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Greetings, and welcome to the CPSI Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dru Anderson. Thank you. You may begin.
Thank you. Good afternoon, and welcome to the CPSI Fourth Quarter and 2023 Earnings Conference Call. Leading today's call are Chris Fowler, President and Chief Executive Officer; and Vinay Bassi, Chief Financial Officer. This call may include statements regarding future operating plans, expectations and performance that constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
The company cautions you that any such forward-looking statements only reflect management expectations and predictions based upon currently available information and are not guarantees of future results or performance. Actual results might differ materially from those expressed or implied by such forward-looking statements as a result of known and unknown risks, uncertainties and other factors, including those described in public releases and reports filed with the Securities and Exchange Commission, including, but not limited to, the most recent annual report on Form 10-K.
The company also cautions investors that the forward-looking information provided in this call represents their outlook only as of this date, and they undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call. At this time, I will now turn the call over to Mr. Chris Fowler, President and Chief Executive Officer. Please go ahead, sir.
Thanks, Dru, and thank you to everyone for joining us this afternoon. I want to start off today's call by saying how excited I am about our recently announced rebranding. We are coming together behind our TruBridge brand to simplify the way we do business and reinforce our commitment to delivering a comprehensive suite of financial and clinical solutions for our clients and the communities they serve.
We believe this new brand more accurately reflects the evolution of the company and more closely defines who we are today and the opportunity ahead of us. We remain committed to delivering high-quality service to all of our clients regardless of the solutions they are using. On Monday, March 4, we will officially transition to TruBridge, what our common stock will begin trading on the NASDAQ stock market under our new ticker symbol, TBRG. With that in mind, we will refer to our company as CPSI on the call today.
Taking a look back, 2023 saw ups and downs throughout the course of the year, but we finished on strong footing with meaningful bookings and solid fourth quarter results. Today, I'll touch on some financial highlights, provide updates on our ongoing initiatives and introduce our new CFO, Vinay Bassi, to dive deeper into the numbers and share our initial outlook for the first quarter and full year 2024.
Let's start with a quick overview of 2023 results. For the full year, revenue came in at $339 million and adjusted EBITDA came in at $48 million. For fourth quarter bookings, we signed $26 million, which represents a sequential increase from $16.2 million in the previous quarter and was driven by meaningful increases in both RCM and EHR. Fourth quarter 2023 bookings were up by 5.5% from fourth quarter of 2022, driven by RCM bookings, which increased 5.9%.
We believe the pickup in RCM bookings was driven by several factors. First, the local labor market for our community hospitals is seldom expansive enough to meet all of their needs. Second, RCM is very complex and getting more so by the day. And third, the stigma of outsourcing billing efforts is diminishing as the problems of poor cash collections and increasing accounts receivables continue to weigh on community hospitals.
Now taking a step back from the numbers, I'd like to shift to a few updates on the strategic moves we made over the past few months. First, in January, we announced our divestiture of American HealthTech, also known as AHT, to PointClickCare. We believe that this was the best decision for both existing AHT customers and for CPSI. This divestiture allows us to focus more acutely on our core market of small to midsized hospitals, while ensuring our AHT customers are in good hands with PointClickCare, given their high level of service and exclusive focus on delivering EHR solutions to the post-acute care market.
As part of the agreement, we will be PCC's exclusive partner for complete business office services. We are not including anything at this time materially in our forecast as the post-acute market is lagging behind the acute care market in terms of converting to the outsourced model.
Second, our integration of Viewgol is progressing as expected. As a reminder, early in the fourth quarter, we acquired Viewgol with the aim of bringing our globalized workforce in-house rather than continuing to rely on third-party outsourcing. We split the initial integration plan into 2 tracks: one, getting our offshore resources to scale for existing customers; and two, bringing on the new customers.
For existing customers, we went account by account to map out a plan for the ramp. And for our new customers, we are planning to staff them with the appropriate mix from the initial go live. It's important to note that as we ramp up our global capacity over the course of 2024, we will likely experience a little margin pressure early on, but we expect that to reverse as the year progresses.
Longer term, our goal is to achieve a workforce comprised of 70% offshore and 30% U.S.-based employees. While we work through this transition, it remains a top priority to remain -- to maintain the same quality of service for all of our customers. As we look forward into 2024, our entire organization is committed to returning to growth and realizing the operational leverage that our global workforce can achieve.
We believe that our dedication to embracing technology and modernizing our infrastructure is key to our ability to consistently deliver best-in-class solutions to our customers. This is exactly why we continue to use AI to automate the RCM process wherever possible and utilize the cloud to improve capabilities and enhance our services.
This commitment to leveraging technology has and will continue to be a top priority within our organization. As we've acknowledged in the past, we are in the midst of a transformation. 2023 was focused primarily on our people and ensuring we have the right team in place to take advantage of the growth opportunities for this year and beyond. In 2024, while we'll still continue to invest in our people, our focus will be on capital allocation. For example, making sure our investments in technology have a sharp focus on ROI to ensure our investments closely align with our strategic aims.
With that, I'm very excited to hand it over to our new CFO, Vinay Bassi. Vinay brings a skill set that is already proving to be a huge asset to our organization. His extensive experience across the board -- he has extensive experience across the board, but particularly in offshore operations and has been and will be continued to be extremely beneficial to our team during this transformational time. Vinay, can you take us through the numbers?
Thank you, Chris, for the introduction. Before I review our fourth quarter results and our initial 2024 outlook, I want to share with you all a bit about why I joined CPSI. Most of my working years have been focused on technology and services, primarily telecom communications at Avaya and media at Nielsen. CPSI is an extension of that journey where I'm excited to join the company operating in health care technology and services.
During the interview process, I was impressed with Chris and his commitment to transform the company. I was fully aware of the missteps in 2023 performance, but the company's strong mode of RCM growth within the EHR customer base, coupled with strategic acquisitions and divestitures, reinforce my confidence that the team is focused on transforming the company.
My own experience in building a strong team, enforcing fiscal discipline and leading with a data-driven approach were at the forefront of my decision to join CPSI to be part of its next chapter. Some of my areas of focus for the near term include: first, getting a thorough understanding of the key business drivers that serve as a leading indicator for forecasting, including bookings conversion and increasing trajectory of offshore resources while meeting customer service level agreements; second, building a strong finance team built on principle of a fact-based, forward-looking approach and closely linked with the business.
I believe this will help in improving forecasting and fiscal discipline going forward. Third, taking a fresh look at capital allocation and CapEx with a return on investment mindset. We have invested in many projects to date, and we will be reviewing those efforts to prioritize the ones that will benefit us near term. Fourth, continuing the cost optimization initiatives that directly impact EBITDA. And last, ensuring the successful integration of Viewgol.
Now let's jump into the numbers. Total bookings in the quarter came in at $26 million. RCM bookings at $14.2 million, made up about 54% of the total, which represents an increase of 5.9% from 2022. Total revenue for the fourth quarter of $85.9 million compares to $83.2 million a year ago. RCM comprised 59% of the total revenue and crossed the $50 million threshold for the first time.
Let me provide additional color on revenue. Viewgol contributed approximately $3.8 million in about 2.5 months in Q4. Further, RCM, excluding Viewgol, showed growth of 3.3% compared to Q4 '22. EHR showed a decline, primarily due to the impact of sunsetting the Centric platform. In the quarter, we reported cost of revenue of $43.7 million, which yielded a gross margin of 49.1% compared to 46.5% a year ago.
The improvement in margins came primarily from savings associated with our voluntary employment retirement program and lower bonus accruals due to the 2023 performance. In the fourth quarter, reporting -- reported operating expenses, excluding goodwill and trademark impairment, as a percent of total revenue was 53.2% compared to 41.4% a year ago. The increase was primarily from severance expense and other onetime items, including fees incurred for M&A activities.
On an apples-to-apples basis, excluding these onetime items, operating expense as a percent of revenue would have been 45.2%, driven primarily by Viewgol and increased investments in sales and marketing technology, including the cloud migration as well as aging receivables.
With all that taken into consideration, adjusted EBITDA for the quarter came out to $12 million compared to $13.2 million a year ago. Adjusted EBITDA margin of 14% in the quarter decreased 190 basis points over year due to the impact from increased investments in sales and marketing, cloud, some Microsoft licenses and technology resources for future growth and was partially offset by the benefit from our savings associated with our voluntary employment retirement program and lower bonus accrual in 2023.
We ended the year with a cash balance of $3.8 million and a net debt of $194.5 million. Operating cash flow for the year was $1 million versus $32.4 million in 2022. The reason for decline was primarily a result of lower adjusted EBITDA, higher interest expense from funding the Viewgol acquisition, severance and other onetime items.
Lastly, in connection with the company's disposition of EHT in January 2024 and other factors, management is finalizing certain line items in the financial statements, primarily related to the amount of goodwill impairment and the final numbers will be included in our 10-K filing.
Moving on to our guidance. First, in an effort to improve our transparency, we will begin providing guidance for the upcoming quarter starting today. For the first quarter, we expect revenue to be in the range of $82 million to $84 million. Adjusted EBITDA to be between $8.5 million to $9.5 [Technical Difficulty]
It appears that we are just experiencing some technical difficulties. One second. Ladies and gentlemen, please standby. The conference will resume momentarily. We thank you for your patience.
Ladies and gentlemen, we thank you for patience. Our event will now resume.
Yes. This is Chris. We're going to go back to Vinay starting at the beginning of guidance. So we just wanted to make sure that we went ahead and put straight into the fire. So here we go.
Thank you. Moving to our guidance. First, in an effort to improve our transparency, we will begin providing guidance for the upcoming quarter starting today. For the first quarter, we expect revenue to be in the range of $82 million to $84 million, adjusted EBITDA to be between $8.5 million and $9.5 million. And for the full year 2024, we expect revenue of $340 million to $350 million, adjusted EBITDA to be $45 million to $50 million.
I want to give you a little insight into our thought process and assumptions that went into this year's guidance. Firstly, we have assumed impact of ASC in the guidance. In other words, the guidance assumes only 15 days of ASC in Q1. As a point of reference, ASC accounted for approximately $16 million in revenue in 2023 with approximately $2 million of contribution to adjusted EBITDA.
Secondly, a full year of Viewgol is included in these numbers. For 2024, we expect revenue of less than $20 million with an approximately $4.5 million contribution to adjusted EBITDA. Starting with bookings. We took a conservative approach for the full year and assume 2024 will be relatively flat compared to last year, excluding ASC and Viewgol.
In terms of quarterly cadence, we expect the first quarter to be the lowest of the year and then build as the year progresses. That said, please keep in mind that bookings are lumpy. The midpoint of our annual revenue ranges implies 6.5% growth, excluding ASC from 2023, and that will be primarily driven by organic growth in our RCM business and the full year contribution from Viewgol.
Last year, RCM, including Viewgol, in Q4 accounted for 57% of our total revenue, and this year, we think could be about 2/3 of total revenue. We are forecasting our EHR business to be relatively flat, excluding the impact from sunsetting of our Centric platform. I also want to provide further detail on how we anticipate EBITDA margins to progress over the year.
The first quarter will be our lowest EBITDA margin in 2024 at approximately 11% based on the midpoint of our quarterly guidance range. This is because we have just begun ramping our global workforce and therefore, have some duplicated costs during the initial transition to ensure continuity for our existing customers. We expect the second half to have higher EBITDA margins to reflect the benefits from already negotiated vendor savings, savings from ramping the offshore workforce and expected first half bookings converting to revenue.
I have been conservative to not include any other future cost savings book -- initiatives in our guidance that we have initiated as part of cost rationalization and capital allocation strategy. These initiatives are in the preliminary stages, but include a review of overall cost structure relating to vendor spend, G&A, including real estate and CapEx spend. We could see benefits in the second half, but there are too many moving parts as it relates to the contribution from the offshore transition, along with other factors to count them in the financials for now.
I'd like to close out my first call by thanking Chris and the rest of the CPSI team for a warm welcome to the company and a great first couple of months. I'm excited to help CPSI successfully capitalize on the many opportunities that lie ahead of us, and I look forward to getting to know many of you in the coming weeks and months and keeping you updated on our progress as the year unfolds.
With that, I will open the call up to questions.
[Operator Instructions] Our first question comes from Jeff Garro with Stephens Inc.
Welcome to the call, Vinay. Wanted to ask about margins in 2024. Would expect Viewgol and further offshore leverage as well as essentially some reduced R&D following the post-acute divestiture to be accretive to margins? So could you discuss those in some more detail and also any potential offsets the heavy landing at those roughly flat EBITDA margins at the midpoint of the guidance year-over-year?
Thank you, Jeff. First of all, I'm excited and looking forward to building this relationship with all of you. You're absolutely right. It looks like a flat margin and all the reasons you outlined are also factored in. But there are a big -- a couple of big offsets that I would highlight. One is, our budget for '24 will be based at full bonus. So compensation-related expense adds a significant portion, and this compensation is bonus accrual as well as merit increase. That offsets most of these gains right now.
And barring that then, obviously, we had smaller increases from the full-time impact of the hiring that we had done in the second half of '23 full year impacts felt in '24. So these are investments in support, technology and sales and marketing.
Got it. That helps. And step back a bit and throw it out there for Chris. You've done the Viewgol acquisition, you've divested the post-acute business. Curious if we should think about potential for additional strategic moves to come? Or do you now have the platform that you want to grow and drive leverage across?
I think it's a super fair question. And I would say, right now, for 2024, we've got a full plate and we're looking to execute. And so we were excited about, obviously, getting the Viewgol deal done at the end of last year, excited about the AHC divestiture, creating the additional focus there. And right now, top of mind for us is continuing to drive sales and revenue growth and really capturing the value of the Viewgol workforce transformation over the course of this year.
And going back to that margin question, you can look at -- I'm excited about the fact that we're providing the quarterly look ahead guidance, which allows a bit more visibility for you guys as we're continuing to march through this transformation. But you can also tell just from the bridge of looking at Q1 over the course of the year, there's a pretty steady ramp as that margin grows as we continue to execute on the offshore workforce.
Excellent. I appreciate that. One last one for me before I jump back in the queue. But I want to make sure we hit bookings and saw the nice finish to the year. Could you help us think about the pipeline from here? And where our expectations should be for bookings in 2024?
Yes. We were definitely thrilled to see the rebound that we had in Q4 over Q3. We continue to remain cautiously optimistic. I think the track we fell into last year, Jeff, was getting a little over our skis with -- and I know we've talked about this throughout the year of how quickly this market was going to unlock. So if you look at our guidance, I think that we've taken a very measured approach at how the bookings contribution has impact over the course of the year.
With that said, the pipeline continues to be strong. We're continuing to have the same great conversations with customers and seeing those pick up, both in our existing customer base and with our outside of the EHR.
Our next question comes from Sarah James with Cantor Fitzgerald.
I was hoping you could unpack the seasonality a little bit more. So the year looks like, especially on the EBITDA side, a little bit more back-end loaded. Are there any one-timers in there we should think about? Is the cost of rebranding in 1Q '24 and how sizable is that?
Yes. So that's a great question, Sarah. Nice to meet you again. Sarah, the margins I give us adjusted EBITDA margins and rebranding and all our onetime items that are taken out. We have rebranding cost for this year, but it's not included in the adjusted EBITDA margin. You're right, the margin is back-end loaded for two reasons. The ramping that we will have is on a month-to-month basis. So if I had something in the first month, I get in the last quarter all the benefits. So it's a ramping up of month by month, so that might -- fourth quarter will be the maximum benefit. That's one.
Secondly, my vendor savings that we have negotiated, it kicks in from Q2 onwards. So that's the second aspect of it. And obviously, the bookings and the revenue that you expect is the benefits that we will also back end loaded. So it's a mix of all 3. The good advantage part of it is vendor savings has already been negotiated. And the bookings of first half will give us a great color for the second half of revenues.
Great. And maybe you could give us a little bit of insight into your process there, how you've been going through the review of the business units and how you think about guidance philosophy, whether it's conservative or optimistic?
That's a great question that we say. I've always been told future will tell me whether I was optimistic or conservative, but I'll tell you how I have thought through these. As you know, Sarah, there are a lot of moving pieces, a lot of pieces that could change, but how our thought through is looking at the past to be my -- looking at history and then looking at future and breaking into two parts, like what Chris said, one, being a little conservative on making sure what we learned of optimism of '23 is not baked in to '24. So a flat bookings number, excluding Viewgol and EHT was a good, especially despite coming good on the Q4, that was one.
Second aspect on margins. Some of it is my history and my background, laser-focused on the controllable and making sure the rigor that we need, we have started putting on these expenses and everyone to fight to stay on that -- on the P&L. Has -- I would say, some of it, which are fully baked, is already captured like the vendor saving. But the other that I mentioned in my prepared remarks, work that I'm trying to do and have an ROI focus and more near-term focused. So CapEx product development expenses that we are spending, looking at it from a project by project and the ROI of not having too long term and near term is the cadence that I have just started.
It's still early, but I would say that's the mindset I have to answer your question. I feel at least 60 days in. It looks like a balanced budget to the best of my ability of understanding. But I feel more like what cautiously optimistic and there's a lot more work to be done in the coming months. Chris, what would you...
No, I think you nailed it. And again, Sarah, I would say, definitely, between the optimistic and conservative, I would say, realistic is over the first 60 days is the way that I would categorize the name and appreciate that approach. Also, again, I'm going to say this for the second time. I love the fact that we're giving the quarterly guidance, which I think helps everybody kind of keep track of our progress as we go -- as we do know that it's not quite a straight line on this transformation.
Our next question comes from Jesse Davis with Barclays.
Stephanie Davis from Barclays, but it's okay because I can have a new name as you guys have a new name to. Congrats on the rebranding. Now I was hoping to hear, Chris, you just came from a customer conference week on brand. So tell me, what's the feedback? What are folks looking for? And what was the big area of demand that everyone talk about?
Hello, Chris, are you there? Okay. Please standby. [Technical Difficulty] We're welcoming back our speaker now to answer Jesse Davis from Barclays.
Correct. We'll call her Stephanie. So Stephanie, thanks for the question. Like I was saying, we have been thrilled with the response to the rebrand on all fronts. And granted, it is early days. But obviously, you shared your e-mail. And obviously, you've been bugging us about this for quite a while. I think the sentiment from the Street has been finally make it easier to tell the story. Our customers and our employees all seem to get it as well and appreciate the consolidation and the ease of how we talk about who we are.
Going to the conference to what I would say that we saw kind of more than anything is that people are looking for insights. Insights on where there are opportunities for them to improve efficiencies, which lined up really nicely with -- we had a little soft launch for an analytics platform that we're driving out. And so our thought is that Step 1 is the technology that's available to find the areas for improvement on the RCM side.
And then obviously, with the opportunity for us to back that up with some services that come in, which I think is as much a top of mind to the customers as identifying what those problems are, what you've identified, then it's about how do you solve them.
When I think about a legacy industry that does a lot of insights work, I think in Nielsen, and we've got Vinay coming from there. Vinay, is there anything you're seeing in that opportunity where you can kind of get some learnings from your past?
I would say, Stephanie, past, not just Nielsen helps, but Avaya everything has learning from those experiences and utilizing it here. And the key one I would say is focus a lot on my controllable, which is cost structure and CapEx because that's an influence I can make. And having lived through 2 private equity learnings, and there have been amazing teachers to me. So bringing that cadence of ROI mindset has helped me a lot, one.
Secondly, in my Nielsen on having focused on revenue and all, it's building that partnership with the business where accountability is an ownership share and that translation of bookings into revenue in the right -- from a forecasting is the second one. And the third, which is not Nielsen, not Avaya, just who I am. Cash is the only truth I'm going after. So improving my free cash flow has been the mantra that I'm committed to. So it's a journey that I know might be longer, but every day, every month is where I'm looking to make a difference.
that. On the rev cycle side, I want to dig in a little bit. It looks like your cross-sales motion a little bit softer for the past few quarters. Is there any color on this? And then last one is a quick housekeeping one. I didn't see an NPR metric. Is that going to be disclosed? Or is there anything you can share on that?
Yes, I'll take the first and then let Vinay talk a little bit about the NPR and kind of the approach there. As it relates to the bookings and just kind of from a macro view, I would say we're still very confident as it relates to the cross-sell opportunity. We continue to see that end of the market continue to have some momentum. I think it's still -- we still have the same challenges to an extent while we're seeing them turn down a little bit.
It's the economic impact of the jobs in the community. And it is the concept of outsourcing in general. Remember, we're still talking about a market that 70%, 80% of it is still being done in-house, and there's not a regulatory push to drive to this model. And so we're still selling the idea of outsourcing before we're selling TruBridge as the provider for that service. And so we're making great strides. That sales force has now been intact for a full year. So they definitely have their feet under them. One on the value proposition of what it is that we're selling, and two, building that relationship with our customers. And so we're expecting to see that, as the year unfolds, continue to make progress there.
And I'll let Vinay talk a little bit about the NPR. Yes. So Stephanie, I feel bookings is a great metric because it is effort and reward of our own that we are reflecting. NPR, I just wanted to take a little more time to do the homework of understanding the ins and out because like everyone else, a portion of our NPR data is relied on third-party inputs.
And when it's not in our control, knowing how the out inputs come in, what's the cadence, I just want to do that homework a little bit longer to just make sure I understand what are the ins and out and how is that a leading indicator for me. So that's the reason why you didn't see it in this, but bookings, which is obviously deals closed is a great indicator for us for the time being.
Our next question comes from George Hill with Deutsche Bank.
It's for George. Can you talk a little bit about what has changed in outsourcing conversations lightly with prospective clients just given the recent macro environment?
Yes. I'm sorry, I didn't catch your name. So -- but I'll answer the question. I did hear most of that. What I would say is, definitely, we're seeing the increased interest, and that is based on -- as I said in the prepared remarks, the pressure on the labor market specific to the communities that we're serving. And secondly, as the reimbursements to continue to get complex -- more complex, the need for the specialized skills and continuing to stay on top of that, it continues to ratchet up. And to give an example of that, if you go back 5 years ago, the vast majority of these hospitals were their payments were on the backs of traditional Medicare, Medicaid and probably a Blue Cross was going to make up the vast majority of their payments and a pretty straightforward payment model that they were getting reimbursed on and also getting paid within 14 to 17 days.
While it may not be the dollars that they want to get, they were -- they knew the money that they were going to get. They knew in the time that they would get it and they could budget for that. What's happened is you've seen this kind of proliferation of the move to the Medicare Advantage or the value-based care model, it's created more complexity and making a little -- not quite so straightforward in getting that money in.
So it's about, again, having the resources, one, that are available, just the bodies and the chairs and then secondly, making sure that they're able bodies and that they're on top of the changing landscape of how that reimbursement is. So that's really where the vast majority of the conversation has shifted to. And again, as we have -- this is what we do. We live and breathe by this specifically with more than half of our business.
And so we're able to sell the success that we've had with our 20-plus years of experience to be able to bring that consistency and success into the delivery for those opportunities.
It appears that there are no further questions at this time. I would now like to turn the floor back over to Chris Fowler for closing comments.
Well, thanks, everybody, for joining us. Also, thank you for the patience with our technical difficulties. Hopefully, that will be a onetime and only. And obviously, thank you to the to the new copilot that we've got seeing with us. Vinay Bassi looking forward to go and finish in this transformation and continuing the progress that we've started here at CPSI, soon to be TruBridge on Monday. But Hope everybody has a wonderful rest of your day and good weekend. And thank you again for your support in our company. Bye-bye. Thank you.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.