NXGN - Earnings call transcript Q1 2020 | Nextgen Healthcare, Inc.

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Operator

Welcome to the NextGen Healthcare Fiscal 2020 First Quarter Results Conference Call. Hosting the call today from NextGen are Rusty Frantz, President and Chief Executive Officer and Jamie Arnold, Chief Financial Officer. Today’s call is being recorded. All lines have been placed on listen-only mode and the floor will be opened for your questions following the presentation. [Operator Instructions]

the would this remind that relating call within meaning I comments that are to start, including products, the on laws, perspectives the made may of future anticipated we industry like limitations, Company’s everyone to the forward-looking and trends, Before without security plans, statements performance, federal include strategies. statements and set expressed cause forth in filings U.S. exist uncertainties differ to and others, public results those the that among in may risks forward-looking Company’s with these from Risks statements, including those materially the heading Commission, Factors Annual Securities the XX-K reports and Exchange including the XX-Q. on the discussion and recent under most Form the subsequent quarterly on Risk Company’s any Form in Report Any today. forward-looking statements speak as only of these The Company expressly disclaims any update statements. forward-looking intent to or obligation

Our earnings call contains remarks guidance, which measures. our non-GAAP include and both certain results financial today’s on

financial non-GAAP For the be a discussed most measures of in directly SEC we earnings our comparable release of or quarterly found the non-GAAP reconciliation filed also with measure website. the the is the qualitative each results, each used measure and can financial GAAP between financial financial earnings measure of posted GAAP that our within non-GAAP to to comparable provides differences guidance. descriptions was latest press Investors calculated This contained release have section our financial and measures our how and

to call NextGen. to over like the Mr. President turn I may you Sir, of would begin. and Frantz, At CEO this time, Rusty

Rusty Frantz

fiscal of joining XXXX. Healthcare’s this fourth me fiscal to NextGen Thank excuse you, thank everyone first FY to afternoon quarter operator. And quarter NextGen review to Healthcare’s us you – for review

earnings to to welcome However, before I I do, Jamie call. Arnold back like the would

full only I have discharged rehab personally weeks that call, and to ago on now, us Jamie hospitalized been professionally can at from was moment I am to of for to said both speed. so the what Jamie say has I back scary a only As eight a all facility last and grateful

now a ago our to revenue came quarter Bookings $X.XX Turning at same a million QX year our the to versus year. and EPS $X.XX. in nicely million compared of million, last for the million quarter in in to came $XXX.X non-GAAP In at $XX.X NextGen. $XX.X $XXX.X compared

quarter powder. Operating flow to and cash in million the as for generation continue our $X was our NextGen $XX storehouse cash free generated cash dry of expand flow capabilities million

are X% year-over-year expected we uplift bookings see While recognizable revenue. seeing expectations, our are which bookings, of bookings than having overall a perpetual on to a line an impact full in the performance we on smaller is becoming year excited with our percentage

Additionally, on the revenue our line, into challenges. larger last client from run has one of bookings year

to expected expect has year, XXXX client full we year into longer As had troubles revenue. into and from see recurring pressure financial our client this to top-line. we revenue this moved putting further no Unfortunately significant that turn we and operational on the see FY

will Jamie impacts in few the a minutes. dive deeper into

increased enable our both efficiency year As our production. increase and line benefit for of in the should $X.XX through nicely growth focus earnings our with expectations as revenue EPS, and came the on

or came XX Legacy retention right trailing maintenance XX% in level. our the over modeled at XXXX months FY at there

call, modeled retention move stated rate believe as the some and forward in we anticipate the we on our As is volatility last we appropriate. level

our our to deal growth. all-in cross-sell These into show larger support how over deals broader at and capabilities arrangements platform approach As are increased driving sizes continue and flow, to $XXX,XXX the clients QX bookings we continue in entered how look XX deal deal our quarter.

very From into gratified standpoint, by As and be accomplishments KLAS. the we earnings again achievements last since of once standout. satisfaction a are we call, to look recognized the number key a client events

providers. project were XX best-in-KLAS we awarded management for XX to February, for In

scores across organizations top analysis their updated greater Class XX providers. than recently, Just all that has ambulatory the announcing now NextGen

XX% measured providers XX among reporting fact, satisfaction, high our practice the all In most than large vendors. greater with clients of

very are proud by no resting this accomplishment We laurels. means of on our

In Voice revenue scores Client the Services our primarily cycle addition, Financial which include Enterprise our for we of Solutions results for our management recently internal received business.

completely reinvented some that We during and this part have transition. a the replatformed as benefit NextGen, well of great has as path risk

we to we positive change, emerge our As proud amazingly from clients. from very the are significant see feedback

from score promoter XX Financial year points XX.X. NextGen net Our up a rose Enterprise Services to ago, for

to responded our and clients progress Great likely services. fact, see resulting that they In the client XX% the to recommend our increases. of are satisfaction

XXX for market user dynamics, are was year get a and to June, together positive response We a needs our get continue XXX group. client where largest get good had feedback that some to of clients to we we It also but In twice bit feedback both our our performing discuss and improve. how areas can them. strategic on our identify key great of some to span with clients a we large discuss to to

of beneficial has groups better and than my user no the tenure one more this and before Every one exception. been was

performance. on few to to Enterprise April, expanding this release, very forward feedback With step to our have discuss I’d are Platform. in Turning capabilities, has the we and recent release released been seen uptake see NextGen In meaningful our another of starting release. the introductions. positive usability, we scalability a Client like Spring some our XXXX and clients

to announced our the major late strong part behavioral a we in enabling improving to forward part health a look release be we of step addition, of In of full health Health and our be Behavioral X.X, both mental a key in as May, country. Suite body

of and important to commercial capabilities increasingly building and and forward innovation this both our for healthcare this market. in opportunity growing out further ecosystem look part see We

both new analytics within continues see to of base, also market footprint. our success Our the in suite population NextGen in client but to

close our the the the illustrating that not can in critical in proud value but we others. fact, In ambulatory provide hospital another only care quarter, to broad were solution further in segment

well broad enabling increasingly success in as fee-per-service we capabilities both on arrangements. focus and to risk-based perform to and clients forward We to continue further look our

potential they also optimization. are to moving are success optimization with much services see long-term as as with from become our clients to starting desired replacement partner, a more a comfortable NextGen We

have signed up value-added to evolve line. in all processes a to that clinical, More on expand clients and come service ensure and as to and work come are We their hitting to non-recurring engagements of capability operational to cylinders. service the with show financial number continues this the begins on and

structure discussed of our Center. footprint investing notably, Bangalore a where evolving we Last in pulling couple some expand have quarter, in in we others. our we back to Development were and areas chosen our areas Most

going report through is very well. that ways are We that and pivot can it

there fully teams great momentum. staffed nearly and already our gaining have We

addition, The award received exceptional important short XXXX work Award for In in jury in India. the we are Awards – recently relatively an is span Zinnov Zinnov special a mention our market very companies in large, India a in very the some Dell, Mastercard. long and as the Samsung India it important amazing market tenured and along PayPal, recognized was be such to

employer broader This our recognition increases also for there work attractiveness great has of market, team the in an clients. works done team both the the has and us the validates that our done great but the

leaving back transition organization a we However, U.S. with in that To anyone a the smooth have Bangalore, soft restructuring across has we markets established ensure the this have we in also a pulled select and as end, bucket expansion landing.

a for turn into Now let Jamie? the dive numbers. me Jamie to

Jamie Arnold

on everyone and you Thank the to thank call. Rusty you,

Before want and thank ill. sent I who of I well on while numbers, to I wishes the all provide was you commentary notes

and During needed stay subsequent the positive my home, the much hospitals and provided brightened energy. at notes in recovery my spirits

learned a I weeks, have the healthcare lot eight Over last IT. healthcare and about

situation I I thank you feel of be almost be from back am team. the and a excited for support. NextGen to scary to fortunate fully and very your part recovered Again,

the year million Recurring Total decline X% and increase was with revenue offset with compared the period used flat of essentially managed and ago rest the a services, our was services. the expectations. largely of last subscription in compared by largely Harvey year. now story. to $XXX.X maintenance an to declined $XXX As in revenue for Paul in line of It same to say, million

same a the XX% prior of of million ago. XX% Recurring in compared of the year revenue revenue slightly revenues, Subscription higher $XX.X our X% increased the total to than quarter is year.

The patient due NGE revenue customers attrition CPI driven by increases. year-over-year partially decreased to legacy of $XX.X contracts offset by million growth SaaS X% and NGE support solutions, analytic our portal, maintenance in and and our was primarily new

$XX.X base contracts. revenue customer of calls, the entirely to due through to new as proposals Rusty Managed his decreased with we as noted X% RCM on million by driving customers. work challenge comments, as while customer a offset base, ago services previous penetration new in year remain to in new And our within leading the in compared almost RCM on referenced well we attrition focused

in offset the quarter are from was essentially million data services and Note Veradigm a to one-time EDI revenue in we last clients. signing a contract. largely had prior of year-over-year EDI the $XX as increase third-party to relative of revenue, benefit decline of XXXX quarter, data we flat FY with the by QX down

reduction or same quarter $XX.X year. X% million, Non-recurring a over the of revenue one-time last

of $X.X subscription. and X% declined and trend year-over-year license we’ve as noted, Rusty towards million licenses seen measurable Software hardware revenue from away and a

compared Non-recurring decreased services. engagements consulting million $X.X legacy ago, a by X% of to offset to lower service year analytics-related revenue due

to capitalized cost and direct on higher the basis. in the year-over-year to expenses costs of of goods of cost came to hosting operating Cost charging due million in of Bookings goods. $XX.X quarter, a sold personnel X% increased up transfer of and of at goods amortization development from

XX.X%. profit decrease declined along to the the of decline quarter in and million revenue. due modest X% And to COGS prior just compared XX.X% $XX.X year is discussed this Gross above to to declined with in margin gross

is $XX.X to ago. ago. lower cost well reduction operating of transfer savings primarily to as look R&D a compared year other and flat a COGS $XX.X expenses, our The above, million decrease as XX% the lower at cost, to of due of mentioned from cost is $XX.X initiatives. to was million a million due acquisition-related SG&A year cost Taking

of charge restructuring we $X.X primarily approximately in cost and research with more The workforce, as associated million of reduction development related X% our to India. resources within of to the transition is

we of which part the downsized also several charge. in restructuring, resulted facilities $XXX,XXX impairment the As

tax excess compensation. related fiscal IRS the tax a of The result XXXX XX.X of is and benefit benefit QX federal GAAP stock non-GAAP of Our XX%. to for for GAAP adjustments rate was QX benefits tax audit a tax rate with

non-GAAP XXXX, to a fiscal we use XX%. For will rate of year tax continue

compared $X.XX income on To a year GAAP comments ago. of QX our conclude EPS my statement, the $X.XX to

year-over-year. $X.XX decreased EPS non-GAAP for Our $X.XX of by QX

outstanding to agreement the in Turning revolving revolving balance the million $X million the and cash the with credit credit against down quarter we and our $X ended. paid against agreement. just in We equivalents, sheet, ended quarter $XX.X million

to XX days, XX days. were and two all from decrease a quarter our XX range the quarter, of days year last in of within DSOs expected last

$X.X Our was CapEx $X.X was excluding capitalized million. R&D capitalized million, R&D

To fiscal I outlook update will initial close call, the our for XXXX.

We $XXX expect and to managed the $XXX reflects revenue had areas. between between services million. in $XXX Previously, revenue $XXX to million to million. This million the software we be headwinds facing and are we expected be

share. to per starting $X.XX to growth we of Non-GAAP as year $X.XX share. $X.XX we between EPS see the in corporate the This loaded and is expected and benefits client was see previously of only terms be that now $X.XX Note to backward projects. current per are

Rusty. in I financial generally call first This I continued review will as QX plan the my quarter concludes on to and progress to the XXXX. performance am results. looking turn pleased in forward back am I our we with Overall, our of strategic execute fiscal

Rusty Frantz

Thanks, continuous Jamie. client the earnings, full our resulting satisfaction we bookings In continued improvements with impacts while we the capabilities gratified are year organizational not are for is with to the the we and solid progress summary, revenue organization making, to the performance and are pleased great and impacts delivering.

to confidence execute year forward in in towards operating growth leverage FY leading in throughout our mid goal high-single-digit and of progress have to to ability XXXX. significant to continued XXXX look FY our revenue We the

nation. life thankful my my wake the day for Jamie great I closing, client commitment wanted clinical teammate in have up and multiple folks back now a our the time. the friend to to outcomes the In that occasions base amazing edge most I in we express our scary gratitude have to brought every good in health across from in person important and following and back our

the amazing and making better, have friends know and the rewarding to more support all that accessible, We effort keep family enable affordable these great more at It’s to an that work practice. healthy, NextGen to the while honor and healthcare outcomes more we can productive. happy tirelessly caregivers, our

good. that We do are doing well, more are strives a and business doing constantly gratified welcomes to importantly but to

I to questions. it And now you. will up Thank open

Operator

question from first your the with comes [Operator Stanley. Please line Goldwasser Instructions] Morgan ahead. And of Ricky go

Alexa Desai

Ricky. okay? you hear actually me for is Can this Hi, in Alexa

Rusty Frantz

Yes.

Alexa Desai

Great.

larger of client kind wanted from – your booking the comments on So the loss to last unpack year. I

to So, went you said challenges. they operational

little what bit issues? about color could them? So, you give you notified with on more they a maybe was And… When these happening

Rusty Frantz

My confidential and it that, for issue is apologies, say in client. to a but that proprietary NextGen would that direction. caused I is this was the What go not this

The so, that had and $X they we we And give to this booking had to was million came we significant a annually expect into booking. take problems were solve their financial as about reason year. going or

point, and conservative, so month is so, are that our is came not from not to on. that going we’ve did come we revenue – it revenue we or then they fortunately, we And moving this that have that we conclusion just in forecast removing book to realized to as the actually because this happen, are simply last on the

Alexa Desai

Got it.

guess, to revenue on the the you that do you clients, last I in or for follow-up anybody the foresee else confident up fairly forecast that, year? rest of of do the terms you issue your just are And coming with you in Okay. year, other made bookings - this

Rusty Frantz

this into go interest this the an have two is therefore to this was it’s share revenue event investment needed bookings the transparency therefore material the Yes, turning something impairing Number to and forecast revenue of two-fold. it’s us two, last fact with for in and way large one, we the this that forward actually we and reason we bring year one extraordinary like to of number not felt the only for forecast. year’s that the very community, year

Alexa Desai

Got it.

– retention full a is the XX% then, said of in Okay, with line and guys the just for year. second you which from modeling the are one on me what you exactly

great. that’s that So

systems thinking previously the it is hospitals terms in single guys just for you Just key are year, of how you about the and rest of watch towards the stack. to mentioned have factor migrating

And foresee stable just so, you year? of to of as now? Is of any do the kind guys happening that everything later

Rusty Frantz

the read Look, clients. of exposure of very forecast. just a lot and is your to so, the difficult I so already the number to hospital say been consolidation minds into can past volatile run-off mean, why I we’ve That’s much our in has is clear somewhat because you attrition that think a we thing frankly

that, is to clients. a of we as stabilize But done base and said, put feel a as good volatile we’ve talked about we robust the we’ve like But managing client proactive of because number. it process a job and our retaining I

Alexa Desai

Okay, thanks.

Rusty Frantz

Thank you.

Operator

question next with Caller, please ahead. Jaffray. of from your Piper And go the line comes Sean Wieland

Sean Wieland

Closing thanks. it’s with Wieland Sean Hey, out, Piper.

OpEx So, with transfer COGS marketing? and what’s particularly sales to of on expenses from going the in

Jamie Arnold

it’s time managed part Sean. into of work, G&A, to related of historically in organization people more the moved clients, and area. really It’s We IT who our some had supporting – been from because services over been this, particularly doing they’ve

and decision – should cost as be of and classified should goods. the be we made so, it they And that

Rusty Frantz

generation. supporting Yes, revenue ongoing they are

Jamie Arnold

is we at but calling of in we of variants really on the I quarter of worth goods didn’t out. the last it at year, middle them as so, using things legacy figured up it I I one move and was cost think it was it look just and actually reviewing made then and we the then for show this as started and organizationally, this And

down, – G&A think Does explain it’s sense? up, make went it’s So cost that goods it. went I to and easy of

Sean Wieland

impact is the people? or Yes, so. margin quantify Can I what maybe number on the points think you the of of

Jamie Arnold

it’s million numbers, round about quarter. $X this In

to believe but doing accurate. I pretty top the million, of $X about it head, off $X.X I that’s my think million am I

Sean Wieland

million so, from And is cause on other $X of the the deferral to bookings, the revenue annualized the what than else check the then, going with down? step

Rusty Frantz

seeing, Sean and clients, the function are base. pressure this also are client on we What we a is the seeing we of is, financial think

recurring towards and move more clients We are subscription seeing models. more and

we had like And perpetual the stable taking relatively in a year XXXX got through been XXXX, and both and it’s full another the FY forecast, we soft do over relatively we standpoint years, down. recognizable, two perpetual then as to this so, we’ve look we step at started feel license were instantly last quarter from

turns problem great And revenue, But revenue subscription license temporal so, the create within as the it it’s unfortunately long-term. into perpetual a for does year.

And to so, as and as quickly started we dynamic take to down, see our into emerge another forecast. step this had that build we

Sean Wieland

operating Do the one. for XXXX? quick more one on FY then, XX% update goal any And Okay. have margin you

Rusty Frantz

Yes, as XX%. did if I significant leverage, you’ll said say I notice, opening in I not operating said the call

model somewhere still, based new Our this on view our we frankly of still updating are reality. and kind

Our XX% FY into XXXX. the this pushes is probably view

Sean Wieland

Okay. Thank you.

Rusty Frantz

Thank you.

Operator

And question Oppenheimer. with the comes Please of go from line your ahead. next Ott Mike

Mike Ott

afternoon the that and mix the taking guidance rev challenges Good for bookings lower question. customer perpetual it’s break if Curious the reduction out? possible allocate between the to if then can you thanks my and had

Rusty Frantz

it Well, $X $X lowered and million. we million a was client by

Mike Ott

easy. makes it That Okay.

Okay.

Rusty Frantz

I Even fill. for math CEO, the that’s could

Mike Ott

Okay. And then…

Jamie Arnold

next the time, it’s $XX with him. you see Even

Mike Ott

last I million your Great. you And the that just here? this behind Curious if quarter to then sticking quarter, expectations. they were million any of with reported bookings, that $X $X internal recall, cite benefit

Rusty Frantz

not No, sales slips me said, in team as slipped. that quarter I If call, something have said my tell I look, every slipping. I last the I every mean, single quarter, it’s something

So we lower last quarter, the expectations. delivered

more this something to This organic most quarter, the quarter frankly, say of we quarter. pretty can every in QX from on about on that to maybe much as slipped of you things the we expected and margins I said, that delivered but our was happen expectations QX,

Mike Ott

Fair enough. guys. Thanks right. All

Operator

Please Citi. ahead. with of the go next your from Demko And question comes line Stephanie

Stephanie Demko

I quick the stats and to update Hey you Veradigm my guys. there. are want just get questions. seeing a on Thank you for taking

monetize to your opportunity other beta you if early of traction to Just and kind ways at that top-line? looking any help

Rusty Frantz

Yes, instantiation kind look, we one-time the the Veradigm I small event said, represented revenue piece, of the agreement. in as that a think, Jamie had of QX

expect process back to of of the onboarding update you flowing at end and revenue back half we start this the so we onto We in are we Veradigm move time, towards consortium there. in point year, in the from the relationship the as through the of the year Veradigm and still will

Veradigm From joined say focused additional are data we I’d knitting. sticking the we consortium. monetization – are opportunities, our the of right kind of standpoint to now We’ve

that effective. are making focused We on very

And then, are this than business, the ways from focused to of more operational clients’ on supporting rather players the additional on other our side, identified we finding value very data. drive point at the

Stephanie Demko

Thank if so much. talk And right. All of that of how we a things, you margin kind in margin could you affects look at bit years? little out of side

Rusty Frantz

am broke bit. I you little a up sorry, say that,

can repeat you And so, that Stephanie?

Stephanie Demko

expansion Sorry contributions targets? of you I is wondering if how sort of there can was that. your impact think just can any margin year and margin out that about

Rusty Frantz

specific to is Veradigm? This

Stephanie Demko

How Specific the incrementally? to think Veradigm, we revenue stream. about that should

Rusty Frantz

be of about as P&L, But focused think right. a the contributor. on more would being revenue the that I I rest much would

today, by on not additive, nice here see means no It’s but sit driver it’s we the little in focus a P&L. a the As margins. we core and the Veradigm more the core value

is think, it’s There we you a slight so, And is negatives. may a complex look, positive. But positives, P&L. have there it know

us feel it efficiencies comes margin that target. get going think, like, to I on revenue broad the that are more to P&L the and the out in it’s it wash, is when growth we

Stephanie Demko

All questions. Thanks for right. Understood. taking my

Rusty Frantz

Stephanie. Thanks,

Operator

Gene line from ahead. question the [Operator we Please Mannheimer have with & Instructions] Company. And Dougherty of a go

Gene Mannheimer

Good saddle, of Jamie. to all, afternoon. the in back good Thanks. first have you And

Jamie Arnold

Gene. you, Thank

Gene Mannheimer

trend in save term just in year and did back of much My quarter, $XX mean, how just longer welcome. historically? would that bookings we versus to or the I bookings million to you so in the current are that, You subscription recognition, this going say, the more revenue convert toward question, if

Rusty Frantz

bookings say QX. bookings the of of I much within vast majority go it it’s that really revenue the to of as haven’t the our do majority would say But kind a that within year, current the vast converts time given especially unpacked we turn year. for that

now because, to the one that’s of frankly reason which the fact, conversion the means to delivered actually frankly is event on take transaction, year, last this $XXX we it have because is, the about turn In million talked or this forecast it revenue. the million good mean, one extraordinary call, was expect both $X of into we do what such that we is materiality of out not but deal that loss a I give why there we a also relatively

one it and a That’s call. that of somewhat level earnings the us to we an extraordinary of that event for because elevate

Gene Mannheimer

how That’s you resources of would certainly I you respect to maybe Okay. could R&D us, And I of the and and you much on that Thanks. to the with because, R&D restructuring to Bangalore, benefit a restructuring would think the line very helpful. would the I be quantify shift for why, deliver? Jamie, EPS benefit reducing that this EPS a guidance. are understand but mean,

Rusty Frantz

Gene, answer increasing by to restructuring driven intensity not The continuing as let’s R&D driven the that in restructuring reductions. going the cost was was and government base. well by as increased client from needs qualitatively. The R&D regulatory

to. came to capabilities clients deliver deliver ramping regulation enough requires not our it the able capacity to both be down model the our of was them that to up also When win with government to the and capabilities need the government us,

capabilities based on our expand needed expand so, actually to that, And headcount. and we our

cost us And innovation create does from enabled this EPS standpoint. favorability. future so, we but an do to neutrally, not – It creates optionality are that

Gene Mannheimer

Very good. right. All Thank you.

Rusty Frantz

Thank you.

Operator

at And time. no this questions we have further

Rusty Frantz

Cerner everybody of just the hanging in thank all started. away Well, for earnings taking for call to I am questions since Right. going thanks the our rest there. But

on you. look will call. the to everybody speaking We next Thank to forward

Operator

And today’s call. this concludes conference

You may disconnect. now

Nextgen Healthcare (NXGN) 24 Jul 192020 Q1 Earnings call transcript