Veradigm Inc. (MDRX) Earnings Call Transcript & Summary

For joining our next session. We have Veradigm Team, and we have the whole team here today [indiscernible] and tell us more here at the Barclays Global Healthcare Conference. We have [indiscernible] to give a very brief disclosure statement, and we have [indiscernible] and she is the founder and CEO of [indiscernible], CIO the acquisition they just made.

I'm Lee Westerfeld, Interim CFO. Shortly, we'll start with a fireside chat with Dr. [ Alan Romania ], then in about 15 minutes, [ which make ] remarks about our financials. First [indiscernible], we'll be making forward-looking statements during the presentation and the Q&A. These statements are based on current expectations and involve a number of risks and uncertainties that could cause cause our actual performance to vary materially. We undertake no obligation to revise these forward statements, and with the information of future events, please refer to our press release and SEC filings for more information regarding our risk factors that may affect our [indiscernible]. Thank you.

[indiscernible] But you're in the seat now and you have seen some pickup in the financial restatement process. You have a delisting. Could you give us some quick color about the progress that's been made, what's left to go? And if you remove the thing, what is the goal?

It is our goal [indiscernible]. Yes, we did list a few weeks ago. But because we missed the deadline on our restatements. It's a process we don't have full control over because they have an auto process going on. But we fully are working very hard to get toward relist. I don't know if Lee has anything you'd like to add.

I'll make some remarks in a few minutes on their relistening effort, but it's constructive [indiscernible].

Well, [indiscernible] you're in the stage. [indiscernible] [indiscernible] Can you talk a little bit more about [indiscernible] path here?

Totally I started my career at [indiscernible] foundation that is a [indiscernible] company that was commercializing the data asset [indiscernible] health originated through their [indiscernible] products. We took genomics information, we took clinical information, we merged those together and sold them to Pharma. That was an incredible business. I am so grateful to have [indiscernible] there. And we scaled out [indiscernible] hundreds of millions of revenue in a very short period of time. The fundamental flaw in that business is a huge amount of human labor it took. We go on the messy unstructured [indiscernible] to high-quality real-world information that's ready to go through a pharma analysis, and when we sold to [ Roche ] in 2018, 2019. I made the decision to walk away alongside my co-founder to start a company focused on building safe large language models that can take on structured health care information, structure it and get it ready for real-world evidence analysis. We were deep on that journey when Veradigm approached us, and we found the mutual opportunity of working on the Veradigm data set too much to -- we couldn't turn it down.

When I look at your history, I see someone who's founded a few different companies. Can you tell me -- pitch to us why you think you're a Veradigm person longer term?

It's a fundamental reorientation of the company around its data asset, right? [indiscernible] company. We have been in market with mature products across payer, provider, and life sciences, but we've never oriented around products before, right? The ability to come into Veradigm, to start this new business unit in our AI Center of [ Axens ], build high-quality data assets, [ in resilient markets ] we've never touched before, very much a 0 to 1 motion, and that's what attracted me to it.

And to be transparent, the market has been a little bit more mixed on the reviews of the acquisition, right? So I think -- I'd be curious on your take because you guys have been so enthusiastic about the deal. I mean you talk about [ the core ] is on board, and all 3 of you are very jazzed about it. Tell me what we're missing?

This is actually a really great moment. This is a really pivotal moment if you think about it. We are sitting on the largest richest data set, clinical data set, representing over 209 million patients. We have data rights to go far back that allow us to be able to do work on this data. And more importantly, we're actually the only organization that owns our own large language model [ on ROM ] because of this acquisition, giving us full control over the way we teach that model, because of how we can teach the model, train model and on our own data, we have the ability to create much more accurate information, much more research ready information. And from our perspective, it actually creates a competitive advantage for us. It's really quite exciting. And it allows us also to reorient a little bit what [indiscernible] was saying, reorient the organization completely around data by reorienting around data and data capture, we not only get to support the customers that we have, we have the ability to support our customers in even ways that maybe they may not have realized and we can also use these large language models to support their users experience while at the same time actually enriching the data that we have that we can actually generate structured products from and that are very useful for real-world evidence research and even eventually for clinical [indiscernible].

Now I'm probably the dumbest person on the stage to explain the [indiscernible]. You don't have a revenue model.

We'll have products in market this year.

Already preselling.

Can you tell me about the preselling, tell me about the revenue model or the deployments in your partner clients so we can at least have some broad strip of what this looks like.

We're already beginning to conversations with biopharma companies. We're already having conversations about the fact that we're sitting on the most diverse data that really represents American Health because of our footprint. We actually don't just cover sort of centers of excellence or areas where there's high concentration of people. We actually have rural areas. We cover areas has a great deal of diversity, and that data is probably the most useful data that everybody wants. The FDA has [indiscernible]. Pharma companies have also been moving to find this information. We're about to structure it up in a way that's actually useful for ready for analysis, whether that is for a real-world data analysis or real-world evidence analysis of external control arm. There are many different things that they can possibly use this information for but we can also tailor it and do it very quickly. And I think that makes us very exciting.

The excitement we're seeing from [indiscernible] is incredible, right? Like real-world data has really plateaued outside oncology because of the incredible cost it takes to prepare these data sets. Oncology is a very narrow slice of the whole pie. We can scalably originate data set or any disease [ aerial ] that's covered in our patient population. And for pharma, that means dozens of things that we brought them historically from speed of analysis to speed to enroll to increase the [ coediversity ] and improvement. All of that takes away with a product that previously was [indiscernible].

There are numbers of folks in the room. Yes. Is there any [ broad strong ] you can give us on how your pricing for this? How many initial conversations are [indiscernible] again for signing? [indiscernible] the revenue opportunity?

Maybe the way I can answer that question is the fact how do you do a [indiscernible] sale? So when you do a novel data sale, they usually begin with a few pilots. So what's more important is you aim to be able to provide consistency of that data like a pipe when you do it that way, you go for long-term subscription recurring revenue type of contracts. And so you don't go for just you go for several years in a row. And again, a large part of it is because you take a research orientation around it and about what you want to track over time. And so you use that in the way of scoping and offering into the marketplace.

A unique differentiator here is our ability to sell multiple products with single pharma company. It's not like we're just an oncology data provider or just a card data provider. If you look at our vision population, it mirrors the totality of what's happening in pipelines today. which means you can imagine the world where you're selling multiple SKUs at premium pricing to a single development inside a pharma.

Let me try asking this another way. Is there some metrics you will hold yourself to [indiscernible] measure success for this deal in the first year?

Yes. We will be talking about [indiscernible]. [indiscernible] talking about what's possible, so the responsibility of using large language models in the way that we have to reduce the data accuracy that they're looking for. There is a lot of interesting conferences that we will be speaking at. We will have product out this year.

When will we start seeing more consistent revenue stream?

I think you'll look into the next year into 2022, you'll start to see in this largely because revenue is a lagging indicator, a large part of what the [indiscernible] you'll see in the front [indiscernible] from people want [indiscernible] with us, with people who -- with companies who want to publish with us, talk about what they're basically finding. I think that is really going to be more of the mark of where things are going to be picking up in the first that excitement and that excitement will start to translate. And maybe also by the end of the year, we can do [indiscernible], that may be another way to look at it.

[Operator Instructions]

Many of you will have read with the lease and 8-K filing this morning. We released guidance for 2024. I'm going to walk you through our outlook on the year. But for Veradigm, we see 2024 as a year to reset, reinvest and renew our growth over the next 10 minutes. So I'll share with you 3 topics at our assessment of the current state where we're investing and guidance. And I do want to make 1 further important commitment to you all. We aim to reestablish your confidence in Veradigm. Our intention to come forward to you on a regular basis, even as we work through the audit filing issues and [indiscernible] regularity with business update financial performance reporting to the extent that it could be permissible. I am keeping informed and we have people in front of you. Is there a self-assessment, the state of Veradigm? Situationally, we have been delisted. We remain public MBRx trades OTC on the expert desk. We are on the road towards a relisting on NASDAQ, audit is prolonged about timing. The question many will ask -- are asking by when? Little [indiscernible] topic is our auditor and my accounting team and professionals alongside are cooperatively and diligently with our auditor. The activity that is in review multiple years. That's a significant scope to test and respond thoughtfully. We entered listing healthy by most standards. We are a rare exception for listed name with healthy fundamentals. And when I look at our profile, I want to highlight 4 points, we carry ample liquidity, are internally available versus a net cash stand at $114 million approximately. We have ample cash on hand for those that are closely watching if we need to repay our convertible bonds. As I said, net cash of 140. We remain consistently profitable on an EBITDA and a free cash basis. In EHR, we retain scale advantages that are quite stabilizing to our recurring revenue and strategically our [indiscernible] data, which [indiscernible] and have been speaking about, is internally and network source and this crucial point. In effect, we're paid to collect and capture health data, the health data that supplies or growth opportunities even. 2024, as I mentioned, will be an investment year. Investments are focused in 2 primary areas in growth and foundational strength, first on growth and profitability, the initiatives planned this year and this all 3 of our market pillars with new improved products for provider. We're modernizing our EHR focused on cloud deployment, internally named [ Project be NEXT ] for payers. New [ ergoclosure ] offerings under the brand internally of [ Logic Firebird ] will be deployed in the second half of the year, and we will add new Veradigm payer insight, and [ right sciences ] new AI data intelligence. The impact to potentially drive revenue and margin expansion lastingly over time. While I look at our foundational initiatives, these our second set of initiatives for investment this year, tend to stabilize our audits and reporting sharply forecasting at all levels within our business operations, enhance sales productivity and most of all simplify the complexity to our customer experience. It's under a brand of internally branded project outlets. And what, in fact, are we doing implementing new information systems company-wide centrally and most importantly, with a new centralized ERP coupled with the end to end process change in cash. This is important that the impact that we pronounced. We anticipate gain productivity, especially in the area of simplifying contract management. Guidance and [ outlook Classima ]. Our guidance for 2024 and then our outlook out through 2026. About revenue, on a GAAP basis, we see 2024 in the range between $620 million and $635 million. That's up modestly by 1% to 3% midpoint or earlier 2023 estimates. Drilling in the business segments or provider segment, we see that business holding flat in revenue year-on-year, while [ Payer ] and Life Sciences are rising in the upper single to low double digit range. [indiscernible] a little further into the provider business and its financial plan, we anticipate that the recent churn will be more than offset by ramp-up of Practice Fusion's revenue cycle services and by the recent purchase of [ Co Health ]. Meanwhile, the growth rate is at Payer and Life Sciences arise from Payers', clinical data exchange, and from Veradigm Payer Insights. And the outlook 2026, acceleration in revenue growth, approximately 10% weaker, an acceleration from the 1% to 2% range. We've just won the 3% range we've just discussed. And the 3 drivers behind that are all used by AI, AI data intelligence driving real-world data and life sciences, AI improving further modernization and for providers and also value-based or elements for payers, all that low to profitability. Our adjusted EBITDA in 2024, we been [indiscernible] in a range of $104 million to $113 million at the midpoint. That's a margin of 17%. That is down year-on-year, so that [ merits explanation ]? I've been speaking about our investment initiatives inside of those investment initiatives is a temporary OpEx the collectively subtracts 2% from our margin, EBITDA margin as estimated this year. We expect that temporary OpEx bolus to unwind during the fourth quarter, and that sets the stage for 2025 and beyond to see margin recovery and expansion. And what about that expansion out to 2026, we are anticipating potential to add 5 percentage points to our adjusted EBITDA margin in this year's level strikes me as conservative. It's important regard because of that 3% to 5% including the recovery of the 2% from the temporary OpEx [indiscernible]. [ Lender ], that is to say additional margin expansion out to the year 2026 is drive out of the collective advancements in AI data intelligence revenue models those sorts of models are much higher margin than our base businesses. So in summary, where do you stand? On a solid track of net cash uniquely internally sourced health data in a year, we're investing in critical areas for growth and foundational systems set the stage for productivity and margin expansion. And we anticipate in the near future years, accelerating revenue growth, lasting margin expansion, which, again, lifted by AI, data intelligence and health technology market.

Some questions on that. So let's see that slide up. You have 2024 adjusted EBITDA includes 12 million of that temporary OpEx with 50 million consensus. Can you help us bridge that?

Well, I can't speak for the consensus, which I've been closely observing has not really been performed over the last couple of months, while we've been radio silent with investors other than speaking of JP Morgan, but I can speak to the change you on here from 2023 to 2024. The $12 million as you're referring to on the slide, constitutes the 2%, have been referring to as temporary bolus of OpEx expenses. That is comprised of 2 important areas. One is the staffing augmentation in our accounting in order to be able to set the stage foundational strength, return with consistent audit reporting performance; and secondly, the OpEx portion of object analyst implementation of these systems. Additionally, we have acquired Science IO, and we have other areas of routine expansion in 2024.

So even if we add [indiscernible] of 2022 it'll be like a high teens margin profile, right, like-for-like?

That's accurate. Yes. 17% after all of the investment activity will normalize and anticipate margin expansion in the future.

So the other margin compression science IO plus investments that we just haven't been [indiscernible] the date with?

They are correct. They are offsetting cost productivity and cost savings that have been woven into our budget for this year as well.

All right. We have time for maybe 2 questions last. When we move on that. So how are you dual tracking making these investments while also maybe shoring up your financial position and your reporting?

Well we wouldn't be able to do it for it not for carrying a strong net cash position and profitability. So we begin with the profile of the economic model that we stand with net cash as a better place than net debt and the net cash is more than ample for our needs. The second is focusing on areas where our product development and coupling with go-to-market across all 3 pillars, and [ will ] have been discussing that for a bit, is on track facing the customer. Meanwhile, the corporate track focuses on the remediation of the audit and implementation of centralized ERP.

So tell me how they're splitting up years of time.

[indiscernible] on offense, I'm on defense.

So a large part of my time is spent tremendously on where our customers, what they need and what they're looking for, also on the idea of basically going forward and bringing a lot of our AI capabilities, infusing them into our organization. There is a bit of integration that we have to do. But more importantly, we also want to put out that really exciting intelligence products this year. That's a large part of my time.

With that in mind, you're talking to a lot of new clients, you're trying to feel out what the product could be in the market? New sales positioning, how important is it to be a stand-alone public company.

I think it's actually a good thing that we're a stand-alone public company. If you think about it, our ability to reach more people is there. It's also -- we're the only EHR vendor who is actually out there in as a public company. And what's really exciting about that is we're about to transform in front of everyone, too, and do something really exciting because we are not only EHR, we've also cover Payers. We cover Life Sciences. We now also have our own LOM so we can produce Health Intelligence products. And now we're shifting [indiscernible]. I think we can do quite well.

All right. That's all the time we have. Thank you so much. I appreciate you coming out.