TruBridge, Inc.

Good morning and welcome to the True Bridge third 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 now 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 joining us this morning. As many of you know, we're on a journey. Today, I'm pleased to report that we've reached some of those first milestones we've hoped to achieve. We feel really good about the progress we've made so far in our trajectory as we head into the final months of the year. Before I jump in, I'd like to highlight that going forward, we will now refer to our RCM business as financial health and our EHR and patient engagement business as patient care. Bookings in the third quarter remain strong, building on the trends from the first half of the year and marking our fourth consecutive quarter with more than $20 million in total bookings. Our financial health revenue growth is solid on an organic basis, excluding Bugle. Financial health revenue grew 5%, and our core CBO business is up by double digits in the quarter. Adjusted EBITDA also increased, and margins continue to expand sequentially, coming in at 16.5% this quarter. And finally, our cash flow from operations is roughly $22 million year-to-date, an improvement of almost $9 million compared to last year. As I reflect on what we've accomplished in the third quarter, I'll highlight progress on our integration of Bugle, momentum and interest for our interest solution, and updates to our analytics offering. We've made steady progress on our integration of the Bugle acquisition, and as of the end of the quarter, we have more than 30% of our CBO and EBO customers now supported by our team in India. Through the end of the year, we will monitor and adjust the operations around this first wave of customers. By the end of 2025, we expect to double the number of customers that are supported by our workforce in India to 60%. In addition, to accommodate the increased customer transitions, we will have more than 500 employees in India by the end of this year and nearly 700 by the end of 2025 supporting our CBO clients. While we are pleased with our progress so far this year, we remain laser focused on stabilizing the operations and expect to yield significant margin improvement in 2025. I recently visited our office in India with other members of management to meet with our newest team members. Our goals for this trip were to build excitement about being part of TrueBridge, celebrate our success to date, and align on what's next. India is a very competitive market for talent, so it's important that our new team members are engaged, view themselves as part of a larger team, and clearly see how they directly impact and contribute to our success. I'm proud to say that our integration efforts have helped us to maintain a lower than average employee attrition rate in India. Moving on to Entrust, our integrated financial health and patient care solution, We continue to gain traction in the market, and our customer count now stands at 78 clients, up nearly 30% year over year, and signaling our success in these efforts. In the quarter, we added one net new client and closed five contracts with existing patient care clients. As we look at our success in the year so far, we are selling at a faster pace in 2024 with 22 sales year to date compared to 18 for the entirety of last year. Our interest sales are not all created equal. Remember that the contract value is based on the volume of each facility, and we are focusing our efforts on getting more customers onto this solution, and we anticipate some variation in revenue as we continue to sign the new contracts. We touched on our analytics offering earlier this year when it was launched, and as an update, we're pleased with the uptake so far. Today, our offerings leverages customers' data to provide insights on how they can better run their businesses. Early users have benefited from dashboards that are making it easier for them to improve clinical outcomes with their chronic care population, and our solutions have identified bottlenecks in the revenue cycle, allowing our clients to address root cause problems to reduce collection times. This has added value to the existing installed base gives potential EHR customers another reason to buy, and enhances the experience with our RCM solutions. We launched analytics in the second quarter and continue to invest and gain interest with our sales and our marketing efforts. Early feedback from customers has been tremendous, and we believe this opportunity will contribute to our revenue growth over the next few years. Before I turn the call over to Vinay, I'll spend a few minutes on changes to our board of directors and our management team. Last month, we announced that Denise Horne will be stepping down off of our board to pursue the role of chairman of Brookdale Senior Living. I want to take this opportunity to publicly thank Denise and express how much we have enjoyed working alongside her for many years. We wish her the best in all her new endeavors. To fill her seat, we announced the election of Amy O'Keefe to our board. Amy brings invaluable financial and operational expertise to TrueBridge. Her appointment reaffirms our commitment to building a strong, engaged board to guide us towards our next stage. From an executive leadership perspective, we are elevating the roles of our business unit general managers, making it so they will now report directly to me. When I assumed the role of CEO two years ago, we purposely evolved and expanded the scope of our two business units and feel this is a natural time to make this transition. In the beginning, we felt they could benefit from the additional support of a COO, and David Dye took on the responsibility to guide and develop them. We have been planning for this transition for some time now and feel that the GMs have evolved and are ready to take this step. The role of COO will be eliminated on December 31st, but David will remain a member of our board until his term is completed next year. David has made a true impact on our company over the past 34 years and is a key factor in us getting to where we are today. In a world where everything is measured and scored, it is next to impossible to truly measure the impact David has had on our organization. I've had the pleasure to work for him and with him for most of my tenure. I will cherish his leadership, his mentorship, and his friendship that he has shown, and he will truly be missed. I'm proud of our team's continued progress this quarter. We've delivered consistent results, building on the momentum from the first half of our year. Our focus on our financial health business continues to drive growth, and we're seeing encouraging traction with our interest solutions. The strength of our bookings and our pipeline gives us confidence in our outlook for the remainder of the year and beyond. As always, I want to thank our dedicated employees for their hard work and our customers for their continued trust in TrueBridge. We look forward to closing out 2024 on a strong note and carrying this positive momentum into the new year. With that, I'll turn it over to Vinay.

Thank you, Chris, and thank you all for joining our call this morning. Today I'm going to update you on the financial initiatives we have been working on, run through the third quarter results, and close by discussing guidance for the rest of the year. Our third quarter financial results continue to demonstrate the strength of our underlying business and the progress we are making against our financial objectives. Our first priority was to improve cash flows and working capital management. We continued to make progress in this area in the third quarter. In Q3, we generated $10.1 million of cash flow from operations, an improvement of $7 million versus the prior year. This brings our year-to-date total to $21.8 million versus $13.3 million in the first three quarters of last year. Our accounts receivable balance is down 5% sequentially, and DSOs continue to improve consistently and are down approximately eight days from quarter one. Second, we are optimizing the business and expanding profitability. We made meaningful progress on this front. We successfully completed the cost rationalization actions identified in Q2 24 with a reduction of expenses by $5 million this year, beginning in April, which equates to approximately $8 million of savings on a full year basis. Further, we continue to focus on expense management, including labor and vendors. This includes steps in transitioning the RCM offshore services, balancing the savings and customer satisfaction. As a result, our adjusted EBITDA margin has increased to 16.5% this quarter, an improvement of approximately 470 basis points compared to the prior year and 165 basis points sequentially. Third, we are increasing the quality of our reported earnings. The percent of capitalized software in the quarter was 5.2%, down 190 basis points compared to prior year, and 63 basis points since the first quarter. Year to date, up to Q3, total capitalized software was $13.7 million and $4 million lower than previous year, primarily driven by sunsetting centric and other lower return on investment projects. We are also focused on rationalizing our real estate footprint. In October 2024, we sold some real estate in Mobile, Alabama for $2.8 million gross with net proceeds of $2.5 million. As of the end of third quarter, we show it as assets held for sale. Finally, our fourth priority was to improve our forecasting and accounting processes. It's been a few quarters and I certainly feel we are improving as an organization with additional processes, increased accountability, and monthly reviews of results. Since the second quarter, we have identified two material weaknesses in our internal controls reported in our 10Qs. We have robust plans in action for remediating them and have added new members and external advisors to our finance team. There has been no material impact on our financial statements and we expect the controls to be effective in the next few quarters. Now turning to the third quarter review, we delivered solid results demonstrating our continued cost discipline as well as operational initiatives to further enhance our global capabilities and infrastructure. Bookings in the third quarter were $21 million, an increase of 40% versus the prior year. Taking a closer look at the growth, financial health bookings increased 38% driven by growth in core RCM, CBO, and vehicle, and patient care bookings increased 43%, primarily driven by growth in add-on sales from our existing customer base. The total bookings were $68 million, an increase of 22% versus the previous year, mainly due to the bookings growth in core RCM and patient care. Moving down the P&L, revenue of $83.8 million in the quarter was up just over 1% compared to last year. The divestiture of AST in January of this year and the impact from sunsetting Centric by year-end was offset by the positive contributions from Google, which we acquired in the fourth quarter of last year. Excluding AST and Centric, revenue in the quarter was up 9% year-over-year. Financial health revenue, including bugle, of $54.3 million represented 65% of total revenue and was up approximately 17% compared to the prior year. Excluding bugle, financial health organic revenue grew 5.3%, primarily driven by double-digit growth in our core CBO offerings. Patient care revenue of $29.6 million decreased 18% compared to last year, primarily due to the contributions from AST and Centric, which accounted for approximately $6 million net impact in the quarter. The efficiencies we are realizing in operations, labor, and spending discipline are all becoming apparent, as we saw notable improvement in gross margin for both financial health and patient care. Total gross margins of 49.5% increased to 50 basis points compared to last year. Financial health gross margins of 46.2% compared favorably to 41.7% last year, an increase of 450 basis points driven primarily by bugle and increased revenue growth. We are also starting to see positive impact on margins from the global workforce as we transition and stabilize the work offshore. Patient care gross margins of 55.4% was also approximately 160 basis points year over year benefiting from cost rationalization including work and additional cost actions taken in 2024. Total reported operating expenses of 39.5 million in the third quarter represented 47.1% of revenue compared to 53.3% a year ago. The decrease is due to reduction in product development, sales and marketing and G&A primarily driven by divestiture of AST, 2024 cost actions, lower non-recurring expenses like severance and enhanced expense management, partially offset by increased expenses from Google. Adjusted EBITDA in the quarter of 13.8 million increased 42% compared to last year. Adjusted EBITDA margin in the third quarter of 16.5% showed a consistent improvement from 11.4% in the first quarter and 14.8% in the second quarter, driven primarily by increased revenue and financial health in both core products in Google and 2024 cost actions. Moving on to the balance sheet, we ended the quarter with $8.6 million in cash, up $0.9 million sequentially, and nearly $5 million since the beginning of the year. This increase is a direct result of our intense focus on cash management and process improvements we have implemented since the start of the year. Total net debt at the end of the quarter was $168 million, and during the quarter, we paid down another $3 million of principal on our debt, bringing the total year-to-date payments of $20 million. Our leverage ratio has been declining in the past nine months and is currently in the mid-threes. We reiterate our goal of getting it down to the range of 2.5 to three times through adjusted EBITDA and potential debt repayments. Finally, turning to guidance. For the fourth quarter, we expect revenue to be between $83.5 and $85.5 million and adjusted EBITDA between $13.5 and $14.5 million. With this guidance, we are narrowing our full-year revenue guidance range to $335 to $337 million and adjusted EBITDA to $49 to $50 million, which is at the higher end of our previous guidance of $45 million to $50 million. The midpoint of the Q4 ranges implies the adjusted EBITDA margin of 16.5%, almost flat to Q3-24. This is driven by a slight uptick expected in our GNA expenses due to increased costs for remediation of internal control weaknesses and additional costs as we step our efforts to collect age receivables, as demonstrated by our improvement in free cash flows. We believe both items are short-term in nature and anticipate these expenses return to a more normalized level by mid-2025. In conclusion, I'm pleased with our third quarter results and especially the continuous improvement in the following metrics. Bookings exceeding 20 million for the fourth consecutive quarter. Financial health revenue growth of 16.5% shows continuous improvement each quarter. Year-on-year growth in financial health organic revenue, which excludes vehicle, was 5.3% and continues to improve each quarter. Adjusted EBITDA margins continue to expand over the course of the year as we anticipated, from 11.4% in Q1 to 16.5% in Q3. Cash flow from operations of $21.8 million year-to-date improved $8.5 million versus prior year, and $20 million in total year-to-date debt repayment incremental to normal amortizations. We have also made notable progress as an organization implementing financial rigor. There is still more work to do, but I feel we are laying the foundation this year to deliver predictable and sustainable growth. With that, let's open the call to questions. Julian.