NextGen Healthcare eyes opportunities to build up RCM business amid tight healthcare labor market

As healthcare organizations face ongoing staffing challenges, the tight labor market is proving to be a potential tailwind for ambulatory technology company NextGen Healthcare.

"We see some interesting potential outcomes for NextGen," said CEO David Sides during the company's fiscal third-quarter earnings call Tuesday. "Many of our clients are experiencing labor shortages and higher staff turnover. We are seeing customers in the past probably would not have discussed outsourcing activities like revenue cycle management to now actively evaluating and engaging us for these services."

According to a new survey from Akasa, healthcare revenue cycle teams are facing staffing challenges with significant costs for recruitment and long timelines to fill open roles. For entry-level revenue cycle talent, it costs, on average, $2,100 for recruitment and takes 84 days to fill vacant roles, according to the survey of around 500 chief financial officers and revenue cycle leaders at healthcare organizations.

As organizations struggle to attract talent to run revenue cycle management, NextGen's technology can automate RCM processes.

About 6% of the company's customer base currently uses its RCM services, said James Arnold, executive vice president and chief financial officer at NextGen Healthcare during the earnings call.

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"That gives us a lot of room to really grow those services. There's a lot of cross-selling that we could realize there and that's where we're focused as one of the main growth areas," he said.

During the third quarter, NextGen continued to win new business for its ambulatory technology, with a "handful of seven-figure deals," as medical practices move away from managing multiple different legacy systems and consolidate on NextGen's fully integrated and scalable solution, Arnold said.

Bookings came in at $38 million in the quarter, up slightly on a year-over-year basis and new client wins accounted for over 25% of bookings.

"We are beginning to see the positive influence of consolidation in the independent ambulatory space. Yes, I said positive influence. Let me explain," Sides said.

"While most investors are aware of the ebbs and flows of hospital-driven consolidation trends over the past few decades, the independent ambulatory space is now seeing provider groups that value their independence, acquiring other practices with the support from well-financed investors. As these practices grow in the number of providers, services offered and complexity, NextGen becomes the obvious choice to provide not just data, but clinical and financial insights," he said.

Sides took the reins at the technology company in late September after two years at telehealth giant Teladoc. He served as chief operating officer of Teladoc Health, where he led worldwide commercial and operations teams. 

The company has set an annual target revenue growth rate of 6% to 8% next year, he said.

The company also is eyeing potential M&A to grow its capabilities. "We favor bolt-on transactions that add a technology or capability that we've decided not to build ourselves," Sides said. "NextGen has considerable assets that, with investment, will likely drive significant future growth. When it comes to external activities, NextGen has ample dry powder."

He added the company would not "rule out" larger transactions.

Quarterly results beat Wall Street estimates

The company had a solid third quarter, reporting revenue of $150 million, up 6% compared to $142 million for the same period a year ago.

Of this total, recurring revenue accounted for $136 million, or 91%, of the total.

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NextGen Healthcare brought in $5 million to its bottom line in the fiscal third quarter compared to profits of $464,000 in the same quarter last year.

On a per-share basis, the Atlanta-based company said it had a profit of 8 cents per share.

On a non-GAAP basis, fully diluted earnings per share for the fiscal 2022 third quarter was 24 cents compared to 26 cents for the same period a year ago.

The results beat Wall Street expectations. The average estimate of five analysts surveyed by Zacks Investment Research was for earnings of 21 cents per share.

NextGen's topline also surpassed Wall Street forecasts, as five analysts surveyed by Zacks expected revenue of $146 million. 

Of its total $150 million in second-quarter revenue, software subscription services brought in $41 million in revenue, up 8% from the same period a year ago.

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Managed services revenue came to $29 million, growing 5% due to continued growth in the company's managed cloud services and continued strength in revenue cycle management as third-quarter client encounter volumes continue to be strong even as the omicron variant grew late in the quarter, Arnold said.

EDI and data generated $26 million in revenue up 5% over the year-ago period. Software maintenance and support revenue came to $38 million during the third quarter.

The company ended the fiscal second quarter with $49 million in cash and equivalents and no balance outstanding on a line of credit. Free cash flow this quarter came to $9.7 million, reflecting a carryover from the proxy contest of $9 million and repayment of employer tax deferral due to the pandemic.

NextGen raised its guidance for fiscal 2022 and now expects full-year revenue between $591 million and $595 million, and full-year earnings in the range of 96 cents per share to $1 per share.