HealthStream, Inc.

Good morning and welcome to HealthSpring second 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 question and answers after the presentation. I will now turn the conference over to Molly Kondra, Vice President of Investor Relations and Communications. Please go ahead, Ms. Kondra.

Thank you. Good morning. And thank you for joining us today to discuss our second quarter 2024 results. Also in the conference call with me 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 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 to the net income attributable to Health Stream is included in the earnings release that we issued yesterday and may refer to in this call. So at this time, I'll turn the call over to CEO Bobby Frist.

Thank you, Molly. Good morning, everyone, and welcome to our second quarter 2024 earnings call. We'll just jump right in and hit some of the key highlights. Please report during the second quarter, our financial performance showed year-over-year increases in each of the major categories that we highlight in earnings release. So we finished the quarter with strong sales and a solid sales pipeline, and we were able to reiterate our 2024 guidance ranges. In particular, we're seeing strong sales pipelines on credential stream in our credentialing area, shift wizard in our scheduling area, and in our new enterprise competency suite and learning. We'll talk more about some of these later in the call. which we believe that emerging enterprise competency suite is the most complete offering of its kind in the industry. I'm also excited by ongoing progress towards key development milestones on our HealthStream platform. And as I promised last time, we're going to give a bit of a platform update, at least through the technical lens of developmental progress. We're beginning to see the first examples of interoperability between our applications, which is kind of the great promise of the platform. And we're seeing how customers and partners utilize components of the platform to enhance interoperability with their other systems like ERPs and EHRs. You know, amid all those positive developments, we're going to have to talk about and contend with two one-time customer-related events in the second quarter that resulted in some temporary headwinds that we're confident will push through over the course of the year. So let's address those kind of up front here. One headwind impacting revenue growth in the quarter was based on the timing anomaly at one of our larger customers. Importantly, we believe this anomaly will self-correct over the remainder of the year, such that it is not expected to negatively impact full-year revenue. What happened was both simple and understandable. We'd like to avoid it next time, but simple and understandable. Essentially, administrative responsibility for assigning and setting completion dates or completion requirements for a certain cohort of learners, it was obviously a big cohort because it's a big customer, changed. And what happened was thousands of learners who were previously required to complete certain courses in 90 days were given 365 days to complete the courses by the assignment. And of course, if you're anything like me and someone says, well, you have to finish something in 90 days or you have to finish something in 365 days, what do most people do? They put it off. So that's exactly what happened here. Once the customer realized kind of what had happened in this administrative function in our system, we're both taking steps to address it because, you know, they also don't want tens of thousands of employees rushing on the last day to do this. It would kind of overwhelm the system. They need to take it throughout the year. And so, you know, they're self-correcting this process. And Once we took steps and the customer realized what had happened, we think that it'll get the completion rates will accelerate for the remainder of the year and come back in a full year as originally forecasted, despite the unexpected slowdown. And, you know, the reason this happened and why it's tied to economics is for a subset of content that we sell this customer, we bill and recognize revenue based on consumption that occurred in the quarter. So again, for a subset of content we sell this customer, it is based on actual consumption. So that is why slower consumption, of certain content in the quarter resulted in lower revenue, and while accelerated consumption the rest of the year, is expected to normalize fully revenue for the customer. This is the only instance of consumption-based billing that we have at scale, and we do not plan to expand this type of billing model going forward. At any rate, we expect the revenue to catch up in the second half of the year, so we're not particularly concerned about it. The second one-time customer event that is in front of us, and also currently in the quarter, had an impact in the quarter, and also as we look forward, is due to the widely publicized bankruptcy of one of our strategic accounts, Stewart Healthcare System. Historically, a great customer ran into some financial difficulties and declared bankruptcy during the second quarter. The impact of missed payments from periods prior to the bankruptcy filing had a negative impact on net income, adjusted EBITDA, earnings per share, and operating income in the second quarter. We expected negative impacts to revenue and other financial metrics in the last half of the year as well. we've estimated these negative impacts and they're factored into our reiterated guidance. At present, we believe that the impact from this bankruptcy may move us toward the lower end of our revenue guidance range. And we'll see how it impacts us as we move forward. Because that said, it's possible that the bankruptcy will allow the customer to make payments in the second half of the year, and as we continue to provide service to them. And it's also possible that, you know, They've announced their divesting of facilities, that some of those divested facilities land in friendly places or places that also use our services, in which case we would be able to generate some of the business in the second half of the year. Those are potential mitigating factors, and we're not counting on them. We expect this customer bankruptcy to have an ongoing negative impact to our financials this year. And again, it's factored into our reiterated guidance. Although I did note that we believe the impact may move us towards the lower end of our revenue guidance range. Before we get any further to the call, I want to summarize our business for the benefit of anyone who's new to HealthStream's story. First and foremost, HealthStream is a healthcare technology company dedicated to developing, credentialing, and scheduling the healthcare workforce through SaaS-based solutions, each of which are becoming more valuable because of the interoperability they're achieving through our H-Stream technology platform. Historically, we sell our solutions on a subscription basis under contracts that average three to five years in length, which makes our revenues recurring and predictable. In fact, 96% of our revenues are subscription-based. As I just mentioned, we've also started to open our sales channels directly to healthcare professionals and nursing students across the continuum of healthcare training. We are profitable. We have no interest-bearing debt and a strong cash balance of $83 million. We're solely focused on healthcare and, more specifically, the healthcare workforce. The 12.3 million healthcare professionals and nursing students in the United States comprise the core addressable market for our SAS solutions. Before turning it over to our CFO, Scotty Roberts, I'd like to highlight some successes that we've achieved in each of these core application areas, learning, scheduling, credentialing. The accomplishments during the quarter made some really fantastic progress. Let's start with our learning application suite. We've got some exciting announcements in the second half of the year related to enhancing the capabilities of this very powerful area of our business, the learning application suite. The Healthstream Learning Center application is the flagship product and continues to be strong in the market. Importantly, when the Healthstream Learning Center is up for renewal, it frequently presents customers an opportunity to purchase multiple new solutions along with it. This results in expanding wallet share. We've talked about that on previous calls. And I want to give an example of expanding wallet share that happened on Healthstream Learning Center renewal in the second quarter. One of our West Coast customers used the renewal of the Elstree Learning Center as an opportunity to add additional products to those they were already using, including the adoption of our new Insights Plus reporting analytics tool. Due to the growth of their organization, they also added approximately 5,400 users to their base of 22,000, so meaningful growth there. The new five-year agreement includes 3.5% pricing escalator, And that's new. We're really working hard now to work pricing escalators into renewal contracts. And in this case, we did. It's 3.5% annual pricing escalator. And that's going to give us a nice line of sight into year-over-year growth. The annual recurring revenue from this renewal increased 111% from approximately $376,000 to $795,000, making this a really good example of expanding wallet share in our existing customer base. Let's move to our scheduling application suite. We believe that our SaaS application known as ShiftWizard is the best scheduling solution in healthcare and that it will only become more valuable to customers as it begins to integrate with other applications through our HStream technology platform. In the second quarter, revenues from ShiftWizard grew 34% over the prior year quarter as customers continued to report high customer satisfaction with this application. As of the second quarter of 2024, shift wizard has become the largest revenue generator in our portfolio of scheduling products and services. And that includes legacy applications like and sauce and enterprise visibility. So it's a nice milestone during the second quarter for the go forward application to become bigger in revenue mass than all the other legacy applications in the portfolio, the family of products we call our scheduling family of products. So that's an exciting kind of milestone is achieved during the second quarter. We contracted a number of great new customers to ShiftWizard in the quarter, such as Stillwater Medical Center, Mary's Free Bed Rehabilitation, Roseville Park, and Reed Hospital are really nice examples of the expansion of ShiftWizard. I'll wrap up this portion of the call with an update on our credentialing solutions. Also enjoyed a successful quarter, both in terms of competitive takeouts and conversions from our legacy solutions to CredentialStream. So as reported on the G2 website, Credential Stream is best-in-class solution for credentialing, privileging, and enrolling physicians. In the second quarter, Credential Stream added 34 new customer organizations, where approximately 65% of these customers were new, and 35% were migrations from our legacy credentialing applications, which we really like to see that when they move up from the legacy applications to the Credential Stream application suite. Representative of these credential stream customers in the second quarter are many highly respected healthcare organizations like Baptist South Florida, Oregon Health and Science Medicine, Penn Medicine, and Pine Rest Christian Mental Health. So really nice broad spectrum of new customers, 34 in the quarter. And that's interesting because that kind of matches the growth profile of that application at 34% as well. So 34 and 34. It's fantastic. Good results, team. Turn it over to Scotty Roberts for the review of the financials, and he'll come back to me, and as promised, we'll give a platform update on hStream, the platform, and we'll talk about a new market that's emerging for one of our exciting products, Credential Stream. We'll hit both of those in the end. I'll turn it over to Scotty for a few minutes.