HealthStream, Inc. (HSTM) Q3 2022 Earnings Report, Transcript and Summary

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 rates 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 health care 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 health care, which is comprised of about 10.9 million workers, the way we define our audience. Those health care professionals are the end users of our SaaS applications and software solutions. We are led by seasoned team of executives who have a proven track record of generating strong earnings and cash flows through both organic and inorganic means. We have developed internally innovative patented solutions, such as Jane, and we have created new application suites, such as CredentialStream through acquiring and integrating other companies. But 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 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 area objectives that inform our strategic planning process. Unlike guidance, for example, these objectives include inorganic growth, which is less predictable, obviously, 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, like a turnover, 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 we're up 6%. And revenues from Provider Solutions came in at $13.2 million and we're up 2%. The third quarters 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 the 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. And 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 increase about $1 million over the prior year quarter. General and administrative expenses declined by 9%. And there were two primary drivers behind this reduction. First, Healthstream adopted a hybrid work to place 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 places 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 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 transits and service costs from an acquisition that we had in the third quarter of last year. And during the third quarter, a minority investment that we've held for over seven years was sold and resulted within the recognition of $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 the last year's third quarter. And 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 rank between $265.5 and $267 point 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 of the fourth quarter of last year. We're pleased that our revenue growth is expected to accelerate 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 connected to an 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 with the HealthStream Learning Center, which is the most adopted and utilized learning management system in healthcare Healthcare Learning Center, Healthstream Learning Center continues to be the market leader in the acute care space and has a growing presence in the continuum Marketplace, including an 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 our 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 American Red Cross, EBSCO, and AORN and many others. In the past year, we've added approximately 35 new products from our marketplace partnerships. Let's turn our attention towards 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 combine them to form the new software SaaS application suite, we call credential Stream. We believe Credential Stream 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 minimum the time between hiring a physician and getting reimbursed for that physicians 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. I mean, obviously, if we could tilt that ratio a little bit and win three deals a week and implement four, we could work our way into the backlog instead of both just kind of growing together. So we're working on that. Finally, let's talk a little bit about scheduling, which is formed through three acquisitions, all of which were completed in 2020. And as we've described this journey, it will be a journey like in credentialing. But we have a clear vision, we have a solid set of hypotheses to test, which we can deliver value, why we believe we can deliver some of the best scheduling systems on the market, but it's going to take us time to develop those things and get them in the marketplace. So we're running the same playbook in scheduling that we successfully ran in credentialing. Fortunately, with scheduling, we already have a promising SaaS Solution and 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. For the first -- from the time we acquired it in early 2020 to now, NurseGrid continues to be the number one application for nurses in the Apple's App Store. Perhaps more impressive, is it the monthly active users for NurseGrid has 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 the professional and social agenda 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 opportunity provided by it 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. We're just -- these are just a few of the metrics that show our 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 operators, so we can head into quality to our Q&A sessions.

Thank you, sir. The question and answer session will begin at this time. [Operator Instructions] Our first question will come from Richard Close of Canaccord Genuity. You online 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 that set 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. And 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. So for each of the businesses is somewhat different maturities and have 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 different -- slightly different puts and calls, but we do project growth from all of them. And collectively, we're communicating their objective for growth is 5% to 7% organic over the next three-year period. And then in addition, for the first time, we've committed to this concept, although ours 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%. And there's some variables in there, like acquisitions that are less predictable, as I mentioned, but instead of addressing an 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 a 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 -- maybe 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. And, 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 also get from our customers.

Yes. And you're signing three per week?

Yes. That's three, what we call a 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 their credentialing their physicians for insurance purposes. That's not our strength. Our focus, as you know, for all of our application suite is are 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.

So there might be very some discrepancies in who they're calling and how they're getting their data. I don't know. Class is an important function, but our customers are speaking with their choices each week.

Yes. That was fair. I just wanted to hear your thoughts on that. So I appreciate that. Congratulations.

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 [ph] 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 a little bit difficult, because there's so many solutions. That's what we've broken down into these three categories. And as we talk out there each had slightly different maturity stages, but emerging as market leaders in the first two and a great vision and direction for the third area, which is the scheduling area. So, we have incredible assets in that area. So, first of all, characterizing it, it's a largely an organic. Its an organic growth strategy at that base level of our targeted objectives. We grow by adding subscribers cross-selling and upselling. So we have a really good account management model that shows customers the other applications we have once they get into the ecosystem with one or the other. Increasingly, one of the levers we're hopeful for and expectant of is that cross-selling will occur more frequently as the applications become more integrated as they lever the core integrative technology of the hStream platform. And so, we think there'll be a growing value proposition to each suite, as they become more interconnected through the hStream technologies. And again, we're fairly early in that journey. But a lot of exciting milestones along the way, for example, in Investor Day, we announced our developer portal, which is really a symbolic shift to becoming a pass architecture, it means that we're beginning to make the functions of our ecosystem available on an API basis, which ensures greater interoperability between an among our applications and also the ERP and larger systems of our customers. So the launch of our developer portal, we think is a great kind of symbolic moment of the shift have become a offering a platform as a service capabilities, which means we're going to be more integrated, more leverageable, and should ultimately facilitate better cross selling and more reasons. If you have, for example, our learning system, there should be competitive advantages to also buying our credentialing system. So, we're kind of evolving that hypothesis instead of just being kind of best of breed in three areas, that each of those areas can lever the other two, as they develop and mature using the hStream technology. So we're really excited about that. We've been adding to the sales team. So whenever we come up with our targets, we try to figure out, we've had to backfill some sales team to the pandemic. We had more turn over in many years to come in including sales. So we think we're getting back up to par on our sales team, which again, has resulted in a stronger sales pipelines, our marketing programs are getting better at finding opportunities, both in our existing ecosystem, and new customer acquisition outside the ecosystem for any given product. So cross-selling, better account management, organic growth, levers between applications that show more kind of benefit to customers, are all examples of why those -- we have those objectives, which would show higher growth rates and say we've been able to deliver through parts of the pandemic, and in the first half of this last year. So for all those reasons, we're excited that those are our objectives. Again, we can't say there aren't guidance. We'll do guidance every February. And it may be a little above or below those ranges on any given year, but over the three year period, that's the expected profile are coming in. And kind of inherent in that is, as you can see a boost in our gross margin profile again. And so, we also believe that our product mix, and the new types of products we're building have an inherently higher gross margin and say, our long history of say, partnered products. And so the product mix should continue to favor higher margin organic products over the next three years. And so we're excited about that as a force for earnings as well.

Great. Thank you. Can you talk a little bit about the level 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 refresh yourself from our investor deck, when we set our percent subscription revenues were -- no, it was really high. And I think I know the number I just want to cite it from the deck. And while he's making sure we have that number, I'd say just in general, of course, we're SaaS based, we target three to five-year contracts for the majority of our products, and it gives us a lot of visibility. Now the fourth quarter is an important selling season. But the good news is we feel really on track with solid pipelines through the end of the third quarter. And so, a lot of the revenue setup for say the second half of next year is determined by the sales cycles of the fourth quarter. Because you know, some of those products get implemented and implementation starts revenue racking. So we need to have a strong fourth quarter to feel really good about the second half of next year. That said the first nine months of the year feel on track and huge percentage of our base revenues are already under three to five-year contracts. So we have a very high visibility into next year. So Scotty, any additional comments?

Yes. I think Bobby, we're trying to highlight what kind of the mix of our revenue are roughly 95% subscription based. I think what you're asking. Then visibility, say, 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 kind of how that behave 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, that might give you another indicator.

Thank you, Scotty.

Thank you.

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 and 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. And 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?

Yes. The team has a roadmap, they've been working on it. And by the way, just the sales rate has gone up and implementation rate has gone up. So we have gotten better, even in the last year at implementing. So it's just interesting, as we get better at implementing, we're getting, we're selling more, which I'll take that problem. That said, they've also had a well thought out and well executed roadmap for improving the implementation cycle. For example, we've begun to see the market with certain functions, pre purchase, that really those seated functions are only viable in the context of a fully implemented system. And so the customers are beginning to both experiment with the new platform, but also do some of the pre implementation works before they even buy the software, which is really amazing. And so we see really a smart approach to trying to figure out. I think it was a really complex migration. So, if you think about these credentialing systems are integrated with as many as 60 upstream and downstream applications. And so, when we go in and win, sometimes we're replacing as many as four vendors with our suites. And those vendors are fairly integrated, but they're not integrated as well as we are with each other or as flexible, powerful as we are. So you got to remember, this is a complex process. It also requires the customers to adopt some of our framework, which will have tremendous long term benefit. For example, the customers adopt our privileging libraries, which is a form of proprietary data we provided them, instead of each hospital system having a proprietary privileging library to grant privileges against they, when they moved to credential stream, they adopt our privileging model and our privileging databases and our privileges as written. And so, we're getting -- we'll have the ability kind of unique and industry to provide insights into the credentialing profile of customers through the use of common data sets, which we have created and own. So, I'm really excited about the overall model. And you just have to remember, this is a big enterprise, an important system, that's enterprise critical, has to be done with great precision. And we're doing that and we're doing an increased rate. And we're coming up with clever ways to get customers to try and implement and work through some of the change management issues before they even buy the software. So a cycle that may be used to take a year. We're finding ways to shorten down to nine months and six months. And I think we can do even better in the next year. So yes, there's a roadmap. The process is improving. But it is a complicated process that requires change management on behalf of customers, and we're getting better at coaching them through that process.

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

Well, inflationary pressures are there. We're really working hard on our retention and development strategies. We think we have an incredible culture and lots of reasons for people to want to be a part of this exciting journey at HealthStream. So we're overall feel, we're managing through all of those variables fairly well. Actually, I'd say really well, last quarter, we increased our headcount by five people. So we're kind of stabilizing right now the size of our workforce, with new hires offsetting attrition, just by a little bit. So kind of a net growth and employees, but it's much lower. And I'd say we were largely filled a lot of the seats and sales that we need. And so we don't have big holes in the sales organization, like maybe a year ago, or even six or seven months ago. So now we've got to ramp up the speed make them all more effective, as they learn the HealthStream when hosting products. But I think largely, I feel fairly -- I feel well staffed at this point. And managing expenses, as you can tell pretty well. Now we have some trade-offs occurring, for example, we're reducing our office footprint, while increasing, say some areas in compensation and other areas of inflationary growth. So as a result of that, too, just as a sidebar, we've engaged in a study of our pricing models to see where we can work in, say, automated pricing escalators and our contracts. So we have a lot of work to do in a lot of areas to handle the inflation and workforce issues. But I feel our teams are taking the right steps to deal with both. Thank you for answering my questions.

Thank you. [Operator Instructions] One moment, please for our next question. And 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 on 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 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 migration strategy. So we're also creating programs to incentivize the migration towards the SaaS application. So both, we made an active decision early in the third quarter to stop selling the license 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. And meanwhile, we launched in 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. So of course, we're maintaining and supporting all the legacy platforms to keep the customers engaged, while also connecting them to new benefits. And 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, the teams that run those areas have really good both probably white papers and ROI analysis. And what we'll try to do is find a way to post those on our website. So you can see kind of 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. So there's kind of two things going on there. And 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 -- yes, that'd be great. And final question maybe for Scotty, obviously, very solid, free cash flow generation through the first nine months. Is there some sort of target, we should be thinking about Scotty in terms of free cash flow as a percentage of adjusted EBITDA or anything that you sort of a target there?

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. And 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. But obviously, our goal is to continue to improve and generate as much free cash flow as possible. And 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 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. So for example, we're making sure that our product management teams and our company has created a classification system, where we know our legacy products and our growth products, and we can carefully calibrate how much capital and our approach to maintaining the older software versus developing the new software. So I mean, you would expect us to have those programs we do, I'd say we're getting more expensive, more focused on it and more experienced in managing software development pipelines and making sure our cap allocation, which turns into cap our software costs, we can really 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 the kind of 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 participation, 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.