Q3 2020 Computer Programs and Systems Inc Earnings Call
Were up slightly compared to the third quarter of 2019 with the continued resurgence of activity in our post acute segment, making up for a less robust demand environment for add on applications within our acute care he HR base.
Our post acute segment posted bookings of $2.2 million narrowly surpassing last quarter's amount for the highest booking period for this segment in 15 quarters.
The strength in year to date post acute bookings, which already surpassed all of calendar 2000, Nineteens amounts are an encouraging sign that the recent investments we've made and the related products suite are being recognized and appreciated by the market with a related recurring revenues seeing their first sequential increase in nearly two years.
Including add on sales subscription arrangements made up 48% of the third quarter's total HR bookings as we continue to execute on our strategy to drive long term recurring revenue growth by emphasizing our SaaS offerings throughout the sales process.
Specific to net new acute care DHR bookings over 70% of the new contract signed in the third quarter were sales.
Moving over to Trubridge, but things were up $1.9 million or 31% sequentially behind a rebound in net new bookings from outside of our HR customer base with the related bookings, increasing $2 million or 130% from the second quarter amounts.
Compared to the prior year, Trubridge bookings were down $2.5 million or 24% as the third quarter of 2019, Mark the second highest level of Trubridge bookings in our history posing a difficult comp for this quarter.
We'd like to refer you back to the tables in the earnings release for the composition and conversion time frames for quarterly bookings and the historical volumes in license mix for net new thrive acute care implementations.
With regards to the near term outlook for this metric. We currently anticipate three new client facilities going live with our thrive solution in the fourth quarter of 2020 with all three expected to go live in a cloud or SaaS environment.
Turning to the financial results for the period, a robust implementation schedule coupled with the continued recovery in patient volumes for our hospital customers, which correlates strongly with Trubridge revenues led to a sequential increase in revenues of nearly $9 million or 15% and a $4.4 million or 60 per se.
An increase in adjusted EBITDA.
Compared to the third quarter of 2019 revenues were effectively flat and compression on Trubridge as gross margins drove a 3% decrease in adjusted EBITDA with related EBITDA margins decreasing from 17.8% 17.3%.
Recurring revenues made up roughly 83% of total revenues during the quarter, increasing 7% sequentially on the heels of the improved patient volumes are still down 1% year over year as patient volumes have yet to fully recover from to pre pandemic levels.
Looking deeper at our segments Trubridge revenues increased 13% sequentially on the heels of improved patient volumes at our client hospitals with the related gross margins improving from 44.6% to 45.3%.
Revenues were relatively flat from the third quarter of 2019 as the revenue contributions from new Trubridge client wins over the trailing 12 months have mostly been offset by the pandemics lingering impact on patient volumes.
Although patient volumes have improved overall from the second quarter were still experiencing volumes roughly 15% below pre coated levels with any further improvement currently proving stubborn.
While revenues were flat year over year, our capacity and cost structure had scaled to align with pre pandemic volumes.
As we've mentioned on previous earnings calls, we made the strategic strategic decision to provide our employees with much needed job security, taking the long term view that this would strengthen our team improved customer satisfaction and better position us to capture opportunities as our markets recover.
As a result haven't pulled any of the cost containment levers at our disposal sacrificing short term margin protect capacity for future growth gross margins decreasing to 45% from 49% in the third quarter of 2019.
Next system sales and support revenues increased $5.7 million or 16% sequentially behind a strong implementation schedule.
Revenues decreased $600000 or 1.5% from the third quarter of 2019 is our post acute segment experienced regulatory catalysts. During 2019 that drove nonrecurring revenues in SaaS revenues for our acute care. He HR segment continue to be negatively impacted by the pandemics in.
Packed on patient volumes.
Over half of our SaaS revenues come from entrust arrangements, where our cloud DHR offering is paired with Trubridge services, our billings and revenues for interest contracts are based on a percentage of the hospital customers cash collections, which are understandably still under pressure.
These revenues were still up $1 million or 67% from the previous year due to the dramatic shift in license mix that we've experienced over the past 12 months.
From a margin standpoint, the sequential top line improvement drove gross margins to increase sequentially from 55% to 56% while decreased travel costs allowance margins to expand from the third quarter of 2000, Nineteens, 54%. Despite the slight decline in revenue.
Moving on to operating expenses product development costs were relatively flat sequentially.
The capitalization of $800000 of software development costs. During the third quarter of 2020 was a leading contributor to a $600000 or 7% decrease in product development costs year over year.
As a reminder, the capitalization of software development costs is new to Cps side for two and 2020 and is the direct result of GAAP capitalization requirements for the investment we're making in the development of our single platform solution for all care settings, a multi year endeavor that we discussed on previous calls.
Sales and marketing costs increased $1.2 million or 23% sequentially as the improved topline drove commission expenses higher.
Costs decreased slightly from the third quarter of 2019, primarily due to decreased travel costs.
General and administrative costs increased half a million dollar sequentially due to an uptick in nonrecurring charges increased $400000 from the third quarter of 2019 as increased bad debt expense was mostly offset by improved employee benefits costs.
Closing out the income statement, our effective tax rate during the quarter was 16% combined with a 4% during the third quarter of last year. The third quarter of 2019 saw some outsized benefit related to R&D tax credits, which don't necessarily correlate with pre tax income, resulting in a heavy benefit to the effective rate.
From a cash flow standpoint, operating cash flows of $8.1 million were effectively flat with the third quarter of 2019 and down $9 million sequentially, mostly as this quarter had an extra payroll run.
Dsos improved from 49 at the end of the second quarter to 45 at the end of the third quarter, Despite a $2.2 million expansion in receivables.
Dsos were 53 a year ago.
Trailing 12 month operating cash flows stand at $51 million or 111% of adjusted EBITDA over the same timeframe compared to $35 million or 69% of trailing 12 month adjusted EBITDA a year ago.
This continued strength in cash flows has allowed for a net reduction in bank debt of $31 million. During the past 12 months with balance sheet cash increasing nearly $8 million over the same timeframe.
Finally, as you are likely aware in early September we announced that our board of directors have authorized a share repurchase program, providing for a maximum of $30 million of share repurchases to be executed over a two year timeframe.
At the same time, our board suspended our quarterly dividend indefinitely.
These decisions build on a multi year evolution of our capital allocation strategy that prioritizes flexibility to allow for more opportunistic uses of capital.
We've been strategically working towards this moment for the past couple of years first working to reduce leverage then refinancing our credit facility to achieve more favorable terms.
Could you help us sort of maybe scope that in terms of size and how long those.
Potential new revenue sources could last for our use one time revenues or there's gonna be a recurring can you help us where to think about how that affects the model going forward.
Yeah, they're recurring based on assess model, Don and you know I think both contracts or for a period of three years with extension and it's based on utilization. So you know it's initially obviously to push for for virtually everything that's happened in the.
Last quarter with get real health is <unk> revolved around covid testing results and.
And having.
Easy access to that from from your portal, a patient engagement platform and.
And that's the case with the two that you mentioned here as well so uhm, but obviously, we hope to expand upon that and just a general use of these applications and the engagement platforms going forward of course in Maryland, and in Rhode Island, but in other places as well in particular in Canada right now we're having additional success. So you know each of these are.
Essentially immaterial on an annual basis, but accumulatively they have the potential to add up as we add more generally around the $200000 range an' annually with the potential to grow substantially more.
How can a super or maybe maybe more broadly what.
<unk> <unk>, where are you in terms of sort of consumer strategy.
Against using get real health and other technologies, you are portals and whatnot sort of helping helping your.
Your health system help out to provide their clan instead of work in this new environment of how to.
Maybe digitally with patients or whatnot.
Yeah Donald.
So what we have.
We're we're working and we've got a couple of cases of this now out there and pilot is where are we say, we can really bring that patient portal and again, it's more than a photo patient engagement platform is to get the disparate systems together.
Said that a patient and a community they may say three or four five different providers and have a couple of hospital stays and with CH base, which is the underlying portion of dancing PHR all of that data can be consolidated again from the disparate providers and the patient only asked have one portal and I've said that <unk>.
Back our communities are getting from that is extremely positive because it's really confusing to have four or five different portals from your different providers and we can consolidate though so that that's why we say the biggest benefit.
And one last one really quick is that M. I thinking about that as an area of investment focus for Ya going forward is that where you're gonna be putting.
Capital or is that not high on the totem pole.
No well in general we're certainly invest in G. R H, not <unk>, not only domestically, but internationally as well so.
We definitely say that is one of the the growth engines of the company and to speak on voice answer to the previous question Don regarding the strategy I mean, he focused on and I think your question was more focused on domestically, but certainly.
We are seeing.
Our.
Early out services our performance based they are still transaction related so that would be included in that 80% number.
That's probably just taking a quick slag I would say that somewhere about half of that maybe a little more than half of that 80% is going to be on the performance side.
So so thats the first as answering the first question will just a second question one more time.
Oh, Yeah, I guess the second question was given your geographic footprint.
Our next question is from the line of Jeff Garro with William Blair and co. Please go ahead.
Yeah. Good afternoon, thanks for taking the questions well well ask a little bit more about the booking successes in the quarter.
Let's start with Trubridge into pass Trubridge bookings have been lumpy, but there's been improvement this year and I would say a higher floor than previous years. So any combination of market factors or change in go to market strategies that you guys would call out.
So I'm.
Two different parts that Jeff you know I would say in the base that we're seeing the interest and we were really off to a great start into you know.
Just carrying the momentum from the end of 2019 into 2020. So we were kind of alto breakneck pace with that and obviously have seen that slow a little bit, but but I would say here towards the end of the year, we're picking up some momentum and I wouldn't I wouldn't give that credit to just from a sales standpoint that we're getting better at and positioning the value for.
The customer with the service so combined with the converting their software license to Hsas, which opens up there and availability to the new innovation, one delivering plus the efficiencies that we can bring on the.
On the services side couple of those together is real is really starting to resonate in the customer base and then on the on the net new side you know honestly what were seeing right now on top of mind would be the success, we're having with the price transparency and that while while it's generating a nice little bump in the in the bookings. It's also continue.
To get our name out there and adding logos to to to our opportunity to convert an up sell and.
Great that's helpful and a follow up with another bookings related questions. This time on the post acute market just curious if the momentum there as it from them better wallet share or better market share in other words, it's competitive displacements or is it simply up.
Your prioritization of where on I T spend in those facilities.
Yes, Jeff we've talked a lot over the last almost two years now about the.
[noise] efforts and we put into our development with regard to the post acute product.
And that it was a two year project and were at the end of that timeframe now and we firmly believe in our from our customers are telling us that the end.
Increased bookings that were seeing in there as a read through.
Direct result of that improved software.
The majority of it is add on clinical software sales to current customers, but it also includes some net new wins as well.
Business for us today, and and and what percentage of business with U S versus international.
Yeah. So G R H as contribution to the P&L. This quarter revenues were half a million dollars that brings them to $2.2 million a year to date four 9 million over the trailing 12 months book.
Bookings were about half a million dollars this quarter compared to 300000 last quarter and they came in at around 400 K.
Same quarter of last year.
From the EBITDA standpoint, we haven't EBITDA loss of $800000. This quarter that brings EBITDA last year to date 1.8 million and trailing 12 months to to just under half a million dollars and from a year over year comparison, both revenue and EBITDA basically flat versus third quarter of last year.
We're looking at about 17 of those coming in in the SaaS environment coming into the year, we were expecting somewhere around the 50 50 split. So we've we've kind of surpassed our goals as far as on on what the SaaS mix is going to turn out to for this year and going forward it looks like.
That that transition from perpetual to SaaS is only going to continue and increase in mix toward hsas.
Okay.
Thanks, that's helpful color.
They're.
Pretty good while and we think that the recovery was early enough into Q3 to a queue for revenues are going to be a little bit more flattish.
So it didn't expect that the big bounce that we're expecting sitting here three months ago on the queue for revenues for true bridge.
Yes, and then seeing the only thing I would add there is there might be a.
Ah cram at the end of the year based on where people are with their deductibles from an elective standpoint, so there might be some some additional pop there, but I think matt's right that relatively relatively flat from that standpoint.
Right Yeah.