NextGen CEO says regulatory environment impacting providers' health IT spending

Financial earnings increase
NextGen Healthcare released its fourth-quarter and fiscal full-year 2019 earnings Tuesday. (Getty/FroYo_92)

NextGen Healthcare on Tuesday reported fiscal fourth-quarter net income of $3.9 million, a significant reversal from the $11 million loss it posted during the same period a year earlier.

During its quarterly and year-end earnings call, the Irvine, California-based healthcare technology company credited a significant increase in bookings and deal-size growth for its profit increase in its fiscal 2019 fourth quarter.

On a per share basis, the company posted a profit of $0.06 per share compared to a loss of $0.17 per share during the same time period a year ago. The company reported total revenue of $134.8 million during the fourth-quarter period compared to $135.8 million a year prior.

In the final minutes of trading Tuesday, shares hit $19.56, an increase of 15% in the last 12 months, according to the San Francisco Chronicle.

“While we encountered some market headwinds in the second half that impacted top-line revenue performance, we’re pleased to deliver earnings per share at the high end of our full-year 2019 range,” Rusty Frantz, president and CEO of NextGen Healthcare, said in a statement. “We remain confident in our growth strategy, the market opportunity, and our plan to deliver 20% operating margin in the next three years.”

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NextGen reported total revenue for the year was $529.2 million compared to $531 million in 2018, while profit was $24.5 million or $0.38 per share compared with $2.4 million or $0.04 per share in fiscal year 2018.

The company reported full-year bookings at $133.5 million, representing "significant and meaningful" growth over fiscal year 2018's $116.9 million.

The company is projecting revenues of between $543 million and $559 million for fiscal 2020, with earnings between 86 cents and 94 cents per share.

The company reported electronic data interchange revenue reached $25.8 million, up 11% year over year, largely due to the Veradigm deal signed in the fourth quarter. In January, NextGen partnered with Allscripts’ Veradigm business to enable data exchange between providers and health plans, insurance companies, laboratories and research organizations.

During the earnings call with analysts Tuesday, Frantz said NextGen is expanding and shifting its R&D capabilities to focus on supporting clients' transition to value-based care models and to keep pace with the regulatory environment.

As healthcare providers, especially in the practice management space, shift toward taking on more risk, they are evaluating their technology needs going forward, he said.

"I think they are nervous about the transition to value and how they're going to take on risk. We haven't seen as much concern around Medicare for All, from our client base, but folks are being pushed into risk-based arrangements that they don't have the technical capabilities nor the business process framework to be successful. And so that's definitely driving our clients to kind of stop and pause a little bit and think about how they're going to transition their business models or be able to support these multiple business models," Frantz said.

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Ongoing regulatory changes, including the proposed interoperability rules coming out of the Department of Health and Human Services, also are having an impact on providers' health IT buying decisions.

"When you think about some of the other regulations coming down the pipe around data blocking and data sharing, that's also pushing clients to move into an upgrade cycle to make sure they're at the release that enables seamless interoperability to the Carequality framework, because if they're not there, then perhaps they're not participating in these data exchanges and might be at risk," Frantz said.

NextGen announced in May 2018 that its ambulatory electronic health record (EHR) was a live implementer of the Carequality framework, enabling the exchange and request of medical records with more than 10,000 participating organizations representing 600,000 providers.

"It is both the change in business model, but it's also a strengthening of some of the regulatory compliance requirements," he said, adding, "They're definitely waking the clients up and people are looking around a little more than they did as little as six months ago. That changes a little bit of their priority road maps."

As NextGen has focused on its population health and data sharing capabilities, this has boosted its competitive position and has led to some providers switching from other vendors to NextGen's EHR systems, Frantz said.

"We also have a very broad integrated ambulatory platform with population health, with outreach, with mobility. Sometimes, we're bringing a broader capability than their current vendor can bring," he said.