Welcome to the NextGen Healthcare Fiscal 2021 Fourth Quarter and Full Year Financial Results Conference Call. Hosting the call today from NextGen are Rusty Frantz, President and Chief Executive Officer; Jamie Arnold, Executive Vice President and Chief Financial Officer; and Matt Scalo, Vice President of Investor Relations. Today's call is being recorded. And now I will turn the call over to Matt Scalo.

Okay. Thanks, Erica. And before we start, I'd like to remind everyone that the comments made on this call may include statements that are forward-looking within the meaning of the federal securities laws, including and without limitations, statements related to anticipated industry trends, the company's plans, future performance, products, perspectives and strategies. Risks and uncertainties exist that may cause results to differ materially from those expressed in forward-looking statements, including, among others, those risks set forth in the company's public filings with the U.S. Securities and Exchange Commission, including the discussion under the heading Risk Factors in the company's most recent annual report on the Form 10-K and any other subsequent quarterly report on Form 10-Q. Any forward-looking statements speak only as of today. The company expressly disclaims any intent or obligation to update these forward-looking statements. Our remarks on today's call include both our earnings results and guidance, which contain certain non-GAAP financial measures. For our earning results, the GAAP financial measures most directly comparable to each non-GAAP financial measure used or discussed and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found within our latest quarterly earnings release that was filed with the SEC and is posted to the Investor Relations section of our website. This release also provides qualitative descriptions of how we have calculated non-GAAP financial measures contained in our guidance. At this time, I would like to turn our call over to our President and CEO, Rusty Frantz.

Thank you, Matt. It's been an unforgettable year for our health care provider clients, for patients, for our employees and our investors. The COVID-19 pandemic challenged and evolved how a health care provider engages a patient, essentially the very foundation of our health care system. This crisis also put NextGen employees, solutions and culture to the test. And I'm proud to say our teams and organizations went above and beyond the call of duty, working with our clients to ensure patients could access much-needed health care services through the beginning part of COVID. However, as we crossed into Q2 of FY '21, we once again resumed our mission to transform ambulatory care for the better as forward-looking clients had become even more receptive and change-ready at that time than they were pre-pandemic. Even in the face of this challenging year, the company continued to accelerate, achieving new levels in client satisfaction, releasing our next major platform release on schedule and delivering strong financial performances throughout the year. We achieved top class scores in a host of categories within the independent ambulatory space. We are now the top-rated EHR provider of integrated telehealth. Our interoperability capabilities lead the industry as well. Our EHR and practice management solutions are also best-in-class. Every year, we set our goals higher and every year, we are gratified with the progress and results. And the results that we deliver for our clients are turning heads outside of our client base as well. Q4 was no exception to our run of competitive success, with more than 25% of our bookings coming from new clients. Our experienced and seasoned commercial teams continue to take the NextGen experience and our integrated ambulatory platform into our competitors' clients with great success, both inside -- outside but also inside our base, and we expect that to continue. I would also highlight that we are competing and winning larger deals in the ambulatory space. I'm especially pleased to see our subscription revenue growth reach 16% this past year. Our ability to deliver even more value to the client through our Surround Strategy offerings that can enhance patient provider experiences is clearly resonating. We released our spring 2021 release with its integrated patient experience platform, a major milestone in our strategic multiyear drive to enable seamless and integrated patient and provider experiences, bringing our strategy to life at a time when COVID has made that strategy so much more relevant. To deliver our largest release yet with full scope and on time entirely during a pandemic is an incredible achievement by the team. And all this momentum showed up in a strong performance across all metrics through FY '21, with Q1 and Q2 being chaotic and unpredictable at a much normal -- more normal back half of the year. As we moved into Q3, we messaged that we were back to our near normal run rate in the second half of the year across bookings, revenue and expense, and that has proven itself out. Truly the tale of two halves, as I said, early in FY '21, and the second half provides a nice numerical launching pad for a smooth transition into FY '22, a year where we continue our march to higher revenue growth and prudently continue to accelerate investment in innovation, commercial capabilities and efficiency to ensure we use every dollar well. Now let's shift into FY '22. As we have highlighted throughout the past year, our Spring '21 platform rollout is a great opportunity for growth. Bringing the entire platform to life for a client has great value to them, but also significantly increases our revenue opportunity in each client. It's essential that we deliver not just the software but the results that the client needs. A successful first step, Spring '21 will enable them to confidently take the next step, which turns into additional bookings. To that end, we have now moved into our early adopter and client success phases, which are running in parallel. I thought I'd give a little flavor of how we are approaching. Post general release at the end of March, we entered our early adopter phase. Clients in this phase are chosen based on how they use the system, for example, different specialties. The goal of this phase is to exercise the vast majority of the workflows with a significant and representative set of clients. This will continue for a few months, and we have the clients lined up and preparing having started this phase immediately right after general release. We've also launched the client success phase, focused on delivering our new expanded implementation experience. With this release, we are expanding our definition of client success. Our goal is not only to implement the solution effectively but also to lead our clients in the process and organizational change efforts that truly enable them to capitalize on the system and deliver the measurable results they desire. To support this evolution, we've set up a tighter team environment with an aggressive goal to learn quickly and then scale to the broader organization. In this first phase, we are focusing on quickly learning and evolving our processes and client experience. By keeping consistent teams focused on key client segments and specialties, we are quickly learning how to effectively drive results in representative clients. Once we're comfortable with the results we're seeing from clients in these 2 phases, we will then begin the scaling phase. Our broad organizational teams will take the baton and the learnings from the earlier phases and begin to own the entire process. We will be focusing in this phase on education, training and client-facing culture as we begin to scale our delivery capability. As we move to the end of FY '22, expect us to be implementing with great results at near full capacity. And at that point, the program just becomes the way we do things for all clients going forward through Spring '21 release and beyond. We, the leadership team, have been intimately involved in the early steps of this plan. Some of us have a lot of experienced successes and some hard learned wisdom and similar rollouts in our past. Therefore, getting the program into action, getting folks in place to lead, has been an area of focus at the highest levels of NextGen. However, as we now move into action, it's great to see the broader teams take ownership of the program and the leadership team act as oversight and guidance. This is an essential step towards scalable success delivered by the organization, not personal heroics by the leadership team. We'll keep you updated as to our progress when we begin to publish success metrics in October, as by then we will have enough data to be able to talk meaningfully about trends. As we have said, our solution, our client satisfaction and our operational effectiveness have created a great opportunity for growth that is already starting to show. When we talked at our Investor Day in April, we identified that by FY '24, we expect to be in the 5% to 8% range for revenue growth. To that end, I've also discussed organic investments to support that growth, investments in commercial capabilities, both sales and implementation, innovation to keep our competitive edge and efficiency to free up more capital for the first 2 items, commercial and innovation. As we move into FY '22, expect to see expanding investment in each of these areas, as I've discussed on prior calls. From a commercial standpoint, expect us to invest more in sales and lead gen as we are seeing such good competitive success. Also expect us to invest in implementation resources to handle the Spring '21 volume. From an innovation standpoint, we will accelerate key capabilities in the overall patient experience, ensuring that we support the total patient journeys, both clinical and financial. We will also continue to invest in our micro services platform and even tighter integration of our platform capabilities, both technically but also in client-facing workflows. Finally, we are always working on efficiency and FY '22 is no different. This year, we'll expand our investment in automation, notably accelerating RPA or robotic process automation, which we're implementing both in the back office as well as in our RCM business. All of these investments are built into the FY '22 plan, and I'm gratified to see the performance on the earnings line in the back half start to normalize, especially in Q4 and expect that normalized run rate to continue for the full FY '22. Jamie will share the numbers. Before that, let's briefly touch on future growth. In January, as messaged, we began to look at the next vector of growth. We're executing a great and exciting strategy, and we are well down the path on our current vector. However, as we move forward, our financial strength and operational and leadership effectiveness can be leveraged even more broadly. In March, you saw us up-level our revolver, expanding our available liquidity. This week, we announced our new Chief Growth Officer, Sri Velamoor. Sri brings a strong and well-known track record of leading clients on a journey to greater shareholder value. Having his strategic as well as operational capabilities on the team, adds another gear to NextGen. As we move through the summer and into the fall, we will continue to evolve our strategic view and begin to plan our next steps towards even further expansion of NextGen. But until then, we're sticking to our knitting, better known as Spring '21. Now, let's turn it over to Jamie for a deeper dive into the numbers.

Thank you, Rusty, and thank you to everyone who's joined the call today. Before diving into the fourth quarter results, I would like to comment on our fiscal 2021 accomplishments. Total revenue increased 3% compared to a year ago. Subscription services revenue of $148.4 million grew 16% as clients adopted virtual visits and our patient experience platform. Perpetual software licenses and nonrecurring services grew 6% due to our success in competitive takeaways and partnering with existing capital-backed clients to standardize and broaden the use of NextGen across their enterprise. On a GAAP basis, fully diluted earnings per share was $0.14 compared to $0.11 a year ago. On a non-GAAP basis, fully diluted earnings per share was $0.98 compared to $0.83. These strong results are a reflection of our execution and deliberate cost management efforts put into place at the onset of the pandemic. Now turning to the fourth quarter financial results. Total revenue was $144.2 million, an increase of $7.8 million or 6% year-over-year. Recurring revenue was $129.4 million, a year-over-year increase of $4.9 million, or 4%. Subscription services revenue increased $5.3 million or 16% as clients incorporate our solutions to better engage their patients and improve the patient provider experience. While as strong growth continues the trend of the past several quarters, we expect the growth rate to moderate slightly in fiscal '22. Maintenance and support revenue decreased $1.3 million, or 3%, which is generally consistent with historical trends and our expectations. Managed services revenue grew by 1% due to continued growth in our managed cloud services. On a same-store basis, RCMS volumes remained slightly below pre-COVID levels, but have stabilized. EDI and data revenue grew by 2% as our data partnerships continue to gain traction and EDI volumes continue to stabilize. Nonrecurring revenue of $14.8 million increased $2.9 million or 25% over the same quarter last year. Software license and hardware revenue of $8.2 million grew $3.5 million or 73% year-over-year. This revenue growth reflects a combination of new client wins and an easier year-over-year comparison due to the impact of COVID in last year's fiscal fourth quarter. Nonrecurring services revenue of $6.7 million decreased $500,000 or 7% compared to a year ago when we had several contracts complete. Bookings came in at $35.1 million in the quarter, up 13% on a year-over-year basis, primarily driven by new client wins and continued execution on our Surround Strategy. Gross margins of 51.6% increased from 49.9% from the same quarter a year ago due to significant year-over-year increase in the high-margin perpetual licenses and a reduction in amortization of acquisition-related software technology. Turning to operating expenses, SG&A of $48.9 million increased $5.7 million compared to a year ago. The increase was primarily due to increase in personnel and legal expenses, offset by decreases in travel and infrastructure expenses. Net R&D of $21.4 million was flat with a year ago and it represents 15% of total revenue. The lower year-over-year net R&D reflects slightly higher capitalization, which reduces net R&D expense as well as some reduction in travel and other operating expenses. Gross R&D expenditures, however, increased slightly year-over-year as we continue to invest in innovation. Our GAAP tax rate was a benefit of 40.1%, with a non-GAAP tax rate of 20%. On a GAAP basis, Q4 fully diluted net loss per share was $0.01 compared to $0.06 net loss per share in the fiscal fourth quarter of 2020. On a non-GAAP basis, fully diluted earnings per share for the fiscal fourth quarter of 2021 was $0.21 compared to $0.20 in the year ago quarter. Turning to the balance sheet. We ended fiscal '21 with $73 million in cash and equivalents, and no balance outstanding on our line of credit. In March, we amended our revolving credit agreement, and we now have more favorable terms. We still have a committed line of $300 million, plus we have an accordion feature now that could provide an additional $150 million. DSOs in the quarter were 49 days, a decrease of 5 days from last year and flat with previous 2 quarters. Capital expenditures, excluding capitalized R&D, was $2.2 million for the quarter. Capitalized R&D was $5.7 million for the quarter. For fiscal '22, we expect revenue to be between $574 million and $584 million or 3% to 5% growth over fiscal '21. And for non-GAAP EPS, we expect to be between $0.89 and $0.95 per share. Key drivers of our fiscal '22 financial guidance include that revenue growth will be more balanced this year versus last year. For example, with patient volumes returning to more normalized level, we expect managed services and the EDI data to grow, while subscription revenue service -- subscription services will continue to grow, but likely not as strong as we -- the pace as we saw in fiscal '21. This ongoing shift towards subscription from perpetual license, along with increased services personnel associated with the Spring '21 upgrade and slightly higher amortization of previously capitalized R&D will be a headwind for gross margins when compared to fiscal '21. And as Rusty noted in his earlier comments, we will be increasing our investment in sales and lead generation to drive commercial growth and increasing investment in R&D for innovation, thus leading to a near-term increase in operating costs. Our fiscal '22 non-GAAP EPS guidance reflects our strategy to invest for long-term growth. In closing, I am pleased with our performance in an unprecedented year and proud of the organization for their resilience and determination. I look forward to continued progress as we work towards a new normal. This concludes my review of the fiscal fourth quarter, and I now will turn the call back to Rusty.

Thank you, Jamie. As we close, I want to thank everyone who has and is battling through this pandemic, both here and across the globe. We've made great progress, but there are still miles to go. We're so grateful to have positioned NextGen to both help during this pandemic but also as a true force for leading the transformation of ambulatory care as we enter this new normal. I so greatly appreciate this opportunity for NextGen to do even more good. Finally, in closing, I want to reaffirm our guidance. That's $574 million to $584 million in revenue and $0.89 to $0.95 on the EPS line. Thank you, and I look forward to sharing further progress on our call in July. We'll see you next time. And let's move to questions.

[Operator Instructions] Your first question is from Jeff Garro with Piper Sandler.

Congrats on the quarter and the year. I want to start off by asking about the guidance and some of the assumptions embedded in your outlook. I think first, on the revenue side, what are you assuming in terms of client volumes relative to 2020? And also, what are you assuming in terms of contribution from perpetual license? I know you've been kind of conservative there in the outlook given salespeople are leading with the subscription model.

Correct. Yes. So look, I'm going to start in the back and work towards the front on that one. So from a perpetual license standpoint, my belief is we've kind of found our new home plus or minus a couple of million dollars. It's generally kind of lumpy, so it shows up in bigger chunks. But as we look forward to next year, we kind of see it as being roughly flat to this year. And then -- and on the volume side, on the volume side, actually, we saw a return to pretty much near full volume or at full volume in Q4. And we kind of expect it to kind of bounce around about full volume going forward.

Great. That's excellent to hear. Now a follow-up by asking on the cost side in terms of what's embedded in the guidance. I think first, it might be helpful if you could review the -- some of the savings on the cost side that you had in the last year that aren't recurring going forward and the EPS impact on that. And then anything you're assuming in terms of salespeople getting back on the road or participating in your own or the industry's larger scale events that will contribute to increased costs that's already embedded in that FY '22 guidance? As well as exciting to see the Chief Growth Officer. And I know you don't want to get too far ahead of things there, but if there's embedded cost in terms of hiring out a team and just laying the groundwork for whatever new adjacent direction that you can pursue to layer on growth.

Yes. So look, first of all, what's embedded in the cost is pretty much as we've been talking about. Because over the last couple of quarters, we've really started to talk about the fact that we've got a great commercial hand to play. So perhaps you're going to see us expand there from a commercial capabilities and demand gen standpoint. We've also talked about not a massive but a continuing uplift slower than the rate of revenue growth on R&D and so you're kind of seeing that come to life as well. And then from a cost standpoint, as we looked -- so last year, I was pretty clear that we had this $0.08 favorability in the first half of the year. As we look from in retrospect at the full year and now -- because now we have the kind of the whole story, I'd say it's probably in the $0.10 to $0.14 range was the overall impact of -- positively to the EPS line. And so not only have we offset that, right, but we've also then managed to continue to grow, I think, net of COVID pretty nicely on the EPS line. If you think about it, I believe FY '19, our EPS number was $0.82 Jamie?

That was '20.

'20?

Yes.

Okay. And so -- yes, excuse me, FY '20. That number is about $0.82. This year, we're putting up $0.92. We had a chaotic and unpredictable thing happened in the middle. And so when you kind of take out the COVID year, we're just on a nice growth path. We're showing some leverage, but we're also really confident in the ability that if we invest more this year, we'll be able to show even more growth next year. And that's all been conceived of in the plan as we've guided to 5% to 8% longer-term revenue growth. A couple of other things in your question, one would be travel. Yes, certainly. We are now starting to see a return to travel, but it's interesting. It's not the return to travel pre-COVID. We have a thing in the industry called the clown car, where you have 7 people show up a client site in a car. I can assure you that won't happen anymore. We'll be traveling based on the use cases, and we will bring travel back, but I expect it to be below -- materially below what we had before. From a conference and trade show standpoint, we're still evaluating what our conference footprint needs to be. What I will say is at this point in time, we are planning to have our user group meeting, where about 2,500 to 3,000 of our clients show up on their own nickel. We're planning to have that in November and have that live. That's probably the most important client event that we have all year. We're still evaluating our position on events such as HIMSS.

Excellent. Then just anything on the Chief Growth Officer and other type of investments there?

Right. Yes. No, first of all, really, really great to have Sri on board. We've -- I've got familiarity with him from working with him in the past. He really brings in that broad view of health care. We're a great organization on provider strategy. This takes us up to the next level. And certainly, as we look down the road to start to implement other vectors of growth, this is a really -- to me, this is a really key indicator of the fact that we're not just talking about it and we're not just running and doing something, but we're actually taking the right approach, which is bringing expertise in, expanding our leadership capabilities but then going through a process where we really evaluate what makes sense for the shareholders from a strategy standpoint, not from an M&A standpoint. As we deliver that -- as we develop that strategy, then we will go through buy-build partner analysis and all of those things. And just for everybody else, if anybody wants to know what areas we're looking at, I'm just not going to comment on that until we get to the point that we actually do something that is publicly viewable. And so we're going to kind of play this one close to the vest, but I would really -- today, as I said at the end of my remarks, all of those things are things that we are starting to kick off. But the story right now is effective rollout of Spring '21 and delivering on revenue growth.

Your next question is from Ricky Goldwasser with Morgan Stanley.

Yes. So I wanted to go back to your comments regarding sort of the progress reported you're going to share with all of us in October. Maybe you can share with us now sort of what's the metric that you're looking at as we think about sort of that scorecard.

Yes. Well, so the metric, it's not a metric because there's certainly a metric for client satisfaction and measurable success, right? And that's what we're going to be tracking. But in addition, there's a metric for time to implement, success of implement, the resources necessary. And then the final metric is certainly around does this pull through additional revenue? What does attachment look like? What first steps our clients have taken as they upgrade? And then potentially down the road, we can start talking about, well, what's the second thing they're going to do. But as we sit here today, we're just starting to bring clients live. And when I look at kind of the plan in front of me -- I have a habit of saying everything is a science project until you've implemented 100 of them. As I look at the plan ahead of me, I feel like when we get into that time frame, we will have enough data that will be meaningful, trends that we can put our names behind versus maybe the first success or the first challenge, right? And so we're really kind of being patient so that we're making sure we're giving you a picture of what the organization is doing. Naturally, in July, we'll have some more qualitative updates about the progress.

Okay. And then when we think about sort of the margin trajectory, I mean, clearly, fiscal 2022 is still your investment. But how should we think about Spring 2021 margin trajectory and sort of more of the run rate at the end of fiscal year in the end of the fiscal year when you are, to your point, going to be sort of where you completed sort of that initial implementation?

Yes, that buildup. Yes.

Yes.

Jamie, you want to talk a little bit about margin?

Are you -- let me just make sure I got the question right. Are you talking about over the fiscal end of this year?

No. So I'm actually asking about sort of end of fiscal year to I think the end of this year, we kind of kind of -- it's embedded in the guidance. But as we think about where you're going to be in an exit run rate at the end of fiscal -- of the fiscal year when you are going to sort of complete the buildup phase and you're going to -- and that serves for us sort of kind of like it's sort of the...

So when the matching revenue shows up against the cost that we're pre-investing.

Exactly.

Right. And so there's a couple of dynamics on the gross margin line and then -- and maybe, Jamie, you can talk to the couple of dynamics on the gross margin line, and then I can talk to more about the steady state, so.

Yes. I mean as we said on the call, this year, we're -- we know that there will be increased amortization of capitalized R&D, and that adds a couple of million dollars to our cost of goods. The other thing is the investment in the services organization ahead of the Spring '21 upgrade as we build that out. And that is in the neighborhood of $5 million to $7 million. So those are probably the 2 largest drivers that will affect the gross margin calculation this year.

Yes. And as we come out -- to your point, as we come out, we'll actually have much more of a stable cost structure, because we will have actually staff for full capacity. And at that point in time, you should see better revenue and cost matching. And so I think you can assume that will be something of a good guide next year depending on whether or not we choose to invest more in commercial or more in innovation.

So just to clarify, so when we think about it, the $2 million of increased expenses, that should kind of like anniversary, should come out of the number and then the $5 million to $7 million investment in service organization and just -- does that become part of the cost structure? Or is that something...

That just becomes part of the cost structure. It's not a bubble. We're just bringing in people to manage the capacity that we know we're going to need early.

Your next question is from Donald Hooker with KeyBanc.

On the expense front, I was curious, I think you guys do a fair amount of offshoring in India. And I know COVID seems to be winding down here in the States, but it's surging in India. Are you seeing any disruptions over there? Anything that we should think about in the coming months? How is that operation going?

Yes. So we have a team in Bangalore. It's not really an offshore organization at the core part of the organization, so I don't really talk about it as offshoring except when I'm over there and I talk about our offshore team in the U.S. And so -- but no, look, I'm on the phone with the leadership team over there 2 to 3 times a week. We've actually been able to manage through this by providing as much service as we possibly can to help our teams through this challenge in India. What I will say is we've been incredibly effective remotely, and we continue to be incredibly effective remotely. And I -- as we sit here today, we've actually been able to make significant progress on lining up vaccinations for all of our employees that want them and their dependents, and in a relatively short order. So we feel like we're in good shape there. But look, let's just make no mistake. It's humanitarian crisis. And as I talk to folks over there, it makes New York and L.A., from last summer, look like a walk in the park. But we have a safe employee base. We are managing very well through it, and they feel incredibly supported and appropriately as a part of the NextGen family.

Good. Glad to hear that. It is tough over there. And then maybe one just quick follow-up, the metric that jumped out to me was the 25% bookings from new logos. I know you sort of forecasted that that would be going up. But just would love to hear any kind of -- if you could share any additional commentary there. Any kind of one or two big takeaways? Or is it kind of broad? Are we always looking for sort of a turning point?

It's interesting. We've talked to you all not too long -- actually, gosh, it must have been about 3 years ago now. Time flies when you've been in a roll for 6 years. We talked to you all about the increasing deal size. Interestingly enough, what we're actually seeing is full stack takeaways in the marketplace. But also we talked about the declared specialties that we were going to focus on really driving growth in. So we are seeing takeaways and large deals, like we -- there was no massive deal and a bunch of small deals this quarter. There were just a bunch of deals across the way. And so as we look at that, we're really seeing competitors' clients truly make the decision to pivot to NextGen. And look, my expectations when we expanded the sales team in late '19 were that we were going to get up to maybe 18% growth, 15%, 18%. To be over 25% right now, which is just a stout number, is amazing. Now I don't -- I think that number is going to bounce around a little bit. This quarter was an exceptional performance. But it hasn't bounced around that much over a bunch of quarters. So we really feel good about that and the fact that we are taking big clients in places like musculoskeletal, in places like behavioral health and FQHC, right, in multi-specialty clients. And so these are the areas that we've really targeted and to see that commercial success coming through is very gratifying.

Your next question is from Sean Dodge with RBC Capital Markets.

And congratulations on the year. Maybe going back to the cost structure discussion, taking more of a longer-term view there. The work that you've been doing to replatform, Rusty, you mentioned investment in that ramping again in fiscal '22. When should we think about the bulk of that being done and the associated costs beginning to taper off? Is that a...

I think you should look at that work not being done never. We're in first place right now in the integrated ambulatory market, but make no mistake, we're in a war. There are highly capitalized private competitors that continue to operate in ways that are perhaps different, that are very revenue-focused and not as much focused on long-term value creation. That is the war we play in. And so what I would expect is that we will continue to accelerate in revenue growth, and we will continue to grow R&D slower than the rate of revenue growth, but we will continue to grow R&D. So I would not expect a giveback on that over the near or even midterm.

Okay. Okay. That's helpful. And...

I mean this is a revenue growth play, just to be clear. This is a revenue growth play. We are starting to show that come to the table. Revenue growth is something that takes a lot of work. And so I -- we think that our position really that what our investors really want us to do is continue to pivot prudently towards growth.

Okay. Got it. And then on the upgrade process, I know you said you're working very hard to make sure you've got that process right, that it's seamless and painless for clients. Once you reach kind of full velocity by the end of this fiscal year, how long do you envision taking it to get everyone moved over? Is that kind of like the old days where it was a multiyear transition? Or do you think you can do something quicker than that?

Well, if we were just installing software, it would be very quick, right? But that's not the opportunity here. The opportunity here is to enable our clients to truly grow and thrive in the future. And so when I think about it, look, if we just wanted to go out and install Spring '21, that's not that hard, and we're actually pretty good at it. But when it comes down to really instead of just throwing software at your clients but really helping them get to their goals so that they continue to grow and expand and continue to bring more volume to us, those things are a little bit different. So this isn't really just a new installation process. This is taking all of the great work we've done around installation but then wrapping it with a results-driven framework from an implementation standpoint. So that what we're talking to the client about is at the front end, what are the metrics of success we're going to measure to make sure they're getting the value out of what they've acquired, right? And so it's more about creating that trusted adviser relationship with the client, where you've shown them that you could positively affect their business, which then makes sure that they continue to invest with you going forward.

Your next question is from Dave Windley with Jefferies.

I think your answers to Ricky and Sean's questions probably address this next one I'm going to ask. But it seems like you are looking for a higher attach rate in Surround Solutions. But as it relates to Spring '21's launch and its impact on that attach rate, it's still too early to tell, correct?

Yes, I think that's fair. But then what I would do is I would point you to all of the success as evidenced in the subscription service line that we've had with Surround Solutions already on prior releases, which were not as tightly integrated or fully capable, right? And so it's not like this is a science project, and we're hoping that this works. It's actually already kind of worked and that's shown up in the P&L. And now as we sit here, what we're looking at is what is the new level based on the deep integration that we have, right? Because that makes it even more attractive to the client. And so that's really the thesis, right? And so when you think about our low teens, low to mid-teen subscription growth, services growth that we've seen really ramping over a number of years, that's really very, very little of that is the core. So a lot of that is the Surround platform. So like I said, it already kind of works. We're just putting it on jet fuel with this next release. And trust me, it's only going to get better after that.

Right. And that segues perfectly into the companion question I was going to ask, which is what is the baseline? And how are you thinking about elevating off of that baseline pre-Spring '21? And is the right metric to track for that, for us, that subscription revenue growth? Is that the right number? Or should we be thinking about number of solutions purchased? Or -- how should we think about that?

So, here's what I'd say. What I'd say is one of the things that we've certainly talked about is attachment rate, right, and showing that attachment. From a baseline standpoint, it's not something we've provided in the past, and it's not something we're going to provide. But when you've seen the P&L, you can see that it actually shows up. I'm not going to take as much credit for it there, because it was intentional, but not as invested in, right? I mean that was more of a commercial approach rather than a true integrated platform. So, this establishes that new level. What I would say is I think attachment rates are going to be a good indicator of that. And then the other thing is to follow us on is back to our Analyst Day, we made a commitment that we would see in Surround Solutions and Surround recurring revenue, we would see $100 million of additional contracted recurring revenue by the end of FY '24. And so that's another great way to track the progress of this. And we'll continue to update that number once we start to have material progress against it.

Great. That's very helpful. And last one is a little more granular around virtual visit or telehealth. Has your pricing strategy for that particular product evolved? I suspect it has. I think early on, you offered that maybe even free but I'm wondering...

No. We actually have always charged $79 per provider per month at list. At enterprise levels, there may be some discounting to that, but not significant.

And maybe, conversely, as you see that more embedded in your customers' workflows, provider workflows, is there opportunity...

I'm sorry, you broke up.

Sorry, is there opportunity to take price in that virtual visit module?

No, here's what I'd say. I don't get super focused on overpricing or creating pricing favorability in any part of the platform. Because we're a platform company, which means that we have to price competitively against external solution sets with our capabilities, but we really monetize the client not just through virtual visits, but through the entire pull-through that comes along. Like when we see right now, the primary interest point that we see from clients is patient experience, whether it's self-scheduling, it's virtual visits, it's intake, regardless, right? That is kind of the primary entry point that we're seeing. We are still seeing entry points in financial and analytics, but that's really where people are focused right now. And so, from that standpoint and having this great integrated capability that is actually more expensive than the horizontal telemedicine capabilities out there in the market, the fact that we're charging more in getting it and growing, I think we're over 1.5 million visits as of the end of this financial year. We feel like we're in a really good position and that we don't want to get greedy because it might cause people to go the other way. As we get stickier and stickier, it's more wrapping capabilities around telehealth. Because let's be honest, telehealth is a pipe, kind of like cable was a pipe. And as we sit here today, cable doesn't own content. And so as we look at telehealth, we kind of see it as the same thing. It's not the fact that you're seeing somebody on the screen, it's the entire experience wrapped around it and the information put at the provider's fingertips to enable them to really have that rich conversation with the patient that they're the doctor of, not just somebody who showed up on the screen. And so, we're very comfortable with where we are. We're continuing to see growth in the client base. We're continuing to see expansion within clients and excited to see where this goes going forward.

Your next question is from Stephanie Davis with SVB Leerink.

I was hoping you could walk us through the scale of the investments you need to make into the sales and implementation team and what sort of profiles you're looking to hire. And then from that, given the number of well-heeled health tech names that are starting to come out, because there's a new fundraising every day, how are you staying competitive in hiring those new sales folks, since everyone is talking about the same story?

Yes, it's interesting. But I know everybody is talking about the same story, but we've actually executed the story. We have an incredibly tenured and seasoned sales team. And it's not because we're a high flyer, do whatever it takes to get the next client. It's because we're actually a very professional organization with a great employee culture and a very engaged leadership team. And so, everybody can say what they are. But if you really want to attract the real tenured folks, who know how to sell in a full platform environment, it's got to be more than just the fact that you actually advertise a lot. And so, we've been able to -- I mean, as you know, we've basically evolved about 90% of the commercial team over the last 6 years, but we've had very little change over the last 2 to 3. And that's because we have a great team. Whenever we need to grow, we can -- are able to access people, and we feel good about that. Now from an investment standpoint, we haven't really commented on the broad investments, except what Jamie just said on the $5 million to $7 million from a standpoint of implementation. From the standpoint of sales and marketing, there will also be an uptick. It's smaller than that. From an R&D standpoint, it's probably roughly give or take that. But interestingly enough, those are what we're investing. That's not actually what shows up on the face of the P&L. Because on the face of the P&L, we also have all of the efficiency work we constantly are doing, right? And so, we've actually generated, I want to say, about $17 million worth of investment that actually wasn't there last year, but part of that is by saying, "You know what, we don't need to do some of the things that we were just doing because they're not the right thing." So, we 've gone through a significant prioritization effort, and we've shifted dollars to offense from defense, from an R&D standpoint. And so that's really what's enabled us to continue to show -- outside of last year's extraordinary number, it's enabled us to continue to show steady progress on the EPS line, while at the same time growing revenue and improving the organization.

Understood. And you mentioned that turnaround over the past 3 years, a few times on this call, just how client satisfaction has changed. I'd be curious, in light of those investments you have made, how much of that you'd attribute to R&D investments versus products with additions or turnaround or the investments you have made in client service and support.

It's all.

Or your salary?

No, no. I mean it's -- look, we've built a great organization with a great culture, and that's the fundament of the client turnaround, right? Because the client has to believe that you are aligned with their interests. And so that's the first thing. From an investment standpoint, we've invested kind of across the board because you don't get to do just one thing right. That will keep your client happy today, but then they're going to get to the next part of the life cycle and you didn't invest or fix there. They're going to be like, wait, woah, well, this is a whole different thing. And so it is -- it has not been easy for us to basically, within the context of continuing to deliver in the public market, to completely transform this organization. But it's really good to have behind us now. And so now as we sit here, we're at a point where we've invested prudently all along the way. We've delivered with that investment. And now we've got a platform for offense, and we're pretty excited about that.

Looking forward to what you've got for the next three years.

Thank you. Appreciate it.

[Operator Instructions] Your next question is from George Hill with Deutsche Bank.

Rusty, I'm going to ask one question in 2 parts, so I don't get scolded by the operator. So to follow up on Stephanie -- this is part A of question 1 to follow up on Stephanie's question. The increased investment in R&D and sales resources, did you guys quantify the step-up in '22? And Jamie, I'll let you come back to that. And Rusty I'll ask you to address Part B first, which is, again, kind of following up on something that Stephanie alluded to, is we've seen an incredible capital raising environment for companies targeting what I would consider to be your core market, which are midsize and large physician practices as it relates to risk-bearing and practice management-type solutions. I guess, could you spend a little bit of time talking about the competitive environment and how those pieces fit together, because they're not exactly doing what you're doing? But I feel like those companies are definitely taking mind share from your clients, and they're definitely attracting equity capital that might be applied to a company that's grown some new logos 25%. So I'd love how you think about how the pieces fit together. And then if Jamie could talk to the numbers, that would be great.

Yes. No, I mean I like when companies are growing 25% with new logos, because that's what we're doing. And so as I look at that and I look at the competitive environment, here's what I'd say. What I'd say is, first of all, just recently classed, put out a metric that 93% of our clients have us in their long-term plans. That was 30% when I came in. And so from a stabilizing the client base and keeping people focused on what we actually deliver, I think we've been very successful. On top of that, we are actually starting to take some share from some of the previous high flyers. And we are actually competitively advantaged against, we believe, pretty much everybody in our spaces, and we've got competitive wins to show that. So look, it's a tough game. And there's a lot of marketing dollars and a lot of sales dollars being spent on SDRs. But we're actually taking 25% of our bookings as new share. We're growing, and we're not $100 million, we're $557 million right now. And so my expectation is we're going to continue to see growth. Now here's another interesting way to look at the business, though. So if you think about it, George, you've got, let's call it, $150 million in maintenance and we'll call it $30 million, give or take, annually in perpetual license and software -- just perpetual license revenue, right? So that's about $180 million of very high-margin revenue that is flat to slightly declining. But let's not forget something. What that means is we have $180 million worth of revenue that is very high margin, generates a ton of free cash flow, which is now turned into the investment to truly grow revenue. And so when you actually look at it that way and you look at that $180 million, which is kind of our savings account, which just keeps generating money, that's actually how we're funding the growth. We're not having to go out for dilution. We're not having to go out and do those kind of things because we've already got a cash cow that funds our very rapidly growing rest of the business. And so it's an interesting way to look at it. Once you start looking at, geez, wouldn't it be great to be a clean play that's brand new, that's going up into the right? You know what's even better is to be going up into the right without having to keep going out for more money. If we want to go up and further to the right, we may go out for more money at some point in time. But as we sit here today, I'm ready to take on anybody. Now there are new models coming in as well, but we participate in those new models. Sometimes we don't, sometimes we do. And so I feel good about our competitive position. But just to be clear, as I said earlier, we're in a war. And we're running hard, and we will continue to. And I'd stack this team up against anybody.

Rusty, maybe if I could ask you a quick follow-up then. Like if I think of the companies that are selling into this space that are really providing -- giving providers an opportunity to take on a lot more financial risk as it relates to payer arrangements, is that a segment of the market that you guys have the capability to compete in?

I think we're already competing in that market. And so in different ways, it's a complex market, and that's a conversation I really can't get into right now. But look, we are already playing a significant part in risk-based arrangements.

Okay. That's very helpful. And Jamie, if you could get the question one, that would be great.

Yes. So the answer, and Rusty did -- he did provide the clues, he said that the net R&D expense would grow slightly below the -- around the revenue growth rate. So call it 3%, and that should put you in the ballpark. He's given you that number. And then the -- on the sales and marketing side, it's going to be in the same range. There will be increases in sales and marketing in about the $5 million range, is our incremental investment.

Your next question is from Gene Mannheimer with Colliers Securities.

Rusty and Jamie, great job turning the ship around here. You may have answered this already, but I mean, the nonrecurring revenue in the quarter was the highest that it's been in about 3 years, and you clearly called out your success and competitive takeaways that drove that. I'm just wondering if that second half of that revenue line is kind of the way we should think about it going forward. Or will it continue to be lumpy there?

It's going to continue to be lumpy. I mean my -- as I said earlier, my feeling is it's kind of plus or minus 2 around this year. And that's not a scientific forecast that Rusty's got. But look, on one hand, we've definitely seen energy in recurring revenue. We've got clients that are very focused on going to a SaaS-based model. and we deliver that for them. But we are seeing some clients that in the core are looking for license maintenance. Now interestingly enough, when they acquire the Surround products, those still come in as recurring revenue. And so look, we're happy to take the high-margin short-term revenue as long as kind of the number stays pretty stable. It's when the number starts to change significantly year-over-year that the P&L optics get a little wonky. And so as we step back and look at it, that's kind of what our feeling is, is that actually the model is still declining a little bit, but our competitive intensity is offsetting that.

If I could just add one little bit of color, because you rightfully pointed out that Q4 this year was the highest it's been in, I think, in the last 3 years. I think you had to go all the way back to Q4 of fiscal '19 to be in the same range. So we don't expect it to run at the Q4 run rate, it's the annual.

Annual run rate.

It is the base point when Rusty says plus or minus 2.

Your next question is from Sandy Draper with Truist Securities.

Most of the questions have been asked and answered. So maybe just a couple of ones for Jamie, if you can provide them. I missed it, Jamie, did you give the cap rate for this quarter? If you did, I apologize, I missed it.

Yes. The capitalizations are in -- was 5 point -- just give me one second. I do have it written down some place. Capitalized R&D was $5.7 million and capital expenditures was $2.2 million.

Okay. And so I'm just trying to -- I haven't done the math yet. When I think about the comments about R&D being up about 3%, does that imply a stable cap rate, higher capitalization rate, lower capitalization rate, what are you expecting there?

I expect the cap rate for the year to be pretty consistent with this year. So -- and just for planning purposes for quarterization, realize that Q4 is the lowest quarter because that's when we do -- when we historically have been done doing the NGE release. And so we would expect it to go up in Q1, Q2 and Q3 and then come back next year and Q4 come down.

Your next question is from David Larsen with BTIG.

Congratulations on a good quarter. Can you maybe just talk a little bit about what exactly is in the Spring '21 release that was not in the previous version? Like what is unique and special about it and what's different about it, please?

Yes. So I mean, look, that was basically the subject of our entire Investor Day, so I really can't encapsulate all of it. But basically, what we've done is we've now implemented key workflows that span across the entire platform. Like for example, from our population health capability through care management all the way to provider and patient mobility, right, this information is all flowing directly. From a virtual visit standpoint, for example, in this release, when a client -- a client can, first of all, self-schedule completely themselves as a new patient can select a virtual visit. When they are ready to show up for that virtual visit, they go through intake, upload their forms and get on with the provider. The provider meanwhile, doesn't know the fact that the systems already reached out over interoperability and pulled the patient's entire record out from the Carequality network or from new charter, et cetera, right? And so as the patient is getting on to that call, what they don't know is the provider now has everything in front of them. The provider launches it directly out of the mobile platform or directly out of the EHR. And so it is one experience. Now what the patient and the provider don't know is that all of the rules for all of the payers for virtual visits were put into the system in practice management long before that patient ever showed up. Which means now reimbursement flows exactly the way it needs to. Now the patient could have not chosen a virtual visit, in which case, everything would have been the same except they would have showed up in front of the provider rather than within the EHR. And so it is one common process fully linked across all of the capabilities. And in doing so, allows a much more seamless patient and provider journey, but also a much more seamless practice financial journey. This is only one of the multitude of use cases that cross the platform. And I would definitely urge everybody to spend a little bit of time reviewing our Investor Day presentation because I think some of the information was provided there. And I think it's really, really helpful.

Great. And then, Rusty, like 2H '21 bookings are obviously up a lot year-over-year in 1H fiscal '21 and also 2H fiscal '20, bookings were under a little bit of pressure. I think what I'm hearing is it's really the quality of the solution and the quality of the platform that is driving that bookings growth. I mean any other thoughts around that? And any thoughts on...

So look, it's looking at those 3 halves. I might characterize it differently, right? Q3, Q4 of FY '20, Q4, a significant amount of bookings were taken off right at the end, right? Because COVID showed up in March and our year-end is March 31, right? And so we're actually on a very good path in FY '20. FY '21, certainly, Q1 was terrible, right? I mean if not for virtual visits, we probably would have been somewhere down around $18 million worth of bookings, right? To bounce back as quickly as we did and now to return to a level that just shows that when you really think about it, it just shows continued progress from FY '20, in FY '22 and at the back half of '21, I think we're just on the same trajectory that it's not just been some sudden change. It's been 6 years of change that have actually positioned us to be able to deliver bookings like this.

And there are no further questions at this time. I'll turn the call back over to Rusty Frantz for closing remarks.

All right. Well, thanks, everybody, for tuning in. Sorry, we went a little long. Great quarter, great year, looking forward to another. Thank you, everybody.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.