NextGen Healthcare Inc (NXGN) 2018 Q1 法說會逐字稿

Welcome to the Quality Systems, Inc. First Quarter 2018 Earnings Conference Call. Hosting the call today from Quality Systems NextGen are Rusty Frantz, President and Chief Executive Officer; and Jamie Arnold, Chief Financial Officer. Today's call is being recorded. (Operator Instructions)

Before we start, I would like to remind everyone that the comments made on this call may include forward-looking statements within the meanings of the federal securities laws, including and without limitation, statements relating to anticipated industry trends, the company's plans, future performance, products, perspectives and strategies.

Risks and uncertainties exist that may cause actual results to differ materially from those expressed in these forward-looking statements including among others those risks set forth in the company's public filings with the U.S. Securities and Exchange Commission, including the discussion under the heading Risk Factors in the company's most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q.

Any forward-looking statements speak only as of today. The company expressly disclaims any intent or obligation to update these forward-looking statements.

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

For our earnings results, the GAAP financial measures most directly comparable to each non-GAAP financial measure used or discussed and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found within our second quarter 2017 earnings press release that was filed with the SEC and is posted onto the Investors section of our website.

This release also provides qualitative descriptions of how we have calculated non-GAAP financial measures contained in our guidance.

At this time, I would like to turn the call over to Rusty Frantz, President and CEO of Quality Systems NextGen. Rusty?

Thank you, and thank you to everyone on the call for joining us this morning to discuss NextGen's fiscal first quarter 2018. This is another consistent and solid quarter for NextGen. On the call today, we'll start by sharing some details about an exciting acquisition we just announced that we feel will truly add value for our clients and continues to extend the breadth and capabilities of our solution platform. I'll then review some highlights from the quarter and provide an update on our platform as a service strategy. Finally, I'll discuss the launch of our new commercial programs, which we are now introducing to our existing and prospective clients. I believe this new framework will dramatically alter the conversations we have with our clients and will frame NextGen as more of a trusted adviser they can partner with to enhance the efficiencies of their practice.

As many of you saw this morning, we announced that we have entered into a definitive agreement to acquire EagleDream Health. The acquisition of this EHR-agnostic, cloud-based analytics platform represents yet another example of our focus on achieving the quadruple aim: improving the provider experience; improving patient outcomes; lowering the cost of care; and enabling a great patient experience. By bringing this continuous improvement capability to our clients, we can enable them to guide and evolve their practices directly in line with these great tenets. Strategically, EagleDream's analytics suite aligns incredibly well with our goal of becoming a complete value-based care solution platform. This transaction is key in repositioning NextGen as we evolve our platform as a service strategy to ensure our clients' success in this transforming health care industry. Not only will this position us as a leader in the emerging risk-based reimbursement world but it will also leverage our recent Entrada acquisition by allowing us over time to push our analytics-driven insights real-time to mobile devices, directly into the workflow of the provider. This is a very exciting acquisition for us, and we intend to lean in and make further investments into the EagleDream platform to ensure scalability. EagleDream continues to strengthen our suite of solutions and while we believe this acquisition will allow us to reach critical mass, we'll continue to broaden the offerings we provide to our clients as we respond to their growing needs into the future. In terms of EagleDream's client footprint, this represents a significant cross-selling opportunity for us as none of their dozen or so clients are current NextGen clients. And our expansive base of customers is eager for an analytics solution that can help to guide their evolution and performance.

As stated in the press release, we are paying about $26 million in cash for EagleDream, which generated approximately $1 million in revenue next -- last year and a net loss of approximately $4 million. We expect to close during this financial quarter. As we see great opportunity to integrate this quickly into our platform and significantly build on capabilities of this great analytics offering, we expect to further invest in R&D and implementation capabilities this year to maximize the impact of this addition to our portfolio.

Turning to business and financial highlights in the first quarter of fiscal 2018, we continue to perform well in a highly competitive environment. Our first quarter revenue of $130.9 million compared to $122.2 million a year ago and our non-GAAP EPS of $0.17 compared to $0.15 in the first quarter a year ago. There were a number of favorable trends in the quarter that put our results slightly ahead of where you expected and Jamie will get into those in more detail when he reviews the financial results later on in this call.

As I mentioned earlier, this was another consistent quarter for NextGen as we continued to progress along the strategic plan we've laid out over the last year and the year before. We are now launching the integrated solution selling programs we've been developing over the past several quarters. Our acquisition of EagleDream is another step in the right direction and our laser focus on client satisfaction over the last 2 years has positively impacted our maintenance attrition, which now has come down to just over 6% on a trailing 12-month basis.

In our pursuit towards establishing our platform as a service strategy, we've now built a strong framework of solution sales programs combining both software and services to deliver comprehensive value to our clients. Furthermore, in developing these programs, we've identified additional areas where we will be able to add increasing value in the future. The Entrada acquisition has opened up an entirely new avenue for discussions with our clients and by combining that with our new analytics platform, we see great opportunities for cross-platform synergies that enable a great provider and care experience.

Concurrent with adding these new solutions to our platform, we've also taken necessary steps to refine our business model to better align with our platform-as-a-service strategy. As we have said in past calls, the work of building out our enhanced solutions did push back the launch of our new streamlined and simplified business model. This delay resulted in bookings in the first quarter of $23.5 million, down $1.4 million or 6% compared to a year ago. As we noted on previous earnings calls, we expect to see bookings growth acceleration in the back half of 2018, ultimately leading to accelerating revenue growth in fiscal 2019. I can confidently say today that we've greatly enhanced our value proposition and significantly broadened our solution offering. NextGen Healthcare can now provide to our existing clients a very compelling reason to reengage as well as offering potential new clients a more holistic suite of solutions. We continue to anticipate bookings ramp in the second half of this fiscal year, and I look forward to updating you on our progress.

We also wanted to bring your attention that, as noted in the 10-Q we filed today, we have received a civil investigative demand letter from the Department of Justice. Media reports and public filings indicate that other companies in our space have received similar requests. In the highly regulated business in which we operate, we receive these type of inquiries from time to time and this one is specifically related to the matters that we've seen the DOJ looking at in other companies. We are fully cooperating with the request and will provide updates as soon as we are able.

What NextGen offers our clients today compared to 2 years ago is worlds apart. Through focus, positive and productive change and aggressive investment, we feel like we've gotten to a point where we have a very solid platform to build on going forward. Our intense focus on the user experience has resulted in increased client satisfaction and led to attrition rates continuing to trend down. Those accomplishments will allow us to shift our attention towards augmenting the capabilities of our strength and platform. While the Entrada acquisition was a great first step in that direction, adding an analytics element rounds out our offering and allows us to move towards meaningfully expanding the breadth of our solution and its coverage of the needs of our stakeholders. We built a much more complete framework and in doing so, we feel like we shifted the conversation towards NextGen being a trusted adviser to our clients. Our conversations had historically been weighted down by a complex business model that read more like a Chinese menu. We've now simplified our solution pricing framework in a way that allow us to introduce new capabilities to the market and fold them into a straightforward and transparent pricing model that aligns with our clients' success.

Having launched the new programs, our commercial teams are now taking the new offerings out to the client base. While the first steps on the path towards growing revenue were ensuring client satisfaction and ease of doing business with us, the next step is to make sure our clients understand the breadth of our enhanced solutions and how these solutions can truly enhance their businesses.

With that in mind, we're about to kick off a 20-city road show to both existing and potential new clients so that our leadership team can meet with senior executives, including myself, and walk them through the new strategic direction of our company. With our new suite of offerings, we've made a major step towards being able to act as a trusted adviser to our clients and prepare them for success in a value-based world. With that, I'll turn the call over to Jamie for an in-depth review of the numbers, and I'll be back with you at the end. Jamie?

Thank you, Rusty, and thank you all for joining us on the call this morning. As Rusty said, this was another solid steady quarter for NextGen Healthcare. Rusty reviewed some of the exciting changes and developments of the business so I'd like to use my time on the call today to provide some color around our financial results for the quarter.

Total revenue for the first quarter of $130.9 million represents a 7% increase year-over-year. Revenue from software license and hardware of $12.8 million, a 13% decrease compared to a year ago. The softness in this revenue line was largely in line with our expectations, and we expect software license and hardware revenue will remain under pressure for the remainder of the fiscal year. Subscription revenue of $23.9 million increased 20% and was driven by Entrada as well as growth across MediTouch, Mirth and [Hosting]. Without Entrada, revenue, or on an organic basis, subscription revenue increased approximately 15% organically. Support maintenance revenue of $41.1 million increased 8% year-over-year. Similar to last quarter, this revenue line benefited from the effect of CPI increases as well as cleanup of past due accounts. As Rusty mentioned, our emphasis on client satisfaction weighed positively on maintenance attrition, which is at just over 6% on a trailing 12-month basis. For the quarter, attrition was approximately 3%. Revenue cycle management generated $21.4 million in the quarter, up 2% year-over-year. This was slightly better than we had expected as attrition from the client that we discussed last quarter has not started as expected. Note we still expect RCM revenues to slow in the back half of the fiscal year. Revenue from the electronic data interchange and data services of $23 million increased 5% year-over-year. The increase was essentially across all products. Lastly, professional service revenue of $8.4 million increased 32% from $6.4 million a year ago. The increase is primarily due to revenue from the Entrada acquisition.

Before turning away from revenue, I want to highlight that recurring revenue reached a record level at 84% of our total revenue. This compares to 83% a year ago. Recurring revenue was $109.7 million, up $8.7 million or 9% from last year. As a reminder, recurring revenue is comprised of our subscription revenues, support and maintenance, RCM and EDI.

Rusty touched on our bookings results earlier on the call but to reiterate, we ended the quarter with $23.4 million. As noted above, we saw softness in our software and hardware segments as customers transitioned away from the perpetual license model. I want to highlight that we experienced solid performance across our recurring revenue solutions. Before I leave bookings, I want to reiterate the point that Rusty made. In conversations with our clients, it has become clear what they need to succeed in the evolving health care world. That clarity has led us to make some dynamic changes to the company over the past year. I feel confident that combining the Entrada mobile platform with the EagleDream analytics capability, along with a simplified business model, will generate the uptick we anticipate seeing in bookings in the back half of this fiscal year.

Gross profit of $71.8 million compared favorably to $65.4 million in the first quarter of 2017 due to higher revenues in [software] development costs, while gross margins of 54.8% compared to 53.5% a year ago.

Turning to our operating expenses. SG&A of $43 million is an increase from the $40.6 million year-over-year. The increase was driven by incremental personnel costs, consultants related to the 606 revenue project and a bad debt expense. As a percentage of total revenue, SG&A decreased to $32.8 million from $33.2 million a year ago. R&D in the quarter of $20 million was an increase from $18.2 million a year ago. The increase in R&D resulted from increased staffing partially from the Entrada acquisition as well as greater utilization of contractors as we accelerate to the release of our latest NGA product. The increased costs were partially offset by higher capitalization at $5.2 million compared to $2.9 million last year, primarily associated with the 5984 release. Our GAAP tax rate for fiscal 2018 is 35.6% and our non-GAAP tax rate was 30.5%. Finally, our GAAP EPS for the first quarter fiscal 2018 of $0.06 compared to a loss of $0.01 last year. Our non-GAAP EPS was $0.17, which compares to $0.15 a year ago.

Turning to the balance sheet. We ended with $23.3 million of cash and cash equivalents, down $14.3 million from last quarter. Additionally, we drew $30 million on our revolver in the quarter related to the Entrada acquisition and payment of the HealthFusion earnout. This leaves us with $45 million outstanding against the revolving credit and total liquidity measured by cash and unused line of $228 million. DSOs of 57 days held stable from last quarter, remaining in our desired range and a decrease from 61 days a year ago.

Overall, I feel increasing confidence based on our performance this quarter as we continue to manage our revenue and expenses to meet or modestly exceed our expectations while investing in making great strides in the core strategy we laid out last year.

Before I turn the call back over to Rusty, I want to update you on our outlook for fiscal 2018. Historically, our fiscal first quarter of the year is typically the lowest. And for fiscal 2018, we expect to see headwinds in the second half of the year, particularly in RCM due to rolling off of customers we've discussed with you at last quarter. As Rusty mentioned earlier, EagleDream is a great capability, and we do anticipate investing to further build out this offering. With that in mind, we're maintaining our previously stated revenue guidance and adjusting our non-GAAP EPS expectations for the full fiscal year. We expect revenue to be between $512 million to $530 million, and we now expect non-GAAP EPS to be between $0.62 and $0.70 per share. That concludes my discussion of financials for the quarter and the remainder of the year. So with that, I'll turn the call back over to Rusty for his closing comments. Rusty?

Thanks, Jamie. We continue to make great progress into the future with our evolving organization and solutions. Over the last few months, Jocelyn Leavitt, our General Counsel over the last 4 years, and I have been discussing our desire to open the next chapter in her career. Jocelyn has been a great asset to this organization and a great team member. To that end, Jocelyn has decided to move out of the GC role and seek that next chapter. She will continue to work with us to ensure an effective hand off to her successor, and I want to personally thank her for the great contribution she has made and will continue to make to NextGen. She will always be part of the NextGen family and will always have a home here. Thank you, Jocelyn.

In closing, we continue to deliver on our strategic plan. We've come a long way in 2 years on so many fronts: client satisfaction, technology execution, financial performance, employee culture and so much more. Our teams are racing towards growth, and we look forward to continuing to update you on our progress, both at our Analyst Day in New York and at next quarter's earnings call. Until then, you can find us on the road making things happen for our clients. Thanks and we'll see you next time. With that, we'll now open it up for questions. Operator?

(Operator Instructions) Our first question comes from the line of Sean Wieland of Piper Jaffray.

So with the -- you're looking at bookings growth in the second half of the year. Could you just comment on maybe some of the leading indicators of that bookings growth that you've got today that you're hearing from your channel, from your salespeople that gives you confidence that, that bookings growth is going to happen towards the back half the year?

Yes, so I'm going to talk first of all about the accomplishments that we've made, right? When we talked to you all back in January, 2 calls ago, one of the things that we said was we're about 6 months behind where we wanted to be in launching the programs that we really feel will enable this bookings growth to show up. As we sit here today, we have released those programs. And so we have basically wrapped our solution into a model that really aligns with the way our customers want to buy and makes it very simplified to do business with us. So that's step one is that we now have a much more simplified offering to take out to our clients, which really casts us in a new light. The second is as we've talked about, we have now -- we've continued to build client satisfaction. When you think about the fact that we've gone from over 10% in attrition down to 7% and just in this quarter took another drop to 6.3%, you can see that -- that the leading quarters, most recent quarters are really pulling that number down. We see that as a reflection of client satisfaction, which is also borne out I think in the feedback from agencies like Class as well as our internal Voice of Client score. So we have a more receptive client base, and we have a simplified offering. We are now also starting to really take this out to the clients. We've already seen the pipeline for Entrada begin to grow. And we've certainly are now excited to be able to bring an analytics offering to the table as well. So as we look at all of those underlying factors, that continues to give us great confidence because we can continue to make progress there. Now we're taking that next step, which is because I need more frequent flier miles, we're going to be flying around the country where we have time set up with groups of clients in cities all across the country so that we can walk them through all these things, create that executive intimacy that has been so powerful for us and truly give the sales team a great head start into the back half of the year. And so when you think about all those things combined with sales discipline, sales process, great messaging, that gives us a tremendous amount of confidence, Sean.

And is the issues at ECW created any changes in the competitive landscape?

You know I mean, I guess I'd draw back, from our standpoint, we haven't seen a massive flight out of ECW. Now naturally Class has come out with a report that says a significant number of their clients are looking to change but if you read further down in that, only about 4% according to them were actually looking to change because of the concerns with how they operated. And so once again, we continue to sell why NextGen, we don't sell why not our competitors because frankly, we feel like we've got a great differentiated offering that allows our clients to bring in a solution that allows them to operate the way they want to operate.

Our next question comes from the line of Jeff Garro of William Blair.

Maybe to follow up a little bit more about bookings. I wanted ask if you could try to parse out what was company-specific in the quarter versus industry-wide and maybe as we look forward, can you maybe see that the timing of certain regulatory pressures like macro and the indecision in Washington on health care reform might be working in your favor as you build up towards this greater amount of activity in the second half of your fiscal year?

Yes, so parsing up, I’m sorry, Jeff, can you maybe just clarify a little bit more what you're looking at from a parsing out booking standpoint?

Yes, absolutely. So we see the quarterly bookings result here, in terms of the level of client activity, in terms of your own win rate, what can you identify that was company specific? And what was more just industry-wide? Were there just overall less demand or were you winning more or less?

I mean, I honestly feel like this quarter was another extension of prior quarters. Now what we have seen is we've certainly seen, as we continue to move more towards recurring business models, we have seen more of a shift within those bookings to more and more recurring revenue. And I think we'll continue to see that trend as we move forward. From an overall landscape issue, I don't know if I'm going to tag it to industry factors. I think we're right now -- we're kind of operating in 2 worlds. We're operating the way we have always operated and now we are getting ready to really pivot and operate in a different way. But that hasn't really shown up yet. And so what you're seeing is kind of a continued extension of good solid execution the way things were but I would expect that to change now that we're coming in with something differentiated from the past. As I look towards the regulatory pressures the back end of the year, I think, well first of all, #1 for us is making sure that our clients, especially our APM clients, our alternative payment model clients, are absolutely ready for the full-year reporting period. And that's really job 1. But as we start to bring things like our new acquisition on the analytics space to the table, which enables our clients to not just report but to actually get early warning systems on how they can affect the outcomes of the reporting, I think that really positions us well, not just to help our clients comply with the regulations but actually thrive within the regulations. Make sense?

Yes, absolutely. Maybe a quick follow-up on EagleDream. You just spoke to why there might be a demand for this solution from your client base but maybe curious on what specifically about EagleDream makes it the right fit for NextGen as, outside of it being a physician-founded business, versus some of the other value-based analytic solutions that maybe are catering more to health plans or integrated health systems?

Well yes, I mean, certainly the cloud-based nature of it, the fact that we can deliver it at price point that absolutely generates value for both our clients and our investors, but also this is a solution that was really developed by somebody who truly understands the -- how to deliver not just a broad analytics suite that allows a data expert to find needles in the haystack, but rather delivers in a very simplified way the actions that our clients need to execute to truly improve their performance. On top of that, when we looked across -- when we looked across the spectrum of offerings out there, EagleDream really has a phenomenal solution. In fact, such a phenomenal solution that in the recent Class ratings, they came out well into the 90 points. So when we looked at client satisfaction, when we looked at our channel checks, when we looked at how people were actually using the application, not in a theoretical way but in a way that drives both value in the fee-for-service world by closing up gaps in care that increase reimbursement but also drive value in the fee-for-value world, by closing gaps in care that drive better wellness for the patient and an overall profitability, they've really got both of those things and they've really done a nice job with it. So we've spent a lot of time looking at solutions out there, and look, I'm not going to characterize other solutions as much to say that we think we've got a great one here, and we're very excited about it.

Our next question comes from the line of Jamie Stockton of Wells Fargo.

I guess maybe first on the bookings. Did you guys recast the way that you're measuring bookings or is it consistent with the way you've been doing it the last few quarters? That would be my first question. And maybe I will follow up on to that, any color on like, that 23 -- I think Jamie said, $23.4 million. Is that number inclusive of Entrada or exclusive of it? I know you guys have adjusted acquisitions previously. So I'll start there.

Yes, we did, Jamie. If you recall, about a year ago at this time, it was my first quarter here. And what I discovered after the first quarterly announcement was that the bookings number that we reported included situations where we were in a competitive bid for a renewal. It was put together by the sales team. Subsequent to that quarter, we changed our methodology to exclude those competitive renewals and that's why the number is different this quarter than we reported a year ago. I believe the number we reported a year ago was somewhere in the $28 million or $29 million range, if I remember correctly. So I think Rusty has given you the updated number at 20 -- I think it's $24.2 million is the correct number. And then I think Rusty used the number of $24.9 million, which included Entrada's booking number last year. And the $23.4 million that I quoted includes Entrada in it.

Okay, that's great. And then maybe just a couple of other quick ones. The comment about the DOJ, is this basically you think just them doing a little fact-finding around their broader penalty that they levied on ECW and making sure that everybody else in the space is a good actor?

Yes, I mean, I can't comment on the mind of the DOJ. But what I'd say is we received a request for information, and we're cooperating with it. As this moves forward, we'll keep everybody updated. I mean, it really comes back. We're focused on transparency with the investment community and so as these things come in, we want to make sure that we're keeping you updated and then just given the fact that we've seen this in a couple of other companies as well, we do feel like it's broader than just us.

Okay. And my last question is just on kind of time line of the various pieces of your platform all converging into what you feel like is a really tight solution. You've gone out and bought this population health solution with EagleDream incrementally and I assume that there's going to be 6, 12, 18 months before it's completely integrated with the NextGen platform. So could you just give us some quick color on how you think about time line, with being able to go out with a robust sales effort, which sounds like maybe it's almost now? And then when the technology is completely rewritten onto the one platform that you want?

Yes, so part of what we've done, especially as we've built out a smart, on-fire compatible restful API around our solutions, that's part of the platform-as-a-service strategy and what that's there for is to enable rapid integration of new solutions with the core platform, whether those are organically developed, whether they are partner solutions or whether we acquire them as we did in this case. I would say right out of the gate, about 80% of EagleDream's interaction with the underlying platform will come through the API. And so it's great that we've done all that foundational work over the last year to truly make this seamless. Now naturally, there will still be some work to really integrate that in. If it's 18 months, I would be shocked, I'm thinking more around 6. And my CTO will probably reach out to me and give me an even better number after this, but we're moving very quickly with it and we feel very good about that. Now as we move forward, the question is not how does an individual asset integrate into the platform but how does an individual asset, how do you get workflows that span not just that asset but other assets that sit on the platform. So I briefly reference, the reality is if I have an analytics suite that's identifying gaps in care and which patients I need to focus on most and that's sitting in a back office in front of a data analyst, that's probably not going to probably close a lot of gaps in care. However, if that analytics suite can then pop that directly onto the mobile device in the palm of the provider when they're about to see that patient and let them know the activities that they need to do to either maximize reimbursement or maximize outcomes, that's actually a pretty powerful solution. So if you think about it, one is just analytics on the core data, but the other is analytics truly informing practice. And I think that's what you'll see as we move over the next 6, 12, 18 months is the really coming together of use cases that span the entire solution platform.

Our next question comes from the line of David Larsen of Leerink.

Rusty, can you talk about the sales force, how many reps roughly do you have now? Where are you in the hiring process? And then do you have any comments around the leadership of the sales force, any sort of adjustments in strategy like a hunter/gatherer model? Any thoughts around regions, geography, anything like that would be helpful.

Yes, I can actually. So a couple of things. First of all, let me talk a little bit about the leadership of the sales force first. So we have made some adjustments in leadership. We've made some adjustments in structure as well. So from a leadership standpoint, we did bring in a new Senior Vice President of Sales, a gentleman named Mitch Waters who's doing a great job for us, comes with a long experience from McKesson. We've also brought in a number of new regional vice presidents. In fact, what we've done is we've expanded our regions because as we see moving into a much more aggressive posture, having that player/coach with maybe a smaller fan out from a sales team really enables that kind of client intimacy but it also, during a time of transition, when we're taking our great sales team and really training them how to do things differently and bringing new solutions to them and asking them to call wide and high in the organization, having somebody who can really help them in their development and really help them get there is very powerful. From a total number of sales reps.

It's about 70.

It's about 70, it's relatively stable at this point in time. But as we've moved through the past year, we have had some turnover, that was kind of expected as we really transition from selling products to solutions and some folks prefer to go in a different direction. We feel good about the progress we're making and certainly as we get out there and as I spend time with the sales team, sales team's increasingly excited, especially because they've really gone from gathering negative client feedback to having happy clients that are really starting to believe that we are their partner.

Okay. And what do you expect that 70 figure to be a year from now?

I don't really know. It's always going to vary on opportunity. It's a function of what our revenue growth plan is. It might come up another 10 people. But honestly, I'm not -- I don't have a great answer there because it's something that we deal with on a quarter-by-quarter basis, depending on the opportunity and depending on what we see out there.

Okay and then just one more. Can you comment on the technology solutions itself? Any thoughts around like the number of fixes that have been implemented over the past 1.5 years since you've been there, Rusty? Any thoughts on new upgrade cycles? And then I don't know if I missed this or not but what was the Net Promoter Score and how has that trended over the past, say, 2 years?

Yes, so let me start first with on the technology side. We just had our large client user group in June. Coming in, my first large client user group was frankly, it was a little tough. We had some really, really unhappy clients out there. As we came into this large client user group, there's still a couple of areas we're skinning our knees but it was interesting. We've taken 50% of the time out of the upgrade process and in the next release, we're going to drop another 50% of that time. In fact, we've gone in some places, in many cases, we're able to actually do upgrades overnight instead of over a weekend and so we're really seeing a significant -- a much more frictionless upgrade. That was one of my commitments early on to the client base. The next is we fixed thousands of defects in the software and truly made the software much more robust. And the feedback from the clients is that they're feeling it. We have a couple of areas where we skinned our knees but out of over 300 upgrades, I'd say we had about 4 or 5 that went a little sideways and in each of those, we got in there and the feedback from the client, even in areas where maybe they hurt a little bit was, you guys are there, you're accountable and boy, it's a whole different world. So from that standpoint, we feel very good, and we feel like we will continue that. I mean, we've really changed our processes where we are testing against large client databases, we're doing performance testing. We're doing all the things necessary to deliver a great result to our clients on top of our technology and so we feel very good about that. And it's starting to show up, and it's really showing up in our Net Promoter Score. I mean, when I showed up, Net Promoter Score was somewhere between minus 50 and minus 60. As we sit here today, we're at minus 5 and continuing to trend upwards. So the client base is noticing. The numbers are showing it. It's showing up in our Class scores. It's really showing up across the board. And even then, the Class, on the recent Class article, they did call out the fact that we had a cap in analytics and well, here we are. So I really feel like we are listening to our clients. We are responding incredibly well and we are creating confidence in our clients and our employees and hopefully in you, our investors.

Our next question comes from the line of Michael Cherny of UBS.

So Rusty, just thinking about some of the investments you're making particularly following today's deal. As you think about the pathway forward, I know you've targeted some longer term goals of what you want the company to get to, how do you think about the mile posts that you're measuring yourself against in terms of making sure that the investments you're making are driving the revenue growth that you want, that the acquisitions are hitting the return hurdles. Just think through the process as you evaluate that those targets are, I don't know if they're aspirational or official targets, depends on how you think about them, but over the next few years of returning towards that double-digit revenue growth rate that you were hoping to get to.

Yes, for sure. Well first of all, it's always interesting. Deal models aren't the thing that gets the deal closed. Deal models are the thing in which you measure yourself for by year after year. So when we look back, first of all, what gives me confidence? #1, when we look back at the HealthFusion acquisition early on in my tenure, HealthFusion continues to perform well and grow nicely. We actually had a great bookings quarter just this last quarter. And so that continues to grow and thrive. Entrada already integrated into the solution. We're already starting to see bookings growth. In fact, they out -- they beat the plan in bookings in our deal model. And so as we look at those things, they continue to give us more confidence that we can acquire and integrate, and integrate very effectively. On top of that though, as we look -- these aren't just acquisitions we're going out and finding. We sat down and did a complete strategic work-up of the marketplace. We brought in a consultant to help us really understand from a data standpoint what was out there, and we identified key areas that are absolutely relevant and important to our clients as we move forward. And so as we sit here today, we have -- we are just ticking down that list and really getting to the point where we feel like we have now a complete solution because our clients are not -- many of our clients are looking for a one-stop shop. They don't want to have to bring a solution in from over here, a solution in from over there and a solution -- and then assemble them together. By providing that consolidated solution and by finding some great capabilities that were developed outside, we feel like we can take those capabilities and because we've built a much stronger organization, we can be a better owner of them and truly drive revenue growth within our clients. Now as we've had -- we've done some channel checking and frankly, we've done some, I guess I'd call it, relatively oblique questioning of some of our large clients, specifically around our analytics solution much like we did with Entrada. And I've got to tell you, the appetite is high within our client base for these types of solutions. And they are looking at us as the natural provider of them. So all these things together really give me confidence. Now how are we grading ourselves? I guess when I sat down with you for the first time, I said I am going to focus on clients sat, and I'm going to focus on being a transparent organization. I think we achieved -- we are achieving that very well. A little later we said, look we are going to start to really look at both organic and inorganic means. We've checked that off and done it effectively. We then said we're going to restructure the organization and become a consolidated solution provider, both in structure, in approach and in strategy. As we sit here today, we've got a single consolidated organization. We've got an increasingly connected solution bundle. And we are now taking that to market. And so when I think about how we have messaged the investor community, the milepost we've set for ourselves and the accomplishments that we've made, I feel very good about it. I always want to be further along than I am but we're working pretty darn hard and making some real progress.

You mentioned the holistic approach towards serving the customer and giving them a one-stop shop suite of solutions. As you think about the pathway forward, do you feel like you need to be back in the inpatient market? Do you feel like you can accomplish that holistic approach without having an inpatient suite of solutions?

We absolutely do. Our clients are independent clients that are proud of their independence and that many of them are growing and rolling up and trying to own the covered life and then to work with critical -- multiple health systems for critical care services. Certainly, part of the market has consolidated around health systems but part of the market has consolidated as ambulatory providers and from where we sit today, we see a lot of, as we've always talked about, a lot of white space within our client base. And we think based on the satisfaction and the capabilities of this organization, we're well set up to create a growth path in a very strong ambulatory client base.

Our next question comes from the line of Mohan Naidu of Oppenheimer.

Rusty, maybe one more on the bookings side. How much of the acceleration that you're expecting in the second half of this year is dependent on you rolling in Entrada and EagleDream into your platform and selling it? Or can you start selling the current offering directly from EagleDream?

So first of all, we can start selling the current offering from EagleDream. How much of our bookings is dependent on those? I would say that we're not going to get into that kind of sub-detail within the bookings. But look, it's Entrada, EagleDream, NextGen Ambulatory capabilities, our financial solutions, which includes our RCM services, EDI, it's all wrapped into one business model that scales with our clients' success. And so I would say we feel like it's really the combination. It's the combination and it's not really at a subsegment level on each product.

Okay. Got it. Just one follow-up on EagleDream. Can you talk a little bit more about the revenue model and how many customers EagleDream has right now?

Yes, well, as I said, they've got about a dozen clients right now, none of which are actually in the NextGen base. So it's a lot of white space in our base. And from a pricing model standpoint, today, they're pricing on a per provider per month model and but as we roll it into our model, it will be rolled into the overall model.

Our next question comes from the line of Sean Dodge of Jefferies.

Jamie, just clarifying one of the last points you made in your prepared remarks. How much of the adjustments to the EPS guide relates to the investments in EagleDream versus the impact of the rev cycle client unwinding? And then the EagleDream investments, will those be done this year? Or should we expect some amount of that to carry into the next?

So the adjustment to the EPS guidance is due to the investment we're going to make in EagleDream.

Entirely.

Entirely.

We've been talking about the RCM, that there was a client that had notified us that they were rolling off. We've been talking about that for a couple of quarters actually. That was built into the guidance.

Got it. And then the incremental investments in EagleDream, those, would that integration work be done this year? Or is there some amount of the integration and development then that you expect to carry forward?

I would say integration and development will happen this year. As we move into next year, it's really more accelerating development. It's interesting. Bringing in an analytics offering. In the past, we've kind of been an open-loop solution. We provide a great process enablement software. The missing piece has been that continuous improvement feedback loop. By bringing in this analytics solution, we now can allow our clients, instead of waiting until the end of the year when they report to figure out whether they're going to be successful, we can now allow them to actually effect that success starting day 1. As we start to get deeper in with our clients on this, I expect further opportunities to really delivery value to our clients, not the least of which is actually starting to give them a road map for as they want to expand, how do they profitability expand in markets around them. So when you start to think about the capabilities that we can layer in here, my guess is that this is going to be an exciting investment area for us next year based on the success we're going to see with the client base.

Okay. And you Rusty, you mentioned 80% of the work, I think, that's done with the EagleDream platform can be done through your Fire API. So if I think about from the standpoint of the physician, how quickly can the implementation of EagleDream then be done?

Let me hold that question. And because we're just at the acquisition here, we haven't -- we've signed the deal, we haven't closed the deal. And so I'd like to get a little more mileage under the keel before I provide an expectation on that.

Our next question comes from the line of Ricky Goldwasser of Morgan Stanley.

When you think about the portfolio that you have today with the 2 acquisitions that you completed in the last 12 months in your core offering, do you think that you still need to augment the portfolio with some additional acquisitions? And what other areas do you think are needed to round up?

Yes, what I'd say is I think we have a very full solution right now. Now naturally, there are always areas that we may look at both from a partnership, organic and inorganic standpoint but it's not something I'm really comfortable talking about on the open mic because that's really indicating future direction that we're not comfortable talking about, frankly, in front of the rest of our industry. But what I would say is right now, our focus is truly on execution and bookings growth. That being said, we are a company that generates free cash flow. We're a company that's shown that we can put money into the market to acquire something and generate value after that. And so if something comes that's truly a win for our clients, creates great value for them and in return creates great value for our investors, it's something that we will look that. But right at the moment, we're pretty focused on bookings growth.

And our next question comes from the line of Garen Sarafian of Citigroup.

Could you elaborate a little bit on the streamlined pricing structure, maybe give us an example of the 2, Rusty? And specifically you mentioned it's more aligned with your client success. So could you elaborate a little more there as well with any specifics? Is there any sort of, is it more incentive payments or is it just on a percent of their revenues? Any changes that are behind that streamline pricing structure comment would be great.

Yes, we tend to stay away from the word streamline for obvious reasons. But no. It's a consolidated pricing structure that really is coming in and that is directly aligned with their financial success. And so it is a percentage of their financial success within this. And then based on how deeply they interact with the solution, that scales.

Okay, fair enough. And then just a clarification on an earlier question on the inpatient opportunity. I wasn't sure I understood the response. Was that you're happy with the outpatient and the white space available or is that truly...

Yes, I'm absolutely happy with the outpatient market, the ambulatory market and the white space that's available.

And were you interested and do you feel you have a need for an inpatient solution or entry into the inpatient market then?

I do not.

Our next question comes from the line of Matthew Gillmor of Robert Baird.

I just have a very brief follow-up. Jamie, I think you mentioned that the support line benefited from some similar cleanup of past due accounts. Was that about the same amount as last quarter, which I think was about $1 million?

Yes.

(Operator Instructions) Our next question comes from the line of Stephanie Davis of JPMorgan.

Could you talk to the EagleDream health assets, just how it compares to your current pop up offerings given you did have some analytics capabilities already? And maybe what incremental functionality it adds to your portfolio?

Yes, absolutely. So with our current pop up offerings, one of the things we have is the Mirth care platform, which is a great platform for cohort identification and really managing gaps in care. However, the analytics suite was not our strongest asset and therefore, it was not identifying the places to use some of our pop health assets. By bringing in EagleDream, which has been developed by somebody who truly understands the population health market, truly understands value-based care but also truly understands how to find gaps in care, we now have something that we can identify the population that needs the most help. On top of that, as we move forward, we really see the ability to really bring those 2 things together, along with Entrada into a really powerful combination that not only identifies problems but truly allows those problems to be addressed. So we looked across the market for a while, and I'm an engineer by training. It's interesting. Engineers as a general rule tend to write a lot of reports by looking at the data and figuring out what reports they can write. A physician who is truly responsible for closing gaps in care instead looks at the client use case and then figures out how to bring just the right data necessary to support the insights to truly make changes. So it becomes much more of a client use case-oriented solution. When we saw EagleDream, we looked at what they can bring out of the box. We talked to some of their clients and frankly, they're doing a phenomenal job, and we think a better job than almost anybody else in the industry. So we're very excited about that.

Good to hear. One quick follow-up on your guidance, could you talk to the drivers of the reiterated revenue range given the [munching] with the acquisitions you made? Is it just conservative driving, conservatism driving this, or is there anything to call out for the rest of the year maybe on attrition or kind of [known] losses?

Yes, no, this is really -- look, the reason revenue guidance is where it is, is because while we haven't seen the roll off that we were notified of a couple of quarters ago, happen yet, we still fully expect it to happen within this year. And so yes, you're right, if you take the number and multiply it by 4, and add a little bit of a Q4 up, you end up with a different number. But when we factor that in, which is something like I said we have been notified and therefore, we have built it into the forecast because it seems very real.

Our final question will come from the line of Gene Mannheimer of Dougherty & Company.

I'm still trying to get a feel for the bookings growth that you contemplate in the back half. How much of that is through your acquired businesses versus what I would characterize as legacy NextGen? And then my follow-up would be on EagleDream. Is that something that you would offer to your MediTouch clients as well as your larger practices?

Yes. So legacy, we are not going to drill too deep into the components of it, Gene. This isn't as much of we've just added a new thing in the bag and people can go out and sell it as much as we're now bringing a consolidated solution that has full breadth and depth in it. And so it isn't -- it is neither the new things nor the legacy things. It's the combination of those combined with a great performing client-focused organization that generates value. And so we really feel like it's not the individual components, it's the totality that is emerging, the one-stop shop for an entire solution that's emerging that is truly going to drive the bookings growth. And I’m sorry, I forgot the second part of your question.

MediTouch.

MediTouch? I'd say our first focus is on the NGA client base but certainly we see great opportunities in the MediTouch base as well and expect us to comment more on that as we move forward. And the great thing about EagleDream is, it is a very portable cloud-based solution.

Thank you. Well with that, we're going to close it done. Appreciate all the questions from everybody. For those of you that we'll see at Analyst Day, we'll see you there and the rest of you, we'll talk to you on the next call. So thanks a lot.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.