorded in sales and marketing expenses in the accompanying consolidated statements of income.
Shipping and Handling Costs
Shipping and handling costs are expensed as incurred and included in general and administrative expenses and costs of business management, consulting and managed IT services. Shipping and handling costs totaled approximately
$0.4 million
,
$0.4 million
, and
$0.6 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is evaluated by the chief operating decision maker, which we refer to as the CODM, or decision-making group in assessing performance and making decisions regarding resource allocation. The Company has prepared operating segment information based on the manner in which management disaggregates the Company's operations for making internal operating decisions. See Note 18.
New Accounting Standards Adopted in 2016
In August 2014, the FASB issued ASU 2014-15,
Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern
, which requires management of an entity to evaluate, in connection with preparing financial statements for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about such entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable), and provide related disclosures.
ASU2014-15 is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. We adopted this new guidance effective on December 31, 2016 and the adoption did not have any impact on our consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03,
Simplifying the Presentation of Debt Issuance Costs
, which changes the presentation of debt issuance costs in financial statements. Under this guidance, an entity will present such costs in the balance sheet as a reduction of the related debt liability rather than as an asset. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015, which is effective for the Company as of the first quarter of our fiscal year ending December 31, 2016. Refer to Note 13 for further information regarding debt issuance costs.
In September 2015, the FASB issued ASU 2015-16,
Simplifying the Accounting for Measurement-Period Adjustments
, that eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The new standard will be applied prospectively to measurement period adjustments that occur after the effective date. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015, which is effective for the Company as of the first quarter of our fiscal year ending December 31, 2016. The adoption of ASU 2015-16 did not have a material effect on our financial statements.
In November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
, to simplify the presentation of deferred income taxes. The standard eliminates the current requirement for organizations to present deferred tax assets and liabilities as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2016, with early adoption permitted. The Company has chosen to early adopt ASU 2015-17 as of the first quarter of our fiscal year ending December 31, 2016 by prospectively applying the update. The adoption of ASU 2015-17 did not have a material effect on our financial statements.
New Accounting Standards Yet to be Adopted
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 the most current revenue recognition guidance. This guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2017, which is effective for the Company as of the first quarter of our fiscal year ending December 31, 2018. We are in the very early stages of our initial assessment of our systems, data and processes that will be affected by the implementation of this new standard, having engaged third party consultants to assist in evaluating the related impact that the implementation of this standard will have on our financial statements. As a result, we are unable at this time to conclude as to whether the implementation of this standard will have a material effect on our financial statements.
In July 2015, the FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory
. The amended guidance requires entities to measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling price in ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The requirement would replace the current lower of cost or market evaluation. Accounting guidance is unchanged for inventory measured using last-in, first-out (“LIFO”) or the retail method. The amended guidance will be effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amended guidance should be applied prospectively with earlier application permitted. The Company is currently evaluating the impact that the implementation of this standard will have on its financial statements, but preliminary assessments have results in a conclusion that the adoption of this ASU will not have a material effect on our financial statements.
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 is effective for the Company as of the first quarter of our fiscal year ending December 31, 2019. The Company is currently evaluating the impact that the implementation of this standard will have on its financial statements.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting,
which simplifies the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and the classification of awards on the statement of cash flows. This guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2016, which is effective for the Company as of the first quarter of our fiscal year ending December 31, 2017. ASU 2016-09 requires registrants to recognize all income tax effects of share-based awards in the statement of operations when the awards are vested or are settled, which will impact our future results of operations and earnings per share. We are not able to determine the magnitude of such an impact as it will depend on the future prices of our common stock and awards activity.
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 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 will be effective for fiscal years and interim periods within those years beginning after December 15, 2017, which is effective for the Company as of the first quarter of our fiscal year ending December 31, 2018. The Company is currently evaluating the impact that the implementation of this standard will have on its financial statements.
3. BUSINESS COMBINATION
Acquisition of HHI
On January 8, 2016, we acquired all of the assets and liabilities of HHI, including its wholly-owned subsidiaries, Healthland, AHT and Rycan. Healthland provides electronic health records ("EHR") and clinical information management solutions to over
350
hospital customers. AHT is a provider of clinical and financial solutions in the post-acute care market, serving over
3,300
skilled nursing facilities. Rycan offers SaaS-based revenue cycle management workflow and automation software to over
290
hospital customers.
We believe the acquisition of HHI:
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|
strengthens our position in providing healthcare information systems to community healthcare organizations with approximately
1,200
combined hospital customers;
|
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•
|
introduces CPSI to the post-acute care market; and
|
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•
|
expands the products offered by and capabilities of TruBridge with the addition of Rycan and its suite of revenue cycle management software products.
|
These factors, combined with the synergies and economies of scale expected from combining the operations of CPSI and HHI, were the basis for the acquisition.
Consideration for the acquisition included cash (net of cash of the acquired entities) of
$162.6 million
,
1,973,880
shares of common stock of CPSI ("CPSI Common Stock"), and the assumption by CPSI of stock options that became exercisable for
174,972
shares of CPSI Common Stock. During 2015, we incurred approximately
$3.0 million
of pre-tax costs in connection with the acquisition of HHI. During the year ended December 31, 2016, we incurred approximately
$8.2 million
, of pre-tax acquisition costs in connection with the acquisition of HHI. Acquisition costs are included in general and administrative expenses in our consolidated statements of income.
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(In thousands)
|
Purchase Price
|
Cash consideration, net of acquired cash received
|
$
|
162,611
|
|
Fair value of common stock and options issued as consideration
|
97,017
|
|
Total consideration
|
$
|
259,628
|
|
Our acquisition of HHI was treated as a purchase in accordance with Accounting Standards Codification (the "Codification") 805,
Business Combinations
, of the FASB, which requires allocation of the purchase price to the estimated fair values of assets and liabilities acquired in the transaction. Our allocation of the purchase price is based on management's judgment after evaluating several factors, including a valuation assessment.
The allocation of the purchase price paid for HHI is as follows:
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|
|
|
|
(In thousands)
|
Purchase Price Allocation
|
Acquired cash
|
$
|
5,371
|
|
Accounts receivable
|
5,789
|
|
Financing receivables
|
2,184
|
|
Inventories
|
216
|
|
Prepaid expenses
|
3,228
|
|
Property and equipment
|
1,263
|
|
Intangible assets
|
117,300
|
|
Goodwill
|
168,449
|
|
Accounts payable and accrued liabilities
|
(17,490
|
)
|
Deferred taxes, net
|
(4,010
|
)
|
Contingent consideration
|
(1,620
|
)
|
Deferred revenue
|
(15,681
|
)
|
Net assets acquired
|
$
|
264,999
|
|
The intangible assets in the table above are being amortized on a straight-line basis over their estimated useful lives. The amortization is included in amortization of acquisition-related intangibles in our consolidated statements of income. Of the goodwill acquired,
$23.3 million
is expected to be tax deductible.
The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value measurement hierarchy (see Note 17). Level 3 inputs included, among others, discount rates that we estimated would be used by a market participant in valuing these assets and liabilities, projections of revenues and cash flows, client attrition rates and market comparables.
The gross contractual amount of accounts receivable of HHI at the date of acquisition was
$9.4 million
.
Our consolidated statement of income for the year ended December 31, 2016 includes revenues of approximately
$86.6 million
, and pre-tax income of approximately
$12.2 million
, attributed to the acquired business since the January 8, 2016 acquisition date.
The following unaudited pro forma revenue, net income and earnings per share amounts for the years ended December 31, 2016 and 2015 give effect to the HHI acquisition as if it had been completed on January 1, 2015. The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of what the operating results actually would have been during the periods presented had the HHI acquisition been completed during the periods presented. In addition, the unaudited pro forma financial information does not purport to project future operating results. The pro forma information does not fully reflect: (1) any anticipated synergies (or costs to achieve synergies) or (2) the impact of non-recurring items directly related to the HHI acquisition.
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(In thousands, except per share data, unaudited)
|
2016
|
|
2015
|
Pro forma revenues
|
$
|
270,974
|
|
|
$
|
290,071
|
|
Pro forma net income
|
$
|
8,538
|
|
|
$
|
3,484
|
|
Pro forma diluted earnings per share
|
$
|
0.64
|
|
|
$
|
0.26
|
|
Pro forma net income was calculated by adjusting the results for the applicable period to reflect (i) the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied on January 1, 2015 and (ii) adjustments to amortized revenue during fiscal 2016 and 2015 as a result of the acquisition date valuation of assumed deferred revenue. The pro forma results for each period also reflect the pro forma adjustment to
interest expense as a result of the issuance of new debt to finance the acquisition and elimination of Healthland debt in conjunction with the acquisition.
The Company incurred
$5.5 million
in 2016 acquisition-related costs, which are included in general and administrative expense in the Company’s statement of income for the year ended December 31, 2016, that is reflected in pro forma net income for the year ended December 31, 2015. Severance and integration costs of
$2.7 million
were not included in the acquisition costs for the purpose of calculating the pro forma results.
4. INVESTMENTS
The Company did not have investments at
December 31, 2016
. Investments were comprised of the following at
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
Short-term investments (money market funds and accrued income)
|
$
|
1,269
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,269
|
|
Obligations of U.S. Treasury, U.S. government corporations and agencies
|
1,562
|
|
|
1
|
|
|
(6
|
)
|
|
1,557
|
|
Mortgaged-backed securities
|
54
|
|
|
1
|
|
|
—
|
|
|
55
|
|
Certificates of deposit
|
2,000
|
|
|
—
|
|
|
(7
|
)
|
|
1,993
|
|
Corporate debt securities
|
6,000
|
|
|
—
|
|
|
(50
|
)
|
|
5,950
|
|
|
$
|
10,885
|
|
|
$
|
2
|
|
|
$
|
(63
|
)
|
|
$
|
10,824
|
|
The following table shows the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous loss position at
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2015
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
(In thousands)
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
Obligations of U.S. Treasury, U.S. government corporations and agencies
|
$
|
768
|
|
|
$
|
(6
|
)
|
|
$
|
410
|
|
|
$
|
—
|
|
|
$
|
1,178
|
|
|
$
|
(6
|
)
|
Certificates of deposit
|
—
|
|
|
—
|
|
|
1,743
|
|
|
(7
|
)
|
|
1,743
|
|
|
(7
|
)
|
Corporate debt securities
|
2,566
|
|
|
(26
|
)
|
|
3,234
|
|
|
(24
|
)
|
|
5,800
|
|
|
(50
|
)
|
|
$
|
3,334
|
|
|
$
|
(32
|
)
|
|
$
|
5,387
|
|
|
$
|
(31
|
)
|
|
$
|
8,721
|
|
|
$
|
(63
|
)
|
5. PROPERTY AND EQUIPMENT
Property and equipment were comprised of the following at
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
(In thousands)
|
2016
|
|
2015
|
Land
|
$
|
2,848
|
|
|
$
|
2,848
|
|
Buildings and improvements
|
9,432
|
|
|
9,432
|
|
Maintenance equipment
|
802
|
|
|
1,231
|
|
Computer equipment
|
5,174
|
|
|
4,798
|
|
Leasehold improvements
|
5,007
|
|
|
4,753
|
|
Office furniture and fixtures
|
3,591
|
|
|
4,336
|
|
Automobiles
|
335
|
|
|
335
|
|
|
27,189
|
|
|
27,733
|
|
Less: accumulated depreciation
|
(13,750
|
)
|
|
(13,382
|
)
|
Property and equipment, net
|
$
|
13,439
|
|
|
$
|
14,351
|
|
6. OTHER ACCRUED LIABILITIES
Other accrued liabilities were comprised of the following at
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
(In thousands)
|
2016
|
|
2015
|
Salaries and benefits
|
$
|
5,397
|
|
|
$
|
2,292
|
|
Severance
|
337
|
|
|
1,569
|
|
Commissions
|
518
|
|
|
434
|
|
Self-insurance reserves
|
887
|
|
|
883
|
|
Contingent consideration
|
1,120
|
|
|
—
|
|
Other
|
538
|
|
|
420
|
|
|
$
|
8,797
|
|
|
$
|
5,598
|
|
The accrued contingent consideration depicted above represents the potential earnout incentive for former Rycan shareholders related 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.
7. 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 9) 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.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except for per share data)
|
2016
|
|
2015
|
|
2014
|
Basic EPS
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
Net income
|
$
|
3,933
|
|
|
$
|
18,343
|
|
|
$
|
32,920
|
|
Less: Net income attributable to participating securities
|
(38
|
)
|
|
(373
|
)
|
|
(499
|
)
|
Net income attributable to common stockholders
|
$
|
3,895
|
|
|
$
|
17,970
|
|
|
$
|
32,421
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
Weighted average shares outstanding used in basic per common share computations
|
13,255
|
|
|
11,083
|
|
|
11,026
|
|
|
|
|
|
|
|
Basic EPS
|
$
|
0.29
|
|
|
$
|
1.62
|
|
|
$
|
2.94
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
Net income attributable to common stockholders
|
$
|
3,895
|
|
|
$
|
17,970
|
|
|
$
|
32,421
|
|
Reallocation of net income attributable to participating securities
|
—
|
|
|
—
|
|
|
—
|
|
Net income attributable to common stockholders for diluted EPS
|
$
|
3,895
|
|
|
$
|
17,970
|
|
|
$
|
32,421
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
Weighted average shares outstanding used in basic per common share computations
|
13,255
|
|
|
11,083
|
|
|
11,026
|
|
Weighted average effect of dilutive securities:
|
|
|
|
|
|
Performance share awards
|
—
|
|
|
—
|
|
|
—
|
|
Weighted average shares outstanding used in diluted per common share computations
|
13,255
|
|
|
11,083
|
|
|
11,026
|
|
|
|
|
|
|
|
Diluted EPS
|
$
|
0.29
|
|
|
$
|
1.62
|
|
|
$
|
2.94
|
|
8. INCOME TAXES
The Company accounts for income taxes in accordance with the FASB’s Codification topic,
Income Taxes
. These provisions require a company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.
We applied these provisions to all tax positions for which the statute of limitations remained open. A reconciliation of the beginning and ending amount of unrecognized tax benefits for uncertain tax positions, included as a component of "Income taxes payable" or "Prepaid income taxes" (as determined by the status of the Company's overall federal and state income tax position at the respective balance sheet dates) within the consolidated balance sheets, is as follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
2016
|
|
2015
|
Beginning balance
|
$
|
—
|
|
|
$
|
1,456
|
|
Additions based on tax positions related to the current year
|
—
|
|
|
—
|
|
Additions for tax positions of prior years
|
—
|
|
|
—
|
|
Reductions for tax positions of prior years
|
—
|
|
|
(1,456
|
)
|
Ending balance
|
$
|
—
|
|
|
$
|
—
|
|
The Company's uncertain tax positions have historically been limited to the uncertainty regarding the eventual sustainability of federal research and development tax credits claimed on historical federal returns. The federal returns for tax years 2004 through 2009 were previously under examination by the Internal Revenue Service ("IRS"), primarily in relation to such credits claimed on those returns. The IRS completed these examinations during 2015, resulting in enhanced clarity regarding the sustainability of our uncertain tax positions for all years. The completion of these examinations prompted a beneficial change in our measurement of reserves for uncertain tax positions. As a result, as of
December 31, 2016
, there is
no
amount of unrecognized tax benefits that, if recognized, would affect the tax rate.
The federal returns for tax years 2013 through 2015 remain open to examination, and the tax years 2012 through 2015 remain open to examination by certain other taxing jurisdictions to which the Company is subject.
Deferred income taxes arise from the temporary differences in the recognition of income and expenses for tax purposes. A valuation allowance is established when the Company believes that it is more likely than not that some portion of its deferred tax assets will not be realized. Deferred tax assets and liabilities were comprised of the following at
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
(In thousands)
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
Accounts receivable and financing receivables
|
$
|
1,392
|
|
|
$
|
729
|
|
Accrued vacation
|
1,022
|
|
|
726
|
|
Stock-based compensation
|
1,678
|
|
|
1,784
|
|
Deferred revenue
|
894
|
|
|
25
|
|
Accrued severance
|
75
|
|
|
612
|
|
Accrued liabilities and other
|
1,002
|
|
|
243
|
|
Transaction costs
|
—
|
|
|
1,166
|
|
Other comprehensive income
|
23
|
|
|
23
|
|
Credits
|
349
|
|
|
—
|
|
Net operating loss
|
26,689
|
|
|
—
|
|
Deferred tax assets
|
33,124
|
|
|
5,308
|
|
Less: Valuation allowance
|
1,624
|
|
|
—
|
|
Total deferred tax assets
|
$
|
31,500
|
|
|
$
|
5,308
|
|
Deferred tax liabilities:
|
|
|
|
Intangibles
|
34,696
|
|
|
$
|
—
|
|
Depreciation
|
50
|
|
|
662
|
|
Total deferred tax liabilities
|
$
|
34,746
|
|
|
$
|
662
|
|
Total deferred tax asset/(liability)
|
$
|
(3,246
|
)
|
|
$
|
4,646
|
|
Significant components of the income tax provision for the years ended
December 31, 2016
,
2015
and
2014
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2016
|
|
2015
|
|
2014
|
Current provision:
|
|
|
|
|
|
Federal
|
$
|
(72
|
)
|
|
$
|
8,576
|
|
|
$
|
15,546
|
|
State
|
453
|
|
|
1,270
|
|
|
2,825
|
|
Deferred provision:
|
|
|
|
|
|
Federal
|
4,144
|
|
|
(2,421
|
)
|
|
(1,393
|
)
|
State
|
(472
|
)
|
|
(277
|
)
|
|
(159
|
)
|
Total income tax provision
|
$
|
4,053
|
|
|
$
|
7,148
|
|
|
$
|
16,819
|
|
The difference between income taxes at the U.S. federal statutory income tax rate of
35%
and those reported in the consolidated statements of income for the years ended
December 31, 2016
,
2015
and
2014
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2016
|
|
2015
|
|
2014
|
Income taxes at U.S. federal statutory rate
|
$
|
2,795
|
|
|
$
|
8,922
|
|
|
$
|
17,409
|
|
Provision-to-return adjustments
|
325
|
|
|
(293
|
)
|
|
(464
|
)
|
State income tax, net of federal tax effect
|
5
|
|
|
944
|
|
|
1,773
|
|
Domestic production activities deduction
|
—
|
|
|
(670
|
)
|
|
(1,606
|
)
|
Tax credits
|
(349
|
)
|
|
(414
|
)
|
|
(597
|
)
|
Uncertain tax positions
|
—
|
|
|
(1,219
|
)
|
|
138
|
|
Transaction costs
|
1,312
|
|
|
—
|
|
|
—
|
|
Other
|
(35
|
)
|
|
(122
|
)
|
|
166
|
|
Total income tax provision
|
$
|
4,053
|
|
|
$
|
7,148
|
|
|
$
|
16,819
|
|
Our effective tax rates for the years ended
December 31, 2016
,
2015
and
2014
were
50.75%
,
28.04%
and
33.81%
, respectively. Our effective tax rate for the year ended December 31, 2016 was uncharacteristically high, primarily due to permanent non-deductible acquisition transaction costs of
$3.8 million
. The significantly reduced effective tax rate for the year ended December 31, 2015 is mostly due to beneficial adjustments recorded during 2015 related to our reserves for uncertain tax positions. As stated previously, the federal returns for tax years 2004 through 2009 had previously been under examination by the IRS, primarily in relation to research credits claimed on those returns. The IRS completed these examinations during 2015, consequently resulting in enhanced clarity regarding the sustainability of our uncertain tax positions for all years. The completion of these examinations prompted a change in our measurement of reserves for uncertain tax positions that benefited our effective tax rate by approximately
4.8%
during 2015.
We have federal net operating loss carryfowards related to the acquisition of HHI of
$82.9 million
and
$70.5 million
at January 8, 2016 and December 31, 2016, respectively, which expire at various dates from 2028 to 2035. We have state net operating loss carryforwards related to the acquisition of HHI of
$47.6 million
and
$46.5 million
at January 8, 2016 and December 31, 2016, respectively, which expire at various dates from 2017 and 2035.
Realization of deferred tax assets associated with the state net operating loss carryforward is dependent upon generating sufficient taxable income prior to their expiration. We believe it is more likely than not that the benefit from certain state NOL carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance on the deferred tax assets related to these state NOL carryforwards of
$1.6 million
at January 8, 2016 and December 31, 2016.
9. STOCK-BASED COMPENSATION
The Company's stock-based compensation awards are in the form of restricted stock and performance share awards made pursuant to the Company's 2005 Restricted Stock Plan, 2012 Restricted Stock Plan for Non-Employee Directors, and 2014 Incentive Plan (the "Plans"). Stock-based compensation cost 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. As of
December 31, 2016
, there were a total of
351,437
shares of common stock reserved under the Plans for issuance under future share-based payment arrangements.
The following table details total stock-based compensation expense for the years ended
December 31, 2016
,
2015
and
2014
, included in the consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
2016
|
|
2015
|
|
2014
|
Costs of sales
|
$
|
1,396
|
|
|
$
|
1,447
|
|
|
$
|
1,264
|
|
Operating expenses
|
3,970
|
|
|
3,933
|
|
|
2,908
|
|
Pre-tax stock-based compensation expense
|
5,366
|
|
|
5,380
|
|
|
4,172
|
|
Less: income tax effect
|
(2,093
|
)
|
|
(2,098
|
)
|
|
(1,627
|
)
|
Net (after tax) stock-based compensation expense
|
$
|
3,273
|
|
|
$
|
3,282
|
|
|
$
|
2,545
|
|
As of
December 31, 2016
, there was
$5.5 million
of unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the Plans, which is expected to be recognized over a weighted-average period of
1.58
years.
Cash flows resulting from excess or deficient tax benefits are required to be classified as a part of cash flows from financing activities. Excess tax benefits are realized tax benefits from tax deductions for the vested portion of restricted stock awards that are in excess of the deferred tax asset attributable to stock compensation costs for such restricted stock awards. Conversely, deficient tax benefits are realized tax benefits from tax deductions for the vested portion of restricted stock awards that are less than the deferred tax asset attributable to stock compensation costs for such restricted stock awards. In addition to tax benefits related to the vested portion of restricted stock awards, the Company also pays dividends on unvested restricted stock. As a result, excess (deficient) tax benefits of approximately
$210,000
,
$(176,000)
,
$167,000
, have been classified as financing cash inflows (outflows) for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
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
five
years. The Company records expenses for these grants on a straight-line basis over the applicable vesting periods.
A summary of restricted stock activity under the Plans during the years ended
December 31, 2016
,
2015
and
2014
is as follows:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average
Grant-Date
Fair Value
|
Nonvested stock outstanding at January 1, 2014
|
153,674
|
|
|
$
|
58.15
|
|
Granted
|
49,737
|
|
|
61.63
|
|
Vested
|
(43,195
|
)
|
|
58.48
|
|
Forfeited
|
—
|
|
|
—
|
|
Nonvested stock outstanding at December 31, 2014
|
160,216
|
|
|
$
|
59.14
|
|
Granted
|
60,850
|
|
|
51.85
|
|
Performance share awards converted to restricted stock
|
45,844
|
|
|
60.28
|
|
Vested
|
(62,628
|
)
|
|
59.30
|
|
Forfeited
|
(12,885
|
)
|
|
58.06
|
|
Nonvested stock outstanding at December 31, 2015
|
191,397
|
|
|
$
|
57.12
|
|
Granted
|
86,984
|
|
|
52.21
|
|
Vested
|
(93,496
|
)
|
|
57.48
|
|
Forfeited
|
—
|
|
|
—
|
|
Nonvested stock outstanding at December 31, 2016
|
184,885
|
|
|
$
|
54.63
|
|
Performance Share Awards
In 2014, the Company began to grant performance share awards to executive officers and certain key employees under the 2014 Incentive Plan. The number of shares of common stock earned and issuable under the award is determined at the end of each 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. If certain levels of the performance criteria are met, the award results in the issuance of shares of restricted stock corresponding to such level, which shares 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 for restricted stock issued pursuant to performance share awards.
In the event that the Company's financial performance meets the predetermined target for the performance criteria, the Company will issue each award recipient the number of restricted shares 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 recipients of performance share awards do not receive dividends or possess voting rights during the performance period and, accordingly, the fair value of the performance share awards is the quoted market value of the Company stock on the grant date less the present value of the expected dividends not received during the relevant period. Expense 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. 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 for the years ended
December 31, 2016
, 2015, and 2014, is as follows, based on the target award amounts set forth in the performance share award agreements:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average
Grant-Date
Fair Value
|
Performance share awards outstanding at January 1, 2014
|
—
|
|
|
$
|
—
|
|
Granted
|
46,541
|
|
|
60.28
|
|
Performance share awards converted to restricted stock
|
—
|
|
|
—
|
|
Performance share awards outstanding at December 31, 2014
|
46,541
|
|
|
$
|
60.28
|
|
Granted
|
52,364
|
|
|
49.29
|
|
Forfeited or unearned
|
(3,590
|
)
|
|
51.42
|
|
Performance share awards converted to restricted stock
|
(45,844
|
)
|
|
60.28
|
|
Performance share awards outstanding at December 31, 2015
|
49,471
|
|
|
$
|
49.29
|
|
Granted
|
77,594
|
|
|
49.64
|
|
Forfeited or unearned
|
(49,471
|
)
|
|
49.29
|
|
Performance share awards outstanding at December 31, 2016
|
77,594
|
|
|
$
|
49.64
|
|
10. CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments with credit-worthy, high-quality financial institutions.
The Company’s customer base is concentrated in the healthcare industry. Customers are located throughout the United States. The Company requires no collateral or other security to support customer accounts receivable. An allowance for doubtful accounts has been established for potential credit losses based on historical collection experience.
The Company maintains its cash and cash equivalents in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk on cash and cash equivalents.
11. FINANCING RECEIVABLES
Short-Term Payment Plans
The Company has sold information and patient care systems to certain healthcare providers under Second Generation Meaningful Use Installment Plans (see below) with maximum contractual terms of three years and expected terms of less than one year and other arrangements requiring fixed monthly payments over terms ranging from
3
to
12
months ("Fixed Periodic Payment Plans"). These receivables, collectively referred to as short-term payment plans and included in the current portion of financing receivables, were comprised of the following on
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
(In thousands)
|
2016
|
|
2015
|
Second Generation Meaningful Use Installment Plans, gross
|
$
|
3,080
|
|
|
$
|
9,372
|
|
Fixed Periodic Payment Plans, gross
|
1,988
|
|
|
454
|
|
Short-term payment plans, gross
|
5,068
|
|
|
9,826
|
|
|
|
|
|
Less: allowance for losses
|
(1,796
|
)
|
|
(491
|
)
|
Less: unearned income
|
—
|
|
|
—
|
|
Short-term payment plans, net
|
$
|
3,272
|
|
|
$
|
9,335
|
|
The significant decrease in amounts due under short-term payment plans from
December 31, 2015
to
December 31, 2016
is due to those factors described under the caption "Second Generation Meaningful Use Installment Plans" below.
Sales-Type Leases
Additionally, the Company leases its information and patient care systems to certain healthcare providers under sales-type leases expiring in various years
through 2023
. These receivables typically have terms from
two
to
seven
years, bear interest at various rates, and are usually collateralized by a security interest in the underlying assets. Since the Company has a history of successfully collecting amounts due under the original payment terms of these extended payment arrangements without making any concessions to its customers, the Company satisfies the requirement for revenue recognition. The Company’s history with these types of extended payment term arrangements supports management’s assertion that revenues are fixed and determinable and collection is probable.
The components of these lease receivables were as follows on December 31:
|
|
|
|
|
|
|
|
|
(In thousands)
|
2016
|
|
2015
|
Sales-type leases, gross
|
$
|
8,981
|
|
|
$
|
3,239
|
|
Less: allowance for losses
|
(402
|
)
|
|
(163
|
)
|
Less: unearned income
|
(797
|
)
|
|
(266
|
)
|
Sales-type leases, net
|
$
|
7,782
|
|
|
$
|
2,810
|
|
Future minimum lease payments to be received subsequent to
December 31, 2016
are as follows:
|
|
|
|
|
(In thousands)
|
|
2017
|
$
|
2,836
|
|
2018
|
2,003
|
|
2019
|
1,495
|
|
2020
|
1,342
|
|
2021
|
818
|
|
Thereafter
|
487
|
|
Total minimum lease payments to be received
|
8,981
|
|
Less allowance for losses
|
(402
|
)
|
Less unearned income
|
(797
|
)
|
Net lease receivables
|
$
|
7,782
|
|
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 years ended
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Beginning
Balance
|
|
Provision
|
|
Charge-offs
|
|
Recoveries
|
|
Ending
Balance
|
December 31, 2016
|
$
|
654
|
|
|
$
|
1,762
|
|
|
$
|
(218
|
)
|
|
$
|
—
|
|
|
$
|
2,198
|
|
December 31, 2015
|
$
|
1,001
|
|
|
$
|
236
|
|
|
$
|
(583
|
)
|
|
$
|
—
|
|
|
$
|
654
|
|
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 sales-type leasing arrangements within our target market of rural and 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 rural and community hospitals, the most notable of which relate to enacted and potential changes in Medicare and Medicaid reimbursement rates as rural and 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. 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, especially as the underlying assets act as collateral for the receivables.
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 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
December 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
1 to 90 Days
Past Due
|
|
91 to 180 Days
Past Due
|
|
181 + Days
Past Due
|
|
Total
Past Due
|
December 31, 2016
|
$
|
228
|
|
|
$
|
31
|
|
|
$
|
34
|
|
|
$
|
293
|
|
December 31, 2015
|
$
|
251
|
|
|
$
|
66
|
|
|
$
|
29
|
|
|
$
|
346
|
|
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 the financing receivables or the financing receivables, current portion, net amounts in the accompanying 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)
|
December 31, 2016
|
|
December 31, 2015
|
Customer balances with amounts reclassified to trade accounts receivable that are:
|
|
|
|
1 to 90 Days Past Due
|
$
|
6,167
|
|
|
$
|
515
|
|
91 to 180 Days Past Due
|
550
|
|
|
230
|
|
181+ Days Past Due
|
273
|
|
|
—
|
|
Total customer balances with past due amounts reclassified to trade accounts receivable
|
$
|
6,990
|
|
|
$
|
745
|
|
Total customer balances with no past due amounts reclassified to trade accounts receivable
|
1,194
|
|
|
2,228
|
|
Total financing receivables with contractual maturities of one year or less
|
5,068
|
|
|
9,826
|
|
Less allowance for losses
|
(2,198
|
)
|
|
(654
|
)
|
Total financing receivables
|
$
|
11,054
|
|
|
$
|
12,145
|
|
First Generation Meaningful Use Installment Plans
During 2012, the Company entered into multiple customer license agreements with payment terms requiring the customer to remit to the Company incentive payments (not to exceed the remaining balance of the contract price) received under the American Recovery and Reinvestment Act of 2009 (the "ARRA") for adoption of qualifying electronic health records ("EHRs"), with only nominal payment amounts required until the customer’s receipt of such incentive payments ("First Generation Meaningful Use Installment Plans"). If no such incentive payments are received by the customer or if such payments are not sufficient to pay the remaining balance under the arrangement, payments continue at contracted nominal amounts until the balance of the contract price is paid in full. Because of the significant difference in the underlying economics of these arrangements compared to our historical financing receivables, management determined that these arrangements were not comparable to historical arrangements. In accordance with the
Software
topic and
Revenue Recognition
subtopic of the Codification, the Company recognized revenue related to these arrangements as the amounts become due. Cash flows from these First Generation Meaningful Use Installment Plans are excluded from the Company’s financing receivables and deferred revenue in the accompanying consolidated balance sheets. As of the year ending December 31, 2016, all anticipated cash flows from these First Generation Meaningful Use Installment Plans have been collected.
Second Generation Meaningful Use Installment Plans
Beginning in the fourth quarter of 2012, we ceased offering First Generation Meaningful Use Installment Plans to our customers, opting instead for license agreements with payment terms that provide us with greater visibility into and control over the customer’s meaningful use attestation process and significantly reducing the maximum timeframe over which customers must satisfy their full payment obligations in purchasing our system (“Second Generation Meaningful Use Installment Plans”). As the overall payment period durations of the Second Generation Meaningful Use Installment Plans are consistent with that of our historical system sale financing arrangements, revenues under the Second Generation Meaningful Use Installment Plans are recognized upon installation of our EHR solution. Although these arrangements provide for a maximum payment term of three years, management has determined the expected term for these arrangements to be less than one year due to (a) historical collection patterns of required EHR incentive payment amounts and (b) the estimated significance of those amounts, the receipt of which is expected to result in minimal or no remaining balance for the related arrangements. As a result, all related amounts are included as a component of financing receivables, current portion, net in the accompanying consolidated balance sheets and as a component of
short-term payment plans
within this Note 11.
The reduction of incentive amounts available in each successive year under the ARRA's EHR incentive program has naturally resulted in these arrangements losing their economic appeal to both the Company and our customers, resulting in decreased demand from our customers for Second Generation Meaningful Use Installment Plans and a decreased willingness on our part to finance the purchase of our solutions through such arrangements. This decreased demand, coupled with payments received under such arrangements during the year ended
December 31, 2016
, has resulted in the overall significant decrease in our financing receivables balance related to short-term payment plans from
December 31, 2015
to
December 31, 2016
.
12. INTANGIBLE ASSETS AND GOODWILL
Our purchased definite-lived intangible assets as of
December 31, 2016
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Customer Relationships
|
|
Trademark
|
|
Developed Technology
|
|
Total
|
Gross carrying amount
|
$
|
82,300
|
|
|
$
|
10,900
|
|
|
$
|
24,100
|
|
|
$
|
117,300
|
|
Accumulated amortization
|
(6,398
|
)
|
|
(832
|
)
|
|
(2,952
|
)
|
|
(10,182
|
)
|
Net intangible assets
|
$
|
75,902
|
|
|
$
|
10,068
|
|
|
$
|
21,148
|
|
|
$
|
107,118
|
|
Weighted average remaining years of useful life
|
12
|
|
14
|
|
7
|
|
11
|
The following table represents the remaining amortization of definite-lived intangible assets as of
December 31, 2016
:
|
|
|
|
|
(In thousands)
|
|
For the year ended December 31,
|
|
2017
|
$
|
10,406
|
|
2018
|
10,406
|
|
2019
|
10,112
|
|
2020
|
10,106
|
|
2021
|
10,066
|
|
Due thereafter
|
56,022
|
|
Total
|
$
|
107,118
|
|
The following table sets forth the change in the carrying amount of goodwill by segment for the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Acute Care EHR
|
Post-acute Care EHR
|
TruBridge, Rycan, and Other Outsourcing
|
Total
|
Balance as of December 31, 2015
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Goodwill acquired
|
97,095
|
|
57,570
|
|
13,784
|
|
168,449
|
|
Balance as of December 31, 2016
|
$
|
97,095
|
|
$
|
57,570
|
|
$
|
13,784
|
|
$
|
168,449
|
|
13. LONG-TERM DEBT
There was no long-term debt at December 31, 2015. Long-term debt was comprised of the following at
December 31, 2016
:
|
|
|
|
|
(In thousands)
|
December 31, 2016
|
Term loan facility
|
$
|
121,875
|
|
Revolving credit facility
|
33,000
|
|
Capital lease obligation
|
861
|
|
Debt obligations
|
155,736
|
|
Less: debt issuance costs
|
(2,930
|
)
|
Debt obligation, net
|
152,806
|
|
Less: current portion
|
(5,817
|
)
|
Long-term debt
|
$
|
146,989
|
|
As of
December 31, 2016
, the carrying value of debt approximates the fair value due to the variable interest rate.
Credit Agreement
In conjunction with our acquisition of HHI on January 8, 2016, we entered into a syndicated credit agreement on the same date (the "Credit Agreement"), with Regions Bank ("Regions") serving as administrative agent, which provided for a
$125,000,000
term loan facility (the "Term Loan Facility") and a
$50,000,000
revolving credit facility ("Revolving Credit Facility"). The cash portion of the purchase price for HHI was partially funded by the
$125,000,000
Term Loan Facility and
$25,000,000
borrowed under the Revolving Credit Facility.
The Term Loan Facility bears interest at a rate per annum equal to an applicable margin plus (1) the Adjusted LIBOR rate for the relevant interest period, (2) an alternate base rate determined by reference to the greatest of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant interest period plus one half of one percent per annum and (c) the one-month LIBOR rate plus
one
percent per annum, or (3) a combination of (1) and (2). Interest on the outstanding principal of the Term Loan Facility is payable on the last day of each month, in the case of each base rate loan, and on the last day of each interest period (but no less frequently than every three months), in the case of LIBOR loans. Principal payments are due on the last day of each fiscal quarter beginning March 31, 2016, with the remainder due at maturity on January 8, 2021 (the "Maturity Date"). Anticipated annual future maturities of the Term Loan Facility, Revolving Credit Facility, and capital lease obligation are as follows as of
December 31, 2016
:
|
|
|
|
|
(In thousands)
|
|
2017
|
$
|
6,546
|
|
2018
|
9,690
|
|
2019
|
12,750
|
|
2020
|
15,625
|
|
2021
|
111,125
|
|
Thereafter
|
—
|
|
|
$
|
155,736
|
|
Borrowings under the Revolving Credit Facility bear interest at a rate similar to that of the Term Loan Facility, with interest payment dates similar to that of the Term Loan Facility. The Revolving Credit Facility includes a
$5 million
swingline sublimit, with swingline loans bearing interest at the alternate base rate plus the applicable margin. Any principal outstanding under the Revolving Credit Facility is due and payable on the Maturity Date.
The Term Loan Facility and amounts borrowed under the Revolving Credit Facility are secured pursuant to a Pledge and Security Agreement, dated January 8, 2016, among the parties identified as Obligors therein and Regions, as collateral agent (the “Security Agreement”), on a first priority basis by a security interest in substantially all of the tangible and intangible assets (subject to certain exceptions) of the Company and certain subsidiaries of the Company, as guarantors (collectively, the “Subsidiary Guarantors”), including certain registered intellectual property and the capital stock of certain
of the Company’s direct and indirect subsidiaries. Our obligations under the Credit Agreement are also guaranteed by the Subsidiary Guarantors.
The Credit Agreement provides incremental facility capacity of
$50 million
, subject to certain conditions. The Credit Agreement includes a number of restrictive covenants that, among other things and in each case subject to certain exceptions and baskets, impose operating and financial restrictions on the Company and the Subsidiary Guarantors, including the ability to incur additional debt; incur liens and encumbrances; make certain restricted payments, including paying dividends on its equity securities or payments to redeem, repurchase or retire its equity securities; enter into certain restrictive agreements; make investments, loans and acquisitions; merge or consolidate with any other entity; dispose of assets; enter into sale and leaseback transactions; engage in transactions with its affiliates; and materially alter the business it conducts. In addition, the Company is required to comply with a minimum fixed charge coverage ratio throughout the duration of the Credit Agreement and a maximum consolidated leverage ratio. The Credit Agreement also contains customary representations and warranties, affirmative covenants and events of default.
The Credit Agreement requires the Company to mandatorily prepay the Term Loan Facility and amounts borrowed under the Revolving Credit Facility with (i)
100%
of net cash proceeds from certain sales and dispositions, subject to certain reinvestment rights, (ii)
100%
of net cash proceeds from certain issuances or incurrences of additional debt, (iii)
50%
of net cash proceeds from certain issuances or sales of equity securities, subject to a step down to
0%
if the Company’s consolidated leverage ratio is no greater than
2.50
:1.0, and (iv) beginning with the fiscal year ending December 31, 2016,
50%
of excess cash flow (minus certain specified other payments), subject to a step down to
0%
of excess cash flow if the Company’s consolidated leverage ratio is no greater than
2.50
:1.0. The Company is permitted to voluntarily prepay the Term Loan Facility and amounts borrowed under the Revolving Credit Facility at any time without penalty, subject to customary “breakage” costs with respect to prepayments of LIBOR rate loans made on a day other than the last day of any applicable interest period. As of
December 31, 2016
, we believe that we were in compliance with all debt covenants contained in the Credit Agreement.
14. BENEFIT PLANS
In January 1994, the Company adopted the CPSI 401(k) Retirement Plan that covers all eligible employees of the Company who have completed one year of service. The plan allows eligible employees to contribute up to
60%
of their pre-tax earnings up to the statutory limit prescribed by the Internal Revenue Service. The Company matches a discretionary amount determined by the Board of Directors. The Company contributed approximately
$2.8 million
,
$2.2 million
, and
$2.2 million
to the plan for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
The Company provides certain health and medical benefits to eligible employees, their spouses and dependents pursuant to a benefit plan funded by the Company. Each participating employee contributes to the Company’s costs associated with such benefit plan. The Company’s obligation to fund this benefit plan and pay for these benefits is limited through the Company’s purchase of an insurance policy from a third-party insurer. The amount established as a reserve is intended to recognize the Company’s estimated obligations with respect to its payment of claims and claims incurred but not yet reported under the benefit plan. Management believes that the recorded liability for medical self-insurance at
December 31, 2016
and
2015
is adequate to cover the losses and claims incurred, but these reserves are based on estimates and the amount ultimately paid may be more or less than such estimates.
15. OPERATING LEASES
The Company leased office space during 2016 in various locations in Alabama, Louisiana, Pennsylvania, Minnesota, Colorado, Tennessee, and Mississippi. These leases have terms expiring from
2016
through
2024
but do contain optional extension terms.
The future minimum lease payments payable under these operating leases subsequent to
December 31, 2016
are as follows:
|
|
|
|
|
(In thousands)
|
|
2017
|
$
|
1,988
|
|
2018
|
1,749
|
|
2019
|
991
|
|
2020
|
466
|
|
2021
|
396
|
|
Thereafter
|
761
|
|
|
$
|
6,351
|
|
Total rent expense for the years ended
December 31, 2016
,
2015
, and
2014
was
$2.7 million
,
$1.0 million
,
$0.9 million
, respectively.
16. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. Management does not believe it is reasonably possible that such matters will have a material adverse effect on the Company’s financial statements.
17. FAIR VALUE
FASB Codification topic,
Fair Value Measurements and Disclosures,
establishes a framework for measuring fair value and expands financial statement disclosures about fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The Codification topic does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. The Codification topic requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The Company did not have available-for-sale securities at
December 31, 2016
. The accrued contingent consideration depicted below 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. The Company did not have a contingent consideration liability at December 31, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2016 Using
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Carrying
|
|
Active Markets for
|
|
Significant Other
|
|
Significant
|
|
Amount at
|
|
Identical Assets
|
|
Observable Inputs
|
|
Unobservable Inputs
|
(In thousands)
|
12/31/2016
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Description
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
1,120
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,120
|
|
Total
|
$
|
1,120
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,120
|
|
The fair values of the Company’s available-for-sale securities are based on matrix pricing for the year ended December 31, 2015, which uses observable market-based inputs (such as benchmark yields) in addition to quoted prices in active markets to derive fair values. As a result, these inputs are classified as Level 2 within the fair value hierarchy. We generally apply fair value techniques on a non-recurring basis associated with (1) valuing potential impairment loss related to financing receivables accounted for pursuant to Codification topic,
Leases
, and (2) valuing potential impairment loss related to long-
lived assets accounted for pursuant to Codification topic,
Property, Plant and Equipment
, when events or circumstances indicate a possible impairment.
The following table summarizes the carrying amounts and fair values of certain assets at December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2015 Using
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Carrying
|
|
Active Markets for
|
|
Significant Other
|
|
Significant
|
|
Amount at
|
|
Identical Assets
|
|
Observable Inputs
|
|
Unobservable Inputs
|
(In thousands)
|
12/31/2015
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Description
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
Short-term investments (money market funds and accrued income)
|
$
|
1,269
|
|
|
$
|
—
|
|
|
$
|
1,269
|
|
|
$
|
—
|
|
Mortgage backed securities
|
55
|
|
|
—
|
|
|
55
|
|
|
—
|
|
Certificates of deposit
|
1,993
|
|
|
—
|
|
|
1,993
|
|
|
—
|
|
Obligations of U.S. Treasury, U.S. government corporations and agencies
|
1,557
|
|
|
—
|
|
|
1,557
|
|
|
—
|
|
Corporate debt securities
|
5,950
|
|
|
—
|
|
|
5,950
|
|
|
—
|
|
Total available-for-sale securities
|
$
|
10,824
|
|
|
$
|
—
|
|
|
$
|
10,824
|
|
|
$
|
—
|
|
The carrying amount of other financial instruments reported in the consolidated balance sheets for current assets and current liabilities approximates their fair values because of the short-term nature of these instruments.
18. SEGMENT REPORTING
In connection with our acquisition of HHI, we re-evaluated our methodology for allocating revenues and cost of sales and chose to allocate these items to three operating segments which better align with the reporting structure utilized by our chief operating decision makers ("CODM") in the management of resource allocation and performance assessment. Our Chief Executive Officer and Chief Growth Officer are the Company's CODM. Effective for our first quarter of 2016, we revised our reportable segments. Prior to this change, we used one reportable segment.
We now utilize three operating segments, "Acute Care EHR", "Post-acute Care EHR" and "TruBridge, Rycan, and Other Outsourcing", based on our three distinct business units with unique market dynamics and opportunities. Revenues and cost of sales are primarily derived from the provision of services and sales of our proprietary software, and our CODM assesses the performance of these three segments at the gross profit level. Operating expenses and items such as interest, income tax, capital expenditures and total assets are managed at a consolidated level and thus are not included in our operating segment disclosures. Accounting policies for each of the reportable segments are the same as those used on a consolidated basis.
The following table presents a summary of the revenues and gross profits of our three operating segments for the year ended December 31, 2016, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
2016
|
|
2015
|
|
2014
|
Revenues:
|
|
|
|
|
|
Acute Care EHR
|
$
|
160,836
|
|
|
$
|
118,385
|
|
|
$
|
148,652
|
|
Post-acute Care EHR
|
29,058
|
|
|
—
|
|
|
—
|
|
TruBridge, Rycan, and Other Outsourcing
|
77,378
|
|
|
63,789
|
|
|
56,090
|
|
Total revenues
|
267,272
|
|
|
182,174
|
|
|
204,742
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
Acute Care EHR
|
75,225
|
|
|
52,500
|
|
|
59,079
|
|
Post-acute Care EHR
|
11,362
|
|
|
—
|
|
|
—
|
|
TruBridge, Rycan, and Other Outsourcing
|
42,671
|
|
|
35,216
|
|
|
31,716
|
|
Total cost of sales
|
129,258
|
|
|
87,716
|
|
|
90,795
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
Acute Care EHR
|
85,611
|
|
|
65,885
|
|
|
89,573
|
|
Post-acute Care EHR
|
17,696
|
|
|
—
|
|
|
—
|
|
TruBridge, Rycan, and Other Outsourcing
|
34,707
|
|
|
28,573
|
|
|
24,374
|
|
Total gross profit
|
138,014
|
|
|
94,458
|
|
|
113,947
|
|
|
|
|
|
|
|
Corporate operating expenses
|
(123,639
|
)
|
|
(69,372
|
)
|
|
(64,360
|
)
|
Other income (loss)
|
220
|
|
|
405
|
|
|
152
|
|
Interest expense
|
(6,609
|
)
|
|
—
|
|
|
—
|
|
Income (loss) before taxes
|
$
|
7,986
|
|
|
$
|
25,491
|
|
|
$
|
49,739
|
|
19. SUBSEQUENT EVENTS
Declaration of Dividends
On
February 9, 2017
, the Company announced a dividend for the first quarter of 2017 in the amount of
$0.25
per share. The dividend was paid on
March 10, 2017
to stockholders of record as of the close of business on
February 23, 2017
.
20. QUARTERLY FINANCIAL STATEMENTS (UNAUDITED)
The following table presents a summary of our results of operations for our eight most recent quarters ended
December 31, 2016
. The information for each of these quarters is unaudited and has been prepared on a basis consistent with the audited financial statements. This information includes all adjustments, consisting only of normal recurring adjustments, we consider necessary for fair presentation of this information when read in conjunction with the audited financial statements and related notes. Our operating results have varied on a quarterly basis and may fluctuate significantly in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except for per share data)
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
Sales revenues
|
$
|
69,643
|
|
|
$
|
68,415
|
|
|
$
|
64,663
|
|
|
$
|
64,551
|
|
Gross profit
|
36,253
|
|
|
35,135
|
|
|
32,951
|
|
|
33,675
|
|
Operating income
|
766
|
|
|
5,263
|
|
|
4,244
|
|
|
4,102
|
|
Net income
|
(1,663
|
)
|
|
1,996
|
|
|
1,599
|
|
|
2,001
|
|
Net income per share
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.13
|
)
|
|
$
|
0.15
|
|
|
$
|
0.12
|
|
|
$
|
0.15
|
|
Diluted
|
(0.13
|
)
|
|
0.15
|
|
|
0.12
|
|
|
0.15
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
Sales revenues
|
$
|
46,240
|
|
|
$
|
47,086
|
|
|
$
|
44,617
|
|
|
$
|
44,231
|
|
Gross profit
|
24,446
|
|
|
24,715
|
|
|
22,727
|
|
|
22,570
|
|
Operating income
|
7,834
|
|
|
8,386
|
|
|
4,261
|
|
|
4,605
|
|
Net income
|
5,508
|
|
|
5,903
|
|
|
3,539
|
|
|
3,393
|
|
Net income per share
|
|
|
|
|
|
|
|
Basic
|
$
|
0.49
|
|
|
$
|
0.52
|
|
|
$
|
0.31
|
|
|
$
|
0.30
|
|
Diluted
|
0.49
|
|
|
0.52
|
|
|
0.31
|
|
|
0.30
|
|
SCHEDULE II
COMPUTER PROGRAMS AND SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
|
Balance at
beginning of
period
|
|
Additions
charged to cost
and expenses (1)
|
|
Deductions (2)
|
|
Balance at end
of period
|
Allowance for doubtful accounts deducted from accounts receivable in the balance sheet
|
2014
|
|
$
|
1,125
|
|
|
$
|
931
|
|
|
$
|
(803
|
)
|
|
$
|
1,253
|
|
|
2015
|
|
$
|
1,253
|
|
|
$
|
674
|
|
|
$
|
(711
|
)
|
|
$
|
1,216
|
|
|
2016
|
|
$
|
1,216
|
|
|
$
|
497
|
|
|
$
|
657
|
|
|
$
|
2,370
|
|
|
|
(1)
|
Adjustments to allowance for change in estimates.
|
|
|
(2)
|
Uncollectible accounts written off, net of recoveries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
|
Balance at
beginning of
period
|
|
Additions
charged to cost
and expenses (1)
|
|
Deductions (2)
|
|
Balance at end
of period
|
Allowance for credit losses deducted from financing receivables in the balance sheet
|
2014
|
|
$
|
1,365
|
|
|
$
|
(349
|
)
|
|
$
|
(15
|
)
|
|
$
|
1,001
|
|
|
2015
|
|
$
|
1,001
|
|
|
$
|
236
|
|
|
$
|
(583
|
)
|
|
$
|
654
|
|
|
2016
|
|
$
|
654
|
|
|
$
|
1,762
|
|
|
$
|
(218
|
)
|
|
$
|
2,198
|
|
|
|
(1)
|
Adjustments to allowance for change in estimates.
|
|
|
(2)
|
Uncollectible accounts written off, net of recoveries.
|