Q3 2021 NextGen Healthcare Inc Earnings Call
Okay.
Okay.
Welcome to the Nextgen healthcare fiscal 2021, and third quarter results Conference call.
On the call today from Nextgen are Rusty Frantz, President and Chief Executive Officer, and Jamie Arnold Chief Financial Officer, and today's call is being recorded.
All lines have been placed on listen only mode and the floor will be open for your questions. Following the presentation. If you would like to ask a question at that time and please press Star then the number one on your Touchtone phone is at any point. Your question has been answered you may remove yourself from the queue by pressing the pound key.
We ask that you. Please pickup your handset to allow for optimal sound quality and lastly, if you should require operator assistance. Please press star zero and before we start I'd like to remind everyone that the comments made on this call may include forward looking statements.
Within the meaning of the federal Securities law, and polluting and without limitations statements related to anticipated industry trends and the company's plans future performance products perspectives and strategies risks and uncertainties exist that may cause results to differ materially from those expressed and these forward looking statements.
Including among others those risks set forth and 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 form 10-K, and any subsequent quarterly report 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 today's 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.
GAAP financial measure used or discussed and a reconciliation of differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found within our latest quarterly earnings press release that was filed with the S. E C and is posted to the investors section of our website.
This release also provides qualitative descriptions of how we have calculated and 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 CEO of Nextgen, Sir you may begin.
Thank you operator, and thank you all for joining our call.
Q3, FY 'twenty, one and extended our run of strong performance as we continue to execute on our growth.
We are delivering a great client experience to complement our leading integrated ambulatory platform, we're adding new client bookings and an accelerated rate and we are delivering growth while simultaneously improving our balance sheet Q.
Q3 was truly another great step for Nextgen.
Highlights from this quarter include Nextgen strong Q3 performance across every operational metric driving bookings revenue earnings and free cash flow.
Another quarter of strong double digit growth and subscription services, which has now surpassed maintenance as our largest revenue stream.
Next gens delivery of the best overall client experience and the independent ambulatory market continues to show up and commercial wins, both inside and outside the base and validated by external feedback.
We continue to play our part and supporting both the front lines of care as well as helping enable the vaccine administration process for our providers and their patients.
Our strong execution on our revenue earnings and collections continue to generate robust free cash flow opening up a full range of options for growth and the future.
And most importantly, nextgen is culture and employee engagement continue to be the core foundation of our success.
So let's start with our robust Q3 operational performance bookings came in strong at $37 5 million and increase of 22 per cent year over year on an as reported basis, including a high watermark and recurring bookings we saw strong subscription services bookings from our recent from our recent patient engagement focused acquisitions and increased manner.
Service bookings as clients look for us to take on more of their back office operations.
On the revenue line for Q3 Nextgen came in at 141.8 and increase of 3% year over year on an as reported basis.
I'm on notable gross growth drivers is our continued delivery of surround solutions that bring the platform to life for our clients and generate recurring growth. This is shown up most notably and the continued double digit subscription services growth.
We continue to win and the replacement market, primarily fueled by organizations seeking and the integrated purpose built platform to replace fractured underperforming or failed applications.
Furthermore, we continue to see success and the maturity of our clients' success model that provides a specialty based experience aligned to our clients' strategic goals and objectives.
This was also a quarter, where we saw more clients going all in with our managed service offerings managed cloud services continue to be a nice growth area for us and managed financial services, notably RCM continued to grow that more slowly and the cloud services.
Digging a little deeper into RCM and the area most correlated to patient volume, we saw volume maintained at 93% to 95% and the quarter continuing to be a drag on net revenue line and that's 93 to 95 per cent of pre COVID-19 levels.
And we've modeled this range through Q4.
Our earnings performance. This quarter was also positively impacted by a strong level of perpetual license revenue and some clients continue to prefer this license with methodology.
And $20 million, our free cash flow was strong and reflects another quarter of strong performance from our collections team, resulting in a DSO of 49 days.
This is the second quarter and our ROE of Dsos at 49 days and this is another sign of the strength of our sign of the strength of our relationship with our clients.
These numbers represent one of our best performances in recent memory and continuing to support our competence and the road ahead, Jamie will provide the full recap on the financials and a bit but I'd like to take a step into how and why the news continues to be so good.
The power of our integrated platform continues to gain traction and the market, which resulted in competitive success as bookings from new client wins increased to 25% of total bookings compared to an already impressive over 20% last quarter.
Truly our broad solution, great client experience and new footprint sales team continue to bring clients nextgen.
Looking back this performance reflects our directing of 25 per cent of our sales spend at new footprint hunters and late FY 19, it's great to see that new team delivering and as we move forward. This will be and area of further investment and the near term, which should produce fully and three to four quarters.
Our platform capabilities are also resonating with our current clients, we have seen and increasing success in cross selling our broad portfolio, especially around the patient experience as our client base evolves around consumer driven care.
We are seeing the fruits of our work on strategy and client satisfaction as our solutions are very well aligned with our current clients goals and objectives.
This success, both inside and outside the base with the integrated platform strategy is leading to larger deal sizes, resulting from our new sales approach.
We are selling a vision and reality of transformation to the ambulatory market at a time when change requires it does.
Did that and we had four deals and this quarter over $1 million.
Multi year trend of increasing deal size ambulatory organizations continue to seek flexibility with and a scalable platform that enables them to address the progressive transformation and areas such as reimbursement models and specialty uniqueness and certainly relying on great interoperability to truly operate across the continuum of care.
Sales success is also a function of client receptivity and satisfaction every quarter, we focus on delivering great provider and patient experiences and this quarter was no exception and point of fact, we're gratified to score at the top of the interoperability and patient engagement and EHR Telehealth reports from class and that was based on spring 'twenty wait until spring <unk>.
'twenty one.
As we move towards the annual best in Class Awards will be excited to see where we land, but more excited for the impact of our spring 'twenty 'twenty one platform on client satisfaction as we move through the year.
Dipping a little deeper and to telehealth, we continue to see nice growth here now having enabled well over 1 million integrated telehealth visits while delivering a great and increased patient satisfaction rating up 9.1, and it's pretty amazing considering we acquired the capability and December 2019, and it only competed completed less than 30000 visits with and all.
Already high score from patients at 8.9 at the end of March 'twenty and 'twenty.
By delivering this level of scaling and increasing satisfaction. We have once again shown that we can leverage our balance sheet combined with our organizational capabilities to deliver a home run for our clients and shareholders.
Moving to that spring 2021 platform release, we are well on track to deliver the platform to the breadth of our client base.
We will partner with them to ensure that they can leverage our integrated approach and then workflows and the pursuit of a better journey for the patient the provider the practice and the population.
As we take them into a bright future. We will also ensure that our clients are ready and advance to meet the planned regulatory revived requirements coming in December 2022, with a planned implementation deadline for the 21st century Cures Act.
Our 2000, Twenty's New G M. Our user group meeting naturally went virtual this year I was concerned about the attendance being light and my team was not and I turned out to be quite wrong. Instead of the expected 2500, plus 2500, plus and attendees that we normally have we actually had over 8000. This year. Unfortunately, the team was ready even if I wasn't.
And put together a great and tremendous program and we did it we did just a phenomenal job of engaging educating and inspiring our clients.
We really value our time at the user group meeting because we get so much bidirectional feedback and certainly this year was a little tougher and so we really look forward to late this year and 2021, when we hopefully won't be back together and Orlando for and in person user group meeting.
From Nextgen culture standpoint, we continued to evolve and increased our employee satisfaction and engagement or an accelerated pace.
We increased on every dimension and the survey and are above benchmark and every dimension across the board as of the end of the year based on our annual survey, we had 85 per cent of our organization fully or nearly fully engaged on.
And our culture score increased again this year more than 10% year over year to 82, and that's from the mid Forty's and 2016.
We continue to evolve our employee experience as we become an even more fully engaged diverse and inclusive organization our journey to 100% will continue.
And these scores really represent alignment and collaboration optimism, but most notably the joy of working to advance healthcare.
Touching on that mission, we're privileged and humbled to be able to play our supporting role and the fight against Covid, specifically, we've created and internal Covid M user immunization task force to ensure we safely and effectively enable our clients document track and report these important vaccinations, where their education or advice software to make the administration process more efficient.
Regulatory guidance to help stream the profit streamline the process and the data to support the broad analysis of where Covid is and where it's going we're all in that being said, we're actually a very small part of the broader effort and we can see the weighted the true her ox on the faces of our frontline clients. Thank you for that.
Now I'd like to turn the call over to Jamie to go into a deeper dive on the financials Jamie.
Yeah.
Thank you Rusty and thank you to everyone who has joined the call today.
Now the Q3 results total revenue of 141.8 volume increased $404 million or 3% compared to compared to the same period last year and was up 1% from Q2 FY 'twenty one.
These results reflect strong demand for our solutions and also that volumes remain consistent with the Q2 rate of 93 to 95 per cent of pre COVID-19 levels.
Recurring revenue of 128 2 million was 90% of our total revenue.
In line with the prior year and the prior quarter.
Recurring revenue increased $3 5 million or 3% compared to a year ago with an increase of 14% and subscription services two per cent managed services offset by a 5% decline and maintenance and support.
To provide additional color on recurring revenue I'll provide a comparison of the current quarter to the immediately preceding quarter quarter over quarter recurring revenue increased two four and $6 million or 2%.
Descriptions services revenue increased $1 1 million.
On a 3% which is in line with our average quarterly and quarter over quarter inquiries over the past several years and in line with our expectation for the future.
Managed services increased 1.2 million or 4% eating M I, <unk> and data services increased 400000, or 2% and maintenance and support.
<unk> $200000.
Non recurring revenue of $13 5 million increased 600004 per cent.
Over the same quarter last year.
Software license and hardware revenue of $7 9 million increased 700000 or 10% year over year.
Software license and hardware and Q3 was in line.
With the preceding quarter, but significantly ahead of Q4, FY 'twenty and Q1 of FY 'twenty one not.
Non recurring services revenue of $5 6 billion declined 100000.
Or 2% compared to a year ago.
Bookings came in at 37, 5 million and the quarter up 22 percentage compared to the same quarter a year ago.
We had strong performance and a replacement market and several other large net new wins were for N. G E based solutions, where the customer opted for a perpetual license model, including two instances, where the client contracted with us for.
Most of the solution for them we.
We believe the slow ex reflects demand for our holistic solutions and that the sales management reorganization, we announced in Q3 last year is producing.
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Cost of goods increased by $2 2 million or 3% due to higher amortization of capitalized development cost and.
And higher subscription services cost.
Gross profit increased 3% to $71 4 million and gross margin declined slightly to 50.4 per cent compared to the prior year quarter of <unk> 55 per cent.
Turning to our operating expenses.
SG&A of 49 million increased $6 1 million or 14% from a year ago.
Increase was primarily due to an increase and legal expenses and personnel costs compared to Q3 last year offset by decreases in travel and conference and acquisition cost.
R&D of $18 2 million decreased 1.8 billion or 9% from a year ago. The.
The decrease is mostly due to higher R&D capitalization, which reduces net R&D expense.
We recorded an impairment charge of $2 2 million and Q3 associated with terminating us and some of these lease in San Diego and vacating the eighth floor of our office and Irvine.
And the 8-K, we filed today, we announced that the board approved an amendment to our bylaws regarding the location of our principal executive office.
As we have vacated and executive office and Irvine, we will be changing our principal executive office to our existing and Atlanta facility.
Our GAAP tax rate for Q3, FY 'twenty, one was a benefit of 57% with a non-GAAP tax rate of 20%.
To conclude my comments on the income statement.
Q3, GAAP EPS was one cent compared to seven cents a year ago.
Our non-GAAP EPS of <unk> 26 cents.
It was an increase of three cents compared to the 23 cents and the prior year.
Turning to the balance sheet, we ended the quarter with $89 5 million and cash and equivalents after having paid down $35 million on our revolving line of credit.
And this left us with a 29 billion.
On balance outstanding on our line of credit on December 31, which we have now repaid.
Dsos and the quarter were 49 days a decrease of four days from last year flat from last quarter and below our target range and the mid fifties.
Our capital expenditure, excluding capitalized R&D was $800000.
Capitalized R&D was $6 8 million for the quarter.
Turning to Q4, and our update to full year guidance and want to first touch on unexpected headwinds and both revenue and expenses.
And there are less work days in Q4 than each of the previous three quarters.
There are 61 workdays in Q4, which is two days two less work days and the average for the previous three quarters.
And this means there are less data for visits to the doctor during normal business hours.
On patient deductibles reset at the beginning of the calendar year, which typically reduces managed services and edr revenue as patients refrain from Melbourne Central Doctor visits.
Third we will capitalize less R&D expenditures due to the eminent spring 'twenty one release.
Finally, there is uncertainty and how the current environment will impact client preference regarding licensing our technology.
And the earlier comments over the last four quarters, we have seen significant variability and the procurement preferences. This client decision has disproportionate impact.
On our quarterly earnings due to the high margin on software licenses.
And after considering these headwinds.
Our strong performance in Q3.
And continued stability in the market earlier this month, we revised full year guidance as follows Rev.
Revenue in the range of $547 million.
$555 million.
Up from the previously announced drive 35 to 551 million non.
Non-GAAP EPS is expected to be and the range of 92 to 98 cents.
Up from 83 to 93 previously.
Expected.
In closing I am pleased with our performance and the quarter and.
Out of the organization for their resilience and determination.
I am looking forward to our continued progress.
This concludes my review of the third quarter financial results and I will now turn the call back to Rusty.
Alright, Thank you Jamie.
And and along the lines of looking forward.
And I look as I look down the road here I see I expect our current momentum as an organization to continue to be able to post this kind of quarter and do it without heroics, but with just great process, great culture, and great execution gives me a ton of confidence as we move forward.
In addition, as I look forward on Nextgen culture will continue to be a prime focus we are absolutely focused on striving towards 100% engagement and creating just a great and robust community with nextgen because that is the fuel that enables us to do what we do from a book booking standpoint, we expect our tenured sales team to continue to perform strongly it was a.
Great performance in Q3 that'll be a tough one to beat sequentially in Q4, but we do really see that we've come into our own from a commercial capability standpoint, I'm looking at top line.
Notably, we definitely expect subscription services growing double digits annually and as Jayme discussed certainly in Q4, we'll see a little pressure on revenue cycle management, but overall, we're continuing to see growth from the managed managed services portfolio of both cloud services and financial services and from an investment standpoint, I'd say I'd expect to see us.
Working to build back some of the head count and we delayed during the run up to Covid and now as we've gotten more certainty and we look forward now some of that delayed head count will start to come to the table will also begin to increase our investment and sales implementation and R&D.
Really ahead of that bolus of opportunity I discussed.
And because we have to seize that opportunity delivered on that opportunity and then of course create further opportunity from that success and so expect that investment to begin to show and Q4.
From a dry powder standpoint expect us to continue to grow our available liquidity of over the longer near and longer term as we move forward, we'll be looking for ways to further expand that dry powder and certainly to enable us to be opportunistic over the next few years.
And we'll continue to drive continuous visible enhancement of our client experience as we move through Q4 and beyond we're really proud of our achievements and recognition is gratifying and illuminating to our current and new client base and then finally mid March will demonstrate the power of the platform and our virtual analyst Investor day.
And at that point, we will also be within a few weeks of release of the broader deployment, we're actually in beta today and about 12 clients three of them.
Live and 12 clients with three of those being large and complex clients and so at that point, what we'll really be looking to do is we'll be within weeks of release and as well as the broader deployment of the general lease for our commercial clients and so at that point and time, our focus is really going to be walking up the investor community through the broad workflows that truly differentiate the platform and really bringing that to life.
And it wasn't provide an update of course on release of deployment.
And really excited about that effort that effort has the opportunity to both delight our clients bring them new regulatory compliance create a great experience for their patients and become regulatory compliant all in one fell swoop and in doing so that opens up significant commercial opportunity for us.
And so as I close my 22nd earnings call with Nextgen and a very very different place from the start and my first one I wanted to thank every client every teammate and every investor Who's had the faith and trust and myself and our team it's been a transformational journey and and amazing one and I want to thank everyone on the journey, but most of all our clients our ability to serve you well at <unk>.
Like this is truly a repayment of your trust.
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And with that we'll take questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw.
Your question and press the pound key.
And while we compile the Q&A roster.
Your first question is from Jeff Garro, William Blair and company.
Yeah. Good afternoon, guys and thanks for taking questions I want to start off with a couple on bookings and you had mentioned that this quarter was a high watermark for recurring bookings.
So I was curious if that was a GAAP up from prior quarters or more simply incremental progress and and then is there further room to grow from this high watermark.
And Jamie you want to take that and then I'll jump in.
Sure.
It is a high water mark.
And going back several years Jeffrey.
And the.
And the second part of your question is there room to go up from this.
And second question.
Yeah, Let me, let me actually let me take the second one so look and what I'd say is it's first of all and I think when Jamie says, it's a higher watermark over a number of years he's talking about the total bookings number not the recurring bookings number which was actually a high watermark.
And we've just seen that number continually growing over time, you know and I mean, you know you can get close to it by subtracting.
The onetime revenue away from the total revenue right and.
And you can get close to see that growth, but that growth has also shown up and the bookings number we haven't necessarily broken it out every time, but but we expect this figure that continue and in fact, when you really think about the contribution of the broader platform that we've brought to the table.
And we're really starting to deliver that much more and a SaaS business model and the assets around the edge are all in a SaaS business model and so you know you're just going to continue to see that recurring pump continue to grow.
Excellent that fees and the buyer.
Follow up question on on bookings you you called out and telematics and in the script book just curious if there any other highlights from the quarter in terms of attach rates from from the adjacent solutions and the portfolio or is it is it broad based and it's just meeting clients, where they are at with their own unique needs.
And I'd say I'd say, it's more broad based and meeting clients, where they are at but certainly theres trends emerging right. We're certainly seeing patient experience as a whole be a primary attachment, especially as we're implementing the patient portal aspect of med fusion, that's an easy expansion.
Right, because we're just basically doing a portal swap for them.
You know its interesting on and managed cloud services have been a really nice grower for us, especially as we really have implemented a very robust framework and client experience built around the capabilities with AWS.
And so that's really flourish very nicely and and.
And and so you know and then we're you know we saw a really strong a nice strong quarter on unfit and managed financial services on revenue cycle management as well. So yeah. It is it kind of meeting clients not as much where they're at it's actually meeting them, where they are not right and that's that's really what we're seeing is clients are looking at their capabilities their portfolio and their processes and <unk>.
And then starting to take a different look at the at the their client base the patient base and looking at what that journey looks like and really starting to focus more on the journey rather than individual capabilities.
Excellent great to hear that Youre, having success with the goal you've talked about previously about that becoming that trusted adviser.
And so a lot of data guidance.
So I'd like to turn to the guidance and one questions there and you.
It came in at the high end of the range this quarter and reiterated the the outlook. Yeah. Clearly you mentioned some puts and takes and the March quarter from explained by seasonality and sequential trend, but still a wider than typical range imply for the March quarter. So maybe you can balance the momentum you've seen and the business with the rationale for.
Our conservative approach to forecasting.
Yeah I mean.
I don't know, we just look at it and we've seen some pretty wild shifts and volume we've got a presidential.
Inauguration and that just happened you know, there's a little bit of volatility and the market out there right. So we keep a little bit more of a range certainly just to make sure that we're handling the ups and downs of things that are outside of our control, but also there's always going to be a little bit of a range, especially on the earnings line and this company simply because as Jamie said.
Perpetual license is lumpy and hard to predict.
It's very it's kind of a natural demand that showing up right now we don't have at Tilden and one way or the other we're meeting clients, where they aren't really tried to convince them from recurring but some clients are really attached to capital and that's just hard to predict and so there will be some fluctuation and that revenue line and just because of the 90 plus percent margin of that.
Revenue line. It leads us that's another contributor to a slightly wider range on the EPS line and you'll generally see us approach it that way.
As COVID-19 starts to.
Fall behind US, we will start to tighten that up but it'll still be a little wide because of that dynamic.
And that makes sense, given the agnostic approach to subscription versus perpetual license and so thanks again for taking the questions.
Yep.
Your next question is from Sean Weiland with Piper Sandler.
Hi, it's actually Jeff passing on for Sean Thanks for taking the question.
And so I think we wanted to start you guys are describing wins or some good wins and the replacement market and.
Interest and if you could provide any color around maybe the types of size of the practices that you're thinking about air and.
And what about the sales re org do you think it's driving conversion.
Yeah for sure.
I mean, the types and sizes much like our client base, it's all types and all sizes right everything from BH to multi specialty the single specialty.
And we've seen a lot of success and small and of the market. We've seen great success, and large and the market rate and it's partially because our efforts are quite strong where our sales force is stratified appropriately around different market segments.
And so you know, it's it's it's kind of been a little bit all over the place and same thing kind of from a competitive standpoint, its been a little bit all over the place, which you know I mean on it we're seeing more our RFP volume and come in and certainly but yeah. So we made it.
In late 2019.
And interesting when I came in our goal was not to lose our clients. Shortly after that on our goal and became two start to actually deliver additional capabilities and open up some share of wallet for us to happier clients right, but we didn't really think about outside the base because we honestly weren't and a really good position at that point in time as we came through the.
Year before and last year, our external brand has significantly improved and as we sit here today very much so and that gives us more confidence and investing a little bit of ahead of the market right. Now we're at 25 per cent of our sales head count is purely focused on new wins not on existing clients right and and yet and we're kind of at 25 per cent of our book.
And being at that so you know that kind of says that that's kind of the level that this team supports plus or minus.
But as we look forward, we see more opportunity. So expect us now to continue to and add head count.
Primarily focused on new wins, but also more focused on a larger already and the base client base to continue to explore the opportunity.
That makes sense and I think that the.
Follow up.
Understood that's COVID-19 controversies and some of that's the crafts.
And so then they come back.
What should we think about as a new normalized range of SG&A as a percentage of sales.
You know I'm, not really ready to comment on that and because it's a longer term question, but why don't we why don't we revisit that in may as we start to talk about next year.
Alright sounds good thank you.
Thank you.
Yes.
Your next question is from Steve Halper with Cantor.
Hi, just to expand on the previous.
Question on in terms of the.
Footprint expansion that you talked about and I appreciate the color there.
Why don't you characterize where those wins are coming from is it the large legacy vendors the small guys.
It's always been fragmented and a lot of these clients that they go on cloud for the first time.
Some not many some of them well I'm going full cloud versus kind of part hybrid right.
So we've seen some that are going full cloud for the first time some that have already had some of the assets in the cloud and so it's really more of a migration into just a larger footprint was certainly a more robust framework from management security and upgrading etcetera and so it's it's actually not just because we're in the cloud it's because we're hosting our own stuff right.
And so that gives us kind of an inherent advantage and the experience that we can deliver on that side.
I'm sorry, Steve what was the rest of your question.
Whereas the new footprint coming footprint yeah.
John.
Look it's coming from legacy vendors I'd say, it's coming from some vendors that have really almost fallen by the wayside at this point and time its coming from early and we're toe to toe with some of the new vendors and Phil.
It's it's.
And like I said, it's it's it's we haven't we don't want to dig too much into it because it really I don't think there's a single pool that we're swimming in as much as we're swimming and the ocean right now.
Debt and how important is the telehealth capabilities that you.
Appear to have done really well with at least initially.
Yeah, you know I'd say, it's a I'd say.
It's very important for our clients right, but it's not the fact that it's telehealth is the fact that it's truly integrated into their workflow. So it's the same scheduling with patients whether it's virtual or not it's the same experience for the provider.
And you know, it's integrated into the handheld and the patient experience platform the patient portal and so it's just been a super frictionless way for them to maintain volume.
Interesting I mean, we see certainly more adoption in the behavioral health space, and we do and the medical space from a volume standpoint, which is somewhat understandable.
But when we do see is and we see kind of I'd say.
And I don't know I'd say, probably 20% maybe 30.
Of our percentage.
Our clients patient volume is going virtual sometimes depends on the practice right, but we don't see them going much higher than that so I think I mean, the real news is telehealth is an essential part of your ability to interact and engage your patients, but it is not the ability.
It's actually.
It's actually the clinician and the patient communicate and together.
Tactically and an informed way that is captured that's actually what health is and telehealth is just another way for that to happen.
Thanks.
Yep.
Your next question is from Sandy Draper with true list.
Thanks, very much a couple of questions one.
I know you guys had already pre released that the upside to the guidance debt compared to the prior guidance when I I'm trying to see if I heard it right.
Amy.
Pushed up and guidance how much of that would be just maybe some more one time license that came in and mix shift or is it more driven by net bookings and growth in recurring and just trying to think about how to sort of bucket. The main thing that pushed up the guidance.
Yeah, I would what pushed up the guidance is first is E.
Higher.
Software licenses.
I think we had talked about this earlier.
And that's why we mentioned it again now.
It is also debt.
I think part of it is that volumes have remained.
Strong throughout the entire quarter.
And and we're looking now and.
And seeing and continue to stay relatively stable. So that's part of the reason and then the other the third part is.
The bookings and the recurring revenue lines.
Okay got it that's helpful.
And the follow up and.
Rusty I and I know, you've got you don't Wanna get and test next year and guidance and then try to assets and a way that you can.
Can answer it when and when I look sort of debt and your comments about bookings and it can be a tough one if I just ballpark it.
Net per se, maybe $130 million of bookings this year, that's flat with last year.
I think that 2019 number is still apples to apples that's $1 33, I'm just trying to think in terms of and algorithm.
Yeah.
And again I know, it's tough to tie it depends on the mix, but I'm just thinking you know okay.
Just consistently stay flat with bookings.
Is that where you sort of draw drive well, so well if somebody I see I see where your questions going on.
And and here's what I'd say first of all and this year in Q1.
We weren't forecasting Q1 to be above.
About 12 $13 million to $15 million net of telehealth telehealth.
Telehealth was like a saver and Q1, but let's just be clear it was a saver and Q1, because about $13 million of bookings vacated the building because of Covid right right and so so when I look at this as a flat year I don't look at this as a flat year at all.
Now when I say sequentially, it's hard it is sequentially hardware, now where and where our Q1 calendar one company.
With a Q4 client base.
Right and so Theres always Q Q4, as always and interesting one and I don't know, what it's going to be and I said 37 and for being a high watermark and three years and the stout number to get passed but I did say that expect the bookings to generally flowed up I said, we're gonna be adding salespeople and I said, our momentum continues to increase and so what I'd say is if you build.
Your model based on us staying at 130 year, probably going to build the wrong model.
Okay. That's really helpful. I appreciate it.
Your next question is from Sean Dodge with RBC capital markets.
Thanks, and good afternoon.
This spring 'twenty, one release, you talked about that being a good opportunity to talk to clients about your other modules. So so kind of putting cross selling on the table.
He started to implement the new released what would be a good cross selling attachment rate I guess, what proportion of those implementing the new release do you think you can you can expand your and I think we're going on with it's a great question.
Question, I think will comment more on that Sean and analyst day, we're not really ready to comment on that yet we want to get a little further into the process before we start commenting on attachment rates, if you know what I'm, saying.
Sure.
Because right now we're implementing the patient experience platform. So we're already seeing attachment there, but we're not implementing this spring 'twenty, one and patient experience, including the patient experience platform, which is really what starts in earnest as we move through the spring and into the summer and so either and March or more likely and Mei will start commenting on that because then we'll have enough track record.
But what I would say is.
We didn't have a strong bookings quarter, because we have crappy attachment rates.
So I think.
Stay tuned for more but we're very satisfied with what we're seeing.
Okay fair enough.
If we look at fiscal <unk>.
New mountain look at fiscal 'twenty, one and the narrative just about a year ago was with EPS would be pretty flat through fiscal 'twenty. Two while you you all went through the re platforming and now we're looking at 12 to 13 cents on a growth. This year based on the midpoint of your guidance and that's despite weathering the pandemic. It sounds like there was some hiring delays.
That's on the opportunity that you can go to five cents with growth. That's four to five cents of growth with a one time eight cent short term cost reduction borne by Nextgen.
Okay.
So maybe the four to five four to five.
Lower teeny and and the hiring delays and and Jamie mentioned, the higher software licenses or is there something else debt.
I, that's helping out there.
And so what I would have said kind of along the arc of Covid was first of all we're much more efficient after COVID-19. We've done some great work from a workforce management standpoint, as well as process efficiency and interestingly enough, what youre seeing and spring 'twenty. One is as a platform are leased with an underlying micro services platform, which kind of what we told you we were going to do all along and.
So as we sit here today, it's actually a different investment thesis right now we're driving revenue growth and if you think about subscription and services is going and the mid double digits and that also includes a line where its just third party licenses that were kind of passing through and so we've got a high growth subscription revenue stream of high growth recurring revenue stream.
And we're actually starting to see that really lift up and so now what we're saying is basically okay. We got that worked on for the most part we're still going to need to do some more of that but we're a long way through it but now what we're talking about is we're actually competitively a force.
Expect us to focus on top line and expect us to invest ahead of that focus on top line as we move forward and that was really what I meant and my closing comments with R&D implementation and sales now I'm not talking about massive step functions, but I once again I'm, saying.
Focus on top line focus on recurring and subscription growth focus on dry powder accumulation, because that's actually the value creation story here that got us from.
Somewhere in the single digits to where we are today.
Okay.
That's very helpful. Thank you.
Hmm.
Your next question is from Donald Hooker with Keybanc.
Yeah.
Great good afternoon.
And so maybe one mundane question.
On the SG&A expenses, which were which were up.
I think Jamie you mentioned and won't leave.
You referenced legal costs and.
And there was an earlier question about what kind of is a normalized run rate there.
And now you don't want to give guidance, but I'm just trying to understand the legal cost and I think you referenced hometown can you elaborate on that swing and at least understand maybe how much of that might be.
One time or not.
Yeah. So.
The biggest uptick and legal cost.
This quarter had to do with the law suit with your older.
Shareholder lawsuit, which.
From a non-GAAP standpoint, we remove so when you look at the GAAP to non-GAAP earnings reconciliation Youll see the impact on.
On the legal expense.
And he gets removed if you're dealing with and on a non-GAAP basis.
And.
The numbers, we are discussing are tied to the earnings release, which were on a GAAP basis. So just.
Yeah.
Hopefully that helps answer the question.
Okay.
I see thank you and then maybe you guys I guess, maybe back to the replacement market and topic.
Obviously, the bookings on a fantastic.
Yeah, you attribute it seemed to attributed to the sales force I mean is there any reason to think the girl from might be and he kind of change and.
And in the end market around maybe at some point.
Physician groups are going to kind of switch out older systems I guess, we're all waiting for at some point and such a fragmented market I don't know I don't want to over interpret one quarter, Matt, but and what I'd say is look I mean, one was meaningfully is right at the meeting meaningful use is what 11 to 14.
Hmm.
So you think about it I mean, what do you do with a large information system you generally start and you generally evaluate the is there something else out there around six or seven years no matter how good it is.
Yeah.
Right and so that's why you can never be bad as and enter because when people hit those windows.
Whether it goes to RFP or whether you just have a conversation about how you get the relationship even better is really depends on how they think of you at that time right and so the replacement market and isn't just about the competitive hand, you have to play it's about the stability and satisfaction that you drove and your existing client base, which are.
Enables us not to defend your walls, but actually play offense out and the community.
Okay. That's that's super thanks for that insight.
Yep.
Your next question is from Dave Windley with Jefferies.
Hi, good afternoon, and thanks for taking my question Brushy, you've mentioned a couple of times on the call and I think also mentioned just kick off the year at a at the industry Big industry Conference JP Morgans conference dry powder, and expanding maybe even expanding your capital base and some ways.
I can't help but ask like what what might you be looking at you even mentioned like returning capital to shareholders. So kind of two very different directions on one or two people out.
So I didn't I didn't.
What I mentioned is is at some point in time should we not find a better use for capital then we will consider returning it to shareholders, but as we sit here today, we've demonstrated a very expense effective.
<unk> track record of leveraging our balance sheet to create great accretive wins for the shareholders right. So you know so we've done that and that's awesome and we've built a great string of pearls that is really showing success and ambulatory market and then the question is what next and we don't know what we do know however is that this is a great time both.
External <unk> and and our lifecycle to look at different ways to accumulate more dry powder, but that doesn't necessarily mean that we have a use for that right now it just simply means that we're at a good advantageous spot we've created bandwidth for the senior team to look more broadly at the industry and and our business and you know that kind of although that begets.
And opportunistic posture said something interesting and potentially even larger come along.
Got it when and when you talk about rolling out patient experience are you seeing clients take can they take that down all the cards at all and can they even do that yes, and if they can.
Are they doing that mostly or are they more inclined you've kind of hinted during the call that the the attachment rate or the the purchasing vision for them is more fulsome.
And in that regard is is telehealth part of that or is that really a different discussion. So so so what's what's happened and when I say some clients are taking it alone well first of all we have and Ignostic client base that are not our clients that were clients of med fusion and continue to be clients of nextgen.
On top of that though.
We have you know without we're not within our client base there are some folks.
Who.
Our existing clients that are comfortable with the great capabilities of our new patient experience platform, but has a couple of capabilities that are and the old patient portal that need to be ported forward.
That's happening in spring 'twenty, one on top of that every client needs to be on spring 'twenty, one that needs to thought that needs to deliver regulatory compliance under 20, <unk> century cures right. So that's kind of the back.
But what we're really seeing is the integration it's about the patient experience platform. It's the integration directly into the broader platform. It's that telehealth works directly and holds with handhelds with the provider and the patient right, it's and interoperability affects the entire thing. So the patient can see their entire record you know what I mean as we go forward.
And certainly the rules, which I think are a great rule around having an API from the patient can access their own information. These are the kinds of things that come out when you integrate a broad patient experience platform into and the entirety of our integrated ambulatory platform and so.
I don't I see this much less as a fragmented approach and much more as you know that rollout that's hit and you know the 60 to 70 to 80 to 90 clients a month.
And got it and that's that's where we're going with us on her.
Thank you for that last week also why sorry to interrupt which is also why you'll you'll see us once again and best ahead of the bolus of opportunity on the sales and implementation side.
Okay. Okay could highlight on last question for me client attrition has become kind of a somewhat.
Somewhat distant memory not not not the problem that it once was.
Maybe you you haven't really.
Really even touched on it and in this call, which I guess is a good sign is is that a function of the clients that were consolidated are now out of your and your book of business is there any element of that debt was a you know say the last year or so is probably not a hedge.
The acquisitive time as people are just trying to get through the war of Covid and could come back I'd be curious your views on.
And first of all and it's consolidation.
Look I've never report on on on maintenance attrition again, because it doesn't matter and the broader P&L and we've shown that over a five year period right now just a point of fact, the only time I'll continent comment on and if it goes above 10 and for one last time I will answer the questions only kind of asked it's 8.1 right now.
And so it's not a number that really matters right. We're at seven and $4 7181, and that's kind of where it's bouncing around and so we're not really focused on it what we're really focused on now is this is a growth business.
Alright, and so.
We've already closed off the back fence and there's always people that are going to consolidate and the others that are going to there's always a client decides that you're not doing a great job for them and so there's always going to be a little bit on that but let's focus on the bookings and then focus on the growth and focus on the growth and recurring.
The growth the maintenance line is kind of so like five years ago.
Right right and it's great wine because it generates free cash flow right and so that's awesome and we love that and I mean, basically when you think about dry powder, we're going out to raise give or take $60 million from our clients for the value, we deliver them and that puts dry powder on our balance sheet, which is a little different than other ways that people require dry powder.
Got it got it thank you for the answers.
And if I could just add to what Rusty said Rusty said, we're not focused on it I would I would slightly change that we are focused on it. So that you don't have to be.
Every day.
We get up and go to work and make sure that where we are pleasing our clients giving them.
Delighted level of services and that is a large debt.
The retention rate has gone up.
When I when I say, we're not focused on attrition and we're absolutely focused on attrition and we're not focused on the financial metric of maintenance attrition because we don't think it's a material metric to view the business by anymore.
Again I appreciate the answers.
No worries.
Your next question is from George Hill with Deutsche Bank.
Hey, good afternoon, guys and thanks for taking the question.
Rusty and Jamie kind of Q1's first is I guess Rusty can you talk about where you think we are and the lifecycle of telomere bookings and telematic revenue and maybe have you guys provide any metrics around the penetration of your telematics solution into your client base and then the second one is just can you provide and update on the Verde I'm relationship and whether net that's started to scale into something yet.
The meaningful contribution.
So the first one what I'd say is I think we're moving into the lifecycle of enterprise adoption from and telehealth standpoint, and stratification of the market.
And my view on it is what you'll see is kind of the cheap and cheerful horizontal non integrated solutions will continue to be successful on the smaller and and we'll have some success on the larger and but what we're seeing is folks are now looking at how does that how does and integrate into their broader workflow platform and so we've moved more and kind of the RFP and part of it which is it.
It's less growth, but it's still growth and you know as you can see and our transaction transaction increases you know were still seeing a lot of utilization and were still seeing provider growth.
On the second one George on the second one what I'd say is.
I'd say that we have we have we have the paradigm relationship starting to produce revenue and it's built into our forecast and honestly beyond that I kind of stay out of that because that's that's really more of another company's broader public.
Message.
Okay. Yeah, I was I was really just focused on the economic contribution to you guys as it relates to that but I'd say, it's not it's not material yet, but we have hopes.
Okay I appreciate the color. Thank you yep.
Your next question is from Ricky Goldwasser with Morgan Stanley.
Yeah, Hi, good evening, and so I have a question on on pop health and thank you talked about you're using your pop health tool is pop health and a tool for and <unk>.
Being your customers and and vaccine distribution I'm clearly.
And it's a topic that's on everybody's minds right now can you maybe share with US what are you seeing in terms of.
Physicians are preparing for it and and what are you assuming and your budget for Doctor start I'm kicking.
I'm, sorry, I didn't hear it for what I didn't hear the one thing that was the most important and incentives which was from.
Oh, Oh, Oh, we're just kind of like when you see I mean, if you think about kind of like your customer base and kind of like when they are kind of like on a start using the the pop pop health cool and oil.
Accommodate vaccine distribution and sort of when do you think that's going to happen.
And timeline and we're seeing them more use you know, we're certainly seeing them use the pop health tool for cohort identification and then passing that into outreach to get out to the cohort.
And and and so the clients that we have put up a good bit of intelligence really around finding those those high risk cohorts within a patient population.
You know and honestly that the overall felt vaccine distribution.
Challenge right now is a little broader than our view and so we kind of know what we're doing Ricky but I'm not so sure that we can tell you whether there's.
A big bolus coming or not right at it we're not as close to the actual act as much as we're providing the support and capabilities for our providers to do on it.
And so we are seeing a lot of cohort identification, but when it comes to like how.
How much is actually being delivered from that cohort identification and that's a challenging one for us to answer.
Okay, and when do we think about it and be difficult ones, emphasizing focus on growth and and lining kind of like your.
On development initiatives and product with with declines and strategies. It seems like 'twenty and 'twenty was all about telehealth and when you think about kind of like the areas where you're seeing.
And most demand or interest from from client contact going and paucity user group and what are the areas that we should focused on and for 'twenty 'twenty, one and 2022.
And I'd tell you what everybody went from not appreciating healthcare to really really valuing it and a very short period of time.
And so we see this as the time when the patient has truly a treat achieved a level of privacy and the system.
Because between high deductible health plans, a real appreciation for house.
And on a perception of the scarcity of healthcare for awhile.
And I think we come out of this with an entirely different galvanize consumer driven patient population and I are providers absolutely. All the conversations went from last year and December when we met with our our clinical leaders across our company.
And across our client base on all of that conversation was about impending risk.
And this year the entire conversation was about and and actually two years ago was about and the Doctor Burnout. This year. It was all about the patient and engagement and consumerism and how do we truly activate the patient how do we make them a part of the care how do we get the outreach going it's really become that patient experience that truly matters, especially in a consolidating market.
Oh, great. Thank you very much.
Thank you.
Your next question is from David Larsen with BTG.
Hi, can you talk a little bit about the cross sell opportunity are you happy with where that is right now or not if I heard you correctly. I think you said that 25 per cent of bookings came from new footprints 75 per cent we're into the existing base.
It sounds to me like that's a good in sell or cross sell performance. There I mean, just what are your thoughts on that and then what exactly is in the spring 'twenty. One version will will that augment or supplement the cross sell potential there. Thanks.
Yeah, So I'll start.
So on the second one first.
First of all you have to show up and at our analyst day to actually know, what's truly and and they don't.
They don't let me tell that kind of stuff on earnings calls, but what I would say is what's in the spring 'twenty one release will absolutely augment the the integrated platform right. We've done some light integration and the past, but now we have on underlying micro services platform, we've delivered great integrations and foundational capabilities, but that's really about workflows that span the and.
Entire platform you know for example back to Richard's conversation question.
If you identify a cohort right you've identified a cohort that you need to apply your clinical population to treat and reduce risk off.
Well from there you want to be able to do outreach from there you wanted to pop into care management and care coordination, which is actually then allowing you to decide how you're going to treat this cohort and make sure that you're assigning those tasks to the REIT license at the right time, and you're managing a consistent approach to a subpopulation that has similar.
And then you want to actually take that and go straight into the provider portal, whether its hand on the handheld or the EHR and make sure that they truly understand what and when and why things need to be done to absolutely reduce the risk of that cohort on top of that all of that is then directly integrated into the patient experience right and so.
And you're really taking going from population down.
Down to practice down to provider patient and then on the back and of course through financial analytics to make sure. The organization gets paid and so theres journeys through the platform right patients have a journey to a practice and they've written all these things called hassle maps about that journey, because we've all lived those hassle maps what.
What are what are what are what our clients want is they want a seamless integrated experience that is pleasing and consistent to the patient because that's what activates engages and attracts patients to your practice and so that's what I look like the and that's when I see the advantage of the 'twenty 'twenty on really is coming now from a cross sell standpoint, I'm incredibly happy where we are.
Yeah.
Our clients Trust us as partners and advisors and we've seen great success, I said I'd tell you what I've got like 13 clients large clients and this organization that told me they were leave and about five months into this job because we were not two and a good job for them and as we sit here today. They are true partners to us.
And that's really that's really the foundation of the cross sell but as I said in the prepared remarks, we're not selling we're not selling a piece of something we're selling a vision of transformation.
And that's entirely different than it was when I came in or even in the middle of my tenure and I think we're running on our questions. One more question and then we've got a close enough.
I'm all set.
Your next question is from Stephanie Davis with SBB Leerink.
Hey, guys Congrats Macquarie and thank you for taking my question.
Thank you Steph.
And you guys need alternative application at the end of <unk>.
And 19.
On the 20th oddly quiet.
Oh healthy demand environment.
Yes.
And free cash flow.
How should we think about debt.
Are there any gas left in your portfolio or are you just kind of on the sidelines because my values and die.
No well, yes, and no it.
It's a great question you know what I'd say is.
We build a string of pearls, and that's actually a pretty complete string.
And you Gotta be careful if you had too many hurdles on a string of pearls start competing with each other for the same dollar.
And so there is a point of time, when and if you're looking at it.
Right.
And do exist.
No, but I mean, there's a certain point and time at which you don't actually get leverage on further acquisitions attacking the same wallet.
And then you have to start to think do I look further afield do I look at Adjacencies going in different directions, right and and Theres, a number of those and I won't comment on any of them at this point in time, but what I would say is.
We don't just acquire stuff, we're building towards a strategy and we always look at accretion and very very seriously and so as we step back now I'd say, we've kind of filled up the current string of pearls, but you know what there's some interesting ones in there that have offshoots that come into different market spaces, and potassa, we could augment and build and entirely new spring.
[laughter] pearls going a different direction and I think that is actually a possibility for this organization, but what I would say is.
<unk>.
And I didn't get to buy a car at 16, because I bought nice clothes at 12 and.
And so.
'twenty and 'twenty was really about integration focus making sure that all the money of the shareholders. We'd spent was actually returned and turned into revenue growth 2022, you know is going to be continue to focus on execution and growth and then we will continue to focus on how do we create different opportunities going forward.
So you asked the same question and that a few other folks asked before what happens all the free cash flow.
And as if all of that free cash sits and gross to more free cash and then we evaluate what to do with that with an absolute bias towards returning value to our shareholders through equity growth through investing in revenue growth and hopefully at some point getting this company into the double digit revenue growth range.
Well it sounds like a plan it doesn't they can and update our plan.
I'd say, it's more of an idea and a plan at this point and time plan comes when we talked to you and lay out a much broader framework. So.
That's all I've got for today. Thank you everybody for spending time with us and we'll talk to you in mid March at our analyst day.
Ladies and gentlemen, this concludes today's conference call and thank you for your participation you may now disconnect.
[music].
Okay.