Q1 2023 Computer Programs and Systems Inc Earnings Call
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Greetings and welcome to the C. P. S. <unk> first quarter 2023 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 as a reminder, this conference is being recorded at this time I will turn the call over to drew Anderson.
Thank you good morning, and welcome to the CBS side first quarter 2023 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 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 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 actual 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-K.
The company also cautions investors that the forward looking information provided in this call represents their outlook only as of this date and they 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 Chris Fowler, President and Chief Executive Officer. Please go ahead Sir.
Thank you drew.
Good morning to everyone and thank you for joining the call with us today.
I'm pleased to be reporting a solid start to the year with the first quarter with the first quarter performance.
Well to achieve our full year expectations.
First quarter revenue of $86 2 million came in slightly ahead of what we anticipated and was driven by our RCM business, which represented 56% of total revenue in the quarter.
Our EHR revenue was up just a tick on a year over year basis, which supports our previously stated belief that 2023 will be the year. This portion of our business stabilizes after absorbing the end of meaningful use subsidies to our customers in transitioning to a SaaS contracts both of which we believe are largely behind us.
Our adjusted EBITDA for the quarter of $14 6 million was also in line with our expectations on.
On the bookings front earlier this year, we outlined how we continue to migrate to an RCM focused business and I'm thrilled to report that this quarter, our RCM bookings were up 41% year over year.
This is important not only as a proof point that our shift to RCM is underway, but also because of the increased quality of these bookings RCM bookings equate to one full years worth of revenue versus EHR bookings, which come in ratably over the course of the contract which is typically five years.
To use a simplified example, RCM bookings of $1 million is worth $1 billion in revenue annually, whereas a $1 million bookings order for EHR equates to $200000 per year of revenue for a five year contract.
Bottom line, while total bookings growth year over year, its fairly flat the higher quality RCM bookings growth grew meaningfully and will translate into the company's ability to achieve our goal of double digit growth by 2024.
Digging a bit deeper on the RCM bookings, 47% was a result of cross selling our RCM solution into our large and loyal EHR customer base and.
And the majority of these cases, the customer knows they need an RCM solution and choosing to move forward with Cps side as their provider is an easy one given the existing relationship.
We signed nearly $2 million entrust contract, which entrust, which bundles together, our full RCM services, along with our EHR solutions with.
The $2 million contract was for four hospitals with one of our longest standing and largest EHR partners. This continues to represent a meaningful opportunity for us with the dollar amount of cross sell bookings in the quarter being just a small percentage of the $400 million in annual revenue cross sell opportunities.
The remaining 53% of our RCM bookings in the quarter came from new opportunities of particular note, we signed a roughly $1 million deal for full business office outsourcing, which we label as DBO or central business Office services, where we will be working alongside another EHR vendor.
Another good reminder, that RCM solutions are vendor agnostic and can be utilized by customers with a wide range of existing EHR solutions.
While our bookings are still relatively lumpy throughout the year and highly dependent on timing, we have a very strong RCM pipeline more than doubling from a year ago and our outperformance in the first quarter further reassures us of our ability to deliver on our full year outlook.
Taking a step back from the numbers in the first quarter, we filled several senior positions inside the organization, including two new sales leaders heading up our RCM and patient engagement sales teams deepening our breadth and experience across the organization.
These individuals come to Cps side with extensive industry experience and strong backgrounds. We see this as another step towards reinvigorating CPA side from the top down.
We look forward to integrating these new team members and seeing their contributions in the organization over the coming months.
Last week, we hosted our National client conference in Orlando, and while we're not quite back to pre Covid levels. We did see an increase in attendance. This year were nearly 700 EHR customers joined us in Florida.
C suite attendant doubling to an all time high.
I believe this turn out reflects our focus and investment on building partnerships and bolstering our relations with our customers with that took over as CEO .
Our client conference also represents another great opportunity to highlight the value of our RCM solution can bring to our existing EHR customers with workforce issues still prevalent and budget type for rural hospitals attending events like this aren't easy for our customers and are genuinely appreciate everyone, who was able to participate.
This quarter's financial results were straight down the middle of the fairway and have set us on the right foot for 2023.
Our current position in the market our current momentum in our RCM business and growing success in our cross selling efforts and our improvements in customer retention positions us well to achieve our annual guidance.
Before turning the call over to Matt I want to sincerely. Thank all of our team members for their hard work and dedication to our mission and welcome all of the new team members into the fold with that I'll look forward to updating you all on our progress throughout the year and I'll now turn the call over to Matt for a review of the numbers Matt.
Thanks, Chris and thank you all for your continued interest as Chris shared our first quarter was largely in line with our expectations and I will provide some additional details on the results.
Outpatient revenue from our RCM clients was $3 billion this quarter up five 3% year over year, marking the first time, we've reached the $3 billion threshold.
Next while total bookings of $21 million were relatively flat year over year as Chris shared the real story is that RCM bookings grew 41% with cross selling efforts, making up 47% of total RCM bookings.
Turning to the income statement first quarter revenue of $86 $2 million increased 11% compared to $77 $9 million last year.
RCM contributed $48 $6 million, representing 56% of total revenue EHR was $35 $2 million and patient engagement made up the remaining $2 $4 million.
Our gross margins of 49% for the first quarter decreased 300 basis points year over year as a result of our revenue mix shifts were a more service oriented RCM offerings gained traction.
We believe that our offshoring initiative will be able to offset potential gross margin declines from mixed shifts once we're at scale for.
For the rest of 2023, we see overall gross margins staying at around 49% before increasing to 50% in the fourth quarter as we reach scale in offshore and the EHR business shows modest but sustained improvement.
Our operating expenses as a percentage of revenue were 41% in the quarter, which is relatively consistent with last year.
Adjusted EBITDA of $14 $6 million decreased by $1 $5 million year over year.
The year over year decline was primarily a result of elevated benefits cost and recent investments to both generate and accommodate growth.
Specific areas of growth investments include our ongoing Azure migration investments in marketing and branding to bring Cps side to the forefront of the RCM space and building out the internal infrastructure necessary to accommodate continued growth of our RCM services business.
Turning to the rest of the financials operating cash flows for the quarter were $9 5 million.
As I mentioned last quarter, our relatively low cash flow at the end of 2022 was a direct result of collections related timing issues associated with the integration of our recent acquisition.
We're trending in the right direction in regards to our progress on these issues and we continue to anticipate full resolution in the second quarter.
Finally, I'll conclude my remarks officially by reiterating our 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 50 $963 million.
As it relates to adjusted EBITDA, a friendly reminder, that the second quarter gets an extra dose of Opex Chris.
Chris mentioned, our National client conference, which was held in May and Thats, good for limited and the incremental $1 million to $1 $2 million of Opex, resulting in the second quarter adjusted EBITDA being down sequentially from the first quarter.
Okay.
From a full year perspective, adjusted EBITDA, we will see a skew towards the second half of this year roughly 46% in the first half and 54% in the back half due to our globalization efforts.
Finally, an update on our offshoring progress we started the year with 100 offshore team members in RCM and as of the close of the first quarter. We were at 146 and remain on track to hit our goal of 400 by the end of this year.
All of these factors are included in our full year guidance.
To closeout remarks today, we are pleased with this inline quarter and feel comfortable about our position for the remainder of the year. Thank you all for joining us and continuing to follow along as we evolve this business, we'd now like to open the call to your questions Karen.
Thank you ladies and gentlemen, the floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time again Thats Star. One if you do have a question or comment please hold as we poll for questions.
And we will take our first question from Stephanie Davis from SBB. Please go ahead Stephanie.
Hey, guys. Thanks for taking my questions I've got a few on the Rev cycle business is that that ramps up.
So first one just when we think about the bookings it does convert to revenues rather quickly.
Can you.
Can you help us understand the cadence of your Rev cycle bookings.
The mix of Rev cycle becomes data will we see more smoothing versus the historical Lumpiness, we saw with your larger license sales.
Wow.
First of all good morning, Stephanie Thanks for joining us so early.
Sure.
I wish I had a great answer for that question, but I think time is going to tell on that.
What we're focused on right now is obviously fill them off the top of the pipeline and we're really excited about what we're seeing coming in both in our cross sell.
And our EHS EHR cohort and also on the net new side I do think that we're still going to see decisions be dependent on the buyer very much to the way we do on the EHR side. So.
The only thing I can say that's going to create that smoothness is us just having that that very healthy steady flow in from the top which again, we're very much focused on and we're continuing to see that really build up so I would say that's something that we'll wait and see.
But that would be my thought about how we can how we could see that kind of lay out a little bit better.
Well, maybe let's frame that bookings question, a little bit differently.
3 billion of net patient revenue now added this quarter.
What sort of Onboarding capacity have you built out per year.
So the our ability to onboard as.
As obviously set at the beginning of the year, we look at it from as were doing the planning on the budget and what we set out what we're going to do from a sales perspective, we make sure that our operations team has bought in so when we think about what we're going to what we're going to need to book throughout the year to hit the number and then build into the next year operations in lockstep with that.
As we see these numbers come in across the year. We're in good shape now as we see that demand tick up we're going to continue to expand our operations to be able to capitalize that and thats why the move to the offshore.
To the global market is such an important part of that.
This process so.
Yes.
And Stephanie part of the part of the answer there on the capacity that we have to bring customers live with RCM solutions. It gets right back into our planning over the next couple of years.
<unk> tells nicely with what we mentioned on the last earnings call. The expectation that we will resume double digit growth by the fourth quarter of 2024.
In order to achieve that we think that we need to we need to.
Convert.
$85 million worth of bookings into revenues over the next.
Seven quarters, or so and so that's kind of the cadence if you would take us to do that quick math and look at where bookings came in this quarter youll see that that capacity is there, it's where we are right now.
And while I've had a chance to what Matt was talking to think a little bit more about to your question.
Part of this to Stephanie is just the.
Starting a difference in the size of the opportunities that we see in the two different cohorts from our from our EHR portion those the average booking sizes roughly $500000.
And when we move into the into the net new where we're looking at the other EHR.
The opportunities could be anywhere from several hundred thousands of dollars to multiple million dollar deals. So there is a wide swing in those which we don't have a ton of visibility until we start seeing those opportunities come in and so I think there's always going to be some level of lumpiness based on that by itself, but again I think as.
As we see more opportunities come into the pipeline I think it will start to we will see that steady slow off the block.
That's super helpful. And then the last one I have just on the EHR business. So it doesn't feel left out.
Last quarter, you were talking about him in person high touch approach with their clients. So I'd love an update on that and I'd love to hear a little bit more about the the key pinpoint your customers that you bring it up.
Yeah. So.
We continue to we continue to move through our scaled agile model.
Which.
Along with the rollout of our new role of decline executive where we're seeing much more.
In person engaged opportunities with our customers, Obviously star client conference last week was another.
A good opportunity for us to get in front of our customers.
So that is definitely leading to a higher level of engagement, which is also leading to a higher level of satisfaction.
We saw a 30.
<unk>, 30% increase in our NPS for our EHR from 2022 to the first quarter of 2023.
And feel really good about the direction that we're trending there.
I would say from a.
What are the pain points for our hospitals.
Staffing and that's on all fronts. Unfortunately thats.
For the providers for the nurses for the lab.
<unk> for the business office for.
Dietary it's every position that they are that they've gotten their hospital that theyre struggling with.
I think the shift to <unk>.
Say value based care.
And it's much more for our hospitals on the EHR front, it's much more of the shift to the Medicare advantage plan.
So so.
Macro that say payer complexities.
That is now they are seeing a little bit more pressure on the collections to be able to get the dollars in that they need to operate their facilities. So I would say those are the two the two biggest pain points is that access to talent and Thats again any position in the facility and then just the collection of $1 based on <unk>.
<unk>.
That landscape is changing.
Got you fair enough and taking my question.
Thanks, Stephanie and have a great day.
Okay.
Thank you and we will take our next question from Jeff <unk> from Stephens. Please go ahead Jeff.
Yes. Good morning, guys. Thanks for taking the questions wanted to ask a little more on the National client conference great to hear on attendance. There and you also just mentioned a great data point on NPS improvement. So I imagine that gives you the the leeway to spend some time walking through the benefits of an agreement.
The EHR with RCM software and services when you have all of those clients together, but I'm curious how.
Time was spent at the National client conference in how much youre able to translate that improve client satisfaction into spending time on the cross selling opportunity.
Yes, absolutely.
First of all good morning, Thanks, Jeff.
<unk>.
There's really two aspects to this one we want to make sure that our customers are using and leveraging our EHR to its best benefit for them. So that is actually a tool and not a hindrance to what it is that their mission is and that is providing basic care and so a great amount of the folk.
And energy is.
The enablement of the software that's available some education opportunities for them to actually see it in progress.
Lives and also be able to see what other applications are out there that that they may not be using right now to make there to make their facility run a little better obviously all of that leads to hopefully a happier customer right and so if they're happy with the EHR when theyre looking when they have other.
Issues I E. The RCM that we feel like it's a natural turn for them to look to us to be able to deliver that so very much a step one make them happy with the EHR make sure. They understand all of the investments and all the improvements we are putting into that front and then secondly, it's making sure that.
They understand how we can fold the RCM into that so it's a little it's very much education upfront.
Not so much of a hard sell.
But we feel like that with the relationship that we have built over so many years with these customers that continuing to show them. The benefit of CSI <unk> total is the net is a net winner of the week.
Makes sense.
I also wanted to ask about the $2 million entrust deal that was signed in the quarter.
Just curious for more details there on the background and kind of the how and why now how long does it take for that to play out and what ultimately drove the decision there to go with that model.
Yes. So this one actually it took a little bit of time I want to say.
Right around six months what was the was the.
The length of time to close the deal and it's.
Physician to one.
For hospital, four maybe five hospitals.
And they made an acquisition of a hospital that was not on Cps side and it started with a let's consolidate to a single system, which turned into a system search. So we went to war not just for the RCM business, but also to keep the EHR at those four.
I think the.
The final factor was the fact that we were able to couple those together and the fact that there was no.
Again, the fact that the EHR as part of the RCM service, meaning that it is a percentage of collections was very.
It was very exciting to this organization that we were fully fully aligned with success in that than them operating in adopting the EHR and using it successfully and us collecting on their dollars successfully all led to both of us being satisfied with their relationship.
Great Great to hear the two sides of the business working well together there one last one for me I wanted to ask about the <unk> pipeline you had some positive comments there, but also now you have some some tough comps coming in the rest of the year on the cross sell side of things. So maybe you could discuss the the integration with <unk> that I know.
Kind of ongoing and going well so far and also the new leaders that you helped bring into build that pipeline and then help convert it to sales.
Yes.
Again, you are right, we do have some tough comps coming up but.
But hopefully that's the hard work that we're putting in and have been putting in over the last several months that we're going to see that pay off of that.
Again, what we're excited about is the diversity and the size of the deals that we're seeing come into the pipeline and I think some of that is definitely us being able to leverage their relationships that they are.
<unk> sales team also that the new sales leader in the approach there about just being a little more scientific and systematic in the approach.
And again on the on the EHR front. We now have 31 sales team members that are focused on our customer base versus 14 that we had.
Exiting last year and so there is that transition.
Of those those team members getting up to speed with their customers and their relationships and that handoff process, but that's something that we're seeing that we think will be coming through that out of out of this quarter and so when you put all those things together it starts to feel like.
The excitement that we see in the pipeline and the excitement that we see around the work that the team is doing that doesn't show up in the pipeline really translates into a nice back half of the year.
Excellent great to hear thanks, again for taking the questions.
You bet, thanks for being with US This morning, Jeff.
As a reminder, that star one if you do have a question or comment.
And our next question comes from George Hill from Deutsche.
Deutsche Bank. Please go ahead.
Yes, good morning, Chris and Matt and thanks for taking the questions I guess I've got a few myself.
First one I think about it as the offshoring initiatives and I guess I'd love to know how you guys think about the execution risk there and kind of how you're managing around that.
Yeah Super Good question good morning, George.
This has been something we've been working on for the last 18 months.
And knowing that there was a tremendous amount of risk on a lot of fronts.
As it related to this initiative, we wanted to be Super thoughtful and how we stepped into the dose and so our operations team led by Pat Murphy was very intentional.
One identifying the workflows that we were comfortable moving offshore and two being very thoughtful and the partners that we selected to do that work and so it was an 18 month build to get to this 100 employees offshore.
If you think about it the really long time.
Think about the size and scale of some of the offshore.
Vendors that are out there providing this work they have.
And thousands of employees that we could turn the switch et cetera employee then six eight months.
And so I would say.
All that to say that we knew that there was risk we wanted to make sure that more than anything.
We did not put in jeopardy, the service that we're providing and the relationships that we've created with our customers and so again being very intentional over that 18 month period to feel confident about one the workflows that we've now chosen to do offshore and to the partners that we've selected to perform that work. So that now we feel comp.
In ramping this up.
Okay. That's helpful.
My second one is kind of like what I would call almost an accounting question I noticed that the RCM.
You've got the RCM pipeline growth, which is very strong <unk> revenue growth, which is in the 20% category yet the NPR growth seems to be a more modest call. It kind of mid to high single digit range can you help me bridge the gap between the revenue growth.
NPL growth figures.
Yes, so some of the revenue growth that we've seen year over year has been influenced by acquisition.
The NPS or the NPR numbers, which he quoted for the first quarter of 2022.
Those are as of the end of the quarter.
So yes.
Probably the biggest factors in some of that NPS was acquired.
No.
Pretty helpful.
With two more.
I'm sorry.
And George the other thing I was going to call outs, when we measure NPR, we're measuring MBR for only that CBO.
We would call it the full business office outsourcing solutions and in the past, but now that the central billing office solution. It's just that.
For our end to end revenue cycle management service offerings. So it is not inclusive of things like the true bridge RCM.
Subscription software product that is a part of <unk> not inclusive of trucost either since the slices of that outsourcing business nothing modular it's got to be the bulk of it.
No.
That makes sense and I, probably should have known that two more quick ones is number one you guys highlighted a pretty strong EMR retention figure is there any reason that we should expect any change in that.
Yes, I mean, no no real expectation there, Jim and frankly, we we stated that our target has been 95%. So far this year things have been kind of outperforming our expectations.
And the EHR business has been a positive surprise for us on the retention side for probably the last 18 months.
So while we may stick to our conservative roots in.
Stay at that 95% target for the full year.
We don't see any we don't see any material headwinds developing on the retention side of the EHR business, which is a positive yes.
George.
It goes back to we knew that that cohort was a big part of us converting on this on this RCM transformation and really being able to get to that $400 million.
So we've invested a lot of time money effort into the status fraction of that customer base and I think it's paying off so I think theyre getting and I think thats I.
I think the other part is just a macro commentary on the EHR market in general that I think the customer base out there is really looking at it and saying Hey, I've got some other things that I could probably spend money on that would deliver a higher return.
And then switching ehr's, so while that's very positive for us in the retention. It obviously plays against us a little bit and seeing that business grow in the back end, which is why we've reflected the growth or lack thereof of the EHR going forward like we have.
And I know we've mentioned a couple of times on this call, but it's worth reiterating as many times as we can.
So although the P&L is mostly driven by what's happening in the RCM business.
Protecting that EHR customer base, and keeping that customer base happy is critical to the growth story for the RCM business.
As Chris mentioned in his.
In his earlier comments happy customers with high NPS scores are great cross sell target and that's what we're shooting for.
Yes.
That's super helpful.
No.
I was looking at my questions, because I think you kind of tick them all off.
Between Stephanie and Jeff in your extremely commentary, so although I'll pause there.
Thanks, a lot George.
And that was our last question I'd like to turn the floor back to Mr. <unk> for closing remarks.
Thanks, Karen and.
Thanks, everybody for joining us this morning, and hope you have a wonderful rest of your Tuesday, and look forward to staying in touch and reporting on how we continue to progress as we go forward have a great day.
Thank you ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a great day.
Yeah.