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NextGen Healthcare (NXGN)
Q1Â 2021 Earnings Call
Jul 31, 2020, 8:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Welcome to the NextGen Healthcare Fiscal 2021 First Quarter Results Conference Call. Hosting the call today from NextGen are Rusty Frantz, President and Chief Executive Officer; and Jamie Arnold, Chief Financial Officer. [Operator Instructions]
Before we start, I'd like to remind everyone that the comments made on this call may include statements that are forward-looking within the meaning of the federal securities laws, including and without limitations, statements related to anticipated industry trend, the Company's plans, future performance, products, perspectives and strategies. Risk and uncertainties exist that may cause results to differ materially from those expressed in these forward-looking statements, including among others, those risks set forth in the Company's public filing with the U.S. Securities and Exchange Commission, including the discussion under the heading Risk Factors in the Company's most recent annual report on the Form 10-K and any other subsequent quarterly report on Form 10-Q. Any forward-looking statements speak only as of today. The Company expressly disclaims any intent or obligation to update these forward-looking statements.
Our remarks on today's call include both our earnings results and guidance, which contains certain non-GAAP financial measures. For our earning results, the GAAP financial measures most directly comparable to each non-GAAP financial measure used or discussed and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found within our latest quarterly earnings release that was filed with the SEC and is posted to the Investors section of our website. This release also provides qualitative description of how we have calculated non-GAAP financial measures contained in our guidance.
At this time, I would like to turn the call over to Mr. Rusty Frantz, President and CEO of NextGen. Sir, you may begin.
Rusty Frantz -- President and Chief Executive Officer
Thank you, operator. In Q1 FY '21, our healthcare provider clients showed amazing resilience, heroics, commitment and bravery at a level that is truly awe-inspiring. The mission has never been more important, personal and immediate. As we look across our client base, we see clients innovating and creating new ways of engaging with their patients to ensure healthcare consumption for everyone. With our intense focus on the ambulatory space, we continue to have the privilege to work across the country and help our clients restart their practices, build volume back and restore our financial stability, all in the interest of providing quality care for those that need it in the tough time.
We are seeing many clients take advantage of the break to double down on investing and transforming for the new normal. We've seen some clients struggle and need guidance and help to get relaunch. We are blessed to have the opportunity to help bring healthcare back and the capabilities and scale to be a true positive force in the effort. As we look back at the quarter from a NextGen standpoint, we continued to show the strength of our NextGen integrated ambulatory platform, our continued robust commercial and competitive execution, our exceptional operational resilience, our strong client satisfaction, the ability to make significant solution advancements and the willingness to make decisive actions to manage costs and deliver financially in a very tough time.
In Q1, our revenue came in at $130.9 million, down less than 1% year-over-year and 4% sequentially. Major drivers were the negative impact to our volume-based business due to lower patient business volume -- visit volume offset by our continued growth in subscription revenue as well as great efforts by the team to deliver a bolus of non-recurring service revenue. Our non-GAAP EPS came in at $0.21, an increase of 31% year-over-year and 5% sequentially, reflecting the impact of both the short-term and long-term cost actions we implemented. Free cash flow came in positive $11.4 million based on DSOs of 54 days, yielding $192 million in unrestricted cash and giving us confidence to pay down a portion of our revolver shortly after we exited the quarter.
Bookings came in at $25.6 million, reflecting a strong performance in the selling environment challenged by both an inability to meet with prospects and clients in person and an ambulatory environment experiencing COVID-related decreases in visit volumes. Subscription services bookings accounted for $9.2 million, a 46% increase year-over-year, while perpetual software license and hardware bookings fell to $4.9 million, down 33% year-over-year and 15% sequentially, demonstrating the effect of our increased focus on moving clients and prospects away from legacy license purposes -- purchases, a higher value subscription and recurring arrangements. Client retention came in at 92.4%, a significant uptick from Q4 FY '20's already improved 91%. We believe that the magnitude of the increase partially resulted from COVID [Technical Issues] but still expect -- we expect retention to stay at or above our 91% modeled range as we move forward.
As we look at a unique and well executed quarter in the face of the pandemic, I'd like to touch on a number of key points. We are seeing commercial success, driven by the strength of NextGen's total solution track record, client satisfaction and commercial capabilities. We're operationally solid and highly resilient, we have a strong balance sheet and can generate free cash flow even in a pandemic. We accelerated and are nearly complete with our business model transformation [Technical Issues] perpetual licenses to recurring and subscription revenue. We have a great engaged and energized NextGen team, the foundation of our success here.
Stepping into the first point. We are seeing accelerated competitive success driven by the expanding capabilities of our solution, strong and increasing client satisfaction, robust product and service quality and a strengthening ability to take share in our core markets. Let's take a step into some of these drivers. In Q1, we continued to make significant advances, delivering market-specific solutions that are enhanced for the integration of key patient-focused acquired assets tightly into the platform. It is our belief that tight integration across platform work -- across platform workflows integrated service offerings are all key differentiators and significant drivers of commercial success.
It's great to see our global solution and R&D teams continue to deliver on time and on schedule and on quality in the midst of everything. Our long-term integrated platform strategy was strengthened in March with the most recent release of NextGen enterprise, our integrated EHR/PM core system designed to run complex and growing ambulatory practices. This sets forward along with future releases complete access to all aspects of our integrated ambulatory platform, including the recently acquired assets.
For now, I want to highlight just a few key and exciting elements of the broad NextGen solution. Starting with the patient. Our new patient experience platform provides a fully integrated approach to patient provider interactions, including integrated virtual visits, patient self-scheduling, pre-visit check-in and patient engagements. Our clients are already putting it to use as our clients executed more than 425,000 secure virtual visits in Q1 alone versus roughly 40,000 in Q4 FY '20, all of the patient satisfaction rate above 9. Many of these visits might not otherwise have occurred as a result of the pandemic. We are seeing virtual visits level off a bit as our clients patients up for an in-person experience with their same provider, an option that's not available with pure telehealth, but is a key benefit of NextGen's telepractice.
In addition, our behavioral health suite continues to see positive traction in the market. We are excited to officially announce next week our most recent release that incorporates the capabilities we acquired in the Topaz acquisition announced last October. In addition, by bringing virtual visits to this market, we are enabling many necessary behavioral health visits that would not have happened otherwise. A quick reminder, we expanded into the behavioral health market last May, where an estimated 44 million adults are impacted, yet nearly 60% do not receive treatment in a given year. We believe we are uniquely possession -- positioned to address this problem by enabling caregivers to not only provide integrated and coordinated behavioral care, but also physical care within an integrated experience and a single patient record to meet the pressing needs of total wellness within our communities. And our solution is thriving in an environment of strong client satisfaction and increasing client momentum. Delivering a great client experience during a pandemic continues to separate us from others.
We continue to make meaningful progress in our quest to be a trusted advisor to our clients. In fact, it is the number one priority among our five FY '21 strategic objectives. We are bringing intensive education and training programs to enable every team member to focus on the client success as well as enhancing our ability to drive [Technical Issues] into a successful future. Our goal is to truly weave trusted advisor into the fabric of our culture. Along those lines, our NextGen advisor team recently launched institute and client visiting tours early as the COVID-19 pandemic began. Having real time insights of essentials, we've planned our own response to the pandemic.
However the NextGen advisor team was also able to act as trusted advisors to many of our clients, sharing best practices and innovations that other groups have initiated successfully. And so, these types of interactions that truly create clients for life and the ability to help form the go-forward strategy. Our client success focus has resulted in exceptional client satisfaction momentum. For the first time since we have been ranked by KLAS, we had exceeded a score of 80 across the board on our EHR, up from 59 at the start of my tender -- my tenure, complementing our now best-in-class Practice Management Solution.
In addition, last month the KLAS Executive noted that we are the only company they can remember to improve in every single feedback area they've measured, a worthy feat considering we'd already improved to the high 70s. Such robust and still increasing client satisfaction, a solution that positions ambulatory clients for the future, all combined with an increasingly mature reasoned [Technical Issues] new footprint sales team have opened up competitive takeaway opportunities even during COVID. We had six competitive takeaways, the largest being over $1 million and four of the six being pure recurring deals, reflecting our focus on moving away from perpetual license arrangements. The team is really hitting their stride and we are seeing significant demo volume, giving us confidence in a sequential step in next year's bookings number, but down from a very strong quarter last year. According to that demo volume and especially with new prospects as our aforementioned patient experience platform, as the patient and consumer increasingly become the center of healthcare, we are well positioned to enable the patient provider collaboration that is essential in delivering scalable, affordable, accessible, proactive, high quality care to patients that could be truly engaged in their health.
Moving on, in the midst of the pandemic, NextGen continued to demonstrate that we are an operationally solid and highly resilient business. Though our strong control on the operational leverage of the business, dictate our proven ability to adjust cost to react to the external situation. In Q1, we took both temporary and permanent cost reductions. Both sets of actions enabled us to minimize impact to our employee base during this pandemic, while still delivering on the earnings line and preserving cash during an uncertain time.
As discussed in the last call, we took a number of temporary actions in the quarter, including voluntary executive salary reductions, suspension of company 401(k) matching contributions, 32 versus 40 hours for many of our volume-based workforce and a delay of merit increase. These temporary actions represented about $0.04 of favorability in the quarter and while it restored our hourly workers to full time coinciding with the expiration of certain benefits under CARES, we still accept to see --expect to see similar favorability in Q2, before all the short-term actions expire, resulting in a more normal and representative cost structure in Q3 and beyond.
Naturally, we are also always improving the longer-term cost efficiency of the business and Q2 was no different. In point of fact, we were able to deliver significant longer-term cost reductions to a continued reduction of facilities cost as well as continued transition to our lower cost AWS footprint among other things. Expect us to continue to focus primarily on non-headcount structural cost reduction throughout the year.
We continue to enhance the intrinsic value of the business as well, notably through the transformation from a perpetual license business to a subscription and recurring revenue business. Over the first five years of my tenure, we've been executing a gradual transition to the higher quality recurring model and on the last call, announced the intent to significantly accelerate the transition going forward. While this will have a near -- down term downward effect on gross margin, it both builds on our robust 91% recurring revenue line and because it yields significant operating leverage over time. Continue to win competitively by selling with the subscription model, including both the core and surround products and have been generally offsetting maintenance revenue fall off with higher value subscription revenue.
In a time of broad uncertainty, it is a true luxury and a testament to our NextGen team that we've maintained and even improved a strong balance sheet and generated free cash flow in this quarter. We ended this quarter-- we ended the quarter in a positive net cash position having generated $18 million of cash from operations. The primary driver of the quarter was strong DSO performance of 54 days, as well as less distress from clients that had been anticipated as we entered the quarter. We continue to monitor the client base and have allowed for some expansion of DSOs going forward. However, our analysis of the current situation gave us comfort in paying down $50 million on our revolver from cash on hand following quarter end. We will continue to evaluate the situation going forward and intend to pay down the revolver as appropriate.
We have significantly enhanced an already extraordinary strong corporate culture that will protected and enhanced our capabilities during COVID. Our employee experience monitors moved up 37% in the last year -- 37 points rather in the last year. We've all made sacrifices financially to protect our team members to the greatest degree possible. We have kept all of our team safe and healthy. We have further enhanced an already robust diversity program but have now augmented that focus with a true prioritization of inclusion. We've come a long way in this area as an organization and we are committed to continuing that journey over the next few years. We've indicated constantly with the organizations that everyone understands our strategy, priorities and ethos. Our team is the foundation of everything we accomplish and we show up every day in the middle of the most important meeting in healthcare, that between the provider and a patient. So when you look at what made Q1 successful and what makes us so confident in the future and as we dive into the numbers with Jamie, I'd like to -- you remember these things.
We are seeing commercial success, driven by the strength of NextGen's total solution track record, client satisfaction and commercial capabilities. We are operationally solid and highly resilient. We have a strong balance sheet and can generate free cash flow even in a pandemic. We are making a strong near-final transformation to recurring and subscription revenue. We have a great, engaged and energized NextGen team, the foundation of our success here. Now let's see how that all shows up in the numbers. Jamie?
James R. Arnold -- Chief Financial Officer
Thank you, Rusty, and thank you everyone on the call. Before I go through the numbers, I want to express my admiration and appreciation for the healthcare providers and first responders who have selflessly worked under previously unimaginable conditions.
And now, the Q1 results. Total revenue of $130.9 million, decreased $1 million or 1% compared to the same period last year and was down 4% from the fourth quarter of fiscal '20. And while total revenue is down compared to the prior periods in light of the circumstances, I believe our results were above expectations. Recurring revenue of $119.5 million increased $100,000 compared to a year ago based on an increase of 17% in subscription services, offset by declines of 12% in managed services, 4% in EDI and data services and 3% in maintenance and support.
For recurring revenue, a more interesting and informative comparison is current quarter to the preceding quarter, in this case, Q1 FY '21 compared to Q4 FY '20. Quarter-over-quarter recurring revenue had a net decrease of $5 million. Subscription revenues increased $2.5 million or 7.5%. This performance was well consistent with the general trend over the past several years and enjoyed a modest boost from the Q4, largely March virtual visit bookings. But unlike previous quarters, this increase was offset by declines in all three other recurring revenue lines.
Maintenance and support decreased $1.1 million, 3%, which is generally consistent with trends and expectations. More significantly for the quarter and unlike the historical trends, COVID-driven declines in patient volume led to decreases of $4.3 million or 16% for managed services and $2 million or 8% for EDI and data services. During the quarter, we saw volumes significantly decline initially and then recover to approximately 90% of pre-COVID levels where they have stayed. Recurring revenue is 91.3% of our total revenue, slightly higher than the 90.6% in the prior year. Non-recurring revenue of $11.4 million decreased $1.1 million or 9% over the same quarter last year. Software license and hardware revenue of $4.7 million declined $2.4 million or 33% year-over-year. This decline is consistent with trend in previous period, although at a slightly higher rate of decline, but still better than we expect in the coming quarters.
Non-recurring services revenue of $6.6 million increased $1.3 million or 24% compared to a year ago due to our efforts to close out service contracts signed in these earlier period. We believe non-recurring services revenue will return to near pre-COVID levels. Bookings coming in at $25.6 million in the quarter, down 21% on a year-over-year basis primarily as many clients were focused on reopening their practices.
Two highlights of the quarter include strong bookings of virtual visits and the six replacement wins with NGE, which reflects that the sales management reorganization we announced in Q3 last year, is starting to produce results. Cost of goods increased by $1.1 million or 2% primarily due to higher amortization of capitalized development cost of $1.5 million. Lower managed services and EDI and data services cost due to lower transactional volume were largely offset by the higher subscription services cost. Gross profit decreased 3% to $64.5 million and gross margin declined to 49.3% compared to prior-year quarter of 50.5%.
Turning to our operating expenses. SG&A of $40.7 million increased $600,000 or 1.5% from $40.1 million a year ago. The increase is primarily due to an increase in legal expenses as well as the inheritance of personnel cost from the acquisitions made last year primarily in the third quarter, offset by decreases in travel and conferences and infrastructure expenses. R&D of $18.2 million decreased $3.8 million or 17% from the $22.1 million a year ago. The decrease is due to lower personnel costs and slightly higher R&D capitalization, which reduces net R&D expense as well as some reduction in travel and other operating expenses. Impairment and restructuring charges of $2.6 million were primarily related to severance and operating expenses associated with their headcount reduction in May. Our GAAP tax rate for Q1 was 200% with a non-GAAP tax rate of 20%.
To conclude my comments on the income statement, our Q1 GAAP EPS was a loss of $0.01 compared to income of $0.02 a year ago. Our non-GAAP EPS of $0.21 increased $0.05 compared to the prior year. Turning to the balance sheet. We ended the quarter with $192.3 million in cash and equivalents and $179 million balance outstanding on our revolving credit agreement. DSOs in the quarter were 54 days, a decrease of three days from last year and five from last quarter. I want to give credit to our account services personnel and commercial team for working with clients in this tumultuous time. Subsequent to quarter-end based on strong collections in overall market conditions, we have repaid $50 million against the revolving line of credit. Our capex, excluding capitalized R&D was $600,000 for the quarter, capitalized R&D was $5.6 million for the quarter.
In closing, I am pleased with our performance in the quarter and proud of the organization for their resilience and determination. I look forward to continue progress as we work toward the new normal. This concludes my review of the first quarter financial results and I will now turn the call back to Rusty.
Rusty Frantz -- President and Chief Executive Officer
Thank you, Jamie. Q1 FY '21 was the toughest quarter and the one we are proudest of so far during my tenure at NextGen. We showed our ability to move more purposely and aggressively toward subscription and recurring revenue, we showed our ability to remain financially strong, while continuing to play offense and we've demonstrated that our solution is robust, future-facing and highly differentiated. Looking forward, however, we still see the macro environment is being too unpredictable for us to be comfortable providing guidance. That being said, we wanted to give you a view to how we are currently modeling the impact to visit volume as the primary macro dynamic. Currently, we have been seeing roughly 90% volume, though as COVID has accelerated recently, we've seen a slight downtick into the high '80s. However, we believe that volume will be relatively stable to improving as people have learned how to interact with their providers in the COVID world both virtually and in-person.
Therefore, we have modeled it as averaging between 90% to 95% over the last three quarters of our financial year. And naturally, this will continue to have some impact on our volume baselines. We also expect demand in the independent ambulatory space to be slightly delayed, slowing bookings a bit through the financial year as our clients return to normal financial operations at higher patient volume. As we continue through FY '21, we expect to see the continued market shift of bookings in the subsequent revenue from perpetual to subscription. As stated, this will have a near-term downward effect on gross margin, while increasing future [Technical Issues] of revenue.
And finally, looking forward, we'll see favorability of another approximately $0.04 of temporary cost reduction in Q2, sunsetting beginning in Q3. In closing, it's an honor to be a part of a team doing great things for healthcare during such a critical time and to support the front lines of care. So also, I'm honored to continue to lead our team on a multi-year journey as an increasingly diverse and inclusive organization as we strive to be a great place, where everyone feels like they can be their best self, can belong, can have a great future and a little fun along the way, regardless of who that best self is. We will keep making progress as we do with everything that we set our minds to. As I sit here, five years and 30 days and doing amazing tenure in the best job I could ever ask for, I'm grateful for the continuing opportunity. Stay safe out there. And let's open it up for questions.
Questions and Answers:
Operator
[Operator Instructions] Your first question is from Jeff Garro with William Blair & Company.
Jeff Garro -- William Blair & Company. -- Analyst
Yeah. Good afternoon, guys. Congrats on the quarter and thanks for taking the questions. I want to start on bookings and so to lay it out if you could repeat the number that'd be helpful. And then, just looking for a little bit more detail on what product categories stood out in the quarter and then, if you could help quantify a little bit further on activity from existing clients versus new footprints. I think that'd be helpful as well.
Rusty Frantz -- President and Chief Executive Officer
Yes. So the overall number was $25.6 million. Jamie, why don't I pass this one onto you.
Jeff Garro -- William Blair & Company. -- Analyst
I don't think Jamie was expecting that.
Rusty Frantz -- President and Chief Executive Officer
Jamie, did we lose you?
James R. Arnold -- Chief Financial Officer
Sorry, I had you muted. Sorry.
Rusty Frantz -- President and Chief Executive Officer
Go ahead, Jamie.
James R. Arnold -- Chief Financial Officer
Trying to keep my dogs from answering the question for us. The -- while we don't want to get into granular bookings, it -- as a consistent pattern or expectation, I commented that the virtual visits was again a strong performer for us. And in total, it was approximately $4 million of the bookings. The bookings, Jeff totaled $25.6 million, so virtual business was a good contributor again this quarter and then, so -- remind me your question again, sorry.
Rusty Frantz -- President and Chief Executive Officer
So I guess, Jeff, I was -- what I was surprised with was -- I was surprised with the -- I did not expect to see competitive displacements within this quarter. That was something that was somewhat surprising and gratifying. On many of those deals we're completely executed virtually and when you're actually taking new footprint the entire way through a sales cycle virtually, a lot of times what that means is, is that you have a really strong hand to play in that particular specialty because they brought you into a process, you didn't find the process.
Jeff Garro -- William Blair & Company. -- Analyst
It makes sense, and all very helpful. I guess a follow-up asking about the pipeline. And again, if I find here that the sales team can execute completely virtually, but I guess from here, I'm curious on where the pipeline stands in terms of existing clients looking to purchase and integrate more products, adopt more of the NextGen platform. And then, as travel and seeing clients face-to-face opens up, how you see that playing into the ability to land even more new footprints?
Rusty Frantz -- President and Chief Executive Officer
Surprisingly enough, there is a good chunk of our footprint that represents the fact that we had invested in hundreds last year. And remember, we told you it was going to be two to three to four quarters before they really started to produce, well, amazing COVID happens and all of a sudden, here we are. And so, we're actually seeing a lot of new in the pipeline, a lot of it based on people being very excited about experienced platform, because that is a true step into their future. And so, now we are seeing a good bit of cross sell activity as well. But I would say, I've been surprised, because the new activity is actually full stack activity, it's not surround product activity. So it's the full integrated ambulatory platform and so, that's pretty gratifying to us because what that really means is people have recognized how robust and how far NextGen enterprise has come and on top of that, they are really seeing value of the assets that we've layered around it most notably, when they're really looking at patient engagement.
Jeff Garro -- William Blair & Company. -- Analyst
Great to hear. One more point of clarity, when you talk about full stack activity, is that more typically percentage of collection model or is there a good amount of flatter subscription fee models or contracts in there as well?
Rusty Frantz -- President and Chief Executive Officer
I would leave that one to Jamie but what I would say is, yes. So when I'm talking about full stack, I'm talking about the entire EHR/PM pop health, mobility -- physician mobility, patient experience, everything. But hey, Jamie, what would -- how would you see the percentage of revenue versus per subscription breakdown?
James R. Arnold -- Chief Financial Officer
This is primarily our subscriptions, at least this quarter they were subscriptions as opposed to being a percentage of revenue.
Rusty Frantz -- President and Chief Executive Officer
I mean, interestingly enough, subscription services revenue was up 17% year-over-year this quarter and 7.5% sequentially. So back to kind of the earlier commentary, the perpetual to subscription flip is working and we're seeing growth and consistent grinding out growth in the subscription area of this business.
Jeff Garro -- William Blair & Company. -- Analyst
Great. Thanks for taking the questions again.
Rusty Frantz -- President and Chief Executive Officer
Absolutely.
Operator
Your next question is from Sean Wieland with Piper Sandler.
Sean Wieland -- Piper Sandler -- Analyst
Hi. Thanks very much and congrats on a good quarter in a tough environment. I want to first get into the sensitivity of the recurring revenue to utilization, particularly managed services. Managed services, as you said, was down 16% sequentially. How does that compare to visit volume among your providers or net cash collections?
Rusty Frantz -- President and Chief Executive Officer
So I mean, what we've said, Sean, because we haven't gone that deep in that, but what we've said is that it's relatively volume correlated. I'll let, maybe, Jamie, you want to give a little more color on that.
James R. Arnold -- Chief Financial Officer
I would say, it's strongly correlated to the volume in managed services. It -- the -- we do have some components of managed services that are not directly tied to the patient volume. In managed services, we also include the hosting or managed cloud services for people, which isn't tied to it, but that probably makes the factor 70% volume-driven, 30% is still kind of a client-driven or it's not directly tied to the volume at least in a quarter.
Rusty Frantz -- President and Chief Executive Officer
But also, I think that, as you know, I mean visit volume and when that visit turns into revenue, of course, are not exactly perfectly correlated in time either, right. And so, activity clouds did a little bit as well.
Sean Wieland -- Piper Sandler -- Analyst
Understood. But I asked the question because you say that your model -- you're modeling 90% to 95% utilization versus pre-COVID level. So we can think about that relative to about 70% of the managed services line, is that fair?
James R. Arnold -- Chief Financial Officer
No, no.
Rusty Frantz -- President and Chief Executive Officer
That's...
James R. Arnold -- Chief Financial Officer
No. Let me correct that, Rusty, because we have factored in the fact that 25% to 30%, so is not volume related. So the numbers that Rusty gave you had factored in that some portion isn't directly tied to the volume, Sean.
Sean Wieland -- Piper Sandler -- Analyst
Got it. So we should be modeling a -- OK, got it. Can you quantify the downward effect on gross margins that you think you're going to see?
Rusty Frantz -- President and Chief Executive Officer
Not at this time. But as we start to move forward into a time when we're providing guidance, we'll do a better job of quantifying that.
Sean Wieland -- Piper Sandler -- Analyst
Is it bigger than a breadbox?
Rusty Frantz -- President and Chief Executive Officer
Well, here's a bunch of that, right. If I was to look at subscription revenue, I'd say we're bringing in subscription revenue and give or take about a 70% margin level. And perpetual is...
Sean Wieland -- Piper Sandler -- Analyst
Okay.
Rusty Frantz -- President and Chief Executive Officer
Better than that.
Sean Wieland -- Piper Sandler -- Analyst
Okay. And then last one. I thought, Rusty, you said that you saw a bolus of non-recurring services revenue in the quarter, but I didn't hear any shout out on any kind of one-timers and services, did I hear that wrong?
James R. Arnold -- Chief Financial Officer
Yeah. No, I did mention it Sean in my comment that we were able to close out some of these contracts that had been signed in previous periods. And the number is in $1.5 million to $2 million range that we were able to close out the kind of over and above what I would have normally expected when Rusty talks about a bolus.
Sean Wieland -- Piper Sandler -- Analyst
Okay, super. Thanks very much.
Rusty Frantz -- President and Chief Executive Officer
Yup.
Operator
Your next question is from Sean Dodge with RBC Capital Markets.
Thomas Kelliher -- RBC Capital Markets -- Analyst
Hey, good afternoon. This is Thomas Kelliher on for Sean. Thanks for taking the questions. I've got one on telemedicine, can you guys give a little more detail on how those conversations are going and how they've sort of evolved over the past few months, are providers still kind of comfortable with that $79 per provider per month fee structure?
Rusty Frantz -- President and Chief Executive Officer
Yes. And what I'd say though is, is the conversations have evolved from a -- in a couple of different ways. One is, first everybody is looking for a life ring, now they want actually a house on beachfront and so expectations are increasing among the provider base. But it's not enough to simply -- when FaceTime came along that was great, but you actually want to have an entire meeting you need Webex, right? And so, what we're finding is, is that now it's starting to go into more of kind of enterprise RFP cycles where people are really looking at the entire platform of telehealth and how does it integrate into their business. And as we see that, that really makes us -- we're at -- we're definitely advantaged in that area, especially in our client base because of the integration directly into documentation reimbursement scheduling. It's the same thing, whether you're virtual or not virtual, right. And so, we're starting to really see more of the enterprise procurement cycles. We're also, as I said, we're starting to see volume per provider spiked and then it peeled back a little bit and part of that was because people started coming into the office.
Thomas Kelliher -- RBC Capital Markets -- Analyst
Makes sense. Thank you. And I've got another question on kind on the micro services platform. Are you guys seeing any slowdown here at all as kind of result of the pandemic, are you able to virtualize a lot of the work that needs to be done on that?
Rusty Frantz -- President and Chief Executive Officer
Yes. So what -- I'd say what we're doing is interesting because the pandemic -- what the pandemic has done is, it's perhaps slowed down the risk horizon a little bit, which has enabled us to be a little more commercially oriented in how we're developing the micro services platform. And so, what we're actually doing is being more opportunistic rather than allocating significant capital ahead of time for a platform that will come later. We're just more refactoring and building it as we go along. And that's really COVID has changed that calculus, because our clients need integration of these core assets today. And so, that's -- we're kind of building it as we go, if you will.
Thomas Kelliher -- RBC Capital Markets -- Analyst
Okay, great. Thank you very much.
Rusty Frantz -- President and Chief Executive Officer
Yes.
Operator
Your next question is from Donald Hooker with KeyBanc.
Donald Hooker -- KeyBanc Capital Markets -- Analyst
Great. Good afternoon. Congrats on a good quarter in a tough environment, somebody else said as well. So just on -- maybe following on this last question obviously at the Investor Day last year, lot of focus on sort of the transition, modernization of your technology platform, micro services and whatnot. How do we think about -- with all that's happened, I mean, is there any change to your commentary span in terms of your R&D spending or you had a pretty aggressive sort of outlook for investing back into the business and just wanted to just hear you recommit to that or not?
Rusty Frantz -- President and Chief Executive Officer
Well, right now, what I'd say is, right now, we are focused on -- look, we're in a kind of a new reality here and so, I'd say right now, as I look through the year, I'm not looking to decrease R&D and I'm not looking to expand R&D. As we get into next year we'll -- as we start to talk through next year and as we start to provide guidance for this year, we'll probably talk a little more broadly on it. But what I'd say is that as we have now allocated R&D, a lot more of our R&D is arc -- is geared right now to building the opportunistic micro services that span the platform based on the assets we have today rather than more of our long-term build strategy. And so, what -- I would not expect to see that same bolus of R&D show up, I think we're backing away from that a little bit, because we have some more time, but what I would expect to see us is to continue to build that out as we deliver commercial projects.
Donald Hooker -- KeyBanc Capital Markets -- Analyst
Okay. And then, maybe another financial question. You guys have talked about this strategic move in toward SaaS for a few quarters and you have warned us that gross margins are going to be pressured. Can you remind us kind of given that the pace has seemed to picked up there, what -- just so we don't get over our skis and what is the right -- is there an assumption in terms of gross margin pressure we should sort of assume generally going forward?
Rusty Frantz -- President and Chief Executive Officer
I think, it's really what -- that's what I talked to Sean about which is look, you're looking at migrating from something that's well up into the upper double-digits down to something, I said, about 70%. That being said, that 70% is also 70% for the year after, and the year after, and year after, right. And -- but you're going to lose as you flip from perpetual to subscription on the same ACV, you're going to lose some margin. Now when you look at the TCV and this is something that -- look, as we go forward, part of what we're looking at is as we've made some pretty significant strategic changes here is, how do we best express the business for you. And I would say that total contract value is actually something we walked away from it years ago, because there was such a mishmash in there, but I think there is an opportunity to better express the value of our bookings, because when you think about this transition to -- that we've gone through to a much larger amount of recurring bookings and subscription bookings instead of perpetual bookings, it's much higher quality revenue and it has a much higher TCV than that same amount in a perpetual bookings, even though in year one that same amount in perpetual has a better margin profile.
Donald Hooker -- KeyBanc Capital Markets -- Analyst
That's fair. And I'd -- look, that's one other question, kind of high level, and there's not a great answer to this, but since it would be curious to pick your brain here in terms of, if we think about sort of the environment going into the fall kind of maybe some folks are thinking there could be a second wave of COVID-19 maybe a real bad one, maybe. But your clients have really adopted a lot of technologies and I hear a lot about virtual care and remote registration and things like that. I mean, is there a sort of a --how do you think about like the downside of another big wave here? Is it going to be really different with these new technologies in place? It's kind of an open-ended question, but I would love to hear your thoughts.
Rusty Frantz -- President and Chief Executive Officer
I think, first of all, I mean, heaven forbid, this -- the terrible part is we've all kind of learned how to deal with it, right. I mean, I look at -- I think my behavior now is no less safe than my behavior in April, but it's much more educated. And I think that's -- I think that -- I think when it comes down -- I mean, medical treatment is one of Maslow's hierarchy of needs, right. And so, people are -- I don't think you're going to see the same level of impacts to volume. I mean, knock on wood, because look, I have a friend who is bound with it right now, it's a terrible thing.
Donald Hooker -- KeyBanc Capital Markets -- Analyst
Okay.
Rusty Frantz -- President and Chief Executive Officer
But...
Donald Hooker -- KeyBanc Capital Markets -- Analyst
I appreciate...
Rusty Frantz -- President and Chief Executive Officer
But what I also would say is, look, we went home in two days and never lost a beat. We've moved cost in this organization and we can sell in a virtual environment, we can share in a virtual environment. So from the standpoint of this business, we will do the things we need to do and we will still be operationally resilient and we will still play offense on the back end.
Donald Hooker -- KeyBanc Capital Markets -- Analyst
Super. Well, thanks for that, thanks for the thoughts.
Rusty Frantz -- President and Chief Executive Officer
Yeah.
Operator
Your next question is from David Larsen with Verity.
David Larsen -- Verity Research -- Analyst
Hey, congratulations on a good quarter. Can you talk a little bit more about the six wins, what drove that, who are you competing with? And maybe, just give a little more color around that. Thanks.
Rusty Frantz -- President and Chief Executive Officer
Well, yeah, I mean, I'm not going to get down to the individual competitors, but what I would say is that they were in specialties that we've chosen as a primary focus. It was -- we won on the strength of the entire platform, that's what we're selling these days and so we're selling that vision and a lot of our competitors are selling pieces and parts. When you match us up capability-to-capability in the markets that we know we have a strong hand to play like ortho, for example, or in the federally qualified health center market, we are pretty unbeatable unless somebody goes super low on price. And like I said, to have these things move this quickly, it's also because we are starting to increase our relevance in the market and that's really starting to show up in what I've said as things that are showing up on our doorstep that we didn't even know about, simply because they want us to bid because NextGen is starting to have a lot of lustre on it.
David Larsen -- Verity Research -- Analyst
Okay. And I like the full solution set that you have, you have Entrada, you have EagleDream. It seems like you have a lot of capabilities that you've added over the past couple of years, each of which I think are very important from the ambulatory physician perspective. Can you maybe talk a little bit more about your sort of expected retention or attrition rate, however you want to measure it like, I think you're at 91% retention right now. Like is that going to tick up over the next couple of quarters, was there one or two maybe large accounts that rolled off?
Rusty Frantz -- President and Chief Executive Officer
Yeah, no, I think it will tick up but understanding that ticking up is good.
David Larsen -- Verity Research -- Analyst
Yeah.
Rusty Frantz -- President and Chief Executive Officer
Right. And look -- I mean, look I had said this a long time ago. We had some exposure to hospital and hospital affiliated that was going to run itself off over time. We don't see significant competition in our base, we're very good in the independent ambulatory base. At some point in time, we have may [Technical Issues] as far as to quantify that as we get better and better handle on the client data. But just to be abundantly clear, we're not super worried about attrition in our high-value independent ambulatory base. Naturally, every day you earn the right to keep your clients and the hospital stuff is going to run its course, but it's not that significant of a part of the P&L.
David Larsen -- Verity Research -- Analyst
Okay, great. And then just last question, what percentage of your revenue is subscription now, Jamie, please?
James R. Arnold -- Chief Financial Officer
Subscriptions -- one second, sorry.
David Larsen -- Verity Research -- Analyst
Recurring.
Rusty Frantz -- President and Chief Executive Officer
Where now subscription is...
James R. Arnold -- Chief Financial Officer
Recurring is 91% and so that would be it.
David Larsen -- Verity Research -- Analyst
Okay, thank you.
Rusty Frantz -- President and Chief Executive Officer
What subscription, Jamie?
James R. Arnold -- Chief Financial Officer
I need a second.
Rusty Frantz -- President and Chief Executive Officer
Let's move to the next questions.
Operator
[Operator Instructions] Your next question is from George Hill with Deutsche Bank.
Unidentified Participant
Hi, this is Charlotte on for George, thanks for taking my question. Given the current environment, are you seeing sales cycles lighten or is the sales process just different and how varied is the byproduct?
Rusty Frantz -- President and Chief Executive Officer
Well, so we don't comment it by product only by solution, end-to-end solutions. So I think, what I'd say, it's a really good question. And what we're seeing is, we're seeing -- what we're seeing is, we're seeing people just be careful with decisions, right. And a lot of that means, because they're getting their practices going back up. They're not like hospitals that have balance sheets and procurement departments that are still working and they are still buying stuff, even though their volumes weigh down, right. This is the ambulatory -- in the ambulatory market, we do see more pressure on buying cycles during times and during this time. That being said, I mean, we're very happy with the number we delivered and like and as I said, we expect to be sequentially up, though down from a strong performance last year at -- in this quarter. And so, I think we're finding ways to be successful within this. And a lot of it back to the point is because we are starting to really separate ourselves, but also I think because the team has done a really good job at learning how to sell very effective virtually. It's interesting, they actually said that you actually reach a lot more people, you can get much wider and higher in the organization because it's much easier to get on people's schedule because you don't have to travel there. And so...
Unidentified Participant
Great. Thank you so much.
Rusty Frantz -- President and Chief Executive Officer
It's a different world, for sure. Thank you.
James R. Arnold -- Chief Financial Officer
Let me answer the question. It was 27% of total revenue is subscriptions this period on the $131 million.
Rusty Frantz -- President and Chief Executive Officer
And that was a 17% year-over-year and 7.5%, sequentially?
James R. Arnold -- Chief Financial Officer
Yeah, it increased.
Rusty Frantz -- President and Chief Executive Officer
Thank you. Next question?
Operator
Your next question is from Stephanie Davis with SVB Leerink.
Stephanie Davis -- SVB Leerink -- Analyst
Hey, guys. Thank you for taking my question. I have two questions, one a little bit easier, one a little bit harder. So I'll give the first one to Rusty and then next one to Jamie.
Rusty Frantz -- President and Chief Executive Officer
I guess, easy one, right, Stephanie?
Stephanie Davis -- SVB Leerink -- Analyst
So, the first one, just when I look at your transition to a virtual environment, it looks like you've just had a much smoother transition, partially for all the reasons you talk about being this ambulatory model and having preparedness for it. When you think about the future of sales for your model, do you see yourselves kind of adopting this virtual speed on the street sort of model going forward? And could this be a help to your longer-term margins?
Rusty Frantz -- President and Chief Executive Officer
Well, so here's what I'd say to it. First of all, I mean at the end of the day, you're going to find out what the selling environment is because nobody wanted to go virtual in the first place until somebody -- until everybody had to, nobody wanted to be first. That being said, look, I would say that we've been really, really effective virtually, broadly in the organization. I do believe there will still be some on-site interaction returning more fully. In the sales process today, there is very, very little, if any. But broadly for the organizational standpoint, I would expect you to see us release a good bit of our footprint over time.
Stephanie Davis -- SVB Leerink -- Analyst
Okay, understood.
Rusty Frantz -- President and Chief Executive Officer
Because I --now that being said, there is also footprints -- right now, the government has relaxed the HIPAA constraints because everybody has to work from home and there are certain functions that have to be -- that want to go back to a more normal footing will have to be performed in an office. But I would not expect to see us go much beyond that and I am in no hurry to take my people back to the office now as everybody is kicking butt and taking names out at -- from home.
Stephanie Davis -- SVB Leerink -- Analyst
So and a more complex question, that's kind of a follow-up to that. Assuming you do have continued wins in the bookings, but still ended being a little bit softer than the normal environment just given you have a pandemic raging on. How should we think about the backfill you need to return to revenue growth with these damps in bookings? Is this going to have a dampening effect on the next 12 months or could this be something broader and...
Rusty Frantz -- President and Chief Executive Officer
You know I'm going to...
Stephanie Davis -- SVB Leerink -- Analyst
I'll let Jamie answer that one.
Rusty Frantz -- President and Chief Executive Officer
Well, I'm not -- I'm actually not going to let Jamie answer that one, Stephanie because it starts to tread...
Stephanie Davis -- SVB Leerink -- Analyst
No.
Rusty Frantz -- President and Chief Executive Officer
Into something, so that's a lot more forward-looking. We're not [Technical Issues] comment on that yet. What I would say is, I'm very confident in our future. That's all I can say at this point in time, but if you tune in in October, I think we will provide you with a much better answer.
Stephanie Davis -- SVB Leerink -- Analyst
Okay, all right, I will get an answer then. Well, thank you.
Rusty Frantz -- President and Chief Executive Officer
Yes.
Operator
And there are no further questions at this time.
Rusty Frantz -- President and Chief Executive Officer
All right. Well thank you, everybody. Stay safe out there and I look forward to talking to everybody in October.
Operator
[Operator Closing Remarks]
James R. Arnold -- Chief Financial Officer
Thank you.
Duration: 52 minutes
Call participants:
Rusty Frantz -- President and Chief Executive Officer
James R. Arnold -- Chief Financial Officer
Jeff Garro -- William Blair & Company. -- Analyst
Sean Wieland -- Piper Sandler -- Analyst
Thomas Kelliher -- RBC Capital Markets -- Analyst
Donald Hooker -- KeyBanc Capital Markets -- Analyst
David Larsen -- Verity Research -- Analyst
Unidentified Participant
Stephanie Davis -- SVB Leerink -- Analyst
