HEALTHSTREAM INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financials: Record quarterly revenues of $73.1 million and adjusted EBITDA of $17.7 million. Subscription revenues account for 96% of total revenues.
• Product Rollouts: Launched Insights Plus for learning with modern technology stack, announced new developments in Credentialing including a patent and provider portfolio, and ShiftWizard recognized by Workday.
• Customer Adoption: Increasing use of learning API and developer portal, with customer integrations tripling. CredentialStream secured enterprise contracts with major health organizations.
• Platform Strategy: hStream platform enabling interoperability, with developer portal activity surging. Expansion into health plan market with Network by HealthStream and partnership with Verisys Corporation.
• Direct to Markets: NurseGrid app with over 600,000 monthly active users, and My Clinical Exchange with over 285,000 clinical rotations year-to-date, showing growth in direct to professional and pre-professional markets.

Segment Performance

• Learning Application Suite: Recorded bookings over $2 million in the first 3 quarters for Insights Plus, a new reporting and analytics solution. Customer adoption of the learning API and developer portal is increasing, with a nearly tripling of integrations in production. Financials include a large East Coast customer renewing with Insights Plus and other products, with annual recurring revenue increasing 29%.
• Credential Application Suite: CredentialStream revenues grew 34% year-over-year in Q3 2024, with new customers like UPMC, Sutter Health, and University of Virginia Health System. Key announcements include a patent for privileged solution, a provider portfolio in hStream for credentialing reducing processing workflows, and the My Learning feature integrating with HealthStream Learning Center.
• Scheduling Application Suite: ShiftWizard revenues grew 17% year-over-year. Recognized by Workday as a certified integration partner and gold tier innovation partner. Saw unprecedented growth in customer reviews on Capterra.

Guidance

• Consolidated revenues expected to range between $290 million and $292 million.
• Net income expected to range between $18.5 million and $19.5 million.
• Adjusted EBITDA expected to range between $66 million and $67.5 million.
• Capital expenditures expected to range between $28 million and $30 million. Revision due to a large customer's consumption lag in the second quarter not accelerating as expected.

Risks

• Competition: Ferociously competitive healthcare technology market with dozens of competitors.
• Legacy Applications: Attrition of customers using legacy application suites, offsetting growth from new products.
• Macroeconomic: Potential impact of macroeconomic conditions on customer spending, though pipelines for new products remain strong.

Question and Answer

Q: Matt Hewitt asked about revenue growth and 3-year objectives.

A: Bobby Frist responded that organic growth is targeted at 5%-7%, currently at ~4%, and emphasized gaining traction with new products while working to reduce attrition in legacy applications.

Q: Stephanie Davis inquired about health plan spend and product messaging.

A: Bobby Frist noted strong pipelines in the health plan market but highlighted the need for cohesive messaging around the hStream platform and repositioning products to show enhanced capabilities.

Q: Jared Haase asked about the new reporting tool set for learning.

A: Bobby Frist explained the new reporting tool is built on modern technology, providing better performance and flexibility, with a cadence of rolling out to customers and planning to expand to other products on the platform.

Q: Richard Close asked about M&A and legacy product declines.

A: Bobby Frist discussed M&A plans with small, immaterial tuck-ins supporting current lines and the need to manage legacy products carefully, with no active sunsetting plans yet.

Q: Constantine Davides asked about hStream platform users and scheduling growth.

A: Bobby Frist mentioned plans to address hStream user metrics at an Investor Day and noted ShiftWizard's growth is working towards feature parity and beyond by Q2 next year.

Q: Vincent Colicchio asked about ShiftWizard in large organizations.

A: Bobby Frist stated ShiftWizard aims for feature parity and beyond by Q2 next year, with revenue run rate already higher than some legacy products.