Q4 2022 NextGen Healthcare Inc Earnings Call
Yeah.
Welcome to the Nextgen healthcare fiscal 2022 fourth quarter financial results Conference call.
Hosting the call today from Nextgen is David sides, President and Chief Executive Officer, Jamie Arnold Executive Vice President and Chief Financial Officer, and Matt Scallops, Vice President of Investor Relations. Today's call is being recorded and I will now turn the call over to box Gallo.
Thank you operator, and before we start I'd like to remind everyone that the comments made on this call may include statements that are forward looking within the meaning of the federal securities laws, including without limitations statements related to anticipated industry trends the company's plans future performance products person.
<unk> and strategies risks and uncertainties exist that may cause results to differ materially from those expressed in forward looking statements, including among others. Those risks set forth in the Companys public filings with the U S Securities and Exchange Commission, including the discussion under the heading risk factors in the Companys Mo.
<unk> recent annual report on the 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 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 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 guidance at this time I'd like to.
I turn the call over to our president and CEO David sides.
Thank you, Matt and good afternoon, everyone.
Earlier this month, we pre announced our fiscal fourth quarter results issued fiscal 'twenty three financial guidance.
And hosted our first investor event as a new management team.
We covered a lot of ground during the investor event.
Finding a clear overview of our business across three domains.
Enterprise.
Office.
And insights.
We highlighted next gens top goals.
Including.
Our path to accelerating revenue growth and our target 10% rate by fiscal 'twenty five.
He used to longer term operating leverage and expanding adjusted EBITDA figure.
And.
The rule of 40 performance metric, which combines revenue growth and adjusted EBITDA margin.
For those of you who are not able to attend the investor event I would strongly encourage you to listen to the replay on our website.
Now, let me turn to my favorite topic.
Gross.
For fiscal year 'twenty two.
Nextgen generated 7% revenue growth and acceleration over 3% growth in fiscal 'twenty, one and 2% in fiscal 2020.
This growth was driven broadly across product lines, but consistent with the investor event I thought I would provide a few comments across each demand.
Starting with enterprise.
Which we define as practices with tinder more providers, because our largest practice area by revenue.
And we're growing faster than the industry average driven by new client wins and.
And further penetration of existing clients with our expanding breadth of solutions.
Our success in this market area is built on long standing and trusted client relationships.
Which is particularly attractive now with such uncertainty and transition at a number of industry participants.
Last point I'd like to make.
On our enterprise group is that we remain on track with our three year target of incremental $100 million in bookings from our surround solutions through fiscal year 'twenty 'twenty four.
Now turning to our second demand.
Office.
Which focuses on the smaller independent ambulatory practice market.
Think of a practice with fewer than 10 physicians.
Which we service with our multi tenant SaaS offering.
This area continues to grow well.
Reflecting the strength of our SaaS solution and our success, providing managed services and revenue cycle management solutions during a period when many of our clients are struggling with labor shortages.
We are confident that the office domain can continue to grow double digits as we continue to execute and expand into slightly larger practices and adjacent medical specialties over time.
And our third domain, what we call insights.
There is significant untapped potential.
We spent considerable time outlining the opportunities in this exciting area that our investor event, So I won't repeat it here.
However, nexsan is investing in a number of solutions and strategies cross connectivity analytics and outcomes that will provide a solid foundation for strong growth in this business over the long term.
We entered fiscal 2023 with solid momentum.
And our physical twenty-three revenue guidance of 628 million to $640 million.
Reflects our confidence in continuing to execute on our growth strategy.
We're also introducing adjusted EBITDA into our fiscal 'twenty three.
Guidance.
I think it's important to call. This out as we see this as another step the company is making to improve visibility.
Particularly as investors now track our progress on the rule of 40 metric going forward.
My final comment is on the company's disciplined capital deployment strategy.
Jim has an attractive business model that generates positive free cash flow.
It has a healthy balance sheet and access to significant capital.
We continue to have a board approved share buyback program in place.
And we envision other business development activities, such as M&A to contribute to our longer term growth goals.
And with that I'll ask our CFO , Jamie Arnold to provide the details on fiscal fourth quarter and our outlook.
Thank you David before diving into the fourth quarter results I would like to comment on our fiscal year 2022 accomplishments.
Total revenue increased 7% compared to a year ago.
Subscription services revenue of $162 6 million grew 10% as clients continue to adopt our surround solutions perpetual software licenses grew approximately 9%.
Primarily due to our success partnering with existing clients, who want to standardize on and broaden the use of nextgen across their enterprise.
On a GAAP basis fully diluted earnings per share was two cents compared to <unk> 14, since a year ago recall that in the first half of fiscal 'twenty. Two we had significant expenses associated with the proxy contest.
On a non-GAAP basis fully diluted earnings per share was <unk> 98 cents compared to 98 in the prior year.
And ahead of our full year guidance provided at start of the year.
These results are a strong reflection of execution on the commercial side and deliberate cost management efforts put into place at the onset of the pandemic balanced against investments made to support long term growth plans.
Now turning to the fourth quarter financial results.
Starting with bookings, which came in at $41 4 million in the fourth quarter, an increase of 18% on a year over year basis.
We saw strong demand for professional services and managed services, particularly patient pay.
New client wins accounted for close to 25% of bookings for the quarter based on an outstanding bookings from inside the base.
And we expect the return to excess of 25% through in the new fiscal year.
We closed seven several seven figure transactions in the quarter from both existing and new clients. Both of which are fixed are focused on adopting the full portfolio of offerings we provide.
All in Nextgen is partnering with clients that are moving away from managing multiple different legacy systems and upgrading to our fully integrated and scalable solution.
This is the case with David's example of independent provider led consolidation.
In other instances, we are working with existing clients stay at Nextgen surround solutions to enhance their productivity and patient experience.
These wins reflect our strong commercial capabilities and ability to execute as well as the market's growing appreciation of NEC Jens core value proposition.
We generated total revenue of $151 3 million in the quarter.
An increase of 5% year over year.
Of this total recurring revenue grew 6% and accounted for $137 2 million or 91% of total revenue and was driven by solid performances in our subscription services managed services and <unk> businesses.
Software subscription services generated $42 1 million in the.
Fiscal fourth quarter, an increase of 10% year over year.
Growth came from strong performance in Nextgen office, and Nextgen enterprise surround offerings, such as telehealth, and mobile, which enable physicians to better engage their patients and improve the patient provider experience.
Managed services revenue of $28 9 million grew by 7% due to continued strength in our managed cloud services as well as solid performance in revenue cycle management.
Q4 client and counter volumes were ahead of our expectations.
<unk> data generated $26 4 million in revenue this fiscal fourth quarter up almost 3% over the year ago period as transaction volumes remained strong.
Software maintenance and support revenue of $39 9 million was up approximately 4% over the prior year period. This reflects strong client retention and some upside some large expansion clients.
Continuing to pursue a perpetual license and maintenance model.
Nonrecurring of $14 million or a decrease of 5% over the same quarter last year.
Collecting the lumpiness of contract timing, we have mentioned in the past.
Turning to operating expenses SG&A of 50 million increased by 2% compared to a year ago period.
Tight cost controls and G&A offset increasing investment in sales and marketing.
For modeling purposes, please be aware of the timing of certain events like our national sales meeting our large client user group. It did not happen in person in the year ago period.
This will create lumpiness in our fiscal fourth first quarter.
As David alluded to earlier, we had some nice wins from new and existing clients early in the quarter, which allowed us to pull forward spending on investments, we see as having a high return on investment.
These include robotic process automation and overall process improvement activities as well as investments related to both our office and insights domains.
A number of these projects kicked off in the fiscal fourth quarter and continue into the first quarter and then begin to roll off in the second quarter.
Net R&D expense of $19 $4 million decreased $2 million from a year ago due to higher capitalization rate, 28% in the current quarter, 21% in the previous year.
Fiscal fourth quarter gross R&D spend represents 18% of total revenue and net R&D spend represents 13% of total revenue.
Our GAAP tax rate was approximately 85% with non-GAAP tax rate of 20%.
On a GAAP basis Q4 fully diluted net income per share was one <unk> compared to a loss of <unk> <unk> per share in the fiscal fourth quarter of 2021.
On a non-GAAP basis fully diluted earnings per share for the fiscal fourth quarter of 2022 was <unk> 19.
<unk> 21 in the year ago quarter.
Now turning to the balance sheet.
We ended fiscal fourth quarter was $59 8 million in cash and equivalents and no balance outstanding on our line of credit.
Cash balance rose just over $10 million compared to the fiscal third quarter due to strong operating cash flow.
We did not buyback any shares in the fiscal fourth quarter.
We believe our positive momentum provides ample capacity to return cash to shareholders, while continuing to execute on our growth strategy.
Dsos in the quarter were 46 days.
A decrease of three days from the same period last year, but an increase of three days from the fiscal third quarter three.
Free cash flow from this quarter was $8 7 million, reflecting strong year end operating activities, partially offset by capitalized software costs.
Now onto our fiscal 2023 financial guidance.
As noted in the press release, we are confirming the guidance that we provided at our investor event, two weeks ago and.
And as David mentioned in his prepared remarks, we are adding an adjusted EBITDA metric into the guidance to improve visibility into our rule of 40 commentary going forward. Let me review the main components of our fiscal year 'twenty three financial guidance.
Fiscal 'twenty three revenue is to be in a range of between 628 billion and $640 billion.
Or five 3% to seven 3% year over year growth.
Key drivers in our enterprise domain includes subscription services managed services and revenue cycle management.
Within our office domain, we continue to see consistent growth in the core which is offered as a multi tenant SaaS.
RCM upsell and other managed services, which includes chronic condition management.
And the insight.
And any insights we believe various initiatives around connectivity discussed at our recent investor event are expected to start to impact our results in the second half of fiscal 'twenty three.
The timing of insights growth in fiscal 'twenty three is important.
Modeling purposes, we would expect the second half of fiscal 'twenty three to reflect higher year over year growth in the first half due to incremental momentum in insights and easier comparisons.
With the year ago period.
To aid in your models, we are fast forecasting growth in the first half of 'twenty three to be in the range of 4% to 6%.
Gross margins for fiscal year fiscal 'twenty three are expected to compress slightly.
Product mix shifts.
Leans more towards lower margin services, and we absorb a full year of investment in areas such as centers of excellence R&D and sales infrastructure.
Our cost of sales expense.
Growth will level off in the back half of the year and then be in a position for attractive leverage in fiscal year 'twenty four and beyond.
We continue to make ongoing investments in sales and demand generation in R&D to enhance our offerings.
Investments will accelerate through fiscal year 2023, before leveling off in fiscal year 'twenty four.
Our adjusted EBITDA guidance is for $111 million to $116 million, which compares to $114 5 million or 19, 2% of total revenue in fiscal 'twenty two.
We confirm our fiscal 'twenty two 'twenty three non-GAAP EPS guidance of 95 to $1 one.
Factoring in our earlier comments on mid single digit revenue growth in the first half of fiscal 'twenty. Three combined was slight compression of gross margin and increased R&D spend in the <unk>.
Fiscal first quarter, we arrive at non-GAAP EPS ranges for the first fiscal quarter in the mid teens, we expect this EPS level to improve progressively throughout the fiscal year.
In closing I am pleased with the overall momentum and diversified growth we generated in the quarter. We will continue to focus on profitable growth as we consider capital deployment, both internally and externally to drive long term shareholder value and now let me turn the call back to David for closing comments. Thanks.
Jamie.
Certainly has been a busy may for us here at Nextgen, but based on the overwhelmingly positive feedback from our Investor event, I'd say, it's well worth it.
I'll wrap up today's call by reiterating the companys focus on driving accelerating and profitable growth.
We have the right leadership, a clear strategy and attractive assets to go after high growth market opportunities.
We will continue to make the right investments that position nextgen to win now and in the future.
With respect to fiscal 'twenty three.
We would expect these investments to have a bigger impact in the early part of the year.
Lastly, I wanted to congratulate Jamie Arnold.
For receiving a lifetime achievement award by the Orange County business Journal.
It's great to see Jamie being recognized for attributes we see everyday.
Your commitment to <unk> mission and contribution to the company's overall success over the last six years is undeniable. Thank you Jamie.
We've got a lot more work for you. So don't even think about playing that back nine for a few more years yet.
This concludes my comments, let's move to questions.
Operator.
To ask a question you will need to press star one on your telephone keypad.
Your question. Please press the pound key.
Interest of time and to get to as many questions as time permits we ask that you. Please limit yourself to one question and one follow up.
And we'll pause for just a moment to allow questions to queue.
Okay.
And we will take our first question from Jeff Garro with Piper Sandler Your line is open.
Yeah. Good afternoon, congrats on the quarter and thank you for taking the questions I'll start by asking about bookings.
Yes.
The last fiscal year growing bookings, 18% well ahead of your revenue growth target and I think longer term, we would expect bookings growth to converge with revenue growth targets, but based on what you see in the pipeline is the bias for FY 'twenty three bookings more towards recent momentum extending or that tougher comparables are.
Or a headwind to above target bookings growth.
To your question, Jeff I think we expect.
Double digit bookings growth and 23 as well.
Maybe not quite as much as last year, just given that it's above next year.
Maybe in the mid teens, but.
But it should lead to growth above last year.
Okay.
Sorry, let me correct.
Yes.
Our target for next year will it will be for growth, it's going to be close to.
We're projecting somewhere in the.
8% to 12% range in there.
For bookings, but we're not giving guidance on bookings.
But we are expecting it to continue to grow next year.
Sure.
No fair enough sounds like the momentum is continuing near term so good to hear there.
And then maybe to dig a little bit deeper into the FY 'twenty three outlook I wanted to ask what the areas of potential variability or in the revenue guidance I guess, maybe more specifically what are the assumptions are around client retention.
Implementation pacing and client patient volumes.
So where we are.
We're taking that kind of a consistent approach to last year's retention into 'twenty three.
Some of the things that could lead to variability.
If we can hire to fill services position us to generate revenue from our services side more quickly.
So we're focused on we've got quite a backlog of services.
But we can train people more quickly onboard people.
And Giftable services.
So that would be.
To answer your questions on retention of Arsenal.
Same level last year and some of the variability could be around either the usual lumpiness of Watson software slope, if that happens for existing clients and services that we can.
Global roles and hire more quickly to actually deliver those services.
Uh huh.
Okay.
Probably the area that has the most potential variability would be the software line.
And that's an area that we focus on because it not only affects the revenue because it has such high gross margin.
It would affect.
We are.
To be clear you asked the question I think Jeff about volume and I would say, we were assuming that there won't be any change.
To the negative related to the volume we seem to have largely recovered from COVID-19, we've been running for better than four quarters, now and theyre back to pretty much pre COVID-19 levels. So our assumption is that thats going to continue and that we wont see a dramatic change because of <unk>.
Something like Covid again.
Makes sense, thanks again for taking the questions.
Yes.
We will take our next question from Stephanie Davis with SP B Securities. Your line is open.
Hi, guys. Thank you for taking my money Maggie question.
I was hoping you could give us a little bit more color on just what you're seeing demand wise on the ambulatory market just given some of the hospital players come in under cost pressure in this past quarter or.
So any tariff with how check EM and color on how the pilot for ambulatory trying to keep it.
Helpful.
We still see good pick up on the ambulatory side.
As we mentioned on the prior call.
Some a lot of disruption in the industry and some of the other players.
That at least in the short term and we think in the short medium term is good for us, but the market overall is moving we've moved into.
Some slight.
Slight adjacency for lateral position officer are federally qualified health center, but we started to move a little bit into urgent care with full client.
Urgent care offering with us sometimes combined with primary care, where they are taking.
Risk.
We're also seeing some behavioral health opportunities after our initial investment.
Be promising as well so.
We like the ambulatory market and some of the moves that we've made to expand the specialties that we support.
Not that urgent care as a specialty.
Behavioral health.
Especially it's starting to see some traction in our pipeline.
And Douglas.
Uh huh.
I will continue.
Okay.
Can you kind of say Stephanie that.
The other thing is <unk>.
Some of the practices.
Been consolidating they are consolidators in the ambulatory space.
And we are seeing continued interest from them.
Particularly based on the strength of our practice management system.
Yes.
But we see as a positive as we go.
Dovetailing on that answer you guys gauge. We also have seen some other blocks in the face greater items later on increased competition.
The new age Disrupters I've gotten a lot of private market funding.
<unk> heard a lot about that from you guys about ourselves on private market players competing with you I'd be curious what you're seeing in the market and kind of how you're still competing well.
Yes.
I guess for that team.
The debt.
That level of competition necessarily.
Or any new entrants so far.
Okay.
Any of those consolidators are.
So far I've been a tailwind in that where we're picking back up.
We even have an example from last quarter, where.
We were talking to right.
Group.
That didn't got acquired and they put excellent into the acquisition.
The other way.
Which was really good for us.
Acquirer had multiple systems.
The acquired.
Overall, we brought him in front of us really strong.
Nextgen.
Weighted to move that forward and so the value prop for us.
Being able to do a better job of financials is really resonating with some of those buyers, which is why when they acquired a company who's next gen. They actually took it into that.
Acquire all our company so that was a great one for us that was unexpected.
And then also.
The goal of upfront.
You have to demonstrate value and really.
Kind of outcome.
Key clients in alignment with them to go forward with them.
Okay.
They're also going to be a consolidator in this market I'll hop back in queue.
And we will take our next question from Jack Wallace with Guggenheim. Your line is open.
Hey, thanks for taking the questions.
To talk about our bookings in the pipeline a bit.
David You mentioned that there is a number of all in deals this quarter.
Looking at the pipeline will be seen more momentum for the all in deals.
And then I've got a couple of thoughts on that.
I'd say the pipeline looks robust.
So it.
Came out of our largest sales quarter in recent history last quarter.
That continues usually it's the third quarter, that's going to be a little bit lighter for us.
Good results this quarter.
Well go through the year.
I don't know what other color you back on the on the pipeline jackpot I can.
Kind of give you some more specifics.
Yes, and then kind of.
Youre, saying, all and what's interesting to me there is that that includes the insights business specifically with the insights.
<unk> suite of services, there how much of that was it.
You know the shiny.
Service the.
The real benefit of going all in and I'm, assuming this is a competitive replacement.
How much of those capabilities.
The dealmaker.
So far not much.
I'd love to tell you that.
Those deals, but most of those deals had been moving.
Our sales cycle of six to nine months and most of those deals have been living without the analytics I think it will start to be.
The goal is it's an accelerant as we get more demos to clients that were starting at the end stage now.
Hum.
The nice thing from a consolidation perspective overall in the ambulatory as people are looking for a reduction in the number of suppliers that they had and so we come to Walmart one offering that is hosted at our revenue cycle management.
The virtual visits.
And analytics together.
Especially in that new clients are trying to take off as much of the space as possible and that first win.
So that's.
That's been a great tailwind for us I think the analytics should be additive.
We've developed some of that analytics with a couple of our really progressive clients.
I have already.
Moved it into another couple of clients and so we're seeing good.
Movement, there, but we'll see.
Needle moving growth towards the end.
23.
Some some member here early but I agree with you that it is actually helping to get everything in the first time, especially for new clients.
Well the winner there.
A differentiator for them because they don't have to go in.
Bye.
Third party like tableau or something else and try to put that on top of it I think the whole solution at once so I think it makes it simpler for for these practices to be able to do everything in nature right from the start.
Got you that's helpful.
And just to confirm when the insights.
Bookings convert to revenue, which is the <unk>.
Revenue segments that had.
Flagship mainly hit subscriptions for the most part.
There'll be subscriptions and there will be a services component to that so you'll get both subscription revenue as well as some service revenue associated with it.
What the client needs from us.
Got you that's helpful. Thank you.
And there are no further questions at this time I'll turn back I will turn the call back over to David sides for closing remarks.
Yeah.
Thank you again for your interest in Nextgen healthcare, we look forward to speaking with you again.
At the end of July .
And.
That concludes today's call. Thank you everyone. You can now disconnect.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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