Q2 2020 Earnings Call
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Actually if you should require operator assistance. Please press star zero before we start I'd like to remind everyone that the comments made on this call may include statements that are forward looking within the meaning of the federal security laws, including without limitations statements relating to anticipated industry trends the company's plans future performance.
Products prospectus and strategies risks and uncertainties access that may cause results to differ materially from those expressed in these forward looking statements, including among others. Those risks set forth in the company's public filings with the U.S. Securities and Exchange Commission, including the discussion under the heading risk factors and the company's most recent.
Annual report on the form 10, K. any and any subsequent quarterly reports on Form 10-Q .
Any forward looking statements speak only as of today the company expressly disclaims any intent or obligation to update these forward looking statements.
Our remarks on this call include both our earnings results and guidance, which contain certain non-GAAP financial measures for earning results. The GAAP financial measures most directly comparable to each non-GAAP financial measure used or discussed any reconciliation of the differences between each non-GAAP financial measure and a comparable GAAP financial measure.
Sure can be found within our latest quarterly earnings press release that was filed with the FCC and this posted to the investors section of our website.
Its release also provides qualitative descriptions of how we have calculated non-GAAP financial measures contained in our guidance at this time I would like to turn the call over to Mr., Rusty Frantz President and chief.
President and CEO of next Gen. Sir you may begin.
Thank you operator.
Thank you everyone for joining us this afternoon jury Nexgen health Care's fiscal second quarter F. why 20 results.
Did you ask why 20 was a solid quarter for next Gen. As we continue to execute on our strategic plan.
In Q2 revenue came in at $134.3 million compared to 130.3 million a year ago. Both under Antsy. Six says six this represents more than 3% year over year growth. Our non-GAAP EPS of 24 cents was flat compared to Q2, Applewhite 19 and in line with our expectations.
Looking for the quarter came in nicely at 36.6 million showing growth over a very strong 36.1 million and the same quarter last year.
Operating cash flow for the quarter was 23.8 million, an extra and generated 17.1 billion in free cash flow as our cash generation capabilities continue to expand our storehouse of dry powder.
In addition, we were able to fully paid down the remaining balance on our revolver in this quarter, giving us a current total available liquidity of $324 million.
As we move forward, we will continue to look for uses of this capital to drive additional value for the shareholders.
Legacy maintenance retention came in at 90.4% over the trailing 12 months or slightly ahead of our F. why 20 models level of 89%.
As we stated on the last call we anticipate some volatility in the retention rate as we move forward and believe our modeled level continues to be appropriate.
As we look back in Q2 deal flow. We saw continued success in signing all in deals and further cross selling our RCM or revenue cycle management solution, which represented almost a third of the bookings in the quarter.
Notably in the quarter, we signed another large all in deal totaling over 5 million annually.
Software only client that was frankly highly dissatisfied four years ago. When I started my tenure has reached a level of confidence and satisfaction that they were comfortable adopting the entire integrated ambulatory platform, including revenue cycle management, our mobile platform and are pop health analytics, which is a competitive replacement.
Clearly a great validation that our performance and driving satisfaction innovation is opening up opportunities within our client base.
Just wasn't the only significant deal as in Q2, we close the totaled 11 clients who entered into arrangements over $400000.
I'm really proud of the momentum that the team is driving and look forward to the back half of the year.
From an M&A standpoint, we announced the acquisition of Topaz information solutions a deal closed in the last month for the quarter.
Topaz, it's been a strong reseller partner and to the behavioral health space and brings both strong commercial and solution capabilities to next gen.
Well this acquisition brings negligible revenue, we see behavioral health an integrated care as key strategic areas for next Gen and this Ics this transaction expands our capabilities to deliver our planned growth in this part of the market.
Well be augmenting the capabilities of both next gen and the incoming copas Topaz team with further investments both from a solution standpoint, and by further expanding our sales team.
Diving a bit deeper into sales last quarter, we discussed a couple of areas in which we are changing and enhancing the structure of parts of our organization and this quarter. We have continued that evolution to that end. We've made a couple of strategic changes to our sales structure.
Without significant disruptions to our client relationships, we have chosen to both expand the number of quota carrying feet on the street, while at the same time more closely aligning our sales team with their managers to promote more of a player coach relationship.
Reorganizing and this fashion will allow for the managers to become specialists and their geographies and declared specialties, taking a proven commercial model and evolving it to become even more effective.
Ultimately this will be a very important shift as we focus more on new client acquisition in areas that we had a competitively advantaged hand to play.
While we expect this evolution have minimal impact on our full year bookings expectation, we do expect to see bookings a bit more back loaded into Q4 as these changes settle in in the new organizational model takes hold.
From client satisfaction standpoint, we've made a meaningful progress in the quarter as our class scores continue to move into right direction.
And the practice management all provider sizes, we now rank just a touch behind the largest vendor in our space.
And the 11 to 75 provider category, we maintained our number one PM Prime practice management ranking and our enterprise each our scores have increased 12.5 points since September 2017, representing a more than 19% improvement and only two years.
Our voice of the client survey provides another proof point that our clients are pleased with their next gen experience specifically, 81% of respondents in the quarter said, they would recommend nexgen enterprise DHR, an 87% would recommend our enterprise practice management solution.
This increase in client satisfaction, along with the continued expansion of our solutions have made us increasingly competitive in the field.
This quarter was another point of validation for this improvement and I'm very pleased with a nine competitive takeaways captured in our second quarter bookings number.
Coming up we're looking forward to our user group meeting in a few weeks UGI M. 2019 represents an amazing opportunity to both gather feedback from our clients as well as showcase a number of key areas of evolution.
Among the many areas will showcase we're excited to present, our strong new capabilities behavioral health and integrated care areas that resonate with both our large federally qualified health center base as well as our growing base of behavioral health clients.
We're also on a significant journey to educate our clients on the breadth of the capabilities of the next Gen solution platform.
Many of our clients are not leveraging significant aspects of the platform and we see opportunity to drive both further value add increased client satisfaction by educating them on how to get more from the investments they've already made.
This education also supports the cross sell strategy and expanding our clients nexgen footprint.
In addition, we will show the clients another great step forward from usability standpoint, as we show our first look at a news user interface for HR, specifically launched in the primary area providers operate in the soak node.
We're excited to spend time on these in so many other exciting areas with both existing clients and an increasing number of new prospects as we look forward to another great user group meeting.
As we look at revenue for the full year, we're happy to reaffirm our guidance of 536 to 550 million for at quite 20 revenue.
We seek for Q3 revenue growth being a bit more muted with Q4 being a more meaningful jobs are very time relationship begins to deliver.
As we look at the back half of the you're on the S. Line. We're also happy to reaffirm our full year guidance of 80 to 90 cents.
We continue to be pleased with our progress on our strategic plan and the beginnings of organic revenue growth.
We're excited to see this year's bookings growth in revenue growth continue for years into the future.
As we deliver on a current plan as we seek our competitive increase and our ability to execute improve our competence only increases.
Now, let me turn to Jamie for dive into the numbers Jamie.
Thank you are asking.
Thank you to everyone on the call total revenue of 134.3 million increased $4 million or 3% compared to the same period last year and was inline with our expectations.
Recurring revenue of 120.6 million increased $4.3 million for 4% compared to a year ago with increases of 7% in subscription services and managed services and 3% for 80 million data services.
Offset partially by a modest decline of approximately 1% important maintenance revenue.
Recurring revenue was 90% of our total revenue slightly higher than the 89% in the prior year.
Subscription revenue of 31.4 million increased 2.2 million compared to a year ago.
The growth was primarily driven by analytics and Nexgen office.
Support maintenance revenue of 39.4 million decreased 300000 year over year due to attrition in our legacy Angie customers, largely offset by new contracts and CPM increases.
Managed services revenue of $25.2 million increased 2 million compared to a year ago, mainly due to growth in hosting services in RCM services related to the large new customer we signed in June of last year, we remain focused on driving RCM penetration in our customer base as well as leading with.
It in proposals to new customers.
Any data services revenue of $24.6 million increased 700000 year over year, largely due to increases that existing and new customer volume offset by modest decrease in data services revenue.
Nonrecurring or onetime revenue was 13.7 million.
A 300000 dollar or 2% reduction over the same quarter last year.
Software license in hardware revenue of 8.3 million declined 1.1 million or 12% year over year consistent with the trend we discussed last quarter.
Non recurring services revenue of $5.4 million increased 800000, or 16% compared to a year ago due to growth in connected health and analytics professional services.
Earnings came in at 36.6 million in the quarter up 1.4% on a year over year basis against a very tough comparison.
Cost of goods increased by 8% due to higher amortization of capitalized development costs and a higher managed services cost Ics due to a mix shift.
Gross profit declined 1% to 68.5 million in gross margin declined to 51% compared to the prior year quarter of 53.1%.
This is due to increases in cost of goods just discussed.
Taking a look at our operating expenses SGN, a 39 million as an increase of 4.8 million or 14% from $34.2 million a year ago.
The increase is primarily due to prior year insurance credit.
$5.7 million related to shareholder litigation.
R&D of 19.8 million increased 1.4 million or 8% from 18.4 million a year ago.
This increase is related to increased gross spending and a slight reduction in capitalized software development costs.
Impairment and restructuring charges of 2.1 million.
Primarily related to cost associated with the reduction in expected sublease income on the vacated portion of our portion property.
Our GAAP tax rate for Q2 up why 20 was 7.7% with a non-GAAP tax rate of 22%.
For up why 20, we will continue to use a non-GAAP tax rate of 22%.
To conclude my comments on the income statement are you.
Q2, GAAP EPS of nine cents decreased from 20 cents a year ago, our non-GAAP EPS of 24 cents for Q2 was flat to the prior year.
Turning to the balance sheet, we ended the quarter with 42.9 million in cash and equivalents and a zero balance outstanding on our revolving credit agreement Dsos in the quarter were 57 days a decrease of three days from last year and flat to last quarter all within our expected range of 55 to 60 days.
Our capex, excluding capitalized R&D was 1.5 million.
Capitalized R&D was 5.2 million.
To close the call today I reiterate our outlook for fiscal 2000 2020.
We expect revenue to be between 536, and $550 million and non-GAAP EPS to be between 80 to 92 cents 90 cents per share. So thats 82 to 90 cents per share.
Overall I am generally pleased with our performance in Q2.
And as we execute our strategic plan I am looking forward to continued progress throughout this year and into next year.
This concludes my review of the second quarter financial results I'll now turn the call back depressing.
Thanks, Jamie.
So I look back over the last four plus years here at next Gen. I continue to be amazed at the tremendous progress we've made.
We have come from having one of the worst client satisfaction levels in our sector to one of the best.
We have significantly expanded our solution platform, both organically as well through as well as through multiple successful acquisitions.
We've built a robust employee culture that has the enabler of both client satisfaction and strong innovation.
We've delivered significant bookings growth and are now moving into revenue and earnings growth.
And most importantly, we have once again become a positive force in the evolution of health care as we seek to do well by doing good.
I'm, so proud of our team and so grateful to be a part of this amazing organization.
With that I'll pass it over the operator and open it up for questions. Thank you.
As a reminder to ask your question you need to press Star one on your telephone to withdraw your question press the pound team. Please standby, while we've compiled acumen day roster.
Your first question comes from Jeff Garo, with William Blair and company.
Yeah, good afternoon, and thanks for taking the questions.
Started off with a a question on bookings.
Hoping you could help us set expectations for bookings growth for the full year certainly the first half performance has been good against some challenging comparable if in the sort of sounds promising for the second half I want to make sure. We understand all the puts and takes relative to some of those small changes the sales organization.
Yeah, I mean as I as I look through the back half the year, what I'd say is I I'm I'm very.
I would confirm the guidance I provided at the beginning of the year, which is we expect it last year, we delivered I think 14% year over year bookings growth. This year, we expected to be a little bit more muted, but kind of in that and that top half of the single digits.
I feel like we've got clear line of sight to that a robust pipeline, we had a great quarter. This last quarter.
My expectation is that Q3 will be a good quarter in Q4 will really rebound.
Great. That's that's very helpful.
Still on the bookings from one thing that didn't come up specifically in the script as the population health win at University Hospital Health systems.
I think thats, one that people had and I am curious about both the process there since that's a large system outside of your core client base and then the substance of why they chose next gen.
Yeah. So the reason why we Didnt included in this quarter's deals is that actually signed a couple of days before the beginning of this quarter, but we buy we did we press released at this quarter, which kind of makes it net new news, we're very excited about it if you remember.
Piece was about a year over year and a half ago I talked about.
Interesting win in a hospital system in the northeast, whereas for hospitals that had pulled in our pop health and I said you know what it's an interesting when but until I've got more data points I'm not going to declared an opportunity.
With the with the University when we really feel like we are starting to we're starting to become a little more interested in a broader space beyond our core client base.
That one.
We were we were chosen really because we've shown the ability to bring together multi source data in a way that is truly actionable my multisource data I mean, not just clinical feeds.
And not just claims feeds the bringing those together. So you both have clinical information, but also the cost information necessary, sorry to validate not just quality outcomes, but the cost of achieving those by bringing that altogether and by showing that we can enter operate across multiple HR platform system, which we did and not pre of prior grew Tonight.
It's about where they have I'd say across their entire ecosystem somewhere in the high teens from an DHR standpoint.
Almost as may be 20, and so.
The ability to bring all that together and then deliver truly actionable information that really drive activity from a pop health standpoint, I think all of those things are really positioning us in a somewhat of a unique space.
Part of the market that is as much of an agnostic opportunity, maybe even more than just an extension of a single Omar.
Great very helpful. Thanks for taking the questions guys.
Thanks, Jeff.
Your next question is from Jamie Stockton with Wells Fargo.
Hi, good evening or afternoon, I guess, there thats my questions.
The sales.
Restructuring or could you just give us sense of for your quota carrying reps kind of what like what their experience will be on a go forward basis versus what it was in the past.
What will change throughout their job yeah. It's a great question. So think about it this way so in a prior to October 1st a regional Vice President.
Maybe managing reps that are focused on the cross sell inside the base on new client acquisition outside the base.
On.
Parts of the health care ecosystem like a federally qualified health center behavioral health and an orthopedic group and a multi specialty group in a primary care group and so when you think about mentoring.
And being that player coach to their entire team the breadth of knowledge that that regional Vice President had to have was very significant and frankly, they were managing more the sales process and the forecasting then being able to participate as directly in mentoring both mentoring reps, but also being able to truly engage.
The client and so by by Segmenting, our leadership team out so that theres more of a pure group under him. So for example, a regional vice president might be solely responsible for sales executives, who are new client hunters and so by bringing that kind of alignment were enable.
During the leadership to better support the team Jamie any come chunk of Rusty. So the most important thing about this pivot is it starts it's primarily focused at the leadership the sales leadership.
We previously had bifurcated the sales organization between those who focused inside the base and outside the base. The reps who are focused inside the base. There is no change to them right now.
To those who are outside the base. They are there have been.
Divided into specialty focuses so there is a little bit of change for them, but it will help them.
Narrow their scope and become more targeted.
And but it's the biggest changes that for the regional Vice Presidents, where we now have separated them to the same kind of category, where there's three regional vice presidents in charge of the inside the base or the farmers and there's three that are outside the base yen and I think one of the core principles of this was to really disrupted the.
The sales rep client relationship to the least degree possible because here we are in the middle of year, we're driving great bookings growth and the other thing I'd say is this was not in response to any problem as much as this is leaning forward into opportunity.
Okay. That's great maybe just one more the R&D spend.
If I look at it.
Actually I want to say, maybe it came down a fair amount and I guess the thing that runs through my mind, there, although I realize there might be some noise.
Oh, you're capitalize levels were up a little bit, but maybe not as much as I think the pro forma R&D number came down you like.
Is this a seeing.
Head count shift to India, and and like this is the new number that we should think about.
Just any color on that would be great.
Well, yes, we are in the process as we talked about in couple of quarters ago of making that making that head count shift and expansion.
We are well go we're well on the way through that but there is some puts and takes along the way as we move through that I will say that.
We have we have no intention of saving our latest success on the R&D line.
Our expectation is is right in line with what we said at the beginning of the year and while there will be some ebbs and flows from a cap software standpoint.
You should expect the full year number two very closely resemble last year's number.
Okay. That's great. Thank you thanks, Jamie.
Your next question is from Matthew Gilmore with Baird.
Hey, Thanks for the question one more on the sales reorg and some of the goals. There. It seems like this will give you a little bit of a clear focus outside of the base. So I was hoping you could.
Confirm where you are from a bookings standpoint is it still sort of 85 25, and then what the sales Reorg, where do you expect that will trend as we get into next year.
I could tell you it's not 85 25.
Because that 100 [laughter].
We have not.
But what I would say and I feel like we are starting to move past 85, 15, and I think if we look down the road, we see that probably going as as somewhere in the 70 525 range as we as we look at next year, because we are having success now the great News is we're having continuous success inside the bank.
And so if we can accelerate outside the base that create that creates the natural bookings growth curve that we've really discussed over the last few years and expect to extend going forward.
We are expanding the number of quota carrying reps that are focused outside the base simply because we've played a reasonably successful hand, there and we see that is a good investment in a win for the shareholders.
Got it thanks to them for the math less than two.
Let me ask as.
One more on the.
Just as capital deployment priorities here, you've got no data at this point if your your cash is building up.
The Topaz deal it seems pretty small so just where are you focus on acquisitions and how are you close anything.
Well, if we're close to something we'll tell you when were there.
But what I would say is look we the last prior to prior to this acquisition. The last one was I think about a year and a half ago, which was another small tuck in of of an orthopedic and muscular skeletal focused reseller prior to that would have been I'll be back in October 17.
Which was the acquisition of Eagle Dream Health, our population health analytics Black.
As we sit here today, we've done a really good job, both integrating and delivering on value of the things that we've done and as we now start to look forward, especially with we believe more energy and the transition to value as well as a greater emphasis on patient provider interaction.
I would expect to see us continue to focus in those areas and given the liquidity. We have we definitely have some opportunities to do some interesting things.
So.
My expectation is that you'll see us make moves as we move through the next two to four quarters, but you can never forecast those things depends on the REIT asset being actionable at the right time and frankly at a price that we believe is a win for the shareholders.
Got it fair enough. Thank you.
Thank you.
Your next question is from Donald Hooker with Keybanc.
Okay, Great you referenced that that interesting population health deal win sounded like it was last quarter in the University health system.
Can you give us an update on that Eagle Dream I guess, you caught next Gen population health analytics I think now.
How much of that where are you in terms of claim count there, but it's in growing nicely and are you getting more traction now outside of the legacy next Gen base like what maybe a break down there what is that now 50 50.
We havent, we haven't actually broken that out and but what I would say is I think we're having as much success agnostically as we are within the base. The client count continues to increase were.
Plus or minus around 100 clients and and I think are getting.
More than that though are starting to see clients really start to expand the number of feeds and expand the distribution of the product as people are really starting to wrap their heads around what it can do for their organization. I think also we've we've talked publicly about the fact that we're in the process now and it's adding care management capabilities to population health that'll show.
Well up in calendar F. Why 20 calendar 20, rather sorry, not calendar effluent 20 that'll show up in calendar 20, and that's really then taking the analytics and align those analytics to really extend into consistent personalized action around than what the cohort identified population health needs and so it's.
Really focused on not just identifying the cohorts that can.
That need special attention, but actually ensuring that you have a relatively consistent approach to what kind of attention you're paying to that to that patient, which then allows you to continue to evolve practice and deliver better quality at lower cost proactively to patients before they become a bad facts from a profitability standpoint for the client.
And so we are really right now, we're kind of stepping back and and really taking a look at the success. We've had in pop health and now starting to figure out what are the broader set of capabilities that we can integrate with population health and so we can play an even more important and strategic hand for clients both within the next Gen base.
But also outside of the next Gen base in ambulatory and potentially over time more and more in the critical care space time will tell on that.
And just maybe one last question just love your perspective on.
Sort of any change in appetite among your clients that you might or might not be seeing with regards to taking on risk I guess, we're looking ahead to 2020 or there'll be some new.
Contracts, a direct contracting model I guess, we're waiting for details on but.
Love to hear your broader perspective on your clients taking on risk.
Yeah, and certainly I'll be also able to update that next quarter as we get through our user group meeting and our clinical summit, but let's just say the conversations I spend a lot of time in the field the conversations I'm, having with clients.
Our both how can they be successful in the current model, but people are definitely becoming aware when they look at things like.
A lot of episodic habitational, a lot of bundles coming out bundle capitation coming out there is some real concern around having the right analytics to be able to be successful and those kind of models and we feel like folks are on one hand, starting to become aware that they need to do something.
But a lot of our clients are still not aware of what that something should be beyond I need a pop health solution, our goal and our job is to educate them more on how they how they manage that transition not just by slapping analytics on their organization, but actually retooling the way the organization works to truly be successful in risk based.
Range since it's a it's an entirely different world. When you are paid on outcomes versus paid on activity and I think our clients are starting to face that more and more and our expectation is that heavy investment in both solutions and education will pay dividends for the clients and in return for us.
Oh, Thank you very much thank you.
Your next question is from Ricky Goldwasser with Morgan Stanley .
Yes, hi, good afternoon. So when we think about the Topaz acquisition, obviously small revenue contribution, but it seems that strategic value the theory interesting here. So.
When you see kind of tied to this disease does that do you see any other opportunities where you can develop solutions outside the core provider physician market. It really enhanced it be offerings that came in within that.
Yeah, I mean, it will certainly as we look at as we look at integrated care as one of those kind of emerging pieces classically there's been a real stigma around behavioral health in this country and yet as people step back they realize that behavioral health is actually the proactive treatment that prevents a lot of costly medical problems down the way.
And so for us for that one, especially given that integrated care is actually a combination of behavioral mental medical and dental.
We have a really interesting hand to play next we bring all that to the table draft QHC base and so really as we start to work with.
It effectively a relatively new segment of the industry for us we're starting to see some real opportunity there to go above and beyond just kind of what's been done in the past and bring together a couple of great solutions to really support them. When we look further afield Ricky I'd say that right now our primary focus is really on the.
Degraded ambulatory market, we've added behavioral health, we're still focused very much on multi specialty and rolling up single specialties in FQ agencies.
The only other thing we started doing which is the University health and example is to really start to think about is there a broader play.
From an agnostic pop health and value based care solution standpoint in the critical care space, but at this point in time, we have two wins into wins does not make a on a full offensive business strategy at this point, it's a little more opportunistic and planful.
Okay, and then I know that in the past you said at the vast majority of bookings convert to revenue within within the year.
You are seeing more on deals does this change the way you think about time I know, how we should model it.
No it doesn't in fact.
For example, the large deal that we just signed should start producing revenue before the end of this financial year or right at the beginning of next one and so that timeline still holds and if anything it's getting more repeatable as we get more experience and these deals.
Thank you.
Thank you.
Your next question is from in Samuel with JP Morgan.
Hi, guys. Thanks for taking the question.
Just wondering if there are any margin implications from the salesforce changes, especially given the expansion quota carrying reps and then should we think about this is an area of investment.
Thanks, actually what we did and so we've acquired a number of solutions over the years as you're aware of and.
When you first acquires a solution.
We as a general rule keep a sales overlay that helps make sure that we do not lose momentum with the solution post acquisition. However, as time goes on and the General field force becomes more facile with the solution.
That enables us to depend more on the individual rep, rather than perhaps double comping uncertain solutions.
So what we're able to do here is actually fold some of the specialists back into the rep into the into the rep pool, rather than having them double covering and frankly the way that we've now maybe narrowed a little bit the market segment for each rep also makes it a little more possible for them to have a broader understanding of the saloon.
In itself and so actually we were able to pull all of this off in a budget neutral way.
And sorry.
Yes, so for US I mean, it was really about.
Hi, how do we just become more efficient and effective with the dollars we have today.
Great. Thanks.
Thank you.
Your next question is from Sandy Draper with Suntrust.
Thanks, very much a couple of quick housekeeping ones probably for.
For you Jamie I guess the first is can you just remind me on the retention number what are the inputs is that revenue base number of clients or number of docs I just cant remember on that and then second point of Baird on relationship should we pretty much expect that to be a consistent fourth quarter event or there are things that eventually start to Midland sounds like it's been hit again.
In the fourth quarter.
So yes for the first question on the retention statistic that is a dollar base statistic.
Yes, so think of it is how much was.
Available at that at the beginning of the quarter for renewal and how much renewed.
In the quarter. So that is what that statistic trying to make it easier to to use it is a modeling. So yes. So so just just to be clear. It's it is we look at a population of clients on the front ended the quarter and what that populations paying us and we look at that same population on the backend it is not.
Got it does not include had added because we always add clients as well we exclude that from the calculation and it does not include any CPI increases and is specifically for legacy maintenance.
Got it makes us.
Yes, absolutely dies and then the varied on it and then relative aradigm once those contracts.
Vast majority of the what we would expect to get from paradigm will be taken ratably over the course of the year.
So.
It will start we expected to start showing up in our fourth quarter of this fiscal year and the Q4 number from last fiscal year was a one time not part of that ratable revenue.
Okay. That's really helpful. And then maybe if I can squeeze in one bigger picture for you Rusty.
And then maybe not one consistent trend when you think about the new wins, you're getting when you think about market drivers and.
You talked a little bit about pop health as well that fuzzy what's driving it.
Dissatisfaction with an existing vendor maybe someone news I mean are there any consistent trends when you see someone coming to you have going out to market, what's actually getting that clients out into the markets do an RFP. Thanks.
Yeah. So it's interesting because I mean, I think the replacement market has been bouncing around as as as a meme now for about four years right and when I look at report the replacement market.
Ben a client is going to replace their each RPM infrastructure for one of a couple of reasons. One is because their vendor can't keep up from a regulatory standpoint, and therefore, they just can't stay there.
The second is because the vendor has done frankly, just a really poor job and the clients gotten to the width and and then the third one is because somebody's being acquired acquired by somebody else.
And when when we look at that certainly we are doing a phenomenal job on the regulatory side.
We continue to innovate and bring a broader solution to the table, because frankly, he HR, NPM, where necessary and sufficient in them.
2010 timeframe as we sit here today, a broader ecosystem is necessary to really enabled the claims to be successful and so we've seen we've seen a lot of bucket one into and then given the fact that we have a really good sites footprint in rolling up single specialties were also seeing that M&A tailwind.
And come to the table for us.
And I think really the combination of those things plus when you think about the fact that we are driving very visible client satisfaction. If you were really to map out the class scores for all the major vendors over the last four years.
You would you would see that really only nexgen has been on a very significant upwards trajectory at almost everybody else in the space is flat to down and so I think we've separated ourselves to a degree based on trajectory is not that there aren't other great solutions out there, but oftentimes clients don't.
Look at where somebody is at a point in time, they look at the trajectory because the trajectory really implies where the company is going to be in the future and so all of those things I think are really nice tailwind for us.
Great. That's helpful. Thanks, Cathy Thank you.
Your next question is from David Windley with Jefferies.
Hi, good afternoon. Thanks for taking my question so.
Kind of a granular salesforce follow up question.
I've.
Hi, guys, you're talking about all in deals and your rest of your comments just down about.
A broader solution set required in the marketplace. It really effectively compete if I understood from your earlier comments the salesforce outside the base.
Is being asked to focus more narrowly and those seem a little in can grow. It is the reason there because your sales outside the base are going to start with maybe one solution or a limited amount of solution and then potentially expand from there is that how that makes sense.
Actually.
Maybe I didnt speak as clearly as I could when we say focused more narrowly we don't mean focused narrowly from a solution standpoint, what we mean is if you think about it right. The difference between the language the business practices that the challenges facing a federally qualified health center are entirely different than the challenge.
Just facing a rolling up orthopedic private equity backed group.
And so what we've done as Weve bifurcated the market a little bit so that so that a rep can bring the entire solution to the table.
And math it onto a relatively consistent client base I'm always kind of read about people, becoming so broad in their market segmentation. They have to manage that they become very lightweight and when you are talking to for example, if youre talking to the orthopedic revenue you talk about patients what do you go talk to a behavioral health group.
You're talking about clients, you're not talking about patients. It seems like a simple thing, but even just being able to talk in the right lexicon for the client base, you're dealing with is so important because the client base wants to feel like the person that they're dealing with and the company that are dealing with truly understand their space and.
Got it done is weve narrowed the market segment, a little bit, but but frankly, when we're going into these clients were going in saying you need an entire integrated ambulatory solution that enables you to be successful in both fee for service as well as fee for value now interestingly enough, we're not going to wave a magic wand and tomorrow, you're going to be up in live on all this what we're going to do this work.
Very well at the at the large clients signed last year, we're going to work with that client to understand their resource map their strategic priorities their timelines and based on that we're going to delivered to them a roadmap of evolution. Because you don't go through that much organizational change all at once and become successful you have to take a step wise.
This is really different than this organization sold in the past where sales person would just show up and sell some licenses and move on now we're really establishing that high level C suite strategic conversation with the client and truly understanding both their strategy and the road blocks for them to get there and I I think that just completely.
I said at UGI and my first user group meeting for four years ago and.
Step on the stage and I said look.
We're on a journey, we're in a journey from being a vendor to being a partner to aspirationally being a trusted advisor your vendor wants to sell you something.
Our partner understand your problems and help to solve them.
Trusted advisor on the other hand shows you problems you didn't even know were coming and helps you solve them before they become real issues for your company, we're starting to move through that spectrum and in some cases aspirationally getting to being a trusted advisor because we are seeing a broader market view, we are seeing the problems from a more Jeff.
Active standpoint, and we do have solutions that can help and so it's it's an exciting time, it's like anytime we make anytime we make tweaks or adjustments to our sales structure, there's always a little bit of risk there, but if you think about a year and a half two years ago. When we were completely reinventing our sales structure, we saw significant drop and book.
This time on the other hand, we feel like yeah, there, maybe a little bit of we may not get as far as we'd like to but this once again, it's not an emergency. This is really leaning in to get a much more intimate sales team with the client base and frankly continue our path of driving multiyear bookings growth.
And that definition I viewed as you've just described it that definition of say client category for a rep to focus on applies both inside the basin outside the base.
Yes, Thats correct.
Okay, and then dovetailing kind of on that trusted advisor commentary Youre.
Your discussion to an earlier answer to an earlier question about clients and bundles and capitation and potentially helping them to understand how they need to retool to be able to operate in those situations sounds like you know a different type of consultative.
Relationship or or service provision do you have the the knowledge base. The professional services in the organization today to do that or is that an area that you need to expand as well.
I would say, yes, and yes.
We have that capability I want to see it expand in flourish.
For example, if we look at our account management framework. So we have account executives and account executives for an existing clients responsible really for selling the strategic evolution of the client we have an account managers, who is responsible for consistent contact with the client. We're now continuing to educate our account managers, we are bringing in as well augmenting.
With new talent to start to provide more and more of that consultative solution and not just as an engagement, but also just as an everyday conversation with your account manager and that that's the kind of evolution. It's one thing to build a great service organization is another thing to have knowledge pervade your entire organization and have your client because.
Instantly frankly amazed by the fact that when they talk to people those people understand the world and their challenges and so this is.
It's it's once again, it's not a met wave a magic wand type of thing, but it's something that we have in the organization. We are just now looking to expand and expand that knowledge.
Got it thanks for the answers.
Thank you.
Your next question is from George Hill with Deutsche Bank.
Hey, guys. Thanks for taking the question Rusty and you May I guess my question is were two quarters through the year and the guidance range at the revenue line is about 14 million, but you've acquired Topaz, you've announced sale spend your one you each.
You've probably got a little visibility into varied I'm kind of can you just walk through kind of what are the big moving pieces, what gets us to the high end of guidance versus the low end of guidance.
Yeah, I mean, as we sit here right now if we were on the high end of guidance or the low end to the guidance. We would have put on a different message first of all we feel like the guidance, we put out as appropriate.
Certainly if if we see overperformance from there and I'm that gives us maybe a little bit on the upside.
If we see underperformance on very time that puts us on the downside.
From the standpoint of bookings and revenue I think we've got pretty good line of sight on to kind of been normally generated revenue and so like I said, we feel pretty good about where we are in the range George and as I said, if I felt like things are really trending upwards. We would have indicated that and if things were falling off the bottom we'd indicate that too much like we did last.
Quarter, when we had the bankrupt client and on top of that so that was a $4 million loss of revenue, but then on top of that you're also seeing in the software and hardware line, you're seeing that flip from perpetual to subscription happening in real time as we go through the year.
It's unfortunate that flip came in under what we expected, but I'd actually argue its fortunate because the reality is more subscription bookings are better for the lifetime revenue growth of this company and that move from perpetual to subscription while it may be a little painful in one year is actually a win for the shareholders in the medium and long term.
Helpful. Thank you. Thank you.
Your next question is from Mike with Oppenheimer.
Thanks for taking my question, it's great to hear that nearly one third of bookings are now from RCM Cross sell just wondered if you could update us on RCM penetration in your base or any qualitative color you could share there. Thanks.
I I'd say that we're we've gone through.
A lot of transformation in RCM, we're really starting to see the sales volume our expectation as as we move into next year that volumes should start really showing up on the revenue line from penetration standpoint, Yeah. We've made some inroads, we I'm not ready to put out a percentage number or anything like that but what I would say as there is still a ton of a ton of room.
Out there.
Great. Thanks, very much thank you.
Your next question is from Stephanie the Menka with Citi.
Hi, guys. Thank you for taking my question just given some of your color around take away from your prepared remarks are there any trends to call out what's been driving this such as a pretty close solution gain traction or maybe a pure acquisition, resulting in a heightened attrition you never benefit from.
I'm, sorry can you sorry stepping out you broke up there can you repeat one more time.
Does any of the big drivers as some of your competitive takeaway given that that's a pretty yet.
Well, we've seen look is in some cases were taking away from a vendor that's perhaps distracted by.
By a lot of merger and acquisition activity that they're part of.
And so that distraction certainly is a help in one case, we had a vendor end of life a core platform for a lot of clients and frankly and attempt to switch them onto another one of their platforms and we were successful in coming in and taking some of those clients.
And so it's really.
If I go back to what I said about the replacement market, it's really when a vendor end of life something it's one of vendors going through significant distraction and unable to deliver the experience that the client wants or the value that the client wants and if I look across our competitive takeaways. Those are those two are the primary drivers.
Got it and then looking at bookings through this year could you just walk us through the puts and takes it sounds a tough comp and how you're going to think about the all in growth versus growth normalized for the telecom.
Yeah, I mean, if I look as if I look at bookings for the full year look I mean, I as I think I'd said at the beginning of the year.
We expect reasonable year over year growth not necessarily the 14% of last year, but somewhere in the in the upper half of the single digits.
Like it's it's honestly the puts and takes on it or just continued execution the way we have been.
The pipeline continues to get more robust our forecasting continues to get better both from a both from a number but also from a deal trace ability standpoint, which is not to be undervalued and sales forecast sales forecasting and I think.
As we sit here today, you know, we we feel frankly last year, we had a good first half start and then we got a little soft in the back half. This year. We've had a good first half start and were very very focused on having a good second half as well, which I think will put us right, where we need to bake.
Is there any way to benchmark boss is taking the level gross you would need to get to mid to high point that the projected 21 range.
So we haven't put out a 21 range at this point in time.
And frankly have held up how held off a bit and probably won't refresh the long term until we get into the adds to the ended the year call and have more visibility on next year, but what I would say is look given the amount of subscription bookings were driving versus perpetual.
That gives us increased confidence in revenue growth next year, because rather than having that big drop off from a perpetual license to the maintenance stream that comes after it which is about an 80% drop off on a dollar. We're now looking at purely ratable revenue, which just generates a natural growth curve. So we get a next year and so youre.
Station is is that we're going to continue to see bookings growth, but we don't need 14% every year to deliver that it's actually a smaller number, especially given the high quality subscription nature and recurring nature of the bookings.
Got it and we should assume that that prior mid to high single digit target no longer hold on.
No we should just assume that we havent refreshed our guidance for next year I.
Literally just don't know at this point in time, Stephanie we have around theories, but we're going to see how the back half of the year fig finishes out before we pushed anything forward.
I guess you all right. Thank you Beth.
Thank you Stephanie appreciate it.
And our final question comes from Gene Mannheimer with battery.
Hey, Thanks, guys. Congrats on the good progress this quarter I wanted to dig into topaz, a little bit more.
How much client overlap with you what so what's the level of integration between your next Gen DHR and their behavioral.
Platform and how would you characterize the competition in that space I know you didn't raise revenue guidance. This year. So the revenue was immaterial from topaz, but how would we look.
Towards the long term.
Think of this figure this almost more as a forward integration of a reseller partner their capabilities are built on in around our platform.
And their clients frankly, we.
We are forward to integrating the revenue that we in many cases much of it we already had right. This is less about integrating in revenue and earnings to your point and it's much more about you think about it.
Behavioral health for example is roughly different in every single state. It's a patchwork quilt of regulations. Each state has a very intimate group that note at all of them know each other and so going into that market is a little bit different than going into kind of a nash nationally consistent market.
It takes expertise it takes passion at takes carrying about integrated care behavioral health in ways that are different than we might have seen on the medical side and so bring I almost look at it as almost an actual higher in this case, we've brought them into this organization because we think theres a great hand to play we've taken.
And some share from the largest player in the space, we've taken some share from other players in the space and so when we look at that we say huh.
That case, we can have a reseller out there but at this is important enough, we'd like strategic control and frankly, the ability to augment investment in this area in a very consolidated and consistent way and therefore, you know using a small part of our are very large storehouse of dry powder to simply forward integrate this and make sure that we.
Can deliver on our expectations for growth as Architected in our plan in behavioral health I think it was it was a pretty easy decision for us.
Okay that makes good sense, thanks, and with respect to your guidance for the balance of the year you referenced some muted growth in Q3.
But it sounds like there will be growth just not as much as from Q3. The Q4 is that the way to think about yeah. I'd say that look we definitely expect growth in Q3, let's be abundantly clear on that right year over year growth on in Q3, and and yet as we look at it in Q4 first of all is always a bigger quarter for us anyway.
Yes.
And we expect to see frankly, the perpetual number be a little bit bigger into a little bit bigger of the smaller number in Q4 as well and so when you think about all of those things it creates a greater level of revenue uplift. In Q4, then we'll see in Q3 and we just wanted to make sure that that folks were accurately understanding how the revenue is going to show up.
In this year.
Okay very good. Thank you, Jamie Jamie has a comment too.
So.
I appreciate rusty's exuberance I do want to remind everybody.
We had an exceptional Q2 last year. The fact that we overachieved against that number from a bookings from a bookings standpoint.
The timing of transaction so.
I just want to be clear Rusty is giving them are from position for the full year and so.
Having.
The timing of deals sometimes falls in and out of a quarter weve. Some so a couple of deals close a little sooner than I would've expected fell into Q2, which allowed us to overachieve against last year's very tough comparison so.
I have a little more cautious.
Look for Q3, but I'm comfortable on the book going to bookings side, but I'm comfortable with the full year numbers guidance that rusty is providing and on the revenue side Jamie.
I'm comfortable with the guidance that you and I both reiterated perfect.
That's helpful Jane.
It sure is thank you.
Awesome. Thank you very much and thank you operator, thanks, everybody for joining in on the call have a have a great rest of your weaken weekend and we'll talk to you in January .
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.