Q2 2022 Allscripts Healthcare Solutions Inc Earnings Call
Ladies and gentlemen, good day and thank you for joining us for this all scripts Q2 2022 earnings conference call. All lines are in a listen only mode. But later you will have the opportunity to ask questions and instructions on how to do so will be shared at that time also a friendly reminder, today's session is being recorded to get us started with opening remarks.
And introductions I am pleased to turn the floor over to your host Jenny Julius go ahead. Please.
Okay.
Thank you very much good afternoon, and welcome to the Allscripts second quarter 2022.
Our speakers today are Rick Poulton, Chief Executive Officer, Tom Lynch, President and Chief commercial officer, and readjust axes.
Sure.
We will be making a number while back east.
Statements during the presentation and Q&A.
These statements are based on current expectations and involve a number of risks and uncertainties that could cause our actual results to vary materially.
We undertake no obligation to revise these forward looking statements.
Our future events, please refer to our earnings release and SEC filings.
As a nation regarding the risk factors that may affect.
Please reference the GAAP and non-GAAP financial statements as well as the non-GAAP people.
They are available.
And with that I'm going to hand, the call over to Rick.
Okay.
Okay. Thank you Jenny and thanks, everybody for joining us for our second quarter earnings call.
I'd also like to formally extend a warm welcome to both Tom and Leah to their first earnings call.
I've had the opportunity to work very closely with each of them for several years and I know that they are ready to take on the expanded roles. They have now with the company.
As I mentioned on the last call our transactions constellation software closed on May 2nd now.
Now while the financial transaction closed on that day, there was an incredible amount of work throughout the whole quarter to begin the process of physically separating the two companies.
And I'd like to thank all the employees from both Allscripts and our form of business now now now named Alterra for their hard work and dedication that was required in the last three months to get that process started.
So I want to talk about three things today first our financial performance and how we are positioned than some thoughts on capital deployment and finally, my thoughts on what to expect for the balance of the year.
I was very very pleased with our overall performance in the second quarter consistent with our expectations, we delivered strong top line year over year growth.
This helped fuel improvements in both gross profit and adjusted EBITDA margins. We also had another quarter of strong free cash flow generation Leo will go through more of the specifics in her comments.
Our <unk> business is uniquely positioned in today's health care I T landscape as one of the only companies generating meaningful top line growth.
25, plus percent EBITDA margins and mid teens free cash flow yield.
We achieved these unique results because of our unique three sided network service providers.
Health plans and life science companies.
Each of the three legs of the stool are co dependent and mutually reinforcing and each contribute materially to our overall performance.
Our provider network includes approximately 80000 physicians that we serve directly with our portfolio of clinical financial and patient engagement tools.
And this extends to approximately 300000 through multiple partnerships that extend our health plan and life Sciences relationships.
Our health plan network represents a total of nearly 35 million members and will expand significantly when our recently announced relationship with the social Security Administration goes live later this year.
As Tom will highlight in more detail, we continue to expand our offerings to these clients in areas such as risk analytics and reporting.
Gaps in care closure and other clinical data exchanges claim submissions and other financial data exchange.
And our life Sciences network includes linkages to the largest pharmaceutical companies in the market either directly through our own data and real world evidence studies or indirectly through partners, who link our data to larger datasets and through large media agencies.
Again, Tom will provide some further color on momentum around this network that we achieved during the quarter.
Collectively I feel very good about the differentiation, we have achieved with our businesses over the last five years of effort and our execution was very good during the first half of this year.
We continue to execute with the same level of focus and intensity I feel confident that we can maintain our competitive distinctiveness.
Now a few thoughts on capital allocation.
As you can see from our press release, we were very active in the second quarter repurchasing shares in the open market.
Notwithstanding our superior financial results, we traded a single digits EBITDA multiple.
One of the lowest in all of health care.
So as long as that paradox continues you can expect us to continue to be opportunistic around repurchases.
At the same time, the macro environment has obviously created a valuation reset and refocused the market on the reality that cash is king.
So I expect that some quality assets will become available at more attractive prices and I expect that we could be a good home for some of those assets.
Fortunately with nearly $300 million of net cash on our balance sheet.
An undrawn credit facility of 700 million.
And a business that is producing mid teens free cash flow yield. It is not a case of either or for us and we do not have to choose between one of those two paths.
Expect us to be patient expect us to be opportunistic and expect us to deploy capital in a way that we believe is in the best long term interest of our shareholders.
Finally, let me share some thoughts on what we expect to head we are maintaining our revenue guidance for the year rather than increase it simply because we have a very tough comp in the fourth quarter.
As you can see in table nine from the press release, our provider business line had a pretty big Spike in fourth quarter of last year, reflecting a large license sale.
We knew that when we set our guidance for the year and so the year is playing out almost exactly how we expected it.
Q3 is traditionally a softer selling period and that is generally followed by a stronger Q4, we expect the same this year and so from an overall P&L perspective, I expect Q3 to look very similar to Q2, and then I expect a nice sequential uplift in the fourth quarter.
So to wrap up I'm proud of our first half performance, both operationally and as well as financially.
And we have a solid foundation as we exit the first half and move into the second half of 2022.
So with that let me turn the call over to Tom Langan, our new President and Chief Commercial Officer.
Thanks, Rick I'm also pleased with the performance of the overall business.
To focus my comments on the marine business some of our recent wins, we have within the second quarter.
As Rick mentioned, our maritime payer business provides a comprehensive set of solutions, including data analytics engagement solutions.
To meet the needs of our health plan customers.
The process starts with our access to clinical and claims data that when coupled with our analytics provides the health plan.
Whether interventions.
We've had to leverage our proprietary and partner provider networks at the point of care.
To ensure gaps in care are finally, we use our submissions platform to package the data for CMS. So the health plan is paid appropriately.
Bert on care portfolio.
Oh, okay.
Sure.
On enabling payers and providers the ability to deliver improved patient outcomes at a lower.
I'd like to highlight a few examples of some of the recent wins within the quarter.
The payer business closed two large clinical data exchange agreements one with sure.
Not a payer services firm that together represents more than 1 million members across health plans acos and other value based care organizations.
The data source through our provider networks enables our clients to improve both member engagement and the health outcomes of their patients.
Paradigm payer also signed a large midwestern payer company covering more than 600000 members that will utilize our risk adjustment analytics and our intervention planning capabilities to effectively engage providers to close gaps in care.
Lastly, we also executed a deal with a large Midwestern third party administrator, who will use our risk adjustment submissions platform for its affordable care Act in Medicare advantage.
Payer client base initially covering more than 1 million members.
Turning now to verify them life Sciences, where we saw a year over year quarterly revenue growth of 26%.
Our real world evidence data and analytics team signed several multi year data agreements. One deal of note was a multiyear deal with a top five pharma company to.
To provide data for their research and clinical development teams.
This deal further demonstrates the compelling value of our data assets and the level of interest we are getting from the biopharma manufacturers.
We also signed a multiyear extension with one of our large commercial aggregators demonstrating our continued focus on partnerships.
Moving on to the provider business I'd like to share some of our wins were executed deals grow our current recurring revenue base, while also expanding our provider footprint.
Our revenue cycle management team closed two key deals within the quarter.
Both with orthopedic specialty practices.
The first win was with spectrum medical a current client who will expand their footprint with a multiyear agreement.
Additionally, we executed a deal with ortho Bethesda, whose implementation of our revenue cycle management tool enables them to expand without increasing head count.
Finally, I'd like to highlight examples of how we are winning as the provider market continues to consolidate through mergers and acquisitions.
<unk> Medical group is a practice currently with 16 locations across four states.
And they are in growth mode, they've selected our professional EHR practice management and clearinghouse to address their requirements for both near and future term growth.
Southeast Medical group, which is a private equity backed primary care aggregator has expanded their relationship with us in 2021 with revenue cycle management services and are following my health patient engagement solution. This quarter. They are on boarded more practices and now representing over 110 providers with plans to grow the two.
<unk> hundred providers by year end.
In conclusion, I'm pleased with our second quarter performance the markets, we operate in our dynamic.
<unk>, an attractive which is exactly where we want to be as a business.
I look forward to meeting with you in September during our Investor day.
Now I'd like to turn the call over to Leah Jones.
Scripps Chief Financial Officer.
Thanks, Tom.
We mentioned at the beginning of this call and included within the press release, we completed the sale of the hospital and large physician practice segment in the second quarter. This transaction had material impacts on our GAAP based income statement for the quarter as we recorded significant transaction costs and operations and a substantial tax provision.
I think the difference between the book and the tax basis of the assets all day.
These nonrecurring items are excluded in our presentation of non-GAAP results.
In our continuing effort to provide more transparency, we have added additional metric this quarter.
Have included bookings.
Which are broken down between total contract value and first year contract value.
These will not only give you a sense as sales volume, but also a better sense of the conversion cycle to revenue.
As the business has less reliant a long term contract. We think the second measure will become increasingly more important.
As the title indicate total contract values likes the full value executed contract for software hardware maintenance and other client services.
First year contract value is a subset of total contract value representing the anticipated revenue to be recognized in the first 12 months following contract execution.
Now turning to the numbers.
We're again pleased with our financial performance in the second quarter, we saw year over year growth in bookings revenue gross profit and adjusted EBITDA as well as an overall improvement in margin consistent with our expectations.
The paradigm business segment saw year over year revenue growth of 8% during the quarter and on a consolidated basis revenue growth was 7%.
The Verde I'm provider business had top line growth of 4% in line with our expectations.
This growth was fueled by adding over 500, new practices during the quarter.
In June the U S Olympic and Paralympic Committee selected our practice management patient engagement and telehealth platform.
Is there a dime platform.
And the.
Ministration of care further in the health safety and ultimately the performance of U S Olympians and Paralympians alike.
As Tom highlighted the werra dying and payer life Sciences business had year over year revenue growth of 26%.
This topline growth also drove 46% improvement in non-GAAP gross profit and raised margin 800 basis points year over year.
Paradigm non-GAAP gross margin was 53, 5% at 420 basis points year over year, yielding solid operating leverage.
As we move down the P&L consolidated non-GAAP expenses remained flat compared to first quarter.
You will see in Arizona that on a GAAP basis, we incurred approximately $21 million in transaction related and legal costs, which were excluded from non-GAAP earnings.
We expect to get back to clean reporting in Q3 with only adjustments for purchase accounting amortization stock based compensation and normalized tax rate, representing the difference between our GAAP and non-GAAP reporting.
We again generated nice operating leverage with bare die in reporting.
13% year over year, adjusted EBITDA growth in the quarter, resulting in adjusted EBITDA margin of 27, 5% an increase of 100 basis points year over year.
Below the operating line, we incurred an after tax loss of 67.3 on the sale of our hospital and large physician practices to constellation software.
On a per share basis, we reported consolidated GAAP loss at 54 cents per share.
This loss was impacted by both a one time transaction and legal costs as well as the tax provision tied to the transaction.
Our non-GAAP EPS was <unk> 18 cents.
Moving on to cash.
We had another solid quarter of free cash flow generation as we generated $42 million of cash flow from continuing operations and $32 million as free cash flow.
Consistent with our guidance and the utilization of cash in the second quarter, we repurchased 94 million of common stock through open market repurchases, leaving us with a net cash position of $294 million.
Now turning to our outlook for 2022.
Following greg's earlier comments, we are maintaining our outlook and expect the following.
Barrett I revenue took about 6% to 7% Europe .
Fair Dime, adjusted EBITDA to grow 10% to 15% year over year.
And our consolidated free cash flow from continuing operations to be between $110 million and $120 million.
To wrap up we are very pleased with our first half 2022 result, and look forward to maintaining that momentum into the second half of the year.
Now I would like to open up the call for any questions.
Ladies and gentlemen at this time, if you would like to ask a question simply press star and one on your telephone keypad pressing star and one replace your line into Q also a friendly reminder, that if you're joining us today on a speaker phone. Please return to your handset before.
Sorry, I wanted to be sure that your signal does reach our equipment.
Once again, ladies and gentlemen that is star one if you would like to ask a question. We will go first to the line of Stephanie Davis with SBB Securities. Please go ahead. Your line is open.
Hey, guys. Thank you for taking my question and congrats on the solid corridor.
I was hoping to talk to you about the cash on hand.
So let's dig in one level further on that program.
What's your philosophy on buy versus partner versus in that.
And when you're looking at profiles of assets that you would be interested in are ones that would not be.
Is there any.
Set of Red flags, you can look out for like a very negative margin profile independent dies.
Or is that something you could turn around.
Yeah.
Yeah.
Well, Stephanie I think.
The second part of the question definitely I'll talk to you may have to help me with the first part a little bit, but I mean, I guess, just let me start there where we think about how to you know.
Build ourselves versus partner versus buy.
Yeah.
It's really just a business case analysis and combined combined its economics combined with speed the market and.
<unk>.
And frankly de risked for development are where things are so said differently. If we can find a nice proven technology solution in an area, we really need to augment.
And we think we can integrated nicely to what we already have.
We'd probably go that route and buy something rather than start over from scratch.
But you know we like to have.
We want to get out of the.
Old World, we were in back in the day, when we had all of our other assets were.
Some people call those Frankenstein cause things didn't really work together very well and.
We don't want to adopt that persona.
In any way so it's important that anything we have works well together.
So that's how we think about I think you know basic feature function type of things, which I think was the first part of your question.
When we talk about potentially buying.
For businesses.
Yeah, I think the pecking order for me Stephanie is going to be it is.
<unk>, our strategic interests. So we.
We're looking to continue to grow our differentiated story, we're looking to have a solid top line grower, we'd like to expand our growth opportunities. So I think something that is accretive to growth that expands the balance of our company and gets more per life science focused.
It's a balance out what is a still a kind of a provider centricity that we have.
Would be top of the list strategically for me and financially.
Again, I'll go back to say that the Devil's in the details, but I'm certainly not looking we've worked hard to create the story we have about the topline about strong margins strong free cash flow I'm not look in Iraq that.
Taken a flyer on something so we're going to be smart about anything we do.
Okay.
I felt like a volatile and interesting opportunity because a lot of these assets are very cash burning.
I'm sure if he would want to go back to that I had given you do have a good catch.
Yeah, I mean, again I don't want to I'm not going to fundamentally change our story, but you know a really good business that just hasn't quite gotten to scale and therefore might be burn in a little bit of cash on its own.
Where we could get some nice probably operating synergies right out of the box because of our scale.
We can probably turn that story around pretty quick and you.
You know that might make a lot of sense for the long term.
Being a cost takeout changing gears, a little bit I know you called out the tough comp, but one of your larger public competitors has been talking about a very premium growth rate target for the provider space.
What could get you to the high end of your current provider range and is there any.
Optionality as we move beyond this year and tough comps to get even above that.
Yeah, I mean, so what.
Let's separate the conversation I'm talking about this year's guidance and where we find ourselves. This year. We've just we reorganized our assets I've got a lot of confidence on our leadership of our provider space right now on a white space opportunity inside there to.
To get greater wallet share from our existing clients and I think to win new clients in the market. So.
I think we have blue skies ahead for our provider opportunity that is all.
Not a next two quarters only story, though that's going to play out as we look beyond the end of this calendar year.
As for the first part of your question I don't usually like to comment a lot on competitors, but.
Talk is cheap you know and some of the talk I hear from people is almost laughable when they're talking about margins and you know to ask where they are today.
We're trying to tell people, what we're going to do and then we go do it and that's what we're kind of in the mode of right now.
I liked the philosophy.
Thank you guys.
Okay. Thanks, Stephanie.
And our next question today is going to come from Cindy Motz at Goldman Sachs.
On the corner it looks very good so just curious about that too because you know some.
Some of the other players are talking about you know a macro factors and things. Wang you know you you don't seem to be seeing any of that I mean can you just talk to that a little I mean are you seeing possibly from some of these other I guess some of your customers, maybe who might be having problems more outsourcing and more opportunities there.
Any color would be helpful. Yeah.
Well first welcome. Thanks, I know you just picked up coverage on a Sunday so welcome to our call.
You know look I don't want to pretend this Saudi aware immune from whats going on in the outside World We're not.
However.
I'd like to believe.
We took into account a lot of the outside world. When we created the guidance that we've put out for everybody. This year we.
<unk> reset our guidance in conjunction with announcing our transaction. So when we announced our transaction that was March we probably maybe in that regard benefited from a little more passage of time on the calendar before we had to set our guidance.
But we tried to factor that in it's why we have not put out.
Growth rates that were unachievable on this market.
So I would just say I think we had the benefit of a little more timeline, we used a reality lens when we looked at what we thought we could do this year.
And we're executing very well right now so we're seeing what we what.
What we thought we could do.
So I mean, that's kind of how I think about it.
What was the second part of your question Sandy I forgot.
No I just was wondering if you're possibly seeing an uptick maybe in some outsourced business like as maybe some of your clients like you now have layoffs or have some problems maybe they would seek to use your services Warren you would might even be a beneficiary of the environment.
We definitely see opportunities to get greater wallet share from a lot of our provider clients.
One area that it.
It won't be strange to hear you guys talk about to you as you know anything.
Round Rev cycle, and getting paid faster for the physician clients is something that is a good opportunity.
And we are seeing that as an opportunity for us to grow.
We're gonna be a little selective we like our margin profile, we're not looking to diluted significantly by going to services centric, but I think a high value service like that which can still earn attractive margins is definitely an area. We're interested in.
Great and just a follow up I know that you know youre sticking to the 6% to 7% guidance like you said because you have a tough fourth quarter comp, but would you possibly at your Investor Day look if things look like they're still chugging, along possibly look at you know talking about next year or any sort of guidance for forward longer term guidance.
Yeah, I think I think.
We havent written the whole.
Storyboard for our Investor day, yet so I don't want to make promises I don't keep but I could see us talking a little more there about longer term opportunities Cindy rather than probably 2023 specific.
We will probably wait until either later at the end of this year or even early next year before we put out a specific 2023 guidance plan, but I would expect a talk a little more about where we see things going.
Great. Thanks, a lot.
Youre welcome.
Our next question will come from Charles <unk> with Cowen. Please go ahead. Your line is open.
Yes, thanks for taking the question guys.
Hey.
Just two quick questions. The first one now that you sold the hospital business to constellation.
Clients like north well, because I think they use followed my health and I'm sure a number of your hospital clients. You used can you talk about sort of what the arrangements are with those clients and then.
How thats going to work going forward, where their new kind of contracts drawn up.
Continued service or were those always kind of separate service agreements.
Yeah, Charles Thanks for the question Yeah.
Yeah. There are there is.
Two areas, where we have kind of product overlap with some of the client business. We just sold off one is around pharma health our patient engagement platform.
The other not so much the hospital client base, but some of the large physician practices that we sold off.
Use our practice management tool as well that we still operate here.
So the answer short answer is where those contracts.
We're separated with clients.
The client the contracts went with the business in each direction, where those contracts are commingled, meaning there's one contract that has multiple solutions. We continue to operate under their commingled contract and probably will until the end of term.
And then at the end of the contractual term will separate the products between the two entities.
So someone like northwest because obviously for the legacy hospital business was the largest customer you had.
Sure.
What is the remaining term for pharma and health and I guess proportionately is that a very big piece the patient given part when we look at the provider business.
That is not a big piece of the.
Glider business at all I'm not going to talk about specific contract firms. Charles you can imagine that wouldn't be appropriate but we.
We do not have anywhere near that concentration that we used to have when we owned the entirety.
Okay. That's helpful and then.
I'm looking at this.
The total contract value and appreciate the additional details here.
So when you said the first contract value, it's sort of how we should be thinking about the bookings contribution what about in years, two and later how quickly because.
Because it seems like then we burn off the bookings within two years is that sort of the right way to think of it.
Charles look we've always we've always have a disclosure in our SEC documents about how we think some things are going to turn around in the end of the year over time.
Look we started with this which is incrementally more better than anything you've followed the company a long time. So you know that's better transparency than you've ever gotten in the past vis vis bookings.
You know, we can look to potentially.
Augment that in the future if we think it makes sense, but.
I think you know just getting a sense that.
Roughly half of it is turning around and your one <unk>.
And the balance.
You can estimate the contracts tend to run any from.
Sure.
When it's when it's a multiyear contract it will run anywhere from maybe three to five years, you could sort of you know get a pretty good swag on that.
Yeah, No. It's certainly appreciate all the additional details we've been getting so appreciate that so thanks, a lot and congrats on the quarter.
Alright, Thank you Charles.
Coming next we'll hear from Sean Dodge at RBC Capital. Please go ahead. Your line is open Sir.
Thanks, Tom and good afternoon.
Maybe coming to Charles question, a little different way.
Rick could you give us like a quick overview of the most common revenue models across each of the provider and payer and life Sciences side, you mentioned the big license sale in Q4 of last year, but it is most of the provider revenue stream should we think about that being kind of very consistent quarter to quarter kind of subscription fee like and then on the payer life Sciences side.
I guess, maybe the advertising piece is more shorter duration, but is the rest of it primarily tied to just kind of more more recurring data transaction volume I guess I'm just trying to understand the proportion of recurring revenue in each of the provider and payer lifesciences segments now.
Provider has a much higher recurring revenue rate than per life science. When you use the definition. We've traditionally used which is do you have to do you have to sell it again next year you know it was kind of the definition, we've used for recurring versus nonrecurring.
As we all know right, there's no such thing as perpetual recurring revenue.
Everything is subject to a contract, but we've used that definition in the past and I think that's what some industry competitors use as well or something similar to that so you should think of the provider business as being close to 90% recurring revenue.
The balance is there are still clients that are buying perpetual licenses rather than subscriptions.
And we have a very very very very small residual of some hardware type cells, but that's almost gone away.
But those are the things that kind of make up what's not recurring in the provider business. The apparel lifestyle side is a little more kind of think of it as project type of work, particularly on the life science side.
And therefore not as.
Doesn't really meet the definition of what we call recurring so if we apply that recurring definition you'd be closer to probably 50 50 in that business area.
So.
I don't know if that helps you, but those are kind of some rough metrics that that would be representative of where the businesses today.
Okay No that's super helpful. Thank you and then.
You mentioned.
Being able to deliver EBITDA growth, while also continuing to invest in the platforms.
I know you mentioned the possibility of tuck in acquisitions before but if we think about just just internally where you're directing dollars right. Now can you give us a sense of maybe where your focus what you're focused on et cetera right.
While we are still I mean, we're still strongly.
Vesting in our solutions I mean, you can see from our.
From our reported results I mean, we're still investing about 20 cents of every dollar back into our solution platform to form in R&D in the form of R&D.
That's at the high end of the range for most health care it companies.
But we are doing that because we see opportunities to improve.
In all three of the business segment areas for business units areas. So we distribute that R&D divest investment across all of them.
And.
We'll continue to do that I don't expect that ratio to go up in the near term, but I don't expect that to change down a lot in the near term are there because I think it's an area. We can continue to build our competitive distinction.
So that's you know that's the biggest piece of what we're trying to balance that with a strong bottom line performance and our strong free cash flow yield as well.
Okay. Thanks again.
Thank you.
Okay.
Our next question today will come from the line of Michael Cherny Bank of America.
Yes.
Afternoon. Thanks for taking the question maybe risk to think a little bit more about the positioning for the business going forward.
When you think about especially the payer and life Sciences side. These are businesses that markets at least that have a number of ancillary services competitive services that are being pushed into that world. As you think going forward, especially now as you've cleaved off the hospital business about what is the best go to market strategy.
What is the best push that the paradigm brand is making where you really resting on laurels on what it's going to.
Differentiate you and should continue to penetrate the faster growing area of your end market.
Well, Mike you know.
It's a great question, but I mean, I really want to reemphasize, what I said in my comments. This is we really think of this as a three legged stool that is mutually reinforcing.
The obviously the larger growth opportunities are probably in the pair life science end markets, but our relevancy NR.
In our scale. There is is been largely a function of this the scale we have in the provider market both through our direct relationships in our partner relationships that collective scale that scale of data that scale of touch at the last kind.
Mile connectivity or point of care connectivity.
Is what is valuable to these other end markets and so you know they are very self reinforcing so.
A strong a strong provider network leads us to these other end market opportunities, but we're going to continue to invest in those other end market opportunities to.
Again can continue to develop our distinctiveness and our competitive advantage. So.
Expect us to put capital in both in all three areas and expect us to really continue to emphasize all three not just one of them.
Yes.
Got it that's good for me for now thanks, so much.
Thanks, Mike.
George Hill at Deutsche Bank. Please go ahead. Your line is open Sir.
Yeah, Good afternoon, Rick and thanks for taking the question to Rick and the team are those of.
How are you kind of close attention to the CRO space.
So you I guess, what we would call a little bit of Lumpiness of demand developing after the last couple of years I'd be interested to hear if you guys feel like you're seeing anything similar as it relates to that life Sciences end market and maybe can you compare and contrast, what's going on in the payer space versus the life Sciences space, if you're seeing any meaningful divergence in demand or divergence in how those conversations are going.
Hey, George Thanks for the call I don't know Tom why don't you start on those questions.
For months.
George we're not seeing a significant diversion or change with between the life Sciences and payer space, we collaborate with many players on the life sciences side, including the Cro's, but we're not seeing any significant.
Slowdown or changes on both the life science in the payer space.
Okay. That's helpful I guess.
One more macro question about kind of the impact of wage inflation and labor and if you guys are seeing any challenges as it relates to retention or recruitment or if we should.
We feel comfortable kind of costs looking out beyond 12 or 18 months.
Yeah, well you know.
I don't.
I wish I wasn't having to deal with those issues George but we are we feel it labor is still our single largest input cost to the business. So.
Even though we have dramatically shrunk our labor cost base.
It is still again, our largest input cost so.
We have not seen a.
Painful level of attrition, we've seen we've seen some were not immune from it.
Certainly some regrettable.
But not.
At a untenable level in my view.
So we are we have really pushed for a couple of years now George the.
The idea of you know.
Pay for performance and rewards for performance with concocted several different schemes at the company that are very very aligned with sharing the rewards from the company. So in our run rate and in our guidance we have those programs in place as we achieve the financial.
Improvements that we're seeing we're setting aside.
You know a non trivial amount for our team at all levels of the company.
And we.
We think that's the only sustainable formula ultimately so we're trying to stay true to it.
But we have it's something we have to keep watching.
So maybe that's a long winded way of saying I don't expect to see a seismic shift in our performance because of the topic of wage inflation, but it's something we're watching and it's definitely something we're reacting to but we've been pretty proactive about it I don't mind, saying for the last couple of years.
Okay. That's all for me Thanks, Rick.
Thanks George.
Our next question today is going to come from Jeff Garro at Piper Stanley.
Taking my.
<unk> wanted to ask one around profitability.
Under if there were any drivers you'd call out of the strong gross margin performance for the payer and life Science sub segment in the quarter beyond scale and then if we should expect similarly strong incremental gross margins for that part of the business going forward.
Nothing unusual.
So let me start with that nothing unusual that popped it.
Scale is contributing to a margin uplift I'd note to you that our provider gross margins are pretty much in line with our payer life science gross margins. So it's not as if only one part of the company.
It is driving our gross margin story.
We are getting some scale and thats why we signaled in our guidance.
Back even back as far as March that we expected gross margins and EBITDA margins to increase this year.
As we got our topline growth.
That's still our outlook.
In terms of projecting where they could go I think that was the last part of your question I'd be a little careful about extrapolating too too much but you know we we think we're going to have a strong fourth quarter again and.
And if it plays out as we expect.
Our EBITDA margins and gross margins I think for the year certainly our EBITDA margins will be up from what you saw in the first half.
Got it that's helpful.
And then maybe ask one about the guidance and visibility into the uptick inflection up in Q4 in both revenue and profits I think Stephanie already asked about the provider side, but maybe ask on the payer and life science and maybe most specifically on the kind of.
Media part of the life science thing of disabilities tracking there.
It's you know it's early August it's still little early to have full transparency on the media for Q4, but what we see today is in line with what we expect.
Yes.
Fair enough thanks for taking the questions.
Thanks, Jeff.
And once again to our phone audience today, if you would like to ask a question or need clarification on anything covered in todays conference. Please press star and one well hear next from the line of Eric Percher Nephron research.
Hi, This is off on for Eric I, just want to go back to the first question about M&A, you mentioned, a low multiples that youre seeing in the market.
But are you getting any indication that the sellers are accepting or coming to grips with kind of the reset valuation that we see in the market today.
Yes.
Well, let's start by I want to clarify what I said, what I said was we are all very low multiple and I said valuations are resetting the valuations are resetting from what were astronomical levels, but certainly from my point of view.
So you know I'm.
I'm not I'm still not suggesting they are cheap, but they are moving in that direction.
That mostly all that commentary is largely around what we see with our public company.
Here set and.
Some some small but mostly anecdotal stories from the private company World.
I can't I wouldn't be in a position opine on whether private equity firms or other private company owners are actually selling a cheap prices or not I'm sure. We all hear certain stories, but I don't I don't know that we can generalize that.
So my comments are really about you know some of the reset we've seen in the public markets.
And again I was also juxtaposing our own position versus others in HCI.
Okay understood and then if I could just follow up on.
The post divestiture opportunity that you guys might have with other EMR vendors for data partnerships that are you are you, saying that you have become.
Hmm.
Sorry, you cut out right when you were about to finish the sons.
Did we lose you.
And this is the operator I believe we may have lost connection.
I do not see as a line in the conference anymore, if you'd like we can propagate or we can wait another moment certainly up to you.
Anybody else in queue, operator or is that it.
Not at this time he was our last today.
Okay, Okay, well, we can pick up with them separately, we don't need to have everybody wait for that so.
So that's it then let me just again, thank everybody for joining US today. We appreciate you following us I appreciate your interest in us and we appreciate the good questions today.
And I look forward to talking to you soon bye.
Bye bye.
Ladies and gentlemen, this does conclude today's teleconference. We thank you all for your participation you may now disconnect your lines and we hope that you enjoy the rest of your day.
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