TruBridge, Inc. (NASDAQ:TBRG) Q1 2024 Earnings Call Transcript

TruBridge, Inc. (NASDAQ:TBRG) Q1 2024 Earnings Call Transcript May 12, 2024

TruBridge, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to the TruBridge First Quarter 2024 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 turn the call over to Mr. Chris Fowler, President and Chief Executive Officer. Please go ahead, sir.

Chris Fowler: Thanks, Dru, and thank you to everyone for joining us this morning. When we began our transformation 18 months ago, we identified four areas to focus on delivered results, sales execution, financial reporting and insights, operational excellence and increased rigor in our capital investments. To date, we're pleased with the momentum across all four of these areas. I'd like to start today's call by spending particular time diving in a bit deeper on our strong bookings and our progress in our financial operations. Our revenue in the first quarter was $83.2 million, which is right in the middle of our guidance range, and our adjusted EBITDA was $9.5 million, at the top of our guidance range. Vinay will dig a little deeper into our financial results and specifics of our outlook for 2024.

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Moving on to bookings. We had a strong first quarter, which came in at $23 million and were driven by both wins in RCM and our EHR and serves as testaments to the improvements we've made in our sales efforts. In previous quarters, I described how moving to a pipeline of larger deals created timing complexity in terms of the date they sign the contract to implementation. Well, this quarter and similar to Q4, we are seeing those larger opportunities start to break free and the impact of its time. We had $14.4 million of RCM bookings this quarter, which included a couple of rather large deals. One is for a large ambulatory network with over 20 physician practices. We're onboarding this deal in phases and plan to have all sites live by the end of the third quarter.

This is the first large ambulatory arrangement that we have reached, and it demonstrates something I highlighted last quarter regarding our Viewgol acquisition. Viewgol has a strong ambulatory presence and we were able to leverage this to expand into a new segment of customer and market needs. While we didn't expect this to happen this fast after the acquisition, I think it reflects that the revenue cycle is increasingly and is increasing in complexity for both acute and ambulatory providers. Now that we can provide RCM technology and services to the ambulatory market on a much larger scale, we have definitely seen the benefits. This quarter has given me confidence that this theory will continue to bear fruit. In the EHR, we saw bookings of $8.6 million, up from $7.3 million a year ago.

In the quarter, we continued to experience the trend of signing more deals under our nTrust solution. As a reminder, nTrust is our seamlessly -- seamless combination of our EHR and RCM offerings. This trend reaffirms that our solution is resonating in the market as many hospitals suffer from vendor fatigue and seek a unified solution like ours. Their desire for simplified tech stacks often leads to hospitals favoring EHR vendors with broader portfolios in exchange for managing fewer vendors. This translates to many providers looking first to their existing vendors, especially their EHR vendors for new functionality, before evaluating new offerings. Again, as we have signed a greater proportion of larger deals in the past two quarters, we have realized that the timing to fully implement these contracts is also a bit longer than we have historically seen.

As we looked into the detail of the deals this quarter and last, we have found that the timing of full implementation extended further out than we were expecting. And the lesson learned is that we are now learning not to be quite as aggressive with our bookings-to-conversion revenue assumptions that we've had in the past. What this means is that our revenue guidance from 2024 is coming down slightly from a range I gave last time of $340 million to $350 million to a revised range to $330 million to $340 million. This reduction in revenue guidance in no way reflects the lack of confidence in our execution against the plan. It is literally related to our forecasting approach, which has gotten a lot more detailed since Vinay joined us in January.

While I'm on the guidance topic, I would also say that our adjusted EBITDA guidance remains unchanged at $45 million to $50 million, and we remain steadfast in our efforts to continue to find efficiencies within our business and we have identified and acted upon a set of changes that saves additional expense from what we had projected, and Vinay will unpack this in further detail shortly. I have to say that I'm excited and enthusiastic about the partnership that Vinay and I are creating, and I feel the new rigor he and the other new team members in finance have brought into our company will yield great impact on our ability to plan and execute on our business goals. On the RCM operational front, we are continuing to make progress. Our global workforce plan is rolling out as expected.

And as of March 31st, 25% of our CBO and EVO is offshore and we continue to see that the third and fourth quarters will see meaningful benefit as an outcome. The integration of Viewgol is proceeding as expected, and I am pleased that our organization is learning a great deal from our new team members. Not completely unexpected, we have seen some modest pickups in service with some customers, but we are working through all of those, as you would expect. Last year, we told you that we had implemented a great amount of change in how we develop software going to the enterprise-wide agile model. I'm encouraged that the progress that we are seeing as a result and our annual client conference last week was a great example of this. At our conference, we welcomed more than 900 attendees representing 150 C-level executives from over 200 facilities and we focused on themes of improved financial health, managing to provide quality care with limited staff and resources and keeping care in their communities.

We received very positive feedback from our conference attendees, and I was particularly pleased to hear that many clients feel we're headed in the right direction with our software improvements and of equal importance that they feel we are delivering on what we promised in terms of updates and enhancements. Also at the conference, we launched our TruBridge Analytics solution, which is a step-change improvement in how we are enabling our clients to understand what is happening in their world and how to identify -- and how to identify ways to change. In part, we gained important capabilities from Viewgol, but we have been building these capabilities internally for the last 18 months, and this was our first chance to showcase them. I'm happy to talk more about this in the Q&A section.

We also highlighted two new partnerships, which will create revenue and margin opportunities for us over time. First, we announced our new partnership with Microsoft Nuance Dragon, a speech recognition technology. Integrating this technology into our EHR enables our providers to spend more time with their patients versus their keyboards. We know from conversations with many of our customers that this is a huge point of focus, but some things that they continue to struggle with. This partnership highlights our ability to bring new capabilities that will help our clients and also provide us with additional revenue without having to invest as heavily. Secondly, we announced a partnership with the financial management application, Multiview. We decided that an internally developed application that we have was not up to our expectations, and so we found a great partner to offer their solution to our customer base.

This illustrates our willingness to bring in partners to drive innovation to parts of our software that we are not focused on continuing to invest. A transformation of this magnitude that we have launched -- excuse me, a transformation of the magnitude that we launched when I became CEO is not easy and especially so in the public view. We have come a long way, and I truly believe that the lessons and the improvements we've made to date has set us up well to tackle the remaining items on our to-do list. TruBridge focuses on a customer segment with a lot of needs and our offers solidly meet those needs for them, and we are well positioned as challenges in revenue cycle continue for these customers. We have stressed in our organization that we are playing under a new set of rules, and I believe that we have what it takes to continue to make meaningful progress and improvements in the coming quarters.

I am very bullish about our future. With that, I'm going to turn it over to Vinay to talk more about the improvements his team has made, our first quarter results and our outlook. Vinay?

Vinay Bassi: Thanks, Chris, and thanks everyone, for joining the call today. This is my first quarter as CFO and my team and I have been working diligently to get the financial operations of the organization aligned. We have made meaningful progress on the financial initiatives I laid out last quarter. Specifically, we have taken a fresh look at our capital allocation and rightsizing of cost when we can't find a clear near-term ROI. On a run rate basis, our CapEx is lower, and there is still work to be done in the rightsizing process. We have already shut down a couple of projects and reduced headcount accordingly. As an example, late in the first quarter, we shut down the development of a financial management application. While we felt this type of solution would be helpful to our customers, it was outside of our core competency.

So as Chris noted, we found a partner with a track record in health care that has experienced success in this area. We also found $2 million in permanent cost saving opportunities per quarter. We implemented these cost savings in the second quarter and expect to realize $1 million in second quarter. Going forward, we anticipate $5 million in cost savings in 2024 and an annualized run rate of $8 million. These savings are from headcount, further optimization of cloud and reduction in noncritical vendors. The headcount savings are primarily from shutting down projects with low ROI as well as rightsizing the organization. We implemented a process improvement of cash collections and accounts payables that began in the second quarter, added headcount to our cash collection team and implemented a process for daily review of collections and weekly review of payables.

We are acutely focused on cash collections and overall working capital management. We have observed some early signs of improvement, but expect to see notable improvements over the next 2 quarters. Finally, as Chris emphasized, we have taken a significant leap forward in improving our accounting and forecasting methodology. We have implemented more accountability for business leaders and we have a significantly better handle on our forecast than I joined on January 1. It is a journey, and the ultimate goal is to establish predictability and metrics that will help us in forecasting our revenues. Now let's turn to the first quarter results. We saw the bookings momentum from the fourth quarter continue in the first quarter, during which we signed $23.6 million of total bookings with strong showings in both RCM and EHR.

RCM bookings of $14.4 million increased 19%, driven by net new sales of $9 million in the quarter, which increased 49% year-over-year. Net new RCM sales benefit from a couple of sizable deals, one of which is in the ambulatory space, as Chris noted. On the EHR side, we signed $8.6 million of bookings in the quarter. We believe this was driven by a relentless focus on understanding and meeting the needs of rural and community hospitals and those organizations looking for an integrated EHR and RCM solution, which we have the ability to provide in our nTrust model. Turning to revenue. We reported $83.2 million in total revenue for the first quarter, reflecting a decrease of approximately 3.5% compared to a year ago. This decline is primarily in the EHR segment due to the divestiture of EHD in January 2024, which contributed $4 million in quarter 1 of last year 2023.

In addition, the sunsetting of Centriq product also contributed. RCM revenue of $53 million accounted for about 64% of total revenue and increased 9% year-over-year driven by the inclusion of Viewgol's revenue of $4.8 million. Otherwise, they were relatively flat. Our gross margin in the quarter of 49.8% compared to 8.8% a year ago. EHR gross margin of 59.7% increased over 600 basis points primarily as a result of cost savings from the voluntary employment retirement program we implemented mid-'23, while RCM gross margin remained flat at 44.2%. Our reported expenses as a percent of total revenue was 51.6% compared to 41.5% a year ago. The increase came primarily from increased investments in technology and innovation in addition to onetime items related to severance expenses, our recent rebranding and fees related to the AHT divestiture.

On a comparable basis, excluding these onetime items, operating expense as a percent of revenue would have been 46.9%. Adjusted EBITDA in the quarter was $9.5 million compared to $14.6 million a year ago. The decrease in adjusted EBITDA is primarily due to loss of EBITDA impact from AHT divestitures, increased investments in product development, technology, cloud, security, innovation, partially offset by Viewgol. Adjusted EBITDA margin in the quarter was 11.4%, in line with guidance. Turning to the balance sheet. We ended the quarter with $4.1 million of cash and a net debt of $180.7 million. Operating cash flow was a loss of $2 million in the quarter compared to a positive $9.5 million last year. The year-over-year decline in operating cash flow was primarily from lower adjusted EBITDA, higher interest expense from funding the Viewgol acquisition, severance and other onetime items.

In addition, we made a debt repayment of approximately $13 million in Q1 2024. Now turning to my final topic, our financial guidance. For the second quarter, we expect revenue between $81 million and $83 million and adjusted EBITDA between $8 million and $10 million. On a sequential basis, our revenue guidance reflects the slower implementation times Chris discussed earlier. Adjusted EBITDA in the second quarter is being impacted by the lower revenue and the second quarter is being impacted by the lower revenue and our typical annual user conference expenses of approximately $2 million. For the full year, as Chris explained, we are seeing success in signing large deals that take longer to convert. As a result, they won't contribute as much as we initially anticipated to 2024's revenue, but they do increase our visibility into 2025 revenue.

In terms of adjusted EBITDA for the full year 2024, we believe our initial range is still achievable as a result of the incremental $8 million of annualized savings I discussed earlier, of which we can realize at least half this year, as this work is already underway. Given these factors for the full-year 2024, we now expect revenue of $330 million to $340 million, down from $340 million to $350 million, and adjusted EBITDA to remain unchanged from prior guidance at $45 million to $50 million. I'm very proud of all the work my team has done since coming on board and pleased with our progress. We have a lot more to do, and I believe what we have accomplished to date will make our future efforts more efficient. Now I will turn it over to Chris for some final remarks.

Chris Fowler: Thanks, Vinay. I want to express our sincere gratitude to all our employees for their hard work in helping us move forward to our users for their continued trust and to our shareholders for their support and continued interest in our story. Donna, we now open the line for questions.

Operator: Thank you. The floor is now open for questions. [Operator Instructions]. Today's first question is coming from Sean Dodge of RBC Capital Markets. Please go ahead.

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