Healthstream Inc Q3 FY2022 Earnings Call

Good morning, and welcome to HealthStream's Third Quarter 2022 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation. I will now turn the conference over to Mollie Condra, Vice President of Investor Relations and Communications. Please go ahead, Ms. Condra.

Thank you. Good morning, and thank you for joining us today to discuss our third quarter 2022 results. Also in the conference call with me today is Robert A. Frist Jr., CEO and Chairman of HealthStream and Scott A. Roberts, CFO and Senior Vice President of Finance and Accounting. I would also like to remind you that this conference call may contain forward-looking statements regarding future events and the future performance of HealthStream that could involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements. Information concerning these risks and other factors that could cause the results to differ materially from those forward-looking statements are contained in the company's filings with the SEC, including Forms 10-K, 10-Q and our earnings release. Additionally, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HealthStream is included in the earnings release that we issued yesterday and may refer to in this call. So, with that start, I'll now turn the call over to our CEO, Bobby Frist.

Good morning, everyone. Thank you, Mollie. Looking forward to our third quarter 2022 earnings call. And we'll start with reviewing some of the highlights. Each of the financial metrics highlighted in our earnings release show growth in the third quarter. We delivered record top line revenue in the third quarter of $67.3 million, which is up 5% compared to Q3 of last year. And based on our guidance, we expect revenue next quarter to increase by 6% when compared to Q4 of last year. So it's fun to be back on offense and have a higher growth rate here in the second half than in the first half. Operating income was $2.4 million, which is up 33%, and adjusted EBITDA was $12.7 million, up 2%, all compared to the same period last year. Net income was $3.7 million, which is up 144% from $1.5 million, and EPS was $0.12, compared to $0.05, both compared to the same period last year and both due in part to the successful sale of a company in which we held a minority equity interest. Concurrent with our financial progress, HealthStream's ecosystem continues to expand. hStream subscriptions are now at 5.35 million, which represents an additional 50,000 subscriptions since last quarter. The support we're providing to healthcare organizations is driven by our vision to improve the quality of healthcare by developing the people that deliver care. With that in mind, I want to take a moment to ground everyone in the core dimensions of our business. First and foremost, HealthStream is a healthcare technology company dedicated to developing credentialing and scheduling the healthcare workforce through SaaS-based software solutions. We sell these solutions on a subscription basis under contracts which average three to five years in length. That means our revenues are recurring and fairly predictable. We are profitable, and we have little to no debt. We're also fortunate to be solely focused on one of the more recession-resistant markets around healthcare, which is comprised of about 10.9 million workers, the way we define our audience. Those healthcare professionals are the end users of our SaaS applications and software solutions. We are led by a seasoned team of executives who have a proven track record of generating strong earnings and cash flows through both organic and inorganic means. We've developed internally innovative patented solutions, such as Jane, and we have created new application suites, such as CredentialStream through acquiring and integrating other companies. At our Investor Day program held last month, we reminded everyone that HealthStream's emerging platform, hStream is central to many of the most exciting developments in the company today. For example, hStream's identity management capabilities will enable interoperability that gives us leverage between various proprietary and third-party applications. Our platform strategy will enable us to build an increasingly powerful ecosystem, which we believe will create new business opportunities and also new ways for healthcare professionals to participate in our ecosystem. Given these developments and our confidence in our ongoing evolution, we announced medium-term financial objectives during our Investor Day, and I want to reiterate those objectives today. First, from a revenue standpoint, we are targeting to grow 7% to 10% on average, per year over the next three years, which will be a mix of organic and inorganic growth. Second, we are working to deliver gross margins of 65% to 68% over the same time period. Third, we aspire to deliver a higher EBITDA margin of 21% to 24% over that period. Remember, these are not guidance; they are objectives that inform our strategic planning process. Unlike guidance, for example, these objectives include inorganic growth, which is less predictable than our subscription organic growth. Later in the call, we'll talk about our three application suites that focus on learning, credentialing, and scheduling. But for now, I'll turn it over to Scott A. Roberts, for a deeper dive into the financial results.

All right, thank you, Bobby, and good morning. Let's start with the financial highlights for the quarter. And unless otherwise noted, comparisons are against the same period of last year. Revenues were $67.3 million and were up 5%. Operating income was $2.4 million, up 33%. Net income was $3.7 million, up 144%. Earnings per share was $0.12 per share, which was at 140%. And finally, adjusted EBITDA was $12.7 million and was up 2%. Workforce Solutions revenues came in at $54.1 million and were up 6%. Revenues from Provider Solutions came in at $13.2 million and were up 2%. The third quarter's consolidated revenue growth rate of 5% was in line with our expectations and was an improvement over the 2% growth rate during the first half of the year. This is indicative of a steady progression of new sales, particularly since the height of the pandemic, and getting past the legacy resuscitation run-offs and some other comps that were pulling down the growth rate earlier in the year. Through the first nine months, we've experienced an improvement in bookings compared to last year, which is also contributing to our revenue growth in the second half of the year. Our forecast for the fourth quarter anticipates consolidated revenue growth will be approximately 6% as Bobby mentioned earlier. Gross margin was 65.3% compared to 64.8% last year. Mid-60% margins are already in line with the medium-term objectives Bobby also mentioned earlier. Revenues from partner products in which we pay royalties increased during the quarter, resulting in a slight decline in gross margins compared to the first half of the year. Operating expenses excluding cost of revenues were up 5% or $1.8 million over last year's third quarter. The increase in expense was primarily within the sales and marketing and product development categories. Sales and marketing increased by 11% due to a combination of increased staffing levels, higher sales commissions, and travel. Our business travel expenses have been steadily increasing and we're over $400,000 this quarter, compared to about $100,000 in the third quarter of last year. As customer-related site visits increased, along with the return of many industry trade shows and events, we expect travel will remain at the current rate through the end of the year. The investments that we've made in sales and marketing are leading to positive results as bookings are up year-over-year. Sales pipelines are increasing and our closure rates are improving compared to the past couple of years. Our product development expenses also increased by 11%, which is net of labor costs that were capitalized for software development. Our capitalized labor costs increased about $1 million over the prior year quarter. General and administrative expenses declined by 9%. There were two primary drivers behind this reduction. First, HealthStream adopted a hybrid workplace policy last year; it's been going well for our employees and for the company. We've reduced our office space footprint over the past couple of years, as some satellite office spaces came up for renewal and we decided not to renew them. That reduction in office leases resulted in expense savings of over $550,000 in the third quarter and is expected to result in about $1.1 million in savings for the full year. We will continue to evaluate our office space needs in light of our new model and have recently decided to market approximately one-third of the space in our national headquarters for subleases. Additionally, impacting G&A, we did not have about $150,000 of transit and service costs from an acquisition that we had in the third quarter of last year. During the third quarter, a minority investment that we've held for over seven years was sold and resulted in the recognition of a $2.7 million pre-tax gain, which increased net income by $2.1 million and increased earnings per share by $0.07. The proceeds that we received were approximately $3.5 million. Adjusted EBITDA was $12.7 million and was up 2% over last year's third quarter. For clarification, the gain from the sale of minority interest I just mentioned is excluded from our calculation of adjusted EBITDA. Now switching to the balance sheet metrics. We ended the quarter with cash and investment balances of $51.8 million, which is up by $12.6 million since last quarter. During the quarter, we deployed $6 million of cash for capital expenditures, and we did not have any share repurchases this quarter. DSO was 38 days compared to 40 days last year. On a year-to-date basis, cash flows from operations were $43.1 million compared to $36.4 million last year, and free cash flows were $24.1 million compared to $17.3 million last year. For our share repurchase program, as I said, we had no repurchases this quarter, and we have approximately $1.9 million remaining under the plan, which expires in March of 2023 unless earlier terminated by the company. Now, let me provide a review of our guidance expectations as we close out the year. With one quarter remaining, we're updating our guidance ranges as follows. We expect consolidated revenues to range between $265.5 and $267.5 million. Adjusted EBITDA is expected to range between $52 million and $53.5 million, and capital expenditures are expected to range between $25.5 million and $26.5 million. For the fourth quarter, we expect revenues to grow approximately 6% over the same period last year. We also expect adjusted EBITDA to improve over the fourth quarter of last year. We're pleased that our revenue growth is expected to accelerate from 2.1% in the first half of 2022 to 5.5% in the second half. Despite this positive direction, the primary reason that we've lowered our revenue guidance range for the year is due to underperformance from scheduling. During the second half of the year, we decided to curtail our sales of legacy installed software in favor of subscription-based SaaS solutions. We also adopted a conversion strategy intended to transition customers away from installed scheduling software and onto SaaS-based scheduling solutions. We believe these decisions will benefit customers, the company, and shareholders over the long term. That's all I have for today. Thank you for your time. And Bobby, I'll turn it back over to you.

Thank you, Scotty. Let's turn to a brief overview of each of our three application suites. Those are learning, credentialing, and scheduling. I'll put some highlights from each. Remember, each of these application suites are made up of a subscription-based SaaS application. They're specifically designed for the healthcare workforce. And each of them is increasingly powered by and informed by our hStream technology platform and our hStream platform strategies that I discussed earlier. First, let's look at learning, which is well established and encompasses a broad range of solutions. Our flagship product in this set of solutions is the HealthStream Learning Center, which is the most adopted and utilized learning management system in healthcare. The HealthStream Learning Center continues to be the market leader in the acute care space and has a growing presence in the continuum Marketplace, including ambulatory surgery centers and skilled nursing facilities. Learning also includes our proprietary market-leading safety and compliance solution known as SafetyQ. With SafetyQ, our customers can positively impact their GRC programs by utilizing the interactive learning content and proprietary national benchmarks only available through our platform. SafetyQ added 31,000 subscriptions in the third quarter, contributing to the diversity of our ecosystem. Over 75 marketplace partners utilize our Learning Channel to enhance and deliver their products. Examples include the American Red Cross, EBSCO, and AORN among many others. In the past year, we've added approximately 35 new products from our marketplace partnerships. Let's turn our attention to credentialing, which is the product of acquisitions that occurred from 2012 to 2019. We took the absolute best features of each company's products that we acquired and we combined them to form the new software SaaS application suite we call CredentialStream. We believe CredentialStream is the best credentialing solution on the market for assessing and rolling onboarding, credentialing, and privileging positions. It allows our customers to positively impact their revenue cycle by minimizing the time between hiring a physician and getting reimbursed for that physician's work. Our customers appreciate the return on investment that CredentialStream provides. Sales of CredentialStream remain very strong. In fact, they remain so strong that the backlog for implementing new sales remains substantial. And as you know, we do not recognize revenue until the solution is fully implemented. Generally, we are both selling and implementing three customers per week. We're working on automating even more of this fairly complex implementation process, which will benefit customers and our company. Finally, let's talk a little about scheduling, which formed through three acquisitions that were completed in 2020. As we've described this journey, it will be a journey like in credentialing. But we have a clear vision and a solid set of hypotheses to test how we can deliver value. We believe we can deliver some of the best scheduling systems on the market, but it's going to take time to develop those and get them into the marketplace. So we're running the same playbook in scheduling that we successfully executed in credentialing. Fortunately, with scheduling, we already have a promising SaaS Solution in ShiftWizard, which is outperforming our sales expectations. We plan to continue enhancing ShiftWizard with the best elements from our other scheduling assets. I'll end our discussion of scheduling by highlighting the continued viral growth of our NurseGrid application. From the time we acquired it in early 2020 until now, NurseGrid continues to be the number one application for nurses in the Apple's App Store. Perhaps more impressive is that the monthly active users for NurseGrid have more than doubled since we acquired it. Over 425,000 nurses log into NurseGrid every month to manage their calendars, swap shifts with their colleagues, and generally plan their professional and social agendas with their peers. We do not believe that this level of engagement and satisfaction exists in any other nurse-centric application on the market today. And we look forward to evolving our uses of it and the opportunities it provides over time. Stay tuned for more on the future of that product. I want to close today by pointing out the consistent and steady growth of our ecosystem. In the third quarter alone, 55,000 new subscriptions to our Learning Center application were contracted, 87,700 American Red Cross certifications were issued, 30,000 more nurses became monthly active users on NurseGrid, and approximately three new contracts per week were signed for CredentialStream. These are just a few of the metrics that show the dynamic growth of our solutions throughout the company. I believe our platform strategy supports continued growth and innovation, and I look forward to reporting on those in the coming months. Now I'll turn it back over to the operator, so we can head into our Q&A session.

Thank you. The question and answer session will begin at this time. Our first question will come from Richard Close of Canaccord Genuity. Your line is open.

Yes. Good morning. Thanks for the questions. I just want to clarify on the workforce implied or the changing guidance there. So that's solely related to not selling the licensed software, the old products, and it's just on the scheduling side?

It is coming from the scheduling side. And the biggest characterization, or one of the elements would be that there is also, as we mentioned in the prior quarter, a little bit of churn in the legacy software business, which we're trying to convert to the SaaS business. So I'd say it's just, in general, a few variables in our projections for the scheduling business.

Okay. And then on the Provider Solutions or the credentialing product, I guess we should call it. With respect to the growth characteristic, like 2% to 3%. I think if you look at the third quarter, the implied guidance is down 1% year-over-year to up 3%. And I know you hit on this with the implementations. But what do you think the long-term growth rate is in the credentialing business?

Well, we've tried to provide these objectives to try to get that answer kind of universally across our application sets, the puts and calls as you will. And we provided the objectives, which should inform our planning process. Therefore, kind of each of these applications suites, what our goals are would be to grow 5% to 7% organically. And that's all the ins and outs. For each of the businesses, there's somewhat different maturities and a little more churn. Some are high growth but have implementation backlogs. So in each, and then in the scheduling business, we're very new to that whole process of both retaining the legacy customers and introducing the SaaS subscription model and migrating customers. So, for different reasons, they all have slightly different puts and calls, but we do project growth from all of them. Collectively, we're communicating that our objective for growth is 5% to 7% organic over the next three-year period. In addition, for the first time, we've committed to this concept, although our history would indicate with over 18 acquisitions that will also have an inorganic component, that should push again our objective, our guidance for our objectives and the way we plan over time. The inorganic growth should contribute another 2% to 3%. So, we've got it to 7% to 10%, or we've provided our objectives of 7% to 10%. There are some variables in there, like acquisitions that are less predictable, as I mentioned, but instead of addressing each application suite, because as we've talked, they're at different stages, and for different reasons, we'll just say collectively, we believe we'll be targeting that 5% to 7% organic growth.

Okay. And staying on credentialing, Bobby, you talked about the ROI that you're delivering for customers. There was an article, I think, last week that I stumbled across that by class, talked about the different vendors in the credentialing area, and maybe called into some questions in terms of the value proposition of VerityStream. So, do you have any comments related to that?

Well, I think they've got more research to do. We really are convinced that we're both gaining market share by displacing competitors, because our solution is better. And we probably have some more work to do to describe the value proposition. But we're confident in all the components of our software being best of breed, especially when put together as a continuum of products that does shorten times revenue for physicians. We believe we have the most comprehensive suite that handles from the onboarding process all the way to the privileging process. So enrolling in insurance, during the privileging and credentialing process, we think we're just – we think we're the best at it. So at an enterprise level, we're very confident of our value proposition. And I imagine that over time, those class rankings will work themselves out, because that's the feedback we get from our customers.

Yes. And you're signing three per week?

Yes. That's three, what we call new logos a week. And those are coming from somewhere. So, we feel really good now. In our market, we're focused on the acute care market, and some of the other credentialing vendors focus on, say, the insurance market where they're credentialing their physicians for insurance purposes. That's not our strength. Our focus, as you know, for all of our application suites is on the workforce where they're employed, which in many cases, especially in credentialing is in the acute care market.

Okay. Well, thank you very much.

Thank you.

Thank you. One moment please for our next question. Our next question will come from the line of Ryan Daniels of William Blair & Company. Your line is open.

Hi, good morning. This is Jack filling in for Ryan. Thanks for taking my question. Looking at your targeted growth objectives over the next few years, can you speak to your thoughts around the underlying assumptions or growth levers across each of the three core product offerings? And with that, how are you thinking about the composition of that organic growth between new logos and same-client expansion?

Yes, it's somewhat challenging because we offer numerous solutions. That's why we've categorized them into three groups. As we discuss our progress, each category is at different maturity stages, but we're establishing ourselves as market leaders in the first two areas and have a solid vision for the third area, which is scheduling. We have substantial assets in this domain. First, it's primarily an organic growth strategy based on our objectives. We expand by gaining new subscribers, cross-selling, and upselling. We have an effective account management model that introduces customers to additional applications once they enter our ecosystem with one of them. We are optimistic that cross-selling will become more common as the applications get more integrated, utilizing the core integrative technology of the hStream platform. We believe that as these suites become more interconnected through hStream technologies, the value proposition will grow. We are still early in this process, but there are many exciting milestones ahead. For instance, at Investor Day, we introduced our developer portal, which symbolizes our transition towards a Platform as a Service (PaaS) architecture. This means we are beginning to offer the functions of our ecosystem via APIs, enhancing interoperability between our applications and our customers' ERP systems. The launch of our developer portal is a significant step in our shift to providing platform capabilities that will lead to better integration, increased leverage, and ultimately promote more cross-selling opportunities. For example, if a customer uses our learning system, there are clear advantages to also purchasing our credentialing system. We are evolving our approach to ensure that each of our three areas can benefit from the others as they advance and mature using hStream technology. We are enthusiastic about this progress. Our sales team has been expanding; as we identify targets, we've needed to backfill some positions due to turnover during the pandemic. We believe we are getting back to a strong sales team, which is reflected in an improved sales pipeline. Our marketing efforts are also enhancing our ability to discover opportunities in both our existing ecosystem and in acquiring new customers. Cross-selling, better account management, and organic growth leveraging applications to demonstrate more benefits to customers are all reasons behind our growth objectives, which we anticipate will yield higher growth rates than what we saw during various parts of the pandemic and in the first half of this year. These reasons excite us about our goals. We can't commit to specific guidance; we will provide that every February and it may vary a bit year to year, but over the next three years, we expect a certain trend. Alongside that, we anticipate an improvement in our gross margin profile. We also believe that the mix of new products we're creating will generally provide higher gross margins compared to our historically partnered products. The product mix is expected to continue favoring higher-margin organic products in the coming three years, which we are also excited about as a factor for our earnings.

Great. Thank you. Can you talk a little bit about the level of visibility looking out into 2023 at this point in the year, given any headwinds that might still persist in the health system end market?

Yes, Scotty, if you could take a look at our investor deck, you'll see that our percent subscription revenues were quite high. While he checks on that number, I want to mention that, as a SaaS-based company, we focus on three to five-year contracts for most of our products, which provides us with substantial visibility. The fourth quarter is a crucial selling season, and we feel confident with solid pipelines extending through the end of the third quarter. Much of the revenue setup for the second half of next year will depend on the sales cycles during the fourth quarter, as implementation of certain products will start generating revenue. Therefore, we need a strong fourth quarter to feel confident about the second half of next year. Overall, the first nine months of the year are on track, and a significant portion of our base revenues are already secured through three to five-year contracts, giving us a high level of visibility for next year. Scotty, do you have any additional comments?

Yes. I think Bobby, we're trying to highlight what kind of the mix of our revenue is roughly 95% subscription-based. I think what you're asking. Then visibility says, generally speaking, we have a fairly predictable revenue stream because it's mostly subscription-based. But one chart I would probably point you to in the Investor Day's slide deck where you get a sense of what our remaining performance obligations are, you can see how that behaved over the past four to five years and get a sense of how much revenue if you're looking for visibility or kind of what's currently under contract might give you another indicator.

Thank you. One moment please for our next question. Our next question will come from Vincent Colicchio of Barrington. Your line is open.

Yes, Bobby, the backlog in CredentialStream you said, it's been growing nicely. Is there any churn from that backlog or clients being frustrated with the pace of implementations?

That's really funny that I was literally just texting that question to the GM that runs that area, the President. My answer is, and I'm waiting for his text reply. But I don't think there's very much churn or loss at all, even in the legacy platforms. Largely we've kept that customer base intact, mostly acquired customer base. And we're getting them really excited about the new products that they can migrate to. So we're not only winning new logos; a meaningful number of those wins are our transitions. Probably half are transitions and half are brand new logos. But the three week is, I think, the new logo number. So hope that provides clarity, but no, we're not seeing churn in the base business of any material measure and credentialing.

And the automation or potential. Any sense on a timeline there? Have you identified sort of what you can do and mapped out how long it will take?

The team has developed a roadmap and has been actively working on it. We've seen an increase in both our sales rate and implementation rate over the last year, which is encouraging. It's interesting that as we enhance our implementation capabilities, our sales are also on the rise, which is a positive challenge. Additionally, we have a well-structured and effectively executed plan aimed at improving the implementation cycle. Recently, we've noticed that customers are experimenting with certain functions before purchasing, which require a fully implemented system. They are also engaging in pre-implementation activities even before acquiring the software, which is impressive. This indicates a thoughtful strategy to navigate a complex migration process. Credentialing systems we deal with integrate with many applications, sometimes substituting multiple vendors with our suite. While those vendors are integrated, they don't match the flexibility and power that our solutions offer. It’s essential to recognize that this intricate process requires customers to adopt our framework, which offers significant long-term benefits. For instance, when customers use our privileging libraries, they shift from individualized systems to our proprietary model, enhancing their operational efficiency. We can then provide insights into customer credentialing profiles by utilizing common data sets we control. I am very optimistic about our overall model. It's crucial to remember that this is a large-scale, enterprise-critical system that must be executed with precision. We're not only maintaining a high level of performance but also innovating ways to encourage customers to implement changes before they purchase the software. What once took a year can now often be reduced to six to nine months. I believe we can improve this even further in the coming year. There is indeed a roadmap in place, and the process is evolving, but it remains a complicated journey that requires customer engagement in change management, and we are continuously enhancing our guidance in that area.

Will you continue to hire a senior sales force come along way, salespeople in Q4? Overall, has there been any change in the labor market in terms of availability and inflationary pressures?

Inflationary pressures remain a factor, and we are diligently focusing on our retention and development strategies. We believe we have a strong culture that encourages people to join us on our exciting journey at HealthStream. Overall, we feel we are managing these variables quite well. Last quarter, we added five new employees, and we are stabilizing our workforce size, with new hires slightly offsetting attrition. Although we have net growth in employees, the rate is much lower. We have filled most of the sales positions we need, unlike a year ago or even six or seven months ago when we had significant gaps in our sales organization. Now, we need to enhance the effectiveness of our team as they get familiar with HealthStream and our hosting products. I feel well-staffed at this point and am managing expenses effectively. We are making some trade-offs, like reducing our office space while increasing certain areas like compensation in response to inflation. Additionally, we've initiated a study of our pricing models to explore options for automated pricing escalators in our contracts. There is still much work to do to address inflation and workforce challenges, but I believe our teams are taking the right steps to manage both. Thank you for your questions.

Thank you. One moment, please for our next question. We have a follow-up from Mr. Richard Close of Canaccord Genuity. Your line is open.

Yes. Thanks for the follow-up question. I was curious about the decision with respect to the legacy scheduling. Was that just made during the third quarter? I know you had maybe some softness in churn and legacy in the first half of the year, but just the decision not to offer those going forward?

Yes. That did occur early in the third quarter after kind of we had talked about in the second quarter call that we had had some softness and selling. I think we just decided, look, let's just stop and let's also focus on our migration strategy. We're also creating programs to incentivize the migration towards the SaaS application. Both, we made an active decision early in the third quarter to stop selling the installed software. It wasn't selling very well anyway, as you know, which is not our model, the old installed software model. So that was okay. But instead of counting on some of that in our budget, we just said, look, let's just stop selling it. Meanwhile, we launched the process of creating benefits to migrating and we're focusing our sales organizations and our account management teams on both showing those benefits and providing the right incentives to get people to consider migration. Of course, we're maintaining and supporting all the legacy platforms to keep the customers engaged, while also connecting them to new benefits. Also now giving them formal reasons to want to migrate. So I'd say, yes, the third quarter, both of those are active changes, the active migration program and the decision to stop trying to sell the installed software.

Okay. That's helpful. And then, with respect to the credentialing, is there any metrics you can provide? Or just maybe commentary with respect to like when someone signs a new credential deal, what's the timeline to go live? Is there an average that you can talk about?

I tell you, I'm confident that our teams that run those areas have really good both probably white papers and ROI analysis. What we'll try to do is find a way to post those on our website so you can see the what we would call time as a time to revenue profile or at least the implementation cycle. We'll find a way to put some of that out for you guys because it's things that we use in the sales process, frankly when we explain the implementation cycles and the time to revenue. There's kind of two things going on there. I'm confident we have white papers and research on or at least sales and marketing materials on both of them. We'll try to point you to them as they're generally publicly available.

Okay, that would be great. And for Scotty, you've shown solid free cash flow generation in the first nine months. Is there a target we should consider for free cash flow as a percentage of adjusted EBITDA or anything specific you aim for?

Probably nothing that I would want to provide guidance for. But obviously, we're trying to do our best to keep moving that metric up as quickly as possible. I think for the past two years, it was fairly flat around $17 million to $18 million. So, it's good to see that this year we're seeing some benefits come through and improving that metric. Our goal is to continue to improve and generate as much free cash flow as possible. We'll think about the metrics to provide that as we go into next year.

In addition, Richard, I'd say, right now, we're running a very active program and kind of a leadership-based initiative to really make sure that our capitalized software development and our capital allocation strategies are going into our growth areas of our business. For example, we're making sure that our product management teams and our company have created a classification system to know our legacy products and our growth products. We can carefully calibrate how much capital and our approach to maintaining the older software versus developing the new software. You would expect us to have those programs we do. I'd say we're getting more focused on it and more experienced in managing software development pipelines and making sure our capital allocation, which turns into our software costs, we can get good leverage out of them in the future, and making sure we're putting money into the right products at the right ratio. So in addition to what Scotty mentioned, I think managing our capital allocation process, we're getting better and better at it.

All right. Thank you very much.

Thank you. And I'm seeing no further questions in the queue. I would now like to turn the conference back to Robert A. Frist Jr. for closing remarks.

Thank you, everyone, for your participation and questions from analysts and those that follow our story to see our exciting developments. I look forward to reporting next quarter, everyone. Thank you to our employees for delivering these really outstanding results that are driving us back on offense, as I say and not on defense anymore. So let's keep up the great work and I look forward to reporting the year-end results, I think sometime in February. We'll see you guys then.

This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.