Q2 2023 HealthStream Inc Earnings Call
Now I want to highlight each of our three primary application suites of learning Credentialing and scheduling and of course, we call them application suites, because there are more than just a singular module like a learning model includes a breadth of services and capabilities in each area, a complete suite of capabilities learning Credentialing and scheduling.
And so let's highlight some of the wins and maybe some indicators of how we're achieving the results we achieved in the quarter.
So as a reminder, our flagship application and a learning area is health stream learning Center, which is a learning management system for Credentialing. The flagship flagship application is credential stream.
Which onboard credentials pellet isn't enrolls physicians and for scheduling. It is shift Wizard, which is a software application that helps schedule empower and engage the health care staff.
We believe that each of our SaaS solutions as best in class and the wins I'm about to describe kind of reinforce that belief.
Hello stream learning centers, the most utilized learning management system in health care and continues to add new customers in the second quarter. For example, our Midwestern health system with approximately 2000 employees chose our house stream learning center over six Ela masses, one of which was a major ERP vendor the customer clearly recognized the die.
Of our integrated ecosystem. The only prior purchased from Gulfstream was a small revenue cycle library with the addition of the housekeeping Learning Center. They also added safety Q1 of our compliance products several clinical content libraries, the Red Cross resuscitation suite and our checklist application.
This customer win which included multiple competitive take outs illustrates the guy that health organizations place on integration solution suite.
That only helps stream is bringing to market currently.
With this win revenues actress customer grew from $8 per person per year to $80 per person per employee immediately tenex increase. So of course. This is the kind of story, we'd like to see more of but increasingly we're getting better at positioning our solutions together.
In this case, a suite of products and services related to employee development and winning a contract kind of altogether and in this case as I mentioned, our partnerships of our ecosystem displaced many competitors in that takeout.
Our Credentialing solutions also enjoyed a successful quarter both in terms of competitive take outs and conversions from our legacy solutions to credential stream in the second quarter, we contracted 38, new customers for credential stream, representing approximately 50000, new subscriptions collectively.
These new customers included many highly respected health organizations like Rush Health University of California, Davis Health system in Augusta Health.
Additionally, and this is fun health streams credential stream application was rated as the number one credentialing software in the prestigious G to online site.
So overall, a strong quarter for our Credentialing suite.
In the second quarter revenues from shipped Wizard grew 19% over the prior year quarter as customers continued to report high customer satisfaction. Among our many new customers was the children's hospital, Wisconsin other customers like the University of Florida Health system transition from our and source product to shift Wizard is.
We continue to increase investment and shift whether it is only going to become more powerful and more differentiated in the marketplace.
That's the power of eight stream driven interoperability continues to emerge we believe that each of our three discrete application suites will come together to form an enterprise suite of workforce solutions that represent a value proposition that is unique in the market today, we believe difficult to replicate takes a long time to build and where.
Finally, seeing some of the initial benefits of these integration opportunities in the second half after we hear from Scottie Roberts I'm going to highlight some of the advances as it relates to our platform technology and how empowering some of these opportunities.
Turn it over to Scottie Roberts, who take a look at the numbers and circle back and talk about some of our platform advances Scotty alright, Thanks, Bobby and good morning, let's begin with the financial highlights for the second quarter.
And unless otherwise noted comparisons will be against the same period of last year.
We delivered another solid quarter of financial results with many of our key financial metrics improving over the prior year, which.
Which resulted in new records for revenue and adjusted EBITDA as Bobby mentioned.
Our results were as follows revenues were $69 2 million up 5%.
Operating income was $4 million up 36%.
Net income was $4 1 million up 34%.
P. S was 13 cents per share which was up 30%.
And finally, adjusted EBITDA was $15 3 million and was up 17%.
Our revenues for the second quarter were a record high of $69 2 million and were up $3 6 million or 5% compared to last year's second quarter.
Organic revenue growth was 4% and the two acquisitions that we completed last year cloud.
Cloud CME and AIDS contributed to the remainder of the growth.
Revenues from subscription products accounted for 96% of total revenues.
And our.
Scripture revenue came in at $66 5 million or an increase of 6% while revenues from professional services were $2 7 million.
And they declined by 15%.
Gross margin was 65, 9% compared to 66, 1% last year.
Margins were somewhat impacted by increased royalties and cloud hosting costs, both primarily driven by revenue growth and changes in revenue mix.
Operating expenses, excluding cost of revenues were up $1 2 million or 3% over last year's second quarter.
Of which approximately half of the increase came from the two acquisitions that we completed last year.
Sales marketing and product development expenses, all experienced year over year increases, while G&A expenses declined compared to last year.
Sales and marketing expenses increased by 4% with most of this increase was associated with higher sales commissions, which is consistent with the growth in revenues.
Our product development costs also increased by 4%, which is net of labor costs that were capitalized for software development.
Capitalized labor costs increased approximately 700000 over the prior year quarter.
These increases reflect our continued investment towards our single platform strategy.
And our suite of applications and content offerings.
Additionally, part of the increase because the incremental costs associated with the two acquisitions, we made last year.
G&A expenses declined by 5% due to reductions in several areas, including lower bad debt charges outs.
Outside recruiting services professional service fees and other infrastructure related costs.
Our effective tax rate for the second quarter was approximately 8% compared to 15% last year.
Positively impacting the tax rate was approximately 600000 and deferred tax benefits.
Also from the Remeasurement of our deferred tax liabilities upon the enactment of a new law in Tennessee.
The changes to income apportionment rules.
The proportionate change is expected to reduce our feature will future taxable income in the state as well.
And finally, our adjusted EBITDA was $15 3 million, which was up 17% and adjusted EBITDA margin was 22, 2% compared to 20% last year.
Now, let's move over to the balance sheet metrics.
We ended the quarter with cash and investment balances of $56 million.
During the quarter, we deployed $6 2 million for capital expenditures and returned one and a half million to shareholders through our dividend program.
DSO increased to 50 days compared to 45 days last year.
And while we've had certain customers delay payments a little longer than usual, but generally still have been successful in obtaining payments.
Year to date, our cash flows from operations declined by two and a half million versus last year.
Coming in at 25, and a half million in free cash flows were $10 8 million compared to $15 million last year.
Cash flows from operations and free cash flows were both impacted by higher income tax payments for.
Which were $2 6 million this year.
Compared to just <unk> 4 million last year.
This increase was primarily due to changes in the federal tax law that requires capitalization of research and development expenditures rather than being immediately deductible.
In addition, our free cash flows were impacted by higher payments for capital expenditures and the increase in DSO that I just mentioned.
As announced in February our board of directors adopted a dividend policy under which we intend to pay a quarterly cash dividend on our common stock.
At a rate of two and a half cents per share per quarter.
We paid the first two quarterly cash dividends in April and June returning one and a half million dollars back to shareholders.
And yesterday, our board of directors declared a third quarter dividend and intends to declare another cash dividend in the fourth quarter.
Now for our guidance expectations, we are reaffirming the financial expectations that we previously announced in February of 2023.
To recap, we expect consolidated revenues to range between 277, and a half and $283 million.
Adjusted EBITDA is expected to range between 57, and a half and $60 5 million in.
And capital expenditures are expected to range between 27 and $29 million.
While our guidance includes the acquisition of <unk>, which occurred late last year. It does not include assumptions for any acquisitions that we may complete during the remainder of the year.
Now, let me share a few other thoughts about our expectations for the second half of the year.
We anticipate quarterly revenues to grow sequentially and generally expect steady performance across most of our product offerings.
Some of the products, we expect to continue driving top line growth include Jane our AI enabled clinical judgment and assessment fortune.
Credential stream, our market, leading credentialing privileging and enrollment solution.
Shift Wizard, our innovative SaaS based on scheduling application.
And my clinical exchange, our solution for nursing and medical student Onboarding and clinical placement.
Now as for our expense expectations, we anticipate certain categories to increase in the second half of the year.
And one of those areas with our staffing.
We currently have over 40 positions, we're working to fill thus we expect our labor costs will be higher than they were in the first half of the year.
We also have several trade shows slated for the second half and that our marketing spend will increase about $1 million in total over the next two quarters.
And that concludes my comments for this quarters call. Thank you for your time this morning, and I'll now turn it back over to you Bobby.
Okay got it thanks.
Great financial results good work by all the health streamers to deliver them I'd like to dive a little bit into the future state of the company and get some insights into the developments happening related to our H stream technology on our <unk> platform and our <unk> positioning in the marketplace. So let's dive in.
One encouraging development was the growing early momentum we saw on customers use and adoption of the API is available in our developer portal, which we launched in the fourth quarter of 2022. The portal provides access to a modern scalable secure architecture with a growing collection of shared services platform level applications and API.
In my view the portal when we launched it was kind of the symbolic beginning of the journey we've been on for many years, but the launch of the <unk> platform technology.
Technology and architecture.
For our customers the API offer meaningful extensibility of our applications. We believe the extensibility increases the stickiness of our applications as customers begin to rely on functionality from applications to power other applications that use in their organizations.
At the end of the second quarter 40 health care organizations, including large health system customers are global publishing company, a market, leading EHR vendor and several health Tech startups had chosen to open an account on the developer portal, where we collectively.
And enabled 145 developers have access to the eight robust AP is currently available in the developer portal again, the portal is essentially a window into the emerging platform capabilities and gives access to these eight.
<unk> P is to exercise and take advantage of those capabilities. So.
So a couple of examples of us.
For large partners and customers, we saw organizations using our user student API to automatically register new staff directly from the HRS system ended the housekeeping learning center. So here, we see tighter and stronger integrations between core applications like Gulfstream Learning Center and core important systems like the HRS system.
At the at the hospitals.
One large health system customers centralize their learning records from health now withheld stream by using our learning Ipi to bring records in directly from a video system. They are using to educate their staff into the whole stream learning center transcript and so here, we have organizations using the API to add data that otherwise.
Wasn't created in our learning center into the transcript the educational transcript, but this does it reinforces the health stream learning transcript as the single source of truth for the longitudinal history of the training and development for employees. So as they use our API to connect outside of systems in two hours, we become more.
<unk> learning transcript a record for the health care employees. We think these are just a couple of great. Examples of the API is creating a drop ability that benefits our customers and adds market differentiating value to our platform and applications. I also believe in the second half we'll start to see some commerce directly tied to these these.
That form level capabilities.
We already see as I mentioned, some health Tech startups are poking around our developer portal, we think they will integrate some of our capabilities into their applications that they take to market separately.
And I would expect that some of those services will be licensing all services. So I believe in the second half of the year will derive our first direct from platform revenue, which will be exciting it'll be very small and so I don't want to overstate it but it'll be exciting kind of a differentiated moment for our company as the platform itself.
Again to show some financial opportunity.
Another benefit of an H stream subscription for our customer is the customer's ability to participate in what we call a collaborative purchasing process through the collaborative purchasing process facilities within our larger health system can coordinate and pool their purchasing power in order to create a greater volume discounts on the Gulfstream products that they want.
Indeed, the collaborative purchasing process has been around for a while and it's mostly in years in some of our larger accounts. However in March we launched a significantly enhanced collaborative application through the software that they used to operate the collaborative purchasing process for the first time participants are accessing their <unk>.
<unk> application using their H stream I D.
Which is the identity management service that exists in the H stream platform. This benefits both health stream and the customers. Since we now know who the participants are in what role they play in the purchasing process. We can better match the participants with the products that are most valuable to them.
In other words as Eddie Pearson, our former president used to say, we get the right solution to the right person at the right time or something like that another great feature of the collaborative they use gamification to engage purchases in the process.
Facilities add their purchases together they can see the volume discount of their purchase increase.
The bike the discount level increase and therefore, the product price theyre going to pay decrease in real time. The automated platform interface enables this by connecting directly to our price book, which is held in our sales force infrastructure. So we've kind of game of five and organized around budget cycle, the purchase process, where they can review.
And purchase an aggregate demand inside the health system across multiple products. So this exciting technology, we expect to complete around 18 purchasing collaborative this year. The last 10 of which will run on the new application, which is a significantly enhanced.
Kind of software architecture that empowers this purchasing process.
In March.
In fact, the first collaborate that utilize the cloud of application took place and on a dollar basis. This top 10 customer purchased 42% more in this collaborative on the new application suite than they did in the prior year. In addition, we gathered a lot of information about who is reviewing.
What products who's buying what products.
And so we have direct insight into that kind of the organizational purchase process and product review process that we've never had before so we're really excited about this eight stream collaborative capability, it's a benefit of being on the H stream platform. So when.
Your your license with health stream includes a subscription to H stream, which increasingly are products include a subscription to H stream. It includes the right to participate in collaborative purchasing and then you get of course access to the collaborative software, which is the applications that I just mentioned so.
So we're excited about this we hope to expand this program beyond 18 core accounts, we have in fact added a few this year and we've moved some executive talent to lead this initiative and expect to sign more and more accounts up to years. This budget aligned technology enabled purchasing process, we're really excited about it.
So I think that's a prime example of the network effect in action and we're able to bundle products incentivize purchasing do it automatically using software.
Win win win for everybody for the partners that are featured in a collaborative they got more orders and for the customer they were able to see their discount.
They placed more orders grow their discount grow are there discount the greater as their order size increase and of course for health stream. We've got to present the collective of our many of our products and services, which is part of our powers. The completeness and this case of our learning offerings. So win win win.
Rare situations in business, but in this case I believe that's what it does it makes our ecosystem stronger from all directions.
So those are my updates on our developer portal will have more in the next quarter I'm excited about how that's evolving not only does the power of the platform power up our own applications as we've talked about in the past our new license verification service for example, being incorporated into each application suite. It also enables.
Capabilities like the collaborative purchasing process that I, just mentioned and of course, we'll be excited as small startups and large ERP vendors began to tap into our platform directly to add capabilities to their application suites and rehab.
Hope that someday that will drive economic benefit as well as interoperability.
Great well, that's a few more updates as we wrap up and then you're going to have to stay stay around for the exciting conclusion of this which is that going to have to read that opening disclosure statement again, because it's a little bit of word and so you can stay for me to read through that as well. So a couple of other updates on June 5th Gulfstream announced the addition of Dr. Alex Your hunger to our board of directors.
Dr. Hungary is a nationally recognized.
Physician executive with extensive experience leading academic medical centers.
Specifically at Vanderbilt.
Also as an investor owner and founder of a biotechnology company and he was the head of our Metropolitan Public Health Department. During COVID-19 pandemic and was featured nationally for our city's response to that so we're really pleased to add Dr. Hunger to our our board of directors. He is currently the vice president for business develop.
<unk> Vice chair of orthopedic surgery, and director of orthopedic trauma at Vanderbilt University Medical center as well as the executive director of the Vanderbilt trauma burn an emergency surgery patient care Center. We're pleased to have someone of Dr. Joe Hungers caliber and national visibility on our board of directors. We will also serve on our nominating governance Committee we enthusiasm.
Actively welcome Alex to our board of directors.
As we reach that closed the portion here I want to remind you about our new dividend policy. We just made a second payment under this policy about a month ago and just yesterday, our board approved what would be the third installment of quarterly payments under the plan, which we paid on September 29, we are pleased that our strong balance sheet and our strong operational performance puts us in a position to rich.
<unk> value directly to shareholders through the company's first quarterly cash dividend program over the course of the year, we expect our new dividend policy to return approximately $3 million to our shareholders halfway through the year. We are on track to meet that goal. So if you're interested in a highly recurring revenue profitable SaaS Paas health care technology company.
That for 2023, we expect to deliver steady growth as determined to share some of its profits and its gains directly to shareholders in the form of a dividend maybe health Dream is a stock for you.
I want to remind you of one other exciting event happening here in Nashville, Tennessee, where we're headquartered on September 18th through the 22nd the city will be hosting what we're calling the Nashville healthcare sessions, which we believe will be one of the most dynamic health care conference weeks of the year and the reason I say weak is because over a dozen org.
<unk> are coordinating their healthcare conferences during the National Health care sessions wheat and board members of the Nashville Health Care Council will be actively helping each of these organizations launched their health care conference. So do you come to our city you can participate in over a dozen different healthcare conferences during Nashville.
Sessions there'll be open for participants to register across these conferences will again, recalling the week the Nashville healthcare sessions, a week and we're going to kick off that event, whether I'll be interviewing Sam Hazen CEO of HCA, and we look forward to that opportunity to present Nashville health care community to the World you should all come and listen to you on it.
See where health care is headed by hearing from the leaders of the health care industry here in Middle Tennessee.
Hope you're going to join us for that and now before I turn it over to the operator I'm going to flip back.
And I am going to read the opening statements.
I would like to remind you that this conference call may contain forward looking statements regarding future events, which I certainly did and future performance of <unk> that 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 results to differ materially from those forward looking.
Payments 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.
We will providing supplemental information on adjusted EBITDA and reconciling to net income attributable health stream is included in the earnings release that we issued yesterday in May and we may refer to it in this call I'll now turn the call over to the operator for Q&A.
Thank you.
At this time, we're going to start the Q&A session.
If you're using a speaker phone please pick up the handset before pressing any numbers should you have a question. Please press star one on your push button telephone if you wish to withdraw. Your question you can press star one again as well your questions will be taken in the order that they are received.
Please standby for the first question.
And the first question that we have today is coming from Matt Hewitt of Craig Hallum. Your line is open.
I don't know if.
Bruce you called.
We can hear you Matt neurons.
Great.
Cut out there.
Thank you.
Alright, well first up I'm wondering if you could give us an update on the <unk>.
Customer landscape, obviously, a year ago, the great resignation, you got a lot of.
People coming and going from your customers I'm, just curious where that sits today in.
One of the things that gets its ancillary to that but the wage growth that hospitals are seeing.
Maybe part of that helping to attract and retain talent, but how does that impact your selling model.
Well.
Certainly health care is still experiencing turnover a lot of job shifting.
So I don't think some of the challenges for labor persist I think some of the larger health systems have gotten a better handle on how to manage and they are starting to respond by the.
Kind of essentially the travel industry by raising benefits and I think in some ways, there's a little fatigue in the travel industry nurses are getting a little tired. They sure they made more money, but hopping around place the pace and there might be a little more appeal.
Specifically the nurses to find a home in a team they can be on and I think that favors positively hospital. So not only are reacting with improved benefits and they realize they have to recruit more and pay more attention to the needs of their staff I do think there.
They're doing a better job recruiting and retaining talent a little bit costs are definitely higher that affects their budgets and I think they are beginning to adapt to the realities of higher wages overall and and.
Realizing that if they don't offer higher wages, they're going to pay even more for the temporary staff that comes in to fix them. So I think it's kind of a little bit of an enlightened employer I.
I do think that that positions us well for some of our solutions our clinical pathways programs can be used to cross train nurses to get them ready from one department to another I think that our on boarding solutions are timely like in our Credentialing suite, we think our Credentialing suite is essential and reducing the time to make them.
From a new hire to when they're productive we think that we're the best in the market at shortening that cycle of the steps necessary to get them ready to see patients and essentially bill for services. So the credential privilege enroll process through our integrated suite is definitely a winner in the onboarding of new docs.
I think.
Overall, they're going to be gaining efficiencies and seeking efficiencies in how they operate.
Overtime. So now the environment is still a tough selling environment in our margins are ive always been historically then.
The large organizations that we sell to so while theyre more enlightened about the need to invest in workforce solutions. They are still quite you know it's still it's not an easy market. It's a lower margin high volume market and we have to respect that and I think the way with respect that is that we try to have the best solutions for for example for a lot of mandates.
<unk> requirements, and we help them meet those requirements at the lowest price possible and so I think you have to comply with certain federal laws.
Our objective is to have full compliance and exceed compliance, but do it efficiently and I think a lot of our solutions like safety to you and to imply Q as a product category. For example helped them get out of the business of meeting the regulations on their own offload that to us at an efficient low price and it's.
Good for our business and good for them. They can focus on the patient and we will focus on lowering their compliance cost, but helping them achieve perfect compliance. So that's a little bit about the environment and shifts in attitudes and workforce I hope I got at some of the part of your question.
You did thank thank you very much and then shifting gears a little bit obviously, congratulations on the big win with the Midwest Health system I'm.
I'm curious it sounds like there was numerous competitive displacement there how much of that was a function of them looking to have.
Quote unquote, one throat to choke.
Versus you coming in having the best solutions for all of those and basically simplifying their internal processes.
Well look it's a little bit of both because there is a good amount of say brand. While the for example have you picked a clinical education partner, maybe that's because you experienced their content when you're a nursing school and so now you want to use their bank. So so to shift someone to say our partner in the ecosystem.
From maybe an established part of they've used in the past is can be some work even if the products are equal or better or lower cost. So I think it really was in this case, the aggregate value, which gave more value and more categories than many existing vendors and resulted in the almost a package replacement, which obviously I'd love to see more of that when you're looking at.
Our investor deck from last year. We gave examples of several accounts that had built from 8% to 80 or eight to $100 per person per year over a decade and so what was thought about this one I've talked about today was it happened over the course of the sale process over over 60 days essentially I would say for competitive products were displaced.
In addition to putting our LMS and infrastructure and they like the concept of kind of in this case around their developmental efforts for employees, having one throat to choke as you said I think our one one place to go so we did create consolidation of their purchasing model.
In addition, we believe that in most categories our product offerings from our partnerships like the American Red Cross in this case was one of the switches. They made is superior to the market alternatives.
Ironically are also available in our marketplace. So.
Here, though they chose what we believe is a lower cost more efficient model for resuscitation training for example, so.
And that was one of three or four displacement. So I think our sales teams are getting a little better.
Presenting the packages and showing the power of this.
Of what we call our health stream ecology.
That's great maybe one last one then I'll hop back into queue, but regarding gene obviously.
A lot of excitement a lot of talk about AI.
In the press media and elsewhere, right now and you've got a platform.
<unk> has been in the market for a while I'm. Just curious are you seeing increased interest and adoption of gene or any updates there would be appreciated. Thank you.
Jane is still early stages and it has components of AI.
AI and machine learning and we're enhancing it it's beginning to make a real difference in the organizations have adopted it is kind of a premium product and so it's a little bit more costly it's a little bit.
Aaron from say the minimal required education programming. It's this is a real investment in your workforce to invest and Jane. However, when you do you get insights into your workforce that you would never have otherwise we believe it's one of the very best essentially expert systems.
That allows an organization to differentiate the clinical thinking in the clinical reasoning in the clinical actions of their staff and what that means is we believe these jane scores that are beginning to be delivered or really can be used to differentiate competence in quality not just knowledge and a lot of products in the market.
I can tell you, who test well and who knows the most who can explain something really well scientifically but almost none of them get it what Jane does which is how well do they act as an expert where in the room. The expert would do ABC when your nurses in the room does does that nurse do a D&C or something different and that's what Jay.
<unk> is really good at teasing out so we're excited about against the premium product now the other power, where we're going is that.
We're getting better at organizing what we call our curated our core datasets and I think and.
So while we are new to AI, and we're making progress with Jane and for the early adopters Theyre seeing a real difference in it as an instrument to develop and differentiate their SaaS skills competencies and capabilities.
Long run I think our ability to execute on this this AI mantra is will be derived from the strength of the data that we're ingesting into our network and I think we're getting more and more insights into the workforce more and more data about the workforce longitudinal history 10 years of educational programming.
And so I think we're getting better at collecting information about their skills competencies credentials.
The future is bright process, we look and examine and having pilots more and more on how to leverage AI into the house Dream framework and Jane is certainly our first foray and.
Right now our strongest and as Scotty Roberts pointed out it is growing nicely and has many implications for health care as it really differentiates competence of the staff and not just knowledge of the staff. So we're really excited about the future of AI are growing datasets and Jane specifically.
That's really interesting thank you for that detail and congratulations on the strong quarter.
Thank you.
For your question one moment, while we prepare for the next question.
And our next question will be coming from Richard close of Canaccord. Your line is open.
Yes. Thanks, Congratulations can you hear me okay. We.
We got it Richard.
Great.
Bob just on the collaborative that you were talking about you mentioned, one client purchased 42% more.
Just curious if you can put that into perspective are.
Are you, saying that client total revenue to how stream will be up 42% year over year or is that something different.
Yes.
Different bandwidth.
Sure sure Yeah, I should have and we will provide more information so.
So that customer is a large enterprise customer for us they buy many things that are not in the collab. If for example, there based contract for technologies like the <unk> Learning Center is not in the cloud, but they didn't extend it or anything in that in that purchase process. So what it was was a bundle of educational products.
That they didn't want to necessarily purchase centrally they wanted to understand across say there dozens of hospitals, what the demand was for say I'd say 15, or 20 products and so we were able to feature <unk>.
Or 20 products some of which are only relevant for say a small department in each hospital some of which are relevant for the whole organization, but essentially what it allowed them to do was.
Add on 10 or 15 products into the collaborative allow all of their dozens of hospital leaders and heads of departments to review them in 30 days and place orders than aggregate orders into kind of a single orders. So they can see the demand for that product and then purchase over a 90 day window. They reviewed 15 products and purchase.
Many of them and the purchases on those products were up 42% over the prior year. It does not imply that the revenue from that account will go up 42% and implies that for that set of products. The order value, which again those are sometimes theyre multi year commitments. So they wouldn't even be 40% growth on those 15 products and yet it would be.
Let's say they extended 10 products added five new products for three years, then that that 40% order value would be spread over three years. So I hope that gives some clarity, but nonetheless, it's very exciting because.
Both a purchase products had never purchased before and they extended products and they bought more of existing products.
Across that library of offering and they did it in a focused 90 day way.
And it was kind of a game of five process and orders were up 42% and total dollar value.
Okay. That's helpful.
And then maybe on the commerce side of age stream.
Obviously exciting.
From that perspective that you expect something.
Possibly in the second half of this year, albeit likely small.
As you think about that going forward, though you know over the course of several years, how do you think that.
The commerce side H stream has the potential to impact margins in.
Maybe that's for Scotty, but I'm just curious on the margin impact and then.
If there is licensed.
Fees associated with that in terms of.
The revenue should we think of that revenue was one time revenue or recurring in nature.
Let me, let me give an example of how it could become recurring and we don't really know yet. So so the first thing is the future state but.
But let me let me talk through a little bit. So we have talked about one of our platform services that I do think itself can generate revenue its our license verification service and so in the platform. We as we've mentioned we built a capability that allows.
An organization to verify the licenses current and is driven by API. So it's easy to incorporate so let's say for example, youre a small startup company and your store nurses licenses in your application that you sell or that the market users.
And you want a way to know whether the license to that nurse is current.
Our future state would be.
Have to be a customer of the health stream learning center to benefit from that service you don't have to buy our credential stream you could just directly pay us to check our connected eight stream platform, which is connected in this case to over 2000 endpoints to check the license and you can pay us a small fee to paying our service and get back a flag.
I would say current or expired license and so the idea here would be that maybe in the future.
500 different startup companies that store licenses for nurses want to add a verification capability to their application and they might license at service directly. So it's my hope that several of the capabilities of our platform and end up becoming a revenue generating services in the future I do want to reemphasize is that future state.
But as I noted in our developer portal, which is the window in to those services.
We've already got a couple of startups that have registered their developers to look in there and see how it may be applicable to what Theyre doing in addition, as I mentioned, we had a large ERP vendor one of the largest in the world having some of their developers and their so maybe they they may be one of our what is currently viewed as competitor would go in there and license the license.
On the service.
And use it to validate licenses and their HRS system or the ERP system.
So again this is a future state, but in currently that license services plugged in their own learning Center.
Soon we'll be checking licenses before we schedule and our own credentials and our own scheduling system and.
And so we'll using these functions in our own applications to enhance them, but the point is they they may become licensed are all obvious themselves and so right now we don't Wanna get too excited about it because it's undefined.
But we're beginning to see the early signs that people might have an interest in that or organizations might and that they could generate revenue. So we'll leave it at that for now and then the next few quarters I hope to be able to give examples of where that's maybe either actually starting to occur or be incorporated into the value prop of other people's platforms. That's what we mean by platform the <unk>.
<unk> powers their own applications.
Form differentiates our own applications and the platform may power other peoples applications.
Okay. That's helpful.
And then just maybe going back to Matts question.
The new win on the learning.
System.
Obviously positive but.
You talked about six firms that you beat out including an ERP vendor.
Last quarter I think you mentioned two two lost accounts and.
I'm just curious.
Any updates and perspective on the competitive environment and learning has there been any meaningful changes.
No I don't think so I think all the major players.
Have a learning architecture.
There's a lot of questions over how appropriate that architecture is for the learning environment and the mandatory training environment in hospitals. For example, there's a lot of initiative around self directed learning and you know I think self directed learning is wonderful however.
I think targeted learning through Jane that helps you pick a career path.
<unk>.
Maybe develop skills and other area that's more directly needed. So if you want to move from the Ob. The ER Department, maybe Jane is going to be better than a generic learning platform, where you've kind of purchase of content library from a third party Jane is much more intelligent about identifying what you might need.
I think and then the completeness of our ecosystem. So some times in ERP LMS, which is I think no not as powerful as ours are specific to the needs of health care.
At all levels, including for example, when the joint Commission walks in our LMS prints out a report that we know meets the needs of that joint Commission audit.
And so you know as opposed to but sometimes if you're the CEO the CFO and Youre just trying to aggregate vendors and you may just take the what I would consider a less capable LMS from an ERP vendor that does happen.
Was that occasionally that said I think generally when you hear like the story, we just told you.
The power of the collective offerings of the best content brands in the industry the capabilities like differentiating true competency as Hell stream as a partner favors our learning architecture, our learning systems, our learning products like Jane over generic learning architectures from competing illnesses that set.
There are dozens and dozens of competitors, some even have bigger budgets and in some ways. Maybe more features now. The question is are those features relevant to our customers. The fact that that does international currency exchange may not be.
Our our currency conversion and an LMS may not be something relevant to U S Hospital system. So.
Thank you.
Our features are focused on the known needs of our customers and we feel competitive and because of those reasons and this was an example, whereas the aggregate value of our partnerships are capabilities that resulted in kind of a wholesale switch.
To Hell stream.
Okay. Thank you I'll jump back in the queue.
Thank you for your question one moment, while we prepare for the next question.
And our next question will be coming from.
Vincent.
<unk> of banking your line is open.
Yes, Bobby gross margins were down year over year in the first half.
I'm curious.
What should the second half look like in terms of year over year comparisons.
I'll, let Scott take that one and then I'll chime back in it.
Needed.
Sure Hey, Vince how are you doing.
I think margins were still aiming for that mid 60.
65%, 66% range or kind of theater, a few basis points quarter to quarter.
As I mentioned on the call.
A couple of factors that influence margins continue to be.
Revenue mix changes the royalties, obviously and then.
Cloud hosting costs as we continue to expand our credential stream application for example.
And grow that revenue stream some of the costs start to filter through.
And then just a revenue mix also didn't mentioned it on the call that we've mentioned it on prior calls.
Reductions in revenue from our legacy <unk>.
The legacy applications, one being the scheduling.
Application called and source still see some a.
A little bit of attrition there, that's pulling down revenue and obviously influencing margins a little bit and some of that is.
Shifting over to the shift Wizard solution that we also spoke about but also there's just pure attrition going on too.
Thank you.
Net net I think we're still aiming for that 65% to 66% range.
And a follow up on that on the.
And so as the.
Yes.
The attrition stabilizing what's the trend there.
Do you expect for it to get better going forward.
I think as we described in the last call.
It's a challenging situation I think.
We're converting them as best we can we announced one today of a conversion from an <unk> customer to shift Wizard, we're developing the capability to shift wizard to meet the full needs of the large enterprises, but.
But we have more development to do and so it's kind of a known quantity that we acquired a company that was a legacy platform and that we would experience. Some attrition I think we continue to experience that.
That said I think we're getting better as a company at trying to move those accounts into our own application called shipped Wizard.
And and retain them as customers. So I expect the attrition to continue and be a drag that's why we're hitting this four 5% growth rate I think without that we would be delivering better growth rates as you heard in the call. They ship Blizzard grew 17% over the prior year same quarter. So.
The promises in the future of these new SaaS applications.
And I think that.
In general we kind of entered the market with an sauce with a known risk and we're experiencing that risk, but it's a known and quantifiable drag on growth.
That we're just going to manage through as we build out the ship Wizard application.
And one follow up on Jane or are you seeing.
What does the competitive landscape looks like there are you seeing similar products or no as of yet.
What state the question again, so I think I shared my excitement for Jane but what was the question are.
Are you seeing a competitive product emerge what does the landscape look like I have not I have not so.
May be missing something I am sure there is startup somewhere that's building something but we believe Jane because of the datasets. It's based on that we're unique in industry. When we acquired the company that had built a 20 year history of assessing competence in this way gave us the infrastructure, we needed to build a true expert system.
Using that data to train it I think.
I think that the time that was a unique asset in the market and we think we've turned into a unique asset and <unk>. So.
You know it is a premium product so I think rate of adoption could go up.
Was a little lower we're going to be working with that and thinking about it but right now we want to just keep tuning the product to get it where we want it because we think it's a differentiated product.
Nice quarter. Thank you.
Thank you.
Okay.
Thank you for your question one moment.
We prepare for the next question.
And our next question will be coming from Ryan Daniels.
Of William Blair. Your line is open.
Yeah, Hi, good morning, this is Jack Molokan for Ryan.
So I guess, a little bit more into the weeds here deferred revenue was flat year over year and look to be down more sequentially this quarter than compared to the prior year period.
Which would indicate a negative billings growth if my math is right.
I get there are plenty of nuances to impact the reliability of the linked as a forward indicator, but do you mind walking us through the details that might impact deferred Rev and other related metrics and how that would or would not triangulate to visibility over the next few quarters. Thank you.
Hey, Jack interesting question I'll try to give you a few thoughts are probably.
Explain it the way you are asking but.
Yes, I would say that billings for us tend to fluctuate and a best in timing and nature of billings and so.
We have kind of a good variety of options for our customers.
To help kind of smoothed the payments to us and so annual billings is very prominent forced those tend to happen.
At least for us seasonality wise.
The first quarter.
Also have a good mix of.
Monthly billings quarterly billing.
And some semiannual so that how they influence deferred revenue in any given point in time tends to also fluctuate and so if you look back at Q1.
That's where we typically see the the increase but just year over year as contracts renew contracts new contracts come in billing terms, often change as well and so we've started to see more of a trend towards quarterly billing, which generally would have flushed through the balance sheet.
Most likely by the end of a reporting period versus annual billings, which tend to sit on the balance sheet a little bit longer.
Okay, Great I appreciate the detail there I guess.
Switching gears a little bit.
Looking at professional services I get that it's a smaller chunk of the business, but I can't help but notice that it's gross growth has been lagging overall subscription revenue and actually negative for the over the last few quarters.
My assumption here would be that you used to sort of increase in lockstep, but that doesn't seem to be the case is there a reason that the direction of this relationship isn't more clear and I guess more broadly speaking is there anything you believe is worth highlighting as it relates to this segment of professional services and its longer term outlook. Thank you, yes, yes, great question. It is.
Intentionally being dropped I am a believer that.
We should minimize implementation fees and pro services and build a subscription business and so in some cases.
We intentionally decided to reduce or lower or.
The fees associated with the initial implementation cycles try to get to implemented software as fast as possible and move on to subscription recognition. So I love. The fact that I believe Scott at our numbers about 95% of our revenues are subscription therefore predictable.
5%.
If I could find a way to eliminate it I probably would if I could slightly increase our subscription price and eliminate implementation fees I would do it. So we've got a conscious effort to.
On the biggest the biggest implementations there's just a lot of people involved and so you do need to charge something.
But in general we're really trying to get it to where these services can be turned on and configured and configured remotely without travel and onsite in and so.
My vision is that the pro services would be.
Intentionally diminished and we will probably get to a point here, where it's so small and not growing that.
It's not a material part of our financials.
But we have we do not have ambition to grow pro services. In fact, it's just the opposite I'm trying to.
<unk> the time to implementation make it simpler.
Get applications online by self configuration that don't require implementation services and get to the paying monthly subscribers. That's what we want and so I would say it actually is a positive kind of hidden it I know, it's down year over year, but in my mind. That's a positive thing it means a more a higher percentage of our revenues are subscription base.
He wants to add anything to that but.
Yeah, Bobby I think here.
The explanation.
Exactly right.
More of an intentional shift towards product mix and how we deliver the services.
And like I said, I think as Jack we're talking to.
There are some says so large scale that you just if you put 10 people on something for four months, you need to charge something for it but.
All of these we could find a way to implement them in two months and have it self configured we would do that and there would be no pro services fee. So just directionally you asked the question is that a business, we're trying to grow and the answer is no.
Yes, it makes sense really appreciate the insight there.
Thanks.
And one moment.
We have a follow up question.
And my follow up question will be coming from Richard close.
Of Canaccord your line is open.
Yeah, I'll keep it quick and save my other follow ups for later, but Bobby.
Just a clarification on shift Wizard.
Just mentioned, 17% growth for some reason I thought you said, 19% in the prepared remarks.
Scott can you clarify I may have misspoke, let's let's check yes, I think it was 19%.
19%, Okay, good well, that's better than 17, but theyre, both solid numbers and yeah. Thanks for asking.
It turns out it was 19% year over year.
Okay, Great I'll follow up with my other questions. Thanks.
Okay great.
You know just one kind of closing comment related to the whole shift wizard and sauce. Its definitely one of the more challenging parts of our business.
We've talked about it we formed it quickly over 24 months with three acquisitions. Some of the acquisitions had a legacy component. We know what we're getting into kind of hot water, but that acquisition gave us a roadmap some paying customers.
And what we have done which is relatively new is that the team and a leader that helped us really get credential stream into the market leading position as evidenced by our <unk> recent recognition as a leading credentialing system in the industry.
The team and specifically the person Michael Sousa helped us get there is now in charge of building the.
The shipped Wizard application suite and the whole scheduling area. So.
We're installing those best practices and lessons learned I think in year. Prior I said, we had gotten the playbook from Michael Sousa and delivered it to other executives to try to deliver on it but now we actually have the executive that made it happen, making it happen and and.
Scheduling as well so we're excited about that and expect to see some gains from that experience being applied to this this challenging set of this opportunity set is what I guess I would say and hopefully the early returns will start coming in later in the year on the leadership team we put in there.
There are no more questions in the queue. So this concludes the Q&A session I would like to turn the call back over to Bobby Frist for closing remarks. Please go ahead.
Thank you all for listening and we're looking forward to the next quarter don't forget because I'm the Nashville for the Nashville healthcare sessions, Youll see how stream participating as well the opportunity to say hi to all of the people that are changing health care for the better. Thank you to all the health streamers, who made it happen and we look forward to the next earnings call, where we'll update you guys on H stream platform portal technologies.
And our customer hopefully what will be a strong another strong quarter of customer wins and great stories will talk to you guys. Soon thanks.
This concludes today's conference call. Thank you all for participating and enjoy the rest of your day you may now all disconnect.
Okay.
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