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spk01: Good morning and welcome to Healthstream's third quarter 2023 earnings conference call. At this time, I would like to inform you that this conference call is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation. I will now turn the conference over to Molly Condra, Vice President of Investor Relations and Communications. Please go ahead, Ms. Condra.
spk00: Thank you, and good morning, everybody. Thank you for joining us today to discuss our third quarter 2023 results. Also in the conference call with me today is Robert A. Frist Jr., CEO and Chairman of HealthStream, and Scotty Roberts, CFO, Senior Vice President of Finance and Accounting. I would also like to remind you that this conference call may contain forward-looking statements regarding future events and the future performance of HealthStream that involve risk and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements. Information concerning these risks and other factors that could cause the results to differ materially from those forward-looking statements are contained in the company's filings with the SEC, including forms 10-K, 10-Q, and our earnings release. Additionally, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling 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 start, I'll turn the call over to CEO Bobby Frist.
spk03: Thank you, Molly. Good morning, everyone. We have a lot to cover for our third quarter 2023 earnings call. In the third quarter, we achieved record revenue and record adjusted EBITDA. Top line revenue reached $70.3 million in the quarter, which was up 5% over the same period of 2022. An adjusted EBITDA increased to 16.2 million, which is a 28% improvement over the same period of 2022. If I reflect back, it was a quarter of financial high watermarks. Also, excellent progress on our single platform strategy. Some exciting sales wins I'm going to talk about. But most of all, the quarter was characterized by the strong leveraged EBITDA growth we delivered and expect to continue delivering. Another way to think about performance is through the higher margins and greater operating efficiency we delivered. For example, through our investments in proprietary content and applications, our gross margins have improved to be in line with our medium term financial goals of 65 to 68%. In addition, our single platform approach continues to streamline how we organize our workforce. For example, we delivered increasing revenue per employee for the past four consecutive quarters. Let's take a minute just to kind of refresh and really define HealthStream for our audience. I think we might have some new folks out there that want to hear how we describe and position our business. First and foremost, HealthStream is a healthcare technology company dedicated to developing, credentialing, and scheduling the healthcare workforce through SaaS-based applications and solutions, each of which are becoming more valuable because of the interoperability they're achieving through our HStream technology platform. We sell our solutions on a subscription basis under contracts which average three to five years in length. That means our revenues are recurring and predictable. In fact, and we checked this, of course, yesterday, 96% of our revenues are subscription-based. We are profitable. We have no interest-bearing debt. We have a strong cash balance of $71 million. And we are solely focused on healthcare, and more specifically, the healthcare workforce. In fact, the way we define our addressable market is as the 11.2 million healthcare professionals working in the United States in healthcare organizations. Though our market is also beginning to show signs of expansion into the pre-professional markets like nursing schools as well, and we're going to talk about that in the second half of this presentation this morning. As we enter the fourth quarter, we are confident that Healthstream will continue to provide results in line with our guidance range Importantly, including our increased guidance range for adjusted EBITDA of $59 to $62 million. In addition to expanding into new markets like nursing schools, this quarter we demonstrated some increasing share of wallet with existing customers. I'm really excited to highlight two examples of that in the quarter. First, one of our large customers renewed their HealthStream Learning Center and their HStream subscriptions for learning. for 16,000 users, but they didn't stop there. They also decided to leverage our marketplace of workforce solutions, and they added EBSCO Clinical Skills, our checklist product, Psych Hub, Skillsoft, Health Equity and Belonging Curriculum, and Talent Tracks, one of our development programs, as part of their five-year subscription. So that's six new products added at the time of renewal, and as a result, this account is moving from approximately $16.52 per person per year to $30.99 per person per year. And this was not an isolated example. Another one of our large accounts expanded their HealthStream Learning Center contract and their H-Stream subscriptions for learning from 15,000 to 19,000. But while they're expanding the subscription, they also were renewing their SafetyQ product, their checklist, and their CE Unlimited orders. They also added new to the contract, our quality OB program and our Jane products, while additionally expanding their subscriptions to our nurse residency program. So for all for a three-year term. So for this account, we're moving from approximately $81.24 per person per year to $108.58 per person per year. And remember, the count went from 15,000 to 19,000 all in the same renewal process. So, you know, we're excited to be demonstrating this expansion of wallet share at the customers that we already have. And obviously these two examples are customers that are deep into our ecology. They kind of shop within the four walls of Healthstream's ecology. Our partners programs are promoting them and our various applications that are increasingly interoperable become more interesting to them. So these are two great examples. We have a strategic accounts program. The goal is to expand like this at our top 150 accounts. So we're really excited to see these two great renewals, extensions and product additions, increasing share of wallet. So we're grateful for the significantly expanding commitments of these customers and others like them that they're making each time they come up for renewal. And we want them to know that Healthstream is committed to ensuring they get even greater leverage out of their H-Stream membership. That's that underlying infrastructure that's making it all work together. And each time the renewal rolls around, we try to make sure they appreciate the interoperability that, you know, every quarter we release new capabilities that show interoperability of our various application suites. There's also a strong quarter for our credential stream solutions. And this is important because we put a lot of capital into building out our credential stream solutions in the credential privilege and enroll area of our company. And so it's great to see that we're finally seeing and beginning to see really strong growth. So both in terms of competitive takeouts and conversions from our legacy solutions, in the third quarter, we contracted 32 new customers for our credential stream solutions. And that, importantly, represents about 114,000 new subscriptions collectively. And remember, when you subscribe to our credential stream application suite, you also become a member of our H-stream for credentialing and HStream platform technology. So we're excited to add, you know, through that part of the model, 114,000 new subscriptions. New customers include highly respected health organizations like Northwell Health, Aloha Care, and Banner Health. And revenues from subscriptions to credential stream in the third quarter grew 56% over the same period last year. Now, that's a smaller product. It's still in our top 10 for sure, but we're really excited to see this application suite that we've been consistently investing in for several years now show this kind of exciting growth level. Again, with 32 new takeout or new customers and 56% year-over-year revenue growth. But, you know, not to be outdone, we have another area of our business that's performing. It's our, in the third quarter, revenues from Shift Wizard, which is our scheduling business, grew 33% over the prior year quarter as customers continue to report high customer satisfactions. So really excited to see this relatively new product. As you all know, we acquired three companies in the scheduling space, and we're beginning to see some real promise in growth in this area, even though we have a lot of building to do in this area. It's an area of increased investment as well. But we're really excited to deliver 33% year-over-year growth in the Shift Wizard subscriptions. We have selected Shift Wizard as our primary kind of go-forward application set, and we're significantly expanding its ability to perform at an enterprise scale. And so we're working to make our ShiftWizard application appropriate for our largest customers. And we continue to invest to add scale and capacity and new features and capabilities to the ShiftWizard application suite. Really excited for the teams delivering that. And during the quarter, some of the many new and customers that we added were Polymar Health, Great Plains Health, and Richmond University Medical Center. So Excited to see some great new additions to our customers coming and joining the Healthstream ecosystem by selecting Shift Wizard, the application suite. So obviously really exciting developments during the quarter. And in the back half of this, after I turn it over to Scotty, we talked about kind of share of wallet in the first half here. We'll talk about market expansion opportunities in the second half. So let's turn it over to Scotty and do a deep dive in the numbers and then bring it back to me for discussion of market expansion.
spk04: All right. Thank you, Bobby, and good morning. I'll jump right in and hit the financial highlights for the third quarter. And unless otherwise noted, the comparisons will be against the same period of last year. As Bobby mentioned, it was a record quarter in which we achieved new high watermarks for revenue and adjusted EBITDA. We achieved record revenues of $70.3 million, up 5%. Operating income was $4.9 million, up 104%. Net income was $3.9 million, up 5%. Earnings per share was $0.13 per share, up from $0.12 per share. And finally, adjusted EBITDA was also a record high, coming in at $16.2 million and was up 28%. Now let's start with revenues, which surpassed the $70 million mark for the first time and were up $3.1 million, or approximately 5% compared to last year's third quarter. Revenues from subscription products accounted for 96% of total revenues, and our subscription revenue came in at $67.5 million, or an increase of 5%, while revenues from professional services were $2.9 million and declined by 11%. As a software company, our focus is on growing subscription revenue versus services revenue, and the quarter's performance reflects just that. Gross margin was 66.5%. up from 65.3% last year, and positively benefited from changes in revenue mix, including growth from products that we own. Additionally, cost of revenues only increased by 0.2 million, or 1%, which is due in part to lower compensation expenses resulting from the organizational changes that we implemented earlier in the year, though these were partially offset by higher hosting and software costs. Operating expenses excluding cost of revenues were up 0.4 million, or 1%, over last year's third quarter. Depreciation and amortization were up 8%, and G&A was up 2%, while product development and sales and marketing were down 5% and 1%, respectively. Our product development costs declined by 5%, which is net of labor costs that were capitalized for software development. We maintained a consistent level of staffing and base compensation compared to last year, while capitalized labor costs increased approximately $600,000 over the prior year quarter. Sales and marketing expenses were down 1% or less than $100,000. Staffing levels were down slightly, resulting in lower base compensation, but this was partially offset by higher sales commissions, which is consistent with the growth in revenues. G&A expenses increased by 2% or around $200,000 and were mostly a result of higher bad debt charges and professional service fees, but were also partially offset by lower staffing costs and other general expenses. Our adjusted EBITDA was a record high of $16.2 million, which was up 28%, and our adjusted EBITDA margin improved to 23.1% compared to 18.9% last year. The growth in revenues, improved gross margins, and their operational efficiencies from the consolidation efforts we made in the first quarter led to this improvement. Now, let me mention our H-stream subscription count before moving on to the balance sheet. In the third quarter, H-stream subscriptions increased by 113,000 over the previous quarter to a total of approximately 5.7 million. Now, let's take a look at the balance sheet metrics. We ended the quarter with cash and investment balances of 71.8 million, which was up from 56 million last quarter. During the quarter, we deployed 6.7 million for capital expenditures, paid 0.8 million to shareholders through our dividend program, and we repurchased 2.1 million of our common stock under the share repurchase program that we announced in September. Day sales outstanding increased to 43 days compared to a record low of 38 days last year. But DSO came down by seven days when compared to last quarter. As a matter of context, I'm comfortable with our receivables metrics and the improvement that we made during the quarter with cash collections. On a year-to-date basis, our cash flows from operations improved by 7.1 million or 16% versus last year, coming in at 50.2 million. And free cash flows also improved to $28.8 million compared to $24.1 million last year. As for the third quarter, free cash flows were $18 million, another record high for us, which helped boost the cash balance to over $71 million. Remember, our free cash flows are seasonal, with the first and third quarters generally being the strongest, and cash flows tending to be closer to break even in the second and fourth quarters. With regard to our capital allocation, aside from the capital investments that we make into our products, we're also deploying capital to improve shareholder value through cash dividends and share repurchases. Since the adoption of a dividend policy by our board of directors earlier this year, we have made three quarterly cash dividend payments so far this year, returning 2.3 million back to shareholders. And yesterday, our board of directors declared a fourth quarter dividend that will be paid in December. In respect to share repurchases, last month we announced the $10 million share repurchase program. We made $2.1 million of share repurchases during the third quarter, and through yesterday we had purchased a total of $8.9 million under the $10 million program. Now, this program will terminate on the earlier of March 31, 2024, or when the maximum dollar amount under the program has been expended. We may suspend or discontinue making purchases under the program at any time. Also, earlier this month, we entered into an agreement with Truist Bank to renew our line of credit facility for another three years. The credit facility terms and conditions are basically the same as before, and you can find out more details about this transaction in the form 8K we filed on October 10th. You'll notice that we capped the facility at $50 million which we feel is an appropriate size for us given our strong balance sheet and growing free cash flows. Now as for guidance expectations, we have updated our financial expectations as follows. We continue to expect that consolidated revenues will range between $277.5 and $283 million. We have updated adjusted EBITDA, which is now expected to range between $59 and $62 million compared to the previous range of $57.5 to $60.5 million. And capital expenditures are still expected to range between $27 and $29 million. And while our guidance includes the acquisition of EEDS, which occurred late last year, it does not include assumptions for any acquisitions that we may complete during the remainder of the year. So now let me take a brief moment to provide some additional thoughts on the guidance before turning the call back over to Bobby. Our forecasted revenues for the year are trending to around the midpoint of the range, which would imply around a 5% growth rate over last year. And as for adjusted EBITDA, our focus on operating efficiency and higher gross margins is translating into financial leverage. And at the midpoint of our increased guidance range, this would imply around 13% growth over last year. Furthermore, I want to share two other metrics that reinforce our performance. Our annualized revenue per employee has improved from $234,000 to $259,000, and annualized adjusted EBITDA per employee has improved from $44,000 to $60,000 compared to the third quarter of last year. Well, that concludes my comments for this quarter's call. Thanks for your time this morning, and I'll now turn the call back over to Bobby for some additional updates.
spk03: Thank you, Scotty. And I'm excited to dive into the second portion of my presentation here. In the first half of the call, we focused on how we're selling more products to existing customers. And now I want to take this portion and focus on some market expansion that we're working on and very excited to see some traction in. So by selling directly to nursing students and nursing schools, we're just beginning to sell our products to a whole new set of customers. And we saw some traction on that in the third quarter. Some of you may recall that we acquired a company called My Clinical Exchange in December of 2020. And you can think of My Clinical Exchange, both the company and the product, as a bridge between students, these nursing students, and the hospitals that hire them and put them into rotations to gain experience to ultimately become a nurse. So My Clinical Exchange is like the connection bridge between the student and those rotations. And it's also used, interestingly, to kind of credential and profile and onboard these nurses into these internships and rotations. So it has a little dimension to it to kind of qualifying the applicants as well. Year to date, we generated just over $3 million of revenue from this product. Again, kind of a new category for us. And that's a 27% increase over the same period last year. So it's exciting, you know, after we deployed the capital into the acquisition and kind of declared that we'll be entering the market of these students. And we just love this idea because we get to the students, even pre-professional, before they're nurses, and then they enter the workforce with, you know, an H-DREAM ID, and we're just really excited to see progress in their series. So, so far this year, we've placed over 161,000 clinical rotations. So that's placing a student of some sort, most nurses, into a rotation in a hospital. And the hospitals love this because, of course, As they become nurses, they become candidates to work at that hospital. So this product, My Clinical Exchange, which grew 27% over the prior year, is doing two great things for us. It's helping us be an ally to our hospital customers by bringing them the best nursing students. And it's also allowing us to build a business relationship with these nursing students before they enter the market as professionals. So they're engaging with our technologies and platforms earlier in their career, which we're really excited about. You know, so when they enter into the My Clinical Exchange application, it gives Healthstream direct access to the students who use it. And with this access, we can better understand what products the students need before they transition into their professional careers. And we can begin selling those products directly to them and, importantly, to their schools. So in addition to targeting the expansion by targeting the nursing students, We're also expanding the selling to nursing schools. In the third quarter, one of the largest nursing schools in the country completed an enterprise purchase of the American Red Cross resuscitation suite. And we're really excited to see this dynamic because, you know, how exciting is it for a new nurse while in school to earn this credential and carry it forward into the markets? So, you know, after careful consideration, this customer determined that HealthStream and the American Red Cross provide the best solution for fulfilling the resuscitation certification needs of the student. And, you know, it's a two-year credential, so they enter the market now with that credential. And if they show up at a hospital that uses the H-Stream platform, then those credentials automatically populate into the learning application. So, again, another example of interoperability, finding new in this case, customers or individual professionals before they typically would have engaged with HealthStream. So we're excited for us to be engaging earlier. We're excited for these graduates who enter the market with this stronger resume. We're excited for the Red Cross who gets to develop the clinical skills of these nurses at an earlier stage than they might have otherwise. And so all around, a lot of excitement about how we're expanding a definition of our market to include the pre professional market and specifically nursing schools. So we're in the early days of this journey, but you can tell from my clinical exchange traction, the 27% growth and that we're getting to this new market and they're entering the market with their H stream ID, which is just a really exciting new way to think about how we define our market overall. So I'll shift gears here and just wrap up for our employees by showing how we're demonstrating our streaming good value. We have this constitution we run our business by, and streaming good is one of our many important values. And we're able to demonstrate our streaming good value in this quarter by the way we were able to serve the healthcare professionals on the front lines in Maui, where the historic fires were really devastating overall. And they include just kind of incredible mental health challenges for the workforce as they tried their best to provide services and care for the survivors of those horrible fires in Hawaii. So Healthstream was able to team up with one of our partners, Psych Hub, And we're able to, which we do have an equity investment in PSYCUB. So that was exciting for that reason as well. And we also teamed up with the Hawaii State Nursing Center, the Hawaii State Center for Nursing. And we organized a complete online offering of psychological first aid training and education. And we did this free of charge. And so we're able to help Hawaii, help the nursing, the nurses in that state in their recovery mode and kind of process all that they were going through. We're excited that allowed our employees to live their streaming good value and provide this valuable service at a time of need. And it's just one more idea of how we can extend our capabilities to our platforms and technologies for the betterment, in this case, of the well-being of the nurse population and the healthcare providers that were fighting so hard on the front lines in Hawaii. So we're honored to be a crucial resource to these healthcare professionals and we consider them national heroes, and we're excited to be a part of that provision of care. So as we close this portion of the call, I do want to remind you about our dividend policy that began earlier this year. We made the third payment under this policy about a month ago, and just yesterday our board approved what will be the fourth installment of quarterly payments under the plan, and that will be paid on December 22nd. We're pleased that our strong balance sheet and our strong operational performance puts us in a position to return value directly to shareholders through the company's first quarterly cash dividend program. Over the course of the full year 2023, we expect our new dividend policy to return approximately $3 million to shareholders, and we're on track to meet that goal, and we will consider whether to expand our dividend program next year. So we look forward to taking that up in future board discussions. If you're interested in a profitable recurring revenue, 96% subscription, SAS, PATH, healthcare technology company that for 2023 expects to deliver steady growth, and have determined to share some of those gains directly with shareholders, maybe Healthstream is the company and the stock for you if you're here listening. We'd love to have you guys as shareholders to go on this journey with us. Let's turn it back over to the operator and begin the Q&A session with our analysts.
spk01: Thank you, sir. The question and answer session will begin at this time. If you're using a speakerphone, please pick up your handset before pressing any numbers. Should you have a question, please press star 11 on your telephone. If you wish to withdraw your question, please press star 11 again. Your question will be taken in the order they are received. Please stand by for your first question. Our first question comes from the line of Matt Hewitt with Craig Hallam. Your line is open.
spk07: Good morning, and thank you for all the detailed commentary so far. Maybe first up, what are you hearing from hospitals, just the broader market trends Obviously, you had a couple of companies report this morning talking about procedure volumes up, but still seeing some difficulties or headwinds on the income side of the equation. What are you hearing from customers and how are you able to kind of navigate that?
spk03: Well, the challenge for them is a lot of their issues around workforce. We do think that our Solutions are a great aid in the development, retention, and better management of the workforce. So part of that cost structure that they're working hard to manage is related to workforce retention, engagement, and development. So I think we're aligned with helping them through the challenges that may be driving some of those financial challenges that they articulated. So I feel aligned with our customers in trying to help them through this period. It's good to see the volumes up. We like that as a sign of strength. for our hospital customers and all of our continuum market customers as well. So there's some signs there that are positive. And I do think the areas they have the biggest challenges in are the topics of the CEOs, which are how do we retain, engage, develop, and better manage our workforce? So we're proud that our 1,100 employees are aligned. And when we're called in, we can be a help on everything from a psychological well-being, like we talked about in Hawaii to the skills development, like the Red Cross program, which we think is a lower-cost, higher-quality program than the competition, and all the way on through to nursing skill development with our Jane products. So we think that we're aligned to help them work their way through the challenges that they were talking about at the macro level.
spk07: Understood. That's helpful. And then a question, the 11.2 million employees that your application is Does that include the nursing schools, the students that you are now kind of opening up this new market?
spk03: I don't think it does. I'm about 98% sure it does not. That metric is defined in our Ks and Qs. And I'm pretty sure it doesn't include the pre-professional market. And so nursing schools, we are believing and on this call declaring as an expansion of our opportunity. So we may have to adjust that number over time. uh you know it's new for us uh and our first big sale occurred in the quarter so uh we'll we'll look to see how to adjust that definition of market but you know we are particularly interested in getting to these uh right before they become nurses we don't go all the way down to grade school but i do think you know catching them in their last year of nursing school we're clearly now onboarding tens of thousands of new nursing students into our network and getting them an id right before they enter the professional market. And so we're really excited about that. I think that represents a market expansion definition for us.
spk07: Well, that makes a ton of sense going after that, those potential future nurses. And so maybe one last question, maybe more for Scotty, but gross margins, obviously another nice step up there. And I know it's within the midpoint of your kind of your three-year target, but What would be the impediment of kind of growing beyond the 67%, 68% over the near term? I mean, is there anything that would stand in the way of that? I mean, you've seen some pretty nice growth in that metric over the past few quarters. I'm just curious what would prevent you from expanding further. Thank you.
spk03: I'll try first and let Scotty add. I think one of the things that we're excited about is that almost all of our new products are being built using our platform technologies, using some of our APIs that give us a little inherently more leverage and a little faster rate of production of new products and introduction of those products. So, you know, my general sense is that the ideas in the pipeline and the things that we're working on are generally either data-driven products where we own the data or content products where we own the content or application suites that we're building organically using our new platform technology. So in general, over time, I think that the growing parts of our business have inherently higher gross margins. So right now, we need to stay and define our target within that range. But I think there should be this kind of continued slight upward pressure on that gross margin opportunity because the nature of what we're building is different than, say, the origins of the company that were built around partner content that had higher cost of goods. I think that that's my general answer is that I don't see what could stop us from continued expansion. But we have outlined these three-year objectives, and we're really excited to be landing already on that one measure in the range of our multi-year objectives. So we're glad to see that progress year-to-date. Scott, I don't know if you want to add anything to that, but hopefully that addresses the question.
spk04: Yeah, I mean, I think, Matt, that's obviously where we're headed is trying to continue to improve on that metric. And just for a little additional context, just one thing to keep in mind is we've talked about transitioning to a path. uh company and continuing to progress down that that road you know one of the things that's influencing margins to some degree and will likely continue to influence margins is just removed from a traditional you know you know hosting environments on a co-location uh type of environment to cloud hosting so our investments in cloud continue to increase and obviously that's the cost of delivering our service so it's influencing margins to some degree but As our products continue to migrate towards higher margin solutions, we think that will overcome some of those costs that we're seeing increasing related to cloud.
spk07: That's very helpful. Thank you.
spk01: Thank you. One moment, please, for our next question. Our next question comes from the line of Jared Haas of William Blair. Your line is open.
spk05: Yeah, good morning. This is Jared Haas for Ryan Daniels. Thanks for taking our questions. Bobby, maybe just was hoping to get a little bit more color on the credentialing application suite. And specifically, I know you recently announced a couple of new product innovations for that suite of products. So it would just be great to get your perspective of how you're thinking about the demand environment for the credential stream suite and maybe how you're still thinking about how to stream position relative to the market.
spk03: Sure. On the Credential Stream suite, it is first, you got that right, it is a suite. And so it's a set of modules and capabilities, an application that is increasingly connected to the H-Stream technologies. It has some really powerful differentiators built into it, like our Privileged Library, which is a curated data asset that we own, and a differentiator in the market. And so it's also, we believe, one of the most complete application suites in the market. So we think it's highly competitive against the competitive landscape. We find ourselves a finalist in almost every competition that is available to us in the markets that we've defined. And so we think it's competitive because it includes capabilities around credentialing, privileging the physicians, enrolling them in insurance and the onboarding processes, both facilitating some of the HR onboarding processes like training and facilitating the EHR provisioning process by also delivering some of the training to get them ready to be provisioned on the electronic health record system. And so we think we just have a very complete definition of the application suite that works together really, really well. Also, one of our philosophical differences in our competition is it's kind of a physician-centered process instead of a back office process. Our physician hub, is gaining in both popularity, we watch its Net Promoter Score, which is positive, and with physicians who are taking a little bit more personal control over this credentialing, privileging, and enrollment process. So the Physician Hub component is also, we think, a differentiating point of view for us, redefining the workflows a little bit around the physician. And we're seeing that engagement really be strong with the Physician Hub component of the Credential Stream Application Suite. So overall, we think well-positioned, as demonstrated by adding 32-plus customers across that suite during the quarter. And also, it's nice to see the subscription revenues starting to compound a little bit. And I think the number was 56%. Let me look back at my note. Maybe, Scotty, what was the revenue growth rate year over year on CredentialStream?
spk04: I think you got it right, Bobby.
spk03: Yeah, I think it's 56%. And ShiftWizard was 30-something percent. So, yeah, I think overall, I hope that answers the question. We feel it's very competitive, a finalist in every deal we look at. And we believe we win more than we lose. So really excited about how well positioned that application suite is. You know, we acquired several companies over a decade and rebuilt the core application set. And, you know, we have over 700 agreements on that core new application set and expanding obviously rapidly. So we're excited.
spk05: Okay, great. Thank you for that. And then just as a follow-up, I wanted to talk about staffing. It sounded like you mentioned labor costs were down a bit year over year. Can you just remind us where you're at kind of relative to your broader hiring needs? I think last quarter you talked about having a handful of open positions that you were expecting to fill. here in the second half of the year. So maybe just a quick update of where we're at and how we should sort of think about kind of a run rate for operating expenses going into 2024.
spk03: Yeah, I think we have about 50 open positions. I think we're recruiting for about 20 of them. We have some new hiring models, which are exciting, where we hire kind of cohorts together and bring them in as a team. For example, we just hired a development cohort for one of our applications, a ShiftWizard application. which allowed us to move the development of that from an offshore team to a health stream team. So we do have open positions, and with the natural turn, we're also using departures as an opportunity to reshape the business. And so we've got all of our managers thinking about that as if people do elect to leave. We're using that as an opportunity to think about our structure and where our emphasis is. We're trying to put more emphasis on the customer and connectivity and on development. And so those are two areas of relative investment. Overall, I'd say our employment numbers are fairly stable with the kind of puts and calls of natural turn, performance-based terming, and also the hiring that's going on. So I think overall around this 1,100 number is a good way to think about the scale of our workforce in the coming quarters. Okay, great.
spk05: Appreciate the color. Thanks.
spk01: Thank you. One moment, please. Our next question comes from the line of Richard Close of Canaccord. Your line is open.
spk06: Great. Thank you. Can you hear me okay?
spk03: Yes, Richard. Yep.
spk06: Okay. Excellent. Well, first of all, congratulations on the success here. A great quarter. I was just curious on, you just mentioned the credential stream and revenues grew 56% in the quarter. Shift Wizard, I believe you said 33% over the prior quarter. And then just looking at those growth numbers, your revenue growth overall was like 5%. So Just curious there, is some of the growth in credential stream and shift wizard that you reference, is that some cannibalization of the legacy products? I just thought with those type of growth numbers, total would be greater.
spk03: Yeah, yeah. So there's definitely some of that. As we know, we acquired a lot of applications, and some of those we classify as legacy applications. And our goal is, is to move those customers so that is true some of that comes from migration as we talked about and uh some of it comes from new wins out in the market and it's probably around uh for credentialing anyway around 50 50 i believe i may be a little off on that but just historically i think you know any given quarter is a little bit of i guess you would call it cannibalization but we call them successful migrations to a sas subscription uh application suite so But some of that growth number is the migration from the legacy applications over. And again, we celebrate those migrations. And they're definitely new business on the newer applications. And we think on credential stream, it's probably about half. And I'll see if anybody texts me, one of my officers, anything different than that. But I'm going to say ballpark, the last few quarters is probably around half.
spk06: okay so the lower growth rate overall for total revenue doesn't you know doesn't it um imply like you know customer churn on the learning platform or anything significant like that well there's always a little of that you know it's we've got a lot of market share and so there's always a little coming and going I think what we're trying to highlight most recently though
spk03: is where, you know, once we get a customer in for three or four of our products, they seem more likely to go from three or four to eight to 10 than they do to leave. Now, when we have just one product, maybe we've got a toe in the door a few years ago, and maybe they change, they make a different business decision on that product. That's where we lose them on that product. And we also lose them on the H stream platform. And so, and I think a couple of quarter ago that happened on a few accounts. We don't consider them like real ecosystem partners. So we're really excited this quarter to see the change in a couple of our key big renewals this quarter went the other way. And so we're really excited to watch them go from, you know, five products to 11 products and doubling their subscriber revenue per person per year. And, you know, obviously that's more typical because overall we have growth and we have growth in our newer product categories.
spk06: I know you're probably not going to want to answer this question, but is there any way to sort of size as a percentage of overall revenues, like the learning versus credential and shift wizard in terms of, you know, well, I think you're, you're, you're, you are right because we're really where we're trying to get Richard and we're just not there.
spk03: We have this, I'll call it a very immature metric, this H stream subscriptions. In fact, there's still, A lot of work to clarify the difference in a subscriber and a subscription. We've broken down this platform, H-Stream, into H-Stream for learning. Almost think of it as a membership in our learning network. H-Stream for credentialing and H-Stream for scheduling. So we've created these value bundles that are kind of infrastructure that are bundled with the sale of each core application. And where we're trying to get, obviously, is to sort out how many unique individual professionals are in our entire network. And I think, you know, our goal is to get to a place where we can say, you know, that Bobby the nurse on credentialing is the same Bobby the nurse on nurse grid is the same Bobby the nurse on our learning application. And they spend three hours here and one hour here and 10 minutes there each week. And this H-DREAM ID technology that we're rolling out now will help us reconcile all that. And we'll get to a better numerator, denominator around the subscriber number versus the subscription sold to these kind of applications suites and their supporting infrastructure. So that's a long way of saying we're trying to move to a single platform metric kind of goal where we can get to this revenue per person per year. And then we may or may not break it down by categories like learning and scheduling, but you can see our extreme focus on at the account level to grow the revenue per person per year. And We're just not quite there yet. The metric itself isn't mature enough, and it's not wired to all of our applications, so it can't be used yet like a cable company would, where you can say revenue per person per year, company-wide, per product category. But that's where we're headed, and we've launched new scorecards internally so our product managers can start to know, like, well, my product adds $2 per person per year to the overall metric. So my hope is the next year or so we can refine these metrics further so they'll be a little bit more correlated to the growth trajectory We'll get them connected technologically to more of the application so that all applications are contributing to the denominator of that measure, adding H-DREAM subscribers. And also, we've had a team of people working hard to reconcile the unique subscribers so that we know that Bobby on H-DREAM for learning is the same Bobby on H-DREAM for scheduling. So that's a long way of saying you're right. We don't want to be segmented into these three application suites. Instead, we want to be thought of as a single platform, almost the way you think. You know, Apple issues a billion Apple IDs, and that's the way they think of a billion users of their ecosystem. And then they start to think about where they're getting them to invest and spend money across that ecosystem. So we're trying to be a single platform company, and we're working hard at structuring our application suites and our infrastructure to support that form of metric instead of breaking out per product. Because, you know, hopefully someday we have so many products in the ecosystem that that it makes a little less sense. Maybe the product managers in my company, they'll know that I have, you know, I have 300,000 subscribers at $2 per person per year on my product, but, but we already have over 50 products to generate a million a year. Uh, and so, you know, we're thinking much more portfolio like, and then aggregating it around the users. Uh, and that's where we want to get with the eight stream metrics someday. But right now it's a little bit of a disconnected metric. We've been reporting it for a while, definitely better up than down, but, uh, In the coming quarters and years, it's going to be much more meaningful.
spk06: Okay, that's very helpful. And then, Scotty, I was going to ask, you know, with the subscription model, I thought the guidance range for revenue seemed a little bit wide, but just wanted to go back in terms of your added commentary. So you're expecting to be – roughly at the you know trending towards the midpoint of the revenue range yeah richard that's yeah that's where we are forecasting that's the remarks that i made okay i just wanted to clarify that that's uh really helpful thanks um and then scotty maybe on the product um expenses i was curious it declined sequentially um was there If I go back to last quarter, I thought you said you're going to continue to invest and whatnot. But I was just curious if there was anything specific from, call it second quarter to third quarter, that led to that sequential step down, if I'm not mistaken.
spk04: Yeah, I know... I think relative to last year, it was down. I have to go check my numbers on sequential. But I think in my remarks, just pointing out that capitalized software development continues to increase for us. We're obviously putting more emphasis on product development and just the mix of projects that are ongoing and how that translated into what was capital versus expense influence year over year. I'll go back and look at sequential activity, but I think, you know, as we mentioned, as Bobby mentioned just a few moments ago about staffing and, you know, it was fairly flat in the quarter. And so from a cost perspective, not a lot of movement in the cost structure. And as you know, as Bobby also mentioned, as we have Departures, we're looking strategically at how to reinvest those freed up dollars to put back into the company. It may not be an equal trade-off on one position leaving and another one coming in. So we're being more strategic about how we deploy those funds back into the business as well.
spk06: Okay. I guess my final question is, I thought it was interesting on the $3 million of revenue year to date. I believe that's my clinical exchange. And Bobby, can you just remind me, like, who's paying you guys that $3 million? Is that the nursing schools or the nursing students themselves?
spk03: Yeah, yeah, that's a great question. It's a really fascinating model. We're excited about it. Here's how it works. it's the software, the hospital gets some software as part of the solution set, allows them to pick through the students and choose who gets a rotation and also take their preliminary application in for the rotation. So the hospital has some software. The nursing school gets some software so they can see the profile of their students that they're pushing forward into the hospital network. And the student also has software access. They they get access to build their profile, essentially a little bit like LinkedIn, so they can kind of profile themselves. And the model is set up so that along that chain, almost anyone can choose to pay for it. And so it's about, I believe it's about $30 per person, per applicant, essentially. And about half of the market lets the student pay. And so when the student enters their credit card and they pay the $29, they get access to this network, and that helps them find a rotation. In some cases, about the other half, I'd say the hospitals choose to pay. It's part of almost recruiting future talent. And so it's about 50-50 of the $3 million, I believe, half paid by hospitals and half paid by the student. And in some cases, they make it kind of part of the program at the nursing school. So it would be almost like the school pays and gets reimbursed. But Easiest way to think about it is about 50% is paid, self-paid by the student, and about 50% by the hospital. And the hospitals are largely the ones that decide which model to adopt. They can say, you know, push the application fee out to the applicant, or they can choose to pay for it for their network.
spk06: And then is there any tie-in to, like, my clinical exchange and –
spk03: the nursing app that uh what was it nurse nurse is there any integration between these two things or uh not yet but we have concepts that they might apply for their uh nurse my clinical exchange through the nurse grid app we have concepts that we're working on that would allow uh well as you know i think you know we're working on offering learning to the nurse grid network and offering learning to the my clinical exchange network so Our new platform gives us commerce capabilities now that we didn't have before that allows us to make products available in both of those networks. And of course, my vision would be to have those work together. I know the teams are working on lots of ideas to make them more interoperable. But right now, we essentially are going to infuse commerce into both of those channels by year end, in fact. So We're excited that those will become opportunities in the next, really, 60 days.
spk06: Okay. Well, thank you. I've taken up a lot of time, so I'll turn it back over.
spk03: Thanks, Richard.
spk01: Thank you. One moment, please. Our next question comes from the line of Vincent Colicchio of Barrington Research. Your line is open.
spk02: Yes. Good morning, Bobbi. You had a very healthy growth in average revenue per employee. Nice to see. I'm wondering if you have a growth, a comparable data point for the renewals. Maybe that would provide some sort of anecdotal indicator as to where the overall metric may be headed.
spk03: Oh, great. You mean at the account level? So we did give two examples. Obviously, they were really good examples, but they were larger. And so it's great to see one account almost double from $16 to $30 plus per person. And the other go from, I think, is around $80 to $108. But we don't have that metric wide. Of course, we have about 60 people in account management that manage our top hundreds of accounts. And their goal is to grow revenue per subscriber. And, of course, my goal is, as I've mentioned in the coming quarters and years, to get to a place where we can share those numbers globally, where averages will start to mean things across our H-treme for learning subscription, our H-treme credentialing, and H-treme for scheduling, which should launch this quarter. So I don't have an answer for you now. We have a couple of exciting examples, and it's directly where we're going, Vince. And we have teams of people, account managers in particular, focused on growing the revenue per person per year. But right now, we can kind of only cite samples instead of reporting kind of averages across the product sets. But we'll get there. I think that you've hit the nail on the head about where we're trying to get, so it'll be even much easier for you guys to model our growth. So you're on the right track. You're a little in front of us. I need a few more quarters.
spk02: And then the identity management and license management products on the HStream platform, are they meeting expectations?
spk03: Really exciting. We've taken that license verification service, which is a data-driven service. We've bundled it in with your H-treme for learning subscription. So there's kind of an included kind of concept, almost like Amazon Prime comes with, quote, free movies. And we all know they're not really free, but they are included. And so, yes, we've just surpassed a half a million subscriptions to the license service, which is being activated on behalf of our customers that have the H-treme for learning in their contracts. So We're really excited. And then we're converting some of those to upsell to add the other forms of sanction screening. And meanwhile, because it's an API-driven service, we're infusing those same services into other application sets. And so we're really excited overall about these new data-driven services. And I don't have the conversion rate in front of me, but we do have upselling happening. It's probably less than 10% now, but we do have it where they get, quote, the licensed service included with their hstream for learning subscription in their contract again like amazon includes movies and then there's a buy-up so we have a sales team that calls and offers them the other forms of sanction screening as a additional purchase and we do have a closure rate on that as well so we're beginning to see revenues come out of those data-driven license verification office of inspector general sanction screening as well and so Really excited about the long-term implications of that. And it's great to see the base users surge past the half a million now.
spk02: And a quick one for Scotty. What was the percentage contribution to growth from acquisitions? I know it was small.
spk04: Yeah, that percentage is probably going to be around half a percent maybe of the growth rate. It was just under half a million of the revenue in the quarter.
spk02: Okay. Thanks, guys.
spk04: Sure.
spk03: Thanks, Vince.
spk01: Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Robert A. Frist, CEO, for any closing remarks.
spk03: All right. Thank you, everyone, the health streamers that made this all happen. A great quarter. Looking forward to wrapping up a strong year end. The analysts that cover us, thank you for telling our story. And potential investors out there, we hope you take a look. We're trying to get good shareholder returns here with this dividend and deliver strong operating leverage, particularly in our cash flows, free cash flows, and EBITDA metrics. So excited and look forward to next quarter. Thank you, everyone, for participating.
spk01: Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating, and have a great day. You may all disconnect.
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