Q3 2022 Computer Programs and Systems Inc Earnings Call
At this time I will now turn the call over to Mr. Chris Fowler, President and Chief Executive Officer. Please go ahead Sir.
Thank you drew and thanks to everyone for joining us today for our third quarter earnings call I'm joined by our CFO , Matt Chambliss and also David Dai will be available for Q&A.
As you May have read in our recent 8-K, David is transitioning into a new role of Chief operating officer, which is designed to help streamline the organization and oversee the function of our business units, which I will talk about shortly.
First let me begin by saying that we're pleased to deliver third quarter results that are broadly in line with consensus and our expectations.
Total revenue for the quarter was $83 million with roughly 60% of that revenue deriving from true bridge.
I would like to call out that 94% of <unk> revenue is recurring demonstrating progress towards our business model weighted towards high visibility and predictability with.
We generated $13 $3 million of EBITDA during the quarter, an increase of 9% over the prior year quarter.
Total bookings were $25 million with greater than half of those deriving from trowbridge consistent with our pivot towards greater RCM and patient engagement services.
This week marks 100 days since I was appointed CEO of Si and I'd like to take a few minutes to share a few observations along with our people. We believe that our client base is our greatest asset and both customer satisfaction and retention are key elements of our growth story and the last 100 days I felt countless meetings with key.
Customers, what resonates allowed us with them is cps size commitment to streamlining workflows and easing the pressure and stress that often come with managing resources and the financial health of their organizations by working towards those goals, we allow providers to better engage patients in their own health care and remove distractions.
So they can focus on providing quality healthcare and making health care more accessible.
Our focus going forward is and shall continue to be strengthening relationships with partners and customers improving the client experience and delivering innovation in key product enhancements.
We want to ensure that <unk> is a trusted business partner to our customers and part of their long term strategic plan, whether that streamlining care delivery augmenting staffing shortages, improving the patient experience preparing for value based reimbursement or all of the above.
As such we are focused on the tremendous cross sell opportunity for true bridge and patient engagement products and services across our in network base of nearly 1000 customers.
As we've discussed in the past we estimate the add on opportunity to be enormous demand is robust in this post COVID-19 environment as hospital resources are strained and scarce opening the door to leverage our Trowbridge brand.
Hospitals are fighting for every dollar amid low utilization trends and increasing high cost of labor and Cps is uniquely positioned to help our customers thrive.
As evidence of the bolus of demand we are seeing our three month weighted trowbridge pipeline tripled from $5 6 million in the year ago quarter to $17 3 million as of 930 this year.
Similarly, our six month weighted pipeline exploded from $9 million to nearly $27 million.
This is a clear indication of the uptick in demand, we're seeing for our services.
With respect to the quarters business highlights triggers delivered total bookings of $11 $5 million. We are pleased to see continued demand for <unk> services, both in network, meaning inside of our EHR client base as well as out of network or hospitals that use a non <unk> EHR.
As I mentioned earlier, we see tremendous opportunities for trowbridge within the <unk> client base, which we estimate at between a 300 and $400 million cross sell opportunity in fact cross sell bookings increased 30% sequentially.
RCM centric services represent close to 60% of total <unk> revenue today compared to roughly 40% of revenue three years ago.
To illustrate our progress in this regard trailing 12 months cross sell bookings from Trowbridge, our 28% higher than pre pandemic levels and net new bookings are 31% higher.
I would now like to address our get real health business. Our G. R. H, which is the foundation of our patient engagement products and services.
While fast growing and rapidly evolving the still nascent nature of the business led to some volatility during Q3 as we simultaneously invest for growth.
Two large customers that are in the early stages of implementation fell behind their schedule Golar plan.
The first is a complex domestic health system in Florida that is comprised of multiple disparate acute care EHR and the other is an international Telecom company.
Combined we estimate the revenue from these two implementations of $1 million to $2 million or pushed out by about six months to be clear. The delay was not a <unk> issue and we enjoy a very strong partnership with both customers.
Today revenue from <unk>, which makes up low single digit percent of total revenue growing exponentially off a small base and we view it as a huge value add to our customers as they focus on improving the patient experience through digital front door strategies and tools for increasing retention.
Last and not least evident our core EHR business comprises about 40% of <unk> revenue evident as a preeminent EHR solution for community hospitals and is operating in a mature market with relatively high rates of penetration.
Evident bookings in a post meaningful use environment declined year over year as we continue to evolve Cps Si toward more RCM services recurring revenue SaaS as exemplified by our sales leadership promotions that I will discuss shortly.
We're proud of our leading 1000 strong customer base and see our EHR base as an anchor to cross sell value added RCM services and higher margin products over time.
Against this backdrop of creating more organizational focus to drive growth and profitability I am thrilled to announce some changes in how we operate the business unit's aligning them more closely with our go to market strategy too.
To reflect this new strategic direction, we are strengthening our leadership team as follows.
David Dye, who you all know and as worn many hats over the course of his 32 year tenure at Cps II is transitioning from his role as chief growth Officer to Chief operating officer, overseeing our three business segments, which will now have dynamic new leadership.
First we are pleased to announce Patrick Murphy as general manager of our Trowbridge Division Pat has been with <unk> since 2011, serving as director of revenue consulting services, Vice President and most recently senior VP of Trowbridge Pat is uniquely qualified to help us propel true bridge to the next.
Chapter in <unk> evolution.
Second we are pleased to announce the appointment of Christina Hendricks as general manager of our get real Health segment. Kristina spent at 17 years that get real health spanning project management and program management responsibilities. Most recently she was vice president of service delivery and we are grateful to have such a talented.
Leader heading up this division.
Third I am pleased to announce David harsh as the general manager of our EHR segment covering all acuity.
David joins us from health, Mark where he was senior VP and general manager of patient engagement prior to health Mart, David spent 20 years at EHR leader Cerner in various roles of increasing responsibility. Most recently as VP and general manager in which he took what was formerly a flat consume.
<unk> engagement business and leveraged <unk> vast EHR footprint to drive double digit growth.
Each of the above referenced business units will roll up under David dye as CFO to create a holistic view of our businesses facilitate transparency alignment with how our customers purchase and advance our operational excellence also included under David's umbrella is business unit support services and product development.
<unk> each vital to continue delivering product and service innovation to our clients.
There is one additional leadership change that I would like to note Don severance who came to Cps side by way of the <unk> acquisition in 2016 will be transitioning into the chief sales officer role Dawn will leverage our wealth of experience in revenue cycle operations to the sales organization, which is <unk>.
Sure to help <unk> capitalize on the true bridge opportunity.
This is a centralized sales function across all business units with the objective of building deeper relationships with our customers driving growth and continuing to build on our foundation of sales excellence.
To review the three tenets of our long term plan, we are committed to our one growing the core.
This means net new customer adds as well as increasing wallet share across our existing base <unk>.
Leveraging our Trowbridge brand of RCM services is integral to unlocking the $400 million potential that we have discussed we also will continue to support and grow the evident brand, which is the trusted EHR solution of choice in our market of rural and critical access hospitals number two operational efficiency.
Namely unlocking value through automation and offshoring in the form of driving scale and margin enhancement and enabling <unk> to deliver more value to our customers and lastly, making key investments in adjacencies and enable CSI to accelerate growth beyond our core gift.
Real health in our migration into the public cloud are two such examples.
Finally, we intend to continue following a measured and disciplined capital allocation strategy.
We aim to balance R&D investments to meet the evolving needs of our customers with selective M&A and strategic areas like <unk> and <unk> previously that added value to our solution set enhancing our brand and creating scale.
In summary, I'm incredibly energized and humbled to be a part of this great team and culture are proud of what we've accomplished to date, but even more excited about the journey that lies ahead with that I'll turn the call over to Matt for a review of our financial results.
Thanks, Chris and thank you all for your continued interest in our evolving story today I would like to comment on our bookings trends review, our third quarter results and then conclude by addressing our outlook for the remainder of the year.
With respect to bookings total Cps Si bookings of $25 million were down 30% versus the third quarter of 2021 and the main driver of that decline was acute care EHR bookings that fell by 48%.
This wasn't entirely unexpected as we forecasted bookings to be down relative to a tough comp in the year ago period, and we note that quarterly bookings in system sales are volatile by nature.
Offsetting this we are pleased that the momentum we are seeing in <unk> sales continued in the third quarter.
<unk> bookings were $11 $5 million and while down sequentially off a very strong second quarter, our third quarter performance was still impressive amid a seasonally weak summer.
As we continue to build on the cross sell opportunity within our Cps Si customer base, we're encouraged that cross sell bookings increased 30% sequentially and greater than three five times those of the third quarter of 2021.
To provide some more context trailing 12 month cross sell bookings were 28% higher than that of pre pandemic levels, while net new bookings were 31% greater these.
These metrics are indicative of our highly satisfied and engaged customer base that has an appetite for additional value added services from Cps II.
With respect to the third quarter results total revenue of $82 $8 million increased 18% year over year and benefited from our acquisition of <unk> in March of this year.
<unk> revenue of $47 $9 million increased 39% from the prior year quarter and experienced organic growth of 10%.
The overall increase was driven primarily by the <unk> acquisition as mentioned as well as the organic expansion of our central business office or CBO service offering.
<unk> contributed a little over $1 million of revenue in the quarter true Cobra revenue contributed $3 $5 million and <unk> revenue contributed $9 $9 million in the quarter.
These three business lines are currently included in true bridge divisional results.
Both <unk> and <unk> revenues accounted for the majority of the year over year growth in the third quarter.
In line with broader health system utilization trends for bridge experienced slightly softer volumes than forecast and in two of our <unk> opportunities are not materializing as rapidly as we anticipated representing under $2 million of revenue impact that.
That said Trowbridge continues to fuel our growth and represents a significant margin expansion potential.
System sales and support revenue of $35 million was relatively flat year over year.
Breaking out system sales into its recurring and nonrecurring components recurring revenue increased low single digits, while project based nonrecurring revenues declined 18%.
This pattern is consistent with our deliberate attempt to move away from a less predictable and volatile nonrecurring revenue stream in favor of driving toward a business model with strong elements of predictable and highly visible recurring SaaS revenue.
Turning now to cost of sales gross margin of 45, 9% in the quarter represented a decrease of 440 basis points year over year, which can be attributed to two primary factors.
First the inclusion of <unk> lower margin services intensive revenue, which was acquired earlier this year.
And second the implementation delays that we experienced the two sites for <unk> impacted the top line for that business unit, whose revenue comes at an incremental margin meaningfully higher than that of our corporate average.
Moving down the income statement operating expenses as a percentage of revenue were 39, 9% in the quarter and compared favorably to last year at 43, 9%.
G&A as a percentage of revenue decreased 400 basis points year over year as we saw an improvement in bad debt due to the collections environment continuing to strengthen as our customers emerge from COVID-19 in a better financial position.
EBITDA of $13 $3 million increased 9% year over year and translated to an EBITDA margin of 16, 1% down 140 basis points versus the prior year quarter.
This year over year margin compression was due to <unk> lower revenue I will be your higher margin contribution not being enough to offset the addition of HR cheese services intensive offering.
Sure.
<unk> generated cash flow from operations of $11 $1 million during the quarter, which was an increase of nearly eight five times year over year.
Operating cash flow as a percentage of adjusted EBITDA on a trailing 12 month basis improved from last quarter at 76%.
Last quarter was impacted by integration driven receivables and as we work through those we expect operating cash flow should return to a more normalized level of around 80%.
Finally, and consistent with our capital deployment strategy that balances investment M&A and stock repurchases to drive shareholder value. We opportunistically took advantage of the depressed market and stock price to repurchase $4 million of <unk> shares during the third quarter.
Okay.
Turning now to our outlook for the remainder of 2022, we're tracking solidly toward our topline goals and we're pleased to reiterate our revenue guidance of $320 million to $330 million for the full year.
With respect to EBITDA I would like to call out that slower than expected pickup on patient engagement solutions as well as the <unk> implementation delays as mentioned earlier not only impacted the third quarter, but will have a spillover effect through the end of the year.
As such we are now tracking to an EBITDA margin of 17% to 17, 5% below the prior range, we provided of $18 two 5% to $19 two 5%.
Importantly, this does not impact our long term outlook, but rather as a function of some higher margin <unk> revenue being delayed until 2023.
To wrap up my comments this quarter represents continued progress in setting the groundwork for steady disciplined growth and profitability.
We're executing on our long term strategy of driving growth while at the same time, completing and integrating strategic acquisitions to provide value to our customers and shareholders.
You again for your interest in Cps Si and with that we'd like to open the call to questions.
Operators.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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One moment, please pull for questions.
Our first question is from George Hill with Deutsche Bank. Please proceed with your question.
Hi, Alexia I'll, let George Thanks for taking the question.
We have been hearing a lot of discussions.
And I'm, just trying to high prices in the market.
Okay, you talk about the pricing environment.
<unk>.
Considering the inflationary pressure and the pricing action taken by the large vendors. Thank you.
Yes.
To clarify the question did you say hiding pricing and then wanted to understand if we what impact we're seeing from an inflation standpoint on <unk>.
New contracts can also renewals.
Oh I was trying to say that some of the large vendors trying to increase price.
They are trying to increase prices by at least 25% to 50%.
Yeah David.
David <unk> here, thanks for the question.
That's something that we've seen in our market from <unk>.
And the electronic health record market and then on the <unk> side as well I would say that we've seen prices hold steady if not if not slightly decreased.
As the.
The competitive vendors and ourselves included continued to offshore more than to be more efficient.
Yes. This is.
Ill hop in on the renewal side of that one of the things that we've prided ourselves on over the years. The Cps side has been in existence as being a long term partner for our customers and part of Thats, including in our contracts for recurring revenue stream some language around auto renewals and while there are some levers in place for some.
Inflationary adjusted increases there in certain of our contracts those are capped at 3% to 5%. So we may not be able to recover all of the full I guess inflation now is somewhere north of 9% or north of 8%, but there are there are measures. We can take on the renewal side to reduce that burden.
Yeah.
Thank you that's very helpful.
Our next question comes from Joy, Zhang with SBB Securities. Please proceed with your question.
Yeah.
Hey, everyone. Thanks for taking my question. My first question you probably can't read on July side, I understand that you mentioned that it's a customer ramping in <unk>.
From both pieces.
Just wondering if you can provide any color on what's driving that kind of delay.
Something isolated to that.
The conference versus true and why whether it or are there any read through to answer rotter trend that could be happening in your customer base.
Yeah, Hey, Joy, David here Yoga I'll comment on both the delays that both Chris and Matt referenced.
In their comments.
To the large domestic delay.
Which has now gone live.
But in large part was due to integration issues with EHR vendors on both ambulatory and inpatient side.
With the health system.
And that has.
Has now been resolved.
And largely it was not on our end on the international opportunity you had more to do with the delay in the go to market and marketing strategy and the timing of rolling that out which is again has now been done.
But ended up being at.
All told about six months behind schedule also with the international opportunity was over in Asia Asia Pacific. There was I would say COVID-19 was a part of it as well.
Hey, Joe This is Chris I'll add as well I think it's important when you're thinking about the segments of business that with the with the patient engagement and get real health. So obviously, we're selling to the provider or to the organization and then theyre selling to the to the patient for lack of a better term.
So from an adoption standpoint, and revenue recognition the tail on that is going to be a little bit longer.
As we get farther into the business will have a little more visibility there and also thinking about how we can take a more active role in the adoption for the patients for their customers going forward.
Appreciate that color and definitely appreciate.
The color related crazy and explanation.
Thank you.
No.
Just a following that my next question probably more for Max.
If you can give some more color on I don't know.
Earlier.
Prepared remarks, when you guys announced.
Our partnership with Eisai on population health.
Earlier.
I think this month earlier.
You know, Matt if you can give any sort of color around you know fighting for revenue contribution.
Eitan.
Any color on what this partnership.
Great.
Joe I'll take a stab at that too David again, I think incrementally into 2023, I think the opportunity from a revenue contribution standpoint is negligible probably a couple of million dollars.
It's a Rev share agreement I think long term, it's more significant.
They are in.
There are several reasons why we while we announced the partnership.
They were already at about 25 of our hospitals in particular in several states that had announced and has begun to execute on.
Medicaid value basis.
Care pilot programs in particular, Colorado and Texas.
And so.
We had worked with them.
And it had a great partnership from an integration standpoint, and in sharing our API and be and being completely integrated with that products over the next step obviously it just made sense from a partnership standpoint, we've had a couple of Webinars and a couple more states and the uptake in the amount of follow on demonstrations has been I would say phenomenally well received so I do think it is.
Gibbs.
I will also say this is Chris touched on this in his commentary and I've been with Chris on a lot of the touring that he centered on around the country since it's been CEO and visiting with our customers.
They have a need for quality based reporting and core measures reported in our system can certainly handle that to some degree, but what I can hi, too I can do from a best of breed solution is second to none and so that's why we went about the partnership yes.
Add to that I would also say as just part of our plan as were thinking about.
And to help these our customers and partners to be viable financially.
Doing the work already and how can we help them get more credit for the work they are doing and so finding partners that can facilitate that through the programs with Medicaid and Medicare and even ended the commercial payers.
Makes good business sense for us be able to deliver that and obviously, we have a broader scale and ability to get that through our customer base and add to add is one at a time.
Okay very helpful color. Thank you very much.
We have reached the end of our question and answer session I would now like to turn the floor back over to Chris for closing comments.
Thank you Maria and thank you all for joining the call today and thanks for your continued interest in <unk> have a great evening.
Okay.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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