HSTM - Earnings call transcript Q3 2018

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Operator

Good day, ladies and gentlemen, and welcome to the HealthStream Third Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded. I would now like to introduce your host for today’s conference, Ms. Mollie Condra, Vice President of Investor Relations and Communications. Ma’am, you may begin.

Mollie Condra

morning. good and you, Thank Thank you quarter discuss third today joining results. us XXXX to our for Also call the on conference Robert A. with me are Jr., of Vice Frist, Chairman Gerry and Senior Hayden, HealthStream; President and CFO. and CEO like also from forward-looking actual HealthStream results cause forward-looking contain that future call regarding risks those and the would that uncertainties statements. this to I statements performance future the materially projected conference and in to events involve differ may you of could remind that other and differ risks including these that forward-looking could are to concerning Information and the SEC, results the factors with materially statements XX-Q. cause Forms XX-K the those from company’s contained in filings

start, Bobby I’ll that call the Frist. with over to So turn

Bobby Frist

morning, Thank and welcome you. XXXX Good third our quarter to earnings call.

of his the tendered Form position of news the discuss. of company. like dive of with that from to expect for one has accomplishments in Hayden, CFO yesterday, working we as have occurred do will announced before March which will XXXX. the at recognize management. the occur a numbers I’d rest earnings look Directors the I’d quarter to into XX-K our see to me quarter. XXXX, full we Gerry filing the of year But CFO, thing our In to that issued in that, always the CFO fill as our in we resignation his position Board lot we and process remain of release the cover, to He The the to and like We that a

is Finance XX interim and Roberts, joined Scotty CFO, as Vice after the Accounting, Scotty at years working & ago CPA, serve will company Ernst Young. who as of President the CFO. departure Gerry’s Following our

permanently. operations, an making As Gerry’s fill position financial the interim experience and a reporting prodigy, financial ideal candidate him CFO has broad and in to Scotty

on our leadership the decade for All want his over financial opportunities. will company tremendous built, we’re of His in for role as outstanding and to department well important and years has serve growth led CFO. Directors, navigated actually service company many Accounting of prior that an for he’s that Board he for through years come. HealthStream Gerry served And that service to of company three have us bench our period in at and as we’ve the He the well. grateful and mentored an as then, successfully and a thank expertise played financial a strong team, many for talent Finance our to

Gerry Hayden

that Senior March. a well transition. very Bob and at mentioned, here the XX-K working Advisor, been over tenure my the we’re the honor It’s you, to and HealthStream. HealthStream. as at role qualified Roberts stepping looks I closely at with forward getting Scotty it as Executive After wrapping HealthStream, serve up smooth Bobby. with next to company into He’s capable decade look good CFO CFO year a and work up an filed, everyone as working I’m time, Thank the to ensure very with last here including

Bobby Frist

to All at dialogue HealthStream the sure at end. he of endeavors future have the you’ll a whenever Gerry, more in open about choose pursue. us wish that questions success much some I’m

core up the into measures XX% was up were details. the of metrics and operations continuing operating in up income revenues all Let’s numbers, EBITDA solid. X%, adjusted XX%, was in up the most the dive quarter all XX%, last quarterly the and were and quarter, was year, Compared third accounts from while to income

we regard end staff the However, quarter with where exactly fulfilling open we didn’t expected to positions.

year. of we to that expect fourth more to hiring, in launch preparation And as quarter, quarter. the the products look in of the lower-than-expected particularly next early ramp for bit a were begin expenses to So we some new

confidence planned we exciting addition, with a nonrecurring as the quarter early and Gerry updated intend to moment. hiring increased give from investment in our Overall, yesterday. new next launch will products in continue accelerated with us in We we on benefited year. achieving third few just higher preparation results quarter, revenues further the a in elaborate which margin guidance In provided of

last gross we products are in quarter, carry resuscitation like they the As will discussed our investing legacy products which call in that we in new replaced. solutions, higher our margins

the will existing carry approximately product fact, margins. new solutions resuscitation our In resuscitation double

solutions are gross in see to and positive As expect these we the a margins impact customers, to adopted on products years by come.

RQI XXXX clear, from the generated over agreements on XXXX, products December XX products right At approximately current year with selling two of As RQI June expect and to to, these HealthStream to, can in stop provide we XX, and expect revenue revenue. days, of XXXX. Laerdal will trailing announced the be the X we decline And million at HeartCode $XX.X and for continue the we’ll expects quarter of a XX, and that for approximately remainder year. of of products run and XXXX. this their and months the our end selling for uninterrupted retains customers which the we extend December this service of XXXX. XX the the revenue duration Medical to out them XXXX. our those to through of HeartCode in RQI reminder, end contracts, expire will HeartCode course the from To first and be

a to that and clinical including of selection brings customers a to more for solutions, choice resuscitation. committed our creating marketplace wide range We’re

individual days like science, hardware and multiple new of strategic XXXX expertise In fact, XX partners, will new and each launch focus technologies. and new areas track curriculum, credentialing, we’re to feature in with of on The simulation resuscitation solutions software solutions resuscitation away. January to

new three partnership we’ve high-quality we’ve shared As resuscitation solutions. develop you, with innovative previously already signed agreements to seven-year-plus

progress for January the XXXX. excited resuscitation making to announce third seven-year of partners in the we’re solutions and We be we new quarter, our in about fourth ready HealthStream partnership pleased the four new signed are that agreement. to our are launch

Of remainder and year these prepare this products financial will of we on capital increase Gerry early results. go-to-market, the third detailed the in to metrics for a new to our At this and and solutions expenses discussion of time, course, throughout next quarter Hayden provide year. investments will as more the

Gerry Hayden

once you, again, everyone. good Bobby, morning, Thank and

Before reviewing from third our quarter results, results operations are to continuing like I’d that, all one, only. note

year. operations was Contracts revenues operations from impacts up the Earnings in third exclude new with $X.X Experience are $XXX,XXX of million Accounting to results quarter or for XXX. XXX, So results of of up was in diluted results XXX. the operations third of segment diluted of million. the Patient XXXX of ASC last of application new XXXX from XXXX the from the third the with that last per quarter X% Standards XXXX, result XXXX are $X in $X.X with third third $XX.X year of as XXXX here example, third XXX. million $X.XX Adjusted previously third ASC prior from third divestiture. per from year, from Customers, XXXX from EBITDA $XX.X XXXX of Codification was ASC third compared the with known $X.XX me, also of in from XXXX, XXX, million and to was million up quarter quarter the the impact in were divested quarter operations And quarter income sale the quarter positive presented for whereas Net positive income per a the the Operating up application XXXX, a share in of segment, $X.X this to of XXX, a the highlights of in EPS third accounting gain million from continuing of in of in million $X.X our $X.X the in – continuing ASC of the quarter. accordance from Excuse business the in share, XXXX, the two, presented Consolidated are continuing the quarter of million positive the standard. quarter third application with with share quarter EPS, accordance the quarter from third operations in on in ASC from some continuing impact million of XXXX, Revenue $X.X in

reporting financial presentation Excuse the first to this whether pardon segment, operating and originated of quarter me, pardon me, be reporting our the year. me. the in mandatory the third two XXX, for of and divestiture remainder year which once of One ASC continue revenue. reflected Experience that Patient new is standard in again, of Our GAAP this XXXX developments quarter of results business includes is in the the adoption the

occurred As business divestiture on the you of know, already February Experience Patient segment XX, XXXX. the

operations. and sale loss segregate from gain or Our income continuing operations the statement to from the continues the discontinued income on

operations, continuing Solutions the on development of workforce segments. focus consist comments business Provider our Our which and

the by year. ASC and under ASC these with is recognizing development reporting into recognized commissions the of than of historical ASC reporting. to method our was ASC financial are would been ASC XXX most lower difference our been same period in under areas XXX, accounting. are same in of financial GAAP XXX. capitalized amortized recognized quarter have second was expensed affected commissions XXX The accounted that accordance realization revenue as under XXX There XXXX, revenue commission with third our quarter and capitalized period In XXX third The XXX ASC the The in recorded similar expense for would reporting, regard commissions to while costs implementation results costs is as have the of XXXX two level. ASC significant same last what

HeartCode, quarter XXXX, RQI statement, let’s resuscitation two Workforce and our from model, of switched higher subscription workforce federal quarter. $XXX,XXX. consumptions of to third Now we of third a $X.X write-downs, the may rate is contributed income be overall from the by on year’s on from Because higher third this Revenues. Morrisey our of services deferred now model less primarily on which the increase the expect which Associates, products. revenue recognition the to we This segment Revenues variety product, the highlights these business customers in extent quarter HeartCode in quarter’s in benefit segments. XXXX. a of was In any such last based fluctuate, In August than balances a these we deferred areas and of of government net the of requirements. fully revenue segment from revenues revenues growth, our revenues, forward. are Inc., including of touch revenue in the balances also higher compliance professional our at third contracting of our result to from revenue each Solutions from particular, the approximately Revenues quarter significant increased acquired recognized, million also products. consumption largest don’t revenues bit Morrisey for levels by and acquired a model the increased revenues benefit Their government third revenue acquired revenue growth of from our customer at of products our helped from predictable will quarter one impacted. contribute a deferred XXXX, standard from customers’ we based consumption Solutions going Overall, the look certain subscription is recognition some to almost from revenues a from the consumption Provider

deferred contract and revenue totaling I shift which and the consumption-based million, declines to As quarter had at its recognize onetime accounting we $X.X as – government the couple just that approximately third it Bobby, referenced discussed, Morrisey. of included for a of revenue the in

Now, gross margins.

was and products, due example. from XX.X% to gross last same increased XX.X% existing primarily quarter RQI, the quarter year, revenues resuscitation margin the HeartCode, for lower-margin in Our this

last hosting about reflects, cloud-based migration and of investments The year workforce third about over last overall our of Operating cost now year processing this where increased up software expenses development XX% for third quarter. saw were in addition, year’s Operating quarter between revenues year’s Accordingly, overlapping and the XX% product between structure In we and Provider increased hostings capitalized – a the and from this overall grow this strategic combination an the can to quarter quarter. migrate also X.X% XXXX. XXXX expenses Solutions. this expenses same third period, expenses. last decision cost period

remains development capacity. a we development Software priority, and our maintained

of costs. of to note Depreciation R&D and of Sales still rates primarily revenues acquired remainder in remainder income quarters’ X.X% approximately product G&A intangible increased sales our of year’s software by amortization $XXX,XXX sales – of We this due or from of last in adoption quarter $X.X third and increased year’s sales through quarter, in year. million of and expenses. down investments growth, in our marketing primarily the expenses to approximately of and revenue last to in the commissions development, are of expenses marketing capitalized flat The revenues It’s Operating XXXX growth over of This in XX% is and operating some year. income. quarter XXXX. third in loss. third of million income Operating third reflects the with in quarter due increase reflects that, the increases was and to were third depreciation XXXX expense quarter is expect ASC $X.X plan the marketing QX to the to lower XXXX XXXX, and and also this third to income software the levels important Morrisey to of quarter. and XXX, about The compared Other amortization. the related throughout investments to on marketing G&A inclusion last the from leverage quarter. XXXX of categories. the do XXXX. and XX.X% lower assets of We full development amortization expense acquisition category of last the amortization third compared both through increase increase

several minority of a For that we investments portfolio we’ve small years, believe our the past established strategic.

a The XXXX, charge case we positively the clinical has For back in three $X.X accompanied this now occur, competency, a in $X.X volatility September equity method the charge, has due method, of example, investments major investments ignoring held after staff the currently in ownership or become cost trillion when our adjustments below to either investee. This acquired of effect exercise of In the successfully value adopted we method of quarter. We earnings XX, have driven capital carrying that group. which investment one decline where by such the during the factors, solution was carrying value and our of requires depending us new valuation these investments which to indicates in or companies was our under the XXXX, that part full influence to our giving this changed negatively. fair in million they as can original million by investee Fair in fair investments. three value ownership create noncash basis. on value over in value totaling investments, percent rule our rates a to potential adjust the GAAP of and/or ability cost evidence we as dollar

our balance at sheet. look let’s Now

cash position overall strong. remains balance Our and sheet

represents of in December lowest DSOs $X the December Our since has approximately increase receivable XX cash a at offset million this share XX, cash dividend, XXXX. days this receivable, receivable year, is collections paid special third of accounts in per Patient end million, XXXX. $XXX balance of XX improved quarter. at Excuse divestiture XX, April February September accounts was Since $XX the XXXX, XX was on proceeds approximately the and decreased XXXX. the million, the which net X, $XX on million cash by The the accounts reflects from resulting sales increase $X.X by of and since Experience days level me,

capacity results. with consistent earnings presenting We our of debt million no to capital financial are our issued have optimization overall to XXXX is XXXX appropriate. guide We other XXX available as organic our respect and and $XX support outstanding guidance. position growth XX, updated ASC release, XXXX, line and July and we is outlook believe to inorganic shareholder full opportunities strategies our structure second maybe earnings our updated likely utilizing with us. capital credit support And Yesterday’s – included maximization quarter anticipated our

XXXX. X% range, to compared We for as Solutions segment a anticipate XX% continue XX% increase income to to revenue will to XXXX and operating segment growth XX% compared that revenues XXXX. increase XXXX. the to XX% to to our last grow to Provider between year in X% Workforce X% anticipate be XXXX, For anticipate when compared our in we and will We Solutions the consolidated to X% as

will million approximately the capital expenditures XXXX. expect $XX We during be

guidance We include we XX% of over to not impact back for time. the acquisitions remainder annual XX% year. investments, call and during to or turn I’ll the does strategic This Thanks of your may for the the range income this this complete Robert. rate expect effective which tax year. between any

Bobby Frist

Gerry. conferences questions. few to Thanks, over cover it We’ve turn we more a to got before

And I so want conference provide update our to on introduced call. an initiatives last we

we over participate As up to a we’ve customers users and We million In network partners HealthStream quarter, and discussed our X.X call and XX approximately and second before, the in hStream. access it way improved made is now new our of introduced network. partnerships. for

to enhancements this represent as service hStream the technologies as year, capabilities. April platform We XX approximately subscriptions platform of QX. on beginning XXX,XXX hStream contract of currently under a new our is and it new Our has our in released of

contract customer new including a in provide hStream. are customers. that renewal, that any the product subscription hStream, for the benefits tuned, and that features comes powered more for many existing up we coming enabled each we’ll details by enables subscription and regarding Stay exciting For hStream. A services months, are by along with new new hStream the to new to customer leverage hStream contracts, partnerships the new

in serves the – that also metric of example, business contracts this, measuring most between workforce segments. third and be new representative began quarter, as we for soon its our development progress In the will subscriptions Verity a platform. for Provider including Importantly, business. hStream Solutions has hStream believe of SaaS bridge hStream our for Because subscriptions the

applications. we subscriptions. replace learning XXXX value In the which the time earnings and to of Mill, was are Tennessee. of to it alternative narrow Instead, In of we to current partners. scheduled new In prompted location in to This fact, remaining move increase long-term in our on year of absolute note. last XXXX, both in our our metrics, Mill, expensive of offices subscriber we locations last consolidating customers in in continuing less associated our we progress with multiple approximately and interest operating the legacy XXXX. reporting office, the lease and by new which of to $X release hStream and those brings focused is subscriptions into reporting our provide the in be and forward occupy current We the intend million by our terms, by intend to representation the national a hStream, and end for number our in spring expenses location metrics increase terms a occupying One will Tennessee. multiple look renewing

questions excited provide move the – as excitement of the We be and into Capitol to think to tech Downtown View, it over workers It area will great from to We’re our for energy thriving new near new which time, new part assist culture is office. location community tech is will this also I’d the with recruiting an known our Nashville. investor business. like to and At community. turn this

Operator

[Operator our from Craig-Hallum. Instructions]. with first Hewitt And question Matt comes

Matt Hewitt

the Good congratulations quarter. on strong morning. And

Bobby Frist

you, Matt. Thank

Matt Hewitt

the question. follow-up A couple a then about got and different of questions resuscitation, I’ve

of customers the today what under resuscitation, your are Regarding percentage XXXX? contract through

Bobby Frist

I me don’t have of that in front number here.

critical forecasts all. when all of in we that’s down questions still we’re open now, so come much their future back answer there in provided – that to last guidance eight so to take our and write them and weeks current So mean, the products. them to selling I well, the need going is probably February are probably about

number February front have of now, right in the don’t it I in call. provide but we that will earnings me So

a year, the It essentially. of view in businesses. By related and we’ll know wind will So have shape its the then questions now, $XX decline of Right to down the QX trajectory perfect of revenue next it’s million. to other two-year peak quarter of begin if have by and the probably that. of curve those We’ll you more first then, X XXXX.

questions, other So we’ll pretty much where wrapped for down if at know the release, the the and time, the more full asked. year like lay consider we’ll them that curve able you questions, We’ll – go just customers and February have and them you of almost detailed related related to sales. percent revenue be ahead that them any out. of exact answer our have all any write And questions

Matt Hewitt

work talk other card some you point product. of there American that? question out, sit around figured that And provides, where on that those Okay. is are card? going Association up going one resuscitation with be to was renewal, Heart to have that I The a regarding you be sticking for to customers Have some as that been – then potential customers. to they that mean, the you able

Bobby Frist

are that that’s a new signed partners for dialogue spoke developing a – products. their accepted. they all in science our of our based new customers new obviously, about and we’re not are think including and we international it’s dimensions partnerships include I’ve credential on new No, with out, any the acceptance globally But we

are In begin until remaining fact, unannounced, we with January. or products customers our discussing and they launch won’t those new

Matt Hewitt

fair Okay, I’ll away enough. from that. shift

to prepared was forward? During way mitigate forward? stepped-up that be going that to just a you going Or mentioned had that there expense remarks, of is you there Is going costs. some some cloud your for higher any hosting

Bobby Frist

Well, own managed our we’ve environment. our application, a we’re done managed so always hosted hosting where SaaS we a we provide have costs, as and applications hosting multitenant SaaS managed

costs. those have we So

outsourced we’ll services, those costs, a move into see probably Amazon web-based – and particularly Azure fully managed already hosted and hosts those Web of to more next overlapping services, are we As year. which some other and services, the

capital I acquiring managed hardware for outlays ultimately, will into within to Azure, goes we’ll our of to say Amazon the selected. facilities a course, the benefit and and would see that decline, move two XX hosting our months, start we’ve services primary Of hosting

moves. year. And to benefit that, that but look those through to see ultimately, next as have start expenses, into So – we’ll we beyond will again, probably overlapping we some then the financial

Matt Hewitt

this How then quickly you the I be that do you Okay, for to to regarding subscriber from anticipate you’re you up provide. hStream. last How implemented one – that’s your going think me Thanks X.X or great. quarter? do XXX said million And one switching – you you the anticipate, that subscriptions quickly the XXX,XXX provided heads-up number catching that fully now. approximately metrics

Bobby Frist

April, Sure. fast so When we we at contracts. the into met resistance since because no have think it including far it go pretty

In some benefits to get fact, as because they their enthusiasm when and immediate we met customers we it. upgrades some technical products mentioned, include

you the cycles our years, platforms there XX fact and renewals, we renewal good which by include early now three two network and reasons let’s are faster the all numerous all say, coming subscription get to there move as if the faster migrated. have should And probably pick hStream, QX, of, within of already. rather midpoint, let’s to subscription, for with life is months XX, of benefits for are and months, contract to on this think XX benefits hStream if the access I our we a spanning whole our And you it will that of customers is renewal maybe a target. quickly. four think think hStream hopefully included should so, And products most would say, if average

Matt Hewitt

Okay.

Operator

from with question Needham. Scott next Our comes Berg

Your line is now open.

Scott Berg

is right economics growing? least maybe of the And maybe are? get revenue the to Hi, Bobby, forward? Trying general the that good could business to us new to the is was taking well. at to quarter the value? as right the question I that’s direct Or hoping of metric you a use or number view help on Bobby, understand hStream what congrats the why and for opportunities platform explain seems thanks how why meaningful my – going on

Bobby Frist

Well. Sure, Scott.

have learning we’ve And from know application, HealthStream. of having you as supports fulfillment, infrastructure set a all we applications. moved to one a at application, an applications hStream, So, now with our almost singular that

that is with at fundamental, hStream a so of sell. piece architecture every of set technology included look, more first And we

in in it’s all from of a And our business that our secondarily, iOS, units. like it’s operating it’s so effect, – standpoint, across common our business like And system.

measuring other expanded system measuring a metric the singular like adoption checklist wasn’t it And center, platform learning we platform. penetration learning to competencies to long tools of was an to of learning our growth but an started encompassing the our important time we’ve So in ago our subscriber as metric, areas. the

two – last of quarter, quarter, think the is business inclusive one, core measure metric every of And then over and migration across represent the represent that units so does beginning functionality. quarter, fundamental will secondarily, we segments. next new all all we’re this this more and that of a our And for it our last

both and network share And features, the partners agreements build us ways with sign have host to products, platform-as-a-service in allow capabilities in so access to forms new new to capability of the of it leverage place. revenue is that’s new partnership and and new

again, it on is more platform-as-a-service. since to subscriptions we suite about of application it and is just like think business a hStream. can bit segments, software-as-a-service from tell, subscribers move hStream, April, direction of a represents we put global our fundamental more and XXX,XXX the so a so new company. representative And future as a a It And as you include to products, all more all to of the Verity,

to powerful. because fairly So it’s so it’s well going move quickly as

little good a is bit analog The that help from like may a that other also think standpoint. of be an economic thing to Prime. little a everyone hStream Amazon it about – Think might

into bundle to beginning hStream. We’re value

it to Some – creates it opportunity bundled financial value us more of into the allows we charge, opportunity. up

Some are to premium that that access subscriptions. new services turn give trial technologies could into

And existing platform-as-a-service. shift our competitors from shift disruptive share the that help to market market some to – applications should in are

singular the And that new all center, XX,XXX quarter, subscribers a learning that a And net measuring to each including number which is represents. been than fundamental of reasons, penetration about what is we the of more the this XX,XXX it’s approximately that as X.X exciting think those grow, so for metric metric obviously, next years, like four million quarter. to that application watch market we think

now. are to has a that market share back that relatable now there dozen these the fun, been have metric are of all and them new So of products but half

Scott Berg

Very does volatility the Sad create onetime the And helpful. on How in follow for to model leads Because, next that fees forward? guess, you But some Gerry. the the then going Got leave. the that up R&R. with quarter, Hopefully, maybe you guess, especially it. my or the one to. see I shift on adventure is whatever variance, contract much to consumption. as in since those is, million pulled your quarters? to between know forward a probably don’t just understand create, from going right additional then $X in at two trying what number I million And to revenues maybe maybe consumed they to periods And basis? quarter that’s short-term $X.X those, what’s to were versus if least variance future on maybe are the future the Congrats visibility quarters.

Gerry Hayden

Yes.

Very anomaly. the of there overriding because large a anomaly consumption-based. kind all maybe are subscription-based contracts, few customers Most comments. are was an few, still couple So a of, as

this the helped? look I revenue take the That’s Second, quarters the or way to probably normalize, right a it to that spread, at run quarter, the is this so. over just with that rate – did spread two variance think,

Scott Berg

much. questions. That my taking helps very Thank very you much for

Gerry Hayden

Scott. Thanks

Operator

question from Halper next comes with Fitzgerald. Cantor Steve Our

Your line is now open.

Steve Halper

you months are last some quarter, do consciousness later, that three about talked Hi, we – feel of about about as mentioned launch you new you products. launch? the approaching resuscitation How the that

Bobby Frist

very way long with the new we’ve There Well, new product to strong And well incumbent fact product that time. an outcomes. see exciting. in outcome market. it’s on represented our of maybe to there partners one is a is course, for an gets than that is that more a energy improve achieve daunting. a also But in and a it It’s that has

have we lot think of a energy. our I partners, so that And

excitement. to there’s its its And that the market is watching the it’s acceptance. lot launch process get and is new into January. think it’s of internally, see in take caution cycles going to But it I development the and a

excitement So has is our selection, future, is choice a partners not is and to the none. small the where the previously path as and create for but and the it company high energy inside within been there

Steve Halper

Right.

So better months you you do it feel than about did three ago?

Bobby Frist

do, grown. the that we’re doesn’t very strong yes. and able I that be to historically in to quarter, going But that’s holes product the a large mean of first fill

my better, you feel absolutely horizon. but caveat about is I so And the to more think, have

and what positive issue. We experience a having been and are opportunity with this It’s new not fix dominant products. as prior a long-term explain product a for to a long has QX trying

Steve Halper

Got it. you. Thank

Operator

next Our Genuity. with from question Hoffman comes Brian Canaccord

now is line open. Your

Richard Close

Yes. All right.

Just just I hStream you to a it’s Close. it Why that’s why just the upside can learning say, better. to how existing just revenue last understand is it platform. re-signing so know, do I questions. trying an the all want need I But that? learning customer me customer to better quarter. for hStream? me is And – integrated you Thanks included in platform explain is just I’m I’m all Richard in So walk hStream? an learning trying with understand product? – the little through and to and/or the this a to I’m is And platform gets walk try hStream? let’s the associated with tried new there this to

Bobby Frist

and propositions out Yes, or economically? contract identified their what net a excited six that’s Yes, platform the about mean will our seven that And one be customer on, why is, the renew current learning positive. two slight to of over smaller economic And to first sure. be add I value you next impact that I’ll we’ve it? take hStream will So that can. But play does years. the a the which – hit would

and learning is take in upgrade, learning which If is architecture. had, effectively the application, the this, center center from you contract – your broken a platform-as-a-service we’ve the on you hStream, which prior

then in learning your it’s split to in let some let’s effectively up the you charge see give a the would the of bill bring. And split. in of value. be kind of the me and purchase going But And value so center, example for of half. simplicity, say, you it’s for just because it’ll that slight half And hStream, split

we the the are a connected customer market They are learning the of wonderful, capabilities. had lot connected today, the immediately hStream platform. capabilities the HealthStream us architecture they there to the certain system new got Center share old new Learning enjoy to old new available So of to but

management set And the we My better manage of of tools a of One reports set a for of Team first managers capabilities to direct learning new is new My the to them. call is Team.

features about connecting very are team of is a that to only And new enabled hStream. excited so our there’s set that sales by

new renewal hStream customer be hStream they if capability. there’ll And the net on up so HLC, they’ll the then go And to for get their back again, include subscription the a the show can features and that upon them we in the renewal, slight contract. learning charge

to other only powers example that technology an One set this is are charge, portability. is and actually that transcript instead there’s of call that individual powered example, out, here start but hStream hStream. new a So features up what by an of an the we is opportunity,

identification their them and does, to network their institution. model lifetime those allow be just what track creates to history pegged and their And it each in unique persons for educational our longitudinal along a just so and person not move it with educational

center have their capability. And to universe of so at is a the records the fundamental to at being platform-as-a-service new hStream – tenant and and the their of individual organization being the beyond access employment of individual the concept the the able

finding We’re excited e-portfolio. about household

of to to on subscribers million, and I when a X.X think is our about latest has total connected which is new hStream. up – e-portfolio transcript, possibilities capability number is that

many are And value there so propositions. more

in are service. now, currently, are for be up where bundled it an value services think on slight it. for. We also a is right a other Prime, bundle charge value additional Amazon at – Again that again, we there’ll hStream, Think customers believe some pilots vendors pay you with into

as and a And value-added couple a it’s federally hStream included, hospitals in some hStream. and if required hStream sanction say of included so service for now are electing, free a me in this provide of small membership inclusive is and we screening pilot of but let doing your charge, to a three,

a another upgrade on service charge up one hStream paying likely to of access customers for get are screening. for will sanction vendor every to that small that a essentially free our they So

so federal the be hStream check in helping databases validate And we’ll anybody and sanctioned essentially, against continuously network.

So value that I Amazon, hStream at concept concept, much continue e-portfolio on gets bundled and music to there’s we probably shipping hStream There’s of of to three course, hStream And of is we idea and transcript now the to capability, like about then and the this on the over years here examples again talked enhanced free bundled portable into subscription. to application connected the pack and each connects those individual come hope application more announcements the that subscription. hopefully making advantages capabilities value of through well. of helps. this, within application, to more as customer out the application of some value where every valuable these the each gets value

Richard Close

Okay. helpful. That is

come As upgrade away to decide say, the I to a, upcharge I let’s walk not that, Or and Do you? essentially learning I to the I to renew... I’m do hStream. I follow-up up balk at from renewal that for hStream, guess, customer, I

Bobby Frist

What we bit we’re yet. now, Prime them right XXX% happened I’m happened it April. might I a the hasn’t leave who hasn’t to really, we’ll conundrum. value across now. customers, no-brainer. overwhelming a happen, It small retain doesn’t it’s And make them. value, guess to find one, like that older batting could – And cost. trying we’re it But right incremental want for the sure if X,XXX to incremental we is so on create it’s it it’s probably Amazon do the elect of architecture, yet since wanted and

hSteam XXX your free we XXX subscription. industry free For courses, the with example, video we’ve also Amazon almost industry like courses, have including moved

debate Prime, and is renewal. – so this in overwhelming little value the our involved concept the like Amazon And

And so we’re XXX%. batting far,

Richard Close

your e-portfolio, on with that’s the respect here, individual. comments specific X.X based And in with million Okay. this to

let’s different my certifications I’m take B, me? able that essentially, with are to hospital move So from saying, hospital education A say I entity you wholly records portfolio to and a my,

Bobby Frist

is That correct.

with records so what’s relationship and the do agreeing of if place our it, the carryforward it’s anyway, record-keeping of it’s earns the individuals about individual happening the where institutions they portfolio. some their seamless can process for accomplishments. records think to those And education copy their if are hospital, of go guide in then credits us, Essentially, which and burden with which to already what begin get that a and opportunity for a network, institutional they then It its while records. working their is those some to the changes down the and powerful. records you a to release And them, they’ve and CE individual, and earned. resume those a the them, the department that you made individuals currently allow administrative kind are to their ask carry already more life at individual of that And

Richard Close

that is or they the fee, to a anything? pay individual? do nominal Now subscription fee free Or

Bobby Frist

free. is It

Richard Close

see of to be might other customers consumption, government any format? respect as type to the to federal my a question this going here. with With great. consumption the where forward final type Okay, move contract you that Gerry, Do trend or on shifting of entity.

Gerry Hayden

No, not really.

kind the federal as for roughly we contract. with might each anomaly of much one the other. anomaly. over see, be, we this subscription-based at what looked sync most in products, of as, our an So consumption They’ve anyway, large one are they cost, attracts look so model course HeartCode customers This very of the is

Operator

And our First next with Analysis. question comes Sparacino from Frank

Your now line is open.

Frank Sparacino

is macros drive I’m the that growth of side the sort business? curious, compliance continues the side the any compliance particular of of being Bobby, and things, to there On

Bobby Frist

season, a yes, have we But in opportunities. emerging some see We they’re development.

help corporate where remain and just could We’re HIPAA compliance in is think things functionality and needed. needed, an of much talking a to education and and area into a which the all turn opportunity new in an They much partners remains opioid OSHA place. agreements. crisis, is we around But in Verity and like core

lot oversight For better a of worse continuing lot and or requirements there’s those industry, areas. of our a in government of

So driven opioid happening just is there just and but that important the network part have little of what’s talked areas, and more the drivers now, the smaller And that in new both by have innovative data interesting of we nothing we about opportunity immediately. using I’ll and say for our We business. a those do things are new some been a few industry, market an one of base means that’s it’s is always – evaluating the as leverage the KnowledgeQ have services. and of but they it’s epidemic around about benchmarking bit products, in development. that power part products there

we’re adding to more products think our the generations did than previous So we we products value in of compliance now themselves.

Frank Sparacino

unlikely commentary the look XXXX at been the to don’t ready XXX year, that assume guide. it any just resuscitations this transition terms – the new more I around, sales see Or behind has seems as me. this but to just to you hiring I obviously, a a we’re want transition year? to seen of And in reasonable But the modest getting going up the year. definite one for increase get for being guidance, it’s there? benefit we’ve follow-up year. this Is ASC next on expansion ramping know very the in into It margin comments

Bobby Frist

we guidance five-year our provide planning – finished, results detailed we pointed things just be That as annual budget renewing or budget in going to we are a our to move, costs. that Nashville. think, up ago, that important location essentially in we disclosed here And a don’t our more $X we guidance occupancy million where full cost will to and your do of all-in in in in month process. I move office a up, office wrapped are, costs We said, is and believe about that go out, up related our we We space spite have a through rent couple economical provided, the for Well, tremendously of One treating the about just you need at and the February. in already. end modeling we’re which call of cycle. thinking now of you of

aware of be And to is, another then of our is secondarily, margin resuscitation will business the decline that the lining something hidden of, a lot silver factor and is course, one products. sales. the is The of pressure the there. that that and gross us biggest So there’s lowest of driver it of only, rate

its began can actually And product extent move new margins the solved will that the to gross it margins it as gross So get all, up. enhance. dissent,

to exactly long starts gross and level, leverage profitability next show for margin company year. middle to of overall, think it that run the the through But level right. I So you’re

We’re launching a product. new

increase product and new a the effort, sales efforts, the marketing need We are are continuous. office moving to our all to development efforts the

that’s so two factors provide year. limit there’s at least can clearly and of have now, on downward I but that that – So pressure the the next guidance

product businesses SaaS the We’re at launch of to the of eventual that the margin each margin though the installed explain to shifts the to the platform of our the in sunsetting of PX Verity. at and sunsetting, we’re divestiture Verity the power from trying low move the a to making double the resuscitation products of

to two leverage if moves, and and the years you overall the those start characterize would impact think company. three and and I of But on four have profitability of All XXXX raising tougher part delivered the exceeding in our XXXX this had we relatively – than of to year, guidance. promises of show gains all as case, maybe we’ve obviously, this in on

so the And look to and we moves and and bar have, to appreciate everybody we’re are say really impact the for trying we’ll two reset out. and XX, horizons three the XX making at months XX today and

Frank Sparacino

you, Thank Bobby.

Bobby Frist

Thank you.

Operator

[ph] Our Hayes next question Jared from with comes William Blair.

Your is line now open.

Unidentified Analyst

Hey thank you. Congrats on again. quarter the

Morrisey I on new platform? you to platform from that uptick? feedback I’m to was platform? Verity an on transition claims initial have has And may early been and real what the any if there quick over the see here. update the guess, I new the Just HealthLine wanted the wondering, legacy

Bobby Frist

platform. Yes, there’s the a on excitement a of platform. marketing-leading lot it’s think We

as bit. gate slowing solutions. we walking There, is to We we the are, currently leading to the implement intentionally to are than learn demand more implement actually a new

and of of So intentional and out bit uptake get the a work we as system that a it we’re the where seeing lag newness some of we wanted.

is would of excitement energy, QX has But The it getting plans The we issue. it say, product. as attended believe demand good, the all we models I our in experiencing a slow capabilities we’re think market-leading a think in and perfected overall, for activated. we and in so been getting well-received. product say I a we are national implemented QX and it’s on product market resolved And that year. behind would next are those into I conference, currently, just We incredibly its changing. downs enter we will and have but don’t enthusiasm early the some get QX. Hope high, is implement reception

Unidentified Analyst

wanted on. then one thing And Okay, just very other great. touch helpful. That’s to I

M&A of on And more inorganic specifically, now? you more mentioned, that nature could that uses on or market potential potential Going the seeing marketplace can that you growth something balance. know, things the provide I far back are multiples that I’m if kind provide in wondering, is cash to valuation at, a then you opportunities. any of color organic cash. little as if looking that color as you’re right the or of bit

Bobby Frist

active Yes, so we have M&A an program.

be out divestiture, more last kind of year all to and but that a very little through complicated, think March was it successful. of year this with I consumed of turned

and improvement it resulted balance in distributed a know, both you really cash our it dividend. As in

and take So, it’s conclusion, pipeline. rebuilding but the But that distract are pipeline. our since we acquisition did

closed. of and quantify lot M&A But have expect we really to months intent on coming dialogue, if M&A, a the active they’re answer or deploy we until We over do you have ask the capital and deploy to We deals don’t do and me, activity discuss is years. active capital yes.

we’ll normal be in We are story do organization year our thereafter. But how next trying growth overall thoughtful next, on we contribute to proceed the we and with to that. M&A, our believe really

Unidentified Analyst

you. Thank Great.

Operator

Our next Vincent with comes Colicchio Barrington from question Research.

Your line is now open.

Vincent Colicchio

you open market? As an on what linger, give And issue referring us this is filling if to? given that the positions. you’re labor Could more may some staff tight positions color

Bobby Frist

of a many combination things. it’s company of platform-as-a-service. Yes, development The nature I shifting think this our

expertise. data are data data hiring with at data, The We’re data visualization looking we’re recruiting focus now on people. new types of and assets people expertise,

is people bit The Nashville, the so a particular. to of, company, but is in in looking we’re creates So – labor in join across there tight of country, challenges. types new for market and the that

And bit creating slowness. little of a so that’s

in will all a ramp to too, the been for think the some So middle in press that organization will resuscitation companies, a to want and year, January full this it challenge. new tech and the ongoing and think, all And of launch hiring between organization, up core a like of yes, in now meaning a we we strengthen didn’t the up persistent to wanted has positions where get sales the ways so We be that product. it be mid-January. by and sales for other intentional I are challenge we

bit it of some is and a was it of some market-based. So intentional

Vincent Colicchio

competitors And by been any your of new meaningful has more successful Workforce some in the Solutions competitive then product areas? in there introductions of landscape, product terms

Bobby Frist

And but material of market I anybody that large haven’t do. all There’s attention. that’s up of seen bring set haven’t almost the an any we everything changes share. market a group anything, any I seen for – an iPhone equivalent competitors that to changing revolutionary has

and some in new new energy hStream ways, resuscitation our think I bundled the launch products. around our

not-too-distant I think, in we’ve great things the some future. got

Vincent Colicchio

me. Okay. That’s from Thank it you.

Operator

we from And have a Brian Canaccord follow-up question Hoffman with Genuity.

is Your line now open.

Richard Close

This is Yes. Richard, again.

that a $X million what’s And Just I not think move I’m $X said about maybe when in? just, mistaken. costs, new the we The think million that target extra you clarification – on you if is spring, should the date? in office.

the we P&L? in I So Or is on out about then, million, do $X spread incremental maybe that to terms cost that how when starts And of, accrue, the facility in the $X million, that buckets guess? Gerry, is think G&A? that in different is all

Gerry Hayden

$X the kick QX, first million to question, Richard, start and was so roughly. Yes, in four

So calendar opposed the three we to full year. the as take last of quarters XXXX,

second, in of be part The some second your amortization. expense will question, the and depreciation

save these things, finance the One to lower, the need we is let’s of money on – money efficient cost was the of ourselves, which on want project saving much, if be a we did require lease we capital, in say, of to term. we and a the improvements much sort very

be how will part rent of cash that – cost amortization So in occupancy one expense, the actual the G&A. is but

Richard Close

facility have Bobby, that term higher would longer something comments you it for I you but just clarify said some costs, your then, also costs. then, Is be better of And – Okay. to the on these you thought said, that you.

just was I I to misunderstood? So trying maybe clarify,

Bobby Frist

miles one Yes, comments spread contributions place cultural now, so the right from, having that everybody in on Nashville. we’re across XX the apart in and Brentwood

So a that will positive. be

much better looked at, live do for millennial really will excellent. to value of recruiting – several place But announcements that it’s pick here, in are the renewed. rent, the that, the lower workforce best overall, in The just about even how locations we some we’re half the choosing are and cost is now. we company, downtown, the just and looking really our or think a to would which know have workforce, current that the which office were of be stayed including and we people business over I staying our district. to is we I we location other the and relative new nine than deals, And getting is business gain, renewal I value – in negotiated the eight teams good which be relative stayed the so thought at just cost had central found

moved we called was employ. just methods So think out help View what Capitol little a vibrant More committee to us bit. new We and a recruiting. will

I was cost there. a to to so but in speaking more us benefits, intangible And will that sense pure the financial be

Operator

like turn to I’m At the CEO no remarks. further to over time, for questions. showing this closing I’d back that call

Bobby Frist

senior opportunities all and company, want who of everyone, Scotty over you, be after for filing. him our Hayden XX our an the Thank their his Roberts, an years. that I even appreciative his guidance. introduce contributions our to Gerry also we’re Gerry’s excited contributions, get proud he And raised of to probably Obviously, delivery and also on to for will onboarding thinks dedication more will and his our he quarter to to in incredible years, so to the you for to call. outstanding for facilitating of new for work the advisor Thank company of months listening. resulted of XX-K with as several us employees as next thank interim CFO, over

I listening. So all reporting look for thank quarter. forward you to next the

Operator

today’s your participation thank conclude for This gentlemen, program. in you does and Ladies conference. the

great now a may have Everyone, disconnect. You day.

HealthStream (HSTM) 23 Oct 182018 Q3 Earnings call transcript