CPSI (NASDAQ: CPSI):
Highlights for Third Quarter 2017:
- Revenues of $67.1 million;
- Quarterly bookings of $31.9 million;
- 12-month backlog of $260.5 million;
- Another record quarter for TruBridge with bookings of $10.6 million;
- GAAP earnings of $0.17 per diluted share and non-GAAP earnings of $0.43 per diluted share;
- GAAP net income of $2.3 million and Adjusted EBITDA of $13.0 million; and
- Quarterly dividend of $0.10 per share.
CPSI (NASDAQ: CPSI), a community healthcare solutions company, today announced results for the third quarter and nine months ended September 30, 2017.
The Company also announced that its Board of Directors has declared a quarterly cash dividend of $0.10 per share, payable on December 1, 2017, to stockholders of record as of the close of business on November 16, 2017. This dividend marks a change from the Company’s previous variable dividend policy, announced on August 4, 2016.
Total revenues for the third quarter ended September 30, 2017, were $67.1 million, compared with total revenues of $64.7 million for the prior-year third quarter. Net income for the quarter ended September 30, 2017, was $2.3 million, or $0.17 per diluted share, compared with $1.6 million, or $0.12 per diluted share, for the quarter ended September 30, 2016. Cash provided by operations for the third quarter of 2017 was $2.4 million, compared with cash used by operations of $5.9 million for the prior-year third quarter.
Total revenues for the nine months ended September 30, 2017, were $198.9 million, compared with total revenues of $202.7 million for the prior-year period. Net income for the nine months ended September 30, 2017, was $4.1 million, or $0.30 per diluted share, compared with $1.9 million, or $0.15 per diluted share, for the nine months ended September 30, 2016. Cash provided by operations for the first nine months of 2017 was $18.3 million, compared with cash used by operations of $2.6 million for the prior-year period.
“Coming off of a solid third quarter, we have even greater latitude in our efforts to build long-term value for CPSI and our family of companies,” said Boyd Douglas, president and chief executive officer of CPSI. “We are very pleased with the progress we are making throughout the community healthcare market. Our consistent sales activity is fueling our operations, with growing revenues and a healthy installation schedule.”
Commenting on the Company’s financial performance for the third quarter, Matt Chambless, chief financial officer of CPSI, stated, “Our respective EHR solutions continue to provide a solid, stable revenue base, while TruBridge has emerged as the clear growth agent for CPSI, posting double-digit year-over-year revenue growth and yet another record bookings quarter. We are also pleased with having solidified our capital allocation strategy after a noisy 2016. Our amended credit facility and revised dividend policy are in line with our three-pronged strategy of systematically investing in the future of our products and solutions, returning capital to shareholders through dividends, and reducing leverage.”
CPSI management and the Board of Directors expect that the changes implemented this quarter, including improved pricing under the Company’s credit facilities and the change in quarterly dividend, put CPSI on a sustainable path to achieving a target leverage ratio of 2.5x debt to Adjusted EBITDA in 2018, at which time the quarterly dividend may be revisited and the capital allocation strategy may expand to include other, more opportunistic uses of capital.
Douglas added, “As we embark on this next phase of our continued evolution as a community healthcare company, our solution strategy and vision revolve around developing once and then sharing those products across our EHR systems, protecting the integrity of our existing functionality and feature-rich products, and preparing for future growth opportunities in the post-acute market.”
CPSI will hold a live webcast to discuss third quarter 2017 results today, Thursday, November 2, 2017, at 4:30 p.m. Eastern time. A 30-day online replay will be available approximately one hour following the conclusion of the live webcast. To listen to the live webcast or access the replay, visit the Company’s website, www.cpsi.com.
About CPSI
CPSI is a leading provider of healthcare
solutions and services for community hospitals plus other healthcare
systems and post-acute care facilities. Founded in 1979, CPSI is the
parent of four companies – Evident, LLC, TruBridge, LLC, Healthland Inc.
and American HealthTech, Inc. Our combined companies are focused on
helping improve the health of the communities we serve, connecting
communities for a better patient care experience, and improving the
financial operations of our customers. Evident provides comprehensive
EHR solutions and services for community hospitals. TruBridge focuses on
providing business, consulting and managed IT services along with its
RCM product, Rycan, providing revenue cycle management workflow and
automation software to hospitals, other healthcare systems, and skilled
nursing organizations. Healthland provides integrated technology
solutions and services to small rural and critical access hospitals.
American HealthTech is one of the nation’s largest providers of
financial and clinical technology solutions and services for post-acute
care facilities. For more information, visit www.cpsi.com,
www.evident.com,
www.trubridge.com,
www.healthland.com,
or www.healthtech.net.
Forward-Looking Statements
This press release contains
forward-looking statements within the meaning of the “safe harbor”
provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can be identified generally by the use
of forward-looking terminology and words such as “expects,”
“anticipates,” “estimates,” “believes,” “predicts,” “intends,” “plans,”
“potential,” “may,” “continue,” “should,” “will” and words of comparable
meaning. Without limiting the generality of the preceding statement, all
statements in this press release relating to estimated and projected
earnings, leverage ratio, margins, costs, expenditures, cash flows,
growth rates, the Company’s level of recurring and non-recurring
revenue and backlog, the Company’s shareholder returns and future
financial results are forward-looking statements. We caution investors
that any such forward-looking statements are only predictions and are
not guarantees of future performance. Certain risks, uncertainties and
other factors may cause actual results to differ materially from those
projected in the forward-looking statements. Such factors may include:
overall business and economic conditions affecting the healthcare
industry, including the potential effects of the federal healthcare
reform legislation enacted in 2010, and implementing regulations, on the
businesses of our hospital customers; government regulation of our
products and services and the healthcare and health insurance
industries, including changes in healthcare policy affecting Medicareand Medicaid reimbursement rates and qualifying
technological standards; changes in customer purchasing priorities,
capital expenditures and demand for information technology systems;
saturation of our target market and hospital consolidations; general
economic conditions, including changes in the financial and credit
markets that may affect the availability and cost of credit to us or our
customers; our substantial indebtedness, and our ability to incur
additional indebtedness in the future; our potential inability to
generate sufficient cash in order to meet our debt service obligations;
restrictions on our current and future operations because of the terms
of our senior secured credit facilities; market risks related to
interest rate changes; our ability to successfully integrate the
businesses of Healthland, American HealthTech and Rycan with our
business and the inherent risks associated with any potential future
acquisitions; our ability to remediate a material weakness in our
internal control over financial reporting; competition with companies
that have greater financial, technical and marketing resources than we
have; failure to develop new or enhance current technology and products
in response to market demands; failure of our products to function
properly resulting in claims for losses; breaches of security and
viruses in our systems resulting in customer claims against us and harm
to our reputation; failure to maintain customer satisfaction through new
product releases or enhancements free of undetected errors or problems;
interruptions in our power supply and/or telecommunications
capabilities, including those caused by natural disaster; our ability to
attract and retain qualified customer service and support personnel;
failure to properly manage growth in new markets we may enter;
misappropriation of our intellectual property rights and potential
intellectual property claims and litigation against us; changes in
accounting principles generally accepted in the United States;
fluctuations in quarterly financial performance due to, among other
factors, timing of customer installations; and other risk factors
described from time to time 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. Relative to our
dividend policy, the payment of cash dividends is subject to the
discretion of our Board of Directors and will be determined in light of
then-current conditions, including our earnings, our leverage, our
operations, our financial conditions, our capital requirements and other
factors deemed relevant by our Board of Directors. In the future, our
Board of Directors may change our dividend policy, including the
frequency or amount of any dividend, in light of then-existing
conditions. We also caution investors that the forward-looking
information described herein 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 press release.
COMPUTER PROGRAMS AND SYSTEMS, INC. Unaudited Condensed Consolidated Statements of Income (In thousands, except per share data) | ||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||
Sales revenues: | ||||||||||||||||||||
System sales and support | $ | 44,366 | $ | 44,101 | $ | 133,263 | $ | 141,529 | ||||||||||||
TruBridge | 22,747 | 20,562 | 65,601 | 61,192 | ||||||||||||||||
Total sales revenues | 67,113 | 64,663 | 198,864 | 202,721 | ||||||||||||||||
Costs of sales: | ||||||||||||||||||||
System sales and support | 18,832 | 20,709 | 56,621 | 65,075 | ||||||||||||||||
TruBridge | 12,806 | 11,187 | 36,326 | 33,878 | ||||||||||||||||
Total costs of sales | 31,638 | 31,896 | 92,947 | 98,953 | ||||||||||||||||
Gross profit | 35,475 | 32,767 | 105,917 | 103,768 | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||
Product development | 9,345 | 8,397 | 27,588 | 23,766 | ||||||||||||||||
Sales and marketing | 8,528 | 6,894 | 23,262 | 20,341 | ||||||||||||||||
General and administrative | 9,379 | 10,631 | 33,960 | 41,799 | ||||||||||||||||
Amortization of acquisition-related intangibles | 2,601 | 2,601 | 7,804 | 7,580 | ||||||||||||||||
Total operating expenses | 29,853 | 28,523 | 92,614 | 93,486 | ||||||||||||||||
Operating income | 5,622 | 4,244 | 13,303 | 10,282 | ||||||||||||||||
Other income (expense): | ||||||||||||||||||||
Other income | 102 | 53 | 242 | 121 | ||||||||||||||||
Interest expense | (2,062 | ) | (1,717 | ) | (5,807 | ) | (4,828 | ) | ||||||||||||
Total other expense | (1,960 | ) | (1,664 | ) | (5,565 | ) | (4,707 | ) | ||||||||||||
Income before taxes | 3,662 | 2,580 | 7,738 | 5,575 | ||||||||||||||||
Provision for income taxes | 1,374 | 981 | 3,617 | 3,643 | ||||||||||||||||
Net income | $ | 2,288 | $ | 1,599 | $ | 4,121 | $ | 1,932 | ||||||||||||
Net income per common share – basic and diluted | $ | 0.17 | $ | 0.12 | $ | 0.30 | $ | 0.15 | ||||||||||||
Weighted average shares outstanding used in per common share computations: | ||||||||||||||||||||
Basic | 13,431 | 13,327 | 13,409 | 13,224 | ||||||||||||||||
Diluted | 13,431 | 13,327 | 13,409 | 13,224 | ||||||||||||||||
COMPUTER PROGRAMS AND SYSTEMS, INC. Condensed Consolidated Balance Sheets (In thousands, except per share data) | ||||||||
Sept. 30, | Dec. 31, | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 954 | $ | 2,220 | ||||
Accounts receivable, net of allowance for doubtful accounts of $2,206 and $2,370, respectively | 36,159 | 31,812 | ||||||
Financing receivables, current portion, net | 8,642 | 5,459 | ||||||
Inventories | 1,129 | 1,697 | ||||||
Prepaid income taxes | 677 | 567 | ||||||
Prepaid expenses and other | 3,155 | 2,794 | ||||||
Total current assets | 50,716 | 44,549 | ||||||
Property and equipment, net | 11,959 | 13,439 | ||||||
Financing receivables, net of current portion | 10,098 | 5,595 | ||||||
Intangible assets, net | 99,314 | 107,118 | ||||||
Goodwill | 168,449 | 168,449 | ||||||
Total assets | $ | 340,536 | $ | 339,150 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 10,611 | $ | 6,841 | ||||
Current portion of long-term debt | 8,225 | 5,817 | ||||||
Deferred revenue | 8,587 | 5,840 | ||||||
Accrued vacation | 4,600 | 3,650 | ||||||
Other accrued liabilities | 8,919 | 8,797 | ||||||
Total current liabilities | 40,942 | 30,945 | ||||||
Long-term debt, less current portion | 136,270 | 146,989 | ||||||
Deferred tax liabilities | 6,472 | 3,246 | ||||||
Total liabilities | 183,684 | 181,180 | ||||||
Stockholders’ equity: | ||||||||
Common stock, $0.001 par value; 30,000 shares authorized; 13,756 and 13,533 shares issued and outstanding, respectively | 14 | 13 | ||||||
Additional paid-in capital | 152,932 | 147,911 | ||||||
Retained earnings | 3,906 | 10,046 | ||||||
Total stockholders’ equity | 156,852 | 157,970 | ||||||
Total liabilities and stockholders’ equity | $ | 340,536 | $ | 339,150 | ||||
COMPUTER PROGRAMS AND SYSTEMS, INC. Unaudited Condensed Consolidated Statements of Cash Flows (In thousands) | ||||||||||
Nine Months Ended | ||||||||||
2017 | 2016 | |||||||||
Operating activities: | ||||||||||
Net income | $ | 4,121 | $ | 1,932 | ||||||
Adjustments to net income: | ||||||||||
Provision for bad debt | 753 | 722 | ||||||||
Deferred taxes | 3,226 | 3,735 | ||||||||
Stock-based compensation | 5,021 | 4,023 | ||||||||
Excess tax benefit from stock-based compensation | - | (50 | ) | |||||||
Depreciation | 1,945 | 2,422 | ||||||||
Intangible amortization | 7,804 | 7,580 | ||||||||
Amortization of deferred finance costs | 547 | 501 | ||||||||
Changes in operating assets and liabilities: | ||||||||||
Accounts receivable | (4,358 | ) | (1,489 | ) | ||||||
Financing receivables | (8,428 | ) | 1,301 | |||||||
Inventories | 568 | 31 | ||||||||
Prepaid expenses and other | (361 | ) | 808 | |||||||
Accounts payable | 3,770 | (5,095 | ) | |||||||
Deferred revenue | 2,748 | (11,365 | ) | |||||||
Other liabilities | 1,071 | (6,841 | ) | |||||||
Prepaid income taxes | (110 | ) | (788 | ) | ||||||
Net cash provided by (used by) operating activities | 18,317 | (2,573 | ) | |||||||
Investing activities: | ||||||||||
Purchases of property and equipment | (464 | ) | (39 | ) | ||||||
Purchase of business, net of cash received | - | (162,611 | ) | |||||||
Sale of investments | - | 10,861 | ||||||||
Net cash used in investing activities | (464 | ) | (151,789 | ) | ||||||
Financing activities: | ||||||||||
Dividends paid | (10,261 | ) | (21,845 | ) | ||||||
Proceeds from long-term debt | 2,550 | 156,572 | ||||||||
Payments of long-term debt | (11,409 | ) | (2,344 | ) | ||||||
Payments of contingent consideration | - | (500 | ) | |||||||
Proceeds from stock option exercise | 1 | 1,134 | ||||||||
Excess tax benefit from stock-based compensation | - | 50 | ||||||||
Net cash provided by (used in) financing activities | (19,119 | ) | 133,067 | |||||||
Net decrease in cash and cash equivalents | (1,266 | ) | (21,295 | ) | ||||||
Cash and cash equivalents, beginning of period | 2,220 | 24,951 | ||||||||
Cash and cash equivalents, end of period | $ | 954 | $ | 3,656 | ||||||
COMPUTER PROGRAMS AND SYSTEMS, INC. Unaudited Other Supplemental Information Consolidated Bookings (In thousands) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
System sales and support(1) | $ | 21,245 | $ | 15,727 | $ | 63,198 | $ | 53,445 | ||||||||
TruBridge(2) | 10,631 | 5,157 | 25,924 | 14,538 | ||||||||||||
Total | $ | 31,876 | $ | 20,884 | $ | 89,122 | $ | 67,983 | ||||||||
(1) | Generally calculated as the total contract price (for system sales) and annualized contract value (for support). | |
(2) | Generally calculated as the total contract price (for non-recurring, project-related amounts) and annualized contract value (for recurring amounts). | |
COMPUTER PROGRAMS AND SYSTEMS, INC. Unaudited Reconciliation of Non-GAAP Financial Measures (In thousands) | ||||||||||||||||||||
Adjusted EBITDA | Three Months Ended | Nine Months Ended | ||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||
Net income, as reported | $ | 2,288 | $ | 1,599 | $ | 4,121 | $ | 1,932 | ||||||||||||
Deferred revenue and other acquisition-related adjustments | - | 516 | - | 2,226 | ||||||||||||||||
Depreciation expense | 526 | 682 | 1,945 | 2,422 | ||||||||||||||||
Amortization of acquisition-related intangible assets | 2,601 | 2,601 | 7,804 | 7,580 | ||||||||||||||||
Stock-based compensation | 2,054 | 1,146 | 5,021 | 4,023 | ||||||||||||||||
Transaction-related costs | 15 | 69 | 23 | 8,087 | ||||||||||||||||
Non-recurring severance | 196 | - | 2,261 | - | ||||||||||||||||
Interest expense and other, net | 1,960 | 1,664 | 5,565 | 4,707 | ||||||||||||||||
Provision for income taxes, plus cash benefits from NOL utilization | 3,400 | 3,519 | 9,064 | 8,689 | ||||||||||||||||
Adjusted EBITDA | $ | 13,040 | $ | 11,796 | $ | 35,804 | $ | 39,666 | ||||||||||||
COMPUTER PROGRAMS AND SYSTEMS, INC. Unaudited Reconciliation of Non-GAAP Financial Measures (In thousands, except per share data) | ||||||||||||||||||||
Non-GAAP Net Income and Non-GAAP Earnings Per Share (“EPS”) | Three Months Ended | Nine Months Ended | ||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||
Net income, as reported | $ | 2,288 | $ | 1,599 | $ | 4,121 | $ | 1,932 | ||||||||||||
Pre-tax adjustments for Non-GAAP EPS: | ||||||||||||||||||||
Deferred revenue and other acquisition-related adjustments | - | 516 | - | 2,226 | ||||||||||||||||
Amortization of acquisition-related intangible assets | 2,601 | 2,601 | 7,804 | 7,580 | ||||||||||||||||
Stock-based compensation | 2,054 | 1,146 | 5,021 | 4,023 | ||||||||||||||||
Transaction-related costs | 15 | 69 | 23 | 8,087 | ||||||||||||||||
Non-recurring severance | 196 | - | 2,261 | - | ||||||||||||||||
Non-cash interest expense | 182 | 172 | 547 | 501 | ||||||||||||||||
After-tax adjustments for Non-GAAP EPS: | ||||||||||||||||||||
Tax-effect of pre-tax adjustments, at 35% | (1,767 | ) | (1,576 | ) | (5,480 | ) | (7,846 | ) | ||||||||||||
Tax-effect of non-deductible transaction-related costs | - | (60 | ) | - | 1,410 | |||||||||||||||
Tax shortfall from stock-based compensation | 162 | - | 1,083 | - | ||||||||||||||||
Non-GAAP net income | $ | 5,731 | $ | 4,467 | $ | 15,380 | $ | 17,913 | ||||||||||||
Weighted average shares outstanding, diluted | 13,431 | 13,327 | 13,409 | 13,224 | ||||||||||||||||
Non-GAAP EPS | $ | 0.43 | $ | 0.34 | $ | 1.15 | $ | 1.35 | ||||||||||||
Explanation of Non-GAAP Financial Measures
We report our financial results in accordance with accounting principles generally accepted in the United States of America, or “GAAP.” However, management believes that, in order to properly understand our short-term and long-term financial and operational trends, investors may wish to consider the impact of certain non-cash or non-recurring items, when used as a supplement to financial performance measures that are prepared in accordance with GAAP. These items result from facts and circumstances that vary in frequency and impact on continuing operations. Management uses these non-GAAP financial measures in order to evaluate the operating performance of the Company and compare it against past periods, make operating decisions, and serve as a basis for strategic planning. These non-GAAP financial measures provide management with additional means to understand and evaluate the operating results and trends in our ongoing business by eliminating certain non-cash expenses and other items that management believes might otherwise make comparisons of our ongoing business with prior periods more difficult, obscure trends in ongoing operations, or reduce management’s ability to make useful forecasts. In addition, management understands that some investors and financial analysts find these non-GAAP financial measures helpful in analyzing our financial and operational performance and comparing this performance to our peers and competitors.
As such, to supplement the GAAP information provided, we present in this press release the following non-GAAP financial measures: Adjusted EBITDA, Non-GAAP net income, and Non-GAAP earnings per share (“EPS”).
We calculate each of these non-GAAP financial measures as follows:
- Adjusted EBITDA – Adjusted EBITDA consists of GAAP net income (loss) as reported and adjusts for: (i) deferred revenue and other adjustments arising from purchase allocation adjustments related to the Healthland acquisition; (ii) depreciation; (iii) amortization of acquisition-related intangible assets; (iv) stock-based compensation; (v) non-recurrent expenses and transaction-related costs; (vi) interest expense and other, net; and (vii) the provision for income taxes, plus the cash benefits derived from the utilization of net operating loss carryforwards acquired in the Healthland acquisition.
- Non-GAAP net income – Non-GAAP net income consists of GAAP net income (loss) as reported and adjusts for (i) deferred revenue and other adjustments arising from purchase allocation adjustments related to the Healthland acquisition; (ii) amortization of acquisition-related intangible assets; (iii) stock-based compensation; (iv) non-recurring expenses and transaction-related costs; (v) non-cash charges to interest expense and other; and (vi) the total tax effect of items (i) through (v). Adjustments to Non-GAAP net income also includes the after-tax effect of non-deductible transaction-related costs.
- Non-GAAP EPS – Non-GAAP EPS consists of Non-GAAP net income, as defined above, divided by weighted average shares outstanding (diluted) in the applicable period.
Certain of the items excluded or adjusted to arrive at these non-GAAP financial measures are described below:
- Deferred revenue and other adjustments - Deferred revenue and other adjustments includes acquisition-related deferred revenue adjustments, which reflect the fair value adjustments to deferred revenues acquired in business acquisitions. The fair value of deferred revenue represents an amount equivalent to the estimated cost plus an appropriate profit margin, to perform services related to the acquiree’s software and product support, which assumes a legal obligation to do so, based on the deferred revenue balances as of the acquisition date. We add back deferred revenue and other adjustments for non-GAAP financial measures because we believe the inclusion of this amount directly correlates to the underlying performance of our operations.
- Amortization of acquisition-related intangible assets - Acquisition-related amortization expense is a non-cash expense arising primarily from the acquisition of intangible assets in connection with acquisitions or investments. We exclude acquisition-related amortization expense from non-GAAP financial measures because we believe (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired intangible assets. Investors should note that the use of these intangible assets contributed to revenue in the periods presented and will contribute to future revenue generation, and the related amortization expense will recur in future periods.
- Stock-based compensation - Stock-based compensation expense is a non-cash expense arising from the grant of stock-based awards. We exclude stock-based compensation expense from non-GAAP financial measures because we believe (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of the timing and valuation of grants of new stock-based awards, including grants in connection with acquisitions. Investors should note that stock-based compensation is a key incentive offered to employees whose efforts contributed to the operating results in the periods presented and are expected to contribute to operating results in future periods, and such expense will recur in future periods.
- Non-recurring expenses and transaction-related costs - Non-recurring expenses relate to certain severance and other charges incurred in connection with activities that are considered one-time. Transaction-related costs are the non-recurring costs related to specific acquisitions (such as the Healthland acquisition). We exclude non-recurring expenses and transaction-related costs from non-GAAP financial measures because we believe (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods.
- Non-cash charges to interest expense and other - Non-cash charges to interest expense and other includes amortization of deferred debt issuance costs. We exclude non-cash charges to interest expense and other from non-GAAP financial measures because we believe these non-cash amounts relate to specific transactions and, as such, may not directly correlate to the underlying performance of our business operations.
- Cash benefits derived from the utilization of net operating loss carryforwards acquired in the Healthland acquisition – A significant portion of the fair value of the assets we acquired in the Healthland acquisition is comprised of federal and state net operating loss carryforwards of the acquired entities. We add utilized amounts in computing adjusted EBITDA to reflect the cash benefit received by the Company from the utilization of these significant assets as such benefits are generally excluded from GAAP measures of financial performance.
- After-tax effect of non-deductible transaction-related costs – Certain transaction costs incurred in the Healthland acquisition are non-deductible for federal income tax purposes as they are considered facilitative costs of the specific transaction. Similar to the treatment of non-recurring expenses and transaction-related costs, we exclude the after-tax effect of non-deductible transaction-related costs from non-GAAP net income because we believe (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods.
- Tax shortfall (excess tax benefit) from stock-based compensation – ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, became effective for the Company during the first quarter of 2017 and changes the treatment of tax shortfall and excess tax benefits arising from stock-based compensation arrangements. Prior to ASU 2016-09, these amounts were recorded as an increase (for excess benefits) or decrease (for shortfalls) to additional paid-in capital. With the adoption of ASU 2016-09, these amounts are now captured in the period’s income tax expense. We exclude this component of income tax expense from non-GAAP financial measures because we believe (i) the amount of such expenses or benefits in any specific period may not directly correlate to the underlying performance of our business operations; (ii) such expenses or benefits can vary significantly between periods as a result of the valuation of grants of new stock-based awards, the timing of vesting of awards, and periodic movements in the fair value of our common stock; and (iii) excluding these amounts assists in the comparability between current period results and results during periods prior to the adoption of ASU 2016-09.
Management considers these non-GAAP financial measures to be important indicators of our operational strength and performance of our business and a good measure of our historical operating trends, in particular the extent to which ongoing operations impact our overall financial performance. In addition, management may use Adjusted EBITDA, Non-GAAP net income and/or Non-GAAP EPS to measure the achievement of performance objectives under the Company’s stock and cash incentive programs. Note, however, that these non-GAAP financial measures are performance measures only, and they do not provide any measure of cash flow or liquidity. Non-GAAP financial measures are not alternatives for measures of financial performance prepared in accordance with GAAP and may be different from similarly titled non-GAAP measures presented by other companies, limiting their usefulness as comparative measures. Non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP. Additionally, there is no certainty that we will not incur expenses in the future that are similar to those excluded in the calculation of the non-GAAP financial measures presented in this press release. Investors and potential investors are encouraged to review the “Unaudited Reconciliation of Non-GAAP Financial Measures” above.
View source version on businesswire.com: http://www.businesswire.com/news/home/20171102006110/en/
Contacts:
Tracey Schroeder, 251-639-8100
Chief Marketing Officer
Tracey.Schroeder@cpsi.com