I'm Jeff Garrett, the Healthcare IT Analyst here at Stephens, and pleased to have the TruBridge team with us, CEO Chris Fowler and CFO Vinay Bassi. So welcome, guys, and thank you for making the trip down to Nashville for the Stephens Investment Conference.
You bet. Thanks for having us, Jeff.
Thank you, so we'll just dive into the questions here. I want to start at the macro level, and for the past year, we've been hearing from you that labor has been the biggest challenge facing your customers. I want to see if that's still the case here in the fall of 2024, and why not? Will that continue to be a pressure for your customers over the next 12 months?
Yeah, I definitely think that it is probably still at the top of the list as we think about what's driving opportunity. You know, one, there has been a tremendous exit from healthcare, from the labor force, and you know, the headlines tend to be the nursing and from a provider perspective, but we have seen it really all the way through the healthcare organization and specifically in the RCM space, which is obviously where we're seeing our growth opportunity. I also think that there is a challenge for especially our end of the market in the rural community space, just as the complexity of the collections process continues to elevate. The need for skilled labor, experienced labor, is also kind of driving people to look at an outsourced option.
Excellent. Excellent. Then another question we have to ask everyone this week is to talk about the new administration and its potential impact on everyone's business. So I wanted to ask you guys about potential changes to Medicare Advantage since there's potentially going to be a more business-friendly environment for that piece of the healthcare payer landscape. And then towards Medicaid, where there's now probably more of a risk of funding cuts and how that might impact the financial health and decision-making of your customers.
Yeah, you know, I think it's an opportunity for us as we think about, again, the market we serve and the desire for those hospitals to stay independent, local, and obviously financially viable, that it's in our best option to find opportunities for them to be more efficient in their delivery or more effective in their collections. And so, you know, as the screws tighten for lack of a better term on whether it's a shift to value-based care through the Medicare Advantage or whether it's, you know, the funding related to Medicaid, our customers are going to have to become smarter in how they operate. And I think that that really lines up with what we're trying to accomplish. You know, today we serve our customers with an EHR and with an RCM.
But I think we're looking at it more as, you know, we have those two existing service lines. And what are the other opportunities that we can bring to the customer that sit on that platform, so to speak, to help them to be more efficient in their delivery? Specifically to the Medicare Advantage, you know, we have partners that have a technology solution, i2i, which is here in Nashville. We feel good about the way that we have partnered with them to help our customers get those additional incentive dollars from a quality care perspective that they may have been missing out. So for us, it's about, you know, how do we help them continue to deliver the same amount of care at a more efficient rate? And I think that really, again, kind of lines up with exactly what we're all about.
So we see it as an opportunity, much more so than it had been.
Excellent. I appreciate that. Maybe we'll transition from the macro into how that's translating into demand for your software and services. And you guys have now put up four consecutive quarters of $20 million in bookings, which is a great accomplishment. And in the conversations we've had, you guys have pride in meeting that mark. And it's not necessarily that it's just an artificial mark of a round number of $20 million or that enables some growth target in the future. It's that there's been planning, execution, and ultimately real meaning behind delivering both consistency of bookings while also maintaining or raising the quality bar. So I was hoping you could explain some of the changes in organizational structure and mindset that have resulted in consistency and quality of bookings.
Yeah. So, you know, we've talked a lot over the last couple of years about how we've transformed the company and continue to transform the company. Part of that is, you know, the people that are leading the specific organizations that we have, sales being one of those. And to your point, I think it's as much about making sure that we're delivering on the goal that we have set for us and having more than a singular path to get there. And by that, I mean, you know, in years past and quarters past, you know, we may have been relying on a specific deal to get us over that, you know, we'll say $20 million because that's the number you pick, but that arbitrary goal that we've set for ourselves versus having two or three backups.
And I think that's where that additional, you know, the bench that we've got from a leadership standpoint on the sales team has allowed us to be a little more nimble in making sure that we're seeing it far enough out to have a good sense that there's going to be a push on a specific deal that we need to be thinking about a backfill to come in behind that. I also think that we've been fairly opportunistic as we've seen a bit of an increase in the demand on our EHR business. So what we've now dubbed Patient Care, we've seen an increase there. And, you know, I credit our sales team for not just looking at that as just the technology opportunity for the EHR, but we're seeing about 60%-70% of those deals actually have an RCM component to it.
So it's almost like it's a double win for us because it's filling up both sides of the boat.
Yeah, absolutely. And for us, it's also the additional rigor to just like what Chris was saying is having a regular view on pipeline, quality of pipeline, mix of pipeline, because we are not just solving for this quarter, we are also solving for next year, short term, long term, quality margins. So I think that rigor I've seen, at least in my 11 and a half months, has increased tremendously with the good participation of sales, operations, finance altogether.
Excellent. Excellent. Helpful. More discreet demand question, whether you can help provide a mix for the year or any data supporting this trend or maybe even just an anecdote or two.
If you can give us an update on your progress selling to a little bit larger size hospitals, I'll throw it out as 100 beds to 400 beds versus your more traditional, call it 50-bed and under customer base.
Yeah, it's a good question. And, you know, obviously it's a link to really how we're seeing the potential for some outsized growth in the years to come. You know, we do kind of have a bright line, I would say, between 100 beds and lower and above that, in that the 100 beds and under, we feel like that's the market for both our EHR and our RCM versus that above 100 beds, 100 to 400 beds is where we're looking at it being an RCM only business. We're seeing a similar demand set opportunity in that one to 400 bed space. And I think our team is starting to figure out ways into the door differently.
And it may be a one-time or a short-term project that turns into something recurring, which is obviously the goal and the rationale behind us even contemplating the idea of those short-term deals. And so it's them building the relationship, you know, having the conversation, which we're investing in our brand, obviously, you know, with the change to TruBridge earlier this year, making sure that people know that name when they see either an email or a phone call. But it's also being a little more consultative in the approach of, you know, what are their specific problems? Even though ultimately we'd love to take over their full business office, that may not be exactly where they are right then.
But if we can have a cleanup project of, you know, say their Medicare over 120 days or, you know, if they've got a coding backlog that they need some help with, that we can show the value of our services, that leads to a bigger opportunity. I'm actually going to a hospital in Louisiana a week after next where we have started some small services that we're now talking to them about taking over the full, the CBO, so the Complete Business office. And they're a 215-bed hospital. And so those are the stories. And for us, the more of those that we start to stack up, the more referenceable we become because people like to know that you're doing what they want you to do for them for somebody else, and they want to see that track record.
so for us, as we continue to gain traction, I think it'll create additional momentum.
Excellent. Excellent. Great to hear. So we talked about the labor cost issue being a key demand driver over the last year or so. But in healthcare, we can never get too far away from regulatory shifts as a demand driver. And I think when we were here a year ago, the HTI-1, or since we were here a year ago, the HTI-1 regulations were finalized. HTI-2 has been proposed. So I want to ask how those interoperability rules and proposed rules are impacting demand for patient care solutions, if at all.
Yeah, so I wouldn't say we're seeing it directly today from a demand standpoint, but history would say that, you know, as there are regulatory changes, that some of the smaller vendors in the space are going to be constrained to be able to meet those challenges. You know, so the onus for the HTI-1 and then beyond, and you know, this is a bit of a change in the nomenclature going to the HTI plus a number, which leads you to believe that this is going to be something that happens year over year over year, which while a bit onerous on the vendor for us, I think provides opportunity as well because we, you know, we have prided ourselves over the last 40 years of being regulatory compliant every step of the way.
I think that what will happen is that as we see this, you know, these changes have to be forced and complied with by the vendors. There will be opportunities where some of the smaller companies that are out there, you know, delivering an EHR that maybe they've divested to some extent and they're operating it more from a cash flow standpoint or from a cash cow perspective that will create opportunity for us. You know, we're going to continue to make sure that we're at the very front of the regulatory compliance standpoint and that our customers know that we've got them covered there. I think it also opens the door for us to be able to go into those, you know, let's say more vulnerable vendors, not just with an EHR, but with an EHR and an RCM component.
You know, we're not, I guess the way I would say, and this is something on kind of rinse and repeat for our model over the next two or three years, we're not banking on or needing the EHR business to grow at a rapid rate, but we believe that there is an opportunity there. I think HTI-1 and numbers to follow will be a contributor to that.
I agree. Because none of these we have factored it in as a big driver, but it's good to have in the meantime kicks in, should be to give us the tailwind at that point in time.
Got it. Understood. So maybe we'll turn the page from demand and bookings type questions to revenue. And we talked about quality of bookings improving. I think quality of revenue has been improving too. TruBridge has been on a multi-year pathway towards more recurring revenue. You know, it's great when you guys first said 90+% of revenue recurring, but that's several years ago now. You're on track this year in our estimates to be 96% recurring revenue. And you're also more aligned than ever with client success. So what percentage of revenue now is percentage of collections and how high do you think that can get over the last?
Yeah. So I would say revenue, which is % of collections, would be in the 40s right now, and it increased significantly since last year for two reasons. One, addition of Viewgol has added to that. But secondly, our core CBO offering, which we call as the growth engine, what we have started seeing is double-digit growth, lowest double-digit growth. So if it grows fast, that one is growing faster than the overall growth. So if that continues, I would say that would be a big tailwind on that. I won't give you what the numbers for 25 or this. Let us play when my plan and all are settled. But the other tailwind would be with the success of nTrust, with nTrust coming in and we are adding every quarter more customers because it's not just about the % of revenue for the suite for the RCM.
Now, some portion of EHR are linked to it, so what it does is client success and our success are now totally aligned, and that's what we are trying to get, so that's, I would say, from when you look at it, Jeff. I think your question was so valid: quality of revenue. It's a critical piece where if we can make our client grow, we get our share, but at the same time, there are other aspects of quality. We still have a good portion of software revenue in RCM. It's a high margin, so what we are constantly evaluating is while some of them are very highly penetrated, how do we bring some growth there? Because while, yes, the collections ones will keep on growing faster than, hopefully, our overall growth, but if my software piece starts growing also reasonably, my margins keep improving.
So that's the second aspect of quality. And the third is short-term, long-term. While we get short-term, our effort of this year is once you enter a customer and land and grab, how do we expand our relationship? How do we take the short-term go longer term? Because the drawback of a booking is, oh, booking has short-term and long-term. We say, oh, we got the booking, but if there is a biggest chunk is short-term, my sales guys have to fight it again next year to fill that. So quality of, I'm taking it a little more broader, quality of earnings for us is, yes, collections, percent of collections is a critical piece. Software is a critical piece. Short-term, long-term is a critical piece because all three then helps me get the growth I'm looking for and the margin I'm looking for.
Yeah. And I would add, you know, we talk about this all the time, but I think it's always worth underlining with the nTrust model, which is both the EHR and the RCM component together, that that's totally at risk, which I do think is a, you know, intriguing model for our hospitals. And, you know, you think about the investments that they've made in their technology through Meaningful Use one, two, three, and now going into HTI-1 and it being more of a fixed cost model or, you know, even if it's on a SaaS basis, the fact that now we're aligned with, you know, both their utilization and also our ability to collect their dollars, it becomes a much more intriguing concept for them of, you know, it's not an additional outlay from them.
It's, you know, we're going to have to make sure that they're operating the EHR efficiently, that they're running their hospital efficiently so that we're collecting dollars on both ends.
Yeah. Excellent. A couple of things to follow up there. The first is RCM software. Should we think of that as, I believe it fits into the recurring revenue piece, that 96% of revenue, but should we think of it as kind of flat subscription fees or more transactional paying kind of per claim that runs through the software?
It's both.
Both, yeah.
Both. There is a, you know, a monthly support component that's relatively nominal. So the vast majority of that is transactional. So it is utilization driven based on the facility.
There's not much volatility in that overall number because it's highly penetrated. Obviously the last one is that Encoder business that is also a high margin business.
Excellent. I want to double click on the comment on CBO revenue being up double digits. There's two parts to it. What is driving that to a higher growth rate than the Financial Health segment as a whole? What's kind of the other side of that? What's maybe a drag that maybe, you know, might not be a drag?
So I would look at CBO as growth from two perspectives. I'd call one the controllable and one is non-controllable. And again, I look at it from an internal perspective. The controllable one is the bookings of last three, four quarters that we have won is making it stick and faster conversion. Faster doesn't mean, hey, let's go because there are certain constraints outside our control that the customer needs so much time, but converting those bookings that we have got, let's say in Q2, Q3 will be helpful to convert it into revenue. That's a driver for that growth. And if you remember in our Q1, we have won some bigger deals which helped us in Q3. So when it gets converted, comparing to last year, it gives me the growth.
And same momentum, what we saw in Q3, we expect at least for the next couple of quarters. At least the line of sight is there. The second controllable one, which we are—at least Chris, myself, and the leadership—is laser focused is attrition. And attrition, making sure the customer delight, it's not finding the attrition as a defensive. It's more figuring it out way ahead of time. So what we now have is we look at contracts 18 months forward and 18 months that are coming to and looking at how are they performing, what can we do? He's making so many trips to the customers because what we want to make sure that losing a customer in the most ideal sense should be a non-controllable thing where they get consolidated or otherwise we should have that.
That one, I would say it's early signs from my lens that we are seeing attrition being laser focused, but I would like that to be a tailwind for 2025, 2026. Those are, I feel, the two controllable. The third one, which is for the growth, while CBO we expect is a lot of our bookings is in the CBO for 2025 or beyond. As we win more, especially the white space that we have, what Chris has constantly said, there is a huge demand, 80% is still not outsourced. As we win our share of it and convert it, that should give us the growth. So my near controllable line of sight is what I have in the bag, contractor revenue that I have is a decent amount. If I can stem attrition one or 2% better every year, it helps me more add.
And then the bookings momentum from those demand that we could generate will help me hopefully get it to a level where we can be in the mid- to high single digits. That's why I said, Jeff, it's the guardrails we have. It's not a guidance because I'm in the midst of this planning cycle, but that's how we are thinking. Two of them have already started and the bookings one, like you asked the question earlier, is what did the organization behind us. We want to get maximized bookings from that.
Excellent. Well, Vinay, we're going to keep delving into your planning insight, Bill.
No, and I really appreciate it because you guys, your inputs, Jeff, especially helps me to think through and then push it down into the organization. So appreciate all your guidance.
Excellent. So on the fairly recent third quarter earnings call, you said TruBridge is headed towards mid to high single digit revenue growth. And as of Q3, organic revenue growth was roughly flat year over year. Then we can start including Viewgol as an organic contributor after your anniversary that just about now. You've had good bookings results. You've had retention. Seems to be improving, at least from the level you disclosed it in the Ks and Qs. And so from there, with those different factors, how's the visibility or more precisely, how do we build the bridge from the flat-ish organic revenue growth that we saw in the most recent quarter to, you know, you said mid to high single digit to put it in the range of 4%-9%?
I think that's a great question. So I would say let's break it into two parts, RCM and Patient Care, Financial Health and Patient Care. In Financial Health, RCM excluding Viewgol grew by 5%. And we would like that growth to continue with more, like what I said, attrition and also. That is the one that we want to start seeing more growth with more wins and attrition being stemmed. Viewgol, which is a part of it, will at least I would say cautious at this time, let the planning cycle take place because that's the first year we will be running it. And I want to be a little more cautious rather than optimistic part of it. So I don't think it will be a big driver, at least in my mindset as it sits today.
So if I can show a good growth in the RCM and again with Encoder and other components that are there in my RCM mix to start seeing some growth, there is a potential because the bookings has the tailwind I have. I can, we are working to stem the attrition piece. Now comes EHR. One of the drag for 2024 in the total is EHR. EHR, like you saw, it's a double-digit negative growth because it has AHT, which was a divestiture. Leave that aside. Centriq is another drag which we are carrying it hopefully till the end of this year because most of it, I would say 95%-96% should be done. There might be a small remnant, few customers.
So, what we expect is what we are trying to push our team is to stabilize that base, which hopefully will be more or less 0% or somewhere around that, excluding Centriq, is to show some low single-digit growth. Now the question is, where is the growth going to come from? It's not that it's suddenly we get new products. We have, if you remember in Q2 when we shut down our ERP internal development, we had tied up with a third party to have a solution because the customer needed it. So we want that. Analytics is another product set that we want. And then in the competitive landscape, winning a few more should give us at least my thought process is to get some growth rate.
And if I combine both of that, that's where I'm expecting, hey, mid- to mid-single-digit to low, like high-single-digit, depending upon CBO. And lastly of all this is as my India transition happens, we get stabilized, my cost structures are stabilized and we get the competitive advantage. The question is with that, how fast can I win more bookings in next year? So while I say this as my guardrails, I want to see my planning process to pan out and what attritions we can stem and what we need to invest in to get there. So cumulatively, this is my thought process to look at from a revenue growth that at least touching mid-single-digits or higher should be an option.
Would you agree?
Yeah, 100%. You know, we're, again, I think the way that we have tried to couch it throughout the year is very cautiously optimistic and thinking about, you know, to your point, we've had some nice success on the CBO side of the house. We'll continue to see that grow as we go forward. We also had a nice surprise on the EHR business from an organic, you know, addition of new labels, which could potentially continue going forward. We kind of reset the floor with the exit of HTI-1, with the exit of Centriq so that we're kind of, we're at the bottom of where that, you know, outsized attrition, I think event really is kind of out of the way.
And now it's a, you know, how do we maximize the spend of our existing customer base with new products, with, you know, additional price increases as we're thinking about, you know, the SaaS model that they're in now, or is it new customer acquisition going forward? And I think that, you know, we feel good about what our plan is to capture that in the next year.
In that February, I mean, when we give a guidance, we'll be a lot more because what we are trying to get is what is in the bag, what is controllable and what do we have to hunt for. That will give me. That's what we are working towards right now. But the tailwind of bookings and all is giving us, at least, and we are seeing the Q3 timeline was a good one where we're very close to what we were looking for.
Excellent. Very helpful discussion. I think people certainly see the momentum on the core RCM financial health side and Viewgol. I think that's an interesting piece of variability. It's performed at least in line with what you've set in terms of expectations, but ability to grow that from here is going to be interesting. On the patient care side, you guys have been very helpful in the disclosures to let us help us do the math on organic growth, but that Centriq piece is something that still factors into the organic growth. It has been a headwind to organic growth. I think really helpful to illuminate how that piece is starting to fade away.
So you hit the revenue side. We'll get more into the margin side of things and certainly want to hit on your comments from the last call on what's achievable from a margin standpoint, but first a more discreet one on the offshoring process and what your targets are, where your progress is against those today, and how you're balancing the value creation of a lower cost labor force with the, you know, the absolute requirement of delivering outcomes and satisfaction for your customers.
Yeah. And I'll paint the picture and then let Vinay kind of color in with the numbers. You know, for us, to your point, it was about moving the business offshore to the Viewgol operation without being disruptive to the current customer base. And, you know, I think that maybe we had some assumptions that we're not 100% right about how quickly we could make that happen or how effectively we could see, you know, a smooth transition happen and very quickly course corrected to make sure that we were, I think the term we've been using is double-barreled from a staffing standpoint, both offshore and here onshore to make sure that we're delivering on the client delight.
I think as we progress through this year and we have partnered closely with our Viewgol team, we have not solved it completely, but we're getting closer and closer to what good looks like and what we're going to need to be able to deliver as we continue to move the chunks of customers offshore. All that being said, I don't, you know, we haven't necessarily hit the savings numbers for the year that we had maybe hoped for, but we are very confident in, you know, now that we see the operation in somewhat steady state and what was successful, what was not successful in that conversion and thinking about, you know, what that means for us going forward. So all that being said, you know, we're, you know, about 30% of our business has been converted at this point.
We think there's another 30% to convert, you know, by the end of 2025, and then at that point, I think it's about looking at that last 40%. And, you know, today, the reason why the number 60% going through 2025 is that last 40 is, you know, there's some contractual limitations for us to be able to move customers' work offshore. There's some accounts that we've deemed strategic that, again, I think as we get more comfortable internally with our team offshore, I think that number has an opportunity to continue to increase, but that's into 2026, and obviously for us right now, while we do have a three-year plan and how we're thinking about that, most importantly is making sure that we hit, you know, what those goals are for 2025. So from a dollar standpoint.
Absolutely. And I'll be, Jeff, one thing I felt I did right was not giving a number in my first earnings call what the savings was because I've been burnt in the past and it's absolutely right. I won't give you a target number right now. The reason is we have started seeing the stabilization because getting the maximum margin is not the goal. Labor arbitrage is not victory for India. Labor arbitrage balance with customer satisfaction is the goal because for us, that is the longer-term view because then it impacts my revenue growth because if we save the money and the customer's metrics are not happy, I have bet higher attritions looming around my corner. So what we are trying to do is trifecta, looking at from three aspects.
The customers that have moved, measuring them every month and figuring out when do they come back to their normal self before and after. We see somewhere 60 days, somewhere 45 days, somewhere 75 days. So it ranges customer to customer. But we are coming out of that. And in the third quarter, I got some net savings and I said, hey, if my customers are stabilizing, it's a good victory. Same is for Q4. Q4 is a critical one to us too because the first set of customers will be out and we will be seeing stabilized saving and then measuring the metrics. Is it for every person that we send here, how much do we hire there and what's the piece there?
But when I look at a little longer-term perspective, if you look at from this year to next year, I expect the first part is to get at least high single-digit million savings from beginning of 2024 to end of 2025. That's the saving. And I want that saving to me means hitting the EBITDA line. And so for me, the first is customer piece. The second piece that we have started doing is measuring it. It's the same. I'll digress for just 10 seconds. Remember the $5 million or the $8 million run rate that we mentioned in Q2? We have a process that we said every last person has to be accounted for, otherwise it's not counted. So that same process we have built it for offshore. I know at a given date today how many are out and how many are hiring.
Now where it's not stabilizing, where we say, oh, X will be going and it's less than that. So we are fixing, stabilizing the process that the visibility is a lot more clear because in 2025 onwards, I think that's an ask, is a fair ask and that's a big tailwind and a lever for me to get the margin up. But comparing these, I would say at least I would like to see a high single-digit million saving between not 2024, 2025, beginning of 2023, beginning of 2024 to end of 2025 because where I'm not purposefully giving you is what is my target saving because I want to achieve it and feel it stabilized. Otherwise, it will have a lot more volatility, especially with customers going and sometimes we have to do double-barrel a little longer.
But what I can proudly say kudos to the team is we have started seeing some good run rate savings in Q3. We expect a huge significant improvement in Q4, but I want to bank that in to say, yes, that's real and it's sticky. But this is a big lever for us.
Yeah. And I think the most exciting part is that all of the thoughts that we put into or why we thought the Viewgol acquisition would be successful for us are coming to fruition. You know, again, the savings may not be showing up this year, but the impact, the long-term impact of what we've been able to accomplish and what that'll mean for the years to come, we're right down the middle of what we hoped. So we're not seeing tremendous surprises on the good or on the bad.
It's, you know, it's kind of nice to have thought something and it's playing out as we hoped it would.
And we're getting encouraging metrics like our attrition in India is lower than the market, our model. So, and it's now.
Employee employee.
Employee, sorry, employee attrition, and it's not like a small number. It's a sizable number in Viewgol, and this one is working well, so it's an encouraging sign, but we just want to make sure we have a few more months behind us to say this is real and it will stick for 2025.
That makes sense. So on revenue growth, we talked about a bridge from roughly flat organic revenue growth to a mid to high single-digit number. Love to go through a somewhat similar exercise on EBITDA margins.
Sure.
You know, for implied in the guidance for the year, 16.5%-16.6% EBITDA margins. On the last call, you mentioned a goal of being able to hit at least 20% EBITDA margins in Q3 or Q4 of next year. And just to throw out a few factors that could contribute from the FY24 number to that back half of 25, you have gross margin leverage from the offshoring that we just walked through in some detail. You have some near-term kind of finance operations expenses that should roll off. You should be able to scale OpEx with better growth. It'd be great if you could walk us through the push and pull.
Yeah. So you would have seen, I was a little more confident to give it in Q4, not in Q3, this number because Q3, if you see our growth, 11.8%, 14 point something% and 16.5%. While at 16.5% as our guidance for Q4, the elevated levels of G&A is a temporary thing with audit cost and people that I put to just keep the controls improving to the next level. And if I remove that and I say, hey, if it's in the 17.5% excluding that. So from there to next year of 2%, if I had ballpark take it as a $7 million-$8 million of incremental margin, where do I get it? And I always say I need to have two or three ways to get it. That's when what will stick.
So one is my gross margin offshore, which is cost of sales, and that is a big. The other is the increased revenue that I should be expecting, right? Increased revenue, not just on this, but in the overall should stick to is on the margins. Third is my leverage, operating leverage that will come because the increase, let's say increased revenue on CBO and RCM; they're not going to come at 20% marginal EBITDA. It should come at a significantly higher marginal EBITDA because I'm not hiring an additional salespeople. I'm not hiring an additional finance person. I'm not hiring them. So those two contributions are there. And the third is like third softer, which is where we are doing right now is just looking at efficiency play, ROI plays in my product development cost, G&A cost, and trying to find ways.
So that's why I felt that the guardrails that we had given was if I'm touching 17.5, excluding that one time, a 2% should be in the art of the possible that we should be trying to get to given the momentum that we are seeing. Because the good part is most of these revenues that are coming are not lagged. They are really contributing much higher than my 20% EBITDA, much higher. It's more at a gross margin level because below that, my cost is not going to increase significantly. So when I use these two tailwinds, I think I find a way now. The reason I'm not giving, it's not a guidance thing is just trying to figure out, hey, are there a couple of ways to get there?
That's where I felt, hey, if I'm 17 and a half, 18, 2% increase should be, especially with my gross margin sticking because hopefully by then it's not a risk. It should be a momentum and in our DNA.
That makes sense and it's super helpful. And one piece of thought there just to make sure we understand some of the seasonality of expenses. I think this year it was Q2 you had a major customer event and should we be planning for similar timing of annual customer event next year?
Yeah. Yep. For sure. It's $1.5 million-$2 million. It's a ballpark, what we call a national conference. Ballpark is that number. So expense increment in that quarter for the year.
All right. Makes sense, and I think something to keep in mind is, you know, you mentioned that 20% target and trying to hit that in Q3 and Q4 of next year. Q2 might be too soon just from a timing perspective, but also want to factor in that annual customer event would make sure people don't get ahead of themselves. One more on the margin front, just again, we had quality of bookings, quality of revenue. I think quality of earnings is increasing too. One of the key items there is lower capitalized software expense. But I want to check in if that's a near-term impact, solely attributable to the post-acute EHR divestiture or the ERP effort that you pulled back from that you mentioned earlier, or if there are other levers to maintain or increase quality of earnings going forward.
From a quality of earnings, and you touched about capitalized software because I take capitalized software as dollars that we are invested should give me an ROI every project that we added. What we did was the lowest hanging fruit, like the ERP that we talked about, we got $2 million savings. Centriq sunset. What we are trying to get is if we were at 7% as a percent of revenue at one point of time, right now we are at like 5, 5.2% as a percent of revenue. I would like to be at 4.5% as the next hurdle and then evaluate if we have to invest, what is my ROI for newer projects. If there is something which gives me like five times return, I would say absolutely. I would love to consider.
But what we also want to make sure is we are not investing just to keep the lights on. What we are working on this year is trying to break my CapEx into keep the lights on, big bets, and small bets. Keep the lights on initially was a big number. We are just doing it because the customer wanted, but I'm not getting the value. So that exercise, I feel, will be going in this operating plan cycle too. But to answer your question, my EBITDA to translate into cash flow is the very important metric, and everyone that is in between has to go through the same rigor. CapEx is one where we are like maniacally focused to say more than happy to consider new ideas, but it has to have a near-term ROI. So that's why I felt and our team resonated very quickly.
So if you look at the three quarters, we were running at a $22 million CapEx last year. We are now running at $17, $17.5 million. I feel 4.5% should be our near-term goal as a percent of revenue. And then see if projects, if there are some exciting projects that move the needle, we'll consider it case by case.
I think it's a great call out to, you know, think about, again, we talk about the transformation of the organization. I think this is a key element of it, you know, that again, you know, to the keep the lights on perspective, it's about, you know, maybe it's not a full zero-based budgeting approach, but really thinking about the dollars that we're spending this year specifically from a capital allocation standpoint, from a development standpoint. One, did we get the return that we expected? And two, do we need to continue to invest in those lanes? Or is there an opportunity for us to do something else with those dollars?
And, you know, I think building that rigor throughout the organization and trying to get it down at the product level, you know, which we have a vast inventory of products that we've built over the last 40 plus years, but really understanding what it takes to keep the lights on for some of them versus invest in others. And when we invest to make sure that one, we've got a business case associated with that and something that we can measure to make sure that we're delivering on it versus just, you know, kind of throwing good money after bad. And I think that, you know, some of that has shown up already.
Vinay referenced, you know, one of the decisions we made earlier this year on our customer ERP and switching to Multiview that we had spent, you know, a couple $3 million on another solution that we just weren't getting the return for. We weren't getting the traction internally with the integration and we weren't getting the traction with the customers. Our team very quickly, you know, pivoted to say there's another solution here that, one, is going to save us dollars at the door and, two, provide a better experience to our customers. It's not just words that this is what we're trying to accomplish. We're actually backing it up with, you know, actual results. I think it's only going to improve both the company and the customer experience going forward.
You've seen it from a cash flow from, like while I talked in my earnings call, $21 million is my cash flow from operations. The real metric is cash flow minus CapEx and plus AHT. Plus AHT is roughly 22% of my EBITDA. Our goal is keeping increasing because I came from a previous company where we were a 55%, 50% EBITDA and 50% cash flow. We started with 27%. Our goal is keep on increasing. At the same time, if there are investment ideas, more than happy to consider because anything that adds shareholder value for us at this stage.
All right. Excellent. Appreciate that. I think we'll follow up with a cash flow question. You know, the EBITDA to free cash flow conversion has been good this year, but I want to ask what elements of EBITDA to free cash flow conversion are sustainable and what were more short-term in nature? And then any thoughts on how conversion could get better from here? And also want to make sure to prompt you with how does retention of offshore labor factor into free cash flow performance as you look to move more of your labor offshore?
So you're right. I think from an EBITDA to free cash flow, there are two or three big buckets. CapEx we talked about. Severance from a cash payments this year was higher than what we expect for 2025. The primary reason was when we ended the year, we had, I think if I'm not mistaken, around $6 million of VERP related, October related liability that we had to pay during the year, which is not going to happen next year. So that's one. Secondly, some of the expenses that we were now tightly monitoring just to make sure that a good portion of EBITDA falls to the bottom line. So severance is one which will continue at least for the offshore part. And the part that I think what you guys should consider, we changed our severance policies also sometime in February of this year.
We were very rich when we were giving VERP for the right reasons, but after that we have reduced it in line with the market, so our dollars of offshore US severance is much less than what it should have been if it was following the old policy, so how I see the movements happening for cash flow is the following. I still feel from working capital, there is still some more juice to be squeezed. My AR still has some more quarters to get because I, like I was telling Chris, that's something he and I are focused on a daily basis because we still have a lot of some portion of aged receivable where you just have to be calling the customer and getting it and then playing it aggressively too. If they are not paying, then we suspend it or use legal means.
So I feel that there's still some juice left on that part. And then higher EBITDA, making it flow to the bottom line, lower the CapEx to the right levels and making sure severance and other one-time expenses. Sometimes one-time expenses are the nature of the shareholder thing situation that we are in. We have to do what we need to do, but none of them should be one that I should not be improving my cash flow because as you look at, because I'm sure Jeff, you're connecting it with the debt. We are 100% committed to lower our leverage. And that's what we have paid $20 million so far. We would, the moment I have more cash flows, we'll keep paying for it because higher cash flow needs to bring our leverage down to where we feel around 2.5-3.
We are at mid threes, but we were in very high three. So that's the one that we are trying to bring in that.
Excellent. Now you answered the net leverage question there. We're kind of at time, Bob. Squeeze one more because I want to ask the GenAI question, and I know TruBridge has been working on robotic process automation for some time. We're hearing the payers aren't ready for two bots to talk to each other to adjudicate a claim yet, but just give us the update on what TruBridge is doing and what's realistic in terms of unlocking efficiencies through automated technologies.
Yeah, you know, so we've talked about this in the past that we're leveraging those bots specifically on the RCM work. What we found as we were starting to develop the bots is that we needed to have our workflows across customers be uniform. And we had kind of created a bit of a bespoke offering, I guess, where we were a little more white glove doing different services and operating different ways from customer to customer, which really doesn't lend itself to that AI transformative opportunity. And so with the conversion of the workforce to the offshore environment, we have also taken that as an opportunity to uniform the way that we deliver the service from customer to customer, therefore being able to apply some of that, the bot technology to be able to capture that.
I think we, you know, as we continue to move them offshore, as we continue to move the jobs offshore and unify or make that a little more uniform from a workflow standpoint, we're going to get to see what the real opportunity is from an automation standpoint. Up to this point, we've been happy that it's created a nice quality of life, I guess I would say for our employees, and by that, meaning that it's making the job that they do a little bit more enjoyable and allowing them to focus on the accounts where there's more impact, but we really haven't seen it come through from a savings standpoint.
And so when you go back to the more capital allocation, you know, more rigor on the ROI, we've really got to see some of that flow through to the bottom line that, you know, one, we're able to make the current business more efficient, but also that we're building that into the pricing model going forward so that if a bot's able to replace the work of an FTE, that not only are we taking that FTE's work out of the existing customer base, but we're also taking that out of the pricing going forward, which again makes it more scalable. And the opportunity for us to go faster with the service, I think is where we're kind of seeing that today.
So, I think 2025 will be a, you know, rubber hitting the road year for us from what we think the delivery can be and what the savings can be from an automation. But, you know, as Vinay has said on a couple of the other places, we're still in those last stages of the operating plan for 2025. When we get to February, that'll be another piece that we'll share as far as how we see the automation contributing to additional margin increase going forward. But we're still big on the idea of it. I think that it'll play a big part as how we're thinking about, you know, delivering the service going forward.
Nice to know. Proof of concept to enterprise level deployment.
Yeah, that's right.
It's exciting to hear. I think we'll leave it there. Thank you guys again for the time and all the thoughts today.
You bet. Thanks so much, Jeff.
Thanks for the opportunity.