JPM21: How a timely acquisition helped NextGen Healthcare weather COVID-19

A doctor holding a table
The COVID-19 pandemic is driving a rapidly increasing demand for NextGen Healthcare's virtual care and patient experience technology solutions. (Sergei Domashenko/Shutterstock)

In December 2019, NextGen Healthcare acquired telehealth platform Otto Health to expand its patient engagement capabilities with integrated virtual visits.

It turned out to be an incredibly well-timed acquisition.

In the first calendar quarter of 2020, only 30,000 patient visits were conducted through the telehealth platform. Then COVID-19 hit. 

"We saw significant adoption at the same time we saw new entrants into the marketplace. By September 30, there had been 780,000 virtual visits completed, up 68%, and patient satisfaction had gone up from 8.9 to 9.1," said Rusty Frantz, CEO of NextGen Healthcare, during a presentation Wednesday at the J.P. Morgan Healthcare Conference.

"To be able to take an asset, acquire it, integrate it, and commercially execute it in a short period of time, it’s a little unbelievable. To have rising patient satisfaction and massive scaling is tough to pull off," he said.

The growth of the telehealth platform translated into $9 million in contracted annual recurring revenue for the company, up from $200,000 when NextGen acquired Otto Health.

RELATED: NextGen Healthcare CEO says providers just realized they've moved into 'consumer land.' Here's how he aims to help.

Having those telehealth capabilities proved crucial to help NextGen Healthcare, an ambulatory health IT solutions provider, and its provider clients weather the storm during the COVID-19 pandemic.

"If we hadn’t acquired Otto, it would have been a train wreck of a bookings quarter," Frantz said.

During the second quarter of 2020, NextGen was impacted by reduced patient volume at the company's ambulatory practice clients The company saw volumes significantly decline initially and then recover to approximately 90% at pre-COVID-19 levels by June, the company reported.

Frantz estimated the company lost $10 million in revenue in 2020 from its volume-based business.

"I was quite worried about the impact of COVID through the rest of the year. But by Q2, things went back to business as usual. Sales cycles are roughly the same time, sometimes faster now. It's easy to get wide and high if you have a brand presence," he said.

Frantz credited the NextGen Healthcare workforce, totaling 2,600 employees in India and the U.S., for helping the company to adapt and thrive in a challenging environment.

By mid-March, the company had shifted the majority of employees to remote work. That can be a difficult shift for a technology company that relies on in-person meetings to drive sales.

"At our first town hall, I said, 'Look, we just got an 18 wheeler of lemons dropped on our doorstep, we better start getting really good at making lemonade out of it.' And the organization has, and our clients have too," he said.

The company prioritized employee safety first and then switched to business continuity to get its clients to "high ground," he said.

RELATED: NextGen Healthcare CEO says company prioritizing investments in virtual care for providers

In March, NextGen rolled out a patient experience platform with integrated virtual visit capabilities as a result of its recent acquisitions and integration of Medfusion and Otto Health. NextGen's telehealth and patient engagement platform includes telehealth capabilities, mobile check-in for patients, and online patient payment processing options integrated with its electronic health record.

The COVID-19 pandemic is driving a rapidly increasing demand for NextGen Healthcare's virtual care and patient experience technology solutions.

NextGen Healthcare delivered strong financial results in the quarter ending Sept. 30, as revenue grew 4% from $134 million to $140 million. The company has seen continued strong growth in subscription revenue.

Based on continued commercial success, NextGen Healthcare raised its guidance for its fiscal year results. The company is expecting annual revenue between $547 and $555 million from the prior range of $535 and $551 million. Annual non-GAAP earnings per share are expected to be between 92 cents and 98 cents from the prior range of 83 cents and 93 cents, the company announced.

The company's fiscal year 2020 revenue was $540 million.

RELATED: NextGen Healthcare focuses on innovation despite impacts to its volume-based business

As part of longer-term cost-cutting actions, NextGen Healthcare laid off about 3% of its employee base back in April. The company also is taking other steps to increase its operating efficiency, including eliminating some facilities and adjusting to the "new normal" in a post-COVID world.

"You'll continue to see us re-platform how we work," Frantz said. "I don’t expect in-person sales to go away. I expect it to come back. But the clown car is over. It’s one or two people on-site and then a whole bunch of people off-site that bring expertise and knowledge."

Frantz, who joined the company in 2015, said NextGen Healthcare executed an impressive business turnaround in just a few years prior to the pandemic.

"When I came in, we were in a tough spot as an organization. We had lost the faith of our clients, lost our ability to execute effectively, and employee culture was siloed and somewhat acrimonious," he said. Since that time, the company has focused on improving its culture as well as innovation and building out capabilities to meet providers' needs, such as interoperability tools, digital health, and integrated solutions that include behavioral health. 

 "What we’ve done from there to here is pretty darn magical. I expect us to continue to perform well, continue to be more efficient and I would expect our operating margin growth to be driven primarily by revenue growth," Frantz said.