Q4 2023 HealthStream Inc Earnings Call
Good morning, and welcome to help streams fourth quarter and full year 2023 earnings conference call.
At this time I would like to inform you that this conference is being recorded and that all participants are in listen only mode.
A request of the company, we will open the conference up for questions and answers.
The presentation.
I'll now turn the conference over to Mollie Condra, Vice President of Investor Relations and Communications. Please go ahead Ms Condra.
Yeah. Good morning, and thank you for joining us today to discuss our fourth quarter and full year 2023 results also in the conference call with me. This morning is Robert a Frist, Jr. CEO and chairman upheld 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 downstream that could involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward looking statements.
Information concerning these risks and other factors that could cause the results to differ materially from those forward looking statements are contained in the company's filings with the SEC, including forms 10-K, 10-Q, and our earnings release.
Additionally, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure.
A table, providing supplemental information on adjusted EBITDA and reconciling to net income attributable to help stream is included in the earnings release that we issued yesterday and they refer to in this call.
So with that start I'll now turn the call over to CEO Bobby Frist.
Good morning, everyone I'm, having a few connection issues there might be a glitch here and there or pushed through it I'll do the best we can.
Greetings call I'm really excited about how we finished the full year 2023, there are lots of exciting things to cover and we'll do that in great detail in the next 30 months.
We delivered record top line revenue of $279 1 million and record adjusted EBITDA of $61 3 million.
Our guidance for 2024, we expect to surpass both of those high watermarks as we further expand our ecosystem of exciting new products, new sales channels in new target markets.
A significant development in our market expansion.
But you correctly.
Excuse me.
Nursing students.
Our strength.
Two approaches.
Hum applicable to them.
Right.
Additionally, our newly reported.
Sorry.
Three platforms.
Perfect.
So again with purchases.
Purchase.
Okay.
Yes.
Orders placed on them.
Three we also amplified our ability to reach and to sell individual nurses nurse spread learn which is linked via our popular nurse grid out.
As a reminder, nurse grade as the number one most popular app for nurses based on ratings and downloads in the Apple store with approximately one six nurses in the U S regularly using it.
During the third and fourth quarters of 2023.
Over 800 orders were placed by nurses some of the top products sold.
All participants to queue and supply Q C E unlimited.
Yeah, I'm, having some connection issues I'm getting feedback from so I will again will push through best we can.
I'm excited about our early success in selling direct health care professionals with our new ecommerce enabled H stream platform I believe that the ability to participate in our ecosystem throughout one's health care journey.
New opportunities for caregivers to advance, but their skills and.
Yeah.
As a reminder, about our business and who we are for the benefit of anyone who is new to health stream.
First and foremost health stream as a health care technology company dedicated to developing Credentialing scheduling health care workforce through SaaS based solutions, each of which are becoming more valuable because of the interoperability they are achieving through our <unk> technology platform.
Historically, we sell our solutions on a subscription basis under contracts that average three to five years in length, which.
Great article in fact, 96% of our revenues are subscription based.
As I just mentioned we are also starting to open our sales channels directly to health care professionals and northeast nursing students across the continuum health care training.
We are profitable have no interest bearing debt and a strong cash balance of $71 1 million, we're solely focused on health care and more specifically the health care workforce, the $12 3 million health care professionals and nursing students in the United States comprised of total addressable market for our SaaS.
Okay.
Oh gosh.
All right I'm going to need to track.
It looks like we're having bigger connection issues than I thought so I apologize for that I'm going to have to go find another dialogue give me just a second.
Okay.
Hey, Molly I'm going to ask if you can hear me that you pick up since the script is written if you could pick up in the paragraph.
Sure maybe even.
Since you know where I dropped yes.
Yes.
I don't know how built until I can get back and go ahead and start from the top.
Sure.
Thank you Mark.
I'll start where Bobby left off if I understood that correctly.
In the fourth quarter revenues from our scheduling application ship Wizard grew 31% over the prior year quarter as customers continued to report high customer satisfaction. So.
So it's purchasing ship Wizard in October 2020, we have selected <unk> as our primary scheduling application and significantly expanded its ability to perform at enterprise scale, and it's only going to become more powerful more differentiated in the market in the coming year.
In the fourth quarter, we welcomed many new customers for shift Wizard, including Norman Regional Hospital health system and felt health.
Revenues from Credentialing, privileging and enrollment application credential stream grew 52% in the fourth quarter versus the same period last year.
In the fourth quarter, we contracted 37, new customers for our credential stream solutions.
These new credential seeing customers included many highly respected health care organizations like Intermountain Health care Liberal Hill, and Dayton Children's Hospital.
So there's still a great deal to talk about but right now I'm going to turn it over to CFO Scottie Roberts for his more detailed look at our financial performance and expectations.
Alright, Thanks, Molly and good morning.
I'm going to start my portion of the call today with a recap of our financial results for the fourth quarter.
And then I'll go over our financial outlook for 2024.
Unless otherwise noted comparisons will be against the same period of last year.
We continued to deliver solid results as we closed out the fourth quarter of 2023.
Revenues were $70 6 million up 3% operating income was $4 3 million up 38% net income was $4 6 million up 87%, earning.
Earnings per share were <unk> 15 cents per share up from eight cents per share.
And finally, adjusted EBITDA was $16 million and was up 17%.
Our revenues increased by $2 1 million or 3% coming in at $70 6 million compared to $68 5 million in last year's fourth quarter.
Our revenue mix continues to tilt in the direction that subscriptions versus professional services and.
In fact revenues from subscription products accounted for 96% of total revenues.
And were $67 9 million, increasing by 4% in the quarter.
Professional service revenues declined by half a million dollars or 17%.
She had a negative impact on our growth rate of approximately 80 basis points.
Now, let me provide some more color about the revenue results.
As Bobby mentioned earlier we.
We saw a good mix of growth contributors throughout our portfolio.
Don't want to call out and quantify a couple of areas that kept our growth rate for the quarter.
Lower than it would have otherwise been in lower than we expect to see it in 2024.
The first area that I'll highlight is associated with our ansar scheduling products.
Suite of products was down half a million dollars or 13% in the quarter.
Our focus continues to be on stabilizing the existing <unk> customers and migrating them to shift with it our SaaS scheduling application.
Screw its revenue by 31% in the quarter.
Future declines associated with the remaining $14 million of and Sox related revenue are contemplated in our 2020 for guidance.
The second area that I want to mention is our quality manager solution, which accounted for approximately <unk> five and a half million of subscription revenue for the full year of 2023 and that was down <unk> 4 million or about 23% in the quarter.
We acquired this product in 2019 and unlike most of our products are sold to the skilled nursing facility market.
And while most areas of health care have rebounded since COVID-19 skilled nursing facilities in particular has continued to experience financial pressures.
And source quality manager and professional services declines offset some of the exciting growth that we experienced some products like credential stream and shift Wizard.
Our remaining performance obligations were $541 million as of the end of the year compared to $517 million the year before we expect approximately 42% of the revenue backlog to be converted in 2024.
Our gross margin was 66% compared to 65, 7% last year.
And this was in the range that we expected.
Moving onto operating expenses the reorganization of the business as a single operating segment at the beginning of the year led to efficiencies and cost synergies and our operations that are reflected in our financial results for the quarter.
We were able to maintain our operating expenses, excluding cost of revenues to a modest increase.
$4 million or 1%.
Most of this year over year increase was from depreciation and amortization, which was up 10%.
Development was up 1%.
Our G&A and sales and marketing expenses were down, 6% and 1% respectively.
Adjusted EBITDA was $16 million, which was up 17% and adjusted EBITDA margin improved to 22, 6% compared to 19, 9% last year.
Now, let's go over the balance sheet metrics, we ended the quarter with cash and investment balances of $71 1 million.
Compared to $71 8 million last quarter.
During the quarter, we deployed $6 6 million for capital expenditures paid <unk> 8 million to shareholders through our dividend program, and we repurchased $6 8 million of our common stock under the share repurchase program announced in September.
For receivables management, our days sales outstanding of 42 days for both the fourth quarter of this year and last year.
While we've had a relatively steady performance with receivables during the past year, our bad debt charges increased by approximately 600000.
That's about 350000 occurred in the fourth quarter.
Total bad debt charges for the full year approximated 1 million or about three 7% of revenue.
Now switching over to cash flows for the full year, our cash flows from operations improved by $12 8 million or 25%.
Coming in at 64 million and free cash flow has improved to a record high of $36 million compared to $26 1 million last year, an increase of 38%.
We have a strong balance sheet with over $71 million of cash no debt and improving free cash flows.
The available capital to deploy we apply this disciplined approach to our capital allocation strategy, which includes M&A dividends and share repurchases.
While we did not complete any acquisitions during 2023, we maintain an active M&A program to evaluate potential transactions that are that fit our investment criteria.
In addition to deploying capital through cash dividends and share repurchases, our waste rest improve shareholder value.
In February of 2023, our board of directors adopted a dividend policy, which we returned $3 1 million of cash back to shareholders shareholders last year.
And yesterday, our board of directors declared a quarterly cash dividend to be paid in March increasing to pay out about 12% over the previous quarterly dividend.
As for our share repurchase program during the quarter, we made $6 8 million of share repurchases and we have $1 1 million remaining under the program.
Our current share repurchase program will expire on the earlier of March 31, 2024, or when the maximum dollar amount under the program has been extended.
Okay.
In the fourth quarter <unk> subscriptions increased by 85000 over the previous quarter to a total of approximately $5 8 million.
Now as we turn our attention to the metrics that are more reliable to revenue growth and our medium term financial objectives, we're planning to retire the eight streams subscriptions metric with this report.
We believe but we believe the eight streams subscriptions have served as a good indicator of our ability to deploy our platform at scale.
We're now turning our attention to the future financial performance that scale can drive.
If we as we've said before eight streamed subscriptions are not intended to be used to calculate revenue per subscription or revenue per subscriber are.
A key reason for that is because not all products that result in revenue gains or losses require eight strength subscriptions.
And subscriptions do not necessarily correlate on a one to one basis with subscribers.
We can we continue to believe that immediate and medium term financial objectives that we introduced at our September of 2022 Investor meeting our key performance indicators for our business.
So, let's refresh on our medium term objectives, and metrics, which support them and our performance against those metrics in 2023.
Our revenue growth objective is to be in the 7% to 10% range of 5% to 7% coming from organic growth.
2% to 3% from inorganic.
For 2023, we achieved revenue growth of 5%.
Our gross margin objective of 65% to 68% and.
And we achieved 66%.
And our adjusted EBITDA EBITA margin objective is 21% to 24% and we achieved 22%.
We're excited to now give our financial guidance for 2024, which we expect to deliver on each of the three medium term objectives I just described.
We expect consolidated revenues to range between 292 and $296 million.
We expect adjusted EBITDA to range between 64.5, and $67 5 million.
And capital expenditures are expected to range between 28 and $30 million.
This guidance does not include assumptions for any acquisitions that we may complete during the year.
Our revenue guidance range implies the growth rate between 4.6 and six 1%.
And we expect steady performance across the year.
Our ability to upsell and cross sell solutions to existing accounts improve our net revenue retention and acquire new customers, including targeting the nursing school market and increase in sales through our commerce channels are elements that we believe will help us achieve these revenue targets.
We expect gross margin to be around 66% for the year.
And subscription revenue mix from solutions that we own versus partner solutions, which we pay royalties and investments in our platform and infrastructure such as cloud hosting and software will be the primary influences on gross margin.
As for staffing we have just under 1100 employees and approximately 50 open positions as of the beginning of the year. So labor costs are expected to increase steadily across the year.
We expect both product development and sales and marketing to increase in the 4% to 6% range. We have plans to increase our marketing efforts this year, including our trade show presence and engage them directly to students and professionals.
We expect that our G&A cost will increase 1% to 2%.
Finally, we estimate the effective tax rate will be in the low to mid 20% range.
That concludes my comments for this quarters call. Thanks for your time this morning, and I'll now turn the call hopefully back over to Bobby for some additional updates okay. Great. Thanks, Scott Yeah. Thank them on a better connection now Scott.
Scott talked about Google connection, but we're good to go what I'm going to do is repeat my opening section because we need a good record of it and then I'll pick up with the third section on my final section if I breakout again I'll ask Scott to do the same just go back to the top of the script and get my first section in the record and finished with the third section of our of our presence.
<unk>.
Good morning, Thank you Molly for the handoff earlier, a welcome to our fourth quarter and full year 2023 earnings call I am excited about how we finished the full year 2023, we delivered record top line revenue.
$79 1 million and record adjusted EBITDA of $61 3 million and our guidance for 2024 as Scott just mentioned, we expect to surpass both of those high watermarks as we further expand our ecosystem with exciting new products, new sales channels in new target markets.
Significant development in our market expansion strategy in 2023, sorry, additional focus on selling directly to individual end users like physicians nurses and nursing students are extreme platform now allows us to approach individuals' with learning most applicable to them I want to check real quick and see how that came periods Scotty.
Or Molly.
And then just fine Bobby Okay great.
Around mid year, we began selling primarily to physicians on our newly released CME courses site powered by the <unk> stream platform on that site, we've seen a surge in site visits and purchases with the most popular purchase being the new DEA mandated opioid of course with over 2700 orders placed in the <unk>.
Fourth quarter alone.
In the last two quarters of 2023, we also amplified our ability to reach and to sell to individual nurses through nurse grid learn which is linked via our popular nurse grid App as a reminder, nurse grid is the number one most popular after nurses based on ratings in downloads in the Apple store with approximately one in six nurses in the U S.
Using it during.
During the third and fourth quarters of 2023 and powered by our new extreme commerce capabilities over 800 orders were placed by nurses some of the top products sold directly to nurses nurse. Good learn include our stable program, our regulatory courses, we call safety EQM <unk> and CE unlimited.
I am excited about our early success in selling direct to health care professionals with our new E. Commerce enabled extreme platform I believe that the ability to participate in our ecosystem throughout one's health care journey, including our students, which is a new target for us when they're unemployed at health care facility or as an individual finding us between jobs, even now with this new commerce.
We kind of create a continuous revenue opportunity out of the millions of subscribers and our network.
And I think this gives them opportunity to continuously develop them and engage with our ecosystem.
Throughout their career.
Before we go further I wanted to provide a high level reminder, about our core business.
For the benefit of those who maybe new to health stream first and foremost health stream as a healthcare technology company dedicated to developing credentialing and scheduling the healthcare workforce through SaaS based solutions, each of which are becoming more valuable as they become increasingly interoperable through our new <unk> stream platform technologies here.
Historically, we sell our solutions on a subscription basis under contracts that average three to five years in length, which makes our revenue is recurring and predictable in fact as of today, 96% of our revenues are subscription based.
As I just mentioned we have also started to open our sales channels directly to health care professionals and nursing nursing students across the continuum of healthcare training.
We are profitable we have no interest bearing debt and a strong cash balance of $71 1 million.
We're solely focused on health care and more specifically the healthcare workforce.
<unk> 3 million health care professionals, which now include about 1 million nursing students.
In the United States comprised of total addressable market for our SaaS solutions.
In the fourth quarter revenues from our scheduling application shift Wizard grew 31% over the prior year quarter as customers continued to report high customer satisfaction since purchasing ship Wizard in October of 2020, we selected it as our primary scheduling application and significantly expanded its ability to perform at enterprise scale.
And it's only going to become more powerful and differentiated in the market in the coming year and.
In the fourth quarter, we welcomed many new customers for shifts whether it including Norman Regional Hospital Freemen health system and Phelps health.
Revenues from our Credentialing privileging and enrollment application credential stream through 52% in the fourth quarter versus the same period last year and the fourth quarter, we contracted 37, new customers for our credential stream solutions.
These new credential strained customers included many highly respected health care organizations like Intermountain healthcare Lira health and Dayton Children's Hospital.
There is still a great deal to talk about and since Scott. He has covered a second I'm going to jump right down to my concluding remarks.
One second.
Alright, now during Investor call in October I mentioned that we grow our business by expanding market share and increasing wallet share in the first half of the call I talked about expanding our markets by selling directly to an audience of physicians nurses and nursing students now want to provide a good example of how expanded wallet share through better retention strategy.
Expansion and cross selling.
Key customer accounts during the fourth quarter.
One of our valued customers on the West coast chose to expand their learning center and extreme subscriptions from 6200 users to about 8000 users. They also renewed their purchases of several content offerings like their health equity and belonging education for their staff. The checklist software tool that you use for different compliance efforts on comp.
Currency validation their safety and comply queue again regulatory training content, and even <unk> clinical skills program and dynamic health now.
Not only did this customer commit to a long term five year renewal on those products. They decided to further leverage the power of the eight stream marketplace by adding our unlimited product with the Jain AI technology and I just love. It. This customer continues to trust health stream for their kind of the more complete education and training of its workforce, so you've heard us.
Some of this was in compliance some clinical skills Simon.
And soft skills and business skills. So it's exciting to see the breadth they use us for that area, but in Q4, the customer actually also purchased shift Wizard. Our scheduling application. This is the first time they've entered that part of our ecosystem using our shipped Wizard application.
I'm encouraged by the cross selling that occurred when the shift was or purchase it because it represents our focus on on that cross selling effort and all of our accounts, but in particular that sounds exciting and in this example by noting that the recurring revenue from this customer grew by 55%.
Through that renewal process to about $216000 in the quarter. So it's a pretty good size account and it grew by 55% when it renewed and it added not just more learning products, but also the cross sell or upsell of the purchase of the scheduling applications and we're really excited because now we are beginning to demonstrate.
How those applications now although limited in power button <unk> extreme technology, some limited capabilities of how our different systems can work together.
I do want to talk just for a minute about our evolving AI strategy.
Going forward, we expect AI to impact how we develop products the capabilities of our products and even kind of the some of the models for our products like learning model gets adjusted but the application of AI technology. So we're really excited that we're making incredible progress with our Jane AI products, and we really are putting our energy.
AI around the Jane platform, which is used to develop and identify competency gaps for nurses. So it's a really great place to apply AI technology, because we have proprietary taxonomies.
There can be used in navigating a custom pathway for someone we can use the natural language processing to interpret.
Their written feedback.
And when they take are Jack competency testing.
So this product is really exciting over the last 24 months. We've received numerous awards since its introduction in the fourth quarter. It was recognized for three more prestigious National Awards.
Bringing the total number of awards for Jane to 11, and so definitely excited about this award winning product and its recognition for pioneering new methods of learning and application of AI to the learning journey.
Going to be particularly impactful.
Those students early in their career and so we're really excited about our emphasis on the use of AI in a learning journey in particular, the award winning <unk> product and the new modifications that products make it appropriate for both professional staff and hospitals and nursing students and nursing schools in closing I do want to highlight that our board.
<unk> recently approved our just yesterday, an increase in the cash dividend to be paid out to shareholders. They approved the dividend payment a point or two eight per share, which is about a 12% increase over the previous quarter's dividend of <unk> five.
The upcoming dividend is payable on March 22nd to holders of record on March 11th and so if youre not in stock you can still come in and earn that dividend and go on this journey with US we continue to be confident in our ability to accomplish our innovative organic and our inorganic growth strategy. As we mentioned we have about $71 1 million of cash while also returning cash to shareholders.
Part of our objectives. So we're excited about the dividend program.
If youre interested in a profitable highly recurring revenue SaaS Paas health care technology company that for 2024 expect to deliver steady growth and is determined to share some of its gains directly to shareholders in the form of a dividend.
One that we just increase maybe health stream as a company and the stock for you and so Thats my marketing pitch, you've always got to do a little bit of selling.
Look we're on the journey together and been building. This company for a long time and I've never been more excited about the prospects for the company as our technologies evolve and incorporate the latest like evolving AI landscape and our teams are amazing I have 1100 employees that are building incredible products and taking them to market with great passion.
So we're really excited as we launch into this new year I will turn it over to the operator for Q&A I hope that that came through if it didn't will probably have to schedule. Another day like an investor day or something to make sure. We get all this great information on the transcript I will turn it over to the operator for questions.
Sir the question and answer session will begin at this time, if youre using a speakerphone. Please pick up the handset before pressing any numbers should you have a question. Please press star one one on your push button telephone.
If you wish to withdraw your question. Please press star one again.
<unk> will be taken in the order that they're received please standby for your first question.
And our first question comes from Matt Hewitt with Craig Hallum. Your line is open.
Good morning, and thank you for taking the questions. Maybe first off just a point of clarification I think Scott you mentioned, there was $14 million left in and soft legacy contracts I'm just curious.
Those contracts be up for renewal or conversion I guess.
This year or does it expand beyond this year I'm just trying to figure out what the headwind is that you are facing maybe a little bit this year.
Yes, I'll start that and then let Scott.
The total remaining kind of.
Business with impasse is about $14 million and it is our hope and expectation and our work and focus of our work to retain all of that business until which time, we can eventually upgrade them to the newer technologies like shipped Wizard and so it is our objective now that said in the last.
24 months as Scott noted, we experienced attrition in that group and lost them not to the mark to the market not to the translation over to ship later, so we're working really hard to position the upgrade to an source is shipped Wizard. If you remember it's a legacy installed product it is aging technology.
And we're working hard to keep the customer satisfied with where they are our new them as their contracts come up for renewal.
And but also transition them when they're ready to transition to the ship lizard products. So we hope to stem some of that this rate of loss here in the coming quarters and.
And get them transitioned over to shipped Wizard as well, so I hope that sort of framework Scott He wants to add anything you can.
Yes, Matt I mean, it's a mix of it.
Contracts that are what we call in their auto renewal phase.
The common practice for.
So that type of that.
Previous sale and then that makes it also customers that have had.
We have entered into agreements for multiple years of renewal for that solution. So it's I don't have the numbers in front of me that speak to but there is a mix of contract length in the base.
Got it that's helpful. Thank you and then.
Bobby as you look at as you start to sell more and more directly to the end user, particularly the nurses.
Historically, you sign and I think you mentioned again today, you're typically signing three to five year contracts with your hospital customers, but with nurses in particular are those.
Three to five year contracts. So how does that change your visibility and what can you do to ensure obviously, it's a big market and getting in early with those end customers is obviously ideal, but how does that change your visibility and what what can you do to maybe increase that thank you.
Yeah, a couple of things one.
These technologies power Commerce.
e-commerce as well as direct to consumer and so theres two two opportunities here and the main one I'm going to cover first is focusing on the nursing students while they're in the two and three year programs to become nurses and getting that the schools.
Have the commitment to put those nurses through kind of Theres no students through ready to work program and so the main focus of this is to get it where they can both be found at clinical rotation on hospital and of course, they pay a little C for that through my clinical exchange.
By a few content bundles like the Red Cross program before they become a nurse so they enter the market with the certificate.
Ticket generally has about a two year life span and we've entered into at least one major multiyear contract with a nursing school that has committed to provision some of these services to the students.
On a on a steady basis ongoing basis before they become a nurse and then as they transition from there. They can carry using extreme technology that portfolio that record forward with them into work. So that's the main focus of these commerce capabilities.
The new students Jane AI for example, we'd rather the school contract to provision it to the students.
Now the second capability is the one that opened with which is fun and exciting it's kind of a gap filler.
Someone is between jobs they noticed their life might expire if they don't take certain education for their continuous education. They can still use their <unk> login.
<unk> and pay for themselves of course, and we did report a lot of activity on there both by learning to target doctors and.
And students.
That revenue will be a little less predictable.
Is good margin and it is incremental and it's picking up a gap say between jobs or when they're not working in a place to use our enterprise software. So it's kind of a gap filler I call. It money, while we sleep because it's all automated credit card purchases.
It will be less predictable.
But you can see that we filled a lot of gaps in the fourth quarter.
With both of those types so.
The emphasis will be of course on the <unk> engagement with the schools.
That are interested in developing nurses the students and the nurses and then placing them in their first jobs and hospitals, so that'll be the real focus and we mentioned the modified Jane product that's coming out.
Our initial we have initial big.
When was the big nursing system that has committed to put.
Believe they're piloting to put all of their students through the Jane program and we'll see we'll know more about that pilot at the end of the year, but that will be the real <unk> as well I hope that helps clarify but that incremental revenue that we opened with us just fun and exciting from an Robyn for content, we already all the audiences that would have normally disengage.
With that I'd say between jobs. So if a nurse worked at hospital on our learning system and built the transcript.
Take six months off and then they take another job hospital that also use <unk>. They can pick up their education, there, but now with our commerce abilities. They might in between that logging directly and consume of course may be required by the state licensure and so it's a gap filler in a time pillar, it's incremental that will be a little less predictable, but it is good.
And so I hope that helps.
At least to understand what we're going for it it's a little bit of context too for the concept of <unk>.
Trying to make all of these business subscriptions and the people behind them kind.
Kind of continuous lifetime customers of the Gulfstream ecosystem, and so hopefully it clarifies that that that gap filling capability, we have and it will be a boost to revenue here in there. Thank you.
That's very helpful. Thank you.
Thank you. Our next question comes from Jared Haas with William Blair. Your line is open.
Yes, hi, good morning. This is Jared haase on for Ryan Daniels.
So are you taking our questions.
Maybe just to start was hoping to unpack a little more color just around recent sales cycle trends.
It seems like others that we've heard in the healthcare it space is starting to flag, maybe some improvements in the selling environment with health systems, maybe relative to what the environment looks like going into 2023. So just be curious if that's something you've experienced in any meaningful way.
That translated into any sort of favourable inflection from a selling perspective.
Yes sure.
Our pockets and so we did try to highlight some of that in the call I don't know if some of that got muddled out, but let me kind of repeat and think through some of it I think.
We did talk about at least for some of our legacy products.
Where they have some decline in weeks, specifically addressed the skilled nursing market so that market as a whole is under a bit more duress.
We see a little bit more churn in the customer base like the smaller ones, maybe combining with larger ones or even going out of business. So.
So on the skilled nursing market. It seems that still have some remaining financial stress in a little bit harder to sell to and so we saw some declines in that.
Product quality manager product that Scott mentioned.
But we did also open by highlighting actually had to repeat it so as at the end, but highlighting this subscription growth too.
To shift Wizard and credentials trained both of which as you heard 31% and nearly 50% year over year growth.
As reflected in the strength of the pipeline for those products and so I.
I guess I'd say it has some variability but in some of the bigger enterprise purchasing particularly in credential stream and.
Chip Wizard, we saw we see strong pipelines and.
And so maybe there are certain sub segments of the market like skilled nursing.
We're learning more about nursing schools and their buying cycles, and so there'll be more on that in the future. So I won't comment too much on that because both have new products.
New focus on selling to those.
So there's some variability in there I'd say generally though the patterns of reviewing products for purchasing the.
The availability to sell is obviously much improved from the middle of Covid, where where people simply werent, taking calls and so I'd say there are kind of a normalized new models selling and customers are receptive to seeing the new and exciting products that we have.
Okay.
It's helpful. Thank you and then maybe just one on the 2024 outlook looking at the revenue guidance.
It looks like the range from the low to the high end is a little bit narrower relative to the guidance for 2023 Im curious if theres anything we should infer in that just in terms of the level of confidence that you have at this point in the year, maybe relative to last year or any thing thats changed from a visibility perspective, I know youre still working through the answer.
Sort of headwind and maybe there is some nuances as to how that kind of impacts the forecast.
Maybe it would just love to Untack anything thats going on from a visibility perspective at this point in the year.
I mean generally as we open.
The business is very predictable.
Some variables again, we noted those like Amazon that are less predictable, we tried our best to factor in.
The topics as Scotty covered on the some of the challenging areas.
And I think in general, we're getting a little better and I feel a little more comfortable with a slightly tighter range.
And.
And so I guess, we're just getting a little better at forecasting also interesting and we talked about the direct to consumer commerce to a lot of that is data driven and so for example, we mentioned and how that opioid of course was to sell it and really well I mean, there is kind of a requirement around that and we're getting better at targeting so we're a little better at predicting.
Those sales, which might normally be considered almost totally.
Or less controllable and so I'd say using better targeting for selling and.
Maturing a bit in our forecasting we hope that we're able to tighten that range you can give a little better guidance. So.
We'll see how that plays out but our expectation is that we can we can hit that range.
Okay. That's perfect. Thank you.
Thank you. Our next question comes from Stephanie Davis with Barclays. Your line is open.
Hey, guys. Thanks, just Andy presents.
Anthony Thank you for taking our question.
I wanted to go back to the 2020 guidance just curious if you could talk a little bit more about the driver has been sequentially stable growth in margin, given you're caught that optimization and network expansion.
I'll, let Scott take a little of that I think.
Just in general, Yes, we've gone as we've migrated from essentially.
This one health stream model, we've been able to find the operating synergies in the business.
By operating more like a single platform company, we were able in early last year to restructure some of our operations.
And duplicate some of what we used to be segment reporting and so some of those efficiencies are still in the model and we benefited from them this year.
They're just getting better kind of operating so you see better management of our G&A for example in the last 12 months.
And therefore, maybe more predictable as we look into next year, we hope again more stability. There are a few variables. So that as we just talked about a few of them in the sales model.
Also a few challenges in submarkets like the skilled nursing, we did see a little higher bankruptcies in the market, which again adds a little bit of variability to the predictability things that are essentially beyond our control, but the things that are within our control I think we're getting better controlling both from a G&A standpoint, even capex. There is an increased focus on deployment of our capital.
And the software development and a better I'd say rank ordering of prioritization of projects that we think we're going to be.
We get better and better at deploying our capital.
And so I think all of that is just a hopefully a maturing business that's getting better at how it operates in.
And studying more for efficiencies on how we get where we're going for example, these new ecommerce selling ability are provided more financial leverage as we sell.
With click to purchase functions, we can lower our total cost of sales and I think that's kind of another type of efficiency, we expect to get as we deploy the new platform models that we're that we're building.
Got it. Thank you that's really helpful. And then as a quick follow up just curious if you could rank your capital allocation priorities cross inorganic opportunities dividend engineering, if I catch all next year.
Oh Gosh I mean, our first priority is building organic products like the gene AI product that is we're going to take into the nursing school. So first priority for capital and capitalized software development is in building and enhancing existing products and building new products.
We've talked about taking shipped wizard more to enterprise class we've talked about.
Adjusting our Jean product enhancing.
Enhancing the AI technologies and.
And entering new markets with it so our capital the bulk of our capital goes into exciting new product development and that is the place where it should go.
And then second of that would be I guess, the inorganic opportunities and with our last acquisition a little over a year ago. It turned out to be a really strong winter.
Small bite sized tuck in incremental to our platform strategy. So very excited and I think that will be the second priority is to.
We won't force anything as demonstrated last year, we did no acquisitions last year, but we're constantly looking and expect to continue an active M&A program, especially the kinds that kind of leverage our platform technologies and where we're going with the three primary application areas, where we are so anything <unk>.
And those three areas or enhances our infrastructure are targets for us for so that would be the second and then I would say.
We executed a really good buyback program I think we've done three in our 20 plus years 'twenty four years being public.
Actually all three of those buyback programs are in the money, which I think would be a typical of a lot of management buybacks.
The management board driven buyback so.
All of our buybacks have been good deployments of capital knock on wood, so far and so that would be maybe the third priority.
And that program does lapse in March.
No no visibility on whether it's time for our board to put another one in place, but right now we have an active program that expires in March and then lastly, the dividends I think is a very small dividend, but it sends the message that capital discipline, I think taken a little bit of money off the top of our shareholders.
Then applying the balance of it to all the things I just talked about I think puts a little bit of capital discipline and it says look first order to remember is.
To make money for shareholders.
We put a small dividend in place to send a very clear message that we can manage our free cash flows build new products enter new markets do small acquisitions that fit well.
While also paying out a low sharing the profits along the journey. It is a journey I've been doing this a long time and I think it just brings shellers more out of the journey to share a little bit as the journey evolves. So those would be our four priorities 1234 of the way articulate them. Thank you.
Thank you. Our next question comes from Richard close with Canaccord Genuity. Your line is open.
Yes, thanks for the questions congratulations.
A steady 2023.
I was just curious on modeling revenue with eight streams subscribers going away just wondering what the best way to forecast.
Going forward.
How do we track the company's progress penetrating the $12 3 million.
Employee Tam and increase wallet share that youre talking about.
I guess pulling back on the eighth stream.
The models sort of evolve into a black box.
Are you considering providing any other metrics like <unk> growth third net revenue retention or anything that's out.
We're studying that now so couple things. There first is just a reminder, and I think.
Spite of our best ever said.
Explain where we are in the journey I want to remind you. The first thing is that the metric that we had out there that we just retired was for subscriptions not subscribers and so it really was intended to show the platform kind of expansion, but not as an infrastructure for calculating ARPA or revenue per employee.
Because we haven't yet gotten to the place and we fully intended to over time get to the place where we could convert.
And talk about subscribers like the number of unique health care personal in our networking and we.
And so we're just not.
Rate metric almost like for a single product to talk about its expansion, but it was not correlated to revenues for the reasons Scotty mentioned and it was not it doesn't correlate to subscribers and we saw some potential.
Miss application out of that two <unk>.
Calculate revenue per subscriber and so.
We think it served its purpose we are getting our technologies out into the market and almost daily report subscriptions sold our regulatory courseware. It gave us a sense for that but it is not a proxy for subscribers.
And it can't be related to revenues, yet because it's not fully deployed meaning there are several products that drive revenues that don't add to the subscription number so for that reason, it's not subscriptions our subscribers and its not fully deployed it it can't be used as a denominator in our revenue per employee model. So.
We are going to look to this year add additional both financial metrics to focus on we already report full GAAP of course, but.
And one of those we're starting is <unk>. So we'll look towards the middle of the year to see if we can get to that kind of metric, which I think would help all of the analysts and everyone understand the recurring revenue nature of the business and the growth trajectory. So yes, Richard we're working on that but I think it's time to take this metric as.
We mentioned kind of off the table because it was symbolic of the growth of the platform extension, but not related at all to people, yet and not related to revenue and we saw some of that starting to happen. So we just think we need to move our focus probably towards something like <unk> that was the discussion in the last quarter and we've got a test back.
Test and see how that metric how are we going to measure it but that would be our goal would be to add some new metrics by the middle of the year.
Okay, great that would be helpful.
And then and soft.
I guess a couple of follow up questions.
And that is the remaining $14 million is that is that just maintenance and support revenue.
That's the first question and then.
If theres any details in terms of the success rate of converting to the shift Wizard product would be helpful. And then finally the average term.
Length of time on the remaining contracts.
Sure a couple of things there the contracts have a lot of essentially.
Essentially there are a lot of them are all installed and they have a maintenance fee.
Non SaaS, but there is some recurring nature to it and have auto renewals unless they cancel.
There is a recurring nature to it and it does include some.
It does maintenance piece basically so.
The second is on the conversion rate I would say to date, obviously, unfortunately, not very successful at all of that but a renewed focus by our teams.
Also as we've talked about in prior calls, we're enhancing shipped wizard to better meet the needs of these enterprise customers have an sauce and so and I think every single quarter now and actually every month on shipped Wizard Theres, a new software release and its moving us ever closer to full enterprise capability. So I think there'll be.
Opportunity to transition so again not very successful in the migration today as you hear from the loss that we've been reporting.
We do expect and we have full energy on stabilizing that $14 million and we're going to try to reduce the attrition rate and also succeed better this year and the conversion rate. So this isn't a story of I don't think going to zero.
It's an effort to stabilize and stem the loss, while also transitioning them to the newer exciting technologies have shipped Wizard and shipped later it is very well received in the market.
For its current capabilities, it's just.
Winning share now we just need to enhance some of its core functionality and we've made a lot of progress on that enhanced.
Enhancing core functionality around kind of enterprise level data analysis, and so I think we look forward to by the middle of year, having great progress on that so there'll be a better destination for better destination to migrate everybody too.
I'll turn it over to Scott if you want to add anything.
Yes, I'll, just make a comment or two Richard I mean I think.
Yes, I tried to address with Matt earlier in the call kind of the nature of the contract length that kind of vary from.
Auto renewals to some that are.
Signed multi year contracts I don't have the.
The duration run out in front of me, but.
There is a good mix of.
Renewals plus customers under term.
Let's say tell you that our objective is to continue to support the customers.
We didn't want to migrate them to ship, whether but we also want to acknowledge that there are still customers on the on that application and we're still there to support their use of it.
So that's another consideration.
<unk>.
I think as we talked about the 14.
$14 million Yeah, we wanted to just provide that number to provide context as Bobby said don't expect it to go to zero, but just wanted to the size of that for our investors to understand the magnitude of it.
Okay. That's helpful and then under the direct to consumer.
Just on that portion of revenue I know it's small.
But it's a different sale.
How are you thinking about customer acquisition costs on the direct to consumer market.
Maybe it's a little.
Less than a typical direct to consumer because.
If they're in between jobs that you already have exposure to you just trying to get your thoughts on that.
Yes, I would say for the next couple of years, our thoughts are really just to try to keep the people that I would call quote and network to stay in the network when theyre between jobs and as I mentioned pick up this new audience of students before they become professionals and so it really isn't a broadly openly market to people to self register.
To capture using existing data.
From the customers that have been in network.
To find them between jobs or when they leave a job they come out leave and carry there.
Their health stream transcript with them and that's different and so they kind of if they work somewhere for a couple of years when they leave they can.
Can still log back and using their <unk> and see that they had 10 courses or and so now all we're doing is saying Oh you can Laura can carry your transcript with you like a portfolio or a wallet you can take it with you.
But you can also say well hey, Michael click at the bottom here to keep my license current and taken additional course in Thats happening right now with doctors.
On that day, a course that we mentioned and it's happening with nurses.
When they take a little bit of CE or even when they are about to take a new job. They refresh on something before they go back into the new jobs. So really we are it's more of a gap filler than it is a broad consumer you said consumer I call. It direct to professional DTP and its really just trying to keep people in network.
All the time as opposed to just kind of broadly marketing out into the wild open right now and maybe we'll get there someday, but really the job right. Now is just to make that transcript portable make them lifetime kind of.
Lifetime engaging with health stream instead of just engaging with us when they are in their job.
Okay. Thanks, very helpful and if I could slip one more in I thought I am credential stream. It was interesting you announced.
We are a house.
A digital health company that seemed a little bit different are you seeing an uptick in opportunities.
That segment on.
The direct to employer benefits area.
We are seeing at least with the insurer insurers.
Seeing some opportunity there.
And so I would say, yes kind of categorically.
There's interest in a couple of areas that maybe we're not just purely the acute care hospitals.
And.
So there are a lot of.
Uh huh.
I guess I would characterize them as new but I would just say, we're getting better at pursuing a broader opportunity and not just the acute care hospital market. So the answer is yes.
Okay. Thank you.
Thank you. Our next question comes from Constantine David with citizens JMP Securities. Your line is open.
Hi, Thanks, good morning.
Couple of follow ups here on scheduling can you just maybe characterize where youre seeing growth with shift wizard, because it's been pretty impressive in 'twenty, three and I guess I guess just a little further on that is it sort of large idms complex academic medical center type installations are smaller hospitals, and then are you tip.
<unk>, replacing <unk>.
Kind of homegrown scheduling system or some other standalone technology solution.
Couple of really interesting things in that space for US one I would just describe it if there is kind of such thing as the very large enterprises, and then theres the middle market and then there's a small urban or rural hospitals and community hospitals. It is kind of the middle there that we're getting really strong on that.
Probably call them regional health systems. The other thing is that we have this great relationship that's growing with workday, where they're bringing us in to help kind of them have a complete offering and we turned out to be really good partners and supporting customers need and so we're getting brought into workday accounts to two.
With them.
To round out services and we just found that to be a great partnership so kind of a good refer almost a referral program for us a good source of leads and compatibility. We just work really well with that team and our our applications work together, well and present well together, so that's been really exciting and fun.
Usually were taken out competitors in the market that have aging technology and and we've got this emerging new good paradigm, great user interface with ship Blizzard, so organizations like <unk>, and API, where where we compete we generally are replacing something and so.
Hope that answers your questions and in general we're trying to expand the capabilities of chip wizard to handle ever larger and larger systems. We do have some large systems as customers and we just need a more robust.
Basically reporting and data analytics suite, which we havent learning, which is great. So we're going to use a lot of that infrastructure to launch.
Better class of data analytics and learning around scheduling.
Which we think will meet the needs of even the larger health system. So we're excited about that and that should be at this year or that we're making good progress on that as well again as I mentioned with monthly releases of shipped Wizard very exciting.
Webinar hundreds and hundreds of people attend for each monthly release to see whats coming on ship lizard, It's just gaining traction and momentum and excitement as we add enterprise class features. So we can go after even larger customers.
Great and then.
Just a follow up I guess to Richard's question around metrics have you or can you talk about just how many.
H stream might be as has been claimed at this point is that something.
It's interesting it's over $1 billion, but we've got a lot of work to do is there's a lot of and we've been building tools for a long time now de duping tools.
We've been building tools to let people if they're if they're if they worked at one health system. They could claim that records or another and combine them. So I have this unified transcript as an individual so it is really exciting, but it's kind of still nascent.
I mean, there are several steps in the process first we have to wire of the application we have dozens of applications to the <unk> Treme architecture. So it uses the <unk> and then we have to get the professionals to kind of claim any other uses like we call it putting keys on key change so.
Once you have an H stream I D are able to then go and say Oh, well I also use this application and so kind of merge that information.
Almost the way to a Google or do you get.
So access to all their apps, but for US. It's a limited set of apps now so we have over a $1 million, what I'll call reconciled Ids and theres going to be millions more over time, but that is going to take time and that's.
Until we can get to that pure subscriber count.
Historically, you think of us as a <unk> software.
Three separate tech stacks, but increasingly the tech stacks are interrelated through the <unk> platform and the H stream and.
And we're kind of.
Mid stages, maybe deploying both the technology and the reconciliation of Ids, so over a $1 million.
Unique <unk> have been issued which is really exciting, but theres millions more to go and we expect steady quarterly progress on that and of course, when we get to some place. We're excited when we have enough momentum that can become a metric and that that could be the basis for some kind of <unk>.
But there are two things have to happen one more of our applications have to connect to it and then more of the users have to reconcile it and we've been building. This is a very complex topic, but and we've been working on it for years.
You have to have the reconciliation tools the account joining tools the keys on key change the management tools Hudson and we're actually getting very good at those.
<unk> deployment models, we are getting very good at all of that.
And so we expect it to kind of continue to spool up.
Okay.
Just last question along those lines, where do you think you are in the journey Bobby.
Whether it's in baseball terms or some other.
The language, but just having all of the apps on the platform common architecture.
Making them all interoperable and seamless just how far along you are.
Baseball analog and I'm, not a huge baseball person, but I'd say third inning, but it's going faster. So it's one of those things, it's not linear like each each and it isn't the same link I think it's the kind of thing that can kind of.
B.
Maybe geometric are.
Maybe maybe maybe exponential, but definitely geometric where it should go faster than linear and so while we're in maybe three out of nine innings, the fourth should be faster than the third and so on so I think I think it can continue to spool up.
Thank you.
Thank you. Our next question comes from Vincent Colicchio with Barrington Research. Your line is open.
Yes, good morning, Bobby most of my questions have been answered.
Just curious on the credential scream side.
With the success you're having.
Has there been any competitive response in terms of trying to match your differentiation there.
Well no. We have we have lots of things to do in our road map to continue to differentiate but right now I think.
We've got a really exciting product and in fact to the point, where as I mentioned organizations like work there are thinking of us as the best of breed and bring us into their deals so.
I'm excited about what is now where its short and we've talked about this is some of it.
Enterprise feature sets, particularly around data management reporting like if youre, a large organization with $50 $60 70 hospitals, you have different demand, but how you distribute information on youre solving labor issues across markets.
And across regional deployments and so we're going to get more sophisticated on that this year.
But the desert the advances that we have now the true differentiators are still yet to come so we're beginning to incorporate.
Some of the technologies of our platform for example, the license service I hope that by the end of the year. For example, we will be using the license service that was built in credential stream to verify nurses license before we schedule them and so we have that capability as you know in our platform to check licenses and.
And so it'll be a further differentiation as we connect shift Wizard to services like the license verification service that is a function of our <unk> platform. So that's an example of a differentiation yet to come that I hope is this year.
That will continue to distinguish us from our competitors and there are of course, a roadmap all of those ideas as well.
Hey, Vince are you asking about credential stream on that your question.
I think he was actually because I just got a note from someone so.
I guess the same holds true for credential stream as it takes advantage of connectivity to the learning Center. For example, we're in the middle of <unk>.
Going back to customers that have both our learning system, and our credentialing system and showing them. The interoperability of the early stages of interoperability between those for example, how logical as it but if you earn a credentialing the learning network and should auto populate as a credential into your Credentialing system and so the same kind of answer holds is that there are plenty.
<unk> of differentiation to come.
This year that show interoperability and several that are in place now that we're beginning to market actively.
So Bobby will you just still responded to my question because I got cut off.
Hi.
I think in both cases I tried to give examples of both shift Wizard and credential stream.
That are going to be increasingly competitively differentiated by how they access services of the H stream platform, whether it's the H dream to create interoperability for example, your data following you from one system into the other example, I just gave was a learning credential earned and the learning system. Following you ended the Credentialing system and <unk>.
Maintaining its primary source verification status or our scheduling system that relies on the platform technology to check a license before your scheduled and so to verify your licenses active before.
Before we schedule you and so those are two examples of interoperability that or.
<unk> is actively being marketed and the other is to come this year.
But increasingly the differentiation will come from how these applications inter operate or operate together and how data moves between them and how services built on the platform power up distinguished features in the application. This is true in learning scheduling and Credentialing in all cases, we hope to further differentiate it.
I think Theres also.
Kind of a broader value proposition of of getting these applications of droppable I think it's more appealing to a CLO.
T O.
Fo when they see a suite of software working together instead of individual separately implemented tech stacks and so we're looking for operational synergy implementation synergy over the coming months and years.
And one last one how would you characterize pricing in the acquisition market as rich as it improves what would you say.
Well, let's see we Didnt do a deal in the last 13 months.
And during that I guess I would say in the last quarter or two I think a little bit of softening and some excitement maybe deal pipelines can can pick back up but the private companies always hold on as long as they can to the past and and so.
Maybe one of the contributing factors was that in the first half of the year, but.
I don't know how to say I didn't know if you have a hot company, that's a SaaS model and its emerging and growing fast youre going to be able to demand a premium for your business when you sell it.
And so I think that is almost always true maybe fewer companies meet that criterion and they're also burning cash. So I think those companies theres going to be some deals out there I think as companies try to recap at lower.
Market caps in the next year or so.
Thank you.
Thank you Sir no further questions at this time I'd like to turn the call back over to Robert Frist CEO for any closing remarks.
Thank you to our analysts for following our story and helping us tell us. Thank you to our 1100 employees for making all this happen.
We will look forward to continue reporting in it and growth as a company. Thanks for going along the journey of all your shareholders will see on the next earnings call.
Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.
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