Computer Programs and Systems, Inc.
Q4 2016 Earnings Call Transcript

Published: 10 Feb 2017

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the CPSI Fourth Quarter and Year End 2016 Earnings Conference Call. During today's conference call, all participants will start in a listen-only mode. Later, we'll conduct a question-and-answer session. A quick reminder, today's conference is being recorded, it's Thursday, February 9, 2017. It is now my pleasure to introduce Boyd Douglas, President and Chief Executive Officer, CPSI. Please go ahead, sir.

[John Boyd Douglas:]

Thank you, David. 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 day 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 will be Matt Chambless, our Chief Financial Officer; Chris Fowler, our Chief Operating Officer; and David Dye, our Chief Growth Officer. At the conclusion of our prepared comments, we will be available to take any questions that you may have. 2016 was the year of real change for CPSI that has had a positive impact for us. The manifestation of new and future opportunities that we are now executing against has been a welcome challenge for us. Our now expanded breadth of solutions has allowed us to broaden how we view our addressable target market. No longer are we confined to small and rural hospitals, but we now have the ability to consider small and rural communities as our market. Keeping quality healthcare local is central in our drive to build healthier and more vital communities. With that in mind, CPSI, a community healthcare solutions company, has a path to grow that extends beyond information technology. We are increasingly proud of the progress made in leveraging our expanded resources across product, sales and marketing in a focused and aligned approach that not only benefit us from an operational perspective but, most importantly, has had a positive impact on the client experience. Continued investment and focus in these areas will help us to drive long-term value for this broader market and is grounded in our commitment to deliver quality product, support and services that truly meet the needs of our clients well into the future. In January, we announced the launch of the CPSI Rural ACO Program. This innovative approach is intended for those hospitals and providers that are ready to proactively manage the health of their communities through value-based care. We believe, through this program, we will find opportunity to create new solutions and services aligned with our client success in value-based care. Chris Fowler will be speaking more about this in a bit, but in a short, this CPSI Rural ACO Program has spurred another level of opportunity for CPSI and identified a need that we can address in collaboration with Caravan Health. The community healthcare market has begun to respond positively to our new strength, position and reaffirmed commitment to their success. Our year ended with 38 system sales of our traditional inpatient EHR systems. There was a dramatic pickup in contracts signed during the second half of the year. To that end, we experienced a 53% increase in systems sold during the second half of the year as compared to the first and we expect this momentum to continue into 2017. Sales associated with our TruBridge services and with our Rycan RCM product continue to grow across our client base. Add-on sales such as these, which involve ongoing client collaboration and communications, signify an increased level of client engagement. In our post-acute business, American HealthTech, we had 76 net new bookings for 2016. In addition, 155 new facilities joined the AHT family as a result of acquisitions by parent customers. We continue to be pleased with client retention levels across our family of companies, most notably within the Healthland and Evident base, which naturally had a greater risk this past year due to the normal levels of fear, uncertainty and doubt that were expected following the Healthland acquisition. Healthland client retention remains at a healthy 96% and Evident continues to enjoy a 97% retention rate. It would be foolish to believe or insinuate that everything is perfect in terms of client engagement and satisfaction. There is no such euphoria in our complex industry and there is always room for improvement. The client experience will always be a very integrated and important element of our business strategy. Throughout the year, we implemented a very high-touch communication strategy with the goal of building consistent, transparent, two-way communication channels with our clients. A few examples of our efforts in 2016 include on-site visits to help our clients better leverage their system to its fullest capabilities through hands-on training in their own work setting. Multiple small events, including seven summer executive summits, where we shared our product vision and strategy, and also quarterly calls with these leaders from each client base. We created a new role across our companies whose job it is to ensure that each client support and communication needs are met. And we launched client product advisory councils that provide current and future product input to ensure that we're meeting their most critical needs. The direct outcome of our efforts are seen in our retention rates, as well as in the number of clients that have renewed their commitment to us through a multi-year extended contract or by choosing to stay within our family of companies after actively participating in a system selection process. With ongoing input from our clients, our product development efforts have become more efficient and integrated across platforms. Integration between our post-acute and acute EHR platforms is progressing nicely, with the most recent point of integration being lab and radiology orders, which is live and available now. There's also have been meaningful progress made toward our overlay solutions, including a new patient portal, as well as business analytics and a dashboard solution that we plan to have available at our upcoming user conference in May, where we will host clients from our family of companies. Our first release of the dashboard will incorporate the clinical quality measures required for macro reporting as well as those that will help our ACO members proactively manage their performance related to improving the health of their community. Before I hand the call over to Matt, I would like to make a few comments about our 2016 operational and financial performance. While we are not satisfied with last year's financial results, there were a number of firsts and complexities that came with the acquisition of Healthland and its affiliates. With this year now behind us, momentum building, and our business now integrated on all fronts, we expect all metrics to improve throughout 2017 with a good start to that end already in the fourth quarter of 2016. With that, I'll turn the call over to Matt.

[Matt J. Chambless:]

Thanks, Boyd, and good afternoon, everyone. As we mentioned in the press release this afternoon, fourth quarter showed a continuation of the story that emerged during the third quarter, one of stabilized financial position, cash flows and profitability. All three of these positive outcomes are underscored by our sizable and stable recurring revenue base, which now sits at nearly $216.5 million for 2016 or roughly 81% of total annual revenues. The stability of that recurring revenue base is largely thanks to our impressive customer retention rates that Boyd highlighted earlier. Narrowing in on the fourth quarter, this stable recurring revenue base from the EHR side of our business partially offset some of the outsized attrition we saw in TruBridge that was mostly related to a single customer, allowing recurring revenues to remain relatively flat from $54.4 million in the third quarter to $54 million in the fourth quarter. We'll look through the details on the P&L in a few moments, but the theme for this quarter was our ability to flex our operating leverage to achieve improved overall gross margins, allowing us to make modest investments in product development without negatively impacting our profitability measures. However, some of those efforts were undone by surprises on the OpEx front, most notably in bad debt and health claims cost, which kept us from being able to fully translate the improved overall gross margins and the gains in adjusted EBITDA and EPS. Despite the OpEx surprises, we were able to achieve sequential growth in both GAAP and non-GAAP EPS, albeit aided by improved effective tax rates. Adjusted EBITDA saw further headwinds due to the timing of NOL utilization, as NOLs are consumed throughout the year and we had effectively reached the IRS limitation on NOL utilization by the end of the third quarter. Without a doubt, the most exciting development in the fourth quarter were our record bookings of $30.6 million with bookings in both system sales and support and business management, consulting and managed IT services coming in at their highest amount since we began reporting this measure. Of the $24.3 million in system sales and support bookings, roughly $2.2 million are included in our fourth quarter revenues. $14.3 million represents non-subscription sales that should trickle into revenue over the next 12 months with an average lag between booking and install of five to six months. $6.3 million represents EHR subscription revenue to be recorded over a weighted average period of five years, with a start date within the next 12 months and, similar to our non-subscription sales, an average lag between booking and install of five to six months. $1.4 million represents annual recurring Rycan revenue to be recorded over a one-year period starting in the next four to six months. Our record $6.4 million of bookings from business management, consulting and managed IT services is mostly made up of recurring TruBridge revenue to be recorded over a one-year period starting in the next four to six months. Installations of our Thrive financial and patient accounting system remained flat from the third quarter with five such installations taking place in each quarter. However, we continue to see variability in licensing mix as three out of five third quarter installs were under a cloud or subscription model, whereas only one of five installations during the fourth quarter were under a cloud or subscription model. The variability we've seen in licensing mix is best viewed by looking at our total population of new Thrive installs for all of 2016. For the full year, new Thrive installations totaled 21, with five being under a cloud or subscription model. However, the first half of the year saw a subscription mix of only one out of 11, whereas the back half of the year saw a subscription mix of four out of 10. Comparatively, eight out of 2015's 16 new Thrive installations were under a subscription model. While we continue to monitor demand dynamics for different licensing models, the variability in our revenues and profitability caused by swings in licensing mix continues to be a challenge. At this time, we expect to install our Thrive financial and patient accounting systems in five new client facilities in the first quarter of 2017, one of which is expected to be installed in a cloud environment. On the Healthland front, we have one net new install and one migration from Classic to Centriq in the fourth quarter, with one net new install expected for the first quarter of 2017. Our employee head count as of December 31 was roughly 2,035, an increase of 45 from the end of the third quarter, that's mostly related to our continued expansion of head count at TruBridge. Speaking now to system sales and support revenues, revenues were essentially flat sequentially, as the beneficial shift in license mix on new Thrive installs mentioned earlier was largely muted by a decrease in average contract size and a further decline in Evident add-on sales, which declined $400,000 from roughly $5.6 million in the third quarter to $5.2 million in the fourth. Revenue from the Healthland entities decreased from $20.6 million in the third quarter to $20.3 million in the fourth, as the same challenging industry dynamics leading to declining add-on sales in our legacy business are impacting this portion of our P&L as well. These same dynamics impacting add-on sales resulted in a year-over-year decline in quarterly revenues from our legacy operations of $1 million or 4%. On the cost side, the continued impact of planned synergies and improvements and other fulfillment costs resulted in improved system sales and support margins, increasing from 54% in the third quarter to 57% in the fourth. Year-over-year, CPSI legacy margins improved from 56% to 58%, with the biggest factor being the lowered mix of low margin hardware sales. Our business management, consulting and managed IT services revenues have seen impressive growth year-over-year, but fourth quarter revenues were unfortunately unable to rebound from a subpar third quarter, experiencing a $400,000 or 2.2% sequential decline due to the outsized attrition that I mentioned previously. Specifically, the scheduled departure of a single customer within our population of accounts receivable management services contributed $0.5 million decrease in quarterly revenues by itself. To put this in a bit of context, this customer was one of roughly 76 ARM's customers, but accounted for nearly 8% of ARM's revenues during the third quarter. On a positive note, we continue to see momentum behind our medical coding service offering, which saw a $100,000 increase that represented an 8% improvement from the third quarter. Despite the lack of overall growth this quarter, our business management, consulting and managed IT services revenue is still up 7% versus the fourth quarter of 2015 and 9% year-to-date versus last year. The associated margins decreased sequentially from 42.5% during the third quarter to 39% in the fourth, as declining revenues were met with increasing payroll cost, as bookings growth in the back half of 2016 points to necessary investments in human capital now to stay in front of anticipated volume increases. Year-over-year margins are down from 41.5% in the fourth quarter of last year, as the dampened revenues for the fourth quarter 2016 were outpaced by capacity-driven investments over the trailing 12 months. However, we continue to view these compressed margins as temporary issues, as strong bookings point toward revenue growth that should translate into margin improvement in 2017. Product development cost increased sequentially by roughly $0.5 million or 5.5%, as we continue to expand our consolidated development team to ensure we leverage our unique position in the market with increased integration between our acute and post-acute care EHR solutions. Year-over-year, product development costs are up $5.3 million, an increase that's mostly attributable to incremental cost associated with Healthland technologies. Our sales and marketing costs were essentially flat versus the third quarter and up $2.4 million or 54% year-over-year with Healthland entities contributing $1.8 million, while CPSI legacy operations saw a nearly $600,000, a 13.5% increase, as the expanded pipeline has resulted in increased travel costs and an expansion of our sales and marketing team. General and administrative costs increased $0.5 million sequentially, primarily as high health claims costs and increased bad debt resulting from a couple of hospital closures more than offset gains from increased vacation utilization and a sequential decline in costs related to our national user group conferences. Year-over-year, G&A costs were up $1.3 million or 13%, as the bad debt surprise in the fourth quarter of 2016 coupled with the incremental impact of the Healthland acquisition eclipsed the $2.9 million decrease in transaction costs. Amortization expense associated with our acquisition-related intangibles, which was new to the company beginning in the first quarter of this year, remained flat from the third quarter. Interest expense, which was also new to the company beginning in the first quarter, also remained relatively flat. On the tax front, our effective tax rate decreased to 17% from the third quarter's 38%, mostly due to a beneficial change in assumed effective state tax rates and resulting write-down of deferred tax liabilities. Year-over-year, our effective tax rate decreased from 27.4% in the fourth quarter of 2015, with 2015's rate being well below our long-term expectation of 35% due to the timing of GAAP benefits from R&D tax credits. With 2016 now in the rearview mirror, our attention is sharply focused on 2017 performance. We see reasonable room to grow 2016's recurring revenues of $216.5 million and non-recurring revenue seems poised for growth with a loaded 2017 Thrive new system installation schedule that already has scheduled non-recurring Thrive new system installation revenue that equals all of 2016's non-recurring Thrive new system install revenue. While we won't be issuing top line or bottom line guidance for 2017, we see revenue growth in the cards, which should translate into improved profitability and cash flows. And, with that, I'll now turn things over to Chris Fowler, our Chief Operating Officer.

[Christopher L. Fowler:]

Thank you, Matt, and good afternoon, everyone. I will take the next few minutes to give additional insight around the CPSI Rural ACO Program and our new remote pharmaceutical services offerings. As Boyd made reference to in his opening remarks, we are committed to improving the health and vitality of the communities we serve. Broadening our addressable market from rural hospitals to the entire community has allowed us to think differently about how we can create value beyond the healthcare IT solutions we deliver to our family of companies. Rural hospitals have traditionally been the beacon of small communities, powering the local economic engine as the largest employer and providing access to healthcare when needed. With the changing landscape around healthcare reimbursement, the emphasis on quality of care and the need to reduce the cost of care, the role of the rural hospital is also transforming. Keeping healthcare local in the community is a necessary component to ensure they can thrive and support the lifestyle that 60 million rural Americans count on. The difference that so many rural hospitals and providers need to evolve to is centered on community outreach, and not just treating the sick when they are admitted to the hospital. The challenge and risk in this transition is the need to create new revenue from care provided outside of their traditional inpatient care setting. Considering the threat that small communities face of a tertiary system acquiring their hospital if they can't maintain financial health, you can start to understand the latent pressure many of these communities are under. No one has a crystal ball to determine how the repeal and replacement of the Affordable Care Act may change our healthcare model, but consensus among those closer to it all believe that value-based care is here to stay. Accountable care organizations are a reliable path to value-based care for rural hospitals and their providers. In talking with our customers, many want to make the transition toward a value-based care model by participating in ACO, but they are met with myriad of obstacles, including limited resources, daunting administrative work, development of new workflow, and simply fear of the unknown. We have chosen to partner with Caravan Health to launch the CPSI Rural ACO Program because they have a very successful and impressive track record of having assembled 23 ACOs, comprised of more than 200 community hospitals and their providers. Their shared savings and quality scores have outperformed those of their urban counterparts. Since 2015, ACOs under the support of Caravan Health have achieved shared savings that is 257% above the national average and quality scores above 97%. The strategy is simple

[David A. Dye:]

Thanks, Chris. Boyd, Matt and Chris have covered a lot this afternoon. Therefore, my comments are brief and we'll get to your questions. As we've stated on previous earnings calls, our inpatient EHR pipeline picked up significantly in early 2016. Our fourth quarter Evident bookings were a result of the successful execution of a portion of that pipeline. Importantly, the pipeline continued to grow throughout 2016. And as such, we entered 2017 confident that we will continue to deliver solid bookings via competitive EHR wins in the first quarter and throughout the year. Our competitive position is strong, hospitals are increasingly receptive to purchasing a fully integrated product that exist now in hundreds of facilities from a company that delivers the functionality promised on budget and within the committed timeframe. And with our increased investment in product development focused primarily on physician utilization, business intelligence and analytics, hospitals are recognizing that Evident is the right partner now and for their future. Obviously, we are thrilled as well with the TruBridge and Rycan bookings for the fourth quarter, which combined came in at $7.8 million. We expect this trend to continue in 2017 and, as such, look forward to TruBridge resuming the impressive overall growth we experienced prior to the second half of 2016. And, David, please now open the call for questions.

[Operator:]

Thank you. The first question is coming from the line of Mohan Naidu from Oppenheimer. You may now proceed.

[Mohan Naidu:]

Thanks for taking my questions. I guess, congratulations on the Q4 deal flow here, I think that's very good. Boyd or David, maybe whoever wants to take this, what drove that strong conversion in the quarter? And any details around, are there any upcoming deadlines that clients are looking at or any other drivers that is pushing them to do that?

[David A. Dye:]

Not in particular, Mohan. I really think it's a result of the sales cycle. We started talking positively about the pipeline at the beginning of 2016. It's typically a 9 to 12 month sales cycle. That's consistent with what we experienced and said in the past and I think that that really began to flush out. There were more decisions – our win rate was very high in the fourth quarter, but there were more overall decisions in the fourth quarter. So I think that had more to do with anything else. You could make an argument with stage three lending in 2018 as that may have driven it a little bit, I think that could potentially be accurate, but I think it really is just a – I think as more and more providers begin to use the technology and the dissatisfaction levels rise with those that maybe made investment decision to get to MU for a lesser price point than you would with CPSI or one of the core vendors in the space that as those frustrations mount in those community hospitals, that's I would say more than anything what's driving hospitals to buy CPSI Evident at this point.

[Mohan Naidu:]

Okay. Is it fair to say that the 16 deals that you signed in the quarter were all replacement deals, meaning they are replacing an existing product?

[David A. Dye:]

Yes.

[Mohan Naidu:]

Are you seeing any strength in any particular vendor base?

[David A. Dye:]

In terms of competitive replacements?

[Mohan Naidu:]

Yes.

[David A. Dye:]

Yeah. I would say the majority are the vendors that I just described. There are some replacements of traditional competitors that are feeling the need to upgrade to a newer version or are worried that their current vendor may be getting out the market in the near future based on some things that they're hearing, but the majority of it is the replacement of the smaller vendors.

[Mohan Naidu:]

Okay. One last question for me. Matt, you made some comments around the implementation schedule for 2017, which is already on par with 2016. Does it mean that you already have 21 clients lined up to be implemented for 2017 and you still have more room if you sign up more deals in the first half of the year to implement?

[Matt J. Chambless:]

Yeah. So, that commentary was – so Mohan, as of today, there are roughly, we'll call it, 20 installations scheduled already for 2017 and the revenue that's expected to be recognized for 2017 from those installations that are already scheduled. So these are contracts that – the contract is already signed in the door, talks with customers have already resulted in slotting on a schedule. The revenue for 2017 for those already scheduled installations matches what we did for all of 2016.

[Mohan Naidu:]

Okay. All right. How many of these 20 installations are going to be licensed versus SaaS, I guess, if you can provide that split?

[Matt J. Chambless:]

I think as of right now, that split is probably around 25%. So, again, we continue to see variability on where that number is shaking up. But 25% is a good ballpark number right now.

[Mohan Naidu:]

A 25% SaaS?

[Matt J. Chambless:]

That's correct. Sorry. 25% SaaS cloud subscription model.

[Mohan Naidu:]

All right. Thank you very much for taking my question.

[David A. Dye:]

Thank you, Mohan.

[Operator:]

Up next we have Rob Munnings from William Blair & Company. You may now proceed.

[Robert Munnings:]

Hey, guys. Thanks for taking the questions. Is upper teens to 20% growth for TruBridge in 2017 still the right expectation and how should we think about your ability to expand margins there? Thanks.

[Matt J. Chambless:]

Yeah. So I think the way to think about revenue growth for TruBridge next year is we do think that there's room for modest improvement over what we're able to grow in 2016. But above that, we're going to not be much more specific than that. We do think we can outpace the growth rates that we achieved during 2016, though. And then when it comes to margin improvement, naturally we have to invest in capacity a good bit in advance of when these big ARMs deals that have been signing for the last few quarters and contributing to the large bookings numbers that we've been showing. We have to invest in that human capital in advance. And so, when that revenue starts coming in the door and the capacity is already there, we should see margin improvement get somewhere back up just north of 40%.

[Christopher L. Fowler:]

And Rob, this is Chris. Just a little additional color to that. Some of the specific service lines, for example, medical coding, which is still relatively new for us, as we continue to scale that product, we're seeing opportunities for additional margin increase there. So that'll be something that we just continue to manage the operational efficiency and look at that line by line.

[Robert Munnings:]

Okay. Thank you. That's very helpful. And then, I guess, I've another TruBridge question. You've previously mentioned the wind down of ICD-10 and MU2 is having large impacts on the TruBridge revenue. I'm not sure if there's another major event on the horizon. But do you have a set of catalysts in mind besides cross-sell opportunities that will help increase demand for TruBridge? Thanks.

[Christopher L. Fowler:]

Yeah. Sure, Rob. This is Chris again. So, Boyd made reference to and I did as well in the prepared comments around our BI dashboard, which we're opening up with in May. We're very excited about the opportunity of what that'll be able to bring to our customers. And then also with the ACO offering through Caravan, between the two setting up some offerings for our population health management services.

[Robert Munnings:]

Okay. Great. Thank you. That's all for me.

[David A. Dye:]

Thank you, Rob.

[Operator:]

Next question from the line of Gene Mannheimer from Dougherty & Company. Please go ahead.

[Gene Mannheimer:]

Thanks. Good afternoon. And good job on the bookings in the quarter. Chris, you had mentioned the new BI product launching in May. Can you share with us any of your early expectations for how the reception will be for that product in your client base, i.e., what percent might adopt in year one, et cetera, and how that might translate?

[Christopher L. Fowler:]

Gene, without giving too many specifics on numbers there, we're very excited about how this is going to be received. This is a project we've been working on in earnest over the last couple of years, but this past – in 2016, we made a decision to partner with Logi, which I think we had a press release for last year, which has given us a completely different direction and speed in which we're able to deliver the solution. And also, it's embedded in the EHR. So I think when you put those things together, it's going to take flight pretty quickly. And just like anything else, it's hard for us to gauge what that interest will be. I think we'll have a better look at that into the third quarter.

[Gene Mannheimer:]

All right. Thank you for that. And just on that bookings number, is this the new normal, the $30 million or so, or was there maybe some disproportionate decision-making in Q4 that wouldn't necessarily repeat as we navigate through this year? How do we think about seasonality to bookings and whether this is the new run rate?

[David A. Dye:]

Yeah, Gene. That remains to be seen. I think in my brief commentary, I tried to paint a picture that the pipeline that we did not in any way, shape or form exhaust the pipeline in the fourth quarter. They continued to grow throughout 2016 and it continues to grow with new opportunities every week. So, do I feel like we'll continue to deliver strong bookings quarters into 2017? Yes, I absolutely do. Is there work left to be done to make sure that happens? Absolutely. But we feel good about where we are.

[Gene Mannheimer:]

All right. Good. Thank you, David. And one more. This trend of hospital closures that impacted the quarter and you called out. Is that likely to rear its head again this year? And as your client base has increased with the Healthland deal, how can you get a pulse on your install base as to the trends that you see there with consolidation and bankruptcies, et cetera?

[Matt J. Chambless:]

Gene, this is Matt here. When it comes to the hospital closures, I think it's worth pointing out that with this specific – one of the specific customers have led to our increased bad debt in the fourth quarter. We were a little bit overexposed on because of a large financing receivable that's been hanging out there since 2012. So the vast majority of our customer base doesn't pose nearly as much of a risk to us. When it comes to closures and the impact, we've seen closures. We really haven't seen the hospital closure rate increase really at all this year, at least noticeably this year versus previous years. And aside from these minor outlier or these significant outliers like this, bad debt expenses have been pretty stable and where it's been for the last five years. So it's unfortunate that we kind of have an outlier based on the exposure for specifically one specific customer on this. But we don't see that as a trend that's going to be problematic long term.

[Gene Mannheimer:]

Terrific. Thank you.

[David A. Dye:]

Thanks, Gene.

[Operator:]

We have a question from the line of Sean McBride from Robert W. Baird. You may now proceed.

[Sean P. McBride:]

Hi. Sean McBride on for Matt Gillmor. Thanks for taking the question. So I wanted to talk about cash flow. So, in the first half of the year, cash flow was relatively weak and it rebounded nicely in the second half. How should we think about what a more normalized cash flow from operations is, considering the above $50 million run rate EBITDA?

[Matt J. Chambless:]

Yeah, Sean, this is Matt. I think the cash flow that we've seen in the last two quarters is more indicative of kind of what new normal is. And now naturally as we can grow revenue during 2017, we should see that improve modestly. But the past two quarters are more indicative of what we expect. The first half of the year, the big story on cash flows for the first six months of 2016 was really a, call it, a ballpark $10 million investment in working capital related to the acquisition. And that was a one-time event and with that clearly in the rearview mirror, the past six months are much more indicative of what we expect going forward.

[Sean P. McBride:]

Great. And then, could you comment on how many Healthland Classic hospitals are still left out there that may need to upgrade to Centriq or Thrive?

[David A. Dye:]

Yeah. On the acute care side of that, Rob (sic) [Sean], there's about mid-20s. We still have approximately 50-plus HealthTech hospitals that are running Classic that don't have necessarily need to upgrade for MU3, and we have not announced a support sunset of Classic at this time.

[Sean P. McBride:]

Thanks for taking the questions.

[David A. Dye:]

Thanks, Sean.

[Operator:]

All right. Gentlemen, there appear to be no further questions registered at the moment. I'll turn the call back over to you.

[John Boyd Douglas:]

Great. I just want to thank everyone for their time today and being on the call. And I hope everyone has a great Friday and great weekend. Thank you.

[Operator:]

Ladies and gentlemen, that will conclude the conference call for today, and thank you for your participation and you may now disconnect your lines. Thank you.