Q3 2020 Earnings Call

Fiscal third quarter 2020, <unk> earnings conference call at this time all participants are in they listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time I.

I would now like to introduce the logic on D., Vice President Investor Relations for future. Mr. Gandhi you may begin. Thank you operator, good morning, and welcome to previous earnings Conference call for our third quarter fiscal 2020, which ended on October 31st 2019.

A reminder, breaches fiscal year end is January 31st participating on today's call from pre Jones, our Chief Executive Officer, and co founder I'm in Big.

Chief Financial Officer, Tom up here.

Following prepared remarks from Hyman, we will conduct a book Una session.

<unk> disclosure of our results can be found in our earnings press release issued yesterday evening.

Well as in art related form 8-K submission to the FCC both of which are available on the Investor Relations section of our web site at IR Dobrinja Dot Com as a reminder, today's call is being recorded at a replay will be available following the conclusion of the call.

During today's call, we will make forward looking statements pursuant to the safe Harbor provisions for forward looking statements contained in section 27 eight of the Securities Act in section 21 of the Securities Exchange Act, including statements relating to the expected performance of our business.

<unk> financial results, including guidance for the full fiscal year 2020 or strategy, our partnerships and expected launches of products and services long term growth and overall future prospects. These statements are subject to known and unknown risks and uncertainties that could cause.

Actual results to differ materially from those projected or implied during this call in particular those described in our risk factors included in our final prospectus for our initial public offering filed with the FCC on July 19th 2019, and the risk back.

There is included in our Form 10-Q filed with the FCC. This morning.

You should not rely on forward looking statement as predictions of future events. All forward looking statements that we make on this call are based on assumptions and beliefs as of today and we undertake no obligation to update them as required by applicable.

We will also refer to certain financial measures not in accordance with generally accepted accounting principles in order to provide additional information to investors. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results.

A reconciliation of GAAP to non-GAAP results may be found in our earnings release, and supplemental materials, which were furnished with our form 8-K filed after the market closed on December night with the FCC. It may also be found on our Investor Relations Web site at IR Dach region Dotcom.

Ill now turn the call over to CEO I'm index.

Thank you biologic good morning, everyone I would like to start by thanking my teammates our client partners an investor for their continued support it freezes mission to create a better more engaging healthcare experience.

On today's call I will cover the highlights from our fiscal third quarter 2020 provide an update to our fiscal 2020 guidance.

Some commentary on the expansion of our team.

We are pleased with the fiscal third quarter results.

Total revenue for the quarter was $32.8 million up 33% year over year.

The average number of provided Florence.

1500, 73 up 5% year over year.

Average revenue per claim the quarter was $16637 up 25% year over year patient payment volume was 463 million in the quarter up 29% year over year.

Adjusted EBITDA was 3 million up 2.6 million year over year.

Tom will dive deeper into these metrics in a few minutes.

We are updating our outlook for fiscal year 2020, ending on January 31st 2020.

We now expect total revenue to be the range of 122 million to 122.5 million compared to our previous range of 118 led by $219.0 million.

We continue to expect fiscal 2020, adjusted EBITDA to be positive.

As we indicated last quarter, we will incur higher costs related to being a public company and continue to invest to allowed for continued growth.

We believe one of our spring is our team's ability to stay focused on maintaining inventing in selling products that are quite value.

I would like to specifically knowledge breaches implementation client solutions teams for their continued effort they've been very busy and we appreciate their efforts.

We continue to expand the breadth and depth of freezes leadership team during the third quarter.

On November Onest, Randy recipes and joined US as our Chief Accounting Officer, Randy brings valuable public company experience a procedure deepens, our talented finance organization is knowledge and experience will help us in many ways, including our process to comply with servings, Oxford.

Randy Tire is an example of the additional investments you're making as a public company.

We appreciate the interest and support from the entire investment community, including those of you were introduced us to potential provided parts.

We continue to send any referrals alone and below you can make sure to qualify as an onboard them to the fusion platform now I will turn the call over to Tom will review of the financials, Tom. Thank you Jaime and good morning, everyone.

I'll review the income statement balance sheet and cash flows for the fiscal third quarter and then make some additional comments on the updated fiscal 2020 outlook.

First revenue.

Total revenue was 32.8 million up 33% year over year.

As a reminder, we report our revenue and three line items subscription and related service, which was 14.6 million in the quarter up 34% year over year.

Payment processing fees, which were 11.6 million in the quarter up 27% year over year.

And life Sciences, which was 6.7 million in the quarter up 40% year over year.

Let's start with provider revenue, which combines revenue from subscription and related services with payment processing fees.

Provider revenue was 26.2 million up 31% year over year.

And the two drivers of 31% provider revenue growth were average provider client growth in average revenue per provider clients.

Average provider clients grew 5% year over year.

Average revenue per provider clients grew 25% once again these results reinforce our go to market strategy.

Land, new client loan grows and over time, we expand our footprint with them.

Upselling and cross selling more applications.

I also want to take a few minutes to review payment processing.

Those of you who are new to the freezer story.

Our payment processing revenue is based on the number of transactions in the dollar amount of patient payment volume.

We process on credit and debit cards on the freezer platform.

Payment processing fees are generally calculated by a percentage of the total transaction dollar value process and 80 per transaction in the fiscal third quarter patient payment volume was 463 million up 29% year over year credit and debit patient payment volumes represent.

Roughly 83% of our total patient payment volume on three months ended.

October 31 2019.

Remainder of the patient payment volume in the quarter was composed of credit and debit transactions for which frees your acts as a gateway to another payment processor as well as cash and check transactions.

As I mentioned earlier fiscal third quarter payment processing revenue was 11.6 million up 27% year over year I will now cover life Sciences revenue revenue was 6.7 million up 40% year over year.

In order to understand the driver of the continued strength in life Science performance. Let me once again review our life Science revenue model.

Our clients our life science companies. Our revenue is based largely on the delivery of messages contracted price per message to targeting patients.

Messaging campaigns are sold for specified number of messages delivered qualified patients over unexpected timeframe.

Revenue is recognized as the messages are delivered strong third quarter performance was driven by our team successfully selling and expanding some of our current programs during the third quarter.

Let me now provide a few noteworthy expense items in the fiscal third quarter.

I'll review several expense line items on our adjusted non-GAAP basis, which excludes stock compensation expense from each line item.

Please note that a full reconciliation of GAAP to non-GAAP measures, including adjusted EBITDA is included on our earnings press release, and our Form 10-Q filed with the FCC.

On an adjusted basis cost of revenue was 4.3 million or 13.2% of total revenue.

Down 220 basis points year over year.

This decrease as a percentage of total revenue was primarily the result of revenue growth in the quarter outpacing the growth of compensation expense related to our implementations in the quarter.

On an adjusted basis sales and marketing expense was 7.9 million or 24.1% of total revenue.

470 basis points year over year.

As we've shared with you in the past our investment in this area has some seasonality and we expect to continue to invest in this area.

Research and development expense was 4.5 million or 13.8% of total revenue down a 150 basis points year over year.

We expect this expense line to increase as we invest in our platform new applications and integration capabilities.

On an adjusted basis General and administrative expense was 6.1 million or 18.7% of total revenue.

Up 40 basis points year over year.

As we already indicated this figure will increase as a result of costs that we are now encouraging as a public company.

Payment processing expenses in the quarter were 6.9 million up 28% year over year.

And adjusted EBITDA was positive 3 million up $2.6 million year over year.

The increase reflects the combination of better than expected revenue growth and the general timing of GSK and sales and marketing expenses that I mentioned in previous section shares outstanding as of October 31st with 35.8 million cash on the balance sheet at October 31st was 91.4 million.

Now 8.7 million from July 31, 2019.

The trend in the cash balance reflects the quarter to quarter variability of our working capital and there were two uses of cash specific to the quarter worth noting.

Roughly half of the 8.7 million cash outflow was for the legal and accounting fees related to our IPO and the prepayment of our new directors and officers insurance policy.

Accordingly cash flow from operations for the quarter was an outflow of 3 million versus an inflow of 700000 in the prior year quarter, reflecting additional cash used to fund working capital.

Capital expenditures for the quarter were 3.5 million up $1.2 million year over year and the 3.5 million includes 1.5 million of capitalized software development.

Before opening the call to Q1 I wanted to provide some color on the fiscal 2020 outlook.

When considering our 122 million to 122.5 million revenue outlook for fiscal 2020. Please note the following.

The 3.5 million increase in our revenue outlook is based on our better than expected revenue performance in fiscal Q3.

From a modeling perspective, we would not make any meaningful adjustments to your previous Q4 assumptions based on our Q3 results or updated guidance for the following results.

First as I mentioned earlier in my remarks about life Sciences revenue strong third quarter performance was driven by our team successfully selling and expanding some of our current programs during the quarter.

We have discussed many of you the lumpiness of our life science revenue, particularly at the end of the calendar year and its agencies and advertisers make various decisions into the new year.

We feel comfortable about the outlook, we shared with you on our last earnings call with respect for life Sciences.

Second we have also shared with many of you are experienced with patient payments trending lower in November and December and trending higher at the beginning of the calendar year resetting of patients deductibles.

We typically come out of January with a better view of the annual deductible resetting season, which is why we operate on a January fiscal year.

We remain comfortable with the outlook, we shared with you regarding patient payments on the last earnings call.

On modeling expenses GSK is expected to continue to increase in Q4 due to additional investments in our process to comply with Sarbanes Oxley as I discussed earlier.

Accordingly, we are comfortable maintaining our positive adjusted EBITDA guidance for the year, but we expect moderation from our solid Q3, adjusted EBITDA due to higher spending.

In summary, we are pleased with our third quarter results.

Operator, we can now open up call for questions.

Thank you at this time is will be conducting our question and answer session in order to ask a question. Please press Star then the number one on your telephone keypad. Your first question comes from the line of an Samuels with JP Morgan and your line is open.

Hi, guys. Thanks for taking my question.

Provider client saw strong growth in the quarter was hoping maybe you could speak to what you saw in terms of expansion within existing logos and then maybe any notable strength within the module.

Hi, Andy Thanks for the question.

We had I think we had a nice even mix between expansion and Upselling Cross so I.

I don't think were.

Breaking out the numbers at this point, but I think across the board. We saw the team do a great job of expanding our footprint, winning new accounts and also Upselling cross selling a lot of our various applications.

Nothing to call out specifically I'd say across the board we saw a lot of interest from lot of our clients on lots of things, we're doing that kept expanding so we felt.

We felt it was pretty strong quarter across the board.

That's great and then on the gross margin, obviously really nice expansion, there, which is hoping maybe you could dig a little bit more into what drove that expansion.

Can you repeat that any.

Sure the gross margin side really nice expansion in the quarter was hoping maybe you could just provide a little bit color on what drove that.

Yeah.

Obviously, we beat the revenue and we're able to maintain the you know implementation costs I think there was the biggest factor.

In the revenue expansion for the quarter.

Great. Thanks, very much guys.

Your next question comes from the line of Ryan Daniel Daniel with William Blair, Brian Your line is open.

Hi, guys, Congrats and thanks for taking the questions can you speak a little bit more to the inpatient opportunity. It sounds like our one is having some good success launching your product into some chains and I know you made a separate announcement about a client win in your Cerner integration. So hoping you can offer a bit of an update there and how you're viewing the inpatient market.

Yes.

That's a jet right and thanks for the question.

I think it's still early for us to really go into a lot of details around how were about the inpatient opportunity.

No that when we feel comfortable with it will come out and talked a lot more about it.

What we what we were also in terms of VR what opportunity.

Our one RCM has been for years now a great partner.

And we really appreciate them in their organization and the work we're doing together, we're going to let them take the lead on talking about some of the success has really.

I think it's really believes that into sort of.

Seeing those praises.

What I also will say that lot if I add has been that's that's a nice when its most goods to date, it's mostly ambulatory. We're really proud of the work we're doing in Louisiana with Lafayette and.

Thats, a big Cerner millennium win for Us.

But.

Other than that I don't think we're talking a lot about it because we think it's as I've said many times in the past, we think acute and inpatient opportunity is great. But it's also really hard and we just want to be really thoughtful and cautious as it's still very early days.

Okay Thats helpful color and then wanted to ask a question on your work you're doing with social determinants of health any update on.

It's going on in North Carolina, I know Thats, one of the biggest programs in the country and then more broadly we're hearing a lot about investments there from both payers and providers and talk a little bit about how you're positioned to capitalize on that.

Well I appreciate you bring that bring it or what will the work, we're doing and social determinants, it's something that I'm really proud of I know across the organization is probably low things people internally bridge. Our most proud of is the ability that we're able to screen and as patients upon intake.

There's also determinant status.

We work with North Carolina to build the instruments for the state we've made it available to all of our practices in the state that we've been turning those on.

Turning the.

Turning as long as part of our intake throughout the state.

For with some really nice success early on the other the things that I don't that we expected is the response it would help us on recruiting state of North Carolina.

Well, it's a big it's a big center for Us and it's really helps on recruiting and also frankly it's.

It's really brought in a lot of opportunities a lot of health systems in groups that Didnt know that we could do that the care about that as part of their mission reach out to us to try to get our whole offering.

Really in the hook for them was social determinant.

And the ability to the screen patients on it.

Then finally I just think it's really important for companies to do good right. This is I don't think this is a huge revenue opportunity for us I. Just think it's an important thing for us and to be able to do the right thing and I'm proud of that.

Okay very helpful color, and then final and I'll hop off just any update on the.

Progress, you're making with sales development routes and your DCP program I know those are kind of key drivers to.

To grow the organization in the workforce and drive future growth. So any updates there maybe that's something that we need to wait for year end, but curiosity.

Requirement asked a question thanks.

That's that's a another great question Ryan.

We're at North of 60, STR is right now.

On our provide within our provider organization.

The team is doing great were onboarding them, I think theyre, finding a lot of opportunities.

We we obviously don't hire a ton during the season, just because of timing, but we'll we'll probably pick up recruiting at the beginning of our Q1.

Next year.

A lot of that just has to do a cyclicality of sort of when people start those types of rules, but the team has grown from the low thirtys beginning of year too.

Low sixtys right now.

Okay, and we have great pretty good audits.

Yes. Thank you great data points appreciate it.

Thanks Ryan.

Your next question comes from the line as Sean Wieland with Piper Jaffray. Sean Your line is open.

Hi, Thanks, Good morning, So life Sciences revenue.

Yeah.

Couple of quarters now that that has been coming in ahead of expectations.

I understand that the visibility or lack thereof in that business, but maybe can you call out.

As your business scales as you had more visibility around the IPO is that competitive.

You are competitive positioning landscape their evolving there in your favor.

That's a great question, Sean I think the.

Yes.

Is the competitive positioning improving I think that team is just doing a really good job executing.

Really proud of the life sciences team and their ability to suss out opportunities and deliver great ROI for our clients.

And be able to position us appropriately I do think.

More positively than I would've, even we assume that going public gave a.

A lot of visibility to our life sciences clients and gave them a lot of a lot more comfort when we did here a lot of positive under terms, but I'm not willing to do a victory lap as of yet and say.

We're always going to be up into the right on it I think I've been doing this for long enough that I remain cautious but optimistic I.

I think it's still early days to change.

Okay. Thanks for that that's all I had thank you.

Your next question comes from the line of Jamie Stockton with Wells Fargo. Jamie Your line is open.

Hey, good morning, Thanks for taking my questions, maybe just a quick follow up on Sean's with life Sciences, Tom I think last quarter, you might have said that you expected that deserves to be kind of flat year over year.

Just so that people have some idea.

How this thing is going to trend sequentially is there is there any update on on that expectation.

No I think we're we're still in the same position on that.

Jamie.

We had a good quarter, but.

Q4.

Still a lot of uncertainty about it.

Okay, and then maybe just one other one.

As a follow up.

What Ryan was asking about earlier on the social determinants of health front. I mean is is there anything else maybe like clinical trial recruitment in the life sciences business or or something else that you think would be a similar way for you guys to expand kind of what you're doing and get more attention ads.

Result of it.

So thats a great question and I think the answer is yes, theres lots of things. We think we can do that were up platform and right now we make revenue from three different sources.

And.

Long term do we think theres other ways that we could monetize the platform, while driving material value, yes, and we're near our general nature is.

Try learned test try learn and once we have enough data points.

To predictably to predict it and I understand it and how we could grow it I think our general views and then after that we talk to the market, but I don't think bring any position now with enough long term or even short term disabilities say, what those things would be but we strongly believe.

And have since we founded the company that Theres lots of ways that we can monetize this platform and materially improve so we experienced people have with healthcare system that you do the right thing can you provide a lot of value.

It's normal that you drive economic benefit from it and we think that we will be able to long term footwear were.

Very cautious, but very optimistic about the long term values.

Okay. Thank you.

Thanks.

Your next question comes from line of Connor all for check with Baird Connor Your line is open.

Hey, Thanks, as Conor on for Matt.

Payments gross margin improved on sequential basis, this quarter last quarter, you'd mentioned that the payments margin fluctuate, but generally would be pressured on an annual basis.

What is the sequential improvement in the fiscal third quarter, just part of the normal fluctuation and was there anything to call out that drove better margin this quarter.

I would say that it was sort of a normal fluctuation I don't think.

Long term our guidance would change as a result of what we experienced in the quarter.

Got it thanks, and then another we saw the press release with the Lafayette General land, which looks like.

Large provider client addition, or curious.

You guys see any trends to call out with recent client additions I guess, adding larger clients compared to the recent past are there any specialties, where you're seeing more activity that others. Thanks.

I don't think we're seeing any very variation in the trend we've seen over the years, which is that practices of all sizable stripes feel really strongly that by rolling out recently, they get a ton of value for them to patients and their staff.

And we were things I'd say is whether your large client or a small part you're a notable clients to us and.

We're proud of the work, we're doing lots I add general hospital and serving the patients in the system in Louisiana, and Weve those others like it and as a marketing team feels comfortable with it Bill Im sure put out.

Releases and talked about some of those wins.

So if that answers your question.

Great. Thanks, guys.

I'm showing no additional questions I will now turn the call back over to CEO .

For closing remarks.

I just wanted to take this moment to think everyone on the call all of our team members again, we really appreciate your support.

And present in the mission, Ron and wish everyone a happy holidays.

You also.

Sure.

Ladies and gentlemen, this concludes today's conference call on behalf of fees will be thank you for your participation you may now disconnect.