TruBridge Inc (TBRG) 2017 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the CPSI Third Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded on today's date, Thursday, November 2, 2017.

It is now my pleasure to turn the conference over to Boyd Douglas, President and CEO. Please go ahead, sir.

Thank you, Donnie. 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's 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 risk, 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 will be Matt Chambless, our 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.

Our third quarter concluded with solid results in revenue and bookings, putting the overall health of our business in a very good place as we head into the final quarter of 2017. Net new sales were led by another record bookings performance of $10.6 million for this quarter for our TruBridge consulting, IT services and RCM solutions. These TruBridge offerings continued to meet demand in our market and perform well as sales more than doubled year-over-year. In addition, the Rycan RCM product, BI dashboard and MU3 packages played a large part in our attainment of just over $19 million in add-on sales bookings.

Last quarter, we were cautious following the announcement of the MU3 delay by CMS as we cannot be certain of the impact this would have on our clients and their appetite to remain on schedule with the Meaningful Use program. We were pleased to share that not only has the majority of our clients opted to stay on track with their MU3 implementation schedule, but we've kept a decent pace with the sales of our MU3 package. At the end of the third quarter, we have closed out just over 60% of the expected MU3 opportunities, which is up from 40% last quarter.

With that said, another positive aspect of the third quarter, once again, as our healthy implementation schedule driven not only by MU3 installs remaining intact, but also by our net new system sales. David will provide more color regarding our sales performance this quarter and our strong pipeline. However, I will frame it up by sharing with you that our market position continues to resonate and gain traction as we close 10 new deals in the third quarter.

We're extremely pleased with the success we are experiencing in this acute-care replacement market as we see a steady number of community hospitals choosing our solutions over the competition. Not surprising, these net new wins are a mix of hospitals, choosing the CPSI family of solutions for the first time as well as hospitals that have returned after quickly realizing the grass is not always greener with another vendor that simply does not have the same breadth of experience, track record or fully integrated solution set that the 35 plus years in community health care has afforded us.

The advancement of technology will always be at the forefront of successful health care IT vendors. It is our philosophy that technology advancements should be balanced with market demand and with what the market can bear. Delivering solutions that allow buyers the flexibility to choose what best fits their unique situation is what customers want and is illustrated in the mix of our net new sales last quarter.

Approximately 80% of our net new deals in the third quarter were sold in our TruBridge hosted environments. This hosted solution allows us to provide relief to our resource constrained clients by managing their day-to-day IT needs. With our operation and sales on track, we have seen our revenue remain strong and shaping up to have a positive impact on the fourth quarter.

And now with the settling of our operations after the acquisition, we are dialing up our efforts in building future value across our family of companies. This resolution begins with the deleveraging of our debt through the recently announced amendment to our credit agreement and a change to our quarterly dividend policy. The amendment to our credit agreement was executed last month and is a milestone that ultimately brings us greater flexibility in the deployment of capital through covenant relief and better pricing.

In addition, after careful consideration, we have made strategic decision to adjust the quarterly dividend payout to $0.10 per share. This dividend adjustment will allow us to deliver on our commitment to regularly pay a quarterly dividend to our shareholders while protecting their investment with an eye to the future.

While we as a company continue to evolve and adjust accordingly to ensure our continued success, the dividend payout for our shareholders remains an important part of our overall capital allocation strategy. This change in dividend strategy will put CPSI on a sustainable path to achieving our target leverage of 2.5x in 2018. At that point in time, our capital allocation strategy may expand to include other more opportunistic uses of capital, such as further expanding R&D investment, share repurchases or tuck-in acquisitions.

Our new capital allocation strategy will allow us to increase our investment in the solutions across our family of companies. First and foremost, we will advance our new approach of developing once and sharing products across our acute, post-acute and ambulatory systems. Secondly, we are taking the necessary steps to work directly with end users, including providers across our family of companies, to ensure we protect the integrity of our function and feature-rich products that our customers have clearly indicated they value. And finally, we are aggressively preparing for growth opportunity in the post-acute market that we believe has yet to encounter the level of maturity as we have seen in the acute care space over the last 10 years, driven primarily by the government mandates and subsidies that originated with the ARRA.

With that, I will turn things over to Matt.

Thanks, Boyd, and good afternoon, everyone. We're certainly eager to dive into the details of what we feel was a fairly strong third quarter income statement, but it's probably worth spending a bit of time on capital allocation first as the solidifying of our strategy during the past 3 months marks a significant pivot point for CPSI. Boyd may have hinted at this a bit, but as we have an eye to the future, we place an ever increasing value on creating flexibility within our a capital structure to allow for greater discretion and capital allocation down the road. Creating that flexibility means placing a keen eye on our 2 biggest uses of the $22.5 million of free cash flow we've generated in the trailing 12 months, debt and dividend payments.

With regard to debt, which has used nearly $12 million of our free cash flow in the trailing 12 months. It's been obvious to everyone following our story that the covenant requirements in the previous credit agreement limited our flexibility and capital allocation decisions as we've been operating on relatively thin margins versus our leverage covenant. That, coupled with a further step down in maximum leverage at year-end and increased term loan amortization in 2018 motivated us to work with our terrific banking partners to create a credit arrangement that provides the flexibility we're looking for.

We were able to secure this flexibility through the recent amendment while at the same time, reducing our interest rates. We feel that the ability to execute such an amendment, which we forecast will pay for itself within 5 quarters of reaching leverage below 3x, is indicative of the confidence that our banking partners have in the stability of CPSI and the strength of our banking relationships.

Aside from the improved pricing and greater covenant flexibility, the other major win for CPSI with this credit agreement is the reset of the term loan amortization, which alleviates $3.5 million of cash for 2018, $5.9 million of cash for 2019 and $6.9 million of cash for 2020 versus the previous credit agreement.

While this amendment creates immediate flexibility, we are committed to enhancing that flexibility further by deleveraging to a target leverage of 2.5x in order to maximize the flexibility provided by the current credit agreement while creating adequate additional capacity for debt capital should the need arise.

To that end, we view deleveraging as synonymous with the flexibility we value so highly and our reformed dividend strategy is a direct result of our commitment to achieving that flexibility on an expedited timeframe.

As for the dividend, to which we've allocated $13.5 million of free cash flow during the trailing 12 months, we have clearly and consistently voiced our commitment to returning capital to our shareholders through the dividend. That commitment has not changed. The move last August to a variable dividend was a prudent move by our board considering the volatility injected into our earnings from movements in nonrecurring revenues. That policy has served us well as we've navigated through the internal and external noise of the past year, but the generous payout ratio is at odds with the value we place on creating flexibility within our capital structure. Fixing the dividend at $0.10 per share allows us to aggressively delever to our target leverage while at the same time, freeing up cash flow for reinvestment in our solutions and services and provides a sustainable dividend payout as we remain competitive with the solution financing we've been able to offer to our customers.

And now finally, on to the third quarter's results. The past quarter showed a continuation of the top line trends that we highlighted on the last call, namely the healthy Thrive implementation schedule and continued TruBridge momentum. Sequentially, this resulted in a relatively flat quarter in terms of revenues, adjusted EBITDA and non-GAAP EPS. When compared to last year, however, the momentum created by our pipeline conversion over the past 12 months has resulted in top line growth of nearly 4% that, when coupled with effective cost management, has translated into adjusted EBITDA growth in excess of 10% and non-GAAP EPS growth in excess of 26%.

Whether it be SaaS or financed arrangements for perpetual license sales, the competitive landscape has certainly moved towards payment arrangements that limit the hospital's initial capital outlay. The result of this new market dynamic on our balance sheet is continued expansion of our financing receivables as nearly all of our new Thrive implementations are either SaaS or self-financed. As a result, financing receivables have expanded $4.2 million during the third quarter and $8.4 million year-to-date, placing downward pressure on operating cash flows and furthering the delta between non-GAAP EPS and free cash flow.

Lastly, consolidated bookings came in at $31.1 million, slightly below last quarter's consolidated record of $13.7 million, but well ahead of the previous high mark of $30.6 million set in the fourth quarter of 2016.

Perhaps the most exciting development for the quarter, however, was TruBridge's bookings performance. With $10.6 million in third quarter bookings, this marks the third time in the past 4 quarters that we've achieved record bookings at TruBridge and a 22% increase in the previous record of $8.7 million set just last quarter. This sustained momentum at TruBridge justifies our view that this portion of our business will continue to be a growth agent for CPSI, further stabilizing our top line and adding to our recurring revenue base that currently accounts for 81% of year-to-date revenues.

Of the $21 million in new system sales and support bookings, roughly $1 million is included in our third quarter revenues, $19.4 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 to 6 months, $800,000 represents EHR subscription revenue to be recorded over a weighted average period of 5 years with a start date in the next 12 months and similar to our non-subscription sales, an average lag between booking and install of 5 to 6 months.

Our $10.6 million of bookings from TruBridge are mostly made up of recurring revenues to be recorded over a 1-year period starting in the next 4 to 6 months.

For some added depth on our healthy implementation schedule, 9 customer sites went live with our Thrive Financial and Patient Accounting Systems compared to 10 in the second quarter.

As for licensing mix, one of this quarter's 9 go lives were under a cloud or subscription model compared to 1 out of 10 during the second quarter.

At this time, we expect 10 new client facilities to go live with our Thrive Financial and Patient Accounting Systems in the fourth quarter of 2017, with none expected to go live in a cloud environment.

Our employee headcount as of September 30 was roughly 2,058, an increase of 19 from the end of the second quarter. That's, again, mostly related to expanding TruBridge capacity.

Moving on to the income statement. System sales and support revenue saw a $1.1 million or 2.4% sequential decline as nonrecurring revenues were hampered by a slowdown in post-acute new deal flow and the sequential decline in Thrive new system go lives from 10 in the second quarter to 9 in the third quarter.

Year-over-year system sales and support revenues were essentially flat as the increase in Thrive new system implementations from 5 in the third quarter of 2016 to 9 in the third quarter of 2017 and improved add-on sales at Evident have been sufficient to offset any decreases related to Healthland revenues.

On the cost side, system sales to support margins of 56% represented a slight decline from the second quarter as costs remain flat with a slight decline in nonrecurring revenues. Now while year-over-year revenues for system sales and support were flat, incremental synergies and other cost containment measures drove cost down 9% year-over-year, allowing for expansion from the 53% margins earned during the third quarter of 2016.

TruBridge continues to serve as the growth agent that we expected entering 2017, posting another solid quarter, with 2.5% top line growth from the second quarter and nearly 11% top line growth year-over-year. This growth was achieved without reaching our full quarterly run rate on the record $3.1 million contract that Chris had mentioned on the past couple of calls. This contract was included in our second quarter bookings and went live with the respective services late in the third quarter, not hitting its full monthly stride until September of 2017. Considering that dynamic along with continued conversion of past bookings to revenues, we certainly see upward trajectory for TruBridge.

With the customer volumes that we've added to TruBridge and the anticipated need for additional capacity to support the current quarter's record bookings, the third quarter was marked by another round of capacity investment. Payroll costs drove overall TruBridge cost up 7% sequentially and 14.5% year-over-year, outpacing the revenue gains and driving margins down to 43.7% in the third quarter of 2017 compared to last quarter's 46.3% and the third quarter of 2016's 45.6%.

Product development costs were relatively flat sequentially and up $948,000 year-over-year as we've expanded our consolidated development team. Leveraging our unique position in the market continues to be our priority as we remain committed to improving provider adoption, clinical workflow and increasing the integration of our acute and post-acute EHR products.

Sales and marketing costs increased both sequentially and year-over-year due to some dramatic increases in our commission costs. Commission costs during the third quarter of 2017 were heavily influenced by commission payouts on TruBridge service contracts, which are certainly at elevated levels given our recent booking success. Our long-standing accounting policy election has been to record these events on these commissions when paid with payments based on annualized revenue assumptions. The result is that TruBridge commissions can be lumpy and hit our P&L well in advance of the associated revenues.

Partially due to the largest contract in the history of the company going live on TruBridge during the third quarter, we saw commission expense increase sequentially from $1.7 million to $3 million, an increase of $1.3 million or nearly 80%. The year-over-year impact was even more pronounced, increasing by $1.6 million or 110%.

General administrative cost decreased $3.5 million or 27% from the second quarter, driven mostly by $1.5 million decrease in severance cost and a $1.1 million decrease in cost related to our national client conference, which was held during the second quarter. Improved vacation utilization and a drop in health claims were the other major drivers in the sequential decline.

Year-over-year G&A costs were down $1.3 million or 12%, with the largest contributing factors being improved health claims and the consolidation of our 3 separate client conferences in 2016 spanning the second and third quarters. This consolidated conference now brings together both our acute and post-acute customers into one large client event in the second quarter of 2017. Combining these 3 key conferences into a single event not only adds great value to our clients, but it's also allowed us to scale and achieve overall efficiency in our annual spend in this area.

Interest expense increased both sequentially and year-over-year as market conditions have led to increases in underlying rates paid on our variable rate debt.

And the quarter's effective tax rate of 37.5% was a slight reduction from the second quarter's 38.5%, with the improvement mostly due to beneficial adjustments to tax credit assumptions. Year-over-year, our effective tax rate decreased slightly from 38% to 37.5%.

And with that, I'll now turn things over to Chris Fowler, our Chief Operating Officer.

Thank you, Matt, and good afternoon, everyone. Q3 was a strong quarter for TruBridge on multiple fronts. As we advance the opportunity across the CPSI client base, progress made outside of our family of companies is also proving to be quite promising, resulting in another record in bookings this quarter of $10.6 million, as stated earlier.

We view TruBridge add-on sales within the CPSI client base as our leading performance indicator not only because it is proven to be a natural sales channel for us but also because our offerings deliver added value to our acute and post-acute EHR platforms that we believe will help increase client stickiness for our entire family -- entire family of companies, especially during times of market change and competitive pressures.

While the Rycan RCM product is not the largest in terms of bookings value under the TruBridge umbrella, it consistently delivers high levels of client satisfaction and makes a real difference for our clients in terms of financial performance. Third quarter add-on sales for the Rycan RCM product came in at $1.3 million, which is right in the range of what we have steadily seeing each quarter, bringing the total add-on sales for TruBridge to $6.6 million this quarter.

Additionally, while still in the early stages of its release, our BI dashboard has sparked the interest of our client base. Initial feedback on our first release, which was focused on financial analytics, has been positive. We now have 10 clients live and we'll have another 7 live by the end of the year. This early progress has provided very valuable feedback and input towards our next wave of analytics that will be more patient care focused.

We are taking a phased approach to the development and release of specific analytical insights for the clinical and ancillary departments. We expect to deliver emergency room content later this year along with chronic care management support.

TruBridge bookings that came from outside of our family of companies continue to gain traction, coming in at just over $4 million in the third quarter. As part of that $4 million, we booked a $3.1 million deal for our accounts receivable management and coding services. These type of larger, more involved deals tend to mirror the longer sales cycle we experience in the acute care market. However, based on the activity we are managing in the pipeline, we are optimistic about this continued trend.

TruBridge sales that come from outside our family of companies are also having a positive impact on our revenue. This quarter, they generated 11% of Q3 revenue for TruBridge. And as we continue to grow -- as we continue to build our footprint outside of the CPSI EHR customer base, we will see that percentage grow.

We continue to progress nicely in terms of transitioning our newest EHR customers to the CPSI family of companies to the TruBridge cloud services. While this offering contributes to the stickiness of our CPSI clients, we are also pleased with the internal efficiencies we are picking up as an outcome of this process.

We have completed the transition of the American HealthTech client base, and we have finished approximately 50% of the transitions within the Centriq client base. We fully expect this consolidation to be completed by the end of the year, which will be accompanied by an annual $2.4 million in savings beginning in January of '18.

And finally, we are awaiting the final number of covered lives from CMS that will fall under the CPSI ACO program that we launched earlier this year in a partnership with Caravan Health. As this information becomes available closer to the end of the year, we will be able to better assess the financial impact for CPSI and the ACOs we will support. Most exciting to us is the opportunity to work side-by-side with the ACO hospital members and with Caravan Health who has already helped drive impressive results in previous value-based programs by measurably improving quality measures and generating meaningful cost savings.

We're very proud to be an active partner in this transition to value-based care in small and rural communities. Helping map the path that will shift health care services offered in a traditional inpatient setting to a more proactive delivery method in an outpatient setting will ultimately help ensure the financial health of the hospital as well as the health of many communities across the country.

With that, I'll turn it over to David.

Thanks, Chris. The solid execution of our sales team over the last several quarters is now translating into revenue and earnings growth. We fully expect this bookings-to-revenue conversion to continue and to lead to more meaningful growth beginning with the fourth quarter and throughout 2018.

The $31.9 million of total CPSI bookings for the third quarter is a 53% increase over the same period last year. Year-to-date through September 30, combined Evident, Healthland and AHT EHR bookings are up 18% year-over-year, TruBridge, including Rycan, 79% and total CPSI bookings across all companies, 31%.

For the acute care EHR portion of our business, in the third quarter we signed 10 Evident Thrive contracts. Based on our current sales pipeline, execution quarter to date and the current status of the market, we expect similar sales performance for new system sales in the fourth quarter.

As Boyd, Matt and Chris all mentioned, our TruBridge sales success continues to build, with 3 of the last 4 quarters producing record TruBridge bookings. And again, this success is both within the CPSI family of the EHR solutions and in facilities with non-CPSI solutions. We expect these bookings to translate to year-over-year TruBridge revenue growth of approximately 20% for the next several quarters.

In summary, CPSI's growth story for the remainder of 2017 and full year 2018 is largely a combination of new system sales, MU3 implementations and accelerated TruBridge growth. For 2019 and beyond, we believe TruBridge growth will continue to accelerate as the acute and post-acute health care models move to value-based delivery. New system sales are poised to continue to grow as the pipeline increases with hospitals looking to replace legacy products from major vendors. Add-on software sales would be aided by our business intelligence and analytics and [health] offerings, and we believe our AHT solution will experience sales growth as the post-acute marketplace catch up to the post Meaningful Use acute care world.

We continue to believe significant opportunity exist for Evident in the English-speaking international markets, in particular, within several Canadian provinces and in the Caribbean.

Donnie, please open the call for questions.

(Operator Instructions) Looks like our first question comes from the line of Mohan Naidu with Oppenheimer.

Boyd, on the TruBridge bookings, which product line are you guys seeing the biggest demand for? I know you guys have a pretty strong, I guess, a growing penetration between Rycan, private pay and also receivables. But if we look at the 3 products, which ones are you seeing the biggest demand and what's the driver for those?

Hay Mohan, this is Chris. The Rycan product, as I said in the comments, has been very steady at that 1.5 plus or minus a couple of hundred thousand dollars quarter-to-quarter for the last several quarters as we look back. But the real increase we've seen lately is through the ARM Service, and I think the driver for that is just the complications that continue and the complexities for these small hospitals to stay staffed and keep up with the ever-changing regulations as it relates to billing and just stay on top of their cash. So that's the -- if I had to pick one, it will definitely be the accounts receivable service, and that's reflected in the bookings, the big deal we got this quarter, the $3.1 million, that was ARMS and coding.

Okay, I think you guys disclosed that the penetration within that segment was about 10%, 12%. Is that still the range?

Yes. That's pretty consistent.

How should we think about the margin profile with TruBridge? And as you add new clients, you also need to add some resources, but can you give us a sense of what's the mature margins that you can look at within the client?

Mohan, this is Matt. I think this would play out if you look at historically at TruBridge margins, it's a slight rollercoaster ride, right. So in periods where we're investing in capacity, we'll see margins dip down in the lower 40s. And then once volumes catch up with that capacity, volumes can -- margins can exceed that kind of 45%, getting to the 46%, 47% range. But we expect to continue on that kind of up and down, between say, 42% and 47%, depending on whether it's a growth quarter or an investment quarter.

Our next question comes from the line of Jeff Garro with William Blair & Co.

It sounds like in the discussion today, some talk of growth going forward, with David speaking some on 2018 and 2019, and also the discussion of hitting that 2.5x ratio relative to the -- I should say, in spite of the amendment of the debt financing. So hitting -- the stronger growth discussion, hitting that 2.5x ratio, that's going to require some acceleration of growth. Could you speak a little bit to when we see the timing of that inflection in growth going forward?

Sure. Generally speaking, we can. We've got -- obviously, we feel like we're going to close out the year strong. I think, in summary, and we said that, I certainly said that, we've got -- we're scheduled for a good bit of new installed business in the fourth quarter, and then we were a little bit cautious/conservative with the MU3 delay in thinking that the majority of that would now come in maybe 2018 or even in late 2018. We've been encouraged by our customers that have decided to go ahead and proceed with that. I mean, there's been some benefits to them from a functionality standpoint and a user interface standpoint that they get with MU3, and we've been encouraged by the amount of folks that wanted to keep their install dates or even move them forward. We're going to have a lot of that beginning in the fourth quarter as well and certainly through the first 3 quarters and through the entire year of 2018. So I think in summary, we can say we look for that to begin now, with the fourth quarter of this year. If that answers your questions, sort of when we look to see the growth accelerate.

That's very helpful. Anything else to call out in terms of TruBridge? That certainly has seen continued momentum, but is there anything in the pipeline or the implementation schedule that we should be aware of in terms of timing?

Yes. Matt mentioned, we've done -- we did a lot in the third quarter and specifically, late in the third quarter with that one big ramp-up for TruBridge. And certainly, with all we booked, 3 out of the last 4 quarters, have obviously been pretty big there within TruBridge, so we've got a lot of it that continues to go live and we have a lot in the fourth quarter as well. Certainly, with -- around my comments, in my prepared comments, about the 20% growth beginning in the fourth quarter, I mean, with a tail that we have in the third quarter and what we have starting in the beginning of the fourth quarter, you know that's -- we think you'll see a noticeable uptick in TruBridge, again, sort of beginning now with the fourth quarter.

Jeff, one other thing. This is Chris. The deal that we booked in this past quarter, the $3.1 million, it's going to get started in December 2. So the conversion on these is pretty quick, but obviously, it's got the 12-month tail on it. So we're excited about seeing that convert into the fourth quarter.

Got it. Great to see those bigger deals. One more question for me. Would love to hear a little bit more discussion on the competitive environment. Interested to hear about the various competitors that you've talked about on previous calls, who you're seeing more often than not over the last 3 to 6 months and how your win rates have changed and maybe even some comments on -- with the company seeming to get a little bit more vocal about their wins in the marketplace. How is that impacting -- not just the sales team, but maybe the broader company as a whole, with that little bit of cultural shift?

You know, I'll say, we've definitely, over the last even few months, have had entered a time where the market is valuing stable products that work. And that's us, we feel. And I think that's where you're seeing an uptick with us in terms of the deals that we're signing. You know, obviously, every deal is competitive. It's competitive as hell. I've been here for 27 years. It always has been. The names have changed a little bit, especially recently, we've talked about this in previous calls. Some of the traditional vendors that focused on the small market space for the last several decades have either don't exist anymore, they moved upstream or they moved on to different things. And we remain. Virtually every deal now, we obviously, compete with Athenahealth. We compete on a regular basis with Cerner as well. We've made note of that over the last several calls as well that we're seeing increasing competitive pressure from them, and we think that will continue. You know occasionally, MEDITECH, occasionally MEDHOST, that's essentially it.

And again, Boyd, any comments on just being a little bit more vocal about all your wins and whether that as having any kind of positive cultural shift within the company, within R&D, within the customer delivery teams?

Yes. We're pretty fired up right now.

Our next question comes from the line of Sean McBride with Baird.

I wanted to ask a question on the conversions. So you have already gone through and converted more hospitals than you've done in basically the previous 2 years. So can you just give some color on how these hospitals are doing following the go live process, especially considering how you've highlighted the considerable financial issues that some of these hospitals have been going through?

I'm not sure I'm following you on the -- double the number, certainly, our number of new -- if you're talking about net new or our new go live installs, they're going extremely well. Certainly, some of these hospitals have financial challenges, but that's really frankly nothing new to us. We've always dealt with that. But we're really pleased with our installation teams, our conversion teams, and installation teams. Those are actually going quite well. One of the things we've done on some recent -- we've changed some of our implementation procedures and we've gotten more efficient with those, both from our conversion perspective and from the number of people we send on-site and how we approach that and that's been well received by our customers as well. So we're really pleased with our implementation teams at this point.

Okay, thanks. And then just wanted to touch on the post-acute space. I know that much more white space and much earlier there, but from an interest there, what do you look -- looking at in terms of timeline and market appetite? And then how is the competitive environment there a little bit different than the inpatient space?

Yes. The market appetite there now is, I would say, equates to kind of where the acute care market was a couple of years ago. It's not very active. And we're taking advantage of that opportunity by doubling down on our R&D investment in that product because we think it's going to accelerate quickly. We don't know exactly when that will occur. Our guestimate at that point is that we're about 2 years or so away from that market sort of being in a market similar to what we were in the acute care world with Meaningful Use. So we've got a very stable customer base where HT is known for its support, and we continue to do a great job there. And as I said, we're using this downtime from a new sales standpoint to double down the product. You know, it's extremely competitive as well. The primary competitor there is, obviously, is PointClickCare. There are several others, Matrix Care and a few others, but I would say that's just sort of a summary of the market as we see it right now.

(Operator Instructions) Our next question comes from the line of Gene Mannheimer with Doherty and Co.

Just a follow-up on the last question, in the post-acute market, appreciate that you're making investments there in anticipation of some acceleration of growth, but if you're not sure of the timing, I mean, is there some risk here that, that doesn't happen? I mean, are there any catalysts or guidance to suggest that, that market is going to heat up?

Yes, I guess there's always risk, Gene, but I think the way we look at it is that these facilities in terms of their documentation processes are borderline light years behind where we are in the inventory and in the acute care world, right? So they're going to be fully automated at some point in the relatively near future, and we're thinking long term here. So if it happens in a year, it happens in 2 years, it happens in 4 years, it's going to happen. I think in terms of where we are with our investment and development, we're kind of planning on and thinking it will be about 2 years from now. But if it's a little longer than that, we're thinking long term. We don't really care.

Very good.

Hay Gene, this is Chris. Just to add to that. Another thing that kind of takes away some of the risk there is just you think about the reimbursements going forward and how the communities are going to be valued and the tie-in from the acute to the post-acute, we're also looking at it from a add-on play as well. So from that standpoint, while we are making that investment to attract net new, I do think there's also going to be huge opportunity for us inside the EHR, the acute space going forward.

Makes good sense. Thanks, Chris. And on the topic of TruBridge sales outside of the CPSI family, what's the most common EHR platform outside of yours where you're seeing success selling TruBridge?

Right now, it's MEDITECH.

Okay. Excellent. And Matt, can you quantify for us the EPS impact, if any, that the refinancing does on your EPS?

Yes, Gene, so there was no impact -- well, so I guess, are you asking from the actual costs of the credit amendment itself or the softening of the rate card in the amendment?

Changing the rate and mostly going forward.

Yes. The changing in the rate, once we can delever to below 3x if we really start taking advantage of the reduced pricing, and it shakes out to just under a $0.01 a share a quarter.

Our next question comes from the line of Stuart Goldberg with Lightspeed Partners.

A couple of housekeeping questions for you. It looks like you borrowed money, I guess, against the revolver this quarter. What are we -- how do we translate that going forward in the fourth quarter in '18? Are we going to be doing -- borrowing more money? With the new dividend strategy, I guess maybe we don't have to. Can we address that? And then I have one other question.

So I think we touched on it somewhat, Stuart, a little bit in the prepared commentary, when we mentioned trailing 12-month free cash flow was somewhere at what, $22.5 million, $23.5 million and if you add up the amount that we paid on debt commitments and you add up the dividends, they've outpaced that somewhat. So the heavy dividend that we pay out in the third quarter or that we paid out during the third quarter we announced on the last call, it kind of did put a short-term crunch on cash, so it did require a step into the revolver during the past quarter. And so that's what we meant when we were referencing taking a keen look at both -- at the 2 largest uses of our free cash flow, both the debt payments and the dividend payments. And you tweak those somewhat and you're talking about freeing up a significant amount of cash going forward.

Right. And if I understand it correctly though, you're going to have a -- under the new agreement, you're going to have a mandatory excess cash flow at 75% or pay out 75% of excess cash flow. So as you cut this dividend, you are going to be paying more down in debt though because you're -- the amendment includes dividend payments as part of your excess cash flow. So it's kind of one hand washes the other to some degree at 75 -- rate of 75%. Do I have that fairly accurately?

So the 70 -- the gist of that free cash flow repayment is really just to incentivize or, I guess, to de-incentivize us from just stacking up cash on the balance sheet. So the intention there is that if we're stacking up cash on the balance sheet that there's a requirement to prepay the banks. And if you notice, the formula, which is spelled out in the 8-K or in the exhibits in the 8-K that we filed on the 17th, that's calculated after dividends, so it doesn't place any further restriction on dividend. It's -- the spirit of that is simply to sweep balance sheet cash.

Okay. But it was my understanding that's a mandatory payment. So if you're cutting the dividend -- and let's say that you have free cash flow of x and your dividend is now half of y instead of y, you're going to have to pay 75% of that difference into the sweep. Is that fair?

I mean it's in keeping with our first priority in our capital allocation strategy, which is to delever.

Okay. And then the other question I have is I'm moving forward and I'm trying to figure out fourth quarter and going forward with '18. Once again, financing receivables were a use of cash by $4.2 million this quarter. They were $4.1 million last quarter. Are we going to see that kind of level? Or is it going higher? I mean -- because that's going to be -- that's obviously one of the strains on cash as well. So you've cut the dividend but [you've got] financing receivables. So how should we look at that financing receivable going forward as far as cash flows go?

Well, so the financing receivables are going to build up for a short period of time until the cash collection start kind of flowing in on the back end, and it's probably worth mentioning that this is a relatively new market dynamic where some new entrants into our market have really created a demand, kind of a pool demand from the customer base for financing of solutions, whether it be in the SaaS arrangement or some sort of financing of perpetual license model, financing arrangements that limit that initial capital outlay. And so that's a relatively new phenomenon, which is parking a lot of our new system sales on the balance sheet without as much volume collected on the back end. So once those collections start catching up with the additions we're seeing into the financial receivables, particularly as we start collecting heavily on our Meaningful Use Stage 3 applications in the back end of 2018, you should see that dynamic start swinging the other way.

Okay. Fair enough. And then last question, so Matt, you and I talked about this before, the Q is not out, but what about on those receivables, are we seeing any increase or decrease in bad debt expense or anything in the provisions?

I'd say that -- nothing material.

And Mr. Douglas, it appears we have no further questions. So I'll turn it over to you.

Great. Thank you. We appreciate everyone being on the call today. Thanks for your interest in CPSI and hope everyone has a good Friday and a good weekend. Thank you.

Thank you, ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect your lines.