Welcome to the NextGen Healthcare Fiscal 2020 Third Quarter Results Conference Call. Hosting the call today from NextGen are Rusty Frantz, President and Chief Executive Officer and Jamie Arnold, Chief Financial Officer. Today's call is being recorded. All lines have been placed on listen-only mode. And the floor will be open for your questions following the presentation. [Operator Instructions] 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 relating 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 these 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 Form 10-K, and any subsequent quarterly reports on Form 10-Q. Any forward-looking statements speak only as of today. The company expressly disclaims any intent or obligation to update those forward-looking statements. Our remarks on today's call include both our earnings results and guidance, which contains certain non-GAAP financial measures. For our earnings 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 press release that was filed with the SEC and is posted to the Investors 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 the call over to Mr. Rusty Frantz, President and CEO of NextGen. Sir, you may begin.

Thank you, operator. And thank you to everyone for joining us this afternoon to review NextGen Healthcare's fiscal third quarter FY'20 results. Q3, FY'20 was another solid quarter for NextGen as we continue to execute on our strategic plan. In Q3 our revenue came in at $137.7 million compared to $130.9 million a year ago representing more than 5% year-over-year growth and a nice step up from Q2 at $134.3 million. Our non-GAAP EPS of $0.23 compared to $0.18 Q2, FY ‘19 and in line with our expectations. Bookings for the quarter came in at $30.6 million as compared to $32.8 million in the same quarter last year. Operating cash flow for the quarter was $23.6 million and NextGen generated $16.9 million in free cash flow as our cash generation capabilities allow us to continue to retire debt. The three acquisitions in the quarter Topaz information systems, MedFusion and OTTO Health brought our total outstanding debt up to $37 million which we should pay down quickly maintaining a very strong balance sheet as well as supporting continued investment in our end-to-end platform integration. Legacy maintenance retention came in at 90.3% over the trailing 12 months roughly flat for last quarter and slightly ahead of our FY20 models level of 89%. As we look back at Q3 deal flow we saw continued success in signing larger all-in deals. In this quarter we saw eight deals greater than 500,000 including further material expansion of a large deal signed last quarter. As we continue to expand the breadth and capabilities of our solution our clients continue to grow and we evolved into a trusted advisor for our clients. We are seizing further increase in average deal size. We are establishing multi-year roadmaps that transform how our clients work both today and into the future well beyond the classic implementation of a PM and EHR. As we shared with you in Q2 on investor day we've made a few structural changes in the salesforce. In October we made two adjustments. The first was to realign our sales management structure to enable better focus on specific specialties and better mentoring for the sales reps working in those specialties. Well this change is absolutely the right thing to do for the future it is having some impact a near term deal flow as new managers learn their regions and teams. Our second move was to expand our sales executive team who are our new footprint hunters by reallocating dollars to quota carrying reps previously spent on sales specialists; a support role. We are increasingly competitive in the replacement market and see opportunity to gain share over the next few years. New client wins take time and we expect this investment to materially show on the bookings line in the back half of FY21. From an M&A standpoint we added to the previously discussed acquisition of TOPAZ Information Systems a behavioral health solutions provider with the announcement of the acquisitions of both MedFusion and OTTO Health; a patient experience platform and a telemedicine or virtual visit solution. With these acquisitions we now have the capability in place to truly own the end-to-end patient experience. MedFusion and OTTO Health unlock our ability to offer a solution that is fully integrated into our broader platform to address a key dynamic in healthcare the rise in consumerism. These acquisitions with strong capabilities and patient intake and patient pay as well as patient self scheduling position us well to meet this important and growing need in a truly integrated way. Today our clients are using a complex multi vendor approach to meet these needs and we believe that an integrated approach will reduce risk and complexity leading to a better solution with a lower total cost of ownership. We've seen a good deal of excitement from our clients about these new capabilities and look forward to rolling them out broadly. We continue to make meaningful progress in client satisfaction. As of today we are maintaining our leadership position in class for best and per practice management for this 11 to 75 segments and are in close second in the over 75 provider segment. Our EHR score has risen to 78.5 putting us in second place in the industry and almost 20 points higher than we were four years ago. We look forward to seeing how the final best-in-class tallies come out for calendar 2019 at HIMS. Our Net Promoter Score for NextGen Enterprise continues its move into positive territory increasing by almost 60 points over the last four years. We're also gratified to be the only multi specialty vendor in the top view in the newly released class ophthalmology EHR report scoring an 80.3 and having 94% of our clients say they would buy from us again. These improvements and satisfaction across the board give us confidence that our investments in gaining new clients are well positioned as we move into FY21. In Q3 we hosted our user group meeting. Over 2400 clients attended and the feedback was phenomenal. In our post-event survey we saw another increase in the number of clients who would recommend NextGen, a 13% boost from last year. Also during Q3 we saw one of our clients bridges health partners achieve significant results and savings with our population health solution. They were able to achieve Medicare shared savings of $8 million with an overall effort anchored by NextGen population health analytics. From a solution standpoint we are on track for our next major release of NextGen Enterprise in the spring currently in beta test. This release contains the launch of our new SOAP node CPOE workflow and much more. We'll also be expanding our mobile capabilities to meet the needs of markets such as behavioral health. In Q3 we also launched our financial and operational analytics platform further enabling our clients to achieve the efficiencies and financial performance that enable their success. We are also seeing success with our NextGen health data hub signing our sixth agreement with an HIE client including two new logos. This expansion of our HIE footprint along with our significant support and enablement of secure data sharing via the care quality framework is emblematic of our support for frictionless data sharing between providers. We continue to focus significant energy on enabling providers to see the entire patient's record across the entire continuum of care all to enable better care and better outcomes. Finally we are approaching the go-live in Q4 of our first integration into [Veradigm] specifically for insurance chart pulls and expect to see the labs capability go live in the first half of FY21. We are excited to see these capabilities which bring great value to both patients and providers come live. With only one quarter to go we are putting more precision into our FY20 guidance. We will narrow our full year revenue range from 540 million to 550 million to 541 million to 547 million and our EPS range to $0.80 to $0.84. We expect Q4 revenue to be another step up from Q3 extending our run of sequential revenue growth to four straight quarters. This continued in sequential growth shows the value and effect of our significant transition for perpetual license to subscription and recurring bookings. We are excited about the opportunities in front of us and the continuation of organic revenue growth in FY21. As we deliver on our plan as we see our competitiveness increase and our ability to execute improve our confidence only grows. Now let me turn to Jaime for a dive into the numbers.

Thank You Rusty and thank you to everyone on the call. Total revenue of $137.7 million increased $6.9 million or 5% compared to the same period last year and in line with our expectations. Recurring revenue of $124.8 million increased $7.3 million or 6% compared to a year ago with increases of 10% in subscription services, 11% in managed services and 6% for electronic data interchange and data services. Recurring revenue is 91% of our total revenue slightly higher than the 90% in the prior year. Subscription revenue of $33.2 million increased $3.1 million compared to a year ago primarily driven by analytics and NextGen SAS. Support and maintenance revenue of $39.9 million increased 200,000 year-over-year revenue from new contracts and CPI increases offset attrition. Managed services revenue of $26.8 million increased $2.6 million compared to a year ago mainly due to growth in the hosting in RCM services but also includes approximately 1 million one-time benefit recovery from our client that we previously preserved due to collection issues. RCM services is front and center in proposals both inside our customer base as well as for prospective new customers. EDI and data services revenue of $24.9 million increased $1.4 million year-over-year largely due to increases in existing and new customer volume. Non-recurring or one-time revenue was $12.9 million, a $500,000 or 3% reduction over the same quarter last year. Software license and hardware revenue of $7.2 million declined $2 million or 22% year-over-year consistent with the trend that we discussed in previous quarters. Non-recurring services revenue of $5.7 million increased $1.5 million or 37% compared to a year ago due to growth in analytics and professional services. Bookings came in at $30.6 million in the quarter down 6% on a year-over-year basis primarily due to the change in sales organization as discussed by Rusty. Cost of goods sold increase by $6.4 million or 10% due to higher amortization of capitalized development cost of $1.9 million and higher managed services and EDI data services cost due to increased transactional volume. Growth profit increased 1% to 69.6 million and gross margin decline to 51% compared to the prior year quarter of 52.9% due to the increases in cost of goods sold just discussed. Turning to our operating expenses. SG&A of $42.8 million increased $1.5 million or 3.6% from $41.3 million a year ago. The increase is primarily due to increases in acquisition related cost and legal expenses. R&D of $20 million decreased $700,000 or 3.4% from $20.7 million a year ago. The decrease is due to slightly higher R&D capitalization. Impairment and restructuring charge of $2.5 million are primarily related to cost associated with a reduction in expected sublease income on the vacated space in Sorrento Valley, California in North Canton, Ohio along with severance and off-boarding expenses. Our GAAP tax rate for Q3 FY20 was a benefit of 46% with a non-GAAP tax rate of 22%. For FY20 we will continue to use the non-GAAP tax rate of 22%. To conclude my comments on the income statement our Q3 GAAP EPS of $0.07 was flat compared to a year ago our non-GAAP EPS of $0.23 increased $0.03 compared to the prior year. Turning to the balance sheet we ended the quarter with $26.8 million in cash and equivalents and $37 million balance outstanding on a revolving credit agreement. DSOs in the quarter were 53 days a decrease of six days from last year and down four days from last quarter. Our capital expenditures excluding capitalized R&D was $1.7 million for the quarter capitalized R&D was $4.9 million for the quarter. As I turn to guidance we expect the fourth quarter to reflect continued organic performance as well as two specific items which are largely from the recent acquisitions. First Q4 recurring revenue will reflect approximately $2 million over the Q3 run rate due to the impact of full quarter revenue from the recent acquisitions. Second, expenses increased to reflect the full quarter cost from the acquisitions as well as some normal start of the year cost increases. The combined effect of both of the reference factors will dampen EPS from Q3 by $0.04 to $0.05 per share leading to updated and tightened outlook for the full fiscal year. Revenue of between $541 million and $547 million tightened from $540 million to $550 million and non-GAAP EPS of between $0.80 and $0.84 per share tightened from $0.79 to $0.85 per share. In closing I am generally pleased with our performance in the third quarter and believe the strategic acquisitions we completed in the quarter enhance our long-term position in the market. I look forward to closing the year strong. This concludes my review of the third quarter financial results. I will now turn the call back to Rusty.

Thanks Jamie. Q3 represents another solid quarter as we transition into organic revenue growth. We continue to execute effectively from a client satisfaction as well as a solution delivery standpoint. We're making the decisive moves to both expand our solution and our commercial capabilities to support the multi-year growth ramp. I'm excited for where we are and look forward to the future. I'd be remiss if I didn't say thank you to the entire NextGen organization for the continued performance and the continued focus on making our clients lives more effective and more rewarding. I look forward to Q4. Operator why don't we open up for questions.

Yes sir. [Operator Instructions] Your first question comes from the line of Sean Wieland with Piper Sandler.

Thanks. So I want to first start on big picture do you have any thoughts? There's some controversy today around FX push back on proposed interoperability and information blocking rules. Just wanted to get your take on that and your views on the proposals in DC around interoperability requirements?

Thanks Sean. So I won't comment on other vendors activities. However, what I would say is that wellness and lowering the cost of care are truly enabled by putting a patient's complete medical record in front of their physicians most notably at the front line of wellness which is their community physicians. I struggled a little bit to understand why blocking that data under the, data exchange under the under the banner of patient privacy really makes sense especially given how much patient identified data is already being shared by some health systems with other companies that aren't directly involved in the treatment of patients. It seems a little contradictory and emblematic of business and competition being put before care. For NextGen we're really bringing our clients into the world of interoperability and bringing them free of charge because we believe it's the right thing to do for both care and quality and yet still many of our community physicians are challenged by the lack of data sharing across institutions in their geography which deprives them of critical information necessary for effective patient care. I mean I personally struggle myself as a parent to pull together my son's records across multiple hospitals and then have unfortunately resorted to faxes and carrying a three-ring binder just to ensure that the docs have a complete view of his pretty complex health history. And so it's concerning to think that his patient identified data could potentially be shared with parties not involved in this care but not with the very doctors that are treating him.

That's helpful. I appreciate those comments and then you had a mention in your prepared remarks about Veradigm and I just wanted to dig into that a little bit. You said it started with chart pulls and lab data is coming into in early FY21. Expand on that a little bit what exactly do you mean? What are you doing there?

So what that means is so say for example you apply for life insurance. This allows the life insurance company of course with your blessing to be able to pull your chart and then verify that you are appropriately insurable and so we see this is kind of a win for the patient. And then on the lab side what it is it's a hub-and-spoke model. So there's you've got the big guys Quest and LabCorp and then there's hundreds of other labs out there and so when a provider sends a request or an order for a lab out to one of those spokes that's on the hub-and-spoke model in Veradigm then that lab can be, the order can be electronically submitted and the lab can be electronic, lab results can be electronically returned to the EHR and so it's really once again it's something that is really providing benefit for the patient and the provider. Now the third part of Veradigm will be only de-identified data and really looking at that and how can we help support life science research but in a de-identified not a patient identified standpoint.

That's helpful. Thanks and just one last quick one was there any revenue types of Veradigm in the quarter?

Very minimal.

Okay. Thank you very much.

Thank you Sean.

Your next question comes from the line of Matthew Gillmor with Baird.

Hey thanks for the question. I wanted to ask about the bookings performance. You mentioned it was down a little bit year-over-year and that was due to the sales changes. Was there any particular area within bookings that were stronger or any particular areas impacted by the sales rework and then or sales leadership change I should say and then Rusty I think you mentioned a time frame when you thought the bookings would pick back up but we missed that comment. So could you just repeat that when you thought it start growing again?

Yes. For sure. So as we redesigned the management layer and added a bunch of new sales executives we had two things go on. One is that we have got new managers with new sales reps and so from that standpoint just being able to pick up deals, begin able to add value in deals, it's going to take a little bit of time and we really expect we may see a little more effect in Q4 but we expect to be fully through it by the end of this financial year. I would also say that as our team has continued to hunt larger we have seen a little bit of fall off in some of the smaller deal volume and that's just more of a question of moving from perhaps focus on things that are smaller but close more quickly and really now moving our focus to kind of the all-in deals which do have a slightly longer sales cycle. Now the pickup in bookings that I actually was referencing was not kind of the organic pickup from the team that we have had in place but it's as we have added sales executives and we added sales executives, these are new footprint hunters. We added sale executives really at the Q2, Q3 turnover. You bring somebody on and new footprint generally takes about 12 months to really start being productive and so that's what we said was we said expect the result, we expect the impact of that expansion of the salesforce to really start to materialize in the back half of 21. Does that make sense?

It does yes, thanks. And just as a quick follow-up. I think Jamie made a comment that RCM services were sort of front and center of all the discussions you are having with sales and I was curious what you would attribute that to? Is that market wide phenomena or just maybe a recognition of your capabilities and your performance for revenue cycle?

I think it's a little bit of both. I mean certainly as folks are put under more and more financial pressure and frankly as consolidation and the independent ambulatory market continues to happen you are starting to see folks focus on more operational effectiveness on the back end and a lot of these providers organizations are realizing that they really need to partner with a vendor to do that. From our standpoint if you think about things like the launch of financial analytics we now have the ability to actually go in and ingest a client's historical financial data and then do analysis on it and really show them where their denials are coming from and really help them to understand that there is a real opportunity if they are to engage with a technology enabled revenue cycle management capability like we have really transitioned to. We have gone from a relatively manual system to something that is highly automated and very analytics driven and that certainly it's opening up conversations in ways that they didn't before.

And then if I could slip one quick one. Did you disclose sort of what the revenue was from some of the acquisitions with around a million dollars?

We did not disclose.

Okay. I assume you not.

But on the analyst day we had said that it would be less than a million dollars in this quarter and that's why I highlighted the increment above that it will occur in Q4.

Got it. Fair enough.

[indiscernible] for the full quarter.

Right. Thanks guys.

Yes.

Your next question comes from the line of Donald Hooker with Keybanc.

Great. Good afternoon. So as we think about fiscal year ‘21 and sort of seeing your growth sustainability at great levels 5% plus what kind of bookings should we think about you needing to generate in the coming quarters? I mean what is the -- can you help us sort of triangulate around sort of bookings conversions and what you need to do because I guess bookings were a little bit weaker as you explained this, this particular quarter.

Yes. So I think as we look first of all we have laid in a tremendous amount of subscription bookings as you look at our overall bookings break down and so that's very helpful because that perpetual license, the very perpetual license fall off that we found that we really faced at the beginning of the year simply creates goodness as we go into next year because we don't have that 80% drop in a client's revenue stream as you get pass the perpetual license. And so as we sit here today I would say we are looking at this year to be a little softer than we expected. So somewhere to flat to slightly up from a booking standpoint. But as we look at that we feel good about that dovetailing because of the nature of the subscription bookings. We feel it good in that driving revenue growth as we get into next year and revenue growth above this year's growth rate. Jamie would you add anything to that?

I would. I just want to highlight with your point that you touched on which is because the bookings and exchanges this year from the previous years in the amount of non-recurring when you add in those incremental recurring revenues, most of that shows up next year. So, that will feed revenue growth next year.

Okay, super. And then maybe, it seems like you had some progress sort of a stabilization of sort of your attrition rates, your client retention rates which everyone how you refer to.

Thank you.

I'd just love to hear any commentary in there in terms of kind of some of the drivers there and in terms of what you're seeing with Epic and Cerner?

Yes. So, we still do have hospital owned and affiliated footprint that certainly exposed to some of the large single platform vendors in the critical care space. So, that's really where we see the attrition driving above what we feel like is kind of the long-term growth attrition which is about 8%, that's kind of our feeling. We're running a little ahead but as I've said before, it’s a volatile number and we feel like 11% this year was the right model. We may beat that by a bit but we feel like that's the right model level. However, as we move into next year, we brought that down to 10%. As we expect 1) the effect of the shrinking hospital owned in affiliated base. But 2) the continued driving of satisfaction within our independent ambulatory base which is the majority of our base. And so, we're seeing better and better retention in that core. And frankly, we expect as sort of surrounding, as the surrounding ring becomes smaller, it has less of an effect on our overall attrition. Does that make sense?

Yes, thank you for that, I appreciate it.

Yes.

Your next question comes from the line of Sandy Draper with SunTrust.

Thanks, very much. A question maybe first on the sales side, Rusty. I know you probably don’t want to give out exact numbers but when I think about the additional sales people, new hunters I guess that you're adding. Is that a net offset against specialists you're not going to replace you're not adding. And just trying to give totally grow your salesforces adding new hunters or you're sort of swapping specialists for hunters?

Yes, it's a great question, Sandy. So, you think about it. When we acquire a new solution for example like our mobile platform Entrada. For a period of time, and in this case a little more than two years, we were focused on having sales specialists because we didn’t want to see a drop. And what we wanted to do is make sure that we're bringing the expertise to the sale. As we sit here two year's plus later, our expectation is frankly that primary quota-carrying reps fully understand how to bring that forward. And so, we can slim down the specialist force simply because now we've really trained and in part of the knowledge that built from experience in the primary quota-carrying team to deliver. And then, as we slim that down, we can simply reallocate those dollars to more quota-carrying reps.

Okay, got it. That's really helpful, I appreciate that, Rusty.

Yes.

And then maybe a quick follow-up for Jamie. Can you just remind me on your subscription bookings, do you cap that as an annual number or is it a three year contract – five year contract, is it the full that?

Annual.

It's annual, got it. I appreciate it.

Annual, non-renewal.

Sandy, that question's so easy and I'll let Rusty answer it.

And even Rusty can handle that financial question.

It's a little -- so hey, kind of I played CFO a couple of quarters ago, so.

Okay, got it. Okay, thanks for that.

No worries.

[Operator Instructions] And you do have a question from the line of Dan Fuss with Jefferies.

Hi, good afternoon guys. Just a quick follow-up on the salesforce enhancement you're making. Are those efforts largely done at this point or are you still in the process of bringing on new people?

They're mostly done, we still got two open racks to fill but for the most part we are fully staffed.

Okay. And then switching gears a bit, on the OTTO acquisition, there is obviously a lot of talk about telehealth solutions for the hospital space. But I'm curious what that looks like competitively in the ambulatory space. Do you see some of the larger players fighting for share in ambulatory or is that still pretty untapped?

Well, I'd say look -- so, I'm going to separate what we're doing a little bit from telehealth. Telehealth is really today at least a lot more focused on primary care and it is not focused on enabling ambulatory primary care doctors to have telehealth as much as it is bringing in an entire resource and technology solution to the table. What we're bringing to the table which is actually very relevant. We've a large specialist population within our client base and our primary first foray into this is really more around virtual visits which for specialists it's very important, right. I mean, if you go to your dermatologist, right, and you want them want to have a follow-up with them, you'd much rather just do that virtually rather than get in your car and drive all the way to the office and certainly for the provider it makes a ton of sense as well. And so it's, we're bringing really first focusing on how do we enable constant and efficient patient engagement between the specialist and the patient so that you can truly especially as we move into value based care where patient engagement becomes so important and continually understanding therapy adherence, medication adherence, and also progress in and achieving wellness become very important for your performance and two-sided risk based arrangements. We see this virtual visit capability as being very important for our client success both in fee per service but very much in value-based care as well.

Okay. And is this a solution that's more or less ready to go to market or to the end-market or something that's going to require some work on your end?

Yes. So, this was actually -- so, we've been a partner with OTTO Health now for about a year. We're seeing significant bookings volume and that some of that has started to come live. We do have one of the reasons that we before it integrated this partner, we acquired this partner was because they were a smaller startup that was capital constrained. We see the opportunity to accelerate the robustness and the enterprise readiness of the solution even beyond where it is today. And so, we're excited about it its early days but we're definitely excited about it. Jamie, you want to?

Thank you.

I just -- hey Dan, I just want to go back to your first question which was is the salesforce complete. That the hiring is almost complete but as Rusty said in his prepared remarks, it will take six to nine months for them to be fully trained to understand the solution in the complete offerings and begin to develop pipeline in closed business from today. And that's why you say that the bookings should -- we should see the benefit of making this change of the additional sales people in the middle of the year.

Yes, on the back-half of '21.

Okay, makes sense. Thank you, guys.

Thank you.

Thank you.

Your last question or follow-up question comes from Donald Hooker with Keybanc.

Yes. I wanted to ask a follow-up question on the Medfusion acquisition and you guys talked about this at the Investor Day. But when I think about you guys going to market with Medfusion and distributing this across your user base, you're going to be bumping into some sort of other vendors out there I'm sure that are embedded in your user base and there are some big ones and small ones. What is the sort of the white space there in terms of where there is sort of a clear shot for you to get Medfusion into maybe one of your own portal solution to clients versus having to displace a third-party?

Well, I'd say the vast majority of our clients are actually on either our solution or on Medfusion in the patient access side. On the patient intake side, there's a couple of different companies that are also in our client base since that an area where we'll bump a little more into thoughts. But that it's interesting. So, if you look at the meat of our client base right which is I'd say the meat of our client base is kind of in the 25 to 100 provider range. These are folks with big IT departments that are really good at assembling best-of-breed solutions. They tend to look more towards single platform solutions because it has less complexity and their IT staff needs to focus on keeping internal infrastructure live and they tend not to have a lot of developers. And so, we do see while we see some competition in kind of the in parts of the patient experience sector, I'd say that we see an opportunity to really tightly integrate this and really have very tight communication between our core EHR and PM platform and our patient experience capabilities. And we think that that over time will give us a competitive advantage. It's we're not ready to start really focusing on those areas yet. Right now, we're primarily focusing on patient access which is the portal, on patient pay and self-scheduling but we do see especially with the combination of Medfusion and OTTO the ability for patient intake to become a key part of it as well. And so, we're definitely focused on brining a single integrated solution that truly enables both our providers and their patients to really interact effectively.

Super, thank you.

And there are no further questions at this time.

All right. Thank you everybody and we'll talk to you in a couple of months.

Ladies and gentlemen, thank you for your participation. This does conclude today's conference call. You may now disconnect.