TBRG - NASDAQ

Good morning and welcome to the CPSI First Quarter 2023 Earnings Conference Call. Leading today's call are Chris Fowler, President and Chief Executive Officer and Matt Chambless, 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 Chris Fowler, President and Chief Executive Officer. Please go ahead, sir.

Thank you Dru, and good morning everyone and thank you for joining the call with us today. I'm pleased to be reporting a solid start to the year with the first quarter performance that sets us up to achieve our full year expectations. First quarter revenue of $86.2 million came in slightly ahead of what we anticipated and was driven by our RCM business, which represented 56% of total revenue in the quarter. Our EHR revenue was up just a tick on a year-over-year basis, which supports our previously stated belief that 2023 will be the year this portion of our business stabilizes after absorbing the end of meaningful use subsidies to our customers in transitioning to SaaS contracts, both of which we believe are largely behind us. Our adjusted EBITDA for the quarter of $14.6 million was also in line with our expectations. On the bookings front, earlier this year, we outlined how we continue to migrate to an RCM-focused business, and I'm thrilled to report that this quarter our RCM bookings were up 41% year-over-year. This is important not only as a proof point that our shift to RCM is underway, but also because of the increased quality of these bookings. RCM bookings equate to 1 full year's worth of revenue versus EHR bookings, which come in ratably over the course of the contract, which is typically five years. To use a simplified example, RCM bookings of $1 million is worth $1 million in revenue annually, whereas a $1 million bookings order for EHR equates to $200,000 per year of revenue for a five-year contract. Bottom line, while total bookings growth year-over-year is fairly flat, the higher-quality RCM bookings growth grew meaningfully and will translate into the company's ability to achieve our goal of double-digit growth by 2024. Digging a bit deeper on the RCM bookings, 47% was a result of cross-selling our RCM solution into our large and loyal EHR customer base. In the majority of these cases, the customer knows they need an RCM solution and choosing to move forward with CPSI as their provider is an easy one given the existing relationship. Of particular note, we signed a nearly $2 million nTrust contract, which -- nTrust, which bundles together our full RCM services along with our EHR solutions. The $2 million contract was for four hospitals with one of our longest-standing and largest EHR partners. This continues to represent a meaningful opportunity for us with a dollar amount of cross-sell bookings in the quarter being just a small percentage of the $400 million annual revenue cross-sell opportunity. The remaining 53% of our RCM bookings in the quarter came from new opportunities. Of particular note, we signed a roughly $1 million deal for full business office outsourcing, which we label as CBO or Central Business Office services, where we will be working alongside another EHR vendor. Just another good reminder that our RCM solutions are vendor agnostic and can be utilized by customers with a wide range of existing EHR solutions. While our bookings are still relatively lumpy throughout the year and highly dependent on timing, we have a very strong RCM pipeline more than doubling from a year ago, and our outperformance in the first quarter further reassures us of our ability to deliver on our full year outlook. Taking a step back from the numbers, in the first quarter, we filled several senior positions inside the organization including two new sales leaders heading up our RCM and patient engagement sales teams, deepening our breadth and experience across the organization. These individuals come to CPSI with extensive industry experience and strong backgrounds. We see this as another step towards reinvigorating CPSI from the top down. We look forward to integrating these new team members and seeing their contributions in the organization over the coming months. Last week, we hosted our National Client Conference in Orlando. And while we're not quite back to pre-COVID levels, we did see an increase in attendance this year where nearly 700 EHR customers joined us in Florida with C-suite attendance doubling to an all-time high. I believe this turnout reflects our focus and investment on building partnerships and fostering relations with our customers as I took over as CEO. Our client conference also represents another great opportunity to highlight the value our RCM solution can bring to our existing EHR customers. With workforce issues still prevalent and budget type for rural hospitals, attending events like this aren't easy for our customers, and I genuinely appreciate everyone who is able to participate. This quarter's financial results were straight down the middle of the fairway and have set us on the right foot for 2023. Our current position in the market, our current momentum in our RCM business, and growing success in our cross-selling efforts, and our improvements in customer retention positions us well to achieve our annual guidance. Before turning the call over to Matt, I want to sincerely thank all of our team members for their hard work and dedication to our mission and welcome all the new team members into the fold. With that, I look forward to updating you all on our progress throughout the year and I'll now turn the call over to Matt to review the numbers. Matt?

Thanks, Chris, and thank you all for your continued interest. As Chris shared our first quarter was largely in line with our expectations, and I'll provide some additional details on the results. Net patient revenue from our RCM clients was $3 billion this quarter, up 5.3% year-over-year and marking the first time that we've reached the $3 billion threshold. Next, while total bookings of $21 million were relatively flat year-over-year, as Chris shared, the real story is that RCM bookings grew 41% with cross-selling efforts making up 47% of total RCM bookings. Turning to the income statement, first quarter revenue of $86.2 million increased 11% compared to $77.9 million last year. RCM contributed $48.6 million, representing 56% of total revenue. EHR was $35.2 million and patient engagement made up the remaining $2.4 million. Our gross margins of 49% for the first quarter decreased 300 basis points year-over-year as a result of our revenue mix shift where our more service-oriented RCM offerings gained traction. We believe that our offshoring initiative will be able to offset potential gross margin declines from mix shifts once we are at scale. For the rest of 2023, we oversee overall gross margins staying at around 49% before increasing to 50% in the fourth quarter as we reach scale in offshore and the EHR business shows modest but sustained improvement. Our operating expenses as a percentage of revenue were 41% in the quarter, which is relatively consistent with last year. Adjusted EBITDA of $14.6 million decreased by $1.5 million year-over-year. The year-over-year decline was primarily a result of elevated benefits costs and recent investments to both generate and accommodate growth. Specific areas of growth investment include our ongoing Azure migration, investments in marketing and branding to bring CPSI to the forefront of the RCM space and building out the internal infrastructure necessary to accommodate continued growth of our RCM services business. Turning to the rest of the financials, operating cash flows for the quarter were $9.5 million. As I mentioned last quarter, our relatively low cash flow at the end of 2022 was a direct result of collections-related timing issues associated with the integration of our recent acquisition. We're trending in the right direction in regards to our progress on these issues, and we continue to anticipate full resolution in the second quarter. Finally, I'll conclude my remarks officially by reiterating our 2023 outlook. For full year 2023, we expect revenue to be in the range of $340 million to $350 million and adjusted EBITDA to be between $59 million and $63 million. As it relates to adjusted EBITDA, a friendly reminder that the second quarter gets an extra dose of OpEx. Chris mentioned our National Client Conference, which was held in May, and that's good for an incremental $1 million to $1.2 million of OpEx, resulting in the second quarter adjusted EBITDA being down sequentially from the first quarter. From a full year perspective, adjusted EBITDA will see a skew towards the second half of this year, roughly 46% in the first half and 54% in the back half due to our globalization efforts. Finally, an update on our offshoring progress. We started the year with 100 Oxford team members in RCM and as of the close of the first quarter, we were at 146 and remain on track in our goal of 400 by the end of this year. All of these factors are included in our full year guidance. To close out remarks today, we're pleased with this in-line quarter and feel comfortable about our position for the remainder of the year. Thank you all for joining us and continuing to follow along as we evolve this business. We'd now like to open the call to your questions. Karen?

Thank you. [Operator Instructions] We'll take our first question from Stephanie Davis from SVB. Please go ahead Stephanie.

Hi guys. Thanks for taking my questions. I've got a few on the rev cycle business, which I thought ramped up. So first one, just when we think about the bookings, it does convert to revenues rather quickly. Can you help us understand the cadence of your rev cycle bookings? As the mix of rev cycle becomes bigger, will we see more smoothing versus the historical lumpiness we saw with your larger license sales?

Wow, First of all, good morning Stephanie. Thanks for joining us so early. I wish I had a great answer for that question, but I think time is going to tell on that. What we're focused on right now is obviously filling up the top of the pipeline, and we're really excited about what we're seeing coming in, both in our cross-sell, in our EHR cohort and also on the net-new side. I do think that we're still going to see decisions be dependent on the buyer very much to the way we do on the EHR side. So the only thing I can say that's going to create that smoothness is us just having that very healthy, steady flowing from the top, which, again, we're very much focused on, and we're continuing to see that really build up. So I would say that's something that we'll wait and see, but that would be my thought about how we could see that kind of lay out a little bit better.

And maybe let's frame that bookings question a little bit differently. We've got $3 billion of net patient revenue now as of this quarter. What sort of on-boarding capacity have you built out per year?

So our ability to onboard is obviously set at the beginning of the year. We look at it from -- as we're doing the planning on the budget and as we set out what we're going to do from a sales perspective, we make sure that our operations team has bought in. So when we think about what we're going to need to book throughout the year to hit the number and then build into the next year, operations is in lockstep with that. So as we see these numbers come in across the year, we're in good shape. Now as we see that demand pick up, we're going to continue to expand our operations to be able to capitalize that. And that's why the move to the offshore, to the global market is such an important part of this process. So...

Yes. And Stephanie, part of the answer there on the capacity that we have to bring customers live with the RCM solutions, it gets right back into our planning over the next couple of years, and it dovetails nicely with what we mentioned on the last earnings call, the expectation that will resume double-digit growth by the fourth quarter of 2024. And in order to achieve that, we think that we need to convert roughly $85 million worth of bookings into revenues over the next seven quarters or so. And so that's kind of the cadence. And if you take -- if you do that quick math and look at where bookings came in this quarter, you'll see that, that capacity is there. It's where we are right now.

And while I've had a chance, when Matt was talking, to think a little bit more about your question, another part of this too, Stephanie, is just the start and difference in the size of the opportunities that we see in the 2 different cohorts. From our EHR portion, those -- the average booking size is roughly $500,000. And when we move into the net-new, where we're looking at the other EHRs, the opportunities could be anywhere from several hundred thousands of dollars to multiple million dollar deals. So there's a wide swing in those, which we don't have a ton of visibility until we start seeing those opportunities come in. And so I think there's always going to be some level of lumpiness based on that by itself. But again, I think as we see more opportunities come into the pipeline, I think it will start to -- we'll see that steady flow out the lot.

That's super helpful. And then the last one I have, just on the EHR business, so it doesn't feel left out. Last quarter, you were talking about more like in-person, high-touch approach with your clients. So I'd love an update on that, and I'd love to hear a little bit more about the key pain points your customers that can bring it up.

Yes. So we continue to move to our scaled agile model, which, along with the rollout of our new role of the client executive where we're seeing much more in-person engaged opportunities with our customers. I was there at client conference last week, it was another -- a good opportunity for us to get in front of our customers. So that is definitely leading to a higher level of engagement, which is also leading to a higher level of satisfaction. We saw a 30% increase in our NPS for our EHR from 2022 to first quarter of 2023 and feel really good about the direction that we're trending there. I would say from a -- what are the pain points for our hospitals, staffing and that's on all fronts, unfortunately. That's for the providers, for the nurses, for the lab techs, for the business office for the dietary, it's every position that they've got in their hospital that they're struggling with. I think the shift to, I'll say, value-based care, and it's much more for our hospitals on the EHR front, it's much more of the shift to the Medicare Advantage plan. So macro that, say payer complexities that is -- now they're seeing a little bit more pressure on the collections to be able to get the dollars in that they need to operate their facilities. So I would say those are the two biggest pain points is just access to talent and that's, again, any position in the facility and then just the collection of the dollars based on how that landscape is changing.

Got it and I'm good to go now. Thanks for taking my questions.

Thanks Stephanie. Have a great day.

Thank you. And we'll take our next question from Jeff Garro from Stephens. Please go ahead Jeff.

Yes, hi. Good morning guys. Thanks for taking the questions. I want to ask a little more on the National Client Conference. Great to hear on attendance there and you also just mentioned a great data point on NPS improvement. So I imagine that gives you the leeway to spend some time walking through the benefits of integrating the EHR with RCM software and services when you have all those clients together. But I'm curious how time was spent at the National Client Conference and how much you're able to kind of translate that improved client satisfaction into spending time on the cross-selling opportunity?

Yes, absolutely and I mean there is -- first of all, good morning, thanks, Jeff. There's really two aspects to this. One, we want to make sure that our customers are using and leveraging our EHR to its best benefit for them so that it's actually a tool and not a hindrance so what it is that their mission is and that's providing patient care. And so a great amount of the focus in energy is the enablement of the software that's available, some education opportunities for them to actually see it and progress live and also be able to see what other applications are out there that they may not be using right now to make their facility run a little better. Obviously, all of that leads to, hopefully, a happier customer, right? And so if they're happy with the EHR, when they're looking -- when they have other issues, i.e., the RCM front, that we feel like it's a natural turn for them to look to us to be able to deliver that. So very much a step one, make them happy with the EHR, make sure they understand all the investments and all the improvements we're putting into that front. And then secondly, it's making sure that they understand how we can fold the RCM into that. So it's a little -- it's very much education upfront, not so much of a hard sell, but we feel like that with the relationship that we have built over so many years with these customers, they're continuing to show them the benefit of CPSI in total is the net win of the week.

Makes sense. And I also want to ask about the $2 million nTrust deal that was signed in the quarter. Just curious for more details there on the background and kind of the how and why, how long did it take for that to play out? And what ultimately drove the decision there to go with that model?

Yes. So this one actually -- it took a little bit of time. I want to say right around 6 months was the length of time to close the deal. And it's a physician-owned four hospital -- I think it's four, maybe five hospitals. And they -- made an acquisition of a hospital that was not on CPSI and it started with a less consolidated to a single system, which turned into a system search. So we went to war not just for the RCM business, but also to keep the EHR at those four hospitals. I think the final factor was the fact that we were able to couple those together, and the fact that there was no -- again, the fact that the EHR is part of the RCM service, meaning that it's a percentage of collections, was very exciting to this organization that we were fully aligned with success and that them operating and adopting the EHR and using it successfully and us collecting all their dollars successfully, all led to both of us being satisfied with the relationship.

Great to hear the two sides of the business working well together there. One last one from me. I want to ask about the TruBridge pipeline. You had some positive comments there, but I also know you have some tough comps coming the rest of the year on the cross-sell side of things. So maybe you could discuss the integration with HRG that I know is kind of ongoing and going well so far and also the new leaders that you help bring in to build that pipeline and then help convert it to sales.

Yes. Again, you're right, we do have some tough comps coming up, but hopefully, that's the hard work that we're putting in and been putting them over the last several months that we're going to see that pay off of that. Again, what we're excited about is the diversity and the size of the deals that we're seeing come into the pipeline, and I think some of that is definitely us being able to leverage the relationships to the HRG sales team. Also the new sales leader and the approach there about just being a little more scientific and systematic in the approach And again, on the EHR front, we now have 31 sales team members that are focused on our customer base versus 14 that we had exiting last year. And so there is that transition of those team members getting up to speed with their customers and their relationships and that hand on process, but that's something that we're seeing that we think will be coming through that out of this quarter. And so when you put all those things together, it starts to feel like the excitement that we see in the pipeline, and the excitement that we see around the work that the team is doing that doesn't show up in the pipeline really translates into a nice back half of the year.

Thanks again for taking the questions.

You bet. Thanks for being up this morning Jeff.

[Operator Instructions] The next question comes from George Hill from Deutsche Bank. Please go ahead.

Yes. Good morning Chris and Matt and thanks for taking the questions. I guess I've got a few myself. The first one I think about is the offshoring initiatives. And I guess I'd love to know how you guys think about the execution risk there and kind of how you're managing around that.

Yes. Super good question, good morning George. So this has been something we've been working on for the last 18 months and knowing that there was a tremendous amount of risk on a lot of fronts as it related to this initiative. We wanted to be super thoughtful in how we stepped into this. And so our operations team, led by Pat Murphy, was very intentional in one, identifying the workflows that we were comfortable moving offshore; and two, being very thoughtful in the partners that we selected to do that work. And so it was an 18-month build to get to this 100 employees fully offshore, which if you think about it, a really long time, when you think about the size and scale of some of the offshore vendors that are out there providing this work, they have thousands and thousands of employees that we could have turned the switch and be at 600 employees in six, eight months. And I'd say all that to say that we knew that there was risk. We wanted to make sure that more than anything that we did not put at jeopardy the service that we were providing and the relationships that we've created with our customers. And so again, being very intentional over that 18-month period to feel confident about, one, the workflows that we've now chosen to do offshore; and two, the partners that we've selected to perform that work so that now we feel confident in ramping this up.

Okay. That's helpful. My second was kind of like what I would call almost an accounting question. And I noticed that the RCM -- I mean you've got the RCM pipeline growth, which is very strong. The RCM revenue growth, which is in the 20% category, yet the NPR growth seems to be a more modest, call it, kind of mid to high single-digit range. Can you help me bridge gap kind of between the revenue growth and the NPR growth figures?

Yes. So some of the revenue growth that we've seen year-over-year has been influenced by acquisition, whereas the NPS or the NPR numbers that you see quoted for the first quarter of 2022, those are as of the end of the quarter. So that's probably the biggest factor as some of that NPS was acquired.

Now, that's pretty helpful. And humor me with two more...I'm sorry, go ahead?

And George, the other thing I was going to call out is when we measure NPR, we're measuring NPR for only that CBO that what we would call the full business office outsourcing solution in the past and now the Central Billing Office solution. It's just that full hour end-to-end revenue cycle management service offerings. So it's not inclusive of things like the TruBridge RCM, subscription software product that's a part of TruBridge's not inclusive of TrueCode and either. So it's a slice of that outsourcing business.

Nothing modular. It's got to be the full thing.

No, that makes sense, and I probably should have known that. Two more quick ones is, number one, you guys highlighted a pretty strong EMR retention figure. Is there any reason that we should expect any change in that?

Yes. I mean no real expectation there. And frankly, we stated that our target has been 95%. And so far this year, things have been kind of outperforming our expectations. And the EHR business has been a positive surprise for us on the retention side for probably the last 18 months. So while we may stick to our conservative routes and stay at that 95% target for the full year, we don't see any material headwinds developing on the retention side for the EHR business, which is positive.

Yes. And I'll say this, George. I think it goes back to -- we knew that, that cohort was a big part of us converting on this RCM transformation and really being able to get to that $400 million. So we've invested a lot of time, money, effort into the satisfaction of that customer base. And I think it's paying off. So I think they're getting half of that. I think that's the one part. I think the other part is just a macro commentary on the EHR market in general, that I think the customer base out there is really looking at it and saying, hey, I've got some other things that I could probably spend money on that would deliver a higher return and then switching EHRs. So while that's very positive for us in the retention. It obviously plays against us a little bit and seeing the business grow on the back end, which is why we've reflected the growth or lack thereof the EHR going forward like we have.

Yes. And I know we've mentioned it a couple of times on this call, but it's worth reiterating as many times as we can that although the P&L is mostly driven by what's happening in the RCM business, protecting that EHR customer base and keeping that customer base happy is critical to the growth story for the RCM business. As Chris mentioned in his earlier comments, happy customers with high NPS scores are great cross-sell targets, and that's what we're shooting for.

Yes, that's super helpful. I was looking at my questions, because I think you're going to tick them all off between Stephanie, Jeff and your extended commentary, so I'll pause there.

Thanks a lot, George.

And that was our last question. I'd like to turn the floor back to Mr. Fowler for closing remarks.