Q4 2023 Computer Programs and Systems Inc Earnings Call
Participants
Chris Fowler; President & CEO; Computer Programs and Systems Inc.
Vinay Bassi; CFO; Computer Programs and Systems Inc
Jeffrey Garro; Analyst; Stephens Inc
Sarah James; Analyst; Cantor Fitzgerald
Stephanie Davis; Analyst; Barclays
George Hill; Analyst; Deutsche Bank AG
Presentation
Operator
Good afternoon, and welcome to the CPSI Fourth Quarter and 2023 earnings conference call. Leading today's call are Chris Fowler, President and Chief Executive Officer, and Renee 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. 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 might 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 day, and they undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call.
At this time, I will now turn the call over to Mr. Chris Fowler, President and Chief Executive Officer. Please go ahead, sir.
Chris Fowler
Thank you, Drew, and thank you to everyone for joining us this afternoon.
I want to start off today's call by saying how excited I am about our recently announced rebranding.
We are coming together behind our TruBridge brand to simplify the way we do business and reinforce our commitment to delivering a comprehensive suite of financial and clinical solutions for our clients and the communities they serve. We believe this new brand more accurately reflects the evolution of the Company and more closely defines who we are today and the opportunity ahead of us. We remain committed to delivering high-quality service to all of our clients regardless of the solutions they are using on Monday, March fourth, we will officially transition to TruBridge when our common stock will begin trading on the NASDAQ stock market under our new ticket ticker symbol TBRG. With that in mind, we will refer to our company as CPSI. on the call today, taking a look back, 2023 saw ups and downs throughout the course of the year, but we finished on strong footing with meaningful bookings and solid fourth quarter results. Today, I'll touch on some financial highlights, provide updates on our ongoing initiatives and introduce our new CFO, then a biopsy to dive deeper into the numbers and share our initial outlook for the first quarter and full year 2024.
Let's start with a quick overview of 2023 results. For the full year, revenue came in at $339 million, and adjusted EBITDA came in at $48 million. For fourth quarter bookings, we signed $26 million, which represents a sequential increase from $16.2 million in the previous quarter and was driven by driven by meaningful increases in both RCM and EHR. Fourth quarter 2023 bookings were up about 5.5% from fourth quarter of 2022, driven by RCM bookings, which increased 5.9%. We believe the pickup in RCM bookings was driven by several factors. First, the local labor market for our community hospitals is seldom expansive enough to meet all of their needs. Second, RCM is very complex and getting more so by the day. And third, the stigma of outsourcing billing efforts is diminishing as the problems of poor cash collections and increasing accounts receivables continue to weigh on community hospitals.
Taking a step back from the numbers, I'd like to shift to a few updates on the strategic moves we made over the past few months. First, in January, we announced our divestiture of American HealthTech, also known as HT. two point click care. We believe that this was the best decision for both existing HD customers and for CPSI. This divestiture allows us to focus more acutely on our core market of small to midsize hospitals, while ensuring our HD. customers are in good hands with point click care given their high level of service and exclusive focus on delivering EHR solutions to the post-acute care market. As part of the agreement, we will be DCC's exclusive partner for complete business office services. We are not including anything at this time materially in our forecast as the post-acute market is lagging behind the acute care market in terms of converting to the outsource model.
Second, our integration of Hugo is progressing as expected. As a reminder, early in the fourth quarter, we acquired Bugle with the aim of bringing our globalized workforce in-house rather than continuing to rely on third party outsource. We split the initial integration plan into two tracks one, getting our offshore resources to scale for existing customers and to bring on the new cost for existing customers. We went account-by-account to map out a plan for the ramp and for our new customers, we are planning to staff them with the appropriate mix from the initial go-live. It's important to note that as we ramp up our global capacity over the course of 2024, we will likely experience a little margin pressure early on, but we expect that to reverse as the year progresses. Longer term, our goal is to achieve a workforce comprised of 70% offshore and 30% US-based employees. While we work through this transition, it remains a top priority to remain to maintain the same quality of service for all of our customers.
As we look forward into 2024, our entire organization is committed to returning to growth and realizing the operational leverage that our global workforce can achieve. We believe that our dedication to embracing technology and modernizing our infrastructure is key to our ability to consistently deliver best-in-class solutions to our customers. This is exactly why we continue to use AI to automate DRCM process wherever possible and utilize the cloud to improve capabilities and enhance our services. This commitment to leveraging technology has and will continue to be a top priority within our organization. As we've acknowledged in the past, we are in the midst of a transition transformation. 2023 was focused primarily on our people and ensuring we have the right team in place to take advantage of the growth opportunities for this year and beyond in 2024. While we'll still continue to invest in our people, our focus will be on capital allocation. For example, making sure our investments in technology have a sharp focus on our alignment to ensure our investments closely align with our strategic aim with that I'm very excited to hand it over to our new CFO and a vastly Rene brings a skill set that is already proving to be a huge asset to our organization. Has extensive experience across the board. He has extensive experience across the board, but particularly in offshore operations and has been and will be continue to be extremely beneficial to our team during this transformational time today.
Can you take us through the numbers?
Vinay Bassi
Thank you, Chris, for the introduction. Before I review our fourth quarter results and our initial 2024 outlook I want to share with you all a bit about why I joined CPSI and most of my working years have been focused in technology and services, primarily telecom communications at Avaya and media meals. CPSI. is an extension of that journey where I'm excited to join the company operating and health care technology and service during the interview process. I was impressed with Chris and his commitment to transform the Company. I was fully aware of the missteps in 2023 performance, but the company's strong mode of RCM growth within the EHR customer base, coupled with strategic acquisitions and divestitures, reinforced my confidence that the team is focused on transforming the Company, my own experience in building a strong team enforcing fiscal discipline and leading with the data driven approach vote at the forefront of my decision to join CPSI to be part of its next chapter.
Some of my areas of focus for the near term include, first, getting a total understanding of the key business drivers that serve as a leading indicator for forecasting, including bookings, bookings, conversion and increasing trajectory of offshore resources while meeting customer service level agreements.
Second, building a strong finance team built on principle of a fact-based, forward-looking approach and closely linked with the business. I believe this will help in improving forecasting and fiscal discipline going forward.
First, taking a fresh look at capital allocation and CapEx, vigor of return on investment mindset. We have invested in many projects to date and we will be reviewing those efforts to prioritize the ones that will benefit us near term, both continuing the cost optimization initiatives that directly impact EBITDA and loss, ensuring the successful integration of vehicles.
Now let's jump into the numbers. Total bookings in the quarter came in at $26 million. Rcm bookings at $14.2 million made up about 54% of the total, which represents an increase 5.9% from 2022. Total revenue for the fourth quarter of $85.9 million compares to $83.2 million a year ago last year comprised 59% of the total revenue. It crossed the $50 million threshold for the first time. Let me provide additional color on revenue vehicles contributed approximately $3.8 million in about two and a half months in Q4. Further RTM, excluding vehicle, showed growth of 3.3% compared to Q4 22 EBITDA showed a decline primarily due to the impact of sunsetting the SentriX platform. In the quarter, we reported cost of revenue of $43.7 million that yielded a gross margin of 49.1% compared to 46.5% a year ago. The improvement in margins came primarily from savings associated with our voluntary employee retirement program and lower bonus accruals due to the 2023 performance in the fourth quarter, reporting reported operating expenses, excluding goodwill and trademark impairment as a percent of total revenue was 53.2% compared to 41.4% a year ago. The increase was primarily from severance expense and other one-time items, including fees incurred for M&A activities on an apples-to-apples basis, excluding these one-time items, operating expense as a percent of revenue would have been 45.2%, driven primarily by variable and increase investments in sales and marketing technology, including the cloud migration as well as aging receivables. With all that taken into consideration, adjusted EBITDA for the quarter came out to $12 million compared to $13.2 million a year ago. Adjusted EBITDA margin of 14% in the quarter decreased 190 basis points over year due to the impact from increased investments in sales and marketing cloud, so Microsoft licenses and technology resources for future growth and were partially offset by the benefit from our savings associated with our voluntary employment retirement program. And lower bonus accrual in 2023. We ended the year with a cash balance of $3.8 million and a net debt of $194.5 million. Operating cash flow for the year was $1 million versus $32.4 million in 2022. The reason for decline was primarily a result of lower adjusted EBITDA higher interest expense from funding the vehicle acquisition, severance and other one-time items.
Lastly, in connection with the Company's disposition of EHC. in January 2024 and other factors management is finalizing certain line items in the financial statements, primarily related to the amount of goodwill impairment and the final numbers will be included in our 10 K filing.
Moving to our guidance. First, in an effort to improve our transparency, we will begin providing guidance for the upcoming quarter starting today. For the first quarter, we expect revenue to be in the range of $82 million to $84 million, adjusted EBITDA to be between $8.5 million and $9.5 million. And for the full year 2024 we expect revenue of $340 million to $350 million, adjusted EBITDA to be $45 million to $50 million. I want to give you a little insight into our thought process and the assumptions that went into this year's guidance. Firstly, we have assumed impact of HD. in the guidance. In other words, the guidance assumes only 15 days of HD. in Q1. As a point of reference, D. accounted for approximately $16 million in revenue in 2023 with approximately $2 million contribution to adjusted EBITDA. Secondly, a full year of vehicle is included in these numbers. For 2024, we expect revenue of less than $20 million with an approximately $4.5 million contribution to adjusted EBITDA. Starting with bookings, we took the conservative approach for the full year and assume 2024 will be relatively flat compared to last year. Excluding EFC. and variable. In terms of quarterly cadence, we expect the first quarter to be the lowest of the year and then build as the year progresses. That said, please keep in mind that bookings are lumpy. The midpoint of our annual revenue ranges implies 6.5% growth, excluding TSB from 2023. And that will be primarily driven by organic growth in our Austrian business and the full year contribution from renewables last year. Rcm, including variable in Q4 accounted for 57% of our total revenue and this year, we think could be about two thirds of total revenue. We are forecasting our EHR business to be relatively flat, excluding the impact from sunsetting of our centric platform. I also want to provide further detail on how we anticipate EBITDA margins to progress over the year. The first quarter will be our lowest EBITDA margin in 2024 at approximately 11% based on the midpoint of our quarterly guidance range. This is because we have just begun ramping our global workforce and therefore have some duplicative costs during the initial transition to ensure continuity for our existing customers. We expect the second half to have higher EBITDA margins to reflect the benefits from already negotiated vendor savings savings, ramping the offshore workforce and expected first half bookings converting to revenue. I have been conservative to not include any other future cost savings booked initiatives in our guidance that we have initiated as part of cost rationalization and capital allocation strategy. These initiatives are in the preliminary stages, but include a review of overall cost structure relating to vendors. Then G&A, including real estate and CapEx spend. We should see benefits in the second half, but there are too many moving parts as it relates to the contribution from the offshore transition, along with other factors to count them in the financials. From that, I'd like to close out my first call by thanking Chris and the rest of the CPSI. team for a warm welcome to the Company.
And a great first couple of months. I'm excited to help CPSI successfully capitalize on the many opportunities that lie ahead of us. And I look forward to getting to know many of you in the coming weeks and months and keeping you updated on our progress as the year unfolds. The task, I will open the call up to questions.
Question and Answer Session
Operator
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star two. If you would like to remove your question from the queue For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys for one moment, please while we poll for questions.
Our first question comes from Jeff Garrow with Stephens Inc.
Jeffrey Garro
Please speed with your cost Yes, good afternoon. Thanks for taking the questions, and welcome to the call today. Wanted to ask about margins in 2024, we would expect view go and further offshore leverage as well as potentially some reduced R&D following the post-acute divestiture to be accretive to margins. So could you discuss those in some more detail and also any potential offsets the heavy landing at those roughly flat EBITDA margins at the midpoint of the guidance year over year.
Vinay Bassi
Thank you, Jeff. First of all, I'm excited and looking forward to building this relationship with all of you, and you're absolutely right, it looks like a flat margin and all the reasons you outlined are also factored in. But there are a big couple of big offsets that I would highlight. One is some budget for 2024 will be based at full bonus. So compensation related expense adds a significant portion and this compensation and bonus accruals as well as merit increase that offsets most of those gains operator and body the body that then obviously, we had smaller increases from the full-time impact of the items that we have done in this in the second half of 23. Full year impact is felt in 24. So these are investments in support technology and sales and markets.
Jeffrey Garro
Got it. That helps and you step back a bit and throw it out there for Chris.
Yes, you've done the Vigo acquisition. You've divested the post-acute business. Curious if we should think about potential for additional street strategic moves to come? Or do you now have the platform that you want to grow and drive leverage across?
Chris Fowler
You know, I think it's a super fair question. And I would say right now for 2024. We've got a full plate and we're looking to execute. And so we were excited about obviously getting the Bugle deal done at the end of last year, excited about the HT. divestiture, creating the additional focus there. And right now top of mind for us is continuing to drive sales and revenue growth and really capturing the value of the vehicle workforce transformation over the course of this year.
And you know, going back to that margin question you have you can look at I'm excited about the fact that we're providing the quarterly look ahead guidance, which allows a bit more visibility for you guys as we're continuing to march through this transformation. But you can also tell just from the bridge of looking at Q1 over the course of the year, there's a pretty steady ramp on as that margin grows as we continue to execute on the on the offshore workforce.
Jeffrey Garro
Thanks. And I appreciate that one last one from me before I jump back in the queue, but I want to make sure we have bookings and solve a nice finish for the year. Could you help us think about the pipeline from here and where our expectations should be for bookings in 2024?
Chris Fowler
Yes, we were definitely thrilled to see the rebound that we had in Q4 over Q3. We continue to remain cautiously optimistic. I think the track we fell into last year, Jeff was getting a little over our skis with and I know we've talked about this throughout the year of how quickly this market was going to unlock. And so so if you look at our guidance. I think that we've taken a very measured approach at how the bookings contribution has impact over the course of the year. With that said, the pipeline continues to be strong. We're continuing to have the same great conversations with customers and seeing those pickup both in our existing customer base and with our Yes, outside of the EHR.
Jeffrey Garro
Great.
Thanks again, for taking the questions back in the queue.
Operator
Our next question comes from Sarah James with Cantor Fitzgerald. Please proceed with your question.
Sarah James
Thank you. And I was hoping you could unpack the seasonality a little bit more and what the year looks like, especially on the EBITDA side, a little bit more back-end loaded. Are there any one-timers in there?
We should think about is the cost of rebranding in 1Q 24? And how sizable is that?
Vinay Bassi
Yes. So that's a great question and certainly nice to meet you again. Some of the margins that give us adjusted EBITDA margins and re-branding and all one-time items that are taken out. We have the rebranding cost of this year, but it's not included in the adjusted EBITDA margin, you're right, the margin is back-end loaded for two reasons. The ramping that you will have is on a month-to-month basis. So if I have something in the 1st month, I guess in the last quarter, all the benefits. So it's a ramping up of month by month so that my Q4 will be the maximum benefit. That's one.
Secondly, my vendor savings that we have negotiated is it kicks in from Q2 onwards. So that's that's the second aspect of it. And obviously, the bookings and the revenue that you expect is the benefits that we will see is also back-end loaded. So it's a mix of all three. The good advantage part of it is vendor savings has already been negotiated and the bookings of first half and design will give us a great color for the second half quite often.
Sarah James
Great. Thank you, Rene. And maybe you could give us a little bit of insight into your process there, how you've been going through the review of the business units and how you think about guidance philosophy, whether it it's conservative or optimistic?
Vinay Bassi
That's a that's a great question that you say I've always been told futures and tell me whether I was optimistic or conservative, but I'll tell you how much I have thought through this. As you know, so there are a lot of moving pieces, a lot of pieces that could change. But how I talk to is looking at the past to be my looking at history and then looking at future and breaking into two parts, like what Chris said, one being a little conservative on making sure what we learnt of optimism of 23 is not baked into 24. So a flat bookings number, excluding the Oval and PSD was a good, especially despite coming off a high, a good on the Q4. That was one.
Second aspect on margins. And some of it is my my history and my background laser focused on the controllable and making sure the rigor that we need. We have started putting on on on these expenses and everyone to fight to stay on that on the P&L has has, I would say some of it which are fully baked is already captured like the window saving. But the other that I mentioned in my in my prepared remarks, our work that I'm trying to do and have an ROI focus and more near term focused. So CapEx but product development expenses that we are spending looking at it from a project by project and ROA of not having to long-term and near-term is the cadence that we have just introduced started. It's still early, but I would say that's the mindset I have to answer your question. I feel at least 60 days, and it looks like a balanced budget to the best of my ability of understanding. But I feel more like what we've said cautiously optimistic and then a lot more work to be done in the coming months because what we do?
Chris Fowler
No, I think you nailed it. And again, Sarah, I would say definitely between the optimistic and conservative, I would say realistic is some over the first 60 days is the way that I would categorize the day and appreciate that approach also, again, I'm going to say this for the second time, I love the fact that we're giving the quarterly guidance, which I think helps everybody kind of keep track of our progress as we go as we do know that it's not quite a straight line on this transformation.
Operator
Our next question comes from Jesse Davis with Barclays. Please proceed with your question.
Stephanie Davis
Our guys have Stephanie Davis from Barclays, but it's okay because I can have a new name as you guys have a new name to Congress on the rebranding.
Now I was hoping to hear, Chris, you just came from a customer conference week on hearable everywhere. So tell me what's the feedback, what are folks looking for and what was the big area of demand that everyone talks about.
Chris Fowler
Will color, Stephanie. So Stephanie, thanks for the question. Like I was saying, we have been thrilled with the response to the rebrand on all fronts. And granted it is early days, but you know, obviously you shared your e-mail and obviously you've been you've been bugging us about this for quite a while. I think the sentiment from the from the Street has been finally make it easier to tell the story, our customers and our employees all seem to get it as well and appreciate the consolidation and the ease of how we how we talk about who we are.
I'm going to go into the conference devices what I would say that we saw kind of more than anything was it people are people are looking for insights on insights on where there are opportunities for there to for them to improve efficiencies, which lined up really nicely with them. We had a little soft launch for an analytics platform that we're driving now. And so, you know, our thought is that step one is the technology that's available to find. There's the areas for improvement on the RCM side. And then obviously, with the opportunity for us to back that up with some services that come in, which I think is, you know, is as much of top of mind to the customers as identifying what those problems are once you've identified and it's about how do you solve them.
Sarah James
When I think about a legacy industry that does a lot of insights work, I think in Nielsen, and we've got the name coming from there. Renee is there anything you're seeing in that opportunity where you can kind of get some learnings from your past?
Vinay Bassi
I would say Stephanie boss, not just Nielsen from hubs of IONA's banking everything has and I'm learning and learning from those experiences and utilizing it here. And the key one I would say is and focus a lot on my controllable. This is cost structure and CapEx because that's a that's an influence I can make and having lived through two private equity learnings and they have been amazing teachers to me. So bringing that cadence of an ROI mindset has helped me a lot one.
Secondly, in my Nielsen on having focused on revenue and all, it's building that partnership with the business where accountability is an ownership are shared and that plus translation of bookings into revenue in the right, it's from a forecasting is the second one and the third, which is not Nielsen, not have. I just why I am cash is the only tool I'm going after. So improving my free cash flow has been the mantra that uncommitted two sets of journey that I'm I know might be longer, but every day every month is where I'm looking to make a difference.
Sarah James
You mean that on the rev cycle side, I wanted to dig in a little bit it looks like your cross-sell motions have been a little bit softer for the past few quarters. Is there any color on this? And then last one's a quick housekeeping one. I didn't see an NPR metric. Is that going to be disclosed? Or is there anything you can share on?
Chris Fowler
Yes.I'll take the first and then let let me now talk a little bit about the NPR and kind of the approach there from as it relates to the bookings and just kind of from a macro view, I would say we're still very confident on as it relates to the cross sell opportunity, we continue to see that that into the market can continue to have some momentum. I think it's still we still have the same challenges to an extent, while we're seeing them turn down a little bit. It's the it's the economic impact of the jobs in the community, and it is the the concept of outsourcing in general?
Yes. Remember, we're still talking about a market that that 70%, 80% of it's still being done in-house, and there's not a regulatory push to drive to this to drive to this model. And so we're still we're still selling the idea of outsourcing before we're selling TruBridge as the provider for that service. And so we're making great strides on that. That sales force has now been intact for a full year. So they're definitely have their feet under them.
One on the value proposition of what it is that we're selling and to building that relationship with their customers. And so we're expecting to see that as the as the year unfolds continue to make progress there. And I'll let Bill talk a little bit about the MDR?
Vinay Bassi
Yes. So certainly, I feel bookings is a is a great metric because it is an important rebound of our own that we are reflecting NPR. I just wanted to take a little more time to do the homework of understanding the ins and outs because like everyone else of a portion of our NPR data is relied on third-party inputs. And then when you know when it's not in my cost control, knowing how the out inputs come in, what's the cadence? I just want to do that homework a little bit longer to just make sure I understand what are the ins and outs and how how is that a leading indicator for me. So that's the reason why you didn't see it in this. But bookings, which is obviously our deals closed, is a great indicator for us for the time being.
Sarah James
Is that helpful? The conversion metrics?
Chris Fowler
Thank you guys basically every or Jesse, whichever it is.
Yes said.
Operator
Our next question comes from George Hill with Deutsche Bank. Please proceed with your question.
George Hill
And yes, hi. It's Max now for George, thanks for taking the question. And can you talk a little bit about what has changed in outsourcing conversations lately, prospective client, just given the recent macro environment?
Chris Fowler
Yes. And sorry, I didn't catch your name, so but I'll answer the question. I think I did hear most of that from what I would say is that definitely we're seeing the increased interest. And that is based on, as I said in the prepared remarks, the pressure on the labor market specific to the communities that we're serving. And secondly, you know, as as the reimbursements tick and continue to get complex more complex. The need for specialized skills and continuing to stay on top of that continues to ratchet up. And to give an example that if you go back five years ago, the vast majority of these hospitals, we're their payments were on the backs of traditional Medicare Medicaid and probably a Blue Cross. It was going to make up the vast majority of their payments and a pretty straightforward payment model that they were getting reimbursed on and also getting paid within 14 to 17 days while it may not be the dollars that they want to get, they will get. They knew that they knew the money that they were going to get a new win in the time that they would get it and they can budget for that. What's happened as you've seen this kind of proliferation of the move to the Medicare Advantage or the value-based care model has created more complexity and making a little not quite so straightforward and getting that money in. So it's about, again having the resources one that are available, just the the bodies and the chairs. And then secondly, making sure that they're able bodies and they're on top of the, you know, the changing landscape of how that reimbursement is. So that's really where the vast majority of the conversation has shifted to. And again, you know, as we have some of this is what we do. We live and breathe by this specifically with more than half of our business. And so we're able to sell on the success that we've had with our 20 plus years of experience to be able to bring that consistency and on succession to the delivery for those opportunities.
Operator
It appears that there are no further questions at this time. I would now like to turn the floor back over to Chris Fowler for closing.
Chris Fowler
Well, thanks, everybody, for joining us. Also thank you for the patience with our technical difficulties. Hopefully, that will be a one-time and only and obviously being a thank you to the to the new co pilot that we've got sitting with us than a bashing. I'm looking forward to to go and finish in this transformation and continuing the progress that we've started here at CPSS. soon to be TruBridge on Monday, but hope everybody has a wonderful rest of your day and good weekend, and thank you again.
For your support in our company.
