HealthStream, Inc.

Good morning and welcome to Healthstream's third 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 quarter 2024 results. Also on 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 from those in the forward-looking statements are created as filings with the SEC, including forms 10-K, 10-Q, and our earnings release. Adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HealthStream 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 third quarter 2024 earnings call. We have a lot to cover today, and I'll just jump right in. We'll start with some basic financials. I'm pleased to report in the third quarter, our financial performance showed year-over-year increases in each of the major categories we highlight in our earnings release. We delivered record quarterly revenues of $73.1 million and record quarterly adjusted EBITDA of $17.7 million. Moreover, we're seeing strong sales pipelines on credential stream, and our credentialing in credentialing, shift wizard in scheduling, and on our new reporting and analytics and API-related products that bolster our market-leading HealthStream Learning Center. And so in that third one there, I'll talk a little bit about an exciting product rollout that's happening right now. We're also gaining traction in new markets, including the nursing school market, which is we talk about these two communities that we're operating now that are growing. One is for students and one is for nurses. And we'll talk a little bit about both of those here in a few minutes. So in addition to the three core applications, we're operating and growing two growing communities, one for students and one for nurses. We'll talk about those a bit later. I'm excited about our ongoing progress towards the key development milestones in our H-Stream platforms. This underlying technology that we put quite a bit of time and capital into is starting to manifest, which ensures interoperability between and among our three primary application suites And now our two communities and one of the two communities is actually a thriving social network. So we'll talk about that as well. As we kick off the call, I do want to go kind of back to the basics and summarize the basic business model for the benefit of anyone who's new to the HealthStream 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, we believe, because of the interoperability they are achieving through the HStream technology platform that we've been talking about now for a few years. 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 have 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 94.9 million. We are 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 total addressable market for our SAS solutions. Before turning it over to Scotty, our CFO, and having a more detailed financial discussion, I do want to highlight some of the successes we've achieved in each of our learning, credentialing, and scheduling application suites during the quarter. Let's start with the learning application suite first, where our HealthStream Learning Center is the application that is the flagship product of this suite. And I want to highlight a key product launch that's happening, as I mentioned, right kind of as we speak. In the last few weeks, we've started to roll it out. And the name of that application is our Insights Plus solution. We have rebuilt our data reporting and analytics technology stack on leading technologies, including Snowflake and Sigma. We have used those technologies to build Insights Plus, which is an upgrade to our base reporting tool for learning data. Learning data is one of the most critical assets we provide back to our customers. And our aging architecture on reporting was something that was we needed to refresh. So today, we're announcing, after nearly two years of development, the launch of our Insights Plus reporting and new technology stacks. We're really excited about it as they roll out today. Insights Plus provides customers with an expanded and enhanced experience, including analytics tools focused on measuring the impact of their learning initiatives. Insights Plus has now replaced two legacy solutions, learning analytics and initiative management dashboard. Our customers' response to InsightsPlus has been very positive, with just over 2 million in bookings in the first three quarters of the year. So we are obviously advanced positioning it and demoing along the way, and now we're in the rollout phase. Customers are receiving the application suite of the InsightsPlus applications as we speak. And so this pipeline I mentioned is nearly six times the bookings for the predecessor products that we just talked about. in the same period last year and four times our bookings budget for the FY2024. So, you know, an area to highlight, it's exciting. We've talked a lot about how the development of the HSTREAM platform could play into growth opportunities. And in the last three weeks, we're now able to start executing on a pipeline for our brand new analytics and reporting tool sets, which is an area that we're exciting to now announce as cutting edge for the market. market leading and helps modernize our suite of learning tool sets. So we're really excited about watching that roll out. And somewhat related, I want to talk about an update on customer adoption of our developer portal and APIs. Specifically in this case, our learning API, which is a very robust and deep learning API, which essentially is able to emulate all the functions or many of the key functions of our learning management system at the Healthstream Learning Center. So this API, we're excited to say, our customers are increasingly using the learning API to integrate our learning tools with their mission-critical workflows. The number of customer organizations accessing the developer portal more than doubled over the last 12 months, and the number of third-party developers nearly doubled as well. More importantly, the number of integrations customers have built and put into production has nearly tripled. And so again, we've talked a lot about this HStream platform And the front door to the platform is the developer portal. And activity in the developer portal, as I just reported, continues to surge. And this means that the integration capabilities and the interoperability we've been talking about is a key kind of strategic development for us. A great example that kind of pulls both of these things together is a large East Coast customer, which was renewing its HealthStream Learning Center contract in the last few quarters. And during that renewal, they add actually the third quarter. They added InsightsPlus to the contract renewal, as well as some other additional products. The same customer has also built integrations to their ERP, their EHR, and to HealthStream using the learning API we talked about. So this customer is kind of going deep using the tool sets of the HStream platform through accessing the developer portal. Financially, One of the integrations that they've done involves an automating training on and activation on their EHR. And so we're beginning to see the workflows of our learning system now kind of integrate with and interoperate with, in their case, their own EHR. Financially, the annual recurring revenue from this renewal increased 29% from approximately $1.76 million to approximately 2.27 million. So the renewal was very effective. Not only did they renew the base products, they added the Insights Plus and a few other products on renewal. And, of course, extended the term. And so we're excited to see a 29% growth in that customer. And some of that growth is attributable to this brand new product announcement, Insights Plus. And so, you know, this is just a good measure of expanding wallet share and an existing customer base. on our learning application suite. So we're really excited and watching a customer dive in a little deeper and access the integration tool sets of the HStream platform. So the insights that they're gaining into their applications and into their learning initiatives are really exciting to us. Along the way, of course, they grew. So they added approximately 13,000 users to their base contractor. which puts them well over 100,000 subscribers on our network, which is, again, super exciting. It's a five-year agreement. And importantly, for those who listen closely, we're beginning to roll out pricing escalators annual into our contracts to build in a little bit of base growth over time. And historically, I think you know the analysts on the call in a way that that wasn't a strength of ours. We had always kind of kept pricing relatively flat. But in the last couple of quarters on renewals, we've been inserting pricing escalators in the contracts, like most software companies do. And so in this five-year agreement, it includes an annual 2.5% pricing escalator. And I know, again, I think we reported we were 1% or 2% deployed on pricing escalators. As the year rolls on, every renewal, we're trying to insert them, and with great success. But watch for that impact over a three-year period as we add this kind of base type of growth into our agreements, which is exciting. Let's move on to the credentialing application suite because there are equally exciting things happening there. Revenues from sales of Credential Stream grew 34% over the third quarter last year. So again, the go-forward SaaS application that we're so excited about, it grew 34% over the third quarter last year. And that included sales from new customers and customers who are migrating from legacy applications, some of the acquired companies that help us build our Credential Stream application suite. and our customer base. Some of the health organizations who contracted for credential stream for their entire enterprise in the third quarter include UPMC, Sutter Health, University of Virginia Health Systems. So three really recognizable systems, either upgrading from legacy systems or new to health stream on the credential stream application suite. Really excited to see that motion all during the third quarter. On September 30th, we issued a press release announcing three new and exciting developments in credentialing. Again, we talk a lot about CapEx efficiency and deployment. It's just fun to be in this period now throughout the fourth quarter and Q1 where we're launching a lot of the capital expenditures we made to build products. We're beginning to launch those capabilities into the market. So it's a rewarding time for us because a lot of these are long-arm investments that have taken 24 months to build up and launch. So the announcements that were in the program, I'm going to kind of rattle through those real quick. In recognition of our innovative and differentiated approach to privileging, our privilege solution recently received a noteworthy patent. So we're kind of excited to see our intellectual property and our insights into the industry, no pun intended, but our insights begin to manifest in unique products, and in this case, another additional patent. I think we have over a dozen patents now and a growing library because we feel we're delivering unique value into the market. Second, we announced that our HStream for credentialing package, remember each time a customer buys the application suite, they also purchase a subscription to the platform value bundle that we call HStream for credentialing. And that package now includes a wallet of pre-validated provider data called provider portfolio. More on that later, but that means basically that providers who use credential stream no longer have to enter or validate a number of their credentials. as those credentials are already pre-populated when the provider accesses his or her provider portfolio. So this new provider portfolio capability is kind of new to our network, and it's going to reduce the credentialing processing workflows by having this pre-populated, pre-validated data on every provider in the country. So really excited about provider portfolio. Again, another one of those things that we're bringing to market now and just announced recently in a press release. You know, this saves time and effort for the provider and the credentialing department alike. It just works both ways. We're really excited how it brings benefits. Finally, we introduced the integration. It's called My Learning feature in Credentialstream that now integrates with the Healthstream Learning Center. And so, we just opened this discussion talking about our enterprise application, the Healthstream Learning Center. And now we're seeing some actual benefit between learning and credentialing application suites, which is really great. So this My Learning feature, this is a prime example of our ecosystem at work. And we plan to begin offering into the provider credentialing workflow in order to meet them where they are. This allows us to notify physicians, for example, when they're in the physician hub, that they have required learning that used to exist solely over in the learning application suites. And so now the two applications work together to streamline workflows and maybe letting a physician know they have some mandatory onboarding training if they're a new physician to that organization. And so this interoperability is beginning to be more demonstrable to customers. So those were our three announcements that we announced at a really big conference. And I think it was the NAMS conference. And we're excited to bring those out to market here all at one time. And then another thing happened that was great during the quarter. In the third quarter, let's see. In the third quarter, I was going to jump over now to the ShiftWizard application, and I'll wrap up this portion by kind of highlighting some activity in the ShiftWizard area. In the third quarter, revenues from ShiftWizard grew 17% over the prior year quarter. Examples of new healthcare organizations that contracted for ShiftWizard in the third quarter include Grady Health System and Memorial Health. which were both competitive takeouts. We're excited to see, again, competitive takeouts, meaning we're being chosen in the competitive landscape over the available options in the market. We're excited to announce that in Q3, ShiftWizard was recognized by Workday as the first and only healthcare scheduling solution that is a certified integration partner and a gold-tier innovation partner of Workday. So we're excited to have that announcement in the market. It shows how our applications sit alongside some of the bigger ERPs and how we are, again, working on capabilities like interoperability, or in this case, just a really good partnership to take these unique solutions to market. So excited to further our relationship with Workday through this certified integration partner and gold tier innovation partner that we now have standing for. Finally, in Q3, we saw unprecedented growth in customer reviews for ShiftWizard on the Capterra site. So if you want to know what people think about ShiftWizard, our product, you can go to Capterra and check it out. And if you take the time to review some of these, you'll quickly understand why we're so excited about the future of Shift Blizzard. So the consumer and customer reviews of our Shift Blizzard application are rolling in, and they're exciting to see the feedback on these advances in our products and technologies. I think I hit everything I wanted to in the opening here. I skipped a little bit around in the plan script, so I hope that was still useful. I'll turn it over to Scotty Roberts now to go into a deep dive on the financials. Scotty?