Thoughts on Healthland Acquisition

Steven A. Rubis [email protected] (214) 706-9451

Stifel Equity Trading Desk (800) 424-8870

Company Update

CPSI: CPSI Announces Acquisition of Healthland; 1+1 Is Likely Less Than 2; Hold

Thoughts. We believe today’s announcement that CPSI will acquire Healthland

illustrates just how difficult the spending environment in HCIT may be. In our view,

the acquisition represents a coming together of two distressed vendors likely facing

further business deterioration in FY16. By combining the two entities, CPSI can

mask the deteriorating fundamentals of the core software business as the

combined entity will generate roughly $300 million in revenues in FY16. We believe

investors should be skeptical of the transaction for several reasons. First, CPSI’s

management has little acquisition experience, which increases integration risks.

The primary cause of failed EHR vendor acquisitions throughout the history of

HCIT typically stems from the failure to integrate different platforms. CPSI will

support Healthland’s Centriq EHR product for a minimum of seven years, and

Healthland’s older solution Classic for at least two years. Lastly, we believe the

merger does little to address looming competition from athenahealth, and the deal

leads us to believe the macro environment for small, rural hospitals is likely worse

than many believe.

Who Wins from the CPSI / Healthland Merger? We believe the clear winner will

be athenahealth (ATHN, $166.88, Buy), as the merger of CPSI / Healthland

illustrates that the small hospital spending environment is likely tougher than most

realize. In our view, the CPSI / Healthland merger will likely be tumultuous given

CPSI lack of acquisition experience. We believe integration risk combined with a

continuing poor spending environment may help drive greater awareness of the

athenahealth value proposition as it enters the sub-50 bed hospital market full

force. In our view, the efficiency of athenahealth’s software enabled services

platform will be quite attractive to fiscally strapped and resource strapped small,

rural hospitals.

News. CPSI announced the acquisition of Healthland for $250 million (65% cash

and 35% CPSI common stock), and will be partially funded by $150 million in debt.

The combined entity is expected to generate roughly $300 million in FY16, with

$120 million revenue contribution from Healthland. Investors should note

management’s guidance implies the core CPSI business will generate $180 million

in FY16 revenues, a 2.2% decline based on our estimates. FactSet consensus

calls for $194.8 million in FY16 revenues, about 7.6% above management’s

implied guidance.

Valuation. We maintain our Hold rating. We will review our rating and model

accordingly as additional financial information on the transaction becomes

available.

Changes Previous Current

Rating — Hold

Target Price — NA

FY15E EPS (Cash) — $2.12

FY16E EPS (Cash) — $2.33

FY15E Revenue — $184.1

FY16E Revenue — $190.2

Price (11/25/15): $46.37

52-Week Range: $63 – $36

Market Cap.(mm): 512.5

Shr.O/S-Diluted (mm): 11.1

Enterprise Val. (mm): $472.9

Avg Daily Vol (3 Mo): 108,887

LT Debt/Total Cap.: 0.0%

Net Cash/Share: $3.53

Book Value/Share: 7.26

Dividend($ / %) $2.56 / 5.5%

S&P Index 2,092.10

Prices are intraday.

EPS (Cash) 2014A 2015E 2016E

Q1 $0.73 $0.58A $NE

Q2 0.87 0.60A NE

Q3 0.91 0.40A NE

Q4 0.62 0.54 NE

FY Dec $3.13A $2.12 $2.33

P/E 14.8x 21.9x 19.9x

Revenue 2014A 2015E 2016E

FY Dec $204.7A $184.1 $190.2

EV/Rev 2.3x 2.6x 2.5x

EBITDA 2014A 2015E 2016E

FY Dec $55.4A $34.5 $38.1

EV/EBITDA 8.5x 13.7x 12.4x

One Year Price Chart November 25, 2015

Computer Programs and Systems, Inc.

CPSI – NASDAQ

HoldDigital Healthcare

Stifel does and seeks to do business with companies covered in its research reports. As a result, investors should beaware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors shouldconsider this report as only a single factor in making their investment decision.

All relevant disclosures and certifications appear on pages 4 - 6 of this report.

Company Description

Computer Programs and Systems, Inc. (CPSI) provides healthcare informationtechnology solutions predominantly for the rural and community hospital space,including critical access hospitals. The company provides enterprise-wide softwareand hardware systems, which automate the clinical and financial managementfunctions within a hospital. Additionally, CPSI provides business management,consulting, and managed IT services through its subsidiary TruBridge, LLC. CPSIhas over 650 clients across 46 states and Washington, DC, with the company’starget market consisting of rural and community hospitals with less than 300 beds.Management’s primary focus revolves around rural and community hospitals withless than 100 beds, which represents 94% of the company’s client base. Thetraditional hospital decision cycle associated with adopting CPSI typically takes ninemonths to 12 months. The typical time from contract signing to actualimplementation is between 90 days and 150 days, with 120 days being theaverage.

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Computer Programs and Systems, Inc. (CPSI) November 25, 2015

Computer Programs and Systems, Inc. (CPSI)Statement of Income

FY FYE FYE 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 EFY Ends Dec 2014 2015 2016 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15

System Sales 75,098,728 43,844,448 35,952,447 20,453,427 20,663,393 20,755,908 13,226,000 12,584,948 12,268,000 9,072,000 9,919,500 Support and Maintenance 73,552,885 75,450,112 78,468,116 18,245,121 18,454,030 18,243,734 18,610,000 18,531,712 18,542,000 19,022,000 19,354,400 Business Management, Consulting, and Managed IT Services 56,090,205 64,805,953 75,822,965 13,395,830 13,935,853 14,327,522 14,431,000 15,122,683 16,276,000 16,523,000 16,884,270 TOTAL REVENUE 204,741,818 184,100,513 190,243,529 52,094,378 53,053,276 53,327,164 46,267,000 46,239,343 47,086,000 44,617,000 46,158,170

System Sales 44,620,259 39,104,233 30,919,105 11,193,416 11,292,643 11,087,200 11,047,000 9,809,683 10,641,000 9,726,000 8,927,550Support and Maintenance 29,080,279 28,010,383 29,817,884 7,373,953 7,127,197 7,454,129 7,125,000 7,159,711 6,842,000 6,654,000 7,354,672Business Management, Consulting, and Managed IT Services 37,065,438 41,491,754 47,768,468 9,091,710 9,454,761 9,525,967 8,993,000 9,963,978 9,927,000 10,626,000 10,974,776Cost of Revenues 110,765,976 108,606,370 108,505,457 27,659,079 27,874,601 28,067,296 27,165,000 26,933,372 27,410,000 27,006,000 27,256,998

Gross Profit 93,975,842 75,494,144 81,738,072 24,435,299 25,178,675 25,259,868 19,102,000 19,305,971 19,676,000 17,611,000 18,901,173

Sales and Marketing 14,370,242 12,398,955 14,746,621 3,964,167 3,633,891 3,561,184 3,211,000 3,033,358 3,271,000 3,002,000 3,092,597 General and Administrative 30,032,125 35,576,036 34,665,399 8,484,121 7,475,529 7,523,475 6,549,000 8,438,984 8,019,000 10,348,000 8,770,052

Operating Income 49,573,475 27,519,152 32,326,052 11,987,011 14,069,255 14,175,209 9,342,000 7,833,629 8,386,000 4,261,000 7,038,523

Other Income, Net 165,690 423,838 299,845 (40,910) 66,630 68,970 71,000 83,366 115,000 137,000 88,472

Pretax income 49,739,165 27,942,990 32,625,897 11,946,101 14,135,885 14,244,179 9,413,000 7,916,995 8,501,000 4,398,000 7,126,995

Income Taxes 16,818,973 7,789,376 9,135,251 4,231,043 5,029,498 4,889,432 2,669,000 2,409,087 2,597,000 859,000 1,924,289Tax Rate 33.8% 28% 28.0% 35.4% 35.6% 34.3% 28.4% 30.4% 30.5% 19.5% 27.0%

Net Income, pro forma, cont ops 32,528,192 20,033,614 23,490,645 7,715,058 8,962,387 9,202,747 6,648,000 5,507,908 5,784,000 3,539,000 5,202,706

Basic EPS, pro forma, cont ops 2.94$ 1.81$ 2.12$ 0.69$ 0.81$ 0.83$ 0.60$ 0.50$ 0.52$ 0.32$ 0.47$ Diluted EPS, pro forma, cont ops 2.94$ 1.81$ 2.12$ 0.69$ 0.81$ 0.83$ 0.60$ 0.50$ 0.52$ 0.32$ 0.47$ Dividends declared per share 2.28$ 2.55$ 2.55$ 0.57$ 0.57$ 0.57$ 0.57$ 0.64$ 0.64$ 0.64$ 0.64$ Shares outstandingBasic 11,065,081 11,078,289 11,091,385 11,162,523 11,022,076 11,027,723 11,048,000 11,052,044 11,079,000 11,091,000 11,091,110Diluted 11,065,581 11,078,289 11,091,385 11,162,523 11,022,076 11,027,723 11,050,000 11,052,044 11,079,000 11,091,000 11,091,110

Cash EPS (before stock comp) 3.13$ 2.12$ 2.33$ 0.73$ 0.87$ 0.91$ 0.62$ 0.58$ 0.60$ 0.40$ 0.54$ Adjusted EBITDA 55,353,368 34,472,768 38,113,072 13,347,739 15,644,479 15,852,460 10,508,690 9,621,292 10,177,599 5,967,329 8,706,548 Percentage of RevenuesGross profit, pro forma 45.9% 41.0% 43.0% 46.9% 47.5% 47.4% 41.3% 41.8% 41.8% 39.5% 40.9%Sales and Marketing 7.0% 6.7% 7.8% 7.6% 6.8% 6.7% 6.9% 6.6% 6.9% 6.7% 6.7%General and Administrative 14.7% 19.3% 18.2% 16.3% 14.1% 14.1% 14.2% 18.3% 17.0% 23.2% 19.0%Operating Income 24.2% 14.9% 17.0% 23.0% 26.5% 26.6% 20.2% 16.9% 17.8% 9.6% 15.2%Adjusted EBITDA 27.0% 18.7% 20.0% 25.6% 29.5% 29.7% 22.7% 20.8% 21.6% 13.4% 18.9%Year / Year Growth RateNet Sales 1.9% -10.1% 3.3% 5.1% -0.4% 14.0% -9.8% -11.2% -11.2% -16.3% -0.2%System Sales -5.9% -41.6% -18.0% -1.3% -7.7% 28.2% -35.5% -38.5% -40.6% -56.3% -25.0%Support and Maintenance 2.9% 2.6% 4.0% 3.2% 4.0% 1.4% 2.9% 1.6% 0.5% 4.3% 4.0%Business Management, Consulting, and Managed IT Services 13.2% 15.5% 17.0% 20.1% 6.0% 13.7% 13.9% 12.9% 16.8% 15.3% 17.0%Adjusted EBITDA 1.2% -37.7% 10.6% 19.5% 9.9% 31.2% -39.0% -27.9% -34.9% -62.4% -17.1%Operating Income -1.3% -44.5% 17.5% 18.6% 7.0% 28.6% -41.5% -34.6% -40.4% -69.9% -24.7%Dividend 11.8% 12.0% 0.0%Guidance from CompanyTotal Revenues $196M to $206MTotal Revenues (Revised 2Q15) $188M to $192MTotal Revenues (Revised 3Q15) $184M to $186M $46.1M to $48.1MNet Income $29M to $31MNet Income (Revised 2Q15) $23.2M to $24.5MNet Income (Revised 3Q15) $20.0M to $20.4M $5.2M to $5.6MDiluted EPS $2.62 to $2.77Diluted EPS (Revised 2Q15) $2.05 to $2.17Diluted EPS (Revised 3Q15) $1.77 to $1.81 $0.43 to $0.47

Steve Rubis: (214) 706 - 9451

Published: October 30, 2015

Source: Company reports and Stifel estimates

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Important Disclosures and Certifications

I, Steven A. Rubis, certify that the views expressed in this research report accurately reflect my personal viewsabout the subject securities or issuers; and I, Steven A. Rubis, certify that no part of my compensation was, is,or will be directly or indirectly related to the specific recommendations or views contained in this researchreport. Our European Policy for Managing Research Conflicts of Interest is available at www.stifel.com.

Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q330

40

50

60

70

80

2013 2014 2015 2016

04/06/15I:H:NA

Rating and Price Target History for: Computer Programs and Systems, Inc. (CPSI) as of 11-24-2015

Created by BlueMatrix

Rating Key

B - Buy UR - Under Review

H - Hold NR - No Rating

S - Sell NA - Not Applicable

I - Initiation SU - Rating Suspended

D - Discontinued

For a price chart with our ratings and any applicable target price changes for CPSI go tohttp://sf.bluematrix.com/bluematrix/Disclosure?ticker=CPSI

Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q340

80

120

160

200

240

2013 2014 2015 2016

06/16/14I:B:$155

01/15/15B:$180

05/29/15B:$165

07/23/15B:$180

10/26/15B:$190

Rating and Price Target History for: athenahealth, Inc. (ATHN) as of 11-24-2015

Created by BlueMatrix

Rating Key

B - Buy UR - Under Review

H - Hold NR - No Rating

S - Sell NA - Not Applicable

I - Initiation SU - Rating Suspended

D - Discontinued

For a price chart with our ratings and any applicable target price changes for ATHN go tohttp://sf.bluematrix.com/bluematrix/Disclosure?ticker=ATHN

The rating and target price history for athenahealth, Inc. and its securities prior to February 25, 2015, on the above

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http://sf.bluematrix.com/bluematrix/Disclosure?ticker=CPSI

http://sf.bluematrix.com/bluematrix/Disclosure?ticker=ATHN

price chart reflects the research analyst's views under a different rating system than currently utilized at Stifel. For adescription of the investment rating system previously utilized go to.www.stifel.com.

Stifel or an affiliate is a market maker or liquidity provider in the securities of Computer Programs and Systems, Inc.and athenahealth, Inc..

The equity research analyst(s) responsible for the preparation of this report receive(s) compensation based on variousfactors, including Stifel’s overall revenue, which includes investment banking revenue.

Our investment rating system is three tiered, defined as follows:

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