NextGen Healthcare, Inc. delivered adjusted earnings per share (EPS) of 26 cents in the third quarter of fiscal 2023, up 8.3% year over year. However, the figure lagged the Zacks Consensus Estimate by a penny.

Our projection of adjusted EPS was 26 cents, which matched the company’s reported figure.

GAAP EPS in the quarter was 12 cents, up 50% year over year.

Revenue Details

NextGen registered revenues of $161.9 million in the fiscal third quarter, up 8.1% year over year. The figure surpassed the Zacks Consensus Estimate by 1.1%.

The fiscal third-quarter revenue compares to our estimate of $158.1 million.

Segment Details

NextGen generates revenues from two sources, namely, Recurring revenues, and Software, hardware and other non-recurring revenues.

Total Recurring revenues were $148.7 million, up 10.6% from the year-ago quarter’s figure.  Excluding the impact of the TSI acquisition, NextGen’s organic growth from recurring revenue was 8%, primarily driven by strong performances in transactional and data services and managed services.

This figure compares to our Recurring revenues’ fiscal third-quarter projection of $143 million.

Subscription services revenues in the fiscal third quarter amounted to $45.9 million, up 11.4% from the prior-year period’s level. Managed services revenues amounted to $32.9 million, up 19.8%, whereas Transactional and data services revenues amounted to $32.5 million, up 17.9% from the prior-year period’s level. Support and maintenance revenues amounted to $37.4 million, down 2.3%.

This figure compares to our fiscal third-quarter projections of $43.7 million, $30.8 million, $28.5 million and $40.1 million, respectively.

Total Software, hardware and other non-recurring revenues amounted to $13.2 million, down 13.6% on a year-over-year basis. Lower software license and hardware revenues primarily dented segmental revenues.

This figure compares to our segmental fiscal third-quarter projection of $15.1 million.

Software license and hardware revenues amounted to $5.3 million, down 41.1%, whereas Other non-recurring services revenues amounted to $7.9 million, up 25.3% year over year.

This figure compares to our fiscal third-quarter projections of $8.2 million and $6.9 million, respectively.

NextGen Healthcare, Inc. Price, Consensus and EPS Surprise

 

NextGen Healthcare, Inc. price-consensus-eps-surprise-chart | NextGen Healthcare, Inc. Quote

Margins

In the quarter under review, NextGen’s adjusted gross profit fell 0.5% to $83.3 million. Adjusted gross margin contracted 444 basis points (bps) to 51.5%.

Selling, general and administrative expenses fell 2.2% to $46.2 million. Research and development expenses climbed 1.2% year over year to $19.6 million. Adjusted operating expenses of $65.8 million fell 1.2% year over year.

Adjusted operating profit totaled $17.5 million, reflecting a 2.5% uptick from the prior-year quarter. Adjusted operating margin in the fiscal third quarter contracted 59 bps to 10.8%.

Financial Position

NextGen exited third-quarter fiscal 2023 with cash and cash equivalents of $241.6 million compared with $70.7 million at the end of the fiscal second quarter.

Cumulative net cash provided by operating activities at the end of third-quarter fiscal 2023 was $35.9 million compared with net cash provided by operating activities of $36.6 million a year ago.

Fiscal 2023 Guidance

NextGen has included the TSI acquisition and the convertible note issuance in its financial outlook for fiscal 2023.

NextGen now projects revenues in the range of $642 million-$650 million, up from the earlier projection of $630 million-$640 million for the full fiscal year. The Zacks Consensus Estimate for the same is pegged at $639.9 million.

Adjusted EPS is continued to be projected in the band of 93-99 cents for the full fiscal year. The Zacks Consensus Estimate for the same stands at 98 cents.

Our Take

NextGen exited the third quarter of fiscal 2023 with better-than-expected revenues. The solid uptick in the top line, along with strength in Recurring revenues, is impressive. Robust increases in Subscription services, Managed services, and Transactional and data services revenues in the quarter are encouraging. The improvement in Other non-recurring services revenues is also promising. The buyout of TSI Healthcare also looks promising for the stock.

However, NextGen’s lower-than-expected earnings in the quarter are disappointing. The year-over-year decline in Software, hardware, and other non-recurring revenues and lower Support and maintenance revenues are worrying. A decline in Software license and hardware revenues is also worrying. The contraction of both margins also does not bode well.

Zacks Rank and Key Picks

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

Here are some better-ranked medical stocks with the right combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3, which are expected to post an earnings beat this quarter.

McKesson Corporation (MCK Quick QuoteMCK - Free Report) has an Earnings ESP of +0.21% and a Zacks Rank of 2. MCK has an estimated long-term growth rate of 10.1%.

McKesson’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, with the average surprise being 4.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cardinal Health, Inc. (CAH Quick QuoteCAH - Free Report) has an Earnings ESP of +5.75% and is a Zacks #2 Rank stock. CAH has an estimated long-term growth rate of 11.7%.

Cardinal Health’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, with the average surprise being 3%.

Hologic, Inc. (HOLX Quick QuoteHOLX - Free Report) has an Earnings ESP of +6.37% and carries a Zacks Rank of 2 at present. HOLX has an estimated long-term growth rate of 15.2%.

Hologic’s earnings surpassed estimates in all the trailing four quarters, with the average surprise being 46.1%.