HealthStream, Inc.

Good morning and welcome to Healthstream's first quarter 2024 earnings conference call. At this time, I would like to inform you that this conference 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. Thank you for joining us today to discuss our first quarter 2024 results. Also in the conference call with me today is Robert A. Frist, Jr., CEO and Chairman of HealthStream, and Scotty Roberts, CFO and 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 could 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 the adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA And reconciling to net income attributable health stream is included in the earnings release that we issued yesterday and may refer to in this call. So with that start today, I'll turn the call over to CEO Bobby Frist.

Thank you, Molly. Good morning, everyone, and welcome to our first quarter 2024 earnings call. As our analysts sometimes say, it was a solid print. In the first quarter, we achieved record revenue and record-adjusted EBITDA, In fact, our quarterly financial performance showed year-over-year increases in each of the major categories we highlight in our earnings release. I'm excited to be able to report that type of performance. The first quarter revenues were $72.8 million, up 6% over the first quarter of last year, and adjusted EBITDA was $17.1 million, up 24% over the first quarter of last year. We were able to reiterate our financial guidance ranges for the full year of 2024, And right now, we have the full expectation that we'll be able to hit the ball right down the middle of the fairway. We're looking to the middle of the range in performance. So we're excited to deliver these strong financial results and reiterate our financial ranges with an expectation of going right down the middle. Later in this call, after Scotty's discussion about financials, I'm going to describe some of the developments in learning, credentialing, and scheduling application suites that are helping drive these results. I do want to back up a little bit and talk about an emerging trend we're seeing that I think is worth calling out. The trend I'm referring to is the increasing amount of attention that healthcare organizations are paying to their workforce, kind of broadly defined. Now more than ever, we believe that healthcare CEOs are embracing the fact that their workforce is their most valuable asset. And the staffing shortages that were exacerbated by the pandemic really served to reinforce the ongoing importance of taking care of your workforce And hopefully, from our point of view, investing in them to retain and develop them in their capabilities and capacity. And, you know, these are the things that Healthstream has been focused on for a long, long time. We're just laser focused on workflow applications that improve both the quality, the knowledge of, and the knowledge by these healthcare professionals. And, of course, their skill sets. We also make sure the right people are in the right place at the right time. So a lot of things that we do that help organizations focus and bring deliberate focus on on retaining and developing. In fact, if you ask any health stream employee, you know, I'd say they're proud to say that our vision has always been about improving the quality of health care through the people of health care by improving who they are and what their skills are. And so we've held that vision to improve the quality of health care by developing the people who deliver care for a long time. And based on our conversations with customers, it's just increasingly becoming a top priority for them as well, the healthcare workforce as a topic. And you can look at that from any direction, from workforce shortages, the need to cross-develop competencies and skills. These are all emergingly kind of the hospitals are realizing their need to invest in these areas. Healthcare can be complex, but working together with our customers, we help them take care of these people, and we know how to do that well. It's just something that benefits everyone. So our three application suites, along with the HealthStream platform underpinning them now, and our deep network of customers have helped position HealthStream as the workforce platform of choice, or maybe sometimes we say the people platform for healthcare. Moving on to more specific business topics, I want to share two updates that we believe are emerging parts of our business that could become growth drivers in future years. To be clear, not material contributors today, But the expected growth results are, we're excited to see the initial results in these areas that we're going to discuss. The first is we're excited to advance our commerce capabilities. For the longest time, most all of our sales have been done, facilitated by a field sales organization, which is wonderful. And we build strong bridges and relationships with thousands of customers through this incredible sales organization. But increasingly they're supported with e-commerce capabilities that are a part of our H-Stream platform. And we're building out these capabilities for three areas of commerce. The first is kind of enterprise-level purchasing we call collaborative purchasing. And we brought this up on prior calls, but our collaborative purchasing tools are now evolving with better e-commerce capabilities built in. And so that's exciting. The second is I guess what we would call departmental-level purchasing. It's business-to-business purchasing kind of at the departmental level. And we now have new tools that we're launching that help department heads and others manage their education, training, and development budgets through commerce tools, which is exciting. And then finally, the one I'm going to talk about is actually the newest. Our ability is to focus on the individuals in our ecosystem with direct to individual commerce purchasing. And during our last call, I mentioned to you that we'd started selling a course called the DEA Mandated Opioid Course. It's required a position through kind of a federal mandate, so it has strong tailwinds. But through our e-commerce capabilities and through ,, we were able to present the opportunity to purchase this course in our own network, and in some cases, promoting it inside of our own application areas. I can now report that we had approximately half a million in DEA course sales, direct to professional, direct to doctors, sales of the DEA course during the first quarter alone. And so this is a really an exciting kind of breakthrough moment as we use our new commerce tools to allow for direct purchasing by physicians of, in this case, this course. Now again, this course is a bit anomalous because it's a unique opportunity based on a federal mandate. It's time sensitive and we happen to have just the right content for it. But nonetheless, it wouldn't have been possible without being powered by our new commerce tools. So, taken by itself, this represents, you know, one group of individuals, but in the greater scheme of things, we think it represents an opportunity to expand these direct professional commerce capabilities. You know, and as the people platform of healthcare, I think Healthstream is well-positioned to know what individuals need, when they need which course and when, and then also how to get it to them. And so, I feel well-positioned to extend this commerce capability to be part of the whole platform for healthcare. Well, you know, the other channel where we're seeing expansion of direct commerce is through Nurse Grid Learn. And you'll recall that our Nurse Grid app is extraordinarily popular with nurses. We have over a half a million monthly active users. And if you ask almost any nurse, you're going to have a really high hit rate that they both like Nurse Grid, the app, which helps them manage their personal schedules and work schedules. And they're beginning to appreciate some of its new features and capabilities like Nurse Grid Learn. And so we began to see some recent transactional volume through NurseGrid Learn direct to nurses as well to see that start to be powered by our new commerce tools. Let's move on to the expansion of our total addressable market, which we announced in October of last year. Specifically, I want to provide you with some developments that we're making around nursing schools. After completing our first major enterprise sale to one of the largest nursing schools in the nation, I'm pleased to announce that we have now fully implemented our HealthStream technology platform and the Red Cross resuscitation at over a dozen of their campuses, and we expect a full rollout during this quarter, the second quarter. So an exciting rollout to one of the largest nursing schools in the nation, using the HealthStream technology platform, the HealthStream ID, along with the Red Cross resuscitation suite, and now they're entering work when they get their first job after graduating and becoming nurses. They enter work with a Red Cross certificate thanks to this new relationship with nursing school, with this large nursing system. And so we're excited to see them enter the workforce with that ID and with that Red Cross credential. We'll be able to report more on our progress here financially, but the implementation wave has begun and we're really excited about that. And really the great opportunity is that the data on their completion of that certificate would carry forward with them into work if they land at a facility or health organization that uses our learning application suite. And so we're really excited about that advance, of course, also powered by the H-treme platform and its interoperability APIs. So again, excited to see both technical progress and financial implementation progress in the nursing school market. Of course, with this as a working model, we'll work our best to figure out how to expand sales opportunities in that channel as well. So those are the two opportunities I wanted to cover. The DEA made direct to professional and the nursing school early developments there have been in the nursing market, nursing school market, and nursing student market. And so we're excited to report progress in both of those areas. I do want to manage expectations. These are new areas, new channels. They're not material parts of our business, but we do see some light. We're excited to see some light at the end of the development panel and declaring these as an expanded market opportunity in our prior earnings calls. Again, we're excited to see those developments. I want to describe just as a reminder for anybody new on the call a base level description of our business so you can kind of take away the nature of our business. First and foremost, Healthstream is a healthcare technology company. We're focused on the development of our technology platform, and we're dedicated to developing, credentialing, and scheduling the healthcare workforce. So three kind of unique healthcare workflows related to their people that we provide through our SaaS-based application stacks. And increasingly, those three separate SaaS technology stacks that do credentialing, learning and development, and scheduling are becoming interoperable through the HStream technology platform we've been building. Historically, we sell all of our solutions on a subscription basis under contracts that average three to four years, which makes our revenues both recurring and predictable. And we'd like to get some credit for that eventually, that this is a recurring revenue SaaS subscription business. In fact, 96% of our revenues are subscription-based. As I mentioned, we have also started to open our sales channels directly to professionals and nursing students. We are profitable. We have no interest-bearing debt. We have a strong cash balance, which did surge a good bit in Q1 to $83.7 million. That's up $12.6 million over the prior quarter, so good free cash flows and cash flows during the quarter. We are solely focused on health care, more specifically the health care workforce. That's an important number. especially given the trends I mentioned at the opening of this call. There are 12.3 million healthcare professionals and nursing students, which we define as our total addressable market. And we hope over time they'll engage with us through all three of our major primary application suites and all of our secondary applications as well. And we want them all, we want to think of all 12.3 of them, 12.3 million of them initially as members of our ecology, of our ecosystem. And we're making good headwinds towards making it a network effect or an ecology through the A-Stream platform. Well, I'd like to turn over to Scotty Roberts to take a little deeper dive into the numbers because I just hit the top couple. Thank you. Go ahead, Scotty.