NextGen Healthcare, Inc. (NASDAQ:NXGN) Q3 2022 Earnings Conference Call October 25, 2022 5:00 PM ET
Company Participants
James Hammerschmidt – Senior Vice President, Finance and Investor Relations
David Sides – President and Chief Executive Officer
Jamie Arnold – Chief Financial Officer
Conference Call Participants
Stephanie Davis – SVB Securities
Jack Wallace – Guggenheim
Sean Dodge – RBC Capital Markets
George Hill – Deutsche Bank
Jessica Tassan – Piper Sandler
Jailendra Singh – Truist
Annie Samuel – JPMorgan
Operator
Good day, everyone and welcome to today’s NextGen Healthcare Second Quarter 2023 Earnings Call. [Operator Instructions] It is now my pleasure to turn today’s program over to James Hammerschmidt, Senior Vice President of Finance and IR. Sir, please begin.
James Hammerschmidt
Thank you, operator. Before we start, please note that we will be making forward-looking statements during the presentation and Q&A part of the call. These statements are based on management’s current expectations and assumptions and are subject to risks and uncertainties. Factors that may cause actual results to materially differ from expectations are detailed in our earnings release and SEC filings. This call will also reference certain non-GAAP financial measures. Information about non-GAAP financial measures, including reconciliation to U.S. GAAP can be found in our earnings release, which is available on our Investor Relations website.
At this time, I’d like to turn the call over to our President and CEO, David Sides.
David Sides
Thank you, James. How time flies. It’s hard to believe I recently passed the 1 year anniversary as CEO at NextGen. It’s also hard to believe that we are more than halfway through fiscal year 2023.
Let me start by saying that we have improved confidence and due to our consistent execution and client results, we are increasing our outlook for the remainder of the year. Our updated guidance implies that we will have made up for the lost revenue and earnings from the commercial dental divestiture we announced last call. In my prepared remarks today, I will touch on three areas supporting our positive outlook: number one, our ability to execute; number two, our clients; and number three, our approach to capital allocation.
Let’s start with execution. Bookings were solid for the quarter with 5 flagship deals over $1 million. Net new client wins accounted for approximately 20% of total bookings as our differentiated value proposition aligns with the needs of integrated care organizations, federally qualified healthcare organizations, behavioral health, ophthalmology and orthopedic practices. These clients are purchasing multiple solutions at once and we continue to have success selling this around into the base. As a reminder, our surround solutions include the patient experience platform, patient pay, virtual visits, mobile, population and financial analytics, managed cloud services and revenue cycle management.
We remain on track to achieve our target of $100 million in contracted annualized recurring revenue for surround solutions by the end of fiscal year 2024. Client adoption of patient payment and engagement solutions has materialized faster than originally planned. Testament to the investments we are making to modernize our revenue cycle capabilities and provide an end-to-end solution for managing payments, coding and clearinghouse services. We believe there is real upside here which should lead to increased penetration into the base.
As the first EMR to be 21st Century Cures Act certified, we have made investments in our upgrade center of excellence, tooling and automation, and best practices to support our clients as they migrate to the latest version. We are pleased to announce that as of today, we are nearing 400 NextGen Enterprise clients live on the latest Cures compliant version, well ahead of the submission deadline. We believe this provides a timely competitive advantage, especially as it relates to the smaller end of the market, which is why we are also very excited to announce that we have received confirmation of Cures Act certification for our NextGen Office solution.
Our base has the ability to be compliant more than a year before the deadline, giving them ample time to upgrade without undue pressure. We can now turn our attention fully to deliver on next-generation improvements for the provider experience, while others are working on – are still working on certification. Our pipeline is strong with net new prospects, sizable cross-sell and inside the base expansion opportunity. The underlying strength of our commercial team, current working set of opportunities and solid client retention supports our confidence that growth will further accelerate in the fiscal second half, which carries into fiscal 2024 given the recurring nature of our business.
Now moving on to our clients, we are strongly encouraged by the engagement we see in our base. They truly want us to win. In September, we had an executive roadshow for the top leaders in our organization, including myself, spent a month on the road meeting with over 100 clients to understand their practice strategy, challenges and opportunities for us to serve as their strategic adviser. This was also a great opportunity for us to both listen and share our own vision, strategy and multiyear roadmap. These conversations reaffirmed that we are focused on solving the top issues faced by the market.
In just under 2 weeks, nearly 2,000 client leaders will convene in Nashville to kick off our annual user group meeting. The event will be in person for the first time since 2019 and the enthusiasm is high. The theme of UGM ‘22 better healthcare outcomes for all embodies our company vision. We intend to partner with our clients and help them improve patient engagement, reduce physician burnout, target higher risk patients to close gaps in care, assume risk and value-based care models, exchange and utilize meaningful health data and achieve better financial outcome.
We plan on showcasing results from our NextGen Community Health collaborative where a group of highly innovative clients have partnered with us to leverage NextGen’s vast data pool, representing the largest footprint of community health center data assembled today. We have launched Insights as a service on the back of our enterprise data cloud, the streamline outcomes reporting and benchmarking of clinical quality and operational measures for members of the collaborative to inform best practices and truly drive results.
Speaking of results, we will also be discussing the Medicare shared savings results from a group of NextGen ACO clients who utilize our value-based care solutions. These clients were able to generate $81 million in total Medicare savings and $41 million in shared savings, 33% increase compared to the prior year. We are just starting to unlock the power of NextGen Insights and I am excited to share more about our progress as we get closer to fiscal year ‘24.
Lastly, moving on to our capital deployment effort, we continue to manage capital in a disciplined and thoughtful manner. Last quarter, we announced the divestiture of our commercial dental business, which we considered a non-core part of our portfolio. This helped to strengthen our balance sheet and provided us with increased flexibility to pursue attractive acquisition opportunities.
As of today, we have effectively transitioned the core dental operations to the new owner and our team is now solely focused on our core strategy serving the integrated needs of the ambulatory care market. When we look at buy build partner, our approach is to focus on return on invested capital, where we not only look at traditional mergers and acquisitions, but also leverage strategic business development partners, where we are able to generate an attractive return.
Our corporate development pipeline is active as we continue to look opportunistically at M&A as a means of broadening our portfolio, expanding our share of wallet, gaining market share, unlocking new markets, assessing new capabilities and driving efficiencies through vertical integration. Today, we announced an update and extension to our share repurchase program, allowing the company to continue returning capital to the shareholders. This is just one of many examples of how the refreshed board and management team are acting on the lessons learned from the proxy contest just 1 year ago.
Now, I will turn to Jamie to provide details on the financials. Jamie?
Jamie Arnold
Thank you, David. Now turning to the second quarter financial results, bookings came in at $37.4 million, down 4% from the same period a year ago, but largely in line with our expectations for the first half of the year given the difficult comparison to Q2 FY ‘22. New client wins accounted for approximately 20% of bookings this quarter and we continue to see strong demand for our solutions. Total revenue of $150 million in the quarter increased 7% year-over-year. Recurring revenue accounted for $143.5 million or 90% of total revenue and grew to 6% year-over-year due to strong performance in transactional and data services and managed services and especially patient pay and cloud – managed cloud services offerings.
I want to remind our listeners that the prior year financial results included a full quarter of commercial dental operations compared to 1 month this quarter. On a pro forma basis, our total revenue would have increased approximately 5 – I am sorry, approximately 8% and recurring revenue would have increased 7%. Non-recurring revenue of $15.9 million increased by 17% over the last year, where we saw strong growth from non-recurring services, which were up 43% year-over-year. We expect this revenue line will continue to show strong growth throughout the remainder of the year. Software and hardware revenues will continue to be lumpy on a quarter-by-quarter basis, but are expected to be flat to declining in aggregate.
Gross margin of 48.2% was down 310 basis points compared to the same quarter last year but up 40 basis points compared to the prior quarter. This trend, which we discussed on last quarter’s call, is due to a combination of several factors, including investments in our upgrade center of excellence and product mix shift. Margin improvement will continue to be a focus and spend related to upgrades should start to moderate in fiscal year ‘24.
Turning to operating expenses. SG&A of $44.9 million decreased by 30% compared to last year when the company incurred significant expense related to the proxy contest and other legal matters. Net R&D expense of $20.9 million, which represents 13% of total revenue increased $2.3 million or 13% from a year ago as we continue to invest across our three domains. We had a GAAP revenue – sorry, we had a GAAP tax provision of $5.7 million this quarter with a GAAP effective tax rate of 29.5%. Our non-GAAP tax rate remains at 20%.
On a GAAP basis, Q2 fully diluted net income per share was $0.20 compared to a net loss of $0.10 per share in the fiscal second quarter of 2022. Note that Q2 fiscal ‘23 benefited from the sale of commercial dental. On a non-GAAP basis, fully diluted earnings per share for the fiscal second quarter of 2023 was $0.25 compared to $0.29 in the year ago quarter. This result is modestly ahead of our first quarter commentary and consensus.
Turning to the balance sheet, we ended the fiscal second quarter with $70.7 million in cash and equivalents and no balance outstanding on our line of credit. Free cash flow for the quarter was $28.1 million. We purchased 428,000 shares this quarter for $7.4 million at an average cost of $17.21 per share. Since the authorization of our share repurchase program in the fiscal third quarter of 2022, we have purchased a total of 2.7 million shares or $45.8 million at an average cost of $16.66 per share.
As mentioned in our earnings release, we have updated the share repurchase program by extending the term and increasing the authorized amount by $100 million. Therefore, the company will be allowed to purchase an additional $114 million of its shares outstanding through March of 2025. I want to call your attention to an update on the ongoing regulatory investigation. As noted in our disclosure in the 10-Q we filed today, the United States Attorney’s Office recently informed us of the existence of a sealed K2M lawsuit concerning the issues we have been discussing with their office. We have not seen a copy of a lawsuit because it remains undersealed. And because the investigation is ongoing, we cannot discuss it beyond what we have described in our disclosure.
Now to our updated fiscal 2023 financial guidance. As noted in the press release, we are increasing our prior guidance for the above-plan revenue growth performance. We now expect fiscal 2023 total revenue to be in the range of $630 million to $640 million, which represents a year-over-year growth of 6.5% at the midpoint.
Moving to adjusted EBITDA. We are increasing our guidance range to between $110 million and $115 million, and our fiscal non-GAAP EPS is now in the range between $0.93 and $0.99. In closing, I am pleased with the continued momentum and diversified growth we generated in the quarter. We will continue to focus on growth as we consider internal and external capital deployment to drive long-term shareholder value.
And now let me turn the call back to David for closing comments.
David Sides
Thank you, Jamie. NextGen continues to execute with a focus on driving growth for both us and our clients. And we’re making the investments required to deliver long-term profitability and scale. Our overall positive outlook reflects the tailwinds we created by solely focusing on ambulatory care, our resilient business model, and our focus on driving shareholder value. In summary, I’m pleased with this quarter’s results. I’m incredibly proud of the commitment and care shown by the NextGen family pose to each other and to our clients.
This concludes my comments, and let’s move on to questions. Operator?
Question-and-Answer Session
Operator
Thank you, sir. [Operator Instructions] Our first question will come from Stephanie Davis with SVB Securities. Your line is open.
Stephanie Davis
Hi, guys. Thank you for taking my question. Congrats, really strong quarter. So first big question that surprised me I’d love to hear a little bit more about the [indiscernible] data exchange strength, given that, that’s been a sweeter area of the world for a while?
David Sides
Thanks, Stephanie. So the data strength could be a number of factors that are in that line. There is EDI, where we’re seeing volumes pick up like we’ve talked about in prior calls about pre-pandemic levels, our data business in our payments business, just kind of part of the EDI. So that line item is one reason we broke it out is we think it will grow well in the next couple of years. And so we’re seeing the first – this is the first quarter of that, that we’ve broken that out, and we expect that to grow well as we move forward.
Stephanie Davis
Is that a particular end market that you’re focused on? Were you gaining a lot of share? Or is this a function of maybe outcompeting some of the more legacy platform given where EDI has been for some of the years?
David Sides
I would say it’s more we’re getting – we’ve combined these assets together in a way that makes it easy for our clients to take these assets up by these assets. And by bringing them together to sell them relatively quickly, and they turn to revenue more quickly as well as we kind of package multiple things together and get a larger sale at once.
Operator
Thank you. Our next question will come from Jack Wallace with Guggenheim. Your line is open.
Jack Wallace
Thanks for taking the question. Congrats another strong quarter. And just a follow-up on Stephanie’s question, there was a relationship, the consolidation of the patient pay portion relationship now [indiscernible]. Was there any benefit from just a more coherent go-to-market with that service instead of having three internal solutions now you’ve got one? Then I have a follow-up.
David Sides
Yes. Yes. So it’s a great question. Sorry, if I didn’t answer that, well, Stephanie, thanks for the follow-up, Jack. We’ve combined these together so we can get a larger share of wallet and have an integrated solution. So to your point, instead of selling 3-point solutions, we’re going forward and said, we will take care of all these functions for you, and they are integrated. So it’s easy to implement for us. So we’ve spent time both from a marketing perspective, putting these together, getting our pricing and packaging right, which is one reason we’re seeing good uptake. And from an engineering perspective, we’ve made it easy to send a single interface through to get to these benefits instead of implementing all three of them separately, which would be slower that value realization for the client, and it’s slower for us to get the revenue to come online. So we’ve simplified both, and you’re seeing the results of that as we go to market in this line item.
Jack Wallace
Got it. That’s helpful. And then I want to ask a little bit about the data insights business and what it would mean for NextGen to get QHIN status in terms of is this going to be a TAM expansion event, it’s going to acceleration of go-to-market? And then what is the impact of you getting access to incremental data [indiscernible] powering analytics and help our customers with their risk-based?
David Sides
It’s a great question. It’s part of our insights business. So 1 of the things that we think is really powerful for – from a client perspective is to bring them faster speed to value. So we would help control the end points from NextGen to NextGen and to things like pharmacies or other things that are on the network. So I was talking to a client last week, a federally qualified health center, they were working through when the new pharmacy opens on their – in their town, they have to then do work and it takes them a month or 2 to get that set up and the Walgreens has been open for a month. So they are consumers are unhappy that they are waiting to get that data through. So what we’re able to do them with the Q in and say, Hope, you want that farmer report to get it. And the next practice it opens which – where do you need to operate, and we can do that. So we’re facilitating that data. And we also then think there is an opportunity with all that data to then do other tools on top of it, like you mentioned for value-based care because now we know not just the data that’s flowing through our client system, but where are the referral pattern where is data moving, to which pharmacy, how can we make things more efficient. So we think over time, this is more forward-looking, but over time, there will be opportunities for us because of the extensibility of that platform to add on application on top of that – the network that will bring value to our clients and to – through others in the healthcare ecosystem.
Operator
Thank you. Our next question will come from Sean Dodge with RBC Capital Markets. Your line is open.
Sean Dodge
Yes. Thanks. Good afternoon. Maybe on the guidance, if you could just bridge for us, you raised the revenue by $8 million at the midpoint and EBITDA target is up by about $1 million, again, a midpoint that drop through or kind of the lack of drop through from the higher revenue to EBITDA, is that being affected by Jamie, the mix shift you referenced? Or is it just as simple as there is more reinvesting or maybe a little bit more cost inflation than you had initially expected?
Jamie Arnold
It’s a combination of the mix shift as well as there is some investment in terms of bringing these revenue streams online. But then our EBITDA margin, it might have been 1.6% compared to one. So it wasn’t too far off.
Sean Dodge
Sure. Okay, fair point. And then maybe just broadly on end market activity. We’ve heard from other vendors selling into providers that because of pressures or distractions related to the macro economy that buying decisions are being delayed sales cycles are elongating. David, based on your comments, it doesn’t sound like that’s what you all are seeing? So maybe if you could comment on any change in sales pipeline, pace of buy decisions for your same? Thanks.
David Sides
Thanks. I think of that more happening on the hospital side of the healthcare IT system, where I think they are really challenged on the staffing shortages, especially of nurses and the inflationary wage pressure on labor because of those shortages. But when we talk to hospitals, which we don’t do very often, but when we do, it does seem like they are pulling back on their capital spend because their OpEx has increased so much. Now contrast that with the average physician office where there hasn’t really been any change in CapEx, they are still in the same office. And in fact, they are seeing volumes increase. And for us, those staffing shortages can be a tailwind for our managed services business, which you see has grown nicely this quarter as well, where they may want us to host the application for them in the cloud or they are looking at revenue cycle outsourcing services. So we’re seeing a different dynamic. But to comment on the pipeline, we’re seeing a strong growing pipeline and still feel really good about the growth this year.
Operator
Thank you. Our next question will come from George Hill with Deutsche Bank. Your line is open.
George Hill
Good evening, guys, and thanks for taking the question. And David, my question is probably the opposite side of Sean’s question, though it may also be focused a little bit more upmarket. We’re hearing a lot of discussion around EMR vendors trying to take price in the current environment? And I guess just as you think about kind of whether it’s new clients or renewals I guess, can you talk about what you’re seeing in the pricing environment, whether you guys have the opportunity to take price, whether you’re seeing competitors take price? And I have a quick follow-up, if you don’t mind.
David Sides
Yes. That’s a good question in this environment. So we raised prices earlier this year. We raised them on an annual basis. And we might even talk about it on the call, but CPI is the time, it’s hard to believe. But CPI back in January was only 4.1% for the prior year. Now I don’t think any of us expect that’s where it’s going to be in January of next year when we get to that next pricing also. But our contracts allow us to price through that capability. We are seeing in the market, some competitors raise prices by fairly healthy amounts. We see that as an opportunity for us to gain market share at a price that still works for us. And one of the reasons is we’re some of the investments we’re making are trying to lower our operating expenses so that we have room for that. And yes, so I think that could be an opportunity. We will probably raise prices where we’re contractually allowed to just like we did this year. But from the overall environment, I think there is not a lot of resistance to price increases so far that we’ve seen. It’s been fairly elastic.
George Hill
Okay. That’s helpful. And then just a quick follow-up is on the expansion of the share repurchase opportunity or share repurchase authorization. It’s great that you guys are buying back stock here. I guess I would just love to hear your comments on what you are seeing in the M&A environment kind of asset prices given where the market is right now and whether you guys feel like you are seeing interesting opportunities in the M&A market or should we take the expansion of the authorization is that kind of sentient out there?
David Sides
I wouldn’t combine the two just due to the cash flow generation capability that’s in the business. We had a good cash generation quarter last quarter. But to your question, we are seeing asset prices become more realistic. I think that’s partially because at the high end of – high-yield debt, it’s difficult to get that instrument placed in this up interest rate environment for a private equity and others. So, we have less kind of natural competitors in the market. So, we are bullish on the ability to go do acquisitions. At the same time, last year was when we had authorized this original share repurchase, so it naturally came up. And we looked at our forward cash needs and said, let’s just authorize this for a little bit longer than the last time and that kind of roughly equated to the same amount. So, I think you will see similar kind of spend, we will be opportunistic, but our preferred use of capital is for acquisition.
Operator
Thank you. Our next question will come from Jessica Tassan with Piper Sandler. Your line is open.
Jessica Tassan
Hi. Thank you so much for taking the question. So, I think we were interested to know on the enterprise side, you are obviously the first to achieve the Cures Act certification in March of ‘22. So, in the first six months or so months of that certification, how did your head start kind of convert to net new share? I think you said 20% of bookings were net new customers, but just how much of that was related to the enterprise CHR?
David Sides
Yes. Thanks Jessica. Welcome to the call as well. So, I appreciate the question that you are joining. From the perspective of where we are in that cycle, we are through a lot of our base, almost a third of the base is now on that version. In net new, it’s not showing up yet as much as we would like. And what I mean by that is I think people are hoping that the government is either going to delay the penalties from next December or that their current provider will come through at the end and be compliant. And what we have talked to clients about is that even if they became compliant in three months or four months to get through all of the upgrades of their base is going to be difficult. We feel good about our position. And in fact, we have discussions with potential clients around rather than upgrade with your current, we will switch you in the same timeline. And you will have certainty because with hundreds of clients on the Cures Act certified version, you have less risk than if you are in the first 50 clients take the upgrade from someone else. So, I think we should see tailwinds from that. If the government delays it, it may spread it out over a time period. But otherwise, we are really happy with our position then frees up our R&D resources to work on more exciting things like provider experience or patient experience or new adjacent products.
Jessica Tassan
Got it. Thank you. That makes a lot of sense. And then just my quick follow-up would be where are you guys today in terms of the portfolio review? And any sort of guidance on when that might be complete? And thanks for having me back on the call.
David Sides
Yes, for sure. So, we are not – we are through reviewing the portfolio. They will be – we talked about this last time, no further divestitures that we see at this time. And on – from a surround perspective, we are on track. Jimmy mentioned it in his piece, but the portfolio is doing well. We have sold about $47 million of the $100 million so far. We are about halfway to our goal, and we are about halfway there timeline wise. So, we feel good about that piece too. We think we have the right assets and they are resonating in the market selling well.
Operator
Thank you. Our next question will come from Jailendra Singh with Truist. Your line is open.
Jailendra Singh
Thank you and thanks for taking my questions. A quick follow-up on Sean’s question earlier around the macro environment. Just to confirm, are you implying that we should not be reading much into this new client bookings slightly declining from 25% last quarter to 20% this quarter? And staying on the same topic around wage inflation and tight labor market, as you think about your own employee base, how has been your employee retention efforts in this environment? Are you reflecting any wage inflation impact in your outlook?
David Sides
Thanks Jailendra and welcome to the call as well. Appreciate the question. So, the – yes, to your first question by answering one word, we are not seeing any slowdown in sales or growth even though we are just a little off from the 25% where we like to be. This was the most large over $1 million sales we had buy from this quarter that we have ever had. So, that’s really good. The downside of having really large deals is they are lumpy. So, you will see that some of those deals are in this next quarter, but we feel good about the full year number and our progress there. With regard to our own employees, we have – that’s in our number already. So, we have baked in that increase earlier this year when we started the fiscal year. We are looking at next year and the following year and thinking about worst-case scenario, if you are having 8% increases each of the next 2 years, what kind of adjustments do we need to make in the business to be sure we hit our – both our growth and profitability goals. We think those are achievable. So, we are seeing some of that wage inflation maybe point out as well that we do have a good portion of our workforce outside of the U.S. and India, where completion at the overall is a little bit reasonable or tamp down. So, we have got opportunity to still cautious if we need to. So, we have levers to be sure that we are being as productive as possible with our salaries.
Jailendra Singh
Okay. That’s helpful. Just a quick follow-up, my follow-up question around EBITDA in the quarter. Clearly, margins came in much better than expectations, some nice sequential step-up as well. Anything in particular to call out in terms of any pace of investments or trends in any other expenses in the quarter compared to your expectations? It seems like R&D expense were down sequentially. So, any color, they are helpful.
Jamie Arnold
And there was just with on – with last year – sorry, with last quarter, there is a little bit on the margin where you get a little bit of toggling of expenses for things like benefits. I mentioned this last time. It was down relative to last quarter, but we are talking a fairly negligible amount. I am trying to think if there is a…
David Sides
We had a little more software, perhaps this quarter.
Jamie Arnold
Yes, a little more software revenue this quarter, but there is nothing that jumps out to me, I am trying to think it’s…
David Sides
Straight down the middle for the most part.
Operator
[Operator Instructions] Next, we have a question from Jack Wallace with Guggenheim. Your line is open.
Jack Wallace
Thanks for the follow-up. Last quarter, there was some discussion about the implementation maybe hiring. Where are we with regards to implementation? I think there was also contract labor line was burned off in this quarter, or that – was that a fully clean quarter in terms of contract labor, maybe a sequential step down in quarter-over-quarter?
David Sides
Yes. Thanks for the question. Contract labor will still be in the numbers. So, that one will continue and move around just as we get projects completed. Over time, it will reduce as we get through some of these one-time projects like moving something to the cloud entirely or our own implementations of internal software to make ourselves more productive that we have talked about before. As far as the professional services, we are feeling good about that hiring. We have stepped that up. We have taken some concepts like hiring 20 people at a time and doing a mass onboarding into that group, and that’s been really productive to have these kind of velocity classes. And we will continue that as a way to get those skill sets ramped up quickly and then allocate them into the professional services org. Our backlog continues to grow. So, we have got a backlog to work through that’s highly visible. We have gone through it and it’s all real. So, that’s really encouraging. You will continue to see a reasonable growth in the professional services business on a non-recurring basis work through project.
Jack Wallace
That’s clear. Perfect. Thank you.
Operator
Thank you. Our next question will come from Annie Samuel with JPMorgan. Your line is open.
Annie Samuel
Hello. Thanks for the question. I have a follow-up on Jessica’s question about interoperability. I was wondering if maybe you could talk a little bit about what does drop dead look like next December if other competitors aren’t certified? And how are you messaging competitively around that?
Jamie Arnold
Yes. Thanks Annie. So, what it looks like is it looks like it’s going to be penalty, right, so that you will start to pay penalties as a provider if you are not certified. And then the other potential problem is you could have people – consumers or others say, you are not giving me my data, you are blocking my data, my interoperability. And that – we will see how that tests out. But certainly, the government intends to enforce penalties. And we are ready. So, our clients will be ready – we believe in this interoperability. We think it actually defragment healthcare, and it’s one way to reduce the price of healthcare. So, our view is that the government will continue to move forward with this because the law was written in 2015. So, they gave providers and people such as your software providers and the positions years to complete. The government has already issued things from CMS saying, after 7 years, we expect you to be able to demonstrate this. And I think that’s fairly reasonable. So, we will see how it plays out. But I think competitively, it will play out if others aren’t able to get them there that people will switch at some point if their suppliers can’t afford to make the investments in meeting regulatory hurdles.
Annie Samuel
That’s really helpful color. And I guess, maybe just a follow-up to that. You had said previously that you were kind of the first to get Cures Act certified. Have you seen anyone else moved to do that, or are you still the only one?
David Sides
There is another – so you can look on the chapel – on the government chapel website. There is one other that’s out there now. But so far, just us, but they have a lot of market share, more on the hospital side, but really everyone needs should be, right. I am kind of surprised that people are so slow to adopt the standard, but we will see. It’s a competitive advantage for us, and we will use it as we can.
Operator
Thank you. That does conclude our question-and-answer session. And I would now like to pass it back to David for any additional or closing remarks.
End of Q&A
David Sides
Thank you again for your interest in NextGen Healthcare. Really appreciate the questions. And we had a really good quarter we will talk to you again next quarter. Thanks.
Operator
Thank you. Ladies and gentlemen, this does conclude today’s teleconference, and we appreciate your participation. You may disconnect at any time.
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