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NextGen (NXGN) Buys TSI Healthcare to Boost Ambulatory Services

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NextGen Healthcare, Inc. (NXGN - Free Report) acquired its long-time partner, TSI Healthcare — a privately held value-added reseller — for an upfront payment of $68 million. The amount will be paid in cash with contingent consideration of up to $22 million in cash in the form of an earnout, subject to achieving certain financial targets through Mar 31, 2025.

NextGen Healthcare had partnered with TSI Healthcare as one of its premier clinical content and technical services partners, specializing in comprehensive solutions for specialty physician practices. Both companies have been working together for more than 16 years as part of which TSI Healthcare developed specialty-specific solutions exclusively on NextGen Healthcare’s platform.

Significance of the Acquisition

TSI Healthcare’s services expertise along with NextGen Healthcare’s product and services is likely to further solidify the latter’s position in the ambulatory healthcare space. The addition of TSI Healthcare’s services will help NextGen Healthcare to expand its presence in key specialties, including rheumatology, pulmonology and cardiology.

The deal, which was closed on Nov 30, will be accretive to adjusted EBITDA and cash flow within a year. NextGen Healthcare expects TSI Healthcare to add approximately $10 to $12 million of revenues in the remaining four months of fiscal 2023. The company will provide further guidance on the deal on its third-quarter fiscal 2023 earnings call.

NextGen is a major player in the U.S. Revenue Cycle Management (RCM) market. It has been maintaining its strength among all ambulatory vendors in key RCM areas, which include effective claims processing, patient-facing support performance, the efficiency gained by customers, sustainability of pricing and trust as a business partner. Based on the popularity of the RCM solution, the company plans to expand into dental and hospital markets, which will further drive top-line growth in our view. This deal may also help the company to gain market share.

Industry Prospects

Per a report by MarketsAndMarkets, the global RCM market was valued at $40.9 billion in 2021 and is anticipated to reach $67.8 billion by 2026 at a CAGR of 10.6%. Factors like regulatory requirements, government initiatives to boost RCM adoption and increasing patient and health insurance are likely to drive the market.

Given the market potential, the latest acquisition of NextGen’s products is expected to significantly boost its business on a global scale.

Recent Developments

In October, NextGen reported its second-quarter fiscal 2023 results, registering a solid uptick in the top line and strength in Recurring revenues. The robust increase in Subscription services revenues and continued strength in the NextGen Office and Enterprise domains as well as in a host of surrounding solutions, such as mobile and telehealth, were also observed.

Last month, NextGen announced the newest release of its NextGen Behavioral Health Suite, built upon its NextGen Enterprise electronic health record (EHR) and Practice Management (PM) system. The suite is expected to be the industry’s first platform to integrate comprehensive physical, dental, behavioral health and human services. A federally qualified health center Oak Orchard Health had chosen NextGen Enterprise as its EHR and PM solution in the same month.

Price Performance

Shares of NextGen were down 1.1% on Dec 1, following the announcement of the acquisition a day before.  The company’s shares have gained 15.7% against the industry’s decline of 65.5%, so far this year. The S&P 500 has lost 15.5% in the same period.

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Zacks Rank and Stocks to Consider

NextGen Healthcare currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Elevance Health, Inc. (ELV - Free Report) , Medpace Holdings, Inc. (MEDP - Free Report) and Merit Medical Systems, Inc. (MMSI - Free Report) .

Elevance Health, carrying a Zacks Rank #2 (Buy), reported third-quarter 2022 adjusted EPS of $7.53, which beat the Zacks Consensus Estimate by 6.1%. Revenues of $39.63 billion outpaced the consensus mark by 1.3%. You can see the complete list of today’s Zacks  Rank #1 (Strong Buy) stocks here.

Elevance Health has an earnings yield of 5.5% against the industry’s (2.3%). ELV’s earnings surpassed estimates in all the trailing four quarters, the average being 4.1%.

Medpace Holdings, having a Zacks Rank #1, reported third-quarter 2022 adjusted EPS of $2.05, which beat the Zacks Consensus Estimate by 39.5%. Revenues of $384 million outpaced the consensus mark by 8.1%.

Medpace Holdings has an estimated growth rate of 22.7% for 2022. MEDP’s earnings surpassed estimates in the trailing four quarters, the average being 22.04%.

Merit Medical, carrying a Zacks Rank #2, reported third-quarter 2022 adjusted EPS of 64 cents, which beat the Zacks Consensus Estimate by 20.8%. Revenues of $287.2 million outpaced the consensus mark by 5.2%.

Merit Medical has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average being 25.4%.

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