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.