TBRG - NASDAQ

Good afternoon, ladies and gentlemen, and welcome to TruBridge First Quarter Earnings Conference Call. [Operator Instructions] This call is being recorded on Wednesday, May 7, 2025. I would now like to turn the conference over to Dru Anderson. Please go ahead.

Thank you. Good afternoon, and welcome to the TruBridge First Quarter 2025 Earnings Conference Call. Leading today's call are Chris Fowler, President and Chief Executive Officer; and Vinay Bassi, 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 may 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.

Thanks, Dru, and thanks to everyone for joining us today. Q1 results have us coming out of the gate strong, exceeding key financial expectations and making progress on several fronts. And equally impressive, what a difference a year has made. Last year, in the first quarter, we had adjusted EBITDA of $10 million, cash flow from operations of negative $2 million and a net leverage ratio of 4.4x. This year, our adjusted EBITDA has nearly doubled to $18.2 million, cash flow from operations increased over $7 million, and our net leverage ratio is down 2 turns to 2.4x. Our financial results this quarter showed notable improvement to nearly every metric. Revenue of $87 million came in on the high end of our guidance range, and adjusted EBITDA exceeded the high end of the guidance. But I'd like to note that some of this upside was a result of a couple of million dollars in favorable revenue and cost timing between Q1 and Q2 that Vinay will discuss in just a bit. Now I'd like to share an overview of our first quarter financial highlights and provide some insight into our booking trends and our operational initiatives within the Financial Health and Patient Care businesses. Q1 bookings totaled $22 million compared to $24 million year-over-year and $14 million in Q4 2024. And given the strength of last year's first quarter, we are pleased with this quarter's bookings that came in ahead of our expectations. We successfully signed 2/3 of the bookings that slipped out of the fourth quarter, and we'll continue to update you on the remaining opportunities as we make progress on them. As a note, approximately 25% of this quarter's bookings will have little to no revenue impact on 2025, which is a bit unusual. In general, it takes 1 to 2 quarters to implement our systems, but there are certain instances when the go-live timing is driven by specific customer situations that elongate the process. Taking a closer look at bookings, $13 million is attributed to Financial Health, a 50% sequential increase from Q4 of 2024. Further, this quarter, we signed 2 deals in the 100- to 400-bed hospital market segment, representing examples of the land-and-expand strategy, where we were initially brought in for a short-term contract. And then based on that performance and outcomes, the scope of work has expanded. On the Patient Care side, we signed $9 million in bookings this quarter, a 60% sequential increase and relatively flat compared to a year ago. These bookings include 2 net new customers. One is moving from a paper-based system, implementing their first EHR solution, while the other was a competitive displacement. As we continue our efforts to increase the transparency and clarity of our business, I'd like to discuss a reporting change that we'll be implementing starting this quarter. Moving forward, we'll be providing bookings on an annual contract value basis or ACV. Up to this point, our bookings numbers were a mix of ACV for Financial Health and mostly total contract value or TCV for Patient Care. The ACV number will show just the newly contracted revenue that is expected to be recognized over a 12-month period. For the remainder of 2025, we will provide you with both TCV and ACV, giving you the ability to compare them to 2024 results before phasing out TCV completely in 2026. With that being said, on an ACV basis, our Q1 '25 bookings were just over $17.3 million. Rounding out the bookings discussion today, I'll comment on the ongoing uncertainty related to future health care funding as well as the potential impact to tariffs on many U.S. businesses. While we believe this could potentially cause our customers to slow down their decision-making process as they take a more cautious approach to allocating their capital, we still firmly believe the need for our solutions remains strong. In times of uncertainty, it's more important than ever that hospitals and providers are collecting all the payment they're entitled to, working to eliminate excess AR days and improved days cash on hand are valuable tools for preparing for the unknown. Shifting gears. On our last call, we discussed applying the same approach we took towards our financial initiatives in 2024 to our operational initiatives this year. As you know, in January, we brought on Merideth Wilson to lead our Financial Health division. And for the past 3 months, she has immersed herself in the business, observing and learning as much as possible about TruBridge. After completing her first full quarter at the company, she came away with a few key observations. First and foremost, Merideth built a deep understanding of the vital relationship between TruBridge and our core community markets. Being that we are the only services and tech vendor solely dedicated to this important U.S. market, we have a truly critical role in the livelihood, solvency and sustainability of our clients and their communities. Secondly, she saw firsthand the importance of exceptional customer service in delivering the financial results expected from our RCM clients. In order to provide this, we must attract, hire and retain the right talent, both domestically and offshore. At the end of the day, it's the knowledge base and people who really make a difference in client success. Lastly, she's identified an opportunity to capitalize on our tech stack by responding to a clear demand for automation. Merideth observed firsthand that our community market is intrigued by the potential of using AI to drive revenue cycle improvements. In response, she intends to further accelerate innovation in the Financial Health team to automate CBO workflows. Merideth took the insights gained from her first quarter in the role and carefully mapped out a plan of action that ensures our workforce transition will continue to progress smoothly. Her assessments and recommendations are grounded in creating customer delight. Coming off of a solid Q1, we are increasing our investments in the following areas: First, we will standardize our global hiring process and establish a centralized workplace to streamline our operations and strengthen team dynamics. To that end, we are currently in the initial planning process for the new location, and we'll provide updates in future quarters as the efforts unfold. Second, we are experiencing slightly elevated levels of customer satisfaction challenges, so we are evolving where and how the work gets done, and we'll continue to evaluate the right mix of global and domestic workforce and use of automation. At the end of Q1, we have about 1/3 of our CBO clients being supported offshore, showing continued progress towards our goal of 60% by the end of 2025. And finally, on our last call, we noted that approximately 60 Financial Health clients are up for renewal in the next 24 months. In the first quarter of this year, we secured 9 out of 11, which was in line with our expectations. Turning now to Patient Care. Our customer retention stands at 98%, excluding Centriq for Q1, and compared favorably to the first quarter of last year in the mid-90s. As I've shared previously, expanding the wallet share within our customer base by delivering new offerings and converting clients to our SaaS solutions is a priority. We continue to make good progress, highlighted by the sales team meeting last week where we shared customer insights, success in key value drivers for the new SaaS bundle and TruBridge Analytics. In addition to nTrust, which is a volume-based SaaS offering, the sales team was equipped to begin in the second quarter, selling a tiered SaaS package that is inclusive of only our EHR offerings and not based on collection volumes. With the additional sales preparation around TruBridge Analytics and the new SaaS bundle, we believe they are equipped to support the long-term success of our clients by creating greater efficiencies. With that said, we added 4 net new SaaS customers in Q1, including 2 Centriq conversions and 2 nTrust deals. So the solid start to 2025, and I'm incredibly pleased to have the strong management team alongside me as we work to bring operational and financial rigor up to the levels I know we can achieve. At our annual client conference later this month, we are looking forward to connecting with over 500 customers. The investment we make each year in bringing our clients education, thought leadership and networking is only a part of the equation. Even more important to us is the opportunity we get to spend with end users and decision makers, which gives us a deeper understanding of their perspectives and their needs as leaders in the rural and community hospital market. This has always been the most valuable outcome for us. To close, we remain committed to furthering the initiatives we laid out to you at the end of last year and enhancing transparency along the way. With that, I'll turn the call over to Vinay to dig into the financial results.

Thank you, Chris, and welcome, everyone. Today, I will start by giving a quick update on our 2025 priorities, and then I will review our first quarter results in further detail and finish by providing a guidance update. Overall, we had a great Q1 2025. I'm also pleased in the continued progress on my key initiatives, which I will share. We continue to focus on improving working capital management and generating cash flows to repay debt. In Q1 '25, cash from operations was $5.4 million, which was $7.4 million better than Q1 of 2024. Our accounts receivable was down 12%, and DSO was 12 days better compared to the prior year. While there is still room for improvement, I'm pleased with the fact that we were able to pay down additional $3 million of principal on our debt in Q1, bringing the total repayments to $26 million since January of 2024. Our net leverage ratio, which we define as net debt over LTM adjusted EBITDA, improved to 2.4x in Q1 '25, down from 2.8x in Q4 '24, and down from 4x a year ago. We are pleased with these results and would like to maintain the leverage around these levels. In addition, we remain committed to optimizing our business to improve profitability in 2025, and the results of Q1 were very positive in that respect. Q1 '25 adjusted EBITDA margin of 20.9% were 860 basis points better than the prior year, largely due to the revenue growth combined with the global workforce initiative and our continued focus on expense management. While Q1 adjusted EBITDA did benefit from approximately $2 million of timing between Q1 and Q2 '25, which I will explain shortly, we were pleased with the continued year-over-year performance. Finally, I'd like to provide an update on our efforts to improve our accounting processes and forecasting accuracy. Specifically, we are making progress in the remediation and strengthening of our key controls and building additional analysis to increase the predictability of our results, particularly around our labor costs and customer revenues. This will be an ongoing initiative throughout the year as we work to improve our headcount management and forecasting processes. Next, I will review our first quarter results, starting with our bookings transition from a mix of TCV-ACV to a fully ACV. As Chris mentioned, on a TCV basis, we reported $22 million in bookings for Q1. Historically, we have reported bookings as a mix of TCV and ACV based on the nature of the booking. For Patient Care, where we have provided booking on a TCV basis historically, we will continue to do so in throughout 2025, but we will also provide them on ACV basis. This will give you the ability to still compare to 2024 results as we make the transition. In 2026, all bookings will be reported on an ACV basis only. Let me discuss what this means in practice. Patient Care bookings on a TCV basis showed 3 to 5 years of expected revenue. Going forward, since these bookings will be reported on an ACV basis, they will only include the revenue expected to be recognized over a 12-month period. There is no change to Financial Health bookings as it already was on ACV, reflecting 12 months of expected revenue. This new method of reporting should make things much clearer and easier to understand our revenue potential. Turning now to our first quarter financial results. Revenue in the quarter of $87.2 million reflected a year-over-year increase of 3.7%. I'd like to note 2 things. Firstly, Q1 of last year included 15 days of AHT prior to its divestiture and the impact from sunsetting the Centriq product. Normalizing for these 2 factors, which accounted about $2 million of the year-over-year variance, revenue would have been up 6.5%, primarily due to the growth of our core CBO business, which was up double digits in the quarter compared to the prior year. Secondly, Q1 2025 revenue benefited from approximately $1 million in timing due to a license fee for a customer in Financial Health and some installations in Patient Care that fell into Q1 instead of Q2 as originally anticipated. Financial Health represented 64% of total revenue, coming in at $56.1 million, a 5% increase year-over-year. Patient Care made up the remaining $31.1 million and was up 1.3% compared to a year ago as growth in SaaS offering and some timing of installation revenue was partially offset by the revenue decline from AHT and Centriq. Excluding the impact of AHT and Centriq, our core Patient Care business grew 9% year-over-year, primarily from the strengthening of our core business and the installation revenue timing mentioned above. Gross margins of 54.7% increased 430 basis points over last year. This increase is largely attributable to Financial Health gross margins of 51.6%, which were up 700 basis points from last year, driven by the revenue growth in our core business and some benefits from reduction in labor costs through our offshore transition. Patient Care gross margins were flat year-over-year at 60.4% as run rate cost optimization savings of 2024 were offset by high margins of declining Centriq business. Operating expenses of $39.5 million represented 45.3% of total revenue compared to 51.1% a year ago. The year-over-year decline was driven by the cost optimization actions implemented since Q2 last year and lower sales and marketing expenses, including the timing of internal annual kickoff meeting, which has historically occurred in Q1 and was rescheduled to April this year due to poor weather conditions in Mobile, our headquarters, in Q1. This sales kickoff meeting is separate from our typical annual user conference, which also occurs in Q2, the impact of which is a combined $3 million of incremental costs in Q2 than compared to Q1 due to the timing of these 2 conferences. Adjusted EBITDA for the quarter was $18.2 million, with the adjusted EBITDA margin of 20.9%, up 860 basis points compared to the prior year. As I mentioned earlier, Q1 benefited from approximately $2 million from timing, including the $1 million of revenue timing and rescheduling of our sales kickoff summit. Moving now to the balance sheet. We ended the first quarter with $10.1 million in cash compared to $4.1 million a year ago and our net debt of $158 million, which reflects a net leverage of 2.4x. Over the last 12 months, our DSO improved 12 days. However, DSOs were flat sequentially, which I anecdotally attribute to the ongoing external policy uncertainty that Chris noted, resulting in customers being more prudent with their cash. We are closely monitoring the situation and working to keep improving our collection efforts. Finally, turning to guidance. Before getting into our revised outlook, I want to reiterate that one of my top priorities this year is to improve our forecasting process, which in turn should continuously increase the predictability and visibility of our business. As you can see from this quarter's EBITDA outperformance, we still have some work to do. We are maintaining our revenue expectations and increasing our adjusted EBITDA range to incorporate the EBITDA upside from the first quarter. Revenue from $85.5 million and $87.5 million and adjusted EBITDA of $12.5 million to $14.5 million. For the full year 2025, we expect revenue between $345 million and $360 million and now expect adjusted EBITDA of $60 million to $66 million, up from the previous range of $59 million to $66 million. In terms of our quarterly guidance, Q2 revenue will be down from Q1, primarily as a result of timing of some revenue we got in the first quarter. The sequential step down in adjusted EBITDA is mainly from the following 3 items: approximately $3 million related to our annual user conference, which is always in Q2, and our annual sales kickoff meeting, which was canceled in Q1 due to weather conditions and rescheduled for Q2; number two, the previously mentioned $1 million in revenue timing due to license fees and installations that were recognized in first quarter, which we had expected in the second quarter; and third, approximately $1 million of incremental labor costs due to the annual cost of living adjustment done from Q2 onwards and some incremental investments in Financial Health to ensure the right mix of global and domestic staff and automation that Chris mentioned previously. As we wrap up today, I'd like to reiterate Chris' sentiments that we feel we are off to a strong start with these first quarter results. I'm proud of the progress we have made on the strategic financial and operational goals we set for ourselves and look forward to the continued execution in the coming quarters. With that, we can open the call up for questions. John?

Thank you. [Operator Instructions] Your first question comes from the line of Sarah James from Cantor Fitzgerald.

Congratulations on a great quarter. Could you give us a little bit of context on how your conversations are going? [Technical Difficulty] There's a lot of news on the policy side, including tariffs that can affect hospital budgets. So how is that filtering down to your conversations and the timing of your sales cycle?

Sarah, first of all, thanks for the nice words. You broke up a little bit, but I think what I've put together was you're looking for additional color relative to potential policy changes with the customers. Is that right?

Yes, how the political or tariff risk is impacting how they view timing of repurchases or expansion?

Yes. So right now, obviously, coming off of a nice Q1 from a bookings perspective, we haven't seen the immediate impact to it. In our conversations in Q2, we continue to have nice progress on the sales front. I will say that the overall sentiment is just an absolute uncertainty of what's going to happen next. From our standpoint, I don't think it's as much about the tariffs as it is now that we're starting to get some previews of how the budget going forward may potentially impact our customers, I think they're just bracing to see exactly how that's going to shake out. For us, I think the biggest areas of challenge could potentially be around any changes to Medicare expansion. And then also any changes that we see from a reimbursement standpoint. There's obviously quite a bit of conversation around the payment parity, but no clear line of exactly what that is. So what I would say -- and we continue to have the conversations with our customers -- that performance in their revenue cycle is absolutely a huge priority. And regardless of what change comes from Washington, they need to be with a partner that's going to be waking up every day making sure that they collect every dollar. So again, I would say right now, it's a little bit cautious, but we'll continue to monitor and keep you guys on the front page.

Great. And then one more for Vinay. Could you refresh us on how you're thinking about the potential for 2025 net savings from reducing duplicity of offshore and onshore stocking?

Yes. No, that's a great question, Sarah. So as Chris had mentioned, we had moved 30% of our CBO customers in last year. And right now, with Merideth coming in, we are trying to make sure that the savings potential is there. So if you look at our overall gross margin, a good contribution of that is coming from offshore savings. And what I would say is right now, I'm not giving an exact number because I'm trying to make sure Merideth's full line of sight and some investments that we will make. But I would expect in the mid-single-digit millions is what I would expect for the full year.

Your next question comes from the line of Jeff Garro from Stephens.

I was hoping you could speak more to Merideth's plan of action. And maybe you could tie that to any early impact on retention or maybe given how that will play out over some period of time, any change to your goals around Financial Health client retention?

Yes. Jeff, thanks a lot for joining, and good question. What I would say we're working on and what Merideth is probably mostly focused on, again, is the client delight and overall retention. I think where we're focused is making sure that as we continue to scale up our India operation, that we want to make sure as we're hiring varying levels of experience from an employee standpoint, that we've got the infrastructure in place to make sure that we're getting quality output as early as possible so that the customer impact is a positive experience. So I think that's really what -- some of the learnings from last year to this year. And as you heard in the prepared comments, as we think about what a physical footprint can do for us to be able to have that academy to make sure that, one, we're getting the training, the consistency there that we need, the oversight and just the continued efficiency of the work that's being done.

Got it. That helps. And maybe probe a little bit further on that topic. There were mentions of mix of onshore versus offshore labor and also a discussion on automation and investing more there. I know you've done some robotic process automation in the past and kind of talked about client reaction to that and various levels of success. So help us parse out kind of what's a continuation of your kind of long-term plans there to offshore more and to bring more automation to the table. And what's really incremental today versus where we were a couple of months ago?

Yes. So again, we've set the bar for the next target at 60% for our staff conversion. That's not the ultimate goal. I do think it's fair to say that I don't think that we're shooting at 100% being the final number that we get to. So therefore, that's how you get to that mix of domestic. Can it be 75%, 85%? I think as we get to 60% and beyond, I think we'll be working that out. From an automation standpoint, this goes back to maybe some Merideth's learnings of continual effort on the standardization of our processes, which will enable us to be able to leverage that automation as much as possible. So still early innings from our perspective as far as normalizing the way that we do work from customer to customer. Part of this transition to the offshore model was moving from a client approach to more workflow-driven, which does lead to more standardization and then lends itself to that automation opportunity. So continue to be optimistic about what the opportunity is in front of us. Again, 60% is just a waypoint. I don't think 100% is the final destination, but the automation is definitely the variable in there. And as we get momentum around that, I think the team will become more excited and confident about leveraging it and workflows going forward.

Got it. And one more for me, maybe to try to tie some of that into the EBITDA expectations. And I definitely understand the moving pieces between Q1 and Q2 and the nice outperformance in Q1, would say that the temptation is there to look at the first half as a whole. And just to extrapolate that to the second half and that puts you about at the midpoint of your guidance. But maybe you could -- just looking at the first half as a whole between the results and the guide and what you have planned for the second half, help us think about the different puts and takes about first half profitability versus second half profitability as you dial into onshore versus offshore, you invest more into automation and you continue to grow the business.

That's a big question. I will be like -- I think you put it very rightfully. I look at the first half first, we have a little strong results, some savings we got. We are in -- barring the onetimers of the seasonality [ of ] expenses that we said. I think if you take the midpoint of the guidance, we feel we have a good line of sight to getting there. Now what we would -- what I would like to always keep that is once like the guidance I have given you for Q2, for the full year, I kept it at the same level because if once Merideth settles in as we find opportunities of making some investments or some headwinds that we say, I have enough flexibility to doing it. But at this stage, I would say that the pluses and minuses, these are the following for the second half. The savings that I would get from global offshore as it settles in on a net basis is what we will keep monitoring to just make sure, like what Chris said, standardizing the operating processes and all that stuff, yielding employee productivity, having more metrics to measure. But we will, at the same time, we'll continue making investments, whether it's on the top automation or the flexibility of mix between domestic and offshore will continue to go in there. So that's one. The overall, I would say, the fact of last year where we -- if you remember, we had that -- last year, we did from the second half savings. It's yielding so far in this year, which will continue. So -- and then the revenue growth that we expect in the second half of this from the bookings of Q1 last year, overall Patient Care, if you see, has started growing a little bit. Some of the stickiness of some of their bundles is a little more, I would say, I'm cautiously looking at how they stick. And that is where I feel should give me the confidence of looking at the guidance for the second half. So how I look at it, Jeff, there are a couple of 2 or 3 ways to get to that EBITDA guidance, but it obviously goes through revenue pieces and some of the initiatives that we have put in place from Patient Care as well as from Merideth, some of her thoughts and her plans come into fruition.

Your next question comes from the line of Gene Mannheimer from Freedom Capital Markets.

Good quarter, guys. I wanted to ask about the nonsubscription component of Patient Care bookings. It was the lowest that you've recorded in a couple of years. So I just want to know how we should think about that big picture? I mean, you called out a new -- 1 new customer that didn't have automation previously. But is the EHR game now really a market share play? And how should we think about patient engagement?

Yes. Thanks for the call, Gene -- or the question, Gene. Again, we have seen specifically on the net new EHR opportunities, obviously, the shift to the SaaS model has taken full effect over the last couple of years. I would think that part of the issue or part of the change in the onetime versus recurring revenue on the Patient Care side to be around some of the last year specific to maybe our AUR reporting, which is an antimicrobial requirement from the government, which did have some implementation fees up on the front end of that, creating some of that onetime revenue opportunity. The vast majority of the new offerings that we have -- I say a vast majority, all the new offerings that we have are really 100% in the SaaS model. So as we think about even the implementations on some of our new EHR offerings, we are smoothing that out across the life of the contract. So that we don't have that lumpiness and see that spike in revenue. Vinay, you want to add anything?

No, I think that's the right because there was, like in Patient Care, some of these AURs that you mentioned, and they have -- they create some lumpiness. But whatever we had launched last year, some of the ERP solutions as partners is yielding results, which are all -- mostly, if not all, recurring revenues.

That makes total sense. And my follow-up would be on the Financial Health side. Congrats on those wins in the 100- to 400-bed range. And I'm not -- I don't want to split hairs, but were those deals concentrated on the lower end of that band or the upper end of that band? Because I think that would be telling.

It's a good question, Gene. One of them is just over the bar, over the 100 bar, and one of them is actually closer to the top end of that. Again, I think it's important to call out that as I said in the remarks, we started engagement with both of these with very small opportunities, very much of the land-and-expand or prove it, prove the value of TruBridge to these customers. We did, and they've yielded very nice opportunities, which are not additional onetime projects, but recurring opportunities going forward. So there is -- there's every bit the need for the RCM services in that 100- to 400-bed space as there is in our more traditional EHR sub-100-bed market. So we continue to be excited about continuing to see traction there.

We don't have any questions at this time. I will now turn the call over to Chris Fowler. Please proceed.

Thank you, John, and thank you all for your continued interest in TruBridge. And a happy early Mother's Day to all the moms out there listening. Have a great rest of your week. Talk to everybody soon. Bye-bye.