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NextGen Healthcare (NXGN) Q3 2019 Earnings Conference Call Transcript

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NextGen Healthcare  (NASDAQ: NXGN)
Q3 2019 Earnings Conference Call
Jan. 23, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the NextGen Healthcare Inc. Fiscal 2019 Third Quarter Results Conference Call.

Hosting the call today from NextGen are Rusty Frantz, President and Chief Executive Officer and Jamie Arnold, Chief Financial Officer. Today's call is being recorded.

All lines have been placed on listen-only mode and the floor will be opened for your questions following the presentation. (Operator Instructions)

Before we start, I'd like to remind everyone that the comments made on this call may include statements that are forward-looking within the meaning of the federal securities laws, including and without limitations, statements relating to anticipated industry trends, the company's plans, future performance, products, perspectives and strategies. Risks and uncertainties exist that may cause 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 US 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 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 latest quarterly earnings press release that was filed with the SEC and is posted to the Investors section of our website. This release also provides qualitative descriptions of how we have calculated the non-GAAP financial measures contained in our guidance.

At this time, I'd like to turn the call over to Mr. Rusty Frantz, President and CEO of NextGen. Sir, you may begin.

Rusty Frantz -- President and Chief Executive Officer

Thank you, operator and thank you to everyone for joining us this afternoon to review NextGen Healthcare's fiscal third quarter 2019 results. Starting with bookings, we continue to deliver a strong bookings year with another quarter of year-over-year growth.

Total bookings came in at $32.8 million, an increase of roughly 8% over last year's Q3 and an increase of roughly 22% over the first three quarters of last year.

This quarter's bookings were generated broadly across the sales team. Unlike the last two quarters, where we had significant contribution from single large deals, this quarter was characterized by steady and consistent production as the entire team is starting to perform well.

Continuing our progress this quarter, we had 10 clients sign for over 500,000 each in the quarter, continuing to increase our confidence that both deal volume and average deal size continues to climb.

Bookings came in across all aspects of our integrated ambulatory platform and most notably, we continue to add clients to our growing population health solution on pace to exit the year with over 80 clients under contract and expecting significant go-lives as we move into FY '20.

On the revenue line, we came in at $130.3 million on a 605 basis, in line with our expectations. Despite an attrition that we saw earlier in the year, along with longer implementation times and some of the larger all-in deals that we have signed are continuing to show us short term impact on revenue. We expect that to begin to ease in Q4 and be fully in our rearview mirror as we move into FY '20.

For example, the large deal from Q2 that represents $7 million of recurring annual revenue will come live in the back half of Q4, contributing only slightly to FY '19, but then contributing fully in FY '20. As we look at the interplay of these dynamics, we are expecting to land in the bottom half of the revenue range for this year, and then pivot quickly to growth as we enter into FY '20.

EPS came in at $0.18, also on a 605 basis, a bit over our forecast and continues to show the results of effective cost management within the organization. We expect some of that favorability to be additive to our forecast and are bumping up our range by $0.02 to $0.72 to $0.76

Turning to notable events during the quarter, in November we had our annual User Group Meeting or UGM 2018. This year's event was held in Nashville and was a great reflection of the amazing progress we've made with our client base. Attendance this year continued to be strong and the client sentiment was once again more positive than the prior year.

This year we're very proud to walk our clients through our entire integrated ambulatory platform. We showed how our NextGen population health solution plugs directly into our NextGen care's outreach platform as well as our registration and scheduling capabilities in NextGen practice management. This enables our clients to both identify, but also bring into the office, the right patients with the greatest clinical need as well as the greatest financial opportunity.

We showed how to an individual's risk scores, history and GAAP in care show up directly in the workflow of the provider within the EHR, ensuring that the provider has the access to the right information at their fingertips without changing the workflow that they do every day.

We showed how we are assisting patients to understand and meet their financial liability by bringing the deductible available in the patient responsible amount to the patient at the front end of the care process before they even arrived at the doctor's office. We showed how a specialist can schedule a virtual video visit directly from the EMR, enabling a great patient experience without ever leaving the patient's house.

These are only a few of the platform capabilities that we launched at UGM and the response was fantastic. If you'd like to view the opening where we bring the entire workflow to life from the view of a patient, we have posted our UGM 2018 opening on the NextGen LinkedIn page.

While the acting leaves something to be desired, yours truly plays the patient. We really feel the story brings the platform and the capabilities to life.

The great thing about what we showed at UGM was that it was not a view of a distant future, but rather a demonstration of the capabilities inherent in our fall 2018 release. In fact, right after UGM, we executed a bit -- we exited a very successful client beta cycle, and went to general release, bringing into commercial availability the very capabilities we demonstrated on the stage at UGM.

This release represents another strong, stable platform release and we are proud to see the positive feedback as well as the confidence our clients are gaining in both our ability to deliver a robust foundation, but also in our ability to innovate in ways that enable their future success.

This confidence is illustrated in how our client base continues to migrate to the latest versions of our platform.

As we sit today, two thirds of our clients are one of our latest few versions and that number continues to increase quickly. Many of the remaining clients are smaller clients and represent an opportunity to not only upgrade them, but also to migrate their platforms to a managed service where we can keep them on the latest version going forward.

We're very focused on ensuring all of our clients have access to the great capabilities and the stable foundation of our latest versions, as strong satisfaction and client bookings are highly related with the latest version of our platform.

The confidence in our platform and our client experience continues to show up in our client interactions. While the great positive experience we had at UGM is very gratifying, we also look to more quantitative feedback to understand how we're doing.

Over the last few years, we have the honor of being the only company to ever win two most improved awards from Class in a row. Naturally, when scores are improving that much, it challenges the company to continue to improve.

Fortunately, we are gratified to once again see significant increases in both our EHR and PM scores and feel like our continuous increases over multiple years are a foundational enabler for the varied bookings growth that is setting up the path to multi-year revenue growth.

We're also seeing strong scores in other parts of the portfolio and remain confident that our clients increasingly believe that we are the major player with the strongest positive trajectory in the sector. This increased satisfaction along with a tremendous amount of hard work from our client service organization, helped us bring attrition down to 12.1% from the 13.9% of last quarter.

We believe we are seeing the early signs of success from our last six months of intense focus and evolved leadership in that area. We expect attrition to continue to moderate down to our model level of 11% in FY '20 and will continue to expand our service and consulting capabilities to optimize our client's platforms, ensuring that we keep them satisfied, they're partnered with the right vendor.

As we look to the multi-year trajectory and model, I want to reaffirm our guidance of mid-to-high single digit revenue growth in FY '20 showing some leverage moving up to solid high single-digit growth showing strong leverage in '21 and '22.

I also want to reaffirm our 20% operating margin guidance for FY '22. Our bookings growth and sales pipeline, our revenue pipeline, along with our ability to manage cost, all give us confidence that we are right on plan to deliver a strong set of results as we move forward. We look forward to providing topline growth guidance in May as our team has worked incredibly hard to earn the right to grow.

Now I'll turn it over to Jamie for a dive into the numbers.

Jamie Arnold -- Chief Financial Officer

Thanks, Rusty. And thank you to everyone for joining the call today. Now turning to our third quarter results, total revenue in the third quarter on a 606 basis is $130.9 million, a decrease of approximately 1% year-over-year. Because FY '18 was reported on a 605 basis, we have provided an exhibit in the earnings release, which gives the FY '19 desegregated revenue on a 605 basis and to facilitate comparison to the same period in the prior year, we will now review revenue for the quarter on a proforma or 605 basis.

Total revenue of $130.3 million declined 1% compared to the $131.7 million reported for the same period last year. Using the reporting format that we introduced at the beginning of the year, recurring revenue of $116.9 million declined 2% compared to a year ago, due to declines in maintenance and managed services. Recurring revenue is 90% of our total revenue, consistent with the prior year.

Now I will disaggregate recurring revenue to provide more detail. Subscription revenue of $28.5 million increased 7% compared to a year ago. The growth was primarily driven by our NGO and analytics solutions. Support and maintenance revenue of $38.1 million decreased 6% year-over-year due to attrition in our legacy NGE customer base.

Managed services revenue of $26.9 million decreased 7% compared to a year ago, due to the single large customer attrition that we have previously discussed, as well as the unexpected termination from another large client that was acquired by a private equity backed entity in our second quarter.

While we have been having good success driving RCM penetration in our customer base as well as securing new customer wins, it takes time for these bookings to turn to revenue. As Rusty noted, we're making good progress with the two large clients we secured in previous quarters.

Electronic data interchange revenue of $23.4 million increased 1% year-over-year. Non-recurring revenue was $13.5 million, a 6% increase over the same quarter last year.

Software license and hardware revenue of $8.9 million increased 14%, while non-recurring services revenue decreased 8% compared to a year ago.

Bookings came in at $32.8 million in the quarter up 8% on a year-over-year basis. Bookings declined on a sequential basis with the prior quarter, including a large RCM deal that was not repeated in Q3. Bookings are up 22% year-to-date.

The cost of goods and operating expense comments are based on GAAP or a 606 basis. Gross profit declined to $69.2 million or 1%, reflecting higher expenses associated with amortization of capitalized development cost, as well as increased third party cost associated with RCM. Gross margin decreased slightly to 52.9% from 53.2%, due primarily to the higher cost just discussed as well as the mix shift away from high margin maintenance revenue and toward lower margin services.

Taking a look at our operating expenses, SG&A of $42.3 million is a 7% decrease from $45.6 million a year ago. The decrease is primarily due to lower commission expense due to 606 accounting, lower net consulting cost related to the 606 implementation and lower amortization of intangibles.

R&D of $20.7 million was flat compared to a year ago. Gross R&D increased $500,000 compared to the prior year. Our GAAP tax rate for Q3 was 9%. For FY '19, we continue to use the non-GAAP tax rate of 22%.

To conclude my comments on the income statement, our GAAP EPS of $0.07 compared to $0.02 a year ago. Our non-GAAP EPS on a 605 basis of $0.18 increased by $0.03 year-over-year.

Turning to the balance sheet, we ended the quarter with $30.1 million in cash and equivalent and $27 million outstanding against our revolving credit agreement. DSOs in the quarter were 59 days, down one day from last quarter, all within our expected range of 55 days to 60 days. Our capital expenditures, excluding capitalized R&D was $1.2 million and operating cash flow was $18.4 million.

To close the call today, we've updated our guidance for fiscal 2019 under 605 as follows. Revenue is now expected to be at the low end of our $525 million to $535 million range and non-GAAP EPS is now projected to be between $0.72 and $0.76 per share compared to the previous range of $0.70 to $0.74.

In closing, I am pleased with our performance in Q3 and as we execute on our strategic plan, I am looking forward to continued progress in Q4 and for FY fiscal year '20.

This concludes my review of the third quarter financial results and now I'll turn the call back over to Rusty for his closing remarks. Rusty?

Rusty Frantz -- President and Chief Executive Officer

Thanks, Jamie. To wrap up my comments, I want to reiterate where we stand in terms of progress on our multi-year plan. We have and are delivering on the promise of bookings growth this year. This bookings growth will turn into revenue growth in FY '20. We're moving from fixing problems to delivering innovative capabilities that empower our client success, beginning to differentiate ourselves against much of the competition. Our clients have confidence in our intent, our trajectory and our future.

We have the financial discipline to not only grow revenue, but significantly grow earnings into the future and we have taken a company that was in disarray and transformed that company into an execution machine, surprising everyone but us. Buckle up, it's going to be an exciting future. We can't wait to share it with you all.

With that operator, let's open the call for questions.

Questions and Answers:

Operator

(Operator Instruction) Your first question comes from the line Sean Wieland with Piper Jaffray.

Sean Wieland -- Piper Jaffray -- Analyst

Hi, thank you very much. So I guess maybe a two-part question on the bookings and then bookings to revenue conversion. So on the bookings, we saw some growth, but down sequentially. What's the trend and/or in these all-in deals or the pipeline look like for these all-in deals to give you the juice on the bookings to keep that going up on a quarter-to-quarter basis?

And as we look at bookings to revenue conversion, what are the big impediments or obstacles there to drive that or to accelerating that?

Rusty Frantz -- President and Chief Executive Officer

Yes, so first of all on looking at bookings, as I've said on previous calls that significant deals that show up in one quarter or another could take us off sequential growth, but that we were committed to year-over-year growth in every quarter of this year and when you look at the size of the deal that showed up in Q2, that was a great tailwind, but as we came into this quarter, frankly, it was a pretty tough comp to beat sequentially and that's one of the primary reasons why we included that messaging last quarter is to make sure that folks did not misunderstand the way that we were viewing bookings as we moved through the year.

For our bookings to revenue conversion, I'll give you a great example. So in this one very large deal, classically, if we sold this multi-element deal, we would have recognized elements along the way and so for example, the first thing you do is you build the hosting farm.

Once the hosting farm is live, you'd begin to charge the client for that. As you then move forward and brought EHR and PM live, then the client would begin to pay for EHR and PM. As you then brought financial services live, then once financial services start to generate revenue, the client would start -- we would start to see that revenue.

In the all-in deal on the other hand, we bring hosting live, we bring EHR and PM live, we bring revenue cycle management live, we begin to collect and at that point in time, we're seeing revenue. And as I've said, this is definitely a change for the organization. It's a more complex and longer sales cycle, a longer implementation cycle than we modeled when we came into the year.

But as we said, for example, this one large client, we expect them to go live within the next month and half, and at that point in time, they'll begin to generate revenue and so what I'd say is it definitely changed our model a little bit with some of these larger all-in deals, but that we are bringing these to actual revenue.

And so we feel confident as we especially as we look at a pipeline of continuing deals that number one, we've learned a good bit about how to bring these large complex deals to the table and number two, that we will continue to see larger all-in deal flow coming into the bookings number as we move through subsequent quarters.

Sean Wieland -- Piper Jaffray -- Analyst

All right. Thanks for that. Jamie, quick follow-up, to get to the mid-single digit revenue for FY '20, what does attrition have to come down to?

Jamie Arnold -- Chief Financial Officer

To get to mid?

Sean Wieland -- Piper Jaffray -- Analyst

To get to mid. Yes.

Jamie Arnold -- Chief Financial Officer

We could get to mid-single digits with attrition, where it is now.

Sean Wieland -- Piper Jaffray -- Analyst

Excellent. Thank you very much.

Operator

Your next question comes from the line of Jeff Garro with William Blair & Co.

Jeff Garro -- William Blair & Co -- Analyst

Yeah, good afternoon, guys. And thanks for taking the questions. I want to ask about bookings and maybe more specifically, revenue cycle management seems like that might be a factor in a bit of the lumpiness that you're starting to see.

So, curious if you could give us some detail on how the pipeline is for revenue cycle management, what client feedback has been and some of these all-in deals going live, whether those will really serve as nice reference accounts to generate a steadier stream of those big RCM and all-in deals? Thanks.

Rusty Frantz -- President and Chief Executive Officer

Yes. And so like I mean, we don't comment numerically onray pipeline. But I will say we continue to see the I-pipeline for revenue cycle management increase and I would say that, for example, the large deal that we're bringing live this quarter is already starting to become a referenceable client.

And so we feel like as we start to really drive this success that we're actually seeing, come to life in front of us, that that's going look it's great for us to tell our clients how great they -- how great we are. It's much better for our clients to tell our future clients how great we are and we're very focused on that.

And frankly, on these larger deals, we as a leadership team, review status every single month to make sure that they are moving toward the referenceability that we feel like we will help continue to energize the pipeline.

Jeff Garro -- William Blair & Co -- Analyst

Great. That's really helpful. And another question on, just kind of different areas of demand, it sounds like population health and analytics is a really positive demand area for you guys. I was hoping you could distinguish a little bit between the latest release and the direct integration of analytics into that versus just the end market being more receptive to moving their business models toward value-based reimbursement.

Rusty Frantz -- President and Chief Executive Officer

Yes, I think it's a little bit of both. We're certainly -- we certainly saw a lot of the primary uptake in the federally qualified health center market where they've been executing care for a large population of patients with a limited amount of money for a long time, which is kind of the inherent nature of a fee-for-value type arrangement.

And so we've seen a lot uptake there, but we're starting to see a lot of our clients now become increasingly interested in how they're going to manage not just single-sided risk, but double-sided risk going forward and so that's definitely creating demand, just natural end-market demands

Our feeling however is, is that the tighter integrated your population health capability is with your physician's workflow, then it's not just appetite in the client base, it's the value that that will generate in the client base, that will really start to push the end market forward and so, we're pretty excited to see that number of clients really start to come up and frankly, just the other day, I've got the third kudo from a client that's very hard to satisfy that is incredibly pleased with the work we're doing with our population health capability.

And while I'm on the topic of some of the surround platform, I did want to just take a brief moment to concentrate -- comment on mobile as well. As we said at Analysts Day and in subsequent call, we had made a decision to unbundle kind of the base mobile capability and include that as part of the EHR and effectively part of the maintenance stream that we're getting from the client on HER.

That represents a great investment in physician satisfaction and efficiency, but on top of that, as that platform becomes more widespread, that then represents a landing zone for both upsell of mobile software capabilities on top of the platform, but also ascribe and transcription services.

The good news I'm here to report is, is that we've added 2,000 providers simply in the last quarter and so we are starting to see that strategy begin to spread itself across the client base, which also creates another landing zone for growth.

Jeff Garro -- William Blair & Co -- Analyst

When you mention the 2,000 clients added,, is that for transcription services?

Rusty Frantz -- President and Chief Executive Officer

2,000 providers, sorry providers. And so no, that's the base offering, but then that starts to create -- that base -- now that that base offering is in those providers' hands, that gives us the opportunity to come in and have the conversation about how we brought in the capability for the platform they've already installed.

Jeff Garro -- William Blair & Co -- Analyst

Got it. Thanks for taking the questions, guys.

Rusty Frantz -- President and Chief Executive Officer

Yes.

Operator

Your next question comes from the line of David Larsen with Leerink Capital Partners.

David Larsen -- Leerink Capital Partners -- Analyst

Hi, can you talk a little bit about the trend in the attrition rate, like I think, from 13% to 11% and I think the longer term guide had sort of been 8% to 10% like, what is causing the 100 basis points to 200 basis points, sort of delta on a quarter-to-quarter basis? Is it one client that is evaporating one or two large ones? Or is it five or 10 clients, anymore sort of detail around that would be very helpful?

Rusty Frantz -- President and Chief Executive Officer

Yes, so I guess, I'd say there's two things driving the number. The first one is, let's not forget that the quarter that we just lapped was the quarter after the myths and macro delay and so when the government delayed myths and macro in late September of last year, the next quarter, when folks all of a sudden had a bunch of IT workload taken off their plate, the next quarter, a lot of our hospital affiliated clients took the opportunity to go through and standardize.

So we lapped that quarter with quite a good quarter this last quarter and so that's part of it. But in addition, we've taken some very specific, client specific actions where we've evaluated our entire client base, determined who we felt was at risk and we're now very proactively executing optimization services and client outreach to make sure that those clients are comfortable and that frankly we're stopping the question in some cases before it even gets asked.

So we monitor kind of what we view as our at-risk pool and we've seen drops in that pool over the last 30 days, 60 days and so I think it is a combination of those two things. In addition, as we've said, there's a finite exposure to the Cerner Siemens space, where we were Siemens' ambulatory partner and that exposure is starting to tail off.

David Larsen -- Leerink Capital Partners -- Analyst

Okay. And then for the fiscal '20 guide, I thought it had been high single-digit topline growth and now is it mid-to-high single digits, or is it not. Okay.

Rusty Frantz -- President and Chief Executive Officer

Just to clarify this, what I said at I think it was last quarter, what I said last quarter was I said attrition had spiked. And if attrition stays higher than our modeled level, that could push us into mid single-digits.

As we sit here, we haven't commented on which side we're on and frankly, looking at attrition with an over level of precision, won't give us better information today, because of course bookings also fold into next year's guidance, but as we sit here, let's just be clear, I am not guiding to mid single-digits right now.

High single-digit is still in view and there is a risk that we might trend downwards into mid-single digits. As we've always been, we're simply giving you our transparent, best view as we sit here today. Does that makes sense and help?

David Larsen -- Leerink Capital Partners -- Analyst

That's great, congrats on all the work you've done. Rusty, you've really turned the business around. So congrats.

Rusty Frantz -- President and Chief Executive Officer

It takes a village. So thank you.

Operator

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

Jamie Stockton -- Wells Fargo -- Analyst

Good evening. Thanks for taking my questions. I guess maybe the first one just to take you back on what Dave was asking about with the kind of view for 2020. The pop health number that you quoted, I think 80-plus clients under contract sounded like big...

Rusty Frantz -- President and Chief Executive Officer

By the end of the year.

Jamie Stockton -- Wells Fargo -- Analyst

By the end of year, there you go. Well, it's a forward-looking question anyway, it sounds like that's got a fair amount of momentum. You've talked about the 2,000 providers with mobile. As we think about kind of the products that drive this acceleration of top line growth, is it, really diverse or should we be thinking about maybe a little more concentration and something that's really revenue intensive like RCM?

Rusty Frantz -- President and Chief Executive Officer

So here's what I'd say. I'd say first of all the thing that's driving the bookings growth and the thing that will drive the revenue growth is not the individual components of the platform. It is the fact that we've developed now an increasingly integrated, full service offering that meets our client's needs broadly.

Now, how clients choose to adopt that platform varies. I would expect as we start to move forward through next year to see continued acceleration in RCM and certainly RCM on a $1 per provider standpoint, is a significant revenue driver.

But that being said, each client is on their different journey through the platform. So for example, on this last quarter, we had -- we're starting to see high single digit, high six digit deals coming in for our population health analytics.

In this quarter, we had one all-in client for entire software platform, but is not yet ready to adopt revenue cycle management. We have another client that is not ready to adopt population health, but engage with us for RCM and so, I think the bigger story is the fact that we're not selling a point solution to our clients or a set of them, we are selling one integrated ambulatory platform and the clients are starting to see that come to life and just figuring out what's their own personalized journey to get to fully implemented. Does that help?

Jamie Stockton -- Wells Fargo -- Analyst

Yes. That's great. And then Jamie, and you can give me the numbers if you get to them, but if you have the operating cash flow CapEx and capitalized software numbers, that'd be great. Thanks.

Jamie Arnold -- Chief Financial Officer

Yeah Jamie, operating cash flow was $18.4 million. The CapEx was $1.2 million and I need one second on cap software -- paper I have, cap software was $4.5 million.

Jamie Stockton -- Wells Fargo -- Analyst

Thank you.

Jamie Arnold -- Chief Financial Officer

Thank you, Jamie.

Operator

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

Matthew Gillmor -- Robert Baird -- Analyst

Hey, thanks for the question. First one on the client base, I think Rusty said two thirds of clients on the latest software version and the balance are smaller clients that haven't upgraded. So can you talk about that opportunity a little bit? What's preventing them from upgrading and what can you do to push them on the latest platform?

Rusty Frantz -- President and Chief Executive Officer

Yes. And so what I said, first of all, just to be clear, on the latest few releases, the release that just came out in the fall is it starting to wind its way into the client base. When we look at the smaller clients, a lot of them don't have the organizational capabilities to drive the upgrade and so what we've done is we've actually put together an entire service effort to make sure that we're getting out to them and helping them not just understand how to get there, but also kind of leading them along the path.

But in addition, it's back to the point that we see great opportunities for us to help them not just by helping them upgrade, but by lifting and shifting their instance into our AWS farm and then from there on, we can take care of those upgrades for them, plus have a better TCO for them as well as us and a more efficient and effective service experience.

And so we do see that as an opportunity. It's built into our revenue model going forward as we look at managed services, and some of those capabilities continuing to increase as we go forward, but it's kind of got a dual purpose

Number one, it's less expensive footprint for them. It's a higher revenue footprint for us. And on top of that, we think it delivers a better client service experience and gives us more view toward potential cross-sell and up-sell opportunities.

Matthew Gillmor -- Robert Baird -- Analyst

Got it. And then the second question I had was on the fiscal 2020 growth targets and just rounding that out, you talked about the attrition metric and sort of the sensitivity between high single-digit and mid single-digit. Can you also remind us with respect to the bookings growth sort of what's -- how does that play into the mid single-digit versus high single-digit?

Rusty Frantz -- President and Chief Executive Officer

Yes, we haven't commented on that and I won't. But what I will say is, is we feel like we're on a path where right now where a reasonable delivery of bookings this quarter and a reasonable management of attrition probably puts us somewhere on the hairy edge of mid-to-high and frankly, we'll have to evaluate all that as well as looking at kind of our pipeline as we start to move into next year and based on that, we'll make a decision.

My goal in giving kind of that range was really to get people an understanding of the sensitivity analysis and the plan. I wanted to make sure that folks didn't think that a spike in attrition was actually going to have a shrink next year. The sensitivity is between mid and high single digits.

Matthew Gillmor -- Robert Baird -- Analyst

Got it. Fair enough. Thank you.

Rusty Frantz -- President and Chief Executive Officer

Yes.

Operator

Your next question comes from the line of Sean Dodge with Jefferies.

Sean Dodge -- Jefferies -- Analyst

Good evening. Thanks. Maybe staying on the revenue growth targets, I know a lot of that's expected to be driven by cross selling, but going back to some of the slides at the Analyst Day, I think there was some dependency with them winning new share out of the replacement market.

Can you give us some sense of how much can a new market share you need to get to this mid and high single digit target for next year and then maybe some sense of how you're tracking toward that -- what, proportion of bookings in the quarter for example came from outside your base?

Rusty Frantz -- President and Chief Executive Officer

Well, what I will say is pretty much the talk like I said all along, which is 85% of our sales spend is focused on cross-sell and existing clients and 15% is focused outside of that. As we move into next year, I would say that there's a reasonable chance that we will increase that 15% and that's a reflection of our effectiveness this year in the replacement market.

We have been seeing some good deal flow in there. We have not commented on the partition, nor will we or comment on next year's partition, but what I will say is you can expect us to most likely invest even more than we are now in new client acquisition next year because we feel like it's a fertile hunting ground and based on the work that we've done, we feel like we are competitively advantaged in a number of situations. Does that make sense?

Sean Dodge -- Jefferies -- Analyst

Yes, makes sense. And then maybe one on the platform, it's been a little while since we've last gotten an update on Meditouch. I think that was folded into the subscription revenue line. Has that been one of the key drivers of the growth we're seeing there?

And then part of the strategy in buying that with using it as a vehicle to help migrate to some or all of the NextGen, the broader NextGen platform to more of a kind of a cloud-based offering, is that still the plan?

Rusty Frantz -- President and Chief Executive Officer

So, first of all, let me just correct you because that was not the plan. The plan as illustrated when we acquired -- as communicated when we acquired it was to work to bring it somewhat up market, but as we've said, NextGen Enterprise as a full featured enterprise platform has a long life and will probably not be and Meditouch was not going to be the platform for that large client base. So I just wanted to because I think there was some question around that early on. I just wanted to make sure that's clear.

Meditouch continues to perform well. NextGen office as we call it now, continues to perform well. I would say that we were gratified to receive quite a good client feedback score from Class on it. There is some compression in that market, as we look at that small individual doctor market, we definitely see some saturation in that market, but we continue to bring NextGen office up in maturity from the standpoint of being able to handle larger and larger practices and we continue to look at the plays at bringing it across more specialties.

And so we expect it to continue to grow, but when you look at the subscription line, I would say that the subscription line is benefiting from not just NextGen office, but you also have our connectivity suite in there. We have population health in there. We have some of the mobile platform in there and so there's a number of things that are contributing to the growth and subscription line.

We are very gratified to see subscriptions continuing to grow as we move from -- remove our dependency on perpetual license revenue and really move to much more of a recurring revenue and ratable revenue model.

Sean Dodge -- Jefferies -- Analyst

Okay. Very helpful. Thank you.

Rusty Frantz -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Rick Goldwasser with Morgan Stanley.

Raymond -- Morgan Stanley -- Analyst

Hey guys. This is Raymond (ph) on for Ricky. Thanks for the question. So first about the all-in deals that you guys have mentioned, are you still thinking about the implementation timelines somewhere in the six to nine-month range, or is it now more in the 9 to 12 month range? Thanks.

Rusty Frantz -- President and Chief Executive Officer

What I'd say is we're still probably thinking about the implementation line timelines in the six to nine month range, but of course, it depends on the size and complexity of the client, right. And so, for example, if we're going into an organization, we're replacing multiple EHRs, we're replacing potentially multiple practice management systems.

And where there's a couple hundred providers, this is a much more complex implementation and may stretch out to as much as 9 to 12 months, but what we're mostly seeing is in the six to nine months and frankly, even if you look at the large deal that we've referenced, that's going to come live in approximately eight months, seven months to eight months after we signed it.

Raymond -- Morgan Stanley -- Analyst

Got it. So as you take a look at the pipeline or is the fact that you have or see more of these all-in deals one of the reasons why your FY '20 rev growth is now in the mid to high single digit range?

Rusty Frantz -- President and Chief Executive Officer

No, I mean, I think if you looked at this year, the reason why this year was under pressure was the conversion timeline, combined with attrition. That attrition spike however, did hit and has hit our recurring revenue line on the maintenance a little bit and has pushed us down a little bit there. And some of that attrition echoed across other parts of the P&L.

And so as we look at next year, we've just got to make sure that as -- that can -- as we still are under some pressure in the periphery of our client base, that that doesn't push us below into that mid single-digit line. But just once again, to be abundantly clear, as we sit here today, our tendency is to be aligned around high single-digits. We are simply -- we are voicing that there is a risk that that will see a little bit of downward pressure and we don't want to surprise everybody.

Raymond -- Morgan Stanley -- Analyst

Okay, thanks a lot.

Rusty Frantz -- President and Chief Executive Officer

Yes.

Operator

Your next question comes from the line of Donald Hooker with Keybanc.

Donald Hooker -- Keybanc Capital Markets -- Analyst

Great. Good evening. So question on you guys have talked a lot about the scalability of the model and the work you've done there to sort of as you're growing revenues next year, as these bookings come through, can you just maybe reorient us, I'm just trying to sort of -- we obviously had one quarter left to get to your full year EPS guidance, but when we think about sort of some of the points of economies of scale, points of leverage in the income statement, can you walk through that real quick? Like maybe where you are run rate for SG&A and R&D?

Rusty Frantz -- President and Chief Executive Officer

Yes, so what I will say is this, instead of getting too deep into numbers, let me say this. From a gross R&D spent, I expect our gross R&D spent to stay roughly static the entire way through the plan.

Donald Hooker -- Keybanc Capital Markets -- Analyst

All right.

Rusty Frantz -- President and Chief Executive Officer

Which of course will bring it down as a percentage of revenue. Now there'll be some ups and downs within that as cap rate ebbs and flows, but from a gross spend standpoint, that's our expectation. From an SG&A standpoint, I would also expect to see G&A stay flat throughout the period.

From an S standpoint, from a sales standpoint, however, next year we may add a little more sales investment and that's the thing that would really take us off of kind of significant leverage and make the leverage lighter is because as we look at that slight increase below the line, which we think is absolutely warranted, and frankly necessary to drive the give or take $10 million a year bookings increase that we expect next year, I would say that that's what you see next year. As you get into the year after that you should see that leverage increase as you get into the year after that, we're starting to get to sufficiency from a sales investment standpoint.

Donald Hooker -- Keybanc Capital Markets -- Analyst

Okay, great. And then, that's helpful. That's. helpful. Maybe one last question, just to make sure I understand, so there is sort of a -- there is sort of a guidance toward the low end of the revenue guidance range that you gave previously. That sounds to me like it's mostly just the timing of a deal from your prepared comments that just -- we just take that revenue and just move it into next year rather than attrition. Is that a fair -- that you can just elaborate on that?

Rusty Frantz -- President and Chief Executive Officer

We've got a little bit of downward pressure from the attrition skipe that happened earlier in the year, right. And so unfortunately, that revenue is not coming back. And then on top of that, we've got some deal timing and that pushes -- that pushes really a lot of the revenue from a couple of years all-in deals in the next year and those two things are really putting a little bit of downward pressure this year.

But as we look at next year, it's not the right way to get a good accomplish to say that, but what I will say is, is that as we look at next year, we see the natural dynamics of signing more and more recurring and ratable revenue really starting to push the top line up.

Donald Hooker -- Keybanc Capital Markets -- Analyst

Okay, wonderful. Thank you so much.

Rusty Frantz -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of George Hill with RBC.

George Hill -- RBC -- Analyst

Hey, good evening guys and thanks for taking the question. Maybe just to I guess, so really to keep this point, you talked about a lot of the Cerner and Epic attrition being behind the company.

So I guess kind of what's driving the attrition? Or what's the key source of the attrition now, if you think that kind of headwind is largely behind the company?

Rusty Frantz -- President and Chief Executive Officer

No. So what I said was I said, the Cerner, Siemens exposure is largely behind us. Okay. So that's different. So if you remember, this company used to be the ambulatory footprint for Siemens. Cerner acquired Siemens and last quarter we saw a real acceleration of Cerner into that base as frankly everybody is on the hunt for revenue.

Epic attrition is something that I didn't -- that I wouldn't say is behind us. It's just that Epic's attrition, the attrition we feel from Epic sets primarily in our hospital-owned and affiliated base, which is kind of the outer ring of our client base. Now interestingly enough, those clients actually only as a general rule, they're maintenance clients paying a $1600 to $2,000 per provider per year.

They generally don't buy anything else from us. So they don't really represent a cross-sell opportunity. Meanwhile, we're adding clients, independent clients in the center of our patch who can represent as high as $15,000 to $18,000 per provider year fully implemented.

And so we are actually losing clients with a much lower value than the clients that we're bringing in, but we continue to look, we watch Epic closely. We continue to see pressure for them. We do see some pressure from Cerner. I would say that we are tend to be much more advantaged in those situations.

And then you've got the natural give and take that goes on within the core base and there we actually feel like we've got a pretty good hand to play these days. When we look at our multi-year modeling, we expect to be able to bring attrition down to 11% as we move through FY ''20 and we expect that to moderate even further as we move further out, partially because some of that hospital affiliated base continues to run off, but partially because we continue to add clients in an area where we've got a much stronger hand to play.

George Hill -- RBC -- Analyst

Yeah, yeah. And you're comments kind of lead into my follow-up question, which is just, I guess, if you -- I don't know if you can provide this color, but like on the composition of the bookings in this quarter and maybe if we look at the bookings composition for the year, is it still largely coming from existing customers or are you just -- are you adding less higher priced seats to or cross-sales to existing customers?

Or are you seeing this start -- excuse me -- are you seeing this start to switch toward new customers and more the bookings growth coming from new customers who are buying kind of these high ASP engagements?

Rusty Frantz -- President and Chief Executive Officer

Yes, I mean, what I -- I guess I'll stick to my previous messaging, which is what I'd say is as we go into next year, we are actually looking at how do we add more folks focused on new and we don't -- we won't do that because of a thesis. We'll do that because of a reality.

And so say that we are -- you know that 15% to 85% breakdown of investment today is probably a little light for the opportunity that we see out there. Does that make sense?

George Hill -- RBC -- Analyst

Okay. Yes. A couple. I appreciate the color, obviously. Thank you.

Rusty Frantz -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Joy Zhang with Citi.

Joy Zhang -- Citi -- Analyst

Hey, thanks for taking my question. I am on for Stephanie Demko. Given that your largest competitor is being acquired, can you talk to any share shifts you're seeing as a result of the ongoing process?

Rusty Frantz -- President and Chief Executive Officer

I'd say that -- look, certainly -- certainly one or more of our competitors is highly disrupted and defocused right now and that can only be a positive for us. We tend not to talk much about other situations. But what I will say is that we've gone from severely disadvantaged to at least neutral and potentially a little bit on the positive side in that particular situation.

Joy Zhang -- Citi -- Analyst

That's helpful. Thank you.

Rusty Frantz -- President and Chief Executive Officer

Yes.

Operator

Our next question comes from the line of Mike Ott with Oppenheimer.

Mike Ott -- Oppenheimer -- Analyst

Good afternoon. Thanks for taking my question. Believe Jamie mentioned that you're driving RCM penetration in your base. And I wondered if you could share an estimate of your current level of RCM penetration.

Rusty Frantz -- President and Chief Executive Officer

Yes, I'll stick with kind of our public filings on that. First of all, we are just now really starting to see bookings turn into revenue. And so as we see here from a revenue standpoint, it's probably roughly the same as it's been, which is give or take and the 8% to 10% range. I'd say that as we move forward, I would pay more attention to the top line of RCM than the percentage because that's probably a better indicator of when penetration really starts to ramp up is when you actually see the revenue show up significantly.

That being said, we are definitely -- we feel like we've moved past below point and that we are starting to now move back into a growth mode and as we move through next year, we expect to see some growth in RCM, but we definitely expect to see significant growth in the RCM pipeline that is going to convert to revenue as we move therough the next couple of years.

Mike Ott -- Oppenheimer -- Analyst

Great. Thanks, Rusty. And I'm curious what kind of client feedback you received at UGM on your recent telemedicine entry with the auto partnership?

Rusty Frantz -- President and Chief Executive Officer

Yes, it's interesting. We have a very large specialist base and for specialist, the virtual visit is actually a great step forward. We actually had say -- have probably more excitement and interest than we -- than we expected from it and we are in beta with a number of clients and I got to tell you, I think it's going to be a great capability. But we're going to continue to enhance that patient engagement capability as we move forward and continue to frankly give our clients more options and how to interact with their patients.

And so we're excited about the partnership, we're excited about some of the early signs of success. Look forward to updating you all as we get through the next couple of quarters and it really starts to move from being excitement to being utilization.

Mike Ott -- Oppenheimer -- Analyst

Great. Thanks so much Rusty.

Rusty Frantz -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of (inaudible).

Unidentified Participant -- -- Analyst

Thanks, good afternoon. Thanks for squeezing me in. With respect to attrition, your goal to moderate that to 11% next year, what kind of visibility do you have into that? So what I mean is there's the part you can control, the outreach, pulling the customers, it sounds like you have a good handle on that.

But then the part you can't control around consolidation and M&A, do you have any read into your clients that might fall into that bucket and any preventive measures you can take? And my follow up would be on Q4 bookings historically, they've been seasonally the strongest last few years and would we expect that to be the case again? Thanks.

Rusty Frantz -- President and Chief Executive Officer

Yeah, so with regards to attrition, first of all, when a client is going to merge with another client, they don't tell you unless, unless it's publicly available. And so what we do is we look at the different ecosystems the clients fit in, we're constantly reaching out proactively, but understand their strategy.

Frankly, if they go silent, we view that as a significant risk point. We also have an entire juristic that we run on the back end of our systems to understand the correlation between things like fall volume and system problems and etcetera with attrition.

So we've got a lot of early warning signals, we put in a very short period of time. And we are starting to see some real promise from that.

But the other thing we do is, we have clients that may not feel at risk, may not seem at risk, but as we dig in and we look at the ecosystem they live in, we may assume that they are at risk and start executing actions without any sign from them and we are seeing that in some areas where having a great account executive or great sales executive in a local area is giving us a view toward a possibility, which we act on well before it turns into a probability.

And so as we look at all of these things, and we look at kind of the success we're seeing and then we also look at the clients at that we're seeing, we do expect to continue to get surprised every once in a while, but I would say that our heuristics are getting more and more actionable and more and more accurate and I'm sorry, Gene, the second was -- yes, seasonal.

So look where we are targeting year-over-year bookings again in Q4, last Q4 was $36.1 million. So year-over-year is greater than $36.1 million, which would absolutely put it at or above the rest of the quarters in this year.

Unidentified Participant -- -- Analyst

That's great. Thank you.

Operator

And at this time, there are no further audio questions.

Rusty Frantz -- President and Chief Executive Officer

All right. Well, thank you, everybody. Have a great rest of your week and we'll look forward to talking to some of you at HIMSS and the rest of you all in May. So thank you.

Operator

This concludes today's call. You may now disconnect.

Duration: 54 minutes

Call participants:

Rusty Frantz -- President and Chief Executive Officer

Jamie Arnold -- Chief Financial Officer

Sean Wieland -- Piper Jaffray -- Analyst

Jeff Garro -- William Blair & Co -- Analyst

David Larsen -- Leerink Capital Partners -- Analyst

Jamie Stockton -- Wells Fargo -- Analyst

Matthew Gillmor -- Robert Baird -- Analyst

Sean Dodge -- Jefferies -- Analyst

Raymond -- Morgan Stanley -- Analyst

Donald Hooker -- Keybanc Capital Markets -- Analyst

George Hill -- RBC -- Analyst

Joy Zhang -- Citi -- Analyst

Mike Ott -- Oppenheimer -- Analyst

Unidentified Participant -- -- Analyst

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