CPSI 2017 Annual Report

47 Operating Cash Flow Activities 2017 Compared to 2016. 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 net income, exclusive of non-cash goodwill impairment charges, which increased $6.7 million, and cash-advantageous changes in working capital. During 2016, we invested heavily in improving the working capital of the HHI entities post-acquisition in order to normalize the aging of vendor payables and improve acquired vendor relationships, resulting in a combined cash outflow related to changes in accounts payable and other liabilities of $12.8 million during 2016. Comparatively, the timing of vendor payments during 2017 resulted in expansion of these liabilities and a resulting benefit to cash flows of $6.8 million, for a total beneficial swing in cash flows from these working capital components of $19.7 million. Additionally, our acquisition of HHI in January 2016 included significant deferred revenue balances, the amortization of which benefited revenues during 2016 with no corresponding cash benefit. Conversely, deferred revenue balances grew during 2017 due to a high volume of advance billings for third party subscriptions, providing cash benefits with no related revenue impact. These deferred revenue dynamics alone resulted in a $16.5 million improvement in cash flows as displayed in the consolidated statement of cash flows. These cash flow improvements have been partially offset by an increasing level of customer financing arrangements for the purchase of our EHR systems. 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 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. During 2017 financing receivables expanded by $17.3 million compared to a $1.5 million contraction during 2016. 2016 Compared to 2015. Net cash provided by operating activities decreased 93.3%, or $28.8 million, from $30.9 million provided by operations for 2015 to $2.1 million provided by operations for 2016, primarily due to the impact of the HHI acquisition. During 2016, we invested heavily in improving the working capital of the HHI entities post-acquisition in order to normalize the aging of vendor payables and improve acquired vendor relationships, resulting in a combined cash outflow related to changes in accounts payable and other liabilities of $12.8 million in 2016, whereas the movement of these working capital components improved operating cash flows by $1.3 million in 2015. Additionally, the acquisition of HHI included significant deferred revenue balances at the date of acquisition, for which the subsequent revenue recognition had no benefit to our operating cash flows. Consequently, our operating cash flows were negatively affected by the net impact of deferred revenue balances in the amount of $13.7 million, compared to this impact during 2015 of $2.1 million. Lastly, the Company incurred $8.2 million of transaction costs, the vast majority of which were in cash, associated with the HHI acquisition during 2016, with only $3.0 million of such costs during 2015. Investing Cash Flow Activities 2017 Compared to 2016. Net cash used in investing activities decreased to $0.7 million in 2017 from $151.8 million used during 2016. We utilized cash (net of cash acquired) of $162.6 million for the acquisition of HHI during 2016, partially offset by sales of investments in available-for-sale securities of $10.9 million during this period. 2016 Compared to 2015. Net cash used in investing activities increased to $151.8 million in 2016 from only $0.6 million in 2015. We utilized cash (net of cash acquired) of $162.6 million for the acquisition of HHI during 2016, partially offset by sales of investments in available-for-sale securities of $10.9 million in this period. Investing cash flow activities in 2015 were primarily limited to $0.4 million of capital expenditures. Financing Cash Flow Activities 2017 Compared to 2016. During 2017, our financing activities used net cash of $24.6 million, as we paid $12.8 million in long term debt principal and we declared and paid dividends in the amount of $11.6 million. Financing cash flow activities provided $127.0 million during 2016, primarily due to the proceeds of the aforementioned credit facility of $156.4 million partially offset by $25.1 million cash paid in dividends. We believe that paying dividends is an effective way of providing an investment return to our stockholders and a beneficial use of our cash. However, the declaration of dividends by CPSI is subject to compliance with the terms of our Amended Credit Agreement and the discretion of our Board of Directors which may decide to change or terminate the Company's dividend policy at any time. The fixed dividend declared on November 2, 2017, which decreased the dividend to $0.10 per share, marks a change from the Company's previous variable dividend policy, announced on August 4, 2016. The revised dividend policy, along with improved pricing under the Amended Credit Facilities, are consistent with our goal of