Computer Programs And Systems Inc (CPSI) Q3 2021 Earnings Call Transcript

Image source: The Motley Fool.

Computer Programs And Systems Inc (CPSI -0.88%)
Q3 2021 Earnings Call
Nov 9, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the CPSI Third Quarter 2021 Earnings Conference Call. [Operator Instructions] A brief question-and-answer session will follow the formal presentation. [Operator Instructions]

It is now my pleasure to introduce your host, Drew Anderson. Thank you, Mr. Anderson. You may begin.

Drew Anderson -- Investor Relations

Good afternoon and welcome to the CPSI third quarter 2021 earnings conference call. During this call, we may make statements regarding future operating plans, expectations and performance that constitute forward-looking statements, made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. We caution you that any such forward-looking statements only reflect management expectations and predictions based upon currently available information and are not guarantees of future results or performance. Actual results might differ materially from those expressed or implied by such forward-looking statements as a result of known and unknown risks, uncertainties and other factors, including those described in our public releases and reports filed with the Securities and Exchange Commission, including but not limited to our most recent annual report on Form 10-K.

We also caution investors that the forward-looking information provided in this call represents our outlook only as of this date and we undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call.

At this time, I will turn the call over to Mr. Boyd Douglas, President and Chief Executive Officer. Please go ahead, sir.

Boyd Douglas -- President and Chief Executive Officer

Thank you, Drew. Good afternoon, everyone, and thank you for joining us today. After my comments, I will hand the call over to Matt Chambless, our Chief Financial Officer, who will provide additional color regarding our third quarter results. At the conclusion of our prepared comments, the two of us, along with David Dye, our Chief Growth Officer; and Chris Fowler, our Chief Operating Officer, will be available to take your questions.

The pandemic continues to disrupt many aspects of our lives, both personally and professionally. As such, last month, we hosted a virtual event for our clients after making the difficult decision to postpone our annual in-person conference until March of 2022 in St. Louis. The need to postpone was disappointing, however it afforded us the opportunity to give the topic of mental health within the healthcare workforce, the attention that it deserves. Mental health plays a part throughout the care continuum and as our very insightful guest speaker, Dr. Izzy Justice said, it's not healthcare if the patient is being healed at the expense of the healthcare worker.

And with the help of Tracey Schroeder, our Chief Marketing Officer, and Amaris McComas, our Chief People Officer, we also explored the phenomenon around the great resignation, driven by the burnout employees have experienced due to the COVID pandemic. This conversation highlighted the importance of celebrating diversity and supporting the significance of inclusion and equity in the workplace, to ensure people feel that they can bring their whole selves to work. Understanding these important factors that impact employee engagement and talent recruitment, is something we are taking seriously at CPSI and we felt that it was important to share this with our clients during our virtual event.

And lastly, as part of the business update, our clients learned from our Chief Innovation Officer, Wes Cronkite, about the innovation headways being made. Wes reaffirmed with clients that we are investing heavily in talent and technology and talked about the efforts behind expediting our approach to expand our offerings and deliver insights to clients.

In terms of our third quarter performance, we are very pleased with our results. A strong rebound in bookings, along with a higher percentage of SaaS deals in the sales mix are highlights from the quarter and showed good progress against our three-year growth strategy. This transformation initiative that we began in January of 2021 has delivered solid results across CPSI. I will share a few highlights and later, Matt will provide additional details.

First, TruBridge cross-sell bookings were just over $3 million in the third quarter and now stand at $8.6 million year-to-date. The cross-sell opportunity for TruBridge remains significant and is supported by our EHR client retention rate remaining above 95% year-to-date. TruBridge third quarter net new bookings were just under $4.8 million and we closed a large competitive takeaway deal for our accounts receivable management services in the third quarter that was just under $2 million.

Finally, the key KPI that we hold ourselves particularly accountable to, is margin expansion. As we execute our cost optimization efforts, we'd like to remind everyone that achievement against this goal will not be linear, particularly in the short-term as the transformation of our EHR business to a more SaaS-oriented business model and the resulting near-term pressure on profitability, competes against other meaningful opportunities for long-term margin expansion.

Despite the counter-effect from the SaaS transition, the third quarter saw year-over-year increases in both GAAP net margin and adjusted EBITDA margin, driven by significant improvement in TruBridge, where gross margins have improved 440 basis points from the third quarter of last year. Contributors to this progress include the automation of our revenue cycle services, through expanded partnerships that helped absorb work related to medical coding and accounts receivable management. Both have a direct correlation to our improved scalability and delivery of these services at a lower cost.

Our focused intent on increasing organizational efficiencies is illustrated by the pace in which we have been able to transition the billing and coding workforce offshore. In the third quarter, we shifted 9% of this workforce, which has resulted in an estimated run rate and cost savings of more than $1 million in the third quarter.

Before I turn the call over to Matt, let me touch on our progress related to upside growth. First, the acquisition this past May of TruCode has delivered value as expected and is performing on plan for both top and bottom lines. And last, we continue to see the market evolve around patient engagement, which is a contributing factor to our optimism as we pursue digital innovation as a key adjacency to our core growth.

The patient engagement solution from Get Real Health has experienced 117% user growth over the last 12 months, and was selected in the third quarter by a US-based healthcare system that serves approximately 12 million people as their digital front door solution. These successes contribute to the business case for our continued investment in Get Real Health and new and expanded patient experience solutions.

With that, I will turn the call over to Matt for a deeper dive into the financial results.

Matt Chambless -- Chief Financial Officer

Thanks, Boyd, and good afternoon, everyone. On today's call, I'll provide a high level overview of the quarter, including some additional detail on bookings performance and a brief walk through our third quarter financial results.

Far in a way, the most notable development of the quarter was the significant growth in bookings, as we saw the sales environment becoming increasingly favorable with the resurgence in new hospital EHR contract signings and the emergence of Get Real Health as a viable player in the patient engagement arena.

On the financials, the third quarter was dominated by two top line themes that worked to offset each other in our GAAP results, but that each point to exciting success areas for both our EHR and services businesses. First and foremost, TruBridge showed year-over-year growth of 24%, with organic growth driven by improved patient volumes and recent new business wins, and inorganic growth driven by our acquisition of TruCode in May of 2021.As Boyd mentioned, TruCode continues to perform according to plan, with a quarterly revenue contribution of $3 million, absent purchase accounting adjustments and $1.8 million of incremental EBITDA. Year-to-date contributions since the acquisition date are $4.6 million in revenues and $2.3 million of EBITDA. On a pro forma basis, including pre acquisition amount, TruCode has generated revenues of $10.2 million and EBITDA of $4.6 million.

The second dominant top line theme has been the success of our dramatic shift to a more SaaS-friendly license mix, a shift that has been intentional and in keeping with our strategic priority of enhancing long-term shareholder value by expanding our base of recurring revenues.

While clearly aligned with long-term value creation, these license mix dynamics put significant pressure on the period's non-recurring revenues, offsetting the gains on the TruBridge line and limiting overall revenue and adjusted EBITDA growth to 3% and 4% respectively. Clearly, a full understanding of the financial performance of CPSI includes an understanding of this nuance and how this shift in strategy forgoes short-term GAAP profits in favor of longer-term value creation.

Moving on to bookings. After a sub-par performance for the first half of the year, the third quarter saw sales environment headwinds improving, resulting in explosive bookings growth. This growth was propelled by significant traction for Get Real Health's patient engagement solutions and net new hospital EHR bookings that were more than double our quarterly average for the past couple of years. The quarter's total bookings of $29.3 million, are our highest since 2017, 77% higher than the second quarter of 2021 and mark a 37% improvement over the third quarter of 2020.

System sales and support bookings were up 58% sequentially and 18%, compared to the third quarter of 2020, with net new hospital EHR decisions driving the growth. While the growth itself is impressive, the composition and quality of this quarter's bookings are arguably more important than the roll dollar figures, as bookings for recurring revenue sources continue to expand.

Including add-on sales, subscription arrangements made up 77% of the third quarter's total EHR bookings, as we continue our efforts toward driving recurring revenue growth through greater emphasis on our SaaS offerings throughout the sales process.

For the quarter and year-to-date, SaaS arrangements have made up 100% of our net new hospital EHR contract signings, after averaging around 50% for 2019 and 2020. By steering more of our new business toward SaaS offerings, we're increasing the prevalence of recurring revenues within our topline mix, leading to enhanced predictability for revenues and cash flows. TruBridge's $13.1 million in bookings for the quarter bested the prior record set in the third quarter of 2017 by 23%, more than double in bookings for the second quarter of 2021 and 68% higher than the third quarter of 2020.

Of particular note was the unprecedented success of Get Real Health, both domestically and abroad, with total bookings of over $5 million for this early stage business, after never having posted quarterly bookings of more than $1.7 million in the past. Other than get Real Health, bookings from outside our EHR base increased nearly 4 times from the previous quarter and 60%, compared to the third quarter of 2020, as we continue to execute on our initiatives to expand TruBridge's client footprint beyond our EHR customer base.

Turning to the financials. Revenue headwinds from our shift in license mix offset much of the tailwinds from the expansion of TruBridge revenues, weighing down the period's results, with total revenue showing a 2% sequential increase and 3% ahead of the third quarter of 2020. Overall, recurring revenues increased 3% sequentially and 12% over the third quarter of 2020, arriving at yet another all-time high of 91.3% of total revenues, compared to 90.8% in the second quarter of 2021 and 83.4% in the third quarter of 2020.

On the profitability front, the SaaS transitions' dampening effect on revenue growth for the period, limited the ability for margin expansion and worked in tandem with elevated benefits cost to cause sequential declines in adjusted EBITDA and non-GAAP net income of 14% and 21% respectively. Despite these headwinds, adjusted EBITDA grew by 6%, compared to the third quarter of 2020, while non-GAAP net income decreased 9% behind increased tax adjustments and lower non-operating income.

Looking deeper at our segments, TruBridge revenues increased 6% sequentially behind continuous improvement in client patient volumes and a $1.3 million increase in TruCode revenue as the third quarter marked our first full quarterly period with TruCode in the fold. The expanding top line drove gross margins to 50%, compared to 47% last quarter.

Unsurprisingly, TruBridge revenues grew significantly over the third quarter of 2020's COVID-impacted results showing a 24% top line improvement with margins improving by 440 basis points, behind the improved top line, the injection of higher margin TruCode revenues and the contributions from our offshoring and automation efforts that Boyd highlighted. Organic revenue growth for TruBridge was $3.8 million or 14%, compared to the third quarter of last year.

Next, system sales and support revenue saw a slight sequential decrease in revenues, that combined with flat cost of sales, brought gross margins down slightly from 51.5% in the second quarter to 51% in the third quarter. Compared to the third quarter of 2020, overall system sales and support revenues decreased $4.8 million or 12% as the aforementioned shift toward greater SaaS mix, cut out non-recurring revenues by more than half, leading to margin compression of 540 basis points from the third quarter of 2020's 56.4% margins.

While favorable to long-term value creation, the shift in license mix will continue to put pressure on our top line and associated margins, as well -- as all new hospital EHR contracts signed during the year have been SaaS. We currently anticipate six new client facilities going live with our Thrive solution in the fourth quarter of 2021 and all are expected to go live in a cloud or SaaS environment.

Moving on to operating expenses. Product development costs increased $1.2 million or 19% sequentially, due mostly to lower labor capitalization, as the quarters workload leaned more toward maintenance efforts. Year-over-year, costs have decreased $800,000 or 10% due to increased labor capitalization. As mentioned on last quarter's call, early in 2021, we worked with external subject matter experts to adopt best practices for labor capitalization in an agile software development environment, resulting in higher labor capitalization rates, that we feel better reflect the investments we've been making to bring incremental functionality and features to our EHR products.

Sales and marketing costs were flat sequentially, but decreased 18%, compared to the third quarter of 2020, due to efficiencies resulting from our business transformation initiatives and decreased commission costs, resulting from declining non-recurring revenues. General and administrative costs increased $3.1 million from the second quarter of 2021.

As we stated on the last call, we expected some incremental headwinds to sequential EBITDA growth as employee health claims and bad debt normalized from uncharacteristically low levels during the second quarter. Year-over-year costs increased $2.7 million as heavy utilization drove employee health cost higher, lease termination costs increased our non-recurring expenses and TruCode increased the G&A footprint.

Closing out the income statement. Our effective tax rate for the quarter increased to 28%, compared to 16% during the third quarter of 2020, driven mostly by provision to return adjustments. This brings the full-year effective tax rate to 19% and we don't expect that to change meaningfully during the fourth quarter.

From a cash flow standpoint, operating cash flows of $1.3 million marked our lowest point since the second quarter of 2016. But again, the nuances tell the story here. With working capital consuming a net of $9.3 million of cash flows this quarter, while providing a net of $6.6 million during the second quarter, the two most significant drags on cash flows were both payroll-related timing items.

First, the third quarter contained an extra payroll period, good for an incremental $5 million drain on cash flows. Second, we opted for the CARES Act employer payroll tax deferral, which effectively propped up 2020 operating cash flows by around $4.6 million. We remitted these amounts during the third quarter for corporate income tax purposes.

Despite this quarter's low in the normal levels, trailing 12-month operating cash flows of $50.6 million are effectively the same as adjusted EBITDA over the same timeframe. The strength in operating cash flows has allowed CPSI to limit our year-over-year increase in bank debt to $25 million, despite funding the entire $61 million purchase price for TruCode using revolver proceeds.

On capital allocation, our strategy prioritizes flexibility to have CPSI optimally positioned to opportunistically deploy capital through a combination of M&A, internal investment and value-based share repurchases. Our recent acquisition of TruCode raised our leverage to nearly 2.4 times, slightly below our target of 2.5 times, ensuring that we remain well positioned to respond quickly to other opportunities that may arise.

With regards to share repurchases, we did not repurchase any shares during the quarter and remind investors that the cadence and volume of our repurchases have been and will continue to be influenced by a number of factors, certainly considering value, but also considering capital needs and availability, potential M&A, cost of replacement capital and other capital allocation alternatives. These alternatives and priorities in capital allocation are ever evolving, so a lack of repurchase activity in a given quarter may not reflect our views on the intrinsic value of our stock.

To wrap up our prepared remarks. The dramatic shift in license mix continues to obscure much of our success during 2021, at least so far as the income statement shows. We expect that trend to continue during the fourth quarter, with SaaS deals representing all of the fourth quarter scheduled new hospital EHR implementations. When combined with the vastly improved bookings environment and with TruCode proving our capabilities at generating accretive inorganic growth, we're excited for what the future holds, as we begin looking toward the New Year.

And with that, we'd like to open up the line for questions.

Questions and Answers:

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Donald Hooker with KeyBanc. Please proceed with your question.

Donald Hooker -- KeyBanc Capital Markets Inc. -- Analyst

Yes, good afternoon. I wanted to hear a little bit more about the Get Real Health bookings. I was particularly interested in -- you guys press released the deal win in Europe and in the Netherlands, which is obviously very new for CPSI. Can you expand a little bit and maybe break down those Get Real Health bookings, that were so high in the quarter?

David Dye -- Chief Growth Officer

Yes. Hey, Donald. David here. Actually, the Netherlands press release was an expansion on a relationship that we already had there. It has extensive opportunity for us down the road from a bookings standpoint. It was rather minimal in terms of the Get Real Health bookings in the quarter. To that, Matt just mentioned in his prepared remarks, are split about 50/50 in terms of bookings value, both incredibly significant, both deals, we were competitive and we're certainly proud that we won it, now it's time to go execute.

The international was actually in the Asia-Pacific, it's a telecom provider in the Asia-Pacific and we hope that this will be press released in the relatively near future. That's about as much information as we can give you right now. It's a nationalized healthcare system. It's very similar to the relationship that we have with TELUS in Canada and particularly in the provinces of Alberta and Saskatchewan, where the telecom has the exclusive right to utilize our products there, as the patient portal for the citizens of a particular country.

And then the second significant win is, as he mentioned, is the domestic health system here in the United States, where we're going to -- Get Real Health is going to provide a digital front door, the typical patient portal functionality, in addition to appointment scheduling, bill pay, pharmacy refills, etc.

Donald Hooker -- KeyBanc Capital Markets Inc. -- Analyst

Great. And then maybe one follow-up for me. Another data point you threw out that was interesting to me was the retention rate, which continues to be sort of 95% plus, it sounds like, I think, I jotted that down correctly. I know in the past you had, maybe last year or the year before, you were -- you seem to be sort of alluding to an improving competitive environment, maybe getting some price as well. Just wanted to maybe get an update there on the competitive environment, it sounds like it's pretty favorable for you guys.

Boyd Douglas -- President and Chief Executive Officer

Yes. So on the competitive environment, well, I mean obviously we felt really good about winning the 11 deals in the quarter from a pricing standpoint, to your question. We do have more pricing power than we did when we were competing with Athena, on both in our existing customer base and in net new deals with Athena Health and obviously, we don't have that competition out there, at least from a inpatient acute care standpoint anymore.

So, obviously now health plan is in support of us, some others that aren't there anymore, some other competitors that we traditionally competed with over the years, but we obviously -- we still have the major competition from Meditech Concern or in some cases that are our formula competitor. So, favorable I think is an accurate term, but we still -- we certainly still have formidable competition out there. From a pricing standpoint, it is noticeably slightly better than it has been in previous years and that's shown in our execution in our average deal size so far this year.

As to retention, I think Matt can touch on that.

Matt Chambless -- Chief Financial Officer

Yes. So, Don, you had touched on the success that was 2020. We finished 2020 back, kind of, at our historical retention levels of around 95% and right now, on an annualized basis, 2021 is actually projecting to be a good bit higher. We're conservatively estimating that where some of that in 2021 is going to pull in a little bit in the fourth quarter, but we still think that we're going to end the year, a good bit north of 95% retention for 2021, which historically speaking is going to be a pretty good year for us retention wise.

Donald Hooker -- KeyBanc Capital Markets Inc. -- Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Joy Zhang with SVB Leerink. Please proceed with your question.

Joy Zhang -- SVB Leerink -- Analyst

Good afternoon and thank you for taking my question. You mentioned in your prepared remarks, the great resignation movement in the labor market. I was hoping you can provide more color on how much the rural hospitals are experiencing the labor pressures, compared with a more urban peers? Is it a more -- is it a bigger headwind given how shallow the talent pool is? And as a follow-up, do you see this labor dynamic as a net positive tailwind for TruBridge given greater need for outsourcing?

Chris Fowler -- Chief Operating Officer and President, TruBridge

Yes. Hi, Joy. This is Chris. It's a good question, as you think about it, as it relates to the rural versus urban. I would say just proportional based on the number of employees that they have when they lose one. At the rural market, it obviously is a bigger percentage of their workforce, so I do think that there is a larger impact. Obviously what we're seeing specifically on the nursing side, there's a lot of pressure there and there is some outside forces where the dollars that they're having to pay the staffing agencies is really creating a big headwind for them operationally in providing service and delivering that care in that community. So something that we continue to watch and see if there is -- if there is an opportunity for us to solve there.

As it relates to opportunities on the TruBridge side, yes, you know what we are seeing is that there are -- we've tried to be flexible there as it relates to how we can provide interim deals or interim opportunities from a staffing solution standpoint, which a lot of times also turns into larger long-term deals for us. I think in the last six months, we've signed somewhere in the neighborhood of 15 to 20 deals, where we have provided some sort of interim staffing solution to our hospital.

So it's something that we -- obviously we're facing some of the same similar challenges that the customers -- that the hospitals are facing as far as from a labor standpoint. So there are other levers that we're continuing to pull there to make sure that we can accommodate those needs from our customers.

Boyd Douglas -- President and Chief Executive Officer

And Joy, I'll just add on to that, in particular, because I've had some very recent conversations about this. The labor market and the nursing for our post-acute facility, skilled nursing facilities and things like that is really, really tough. And as Chris talked about, the staffing agencies that supply nursing, the rates they're charging are really hard and really tough to absorb. So absolutely the acute care is struggling with it, but the post-acute, I would say if you put them on a scale, post-acute is struggling even more than the acute on the nursing side for sure.

Joy Zhang -- SVB Leerink -- Analyst

Super helpful. And as a follow-up question on bookings. It's great to hear the positive commentary on the legacy EHR business in addition to TruBridge. So I was hoping you can give more color on how much of the rebound was driven by deals that were pushed out from the first half of the year? And would it be fair to say that demand in the rural hospital market has largely normalized or is COVID still a meaningful headwind?

David Dye -- Chief Growth Officer

Yes, Joy, David here. I had a little trouble hearing you, but I think your question was, you know why the success in the third quarter. Certainly part of it was pent-up from the lack of success in the first half of the year. Anytime you get 11 deals in the quarter and they were all SaaS and the average deal size was in line with what it has been recently, which is around $1 million, which is certainly good as well. Really the good news is, it is from a pipeline standpoint, the three month pipeline if you measure at the end of each quarter, actually went up going into the fourth quarter, over the third.

Now whether that means we actually execute on that exactly in that timeframe or not remains to be seen. But, so the three month pipeline went up a little bit. The six month pipeline, the total number went down a little bit. So basically, given that we had a $29 million bookings quarter and the fact that those remain roughly the same between the three to six month, we are particularly pleased with.

Joy Zhang -- SVB Leerink -- Analyst

Nice to hear. Thank you very much.

Boyd Douglas -- President and Chief Executive Officer

Thanks, Joy.

Operator

Thank you. Our next question comes from the line of Jeff Garro with Piper Sandler. Please proceed with your question. Your line is now live.

Jeff Garro -- Piper Sandler -- Analyst

Yes, good afternoon. Thanks for taking the question. Maybe a couple on the bookings front. The first one, just to clarify those pipeline comment, was that for specifically EHR deals or the comment around three months pipeline going up, does that refer to the broader pipeline?

Boyd Douglas -- President and Chief Executive Officer

The broader pipeline, Jeff. But the EHR pipeline was consistent with those comments also.

Jeff Garro -- Piper Sandler -- Analyst

Excellent. Great to hear. And more broadly, Q3 was a really nice result with bookings, but also want to make sure that the right context on it with -- versus a year-to-date results and actually there were headwinds last year as we look at the comparison. I guess maybe more specifically interested in the subscription line, where -- just trying to parse out where that is year-to-date and how we should frame our expectations as we go into Q4, whether we're at kind of a new run rate or whether we should real in those expectations maybe looking more at the first nine months of last year?

Matt Chambless -- Chief Financial Officer

Yes. So Jeff, get into that question about subscription rates and where they land, I don't have the year-to-date numbers in front of me, but from a quarterly standpoint, which is, given the growth curve that we're on, that is probably a little bit more indicative of what we're going to do heading into the fourth quarter and heading into 2022. Right now, we're looking at just shy of 50% increase in our SaaS EHR subscription revenues, compared to the third quarter of last year. So definitely substantial and an incremental growth there.

And when we take a look at the bookings composition year-to-date, we mentioned in the prepared remarks that 100% of the net new hospital EHR deals that we have signed during 2021 have been SaaS and that's actually a little bit ahead of what we had expected coming into the year. We had expected somewhere closer to a 70/30 split and we're happy with this 100% mix for SaaS licenses, because we obviously believe that that's in the best interest of creating value long-term. So as far as the sales mix is concerned, you can't get much higher than 100%, but on the revenue line, we definitely expect to continue to grow that, because as incremental customers are added, the chances are increasingly more favorable toward them coming on as SaaS customers.

Jeff Garro -- Piper Sandler -- Analyst

Excellent. All very helpful. And maybe try to translate some of that commentary around exceeding expectations and the SaaS transition to your margin expansion goals. I'm curious how we should think about the timing of your platform investments, as well as the revenue mix shifting to subscription, some interesting cross currents there and just how that impacts the cadence of margin expansion? I know it's not going to be linear, but I think the margin levels this quarter maybe a little bit bigger of a step back from Q2, than some of us might have expected?

Matt Chambless -- Chief Financial Officer

Yes. I mean you've kind of hit the nail on the head as far as the logistics of what happens with our margin expansion initiatives. At least in the short-term, we do kind of have these competing projects going on. They have differing impacts on margins. Obviously the shift toward a SaaS -- more SaaS mix in the new sales environment has -- it's a drag on margins. There is no way around that in the near-term. And that was something that we were expecting even with the 70/30 split that we had planned coming into the year. But obviously with net new installs, installing it at a higher rate of SaaS than what we were expecting is pulling margins down somewhat more than what we had expected.

But you're right, there is a give and take. And in the very short-term, the two initiatives, the margin expansion initiatives to increased offshore reliance and investment in automation technologies in the short-term, the two dynamics do tend to offset each other. But again, the pay-off being in the longer term as we continue to stack up more and more recurring revenue for our top line, that we should see margin expansion increase in the future.

Jeff Garro -- Piper Sandler -- Analyst

And just to try to comment on a little bit further, so is it fair to think about year-over-year margin expansion every three months being an appropriate expectation or will there be even more non-linearity than that?

Matt Chambless -- Chief Financial Officer

Yes. I mean I would still say that I mean, I expect it to still be a bit non-linear. There is still the chance going forward that we may have a couple of quarters here a day in a 90-day period, anything can happen. But there may be some quarters where we do have the resurgence of the perpetual license deals that, kind of, held the day back in the pre-2019-2020 time frame. So, but we do expect to at least for say the next 12 months that margin -- expanding the margin on the acute care side, it's going to see some headwinds from this transition to SaaS.

Jeff Garro -- Piper Sandler -- Analyst

Understood. That's all from me. Thanks again, guys.

Operator

Thank you. We have no further questions at this time. I'd like to turn the floor over to Mr. Douglas for closing comments.

Boyd Douglas -- President and Chief Executive Officer

Great. Thanks, Devin. Just to quickly summarize, certainly we're very pleased with our third quarter performance and the positive impact that our three-year growth plan is having on our effectiveness, efficiency and value delivered to our shareholders, clients and employees. We remain keenly focused on core growth, margin optimization and achieving tangible upside growth through digital innovation. I hope everyone has a great evening tonight, and we appreciate your interest in CPSI and we look forward to giving you another update after the fourth quarter. Thank you.

Operator

[Operator Closing Remarks]

Duration: 37 minutes

Call participants:

Drew Anderson -- Investor Relations

Boyd Douglas -- President and Chief Executive Officer

Matt Chambless -- Chief Financial Officer

David Dye -- Chief Growth Officer

Chris Fowler -- Chief Operating Officer and President, TruBridge

Donald Hooker -- KeyBanc Capital Markets Inc. -- Analyst

Joy Zhang -- SVB Leerink -- Analyst

Jeff Garro -- Piper Sandler -- Analyst

More CPSI analysis

All earnings call transcripts