TruBridge Inc (TBRG) 2016 Q4 法說會逐字稿

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. The leader will conduct a question and answer session. (Operator Instructions.)

A quick reminder, today's conference is being recorded. It is Thursday February 9, 2017. It is now my pleasure to introduce Boyd Douglas, president and chief executive officer, CPSI. Please go ahead, sir.

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 10K.

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 will be that Chambliss, our chief financial officer, Chris Fowler, 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 you may have.

2016 was a 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 expended breadth of solutions 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 essential in our drive to build healthier and more vital communities. With that in mind, CPSI, a community healthcare solutions company, has a path to growth 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 benefits 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 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 clients' success in value-based care. Chris Fowler will be speaking more about this in a bit, but in short, the CPSI Rural ACO program has scored 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 and 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 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 postacute business, American HealthTech, we have 76 net new bookings for 2016. In addition, 155 new facilities joined the [AFC] family as the result of acquisitions by current customers.

We continue to be complete 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's always room for improvement. The client experience will always be a very integrated an important element of our business strategy.

Throughout the year, we've implemented a very high touch communication strategy with the goal of building a 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 our 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 company, whose job it is to ensure that each client's support and communication needs are met. And we launched client product advisory councils that provide current and future product input to ensure we are meeting their most critical needs.

The direct outcome of our efforts we are seeing in our retention rates, as well as in the number of clients that have renewed their commitment to us through a multiyear 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 postacute 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 has also 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 (inaudible) 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 will turn the call over to Matt.

Thanks, Boyd, and good afternoon, everyone. As we mentioned in the press release this afternoon, the fourth quarter showed the 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, the 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 will look through the details in the P&L in a few minutes, but the theme for this quarter was our ability to flex our operating leverage to achieve overall growth 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 costs, which kept us from being able to fully translate the improved overall gross margins in the gains and 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'd effectively reach 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 amounts 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 5 months to 6 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 nonsubscription sales, an average lag between booking and install of five months to six months.

$1.4 million represents annual recurring Rycan revenue to be recorded over a one-year period starting in the next four months 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 months to six months.

Installations of our Thrive financial inpatient accounting system remain flat from the third quarter with five such installations taking place in each quarter. However, we continue to see variability in licensing mix, as 3 out of 5 third-quarter installs were under a cloud or subscription model, whereas only 1 of 5 installations during the fourth quarter were under a cloud or subscription model.

The variability we have 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 1 out of 11, whereas the back half of the year saw a subscription mix of 4 out of 10. Comparatively, 8 out of 16 new Thrive installations were under a subscription model. While we continue to monitor demand dynamics for different licensing models, the variability in a revenues and profitability caused by swings in licensing mix continues to be a challenge.

At this time, we expect to install our Thrive financial inpatient accounting systems and 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 new install and one migration from Classic to Centriq in the fourth quarter, with one of that new install expected in the first quarter of 2017. Our employee headcount as of December 31 was roughly 2035, an increase of 45 from the end of the third quarter. That is mostly related to our continued expansion of headcount at TruBridge.

Speaking now to system sales and support revenues, revenues were essentially flat sequentially as the beneficial shift in license mix on the new Thrive installs mentioned earlier was largely muted by a decrease in average contract size, and a further decline in add-on Evident 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 and the legacy business are impacting this portion of our P&Ls 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 plant 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 a 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 to a $500,000 decrease in quarterly revenues by itself. To put this in a bit of context, this customer was one of roughly 76 arms customers that accounted for nearly 8% of arms 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 revenues are 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 costs, as bookings growth in the back half of 2016 points due 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 of 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 towards revenue growth that should translate into margin improvement in 2017.

Product development costs increased sequentially by roughly $500,000 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 postacute care EHR solutions. Year-over-year product development costs were up $5.2 million, an increase that is mostly attributable to incremental costs 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 CSPI legacy operations saw a nearly $600,000 or 13.5% increase as expanded pipeline has resulted in increased travel costs and expansion of our sales and marketing team.

General administrative costs increased $500,000 sequentially, primarily as high health claims cost and increased bad debt resulting from a couple of hospital closures more than offset gains from increased vacation utilization, and a sequential decline in cost related to our national user group conferences.

Year-over-year G&A costs are up $1.3 million or 13%. But 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 at the beginning of the first quarter this year, remained flat from the third quarter. Interest expense, which was also new to the Company in the beginning of 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 to 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 nonrecurring revenues seems poised for growth with a loaded 2017 Thrive new system installation schedule, that already has scheduled nonrecurring Thrive new system installation revenue that equals all of 2016's nonrecurring 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 to improve profitability and cash flows. With that, I will now turn things over to Chris Fowler, our chief operating officer.

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 offering. 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 through our family of companies. Rural hospitals have traditionally been the beacon of small communities, powering a 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 for care, provided outside of their traditional inpatient care setting. Considering the threat that small communities face of a tertiary system acquiring their hospitals if they cannot maintain financial health, you can start to understand the weight and 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 reliable paths 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 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 2016, 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. Each participating community acts as their own ACO by improving the health of their attributed lives and lowered cost.

Their community results feed into a larger grouping of rural communities that create a pool of covered lives which meet the ACO requirements and make the economics of the program work. For example, one of the most successful ACOs working with Caravan Health includes hospitals from the state of Washington and Mississippi.

With cost savings exceeding $7 million, I point this out to illustrate that geographical proximity plays no part in this, and has often been a misconception. The number of covered lives, the work done to improve their health and the lowering the cost of the healthcare provided are the common denominators.

Working side-by-side with Caravan Health and the communities that join our ACO program will entail a best practice, highly engaged process that holds each community member accountable to their performance. At the same time, this experience will provide us invaluable insight and input needed for new product and services development that support the success of our communities practicing value-based care.

First and foremost will be the initial release of our business intelligence and dashboard products. The first release of these new products will be directly aligned with clinical quality measures and other ACO performance factors that need to be carefully managed by each community.

Based on early response and feedback to the launch of the CPSI Rural ACO program, we believe this type of innovative solution not only reinforces our position as a thought leader, but it will also fuel client retention and market share growth.

Which brings me to an important clarification. Rural hospitals and their providers do not need to be a client of the CPSI family of companies in order to participate in our ACO program. This approach strengthens our reach and ability to improve the healthcare and vitality of small and rural communities across the US.

Now switching gears to remote tele-pharmacy. Imagine yourself a parent or child being treated in your community hospital and the clinic staff needs assurance that they could administer a prescribed drug by your physician to ensure a quick road to recovery or better level of comfort. There are standard checks and balances in this process to safeguard against medication errors or interactions.

Integral to this patient safety-driven process, is a review of the prescribed medication by a pharmacist. However, unique to our community market is the common lack of pharmaceutical resources 24 hours a day and seven days a week. Making 24 hour remote pharmaceutical resources available via telehealth to our rural and community care settings is a much-needed offering that we are proud to bring to market.

In partnership with Pipeline Rx, we have been able to overcome the various restrictions encountered with state pharmacy boards and pharmacist accessibility. In addition to the pharmaceutical resources we now provide, we are also working with Pipeline Rx to ensure there is accurate, timely medical record updates and REHR, that reflect the care administered ensuring a smooth exchange of information between healthcare providers.

Considering the importance of delivering quality healthcare within the new world of value-based reimbursement models, we see this is another value add to the overall success of our clients well into the future.

The CPSI Rural ACO and the tele-pharmacy services are just two examples of how we at CPSI are driving collaboration, innovation and vision across our family of companies to ultimately improve the health and vitality of the communities we serve. We will continue to evaluate value added offerings that fall outside of traditional healthcare IT to bring practical solutions to meet the real needs of community health care.

With that, I will turn it over to David.

Thanks, Chris. Boyd, Matt and Chris have covered a lot this afternoon. Therefore, my comments are brief and we will get your questions.

As we have stated in 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 would 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 exists now in hundreds of facilities, from a company that delivers the functionality promised on budget and within the committed timeframe.

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 it look forward to TruBridge resuming the impressive overall growth we experienced prior to the second half of 2016.

David, please now open the call for questions.

Mohan Naidu; Oppenheimer & Co.

Thanks for taking my questions. Congratulations on Q4 (inaudible) here, I think that is very good. Boyd, or David, you may want to take this. What drove that strong conversion in the quarter? And if you have details around any upcoming deadlines that clients are looking at or any other drivers that is putting them to do that.

Not in particular, Mohan, I think it's a result of the sale cycle. We started talking positively about the pipeline in the beginning of 2016. It's typically a nine to about 12-month sale cycle, that is consistent what we've experienced and said in the past. I think that really began to flush out. There 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 it than anything else.

You could make in argument with stage III [lending] in 2018, that may have driven it a little bit, I think that could potentially be accurate. But I think it really is just -- I think as more and more providers begin to use the technology and the dissatisfaction levels rise with those that maybe made investment decisions to get to MU for a lesser price point than you would with CPSI or one of the core vendors in the space -- as the frustrations mount in those community hospitals, I would say more than anything that is driving the hospitals to buy CPSI and Evident at this point

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

Yes.

Are you seeing any strength in any particular vendor base?

You mean in terms of competitive replacements?

Yes.

Yes, I would say the majority are 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 their current vendor may be getting out of the market in the near future based on some things they are hearing. But the majority of it is the replacement of the smaller vendors.

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?

Yes, so that commentary was -- as of today, there are roughly, we will call it 20 installation scheduled already for 2017. The revenue that is expected to be recognized for 2017 from those installations that are already scheduled, so these are contracts, the contract is already signed, in the door, talks with customers already resulted in slotting in the schedule. The revenue for 2017 with those already scheduled installations matches what we did for all of 2016.

Okay. All right. How many of these 20 installations are going to be license versus SAS? If you can provide that split.

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

25% SAS.

That is correct. Sorry, 25% SAS, cloud, subscription model.

All right. thank you very much for taking my questions.

Robert Munnings; William Blair & Co.

Thank you 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.

I think the way to think about revenue growth for TruBridge next year is we do think there's room for modest improvement over what we were able to grow in 2016. But above that, we are not going to be much more specific than that. We do think we can outpace the growth rates that we achieved in 2016, though.

Then when it comes to margin improvement, naturally, we have to invest, we have to invest in capacity a good bit in advance of when these arms deals have been signing for the last few quarters and contributing to the large bookings numbers we are showing.

We have to invest in that human capital in advance. So when that revenue starts coming in the door, the capacity is already there, we should see margin improvement get somewhere back up just north of 40%.

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 are seeing opportunities for additional margin increase there. That will be something that we just continue to manage the operational efficiency and look at that line by line.

Okay, thank you. That is helpful. Then I guess I have another TruBridge question. You previously mentioned the wind down of ICD-10 and MU as 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 opportunity that will help increase demand for TruBridge? Thanks.

Sure, Rob, this is Chris again. Boyd made reference to it and I did as well in the prepared comments around our VI dashboard, which we are opening up with in May. We are very excited about what that will 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.

Okay, great, thank you. That's all for me.

Gene Mannheimer; Dougherty & Company.

Thanks, good afternoon. Good job on the bookings in the quarter. Chris, you mentioned the new VI 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, etc., and how that might translate?

Without giving too many specifics on numbers there we are very excited about how this is going to be received. This is a project we have been working on in earnest over the last couple of years. In 2016, we made a decision to partner with Logi, which I think we had a fresh release for last year, which has given us a completely different direction and speed in which we were able to deliver the solution. And also it is embedded in the EHR.

I think when you put those things together, it's going to take flight pretty quickly. Just like anything else, it is hard for us to gauge what that interest will be. I think we will have a better look at that end of third quarter

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

Yes, 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; it continued to grow throughout 2016. And it continues to grow with new opportunities every week. Do I feel like we will continue to deliver strong 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.

All right, good. Thank you, David. One more. This trend of hospital closures that impacted the quarter that you called out, is that likely to rear its head again this year? As your client base has increased with the health plan deal, how do you get a pulse on your installed bases as to the trends that you see there, consolidation and bankruptcies, etc.?

Hi, Gene, this is Matt here. When it comes to the hospital closures, I think it is worth pointing out with this specific, one of the specific customers that led to our increased bad debt in the fourth quarter, we were a little bit overexposed on because of a large financing receivable that had been hanging out there since 2012. So the vast majority of our customer base does not pose nearly as much of a risk to us.

When it comes to closures and the impact, we have 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. Aside from these minor outliers or these significant outliers like this, bad debt expense has been pretty stable and where it has been for the last five years. It is unfortunate that we had an outlier based on the exposure for one specific customer on this, but we do not see that is a trend that is going to be problematic long-term.

Terrific, thank you.

Sean McBride; Robert W. Baird & Co.

Hi, Sean McBride, I'm in for Matt Gillmore. Thanks for taking the question. I want to talk about cash flow. 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 about $50 million run rate EBITDA?

Yes, Sean, this is Matt. I think the cash flow that we have seen in the last two quarters is indicative of what the new normal is. 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 and cash flows for the first six months of 2016 was really, call it a ballpark $10 million investment of working capital related to the acquisition. That was a one-time event. With that clearly in the rearview mirror, the past six months are much more indicative of what we expect going forward.

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

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

Thanks for taking the question.

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

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

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