Q2 2024 HealthStream Inc Earnings Call

Good morning and welcome to HealthSpring's second quarter 2024 earnings conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation. I will now turn the conference over to Mollie Condra, Vice President of Investor Relations and Communications. Please go ahead, Ms. Condra.

Operator: At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation. I will now turn the conference over to Mollie Condra, Vice President of Investor Relations and Communications. Please go ahead, Ms. Condra.

Mollie Condra: Thank you. Good morning, and thank you for joining us today to discuss our second quarter 2024 results. Also on the conference call with me is Robert A. Frist, Jr., CEO and Chairman of HealthStream, and Scotty Roberts, CFO and Senior Vice President of Finance and Accounting. I would also like to remind you that this conference call may contain forward-looking statements regarding future events and the future performance of HealthStream that involve risk and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statement.

Mollie Condra: Thank you, good morning, and thank you for joining us today to discuss our second quarter 2024 results. Also in the conference call with me is Robert A. Frist Jr., CEO and Chairman of HealthStream, and Scotty Roberts, CFO and Senior Vice President of Finance and Accounting.

Mollie Condra: Information concerning these risks and other factors that could cause the results to differ materially from those forward-looking statements is 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.

Speaker Change: I would also like to remind you that this conference call may contain forward-looking statements regarding future events and the future performance of HealthStream that involve risk and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements.

Information concerning these risks and other factors that could cause the results to differ 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.

Mollie Condra: A table providing supplemental information on adjusted EBITDA and reconciling to the net income attributable to HealthStream is included in the earnings release that we issued yesterday and may refer to in this call. So at this time, I'll turn the call over to CEO Bobby Frist. Thank you, Mollie.

Mollie Condra: Additionally, we may reference measures such as Adjusted EBITDA, which is a non-GAAP financial measure.

Robert A. Frist: A table providing supplemental information on adjusting EBITDA and reconciling to the net income attributable to HealthStream is included in the earnings release that we issued yesterday and may refer to in this call. So at this time, I'll turn the call over to CEO Bobby Frist.

Robert A. Frist: Good morning, everyone, and welcome to our second quarter 2024 earnings call. We will just jump right in and hit some of the key highlights. Please report During the second quarter, our financial performance showed year-over-year increases in each of the major categories that we highlight in our earnings release. So we finished the quarter with strong sales and a solid sales pipeline, and we were able to reiterate our 2024 guidance range. In particular, we're seeing strong sales pipelines on CredentialStream in our credentialing area, ShiftWizard in our scheduling area, and in our new Enterprise Competency Suite and Learning, and we'll talk more about some of these later in the call. We believe that the Emerging Enterprise Competency Suite is the most complete offering of its kind.

Robert A. Frist: Thank you, Mollie. Good morning, everyone, and welcome to our second quarter 2024 earnings call.

Speaker Change: We'll just jump right in and hit some of the key highlights.

Speaker Change: Please report during the second quarter our financial performance showed year-over-year increases in each of the major categories that we highlight in our earnings release. So we finished the quarter with strong sales and a solid sales pipeline, and we were able to reiterate our 2024 guidance ranges.

Speaker Change: In particular, we're seeing strong sales pipelines on CredentialStream in our credentialing area, ShiftWizard in our scheduling area, and in our new Enterprise Competency Suite and Learning, and we'll talk more about some of these later in the call.

Speaker Change: which we believe that Emerging Enterprise Company Suite is the most complete offering of its kind in the industry.

Robert A. Frist: I'm also excited by ongoing progress towards key development milestones on our HealthStream platform, and as I promised last time, we're going to give a bit of a platform update, at least through the technical lens of developmental progress. We're beginning to see the first examples of interoperability between our applications, which is kind of the great promise of the platform.

Speaker Change: I'm also excited by ongoing progress towards key development milestones on our HealthStream platform, and as I promised last time, we're going to give a bit of a platform update, at least through the technical lens of developmental progress.

Robert A. Frist: And we're seeing how customers and partners utilize components of the platform to enhance interoperability with their other systems like ERPs and EHRs. You know, amid all those positive developments, we're going to have to talk about and contend with two one-time customer-related events in the second quarter that resulted in some temporary headwinds that we're confident will push through over the course of the year. So let's address those kind of up front

Speaker Change: We're beginning to see the first examples of interoperability between our applications, which is kind of the great promise of the platform. And we're seeing how customers and partners utilize components of the platform to enhance interoperability with their other systems like ERPs and EHRs.

Speaker Change: You know, amid all those positive developments, we're going to have to talk about and contend with two one-time customer-related events.

Speaker Change: in the second quarter that resulted in some temporary headwinds that we're confident will push through over the course of the year.

Robert A. Frist: One headwind impacting revenue growth in the quarter was based on the timing anomaly at one of our larger customers... Importantly, we believe this anomaly will self-correct over the remainder of the year, such that it is not expected to negatively impact full-year revenue. What happened was both simple and understandable.

Speaker Change: So let's address those kind of up front here. One headwind impacting revenue growth in the quarter was based on the timing anomaly at one of our larger customers.

Speaker Change: Importantly, we believe this anomaly will self-correct over the remainder of the year, such that it is not expected to negatively impact full-year revenue. What happened was both simple and understandable. We'd like to avoid it next time, but simple and understandable.

Robert A. Frist: We'd like to avoid it next time, but it's simple and understandable. Essentially, administrative responsibility for assigning and setting completion dates or completion requirements for a certain cohort of learners, which was obviously a big cohort because it's a big customer, changed. And what happened was thousands of learners who were previously required to complete certain courses in 90 days were given 365 days to complete the courses by the deadline. And of course, if you're anything like me, and someone says, well, you have to finish something in 90 days, or you have to finish something in 365 days, what do most people do? They put it off. That's exactly what happened here.

Speaker Change: essentially administrative responsibility for assigning and setting completion dates or completion requirements for a certain cohort of learners, there's obviously a big cohort because it's a big customer, changed

Speaker Change: And what happened was thousands of learners who were previously required to complete certain courses in 90 days were given 365 days to complete the courses by the assignment.

Speaker Change: And of course, if you're anything like me and someone says, well, you have to finish something in 90 days or you have to finish something in 365 days, what do most people do?

Robert A. Frist: Once the customer realized kind of what had happened with this administrative function in our system, we're both taking steps to address it because, you know, they also don't want tens of thousands of employees rushing on the last day to do this. It would kind of overwhelm the system. They need to take it throughout the year. And so, you know, they're self-correcting this process. And once we took steps and the customer realized what had happened, we think that completion rates will accelerate for the remainder of the year and come back in full year as originally forecast, despite the unexpected slowdown.

Speaker Change: They put it off. So that's exactly what happened here. Once the customer realized kind of what had happened in this administrative function in our system, we're both taking steps to address it because, you know, they also don't want it.

Speaker Change: tens of thousands of employees rushing on the last day to do this. It would kind of overwhelm the system. They need to take it throughout the year.

Speaker Change: And so, you know, they're self-correcting this process. And once we took steps and the customer realized what had happened, we think that it'll get the completion rates, will accelerate for the remainder of the year, and come back in fully as originally forecasted, despite the unexpected slowdown.

Robert A. Frist: And, you know, the reason this happened and why it's tied to economics is that for a subset of content that we sell to this customer, we bill and recognize revenue based on consumption that occurred in the quarter. So again, for a subset of content we sell to this customer, it's based on actual consumption. So that is why slower consumption of certain content in the quarter resulted in lower revenue, and while accelerated consumption for the rest of the year is expected to normalize revenue for the year. This is the only instance of consumption-based billing that we have at scale, and we do not plan to expand this type of billing model going forward. At any rate, we expect revenue to catch up in the second half. So we're not particularly concerned about it.

Speaker Change: And, you know, the reason this happened and why it's tied to economics is for a subset of content that we sell this customer, we bill and recognize revenue based on consumption that occurred in the quarter.

Speaker Change: So, again, for a subset of content we sell to this customer, it is based on the actual consumption. So that is why slower consumption of certain content in the quarter resulted in lower revenue, and while accelerated consumption the rest of the year is expected to normalize slower revenue for the customer.

Speaker Change: This is the only instance of consumption-based billing that we have at scale, and we do not plan to expand this type of billing model going forward. At any rate, we expect the revenue to catch up in the second half of the year.

Robert A. Frist: The second one-time customer event that is in front of us, and also currently in the quarter, had an impact on the quarter, and also as we look forward, is due to the widely publicized bankruptcy of one of our strategic accounts, Stuart HealthCare. Historically, a great customer ran into some financial difficulties and declared bankruptcy during the second quarter. The impact of missed payments from periods prior to the bankruptcy filing had a negative impact on net income, adjusted EBITDA, earnings per share, and operating income in the second quarter.

Speaker Change: So we're not particularly concerned about it. The second one-time customer event that is in front of us, and also currently in the quarter, had an impact in the quarter, and also as we look forward, is due to the widely publicized bankruptcy of one of our strategic accounts, Stewart Healthcare System.

Robert A. Frist: We expect negative impacts on revenue and other financial metrics in the last half of the year as well. We've estimated these negative impacts, and they are factored into our reiterated guidance. At present, we believe that the impact of this bankruptcy may move us toward the lower end of our revenue guidance range. We'll see how it impacts us as we move forward. Because that said, it's possible that the bankruptcy will allow the customer to make payments in the second half of the year and as we continue to provide service to them.

Speaker Change: Historically, a great customer ran into some financial difficulties and declared bankruptcy during the second quarter. The impact of missed payments from periods prior to the bankruptcy filing had a negative impact on net income, adjusted EBITDA, earnings per share, and operating income in the second quarter.

Speaker Change: We expect the negative impacts to revenue and other financial metrics in the last half of the year as well. We've estimated these negative impacts and they are factored into our reiterated guidance.

Speaker Change: At present, we believe that the impact from this bankruptcy may move us toward the lower end of our revenue guidance range.

Speaker Change: and we'll see how it impacts us as we move forward because that said it's possible that the bankruptcy will allow the customer to make payments in the second half of the year.

Robert A. Frist: And it's also possible that, you know, they've announced their divesting of facilities, that some of those divested facilities land in friendly places or places that also use our services, in which case we would be able to generate some business in the second half of the year. Those are potential mitigating factors, and we're not counting on them.

Speaker Change: and as we continue to provide service to them.

Speaker Change: And it's also possible that, you know, they've announced their divesting of facilities, that some of those divested facilities land in friendly places or places that also use our services, in which case we would be able to generate some of the business in the second half of the year.

Robert A. Frist: We expect this customer bankruptcy to have an ongoing negative impact on our financials this year. Again, it's factored into our reiterated guidance. Although I did note that we believe the impact may move us towards the lower end of our revenue guidance. Before we get any further on the call, I want to summarize our business for the benefit of anyone who is new to HealthStream's story. First and foremost, HealthStream is a health care technology company dedicated to developing, credentialing, and scheduling the health care workforce through SaaS-based solutions, each of which is becoming more valuable because of the interoperability they're achieving through our H-Stream technology platform.

Speaker Change: Those are potential mitigating factors, and we're not counting on them. We expect this customer bankruptcy to have an ongoing negative impact to our financials this year. And again, it's factored into our reiterated guidance. Although I did note that we believe the impact may move us towards the lower end of our revenue guidance range.

Robert A. Frist: Historically, we sell our solutions on a subscription basis under contracts that average three to five years in length, which makes our revenues recurring and predictable. In fact, 96% of our revenues are subscription-based. As I just mentioned, we've also started to open our sales channels directly to health care professionals and nursing students across the continuum of health care training. And we are profitable. We have no interest-bearing debt and a strong cash balance of $83 million. We're solely focused on health care, and more specifically, the health care workforce.

Speaker Change: Before we get any further in the call, I want to summarize our business for the benefit of anyone who is new.

Speaker Change: to HealthStream's story. First and foremost, HealthStream is a healthcare technology company dedicated to developing, credentialing,

Speaker Change: and Scheduling Healthcare Workforce.

Speaker Change: through SAS-based solutions, each of which are becoming more valuable because of the interoperability they're achieving through our H-TREME technology platform.

Speaker Change: Historically, we sell our solutions on a subscription basis under contracts that average three to five years in length, which makes our revenues recurring and predictable. In fact, 96% of our revenues are subscription based.

Speaker Change: As I just mentioned, we've also started to open our sales channels directly to healthcare professionals and nursing students.

Speaker Change: across the continuum of healthcare training. We are profitable. We have no interest bearing debt and a strong cash balance of 83 million. We're solely focused on healthcare.

Robert A. Frist: The 12.3 million health care professionals and nursing students in the United States comprise the core addressable market for our SAS solutions. Before turning it over to our CFO, Scotty Roberts, I'd like to highlight some successes that we've achieved in each of these core application areas, learning, scheduling, credentialing, and accomplishments during the quarter. We made some really fantastic progress. Let's start with our learning application suite. We've got some exciting announcements for the second half of the year related to enhancing the capabilities of this very powerful area of our business, the learning application suite.

Speaker Change: and more specifically, the healthcare workforce. The 12.3 million healthcare professionals and nursing students in the United States comprise the core addressable market for our SAS solutions.

Speaker Change: Before turning it over to our CFO , Scotty Roberts, I'd like to highlight some successes that we've achieved in each of these core application areas, learning, scheduling, credentialing.

Speaker Change: accomplishments during the quarter, made some really fantastic progress.

Speaker Change: Let's start with our Learning Application Suite. We've got some exciting announcements in the second half of the year related to enhancing the capabilities of this very powerful area of our business, the Learning Application Suite.

Robert A. Frist: The HealthStream Learning Center application is the flagship product and continues to be strong in the market. Importantly, when the HealthStream Learning Center is up for renewal, it frequently presents customers an opportunity to purchase multiple new solutions along with it, which results in an expanding wallet share. We've talked about that on previous calls.

Speaker Change: The HealthStream Learning Center application is the flagship product.

Speaker Change: and continues to be strong in the market. Importantly, when the HealthStream Learning Center is up for renewal, it frequently presents customers an opportunity to purchase multiple new solutions along with it.

Robert A. Frist: And I want to give an example of expanding wallet share that happened on a HealthStream Learning Center renewal in the second quarter. One of our West Coast customers used their renewal of the HealthStream Learning Center as an opportunity to add additional products to those they were already using, including the adoption of our new Insights Plus reporting and analytics tool. Due to the growth of their organization, they also added approximately 5,400 users to their base of 22,000, so meaningful growth there. The new five-year agreement includes a 3.5% pricing escalator, and that's new.

Speaker Change: This results in expanding wallet share. We've talked about that on previous calls. And I want to give an example of expanding wallet share that happened on HealthStream Learning Center renewal in the second quarter.

Speaker Change: One of our West Coast customers used their renewal of the HealthStream Learning Center as an opportunity to add additional products to those they were already using.

Speaker Change: including the adoption of our new Insights Plus reporting and analytics tool.

Speaker Change: Due to the growth of their organization, they also added approximately 5,400 users to their base of 22,000. So, meaningful growth there. The new five-year agreement includes 3.5% pricing escalator, and that's new. We're really working hard now to...

Robert A. Frist: We're really working hard now to build pricing escalators into renewal contracts, and in this case, we did a 3.5% annual pricing escalator. And that's going to give us a nice line of sight into year-over-year growth. The annual recurring revenue from this renewal increased 111% from approximately $376,000 to $795,000, making this a really good example of expanding wallet share in our existing customer base. Now, let's move to our scheduling application suite. We believe that our SaaS application, known as ShiftWizard, is the best scheduling solution in health care and that it will only become more valuable to customers as it begins to integrate with other applications through our HStream technology platform.

Speaker Change: work pricing escalators into renewal contracts. In this case, we did, it's 3.5% annual pricing escalator. And that's gonna give us some nice line of sight into year over year growth.

Speaker Change: The annual recurring revenue from this renewal increased 111% from approximately $376,000 to $795,000, making this a really good example of expanding wallet share in our existing customer base.

Speaker Change: Let's move to our Scheduling Application Suite. We believe that our SaaS application, known as ShiftWizard, is the best scheduling solution in healthcare and that it will only become more valuable to customers as it begins to integrate with other applications through our HStream technology platform.

Robert A. Frist: In the second quarter, revenues from ShiftWizard grew 34% over the prior quarter as customers continue to report high customer satisfaction with this application. As of the second quarter of 2024, ShiftWizard has become the largest revenue generator in our portfolio of scheduling products and services, including legacy applications like ANSOS and Enterprise Visibility. So it's a nice milestone during the second quarter for the go-forward application to become bigger in revenue than all the other legacy applications in the portfolio, the family of products we call our scheduling family of products. So that's an exciting kind of milestone that's achieved during the second.

Speaker Change: In the second quarter, revenues from ShiftWizard grew 34% over the prior quarter as customers continued to report high customer satisfaction with this application.

Speaker Change: As of the second quarter of 2024, ShiftWizard has become the largest revenue generator in our portfolio of scheduling products and services, and that includes legacy applications like Ansos and Enterprise Visibility.

Speaker Change: So it's a nice milestone during the second quarter for the GoForward application to become bigger in revenue mass than all the other legacy applications in the portfolio, the family of products we call our scheduling family of products.

Robert A. Frist: We contracted a number of great new customers to shift living in the quarters, such as Stillwater Medical Center, Mary Free Bed Rehabilitation, Roseville Park, and Reed Hospital are really nice examples of the expansion of. I'll wrap up this portion of the call with an update on our credentialing solutions. I also enjoyed a successful quarter, both in terms of competitive takeouts and conversions from our legacy solutions to CredentialStream. So, as reported on the G2 website, CredentialStream is a best-in-class solution for credentialing, privileging, and enrolling physicians.

Speaker Change: So, that's an exciting kind of milestone that was achieved during the second quarter. We contracted a number of great new customers to Shift Wizard in the quarter, such as Stillwater Medical Center, Mary Free Bed Rehabilitation, Roseville Park, and Reed Hospital are really nice examples of the expansion of Shift Wizard.

Speaker Change: I'll wrap up this portion of the call with an update on our credentialing solutions. I also enjoyed a successful quarter, both in terms of competitive takeouts and conversions from our legacy solutions to CredentialStream.

Speaker Change: So, as reported on the G2 website, CredentialStream is best-in-class solution for credentialing privileging and enrolling physicians. In the second quarter, CredentialStream added 34 new customer organizations.

Robert A. Frist: In the second quarter, CredentialStream added 34 new customer organizations, where approximately 65% of these customers were new, and 35% were migrations from our legacy credentialing applications, which, you know, we really like to see when they move up from the legacy applications to the CredentialStream application suite. Representative of these CredentialStream customers in the second quarter are many highly respected health care organizations, like Baptist South Florida, Oregon Health and Science Medicine, Penn Medicine, and Pine Rest Christian Mental Health. So, a really nice broad spectrum of new customers, 34 in the quarter. And that's interesting because that kind of matches the growth profile of that application at 34% as well. So, 34 and 34. It's fantastic.

Speaker Change: where approximately 65% of these customers were new and 35% were migrations from our legacy credentialing applications, which we really like to see that when they move up from the legacy applications to the credential stream application suite.

Speaker Change: Representative of these CredentialStream customers in the second quarter are many highly respected healthcare organizations like Baptist South Florida, Oregon Health and Science Medicine, Penn Medicine,

Speaker Change: and Pine Rest Christian Mental Health. So.

Speaker Change: Really nice broad spectrum of new customers, 34 in the quarter. And that's interesting because that kind of matches the growth profile of that application at 34% as well. So 34 and 34, it's fantastic.

Robert A. Frist: Good results, team. Turn it over to Scotty Roberts for the review of the financials, and he'll come back to me, and as promised, we'll give a platform update on HStream, the platform, and we'll talk about a new market that's emerging for one of our exciting products, CredentialStream. We'll hit both those in the end.

Scott Alexander Roberts: Good results, team. Turn it over to Scotty Roberts for the review of the financials, and he'll come back to me. And as promised, we'll get a platform update on HStream, the platform. And we'll talk about a new market that's emerging for one of our exciting products, CredentialStream. We'll hit both of those in the end. I'll turn it over to Scotty for a few minutes.

Scott Alexander Roberts: I'll turn it over to Scotty for that. All right, thanks, Bobby, and good morning, everyone. So I'd like to begin my comments about the quarter's results by quantifying the customer bankruptcy matter and the negative impact it had on our results for the quarter. As Bobbie described a few moments ago, one of our customers filed for bankruptcy protection in the second quarter, and at the time, we had over a million dollars of receivables owed by the customer, which led to us recording an operating loss of approximately $1 million during the quarter.

Scott Alexander Roberts: Alright, thanks Bobby and good morning everyone. So I'd like to begin my comments about the quarter's results by quantifying the customer bankruptcy matter and the negative impact it had on our results for the quarter.

Scott Alexander Roberts: To be clear, there was no impact on revenue in the second quarter, as the loss related to uncollected fees prior to their bankruptcy filing. Due to the ongoing uncertainty about this customer's future and given they announced a plan to divest many of their facilities, we have factored the potential lost revenues of $1 million and lost profits of about half a million dollars into our financial expectations for the second half of the year. To recap, the customer bankruptcy negatively impacted the second quarter's operating income by $1 million.

Scott Alexander Roberts: As Bobby described a few moments ago, one of our customers filed for bankruptcy protection in the second quarter, and at the time we had over a million dollars of receivables owed by the customer, which led to us recording an operating loss of approximately one million dollars during the quarter.

Speaker Change: To be clear, there was no impact on revenue in the second quarter, as the loss related to uncollected fees prior to their bankruptcy filing.

Speaker Change: Due to the ongoing uncertainty about this customer's future, and given they announced a plan to divest many of their facilities, we have factored the potential lost revenues of $1 million and lost profits of about half a million dollars into our financial expectations for the second half of the year.

Speaker Change: To recap, the customer bankruptcy negatively impacted the second quarter's operating income by $1 million, net income by $0.8 million, earnings per share by $0.02 per share, and adjusted EBITDA by $1 million.

Scott Alexander Roberts: Net income by $0.8 million, earnings per share by $0.02 per share, and adjusted EBITDA by $1 million. So now, with that said, I'll now go over the results for the quarter. Unless otherwise noted, the comparisons will be against the same period of last year. Revenues for the quarter were $71.6 million, up 3.4%. Operating income was $4.4 million, up 10.1%. Net income was $4.2 million, up 0.8%. Earnings per share were $0.14 per share, up from $0.13 per share, and adjusted EBITDA was $15.8 million, which was up 3.3%.

Speaker Change: So now with that said, I'll now go over the results for the quarter. Unless otherwise noted, the comparisons will be against the same period of last year.

Speaker Change: Revenues for the quarter were $71.6 million, up 3.4%. Operating income was $4.4 million, up 10.1%.

Speaker Change: Net income was $4.2 million, up 0.8%. Earnings per share were $0.14 per share, up from $0.13 per share. And adjusted EBITDA was $15.8 million and was up 3.3%.

Scott Alexander Roberts: Our revenues increased by $2.4 million, or 3.4%, coming in at $71.6 million compared to $69.2 million in last year's second quarter. Revenues from our subscription products accounted for 96% of total revenues and were $69 million, increasing by $2.5 million, or 3.8%, and professional services revenues were $2.5 million and declined by $1.1 million, or 5.5%. There are a few puts and calls on revenue that I want to provide some more color on

Speaker Change: Our revenue has increased by $2.4 million or 3.4%, coming in at $71.6 million compared to $69.2 million in last year's second quarter.

Speaker Change: Revenues from our subscription products accounted for 96% of total revenues and were $69 million, increasing by $2.5 million or 3.8%, and professional services revenues were $2.5 million and declined by $1.1 million or 5.5%.

Scott Alexander Roberts: First, the impact of the consumption variance from one of our larger accounts was approximately half a million dollars. Specifically, their consumption declined by this much compared to the first quarter, so it was a timing variance against the run rate that we expected.

Speaker Change: There are a few puts and calls on revenue that I want to provide some more color on.

Speaker Change: First, the impact of the consumption variance from one of our larger accounts was approximately half a million dollars, specifically their consumption declined by this much compared to the first quarter, so it was a timing variance against the run rate that we expected.

Scott Alexander Roberts: As Bobby mentioned earlier, we believe this decrease in consumption was an anomaly that will generally normalize and correct over the course of the last half of the year. Overall revenue from our scheduling application, ShiftWizard, grew 34% over the prior year quarter. Our subscription revenue from ShiftWizard grew by 18%, and its one-time implementation services revenue grew by 145% over the last year. While we place a premium value on subscription revenue over time, the strong services revenue from ShiftWizard is a positive indicator, as it generally comes with implementation fees, meaning we were busy implementing new ShiftWizard customers in the quarter.

Speaker Change: As Bobby mentioned earlier, we believe this decrease in consumption was an anomaly that will generally normalize and correct over the course of the last half of the year.

Bobby: Overall revenue from our scheduling application, Shift Wizard, grew 34% over the prior year quarter.

Bobby: Our subscription revenue from ShiftWizard grew by 18% and its one-time implementation services revenue grew 145% over the last year.

Bobby: While we place a premium value on subscription revenue over time, the strong services revenue from ShiftWizard is a positive indicator, as it generally comes with implementation fees, meaning we were busy implementing new ShiftWizard customers in the quarter.

Scott Alexander Roberts: And once these customers are implemented, that's when they begin contributing to the subscription-based revenue. The counter to ShiftWizard's strong growth is ongoing attrition from the Ansoff scheduling products, which declined by 600,000, or 15% versus last year.

Bobby: And once these customers are implemented, that's when they begin contributing to the subscription-based revenue.

Speaker Change: The counter to ShiftWizard's strong growth is an ongoing attrition from the Ansoff scheduling products, which declined by 600,000 or 15% versus last year.

Scott Alexander Roberts: For example, within our scheduling application suite, the ANSOS attrition almost fully offset the solid growth that we achieved from ShiftWizard. And lastly, our initiative to sell directly to professionals through our e-commerce channels delivered approximately $0.8 million of revenue in the quarter, which is up by 41% over the first quarter. Our remaining performance obligations were $538 million as of the end of the second quarter, which compares to $511 million for the same period last year.

Speaker Change: For example, within our scheduling application suite, the ANSOFF attrition almost fully offset the solid growth that we achieved from ShiftWizard.

Speaker Change: And lastly, our initiative to sell directly to professionals through our e-commerce channels delivered approximately .8 million of revenue in the quarter, which is up by 41% over the first quarter.

Speaker Change: Our remaining performance obligations were $538 million as of the end of the second quarter, which compares to $511 million for the same period of last year.

Scott Alexander Roberts: And we expect approximately 43% of the revenue backlog to be converted over the next 12 months. Gross margin came in at 66.8% compared to 65.9% last year, and this improvement is primarily due to the growth in revenues while our costs increased by less than 1%. Operating expenses, excluding the cost of revenues, increased by 4.3 percent, and most of this year-over-year increase was from product development, which was up 9.5 percent, while G&A costs were up 5.4 percent and were primarily impacted by the bad debt charges that I previously mentioned.

Speaker Change: And we expect approximately 43% of the revenue backlog to be converted over the next 12 months.

Speaker Change: Gross margin came in at 66.8% compared to 65.9% last year and this improvement is primarily due to the growth in revenues while our costs increased by less than 1%.

Speaker Change: Operating expenses excluding cost of revenues increased by 4.3% and most of this year-over-year increase was from product development, which was up nine and a half percent, while G&A costs were up 5.4% and were primarily impacted by the bad debt charges that I previously mentioned.

Scott Alexander Roberts: Adjusted EBITDA was $15.8 million, which is up 3.3%, and the adjusted EBITDA margin was 22.1% compared to 22.2% last year. Now, let's take a look at the balance sheet metrics. We ended the quarter with cash and investment balances at $83 million, down slightly from $83.7 million last quarter. During the quarter, we deployed $6.7 million for capital expenditures and paid $0.8 million to shareholders through our dividend program. We also made $5.5 million in income tax payments in the quarter. For comparison purposes, in last year's second quarter, our income tax payments were $2.5 million.

Speaker Change: Adjusted EBITDA was $15.8 million which is up 3.3% and adjusted EBITDA margin was 22.1% compared to 22.2% last year.

Speaker Change: Now let's take a look at the balance sheet metrics. We ended the quarter with cash and investment balances of $83 million, down slightly from $83.7 million last quarter.

Speaker Change: During the quarter, we deployed $6.7 million for capital expenditures and paid $0.8 million to shareholders through our Dividend Program.

Speaker Change: We also made $5.5 million of income tax payments in the quarter, and for comparison purposes, in last year's second quarter, our income tax payments were $2.5 million.

Scott Alexander Roberts: Our day sales outstanding improved to 45 days, compared to 50 days last year, which is a positive result despite the bad debt charges from the customer bankruptcy that we just mentioned earlier. Year-to-date, our cash flows from operations were up 7% over the prior year, coming in at $27.4 million, and free cash flows improved by $2.1 million, or 20%, and were $12.9 million. With a strong balance sheet containing $83 million of cash and no debt, we are well positioned to deploy our available capital in a variety of ways to improve shareholder value, including pursuing acquisitions, paying dividends, or making share repurchases.

Speaker Change: Our day sales outstanding improved to 45 days compared to 50 days last year, which is a positive result despite the bad debt charges from the customer bankruptcy that we just mentioned earlier.

Speaker Change: Year-to-date, our cash flows from operations were up 7% over the prior year, coming in at $27.4 million, and free cash flows improved by $2.1 million, or 20%, and were $12.9 million.

Speaker Change: With a strong balance sheet containing $83 million of cash and no debt, we are well positioned to deploy our available capital in a variety of ways.

Speaker Change: to improve shareholder value, including pursuing acquisitions, paying dividends, or making share repurchases.

Scott Alexander Roberts: From an M&A perspective, we maintain an active pipeline and continue to evaluate opportunities that fit our criteria, which include industry, product, and financial, among others. In respect to our dividend program, yesterday, our Board of Directors declared a quarterly cash dividend of $0.28 per share to be paid in August, and we currently don't have an active share repurchase program in place.

Speaker Change: From an M&A perspective, we maintain an active pipeline and continue to evaluate opportunities that fit our criteria, which include industry, product, and financial, among others.

Speaker Change: In respect to our dividend program, yesterday our Board of Directors declared a quarterly cash dividend of $5,000.

Speaker Change: .28 cents per share to be paid in August .

Scott Alexander Roberts: Now, moving on to guidance, as I mentioned in my opening remarks, we factored in the expected lost revenue and profits associated with the customer bankruptcy into our assumption. We continue to expect that consolidated revenues will range between $292 and $296 million, though given what I just said, we expect the bankruptcy impact may tend to move us towards the lower end of our revenue guidance range. We expect net income to range between $16.7 and $18.6 million, adjusted EBITDA to range between $64.5 and $67.5 million, and capital expenditures to range between $28 and $30 million. This guidance does not include assumptions for any acquisitions that we may complete during the year.

Speaker Change: And we currently don't have an active share repurchase program in place.

Speaker Change: Now moving on to guidance, as I mentioned in my opening remarks, we factored in the expected lost revenue and profits associated with the customer bankruptcy into our assumptions.

Speaker Change: We continue to expect that consolidated revenues will range between $292 and $296 million, though given what I just said, we expect the bankruptcy impact may tend to move us towards the lower end of our revenue guidance range.

Speaker Change: We expect net income to range between $16.7 and $18.6 million, adjusted EBITDA to range between $64.5 and $67.5 million, and capital expenditures are expected to range between $28 and $30 million.

Speaker Change: This guidance does not include assumptions for any acquisitions that we may complete during the year.

Scott Alexander Roberts: Now, looking at the second half of the year, we expect sequential quarterly growth in our revenue and the combination of working through the backlog of contracts that we've sold but not implemented, particularly within our credentialing and scheduling application suite, as well as revenue contributions from strong bookings that they experienced at the end of the second quarter. The solid sales pipeline and the catch-up from the consumption shortfall in Q2 are factored into our Revenue Guidance Rank. So that concludes my comments for this quarter's earnings call. Thanks for your time this morning, and I'll now turn it back over to Bobby for some additional updates. Thank you, Scotty.

Speaker Change: Now, looking to the second half of the year, we expect sequential quarterly growth in our revenue and a combination of working through the backlog of contracts that we've sold but not implemented, particularly within our credentialing and scheduling application suites.

Speaker Change: Revenue contributions from strong bookings that they experienced at the end of the second quarter.

Speaker Change: a solid sales pipeline, and the catch-up from the consumption shortfall in Q2 are factored into our revenue guidance range.

Speaker Change: So that concludes my comments for this quarter's earnings call. Thanks for your time this morning, and I'll now turn it back over to Bobby for some additional updates.

Robert A. Frist: We'll wrap up here with a platform update, as I mentioned, and a new market that we're beginning to pursue with our credential stream application. At this time, we'll talk about some key hStream platform initiatives. Overall, our focus is to cement our position as healthcare's people platform. We believe there is a place alongside the ERP vendors and the EHR systems for an integrated set of application suites providing functionality specific to the needs of healthcare organizations and their workforce. The management of and development of their people.

Bobby: Thank you, Scotty. We'll wrap up here with a platform update, as I mentioned, and a new market that we're beginning to pursue with our Credential Stream application. At this time, let's talk about some key HStream platform initiatives.

Bobby: If you think overall our focus is to cement our position as healthcare's people platform. We believe there is a place alongside the ERP vendors and the EHR systems for an integrated set of application suites providing functionality specific to the needs of the healthcare organizations and their workforce.

Robert A. Frist: At the center of our strategy is building a platform that we call HStream. That provides the foundation for these application suites as well as some applications and analytics that overlay and enrich those. The primary way we monetize this platform today is through three subscription products, one for each of our application suites in Learning, Credentialing, and Scheduling. We have sold HStream for Learning and HStream for Credentialing for several years, and we introduced HStream for Scheduling in late 2023.

Bobby: the management of and development of their people. At the center of our strategy is building a platform that we call HStream. That provides the foundation for these application suites as well as some applications and analytics that overlay and enrich those suites.

Bobby: The primary way we monetize this platform today is through three subscription products, one for each of our application suites in Learning, Credentialing, and Scheduling.

Bobby: We have sold HStream for Learning and HStream for Credentialing for several years, and we introduced HStream for Scheduling in late 2023.

Robert A. Frist: Since then, we have been selling HStream for Scheduling with our core scheduling product, ShiftWizard. Each of these subscription products provides customers access to the HStream platform and exclusive applications, services, content, and other benefits that come with that subscription. We continue to add new benefits to each of these three HStream packages. The key component of both our platform strategy and the functioning of the platform itself is having a single identifier for all those individuals in our ecosystem. We call this their H-Stream ID.

Bobby: Since then, we have been selling H-Train for Scheduling with our core scheduling product, ShiftWizard.

Bobby: Each of these subscription products provides customers access to the H-Stream platform and exclusive applications, services, content, and other benefits that come with that subscription. We continue to add new benefits to each of these three H-Stream packages.

Bobby: A key component of both our platform strategy and the functioning of the platform itself

Bobby: is having a single identifier for all those individuals in our ecosystem.

Robert A. Frist: We continue to increase the number of individuals with H-Stream IDs, in significant part by adding H-Stream ID functionality to more of our own applications. For example, in April of 2023, we began requiring students using our MyClinicalExchange application to create or add an HStream ID. And we have added over 110,000 new HStreamIDs through the MyClinicalExchange app since that time. Of our initial 23 internal applications that are candidates for integration with HStreamID, 14 now have some integration using the HStreamID as native login or enabling a user to link an HStreamID, for and in the process of actively developing HStream integration, and the remaining five at Bapstream Integration on their near-term roadmap.

Bobby: We call this their HStreamID. We continue to increase the number of individuals with HStreamIDs, in significant part by adding HStreamID functionality to more of our own applications.

Bobby: For example, in April of 2023, we began requiring students using our MyClinicalExchange application to create or add an HStream ID.

Bobby: And we have added over 110,000 new HTM IDs through the myClinicalExchange app since that time.

Bobby: of our 23 internal applications that are candidates for integration with HStreamID.

Bobby: 14 now have some integration, using HStreamID as native login or enabling a user to link HStreamID.

Bobby: for and the process of actively developing HStream integration.

Robert A. Frist: Another key component of our platform strategy and the functioning of the platform itself is centralizing certain functional domains, particularly around people, into platform services and APIs. Currently, we have three of these services live—the Professional License Service and API, the Professional Certification Service and API, and the Learning Transcript Service and API. Each of these services and APIs acts as both a clearinghouse and a source of validation or verification for the data within. For example, all applications can write professional licenses to the Professional License Service or read licenses from it.

Bobby: and the remaining five at Bapstream Integration on their near-term roadmaps.

Robert A. Frist: The service is also connected to our Validate service and API so that licenses may be verified from a primary source against thousands of official employees. Rather than have this functionality scattered and managed by each individual application, it is now a shared service. We're adding large numbers of licenses, certifications, and Learning Events to these services, and we are continuing to build out other services in the people domains like education history, work history, volunteer activities, and others. We expose access to these services and APIs through our HStream Developer Portal.

Bobby: Another key component of our platform strategy and the functioning of the platform itself is centralizing certain functional domains, particularly around people, into platform services and APIs.

Bobby: Currently, we have three of these services live.

Bobby: Professional License Service and API, Professional Certification Service and API, and a Learning Transcript Service and API.

Bobby: Each of these services and APIs acts as both a clearinghouse and a source of validation or verification for the data within. For example, all applications can write professional licenses to the Professional License Service or read licenses from it.

Bobby: The service is also connected to our Validate service and API so that licenses may be primary source verified against thousands of official endpoints.

Bobby: Rather than have this functionality scattered and managed by each individual application, it is now shared service.

Bobby: We're adding large numbers of licenses, certifications.

Bobby: and learning events to these services.

Bobby: And we are continuing to build out other services in the people domains, like education history, work history, volunteer activities, and others.

Bobby: We expose access to these services and APIs through our HStream Developer Portal. There are now 12 APIs and webhooks available on the portal, comprising hundreds of endpoints, enabling customers and partners to integrate and interact with most of our key applications.

Robert A. Frist: There are now 12 APIs and webhooks available on the portal, comprising hundreds of endpoints, enabling customers and partners to integrate and interact with most of our key applications. Since its launch at the end of 2022, nearly 400 developers representing over 120 customer organizations have been permitted access to the developer portal. These developers and organizations have built nearly 30 live integrations, with another 30 integrations in development. These integrations tie our applications to other key applications like ERP and EHR systems in ways that make our applications mission critical and essential to key workflows.

Speaker Change: Since its loss at the end of 2022, nearly 400 developers representing over 120 customer organizations have been permitted access to the developer portal. These developers and organizations have built nearly 30 live integrations, with another 30 integrations in development.

Speaker Change: These integrations tie our applications to other key applications, like ERP and EHR systems, in ways that make our applications mission-critical and essential to key workflows. We continue to add APIs to the portal and engage with more customers and developers in the portal.

Robert A. Frist: We continue to add APIs to the portal and engage with more customers and developers in the portal. Shifting gears, another exciting update today I want to share is that our credentialing business is expanding to address the health plan market. And some of you asked in previous quarters because we announced the win at Blue Cross Blue Shield of Arkansas, will we be pursuing the market? I guess I'm here today to say yes.

Speaker Change: Another, shifting gears, another exciting update today I want to share is that our credentialing business

Speaker Change: is expanding to address the health plan market. And some of you asked in previous quarters because we announced the win at Blue Cross Blue Shield of Arkansas, would we be pursuing the market? I guess I'm here today to say yes. It's early stages, but we have signed 10 health plans.

Robert A. Frist: It's early stages, but we have signed 10 health plans in the last, say, two years, including the Blue Cross Blue Shield of Arkansas that I mentioned, but also some health plans attached to health systems, like the Banner Health Plan and the Providence Health Plan. And our tailored solution for this market is called Network by HealthStream, and it offers the industry's only network relationship management system, we call it NRM. In the future, we believe HealthStream will be in a unique position to connect payers and healthcare systems in a way that will enhance the credentialing and verification abilities of both.

Speaker Change: in the last, say, two years, including the Blue Cross Blue Shield of Arkansas that I mentioned, but also some health plans attached to health systems like the Banner Health Plan, the Providence Health Plan. And our tailored solution for this market is called Network by HealthStream.

Speaker Change: and it offers the industry's only network relationship management system, we call it NRM. In the future, we believe HealthStream will be in a unique position to connect payers and healthcare systems in a way that will enhance the credentialing and verification abilities of both.

Robert A. Frist: We're planning an expanded marketing approach for Network, the product by HealthStream, later this year, and to the extent we begin to see greater market expansion, the health plan market will update you later in the year. For now, I'll just note that we're excited to be addressing this new set of buyers. And obviously, we've made some progress with the 10 accounts that we've already secured, or the network product. However, I will also note that the large majority of the revenue from our sales to helpline customers is yet to be recognized as these are new sales, and we're still in the process of implementing them.

Speaker Change: We're planning an expanded marketing approach for Network, the product by HealthStream, later this year. And to the extent we begin to see greater market expansion, the health plan market will update you later in the year. For now, I'll just note that we're excited to be addressing this new set of buyers.

Speaker Change: And obviously we've made some progress with the 10 accounts that we've already secured.

Speaker Change: or the network product. I'll also note the large majority of the revenue from our sales to health plan customers is yet to be recognized as these are new sales and we're still in the process of implementing them. Again, another competence factor as we enter the second half of the year.

Robert A. Frist: Again, another competence factor as we enter the second half of the year. You know, as I think about summarizing, I'd say kind of to profile our company, and before we go to questions, if you're, if you, the investors are interested in a profitable, highly-recurring revenue, SaaS, PaaS, healthcare technology company, expect to deliver steady growth, and is determined to share some of its gains directly with shareholders in the form of a dividend, maybe HealthStream is a good company and stock for you to look at.

Speaker Change: So, you know, as I think about summarizing, I'd say, kind of to profile our company and before we go to questions, if you're, if you, the investors, are interested in a profitable

Speaker Change: Highly Recurring Revenues, SASPAS, Healthcare Technology Company. They expect to deliver steady growth and is determined to share some of its gains directly with shareholders in the form of a dividend. Maybe HealthStream is a good company in stock for you to look at.

Robert A. Frist: I want to close by sharing that in June, HealthStream was ranked as the ninth best company to work for among U.S. health services companies by U.S. News & World Report. The panel of experts who selected us for this prestigious recognition weighed the comments and sentiments from our employees heavily in their analysis.

Speaker Change: I want to close by sharing that in June , HealthStream was ranked as the ninth best company to work for among U.S. health services companies by U.S. News & World Report.

Speaker Change: The panel of experts who selected us for this prestigious recognition weighed the comments and sentiments from our employees heavily into their analysis. So I want to thank all of our employees for making HealthStream

Robert A. Frist: So, I want to thank all of our employees for making HealthStream our company culture a very positive one, as we work together to improve the quality of healthcare by developing the people who deliver care. I'll turn it back over to the operator for Q&A, and Scotty is on board to help answer questions. Thank you, sir. The question and answer session will begin at this time. If you are using a speakerphone, please pick up the handset before pressing any numbers.

Speaker Change: Our company culture is a very positive one, as we work together to improve the quality of health care by developing the people who deliver care. I'll turn it back over to the operator for Q&A, and Scotty is on board to help answer questions.

Speaker Change: Thank you, sir. The question and answer session will begin at this time. If you are using a speakerphone, please pick up the handset before pressing any numbers. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.

Operator: To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Your questions will be taken in the order they are received. Please stand by while we compile our Q&A list. And our first question is going to come from the line of Matt Hewitt with Craig Hallam. Your line is open. Please go ahead.

Speaker Change: Your questions will be taken in the order that they are received. Please stand by while we compile our Q&A roster.

Speaker Change: And our first question is going to come from the line of Matt Hewitt with Craig Hallam. Your line is open, please go ahead.

Matthew Gregory Hewitt: Good morning, and congratulations on the progress. Maybe first up, just because it's front of mind for a lot of people, on the CrowdStrike situation. Obviously, there's been a lot of commentary about hospitals being impacted. Was there any impact for HealthStream directly? And, you know, what are you hearing from customers? And are they able to get back up and running here quickly?

Matthew Gregory Hewitt: Good morning and congratulations on the progress. Maybe first up, just because it's front of mind for a lot of people, on the CrowdStrike situation, obviously there's been a lot of commentary about hospitals being impacted. Was there any impact for HealthStream directly? And, you know, what are you hearing from customers? And are they able to get back up and running here quickly?

Robert A. Frist: Great question. From our perspective, the impact was minimal on us, and therefore, I guess, by extrapolation as it relates to our products and our customers, we did find one or two or a few isolated cases where it was impactful, but I think we were able to work through that fairly quickly. And so I haven't gotten the full briefing from our team, but the first quick reports were that the impact on our base as it relates to the use of our products was minimal and almost nonexistent across our broader network. That's great.

Speaker Change: Great question. From our perspective, the impact was minimal on us.

Speaker Change: And, therefore, I guess by extrapolation, as it relates to our products, our customers,

Speaker Change: We did find a few isolated cases where it was impactful, but I think we were able to work through that fairly quickly.

Speaker Change: And so I haven't gotten the full briefing from our team, but the first quick reports were that the impact on our base, as it relates to the use of our products, was minimal and almost nonexistent across our broader network.

Matthew Gregory Hewitt: And then, kind of following up on your last commentary there about the network by HealthStream, how much does that increase your end market opportunity? I mean, I think the last count was up to like 8 million potential employees that could be using one or more applications from HealthStream. This obviously expands the market, but how should we be thinking about the size of that opportunity? We haven't really scoped it out yet.

Speaker Change: That's great. And then, kind of following up on your last commentary there about the network by HealthStream, how much does that increase your end market opportunity? I mean, I think the last count we were up to like 8 million potential employees that could be using one or more applications from HealthStream. This obviously expands that market, but how should we be thinking about size of that opportunity?

Robert A. Frist: We're working on that as we recalibrate our launch. We've got initial success, as we mentioned, in 10 locations, mostly health plans attached to health systems currently, but Blue Cross Blue Shield of Arkansas and several in the pipeline, we feel good about our opportunity there. We'll work on quantifying. We intentionally didn't add it yet to our TAM.

Speaker Change: We haven't really scoped it yet. We're working on that as we recalibrate our launch. We've got initial success, as we mentioned, in 10 locations, mostly health plans attached to health systems currently, but

Speaker Change: that Blue Cross Blue Shield of Arkansas.

Matthew Gregory Hewitt: We want to see it progress a little more, but it's an official target of our marketing team. We've tailored the product and rebranded it. I guess we'll report on how it impacts the way we think about TAM in the coming quarters. Thanks for the question. Got it. And maybe one last one. I'll hop back in the queue.

Speaker Change: and several in the pipeline, we feel good about our opportunity there.

Speaker Change: We'll work on quantifying. We intentionally didn't add it yet to our TAM.

Speaker Change: We want to see it progress a little more, but it's an official target of our marketing team. We've tailored the product and rebranded it. I guess we'll report on how it impacts the way we think about TAM in the coming quarters. Thanks for the question, though.

Robert A. Frist: But I think you mentioned the West Coast customer that you called out with the price escalator, three and a half percent increase with the renewal. Is it fair to look broadly across your customers and, maybe, on an annualized basis, looking at those for which that price is a component? And how should we be thinking about it?

Speaker Change: Got it. And maybe one last one, I'll hop back in the queue. But I think you mentioned the West Coast customer that you called out with the price escalator, three and a half percent increase with the renewal.

Speaker Change: Is it fair to look at broadly across your customers and maybe on an annualized basis looking at those, that price is a component?

Speaker Change: And how should we be thinking about it, you know, is 3% as kind of a base growth for your revenues? And then obviously the cross-selling and the new opportunities with new customers and all of that, that is what can get you back to maybe a double-digit type growth rate on the top line?

Robert A. Frist: You know, 3% is kind of a base growth for your revenues. And then obviously, the cross-selling and the new opportunities with new customers and all of that, that can get you back to maybe a double-digit type growth rate on the top line. Well, it could be a component of, of course, adding to our growth. We've never really used escalators at any scale at all across all of our contracting.

Speaker Change: Well, it could be a component of, of course, adding to our growth. We've never really used escalators at any scale at all across all of our contracting.

Robert A. Frist: Our pricing models are based on term. They get a discount for term and a discount for volume commitment. So term and volume have been our primary drivers, which, as you can imagine, a tech firm generally has a slight downward pressure as people grow and add volume or agree to add term to their contracts. This is new; it took us over a year of planning to roll out the escalator model. You know, it includes educating your sales teams, changing your legal documents, and teaching them how to negotiate renewals that include price escalators.

Speaker Change: Our pricing models are based on term. They get a discount per term.

Speaker Change: at a discount for volume commitment. So term and volume have been our primary drivers, which.

Speaker Change: As you can imagine, a tech firm generally has a slight downward pressure as people grow and add volume.

Speaker Change: or agree to add terms to their contracts.

Speaker Change: This is a new, it took us over a year of planning to roll out the Escalator model. It includes educating your sales teams.

Robert A. Frist: And what I'd say is that a very, very low sub-sub single digit, you know, in the single digits, low single digits of our contracts even have escalators at all. Now, we signed three to five year agreements. And so, you know, escalators can only be introduced as renewals come up, and they take place over time.

Scott Alexander Roberts: Scott Roberts, Robert Frist

Scott Alexander Roberts: Now, we've signed three- to five-year agreements.

Scott Alexander Roberts: And so escalators can only be infused as renewals come up.

Scott Alexander Roberts: And they take place over time. And so I think it's going to take several years to have a really meaningful impact. But it's nice that we're beginning to work it into our ether, the way we operate now. And we've been able to put dozens and dozens of contracts.

Robert A. Frist: And so I think it's going to take several years to have a really meaningful impact, but it's nice that we're beginning to work it into our ether, the way we operate now. And we've been able to put dozens and dozens of contracts in place, given our training and sales training and tools and automation and contracting fairly easily without much resistance from customers. I think they expect in some ways it helps them plan their budgets better than going three years and facing a bigger price increase.

Scott Alexander Roberts: given our training and sales training and tools and automation and contracting fairly easily without much resistance.

Robert A. Frist: And so, you know, those two things will play off each other, help us move our prices forward over time. What I would think of as a long-term slow catalyst to growth, not quite modelable yet because it's such a low, low, you know, not just single digits, but a low single digit number of contracts out of our 10, of our contract base have escalators built in. So, but we're looking forward to making it a standard practice.

Scott Alexander Roberts: from customers. I think they expect in some ways it helps them plan their budgets better than going three years and then facing a bigger price increase.

Scott Alexander Roberts: And so, you know, those two things will play off each other, help us move our prices forward over time. What I would think of as a long-term slow catalyst to growth.

Scott Alexander Roberts: Not quite modelable yet now, because it's such a low, low, you know, not just single digits, low single digit number of contracts of our 10, you know,

Scott Alexander Roberts: of our contract base have escalators built in. So, but we're looking forward to making it a standard practice. And so far, it's been received by customers well. And again, as I mentioned, in some ways, it helps them plan their budgets better in the coming years.

Robert A. Frist: And so far, it's been received by customers well. And again, as I mentioned, in some ways, it helps them plan their budgets better in the coming years. That's very helpful. Thank you.

Operator: Thank you, and one moment as we take our next question. And our next question comes from the line of Stephanie Davis with Barclays. Your line is open, please go ahead. Hi guys, this is Anna Kruszenski on behalf of Stephanie.

Speaker Change: That's very helpful. Thank you.

Speaker Change: Thank you and one moment as we take our next question.

Speaker Change: And our next question comes from the line of Stephanie Davis with Barclays. Your line is open. Please go ahead.

Anna Leigh Kruszenski: Congratulations on the quarter and thank you for taking our questions. The first one, I was wondering if you could talk about how you're thinking about the evolution of your sales force as you move to more of this cross-sales motion and just what sort of investments that will take and how are you incentivizing your sales force? Sure, great question. We feel that we have the sales organization about the size we need.

Speaker Change: Hi guys, this is Anna Kruszenski on for Stephanie. Congrats on the quarter and thank you for taking our questions.

Speaker Change: The first one, I was wondering if you could talk about how you're thinking about the evolution of your sales force as you move to more of this cross-sales motion, and just what sort of investments that will take, and how are you incentivizing your sales force?

Anna Leigh Kruszenski: Now, the nature of some of the positions may shift over time. For example, our current mix is, I believe, around, let's just say, 200 people that are focused on selling products. About 60 of them are what we call account managers, and they focus on growing the accounts, revenue per account, the product mix in the accounts, and identifying the multiple buyers in the accounts.

Speaker Change: Sure, great question. We feel that we have the sales organization about the size we need. Now, the nature of some of the positions may shift over time. For example,

Speaker Change: Our current mix is, I believe, around, let's just say, 200 people that are focused on selling products.

Speaker Change: About 60 of them are what we call account managers, and they focus on growing the accounts, revenue per account.

Robert A. Frist: And they, in turn, introduce the specialists, who are about 140 strong, spread across product categories. They tend to focus more on a specific buyer, and they know which parts of our broad and growing platform portfolio are applicable to that buyer. And so the account managers bring in the specialists. To your question, I don't imagine a future where we need really many more people.

Speaker Change: the product mix in the accounts, identifying the multiple buyers in the accounts.

Speaker Change: and they, in turn, introduced the specialists.

Speaker Change: that are about 140 strong spread across product categories. They tend to focus more on a specific buyer.

Speaker Change: and they know which parts of our broad and growing platform portfolio.

Speaker Change: are applicable to that buyer. And so the account managers bring in the specialists. To your question, I don't envision a future where we need really many more people. There's several trends that make me think that. Even if the sales pitch changes or the method changes, maybe we have a little higher ratio of account managers to salespeople over time.

Robert A. Frist: There are several trends that make me think that. Even if the sales pitch changes or the method changes, maybe we will have a little higher ratio of account managers to salespeople over time. Maybe commerce, our new e-commerce capabilities built into our platform, help relieve the burden, say, on salespeople of renewals so that they can focus on the new accounts more. And so, again, as e-commerce comes to help people automate renewals, more focus by those 200 people on acquiring new business can be instead of having a big part of the job being renewals. And so I think we're right at about the right investment level in our sales organization. Marketing is around 30 people, and I believe it is fairly stable from a rate of investment.

Speaker Change: maybe Commerce.

Speaker Change: Our new e-commerce capabilities built into our platform help relieve the burden, say, on salespeople of renewals so that the sales can focus on the new accounts more.

Speaker Change: But I think we have, and so again, the shift as e-commerce comes to help people automate renewals.

Speaker Change: more focused by those 200 people on acquiring new business can be instead of focusing on having a big part of the job being renewals. And so I think we're right at about the right investment level in our sales organization. Marketing is around 30 people, I believe, and

Robert A. Frist: We are increasing investment a little bit in building our commerce teams as our commerce capabilities provided by the H3 platform take hold. And you did just hear a 41% sequential growth in direct commerce sales, which we're super excited about. We went from half a million to nearly 800,000 between the first quarter and second quarter in commerce.

Speaker Change: fairly stable from a rate of investment. We are increasing investment a little bit in building our commerce teams as our commerce capabilities provided by the Atrium platform take hold. And you did just hear a 40

Speaker Change: which is 41% sequential growth in direct commerce sales.

Speaker Change: which we're super excited about going from half a million to nearly 800,000 between the first quarter and second quarter in commerce. So we added, for example, a merchandiser in our commerce team. So our commerce team is growing now.

Robert A. Frist: So we added, for example, a merchandiser to our commerce team. So our commerce team is growing now. But overall, I'd say around the 230 headcount, personnel, and talent is about right. You may see trade-offs over time, but between the types of roles we have, I think that's about the right size for the markets and the three core products we have today. Got it. Thank you for all that color.

Speaker Change: But overall, I'd say around the 230 headcount, personnel and talent is about right. You know, you may see tradeoffs over time, but between the types of roles we have, I think that's about the right size for the markets and the three core products we have today.

Robert A. Frist: That's super helpful. And then, just as a follow-up, I was wondering if you could talk more about how you're approaching the move to single sign-on and where you guys are in terms of tech investments and just how you're rolling that out to clients. Sure, as I mentioned, there are many, many exciting things about the platform we're building. Probably the central feature of it, though, that's kind of the most important thing: it'll distinguish us when it's fully deployed. I'll think of our software suites, instead of standalone SaaS applications, as a suite of suites, like integrated applications and data mobility across users across those suites.

Speaker Change: Got it. Thank you for all that color. That's super helpful. And then just as a follow-up, I was wondering if you could talk more about how you're approaching the move to a single sign-on and where you guys are in terms of tech investments and just how you're rolling that out to clients.

Speaker Change: Sure. As I mentioned, there are many, many exciting things about the platform we're building. Probably the central feature of it, though, that's kind of most important, it'll distinguish us

Speaker Change: When it's fully deployed, I'll think of our software suites, instead of a standalone SaaS application, as a suite of suites, like integrated applications.

Robert A. Frist: So, we're super excited. One of the central themes of why we're building a platform is this ID service. And as I called out during the call, you know, we're kind of midway through implementing this core service. There are other services I mentioned, like credential management and others, but the ID is a central function.

Speaker Change: and data mobility across users across those suites.

Speaker Change: We're super excited. So one of the central... Thank you.

Speaker Change: Themes of why we're building a platform is this ID service. And as I called out during the call, you know, we're kind of midway through implementing this core service. There are other services I mentioned like credential management and others, but the ID is a central function.

Robert A. Frist: And I called out that I believe, let me look at the number again, but about 14 of our 27 apps are implemented on HStream ID. So, you know, halfway might be a fair way to think about it. There's a lot to go there, but the tools are built. So, it's your concept of investment. We have a steady state of investment. We've built our platform development teams out. We've hired the senior leadership over the platform, and we're kind of making platform as a service as a product. And so, we have both a CTO and a senior vice president together on the platform. The development teams are in place, so we don't expect to have to add developers to further develop the platform.

Speaker Change: And I called out that I believe, let me look at the number again, but about 14 of our 27 apps are implemented on HStream ID.

Speaker Change: So, you know, halfway might be a fair way to think about it. There's a lot to go there, but the tools are built, so it's your concept of investment.

Speaker Change: We have a steady state of investment we've built.

Speaker Change: our platform development teams out, we've hired the senior leadership over the platform.

Speaker Change: platform kind of making platform as a service as a product and so we have both the CTO

Speaker Change: and a senior vice president together over the platform. The development teams are in place, so we don't expect to have to add developers to further develop the platform. It's more of a.

Robert A. Frist: It's more of a sequencing of the features of the platform that we're adding that's maybe more important, or building the platform in the right order. But again, I don't think we need to add more CapEx or add more to the platform. We could always use more. We'd love to build more faster, but I think we're at a steady state of releases and enhancements that I'm pretty excited about for the platform. I hope that answers your question, but, you know, there's a lot to do. The platform has many, many, many components, and that ID is just one of them.

Speaker Change: sequencing of the features of the platform that we're adding.

Speaker Change: that's maybe more important or building the platform in the right order. But again, I don't think we need to add more CapEx or more to the platform. We could always use more. We'd love to build more faster, but I think we're at a steady state of releases and enhancements that I'm pretty excited about for the platform.

Speaker Change: I hope that answers your question, but, you know, there's a lot to do. The platform has many, many, many components, and ID is just one of them. It happens to be one of the more exciting pieces.

Robert A. Frist: It happens to be one of the more exciting pieces, because it lets us know a lot more about the people in our network and allows us to do things like the commerce that we talked about, where we're able to, you know, grab a piece of data from one part of our network, identity demographics from another, identify a channel, in other words, an app that has high traffic of that type of user, and then maybe target them with a message ID management is very important.

Speaker Change: because it lets us know a lot more about...

Speaker Change: The people in our network allows us to do things like the commerce that we talked about where we're able to, you know, grab a piece of data from one part of our network identity demographic from another identified channel. In other words, an app that has high traffic of that type of user and then maybe target them with a message about a federal requirement.

Robert A. Frist: I'd characterize it as going to still be a multi-year journey to get fully where we want to be, but we are seeing exciting benefits of platform capabilities like ID as reflected in our commerce growth, 41%, and some visibility by customers and the benefits of the HStream ID. Thank you. Thank you, and one moment as we move on to our next question. Our next question comes from the line of Jared Haase with William Blair. Your line is open. Please go ahead.

Speaker Change: and then ultimately use the commerce capabilities of the platform to sell them a course.

Speaker Change: I.D. management is very important. I'd characterize it's going to still be a multi-year journey to get fully where we want to be, but we are seeing exciting benefits of platform capabilities like I.D. as reflected in our commerce growth 41%.

Speaker Change: Thank you, and one moment as we move on to our next question.

Speaker Change: Our next question comes from the line of Jared Haase with William Blair. Your line is open. Please go ahead.

Jared Phillip Haase: Hey, good morning, and thanks for taking the questions. Maybe just to start, Bobby was hoping to get some additional color on the strong selling trends to close out the quarter. I guess, are you seeing any kind of incremental improvement in the client base or anything that's changing from a competitive landscape perspective that's sort of driving the strength there? And then I'd be curious, I know it's early, but do you have any thoughts on what that could imply just in terms of the growth setup for 2025? Yeah, you know, you're always looking to layer subscriptions, and it's hard.

Jared Phillip Haase: Hey, good morning and thanks for taking the questions. Maybe just to start, Bobby was hoping to get some additional color on the strong selling trends to close out the quarter.

Jared Phillip Haase: I guess, are you seeing any kind of incremental improvement in the client base or anything that's changing from a competitive landscape perspective that's sort of driving the strength there? And then I'd be curious, I know it's early, but any thoughts on what that could imply just in terms of the growth set up for 2025? Thanks.

Robert A. Frist: Great thing to do when you build a layer, and we gave an example of an account where we're able to layer in more at renewal. You know, that's kind of the model that 60 account managers work on. And so, you know, we had been a little short of our desired outcomes in Q1 in terms of the sales pipeline. So it was really exciting and kind of a nail-biter to watch that last month of the second quarter really perform well and make up for a lot of the earlier push deals, I guess is what I would say.

Speaker Change: Yeah, you know, you're always looking to layer subscriptions, and it's a...

Speaker Change: Great thing to do when you when you build a layer and we gave an example of an account where we're able to layer in more at renewal.

Speaker Change: You know, that's kind of the model that those 60 account managers work on.

Speaker Change: And so, you know, we had been a little short of our desired outcomes in Q1 in the sales pipeline, so it was really exciting and kind of a nail-biter to watch that last month of the second quarter really perform well and make up for a lot of the earlier

Robert A. Frist: And the other thing, the nature of the pipeline has shifted. We're doing a better job of describing value propositions and bottom-up products. I mentioned this competency suite, which is a really exciting way to position a group of our products as a complete tool set for managing a workforce. And I think that's responding.

Speaker Change: Pushed Deals, I guess is what I would say. And so, and the other thing, the nature of the pipeline has shifted. We're doing a better job of describing value propositions and bundling up products. I mentioned this competency suite.

Speaker Change: which is a really exciting way to position a group of our products.

Robert A. Frist: It's bigger dollar orders for a more complete set of tools, and we've got a really nice way of showing how they work together to manage the competency profiles of your workforce. And so what I'd say is also towards the end of the quarter, we're seeing a bigger pipeline of bigger deals. Now, you know, as far as the second half impact is concerned, we've already factored all that in, and it's been offset by the timing anomaly we talked about and the bankruptcy. And so some of our excitement is muted because of these, what we call temporary headwinds.

Speaker Change: as a complete tool set for managing the workforce. And I think that's resonating. It's bigger dollar orders.

Speaker Change: for a more complete set of tools. And we've got a really nice way of showing how they work together to manage the competency profiles of your workforce.

Speaker Change: And so what I'd say is also towards the end of the quarter, we're seeing a bigger pipeline of bigger deals.

Speaker Change: Now...

Speaker Change: As far as second half impact, we've already factored all that in, and it's been offset by the timing anomaly we talked about and the bankruptcy.

Robert A. Frist: That said, it was great to see the last month of the quarter perform well. And also, when we assess the pipeline on a go-forward basis, more larger deals, possibly because of the way we're bumbling now. We're just getting better at describing the value propositions, you know, the way these two or three applications work together to solve a problem. Our competency suite is really exciting what's happening with that. We have probably the largest pipeline we've ever had on a greatest mix of products in that area because of the way those tools work together.

Speaker Change: Some of our excitement is muted because of these what we call temporary headwinds.

Speaker Change: That said, it was great to see the last month of the quarter perform well, and also when we assess the pipeline on a go-forward basis, more larger deals...

Speaker Change: Possibly because of the way we're bumbling now, we're just getting better at describing the value prop of, you know, the way these two or three applications work together to solve a problem. Our competency suite is really exciting, what's happening with that. We have probably the largest pipeline we've ever had on a greatest mix of products in that area.

Robert A. Frist: I do think there's probably a macro trend of health care systems realizing they need to invest more in their workforce to reduce turnover and attract talent. And so as they compete for a limited resource pool of people, I think our tool sets are more relevant in the recruiting process and retention strategy. That's great. I appreciate that, Collar.

Speaker Change: because of the way those tools work together. I do think there's probably a macro trend of...

Speaker Change: healthcare systems realize they need to invest more in their workforce, to reduce turnover and to attract talent. And so as they compete for a limited resource pool of people, I think our tool sets are more relevant in the recruiting process and retention strategies.

Jared Phillip Haase: And then maybe just as a follow-up, I'll ask about the health plan opportunity in a slightly different way. Now, obviously, nice to add a new market opportunity to drive growth. And I know it's still early days here, but I'm wondering, does that have a sort of, I guess, compounding impact in terms of making your offerings for providers more attractive or strategic? It seems like there would be synergies just in terms of, you know, sort of sitting in between payers and providers with this network type of offering.

Speaker Change: That's great. I appreciate that, Collar. And then maybe just as a follow-up, I'll ask about the health plan opportunity in a slightly different way. Now, obviously, nice to add a new market opportunity to drive growth, and I know it's still early days here, but I'm wondering, does that have a sort of, I guess, compounding impact in terms of making your offerings for providers more attractive or strategic? It seems like there would be synergies just in terms of, you know, sort of sitting in between payers and providers with this network type of offering. I'm wondering if you're seeing additional tailwinds to growth with sort of the core customer base.

Jared Phillip Haase: So I'm wondering if you're seeing additional tailwinds to growth with sort of the core customer base. Well, I think we're really excited about what it could mean if the data is easily portable between the plans and the health systems, and they're using this similar credential stream system or another version of it, same architecture with some added features for the network product. So, I do think there could be some medium and long-term implications in marketplaces where the plans have adopted a nearly identical architecture for credential management as the health systems.

Speaker Change: Well, I think we're really excited about what it could mean if the data is easily portable between the plans and the health systems, and they're using this similar, you know, the Credential Stream System or another version of it, same architecture with some of the added features for the network products. So...

Speaker Change: I do think there could be some...

Speaker Change: meeting the long-term implications.

Speaker Change: in marketplaces where the plans have adopted.

Jared Phillip Haase: And so, but, you know, what that impact is going to take time to play out because we're new to the plan market. But, you know, obviously, the plans manage a resource pool of doctors and the hospitals do as well, and the plans overlap with some health systems and not others.

Speaker Change: a nearly identical architecture for credential management.

Speaker Change: as the health systems and so but you know what that impact is going to take time to play out because we're new to the plan market.

Speaker Change: But, you know, obviously the plans, manage.

Speaker Change: resource pool of doctors and a hospital do as well and the plans overlap with some health systems and not others and so

Robert A. Frist: And so, you know, you can imagine a future where data sharing between those organizations would be easier if they were on this common architecture that we've been building. So, yeah, I think we see promise for it, but not enough yet to model it. You know, we need to make sure we can gain share in the health plan market before we start touting the interoperability benefits between plans and health systems. So, you know, I think the HStream IDE, we spend a lot of time talking about it.

Speaker Change: You know, you can envision a future where data sharing between those organizations would be easier if they're on this common architecture.

Speaker Change: that we've been building. So, yeah, I think we see promise for it, but not enough yet to model it. You know, we need to.

Speaker Change: Make sure we can gain share in the health plan market and

Speaker Change: and before we start touting the interoperability benefits between plans and health systems. So, you know, I think that...

Robert A. Frist: That will be key, you know, for doctors and health plans. It'll help us maintain rosters for the health plans using this HStream IDE system that we've been talking about as it gets more deployed into our network. And so, I'm super excited about, you know, the interplay between plans and health systems. And so, it's exciting to see us make some progress in this health plan market. Absolutely, it makes sense. And I'll go ahead and hop back in the queue.

Speaker Change: The HTMID, we spent a lot of time talking about it.

Speaker Change: That will be a key, you know, as doctors and health plans.

Speaker Change: It'll help us maintain rosters.

Speaker Change: for the health plans using this HStream ID system that we've been talking about as it gets more deployed into our network. And so, super excited about the interplay between plans and health systems, and so it's exciting to see us make some progress in this health plan market.

Speaker Change: Absolutely, makes sense. And I'll go ahead and hop back in the queue. Thank you.

Jared Phillip Haase: And one moment for our next question. And our next question is going to come from the line of Richard Close with Canada Chord Congenuity. Your line is open. Please go ahead. Yes, thanks for the questions. Congratulations, given the couple of headwinds there in the quarter.

Speaker Change: Thank you. Thank you, and one moment for our next question.

Speaker Change: And our next question is going to come from the line of Richard Close with Canaccord Congenuity. Your line is open. Please go ahead.

Richard Collamer Close: Yes, thanks for the questions. Congratulations, given the couple headwinds there in the quarter. Bobby, just clarifying on the escalators, I want to make sure I understand that. Is that like a three and a half percent each year of the term of the contract, or just when the contract comes up for renewal?

Richard Collamer Close: Bobby, just clarifying on escalators. I want to make sure I understand that. Is that like a three and a half percent increase each year of the term of the contract or just when the contract comes up for renewal? Scott, do you want to comment on that? Yeah, sure. Richard, it's an annual escalator, so each year the price would increase by that 3.5%.

Richard Collamer Close: Scott, do you want to comment on that? Yeah, sure, Richard. It's the, it's an annual escalator, so each year the price would increase by that three and a half percent.

Scott Alexander Roberts: Okay, great. Richard, I do want to add some color to that because we're super excited about it. I think, you know, in the long run, you know, analysts should be, too. But I want to caveat that less than 1% of our contracts have that built in. And again, as I mentioned, it's going to take, you know, several years to get through the renewal cycles, and we have to have customer acceptance and all that. So it's really early days.

Richard Collamer Close: Richard, I do want to add some color to that because we're super excited about it. I think, you know, in the long run, you know, analysts should be too, but I want to caveat that less than 1% of our contracts

Speaker Change: have that built in. And again, as I mentioned, it's going to take, you know, several years to get through renewal cycles and and we have to have customer acceptance and all that. So it's really early days. But what's exciting is it did take a year.

Robert A. Frist: But what's exciting is it did take a year to modify contracts, train salespeople, enhance the accounting system, teach the negotiating strategies to deploy it. And for the last several months, we've been including it in almost every contract that's related to our learning business and our workforce development businesses and product lines. And so it's exciting to see, but I just want to point out that less than 1% of our contracts have escalators today. Excellent. And then on the 34%, I guess, new bookings in Shift Wizard, can you talk a little bit about how much of that is like net new customers versus, you know, I guess, the replacement of the legacy?

Speaker Change: to modify contracts, train salespeople, enhance the accounting system, teach the negotiating strategies.

Speaker Change: to deploy it. And for the last several months, we've been including it in almost every contract that's related to our learning business and our workforce development businesses, product lines. And so it's exciting to see, but I just wanna caveat that less than 1% of our contracts have escalators today.

Speaker Change: Excellent. And then on the 34% I guess new bookings...

Speaker Change: in Shift Wizard, can you talk a little bit about how much of that is like net new customers versus, you know, I guess the replacement of the legacy?

Robert A. Frist: Yeah, sure. So I think about, we only had 34 customers, and 22 of them were new, like new to the market, new to HealthStream. They might have been a competitive takeout or been using pen and paper, but they were new.

Speaker Change: Yeah, sure. So I think about, we've landed 34 customers.

Robert A. Frist: And the remaining, I guess, 12 of the 34 were transitioning customers. They were essentially moving from a legacy application that we had acquired to the new application. So I believe, I believe those are the numbers that we just gave. Hold on, let me make sure I didn't just talk about credentialing or scheduling. Yeah, that's the credentialing you just described. I'm sorry, I just did everything wrong.

Speaker Change: and 22 of them

Speaker Change: were new, like new from the market, new to HealthStream. They might've been a competitive takeout or been using pen and paper, but they were new.

Speaker Change: And the remaining, I guess, 12 of the 34 were transitioning customers. They were essentially moving from a legacy application that we have acquired to the new application.

Speaker Change: I believe those are the numbers that we just gave. Hold on, let me make sure I didn't just talk about credentialing or scheduling.

Speaker Change: Yeah, that's credentialing you just described. Oh, I'm sorry. I just did everything wrong. That was all related to credentialing. So ShipWizard, I'm not sure that we split it out like that.

Richard Collamer Close: That was all related to credentialing. So ShipWizard, I'm not sure that we split it out like that from migrating. It is mostly net new, Richard. It's mostly net new. Okay. Yeah.

Robert A. Frist: And then just to follow on ShipWizard, you know, Bobby, I think last quarter you said that you're really strong in the small and mid market for this scheduling with ShipWizard. Are you seeing any success moving up the market at all to larger health systems? Well, yeah, I think we're doing monthly releases on ShiftWizard, enhancing it every month, making it more what we call enterprise-appropriate, and so I think it's getting more and more capabilities that can address the different needs of larger enterprises.

Speaker Change: It is mostly net new, Richard. It's mostly net new.

Bobby: And then just to follow on on ShiftWizard, you know, Bobby, I think last quarter you said, you know, you're really strong in the small and mid on this scheduling with ShiftWizard. Are you seeing any success moving upmarket at all to larger health systems?

Bobby: Well, yeah, I think, you know, we're doing monthly releases on ShiftWizard, enhancing it every month, making it more what we call enterprise appropriate.

Speaker Change: And so I think it's getting more and more capabilities that can address the different needs that large enterprises have.

Robert A. Frist: You know, we're, you know, in the competitive landscape, and we're positioning well and fighting hard, and I do expect progress at all levels, but you're right to point out our relative strengths for probably medium and small systems, not the super large ones yet, but again, progress on both feature development, the rate of release, and customer engagement is high. And just for clarity, I've just gotten some background info for ShiftWizar They're the right numbers if you're listening to me for Credential Stream, 34 customers, 22 new, and 12 migrating, but in this one, it was eight new customers on ShiftWizard, all new, 34% revenue growth, and we mentioned Prime Health and Baptist Memorial and UF Health, so I hope that helps clarify on the eight new customers on ShiftWizard.

Bobby: It's a competitive landscape, and we're positioning well and fighting hard, and I do expect progress at all levels. But you're right to point out our relative strengths are probably medium and small systems, not the super large ones yet.

Bobby: But again, progress on both the feature development, the rate of release.

Speaker Change: and Customer Engagements High. And just for clarity, I've just gotten some background info for ShiftWizard since I've cited all the wrong numbers. They're the right numbers if you're listening to me for CredentialStream, 34 customers.

Speaker Change: 22 new and 12 migrating.

Speaker Change: But in this one, it was eight new customers on ShiftWizard, all new, 34% revenue growth, and included, we mentioned Prime Health and Baptist Memorial and UF Health, so I hope that helps clarify on the eight new customers on ShiftWizard.

Robert A. Frist: If I can slip one in, Scotty, well, or Bobby, on this consumption headwind, you mentioned it should have been a 90-day requirement, but it ended up being 365 days. So just to be clear, was something done to make sure that it's done by the end of 2024 and that it doesn't slip into 2025? Well, we have assurance. Now, we don't make the settings, and so we can't change

Speaker Change: If I can slip one in, Scotty.

Speaker Change: Well, or Bobby, on this consumption headwind

Speaker Change: You mentioned it should have been a 90-day requirement. It ended up being 365 days. So just to be clear, was something done to make sure that it's done by the end of?

Speaker Change: 2024 and that, you know, it doesn't slip into 2025.

Speaker Change: Well, we have Assurance. Now, we don't make the settings, so we can't change them. It's up to the customer to change them.

Richard Collamer Close: It's up to the customer to change them, but we have had more than one meeting with them, and they realize it's kind of an operational inefficiency for them, so they're working hard to correct it. So it's our expectation, but we don't have direct control over it. So I can't say that we did anything other than make the customer aware of it. And they don't want it to happen that way either.

Speaker Change: But we have had more than a meeting with them, and they've...

Speaker Change: They realize it's kind of an operational inefficiency for them, so they're working hard to correct it. So it's our expectation, but we don't have direct control over it. So I can't say that we did something other than make the customer aware of it.

Robert A. Frist: If you think about it, you really want to stagger such a large workforce to spread the work out over time, both good from a planning standpoint, an operational standpoint, and a financial standpoint. So we have no reason to believe it won't come back. And in fact, the organization is growing as well, so they're often ending up short and needing to have more subscriptions anyway. And so we expect a return to normalcy at that. Okay, thank you.

Speaker Change: And they don't want it to happen that way either. If you think about it, you really want to stagger such a large workforce to...

Speaker Change: to spread the work out over time.

Speaker Change: both good from a planning standpoint, operational standpoint, and a financial standpoint.

Speaker Change: We have no reason to believe it won't come back. And in fact, the organization is growing as well. And so they're often ending up short and needing to have more subscriptions anyway. And so we expect a return to normalcy at that account.

Richard Collamer Close: But to your question, we don't actually control it, and so I can't say we did something on the system to affirmatively make that change. We're relying on the customer to make those corrections. But again, I just can't see how they would operate with that as the operating principle.

Speaker Change: Okay, thank you. But to your question, we don't actually control it, and so I can't.

Speaker Change: I can't say we did something on the system to affirmatively make that change. We're relying on the customer to make those corrections. But again, I just, I can't see how they would operate.

Robert A. Frist: In other words, they really need to spread the word out to get everybody compliant. So I think we're going to be good. Would there be any opportunity to change him if this is the only consumption contract that you have? Like change that to normal contracting?

Speaker Change: with that as the operating principle. In other words, they really need to spread the word out to get everybody compliant. So I think we're gonna be good.

Speaker Change: Would there be any opportunity to change them if this is the only consumption contract that you have?

Richard Collamer Close: Probably not in the short, short run. I think in this last collaborative purchasing, we allowed them to move to the consumption model on some of the courses they bought in the collaborative, mainly for their own budget planning reasons. And they're such a strong customer, so we gave them that flexibility. But again, it's not a model we're promoting; we don't plan to expand it. I don't know if we'll change it at a customer; it would probably be up to that customer.

Speaker Change: like change them to the normal contracting? Probably not in the short, short run. I think on this last collaborative purchasing, we allowed them to move to the consumption model on some of the courses they bought in the collaborative.

Speaker Change: mainly for their own budget planning reasons, and they're such a strong customer, so we gave them that flexibility. But again, it's not a model we're promoting. We don't plan to expand it.

Richard Collamer Close: How we're working with them and their budget planning process, but given that, you know, it is, of course, an anomaly, and it did make us have to explain this awkwardly in the quarter, but I just, I see it as a true one-time anomaly. And I think their multi-year, 10-year plus consumption history would indicate that this isn't enough.

Speaker Change: I don't know if we'll change it at a customer. It'll be probably up to that customer, how we're working with them and their budget planning process. But given the...

Speaker Change: It is, of course, an anomaly, and it did make us have to explain this awkwardly in the quarter, but I just see it as a true one-time anomaly, and I think their multi-year, 10-year-plus consumption history would indicate that this is an anomaly.

Robert A. Frist: Okay, great. Thanks. Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Constantine, with Citizens J&P. Your line is open. Please go ahead.

Speaker Change: Okay, great. Thanks.

Speaker Change: Thank you and one moment as we move on to our next question.

Speaker Change: And our next question is going to come from the line of Constantine Davides with Citizens J&P. Your line is open. Please go ahead. Thank you. Thank you.

Constantine Kyriakos Davides: Thanks, Bobby. Nice, nice pickup there in the commerce revenue. I was wondering if you could just drill into what kind of activity that was in the second quarter, just given that the first quarter, you know, was more the way you guys kind of framed that as a little bit more one-time in nature with the DEA program. So I'm just wondering if you can give us a little more color there and then... Tell us, you know, what kind of line of sight you have until the rest of 2024 on the commerce side.

Speaker Change: Thanks Bobby, nice nice pick up there in the

Constantine Kyriakos Davides: Commerce Revenue. I was wondering if you'd just drill into what kind of activity that was.

Speaker Change: in the second quarter, just given that the first quarter, you know, was more, the way you guys kind of framed that is a little bit more one-time in nature with the DEA program. So I'm just wondering if you can give us a little more color there, and then...

Speaker Change: Tell us, you know, what kind of line of sight you have until the rest of 2024 on the commerce side.

Constantine Kyriakos Davides: Yeah, it's interesting, you know; we have three forms of commerce. We have the big collaboratives, which are some of our top accounts do annual purchase cycles on large content libraries. And, and that's now getting more commerce enabled, meaning it's a more automated process than it was in the past. So excited about that.

Speaker Change: Yeah, it's interesting, you know, we have three forms of commerce. We have the big collaboratives, which are some of our top accounts do annual purchase cycles of large content libraries.

Robert A. Frist: Then we have a new type of commerce that we're launching in the next month, which is what I'd call B2B commerce at the manager level. We believe there might be entire budgets that are discretionary now at the manager level, where they order more directly from competing vendors. And, you know, we historically sell kind of at the enterprise level up to the CNO and the top officers when they want to buy something on behalf of all their employees. But we miss, we think we miss a lot of budgets that might be discretionary, you know, a little bit of a reimbursement budget for a manager to employees for education.

Speaker Change: And that's now getting more commerce enabled, meaning it's a more automated process than it was in the past. So excited about that. Then we have a new type of commerce that we're launching in the next month, which is what I'd call B2B commerce at the manager level. We believe there might be.

Speaker Change: entire budgets that are discretionary now at the manager level.

Speaker Change: where they order more directly from competing vendors.

Speaker Change: And, you know, we historically sell kind of at the enterprise level up to the CNO and the top officers.

Speaker Change: when they want to buy something on behalf of all their employees. But we miss, we think we miss a lot of budgets that might be discretionary, you know, a little bit of a reimbursement budget for a manager, to employees, for education.

Robert A. Frist: And so we have this new, we'll be piloting next month, this, what I guess I'll call it manager-level purchasing commerce, which we really haven't had before. And so that'll be interesting. And then the third category is exciting and problematic at the same time because it's a little less predictable.

Speaker Change: And so we have this new, we'll be piloting next month.

Speaker Change: this, what I guess I'll call it, manager-level purchasing commerce.

Speaker Change: which we really haven't ever had.

Speaker Change: And so that'll be interesting. And then the third category is...

Robert A. Frist: As you point out, it's direct-to-professional marketing in our ecosystem, and we're getting better at it, which is cool, but it is way harder to project. And you're right to note that the primary driver of success right now is this federal requirement around opioid training for doctors to renew their DEA, their prescribing license, basically, with the DEA. And so, you know, we're doing our best to forecast what that would look like because we've gotten good at finding those doctors at the right time and offering them the right product at the right place.

Speaker Change: is exciting and problematic at the same time because it's a little less predictable, as you point out.

Speaker Change: It's direct-to-professional.

Speaker Change: marketing in our ecosystem, and we're getting better at it, which is cool, but it is way harder to project. And you're right to note that the primary driver of success right now is this federal requirement around opioid training for doctors to renew their DEA, their prescribing license, basically, of the DEA.

Speaker Change: and so...

Speaker Change: You know, we're doing our best to forecast, you know, what that would look like, because we've gotten good at finding those doctors at the right time and offering the right product at the right place.

Robert A. Frist: And they're buying. And so now we have a few other products that are really suitable for commerce, and we just launched six new packages in our nurse channels. So we're talking about our physician channels at cmecourses.com, but our nurse channels are on NurseGridLearn, and revenue in NurseGridLearn is growing as well. We just launched six new state-specific education packages, again, purchased by the individual as an individual. And so this commerce, we're getting better at it, but it's harder to predict. And in the case of the biggest driver right now, it's still the DEA-made opioids course.

Speaker Change: and they're buying. So now we have a few other products that are really suitable for commerce and we just launched.

Speaker Change: six new packages in our nurse channels. So that we're talking about our physician channels at cmecourses.com, but our nurse channels are on NurseGridLearn and revenue in NurseGridLearn is growing as well. We just launched six new state-specific education packages, again, purchased by the individual as an individual.

Speaker Change: And so these commerce, we're getting better at it, but it's harder to predict. And in the case of the biggest driver right now, it's still the DEA-made opioids course.

Robert A. Frist: So we do think that this has a year of being strong, but still variable. You know, it might have a strong quarter and a weak one, but we think it'll take over a year for all the physicians to get through this renewal cycle, essentially, on their licenses, which is a federal requirement. So we project a few more quarters strong on the DEA-made or the DEA content. And meanwhile, we're growing in strength in our nurse channels, as I mentioned, and just getting better at commerce overall, adding to our digital marketing teams to strengthen our commerce abilities. But just know there are three forms of commerce; two are B2B, and one is B2C, or we call it B2P, business to professional direct.

Speaker Change: We think that has a...

Speaker Change: A year of being strong, but still variable, you know, it might have a strong quarter and a weak one, but we think

Speaker Change: It'll take over a year for...

Speaker Change: Call a physician to get through this renewal cycle, essentially, on their licenses.

Speaker Change: which has a federal requirement.

Speaker Change: So we project a few more quarters strong on the DEA-MATE or the DEA...

Speaker Change: content.

Speaker Change: And meanwhile, we're growing in strength in our nurse channels, as I mentioned, and just getting better at commerce overall, adding to our digital marketing teams to strengthen our commerce abilities. But just note, there's three forms of commerce. Two are B2B.

Speaker Change: and one is B2C, or we call it B2P, Business to Professional Direct.

Robert A. Frist: And it will be just a little harder to project, so it's definitely a sign we're becoming an ecology where we have channels that we can sell content into inside of our own, you know, application network. So it's exciting that way; it is good margin when we sell content that we own, in which case, this DEA course, we own it, so it has really good margin. That said, you highlighted the problem on a go-forward basis: as it grows, it becomes a little bigger and a little less predictable. But, you know, we'll take it. We call it money while we sleep, and we'll take money while we sleep because we think it's a good idea. That's a good color, Bobby.

Kauffman: and Constantine. It will be just a little harder to project, so...

Kauffman: It's definitely a sign we're becoming an ecology, where we have channels that we can sell content into inside our own, you know, application network. So it's exciting that way. It is good margin when we sell content that we own, in which case this DEA course, we own it, so it has really good margin.

Kauffman: That said, you've highlighted the problem in a go-forward basis. As it grows, it becomes a little bigger and a little less predictable.

Kauffman: But, you know, we'll take it. We call it money while we sleep, and we'll take money while we sleep. We think it's a good idea.

Constantine Kyriakos Davides: Thanks. And then one just a quick housekeeping item, but the million dollar charge associated with Steward. Did that impact the PNL and the GNA line? Just wondering if you could give a little color there, Scotty.

Kauffman: That's good color, Bobby. Thanks. And then one just quick housekeeping item. The million dollar charge, I guess, associated with

Stewart: Stuart, did that impact the PNL and the GNA line? Just wondering if you can give a little color there, Scotty.

Scott Alexander Roberts: Yeah, that's where our bad debt charges flow through on our income statement in that category. Great. And then, last one here. The share repurchase program expired in March, and I don't think that's been renewed.

Scotty: Yeah, that's where our bad debt charges flow through on our income statement is that category.

Scotty: Great, and then...

Constantine Kyriakos Davides: Just wondering if you can give us an update there and are you signaling more of a preference for the dividend, or am I reading too much into that? Thanks. You're probably overthinking it a little bit, but we've put in a few buyback programs over our 24 years of public company. This last one was, I believe, for about $10 million.

Speaker Change: Last one here. The share repurchase program expired in March, and I don't think that's been renewed. Just wondering if you can give us an update there, and are you signaling more of a preference for the dividend, or am I reading too much into that? Thanks.

Speaker Change: You're probably probably overthinking it a little bit but we we've put a few buyback programs in over our 24 years of public company. This last one was I believe for about ten million dollars worth and we're we view it opportunistically and in the money able to buy back shares. I think we bought about eight of the ten million dollars worth.

Robert A. Frist: And we view it opportunistically and are in the money, able to buy back shares. I think we bought about eight of the $10 million worth at an average price in the low 20s, like 22, 23. So, so far, it looks effective. And with that as a history, that makes all three of our buybacks, again, spread out over 24 years in the money for shareholders. So we generally put a program in place and put purchase requirements around it that reflect our board's position on where we should be buying. And so the whole program didn't work because of the discipline of our board in creating the program itself.

Speaker Change: at an average price in the low 20s, like 22, 23. So, so far, it looks effective. And with that, as a history, that makes all three of our buybacks, again, spread out over 24 years, in the money for shareholders. So, we've...

Speaker Change: We generally put a program in place.

Speaker Change: and put purchase requirements around it that reflect our board's position on where we should be buying. And so the whole program didn't execute because of the discipline of our board in creating the program itself. But it has expired and the board has not elected to put another program in place at this time.

Robert A. Frist: But it has expired, and the board has not elected to put another program in place at this time. The board takes up these capital allocation discussions every quarter, and we're excited to see them approve another dividend consistent with the prior quarter, but they have not put a new share repurchase program into place currently. All right. Thank you. Thank you. Go ahead.

Speaker Change: But, you know, the board takes up these capital allocation discussions every quarter and we're excited to see them approve another dividend consistent with the prior quarter and but did not put a share repurchase, a new share repurchase program into place currently.

Constantine Kyriakos Davides: Thank you. One moment for our next question, and our next question comes from the line of Vincent Colicchio with Barrington Research. Your line is open. Please go ahead.

Speaker Change: All right. Thank you. Go ahead. Thank you. One moment for our next question.

Speaker Change: And our next question comes from the line of Vincent Colicchio with Barrington Research. Your line is open. Please go ahead.

Vincent Alexander Colicchio: Yes, Scott, you had cited a 15% decline in Anso, so I wasn't clear on if that was for subscribers or revenue. How does that compare to recent quarters? I'm wondering if things are worsening or stabilizing. So I guess that decline was 15% on last year's revenue, so it was about $600,000 less revenue versus the same period last year, and I think the rate of attrition has kind of been at that rate for probably at least the past four to six quarters. Okay, then one more for me.

Vincent Alexander Colicchio: Yes, Scott, you had cited a 15% decline in Anso, so I wasn't clear on if that was for subscribers or revenue. How does that compare to recent quarters? I'm wondering if things are worsening or stabilizing.

Speaker Change: So I guess that decline was 15% on last year's revenue, so it was about a $600,000.

Speaker Change: declined versus the same period last year, and I think the rate of attrition has kind of been at that rate for probably at least the past four to six quarters.

Scott Alexander Roberts: Bobby, are there any other clients, Bobby or Scotty, that are in financial distress we should be concerned about? I think, on the whole, we're not seeing any change in payment patterns yet. We hope this is not a bellwether for the industry. It's just an isolated problem.

Speaker Change: Okay, and then one more for me.

Speaker Change #100: Bobby, are there any other clients, Bobby or Scotty, that are in financial distress we should be concerned about?

Speaker Change #101: I think...

Speaker Change #102: On the whole, we're not seeing any change patterns in payments yet, you know.

Vincent Alexander Colicchio: And we have not seen any macro trends as reflected in our DSO or collectability that are any different than in the prior, say, 18 months. And so we hope it stays an isolated story. I would say in maybe some of our submarkets, skilled nursing, there's a lot more change in that market. Not necessarily bankruptcies, but mergers and acquisitions, changing landscapes, changing contracts. So maybe in that sub-market of markets, there's a little bit more distress in what I guess I'd call the skilled nursing facility market or skilled nursing market. But our largest base of acute hospitals, we haven't seen any changes in patterns yet.

Speaker Change #103: We hope this is not a bellwether for the industry, it's just an isolated problem, and we have not seen any macro trends as reflected in our DSO or collectability that are any different than in the prior, say, 18 months.

Speaker Change #103: We hope it stays an isolated story. I would say in maybe some of our sub-markets, skilled nursing, there's a lot more change in that market. Not necessarily bankruptcies, but mergers and acquisitions, changing landscape, changing contracts.

Speaker Change #103: And so maybe in that sub-market of markets, there's a little bit more to stress.

Speaker Change #103: and what I guess I'd call the skilled nursing market, market, skilled nursing facility market. But our largest base of.

Robert A. Frist: I mean, obviously, this is a change in pattern itself, steward, but other than that, our DSO remains good and consistent with the past couple years. Thank you. Thank you, and I'm showing no further questions, and I'd like to hand the conference back over to Robert Frist, CEO, for closing or further remarks. Thank you, everyone.

Speaker Change #103: acute hospitals, we haven't seen any changes in patterns yet. I mean, obviously, this is a change in pattern itself, steward. But, you know, other than that, our DSO remains good and consistent with the past couple years.

Speaker Change #104: Thank you.

Speaker Change #104: Thank you, and I'm showing no further questions, and I'd like to hand the conference back over to Robert Frist, CEO , for closing or further remarks.

Robert A. Frist: Friends and family on the journey with our 1,100 employees working hard. It's fun to hear Trisha Cody's father listen in, one of our senior officers, on our earnings calls. Big fan shout out to the family participants that support our hardworking employees. We're trying to build a great company here and put a lot of energy and time into it. I appreciate our analysts that follow our stories and write about them so that we can tell the ups and downs. Business is never easy.

Robert A. Frist: Thank you everyone, friends and family on the journey with our 1,100 employees working hard. It's fun to hear.

Speaker Change #106: Trisha's Cody's father listens in, one of our senior officers to our earnings calls.

Speaker Change #104: A big fan shout out to the family participants that support our hardworking employees.

Robert A. Frist: We're trying to build a great company here and putting a lot of energy and time into it. Appreciate our analysts that follow our stories and write about them so that we can tell the ups and downs. Business is never easy. There's puts and takes, and this quarter had some. You know, we have a long history just fighting through them and moving on to the next exciting thing.

Robert A. Frist: There are ups and downs, and this quarter had some. We have a long history of just fighting through them and moving on to the next exciting thing and trying to build that energy in our company, culture, and shareholders, and we feel like we're doing that. So small, incremental steps this quarter, but nonetheless, incremental and positive. So we'll take them and keep working hard into the next couple quarters, try to get us to be solid in our commitments to achieving our guidance, and I think we're positioned to do that. So we'll keep you guys posted. Look forward to the next earnings call. Thank you to everyone involved. This concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker Change #104: and trying to build that energy in our company and culture and shareholders, and we feel like we're doing that. So, you know, small incremental steps this quarter, but nonetheless, incremental and positive. So we'll take them and keep working hard into the next couple quarters, try to get us to make solid in our commitments on our...

Speaker Change #104: on our Achieving Our Guidance, and I think we're positioned to do that. So we'll keep you guys posted, look forward to the next earnings call. Thank you to everyone involved.

Speaker Change #105: This concludes today's conference call. Thank you for participating. You may now disconnect.