NextGen Healthcare (NASDAQ:NXGN) Business Update Conference Call May 4, 2020 5:00 PM ET
Company Participants
Rusty Frantz - President and Chief Executive Officer
Jamie Arnold - Chief Financial Officer
Conference Call Participants
Jeff Garro - William Blair
Sean Wieland - Piper Sandler
Sandy Draper - SunTrust
Sean Dodge - RBC Capital Markets
Donald Hooker - KeyBanc
George Hill - Deutsche Bank
Steve Halper - Cantor
Dave Windley - Jefferies
Stephanie Davis Demko - SVB Leerink
Operator
Welcome to the NextGen Healthcare Business Update 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 mute to prevent any background noise and the floor will be open for your questions following the presentation. [Operator Instructions]
Before we start, I would 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 preliminary earnings results, the GAAP financial measures most directly comparable to each non-GAAP financial measure used or discussed and a reconciliation of those differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found within our last quarterly earnings press release that was filed with the SEC and is posted to the Investors section of our website.
At this time, I would like to turn the call over to Mr. Rusty Frantz, President and CEO of NextGen. Sir, you may begin.
Rusty Frantz
Thank you, operator. Thank you everyone and welcome to the NextGen business update call. Given the broader situation around COVID, we felt it was important to communicate well ahead of our normal 8 May release. On today’s call, I will cover the following: our solid performance in Q4 and FY ‘20 only slightly affected at the end by the pandemic; our path to keeping our employees safe, migrating to a fully remote workforce and maintaining complete operational effectives over the last 3 months; our NextGen’s financial health, including our expansion of cash in hand and zero net debt will enable us to preserve and even enhance our capabilities in employee base during this defined downturn to ensure we can be aggressive both operationally and strategically as the situation continues to stabilize and evolve.
We will discuss how near-term volume will impact our revenue line and our expectations for the return. We will also discuss significant temporary cost actions that will allow us to retain our employee base and culture as we weather the diminished transactional volume in our client base and prepare for the subsequent reacceleration that our capabilities have positioned us for. We will discuss our purpose-built enterprise ambulatory platform of software and services has come together as the right platform at the right time for the accelerated future of ambulatory care whether virtual or in-person across the spectrum of medical and behavior health, whether fee-for-service or value-based care within any state or across multiple collections of states and broad geographies.
We will not be providing forward-looking guidance, but we will give a view of how we expect the year to show up a tale of two halves as patient volume drives the recovery. We will also delve into an expected continued acceleration of subscription and recurring revenue and a natural de-emphasis of one-time perpetual license and hardware revenue as we focus on our substantial and growing SaaS business. We have weathered this storm, gotten quickly to high ground and are laser focused on helping our clients get through this crisis and into a bright future. We are well positioned for that future strategically, operationally, financially and culturally.
But before we talk about the future, let’s talk it back – let’s take a look back at a recent past that seems like a long time ago, Q4 FY ‘20 ending March 31. Jamie, why don’t you take everyone through the strong performance against the looming crisis as we move through Q4 to its March 31 end?
Jamie Arnold
Thank you, Rusty. Before I start, I want to remind everyone that we will be presenting preliminary un-audited numbers and because the results are preliminary, I will provide ranges for revenue and EPS and where appropriate, I will provide year-over-year growth based on the midpoint of that range compared to the actual from the prior year. With those caveats, let’s get started.
Revenue for fiscal Q4 is expected to be between $134 million and $138 million, up approximately 1% year-over-year. Recurring revenue is expected to be between $123 million and $125 million, up approximately 3% year-over-year primarily due to increased subscription revenue and managed services. This is offset by minor decreases in maintenance and EDI and data services. You might recall in Q4 FY ‘19 we reported that we had experienced a one-time good guide of $2.2 million associated with the Veradigm agreement. Non-recurring revenue is expected to be between $11 million and $13 million, down 18% year-over-year due to a decline in software and hardware arrangements I will discuss this in the bookings commentary.
Bookings came in at $31 million in Q4 bringing our total for the full year to $131 million. We had significant momentum in the first 2 months of the fourth quarter demonstrating the power of our end-to-end ambulatory platform, including traction with solutions from our Q3 acquisitions. However, towards the end of the quarter, several significant transactions pushed out of the quarter, delayed not lost as companies felt the need to delay the decision until there was more clarity around the impact of COVID and the government mandated cessation of non-essential medical procedures. Customer retention came in at 91% better than Q3 and better than a year ago.
On a GAAP basis, preliminary un-audited fully diluted net loss per share is expected to be between a loss of $0.06 and a loss of $0.08 compared to $0.06 net income per share in the fiscal fourth quarter of 2019. On a non-GAAP basis, preliminary fully diluted earnings per share for the fiscal 2020 fourth quarter is expected to between $0.19 and $0.21 compared to $0.23 in the year ago quarter.
Turning to the full fiscal year, revenue is expected to be between $538 million and $542 million, up approximately 2% year-over-year. Recurring revenue is expected to be between $488 million to $490 million, up 3% at the midpoint. Non-recurring revenue is expected be down approximately 8% at the midpoint. As Rusty mentioned, we intend to continue our focus of moving towards recurring SaaS and subscription revenue. On a GAAP basis, preliminary un-audited fully diluted net income per share is expected to be between $0.10 and $0.12 for fiscal year 2020 compared to $0.38 for fiscal 2019. On a non-GAAP basis, preliminary fully diluted earnings per share for fiscal 2020, is expected to be between $0.82 and $0.84 compared to $0.86 in the fiscal year 2019.
Turning to the balance sheet, we ended the quarter with $138 million in cash and equivalents and $129 million balance outstanding on our revolving credit agreement. I will provide a little more color on this. In total, we have now drawn $150 million against our credit line to offset any DSO and margin impacts related to COVID as well as enabling us to be proactive with our customers’ needs. This is comprised of $100 million in March and an additional $50 million in April. Our balance related to $37 million we drew in Q3 for the two acquisitions is now $29 million. Our net debt as of today is essentially zero. We will continue to monitor the cash situation and adjust our cash and debt balances as appropriate.
In closing, I will provide a few other financial metrics. DSOs in the quarter were 54 days, a decrease of 5 days from last year and up 1 day from last quarter. Our CapEx, excluding R&D, was $500,000 for the quarter. Capitalized R&D was $4.6 million for the quarter.
Now, I will turn the call back to Rusty.
Rusty Frantz
Thanks, Jamie. I will start by covering our high path – our path to the high ground of employee safety, operational effectiveness and financial strength, our first three priorities as the pandemic appeared on the horizon. Ironically, in late calendar 2019, as part of our normal enterprise risk management process, we executed a pandemic tabletop exercise. Who knew that it would be so useful in the near future? As the news began to emerge in late January, we began to very carefully monitor the situation. In mid-February, as the risk of the virus loomed larger, we began a daily leadership team to stand up specifically for COVID. During the next few weeks, we have tested our work-from-home processes, our enterprise virtual infrastructure, canceled our attendance of HIMSS early, brought travel to near zero, and enacted environmental protocols, all focused on employee safety and ensuring business continuity.
By March 16, we had about 100 out of 2,700 employees still in the office and by March 19, we had 12. At that time, we had already tested working remotely across nearly every business process and therefore didn’t miss the beat as we migrated to home. Thanks to investments in technology, our business processes, including our enterprise risk management process, financial and other internal controls as well as client service and support are running quite smoothly. The effectiveness of our moves and our obvious prioritization of employee safety had great immediate results from a productivity and culture standpoint. We have continued delivering our high-quality solutions to our clients. Subsequent to moving remotely, we have released through beta to general release, the next major release for the NextGen enterprise platform, on-time, on-scope and on-quality. We have migrated numerous clients into our AWS based managed service. We have renewed our high trust certification. In fact, we collected more RCM dollars in March than we did in February, but list goes on.
In addition, our free cash flow generation capability has allowed us to get to roughly zero net debt by early January even having used cash for three acquisitions in FY ‘19. However, we believe that for a quarter or two, there will be a divergence between reported financial performance and cash performance as some number of our clients were likely to be slower to pay for essential solutions they have obtained from us. In other words, we believe we will have to partner with our clients with reasonable payment timing accommodations as the cash flow characteristics of their individual and group practices recover. We also see the potential to extend our client relationships as well as expand them as we partner with them on accommodations.
Based on these dynamics, as Jamie mentioned, we chose to pull a $150 million from our revolver on to the balance sheet in the interest of prudence and potential opportunity. We also see significant declines in patient volume that will put pressure on our volume-related businesses, most notably revenue cycle and EDI. We believe that our client’s patient volume in aggregate will bottom out around 50% sometime this quarter and then rebuild from there. As I said to our organization on one of biweekly company town halls, we have weathered the storm and reached high ground so effectively. Now, we need to get our clients to high ground as well and our clients are in the tough spot. Digging deeper, we see some specialties such as ophthalmology and cardiology down as much as 80% to 90% in patient volume. At the same time, some practices are completely overloaded due to their focus on COVID-related issues. Keeping providers safe, while safely restoring patient volumes has become the primary mission at the moment.
As time passes and the effects of governmental shutdown of elective care result in significant pent up demand in a needy patient population, the mission only gets more urgent. We believe that our NextGen enterprise ambulatory platform, complete with fully integrated telehealth is uniquely positioned to help bring back volumes, but more importantly, health practices truly operate at scale of a single integrated platform purpose built for ambulatory care. Imagine an experience where a first time patient can schedule a new appointment from [Technical Difficulty] device, set that appointment for in-person or virtual, access the personal health information and even launch the visit directly from their mobile device with their own personal doctor who knows them rather than the person who just happens to be on the other end of the telehealth call, no waiting room, no drive to the office, and a personalized experience.
Imagine a doctor who can look at their phone wherever they are, see their personal calendar and their patient calendar together, who can look up all their patient’s information over coffee in the morning, put on a lab coat and sit in their home office on a telehealth visit, all the time looking at the patient’s entire medical record, documenting the visit, submitting orders, and most importantly, talking face to face with the patient all in a single system. Imagine all of that being plugged directly into reimbursement whether fee-for-service or fee-for-value, adding the ability for multi-state reporting and compliance from a single source is true than layer on truly managing the health of the population proactively through an integrated population health and outreach platform that drives action at the point of care, whether in the exam room or in the cloud. Imagine all that coming together and operating at scale across our practice from a company that is financially strong operationally effective, culturally aligned and has driven by one of the largest improvements in client satisfaction ever in healthcare. This is what we have built and are delivering in who we are.
The moves we have made over the last 3 years have uniquely positioned us for this accelerated transformation of ambulatory care. Provider mobility and usability, patient engagement and experience, population health management, behavioral health, telehealth both organic and inorganic actions have led us here and strong cash flow generation has us arriving with zero net debt and financial strength.
As a point of fact, we have grown from 500 to over 9,000 providers in the last 10 weeks on to our truly integrated telehealth solution. We are bringing them live in as little as a few days. Telehealth, combined with our provider and patient mobility platforms integrated into our broader solution are delivering the very experience I walk you through in practices across our client base today in real-time. Today we are at a run-rate of roughly 170,000 visits per month from the 6,000 providers that are already live and expect that number to continue to increase. In point of fact, nearly 10% of those visits are behavioral health visits. Because we acquired a company that we had already partnered with, Otto, the capability is already directly integrated into the broader platform and workflows. We are enabling care again making care work at scale and safely.
As we look at the year, it looks to be a tale of two halves, a first half ending in October impacted by the drop-off in volume due to the shutdown of care and a second half beginning to show signs of returning to a new normal. Based on our overall financial health and the opportunity in front of us to take share post-COVID, we have made some important decisions on how to approach the next two quarters. We have decided to execute significant temporary non-headcount cost reductions to be able to minimize what became a small reduction in force of less than 3% last week in the interest of preserving the majority – the vast majority of our employee base, along with the associated organizational momentum and capabilities to the greatest degree possible.
To that end, we have executed the following temporary actions. We have suspended merit increase, FY ‘21 bonus and our 401(k) match programs. For the next two quarters, myself and Jamie have taken a voluntary 20% pay cut and the rest of the executive leadership team is taking a 10% cut as well. We have moved our volume-related workers from 40 hours to 30 hours per week while preserving full benefits ensuring that we keep people employed and have the capacity as volume returns. We have curtailed travel and in-person events converting everything to virtual, including UGM, our annual user group meeting.
While these temporary actions will mitigate on earnings, earnings in the first half will be down markedly and we expect free cash flow to go negative for the first half. While we still expect to be a positive producer of free cash flow as it relates to EBITDA and CapEx, we believe the timing of when cash is received will alter substantially for a quarter or two and that we will end up consuming some cash during that period. The uncertainty of this timing is one major reason why we bolstered cash in our balance sheet by a total of $150 million in Q4 ‘20 and in the month of April. These actions, among others, will ensure that we minimize any negative impact to cash during the period.
In addition, this is a need for continued efficiency and cost management subsequent to COVID as volume may not return to pre-COVID levels. To that end, we have also executed on some longer term cost actions. On Thursday last week, we executed a reduction in force of less than 3% of our employee base. This action was mainly focused on removing a layer of management to enable more nimble movement and lower long-term cost of operation. We do not do this lightly, but needed to organize for a future that may look somewhat different than the past. We will also be continuing to evaluate and release some of our facility footprint as we move to a future work environment that is significantly more remote than in the office more to come as we move over the next couple of quarters. We take all these actions not as emergency provisions, but rather as the prudent steps of the company that plans to actively ride-out the storm and then make some aggressive commercial moves quickly thereafter. Based on our current modeling, we expect these steps to take us through the COVID crisis, but I do caution that the situation continues to evolve and we will continue to monitor closely.
As we look towards the post-COVID future, we see some new dynamics emerging and shifting. We see COVID is getting clients’ time to rethink operations and move towards a more hybrid model outsourcing non-core operations like revenue cycle management and IT operations, among others. In addition, technology-empowered services become important to deal with shifting demand and workflows locations, especially in emergency situations like a pandemic. We see patient experience becoming paramount. Self-scheduling, frictionless payment, telehealth and patient safety are all going to be essential to both acquiring and retaining patients. Managing the flow of patients through the hybrid world of in-person, virtual and even drive-through encounters in a pleasing, consistent, effective and process driven way will determine the practice’s ability to scale and be successful. Our capabilities here will position us well as well as patient engagement and expectations ramp as volume returns post-COVID.
Population health also plays a huge role going forward. An effective population health management strategy will be of increasing importance in the post-COVID world, identification of risk, outreach, proactively treating critical patients, evaluating provider performance on cost and quality all these become critical in the financially constrained world. In addition, balancing for service – fee-for-service business against value-based business and making adjustments in real-time will also be essential profitability and survival. We see continued growth in this part of the market post-COVID.
We exited FY ‘20 having made continued progress on both, growth in the top line as well as continued shift in perpetual license and one-time revenue to SaaS and recurring revenue. With a subscription business that has already grown at a 27% CAGR over 5 years to over $100 million along with COVID driving an increased client focus on retaining cash on hand, we will now move to more intentionally accelerate that final shift from one-time perpetual licenses to higher quality SaaS and recurring revenue going forward.
As we look into FY ‘21, we feel we are positioned incredibly well. Our investments in provider mobility, patient experience, telemedicine, behavioral health and population health management, among others, have all come together in an increasingly integrated solution at the time when the market needs have rapidly evolved in line with our capabilities. Combined with our high client satisfaction, financial health and operational effectiveness, NextGen is uniquely positioned for growth and expansion across the pillars of ambulatory care, medical health and behavioral health as the new normal returns. However as stated earlier, given the uncertainty going forward, we will not at this time be providing any forward-looking guidance for either FY ‘21 or the years beyond. As things stabilized and we gained more confidence in the macro environment, we will evaluate returning to guidance.
In closing, I wanted to thank both our NextGen team members and most notably, the healthcare heroes that we serve. Never has our mission been as important and noble as it is today restoring the essential service of healthcare for family, friends, communities and others while we keep amazing providers in the frontline and their patients safe. We delivered a strong Q4 at a tough time showing a great deal of momentum. We successfully navigated the initial phase of the pandemic keeping our teams safe and operating very effectively throughout.
We are financially healthy and have taken the near-term steps necessary to ensure health in the future, while at the same time preserving our teams and capabilities for the return of patient volume and the subsequent opportunity. With our integrated, purpose-built NextGen ambulatory platform, we have the right solution to enable the transformation of ambulatory care at an accelerated rate in this historic and pivotal moment in healthcare. Thank you very much and be safe out there. I will open it up for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question is from the line of Jeff Garro with William Blair. Jeff, your line is open.
Jeff Garro
Yes, good afternoon and thanks for taking the question. Maybe start off by asking about some of the value-based businesses. You have revenue cycle management and you also have some additional contracts or business components that are in some way transaction based and I am particularly thinking about the recent all-in deals. So, can you just outline for us what percentage of your total business is transaction-based?
Rusty Frantz
We are not going to dip into that at this point time. It’s primarily in RCM and EDI, little bit of transcription, but an exhaustive review of what’s transaction-based and not as – that’s not something that we are going to entertain at this time. How can I provide you something gives you a little more clarity in your model.
Jeff Garro
So I am thinking in particular about the success you have with all-in deals last year and that, that was a nice proof point for the move to a platform, but maybe as we look at the full financial model that might be a smaller piece of the business. So any commentary there would be helpful?
Rusty Frantz
Yes, well, I mean, the all-in deals, the transactional stuff shows up across the P&L unfortunately, because we un-bundle it at the 606 as we do the 606 traversal. And so it’s kind of hard to point to the individual components necessarily and what the magnitude of that would be. But what I would say is we have tagged a 50% drop in volume and for kind of across our provider base at the low point. We do – in fact we are already seeing clients begin to start the plan to open up and so we do expect that number to start to bounce back in the relatively near-term, but that – those businesses will be impacted. We really see recovery starting to happen in our Q3, which is Q4 of this FY. But yes, as I said, it’s primarily EDI, RCM a little bit of transcription, but it does show up in the across the other lines, because it is a percentage of net collection that blows out that way. Jamie, do you have any color to provide there?
Jamie Arnold
No, Rusty, I mean, that’s a pretty accurate way to depict it, it’s – primarily to the managed services and the ETI lines.
Jeff Garro
Understood. One more follow-up on that last question is can you remind us what the average lag is between patient visit and collection as well as revenue recognition for the portions of the business that are a percentage of collection based?
Rusty Frantz
Well, here is what I said, because this is a widely varying number especially right now under pressure from – because of the some of the payers, we are seeing long wait times incorrect – inaccurate reimbursement etcetera. What I would say is we announced on Thursday that we were bringing to the employee base we were bringing hours from 40 to 30. So that mirrors capacity.
Jeff Garro
Rusty, to clarify, that is for the hourly employees who are supporting the RCMS?
Rusty Frantz
Right.
Jeff Garro
Just to make sure that everybody understands this?
Rusty Frantz
So, to that point, Jeff, you can infer from that, that we are right now seeing starting to see the financial impact of it in a more meaningful way.
Jeff Garro
Got it, got it. Great. I will hop back into queue.
Rusty Frantz
Thank you.
Operator
And next, we have Sean Wieland with Piper Sandler. Sean?
Sean Wieland
Hi, thank you. So maybe just to dig a little bit on what Jeff was asking broadly speaking in your recurring revenue line, can you tell us how much of that is tied to the passage of time through monthly subscriptions and how much of that is tied to underlying client visits?
Rusty Frantz
Going forward, in the model, we are not providing guidance going forward.
Sean Wieland
Historically?
Rusty Frantz
If we look historically, it’s not something that we have ever provided before, Sean. I am not sure we are ready to provide that level of detail. Jamie, any thoughts there?
Jamie Arnold
So, I – and part of the – if you look in the footnotes through the financials, you can see historically we have broken out the components of the recurring revenue stream and then if you – a significant portion of managed services and EDI has a volume component to them. And I think that will help you assess it. Sean, you can – because it’s not the entire recurring revenue stream obviously it’s a subset of it.
Sean Wieland
Okay. That will help. Alright. I will go dig into that. So, you are saying that overall recurring revenue will bottom out at 50% not utilization?
Rusty Frantz
Now, we are saying patient volume for our clients will bottom out at 50%. That’s our view.
Sean Wieland
Okay.
Rusty Frantz
Now, there are some proportional effects on us, but they are not as clearly modeled right and it’s not a one-to-one relationship, but that’s what we expect from a patient volume side. That is not any indication directly of what will happen to our revenue.
Sean Wieland
Got it. And the efforts that you have taken around reducing costs, would you give us the sum total of roughly what that amounts to in the $1 value?
Rusty Frantz
At this point in time, Jamie, go ahead.
Jamie Arnold
Well, I was going say it is hard to break it down and this is part of the challenge in providing in why we can’t provide guidance is the amount will be ultimately be determined by the length of the financial impact of the COVID crisis.
Sean Wieland
Right, I understand. Okay, thanks so much.
Rusty Frantz
Just one last thing on it’s in the $10 million just to be clear.
Sean Wieland
Alright. That’s helpful. I will take it. Thank you.
Rusty Frantz
Yes.
Operator
And next we have a question from line of Sandy Draper with SunTrust. Sandy, your line is open.
Sandy Draper
Thanks very much. Rusty I was just – I was encouraged by your line you said you are going to more intentionally accelerate the shift away from one time licenses and just trying to get a sense of does that mean you are going to. Just strongly encourage clients to choose differently are you going to comp your sales people differently to discourage them from selling at some point you actually literally just stopped selling what do you actually take what is the intentional actions I guess you are taking if so I am trying to think about what is that?
Rusty Frantz
So in the past Sandy, we have managed an orderly transition. And quite often, thank you frankly, because we have a certain level of year over year perpetual license revenue we push clients little bit more to the perpetual side sometimes what we are saying is at this point in time we are no longer not only are we not going to push people in perpetual we are going to be aggressively pushing subscription we think it's a much better model we think it's more respective from a cash flow standpoint but also while it may impact EPS in the near term when we make this transition it will create a much bigger acceleration in operating margin the more SaaS revenue and the less one time perpetual license revenue having the P&L from a sales comp standpoint right now sales comps is more of blunt force instrument which is go out and sell. But as we move through into the back half of the year we will start to adjust that and certainly look at creating incentives to make sure that that's what's coming through now client there are some clients who are still on legacy perpetual license agreements and for them when they add we will still add that way but I would expect a faster drop in perpetual license as we come out of this than we have had in the past.
Sandy Draper
Okay that’s helpful. So if I summarize it you in the past you are managing to a certain level the and you get this and you sometimes would actually encourage perpetual now it's completely the opposite it's not going to go to zero because right now you are up selling and as you said you have some legacy clients so does go to the zero but there's going to be a much different approach and your goal at some point you would be upset if in two years that one is almost zero you would not be upset with that any more worst than before you were trying to keep as you said in orderly correction?
Rusty Frantz
Correct, okay. And then I mean if you look at it right the capabilities with that or all subscription I mean were I mean just, just the 9000 providers that we've added a telehealth is like 7 million to 8 million ARR. Right well I mean it's real money right and it's a real recurring waterfall and so everything that we have added is on that model and that's a very healthy and financially exciting part of our business and so to some degree I think you are going to see us focusing more and more and more in our messaging on that part of the business because we think that really represents the future versus the perpetual license revenue which is a little bit of a legacy of the meaningful used past.
Sandy Draper
Got it okay. That's really helpful. Then maybe one quick I am not sure if it's quick follow up for Jamie. I've heard a lot of companies talk about an obvious place that they may be able to save money going forward is looking at their, their facility footprint and saying Hey this is maybe not area we need to bring all the way back online or we can start to get out of leases as they come up have there been any other any other sort of unexpected areas where what you look at it besides just the facilities costs where you are saying Hey when you think about this?
Jamie Arnold
Yes so there is travel there is a number of meeting med HIMSS that we've. posted previously that were in person that we have converted to virtual and there's a good chance the number of them what will remain virtual going forward there's also as we're looking at a more effective use of the technology our hosting platform I think it's clear to true to say at this point there's no rock out there that we are not turning over to become more efficient and if I can just for a second go back to the subject of conversion away from perpetual. We saw significant decrease this year and because transactions didn’t close in Q3, some of those transactions are still sitting out there and in fact we have proposals given the sales cycle. You will see – we are expecting to see a step down this year, but we expect as we talk to prospects in particularly new prospects that as they go forward they are probably going to be much less inclined to do upfront licensing. So, I think that we are lining up with the market trends. Just wanted to follow-up, there is a piece of it bigger out there, but we do very much expect to see a significant drop this year followed by continuing decline. And as Rusty said, it’s more about what – when you go in and talk to a client early on and as you listen to them, we think we are aligning ourselves and our pricing with what the market is expecting.
Sandy Draper
Okay, got it. Thanks you much.
Jamie Arnold
Thank you.
Operator
And next we have a question from the line of Sean Dodge with RBC Capital Markets. Sean, your line is open.
Sean Dodge
Thanks. Good afternoon. Jamie, maybe just following up quick on your last point there, you mentioned some of the deals being pushed on to the fourth quarter. I guess how much of a return to normal your client needs to see do you think to be comfortable signing deals again, is that a tale of two halves in there? Does that mean kind of sales decision, sales cycle pipeline gets pushed to the back half of the year too or could we see activity on the bookings front maybe resume a little bit ahead of that?
Jamie Arnold
Well, we expect the bookings to be hit this quarter clearly, because so many of our clients are so focused on just getting their practices back up and running. If you start to see your return probably late in Q2, we would expect the back half of the year, but there is a huge variable in here around COVID. And our assumption is that based on everything we hear that they will start – there will be vaccines and other things so that we won’t be facing another huge spike in the fall, but given that we would expect to see the deal volume, but the patient volume is what is really I think going to affect. We will have a big impact on our revenues in the first half of the year.
Rusty Frantz
Yes, let me just – let me just jump on just a little bit though. So look, we are still aggressively adding telehealth providers. There are clients that we are in fact we are closing new client footprint as well. One of the things that we think about as we move through this crisis is we have a very clean balance sheet, we are strong financially healthy, with a great client base and we think that there are probably some of the opportunities from competitive take away they are going to show up as we move through this crisis and won’t be prepared for those as well. But I would say that bookings will continue probably not the same rate, there is a lot of distraction right now, but we will continue to layer in recurring bookings, we are continuing to have conversations about all-in deals. And so I think Jamie’s timeline is probably pretty right, but once again, yes it does depend on the progress of reopening the economy.
Sean Dodge
Okay. And then so maybe thinking bookings then converted bookings going into backlog and backlog converting into revenue. I guess, to what extent are your implementation and training, is that or can that be done remotely and able to make progress there?
Rusty Frantz
Yes, we are already doing. We have done a ton of that already. I mean, we have been – we haven’t lost a beat – we have been upgrading people with the moving people, we have been doing all. We released the software and that meant we actually work through beta versions with clients. And so like I said it’s pretty much business as usual here except when there is a necessity to go onsite and most of what we can do we can do remotely.
Sean Dodge
Okay. I understand. That’s great. Thanks.
Operator
And next, we have a question from the line of Donald Hooker with KeyBanc. Donald?
Donald Hooker
Great. Maybe I can try to make an attempt to ask an earlier question in a different way. The EDI revenue line, lot of different things in there as I understand, patient statements I assume, claim scrubbing. Roughly just, what is the sort of mix there and I know….
Rusty Frantz
We are not going to break it apart, I am sorry. We are not providing guidance for a very specific reason and we are not going to back into guidance for providing material lower level details that we have never provided before.
Donald Hooker
Okay, that’s fair. And then in terms of you hinted at maybe some issues, I mean, I read in the press all the time physician practices going under? I mean, you alluded to kind of AR days kind of extend it, what should we brace ourselves for in terms of you guys providing sort of price concessions or how are you approaching sort of helping your clients, which is probably good long-term, but may hurt you short-terms, just thinking about that?
Rusty Frantz
We are approaching our clients, primarily from the standpoint of working with them on payment terms, but also really working with them to help them bring their practices back online. The most important thing you can do is get the revenue engine going again. And so part of what we are doing is we are bringing some of our capabilities to the table that maybe they hadn’t been using in the past that helped them be more effective and bring cash back more quickly. On top of that we are we are looking when clients come to us, we are working with them as partners, but we are also expecting a longer commitment from them, right. And so we are doing this purposefully. Certainly, we do – when we look at the longer term model, when we do our modeling, we build in a little bit of extra attrition for frankly clients going out of business, but I think it’s reasonable and look we see a bright future ahead. And so for us it’s really – it’s getting through this revenue, this market downturn, bringing it back up and then growing from that new position. So that’s really kind of how we are looking at, at this point in time.
Donald Hooker
Alright. Let me ask a positive question, on the positive side, on the telehealth side, how much would you get of the clients have adopted your NextGen telehealth solution, what percent of their revenues or visits would you guess have shifted to telehealth?
Rusty Frantz
Look, I said – we said right now that we have got about 6,000 providers doing about 100 – I think it was like 140,000 a week. Was that?
Jamie Arnold
170,000 a month.
Rusty Frantz
170,000 a month excuse me. Thank you. And so you are – no, it’s Jamie, it’s 170,000 a week. Sorry, I am looking back at my notes.
Jamie Arnold
170,000 a month.
Rusty Frantz
170,000 per month, right. So you are talking about – you are talking about 40 grand a week across 6,000 providers and so you are looking right now at about a visit a day, but it varies right. We have got people who are just adopting now and we have got an – like we have got an organization out on the East Coast that is brought across all 380 providers in pretty much almost all of their business volumes going through it. And so what we are seeing is people start – first starting to try it a little bit and then realizing that it’s not just another FaceTime or Skype or Zoom or Doxy. It’s high fidelity. It’s HIPPA compliant. It’s fully secure. It’s fully integrated in. It’s integrated into appointment scheduling. It’s integrated into the morning how to report. It shows up directly on the handheld, the only difference is, is it for a provider, it’s a camera, instead of just a blank space and so they know that it’s not in the little room, it’s in the virtual room. And so all of that being completely integrated in so that we can go, patient experience platform to provider experience platform, it makes it easy to have visits with patients in any modality under the same operational process and scale that business quickly. And so our clients – I mean, look, this is not new, right, we had 500 clients – on like March 6 we had 500 providers on the solution. And now we are at up to – we are up to contracted over 9,000. And so people are really starting to now learn it, embrace it. We are spending a lot of time training clients on how to really use it effectively, but the biggest thing is not just seeing one patient, the thing is seeing them all. And it’s seeing them on a consistent data-driven process that helps you scale and get best leverage out of your resources rather than farming it off to a bolt-on solution that is not integrated and potentially is built around other doctors that are competing with our clients and aren’t the patient’s primary doctor.
Donald Hooker
That sounds great. Thank you.
Operator
And next, we have a question from the line of George Hill with Deutsche Bank. George, your line is open.
George Hill
Good evening, guys and I appreciate taking the question. Rusty, I am going to ask one of these revenue recognition questions kind of the different way, when you talk about the practice groups that are down, call it 50%ish, should I think about it from a revenue perspective that you guys over index there or under index there? And I ask that saying like if their volume is down 50%, your revenue is down 35%, because you are missing the transaction part, but there is an ongoing subscription component were you guys thinking them multiple times per transaction such that you are over levered to what their volume numbers look like.
Rusty Frantz
No I would say we were relatively proportionally lever George.
George Hill
Okay. But then I guess. I am kind of I am going to take the opposite tack of Don and ask a downbeat question can you say what percentage of your client base has gone under and I guess have you had and meaningful a meaningful amount of customers who are going to go out of business and I guess the, the follow up there for Jamie is. Can you provide any comment on what we should start to see kind of receivables days begin to look like as we go into the next couple quarters?
Rusty Frantz
So I will start on the on the first one. No way, way, way at the margin. Have we seen clients go out of business we have seen client’s shutdown for a period of time. But, but, but significant loss of clients just disappearing has not something that’s come across our radar at this point in time. And then Jamie?
Jamie Arnold
Okay in terms of the sales we...
Rusty Frantz
Lets say actually sorry, sorry George the one on that is let’s say we have shown it expanding but we, we really once again are providing guidance on DSO’s because that starts to inform the whole rest of the model.
George Hill
That’s fair enough Rusty if you let me speak one last one I am like just how do you think this changes the business how do you think this changes the business of medicine like how does this not drive rapidly increasing industry consolidation putting the marginal provider out of business the people who primary care physicians who were barely able to make a living beforehand something [indiscernible] comes along and if it comes back in the fall like I would love to given who you guys touched I would love to hear how you think this impacts the business of medicine.
Rusty Frantz
We do see this, this driving definitely continuing to drive consolidation. But the ability to operate at scale the ability to operate virtually we see a driving consolidation but we still actually see the we still see the independent practice continuing to thrive and survive because at the end of the day there's a fixed number of providers in the country and there's a fixed amount of demand the demand may come down somewhat on the elective side. Well on the necessary side it is still there and so we do see more consolidation but more than that we really see the business of care of changing into a much more. Multi model type of approach look I mean I see continued expansion of virtual business but I see that virtual hybrid is that virtual and in person combination being so important especially when you get into more complex specialties or surgical specialties right and so we see we see a lot of opportunity for different process than the ones the clients that are quickest to move to those kind of processes are going to be the net consolidators in the future and given that we have a solution that really what is the best practice management in the industry on ambulatory side our EHR has come light years if you look at the new SOAP note it is brilliant and that will start to now cascade throughout the rest of the application we've got all the cloud based capabilities around it so we to a large extent I feel like we can help create the future consolidators in this industry because of our breadth of platform capability operate.
George Hill
Okay thanks Rusty. I appreciate the color.
Rusty Frantz
Yes.
Operator
And our next question is from the line of Steve Halper with Cantor. Steve your line is open.
Steve Halper
Hi, just a housekeeping question what's the interest rate on the new debt that you added.
Rusty Frantz
It is. I believe LIBOR Plus 2% or 2.25%.
Steve Halper
Great thank you
Rusty Frantz
Yes, yes and that just to be clear Steve this is on the existing revolver this was not a new issue.
Steve Halper
Correct yes.
Rusty Frantz
Yes
Operator
And our next question is from the line of Dave Windley with Jefferies. Dave your line is open.
Dave Windley
Hi thanks good evening thanks for taking my question Rusty as you talk to these, these many thousands of new providers who were adding on telehealth are they at this point scrambling just to kind of find a way to keep in touch with existing patient base or are they able to think forward enough to think about telemedicine as a way to grow patient base and does that influence the type of telemed provider they would choose.
Rusty Frantz
Absolutely. But right now, it's really just about kind of getting things started. But the ones that are starting to be forward-looking are staring to talk about CRM, about client relationship management about how do you get new patients, what is the experience those patients going to have, we are just starting to see that. And it’s something that’s very exciting for us, because once again it’s really telehealth is not a separate business for our clients, telehealth is just another way of seeing their patients and a lot of the external entities that bring telehealth are actually competing with some of our providers not complementing them.
Dave Windley
Alright.
Rusty Frantz
And look, we don’t have – our clients don’t have Cleveland Clinic’s IT departments. And therefore, what they want is not a bunch of different solutions that don’t work well together where they have to start pointing even just through – even through our APIs it still works together to everything hooked up together, whereas if they can bring it from us, it comes integrated out of the box. And so we really think that, that positioning, that kind of fully integrated telehealth is so important. Look, I mean – and our patient satisfaction and we check in on every single patient visit is 9.1. I mean, when you think about the number of the – the total number of visits, I mean I think we are over 250,000 visits on telehealth with a 9.1 average. And so think about that level of satisfaction versus your level of satisfaction, when you are reading a 6 month old sunset magazine, sitting there waiting 45 minutes and ask your appointment when you got a meeting to get back to work, right. I mean, this is just talk a better way to acquire patients. We think that the integrated capability here is one that makes sure that the patient does all the same things except for in the meeting and so does the provider.
Dave Windley
I am thinking more like 2014 Time Magazine, but something like that. Second question on different topic if you don’t mind, on the revolver, you went for $100 million, you went back for $50 million more, can you give us a sense of kind of repeat of a prior question, but how much of that do you anticipate using how much of you already into, I mean, the fact you would back for more suggested you thought $100 million weren’t enough?
Rusty Frantz
So, what I say is as we sit here today, we are zero net debt. Okay, so that…
Dave Windley
Rusty, so that I don’t create any confusion. That was true at March 31. It is also true at April 30. So when you say as we sit here, you really mean…
Rusty Frantz
Right. So that should answer the first part of your question, right, which I haven’t done here, but the second part of your question, look the reality is we have the – it cost us very little money to put cash on our balance sheet from the revolver. And during the crazy time, we just figured, you know what, having a one decision point closer to our balance sheet is not a terrible thing.
Dave Windley
Understood. Understood. That’s fine. Last question as we hear in the news scheduling of some areas of the country at least are staring to schedule elective procedures, I would think that, that would be somewhat hand-in-hand with some of your clients reopening or scaling backup. I guess I would think, so I am hearing you on the one hand talk about we expect transaction volume kind of bottom out at 50% down for them and then talking about I think getting past or feeling the impact of this out into your fiscal third quarter. I would think kind of the bottom is maybe within weeks of now, am I not thinking them out that correctly?
Rusty Frantz
I don’t think you are thinking about it quite correctly, right. Because first of all the bottom means that people are comfortable going to the doctor.
Dave Windley
Yes, okay.
Rusty Frantz
That the doctor is comfortable being there, that all of the resources necessary to execute a surgical episode are there, right, when you start to really layer of this together, look, we could be more conservative than the reality and that would be great. But when I think about the complexity of turning things back on, it’s not simply that we say elective procedures can happen now. It’s that the entire mechanism comes back online. And then on top of that, when you also look at unemployment and you look at the economic pressure on the country, my guess is people are delaying elective care, for example cosmetic care, or I got a chipped tooth, I am probably not going to deal with that. And so look that’s why we see it being look it’s easy to go down it’s a check mark not a V. that's the way we look at it I am hoping that we are too conservative because that would be awesome. But I think we're appropriately looking at every specialty. We looked at every single – we had an entire team working through this to put together a model it's a model.
Dave Windley
Understood. I appreciate your answer. Thank you.
Rusty Frantz
Yes, yes.
Operator
And our next question is from the line of Stephanie Davis Demko with SVB Leerink. Stephanie your line is open.
Stephanie Davis Demko
Thank you for taking my question.
Rusty Frantz
Absolutely.
Jamie Arnold
You are welcome.
Stephanie Davis Demko
So there are just so many telehealth solutions that been rolled in the EMR side since your December rollout of your telehealth operation. Can you give us an overview on who you're really bumping into head to head since it is kind of unique versus the a larger platform telehealth solutions and maybe give us a refresh on the economic?
Rusty Frantz
Yes. So I mean look at from a head to head standpoint right now we're bumping into a lot of do it yourself. Right people maybe using Zoom or they may be using Skype or FaceTime or those type of things but now that they recognize the fact that seeing a patient is helpful now they want to see all the patients and they want to see in a normal process and so that's where we really come into in addition we've heard that some of our larger competitors are having significant hold times. And low fidelity communications right and so that's another area where look we're not our doctors are not capacity constraints. Our doctors are the doctors that actually treat those patients and so for them bringing in another solution that is potentially capacity constraint, constraint potentially doesn't have the same level of clients that is dangerous and we're starting to see that appear from a competitive standpoint as well as an opportunity and we're also seeing agnostic placements which is more of a testament to the fact that we've got a secure HIPAA-compliant high-fidelity telehealth solution and so on top of some of our clients our competitors that don't necessarily have a robust one or doing a kind of a do it yourself we're actually starting to see some placements there we don't think those are as sticky in the long term unless they turn into competitive displacements which given the strength of the rest of our platform we think as a possibility. The economics to your point is $79 per provider per month. So you run that out and there is a small implementation fee.
Stephanie Davis Demko
Are there any key at all from utilization anything like that?
Rusty Frantz
Any what no we do not actually charge utilization fee and so it is on a pure provider per month fee. And that's actually pretty attractive to our clients as they move into more higher volume and, and, and is also I think representative of the fact that that I think a lot of the telehealth solutions are having money trouble charging money at all.
Stephanie Davis Demko
I hear that, I hear that now one quick follow up which is a little bit different vein as we think about your growth historically how would you separate your growth from new clients or new wins versus an existing client cross sale to try to parse through that
Rusty Frantz
Going forward.
Stephanie Davis Demko
No historically just how's that.
Rusty Frantz
Historically? Historically, well, Jamie, where were we last -- where did we end up FY19, do you know or FY20 rather.
Jamie Arnold
Cross-sell on the base.
Rusty Frantz
Cross-sell on the base versus new place.
Jamie Arnold
It was about 80% end of the base
Rusty Frantz
And about 20 percent new.
Stephanie Davis Demko
That’s helpful. Thank you guys.
Rusty Frantz
Thank you, Stephanie.
Operator
And at this time I am showing that we have no further questions of the phone lines presenters I turn it back to you for any closing remarks.
Rusty Frantz
Great. Thanks everybody for tuning in. It's certainly a chaotic time we are very grateful to be in the position we are in and to have the financial strength we have while we do see a couple of quarters of a little bit of pain we expect to come out of that strong and we expect to really be an engine in helping to transform ambulatory care at accelerated rate. So thank you all and we will look forward to speaking in future.
Operator
Ladies and gentlemen this does conclude our conference call for today. We thank you greatly for your participation. You may now disconnect.
- Read more current NXGN analysis and news
- View all earnings call transcripts