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spk00: Welcome to the NextGen Healthcare Fiscal 2024 First Quarter Results Conference Call. Hosting the call today from NextGen are David Seitz, President and Chief Executive Officer, and Jamie Arnold, Chief Financial Officer. Today's call is being recorded. All lines have been placed in a listen-only mode. The floor will be open for questions following the presentation. If you'd like to ask a question at that time, please press star, then the number one on your telephone keypad. And if at any point your question has been answered, you may remove yourself from the queue by pressing star 2. We ask that you please pick up your handset to allow for optimal sound quality. Lastly, if you require operator assistance, please press star 0. At this time, I'd like to turn the call over to James Hammerschmidt, Senior Vice President of Finance and Investor Relations of NextGen. James, you may begin.
spk04: Thank you, operator. Before we start, please note that we will be making forward-looking statements during the presentation and Q&A part of the call. These statements are based on management's current expectations and assumptions and are subject to risks and uncertainties. Facts that may cause actual results to materially differ from expectations are detailed in our earnings release and SEC filings. This call will also reference certain non-GAAP financial measures. Information about non-GAAP financial measures, including reconciliations to U.S. GAAP, can be found in our earnings release, which is available on our investor relations website. At this time, I'd like to turn the call over to our president and CEO, David Sides.
spk09: Thank you, James, and welcome, everyone, to our fiscal 2024 first quarter earnings call. I'm pleased to report solid top and bottom line results to start the new fiscal year. Building on the momentum created during fiscal 2023, the company executed across all fronts and is well positioned to deliver double digit revenue growth, create operating leverage, and demonstrate effective capital management. This quarter was a testament to the strength of our business and the investments we've made to position the company for future growth. We're living our mission as the partner and trusted advisor to the practices we serve, which create strong retention, the right to cross-sell solutions, and net new client wins. Our integrated platform is clearly differentiated in the market and meaningfully addresses client concerns related to financial sustainability, position experience, interoperability, and staffing constraints. The commercial team continues to execute well. Our value proposition when serving attractive markets such as behavioral health and integrated care is clearly resonating. given 28% of our overall bookings came from net new clients with flagship wins in the space. The foundation to Crossbell's success is ensuring our clients are leveraging the latest offerings we have, and I'm pleased to announce that the majority of our provider clients are on the latest and secure certified version of our product, and we have a clear line of sight to closing out the remainder. Because we were the first and remain a leader in this transition, we believe that positions thus well further accelerate surround solution adoption and scale. Our existing clients continue to adopt our surround solutions, which helps them optimize their financial performance and clinical outcomes, resulting in a clear return on investment and high growth across our diverse recurring revenue streams. We saw strong momentum in patient volumes, which led to higher demand in the quarter than originally planned in our transaction and data revenue line, specifically our patient pay offerings. This is a great example where we've created an integrated experience for our clients, leveraging our top-ranked practice management system in partnership with a leading payer in the payment space. And finally, we saw acceleration in our business model transition, shifting from a license and maintenance-based model to a subscription managed service or transaction-based model, which best aligns with how we deliver value to our clients today. This transition continues to lessen our exposure to the lumpiness that comes with perpetual software licenses, which we've modeled a ramp down aligned with what we saw in the first quarter. Now I'd like to cover the progress we're making as we invest in innovation. I mentioned in our last call that we're continuing to invest and create new organic solutions in several areas, such as data and analytics, interoperability, and value-based care, which is key to delivering on our growth agenda. We've made good progress over the quarter in advancing all these initiatives. We continue our investment in the Enterprise Data Cloud in partnership with AWS and Snowflake to deliver a broad set of data solutions to our customers. Working with them, we've started to unlock the value of our clients' data along a few dimensions, including the ability to access and visualize clinical data for those using health quality measures. we found through our advanced practice intelligence and benchmarking capabilities that next-gen customers outperformed the national average in 27 of 32 CMS clinical quality measures. This is just one of many opportunities we have to leverage our core platform and help clients thrive as broader reimbursement models evolve. We completed several deals this last quarter with pharma and life sciences companies to support advanced clinical research studies. which expands beyond our current data partnerships. Working with our clients and partners, we're excited about the potential to open the aperture to include new specialties with a focus on high-value research studies. I'm also excited for the opportunity we see in interoperability, specifically in supporting global clients who also have scaled needs. We are now GDPR compliant, which gives us the ability to market leading solutions like MirthConnect for use in over 40 countries. And finally, touching on value-based care, we have been partnering with clients seeking to achieve superior quality and financial outcomes when participating in ACOs and other alternative payment models. We believe the ability to deliver insights at the point of care through the provider's current system of use remains a differentiating capability for enabling providers to take on risk. That's why I'm excited to announce that for the 2024 CMS enrollment period, We've successfully enrolled approximately 200 providers in Medicare Shared Savings ACOs, representing nearly 30,000 attributed lives. These providers are using NextGen's leading population health analytics solutions and wraparound services to improve care quality and generate significant savings. Now turning to scale in our journey to deliver operating leverage. We see opportunity to further optimize our operating model, ensuring we have the right capabilities in place to deliver growth at scale for years to come. Focusing on cost of sales, we've made investments in the past to support the Cures Upgrades effort and deliver growth in professional services. As we near the end of the upgrade cycle and fall into a predictable service cadence, we have plans in place to reduce our reliance on third-party staff augmentation, optimize our own billable utilization, and redeploy upgrade resources to new value creation initiatives. These actions will start to be apparent in the back half of our fiscal year as our cost of sales as a percentage of revenue supporting maintenance, professional services, and managed services begins to moderate. Looking at operating expense, we've always been buff on how we invest in growth-oriented functions like R&D, sales, and marketing, while rationalizing our G&A expense. We've evolved our product development group to a more modern, agile model which should improve delivery speed and quality while also maximizing capacity without significantly growing the organization. We continue to leverage sales development representatives to improve our client acquisition costs with higher lead to sales conversions on a more favorable cost basis. And when looking at the back office function, we've been investing in systems and automation to even further streamline how we support the business going forward. We also aim to improve the leverage we get from the vendors and strategic partners we work with. One I want to call out is our collaboration with Amazon Web Services, as we successfully transitioned our colo operations for next-gen office into a secure and extensible AWS environment back in May of this calendar year. We see potential to expand partnerships like this beyond the product and into the commercial setting, taking advantage of their marketplace, and bringing offerings into new segments and geographies where these partners already have an established channel. I want to close by providing an update on the GSI acquisition. The integration's on track, and our unified sales and marketing team had a great start to the year. We exceeded our first quarter sales targets, and we're excited for the opportunity to get in front of even more clients as we plan to host over 200 attendees at our Leaders in Rheumatology conference. but we will deepen our relationships with new and prospective clients and partners. What's exciting about the acquisition is it further strengthens our position in the health data arena. In collaboration with our NextGen Insights team, we're actively pursuing new and expanded agreements with health data partners, which will drive future revenue growth at an attractive margin. And with that, I'd like to turn the call over to Jamie to provide an update on the financials. Jamie?
spk07: Thank you, David. Now turning to the first quarter results. Total bookings came in at $38.9 million, roughly flat year over year. Recurring bookings increased 7% as our bookings mix shifted towards higher value recurring revenue streams, which aligns with the comments David made earlier on our business model transition. There were four transactions greater than $1 million and a quarter And as a reminder, bookings represent the annual contract value excluding renewals. Total revenue for the quarter was $178.2 million, a 16% increase year-over-year on an as-reported basis, and a 13% increase year-over-year on a pro forma basis. That is, excluding the historical contribution of TSI pre- and post-acquisition, and the commercial dental assets we divested in July 2022. Recurring revenue of $163.4 million grew 17% and accounted for 92% of total revenue. Subscription services revenue of $52.5 million grew 23%. Transaction and data services revenue of $37.6 million grew 38%. and managed services revenue of $34.8 million grew 13%. The growth was fueled by a combination of revenue from the acquisition of TSI plus the acceleration of organic solutions. Non-recurring revenue for the quarter was $14.8 million, a 10% increase compared to the same quarter last year. Software revenue of $5 million was down year over year. and under the six-quarter trend, but in line with the longer-term trend and in line with our internal plan. Professional services revenue of $9.9 million grew 34% as we continued to work down the backlog to bring new customers live, and there was also a benefit from closing fixed-fee contracts, which resulted in a one-time uplift. Looking forward to the next quarter, we expect revenue to be flattish sequentially, due to one fewer business days and one-time benefit in services revenue. Gross margin of 44.8% was down approximately 300 basis points compared to the same quarter last year. As discussed on last quarter's earnings call, we have made significant investment in our upgrade center of excellence and professional services, as well as a shift in product mix. Margin improvement will continue to be a focus and spend related to the upgrade center of excellence and services transformation should start to moderate towards the end of fiscal 24. Turning to operating expenses, net R&D expense was $20.9 million for the quarter. This is a 4% decrease compared to the same quarter last year, which included several one-time pull-forward investments. SG&A of $48.2 million decreased by 2% compared to the same quarter last year. On a GAAP basis, earnings per share was $0.09 compared to $0.02 in the same quarter last year. On a non-GAAP basis, earnings per share was $0.24 compared to $0.16 in the same quarter last year. Our non-GAAP tax rate for the quarter was 21%. Turning to the balance sheet, we ended the quarter with $226 million in cash, cash equivalents, and marketable securities, and we had no balance outstanding on our line of credit. Free cash flow for the quarter was a negative $16.8 million and was impacted by payments for TSI customer financing sales arrangements, annual bonus, and convertible debt interest payment. We expect free cash flow to be negative next quarter due to the DOJ settlement and then return to a more normalized cash flow conversion rate for the remainder of the year. We did not repurchase shares in the quarter and have 74.3 million remaining on the current share repurchase authorization. Turning to our full year fiscal 2024 financial guidance, as noted in the press release, we are raising the bottom end of our revenue range based on the solid start to the year. We now expect total revenue to be in the range of 714 million to 722 million. Our adjusted EBITDA and non-GAAP EPS guidance remains unchanged. And now, let me turn the call back to David for closing comments.
spk09: Thank you, Jamie. NextGen continues to execute with a focus on driving growth for both us and our clients who are making the investments required to deliver long-term profitability and scale. Our overall positive outlook reflects the tailwinds we created by solely focusing on ambulatory care a resilient business model, and our focus on driving shareholder value. I want to close by thanking the 2,700 mission-driven team members and thousands of clients I've had the opportunity to work with on a regular basis. They are the champions behind our success and the foundation to making our equation for sustained growth and operating leverage work. And with that, I'll turn the call back to the operator to open up for questions. Operator?
spk00: Thank you. At this time, if you'd like to ask a question, please press the star and 1 on your touchstone phone. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question. We'll pause for a moment to allow questions to queue. Our first question will come from Jeff Guerra with Stevens.
spk08: Yeah, good afternoon. Thanks for taking the questions. Appreciate the comments on bookings and giving that recurring bookings metric. That's quite helpful. I want to ask further on the demand environment. Any color that you would give on the current level of sales activity in the quarter, how your win rate is tracking, and where the pipeline sits currently?
spk09: Thanks, Jeff. So it was a good quarter from a sales perspective, from a SaaS, especially from a SaaS perspective. You probably saw that we went down some in perpetual, which is expected. We expect it long term to kind of go down or trend down as we really are pushing SaaS for all new clients. The environment's still good. So our pipeline looks good for this quarter, looks good for the year, looks good for continued growth, you know, a little up and down. But otherwise, from a buyer's perspective, we're feeling pretty good.
spk08: Got it. That helps. Then I wanted to ask on the profitability side of things, any further comments on – gross margins. You had some helpful comments around the timing, but maybe you could help parse out how much of the recent high window gross margins is attributable to revenue mix. Specifically, you have some strength in that transactional and data services line where presumably you have some partners in some of the areas, and then how much can be attributed to that implementation work to get clients upgraded on that CURES version ahead of that looming regulatory deadline. Thanks.
spk07: Jeff, I would say it's probably split about evenly, the headwinds between the two factors you talked about. Clearly, we're very happy with the increase in the transactional and data services, but it does come with a lower margin. But it becomes a very sticky solution and helps round out the issues the solutions our customers are acquiring. And we did see, you know, continued increased spend in the upgrade center of excellence and a little bit of increased spend on the services line. So the combination of those two are probably about half of the gross margin add-in.
spk08: Great. Thanks. I'll hop back in the queue. Thank you.
spk00: Thank you. Our next question will come from Jack Wallace with Guggenheim Securities.
spk03: Hey, good evening. Thanks for taking my questions. You've got a couple of follow-ups on the bookings in the quarter. Was there any impact? Have you seen any impact in the office space since the data leak? And then also, you know, with the upgrades going on, has that had any impact just from a timing standpoint of some of the surround updates
spk09: upgrades and add-ons just in any other color there be great thank you I think so from the office we did see some softness in the base so ironically outside the base so getting new clients no change but in the base saw some softness that started to already recover so we're expecting that to be back to our normal steady state in this in this current quarter On the surround, not seeing really an impact, so the surround's still doing well for us. We should see a lot of the, you know, final clients get live on the Cures Edition this quarter, by October. It should set us up, we think, well in that, you know, a lot of synergies could come through that. For example, when somebody calls support, we know what version they're on. When the salesperson calls a client, they know what version they're on. So it sets up some things for us that we think are helpful from that perspective, as well as just adding on to the last question a little bit. In the second half of this year, you'll see us start to ramp down that upgrade center of excellence, and you'll see improvements on the gross margin as well. as those really good people are redeployed to other parts of our business, hopefully into more billable roles going forward. But that will gradually go down, and we're excited to keep all that great talent that we've built up here going forward.
spk03: Great. That's helpful. And then can you just comment on how the M&A pipeline has changed since last quarter and just your thoughts around your private market valuations?
spk09: I think the private market valuations are continuing to improve, at least from a buyer perspective, from our perspective, especially if the Fed continues to raise rates. I think one of the things that people haven't factored in maybe to the rates that we've thought about a lot are the cost of health care coming through later this year in insurance premiums. I think they're going to be high, and it'll set a higher floor. So we'll see how that feeds in through next year. But at the same time, you know, we'd be a beneficiary of that in that our providers do better from some of that higher payments coming through. Yeah. It's an interesting market, and I say all that just to say, you know, this may not be the last great increase if health care spend, you know, if increases come through at 8 or 10%. And those increases are helping bring private market valuations closer to public, so we like those new prices. It also takes out some of the competition for the assets that we like from private equity because they're financing it with debt and we're financing it with cash. So we have cash on the balance sheet to do what we want. and are still seeing good opportunities out there and have a good team that's working on M&A focused on it. So like the pipeline that we see right now.
spk03: That's helpful. Thank you.
spk00: Thank you. Our next question will come from Sean Dodge with RBC Capital Markets.
spk05: Yep, thanks. Good afternoon. Maybe just coming back to the gross margins one more time. David, you said – Those should begin to moderate later in the year, spend on the upgraded center lines down. When we think about how much and how quick gross margins improve, I guess do you see a path back to the low 50s like we saw in years past, or was that just helped a lot by license sales? And Jamie's point, I think, around revenue mix just makes that a little bit tougher to achieve.
spk07: Yeah, Sean, this is Jamie. I would say that the payout to 50 is a little longer. We do expect to see, as David said, we expect to see the margins start to increase in the back half of this year. But the payout to 50 is going to take a bit longer and particularly will be enhanced later. When I think about the insights, the revenue that will be generated in insights will be higher margin revenue and will help to lift the overall corporate margin. I think the next-gen enterprise is probably going to settle in at its current level. gross margin. It'll pick up a little bit over time, but not dramatically. I think the bigger improvement comes as MSI's revenue starts to pick up. And we identified that a year ago as starting to produce meaningful contribution in 25 and 26.
spk05: Okay. Great. That's very helpful. On the bookings, is there any more color you can share on the $39 million you signed in the quarter? Was that in line with plan? Were there any kind of pushes or pulls, anything that slipped or was pulled ahead from adjacent quarters? And then maybe give us a sense of the kind of cadence you need there in order to achieve the guidance for the year. Is $39 a quarter good enough, or do you need something a little bit higher than that going forward?
spk09: We need something higher than that going forward. Certainly for – especially when you think out until 25. I mean, we've kind of talked about that before when we're in the first quarter. The first quarter does feed into Q3 and Q4. But once we get to the third quarter, you're really talking about the following year. And it's the beauty of our recurring business model is 91%. Like, we have really good visibility. So people are like, how do you know that you're – You have confidence around your kind of revenue forecast. It's because it's so recurring in nature. But we need better than 39 in Q2. You know, the current forecast looks better than that, so we're not nervous about that. But you're starting, when you get into Q3, really setting up for 25. So this quarter was good. Next quarter should be better. We feel good still about the year. And the latter half of this year's bookings will really be about how do we continue the growth at double digits in 25.
spk05: Okay. Great. Thanks again. Thanks.
spk00: Thank you. Our next question comes from with Truist Securities.
spk02: Thank you, and thanks for taking my questions. I actually want to double-click on the data you shared around 200 providers and 30,000 attributed lives for 2024 CMS enrollment in MSSP and ACO products. A few questions there. First, how many of these 200 providers were your existing clients versus clients who are working with you just on value-based care or these MSSP solutions? And second, maybe can you dig a little bit deeper on the key differentiation you guys have in your solutions compared to several other vendors out there doing like single value-based care solutions?
spk09: Thanks, Jalendra. So they're all existing clients. So everyone we've targeted so far has been existing. And what we're bringing is we're bringing them the tech and the technology and insights integrated into the workflow so that they can actually achieve those savings without having to do a lot of work, right? And what I mean by that is so all of our population health applications and analytics, we bring that kind of face-up in the application as they're going through the a clinical encounter with a patient, we're telling them, you need to check the following things to get the outcomes that will generate the better shared savings. So that's what differentiates us. Some places are taking lots of tech and then putting it together. We're able to bring all of our tech to it. and bring with that some of the clinical change support. And importantly, too, I point out that we have a proven model here. So when you've seen us put out press releases with some of our clients that are generating $100 million in shared savings, we're learning from those clients, and we're learning together, and we're further refining our models to do better in this construct.
spk02: It's kind of related to that. I think there was a proposal a couple of weeks back from CMS around some changes to the program. And I know it might be a little early, but just curious if you had any early conversation with any provider clients, because it seems like CMS expects more participation and more lives to be attributed because of those changes. Just curious, like, have you heard anything in the last couple of weeks or so?
spk09: We haven't heard anything in the last couple of weeks. We still have time to sign up more providers, so we're optimistic that this won't be the final number that we end up at. But we haven't heard it come through the marketplace yet from those changes.
spk02: Okay. And one last one. On the free cash flow trend, I think you talked about that. So just any guidance you can provide for the year, like any number, just to make sure we are in the ballpark?
spk07: No, we tried to share that, you know, for next quarter we're expecting it to be negative because of the cash payment. It's almost $33 million went out on the cash payment related to the DOJ issue. And so obviously that will be negative. I believe afterwards we will expect cash conversions. In the back half of the year, and I think of it as probably 50% of EBITDA, it will give you a pretty good target area.
spk06: But for the year, still generating free cash flow on the entire year, limited free cash flow for the entire year.
spk02: All right, guys. Thanks a lot.
spk00: Thank you. As a quick reminder, if you'd like to ask a question, that is star 1. Our next question comes from Jessica DeSant with Piper Sandler.
spk01: Hi, thank you guys for taking the question. So I have a few more bookings-related ones. Hopefully you can bear with me. So are the majority of the 72% of bookings from existing customers coming from customers who are upgrading to spring 21? And if so, just is the completion of that upgrade cycle going to moderate the volume of existing customer bookings, or are you seeing kind of same-store sales in the months and years subsequent to the upgrade?
spk09: So, I mean, the 72% are from the base, and now the majority of the base is on the Cures Edition. So, I guess it stands to reason that that's where, you know, but it's not because of the Cures Act Edition, you know, kind of absence or presence that's driving the bookings, probably. It's just do they need these things. From an implementation perspective, it's certainly getting easier that almost everyone's on the Cures Edition. So when implementation goes to Jack, it's whatever it is, you can put it on this. Where I think probably two years ago without that, there were some newer surround solutions that required that. That's pretty much, you know, all there now. So there's no – there's less work to do to implement at this point because people are all on, you know, most clients are on the same release at this point.
spk01: Got it. So just the booking from existing customers, those are kind of coming through irrespective of the status of the upgrade and should continue to.
spk09: Yes, I think so.
spk01: Got it. And then just in the ambulatory market kind of broadly, do you have any sense of what practices are now 2015 cures update compliant? And what does that mean for just net new bookings prospects? Basically, does a recent update or compliance with the 2015 cures update mean that a competitive client would be, you know, harder to convert? Or is that kind of a neutral factor or irrelevant to competitive conversion?
spk09: I think it's, for somebody, if they're not on it, I think it's a positive for us in that you know, if you're not on it, we could get you live by the deadline still. So we'd be happy to take any of those clients through the conversion process to get them live in time. So that is still good for us, and I think that's mainly a problem on the lower ends. Most of our larger practice competitors are certified by now. Though if they're not upgraded, you know, we'd still offer them an opportunity to come to NextGen. So, yeah. But if they're already on an addition, you know, we could still get them to come to NextGen or not. But the ones that aren't, I think there's still, you know, probably some movement to happen there in the market.
spk01: Got it. And so then would you expect kind of the mix of bookings or just the pace of bookings from net new customers to moderate, or that should remain the same? strong despite the market generally having upgraded to be compliant.
spk09: Yeah, I think it stays strong. Like you've seen, we've been very consistent around 25%. We did a little bit better this quarter at 28%, but it's consistent. And the nice part about those clients is they're bringing a lot of applications and surround solutions at once, always hosted. So another way of saying that is they're buying everything, and it makes them sticky. So the part that we like about that is we see the more, you know, like most things, the more – Solutions we get installed, the stickier they become. And then new clients that are coming to us are buying everything at once, so they're sticky from the start, which if you think about our phase, they may have started somewhere 10 years ago. We've been moving them along over time. It's nice that our sales process is mature enough to sell everything at once and create a very sticky client right from the start.
spk01: Got it. That's really helpful. And my final one would just be, are the providers that you all have signed so far for MSSP, are those providers who are already participating? And if so, what were they using previously to support their participation in MSSP? Thanks again.
spk09: Yeah, it's a good question. So, thanks, Jessica. Most of them are new to the MSSP process, but we did have some conversions from competitors that aren't our normal competitors, right? So it's not like we converted them from Epic or Athena or whoever, we converted them from that different class of competitor that is still yet to prove out the profitability of their business model. The way we're looking at it, we're trying to create a profitable business model right from the start with the very first 200 providers. It's one of the differentiated ways we're going to market is that we're not spending It's going to be profitable from the start. Let me just say that. We're not spending tons of money to make an unprofitable business model. We would rather move it to size and scale for our providers, and we think there's a lot of movement here. But we're moving over time profitable from the start.
spk01: Thanks again.
spk00: Thank you. And there are no additional questions at this time. I'd like to now turn the conference over to Mr. David Sides for any closing remarks.
spk09: Thank you all for joining the conference and the conference call. We really look forward to talking to you again in the fall, in October for our next call, and potentially for Investor Day in November. So I appreciate everyone's interest, and we'll talk to you soon. Thanks.
spk00: Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect.
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