Q1 2022 NextGen Healthcare Inc Earnings Call

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Welcome to the.

Nextgen healthcare fiscal 'twenty 'twenty, 2 first quarter financial results conference call hosting the call today from Nextgen is Jamie Arnold Executive Vice President and Chief Financial Officer, and Matt <unk>, Vice President of Investor Relations. Today's call is being recorded and now I will turn the call over to Mats Gallo.

Okay. Thanks, Katherine and before we start I'd like to remind everybody that comments made on this call may include statements that are forward looking within the meaning of the federal securities laws, including and without limitations statements related to anticipated industry trends and the company's plans future performance products.

<unk> and strategies risks and uncertainties exist that may cause results to differ materially from those expressed and 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 factor.

Actors and the company's most recent annual report on form 10-K, and any other 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 our earnings results the GAAP financial measures most directly comparable to each non-GAAP financial measure used or discussed and a reconciliation of the differences between each non-GAAP.

GAAP financial measure and the comparable GAAP financial measure can be found within our latest quarterly earnings release that was filed with the SEC and is posted to the Investor Relations section of our website.

This release also provides qualitative descriptions of how we have calculated non-GAAP financial measures contained in our.

At this time I would like to turn the call over to our CFO Jamie Arnold.

Thank you, Matt and thank you to everyone, who has joined the call today.

It's been a highly productive quarter here at Nextgen healthcare as our team continues to execute on our goals and particular accelerating revenue growth.

Our guiding principle is as apparent today as it was when I joined Nextgen and over 5 years ago, and leave and better and.

And better in this case translates to being the preferred solutions provider and trusted advisor to our clients as they continue their journey and a market that is evolving to value.

And mid June we spoke with our clients employees and investors regarding the orderly leadership transition of our former CEO Rusty Frantz.

While change can be disconcerting, we approached this transition from a position of strength and confidence both financially and operationally.

Our.

And employees have expressed a clear commitment to nextgen and the Companys long term growth strategy.

With our focus on commercial execution Nextgen is accelerating its revenue growth, while continually investing and exciting longer term growth opportunities the.

The company has strong cash flow generation and that allows us to self fund.

Client meaningful growth initiatives as well as a strong balance sheet with no debt and access to significant capital should and attractive inorganic growth opportunity arise.

Finally, the company has guided by an experienced leadership team and staffed with employees, who work tirelessly to promote nextgen.

And as outstanding culture, and to drive continuous improvement and organizational structure and execution.

The board directly and through the Board oversight Committee, consisting of Jeff Margolis, and Vice Chairman, Greg Craig Barber Raj and strongly and actively supports the interim leadership structure.

The members of the Executive leadership Committee or ELC include me.

David Metcalf, Donna Green, and our new Chief growth Officer Shri Valla more.

Having worked with David and Donna for the last 5 years.

Can't overstate the impact they have made on their respective departments and the company as a whole.

And with only a month and Nextgen.

Free who recently led healthcare digital strategy as a partner and Mckinsey.

Ringing, a fresh and highly informed perspective to shape and accelerate our growth agenda.

The board has also initiated a robust executive search process to identify.

<unk> evaluated and engage top talent for the CEO role the.

And the process includes both internal and external candidates and we will provide updates on this process as warranted.

Turning to Q1 operations, let's start with a brief update on our spring 'twenty 1 rollout.

We are still in the early adopter phase.

But are fast approaching the next phase ramp to scale and.

And the early adopter phase our focus is on planning testing and Resourcing, a scalable and <unk>.

And then patient process.

That will deliver and enhanced experience to our clients. Our goal is to lead our clients through this process. So that we better enable them to fully.

We reached the system and deliver measurable results were.

We are seeing a meaningful percentage of clients, particularly the kudos.

And those on the most current version of Nextgen enterprise.

Raising their hand to start the upgrade process as such we're adding resources and anticipation of this ramp.

And other operational.

Wally left highlights bookings came in at $34.3 million and the quarter.

Up 34% on a year over year basis.

While the comparator was low due to the impact of the pandemic and the prior year, we believe our solid booking momentum speaks to the advantages of our solutions and certain.

<unk> specialties and attractiveness of the breadth of our solution.

New client wins accounted for over 25% of bookings and we note that we closed a few 7 figure deals and the quarter spanning both existing and new clients.

Speaking of large transactions and I'll provide color on a few of those larger transactions.

Medical's.

The first 1 is a federally qualified health center, our F Q H C.

And that does great work focusing on whole person care, serving over 38000 patients across 48 facilities.

The prospect recognized how our comprehensive offering which supports both physical and mental health and.

And includes virtual visit capabilities could address their current needs and will scale to support their planned growth.

We look forward to supporting this client and their mission going forward.

I would also like to mention and expanded relationship with a national medical group with over 2300 physicians.

Our new agreement provides solutions that surround our core offering including mobile virtual visits automated rules engine and appointment reminders and.

It's rewarding to see how being a trusted adviser supports our clients' growth.

Now the Q1 results.

Starting with total revenue the company generated.

And and $46.1 million and fiscal first quarter and increase of 12% year over year.

Of this total recurring revenue accounted for $132.4 million or <unk>, 91% and was driven by strong performances and our managed services.

And subscription businesses.

And 100 managed services revenue of $29.4 million grew by 31% due to continued growth and our managed cloud services and revenue cycle management and year over year comps, reflecting the impact of the pandemic last year and.

The change from recent quarters client and counter volume.

<unk> for the quarter was at or above pre COVID-19 levels.

Adi and data generated $26.2 million and revenue this fiscal quarter.

Growing 13% over the year ago period as transaction volumes improved and the year over year comps reflected the impact of the pandemic last year.

And software subscription revenue, which is at the crossover point to becoming our largest revenue category generated $38.3 million and fiscal first quarter and grew 8% year over year.

The growth this quarter was fueled by clients continuing to incorporate our solutions to better engage their patients and improve.

The patient and provider experience.

Consistent with our past commentary subscription services growth moderated from recent quarters due primarily to the tougher comps as stronger adoption of select.

Subscription and services like telehealth boosted the prior year period.

Software maintenance and support revenue of 38.

$8.5 million was flat with the prior year period, and slightly better than historical trends.

Non recurring revenue of $13.7 million increased 21% over the same quarter last year.

Software license and hardware revenue of $7.2 million grew over 50% year over year.

This performance.

Flex timing of larger deals and the quarter and benefits from lower year over year comparison.

Gross margin of 52% represents an increase of 90 basis points from the same quarter a year ago due in large part to a mix shift favoring managed services and EDI revenue, which benefited from higher.

<unk> volumes, leading to higher gross margin for those services and a reduction and amortization of acquisition related software technology. The.

And the benefit was offset partially as we started to add staff to support the spring 'twenty 1 rollout.

Turning to operating expenses.

And a $48.5 million increased by $7.7 million compared to a year ago. This increase includes the accrual of separation costs associated with the departure of our former CEO.

As well as increased legal expense primarily related to the preparation for the shareholder trial.

Net R&D of $19.3.

STM grew 6% over the year ago period.

Net and R&D reflects increased gross spend due to project timing and slightly lower capitalization, which increases net R&D expense.

Our GAAP tax rate was approximately 16% with a non-GAAP tax rate of 20%.

On a GAAP basis Q1 fully diluted net income per share was <unk> <unk> compared to <unk> net loss per share and the fiscal first quarter of 2021 on.

On a non-GAAP basis fully diluted earnings per share for the fiscal first quarter of 2022 was 25% compared to 21 and the.

Free medical period.

Turning to the balance sheet. We ended the first fiscal quarter was $63 million and cash and equivalents and no balance outstanding on our line of credit.

Dsos and the quarter were 46 days a decrease of 3 days from the previous quarter.

Capital expenditures excluding capitalized.

A year and can be was $1 million for the quarter cash.

Capitalized R&D was $5.5 million for the quarter.

Free cash flow generation was negative this quarter, reflecting a higher than average bonus payout.

Percentage from our over achievement of fiscal 'twenty, 1 goals, we expect free cash flow generation should return.

And to near historical levels for the remainder of fiscal year 'twenty 2.

Now on to our fiscal 'twenty, 2 financial guidance and closing comments.

As noted in the press release, we are raising our fiscal 'twenty 2 revenue guidance at this time by $2 million.

So the new revenue range is 576.

<unk> million to $586 million.

While the fiscal first quarter's performance was clearly strong and well balanced we believe that given the number of variables, including the Covid Delta variance. It is prudent not to get over out over our skis, particularly after 1 quarter.

Those of you that have followed.

And for some time know that the potential timing of a few large software transactions.

And impact any single quarters performance, but over time the trend typically returns to normal.

While managed services and <unk> generated 31% and 13% year over year.

Our growth and Q1 for the full fiscal year, we see managed services and EDI data generating healthy year over year growth in EMEA and the high single digits. Our current outlook incorporates our belief.

But the volume Spike we noted for Q1 will be temporal and Q2 through Q4 have on average 2 less work days in Q.

The story and we are monitoring the known unknowns of the Covid Delta there.

Which may have an impact on service volumes for our clients.

We expect subscription revenue to grow and the high single digit range for the balance of this year.

Gross margin for the fiscal 'twenty, 2 will reflect increased personnel associated.

And with spring 'twenty, 1 and upgrade and slightly higher amortization of previously capitalized R&D.

As noted in prior calls, we are making ongoing investments and sales and lead generation personnel and enhancing our offerings. This will accelerate throughout the remainder of this fiscal year and therefore, we refer.

Reaffirming our non-GAAP EPS range of between 89, and <unk> 95 per share.

For perspective, I recently looked back and our commentary on prior years.

In fiscal 'twenty, and we talked about our expectation for annual GPS range to be and the <unk>.

<unk> level through fiscal 'twenty 3.

<unk> is the company invest and longer term growth opportunities.

And revenue would grow at an increasing pace.

Since fiscal 2020, or our revenue growth trajectory has steadily improved.

And our fiscal 'twenty, 2 non-GAAP EPS is actually higher than we envisioned back in fiscal 2000.

Yeah.

Reviewing the significant progress the company has delivered may provide useful context, when looking at forecast for fiscal 'twenty 2 and beyond.

Before we close I'd like to provide and update on our longstanding legal matter.

As noted in the 2021.10-K, the Hussein trial with.

Scheduled to start on July 6th and it did.

Jerry deliberations began today.

While we believe we will prevail and do not have liability.

However, the jewelry jewelry determines otherwise and the appropriate accounting treatment would be to record the accrual as of June 30th.

Before we finalize.

And 20 and filing the 10-Q.

We do not think we are liable and Sac and it's the jury sees this differently. We would view this as a non recurring item and would exclude the expense from our calculation of non-GAAP EPS.

We see Nextgen as a revenue growth acceleration story, we just reported a 12%.

<unk> was driven by strong balanced performance of our portfolio. We also raised the midpoint of our fiscal 'twenty 2 revenue target and have clear line of sight to achieving our longer term annual revenue growth rate target of 5% to 8% based on our platforms breath that addresses the most important trends in healthcare and especially the interaction between the patient.

<unk> grown and provider, what we call our surround strategy.

The growing number of targeted medical specialties and other innovative per models provider models, where our solutions have a clear advantage.

You can see this and the positive momentum and new client wins as well as some as some of the larger deal sizes and Nextgen has called.

And finally, our continued reinvestment and commercial operations.

And that is critical to our ability to execute and elevate our clients overall performance and satisfaction.

In closing I am pleased with the overall momentum and diversified growth we generated in the quarter.

Nextgen is making the right investment.

Patient and drive the adoption of spring 'twenty, 1 platform and overall revenue growth longer term.

This concludes my review of the first fiscal quarter and let's move to questions.

To ask a question you will need to press star 1 on your telephone.

Withdraw your question press the pound key.

Investment by while we compile the Q&A roster.

And our first question today will come from Jeff Garro with Piper Sandler. Please go ahead.

Yeah. Good afternoon, congrats on the quarter and thanks for taking the question I wanted to ask about the guidance increase and yet.

Please stay on the household comments on while the reasons why.

You beat revenue more than you've raised but could you help us parse out where your plan for the most recent quarter might have been higher than consensus estimates and the other 1 time items worth mentioning in the quarter and then the expectations for the rest of the year.

Any more specificity and you could give around volume related revenue lines.

And Jeff Thank you.

So what I would say is.

And I tried to noted in my comments I think the license revenue as it can be lumpy and it was a little ahead.

And yet our expectations.

And and.

We also talked about the number of days and when I look at the consensus and appears to me that.

Yes.

This is not well known and that's why we're calling it out to be direct there were.

64 work days and this quarter.

And it will average about 62 for Q2 through Q4.

And.

And Q1 at 61 days and at last quarter. So I think that probably helped shape.

The.

Concern.

Consensus force for our managed services seem to be lower than where we came in.

Just trying to.

Those are the areas, where I think there was the biggest disconnect between the street and where we are so we've tried to be a little more clear here.

Yeah.

And now that helps.

And maybe we could also dive into the subscription revenue line and that was up.

Modestly sequentially and he puts and takes that we should be aware of and the quarterly result, or looking forward to the visibility you have and to sequential.

The remainder of the year and and either the backlog or ability to book and new.

Cross sell revenue that might quickly convert into the subscription line item.

Yes.

John.

So the subscription revenue.

I think I was looking back at our comments at the end of Q4 and.

And it and we had indicated that we thought it would be it would be down from the growth rates, we had experienced in fiscal 'twenty 1.

But I don't think we gave.

As precise guidance as we have this quarter.

We expect it to grow and high single digit.

For the full year.

And then anything further there in terms of <unk>.

Visibility into the backlog of.

The subscription products that you've already sold that might convert the rest of day year.

In terms of the magnitude of that and any particular product areas worth calling out.

And Jeff there are a number of areas and I'm not I'm not prepared to dive into all of the various subscription products.

And I can tell you we had a strong quarter for bookings.

And <unk>.

And sometimes the timing of when a subscription goes live is dependent upon the client being ready to implement.

And it.

And the timing can be a little bit varied.

I think I've given.

And the amount of data.

Bookings are.

Prepared to talk about and I would just reinforce that our surround strategy is working and that's part of what I highlighted and it's already and when I talked about the large client existing client.

Large deal for it with us this year.

And because some of that would be and.

Would show up and.

And.

And the subscription line.

Got it thanks for taking the questions.

Yep.

Okay.

Our next question comes from Sean Dodge with RBC capital markets. Your line is open.

Good afternoon, and this is Thomas color on for Sean Thanks for taking the questions.

And so maybe starting off on product adoption I know you didn't want to get too specific on that but I know you had mentioned before that the typical called the base package being kind of the upfront software license and maintenance and to media services, but so I guess looking.

Looking at bookings now in terms of add ons on top of this stops and where are you seeing the most traction and what products would you say have the most penetration so far.

And Thomas.

Give me a second.

And sort of.

To put my.

We have good.

Give you a little bit of color on some.

1 of these lines.

And the patient experience platform.

Which is the replacement for the legacy portal, we have pretty.

2 pretty strong penetration there.

We've had a lot of success that we've talked about over.

The last 4 quarters about virtual visit.

And we've had pretty good success with mobile.

When we think of the surround.

On strategies.

So and the subscription and area and the subsequent service.

And that's that.

That would be the areas that I would highlight.

Okay. That's helpful.

And then kind of along those lines do you still have a lot of and it gets dry powder as you call it and any plans to deploy and a capital at any specific.

And Mark are there any solutions you guys are still missing and then is it easier to then add stuff I guess to the platform just given the micro services architecture and everything is that going to simplify some integration processes going forward.

Yeah.

Hum.

We have historically when rusty.

Rusty was here and and I would continue the tradition, we're not going to get into the areas that we might be interested in M&A.

And I guess I would say to you that with with Sri joining us and with his experience and.

I want to give him time to get in and he's he's been very.

Helpful and and the first month and IX.

And I'm looking forward to working with him in the coming months as we assess opportunities.

So.

And.

And that's how I would respond to that question.

Okay sounds good thanks.

Yeah.

Yep. Thank you.

Yeah.

We'll go now to Donald Hooker with Keybanc. Your line is open.

And thank you. Thank you Jamie and maybe just wanted to kind of go back to that managed services line and I just want to make sure.

And I understand.

Jamie I got it there would be a sort of a step down here I guess is that solely due to the days I was taking notes fast it sounded like there were some sort of spike and the quarter or is there something 1 time and there.

And that 24 net.

Yes, there is.

We had.

And 3 more days.

Standard in Q1, and then we had in.

Q4, so that's 5%.

And we also did we did see a spike in the number and the clinical and calendars and we always.

You have access to that data.

For many of our clients we did see some.

Spikes in the first quarter.

And it appears that there was a bolus of pent up demand and.

And then as people got their vaccines and felt more comfortable went to see the day went out to see their doctors for.

Treatments that they had been postponing.

We have seen that fall.

And a little bit and in July.

Either through because of the delta variant or because the pent up demand has been satisfied partially.

So I would I would point to managed care.

In Q1.

Okay.

And we.

Back on Q2 to still be strong, but not as strong as we saw in Q1.

Gotcha.

Alright, and make you repeat that and thank you.

And I want to be clear and then the and then just another sort of just from my understanding is you're rolling out.

And this the spring 'twenty 1.

Platform is there any reason with that.

And cause any sort of pause and add on sales I guess as folks are waiting for this new technology platform would that affect the subscription line and.

And anyway, because you know, there's new platforms coming out with that sort of slow your.

Youre going to wait for that to come out first and then you sort of.

Or would that pressure and near term.

We do.

It.

And we look we had.

And the first answer the first question I mentioned that we had had a good quarter and away from bookings on subscriptions.

And I highlighted 1 of our customers.

And then there was a larger transaction part.

And this revenue had some of the surround solutions.

And there may be a little bit, but we are seeing interest and the surround solutions. They can be implemented it is a little easier when they're on the new platform and and particularly the patient experience platform.

But it is not necessary.

As of now.

It is we are seeing performance largely and in line with what we expected.

And we will let you know if they start to see any change on that.

Great. Thank you. Thank you very much.

Yep.

Yeah.

Again to ask a question.

And at Star 1 on your telephone we will go now to Stephanie Davis with SBB Leerink. Your line is open.

Congratulations on the solid quarter, and the first and really TV Husky last call. I think you are doing a fantastic job and just to pick on call at first.

But I'm.

Just touching on the volume side of things.

<unk> kitchen, and there's a little debt and B.

Your last question, how should we think about the volume assumptions baked into the best from a year and how you're factoring any risk from Delta there Ian.

Yeah.

Good question, Stephanie and thank you for the kind remarks.

John.

What I would say.

He is dead.

We have we as indicated by my prepared remarks, we have factored in the volume and wheels.

Temper, a little bit as we move forward.

And we are highlighting and if the delta variant continues to spike.

And the net effects.

And People's willingness to go see the doctor it could pose to the low end of the range.

Obviously, we don't know how and how bad it could get.

We think we have factored in based on what we know today.

Okay I understand.

And so.

Little diverse and things got worse now, but its current conditions continue with more volume in line with a range of leaf.

Yes, that's correct.

And then for with him coming up is there anything you'd want to call out or highlight that you've already spoken from on the Expo and be active on services.

So Stephanie we are not attending HIMSS. This year, we made that decision a while back we do have.

A small group of people that are going to be and the interoperability showcase area.

But but we are not.

Present are there on the main floor.

Okay.

Understood. Thank you appreciate it.

Alright, thank you.

And there are no further questions at this time I'll turn the call back over to Jamie Arnold for closing remarks.

Thank you operator, and thank you for everyone participating on the call today.

I am proud to be a part of this team.

The success, we had in the quarter.

And I am looking forward to future quarters, I look forward to seeing all of you and upcoming investor conferences. Thank you and have a good day.

Ladies and gentlemen, this concludes.

Today's conference call. Thank you for participating you may now disconnect.

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