HealthStream, Inc.

Good morning and thank you for standing by. Welcome to the HealthStreams second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After this speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Molly Kondra, Vice President, Investor Relations and Communications. Ms. Kondra, you may begin.

Thank you and good morning. Thank you for joining us today to discuss our second quarter 2021 results. Also in the conference call with me today are Robert A. Frist, Jr., CEO and Chairman of HealthStream, and Scotty Roberts, CFO and Senior Vice President. 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 involve risk and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements. Information concerning those 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 the 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 in mind, at this time, I'll turn the call over to Bobby Frist.

Thank you, Molly. Good morning, everyone. Welcome to our second quarter 2021 earnings call. A lot to cover today, but I think first context is important. And I wanted to remind everybody that as the nation moves forward through the pandemic, it's clear that this long journey has grown bumpier in the recent rise of the Delta variant, which is causing a 36% increase in the number of hospitalizations. According to the CDC, nearly half of adults in the U.S. have been fully vaccinated. And as that number rises, we at Healthstream remain hopeful that progress towards beating the pandemic will continue. But we must keep in mind that it is our customers, our customers that are ones on the front lines responding to this new spike in the cases. And as we start today's call, I can tell you that our commitment to helping them improve the quality of health care has never been stronger. We're trying to align our interest and energies with our hospital customers and our continuum customers. I'd like to comment on financial performance for the quarter and the first half of the year. We remain laser focused on growing the company. which is why we were able to deliver another strong quarter with top-line revenues increasing 7% and adjusted EBITDA increasing 20% over the same period last year to a record $14.5 million. And based on those results, we have updated our financial guidance. We wanted to hit that early in the conference call. We now expect revenue for the full year 2021 to be in the range of $253 million to $257 million. For context, the midpoint of the new range is $5 million higher than the midpoint of the previous range. I believe one of the most remarkable things about this guidance is that we are projecting revenue growth despite a $38.4 million decline in revenue associated with our legacy resuscitation products from 2020 to 2021 and a $4 million to $4.3 million negative impact of acquisition-related deferred revenue write-downs. So our teams have done a great job, both organically and through acquisitions, of backfilling those revenue challenges that I just articulated. Additionally, we now expect adjusted EBITDA for the full year 2021 to increase to be in the range of $48 to $50 million. And that's compared to a range of $40 to $44 million that was announced just last quarter. There were some unique factors, however, that helped contribute to the record-setting adjusted EBITDA in the first half of the year, which are not expected to repeat during the second half of the year. For example, in the first half of the year, there wasn't much travel at all, and we do expect and have projected a return to travel expenses. Now, not at the full level pre-pandemic, but we do expect to see travel begin to recover for health streamers across the country. And so we'll begin to see travel expenses come into the modelings as a return in the second half of the year. Additionally, macro workforce trends have made recruiting, retention, and hiring much more complex. Basically, all those are more difficult in the last, say, six months as the macro trends support everybody peeking up from the pandemic and looking around to see if there's new opportunities. And no exception to HealthStream. It's been a detriment and a benefit to HealthStream, this trend of everybody looking for something new. catch up on our planned hiring. We were definitely behind our plan in hiring in the first half of the year, which resulted in improved EBITDA, but we need to reserve the right to catch up on hiring. We need to get the people in place that we had planned to have in place in the second half of the year, and so we're doing everything we can, and our new VP of HR and our recruiting teams are doing a great job adding new people, but our turnover has increased, so Second half of the year, we expect additional costs and personnel that we were unable to net add in the first half of the year. We did have net add, but just not where we planned to be. And finally, we're committed to increase our investment in our newly acquired scheduling businesses, making it into one business or one focus area in the second half of 2021. And we'll talk a bit about that here at the end of the conference call. But our new guidance reflects all three of these things, for example. and captures them in the guidance ranges I provided above. So I'll take a moment to comment on our financial goals for 2022 because in the last earnings call for the first time, we looked forward beyond 2021. As you know, we had expected 2021 to be one of our toughest years with a $38 million decline in one of our product lines. But as you can tell, we found a way through that in the first half successfully. And so we wanted to get some view into 2022, or at least our goals for 2022. And so here's what I can say about those now. Building on anticipated results now for 2021, our goals for 2022 are, first, to deliver organic, high, single-digit revenue growth rates. And for us, that's probably 7% to 9%. Second, to achieve approximately 65% gross margin profile. which is fantastic because we have been delivering on that in the last two quarters at 65% gross margin profile, which was the point of several of our transitional business work we've been doing the last three years that we've been talking about. And so essentially we feel we've achieved that, that general approximate level of gross margin profile, which is a meaningful improvement from our historical gross margin profile. And we expect to be able to continue to deliver that at 65% approximately into 2022. And third, we want to deliver adjusted EBITDA margins of 17% to 21%, which is an increase over our previously stated goal of 15% to 20%. So a little bump in our expected, taking off the bottom of the range essentially and bumping it up a little bit on our expected EBITDA margins into 2022, up to 17% to 21%. And that would be an improvement of our historical norms, which hover in the 17% to 18%. So we hope to be able to at least maintain historical, but hopefully have some upside to that in this new range of 17% to 21% EBITDA margins into 2022. Remember, these are goals, so they're short of guidance, meaning the models are all in flux. And we want to have targets out there. We want people to understand that we're working to be a growth-oriented company, improve our profitability profile, and establish what looks to be now slightly higher EBITDA margins as well. So we'll state those as goals, not guidance for 2022, but we thought we'd give some context as we look forward. You know, it's not only the contributions of our longstanding product portfolios that give us confidence, but it's the market's enthusiastic response to our newer solutions that have given us the confidence to put forward those kind of objectives and goals for 2022. And it's the market's embrace of our resuscitation solution from the American Red Cross and many of our other exciting innovative products that are contributing to our growth with their unique outcomes-driven approaches. So I want to talk a bit about one of those. We've talked pretty extensively, and we'll talk more about the American Red Cross resuscitation suite. But today I want to spend a minute on Jane. So Jane is one of these new products. It was first of its kind in the market. Jane is an AI-driven clinical development solution that uses natural language processing powered by IBM Watson. And that's a mouthful, but basically it is a cutting-edge solution for helping assess the competency profile of staff and give them individualized, intelligent plans on how to improve not only their knowledge of their work, but their critical thinking ability. So Jane is truly a state-of-the-art kind of breakthrough expert system. It's kind of like a digital coach, particularly focused on our nursing population. And Jane has been recognized industry-wide with six prestigious awards from Bandon Hall in the last year and a unique approach through its newly awarded patent. So we couldn't be more excited about the position of our Jane application set and so a bit of business progress as well. In 2020, when we first began offering Jane at scale, our goal was to average one sale of Jane per week. And as we reported last quarter, we did achieve that throughout 2020. So I believe it was about 52 sales of Jane that were in the books last year. But this year, we continue with good momentum. In the second quarter, for example, we have 23 new sales, so more than one a week during the second quarter alone. So that's It's good to see that new product gaining some traction in the market. And as customer utilization grows and Jane's capabilities expand, we look forward to updating you on how Jane is changing the industry. It's a really exciting product. And it's more than just a singular product. It's kind of a framework that we can attach more and more capabilities to. So we're excited about Jane. An important part of our strategic and tactical focus now is And in the last several years has involved these key transitions. We've articulated these three transitions. And we use the word transition kind of in a way to infer risk, you know, that we were transitioning our business to achieve higher margins. And we articulated a story of three transitions over the last three years. And each of them had some, I guess I would characterize as major business risk. And the great thing about today is I believe we've crossed an inflection point where the major business risks, what I kind of coined the existential risks, you know, the threat to our business is gone. And we're really in the phase now where we're trying to assess what's the opportunity behind each of these transitions. In other words, I think we're through some of the questions. For example, when we launched the Red Cross Resuscitation Suite Program, you know, would it be accepted? Well, we're beyond acceptance now. We're in all 50 states now. hundreds and hundreds of contracts, system adoption. And so we're just beyond the kind of the existential threat of launching a new product and it fails in the market. Now the question is, you know, how good can it be? And that's a better place to be right now. In addition, the product adoption of VerityStream. So we built a new platform, the VerityStream platform called CredentialStream, our application set. And we launched it. We were excited about it, but you never know how that's going to go. And now, again, with over 400 contracts on VerityStream, the new CredentialStream platform. I think the acceptance of the market or the market adoption and acceptance of it as a cutting-edge platform, we're kind of beyond questioning that. Now it's just a matter of how much market share can we get. And our team is really excited that they seem to be winning really well in the market with the new CredentialStream SaaS-based application. And then finally, this third transition is, I'm trying to retire the word transition and just give you operational updates from here forward. But the third transition was about the HStream platform. And while it's still an immature platform, it is starting to be the interconnection kind of tissue between all of our application sets. And we've proven that some of the core functionality of the platform works. For example, the Red Cross resuscitation suite program takes advantage of the PaaS architecture to use the identity management and login infrastructure in the past architecture. So we know it works, and we're excited to kind of pass this point of talking about it as a transitional risk and just start to provide more normalized operational updates on these three business initiatives now that I'll call them. So a little more detail on each of those, but I've covered some already. But on the Red Cross resuscitation suite, we thought we'd share a few milestones on it. As I mentioned, we're in all 50 states now. So, again, product adoption not a question anymore. And, in fact, we've amassed well over half a million subscriptions at this point for the new product, which is really quite staggering that we've been able to move that much market share to the American Red Cross Resuscitation Suite Program really in a very short time period since its launch in February of 2019. So we continue to be excited about the product, and in fact, you know, as we think about it, what's really great, too, is that the portfolio around resuscitation has also expanded. And so in February of 2020, we announced an additional product called the STABLE program, and it's a leading neonatal education program around stabilizing neonates and resuscitation as a component of it. And this highly expected program is now available online exclusively through HealthStream. And we've had strong sales in the second quarter, adding to our thousands of subscriptions for the Staple program. And, again, this is in the portfolio of resuscitation. So not only have we found success with the American Red Cross Resuscitation Suite program, but the complementary products that can be built around, surround, and supportive of that program are beginning to gain traction in the market. And so, you know, organizations like – Akron Children's Hospital, Asperis Healthcare, and Ascension Health are adopting the stable program, which is really fantastic to see. So I'm pleased to see diversification of that portfolio area of our company, as well as success of the core product, which, again, American Red Cross. So I've talked a bit already about the operational update on VerityStream, but I thought a little more color would be useful. During the second quarter of 2021, in fact, 42 new customer accounts contracted for the VerityStream application suite, which is called CredentialStream. And that brings our cumulative total to well over 400 accounts. These accounts represent a mix of new customers and existing customers who are choosing to migrate from our legacy credentialing and privileging platforms to the new VerityStream application suite. And so some of these customers that we contract in the second quarter are main brands that people may represent in high-quality health systems, like Centara Health, Shands Healthcare at the University of Florida, and even Mercy Health System has selected the Credential Stream application set. And importantly, it's good to know that all of our new customers, including the ones I just mentioned, are coming on to the Enterprise Solution, the Credential Stream Enterprise Solution. So it's our top solution and the one that we built as a result of studying and building from the acquisitions we've made over the last, say, eight years. So we're excited to be gaining traction with that application set. And then finally, the HStream platform is getting exciting now. We think of it as connective tissue, almost like an operating system that can help us improve data mobility between applications that HealthStream offers help us improve portability of data about the people in our ecosystem. And so it was exciting to see that we added 180,000 net new H-Stream subscriptions by embedding some access to those technologies into the contracts that we're signing, the new contracts we're signing. So that brings our cumulative total to 4.52 million subscriptions to the H-Stream technologies, capabilities, and solutions, which we're really, really excited about. At this time, I'd like to turn it over to Scotty Roberts for a more detailed look at the financials, and then we'll swing back around at the end and talk about the investments we want to make and some of the strategy and philosophy around our relatively new, we call it the third leg of our stool, but our relatively new scheduling and capacity management business. So, Scotty, I'll turn it over to you.