Q3 2021 Allscripts Healthcare Solutions Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Allscripts third quarter 2021 earnings conference call.
All lines have been placed on a listen only mode and the floor will be opened for your questions and comments following the presentation.
At this time it is my pleasure to turn the floor about your host Jenny Julian us telling us I apologize ma'am the floor is yours.
Thank you very much good afternoon, and welcome to the outskirts third quarter 2021 earnings Conference call. Our speakers today are probably Oscar <unk>, Chief Executive Officer and Rick.
Our president and Chief Financial Officer, we.
We'll be making a number of forward looking statements during the presentation and the Q&A part of the call. These statements are based on our current expectations and involve a number of risks and uncertainties uncertainties that could cause our actual results to vary materially we undertake no obligation to revise these forward looking statements in light of the new information.
<unk> or drove that.
Please refer to our earnings release and SEC filings for more information regarding the risk factors that may affect our results.
Please reference the GAAP and non-GAAP financial statements as well as non-GAAP tables in our earnings release and the supplemental workbook that are both available on our investor.
Right and with that I'm going to hand, the call them all black.
Thanks, Jenny and welcome to your new role.
Welcome everybody else to the call today, we appreciate your interest in all scripts today I'd like to cover my view of the industry the quarter and our long standing relevance to health care.
As this global industry continues to manage through the pandemic, we're seeing innovations introduced to address newly exposed needs.
See this with a significant rise in telemedicine technology options and growing patient usage and expectations of these tools.
Do you have the ability to reach patients anywhere is a game changer for providers and advancing the methods in which humans receive the care that they need.
Rise of consumerism in health care and the importance of opening the digital front door for patients to engage their health has transformed how care is delivered and it's here to stay patients now demand access to care beyond the four walls of the practice or hospital on their schedule at their convenience and without a long wait health care providers that.
The rise of the patient as a consumer and the importance of capturing and harnessing analytics available, which informed decision, making will expand their brands and catchment over the next two to four years.
Health care technology is central to the strategy, which is better positioned for success when clinicians patients have access to a complete and community view of the integrated record.
Turning to the to the quarter I am pleased with our solid third quarter financial results, which represent the continuation of our strong performance. This year. The results reflect decisive actions we have taken since the beginning of the COVID-19 pandemic and the efforts of the Allscripts teams located around the globe during.
During the quarter, we were awarded a contract extension from the National Institutes of Health Clinical Center, an important research hospital located on the NIH campus in Bethesda, Maryland, The hospital and research Institute have been a valued allscripts clients since $19 76.
They represent the largest hospital devoted to research in the country.
This renewal will extend NIH is use of sunrise for at least five years additional years. It also expands the purchasing ceiling under the agreement, enabling the U S. Federal government to purchase additional solutions through this contract vehicle.
California, Lompoc Valley Medical Center signed a 10 year agreement for Sunrise community care deployed on Microsoft Azure and Iowa, Shenandoah Medical Center also signed a 10 year agreement for Sunrise community care.
Shenandoah side of superior integrated EHR to address the needs of an ever an important community hospital, a new client Wilson and Jones Medical Center also signed a 10 year agreement for Sunrise community care.
Our facility with 214 licensed bed.
They could excuse me they can they care for families in four counties in North, Texas and Southern Oklahoma.
Allscripts International business also made progress this quarter. Our team won its first new client in New Zealand by Caito District, Calif Board, who selected our anesthesia solution for all scripts. This win represents a significant opportunity to grow our business in New Zealand. We're also pleased to continue with our military.
<unk> overseas, who are prepping for new upgrades and add on capabilities. Since we last reported we hosted our flagship client event. The Allscripts client experience at the end of August in the United States. We have seen similar ace events in the United Kingdom, Canada, Singapore, and Australia, approximately 3500 clients partners and associates.
Attended the virtual events, which featured three days of education networking and fund with more than 180 sessions completed 50, plus marketplace booths visited and $35000 raised for our give back partner reach out and read Ace was a huge success.
We also had a global impact event during the quarter Allscripts employees around the world participated in the global impact event, providing various types of services and financial support to numerous charities I'm quite proud of the work that we do not only during this annual event, but also throughout the entire year, giving back to those in need.
We call it winning in our communities.
An incredible amount of changes in health care has occurred over the last 20 months, a new pressure around staffing shortages wage inflation supply chain costs have created a strategic refocus on this dimension of our solutions revenue cycle. Once relegated US tactical is now a strategic part of our health care organizations success organs.
<unk> are devoting their focus not only to treating patients with pressing needs, but also restoring their financial health.
We are strengthening clients financial chassis by our revenue cycle Center of excellence proactive monitoring services with our collaboration were seeing clients achieve record cut cash levels substantial reductions in denials and significant improvements in accounts receivable balances. This has all been driven through transparency into actionable data.
That financial managers need to effectively run their organizations every day.
Our clients improvements in performance are evidence of the impact of a truly integrated clinical and financial platform combined with proactive as a service analytics.
With a focus on visibility and clinician fatigue were also co creating with our clients to build an individualized experience with elegance and simplicity, placing the human experience at the center of everything we do this practices called human centered design.
It's a thorough process that's been refined over the last three decades and puts a focus not only on the user and the workflow of the human engaging with tech technology or the human experience applied across multiple industries. The human centered design process lives, where business development product and design to meet the.
S approach Leverages the concept of persona is a representation of the problems needs goals and behavior of a specific group such as researchers doctors nurses or cfo's personas are collections of relevant information and insight known to our allscripts designers to create a shared understanding of what users want is based on research.
Testing and feedback from clients during the development cycle. These personas are then tested and refined with our clients as we create unique and distinctive solutions that provide the intended experience.
Looking forward, we will continue to drive our initiatives and growth our strategic partnerships such as with Microsoft as we deliver a true platform of health powered by the cloud that connects patients and providers through all points of care.
To summarize we have built a sustainable business model that delivers innovation and value to our clients. We have improved clinical outcomes at the point of care and strengthened financial performance across all facets of our clients' operations. We have delivered strong results for our shareholders with expanded margins and free cash flow that will enable us to.
And the business and returned substantial amounts of capital at the same time I.
I continue to be optimistic about our performance in 2021 and beyond.
With that I'll turn the call over direct potent allscripts president and CFO.
Okay. Thank you Paul and thanks, everybody for joining US today, just one more reminder, as Jenny indicated additional financial details are available in the supplemental financial data workbook, that's posted to our Investor Relations website.
We were very pleased with our financial performance in the third quarter, where we saw the continuation of positive trends that we've experienced all year.
We benefited from continued discipline in managing our cost structure and this drove significant operating leverage, allowing us to report significant year over year growth in adjusted EBITDA earnings per share and free cash flow and it resulted in our highest quarterly adjusted EBITDA margin of the year.
So with that overview, let me highlight a few items.
We reported a $166 million of new bookings in the quarter, which was up 4% on a year over year basis and revenue in the quarter was $369 million up 1% year over year.
As was the case last quarter. Our revenue results are really a tale of two different stories and as such we have modified our segment reporting this quarter to provide investors greater transparency on our business.
These new segments better reflect the market dynamics in which we compete as well as the way we are now managing the business from a resource allocation and leadership perspective.
The segment hospitals, and large physician practices represents our sunrise Paragon and touch work solutions, along with several other owned and third party services and solutions that are geared toward health systems and large independent physician practices.
Our <unk> segment reflects the provider solutions that we have geared toward our smaller physician practice network as well as the payer and life science relationships that we enable access to that network. In this regard with this presentation. We now show the full asset base and performance of paradigm in one place.
The details of these segments can be found in tables, four and five of the supplemental workbook that I referred to earlier.
<unk> revenue grew 10% year over year in line with our expectations, our garden business as a uniquely scaled three sided platform.
Bringing together providers and their patients alongside payers and life science organizations, and it's built to capitalize on and benefit from the secular trends towards advanced solutions for workflow automation and network orchestration clinical research as a care option and management of at risk part.
Relations.
The breadth of our network of primary care and specialty care physicians is unique in size and we're bringing point of care workflow and patient level interventions and opportunities to the exam room.
Additionally, our systems of record enable the creation of unique longitudinal records and linked datasets, which brings powerful insights to life sciences organizations.
And our second quarter call I provided an example of what we're doing when I highlighted our recently signed agreement with PRA Health Sciences, which is now part of icon to create an EHR based clinical research network.
Another example from our most recent quarter is that we signed a teaming agreement.
Now the U S centers for disease control and prevention access to our health insights EHR dataset to advance and assist in the Cdc's COVID-19 research.
The real world data that we provide will allow CDC scientists to analyze and develop insights related to variance vaccinations long term effects and other emerging questions related to COVID-19.
We increased the strength of our borrowed on platform in the third quarter with approximately 500, new practices and another 2000 prescribing physicians added to our Baird on network.
The new segment presentation is a good step and our goal is to continue to increase visibility with respect to vote on our future quarterly calls.
So now let me turn to our overall margin performance in the quarter.
Consolidated non-GAAP gross margin was 42, 4%, which was up 270 basis points year over year and continued a steady trend that we've seen all year.
Further down the P&L, we continue to manage our operating expenses tightly and this helped drive very strong 24% year over year adjusted EBITDA growth in the quarter and it resulted in an adjusted EBITDA margin of 19, 3%.
On a per share basis, we reported non-GAAP EPS of <unk> 27 per share, which was up 145% year over year, and reflecting our strong margin performance as well as our lower share count.
Our accelerated share repurchase program was in effect for most of the quarter, which is why you don't see any incremental cash out outlay is for share buybacks during the quarter, but the ASR is now settled and we expect to return to opportunistic repurchases in Q4.
We had another strong quarter of free cash flow as we generated $57 million of cash flow from continuing operations.
And $35 million of free cash flow.
The strength of our adjusted EBITDA and free cash flow performance. During the quarter has led us to further increase our guidance for the full year as follows.
We are increasing our 2021 adjusted EBITDA outlook to a range of 275 million to $285 million.
From our prior outlook of 265 million to $275 million.
And we are also increasing our 2021 free cash flow outlook to a range of $145 million to $155 million.
And we are also increasing our 2021 free cash flow outlook to a range of $145 million to $155 million.
From our prior outlook of 115 to 125 plan.
So with that I'd like to now open the call for any questions you might have.
Thank you ladies and gentlemen, if you have a question or comment it is star one on your telephone keypad at this time.
Again, it is star one for any questions or comments, we will take our first question from Stuart Hill Deutsche Bank. Your line is open Sir. Please go ahead.
Yes.
Hey, guys I don't know who that Stuart guys, but if you find him he can stand it and update the model for me.
Alright.
Hey, Thanks for taking the question I kind of have to.
Paul and Rick It seems like everywhere, we turn the one thing that we keep hearing more about is the growth of virtual primary care and I guess could you talk about how allscripts is positioned as it relates to that end market is it kind of a headwind or tailwind for your clients and kind.
How do you guys think about the opportunity there and I'll come back with another question.
Okay.
Yeah, So George.
We're glad to hear you didn't have a name change. Thank you.
So George I mean, we.
We've adopted a strategy with respect to particularly telehealth.
And other forms of virtual care, where we're trying to really align with our clients' best interests and so we have provided tools to them that allow them to extend their reach from the physical exam room to virtual care.
And we think Thats the right strategy for us to stay aligned with our clients and so we have.
Put in a very integrated tele medicine tools to our EHR as to our practice management systems and we.
We feel pretty good about the uptake continues.
Visits.
I don't have any data to give you right now, but I mean, our data continues to grow in terms of the use of those with our clients.
Yeah.
Okay.
One for you.
Georgia <unk>.
Sorry, George I'd also add that the way that we do too is a bit different and that was in the alignment with those clients not only with do we have a single schedule that they can see so somebody else inside the organization at some other point in time.
There is a television scheduled secondly, the record itself is actually updated so you have a single record that's actually updated that has to tell us the result of a tall.
Visit on it as well not as if that's in a separate silos of information that's disconnected from that patient for that health system and then thirdly. We also have a billing component, which is also quite important as you think about the co pay as well as the actual billing for that for that service. So we think theres a relatively complete fuel system.
Oh, that's required in order to really make this thing be sustainable over a long period of time.
Well that's helpful.
Dropped to more on you guys real quick and then I'll hop back in the queue. One for Rick It's pretty easy you guys raised the EBITDA guidance by about $10 million, but the free cash flow guidance by about 30, I guess, Rick could you just talk about where the spread is and then my other one for you Paul would be.
You guys continue to make great progress in <unk> and the valuation of assets. It looked like very dime in the market continue to command a pretty steep multiples I guess could you talk about how you feel about whether there's any value to be unlocked here and I'll hop back in thank you guys.
Yes, I mean George.
I understand the point on the first question.
Really the updated guidance ranges are really a reflection of where we are through nine months. So.
We had a very strong quarter in Q3 from a from a cash flow perspective relative to what I was expecting.
And so with that.
And where we're at through nine months comes the bigger step up in the range there but.
With that said I think what we've seen.
We've seen each quarter is is pretty indicative of steady state.
Ability for us so I feel good I don't feel like there's anything unusual in there and I. Just I think you just interpret the new ranges as nine months actual with a kind of a lens towards Q4.
On your second question.
The valuation topic is not lost on us George.
Where.
Suffice to say, we're a little frustrated at why we appear to trade at such a large discount to other peers around us.
Part of our efforts to create transparency and visibility is.
To make sure the market understands that and.
Well with that we will continue to evaluate our options and make the smartest strategic decisions. We think we can.
Thanks, guys.
Thanks George.
We'll go next to Mike Cherny of Bank of America.
Hi, This is Charlie on for Mike. Thanks for taking my question.
Sounds like you've seen you've seen a lot of margin improvement and you kind of hit an inflection point.
And your margins I guess, how do you think about what you would do with improved profitability and then how do you think about expanding message we're going into the end of the year.
When you say what would we do with the improved profitability do you mean in terms of deployment of capital or cash.
Sure Yeah.
Well I think it's let's start by looking backwards, a little I mean, we've been pretty aggressive I would say with using using our.
Balance sheet and our cash too.
Buy back shares.
We've.
We are very comfortable now where our debt levels are were actually below our stated long term goal of one and a half turns so we're significantly below that goal.
<unk>.
We continue to invest in the business nicely and so we were we've been very aggressive about buying back stock and as I said in my prepared remarks, we will continue to opportunistically come back to the market in Q4.
And we continue to also evaluate you know.
Whether there are things out there that might make sense to add to our asset base as well. So we haven't ruled any use of cash out but.
We definitely think our stock's cheap and we think that's a good return for our shareholders to take some of that out.
Yeah.
Great and then just a second question here I think last quarter, you mentioned managing too.
Quality clients.
With higher margin versus.
Quantity of revenue I guess can you just describe any benefit that business had in the quarter and how you're thinking about managing that going forward.
Well, we're going to try to manage with that same.
Attitude and same discipline. It in part is shows why are.
As a reflection of why our revenue hasnt grown as much in the hospital a large physician practice segment we.
We are trying to emphasize margins and.
R R.
Will.
We have a little pressure at the gross margin level as you saw in the quarter in that segment down just slightly from Q2, but we're making it up.
On the operating cost side too and it's a combination of our.
Our direct cost of sales and our operating costs that we used to service our clients. So we are emphasizing margin performance and.
You know we have.
Passed on some opportunities in restructured other opportunities with some of our clients because of those goals and that'll continue to be the way, we manage the business going forward.
Great. Thank you.
Once again it was star one if you had a question or comments, we'll go next to Sean Dodge at RBC capital markets.
Yes, thanks and.
Good afternoon.
Rick maybe going back to the new cash flow target of 140 $555 million.
Can we think about that as a good jumping off point for 2022, Alright, I know you had some recoveries.
Practice fusion related to the Doj case or are those included in there is there anything else included in there that we need to think about.
Adjusting out as weak.
I guess kind of make our breeches into next year.
Yeah. So we had we had $5 million of recoveries, so not a big number, but yes that does flow through free cash flow cash flow from operations. So so theres, maybe a 5 million dollar anomaly I'd also say we did a we've done a very good job over the last 12 months.
<unk>.
Managing working capital on the balance sheet.
So we may have a small.
Kind of onetime good guide from that but that's not that's not big money either.
So I think those two things aside what youre seeing from US is what we are capable of doing and what we're committed to continuing to drive and I think it is a good jumping off point.
We had some cash flow in from some of our investment portfolio as well, but that's obviously not in the free cash flow number so you're.
In terms of cash to the balance sheet, we have picked up some cash from other places, but but if youre just trying to model free cash flow or think about that for next year.
I would say where we're at.
And those two adjustments then you're you've got a pretty good starting point.
Okay.
That's helpful. Thanks.
And then on.
I guess on the margin margin outlook.
You've made a lot of progress resetting the cost base.
We take a step back and think about kind of cadence and drivers going forward.
Most of it now going to be.
Dependent on revenue growth and operating leverage or do you think theres still some.
Some meaningful opportunities maybe still across the client services organization a pool.
Incremental costs out.
There is absolutely continued opportunities.
As you pointed out and services I think we still while we've made tremendous progress over the last six quarters there.
There is still room to go to drive.
Profitability in the services areas.
That said, we do we do.
Face, we face of course wage pressure.
Not lost on anybody that.
Labor markets are pretty tight right now so we will have some things that work against us that we have to drive operating efficiencies just to offset so I think you know we've grabbed the most of the proverbial low hanging fruit and but we still have several initiatives around.
Continuing to get efficiencies out of the workforce and efficiencies out of some areas of our operations like services that will we expect to you know.
Offset some of those other pressures that are coming at us.
Okay.
Great. Thanks again.
We'll go next to Charles <unk> with Cowen. Your line is open Sir Please go ahead.
Yeah. Thanks, guys I appreciate taking the questions.
Paul and Rick I appreciate the earlier comments about you know what.
We want to focus on quality clients and then we might have passed up some opportunities.
When we look at the even on the recycling business I think year to date down roughly two 5%.
Obviously last year was COVID-19, but back even in 19.
Clinical and financial solutions, I think was down about a percent or so.
Where do you think we've hit sort of an inflection here, obviously, you have kind of restructured and refocused.
<unk> to we still look at double digit growth being the being the Gulf War us.
Uhm on the first segment, Yeah, I mean, it's it's I mean, the answer to that is yes, we have we have seen some.
Some shrinking of the business some of that is intentional on our part as I said, we've become a little more discriminating in business, but some of it is.
Is still the tail and some attrition that we talked about a lot last year.
Talked about I think a little bit earlier this year, but we have you know we're still in kind of winding down.
Bolus of attrition that we had from some of our larger academic medical centers or larger I'd end clients that decided to go into a different direction.
We're just about done digesting that.
Little bit more of a tail to go but we're just about done digesting that and.
There is definitely growth opportunities ahead, Paul talked about some of the client successes earlier in his comments fundamentally this is kind of three places where we see opportunities.
With somebody else I do not work at the Orange, but that's fine wonderful firm hate. So I have a couple of mundane questions. If you don't mind, just I guess first what what is it you know you guys are doing a great job kind of buying back stock and generated cash flow what is the ending sure count I was just fumbling through your number here we're just.
Sort of thinking about going into Q4, and kind of where you're at in terms of share count I know, it's moving down through the quarter. So.
Where where do we start to four with.
Well I mean, there's you see the weighted average on the P&L right Alright, you'll have the piano in front of you. Yeah. You know there really there was only a modest change in two three.
Most of you know we have we are in and we were in an ASR program for most of the quarter and so most of the shares under the program or delivered to US when we launched the program at the end of Q2, there was only a small little settlement that happened in Q3.
So long, we're we're a long way of Swindon way of saying you know the average for Q3 should.
It should be a pretty decent proxy right now for Q4, obviously, then what could change that has any incremental buybacks that we do during this quarter. So okay Super hopefully that helped you.
No Super. Thank you and then and then another kind of quick quick one for me I guess did you mention that you. It looks like you guys divest it to be precise and I was just wondering if that had any <unk> I think that was after the quarter I.
I believe and doing it.
Sorry, let me finish <unk> go ahead and finish your question I'm, sorry, Yeah, I think it was after the quarter. So I guess my question was can we expect kind of cash proceeds from that and Q4.
It was during the quarter.
Don and there's actually a small gain that's attributed to it that's that's actually down and are not operating results.
It wasn't a cash deal we actually rolled the business into a another company and we took a noncontrolling steak and that combined entity. So we did not pull any cash.
Okay. Thank you that's all I had.
Thank you great. Thank you.
And one final reminder, ladies and gentlemen star one if you have a question or comment.
We will go next to Stephanie Davis had SBB.
Hi, This is joy Zhang offers Stephanie just one question for me, we that sorry to see some of your peers ticket to a surround sound strategy with greater focus on adjacent to you across the H R.
Him or install which is fundamentally what we've been doing since last for over the ninth last nine years in order to maintain and create additional relevance for the company and quite frankly stickiness for the Korean MA. So what we're doing around the consumer on the digital front door, there's not a single client does not asking for that kind of capability and we have that we have a lot.
Managed services opportunities as clients pressure are getting pressure on wages.
As I said earlier, they're seeing wage inflation, they're seeing some costco up that are that they're really trying to control for some of those pieces of the business. They are interested in.
Outsourcing to us and we'll do that in a profitable way I.
I mentioned and Rick mentioned also on both sides. The revenue cycle management services. There are a lot of people through Covid as I sent a lot of folks home. They actually said since those people are home they actually could be at home and working for somebody else and our CMS revenue cycle is a very highly automated and becoming very highly predictable experience for client.
Then.
It sets itself up quite well for Sla's, which are very important to clients and we're happy to do that as well the concept around.
Hosting and having.
On prom, if you will capabilities and computers with cyber with everything else has gone on again also the deployment of capital on their side are hosting businesses is continues to show a lot of promise, especially as we are moving clients to azure that we had a couple more than moved over last quarter and we have.
That's a very nice piece of business for US we do a lot of project work, we have a lot of updates and upgrades that will be coming on as a result of the regulatory work in 2022, and our professional services business is not only.
Doing well, but it's also extraordinarily.
Well run today and thrown off some nice margins that have historically not been as predictable as what we've had over the last 12 months and then the white space I would say Rick mentioned it earlier when when you think about wallet sure. There's a lot of clients that are saying is.
That are really looking internally for cost savings in the sand if I had 700 different relationships, how can I get down to 500, you've got three or four clients that are doing that right now and in doing that they looking they're looking to us today for a broader set of solutions that historically more tier five six years ago. So we are.
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