Q1 2023 NextGen Healthcare Inc Earnings Call
So I'd say its on hold we appreciate your patience and as you continue to standby.
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It sounds like on hold we appreciate your patience and as you continue to standby.
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Welcome to the Nextgen healthcare fiscal 2023 first 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 Skelly, Vice President of Investor Relations. Today's call is being recorded and now I will turn the call over to Matt Scallion.
Thank you 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 and without limitations statements related to anticipated industry trends the company's plans future performance products pursue.
<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.
As in the Companys. Most recent annual report in Form 10-K, and any subsequent quarterly report in 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.
Both 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 the non-GAAP financial measures contained in our guidance at this time I'd like to turn the call over to our president and CEO David sides.
Thank you Matt I'm pleased to report another solid performance for our fiscal first quarter.
Our commercial team continues to execute closing a handful of seven figure wins, while delivering 14% bookings growth.
These sizable wins from both inside and outside our base reflect nextgen healthcare its focus on the independent provider.
And our comprehensive offerings that enhance the clients' ability to achieve better clinical and financial results.
We continue to see wins.
Across a range of medical specialties from ophthalmology orthopedics to integrated multi specialty groups.
And once again, new clients accounted for over 25% of physical first quarter bookings.
We believe these trends support our confidence in our growth acceleration that fiscal second half.
As for key revenue growth drivers this quarter I call out our subscription services revenue line grew a healthy 12%.
Flex double digit growth in Nextgen office, and cross selling of our surround solutions into our enterprise base.
We remain on track to achieve our target $100 million in contracted annualized recurring revenue for the surround solutions by the end of fiscal year 'twenty four.
In response to some recent investor questions regarding general market conditions I wanted to reiterate our positive outlook for the independent ambulatory market and Nexgen business model.
We continue to see overall practice volumes at healthy pre pandemic levels.
This shows in our volume driven businesses such as data.
And reflects an ongoing industry trend of procedure volumes migrating out of higher cost settings like hospitals favoring.
Favoring lower cost settings, and independent health care providers.
We also continue to see healthy activity levels in our current pipeline.
Development activities, such as lead generation and demos.
The positive demand environment.
We are not seeing much impact from economic concerns.
We continue to constructively engage prospects and our clients to find ways to achieve better outcomes for all.
Since our last earnings call I've had the opportunity to meet with our largest clients in person or at our large client user group at client sites that are leaders in health care summit.
They are excited about our move to cloud native technology enhanced mobile capabilities and our insights.
It was good to get confirmation that our strategies that focus on outcomes aligned with our client strategies.
So from what we're seeing from the market our positive outlook has not changed.
Turning to the next Gen business model, 91% of our revenue is recurring in nature, and we have no customer concentration risk.
We are building on the steady foundation to achieve our long term goals.
We continue to make progress on certain strategic initiatives in fact today, we announced the sale of certain dental assets a legacy part of the company.
Through our more disciplined portfolio management process, we move forward with monetizing these non strategic assets.
It is important to note that we are adjusting our fiscal 'twenty three financial guidance strictly to account for this transaction.
Another example of our progress as the expanded relationship with <unk> that we recently announced.
We are pleased that our patient pay offering is now even more accessible and easy to use for both patients and clients.
We expect patient pay to contribute to fiscal year growth and its contribution is already incorporated into our fiscal year guidance.
Now, let me ask Jamie to provide further details Jamie.
Thank you David Let me welcome everyone to this call.
I will start with David left off strategic activities, specifically the sale of certain assets.
This transaction, while relatively modest in financial terms is a good example of how we are increasing focus on our broad portfolio of assets and their contribution to strategic value.
The commercial dental assets include our legacy dental system.
All of the dental way up multi tenant SaaS offering for dental practice.
And their customer contracts, but.
Excludes edr, which is the dental records system, we license to federally qualified health centers.
These assets generated approximately $10 million in annual revenue per year.
And while they generated positive contribution margin.
They produce no growth over the last few years and would have required significant incremental investment in future periods.
We are pleased these assets it found a good home and we'll discuss the transactions impact on our fiscal year 2023 financial guidance later in my prepared remarks.
Now, let me turn to the first fiscal quarter of 2023.
First quarter bookings came in at $39 2 million, an increase of 14% on a year over year basis.
Adding to David's comments, we continue to see increased demands across our client base for surround solutions like managed services and Adi.
Net new client wins accounted for over 25% of bookings this quarter.
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Total revenue of $153 million in the quarter increased 5% year over year.
Of this total recurring revenue accounted for $139 8 million or 91%.
It was driven by growth in subscription services and managed services.
Subscription services generated $42 8 million in the fiscal first quarter revenue, an increase of 12% year over year.
Those growth drivers continue to be Nextgen office enterprise SaaS as well as a host of surround solutions such as mobile in telehealth.
I want to call out that we have introduced a new line in recurring revenue.
Transactional and David data services or Tds.
This line comprised of Edr and data now includes our patient pay which was reasonably was previously reported in the managed services revenue line.
Historical reclassification table is available on our Investor Web page for modeling purposes.
Managed services, which no longer includes patient.
Generated revenue of $30 6 million and grew by 10% over last year.
Our managed cloud services as well as revenue cycle management.
<unk> to drive performance of this line.
Transactional and data services, which includes patient pay generated $27 $2 million in revenue this fiscal quarter.
One 2% over the year ago period, due to modest decline in data revenue, which can be lumpy.
Software maintenance and support revenue of $39 1 million.
Was up 2% over the prior year period.
This reflects strong client retention.
Some upfront side from large expansion clients continuing to pursue a perpetual license and maintenance model.
Nonrecurring revenue of $13 5 million was essentially flat over the same quarter last year.
Inside this line item.
Software and hardware was down reflecting the lumpiness of software license contract timing offset by growth in nonrecurring services.
Gross margins of $47.
8% were down 240 basis points compared to the same quarter last year.
Trim reflects a combination of the factors, which we discussed last quarter, including our investments in centers of excellence and other activities to accelerate spring 'twenty, one migration and.
And a product mix shift, particularly given the decline in nonrecurring software license revenue and.
The increase in lower margin managed services.
Turning to operating expenses SG&A of $49 million increased 1% compared to a year ago.
This reflected lower legal expenses associated with shareholder Skus that have now been resolved and <unk>.
Cost saving actions.
Honestly discussed offset by return to travel and increased personnel costs.
Net R&D expenses of $21 8 million increased $2 5 million from a year ago and.
It represents.
Additional projects across our three domains.
Fiscal first quarter net R&D spend represents 14% of total revenue.
We had a GAAP tax benefit of approximately $250000 this quarter with a GAAP effective tax benefit of 27%.
non-GAAP tax rate remains at 20%.
On a GAAP basis Q1 fully diluted net income per share was <unk> <unk> compared to net income of <unk> <unk> per share in the fiscal first quarter of 2022.
On a non-GAAP basis fully diluted earnings per share.
For the fiscal fourth quarter first quarter of 2023 was <unk> 16, compared to 25 in the year ago quarter.
This result is in line with our fourth quarter commentary and consensus.
Turning to the balance sheet.
We ended the fiscal first quarter with $44 million in cash and equivalents and no balance outstanding on our line of credit.
We purchased 148000 shares for $2 5 million at an average cost of $16 93 per share.
We have $21 6 million remaining.
Our current share buyback program.
Free cash flow for this quarter was a negative $14 1 million.
Reflecting first quarter's seasonal activities such as pay out of the accrued bonus.
Now to our fiscal 2023 financial guidance.
As noted in the press release, we are adjusting our prior guidance for the divestiture of our commercial digital assets.
I want to be clear here, we are adjusting our full year guidance to reflect the transaction's impact and only the transaction's impact.
We now expect fiscal 'twenty three total revenue to be in the range of 621 $633 million down approximately $7 million, reflecting the eight months contribution from the sold assets.
Moving to adjusted EBITDA, we are lowering our range by about $2 billion to between 109 and $114 million.
In our fiscal non-GAAP EPS is now in a range between 92 and 98.
A reduction of three pennies.
If you want to adjust your historical models annual revenue from the products, we have divested fell into the following three lines.
Approximately $4 million in Adi $4 million in maintenance and $2 million in subscription services.
In closing I am pleased with the continued momentum and diversified growth we generated in this quarter.
We will continue to focus on profitable growth as we consider internal and external capital deployment to drive long term shareholder value.
Now, let me turn the call back to David for closing comments.
Thank you Jamie.
While it feels like some time ago. It was only may at our Investor event, where we introduced our business model using three domains enterprise office and insights.
Enterprises are largest area by revenue and should continue to grow in the mid single digit range and ahead of the overall market.
We expect growth to be driven by new client wins and further penetration of existing clients with our expanding breadth of solutions.
Our second domain office.
On the smaller independent ambulatory practice market.
This area continues to grow well, reflecting the strength of our SaaS offering and our ongoing success, providing managed services.
We see the office demand continuing to grow double digits, as we execute and expand into slightly larger practices and adjacent medical specialties over time.
And our third domain, what we call insights offer significant untapped potential.
We are investing in a number of solutions and strategies across connectivity analytics and outcomes.
I will provide a solid foundation for strong growth in this business over the long term.
In closing Nextgen healthcare continues to execute with a focus on driving accelerating and profitable growth.
Our overall positive outlook reflects the combination of the general health of the independent ambulatory market.
<unk> resilient business model and our focus on driving shareholder value.
This concludes my comments.
We'll move to questions operator.
At this time, we will open the floor for questions if you'd like to ask a question. Please press the star key followed by the one key on your Touchtone phone is that any time, you would like to remove yourself from the queue Press star queue. Please limit yourself to one question and one follow up our first question comes from Jessica.
<unk> from Piper Sandler.
Andrew Your line is open.
Why don't we start off on the sale of the dental assets.
Want to add.
Any specifics you can share first around timing of deal close and net proceeds expected and then maybe more strategically help us understand retaining the <unk> related assets and the resources needed to support that while maybe it didn't make sense to support and update the divested assets.
Yeah. Good question. So we are keeping that.
Assets that support <unk> HD solve that dental.
Pizza for them tribal community health centers.
And the folks to keep that.
That's up to date.
<unk>.
To your point the divested assets.
Would have been a big lift for us to bring to modern kind of technical standards.
We looked at it and looked at focusing the business further.
The divestiture was a better way to manage that portfolio.
From a return on capital allocation perspective.
Jamie can give details.
In the script, but any other details about the.
Your question was when is the transaction's going to close it closed to date.
The proceeds are.
Sure.
Total purchase prices.
$12 million.
With.
Sort of normal hold back.
For one year period so.
There'll be cash in this quarter.
The use of the proceeds.
At this point.
We will.
Cash on the balance sheet Oliver either other cash on the balance sheet.
Excellent that helps and I'll follow up on the capital allocation front. It does seem like the dental sale plus your ongoing cash flows and recent increase liquidity could allow you to more actively use the balance sheet I wanted to ask what the current thought processes on share buybacks versus M&A.
And then get your pulse on.
On whether private company valuations are getting more realistic.
So on your first question.
Our bias is toward M&A because to answer your implied third question, we think private.
Valuations usually show a two quarter lag to public and we're starting to see the private court.
Company valuations get to be more attractive. So I'd say, we have a bias towards M&A with cash.
Over.
Share repurchases, though in the quarter, we did buyback.
Shares at.
At a modest level of about $16 93.
So we are still buying shares when we see them.
We see as an attractive price but.
Our preferred use of cash is to further strategic investments.
Products that we can offer to the industry.
To further grow.
The business more quickly and get to that double digit growth that we've talked about.
Got it makes sense, thanks for taking the questions and I'll hop back in the queue.
Thanks, Jeff.
Okay.
Our next question comes from Stephanie Davis from SVP Securities.
Hey, guys. Thank you for taking my question I, just wanted to finish a little bit more on that portfolio management question.
Why do you think about your strategy for assets that you are debating divesting from the core portfolio is there any general rule of thumb either growth or margin of what youre not look magee.
I would say we have a preference for.
Growth right. So we're trying to grow the business.
So it's that arent growing as quickly or we don't see a near term opportunity to grow as quickly as the 10% on the whole are probably.
Ones that were.
We're going to take a closer look at.
Some of the way we've looked at if you've seen some of our recent announcements.
Doing business with others to fill in parts of our portfolio or where.
Where we've seen clients rapidly adapt parts of our portfolio that are growing better.
Those are places that we don't have to buy everything we can partner.
Seen us partner recently with <unk> or about half of our clients were using an estimate there is opportunity to get into market more there and so we've made that change. So it's just another example, it won't be.
Divestitures won't happen very often actually I don't think but youll see us.
Do things.
Like <unk>, where we see opportunities to accelerate growth, where we already secured client uptake.
And just lastly for folks.
On the margin side, just given the premium portfolio in the dental asset.
Because you say that again Stephanie.
Okay. So is there less of a focus on the margin side, given the premium EBITDA profile for the Pandora side.
Yes.
I mean, we think about.
But your question before was whereas our bias and I would say our bias is to grow. So if there are assets that are growing slower than the 10% that we're ascribing to those are the ones that we're taking a hard look at it either getting them to that growth profile or how how strategic are they to our business.
Understood Hey go into that growth side of the business. One follow up for me can you tell me about the pace of converting bookings into revenue you've had a lot of.
Really strong bookings over the past few quarters.
So curious why there was a reiterate core RASM guidance.
We're only one quarter and so I would say.
We had a good reasonable quarter, we did exactly as we had said.
There is still work to do in the year, we will see how the rest of the Europe plays out from that perspective.
Looking forward to seeing it thank you guys.
Thanks, Stephanie.
Our next question comes from Jack Wallace from Guggenheim.
Okay. Thanks for taking the questions.
Two from me just wanted to get some incremental color on the hiring cadence coming into the year.
It seems like you're a little behind schedule on are you would've liked to have been able to hire a bit faster.
Third and fourth quarter last year, and we knew this could be an uptick.
Particularly in R&D this quarter, where are we with that cadence then we catch up to plan and is there any more.
Let's call it lumpy hiring.
Got it guys.
We progressed through the year.
We continue to make good progress.
With the sales.
A good sales quarter, we're looking for more implementation.
People to help us get through that backlog.
Could we could hire more there and thats, a focus of ours and our HR team.
There is a ramp behind that is what you have to ramp the people to get the skills to install nextgen demand then they install nextgen, so and theyre getting there's a carrying cost there, but that carrying cost is preferable to using third parties.
So we're pretty prudent in that mix, but we're still hiring there I think on the engineering side, we're mainly mainly good always looking for good developers. So I appreciate it any resumes you sent our way on either of those two roles.
Yes.
Just to go back I think we have.
We have caught up we were behind in Q3, Q4, Q1, we caught up largely so with the exception of the one area that David talked about implementation and training resources were pretty well.
Got up with where we expect it to be.
Okay. That's helpful.
Switching gears.
Put out a.
Our press release.
In the quarter about the insights business insights data hub.
Just wonder if you could talk a little bit more about how.
The press release and the product so far has been received in the market.
If theres any yet.
Bookings activity that's taken place.
<unk>.
That offering that was announced.
Yeah.
So, which which includes one or you.
The Nextgen data hub.
Yeah. So.
Next Gen data hub so far.
Good uptick we're still training the sales force on on what's the approach how do we.
Target that market building pipeline there so I would say its impact in Q1 was nominal very small but.
Really our goal is to exit this year with some good momentum behind that.
So early days, but.
Promising from a pipeline build no results yet really in the in the revenue line item at this point.
Got you that's helpful. Thank you.
Thanks, Jeff.
And once again that is star one and our next question comes from Ian Samuel from J P. Morgan.
Hey, guys. Thanks for taking the question.
Maybe you could touch a little bit on utilization, what youre seeing there and if there's any impact to your payments business.
Oh, Okay. Yeah. Thanks, Andy so from a we're seeing from our clients from RCM Adi perspective, we're seeing still.
Elevated juice, there above the kind of pre pandemic levels.
So that's returned to normal.
We think that that continues so we're not seeing a slowdown there.
If your question is a little bit around the economy still seems to be at elevated levels.
We're comfortable with how we've thought about it for the Europe , we don't see any any changes there.
Great. Thanks, and maybe just on the RCM business, just wondering how thats going particularly give any estimate of what we're seeing around labor and hostile environment.
Yes, it's a good question.
The labor environment actually is a tailwind for that in our view.
We see clients looking for.
Even spot.
Work that needs to be done like working our claims Q are working.
We have started offering I think we mentioned in last call. We start offering those services a little bit piecemeal just so that they can try our services and then expand.
They have difficulty perhaps in the market and so.
We expect to see that.
Strategy is.
Helping clients be sure they achieved their financial outcomes, we will continue to drive growth for us.
Because they are competing against a market that has dramatically increased kind of at the lower end.
When you think about 15 to read about 15 to $17 an hour as a new normal that was not where many offices were.
Before before that switch so we see that as an opportunity we see clients looking to us for automation and for services that further automate, especially as they have a hard time recruiting so.
We're bullish on that part of the problem that part of the business.
That's great to hear thank you.
And our next question comes from Jeff Garro from Piper Sandler.
Yes, Hi, one more from me I wanted to touch on the intimate partnership just wanted to ask whats kind of whats new and expanded about that relationship as it more than the release I noticed Apple pay Google pay capabilities referenced, but maybe theres a stronger go to market partnership there.
And anything you could share the level of adoption of that offering or recent level of client interest I think it would be helpful too. Thanks.
Thanks, Tom.
The instrument piece really took off for us during the pandemic our internally developed.
Pay feature didn't support contactless payment and so you can imagine in the pandemic.
That became a really hot hot item.
We have.
Have intimate clients, who are supporting that both contactless and Google and Apple pay and so we saw good client uptake.
Joe has some nice features as far as how you manage collections and other pieces.
Go to market that's attractive so.
For us it was really fairly straightforward decision to say, let's move more in that direction.
And move forward in that way.
It's been in our plans and guidance that piece, so theres no real change there but.
Early indications are good because clients like that.
New.
Functionality that comes with it compared to what we offered and.
The patient experience is better using it because we accept all kinds of payments were.
We didn't have such a broad range of before.
Great very helpful. Thanks again.
Thanks.
And it appears we have no further questions at this time I will now turn the program back over to David sides.
Thank you everyone for joining us.
One earnings call, we thought it was a good quarter.
And appreciate your continued interest in the company solid quarter the pace of activity is picking up for us and.
And we think we have good momentum as we enter through this fiscal year and look forward to talking to you next quarter in three months for our fiscal Q2 earnings call.
Thanks again.
Thank you ladies and gentlemen. This concludes today's conference you may now disconnect.
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