Joining us today, our healthcare analysts here at Stifel, and today, we have the pleasure of hosting TruBridge. With us today, we have President and CEO Chris Fowler right here, and CFO Vinay Bassi to his left. Thanks to both of you for joining us today.
You bet.
Thanks for having us.
I'd like to get started. You know, recently rebranded, right? CPSI for many, many years, now known as TruBridge. How about just take a few minutes, go through the reasoning behind the rebrand. You know, what do you think really are the major differences between TruBridge today and the CPSI of, you know, many years?
Yeah, great question. So, you know, the TruBridge brand, we developed internally, a little more than 10 years ago. We have been providing RCM services for the better part of 20 years, mainly focused on the community and rural space. I think there are two, really, two factors as to the reason for the rebrand. I think one is just simplicity. As we have transformed the business over the last several years and become acquisitive since 2016. Prior to that, had never done anything on that side. All growth had been organic. With the acquisitions, obviously started to pick up quite a few different labels and names, and the story got to be a little confusing.
And so we felt like there was an opportunity for us to simplify this for the market, for our customers, for our employees, and we took an opportunity to pick the name that we felt like had the greatest brand recognition, and maybe positive reputation behind it, that we could center everything under. The difference, I would say, between the TruBridge of today and the CPSI of old, is that we want to take away all of the wonderful things that got us to where we are today, with CPSI. And you know, again, I don't think there's any knock on the old company and the old name. I think it's about how we've positioned ourselves to grow going forward, and how to truly make sure that we're singularly identified on the rural community market.
We serve that end with two specific solutions today, one with an EHR and one with our RCM, and allowing ourselves to really be mindful of how we get the best product and services for our customers that we can.
Awesome. Okay, thanks for that. So why don't we start with RCM? So that business has been growing nicely. You know, it's up to about 65% of revenue from 50% a few years ago. How do you expect this to continue to grow in the near to medium term, and kinda what do you see as those main drivers there?
Yeah. So I think the big driver is, if you look at the market today, about 80% of all providers, all hospitals, are still doing the billing and collecting themselves. And so I think the first set is that you gotta look at the available market of what we think will convert over the next 10 years. And in our world, our view is that that period of time, you know, today it's 80/20, 80% being managed in-house, I think that at worst, that ratio flips, and in 10 years, 80% of all hospitals will be outsourced. And the reason for that is, you know, a couple of things. One, over the last several years, there's been an exodus in the workforce, in healthcare.
Now, the headlines tend to be around the providers, the physicians and the nurses, but it's actually prevalent throughout the entire organization, whether it's dietary, whether it's housekeeping, whether it's the business office. And so there's been a pressure that's been put on the ability to find and retain staff that can actually do the work. And, you know, you move into the rural market, where we live, and that's intensified because there's not another provider in town that you have an opportunity to go fill the job with. And so there's a void there that we think is a driver. The second driver is just the continued complexity around the billing and collecting.
You know, not that it's ever been easy but, you know, prior to the expansion of Medicare Advantage, the vast majority of our customers. The vast majority of their revenue came from their Medicare reimbursements, which, you know, you can argue whether they were getting the money that they should get for the services they provide, but they could guarantee that it was gonna be paid timely, and it was gonna be paid exactly what they were supposed to be getting. Now that you've seen that Medicare traditional dollar shift to the Advantage plan, which is just a fancy way of saying a commercial payer, the payment time has extended, and the dollars that they receive is not quite as cut and dried as it used to be.
So again, between the labor challenges and the reimbursement complexities continuing to expand, it just seems like it's an opportunity for this to be work that's done elsewhere than the hospital. And again, I think, you know, the underlying thing being that this is not their core business. Their core business is patient care. Our core business is collections. And so for us, we feel like there's a natural partnership for us to allow them to focus where they can, where they need to focus on the things that can only be done in the community and at the hospital, and allow those partners that they can have come in and help them out.
Yeah, that makes a lot of sense, especially with Medicare Advantage. You know, it's only growing, growing faster and faster. So how about going down to the margin level, so EBITDA margins in the RCM business. You know, they've declined, taken a dip a little bit recently, right? Maybe high teens, now we're double digits. So maybe, I guess, what kind of drove that, you know, sort of decline recently, and then what do we need to get to get back there? How long it's gonna take, and, you know, what, what do we... What are the drivers?
That's a great question. Let me give you a color first on the overall EBITDA margins, because gross margins are obviously at the business level, and below that, as RCM takes more share of the revenue, the proportion goes more to the RCM. But overall margin, compared to last year to this year to next year, we expect the margin to grow from a couple of different areas. One, as we go offshore, margins will the labor arbitrage benefits will start creeping in, and we expect it more in the second half of this year. Second, piece is some of the cost actions that we just did recently is expected to add more, starting from this quarter a little bit, but the next two quarters would be the other two big.
Relating to cost aspect of it, some of the vendor savings that we have. So the cost trajectory, or the optimization benefits in offshore will lead us to the margins between the first half and the second half. Compared to last year to this year, we did voluntary retirement program. That has an impact on the EHR margins piece. And then in the last two years, just to segregate that, if you look at reported-to-reported basis, like you would see an EHR EBITDA going down because EHR had AHT in last year. It's not there in this year. That was one big driver. And the second part is, over the last couple of years, we have made some increased investments in technology, innovation, cloud, that shows that.
But overall, if I summarize this story, the second half is better from a margin profile to what I said, and next year, with the full benefits of offshore coming in, cost optimization and the revenue, with the EHR Centriq behind us, should start contributing to the margin expansion.
Got it. Okay, so I think that's, that's a nice segue into, you know, Viewgol, right?
Mm-hmm.
Acquired that in October, I think. A big part of that, of that is offshoring. So you wanna talk about the strategic rationale there, sort of how far along we are on the integration, and then, you know, with offshoring, you know, potential margin lift. You know, like you mentioned earlier, like, sort of where are we? Where can we get to? How long, all those things?
Yeah. I'll start on the rationale, and then I'll let Vinay kinda get into the where, where the margins can go. So there was really two large drivers for why we landed on Viewgol, and there's a third that is kind of a, an additional pickup that we're... we've got some excitement around. The first, to the point of the offshore operation. So prior to the acquisition, we had started down the road, through partnerships, of leveraging the work being done offshore. What we quickly realized is that once we got to a certain scale, that we were gonna wanna have our own operation.
But we did wanna be able to take advantage of somebody that had already done the work to build the operation, to have it set up so that we could turn it on and really see it scale quickly. Viewgol was able to do that over a three-year period. What's interesting about them is that when they formed their company, two of the three founders came out of NextGen.
Mm-hmm.
So an ambulatory EHR, and saw opportunity to build an analytics platform and have a technology solution, opportunity. What they found, though, is that the opportunities that they identified were not being worked at the provider level, and so they saw a service opportunity to be able to plug into that technology. So once they saw traction on their technology, they quickly turned on a services business that they built from day one in India, and so, you know, over a three-year period, had close to 900 employees staffed up and operating at a very high level with a high level of satisfaction with the customers and a very low retention rate. So, you know, top of the list was a mature offshore operation. Secondly was, they're singularly focused in the ambulatory space.
While we have some, we have some accounts that are ancillary to acute customers that we have, we did not really have a core competency around the ambulatory space. And so, you know, as we talked about Medicare Advantage, I think the other trend that everybody can see in healthcare is that the care is moving from the hospital into... or out of the four walls and into the provider ambulatory opportunity. So we felt like it was time for us to be able to be positioned to have that core competency as well. So you take those two as the, you know, we get to put those two together and say, "Now we have an offshore operation at scale.
Now we have the ability to deliver our RCM service in the ambulatory with experience and a track record." Third is, again, going back to how they founded themselves, was around an analytics platform that we have been building and just announced at our client conference in Las Vegas at the end of April, that we are coming to market in the second half of this year with our analytics offering that we're gonna be providing to our customers. So kind of a one, two, three in how we view that acquisition. It is an earn-out that we have in place. So from an integration standpoint, you know, we're still kinda in conversations and allowing them to run their business for the remainder of the year.
But continuing to make progress so that when the earn-out is up, that we're ready to hit the go button.
Just building on what Chris said, if you look at margins, I would break it into three parts: Viewgol on its own, the synergies both on revenue and costs that we will get once we integrate fully from next year on, or the second half of this year, and the third part is for all the savings from offshore, and they are the foundation on which we are building our offshore. On the first part, on what I had even mentioned in my earnings script, is $4.5 million of EBITDA, they are on track with what we are seeing in quarter one, and we expect them to be on that path.
On the second one, with analytics and other solutions, that we will see synergies both on the revenue side and as we integrated more and more the synergies that we'll see on the cost side should give them platform for better margin contribution to whole of TruBridge. But the most importantly, the third part, which is what they have put us on a great path of being the foundation on which we build our global workforce. Like what Chris had mentioned in his script, we are 25% global in the workforce, and our expectation is to go to 70% in the couple of years. That foundation being helped by Viewgol adds more value to the margin contribution.
Got it. Okay, that's very helpful. On the analytics side, anything, anything you wanna dive into there in terms of what you expect to launch this year?
What we expect to launch or when we expect to launch?
What?
Oh, yeah. So it's primarily, we're starting on the RCM side. It will be for our EHR-based and also our customers that do not run our EHR, but ultimately also plan to bring in the clinical information as well, so that we have a full picture for our EHR customers of how to really run a decision support, right? So providing them the insights that they need to be able to make the right decisions to run their facility the best. Why that's important from my perspective is, you know, as I go out and visit the hospitals in our space, you know, they don't look very different.
You know, you look at the outside of the hospital, you look at the inside of the hospital, the services they provide, the community that they're in, they all look a lot alike. The big difference tends to be in the leadership at the hospital itself and how they leverage the information they have and what decisions they make. I think some of them have the opportunity to operate better with that insight. I think some of them also have the opportunity to be kind of led down the path of what needs to happen. And I think the data and the information that we can take from that are kind of the breadcrumbs that'll get us there.
Got it. Okay, that's really helpful. So how about the EHR? You know, it's... Yeah, go ahead, David.
For the part of the business, which is our,
The RCM
... RCM part, yeah.
Let me just repeat the question, I think.
Yeah.
The question is around offshore, switching from 20% - 70%, to 70%, and is there a deflationary impact related to that?
Yeah. So maybe a little, David, I would say, but the headline to me is the margin increase. Regardless of whether for the existing book of business there's any discount that we apply, there's still gonna be a margin increase that we're gonna see. You know, talking in round numbers, the savings opportunity that we have on the offshore work is so substantial that we can provide a little bit to the customers, but that the vast majority-
Yeah
... comes back to us.
From a margin per person on a dollar basis, it will be incremental. Incremental. Yeah. Yes.
Okay. All right, thanks for that. So EHR, move to that half of the business. So, you know, revenue's there, it's been, you know, flat to down. You know, you did sell a piece of it-
Yeah
... earlier this year. So not only will that be down this year, but organically, maybe, you know, maybe not so much. What do we need to see to sort of stabilize this part of the business? And I guess, what was also the rationale for selling that piece?
Yeah. And again, this maybe goes back to a question you asked at the very beginning of: What's different about TruBridge to CPSI? I don't think, you know, we obviously only started buying things in 2016. We've never sold anything before, right? So I would say that that's a different skill or a different club that we have in our bag now, that we're evaluating the assets that we have and making sure that they're profitable and that they're core to our strategy, and if they're not, we're gonna find a good home.
I think that's an example of something that we're doing differently, but also thinking about the impact that we can have in making sure that we're creating focus around the work that we do, so that we're positioned to be as successful as we can. As it relates to the EHR, removing the post-acute, divestiture of AHT and just looking on the acute side, there's one other thing that I think is worth calling out. You know, our first acquisition was Healthland in 2016. They had two platforms. One was their legacy, one was, you know, they had purchased from somewhere prior to us picking them up. So very quickly, we put down the quite aptly named EHR platform Classic, pretty quickly right after the acquisition.
What you've seen over the last couple of years is us turning down Centriq, which was the remaining platform from the Healthland base. So coming out of 2024, we'll be on one EHR platform. And I think that that's important because I think, you know, we'll be at the bottom of all of the decisions on our side or the intentional decisions that we've made to really get focused around one set of technology, one platform that we can serve all of our customers with, that then we can kind of bounce off of. To your point, I think at that point, you'll see the stability in our customer base that we have.
You know, while we're not banking in our model over the next several years for there to be, you know, growth, I think that there is an opportunity, especially in our end of the market, for the EHR business to pick up, specifically with our ability to offer the EHR and the RCM coupled together, which I think differentiates us from other people in the space.
So again, you know, we're gonna continue to invest in that platform to see opportunities to grow the wallet share of the customers that we have, but also position ourselves to potentially pick up business as, you know, whether it be regulatory drivers like HTI-1, which was supposed to be 2024, and now it's gonna be 2025, or whether it's the opportunity for us to couple the demand for the RCM service with an EHR and deliver a unique model for the hospital on how that's delivered to them.
Yeah. Okay. Yeah, that... No, that makes a ton of sense. So let's move to one of the more recent positives here in the bookings numbers, right? They've been great the last couple of quarters, so in both, I think RCM and EHR, right?
Mm-hmm.
So what changes have you made in the organization that have sort of, you know, driven this nice tick up here? And then how much sort of visibility do you have to keep this momentum going?
Yeah. Yeah, you sound like ... I said this at the last conference. You sound like you're straight out of our board meeting asking these questions. So the first part, I would say, if you go back to the beginning of 2023, you know, we announced a reorganization of our sales team. One, putting a tremendous amount of emphasis on the existing customer base, where we went from seven or eight account managers to 20+ account managers, taking the customer-to-client executive ratio from one to 70 to one to 25 or so. Which I think was a good step in the fact that now we have greater coverage and greater focus on each customer that we have and identifying those opportunities. With that, I would say it just took time.
You know, when you reset that, when you reorganize that, you've got to rebuild the relationships. You've got to start basically from scratch, and it just takes a minute. I don't think we called that out enough in the 2023 numbers, and I think now we're starting to see the fruits of that transformation or that reorganization and additional investment in that space. At the same time, with our TruBridge, with our RCM, new customer opportunities, we also brought in new leadership and new sales team, with similar impact there. We had to not necessarily start from scratch, but we were, you know, building up a new team and getting them out in the field and chasing down the opportunities.
I think what we're seeing is a culmination of all of the sales team really going from the walk to the run. And so we're seeing the maturity start to take place and the successes coming out of it. You know, to your, to your point about visibility, I think there's a couple of things that we're kind of watching as we go. I think the internal cross-sell opportunities are very consistent, and we see a path to, and a very consistent path to that continue to go the way that it is.
What I do think is a new dynamic that we're seeing, and I called this out on the last earnings call around a big customer acquisition that we had, is as we're moving into these opportunities in the 100 bed-400 bed size that are not on our EHR, they're bigger deals which become more complex deals, which have volatility in the top.
Yeah.
And so while we're seeing, you know, the pipeline continue to grow, what the challenge is gonna be is where that plane actually lands and the impact that we're gonna have on that. And so we'll get better as we go as far as how we break that out for the investors to have a better insight and understanding. But to us, it's about making sure that the pipeline at the top is continuing to fill up. And I think it's, you know, again, it's just an additional proof point that we're on the right topic of, you know, the hospitals and the providers needing to convert their business office to the outsource model.
Got it. No, okay, that, that's great to hear. And so you mentioned cross-selling, and you know, you do have this great opportunity, right, between the two install bases. So how do you expect the cross-sell versus net new, you know, to mix in the near to medium term as you've, you know, done this sort of sales reorg and-
Yeah
... how do you expect that to trend?
Yeah, you know, right now, I would say when we look at it from a, you know, pure deal count, the, the cross-sell opportunity on a just a raw number basis is, is a little bit higher than the net new. But when you look at the dollar amount, they're the same or maybe even the net new is a little bit higher. And again, that goes to the dynamic of the deals are larger on the net when we're into that 100, 100+ bed space opportunity. And so for us, you know, I would love to see the raw count get equal so that the pipeline on the net new, you know, outsizes the opportunity in the base that we have today.
You know, I think that shows through when you look at the kind of numbers of how we see the market. You know, the cross-sell opportunity is a $400 million opportunity over the next several years, where the net new opportunity, for lack of a better term, that, you know, up to 400 beds is a, you know, multibillion-dollar opportunity. So just the raw numbers, it's about how do we continue to expand our sales force, you know, as we see that momentum continue, to make sure that we're capturing those opportunities.
Got it. All right, so I'd like to move on to guidance. So, 2024 guidance, you know, you, you lowered your 2024 revenue guidance on the 1Q call after hitting the midpoint of revenue. So you want to walk us through what led your decision to lower the guide, how much visibility you have the rest of the year, and where you expect organic growth to be for both RCM and, and EHR?
Sure. So one of the things, too, that we considered in lowering the guidance was the time. Given the bigger-sized deals that we were getting, the time of bookings to revenue conversion, we saw it elongated. And that was reflected in. That's what I reflected. Oh, sorry. That's what I reflected in the guidance piece of it. Because from a looking at visibility and what our forecast is, I think that was the right thing to just figure out, and especially with what we see it in the pipeline, two quarters of the past gave us a good insight that that was the right number to.
Yeah, and I, and I would say this. I mean, it, you talked about the revenue guidance, but I don't. I also think it's important to call out the fact that we held on EBITDA. And I think that, you know, Vinay is not gonna give himself the credit he deserves here of, you know, seeing that there were opportunities for... You know, when he came in, very quickly said, "There are some opportunities for us to be more efficient in the way that we deliver our services," and quickly put to action opportunities for us to do that. Which I think allowed us to be able to be more conservative as we think about the revenue, while keeping the EBITDA in place.
You know, we said that from the beginning of the year, that we were gonna have a sharper eye on our expenses, on our capital allocation, and be positioned to be patient as the market unlocks. I think that that's really coming through as you look at how we've guided, how we're continuing to execute, and I think what you're gonna see going forward.
Yeah. Okay, great. Yeah, so I did wanna hit on EBITDA next. So it... You know, I think you have done a lot of great work, right, in cost-cutting, everything. And you are expecting a, you know, a bit of a ramp, right, from first half to second half, right? I think, say, 18-20 in the first half, you know, 25-30 second half, something like that. And I assume you've already gotten a lot of those costs out, but, you know, maybe you wanna talk about, you know, what you have out, what you need to do, what else you need to do to hit those numbers, kind of how that, you know, margin acceleration is gonna look.
Yeah. So, it's like, like he said, it was like the board questions was asked the similar way. So I'll tell you from a first half to second half, the visibility on EBITDA is a lot, I would say, more confident, because my revenue increase, I'm not expecting that much. So one flowing to my EBITDA is less contributing, but what is contributing, which is already action, is my cost saving. I have $4 million of this, or slightly more it might be, for the second half. Q2 first half was impacted by a normal conference cost, $2 million. That adds to that. So that's the sixth part. Then offshore savings, vendor savings, which was more the second half part, will contribute.
So that's why we feel the guidance was more or less intact, given the pressure even on the revenue part, because of these actions. And the best part is, these actions was not thought through after we saw it, was irrespective we were planning to do. And this gives us the momentum by Q4, so when we hit 25, these cost actions continue.
That's where I was gonna go next, so good transition there. So your 4Q exit margin, right, should be, you know, pretty, pretty, pretty high. Is there any other seasonality or any further investments you're looking to do in 25, or is that kind of where we're gonna start and maybe build on that?
So I would say, I just started my strategic planning cycle much earlier now, so I want to do it in the middle of the year so that I have a good visibility. And it would have the same ROI concept. I'm more than happy to invest if I see the returns that are coming in, both from the RCM and the EHR side, piece of it. So but I would say the margin profile that we would expect in next year should be higher than obviously, because the exit rate of 2024 is what I would like to carry, and some of it will carry because of the full year impact. But obviously, we'll need to make sure the investments that we make is thoughtful and gives me a return that I'm expecting.
Got it. Okay, so before we finish here, I do wanna touch on the cash and the debt situation. So paid down some debt in the first quarter. You got about $4 million on the balance sheet, $180 million in debt. You know, is debt paid down gonna be the primary, you know, use of cash as you... if you, you know, when you're able to start generating cash? And are you comfortable with that $4 million? Like, are you good with that on an operating basis?
What is the $4 million?
Isn't that the cash on the balance sheet?
Yes.
Yeah.
So, for me, I would say from a cash on the balance sheet, I want to keep it as low because I paid the revolver because I use it. So yes, I look at it every day to make sure my leverage keeps on going down. And the path to get there is the following: higher profitability, some in control, some not in control because of revenue; lower CapEx, which we have already started the trend from Q1. One of the things that we mentioned was we are looking at build, buy, partner kind of a thing. So in, like, in this quarter, we have our finance management platform. We said, "We don't need to develop it.
I can basically have a cutting edge from a partner." Saved $2 million from that. So improving my free cash flow from there. The third big, big impetus that we have done is working capital management. We had long DSOs, and over the last, I would say one month and a half, two months, we have doubled our collections, size and, collectors, and we are trying to— I look at it personally every day, my collections. And then we were amazing payers off to our vendors. So we are just doing the good working capital 101. So what we are seeing is that cash, like I mentioned, I want to see a few quarters to just build the sustainability, the forecasting.
Both of these improve profitability, lower CapEx, more collections and working capital, will hopefully give me more cash to pay down my debt. That's the goal that I would like, because, especially digesting, I would say, Viewgol acquisition with debt, it is paying me the EBITDA it wants, but I just want to make sure I de-leverage through that. That's the plan.
Sounds like a great plan, and I think we're out of time, but thanks for coming, guys.
Thank you.