TruBridge, Inc.

Good afternoon, and welcome to the TrueBridge second quarter 2024 earnings conference call. Leading today's call are Chris Fowler, President and Chief Executive Officer, and Vinay Bassey, 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 turn the call over to Mr. Chris Fowler, President and Chief Executive Officer. Please go ahead, sir.

Thank you, Drew, and thank you to everyone for joining us today. I'm pleased to report that our second quarter saw continued bookings momentum, strong revenue performance, EBITDA margin expansion, dramatic improvement in cash flow from operations. Our total bookings for the quarter came in at $23.3 million, marking the third straight quarter over $20 million. At the first of the year, we said that we were cautiously optimistic about our sales momentum, and that continues to be the case. We have also talked about the two-step process for selling our RCM services, the first being educating the client about the virtues of outsourcing, and secondly, selling TrueBridge as the vendor. While still a bit anecdotal, we are seeing promising signs that the market is becoming more educated on outsourcing, thus allowing us to focus more on simply selling TrueBridge as their future partner. Looking deeper at our bookings, our integrated in-trust solution is resonating in the market. In the first half of the year, we saw a 60% increase in the number of new in-trust clients compared to the first half of 2023. Our fully integrated solution is better for our clients as the shared risk SaaS model eliminates the need to budget for new products, price increases, or ongoing maintenance payments, and is a benefit to TrueBridge as those clients represent a higher lifetime value for us and tend to be stickier over time. Our cross-selling efforts are bearing fruit with $7 million signed in the quarter. Several enterprise clients expanded their relationship with TrueBridge to include coding and additional billing and collecting opportunities, and current CBO clients added service lines like ambulatory billing, even in instances where they're not running our EHR. Importantly, at an increasing rate, our clients are turning to TrueBridge as their sole revenue cycle partner even when they're not yet ready to fully outsource. Last quarter, we spent time discussing the timing of our bookings to revenue conversion. While those larger deals can still take time to implement, we have seen the rate of conversion slightly decrease this quarter. We are laser-focused on accelerating the implementation of new contracts while being mindful of our customers' limitations and their time constraints. Much of the work Vinay and his team have done to increase visibility into how and when bookings convert to revenue has been a key piece in managing this figure. At this point in the year, we have over 90% of our projected 2024 revenue under contract, and based on our pipeline, we're optimistic the momentum in bookings will continue into the back half of the year. During the quarter, we also made progress on our offshoring initiative and saw early successes from our acquisition of UGLE. We saw sequential improvement in EBITDA during the quarter and feel confident that Bugle will achieve the $4.5 million adjusted EBITDA target for the year. At the end of Q2, 43% of our CBO and EBO operation is offshore compared to 25% at the end of Q1. During the conversion, we are maintaining overlapping staff to ensure a smooth transformation of service. In addition, We tend to staff new opportunities ahead of the anticipated contracts and expect these savings to ramp over the next few quarters. For these reasons, we remain confident in our long-term margin expansion, but believe that will be muted in the near term. As we stated last year, we did see some hiccups with our offshore partner, which spurred us on to the acquisition of our own captive offshore operation with Bugle. But some of last year's challenges with that offshore partner has translated into slightly lower retention this year. To counter this, we're doubling down on our client retention efforts and being more proactive by leveraging Bugle's extensive experience and best-in-class approach to customer management, specifically getting the domestic client management teams and offshore production teams aligned quickly and as smoothly as possible. We look to end the year on stable footing and continue to be optimistic about the delivery of the offshore staff. Vinay will provide an update on the progress he continues to make on our financial initiatives, but I would be remiss not to mention how pleased I am with the improvements he and his team have made thus far. Overall, this was a solid first half to our year, and I believe we're delivering sustainable results. While our transformation is still underway, we are pleased with the progress we have made in both of our business units. The rural and community market is still our focus, and we will continue to advance our products and services to keep care local. With that, I'll turn the call over to Vinay.

Thank you, Chris, and thank you all for joining us today to discuss our second quarter results. In addition to the strong operational performance that Chris just highlighted, we also made improvements to our financial operations. As Chris mentioned, we are working diligently to enhance our financial quality controls, and forecasting. In the second quarter, we saw some early indicators that our efforts are paying off. One of my first priorities was to improve our cash collection and management. To that end, as I mentioned last quarter, we added additional headcount and implemented a process of daily AR and weekly payables review. Although these are early results, The metrics are moving in the right direction. Accounts receivable is down 7.2% sequentially. Days sales outstanding are down approximately six days from Q1. At the same time, accounts payable increased just over $4 million as we are becoming more regimented, aligning with the terms of the contract. The next priority was getting the business to free cash flow from operations positive. in the second quarter we delivered positive 13.8 million of cash flow from operations primarily from improved working capital management and improved profitability looking forward it is our goal to remain free cash flow positive on year to date cash flow from operations is 11.7 million compared to 10.2 million in corresponding six months in 2023 On the P&L, we are focused on identifying efficiencies in an effort to improve profitability. We are on track to deliver the $5 million cost savings mentioned in the last earnings call in the year. The majority of actions have been initiated. We are continuously looking for areas to drive more efficiency in operations. In terms of improving the quality of our reported earnings, the percent of capitalized software in the quarter was 5.2% of revenue and down 50 basis points from last quarter. You will also see on our cash flow statement that our investments in software development has come in 3 million lower in the first two quarters this year compared to 2023. We are investing wisely with an ROI focus, and decline was primarily driven by sunsetting Centric and other low ROI projects. Lastly, looking forward, we are focused on improving our forecasting processes. We have been working to strengthen the partnership between the finance team and each business leader, and we have added a few experienced people to our FP&A team. We are building a monthly cadence of reviewing results, improving on key drivers for revenue and costs to help improving the forecasting process. I want to note that this won't be a quick fix, and I view it as an interactive multi-quarter journey. While all of these proof points are promising, there is still more room for improvement in these areas. Moving on to our second quarter results, starting from the top with bookings. Total bookings of 23.3 million in the second quarter was approximately 11% higher than last year, mainly from vehicle and increases in EHR by slightly offset by RCM. In this quarter, RCM had bookings of 13.5 million, including vehicle, with about 50% coming from our existing EHR install base, demonstrating the progress we are making on our cross-selling goals. EHR generated $9.8 million in bookings with over two-thirds coming from existing customers. We view this as a good sign that the customers are happy with the solutions and are willing to buy more from us. Revenue of $84.7 in the quarter was essentially flat compared to last year. The divestiture of AHC in January of this year and impact from sunsetting centric by year end was offset by the positive contributions from Weigel, which we acquired in the fourth quarter of last year. RCM revenue of $54.1 million accounted for approximately 64% of total revenue. Weigel performed in line with expectations. Total gross margin of 48.8% increased 100 basis points year over year. RCM gross margins of 44.1% in the quarter improved approximately 84 basis points compared to the prior year, primarily due to revenue seasonality and bugle. This margin expansion was partially muted by efforts to seamlessly transition to our global workforce. Additionally, EHR gross margins of 57.3% increased 350 basis points year-over-year driven by internal cost actions. Moving down the income statement, reported operating expenses represented 52.4% of total revenue in this quarter compared to 50.1% a year ago. While product development, sales and marketing, and G&A are all down versus prior years, the increase in operating expense was primarily driven by an accelerated amortization of capitalized software costs associated with our financial management application product in EHR, which was shut down in Q2 as part of cost efficiency efforts. All of these items led to an adjusted EBITDA of 12.6 million in the quarter, a 12% increase year-over-year, and 33% increase sequentially. Likewise, adjusted EBITDA margin of 14.8% in the quarter increased 150 basis points year-over-year and about 350 basis points sequentially. Some of the outperformance in the quarter can be attributed to revenue seasonality and timing of annual license revenue recognition. Sequentially, when combined, these factors accounted for about $2 million in revenue. Turning to the balance sheet, we ended the quarter with $7.7 million of cash and a net debt of $172.3 million. Operating cash flow was a positive $13.8 million in the quarter compared to a positive $0.7 million last year and a loss of $2 million in the first quarter of this year. In the quarter, we also paid an incremental $4 million of principal on our debt, bringing our first half repayment to $17 million. We reiterate our goal of getting it down to a range of two and a half to three times, mainly from improving adjusted EBITDA and potential debt repayments. My final topic is guidance. We are providing an outlook for the third quarter and maintaining our full year ranges. For the third quarter, we expect revenue between $82 and $85 million and adjusted EBITDA between $11.5 million to $13.5 million. i'd like to highlight that the third quarter adjusted ebitda benefits from the additional cost savings and lower than expected annual conference costs mentioned in the last earnings call offsets from some revenue seasonality and timing of license revenue recognition mentioned earlier for the full year we are reiterating our ranges and expect revenue to be between 330 million dollars to 340 million dollars and adjusted even that to be between 45 million dollars and 50 million dollars in conclusion i'm pleased with our second quarter results and the progress we have made in the first half of this year enhancing and improving our financial acumen based on the recent results the improving quality of our financials and our pipeline, I feel increasingly confident that we have a clear line of sight to achieve our 2024 targets and return to growth in the out years. With that, we'll open to questions.

We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your questions, simply press star 1 again. Thank you. Your first question comes from the line of Sarah James with Cantor Fitzgerald. Sarah, your line is now open.

Thank you, and congrats on a great quarter. It's nice to see the balance sheet improve on so many metrics. Can you talk a little bit about margin progression? So if we look at the 3Q guide and the implied 4Q, it looks like your EBITDA margin is ticking up at about 20 to 40 basis points a quarter. Is that a fair pacing of how we can think of improvement going forward? Or are there certain initiatives that could make it more lumpy as the company progresses towards their long-term guidance?

Yeah. Hey, Sarah, this is Chris. I'll start and let Vinay kind of fill in behind me. I think the big thing for us right now, and I called this out in my comments, was how we're thinking about the conversion to our offshore staff for our CBO operations. and making sure that we are being very intentional to protect the service and keep our retention levels at or above where they need to be. And so this year may see a little bit of a muted margin gain based on where we expect things to go forward. And with that, while we're pleased with what we're seeing, We still want to make sure that we're giving ourselves a little bit of grace to be able to get through the year to make sure that, again, customers are satisfied with this big step in our change in the way that we're delivering the service before we really kind of push the gas pedal on that. So I would say I would give us probably the next quarter or so to really kind of get a good sense of, as we see that continue to accelerate, what that's going to be. But, again, you know, along with that, and Vinay can jump in here as well, there are the continued savings initiatives that we continue to see really paying off and making sure that we are intentional about every dollar that we spend and making sure that it's going to the betterment of our customers or the betterment of our employees.

yeah and i would add uh echo that um sarah and that's a great question um especially um as i mentioned there was some seasonality and timing between q3 and q2 and q3 but by q4 we expect margin uh to improve a little bit more with incremental revenues which takes the benefit of last two three quarters that has been uh great for us but longer term as chris mentioned once i have a few more quarters understand the full drivers and have the process a little more I do expect our margins to continue improving because that's our goal. And it's a very simple way for me, a very laser-focused, tighter control on cost. and giving all the support needed to generate the white space as well as our home turf in rural healthcare to get increased bookings. So that benefit should start falling in. So my goal will be to once, like Chris said, have this quarter, one more quarter behind us and start seeing the regular improvement in margins.

And I'll end with this with that, Sarah. You know, we have said in quarters past, our expectation or desire to be back at a 20% plus margin from an EBITDA perspective. And I still think that that is well within striking distance and hopefully a waypoint, not a destination.

That's great. And one more, if I could. So we're starting to see a little bit of relief on hospital margins. And some of your peers have started talking about how that flows into sales pipeline. Could you give us an update on the financial health of your customer base and how that translates into demand for product expansion next year?

Yeah, you know, I would say our customer base is still a bit of a mixed bag, but, you know, has really felt the benefit, you know, still kind of carried over from some of the COVID relief over the last several years. and have given them the opportunity to really store some cash on hand. I think for us, you know, because the vast majority of our customers, especially on the EHR side, really have the full suite of products that we have delivered, whether that be through interest as they're going forward or through the past with meaningful use. And so what they're focused on right now is continued efficiency in operations. And I think that's where we're continuing to see the demand on the services side as much as we are from a product perspective.

Thank you. Thanks, Sarah.

Your next question comes from the line of Jeff Garrow with Stephens. Jeff, your line is now open.

Yeah, good afternoon. Thanks for taking the questions. And looking at the bookings results year to date, we see momentum for both segments of the business. So I wanted to ask, as you look out on the pipeline for the second half, whether you see the expectations for continued momentum biased towards one segment or the other in the back half of the year?

Hey, Jeff. Thanks for the question. It's a great one and something we obviously pay a lot of attention to. And if you go back to the end of last year, first of this year, maybe even before that, and we talked about the RCM side of the house really being where we saw the opportunity for growth. But to your point, we're seeing a bit of a renaissance in the EHR opportunities. I think it might be a little early for us to say that we think that that's a trend. But we are seeing where there is opportunity, especially when we think about the interest, the ability to couple the EHR with the RCM service, and that being a differentiator that, you know, there's still some vendors out there that we feel like are primed for replacement on the EHR side. We continue to enhance the experience for our customers there and invest. As Vinay said, we're being smarter about how we're spending those dollars to make sure that our customers are really getting the outsized return for that. And I think it's leading to some promising opportunities for us there. But going forward, I'd love to see both sides continue to compete for who's going to be the leader every quarter, because I think that's just a good thing for us. I do think that the world of opportunity is much bigger on the RCM side. So I think for us, it's about how we think about that continuing to expand while we're continuing to see the EHR come along nicely.

Excellent. Great to hear. Maybe follow up a little bit on the momentum for Entrust. Just curious if there's any particular driver you would call out there, whether it's recent regulatory rules being put out in the public domain, or you alluded a little bit to a competitive dynamic, and then also whether there's any kind of tailwind from, call it the final leg of trying to convert your own legacy EHR platforms to your more modern platform.

Yeah, I think there's a little bit of everything in there. I think if you look at our existing customer base, so our customers that are already on the EHR, I think the first thing is they have to believe that we're going to continue to be the right partner for them on the EHR. So it's super important for them to see the value in that, which really allows us to have a good seat at the table from an RCM standpoint, even though you know, they could look at us standalone if they were leaving us to go to another vendor. I do think that when they're, you know, at one, however we want to look at it, we're all TrueBridge, right? And so I think for that cohort, that cross-sell opportunity, them seeing the value in the EHR is super important. And so our investment and delivery there is top of the house. When we're thinking about the net new market, so a replacement more than likely, You know, I do think it is a differentiating value that we are the, you know, the lone wolf out there that can provide both the EHR and the RCM service together. And I think the fact that it's all at a contingent based on, you know, so their EHR is no longer a flat fee or a licensed purchase. It's based on the utilization at their hospital. It's based on our performance from a collection standpoint. So, our initiatives are aligned. as well as they can possibly be, and that our definitions of success match up. So I think, you know, those are really the two biggest things that we're seeing. You know, we're seeing that momentum on the EHR side with the continued investment in the product. We're seeing the ability to sell the two together to really kind of drive that opportunity for interest going forward.

Excellent. I appreciate those comments. And last one for me, do want to make sure to hit the demand side a little bit more on RCM. Last quarter, you told a nice story of the combination with Bugle being cited by one of the prospects that you were dialoguing with. So I'm curious whether that combination specifically or maybe your efforts on automation more generally are not just a margin driver but are also helping fuel the pipeline for future demand on the RCM side.

There's no doubt that our ability to deliver the service at a lower price point is absolutely getting us into more opportunities and also giving us a better right to win. We're just short of a 20% increase on our winning percentage year over year. And I think that's directly attributable to our ability to be, you know, while not every deal that we're in is competitive, when they are competitive, you know, it helps for us to be able to be at or better than the competition from a price standpoint, knowing that our delivery is going to be there. So, yeah, I still continue to be very optimistic about, you know, what that means for us going forward. I think, you know, we talked about in the past, we're just scratching the surface still. on the automation and how that shows up and translates into margin expansion. I think the fact that we're delivering quality analytics and insights to our customers today gives them belief that we're going to be able to actually execute on meaningful leverage of the artificial intelligence.

Excellent. Great to hear that data point on the win rate. Thanks again for taking the questions.

You bet. Thanks, Jeff.

Your next question comes from the line of Stephanie Davis with Barclays. Stephanie, your line is now open.

Hey, guys. Thanks for taking my question. Congrats on the quarter. So first off, I was hoping you can tell us about some broader trends. We've seen a lot of movement in the revenue cycle space across the past few months with some IPOs and takeouts. But I get you have a little bit of a different competitive backdrop. So could you give us a refresh if you're seeing anything different or any changes on the backdrop and how it could be impacting your forward?

Thanks for joining. Thanks for the nice comments.

I would say, and again, said this in the remarks, you know, what we're seeing is the market continuing to come closer to us, meaning that we're not having to knock the door down, for lack of a better term, when it relates to explaining why our hospitals need to be evaluating the outsource model. We do have a different market. Our customers are the, if they're not the number one, they're in the top three employers in the community that they serve. And so there are some dynamics from an employee headcount standpoint and economic development in the community, which has traditionally been a barrier for us. I would say that that If there was one thing that I've watched in either the on-site meetings that I've gone to or as I watch our sales team and see the feedback that they're getting on the opportunities, it's that those barriers and the willingness for our customers to have meaningful conversations about moving to an outsourced model just continue to grow. So I do think that as the months and quarters go on, we're just going to continue to see that expand. And so for us, it's about how do we make sure that we're built in a manner to capture that demand as it comes along. But I think that's the big trend is, you know, our hospitals, very similar to the larger market, is seeing this as a business decision that they've got to do so that they can be viable, financially viable, keep the doors open and keep the care in their communities.

So I guess a bit related one then for Vinay, because you are calling out kind of an improving demand and improving backdrop. When I think about this print and guidance versus the first few out of the gate, how much of this positivity is a function of improving demand, improving macro versus improvement in execution and getting a better handle on numbers going forward?

Stephanie, thanks for giving me the question. I just want to make sure I understand

Feel free to take all the credit.

No, no. Just to make sure I answered it right, so your question is more about how does the strong momentum in bookings translate into guidance?

Well, how has the strong momentum, how much of that is a function of improving backdrop versus some of the actions you guys have taken?

So I would say it's a function of both, because one is controllable, one is non-controllable. The controllable part that we have done is the focus on making sure the need from a customer delight, customer focus is there, and it is not about – see, growth for financial terms is not about just winning new bookings. It is stemming attrition. so it's it's that focus and making sure that touching the customer and and especially when we are going through the global workforce thing is is ensuring that that customer delight remains the focus so that to some extent is factored is also is reflected in the in in the revenues that we see and the the non-controllable of the market demand certainly is a tailwind that I expect to see in the near future and continued because as you know, we win a booking in a certain quarter and depending upon the complexities of the deal in the future quarters, I read those benefits. So that's why I'm more hopeful and that whatever is in our controllable continue to make wise investments, whether it's in the sales, in marketing, and investments that can help us increase our customer delight and yield that benefits when the revenue show up in the coming quarters.

Yeah, and I'll give you a great example just from this week. So earlier this week, I was in Arizona and California at some sales opportunities. And the California site, the catalyst was less than stellar operations. but also some regulatory changes in California around wage increases and minimum wage and what the impact is going to be for them. But before we were there, before we had given them any customer reference, they had already unsolicited made three or four calls to our customers to see how we were doing. And so to your point, our execution is always going to play a huge part in our ability to convert because as great as we can sell and have the best story and marketing material and sales staff, if we're not executing, if we don't have a referenceable customer base, then they're going to go somewhere else. So I think it's a little bit of both. I think there are the factors in the macro that are driving people to the market, but I definitely think our performance is going to be the thing that determines whether they pick us or not.

Looking forward to seeing the execution. Thanks, guys.

You bet. Thanks, Stephanie.

Your next question comes from the line of George Hill with Digibank.

George, your line is now open.

Hey, good evening, guys. Thanks for taking the question. I guess, Chris, on the EMR side of the business, I'd ask you quickly, like, how's the legacy base holding up? Because you talked about the sales pipeline and the C growth there is interesting. But, like, I guess what I'm kind of interested in, Vinay kind of made the comment on, like, holding on to the legacy base versus kind of what's new and available. I guess I would just like to hear you talk about the competitive environment. and the base. And then a quick follow-up would just be, as it relates to the provider side of the business, we're seeing a lot of, or the RevCycle side of the business, we're seeing a lot of growth in utilization in a lot of provider categories. Are you guys seeing the utilization strength flow through to both kind of volume and price and growth on the RCM side of the business? Thanks.

Okay, great. I'll try to, I may have to ask you to help me come back to some of that, but let me start with the first one. around the EHR business. I would say our retention, outside of the centric customer base, we're very pleased with how our retention and our stickiness in our customer base is holding up. We continue to make investments into the product to keep those customers happy and on the EHR and also So we are, you know, from a competitive standpoint, you know, I think I've said this in calls past, it seems like there is still a bit of a hangover as it relates to, you know, EHR spend, especially in our end of the market. You know, if it's not on fire, they're probably looking to invest that money elsewhere, whether it be the facility, whether it be in additional services or something there in the community. But we are, you know, they're our drivers. HDI-1 was something that we thought would be a catalyst for us in this year. It obviously got delayed into 2025. As there are regulatory impacts like that, we tend to see a pickup in our opportunities for EHR wins. So a couple of our retention rates that we've had this year with how we see kind of a favorable market going into next year, we continue to be optimistic about that part of the business. On the second side, as it relates to See, if I make sure I get this right, the provider volumes and utilization going up what I would say is, is that we're seeing our, our hospitals that are thriving. Are really starting to expand the services that they're providing. through their positions and seeing that utilization go up. I don't think it's any surprise to anybody that care is moving sort of outside of the four walls of the hospital. And so I think the smart hospitals are really making sure that they've got a strong physician network that's able to capture that, which again goes back to one of the rationales for us making the acquisition of Bugle last year was that we see the winds changing to where I think that there's going to be a big market and opportunity for us in the RCM space there. And we're seeing that kind of to play out through our customers today.

Thank you. That's helpful. You bet. Thank you, George.

There are no further questions at this time. I will now turn the conference back to Chris for closing remarks.

Chris?

Thank you, Mark. And thanks again to everybody for joining today. And thanks for your continued interest in TrueBridge. I'd also like to thank all of our employees who work hard every day. to make our clients successful and deliver quality healthcare to our communities. It's our privilege to work with some really wonderful clients and the amazing things that they do in the challenging environments that they're in. Everybody have a great evening. Talk to everyone soon. Bye-bye.