HealthStream, Inc.

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.

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.

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.