Q4 2022 HealthStream Inc Earnings Call
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
[music].
Yeah.
Good morning, and welcome to health streams fourth quarter and full year 2022 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 Mollie 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 helps streams fourth quarter and full year 2022 results.
Also in the conference call with me today is Robert a Frist, Jr. CEO and chairman of help stream and Scotty Roberts, CFO and senior Vice President of Finance and accounting.
I'd also like to remind you that this conference call may contain forward looking statements regarding future events and the future performance of Gulfstream that involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward looking statements.
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 net income attributable to help stream is included in the earnings release that we issued yesterday and they referred to in this call.
So with that start I'll now turn it over to CEO Bobby Frist.
Thank you Mollie good morning, and welcome to our fourth quarter and full year 2022 earnings call. We do have a lot of development to cover this morning, so well.
We'll get a quick view of our financial performance.
Moving to in depth discussion of operational enhancements, we've made to begin 2023, I'll turn it over to Scotty Roberts for a more detailed look at financials.
I do want to kind of reiterate the fundamentals of who we are and where we're going so let's start with that and an exciting news around starting up the cash dividend policy.
To share as well so first of all financials each of the financial metrics highlighted in our earnings release, we did show growth in both the fourth quarter and the year when compared against the same periods last year for the full year of 2022, we delivered a record high amount of top line revenue of $266 8 million and a record.
Adjusted EBITDA of $53 4 million.
In 2023, we expect to eclipse both of these high watermarks due in part to our streamlining of the company around our single platform strategy, where we use.
We used to be organized around two business segments workforce solutions and provider solutions. We are now organized and managed as one operating company unifying our work to enhance and leverage our eight stream technology platform. We call. This our one health stream approach or initiatives.
And we're going to talk a little bit more about that.
The rest of the script here.
Before we go further I want to cap 2022, it starts by two three by grounding everyone in our business.
First and foremost health stream as a health care technology company dedicated to developing Credentialing and scheduling the health care workforce through SAS based software solutions, each of which are becoming more valuable because of the interoperability there achieving through our <unk> technology platform, we sell our solutions on a subscription basis under.
Contracts, which averaged three to five years in length, because that means our revenues are recurring and predictable we are profitable and we have little to no debt.
Solely focused on health care and more specifically the health care workforce.
The $10 9 million health care professionals work in the United States are the end users of our SaaS solutions and the target for our core applications.
We are led by seasoned team of executives, who have proven track record of generating strong earnings and cash flows through both organic and inorganic means and I'm pleased that our executive leadership continues to evolve along with our business today, we are announcing new executive positions, but the individual's filling those positions are familiar to you all and have shown themselves capable of.
Driving growth through innovation.
For example, as part of our one household approach we are consolidating our credentialing and scheduling solution groups into one group that'll be internally known as enterprise application solutions.
Michael Sousa has been promoted to executive Vice President of enterprise applications to lead this new group.
Kind of like a new grouping of product family based on the similarities of the product lines.
Having joined how stream in 2004, Michael has already distinguished himself as the executive leader of our enterprise sales Department and more recently as the president of Verity stream as many of you know Verity stream is the brand we have used to refer to our credentialing business up to this point.
Now we will drop the Verde stream brand affair in favor of operating as one health stream.
We believe the consolidation of Credentialing and scheduling into enterprise applications will benefit customers receive a more integrated set of workflow solutions.
And we are pleased to have one of the top SaaS solution executives in healthcare, leading this new group.
We have also formed a new group called digital network development to focus on business to professional solutions. This group is innovative and new and exciting and their direction is being led by established health room Executive Scott.
Scott Mcquigg.
We have a deep history of serving institutional customers through our b to B business model, but the growth of nurse grid and the footprint My clinical exchange both acquired businesses through our M&A program.
Have shown us that we have a lot to offer the individuals' who'd like to become our customers as well with that opportunity in front of US Scott in this new group take on the opportunity to turn subscriptions into subscribers when we expand our business to professional offerings.
Considering scotts many accomplishments at how stream in his prior entrepreneurial successes. He is uniquely qualified to grow professional audiences user engagement and monetization strategies in this newly defined solution group Scott will serve as senior Vice President over our new digital and network solutions group.
Our alignment around one housetrained means organizing our company to achieve future growth and investing in areas, where where we see potential.
Potential for growth and see key growth drivers, our philosophy has always been to invest in the innovation necessary to deliver technology solutions that help improve the quality of health care.
Streamlining around one how stream is the next step in that journey, we believe the realignment announced today positions us to deliver strong financial growth and market leading innovations going forward. This can be seen in the 2023 financial outlook described in our earnings release and our longer term financial goals discussed during our September 2022, Investor day presentation.
As a macroeconomic forces of inflation and recession AD challenges and uncertainty on the global scale. We are confident that health stream will continue to deliver strong and growing profits.
There is still a great deal to talk about but first let's look at a detailed look at our financials and I'll call on Scotty Roberts to do that our CFO alright, Thank you Bobby and good morning.
I'll start with the financial highlights for the fourth quarter wont speak to our financial outlook for 2023 and.
And share how the operational changes, we've made will impact our financial reporting beginning in the first quarter of 2023.
Unless otherwise noted.
Parison, we're gonna be against the same period of last year.
Our revenues were $68 5 million and were up 7%.
Operating income was $3 1 million up from them from an operating loss of <unk> 5 million.
Net income was $2 5 million.
Up from a net loss of <unk> 4 million.
E P S with eight cents per share up from a loss per share of one set and.
And adjusted EBITDA was $13 6 million and was up 13%.
As a quick reminder, last year's fourth quarter included $2 4 million of stock compensation expense associated with the stock Grant.
Over 1000 employees with success facilitated.
Facilitated through a contribution of personally own shares from our CEO .
And despite being fully funded personally by our CEO GAAP requires this transaction to be accounted for as a compensation expense of the company.
This resulted in lower operating income and net income in last year's fourth quarter compared to this year.
So now let's go back to our financial results, our workforce solutions revenues were $55 million and were up 8% and.
And revenues from provider solutions were $13 5 million and were up less than 1%.
Revenues from our provider solutions were impacted by lower professional service revenues compared to last year.
While subscription revenue increased by 5%.
After delivering a consolidated growth rate of 2% in the first half of the year. We finished with an overall growth rate of 6% in the second half.
A steady progression of revenue from new sales, particularly from our learning and development solutions.
With our mid year acquisition contributed to this year over year improvement.
Gross margin was 65, 7% compared to 64, 3% last year.
After adjusting for the impact of the CEO stock Grant accounting treatment gross margin for last year would have also been 65, 7%.
Operating expenses, excluding cost of revenues were flat, although last year's fourth quarter included a portion of the $2 4 million of stock compensation expense.
I'm, the CEO stock grant to employees, which I mentioned earlier.
Aside from the reduction in stock compensation expense, we experienced year over year increases in sales marketing and product development expenses, which were mostly offset by reductions in G&A.
Sales and marketing expenses increased by 7% comp.
A combination of growth in staffing levels higher sales commissions related to a higher level of sales bookings.
And increased travel versus the height of the pandemic.
Our business travel expenses have been steadily increasing over the past several quarters and.
And they approximated $300000 this quarter compared to just under 100000 in the fourth quarter of last year.
For the full year travel was up approximately $1 million and we expect travel will continue to trend upwards in 2023.
The investments that we've made in sales and marketing resulted in an improvement in our sales bookings during the fourth quarter compared to the first three quarters of the year and they were notably higher than last year's fourth quarter.
We had several key wins, including some large multiyear contracts across our portfolio of applications.
Some of the larger deals specifically for the Credentialing and scheduling enterprise applications typically have a longer cycle time to revenue generation and our learning applications.
So we expect these subscriptions will begin to materialize into revenue later in 2023.
Product development increased by 3%, which is net of the labor costs that are capitalized for software development.
Well capitalized labor costs increased approximately 1.2 million over the prior year quarter, resulting from investment towards our single platform strategy and suite of applications.
General.
And administrative expenses declined by 12%.
Which came from several areas, including lower bad debt charges reductions in outside recruiting services.
Reductions in our leased office facilities and other infrastructure related costs.
And last quarter, I mentioned that we decided to market about one third of the space and our Nashville headquarters for Sublease and this process is still underway.
Our adjusted EBITDA came in at $13 6 million and was up 13% over last year's fourth quarter and the.
Adjusted EBITDA margin was 19, 9% compared to 18, 7% last year.
Now, let's move over to the balance sheet metrics.
We ended the quarter with cash and investment balances of $53 9 million.
And during the fourth quarter.
Deployed $6 1 million of cash for capital expenditures.
And we did not have any share repurchases this quarter.
DSO was 42 days compared to 41 days last year.
And for the full year cash flows from operations were $51 2 million.
Up 24% compared to $42 4 million last year.
And free cash flows were $26 1 million compared to $17 million last year and were up 53%.
On December 31 of 2022, we acquired substantially all the assets of Eads North Carolina based health care Technology company.
Offering a SaaS base, continuing education management system for health care organizations.
The consideration we paid for AIDS consisted of approximately $7 million of cash.
Subject to customary purchase price adjustments and.
And the transfer transfer a consideration occurred in January .
And our history, our capital allocation approach is included a combination of investing internally.
Quire complimentary businesses that fit our model and returning value to shareholders through share repurchases.
And as announced yesterday, we introduced another means of returning value to our shareholders.
Our board of directors adopted a dividend policy under which we intend to pay a quarterly cash dividend on our common stock.
We believe our history of steady and consistent profitable growth along with positive cash flows provides us the opportunity to return value to shareholders via cash dividends, while continuing to invest in both organic and inorganic growth initiatives.
The board declared a quarterly dividend of two and a half cents per share, which will be payable on April 28, 2023 to shareholders of record as of April 17th 2023.
Okay.
As I already mentioned, we did not have any share repurchases. This quarter and there was approximately one 9 million remaining under our current plan, which expires next month unless earlier terminated by company.
That's 2020, we've deployed over 48 million towards share repurchases at an average price of $21.75 per share.
Now, let's move over to our guidance expectations for 2023.
We expect consolidated revenues to range between 277.5 and $283 million.
Adjusted EBITDA is expected to range between 57.5 and $65 million.
And capital expenditures are expected to range between 27 and $29 million.
Our guidance does not include assumptions for any acquisitions that we may complete during the year, but does reflect the recently completed acquisition of eats which.
Which is expected to contribute between one six to one 8 million of revenue during the year.
Our objectives for growth include generating cross sell and up sell opportunities across our customer base incur.
Increasing the revenue per subscriber and growing the number of subscriptions to our <unk> platform.
We believe our workforce centric ecosystem of solutions positions us well for continued expansion and growth.
With the most adopted learning application in the health care industry combined with a wide array of cost effective content offerings that address our customers' needs for training continuing education and compliance winter.
We anticipate another solid year performance.
Okay.
In addition, migrating customers from legacy products to our SaaS solutions.
Specifically within our Credentialing and scheduling application suites.
Top priority and will be another driver for growth.
We expect to maintain our gross margin in the mid 60% range for the year, which is consistent with our medium term objective of 65% to 68%.
Now looking at our expense assumptions over the past several years, we've made investments to scale, our product development sales and marketing teams.
And we expect modest incremental investments in these areas for 2023.
We plan to increase the relative level of investment towards our single platform strategy our scheduling.
Application suite and by expanding our business to professional footprint.
While somewhat stabilizing our investments and our learning and Credentialing application suites.
A meaningful portion of our capital expenditures over the years has been associated with capitalized software development.
We expect the allocation this year will be similar.
As I mentioned earlier travel costs in 2022 were up and they're expected to gradually increase on a year over year basis to approximately $2 million for the full year.
In addition, we anticipate certain costs will be impacted by the inflationary conditions conditions that continue to persist.
Now as it relates to the organizational changes, we announced yesterday, we expect to record severance charges in the first quarter of approximately 800000.
Which has been taken into account what the guy that's being provided.
We anticipate that our forecasted adjusted EBITDA margin will increase to the 21% range, which is also consistent with our medium term objective of 21% to 24%.
Okay.
We expect our effective tax rate to be between 25 and 26%.
I would also like to note that given some recent changes in our research and development expenditures are treated for income tax purposes, I expect that our cash tax payments will also increase during 2023.
And we have a long history of leveraging our M&A program to drive growth and expand our product portfolio.
And during 2022, we acquired two more companies cloud CME and AIDS.
At a set of solutions that are unique to healthcare CME administration.
As we highlighted during our Investor day presentation last year, one of our growth strategies is to pursue opportunities for M&A.
We will remain discipline in order to find the right strategic fit at an appropriate valuation that we believe will create return.
With a healthy cash position no debt.
Access to a $65 million revolving credit facility and our free cash flows we are well positioned to support to support our capital allocation strategy for the year.
Now before turning it back over to Bobby I want to read something to you that we began including in the management discussion and analysis portion of our periodic reports this time last year.
First appeared in our 2021 annual report on Form 10-K.
And we've repeated it in our quarterly filing sets and it reads.
We are in the process of completely unifying the company under a single platform strategy.
That will serve as the foundation for the entire enterprise.
By enabling our applications through a common technology platform known as H Dream LIBOR.
We believe that Standalone application, which already provide a powerful value proposition will begin to leverage each other to more efficiently and effectively empower our customers to manage their businesses and improve their outcomes.
I don't want I want to highlight this part in particular as we continue to achieve this goal of orienting multiple application in relation to a single technology platform distinct.
Distinctions between our current reporting segments of workforce solutions.
And provider solutions may become less applicable or even obsolete in terms of how we operate and report on the company's business.
Now read you that expert from our filings because we've reached an inflection point and are now operating as a single platform company, whereas one help stream as you heard Bobby say earlier.
This is this is reflected in the way we run our business across the board.
Clothing in terms of technology operations accounting.
Our organizational structure compensation.
Performance assessment and resource allocation.
There's something you've heard us talk about since we began reporting the subscription count for eight stream in February of 2019, and more recently on our Investor day call in September of last year.
And today, our operations are aligned with our vision and we celebrate that fact.
To reflect the way we now operate organize ourselves as a single platform company.
This area to begin reporting accordingly.
From 2023 forward, our financial outlook and results will be provided on a one segment basis.
The results from prior periods will.
We will be provided on a two segment basis, given that we operated two segments workforce solutions and provider solutions.
The period, thus the results were generated.
As our single platform approach advances, we look forward to determining new metrics that we may report in order to give you insight into our business and its growth.
And with that I will wrap up.
Thanks for your time, this morning, and I'll turn it back over to Bobby.
Thank you Scott for that detail.
Got lots to pick up on operationally, so let's get started.
My comments at the start of the call we're about positive aspects associated with streamlining our business. According to our one <unk> approach.
Also want to pause and acknowledge the most challenging part of our realigning our business and that is the elimination of 33 positions from a base of over 1100 employees with consolidation comes the need to eliminate overlapping roles and that is driving the efficiency measures, we announced to our employees yesterday afternoon, we do not take this decision lightly and we wish all of our <unk>.
<unk> and present, all the best moving forward.
As I mentioned previously we will continue to invest in our business and employee base and continue to channel those investments, where we believe they will be most likely to help recognize our vision of improving the quality of health care.
Developing the people who deliver care.
With that I want to quickly mentioned some of the successes we achieved to end 2022 for each of our learning scheduling Credentialing and now our platform solutions, we will I will highlight a win that I think characterizes where our business is heading.
So the whole stream learning center is the most utilized learning management system in health care and continues to add new customers in the last month of the year ardent health services purchased our house streamlining center to support their workforce enterprise wide. We recently issued a press release about our partnership with art and help which I encourage you all to read.
If you haven't already.
Second we believe that our SaaS scheduling solution known as shipped Wizard is the best in class solution of its kind and it will only become more valuable to customers as it begins to integrate with other applications through our H Dream technology platform in December Prime healthcare, another enterprise wide customer of our <unk> learning Center.
I also became an enterprise wide customer of shift Wizard, our SaaS scheduling solution.
One reason this is noteworthy as because half of prime facilities converted from our legacy installed scheduling products, while the other half purchase scheduling solutions from us for the first time.
As a result, we welcome prime healthcare as an enterprise wide customer of both the <unk> learning Center and now shift Wizard.
Our Credentialing solutions also enjoyed a successful end of the year, both in terms of competitive takeouts and conversions from our legacy solutions to credential stream, which is the best in class solution for enrolling Credentialing and privileging physicians in March of 2020 to spectrum health signed an enterprise contract for crude.
<unk> then in the fourth quarter of 2022, after merging with Beaumont health and forming core Wilhelm.
They decided to extend the credential stream contract all of Beaumont health, replacing one of our top competitors in the process. This extension more than doubled the value of the original enterprise contract.
As a forward thinking health system. They are motivated to use credential streams powerful technology to drive process and privilege standardization enterprise wide, while also accelerating optimal efficiency and effectiveness as a foundation for the newly combined entity core Wilhelm.
In terms of platform solutions, the eighth stream platform the transaction that I would like to highlight is a new type of sale for us less than three months after releasing our developer portal where.
We're able to provide Kaiser Permanente, Northern California region, and API only deal that allows them to monitor and validate their entire workforce being able to sell API as a product is representative of our platform strategy, becoming a very tangible reality and we look forward to more of the sales in the future.
We believe these wins illustrate the value of our customer receive from our ability to provide enterprise wide solutions and.
And we believe that those solutions will become more valuable as the H stream technology platform enables interoperability across multiple applications.
We continue to innovate across the company, which is helping us to create market leading products at the end of the fourth quarter. Our innovation was recognized with five prestigious Brandon Hall product Awards. They include awards for our <unk> compliance program.
Quality management tool called advocates or <unk> customer community.
To our American Red Cross Resuscitation Resuscitation suite, which included an award for best advance in education delivered through technology.
Our employees that have worked to make these health stream products stand out above the rest and to earn these national recognitions and awards.
On January three 2023, we also announced the acquisition of <unk> with this acquisition, we expanded our ecosystem with an innovative SaaS based continuing education management system for health care organizations. Each represents the third acquisition and especially area that we completed within a 13 month period, making us a market leader in this niche area.
You have health care technology.
Accordingly, we believe that the acquisition of arriving in technology cloud CME and needs, which are all seeing the application management businesses showcases how our platform is well positioned to empower new solutions that add to our growing ecosystem and marketplace.
Planned to begin utilizing our well established M&A program to enhance our ecosystem by bringing new and expanded offerings to our customers.
Apart from the operational updates related to our one housekeeping approach. We also announced in our earnings release that Eddie Pearson, how streams, president and CFO will be retiring from his current role at the end of the second quarter. This year.
At that time, he plans to continue serving the company in a multi year part time leadership position that we are going to call executive and residents.
Eddie has played a significant role in transforming the company. During his 16 year tenure when he joined the company in 2006, there were 200 employees and 27 million in revenue contracting that to today's employee count of 1100 individuals and annual revenues of 267 million helped to provide context for the magnitude of growth Eddie has helped.
The company achieved the good news is that Eddie will still be it health stream and an important role where employees can learn from him and benefit from his years of experience and wisdom as we draw closer to the date of this transition to his next roadhouse dream there'll be much more said regarding eddies numerous contributions and legacy as president and COO.
Before we move to questions I want to discuss one more piece of exciting news.
Our new dividend policy, we are pleased that our strong balance sheet, including a reliable free cash flows puts us in a position to return value directly to shareholders through the company's first ever quarterly cash dividend over.
Over the course of the year, we expect our new dividend policy to return approximately $3 million to shareholders. Importantly, we believe that our new dividend program highlights. The fact that he'll stream as a profitable technology company that has both the discipline and the resources to return cash to our shareholders. While also pursuing our organic and inorganic growth strategies.
So if you're interested in a profitable highly recurring revenue SaaS Paas health care technology company that for 2023 expect to deliver steady growth and is determined to share some of his gains directly with shareholders in the form of the dividend maybe Hell stream is the stock in the company for you I.
I'd like to turn it back over to the operator for to begin our Q&A.
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Okay.
Our first question comes from the line of Matt Hewitt with Craig Hallum. Your line is now open.
Good morning, and thank you for all the details and the update maybe first up.
Bobby.
Describe what the sales environment is like obviously the last couple of years, it's been pretty challenging hospitals reluctant too.
Maybe bring in new software.
Given some of the challenges they're facing with Covid. It seems that that's freeing up now you've got some issues on the hiring and retention side at hospitals, but maybe just a little bit of color on what youre seeing from the customer side.
I think the.
Probably the simplest way to say it is that our products are well aligned with business needs, but the larger customer base is under a lot of financial duress I think I think a.
2022 is probably one of the most difficult financial times for take acute care hospitals in a long time.
As a result of the shift in and how they operated the running out of Covid support funds I think just in general there are several exceptions are strong operators that are generating solid growth in profits, but I'd say on the whole the target customer base is under still under stressed financial stress and.
Particularly in the second half of 2022, I kind of saw that.
The good news is that I still think our solutions are both aligned with the areas they need to invest in <unk>.
<unk> are required to invest him saker Osha safety training in many cases, we also are the low cost provider of that high quality service. So we should be the selected a vendor and those and when they make those choices and and I feel that our products are now getting in a position where their capabilities are mark.
Leading or and very innovative so I feel well positioned but I.
Don't Wanna under emphasize that.
The typical hospital C O I still under a lot of pressure when investing and deploying capital cash or operating cash flow into really anything so we're a bit cautious on on our overall growth for the year. Some of them are related to long implementation cycles and some of it related to the sale.
[noise] cycle still.
I would see a see a much higher I like our pipeline as they feel strong we just have to see how well the deals close and so we've kind of got this soon.
Essentially 4% to 6% top line growth range on us for the year as we see how this all plays out but it's an interesting dynamic because we're well aligned.
But our customer base is under stress.
And but I think we have good price points that to entice them and a great sales team and we've got a strong pipeline.
Just have to see how well we can convert it and then of course <unk>.
Limitations for scheduling a major enterprise adoption of scheduling and and Credentialing.
Or rather long implementation cycle. So the time to revenue is a bit delayed and that's why we talked a little bit about second half being.
Being a growth period.
That's really helpful and maybe a follow up.
Getting a little more specific with the ardent when I'm, obviously, congratulations there maybe if you could provide a little bit of detail on how long was that deal in the pipeline.
You know who are the or what were they using.
Prior to converting over to each stream and in the learning center and and how long was that deal and in the pipeline how long does it take to get to close at one given some of the challenges that the customers are facing thank you.
Well sure well that one.
Moving along fairly well over the course of a year from initiation of discussion what they were and they were going to look to the market to see what was available are there on a competing application suite. So it was a change for them to move to us.
Unfortunately, we had previously a year prior convince them to move on to the Red Cross application suite and connect to that program through the eight stream platforms. So they already had eight stream licenses in place for a lot of their employee base and it kind of shows how the model works like we connected to them their existing plan.
Their existing learning architectures to the extreme platform, we were able to sell the Red Cross program. They liked the program.
It was approved effective and it also save the money over their prior programs are.
And then we introduced the learning system is a better way to manage the administration of the Red Cross program and over the course of the year, we won them over and with them already having licenses to the H dream.
Core application of core technology. It made it more economical to just add on the the learning center applications. So there's a bit of a process, but it was also essentially an upsell because they had already adopted parts of our technologies.
<unk> the H dream platform itself.
That's great. Thank you.
Thank you.
Our next question comes from the line of Richard close with Canaccord Genuity. Your line is now open.
Yes, congratulations and thanks for the question Bobby maybe just build on <unk>.
Some of the comments you just made to matts question.
With respect to revenue growth in the first half should that be somewhat flattish and then seeing the growth most of the growth in the second half of the year just curious.
Fair question I don't think it's kind of a we do think more in some areas of business will matriculate in the second half, but that that sounds like the learning platform.
<unk> is going live at artisan, we will get to those revenue sooner. For example, so no I think that the year will show growth I haven't looked at as quarter as Asian.
In the last 24 hours I can't quite remember the ups and downs that Scotty may comment a little bit, but the overall growth.
At 4% to 6% and.
Probably a little bit more weighted to the back half based on our current dialogue.
But it doesn't mean a no growth in the first couple of quarters I don't I don't think maybe Scotty could come out and clarify the quarter as Asian, a little bit better Yeah, I think Richard at all.
I'll be quiet is that dramatic as last year, we had a 2% first half and a 6% second half kind of growth.
Growth rate I think it'd be a little bit more balanced than that but.
Expect just given some of the.
Kind of the way revenue stream flows in.
That's the second half will be L. Moore.
Pronounce than the first half, but probably not as big of a gap as we saw last year.
Okay and then.
You guys just posted six and a half per cent growth I guess in the fourth quarter. So you would gauge that for the year, the 4% to 6% is baking in some conservatism just basically because the current environment is uncertain.
Well, there's definitely a little of that but I don't I don't know if I'd call. It conservative it is our best estimate.
Based on all the variables that really is I don't think we're trying to be overly conservative or overly aggressive. It's just kind of when we looked at our pipelines how they're how they're converting we looked at our fourth quarter sales, obviously very important to have some nice big wins, there would have to know how they'll roll in.
I think in the sense that the macro conditions are still tough.
It's hard for us to get beyond that range right now so what I'm, saying, so I don't characterize it as conservative I think it's our it really is a what we think is our accurate view of how things will play out in this year of course and without trying to over engineered to be conservative or aggressive I think I think it's a careful study of the good news is we waited.
To get the year end sales numbers in and you know as you know a lot of our growth for this year is based on how the contract flows where over the last two quarters last year. So.
The growth numbers are largely a projection of how the sales of the fourth quarter and third quarter of last year will matriculate into this year.
Okay. That's helpful and then when I think about something like.
Cloud.
The acquisition earlier or mid year I guess.
In.
The he's here.
Recently.
Not huge from a revenue contribution but.
Easy or hard is the.
In terms of plugging that into the plan those offerings into the platform and then just like.
Ross selling that into your significant base is that something where.
Yeah.
The sales process.
Is relatively easy.
Just any thoughts on that front, yeah, it's a great opportunity to kind of talk about the platform a little bit more and create more clarity on on it and how to.
How to best think about it for the next say 12 months and so the first thing to remember that the actual platform itself. The technology of the platform is is growing and maturing as reflected in the actual lease of our developer portal and it's on our first set of publicly available license of all a P eyes and the Kaiser deal, we just announced.
So we're really excited about that and each time, we add to that platform. The actual technology capability of the platform things will get faster easier and better that said on a maturity curve I would say that the platform technology is fairly fairly new in our mature, meaning there's like so much in front of us this opportunity.
Create leverage so a more constructive way to think about H Dream I think for the next 12 months is maybe the way you would think of say an Amazon Prime it's a it's a license that includes access to some technologies.
But also a lot of other benefits for example, the way Prime bundles in your free audio and video the H stream license bundles M 300 free industry sponsored courses without warning system and so we are selling lots of licenses to H dream. When it's bundled with learning for example, but because of the <unk>.
Charity level the platform not all of our applications are technologically leveraging the platform and we're still in the early stages of rolling out some of the core functions of the platform like the common I D and <unk>.
So even if our own application suites.
Not many of them leverage the H Dream I D infrastructure, which is the common infrastructure that we're now aggressively deploying and the good news is that particular part of the technology H Dream I D.
Is mature and ready to go and now it's just a matter of this year are incorporating it into each product like cloud CME and ride that nurse grid, and and shipped Wizard and we need to get all of those actually utilizing the H Dream I D and this year should be a year of great progress in deploying that common <unk>.
Then a fire across all of our application suites, because again the tools are built and now we're in the kind of almost our own internal implementation cycle. So I don't want to over Underrepresent My excitement for the platform is very high it's well positioned to include a value a bundle of services and the license which includes things like pre courseware.
They're a discount program and also as in the case of Kaiser some direct access to Api's and functionality.
They can pay for.
And so I don't want to underestimate it or overestimated.
This year will be mostly about connecting our own platforms, our own applications and then the next year that will allow us to report.
Our report more metrics about revenue per subscriber or per application.
That are connected to that application so another way to think of it as.
We sold a lot of subscriptions to H dream.
And now we're going to convert them into subscribers and.
Subscribers of those that you direct benefit from the platform I hope that kind of discussion just helps frame it up.
The portal is real the API is are growing I expect new API to be delivered to the portal every quarter.
Creasing Lee internally, our applications are being hard wired to the platform and each time, we hardware something to the platform it improves interoperability and functionality are.
We're in the process of example, right now of wiring the license API service into each so for example won't it be great. When you schedule, a nurse and shipped Wizard and it checks their license validity in the background to the API. That's the service we would expect in the second half of the year. So those are just.
Examples to clarify where we are on this platform journey, but we are clearly at an inflection point, where the platform is manifesting in our business both directly as an example, the Kaiser license.
And another large customers is using the API is to power one of their own internal mobile applications. For example, so we're beyond the R&D stage, but we're not to the fully deployed stage.
And Richard to your point.
Cross selling interoperability like our sales team I hope every quarter can demonstrate some new functionality like Oh, the licenses aren't into learning system appear in the Credentialing system and therefore, there's more benefit to owning both of those from us directly instead of thinking of them as separate SaaS applications. So I know you've kind of prompted that.
Question around interoperability and cross selling.
But I wanted to as a great opportunity to add live a little bit and update everyone on the H stream platform technology. The H dream licenses that were bundling when we sell applications.
The good news, we can sell a license to the H stream platform because it includes a mixture of services and benefit programs and technology and then.
Pretty detailed update on the progress of the technology itself.
I hope that helps and if I didn't get to your question exactly just fire it up again.
No that's fine and then actually go through a couple of questions I had.
My back pocket here My final question.
If I can ask another one is on the digital network development business. So just.
Maybe you could.
Describe that a little bit better.
Exactly what that is.
And how we should think.
About understanding the financial opportunity longer term there.
Scotty you want to take that for a second.
Sure Richard So this installation group there.
Led by Scott Mcquigg as Bobby mentioned on the call. This is a kind of forming a.
Solution group around the individuals' versus the businesses that we've traditionally done.
Worked with over the years instead of trying to target that audience more discretely.
And specifically and so an example of applications. They already have as assets are nurse grid and my clinical exchange Beth from prior acquisitions, so continuing to two.
To invest in those technologies to get more of a.
Print directly with the individuals that are end users and health care.
So that will.
Play out over time.
Absolutely just kind of putting more attention to it as we head into 2023, but as time progresses, I think we'll see some more opportunities arise out of that and I think just trying to like I said get more footprint in that areas and our objective for this year.
Richard just building on that I love, we kind of coined it's internal phrase turning subscriptions into subscribers. If you think of the <unk>.
Five four plus million subscription licenses that we sold the eight stream.
Scott Mcquigg, new job is to try to find those individuals.
As individual consumers over time. So for example, we have lots of kind of up through a few visionary statements out there that again, having occurred but theyre in front of us under Scott's leadership. So for example, when a doctor is going through the Credentialing process.
And they need some CME to to finish their credential report to show that they've gotten all the CME required for their license maintenance.
They may be short.
Class and in the new model, we would present them with opportunity to enter their credit card and purchase that class if theyre short because we know what it was going to be able to recommend it out of our massive.
Library and that would result in a direct transaction in that case with the physician that was originated because they're in the credentialing process at a health system.
So this monetization of the individuals as an opportunity I'd say, it's a long run opportunity, but we're beginning to put a little bit of emphasis on it because it allows us to look internally at all the channels and figure out where we might be able to catch an individual as a customer as well. So we have two applications my clinical exchange.
That are already on boarding professionals as individuals and getting them in H dream idea as an individual and the other thing. This implies example is a more of a lifetime journey for people when they when they become and how streams ecosystem. A our goal is to when they're not employed lets say youre between employment you work somewhere on the Austrian Learning Center you leave for your work somewhere else.
The Austrian learning Center first thing is to make that transcript portable that will happen in this technology.
But the second thing is between employment, maybe that doctor and nurse wants to check their record.
And they're not a customer through the business use of our software they as an individually I want a logged another eight stream I D.
The long run vision here is to keep all those individuals' themselves as interacting with our ecosystem and find if there's financial opportunity there and I would just say, we're very very early to that I don't expect financial impacts.
Certainly not in the first half of this year, but it's a long run important part of our vision that the platform enables us to think of those individuals and lifetime consumers.
At health stream and so we've taken a senior executives are early and put him on in charge of thinking of that journey of those individuals and so we've moved some of our applications that we call it direct to professional applications, which CME.
Which which the nurse grid is for example nurse grid is growing you know thousands of nurses are weak organically it doubled its its traffic.
Monthly active user number is double when we bought it and all of those nurses are electively individual consumers or the upstream ecosystem there, they're downloading the app of their own choosing and they're using it as a social networking and scheduling management app as individuals and now we'll think like maybe that's a channel for those individuals' too big.
Their journey of the upstream whether or not theyre in a health system that uses one of our core applications like our HFC.
So it's going to be a long journey I don't expect financial impact in the short run, but we wanted to go ahead and break it out because it's a unique set of business opportunities and challenges and put it under the leadership of Scott Mcquigg, who has a history of building businesses of that nature.
Okay. That's very helpful. Thank you.
Thank you.
Our next question comes from the line of Jared Haas with William Blair <unk> Company. Your line is now open.
Yeah.
Okay.
Jared Haase. Your line is now open please check your mute button.
Good morning, everyone. Thanks for thanks for taking our questions.
I guess, you've talked a lot about some of the sort of product experience synergies from having.
The interoperability across the single platform.
In the release, you also mentioned sort of branding and contracting being consolidated as part of this single platform strategy as well so maybe just a clarification.
Something you think can actually benefit the top line growth profile over time, just in terms of maybe speeding up sort of time to revenue or having a more cohesive message to the market or do you think of it as more of just kind of beneficial to the bottom line in terms of sort of those operational efficiencies. Thanks.
Oh Gosh I hope it's both.
Early to making these changes obviously and some of them were position changes, but but I do think I mean, obviously for a while and of necessity. We operated a separate wholly owned company and it has its own infrastructure and its own thought in and it had to be built out and become market, leading the severity stream company.
Led by Michael Sousa and in a way it was kind of a hedge to all the other things were going on in the company to separate that out and let it be focused on and get it to where it is but you know as a really yesterday, we're falling those teams and we're delayering the brand. So the Verdi stream brand will go away and so customers a lot of customers are very stream 600, new customer.
As a verity stream that bought the Verity stream product called credential stream.
May or may not have paid attention that it was a health stream product and so now it'll become crystal clear right it'll be it'll be part of health stream all of those customers will have a better appreciation as part of the upstream vision part of the upstream company and so I think that it should benefit both from an operational side.
Someday from our customer retention recognition and hopefully cross selling as well so.
It's a little early to tell but I would expect that operating off to off of a single Master services contract. For example will make it easier to buy when everything has a very similar structure legally so.
So, we're making that move to eliminate separate msas. The Verdi stream organization had its own master contract. It'll result in streamline operations for example, tier one customer support.
For a lot of the company will be centralized now and having separate tier one data centers or our support centers for our scheduling and Credentialing. So I think we'll get operational synergies in the long run, let's say 24 months, we should see it help and the cross selling and brand recognition for <unk>.
Dream and and the brand appreciation and most importantly.
The applications become more interoperable, which is we're kind of at the dawn of that period.
We want them to know like there's a reason to buy Austrian learning in upstream credentialing because of how they work together and again, we're not quite there yet I tried to describe the maturity of where we are on that journey earlier, but we're getting closer and and it's time to declare it now so we're going to clean up branding and contracting initially.
And then I think maybe just a related follow up with specific to the guidance. So youre looking at the 100 basis points of EBITDA margin expansion.
In the 'twenty three outlook I'm curious how much of that is would you say is directly related to some of the operational efficiencies that you announced in tandem with this.
Section point of this single platform now how much of that sort of margin expansion is reflective of the natural embedded earnings growth coming from the top line organic growth profile. So I guess in other words I'm trying to sort of gauge how much to read into the 100 basis points of margin expansion.
It's kind of normalized margin opportunity relative to maybe 2024 and beyond if we think about a longer term model.
I'll, let scotty address that I mean, there's obviously a little bit of both contributing.
And clearly when you de layer our parts of your business, we have duplication of leadership.
Create some more immediate financial leverage so so it certainly is important to the impact but also think just structurally it represents.
The long term vision to continue to move that that gross margin and EBITDA margin up and that's reflective of a lot of our new product just generally have a higher gross margin profile than in our past and so I think the answer is gonna be its a combination of both but I'll, let scotty maybe chime in a little bit.
Yeah, Jared I think without trying to get into specifics of quantifying. It I think I think the we do expect some of those synergies to flow through to improve EBITDA, but.
Yeah, We're also planning to look for.
Increasing investment in some areas, where we where we need to let them eight stream platform and.
I think I mentioned, our scheduling application and then there's this new area that we just mentioned on digital and network development. So.
Yeah, we see some costs coming out of that.
The equation, but.
Planning to reintroduce some depositions.
Our positions in the year as well to kind of offset some of that savings, but there will be some savings that flow through I did mentioned that you know in the first quarter, we expect to have a severance charge.
Related to the employee departures that's about 800000, so there's going to be a lot of give and take throughout the course Nir, but again, we do expect some margin improvement.
Just through the organic growth of the company as well.
I will hop back in the queue and congrats on all the updates thanks guys.
Thank you.
As a reminder to ask a question at this time. Please press star one one are you touched on telephone.
Our next question comes from Vincent Colicchio with Barrington Research. Your line is now open.
Yeah, Bobby I'm curious.
Will there be any meaningful changes in how the sales force is organized and operate.
Not now and nothing is immediately planned we've kind of built out the sales force the way, we like it last year and.
Broken between account management strategies, I do think well as I say that I'm thinking through I think that as a result of emerging and Verity stream things like the account management teams will take on slightly new probably account assignments will think of them again as one set of customers that have two set of customers. So I think there'll be a little of that but.
Actually you know we have a certain number of account managers, we have a we have a certain number of specialists and those components and structures remain the same. We also have what we called BD ours that generate the leads and process incoming leads off of marketing and the way our mechanisms work between marketing and sales is similar.
I do think.
No.
Obviously for example, though the Verity stream sales team was in the market with a very strong brand like that we're very stream, we have the credential stream products.
And as you guys know as part of our provider solutions segment. So you think about all of that is like provider solutions is verity stream as credential stream and now they'll be entering the market is one hell stream salesforce and so verity stream teams will carry on our health stream business card instead of a verity stream business car again, providing more leverage to the brand and visibility to the.
So in that way there'll be some changes around semantics and positioning but structurally.
BT ours for business development.
The market leads account management infrastructure is similar to the same maybe with some reassignments and and specialized sales teams that go into target buyers like the chief Medical officer for Credentialing or the Chief Nursing officer for a lot of our learning products like the Red Cross resuscitation program all of that remains very similar.
Miller.
But but the branding of positioning what will I think further the <unk> position in the market.
And how the cross selling.
How did it perform in the quarter versus your expectation.
Well I mean I gave those four examples to show I think how we're emerging you saw prime healthcare go from being just a learning customer to being a learning and now an enterprise scheduling customer and so I think.
You know.
It would be our plan to continue that journey to show that in these three application areas. We are the best of breed and they're in and the show they are increasingly interoperable and increasingly leverage will they improve efficiencies when you have more than one of our applications and so I.
I hope and expect that it will crossover become more a part of the story.
If you look at our past, we're more individual SaaS applications, sometimes sold under different brands, even and now in the present and future its entering the C suite as health stream.
And showing about how these things can work together and again, we're early just a quarter and is showing quote how they work together and not all of our applications are are connected technologically to H stream, but this is the year for that are our leadership team has been reorganized around that with the addition of Kevin O'hara Senior Vice President to lead in the platform.
<unk> as a product.
We have a really great release schedule of new capabilities of the platform really every quarter from here forward. So I expect cross selling should pick up Vince.
Thank you.
Thank you I'm currently showing no further questions at this time I'd like to hand, the call back over to Robert <unk> for closing remarks.
I was so glad to get to the part where I can kind of add live and answer your questions. Because there was so much change in the quarter from the dividend Eddie Pearson.
I guess I'll call it semi retirement to two a M.
Structural changes.
And the branding changes that that I was told to say on script. So you probably got a little sense that I was reading reading reading and sorry, I kind of was it was fun to get to your questions and answer them. We're obviously excited about the future.
And trying to get to that as soon as we can.
And but our expectations are steady steady ship Ah.
With returning some to shareholders and we appreciate all of you guys. Following our story and publishing on it. Thanks, and we look forward to reporting our next quarter earnings and thanks, all of our employees, making all these great things happen congratulation on the Brandon Hall Awards will see you guys next quarter. Thanks, everybody.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
Yeah.
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