Q4 2022 Computer Programs and Systems Inc Earnings Call
Greetings and welcome to the <unk> fourth quarter earnings Conference call.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad and as a reminder, this conference is being recorded.
It is now my pleasure to introduce to you drew Anderson. Thank you drew you may begin.
Thank you good afternoon, and welcome to the <unk> fourth quarter and year end 2022 earnings Conference call, leading today's call are Chris Fowler, President and Chief Executive Officer, and Matt Chambliss, Chief Financial Officer. This call May include statements regarding future operating plans expectations.
<unk> and performance that constitute forward looking statements made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995. The company company cautions you that any such forward looking statements only reflect management expectations and predictions based upon currently available information.
And are not guarantees of future results or performance.
<unk> results might differ materially from those expressed or implied by such forward looking statements as a result of known and unknown risks uncertainties and other factors, including those described in public releases and reports filed with the Securities and Exchange Commission, including but not limited to the most recent annual report on form 10.
The company also cautions investors that the forward looking information provided in this call represents their outlook only as of this date and the undertake no obligation to update or revise any forward looking statements to reflect events or developments. After the date of this call.
At this time I will now turn the call over to Mr. Chris Fowler, President and Chief Executive Officer. Please go ahead Sir.
Thanks drew and thank you to everyone for joining us. This afternoon I'll start I'll start the call today with a quick review of our financial and operational highlights from the fourth quarter and then I'll share some of my thoughts on the past year and we're on vision Cps side going into 2023.
For the fourth quarter of 2022, we delivered total revenue of 83 million of which roughly 55% was derived from our RCM offering true bridge, our RCM offering has 98% recurring revenue and grew 29% from the fourth quarter of 2021 further demonstrating our progress.
Towards improving the consistency and predictability of our topline.
We generated $13 million and adjusted EBITDA during that quarter, a decrease of $7 seven over the prior year, which Matt will elaborate on.
Our total bookings for the quarter were $25 million, an increase of 59% year over year and 20% sequentially.
Looking at a level deeper bookings from our RCM solution alone increased one six times year over year, and 19% sequentially with RCM bookings from cross sell alone up 98% from the fourth quarter last year.
Cross selling into our EHR customer base is the foundation of our growth strategy. So the recent strength in this bucket of bookings is particularly pleasing.
As our business continues to evolve into more RCM dominant themes.
And to provide more transparency into the health of our business. We are going to start providing net patient revenue under contract or NPR on a quarterly basis. We believe this will be a meaningful metric to track our progress after all improving the financial strength of our hospital customers is the problem that <unk> strives to solve.
And there is arguably no better metric to measure our performance and scaled in NPR, Matt will also share some more about this a bit later on the call.
On the operational side of things during the fourth quarter. We've had a few things that we have a few things to highlight in our RCM business. We had 30 go lives across all of the RCM offerings. Additionally, we continued our expansion of offshore resources, ending 2022 with more than 100 offshore employees.
With the ambitious target of quadrupling that rate of offshore utilization as we exit 2023. This.
This not only represents an abundant margin expansion opportunity for us going forward, but also a strategic imperative to ensure our RCM business can scale as our solutions continue to gain momentum.
Our patient engagement business I want to briefly touch on the two contracts that we noted were delayed on our previous call. The first is steward health in Florida, which was impacted by Hurricane Ian we've been working hand in hand with that team and we are now live and have rolled out our solution to the majority of their facilities in regards to the second delay.
We anticipate the international implementation to happen in the second quarter, our conversations with our telecom partner continue to be optimistic as we worked through governmental delays in these markets.
It's also worth highlighting that our revenue recognition in our patient engagement solution is a little different than the rest of our business. We recognize revenue once implementation is complete and the solution is turned on only one patient signs up for the solution.
While the revenue ramp may not be as steep as it is in the RCM business is a higher margin in RCM and it's very sticky once a patient time zone.
Finally in our EHR business, we continue to realize and focus on adoption and utilization of our products by our customers.
Many of our long term customers those who have been with us more than seven years have not stayed on track with software utilization, but we're going to fix that decline.
The client executive role we've been bolstering this past year will be key to our success in this area.
As a testament to our dedication to improve our customer experience and overall satisfaction with our products, we made the necessary investment to improve our client executive to customer ratio to less than a third of what it has been additionally.
Additionally, this increased investment triples, the workforce that is focused on generating the opportunity for us to capture the $400 million of RCM Cross sells.
As we close out 2022, I want to spend a few minutes looking back at what we've accomplished this past year and why I was so excited to take on the role of CEO when.
When I accepted the position this past spring my goal is to build upon our well established foundation to drive innovation and growth Cps is a very mature company founded almost 50 years ago with a large loyal customer base and a comprehensive suite of solutions. This is a critical time to remain acutely focused on what's.
<unk> to this point and to acknowledge that we have hit some bumps along the way.
Moving forward, we will continue to improve as we pivot towards not just execution, but also towards growth.
One of my priorities. This past year was to strengthen our relationships with our customers, especially since cross sell conversion will be paramount to our success in 2023 and beyond to that and it has been a high priority during the back half of 2022 to meet face to face with as many of our clients Ceos and Cfos.
As possible to hear directly from them and to share my vision for <unk> Si.
Through a half a dozen regional customer events and getting out to our client sites weekly the connection has been invaluable.
And this commitment to strengthen customer relationships extends beyond me. It includes our senior and senior management team and our client facing executives not.
Not only does this provide scale, but decline executive role, which I mentioned earlier is key to our customer satisfaction and ultimately redemption with the pandemic behind US we are leaning in heavily to an in person high touch strategy for our clients.
We offer solutions for community health systems and their leadership teams, it's essential that our customers have a good understanding of our solutions as well as our organization and our people because building trust by getting to know each other is an important success factor for our customers after talking with our customers lately I'm, particularly pleased with the.
Sentiment they've shared with me that they have that as we invest in our clients. We will see the return materialized into their re engagement with our offerings.
The increase in customer facing activities also raises awareness of our RCM offering and I believe have a real impact on our RCM bookings, which increased two four times in 2022 versus 2021.
Our customer our customer retention rate of 95% in 2022 is consistent with the high marks we have achieved in years prior but we will strive to do even better in coming years.
I view 2022 is a year that we put the pieces into place with new leaders at the helm and I feel good about all the work we've done our expansion of the RCM business opens up a new part of the market expanding beyond hospitals of less than 100 beds, where we have historically focused our EHR efforts, we are laser focused.
<unk> on our vision of selling our RCM solution of both our existing customer base as well as to hospitals are 400 beds are under there are more than 4500 hospitals in the U S that fit that criteria, representing a total addressable market north of several billion dollars.
It's very clear that RCM is the key to our future growth as these hospitals will increasingly look to outsource part or all of their RCM processes to trusted partners like Cps Si to simplify their revenue cycle needs.
By the end of 2023, we feel that RCM will represent close to 60% of our total revenue.
We've laid the foundation necessary to seize the opportunities ahead of US we've added the right people to our team and we have the solutions our customers need I'm incredibly excited to see what 2023 has in store for Cps Si and I'll look forward to updating you on our progress I will now turn the call over to Matt for a closer look at the financials.
Thank you, Chris and thanks to everyone on the call as Chris shared we ended the year on solid footing and I'll run through the numbers in just a minute before I jump into the financial results I want to spend some time, explaining how Chris and I have evolved our thinking on the business and the metrics, we will share with you to assess the progress we're making.
The business of <unk> has evolved meaningfully with RCM now representing over half of our revenue and a significant portion of our growth.
Recognizing that evolution, you'll notice that we've slightly changed the presentation of our revenue streams to better reflect the three distinct business units that we see within Cps Sai.
True bridges RCM business, the combined acute and post acute EHR business.
And our nation high potential patient engagement unit.
Also as Chris mentioned, we're going to start providing net patient revenue under contract or NPR on a quarterly basis.
And with that in mind, we ended the year at a hair below $3 billion of net patient revenue under contract an increase of 37% year over year and a three year CAGR of roughly 17, 5%.
This NPR was comprised of $2 $4 billion from true bridge, and 600 billion or zero point $6 billion from the recent <unk> acquisition.
To help you understand this new metric in the context of our past performance. We've included a table in the press release with our historical NPR data for each of fiscal years, 2019, 2020, and 2021, along with each of the quarterly periods of 2022 for your reference.
Our intent with this new NPR metric is to supplement our bookings disclosures to provide a more complete picture of growth and scale as bookings alone have proven to be an imperfect metric.
If you followed the <unk> story for a while.
Know that our bookings metric is quite lumpy as the deal population is characterized by a relatively small number of high value deals.
The end result is a 90 day measure that often times is more a function of timing for a handful of deals than reflective of any true strength or weaknesses, and our sales environment, which can undermine the usefulness of this measure for investors.
On that topic bookings for the fourth quarter totaled $24 $7 million driven by continued strength in our RCM business with the EHR business unit closing out strong with its best bookings performance of the year driven by net new hospital client wins.
RCM bookings were up 163% year over year, and 19% sequentially continuously earning its title as growth agent for Cps Si.
And looking at the individual components of RCM bookings cross sell bookings were up 98% compared to the fourth quarter of last year, while bookings from outside of our EHR customer base increased to seven six times the prior year amount as to the strength of <unk> sales force has made this a core competency.
Turning to the income statement fourth quarter revenue of 80 $383 million compared to $74 million last year, RCM contributed $45 $7 million.
<unk> revenue was $36 million and patient engagement made up the remaining $1 6 million.
Our gross margins of 44, 6% for the fourth quarter were down 520 basis points year over year due to the increase in our RCM services business, whether through acquisition of HR G or through organic bookings driven growth the lion's share of 2023.
<unk> gains came from high touch point lower margin service lines, causing a heavy shift in revenue mix that pulled gross margins down.
As we look to the future the acceleration of our offshore initiatives will be key to margin expansion.
Our operating expenses as a percentage of revenue were 40% in the quarter the same as last year.
Adjusted EBITDA of $13 $2 million decreased by $1 $1 million year over year.
Despite the year over year revenue growth the gross margin gains by the RCM business were offset by gross margin losses in our nascent patient engagement business as high incremental margin nonrecurring revenues declined.
The end result was a gross profit number that was flat, while higher benefits cost and strategic investments in our public cloud migration efforts created further headwinds for EBITDA.
Turning to the rest of the financials operating cash flows for the quarter were relatively low at $2 $2 million.
This is unusual for us and is a direct result of timing issues related to the collections associated with the integration of our recent acquisition of.
The slowdown in collections negatively impacted the fourth quarter, but we are making progress and saw an improvement in dsos in January .
While we havent quite reverse the trend just yet we're headed in the right direction, but it may take until early Q2 to fully unwind.
Finally ill conclude my remarks by providing some color on our initial 2023 outlook.
For full year 2023, we expect revenue to be in the range of 340 million to $350 million and adjusted EBITDA to be between 59 and $63 million.
As for how revenue and EBITDA will be distributed throughout the year revenue is expected to be slightly weighted towards the back.
And from an EBITDA perspective in the second quarter, we see our heaviest costs due to the hosting of our National client conference in the fourth quarter is generally our lightest cost quarter as a result of the timing of benefits and vacation utilization.
One final note on the topic of guidance. The company had previously provided an $80 million EBITDA target for 2024, but we now feel the more appropriate target is returned to double digit organic revenue growth over the next 24 months with strategic acquisitions being additive to that growth.
From a margin perspective, we believe we can achieve 20% adjusted EBITDA margins over the same time period.
Chris and I feel very good about everything we've put into place this year and look forward to continuing to update you on our progress in 2023 and beyond.
You all again for joining us today, and we will now open the lineup for questions operator.
Thank you, Sir we will now be conducting a question and answer session.
I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
And one moment, please while we poll for questions.
And our first question comes from the line of George Hill with Deutsche Bank. Please proceed with your question.
Yes. Good morning, guys can you hear me okay, yes.
Yes, we can.
Hi, Matt and Chris Thanks for taking the question. The first question as a point of clarification, where I want to make sure I heard your.
Your commentary correctly. So the expectation is that you guys.
We expect to return to double digit organic revenue growth for the composite not just for true rich with 20% adjusted EBITDA margins and M&A will be additive and I guess can you kind of frame up how you're thinking about the delivery of that result from the timing first of all I get it right.
And second I would like to hear how about youre thinking about the delivery of that from a timing perspective.
Yes, so I'll jump in there George and.
Thanks for being on the call today.
You did hear that right, while we see has returned to organic.
Organic revenue growth for the company returning to double digits as we exit 2024. So we obviously don't see that in the cards for 2023, but particularly as we get into the back half of 2024.
We see the growth opportunity within the RCM business.
Being sufficient enough to pull us across that line returning to double digit growth.
Okay, and I guess kind of the implication then is that the.
RCM business is going to have to accelerate to a number that approaches 20% growth I guess could you talk about kind of the visibility that you have that gets you there.
And you've talked about offshoring as contributing to the margin expansion is there anything else that we should be looking for as contributing to the margin expansion and I asked these questions because I think delivering upon those two goals.
I think dramatically changed the kind of the profile of the stock price.
Yes, I think youre right on it George.
The way, we're looking at it again.
You go back to the.
We exited 2020.
100 offshore believes that we're looking to quadruple that number.
This year, so that when you look out exiting 2024.
We see that growth and this is obviously related to the expense side. It has a bit of a slingshot effect it'll be incremental as we go but when we hit that 400 number by the end of this year and then we continue at that pace. It really has a multiplier effect in the end.
Quite honestly the same is true on the top line.
The big changes, we finally hit that point, Matt has been talking about this for quarters of hitting the bottom of this conversion from one time revenue on the EHR side to now all basically all contributions of revenue being recurring and there is a bit of a slingshot effect there.
So we see both of those.
Modest growth in 2023, but that multiplier effect really taken taken a hold as we exit 2024, and you put that on the back of the strong retention that we've had we've put together some some nice quarters.
Back to back as it relates to the RCM bookings our pipeline continues to be healthy. So it's a matter of the.
Market being here for that real conversion of the RCM potential that's been talked about for the last several years.
No that's helpful and if you guys, maybe another second or two.
I guess I feel like in the RCM market I know that the evolution of <unk> has been a long time in coming.
Guys have kind of flown under the radar in this market and by not going after the larger health systems, you're competing in a more fragmented segment of the market.
Yes, Kevin agreed to which you can I'd love you to just kind of like I asked about visibility, but maybe could you talk a little bit anything you can say about competitive environment I recognize a lot of this market is either going to be hospitals that either in sourced now where theres a lot of regional mom and pops to participate in this space and maybe kind of pricing environment.
I guess are you seeing term that we would traditionally attribute to some of the larger RCM vendors and outsourcers in the space I guess kind of more on kind of visibility and differentiation and then I'll hop back in the queue.
I'll try to break that apart a little bit you almost started answering your own questions there.
I think you're I think you're actually absolutely right in the fact that it's still today in our market. The competition for RCM is primarily the hospital itself. We referenced that stat. You can just you can go to just about any rag and find this anywhere from 85% to 90% of all hospitals are still.
Doing theyre doing the billing and RCM management themselves. So that's really the main competition and to your point, if it's not the hospital themselves. It is predominantly a regional player.
We're not seeing a lot of rfps at that at that level and so a lot of it becomes our ability to go.
In the past it has been much more from an outbound process of us going and drumming up opportunities what what we have seen that gives us increased.
Optimism going forward is the increase in inbound requests that we're receiving for information on these services as well, which I think kind of leads to your second part of the question that relates to the pricing pressure on us.
The labor market challenges in the labor market are really the driver here and.
And so where pricing was probably the number one concern.
Let's say 24 months ago right now the driver is less continue to make sure that the cash is coming into the facility and so the pricing pressure that we may have seen a couple of years ago is not is not as prevalent today. However, we are optimistic that as we continue to be successful with our conversion to off.
Sure that will be able to capture more opportunities because we will be more competitive at scale with the offshore operations.
Okay, and then I'm going to sneak in one last one.
<unk>.
How would you think about deployment of capital as the business accelerates and deployment of <unk>.
Accelerating cash as the business itself as you've got some debt on the balance sheet, but you're also talking about M&A would love to hear you talk about capital deployment priorities.
Yes, so George.
I love the way that each question his practice, but this is my last question, but.
When it comes to capital allocation, we really haven't changed our thought process on that so much at the end of the day. The decision on capital allocation is going to be determined by what the alternative set looks like right. So repaying debt and an inflationary economy does become.
Obviously a bit more.
A bit more attractive to us but at the same time, we still think that there are lots of opportunities to continue to grow Inorganically and we think theres still some investment opportunities to make inside of the company.
So I know that's a bit of a non answer answer but going forward, it's really hard to.
To state with specificity not knowing what the what the what the alternatives are going to be out there, yes, the only thing I would add.
I'm sorry, George the only thing I would add on top of that.
There is probably.
Might be a little more aggressiveness as it relates to that internal investment and see where there are opportunities for us to continue to drive.
The different parts of the business that we see opportunity in and call out there is obviously.
The EHR market is not our growth opportunity by itself is historically.
Everybody has thought about it but it is the foundation for $400 million worth of opportunity in that cross sell market and so we've got to remain vigilant and delivering that value back to that customer set so they remain our customers and we have that connection relationship in place and so we're going to be more aggressive as we look at.
To Matt's point, we've got to we've got to weigh the different options and make sure the returns there, but but but looking to make sure that as there are options for us are all opportunities for us to put more back into the product that we're going to be doing so.
And to follow up on that if we did have to give some sort of general prioritization I would say that reinvesting back in the business would be priority number. One again, we do think there are inorganic opportunities there so to the extent that the valuations makes sense and it fits from a product strategy and from a service delivery.
Standpoint.
Inorganic growth through M&A would certainly be another opportunity that we'd look at now all of that being said, we want to make sure that we protect and defend the financial health of our balance sheet.
We will maintain.
Our our target leverage ratio of two five times that we've set a few years ago, and we've stuck pretty diligently too.
Alright, guys I appreciate your humour me thanks a lot.
Thank you George.
And our next question comes from the line of Stephanie Davis with <unk> Securities. Please proceed with your question.
Hi, guys. Thanks for taking my question on that.
Stephanie.
I left you guys and Youre, an EHR company now urea cycle company y.
Hey.
So maybe let's dig in there a little bit further.
Talk to me about why these businesses are still together you've got one hyper growth company. It sounds like you found a lot of debate.
Is it <unk>.
Capital needs that keeps it together is it the cross sell up why do we not think it's funny to that yes.
Yeah.
First of all welcome back.
Obviously wait wait.
We enjoyed have enjoyed the glad to have you back.
I would say you hit the nail on the head with the second one.
One we have let me back up beyond that obviously, we've had a rich tradition, serving this traditionally underserved market in the rural health Rural and community Health care.
So we have we have been in that business since 1979.
We do see obviously the growth for the company going forward is predominantly being RCM, but we don't want to leave those routes and so it does provide an opportunity for us to continue to.
Help serve that segment of the market more holistically. So not only are we providing a quality and value product on the EHR front, but also being able to deliver in RCM and patient engagement and other services going forward.
So I guess that question tomorrow could.
Can we dig a little bit deeper and see what sort of products would be valuable to cross sell both take care.
<unk> base as well as bad cycle clients outside of your bank.
I think about M&A.
Okay, I'm, sorry, I wasn't following until that last little part I would say that we are.
If you look at our most recent M&A.
Transactions, it's kind of a nice little nod to how we're thinking about pulling pulling opportunities in HRC is obviously, a consolidation play with a pure service company with almost like for like services that <unk> already offered and then you go one more back in you see true code, which.
Was a strategic partner of ours for five years, but delivered and had a technology that our customers need.
And also one that we can leverage on the <unk> side. So what I would say if we're if we're looking at the suite of <unk> services Holistically that area from a tech standpoint would be on the front end.
We're pretty good from the middle all the way to the yen, where I think we may have some opportunity is looking at the very front end now obviously you couple that with what we're what we're getting excited about from a get real health standpoint in the digital front door. There. So that's.
M&A plus.
Internal investment opportunity.
Competing against each other.
And is that alright last one I promise. This is my real last one looking at you George.
You started talking about scaling up offshore and that makes a lot of sense I think that your revenue cycle business, but have you thought about any AI tool with our robotic process automation tools that could also improve upon your cost structure beyond just geography.
100% and.
It's a tail very similar to the offshore initiative.
We started we started in earnest or AI or.
Bringing in RP.
At the same time, we started with the offshore processes.
Remember, we're not we're not the biggest company in the world and so we've got to be mindful about execution and what it is that we can take on and remain focused and so we feel like we've got our hands around the offshore initiative really nicely now and see that scaling out over the coming years and so we're really turning our efforts to that.
AI initiative that we started we have a team and internal team that is dedicated to building bots for lack of a better term specifically focused on the RCM transactional work that we can deploy into the services that we have and so the hope is is that as <unk>.
We continue to execute on that through 2023 that will be we'll see numbers very similar to what we've seen from an offshore perspective, which is what gives us a lot of confidence into that returning to the 20% EBITDA margin.
In the end of 2024.
Stephanie.
Were obviously fairly excited about the opportunity for offshore, especially seem how how early we are in the development of that that lever for margin optimization.
But we're equally excited about the potential for automation and frankly were probably a little bit earlier in the game there than we are on the automation side, we still have a lot of business processes within <unk> that need to be streamlined and consolidated to make them good candidates for automation.
We've got a lot of right the ship internally process wise to do to really take advantage of those opportunities, but they are there.
We're very early in that ball game right now.
Second hand, it off thanks.
As all of us.
Thank you Stephanie.
There are no further questions at this time I would like to turn the floor back over to Chris for any closing comments.
Absolutely. Thanks again for everybody joining today and for your continued interest in Cps side I Hope everybody has a wonderful week and Matt happy.
Happy Valentine's day body.
Yes.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Okay.
Yes.
Yes.