Q1 2021 HealthStream Inc Earnings Call

Yeah.

Good morning, and welcome to Hell streams first quarter 2021 earnings conference call. At this time I would like to inform you that this conference is being recorded and that all participants on 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 Mollie Condra, Vice President of Investor Relations, Inc. Communications. Please go ahead on this contract.

Thank you and good morning, Thank you for joining us today to discuss our first quarter 2021 results.

Also on the conference call with me today are Robert a frist Junior CEO and chairman of Hill stream, and Scotty Roberts, CFO and senior Vice President.

I would also like to remind you that this conference call may contain forward looking statements regarding future events and the future performance of health stream that could involve risks 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 net income attributable to health stream is included in the earnings release that we issued yesterday and they refer to in this call.

So with that start at this time I'll turn the call over to Bobby Frist.

Thank you Mollie good morning, and welcome to our first quarter 2021 earnings conference call Theres. So much news to cover this morning, I can't wait to get started but I think context is very important and so first of all contextualize. The nation continues to move through the pandemic and their reasons for cautious optimism, especially here in the U.

Given that over half of U S. Adults is now at least one vaccine dose on a third are fully vaccinated.

And as we celebrate this remarkable progress there plenty of challenges still remaining regarding the pandemic that affects us as individuals and of course on our company as well for example, figuring out our new work from home models and on our approach to operating as a business and making them more whatever whatever the new normal new permanent new norm is going to be.

We're working on that diligently now.

So what I can tell you with absolute certainty is it helps change mission that's focused on the people of health care and improving the quality of health care by helping develop retain engage in credential those that are in health care remains.

It remains constant and as you listen to our call today I Hope you recognize our commitment that vision on how we're striving to.

Achieve it and you're going to hear how we're executing on it through some of our exciting new products many of which had been in development for years and are emerging in the marketplace. As we speak so I'm going to give a little more detail. The day about some of these exciting new products or progress with them.

So start to start out, though I do want to start on our financial guidance, which we updated after a strong first quarter of necessity.

The quarter included a record high adjusted EBITDA, that's in our company's history and record quarterly sales per Verity stream, which is a as you know Ben.

Working diligently on Verity screen for several years to through a combination of three or four acquisitions to build a new application set and credentialing and privileging and we're seeing emerge now delivering record quarterly sales and I can't wait to share more details on that.

And there are also two multimillion dollar contracts for our emerging products. These are products that.

We are excited about and now we're glad to see the market.

Excited about them as well.

And so with all of that context, we expect revenue for the full year 2020 wanted to be in the range of 245 million to $255 million and adjusted EBITDA to be in the range of 40 million to $44 million. So I'm excited to provide that updated guidance to all of our financial community on current investors.

As I stated on our call in February I believe on the most remarkable things about this guidance that we are projecting potential revenue growth. Despite a $38 4 million dollar revenue decline in legacy resuscitation products from 2021 to 2020, 'twenty 'twenty to 2021 and the four to $4 3 million negative impact.

<unk> of acquisition related deferred revenue write downs. So despite these headwinds our first quarter performance gives us confidence in our improved financial expectations for 2021, where we believe we have good shot at showing top line revenue growth on a year over year basis.

So I think that's a great accomplishment by our team to figure it out the balance of both organic growth as we'll talk about in inorganic growth to deliver what looks like the potential now to actually deliver growth in a year with such material financial headlines from a declining product set.

Just wanted to take a moment to reiterate some of the directional information I provided in our last call on what we can expect beyond the current year, which is a little bit longer view than we normally provide it's a building on our anticipated results for 2021 and 2022, we expect to deliver organic high single digit revenue growth rates.

And second we've been focused on our gross margin profile, we're expecting gross margin profile of 65% approximately 65% in that timeframe as well and third our return to adjusted EBITDA margins of 15% to 20% we saw some depression on those margins as.

As we saw the product changes investment changes, we've been making the last few years, but we see we see a return to those margins for adjusted EBITDA in 2021.

So it's not all of your continued success from our longstanding product portfolios, but also the market's enthusiastic response to our innovative new solutions.

That contributes to our confidence in the company's future growth and I'm on a highlight a couple of those now.

One of those new innovative products that we call Jamie it's the first of its kind on the market to our best of our knowledge Jane is AI driven it has components of really exciting technology on it but it's not the technology, it's exciting about it but what it does for clinicians.

One of the first intelligent competency development systems in the market, It's Scott components like natural language processing by IBM Watson and so the state of the current state of the art technology is changing the way nurses assassin develop and maintain their clinical competencies. Let me let me explain how it works, it's a little bit we threw too.

Acquisitions through our M&A program, we acquired testing services and datasets that some of which had 30 years of history on how to evaluate the clinical competence of nurses, specifically and over the over the years, we painstakingly converted that data into a dynamic.

Algorithms that involve components of AI capable of having real time conversations with nurses next we developed high quality videos simulations that present clinical events that nurses respond to in real time by telling gene what they believe is happening and what should be done for the patient. This produces an assessment that identifies nurses.

And areas for improvement, but we didn't stop there in order to make Jane a true virtual coach like a mentor to nurses, we took our proprietary taxonomy engine and connected it from the assessments.

<unk> talked about Theyre included in James to a library of 1800 content titles. This allows jane to provide a personalized learning plan to each nurse by identifying particular areas of need and then recommending actual education and training to address their unique individual needs.

You can probably tell we're excited about day in and I'm excited about because it's been what over five years on development and we started selling it you know 18 months ago.

And we're not the only ones excited about Jane Jane just recently won six of the industry's most prestigious awards, including two first place awards from the Brandon Hall Group, One was a gold medal for best advance in AI and machine learning and another was a gold medal for best advance in emerging learning technology. So we're excited that others are seeing what we saw.

See in our new journey.

Capabilities.

These awards recognize Jane has moved assessments from the pen and paper World and click through online tests to an immersive multimedia journey.

Specifically tailored to each nurse Raso. Please Jane was awarded a pattern to further recognize its one of a kind of technology and approach.

Or decide we think the greatest act like Jan can deliver as adoption by our customers right. Because we think it can have an impact on eventually the skills capabilities and competencies of their staff in.

In 2020, when we first began offering Jain at scale. Our goal is to sell Jane to one account per week every week of the year, we actually accomplished that goal and on a similar pace so far in 2021.

As I mentioned earlier, we had a leading health system make a multimillion dollar enterprise wide purchase of James kind of a first of its type kind of at scale in the free in this first quarter of 2021.

As customer utilization growth James capabilities expand we look forward updating you on how Jane is helping healthcare providers improve the quality of care that patients receive and it's I think it's one of the most exciting developments. We've had it helps from a long time and it's not an overnight thing it's taken many years to build tune and refine and test.

And have customers evaluate that Jane technologies.

So you know our focus remains on innovation and that's a little hard to see given all the transitions we've been talking about in last several years.

But we think these these innovations can deliver improved outcomes and higher skilled workers and health care.

So I do want to talk a bit about the transition to an important part of our strategic focus has involved several key transitions. We've discussed on you know really for over two years I believe we've cross an inflection point, where the major business risks associated with the transitions are like.

Market acceptance. So these are the major as will the market accept what we built will we get any.

The adoption of the technology will well the technology would be viable theres always questions like that if you've been building technology for a long time and it's my sense that many of those kind of major business risks I called them existential risks are behind us and we're kind of do on operational risk phase on these three transitions.

And so it's a different kind of risk and we're two years into this three year little more than two years into the three year transition and I guess I'm kind of declaring the existential risk of these major transitions behind us.

Normal market competitive risks and and the normal dynamics, but but.

You know the technologies, we're on building our viable now and they're starting to make a difference. So for example, the Red Cross Resuscitation suite program comprised of BLS, ALS and Pals competency development curricula, we launched it in January of 2019. It brings an updated highly adaptive comps based development solutions to health care professionals that offer.

Certification to health care professionals successfully demonstrating proficiency of lifesaving resuscitation knowledge and skills. So it's a really well defined product and I think when we first one on the journey.

In early 19, we were uncertain of its adoption, but just by way of an update there.

The program has been adopted across all 50 states and since since its launch we've amassed over 289, new contracts signed by customers, which includes health care facilities of all types and sizes from across the continuum of care. It includes some of the industry's largest acute care health systems like HCA community Health Systems' core them in China.

<unk> along with many of the most award winning thought leading acute care organizations like Cedars Sinai in Kettering Health network.

And in the non acute space as well, we have really great wins and customer benefits go on to say Fresenius medical care on the largest renal care providers in the U S and the LHC group, a leading home health care service provider operating in 35 states. So all of them have seen the innovation of the Red Cross resuscitation suite.

Particularly how it's executed through the health stream network with Gulfstream platform.

Bringing this really exceptional capabilities to this relatively new product, but like I said with 289, new contracts and some of those representing hundreds and hundreds if not more locations and facilities.

And thousands of over half a million workers now move through the program or are engaged on the program.

We're through the concept of look will it be accepted as a viable solution.

<unk> solution on the market I mean, now we face the normal execution against our competition how much market share can we gain how will continue its growth trajectory.

So.

It is helpful to think through a bit of history. It took US 12 years to build our highest level of adjusted EBITDA contribution from our legacy resuscitation offerings. So 12 years of selling and marketing the legacy products, we expect to eclipse that level of adjusted EBITDA contribution from sales of our Red Cross suite in just three and a half years. So by the middle of 2022 is our current.

Forecast, where we will eclipse what was the highest level of adjusted EBITDA from the prior legacy platform. So we do have some time to go in front of us, but we're on our incredible on trajectory with the Red Cross resuscitation suite.

And speaking of resuscitation offerings, it's important to understand too that we're building a more comprehensive portfolio of stimulation offerings in resuscitation offerings. So in February of 2020, We announced the addition of the stable program. That's a leading neonatal education solution is highly respected and it's now available online exclusively through health stream.

And we saw strong sales in the first quarter that was adding to our thousands of subscriptions to the stable program. It's just a really well known program nationally in some cases internationally and and we've helped them deliver develop and take it online and online format from a classroom format and it's being well received from the market. So our portfolio.

It was no longer dependent on a single application point and are on our simulation suite and our resuscitation training offerings, it's it's being broadened.

So on or.

Committed to the continued diversification of that product portfolio and have exciting new advances coming in areas like Oh, Ob specific dimensions to resuscitation and specific care settings.

The second transition that we've talked about is this is verity stream and we've created through four acquisitions on the working diligently for four years to build a kind of a common vision of common team to focus on credentialing and privileging enrolment needs in health care and during the first quarter of 2021 45 Custer.

Accounts contracted for the Verity stream application suite, and we call that the credential stream suite, bringing our cumulative total to approximately 390 customers on the new credential streams suite.

And this included one new customer signed a multiyear multimillion dollar contract per Verity streams next generation SaaS application and it represents the single largest sale in birdie streams history and so we're really excited that this product. This transition if you will through from four acquisitions to one common approach and <unk>.

One SaaS application suite called credential stream with 390 accounts now contracted for that new platform. We think we're beyond just proving its technical viability and and so the existential risk of of the four acquisitions bring them into one company. We think is behind US now we're in the normal business risk.

Of how much market share can we gain against the competition.

And how well can we position the product for future growth and how compatible being I think we're well positioned on all those fronts with burden stream on the credential stream platform.

And it's measured by the kind of customers you see coming onto the platform in the first quarter.

Robert its health system, and Mount Sinai Health system in Atlantic Health system in Seattle Children's Hospital, all these new customers, including the distinguished ones I've, just mentioned came onto the new enterprise credential stream platform.

Through contract and we're in the midst of working through implementation strategies for all of them. So we're excited to be gaining adoption of the best in class solution, that's our belief.

And with best in class customers, it's really kind of an exciting part of this transitional journey and again, there's always challenges in front of us learning the new selling models that are more virtual.

And getting through all these implementation backlogs from some new signed customers to get the revenue recognition, there's plenty to do to.

Continue to.

Execute in this area and there's plenty of business risk, but I do think that at this point you know 27 months into this migration.

We've at least proven the viability and the acceptability and the market acceptance of the credential stream platform built by the bird stream team they've done a fantastic job.

Third area to talk about is the upgrade or kind of a move to a past strategy through the H stream platform.

And we do have a lot of work left here not all of our application sets, particularly on new acquisitions in the fourth quarter on the first quarter are wired to or even benefiting from this new paas architecture with the building for over three and a half years, but increasingly we are connecting them too to the paas architecture on and that's allowing us to develop.

Things more rapidly, it's allowing us to enter connect applications that connect down to the eight stream platform, it's allowing us to put value added services in the new platform that can manifest back out in the application sets like the learning and development set.

And privileging set.

And the scheduling and capacity management set of applications. So we're finding ways to two this past applegate infrastructural building to connect to empower up.

In each of those application sets. So just a quick update on that in the first quarter. We added approximately <unk> hundred 21000, net new H dream subscriptions, bringing our cumulative total to about $4. Three 4 million subscriptions. Those are subscriptions not subscribers is important to note.

Using the application that connects to H stream youre going to get a subscription to H dream and that could be tailored a little bit based on the application you're on your licensing from US. The features of H stream, you're getting and the benefits from that subscription and so it is possible for an individual to have multiple subscriptions two to the eight stream platform.

By buying multiple applications at that connects to the age from platform.

Or derive benefit from it.

Say economically like maybe a discount.

H stream brings value to customers and partners alike, and it's important to remember that since inception for example, the American Red Cross suite has been powered by the H stream Paas architecture.

Our updates with regard to these business transitions began at the start of 2019 is 27 months ago from from really about now and we continue to work on each of these transitions, but but as Ive said were moved to call on on operational execution Phase V. So we're going to talk a lot less about transitions and transitional risk on a go forward.

Basis, and talk a little bit more about the things that are exciting that are emerging like Jane.

And and other new products that are coming into the market as we speak.

At this time I think it's reported it take a look at the finance of the the one thing we want everyone to hear on our analyst here, we had a really good first quarter. Obviously, we're excited about it but there are reasons to be conservative as we go forward, including increased need for investment some onetime expenses that were not in Q1 that as we return to normal.

<unk> like putting pay raises back in place for employees will have increased expenses. So we still need to even though we had a strong first quarter be cautious about how we model the future because we're still on an investment phase with that I'll turn it over to Scotty Roberts.

Good morning, everyone. Let me start with a summary of our results for the quarter.

Our revenues were $63 5 million, which is up 3% over last year.

<unk> Malik modest growth.

Within both reporting segments.

For 2021 were impacted by a $1 $6 million reduction associated with deferred revenue write downs, which were primarily related to acquisitions.

We have completed during the fourth quarter of last year.

Operating income was $3 3 million were down 54%.

Net income was $2 3 million or down 68%.

And EPS was seven cents per diluted share down from 22 cents per diluted share on the prior year.

Operating income net income and EPS were all down in part because last year's first quarter included a $3 $4 million noncash reduction to cost of revenues.

These GAAP based financial measures experience declines our non-GAAP performance measure adjusted EBITDA improved to $13 6 million or at 14%, which is a record quarterly high for the company.

Both business segments achieved revenue growth over the prior year.

Workforce solutions revenues were $51 3 million and were up 3% and revenues from provider solutions were $12 2 million and were at 4%.

As we've previously discussed the past several years, we no longer sell legacy resuscitation products and revenues from these products have been declining over the past two years as subscription has expired.

We indicated that revenues would cease at the end of 'twenty, 'twenty, which essentially occurred as expected however, with our partner support we extended utilization of these products for a small group of customers, which.

Which resulted in a $1.8 million of revenues on legacy products during the first quarter.

Similarly, we expect legacy product revenues in the second quarter of approximately 700000.

Then to be de Minimis for the remainder of the year.

Revenues from the legacy products were $11 2 million last year.

And despite a year over year decline of over $9 million and more than offset the decline in revenues through contributions from recent acquisitions, coupled with the growth in other solutions from both segments.

Excluding revenues from the legacy resuscitation business consolidated revenues grew by 22%, which was comprised of 8% organic growth and 14% from ex acquisitions.

Our gross margin was 66, 5% compared to 66, 9% last year.

Gross margins last year were also positively impacted by the one time $3 $4 million noncash reduction to cost of revenues.

If you exclude the impact of this favorable adjustment gross margin would've been 61, 3% last year.

This margin improvement is in line with our goal to achieve a gross margin in the mid 60% range for 2021.

Operating expenses, excluding cost of revenues were up 15% or $5 million. This increase reflects both investments in our core business as well as incremental expenses.

Associated with acquired businesses, including integration and transition services costs.

Operating expenses from the acquired companies makes up the majority of the $5 million year over year increase.

Offsetting these cost increases were lower expenses, such as commissions associated with the decline in legacy resuscitation revenues.

Travel as a result of COVID-19.

And we had a nonrecurring noncash expense reduction based on changes to our paid time off policy.

The combination of these factors led to our operating income declining by three 9 million or <unk> 54 per cent to $3 3 million.

While adjusted EBITDA improved by $1 7 million or <unk> 14 per cent to $13 6 million.

Our cash flows from operations improved to $19 1 million this year compared to $6 1 million last year, which mainly resulted from higher collections.

Our DSO was 52 days compared to 44 days last year and this increase was primarily impacted by the additional receivables from our acquisitions have been completed at the end of last year.

Free cash flows were at $11 9 million compared to $1 million last year, and we ended the quarter with cash and investment balances at $56 million.

Coming off the closing of three acquisitions in the fourth quarter of last year.

Completed one more during the first quarter, which is included in our workforce segment.

We paid $2 million in cash to fund this acquisition.

We also increased our position in an existing minority investment by $1 million during the quarter.

Our capital expenditures incurred which includes capitalized software development for $4 3 million.

Now, let's review our financial expectations for 2021, which we've updated after our strong first quarter performance.

As a reminder, though COVID-19 continued impact on our operating results and financial condition could influence our actual performance compared to our guidance assumptions.

We are raising our revenue ranges and now forecast that consolidated revenues will range between 245 and $255 million with workforce revenue is forecasted to range between 197 and $205 million.

And provider revenue is forecasted to range between 48 and $50 million.

Also following the first quarter's performance, we're also raising EBIT, our EBITDA forecast to now range between 40 and $44 million.

Which equates to a 17% EBITDA margin at the midpoint of our guidance ranges.

Yeah.

We anticipate that capital expenditures, which includes capitalized software development and content to range between 25 and $27 million.

For purposes of modeling the full year in better understanding our guidance, we want to highlight some key variances between the first quarters results and the rest of the year.

In short we believe it would be a mistake to annualize the first quarter performance when trying to extrapolate cumulative performance for the year.

This is true for the following reasons.

Our first quarter revenue performance benefited from a couple of factors that will not recur at the same level, including the $1 8 million in legacy resuscitation revenues that I described earlier, which we expect to be only about 700000 in the second quarter.

And we also had some non recurring professional services and one time software license revenues from our scheduling and capacity management solutions during the quarter.

Also our adjusted EBITDA guidance reflects the increased investments in sales marketing and product development.

Which will accelerate across the remainder of the year.

These investments will be more weighted towards the new companies that we've recently acquired.

In addition to making these new investments our forecast also assumes that business travel gradually was names.

It also includes annual compensation increases, which were frozen last year.

This will take effect beginning in Q2.

We also anticipate the costs associated with acquisition integrations will continue over the next three quarters at levels higher than the first quarter.

And then we expect those to decline on when these integrations are completed.

And finally, our forecast does not include the impact of any other potential acquisitions that we may complete.

There are 2021.

Now, let me take a moment to provide a few comments about the COVID-19 impact on our business.

While our forecast assume a gradual improvement in sales and renewals pandemic may continue to negatively impact our customers.

Which may continue to cause uncertainty on their purchasing decisions for our products.

Since the onset of the pandemic, our business operations shifted to remote selling and remote implementation and over the past year.

They've conducted very little travel to our clients our customers have generally limited or prohibited vendors to their facilities during the pandemic.

Our sales and operations teams have adapted well to accomplishing their work virtually and we're pleased with our ability to maintain sales pipelines.

Win new business and implement our solutions all without traveling.

While we have adapted to this new operating environment, we continue to experience from continued uncertainty in our and our customers' purchasing decisions.

With a diverse product portfolio bookings of certain products have performed better than others at times.

Overall, our bookings for the first quarter outpaced the same period last year.

Product categories were regained momentum include the multi year multimillion dollar contract for our Jane installation and.

And our Credentialing and privileging solutions achieved record sales results this quarter.

Our offices remain closed and all employees continue to work remotely, but we are optimistic that we can reopen later this year and provide the opportunity for our employees to connect and collaborate in person again.

We're also continuing to monitor our liquidity, including weekly cash flows customer payment patterns and bankruptcy notices have.

We've been fortunate not to experience any significant bad debts, and our customer payment patterns had been more stable over the past few months.

Although if economic conditions worsen and our customer's financial condition deteriorates, it could negatively impact our future cash flows.

We ended the quarter with approximately $56 million in cash and investments no debt and full availability under our $65 million line of credit facility.

Our share repurchase program expired last Merck and we remain open to establishing a new program in the future depending on market conditions and other needs for capital allocation.

We also continue to evaluate potential M&A opportunities.

We believe our multi year objective to grow revenues.

And maintain gross margins and deliver incremental EBITDA.

The long term best interest of shareholders in the company.

Thank you that concludes my comments for this morning, Bobby back over to you.

Thank you Scotty speaking of working from home I was in my office and my office is a fireplace on top of the fireplace had a song birds. So I guess I was competing with the songbird to share the news and I've moved the location. So hopefully you can hear me better.

And it's kind of on the just adapt to all the new working conditions as Scotty mentioned, our president and C. O is working on a return to office strategies now for our 1000 employees and we're excited to get back together again and worked together again here in the not too distant future.

So a few more things to cover as we wrap up on them before we go to Q&A on our last earnings call. We introduced this metaphor of a three legged stool to describe the totality of our business as a three legged stool of standing on the foundation of our past H Dream architecture. So I thought I'd just refresh me on that analog and then we'll probably dropped the three legged stool analog but know that we have these three.

Focus areas for our business and so you know with each of our solutions group areas, representing a leg of the stool. That's kind of review on what they are the first learning and development solutions long standing core of our business is learning and development and obviously with expand on how next generation technologies like the <unk> platform.

Working alongside of our House Dream Learning Center, the most adopt and learning platform in health care than theirs, our Credentialing and privileging solutions of course that severity stream organization of 250 employees strong and gaining momentum with setting new records in the quarter.

Credentialing and privileging is an area we think that.

We have a good market positioning in and are beginning to show what we've built to the world and be well received in the new area that we're assembling through acquisitions in the fourth quarter.

First quarter and an earlier last year.

Is our scheduling capacity capacity management solutions, and that's kind of on the storming phase now or assembling the management team figure out the best of each of the platforms. We bought some really exciting platforms like the nurse grid platformer application set the and source application set on the shipped Wizard application set all of which were recognized for different.

Capabilities and it's our I think our unique skill picking the best of all of those on the people and assembling a strategy that can lever each of the best of those the team that we've assembled an application. So we're excited to speak to more about scheduling and capacity management advances in the coming years.

It won't be without its challenges anytime you inherit three.

Three companies three cultures and three application sets.

There's always going to be hurdles, but I feel like we're we've learned a lot from how we assembled and credentialing and privileging and plan to.

Use that playbook to do even better job of scheduling capacity management.

Each of these solutions groups as leverage to connect to the past technology the platform H stream and again, while the wiring isn't all there yet and we're in the midstream platform is maturing.

Increasingly I'm optimistic that the platform is viable and its ability to create say interoperability between the application sets is real everything from identity management. The extreme identity management system to the data mobility across application sets are things that and to the API libraries, we're building that.

<unk>.

Improve the rapid development.

Development of new applications and services like our tax on these service took us three years to build with medical librarians, but the taxonomy service is a core service of the H stream platform and for those of you know how ecosystems are built the taxonomy as kind of the the connected web it relates topics on content and application tables and data.

Search to each other and allows you to use them on manifest them in new ways and new products. So we're really excited about all that's happening with the H stream platform that the tech team leading that.

Jeff Cunningham.

As our CTO been leading the continued evolution of that platform and I'm just excited to see some on the capabilities emerging now as we connect that platform too.

The answers on learning technologies like Jane on the American Red Cross Resuscitation suite.

So I think.

Our customers are increasingly able to make sure that the right people the right place and right time, providing patient care on the right way the comps development systems and <unk>.

Screenings for for a sanction screening and and are verifying credentials to make sure. The right people right place right time with the right care provided us is something that increasingly we see <unk> tool sets playing an important role in.

When we talk about growth, it's important to think about the people health stream on the challenging conditions of the pandemic and.

It's fun to celebrate when they achieve something unique and we.

We continue to look at the data out of our comparably survey, where we had over 11000 comments from our nearly 800 employees at the time. They were all put on public display on comparably dotcom and comparably continues to parse that data from our employees and tell us where we perform well. So we just received news from them that in April <unk> received in the.

Ward from comparably called best operations team. So all the people that self identified as operations people how stream when compared to other companies that doesn't imply where employees identified as operations personnel are rated our environment is positive and one which they're proud of to operate in so congratulations to the best opt.

Our Asian team is determined by comparably dot com at health stream.

Again, it's fine to continue to learn from the feedback of our employees is 11000 publicly made comments, we essentially conducted our employer views from the world.

We learned a lot about it our employees did and we're using that data to make our company better.

As we wrap up I, just want remind everybody that on Thursday may 20th at two P. M. Central we will have our virtual annual shareholder meeting again virtual as last year and that should make it easier to participate for those of you that are shareholders and look forward to giving you that report here on may 20th at two P M central with that.

I'd like to turn it over to questions for the operator to take questions.

Thank you as a reminder to ask a question you will need to press star one on your telephone.

We ask that if you are on speaker phone that you. Please pick up the handset to withdraw your question press. The pound key please standby will compile the Q&A roster and once again that is star one if you'd like to ask a question and our first question comes from Ryan Daniels from William Blair. Your line is now open.

Jared Haas from for Ryan Thanks for taking the questions and congrats on a solid quarter wanted to ask two questions.

Related to the demand environment generally so the first.

Youre looking at the Verity stream product line I know, Bobby you talked about having record quarterly sales, there and as well as the single largest sale on the history of that product line. So nice to see some of the success and you know I'm. Just curious if you could talk a little bit further on what's driving that success from the marketplace. You know if theres any specific tailwind are.

<unk> advantages to call out there.

Yeah, I can comment a bit on that I think.

We acquired four companies are all in the space, we we carefully sorted through the best capabilities of those companies. For example, some had the best privileging libraries, which are kind of a data asset some had the best workflows.

And when we built the credential stream platform, we not only incorporated the best of those into that platform. We also created a more comprehensive view of all the services and related functions around the core credentialing process and so it's my belief that our application suite and Credentialing privileging and enrollment is.

Just simply more complete and its thoughtfulness and approach.

So not just the credentialing process, but the related processes like.

The physician on boarding process, there are elements of that where credentialing plays a role the privileging process, which effects the time to practice from the time you hired new positions at the time, they can actually practice medicine on your behalf on our organization. So that the vision that the team put together and as they built the new credential stream platform I think is simply Mauro.

Bust.

On the competition. So what we're beginning to see is an improving win rate and the head to head competitions because of the completeness of the vision of Verdi stream team and the execution on the platform.

That said.

There was definitely a delay period through the middle of last year, where.

Organizations are stopped shopping if it had something that was okay or it function. They werent really in a position to evaluate other vendors are switch platforms, even if it's a better platform.

We're beginning to see a little bit more heads up from our customers and they see the benefit from more comprehensive platform.

I'd say, they're looking more and they're considering a.

At a higher rate, replacing legacy platforms that we think we believer are less effective even sometimes in the case of our own legacy platforms that they acquired from us they're more interested in upgrading to the newer ones and so.

Now, there's still gonna be implementation lags, just because the nature of where everybody is operationally what kind of emerging from the pandemic on at least in the U S and they're definitely hotspots as you know in our country, where there again the health system they are experiencing.

Operations.

Being overwhelmed again.

But on the whole just a general improved buying environment and I do think we have one of the more complete application suites in the area for Verity stream now known as the credential stream application set.

Got it yeah, that's a that's super helpful and then.

Wanted to circle back on some of the comments you made around one other product line I guess, one other thing I'd like to add just because I want people hear it is that.

We're also beginning to see this first small benefits of its connectivity to the H Scream ecosystem. So for example.

The ability now if a customer is on the Red Cross resuscitation suite, they use our learning platform and their verity stream customer of the credential stream application set if those three conditions exist.

The data flow seamlessly from the consumption of the Red Cross program as an earned credential and a learning platform to manifest automatically in the Credentialing platform and that May sound simple, but really it's the integration of those three applications that creates a seamless workflow reduces the burden of gathering the information of that.

Credential in the Credentialing process and so it's the first sign of life of the power of Interconnectivity between application sets when connected through H Dream Engineering, which we talked about you know everybody on so whats the concrete benefit of eight stream. That's one small example on it's a unique venn diagram like you have to be on our learning platform.

Red Cross program and with our credential stream platform, but when those three conditions exist you definitely have an easier workflow automated data communication and less manual intervention to credential that part of our physicians record. So I wanted to give that example, because.

I think there'll be dozens more over time, and we're just getting the first signs of a power of the Gulfstream ecosystem.

Yeah, Yeah, I think thanks for that I think that all makes sense.

Just to follow up that I wanted to add I wanted to circle back to some of the comments you made on the <unk> product in the.

Vicki mentioned, it's kind of one of the first AI driven workforce competency management products in the marketplace. I'm curious, how you would characterize sort of the demand from health systems for workforce management solutions within the context of their broader AI priorities right and I think we often hear about things like whether it's chat.

Bots for patient engaged fan or other sort of AI solutions related more so to operations or patient throughput things like that so just curious how you would characterize your workforce development competency management tools within sort of the broader budget or context for a high priority. It's a great. It's a great question I think.

You know just in general and this is a disappointment for us for a long legacy is that.

The value of high quality education, and training is often hard to quantify even though we all strive and we kind of intuitively know that the more competent teams to better health care outcomes, but proving as difficult and so often education and training is is is lower than the budget priorities and I think that's sad because I think patient outcomes can be most greatly affected.

They increased their willingness to invest in those areas instead of just new equipment and technologies.

The incremental gains of a new MRI machine or are good but they may not be nearly as much as a focused comps development on our clinical staff that that said, you're asking where it ranks I'd say, it's lower on the priority tolls poll when things get tight education tends to be cut our investment in competency is most appreciated by the highest of quality.

Organization, so that the leading organizations investing and Jane right now are the ones that I think I view as non whitened customers, they're the ones that see the link between competency and clinical outcomes and unfortunately, sometimes it has to be a little bit more of an intuitively, but jane is definitely make it easier to see.

That linked because it more accurately quantify is not just knowledge deficits, but competency kind of decision, making deficits and that's where the errors occur when clinicians make.

Poor decisions and it's hard to judge it takes an expert to judge someone's quality of decision, making and know that expert capability is built into Jane and so I would say its early adopter, it's a higher price point and on products. We usually sell so the adoption is slower you heard me say one per week.

That's great. It's two contracts last year, but against the thousands of organizations I think need it it's very low and part of that's because of the higher price point part of that is because it's a lower priority as you as you asked me to prioritize and part of that is because it's going to take time for people to get the link between investment and competency development not just knowledge like cash taken.

But actual competency development and quality outcomes and so that's the journey, we're on and and we serve a higher purpose the education and training of the health care workforce.

Sometimes not as value does it should be but I think the light organization, particularly the ones that are that just bought at the system level are beginning to see the potential impact on clinical outcomes by making real dollar investments and to staff clinical comps development. That's my hope that's our ambition we believe in it we need the rest of the world to see it I think some of.

These thought leading organizations that are buying Jane now will began to have competitive advantage and by that I mean better patient outcomes.

Okay, great yeah, thanks for that.

Sadly it is a lower priority, though and so when when things get tough.

Education training comps development all in the week organizations gets pushed to the bottom along with things like marketing.

And that's always been a frustration Piper every educator on the planet that educate it's hard to quantify and know the value of investing in quality Copsey development.

Saying you and our next question comes from Matt Hewitt from Craig Hallum Capital Group. Your line is now open.

Good morning, and congratulations on the on a great quarter.

This is my follow up would be a good follow up to that question. When you think back to Q2 and Q3 last year you had hospitals that we're dealing with the pandemic that were shifting employees from one from maybe from elective surgeries to emergency care you had some employees that were even laid off as we were kind of getting through that.

Now with the vaccinations in and with some pockets of of pandemic easing, how our hospitals shifting their priorities and how does that play into.

Your your products quite frankly, I mean, where are you where are you seeing them prioritize verity stream or.

Some of the other solutions.

Is that are you seeing that in your discussions with them in and how does that play out over the remainder of the year.

Well I think.

If you think about the last decade, there's been a big move towards the HRS and huge growth for them and a lot of those transitions have been done there's still work in front of them, they're the digitization of the patient record the mobility of data a lot of that made a lot of progress on that as patients. We know it's very it's still kind of immature feeling but a lot of progress has been made there I think.

There's a continued move towards focus on quality outcomes and the organization that are bigger and stronger that can afford to invest in achieving our quality outcomes I think are beginning to prioritize.

The tool sets that can get them there and then theres just the from all of our products.

Other good thing about how some of our position is that.

You know, we help provide against the regulatory requirements as a highly regulated environment and for example, the Credentialing and privileging process is not just important to ensure quality workers quality physicians and nurses are in the staff, but it's important to keep those that arent quality out of practicing medicine, and so there's kind of.

<unk> per functions on quality that provided by the Credentialing services that are important and they need to be accurate and in the tools need to be good and so you know new products like our workforce validate product, which looks and checks for sanctions against workers to warn health care organizations when theres a sanctioned employ trying to enter the workforce.

It will be increasingly important and maybe that's a sad comment on things, but it is and then I do think things like Jane are well positioned to kind of be the next generation approach to learning like I think the idea of an individualized learning plan is far more exciting than assignment driven regulatory compliance training, which is at our core and both have to co.

Exist.

And one is more developmental on one is more regulatory in nature.

But both have to be done well to achieve quality outcomes and so I think Jane gives us a new dimension beyond just compliance training, which is required and frankly viewed as more commodity like how do you do that the least expensive way and we're kind of a low cost high quality provider and regulatory training, but with Jane where now we're kind of the also the.

Higher cost higher quality.

Educational development platform and and so.

I'm pretty excited about our positioning, but but as was noted.

Take while exciting at one contract a week.

We think could go a lot faster and we're looking for the right combination of price point and value add and Jane to make it go faster. So I don't know I think.

Areas of Credentialing, and privileging learning and development and.

And managing schedules and time effectively are all things that are going to go up on the radar a little bit higher.

And some of the things that are consumed as wholly like COVID-19 or EHR transitions of last decade are going to recede a little bit in the background. So on balance I think there'll be a little more visibility to certain types of application sets that we provide.

That said, there's a long runway in front of us and lots to do to convince people that they need to invest in quality the way, we want to see them invest in quality.

Understood. Thank you and then maybe a little bit more mundane question, but as far as the.

Implementations are concerned you you spoke a little bit about the lag where does those sit today, maybe where worthy pre pandemic and where do you see that kind of shaking out as we exit this year as we get into fiscal 'twenty two thank you.

Yeah, there's definitely a period.

I guess.

During the June of last year were.

Really no one was even taking phone calls much less implementing new systems and so.

Now everybody's putting things on the schedule thinking about when to get them done.

They are a little less urgent everybody's had to build all the vendors had to build new deployment models. Because you can't you don't go on site as much to do deployments if at all.

And so there's a there's a kind of a natural lag from both the transitioning models on implementation and the slow recovery back to what the new normal of operations for our customers and so those two things together are creating but a little bit of a lag and time to revenue issue that said I feel like everything is getting on the schedules now and in different products have different horizons.

Implementing like that at multimillion dollar multiyear contract for Credentialing It will take two.

Two years to implement fully and get the full revenue because are maybe more because you are talking about taken dozens if not in this case more than 50 or 60 locations and upgrading our legacy installed systems in SaaS dozens of unifying the process. They also use it to improve the process.

And probably being at the same time sort of implies operational changes.

For example, we asked them to standardize on certain practices when they adopt our platform.

And use our taxonomies in our libraries of data to classify things.

And so it's a big change management journey.

But to your point and question I think people were putting them on the schedule and getting on with wood with the changes they need to make to make the organization better now and that feels better to me.

Understood. Thank you.

And thank you.

And our next question comes from Richard close from Canaccord Genuity. Your line is now open.

Great. Thank you congratulations on a.

Our solid start to the <unk>.

'twenty one.

Scotty I was wondering just on a housekeeping can you go over the organic and acquired growth again, I didnt catch those didnt write fast enough but.

If you could go over those again and then are all the acquisitions in the workforce area just as a.

Reminder, there.

Sure Richard on.

Likely I characterized it as organic growth excluding the legacy.

Ah patient business.

Organic growing 8%.

And acquisitions contributing about 14% so the combination of both of those yielded about a 22% growth.

Growth rate once you factor out the legacy business from from prior year on current year.

And then on acquisitions that we've completed and we've done five since the beginning of 2020 and they're all included in the workforce business unit.

Okay, Great and then with respect to the Sky. The I guess, the third leg of the stool sort of speak.

Bobby can you just go over the schedule wing.

Area, how you're thinking about that.

That's where the acquisitions have been and just trying to get a feel.

Do you expect a similar sort of per.

Past.

That you had on the Credentialing side.

Side in terms of.

Timeframe on the integration of those products and then just.

How do you look at that.

Yes, Richard I think it will be a bit of a journey. The good news is the.

The team from the Verity stream put together over a 30 page document to tell us something about all that they learned about everything from how quick to work on the branding issues too.

How to select the core architecture and rebuild the platforms to how to combine the feature sets like is a really great deal.

On a roadmap for how to do what they've done at parity stream look at the market conditions build the right. So we're going to repeat the playbook. We acquired as you know nurse grid early last year and by the way that App has continued to grow its organic user base, even with minimal investments and so it still continues to be the most popular adopted nurse app that nurses use to help them.

Managed their professional life and schedule. So we're really excited about nurse grid.

We acquired shipped Wizard and the and source assets shift Wizard separately on the ancillary assets from change healthcare and they each have capabilities that the market appreciates like and sauces more enterprise capable than any of the others with shift Wizard its got market, leading workflows Our award winning recognition for the innovation in there in their applications.

But it has some scale issues and so like any set of acquisitions were 100 days on and finding all the things we have to work on to make it better.

Got a great leader over that and Scott Mcquigg.

On a 20 year veteran of health care technology, and and we've got a great roadmap that Michael Sousa and his team very stream of created for Scott and yes, we plan to repeat again, hopefully instead of four years of assembling all of those companies. We can do it in three or less.

And announce our new product strategy and vision and one that leverages the best of each of nurse grid and sauce and shipped Wizard.

Along with efforts to create smoothed branding approach and cash the eye and ear and wallet.

Competitive landscape. So it is a repeat playbook.

We gained some market share gains from unique assets like nurse grid Ah.

We again the people that know a lot about and have a long history of understanding.

<unk> management scheduling for nurses and our company on over 120, new employees in the business unit the business area. It is embedded within workforce, it's a little harder to see.

But we are thinking of it has it has a business leader and Scott Mcquigg.

And on trajectory and a roadmap to get there. So it will be a bit of a repeat I hope to get to a little faster and have a few fewer bumps.

Then we had made was very stream, but as you can see very stream I think is coming out the back end of that and I can't wait to report that we've done the same thing in Credentialing scheduling and what we call capacity management.

And is there any.

No thoughts on the margin, but a lot on my part.

A lot of our investments yeah, the margin profile should be similar.

The 60 65 per cent range actually it's a little higher than that right now it's on a I think it's around 64% of that business. So it is a good SaaS.

Our application set with decent software margins.

And so we're excited about that Theres some content dimensions to what we're building and engage on parts of those platform and promotional efforts say around a nurse grid that maybe low to gross margin a bit, but but but generally consistent with our goals as a unit president operating area and then definitely an area of investment. So for example, the sales team.

Right now across all of those sets as about 10 strong we plan to take it to 22 by the middle of the year. So just in the next three months, we plan to double the sales organization on schedule and capacity management.

Alright, thank you.

Thank you.

And ladies and gentlemen, if you have a question that is star one on our next question comes from Vincent Colicchio from Barrington Research. Your line is now open.

Yes, Hi, Bobby you just answered part of my question, but I'm curious if you can give us more color on.

What investments you'll be making this year.

Yeah, Yeah, a lot of investments you know things like Jane you have to continue to invest or find those technologies and add value to that product.

On the Verity stream team has an incredible R&D team and they continue to evolve their application set so isn't that in technology. The vision's always grander than the ability to execute it and you're always chasing that and trying to decide how much money to put into R&D and product development.

Clearly the newest area of investment that will consume a material part of our growing investment rates will be shaping the leadership team on the technologies and roadmap for scheduling capacity and capacity management. So I. Just gave one concrete example, we plan to take the sales team from say tend to with with new law.

Your ship to or added leadership.

Tend to over 20, I think 22.

In the next three months and similarly, the tech teams there like in that area, we'll take the best of the technology people from those three acquisitions, we've got a new leader over that Tech group that was kind of a C. T O.

Scheduling capacity management business, and there'll be a hiring and adding the team members there because they have to build a unified technology roadmap. So youll see R&D increase in the in the scheduling application sets and of necessity to the some of those applications needed to be updated and modernized and what you'll also see is working on on <unk>.

Our connectivity say between nurse grid, and an sauce and between nurse grid and shipped Wizard.

In addition to all of that will be working on the branding and positioning of those product sets to create more clarity on on the role of each of those technologies and that will cost money.

And in addition to all of that don't forget we didn't do raises last year, we limited the executive bonus programs, we we reduced travel and all of that in the second half of this year, which was in the second half last year is coming back and so.

That's why we need to be careful as we as we look at Q1.

The sales the sales and marketing ramp the tech investments are beginning in the new areas of our business in Q2.

And it's got to work for you how much was the nonrecurring professional services and software license revenue in Q1.

We didn't quantify events, but it was mainly from the and sauce organization that we acquired in Q4, it's less than $1 million.

Okay.

Thanks for answering my questions a nice quarter guys.

Thank you.

And thank you and I'm showing no further questions I would now like to turn the call back over to Robert Frist.

With closing remarks.

Thank you to all the analysts following us we appreciate you telling our story and we want you to be careful as you model out we tried to explain the second half of this year, including increased investments.

And we did have a really strong first quarter, but we want to be careful to look at the new guidance ranges and make your models fit within those guide rates, because we make them as thoughtful as we can as accurate as we can and we don't want you to over model or our annualized Q1, because we have more investments coming into the business in Q2, Q3 and Q4.

That said, we're promise and we're excited to raise guidance and look forward. Your continued research on on a company to our shareholders. We look forward to hearing from you in our shareholder meeting and to our employees I just want to say. Thank you for your continued feedback we listen and we do it on a public forum and we try to make our company better and stronger and more fun place to.

Work and now what I can say as many of you have been working for years on these products like Jane and it's fun to see them in workforce validate and others and now these new acquisitions and new employees and I want to encourage you that you are making a difference on that I'll say, thank you to all of our over 1000 employees now it helps dream. Thank you I'll look forward to seeing you all on our next quarterly earnings and before that.

At the annual show up on me. Thank you Bye bye.

This concludes today's conference call. Thank you for participating and you may now disconnect.

Okay.

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Okay.

Yeah.

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