CPSI 2017 Annual Report

39 Similarly, compliance with the meaningful use rules has accelerated the purchases of incremental applications by our existing customers. Consequently, our penetration rates within our existing customer base for our current menu of applications have increased significantly under the ARRA, thereby significantly narrowing the market for add-on sales to existing customers. On August 2, 2017, the Centers for Medicare and Medicaid Services (“CMS”) announced a final rule that effectively delayed the requirement for stage three compliance from January 1, 2018 to January 1, 2019. While we believe that the stage three requirements provide a significant opportunity for add-on sales revenues through 2018, the delay by CMS is expected to delay some of the contract revenues we previously anticipated and there is a risk of further delays or reductions in the regulatory requirements imposed on hospitals, which could have an adverse effect on our revenues. Although we are pursuing other strategic initiatives designed to result in system sales revenue growth in the future in the form of selective expansion into English-speaking international markets, selective expansion within the 100 to 200 bed hospital market, and continued development of new software applications such as our Business Intelligence solution which provides community hospital leaders valuable insight into financial, operational, and clinical data, there can be no guarantee that such initiatives will prove successful or will benefit the Company in a sufficiently timely fashion to offset the short-term effects of the aforementioned narrowing markets. 2017 Financial Overview We generated revenues of $276.9 million from the sale of our products and services during 2017, compared to $267.3 million during 2016, an increase of 3.6% that is primarily attributed to TruBridge customer growth and meaningful use stage 3 implementations. We view sales of TruBridge solutions within our existing EHR client base as our leading performance indicator. Our net income (loss) decreased to a loss of $17.4 million from income of $3.9 million in 2016 primarily due to a $28.0 million goodwill impairment charge for our post-acute care EHR reporting unit. Our operating income (loss) decreased by 133.5%, from income of $14.4 million in 2016 to a loss of $4.8 million, primarily due to the aforementioned goodwill impairment partially offset by realized synergies resulting from the 2016 acquisition of HHI. Net cash provided by operating activities increased $21.5 million, from $2.1 million provided by operations for 2016 to $23.6 million provided by operations for 2017. This increase is primarily due to a $6.7 million increase in net income, exclusive of the non-cash goodwill impairment charge, and cash-advantageous changes in working capital. We did not identify any events or circumstances that would require interim goodwill impairment testing prior to October 1, 2017. Based on our assessment as of October 1, 2017, we determined that there was no impairment of goodwill for our Acute Care EHR and TruBridge reporting units. We also determined as of October 1, 2017, that it was more likely than not that we did not have an impairment of our Post-acute Care EHR reporting unit. During the fourth quarter of 2017, the cumulation of events, including anticipated attrition of significant customer accounts and a product development acceleration investment plan in our Post-acute Care EHR software, triggered management to re-assess future discounted cash flow projections for the Post-acute Care EHR reporting unit. The result of our fair value assessment, with the assistance a third-party valuation expert, resulted in a preliminary conclusion on January 12, 2018. The valuation assessment, which applied a combination of the income and market valuation approach, measured the reporting unit's fair value less than the reporting unit's carrying value and a goodwill impairment of $28.0 million was recorded against our Post-acute Care EHR reporting unit as of December 31, 2017. We have historically made financing arrangements available to customers on a case-by-case basis depending upon the various aspects of the proposed contract and customer attributes. These financing arrangements include other short-term payment plans and longer-term lease financing through us or third-party financing companies. For those customers not seeking a financing arrangement, the payment schedule of the typical contract is structured to provide for a scheduling deposit due at contract signing, with the remainder of the contracted fees due at various stages of the installation process (delivery of hardware, installation of software and commencement of training, and satisfactory completion of a monthly accounting cycle or end-of-month operation by and as applicable for each respective application). During 2017, total financing receivables increased by $15.5 million, which had a significant impact on operating cash flow. The increase in financing arrangements is primarily due to two reasons. First, meaningful use stage 3 installations are primarily financed through short-term payment plans. Second, competitor financing options, primarily through accounts receivables management collections and cloud EHR arrangements, have applied pressure to reduce initial customer capital investment requirements for new EHR installations, leading to the offering of long-term lease options. We have also historically made our software applications available to customers through "Software as a Service" or "SaaS" configurations, including our Cloud Electronic Health Record ("Cloud EHR") offering. These offerings are attractive to some customers because this configuration allows them to obtain access to advanced software products without a significant initial capital outlay. We have experienced a substantial increase in the prevalence of such SaaS arrangements for new system installations and add-on sales to existing customers since 2015, a trend we expect to continue for the foreseeable future. Unlike