TruBridge Inc (TBRG) 2020 Q3 法說會逐字稿

Good afternoon, and welcome to the CPSI Third Quarter 2020 Earnings Conference Call During this conference call, we may make 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.

We caution 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 our public releases and reports filed with the Securities and Exchange Commission, including, but not limited to, our most recent annual report on Form 10-K.

We also caution investors that the forward-looking information provided in this call represents our outlook only as of this date, and we 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 turn the call over to Mr. Boyd Douglas, President and Chief Executive Officer. Please go ahead, sir.

Thanks, [Drew]. Good afternoon, everyone, and thank you for joining us. After my brief opening comments on the quarter, I will hand the call over to Matt Chambless, our Chief Financial Officer, who will provide additional color regarding our third quarter numbers. At the conclusion of our prepared comments, the 2 of us, along with David Dye, our Chief Growth Officer; and Chris Fowler, our Chief Operating Officer, will be available to take any questions you may have.

We closed out the third quarter with solid results across the board. At the heart of the quarter's performance is the determination of our dedicated employees as they continue to provide the support, services and innovation our clients expect. While this year has certainly brought its fair share of challenges to us all, we have been honored to support our clients in a manner that kept everyone safe and allowed us to tap into our collective creative and operational flexibility. There is no doubt that we have learned much from this experience that will benefit us moving forward.

As Matt will discuss, we are pleased with our third quarter financial metrics and the trends they signal toward our goal of long-term recurring revenue growth. While health care providers continue to deal with unpredictable fluctuations in patient volumes due to COVID, TruBridge benefited from an increase in elective health care procedures this quarter.

In addition, Evident executed on a healthy net new EHR implementation schedule. Our third quarter bookings of $21.5 million included the strong performance in the net new Evident EHR sales, along with the second consecutive solid sales quarter for post-acute, the pickup in TruBridge bookings of 31% over the previous quarter. Highlighting the acute EHR sales this quarter were the 7 deals we signed, which put Evident net new system bookings for the first 9 months of 2020, up 65% over the same period last year.

I am particularly pleased to share that we also saw an increase in the adoption of our Get Real Health patient engagement products, both in the U.S. and in Canada. The health information exchange for the state of Maryland has selected the Get Real Health platform as their statewide patient engagement solution for reporting COVID results. In addition, the health exchange for the state of Rhode Island is expanding their relationship with the Get Real Health patient portal by using the system to help track COVID-19 test results and symptoms for residents testing positive and to help facilitate the secure exchange of patient data from disparate providers and organizations throughout their regions.

The patient portal also surpassed an impressive milestone of engaging more than 0.5 million users throughout the Canadian provinces of Alberta and Saskatchewan and is on pace to be in use by over 750,000 residents by the end of the year.

With this momentum, we continue to gain confidence in the international opportunities in Canada, the Middle East, EU and Asia Pacific that are attributed to Get Real Health and expect this accelerated adoption to have a positive impact on those efforts.

Finally, as we stated on previous calls this year, our conservative nature, in combination with tightly managed finances, has served us well over the past 9 months. With that in mind, we anticipate being in a position to provide long-term guidance metrics when we release full year 2020 results next quarter. At this time, I would like to turn the call over to Matt for a deeper dive into the third quarter results.

Thanks, Boyd, and good afternoon, everyone.

On today's call, I'll provide a high-level overview of the quarter, including some additional detail on bookings performance, a brief walk through of our third quarter financial results and some commentary about our recently announced share repurchase program.

Starting with bookings. Total bookings for the third quarter of $21.5 million marked a 7% sequential improvement, but were down 9% versus a tough comparative from the third quarter of 2019. System sales and support bookings were up slightly compared to the third quarter of 2019 with the continued resurgence of activity in our post-acute segment, making up for a less robust demand environment for add-on applications within our Acute Care EHR base.

Our post-acute segment posted bookings of $2.2 million, narrowly surpassing last quarter's amount for the highest booking period for this segment in 15 quarters. The strength in year-to-date post-acute bookings, which already surpassed all of calendar 2019's amounts, are an encouraging sign that the recent investments we've made in the related product suite are being recognized and appreciated by the market with the related recurring revenues seeing their first sequential increase in nearly 2 years. Including add-on sales, subscription arrangements made up 48% of the third quarter's total EHR bookings as we continue to execute on our strategy to drive long-term recurring revenue growth by emphasizing our SaaS offerings throughout the sales process. Specific to net new Acute Care EHR bookings, over 70% of the new contracts signed in the third quarter were SaaS.

Moving over to TruBridge, bookings were up $1.9 million or 31% sequentially behind a rebound in net new bookings from outside of our EHR customer base, with the related bookings increasing $2 million or 130% from the second quarter amount. Compared to the prior year, TruBridge bookings were down $2.5 million or 24% as the third quarter of 2019 marked the second highest level of TruBridge bookings in our history, posing a difficult comp for this quarter.

We'd like to refer you back to the tables in the earnings release for the composition and conversion time frames for quarterly bookings and the historical volumes and license mix for net new Thrive acute care implementations. With regards to the near-term outlook for this metric, we currently anticipate 3 new client facilities going live with our Thrive solution in the fourth quarter of 2020, with all 3 expected to go live in a cloud or SaaS environment.

Turning to the financial results for the period. A robust implementation schedule, coupled with the continued recovery in patient volumes for our hospital customers, which correlates strongly with TruBridge revenues, led to a sequential increase in revenues of nearly $9 million or 15% and a $4.4 million or 60% increase in adjusted EBITDA. Compared to the third quarter of 2019, revenues were effectively flat and compression on TruBridge's gross margins drove a 3% decrease in adjusted EBITDA with related EBITDA margins decreasing from 17.8% to 17.3%.

Recurring revenues made up roughly 83% of total revenues during the quarter, increasing 7% sequentially on the heels of the improved patient volumes, but still down 1% year-over-year as patient volumes have yet to fully recover from -- to pre-pandemic levels.

Looking deeper at our segments, TruBridge revenues increased 13% sequentially on the heels of improved patient volumes at our client hospitals with the related gross margins improving from 44.6% to 45.3%. Revenues were relatively flat from the third quarter of 2019 as the revenue contributions from new TruBridge client wins over the trailing 12 months have mostly been offset by the pandemic's lingering impact on patient volumes. Although patient volumes have improved overall from the second quarter, we're still experiencing volumes roughly 15% below pre-COVID levels with any further improvement currently proving stubborn.

While revenues were flat year-over-year, our capacity and cost structure had scaled to align with pre-pandemic volumes. As we've mentioned on previous earnings calls, we made the strategic decision to provide our employees with much needed job security, taking the long-term view that this would strengthen our team, improve customer satisfaction and better position us to capture opportunities as our markets recover. As a result, we haven't pulled any of the cost containment levers at our disposal, sacrificing short-term margin to protect capacity for future growth, gross margins decreasing to 45% from 49% in the third quarter of 2019.

Next, system sales and support revenues increased $5.7 million or 16% sequentially behind the strong implementation schedule. Revenues decreased $600,000 or 1.5% from the third quarter of 2019, mostly as our post-acute segment experienced regulatory catalysts during 2019 that drove nonrecurring revenues and SaaS revenues for our Acute Care EHR segment continue to be negatively impacted by the pandemic's impact on patient volumes.

Over half of our SaaS revenues come from nTrust arrangements where our cloud EHR offering is paired with TruBridge services. Our billings and revenues for nTrust contracts are based on a percentage of the hospital customers' cash collections, which are understandably still under pressure. These revenues were still up $1 million or 67% from the previous year due to the dramatic shift in license mix that we experienced over the past 12 months.

From a margin standpoint, the sequential top line improvement drove gross margins to increase sequentially from 55% to 56%, while decreased travel cost allows margins to expand from the third quarter of 2019's 54% despite the slight decline in revenues.

Moving on to operating expenses. Product development costs were relatively flat sequentially. The capitalization of $800,000 of software development cost during the third quarter of 2020 was the leading contributor to a $600,000 or 7% decrease in product development costs year-over-year.

As a reminder, the capitalization of software development cost is new to CPSI for 2020 and is the direct result of GAAP capitalization requirements for the investment we're making in the development of our single platform solution for all care settings, a multiyear endeavor that we discussed on previous calls.

Sales and marketing costs increased $1.2 million or 23% sequentially as the improved top line drove commission expenses higher. Costs decreased slightly from the third quarter of 2019 primarily due to decreased travel costs. General and administrative costs increased $0.5 million sequentially due to an uptick in nonrecurring charges and increased $400,000 from the third quarter of 2019 as increased bad debt expense was mostly offset by improved employee benefits costs.

Closing out the income statement, our effective tax rate during the quarter was 16% compared to 4% during the third quarter of last year. The third quarter of 2019 saw some outsized benefit related to R&D tax credits, which don't necessarily correlate with pretax income, resulting in a heavy benefit to the effective rate. From a cash flow standpoint, operating cash flows of $8.1 million were effectively flat with the third quarter of 2019 and down $9 million sequentially, mostly as this quarter had an extra payroll run. DSOs improved from 49 at the end of the second quarter to 45 at the end of the third quarter despite a $2.2 million expansion in receivables. DSOs were at 53 a year ago.

Trailing 12-month operating cash flows stand at $51 million or 111% of adjusted EBITDA over the same time frame compared to $35 million or 69% of trailing 12-month adjusted EBITDA a year ago. This continued strength in cash flows has allowed for a net reduction in bank debt of $31 million during the past 12 months, with balance sheet cash increasing nearly $8 million over the same time frame.

Finally, as you're likely aware, in early September, we announced that our Board of Directors have authorized a share repurchase program, providing for a maximum of $30 million of share repurchases to be executed over a 2- year time frame. At the same time, our Board suspended our quarterly dividend indefinitely. These decisions build on a multiyear evolution of our capital allocation strategy that prioritizes flexibility to allow for more opportunistic uses of capital.

We've been strategically working towards this moment for the past couple of years, first, working to reduce leverage then refinancing our credit facility to achieve more favorable terms. With our targeted flexibility achieved, we're now well positioned to pursue a multifaceted capital allocation strategy that employs value-based stock repurchases while maintaining abundant capital to continue to invest in our business and pursue attractive acquisitions that strengthen and broaden our market position.

Specific to the share repurchase program, our primary rationale is to capture value from undervalued shares, using the program as a flexible tool to enhance shareholder value and return capital when prudent. With value as the primary factor, the cadence and volume of our purchases will be influenced by a number of factors, including valuation, capital needs and availability, potential M&A, cost of replacement capital and other capital allocation alternatives. Capital allocation alternatives and priorities may evolve over time. So a lack of repurchase activity in a given quarter may not reflect our views on the intrinsic value of our stock.

Specific to the third quarter, we executed no share repurchases as we conservatively opted to delay implementing the program until our next open trading window.

And with that, we'd like to open up the line for questions.

And our first question will go to Donald Hooker with KeyBanc.

So, yes, I was curious, you had commented you had won some Get Real Health deals in, I think, Maryland and Rhode Island. Can you help us sort of maybe scope that in terms of size? And how long those potential new revenue sources could last for?

Are these onetime revenues? Or are these going to be recurring? Can you help us sort of think about how that affects the model going forward?

Yes. They're recurring based on a SaaS model, Don. And I think both contracts are for a period of 3 years with extensions. And it's based on utilization. So it's initially, obviously, the push for virtually everything that's happening in the last quarter with Get Real Health as it revolved around COVID testing results and having easy access to that from your portal patient engagement platform.

And that's the case with the 2 that you mentioned here as well. So -- but obviously, we hope to expand upon that. And just the general use of these applications and the engagement platforms going forward, of course, in Maryland and in Rhode Island, but in other places as well, in particular in Canada right now, where we're having additional success.

So each of these are essentially immaterial on an annual basis, but cumulatively, they have the potential to add up as we add more, generally around the $200,000 range annually with the potential to grow substantially more.

Okay. Super. And then maybe more broadly, what -- how -- where are you in terms of sort of consumer strategy, I guess, using Get Real Health and other technologies you have portals and whatnot, sort of helping your health system health provider clients sort of work in this new environment of COVID maybe digitally with patients or whatnot?

Yes, Donald. So what we have -- where we're working, and we've got a couple of cases of this now out there in pilot is where we see we can really bring that patient portal. And again, it's more than the portal, it's a patient engagement platform, is to get the disparate systems together. And so that a patient in a community, they may see 3 or 4 or 5 different providers and have a couple of hospital stays.

And with CHBase, which is the underlying portion of the instant PHR, all that data can be consolidated, again from the disparate providers and the patient only has to have one portal. And so the feedback our communities are getting from that is extremely positive because it's really confusing to have 4 or 5 different portals from your different providers, and we can consolidate those. So that's where we see the biggest benefit.

And one last one, really quick. Is this -- that -- am I thinking about that as an area of investment focus for you going forward? Is that where you're going to be putting capital? Or is that not high on the totem pole?

No. I -- well, in general, we're certainly investing in GRH, not only domestically, but internationally as well. So we definitely see that as one of the growth engines of the company.

Yes. And to speak on Boyd's answer to the previous question, Don, regarding the strategy, I mean, he focused on, and I think your question was more focused on domestically. But certainly, we are seeing recently increased -- we mentioned it on the last call, it continues to increase the demand for these type of products, specifically around nationalized health care systems in Asia Pacific and the Middle East.

And obviously, we mentioned our success already in Canada and the -- how the volumes continue to go up there on a regular basis. I mean we're projecting an increase of 300,000 to 0.5 million in the population in the western provinces of Canada, and we expect that to continue into 2021. So certainly, we are investing in increasing our ability to sell to those other international opportunities as well.

Our next question is from the line of George Hill with Deutsche Bank.

So Boyd and David, as I think about the Business Management segment, I guess, can you remind us how much, I guess, both maybe the revenue and the margin tied to what we would call the number of transactions that you guys process for your clients versus how much of it is performance-based?

I guess, kind of trying to figure out the number of transactions versus the value of those transactions that you process for your clients would be question A.

And question B, would be you guys have some pretty good geographic dispersion. I guess, could you talk about the -- kind of the volumes that you guys are seeing in those elective procedures in some of the rural work -- markets versus some of the suburban markets that you guys serve?

George, this is Chris. I'll take a stab at the first one because it's a little convoluted from an answer standpoint because there's some overlap there. About 80% of TruBridge's revenue is transaction based, but also inside of that, to your point about performance-based, while we do have our accounts receivable management and our early-out services or performance-based, they're still transaction related.

So that would be included in that 80% number. That's probably just taking a quick swag. I would say that's somewhere about half of that, maybe a little more than half of that 80% is going to be on the performance side. So that's the first -- that's answering the first question. Well, could you ask the second question one more time?

Yes. I guess, the second question was given your geographic footprint. It's hard to find vendors that kind of have to touch the different segments of the market that you guys do. A lot of people are focused on the rebound in elective procedures.

You guys see it both from a documentation perspective as well as a billing perspective. I guess maybe I think David talked about still running about that 15% number below baseline. I was going to say maybe if you could just spend a couple of minutes commenting on what you guys are seeing in kind of different markets by -- I'd say, by like rurals versus something that's more suburban?

Yes. What I would say we're seeing, George, is pretty consistent across the map, and it's more service line related to -- so to your point, we've seen a nice boom on the elective services, specifically in our surgical facilities, where we've seen that increase there. But I would say, by and large, where the biggest impact has been negatively across the board has been through the ER.

So those -- that volume is not -- to your point, it's kind of remained static at that 15% to 20% off of pre-COVID levels, which may long-term actually end up being a good thing as that's -- while it's high utilization, the reimbursement and the level of care may not always be the proper use of that space. So long term, it may actually be a positive outcome. But I would say, regardless of where we are geographically, we're seeing the elective services up, which I think is a catch-up from the 4 to 5 months of where those were not being performed. So that is going to come back down a little bit.

And I do think that the question, well we continue to ask, is that off on the removal of that ER business? I don't think it's going to show back up in the utilization.

And our next question is from the line of Jeff Garro with William Blair & Company.

I want to ask a little bit more about the booking successes in the quarter. And I'll start with TruBridge. In the past, TruBridge bookings have been lumpy, but there's been improvement this year and I would say a higher floor than previous years.

So any combination of market factors or change in go-to-market strategies that you guys would call out?

So 2 different parts of that, Jeff. I would say in the base that we're seeing the interest, and we were really off to a great start at the -- just carrying the momentum from the end of 2019 into 2020. So we were kind of off to a breakneck pace with that. And obviously, we've seen that slow a little bit. But I would say here towards the end of the year, we're picking up some momentum. And I would give that credit to just from a sales standpoint that we're getting better at positioning the value for the customer with the service.

So combined with the converting their software license to SaaS, which opens up their availability to the new innovation we're delivering, plus the efficiencies that we can bring on the on the services side, coupling those together is really starting to resonate in the customer base.

And then on the net new side, honestly, what we're seeing right now, on top of mind would be the success we're having with the price transparency. And that -- while it's generating a nice little bump in the bookings, it's also continuing to get our name out there and adding logos to our opportunity to convert and up-sell into.

Great. That's helpful. And a follow-up with the -- another bookings-related question this time on the post-acute market. Just curious if the momentum there, is it from better wallet share or better market share?

In other words, is it competitive displacements? Or is it simply a higher prioritization of -- or on IT spend in those facilities?

Yes, Jeff, we've talked a lot over the last almost 2 years now about the efforts in -- we put into our development with regard to the post-acute product and that it was a 2-year project and we're at the end of that time frame now. And that we firmly believe in our -- from our customers are telling us that the increased bookings that we're seeing there is a direct result of that improved software. The majority of it is add on clinical software sales to current customers, but it also includes some net new wins as well.

Our next question is from the line of Sean Wieland with Piper Sandler.

So I just want to continue to follow-on on the bookings conversation. The $10 billion that was targeted to rural hospitals, how much of that do you think has had an impact on your bookings trends? And how much more of a tail do we have left on that, if any?

It's a great question. That's -- I don't know. It's very difficult to give a specific answer. It's maybe easy to give you a feel. I definitely think that, A, you mentioned has helped with confidence. Obviously, it's helped financially, but just in terms that the bipartisan support that the hospitals have received as a result of COVID and all the attention in the press that's been out there has given them confidence to spend what they need to spend in order to keep up and be competitive from an IT stand -- and from a services standpoint.

So -- but the second part of your question is when and if does that dry up? I don't really think that's -- that happens. I mean, I think as long as they're viable and in order to continue to be competitive, they're going to continue. Price transparency is a great example.

I mean that's something that they have to have in order to be reimbursed and in order to remain competitive. So we don't feel as though they're looking at it like, "Hey, we better spend this money now and because if we don't get it again, we're not going to have the ability to do so."

All right. And on GRH, can you size this business for us today? And what percentage of the business is U.S. versus international?

Yes. So GRH's contribution to the P&L this quarter, revenues were $0.5 million. That brings them to $2.2 million year-to-date, $4.9 million over the trailing 12 months. Bookings were about $0.5 million this quarter compared to $300,000 last quarter, and they came in at around $400,000 same quarter of last year.

From an EBITDA standpoint, we had an EBITDA loss of $800,000 this quarter. That brings EBITDA loss year-to-date to $1.8 million and trailing 12 months to just under $0.5 million. And from a year-over-year comparison, both revenue and EBITDA basically flat versus third quarter of last year.

That is a refreshing amount of transparency. How about the mix of U.S. versus international?

Yes. I'd say that the overwhelming majority of the revenue there is international right now to the point to where I'd confidently peg that at somewhere between 85% to 90%.

(Operator Instructions)

Our next question is from Stephanie Davis from SVB Leerink.

This is Joy Zhang on for Stephanie. Congrats on the quarter.

Thank you.

I want to focus my question on the move towards SaaS revenues. Now it's been a strategic focus of yours since before the pandemic. And obviously, COVID hasn't made things easy, but can you update us on what kind of progress you made on the cloud transition front? Maybe remind us what the SaaS revenue mix is now and where it can ultimately go to.

Well, thanks for the question there on the SaaS mix, and we are excited. We think that right now, with the scheduled -- the 3 scheduled implementations in the fourth quarter, it's looking like the year is going to round out to about 25 net new acute care implementations for our Thrive application. And of those 25, right now, we're looking at about 17 of those coming in, in a SaaS environment.

And coming into the year, we were expecting somewhere around the 50-50 split. So we've kind of surpassed our goals as far as on what the SaaS mix is going to turn out to for this year. And going forward, it looks like that transition from perpetual to SaaS is only going to continue and increase in mix towards SaaS.

That's helpful color. And for my follow-up, some of your competitors on the end-to-end rev cycle side and spoke to growing traction as hospitals are trying to maximize their collection rates. Have you been seeing similar trends for TruBridge?

Yes. I think there was a period where there was a lull right at the beginning of COVID and for the 4- to 5-month period. But I do think that we are starting to see that same optimism from the sales team as well.

And our next question is from the line of Steve Halper with Cantor.

If you think about the lag between procedure volume and billing, you obviously saw some revenue pickup in TruBridge on a sequential basis, understanding that you're probably booked. Well it sounds like a lot of your customers are stuck at like 15% below pre-COVID levels. Is it safe to assume that you'll still see a fourth quarter sequential increase because of that lag?

Yes. So Steve, right now, the way we're looking at the fourth quarter, we do think that patient volumes have kind of stabilized at this 15%, and they've stabilized there for a pretty good while. And we think that the recovery was early enough into Q3 to where Q4 revenues are going to be a little bit more flattish.

So I wouldn't expect that the big bounce that we were expecting sitting here 3 months ago on the Q4 revenues for TruBridge.

Yes. And Steve, the only thing I would add there is there might be a cram at the end of the year based on where people are with their deductibles from an elective standpoint. So there might be some additional pop there. But I think Matt is right that relatively flat from that standpoint.

Right. Because -- yes. So I mean, just going back to last year, you did see a little bit of a sequential increase, and I'm assuming that's the normal seasonality.

Correct.

And Mr. Boyd, we have no further questions at this time. I'll turn the call back to you to close out the call.

I just want to thank everyone for being on the call today. We're obviously pleased with our quarter, and we're working hard to be just as successful in the fourth quarter. So thanks for your time, and I hope everyone enjoys their weekend. Thank you.