Computer Programs and Systems, Inc.
Q1 2016 Earnings Call Transcript

Published: 5 May 2016

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the CPSI First Quarter 2016 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded today, Wednesday, May 4, 2016. It is now my pleasure to turn the conference over to Boyd Douglas, President and Chief Executive Officer. Please begin, sir.

[John Boyd Douglas:]

Thank you, France. Good afternoon, everyone, and thank you for joining us. During this conference call, we may make statements regarding future operating plans, expectations, and performance that constitute forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. We caution you that any such forward-looking statements only reflect management expectations and predictions based upon currently available information and are not guarantees of future results or performance. Actual results might differ materially from those expressed or implied by such forward-looking statements as a result of known and unknown risks, uncertainties, and other factors, including those described in our public releases and reports filed with the Securities and Exchange Commission, including, but not limited to, our most recent Annual Report on Form 10-K. We also caution investors that the forward-looking information provided in this call represents our outlook only as of this date. And we undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call. Joining me on the call today is Matt Chambless, Chief Financial Officer; Chris Fowler, Chief Operating Officer; and David Dye, our Chief Growth Officer. At the conclusion of our prepared comments, we'll be available to take any questions you may have. Before I begin, I want everyone to know that I'm traveling today and I'm not physically with Matt, Chris and David. I'd like to apologize in advance for any difficulties that we encounter with me being in a remote location. I want to start my comments with an update on the integration of Healthland and its subsidiaries into our company. I'm pleased to tell you that we're ahead of the schedule with our efforts. Our teams working on this project have put in a great deal of work to date, and we are seeing the tangible results of their efforts. While this project touches virtually every aspect of our operations, there are a couple of areas of success that I'd like to mention specifically. We've been able to generate a marked increase in cost synergies, substantially more than we had initially forecasted. As a result, we were able to meet our EBITDA guidance for the quarter, despite the absence of a weeks' worth of revenue. As we've referenced in our earnings release, we expect this increase in cost synergies to continue to manifest itself through the remainder of 2016 and into 2017 as well. Secondly, this week, we've announced changes in our organizational structure, starting with new additions to our management team that have been months in the making. During this process and in fact through all aspects of the integration project, we've worked very diligently to objectively evaluate people, processes and solutions across all of our companies with the single objective in mind of creating a structure and an organization that will best position us to take full advantage of all of the opportunities our combined companies offer. With that in mind, we have created a centralized corporate structure for the areas of product development, sales and marketing. These centralized functions will support our three business units that provide acute care, post-acute care and RCM consulting and managed IT solutions. We're confident that utilizing a centralized structure for these key areas will allow us to more effectively support the scale of the combined solutions we now offer and continue to drive both revenue and cost synergies. These three areas on addition to those areas of our organization that were centralized immediately after the acquisition closed, which were our financial and human resources departments and information technology services. I do believe that it's worth pointing out that in recognition of the strong customer relationships all our companies have developed over the years and the fact that the customer service experience is of utmost importance to us, that client support will continue to be operated individually in each of the three business units. That will of course develop and share best practices where appropriate to leverage their collective strengths. While Chris Fowler will be providing more insight into these organizational changes in his comments, I do want to take this opportunity to personally thank Chris Bauleke for his efforts to-date both internally and with top line client base as we've gone through this transition process. Chris had initially agreed to stay on with us for 12 months to assist in these efforts, but with the integration project ahead of schedule, Chris is leaving us at the end of this month to pursue other opportunities. Again, his leadership and support, both pre and post acquisition have been invaluable to us. On the sales side, while we were just put in place our new centralized sales structure, we're already seeing positive results from our sales teams' efforts to date. We're experiencing tangible growth in our pipelines, especially in acute care EHR area. In addition, in the quarter we signed competitive replacement contracts out of our major competitors and those who aspire to be. Because of this increased activity and our confidence for the remainder of the year, I'm happy to report that for the first time and over 24 months a new class of implementation personnel will begin with Evident on Monday, May 9. In our post acute EHR business with American HealthTech, we could not feel better about the potential there, including our expansion into the senior care living sector through our partnership with Medtelligent. And as expected, we are seeing confirmation already there is a significant market for TruBridge business management and consulting services within the Centriq and Classic client basis and we expect to see increased revenue synergies from these efforts throughout the remainder of the year. In summary, the sales outlook across our businesses are more than encouraging; and David will have more to share with you in his remarks. Before I turn it over to Matt for his review, I would like to offer a few final thoughts on our position of the market in general. We've established ourselves as the leader in the community healthcare IT space based on an extended history, spanning more three decades of solid performance and an unwavering commitment to those who provide healthcare in those towns and communities. During that time, we've supported those organizations and providers by being a dedicated partner, who has helped them navigate the many changes that have occurred in healthcare, enabling them to remain viable despite having pure resources, financial, technical and human, available to them than their larger urban counterparts. Starting as far back as the transition from cost-based reimbursement to DRG-based perspective payment in the 1980s, through our more recent success in helping them accomplish MU success at a rate that no one thought was achievable for these hospitals. And at many other instances in between, we've made sure our system, support and services have been designed, built and maintained specifically to meet the unique needs of this market. Meanwhile, during that same period, numerous other companies have come and gone in this space for a variety of reasons or, until recently, have ignored it altogether. My point is, our position of leadership in the community healthcare IT is based on more than the 1,300 plus hospitals and providers who use our solutions and services. It is also based on the understanding, the knowledge, the expertise and the insight that comes with having them completely dedicated to this market since the inception of our company. We've demonstrated time and again we can successfully meet the needs of community healthcare organizations and providers through any transitional period in healthcare delivery, large or small. As the new wave of change is approaching with value-based care, we're well prepared to support our customers through these changes. We're in a very unique position to be an important partner in reshaping how healthcare is delivered in small and rural communities across the country. And not just in the hospital, but in how care is coordinated through the clinic, the local nursing home, the patient's home, with tertiary hospitals or anywhere healthcare has performed for these patients. These very positive changes bring new opportunities for our company, and we're completely confident in our ability to execute at a high level to ensure our continued growth and success. Certainly, the competitive landscape is changing as well, but we could not be more excited about what the future holds for us. With that, I'll turn over the call to Matt.

[Matt J. Chambless:]

Thanks, Boyd, and good afternoon, everyone. As you saw in the press release, the impact that the acquisition had on both temporary and permanent deal attrition for system sales within the Healthland entities was a little more than we originally anticipated, which resulted in consolidated revenues coming in slightly below where we had expected. This impact was one of the bigger unknowns hanging over our original 2016 revenue forecast. And hindsight being what it is, we feel we now have better clarity into that impact with the end result being the reduced annual revenue guidance you saw in the press release. It's worth mentioning that with the deal closing on January 8, there is roughly $1.5 million of Healthland revenue that didn't come over in consolidation. There is a convenience accounting convention that may have allowed us to start the clock on combining results January 1, but we ultimately decided not to go that route, which put a further damper on the quarter's revenues. Despite the disappointing news on the top line, we're excited to say that we're still on plan to achieve our targets for adjusted EBITDA and non-GAAP EPS as the first quarter of 2016 uncovered significantly more opportunities to create efficiencies throughout the organization; and we now project the 2016 synergy impact to be in excess of $14 million, with an exit run rate of $17 million, providing further momentum as we enter 2017. As we sat here one quarter ago, these numbers were looking more like $10 million for 2016 and $13 million for exit run rate. So our initial optimism that those amounts may have been conservative seems to be proving out. With regards to adjusted EBITDA, you may recall from January's call that we estimated the 2016 benefit from utilizing acquired NOLs to be in the $5 million range. That annual number hasn't changed, but it's worth noting that the high transaction cost we saw in the first quarter of 2016 put us in a pre-tax loss position for the quarter, which severely limited our ability to utilize those NOLs. With most of the transaction costs behind us, the rest of the year should see us return to a taxable income position, allowing increased NOL utilization for the remainder of the year. Before we dive into the details of the quarterly results, there are few items within the press release that we'd like to draw some attention to. First, this quarter, we began presenting bookings with the table in the press release providing historical bookings for the four quarters of 2015 as a bit of historical context. Although the table provides some information on our bookings methodology, you should note that we do not include any support or other service renewals in our bookings numbers. So these all represent brand new deals. Secondly, the Healthland transaction required us to revisit how we tell our story through the income state, which resulted in some presentation changes. We're now presenting a single line item for system sales and support revenues and costs, as this is more representative of how we view our EHR business, especially considering the impact of the LikeMind collaborative support model and our unique practice of leveraging our installation personnel and providing support services. We've also separately carved out our product development costs, which we historically included in cost of sales; and we believe this provides more transparency into our investment in that area and provides for greater comparability with our peers. The final change we've made to our income statement has been in reclassifying certain sales related costs that were formally included in cost of business, management, consulting and managed IT services to what we believe is the more logical place in sales and marketing expenses. We realized that these changes made comparability difficult using our previously reported amounts. So we've included a table in the press release that recast quarterly results for each quarterly period in both 2014 and 2015. Now on to some non-financial metrics. In the first quarter of 2016, we installed the Thrive financial and patient accounting systems in seven hospitals, none of which were installed in the cloud environment, but one of which was installed under a subscription arrangement. We installed our core clinical departmental applications at four facilities, four hospitals has implemented Thrive point-of-care, eight installed our Thrive Emergency Department Information System, and four customers went live with physician applications. Thrive provider EHR was installed in nine facilities. At this time, we expect to install Thrive financial and patient accounting systems in seven new client facilities in the second quarter of 2016. We anticipate seven installations of our core clinical departmental applications, six installations of Thrive point-of-care, five installations of our Thrive Emergency Department Information System, and seven installations of physician applications. Thrive provider EHR is expected to be installed in 10 facilities. On the Healthland front, we had one net new install and three migrations from Classic to Centriq in the first quarter of 2016, but no net new installs and three migrations expected for the second quarter. Our employee head count as of March 31 was 1,996, an increase of 525 from the fourth quarter of 2015 that's mostly attributable to the added personnel from the Healthland acquisition. Total systems sales and support revenues from the Healthland entities were $22.3 million for the quarter, driving the $24 million sequential and $21.3 million year-over-year increase in total system sales and support revenues. Within CPSI legacy operations, base support fees remained relatively flat incrementally, with system sales increasing $1.6 million or 16% as we saw increased new customer installs aided by lower mix of cloud installs. CPSI legacy operation saw year-over-year increases in base support fees of $0.7 million or 4%, while system sales decreased $1.7 million or 13%, mostly driven by decreased add-on revenues resulting from lowered emergency department and Thrive provider EMR installs. On the cost side, margins decreased to 54% from 56% at the fourth quarter 2015, and 57% during the first quarter of 2015, primarily due to slightly lowered margins within the Healthland revenue streams, which had standalone margins of 50%. CPSI legacy margins improved slightly to 58% from 56% in the fourth quarter of 2015 and 57% in the first quarter of 2015, as our efforts to manage head count over the trailing 12 months benefited our margins, but a higher mix of hardware revenues and increased third-party software cost were a drag on further margin improvement. Our business management, consulting and managed IT services revenues experienced a 9% sequential increase and a 14% increase year-over-year. The largest contributors to these gains have been our accounts receivable management services which experienced nice gains as the service offering continues to expand upstream in to hospitals posing larger revenue opportunities than our historical averages and medical coding services as the added complexity within the coding environment since the effective date of ICD-10 has resulted in increased demand as expected. Overall, margins here improved sequentially to 45% in the first quarter of 2016 versus 42% in the fourth quarter 2015 as our efforts to expand personnel to accommodate demand are beginning to show positive results. Year-over-year these margins have held relatively steady. You'll notice that our balance sheet now contains a considerable amount of acquisition-related intangibles as a result of the Healthland transaction with the related amortization being new to our income statement during 2016. Product development cost have increased $3.7 million sequentially and $3.6 million year-over-year due to the incremental cost associated with Healthland Technologies, but CPSI legacy spend on product development remain relatively flat. Our sales and marketing cost increased $2.3 million or 52% sequentially and $2.1 million or 47% year-over-year, with Healthland entities contributing $1.7 million to these increases. CPSI legacy operations saw a $0.50 million or 12% sequential increase due mostly to increased travel in the timing of payroll tax expenses, while year-over-year saw $400,000 or 9% increase as commissions increased on higher new system sales volumes. General and administrative cost increased $9.2 million sequentially and $10.8 million year-over-year with Healthland expenses excluding transaction cost making up approximately $2 million of this increase. The remaining sequential increase is due to increased transaction related cost as the deal closed in January, increased 401(k) employer match cost, due to the frontloaded nature of our matching program and increased bad debt expense, due primarily to two customers. The remaining year-over-year increase is mostly due to $7.6 million of transaction cost that weren't there in the first quarter of 2015 and the aforementioned bad debt increase. The debt used to finance the Healthland transaction resulted in a $1.5 million of interest expense for the quarter, which is obviously new to CPSI beginning in 2016. Lastly on the tax front, our effective tax rate of negative 33% was certainly abnormal as we had $200,000 of tax expense despite a pre-tax loss position as certain of the transaction cost we've incurred are likely to be considered facilitative cost that are not eligible for tax deduction. And with that, I'll now turn things over to Chris Fowler, our Chief Operating Officer.

[Christopher L. Fowler:]

Thanks, Matt and good afternoon to everyone on the call. It's been a busy, but very productive quarter, and as Boyd mentioned, we are ahead of our integration process and have started to see early returns on our efforts. Our approach from the beginning of the integration has been to leverage the best of each to build an even stronger foundation for future growth, while not losing sight of the customer experience being our number one priority. Because we have more than 35 years of experience in rural and community healthcare, we understand the importance of customer relationships. Having the infrastructure and experience to support community and rural healthcare better than any other vendor, coupled with our joint solutions across the acute and post-acute settings, we are a natural choice for community healthcare organizations. Soon after the close of the acquisition in January, we saw the need to centralize some key functional areas across our company, including product development, sales and marketing. The centralized structure will support our new scale and drive continued efficiencies and call synergies, while allowing us to maintain the support and service needed within our three distinct customer bases in acute care, post-acute care, and the business IT and consulting services. As an outcome of this decision to centralize these key functions, we're also very excited about the addition of some new members to our management team. For product development, John Peterson, the Senior Vice President of Development has taken on an expanded role on our executive team to lead the efforts of our consolidated product development. John joins our combined team from Healthland and has a very extensive background in leading large scale system development projects and teams, including both IBM and McAfee. Robert Cruz who has been with CPSI since 2003 has also accepted the role of Chief Technology Officer to ensure that we are leveraging new technologies that make sense for our customers well into the future without being disruptive. This consolidation and focus on our development efforts will enable us to deliver on our committed roadmaps, as well as improve predictability, usability, and overall quality across our entire solution set. In the last several years with the creation of TruBridge, we had multiple sales teams competing for the same budget dollars of our customers. Now with the addition of more solutions and services, this challenge was only going to increase, and it didn't make sense to compete against ourselves. Therefore, the sales organization has been centralized with a four-region model and senior sales leadership over each regional team. This model will ensure that we are looking at the clients' needs holistically and putting the right set of solutions in front of them that we have to offer from across the entire set of CPSI offerings. Along with this, we also streamline how our current customers interact with us by making sure our account managers are responsible for very manageable number of customers armed with the ability to upsell all CPSI offerings. Here again, this allows us to put the right solutions in front of our existing customers. As we compete with new and more aggressive competitors, it is important that we have a very relevant presence and brand in the market that not only leverages our strength, but sets us apart with meaningful differentiation from the competition. Our new and centralized marketing function will be led by Tracey Schroeder as our Chief Marketing Officer who joined Healthland in 2007. Marketing will be integrated into our business operations to help align our corporate and product strategy with our day-to-day execution. While it made practical sense to centralize several of our functional units, maintaining support, services and product management in each business unit will allow us to accommodate for their unique customer experience and business needs, ultimately supporting our customer retention strategy. While these changes may seem aggressive, they show our continued commitment to deliver a combined set of solutions that address the unique needs of small and rural community better than anyone else, across care settings, to help build healthy communities, coordinate care both in and out of our community and to improve their financial operations. These, along with a number of other changes across our organization, has helped us to not only meet our planned call synergies that Matt spoke to earlier, but to exceed them in the second half of 2016. Before I turn the call over to David, I would like to speak for a second on TruBridge and Rycan and our continued optimism in our services organization. David will be speaking in detail about the cross-sell opportunities, but we're very excited about the impact that the expansive set of Rycan RCM offerings has had on our accounts receivable management services. We continue to identify new uses for Rycan RCM tools in our central business office services offerings, creating even more efficiencies and subsequently a higher value offering. We're also excited to announce our plans of opening a call center in Marshall, Minnesota, which is the home of Rycan, later this year. This represents our fifth call center for TruBridge. And based on the success of our Frackville, Pennsylvania office has bolstered our belief that our early out service is greatly enhanced by regional operation. With that, I will turn the call over to David.

[David A. Dye:]

Thanks, Chris. I'd like to begin by talking about the early progress we've made since the Healthland acquisition closed on January 8, regarding the potential revenue synergies of the newly combined companies. In particular, during Q1, TruBridge sold $500,000 of revenue cycle management services to Healthland hospital clients. And while we're certainly pleased with this, we expect the pace of the TruBridge cross-selling to increase over the course of 2016. In fact, in the month of April alone, we booked an additional $500,000 of TruBridge business into the Healthland customer base. Additionally, in the first quarter, we successfully closed deals involving TruBridge sales into the AHT customer base Rycan into the AHT base; Rycan to Evident customers; and we're currently working on several potential sales of AHT's post-acute EHR product into the Evident base. Again, we expect to see this trend to accelerate for the remainder of the year and for us to see the direct benefit of this cross-selling in our top line in the back half of 2016. The first quarter was another successful quarter for new client sales of Thrive EHR. We signed a nine Thrive contracts, and now have 22 hospitals either already installed or slotted for install in 2016. Over the last five months, we have executed agreements that include incumbent vendor replacements of all of our primary competitors in the community hospital market. And most importantly, our new system sales pipeline, in terms of both the quality and the quantity of the prospects is now at a level we haven't seen since the hike of Stage 1 MU in late 2010, early 2011. The number of prospects in our pipeline, which consist of hospitals actively demoing systems for an EHR replacement, is up 35% sequentially and 160% year-over-year. With this increase in demand in the replacement EHR market and expected continued growth within TruBridge resulting from significant cross-selling opportunities in CPSI's complementary family of companies, we're excited about our potential for growth over the remainder of 2016 and into 2017 and beyond. France, if you could please now open the call for questions.

[Operator:]

Thank you. Our first question is from the line of Jeff Garro with William Blair & Co. Please go ahead.

[Jeff R. Garro:]

Yeah. Good afternoon, guys, and thanks for taking the questions. Maybe a few kind of bookkeeping type questions to start. Curious on the exact Healthland revenue contribution in the quarter, I think I heard $22.4 million for the software piece, but I don't think I heard the contribution for the business management services portion on the business?

[Matt J. Chambless:]

Yeah. On the business management services side, I mean, it was just south of $300,000 I think.

[Jeff R. Garro:]

And which business would that be exactly, is that all of the Rycan business or part of it?

[Matt J. Chambless:]

Well, so right now, the way we're reflecting Rycan revenues is within system sales and services or system sales and support; and the reason being that most of those revenues are subscription revenues for an actual software product, as opposed to a business management solution or service.

[Jeff R. Garro:]

Understood. And then maybe a little bit more broadly on the Healthland contribution, we heard about the tracking ahead of schedule on the synergies, but curious in terms of where you guys are tracking with respect to the initial $120 million revenue target and $30 million in adjusted EBITDA including those synergies?

[Matt J. Chambless:]

Well, we think we're still on target with the $30 million adjusted EBITDA with the synergies. Naturally missing a little bit on the top line for the first quarter and with the deal slips that resulted from the transaction, that's what gave rise to our adjusted guidance. I believe the math on the adjusted guidance was maybe a pull down of maybe $10 million, and you can by and large attribute that all to a reforecast of what we think Healthland is going to do.

[Jeff R. Garro:]

Fair enough. Fair enough. And then, last one for me. Just wanted to ask about the bookings number. The bookings number for this quarter and then the recasted numbers that you provide as well, can you just lay out whether those include Healthland or not and what to expect going forward?

[Matt J. Chambless:]

Yeah. So the first quarter of 2016 bookings do reflect bookings for Healthland, but we did not pro forma any of the prior period. So what you see for the fourth quarter 2015 and prior to that, those are CPSI legacy.

[Jeff R. Garro:]

Got it. And any chance we can get that legacy CPSI bookings number for Q1 2016?

[Matt J. Chambless:]

Yeah. Give me a couple of minutes and I can chop that out in a bit.

[Jeff R. Garro:]

Great. I'll hop back in the queue and wait for that. Thanks for taking the questions.

[Matt J. Chambless:]

Yeah.

[Operator:]

Our next question is from the line of Mohan Naidu from Oppenheimer. Please go ahead.

[Mohan Naidu:]

Thanks for taking my questions. Matt, maybe to follow up on that conversation there. The deal attrition you're talking about in Healthland, are these deals that just got pushed out or permanently lost?

[Matt J. Chambless:]

Well, first of all, I've dug up the number on the Healthland legacy or the CPSI legacy bookings for the first quarter that came in at $16.1 million. That includes the TruBridge amounts. With regards to the attrition that we saw in the first quarter, I mean, it's kind of a mix bag there. We certainly feel that some of those deals are just going to be temporary attrition in the sense that they may go back to RFP, in which case there is a chance for Evident to come back in and win and it'd be a net zero impact on the business. But, obviously, there is going to be some permanent slip if things go to RFP.

[Mohan Naidu:]

Okay. And on the additional cost synergies that you talked about, where is this coming from? I guess, where is the surprise addition to the cost synergies that you guys announced this for?

[Christopher L. Fowler:]

Mohan this is Chris, to answer that. So managing the budget as we watch the revenue slip from a services standpoint, we've managed that count there, so we've been able to gain some from that cost management on the services group in Healthland.

[Mohan Naidu:]

All right. Thanks, Chris. Maybe, one for you, Chris. You talked about the centralized support structure, I guess, centralized corporate structure. How are the sales teams positioned right now? Do you still have some of the Healthland sales teams selling Centriq?

[Christopher L. Fowler:]

Yeah. So Mohan, the way we went about doing that, instead of having a national TruBridge sales team, a national AHT sales team, a national Evident, national Healthland sales team, we reconsolidated and casted it out to where if you took one state, there was a group that was focused on that entire area and looked at it holistically to where we were putting in front of them the best opportunity for success. Instead of having multiple sales teams attacking one hospital, we've consolidated that into one function. So you may have one salesperson that would be managing both TruBridge and the EHR at the same time or opportunity at the same time.

[Mohan Naidu:]

Okay. Thanks, Chris. Boyd, one quick question for you. You talked about 23 hospitals in 2016. Are you seeing any change in the model that you are selling, whether it's a cloud-based or the percentage of collections model that you talked about last quarter?

[John Boyd Douglas:]

Certainly, there's more interest in that and that's partly responsible for the increase you're seeing there.

[Mohan Naidu:]

Okay. Can you give us a sense of what percentage of these 23 hospitals are coming in as a SaaS (34

[David A. Dye:]

Yeah. Mohan, this is David. It's approximately half.

[Mohan Naidu:]

Half of them, okay. Thank you so much.

[Operator:]

Our next question is from the line of Jamie Stockton with Wells Fargo. Please go ahead.

[Jamie J. Stockton:]

Hi. Yeah, thanks for taking my questions. I guess, maybe just as a follow-up to Mohan's question on the number of hospitals that you got slated to go live this year. And I don't know, David or Boyd who wants to take it. But you mentioned that the environment has not been as good or it has not been this good since kind of Meaningful Use hit. Is there some phenomenon that's going on out there that you're sensing that is driving a lot of activity or a lot of hospitals to look at replacing their incumbent vendor right now? Is this like ICD-10 is no longer a huge overhang and so the market is kind of unfreezing after that or is there something else going on?

[David A. Dye:]

Yeah, Jamie, I'll take that. I think it's a combination of two primary things. One is the pop-up vendors that came about as a result of – primarily as a result of MU, they still have implementations in place that have either not committed to Stage 3 or have just come out and said that they won't be Stage 3 compliant. That's a couple of hundred hospitals out there that are feeling the pinch to move towards a stable permanent solution from an EHR perspective. Certainly, I think, within that group of vendors, they haven't done what's necessary on the high end physician products to keep their docs happy and that's driving a lot of the unrest within those hospitals. So that's a high percentage of those that are looking. And then also I don't think it's any secret that there has been some abandonment of the – while there's certainly been some new entrants to more market from the top, there's been some that have traditionally been in our market for decades that have kind of left the market primarily talking about the MEDITECHs and the McKessons. Certainly, Siemens no longer exists with the Cerner acquisition there, and they seem to be more focused on either the for-profits or the specialty facilities or upgrading the larger end of their customer base to their current product. And so, at the low end of the market of their customers in the under-100 bed space, there is a feeling that they need to look towards a solution there. So I'd say it's a combination of those two things. It's more the former than the latter, but it's a combination of those two.

[Jamie J. Stockton:]

Okay. That's great. And then maybe just one quick one, Matt. It seems like you had a line in it in the press release, but there was actually an adjustment for a deferred revenue during the quarter for the Healthland acquisition. Was there really no deferred revenue adjustment? It seems like with these deals with purchase accounting, there almost always is.

[Matt J. Chambless:]

Yeah, there eventual will be. Jamie, there eventually will be some numbers flowing through there. Right now, our purchase accounting – our purchase price allocation right now sits in the preliminary spot and so we didn't want to take any benefit from an EBITDA standpoint for anything like that until we started flushing that through the P&L. So, with things be in preliminary where they are and it wasn't – it wouldn't have been a significant amount for the quarter, so we just had to let it stand instead of adjusting it later on.

[Jamie J. Stockton:]

Okay. That's great. Thanks, guys.

[Matt J. Chambless:]

Thanks, Jamie.

[Operator:]

Our next question is from the line of Sean Wieland with Piper Jaffray. Please go ahead.

[Sean W. Wieland:]

Hi, thanks. So, with the new bookings number that you're presenting, can you just tell us how that flows through the revenue line, how can we take that bookings number and help us model out future revenue? Hello.

[Matt J. Chambless:]

Yeah. Well, so the booking numbers we gave were corresponding to our revenue streams we presented on the face of the income statement. So, I guess, I'm not understanding.

[Sean W. Wieland:]

Revenue. Okay. Was that $22.9 million, was it all recognized in the quarter as revenue or is there anything going to backlog?

[Matt J. Chambless:]

Yeah. Some of that goes into backlog. I mean, I don't have the exact number, but, yeah, some of that's in backlog.

[Sean W. Wieland:]

Is there a backlog number that you can start talking about?

[Matt J. Chambless:]

Yeah. The backlog number, as it sits right now, looking at backlog, total backlog of $225.1 million right now for the 12-month period. Of that, $208.6 million is recurring; $16.4 million non-recurring.

[Sean W. Wieland:]

Okay. And what are you running through bookings? Are you running obviously software sales, are you running any support through bookings?

[Matt J. Chambless:]

Yeah. So what we do is whenever we sell a new deal – whenever we sell a new system sales arrangement, they always – if someone could mute, someone's in a loud environment.

[John Boyd Douglas:]

There we go.

[Matt J. Chambless:]

Yeah, there we go. So whenever we sell a new systems sales arrangement, they always include support; and so our bookings number for system sales and support include the annualized value of that support. So, let's say, we sell a new arrangement and support is generally a three-year to five-year term. The bookings number we've included only includes an annualized amount; it's not the entire three-year to five-year term. And as we said in our prepared comments, different companies handle renewals differently. We decided to exclude any renewals of support arrangements or business management services and similar type arrangements from our bookings.

[Sean W. Wieland:]

Okay. That's helpful to understand. And then one quick one on the attrition. Can you talk like how many hospitals was this?

[Christopher L. Fowler:]

Yes. Sean, it's approximately six to eight; and we haven't had any that we've actually lost. What's happened is, is you've had some hospitals that had committed to upgrade from Classic to Centriq that after the announcement or after the close of the deal, let's put on the brakes and see what Thrive has to offer in a couple of cases, take the whole thing to RFP and see what else is out there. So that's an unknown. As Matt said, we have the ability to capture all of that back in our revenue with Thrive implementations, or perhaps Centriq, but that remains to be seen.

[Matt J. Chambless:]

Yeah. And I think that second quarter...

[Sean W. Wieland:]

All right. Thanks...

[Matt J. Chambless:]

Sorry, Sean, I was just going to give some more color there about the Centriq side...

[Sean W. Wieland:]

Yeah, please do.

[Matt J. Chambless:]

I think something else to think about there is, they're willing to make sure that we were actually going to stand behind the fact that we're developing and investing in the Centriq, which we're backing that up as well. So I think we'll hopefully see some good news from that.

[Sean W. Wieland:]

Thank you very much.

[Matt J. Chambless:]

Thanks, Sean.

[Operator:]

Our next question is from the line of Sandy Draper from SunTrust. Please go ahead.

[Sandy Y. Draper:]

Thanks very much. And most of my questions have been asked, but maybe just coming to the questions about bookings and environment a little bit differently. David, you certainly sound pretty positive about what's going on in the marketplace and the comments of that hasn't been as good since the beginning of MU. But the bookings number just apples-to-apples for CPSI, lower than it was in any quarter last year. Is that due to just maybe some distraction from the deal, is that markets just started to pickup and so maybe we could look to future bookings acceleration just trying to (42

[David A. Dye:]

Yeah. That's a good question. I think we should definitely look to future. We have to execute from a sales standpoint. Now, I mean, the prospects are there, so now we have to deliver from a sales standpoint. One thing that did happen in particular in the first quarter that I didn't go into detail and I thought this question might come up is that the average sale price was very low of the nine that we got, because approximately six of them were smaller facilities that initially committed for just the financial accounting applications from a startup standpoint; and the rest, they expect to commit to the clinical applications down the road. So there was a smaller in terms of actual commitment in the contract, which is all we account. They've got price protection for the clinical apps, but the contract was only from a commitment standpoint for the financial and patient accounting application. So that's why the bookings number doesn't necessarily match up with the number of deals that we had in the quarter. But, yeah, certainly we had mentioned in the previous two calls and more aggressively in the last call that we felt the environment was picking up, but what's happened over the course of the last three months is even more meaningful.

[Sandy Y. Draper:]

Okay, great. Thanks.

[David A. Dye:]

Thanks, Sandy.

[Operator:]

Our next question is from the line of Tessa Romero with Leerink Partners. Please go ahead.

[Tessa Romero:]

Hi, this is Tessa in for David Morrison. Many of my questions have been answered, but we just did have one about the 35% increase in the EMR pipeline that you cite. Could you tell us a little bit more about that number?

[David A. Dye:]

Yeah. I think we've covered this to some degree already. But the largest percentage of it is those hospitals that have installed as their incumbent vendors, some of the smaller vendors that mainly came about as a result of stage one and the stage two MU, not the traditional players that have been around for decades or the more larger ones that we've seen a little bit more downstream rightly. We refer to them as vulnerable vendors because they don't have a large install base and they're not as well capitalized perhaps as some of us that have been around for a longtime. So that's the majority of the 35%. The rest of it is made up of some hospitals that have been on what we call the legacy products of some of the larger vendors that aren't as focused on the small end of the market as they have been in the past.

[Tessa Romero:]

Got it. That's really helpful. Thank you so much.

[David A. Dye:]

Thanks, Tessa.

[Operator:]

Our next question from the line of Gene Mannheimer from Topeka Capital. Please go ahead.

[Gene Mannheimer:]

Thanks, good afternoon. Just two quick ones. Just Dave on that backlog number, Chris $225 million, it was that of as of March 31 or as of January 8 when Healthland closed, and is that inclusive or non-inclusive of TruBridge? And then my other follow-up would be with respect to the revenue synergies that you called out Dave, and there you said they were accelerating. I'm just trying to get a feel for what they might look like for the full year? Is it right to take that $0.5 million and extrapolate that out or make some assumptions beyond that? Thanks.

[Matt J. Chambless:]

Hi, Gene, this is Matt. I'll take the backlog question, first. So the backlog number that we gave, the $225.1 million, that's as of March 31, so that's not as of the acquisition date, and it's inclusive of all of our subsidiary companies, including TruBridge.

[David A. Dye:]

Yeah. And then Gene for the second part of the question, I forgot what's the second question...

[Gene Mannheimer:]

The revenue synergies...

[David A. Dye:]

Yeah, the revenue synergies, yeah within – with TruBridge. Yeah, I mean my commentary was is that, we were surprised frankly that we were able to – the deal closed January 8 that we were able to sell $0.5 million worth of TruBridge into the Healthland base by March 31, and then even more fired up about the fact that we were able to do $0.5 million in TruBridge sales and in Healthland base in April alone. Can you extrapolate that for the rest of the year, I don't know. I certainly hope so and perhaps more, but that's what we're working on right now. I think we're just trying on this call to highlight the potential. That doesn't include, we haven't broken TruBridge much into or much at all into AHT yet. We've got a little bit of programming to do to integrate Rycan into the AHT product and so forth that we plan to do over the next several months to really increase that potential. And as I said, we've been working on AHT into the Evident base as well and we're working on some deals there, but we haven't cracked that one yet either in the last – it's only been three months. So, the potential is there. We just wanted to highlight the fact that we were able to do substantially more in terms of bookings of TruBridge into the Healthland base so far than we thought we'd be able to do and we have a lot of execution left to be able to have that number increase going forward that remains to be seen.

[Gene Mannheimer:]

Good stuff. Thank you.

[David A. Dye:]

I think Chris wants to add...

[Christopher L. Fowler:]

Hey, one other thing to that Gene when you think about it from operational side of the sales piece, we started out at the beginning of the year at post close day one and we had specific sales staff focused on selling TruBridge into the Healthland base, but it was a limited number of staff. We now have our entire sales organization consolidated around making sure that those accounts are reached right away, and so that we're taking full advantage of that and hopefully we'll see that opportunity come to pass here quickly. So, we'll hopefully see that accelerate as we go.

[Gene Mannheimer:]

Great. Thank you.

[David A. Dye:]

Thanks, Gene.

[Operator:]

Mr. Douglas, there are no further questions at this time. I'll turn the call back to you. You may continue with your presentation or closing remarks sir.

[John Boyd Douglas:]

Great. Thank you, France and I want to thank everyone for your interest in CPSI and being on the call today. And hope everyone enjoys the rest of the week. Thank you.

[Operator:]

Ladies and gentlemen, this does conclude the conference call for today. We thank you all for your participation today. Have a great day everyone.