Good morning and welcome to Health Stream's Fourth-Quarter 2021 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 question-and-answers after the presentation. I will now turn the conference over to Mollie Condra, Vice President Investor Relations and Communications. Please go ahead, Ms. Condra.

Thank you and good morning. Thank you for joining us today to discuss our fourth quarter and full-year 2021 results. Also in the conference call with me are Robert Frist Junior, CEO and Chairman of HealthStream and Scotty Roberts, CFO and senior vice president. I would also like to remind you that this conference call may contain forward-looking statements regarding future events and future performance of HealthStream that could involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements. Information concerning these risks and other factors that could cause the results to differ materially from those forward-looking statements are contained in the company's filings with the SEC, including Forms 10-K, 10-Q and our earnings release. Additionally, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HealthStream is included in the earnings release that we issued yesterday and may refer to in this call. We had an exciting event at the end of the fourth quarter that we highlighted as our first bullet in the earnings release. The bullet stated, "Our CEO contributed $2.4 million of his personally owned HealthStream stock to the company in order to facilitate the grant of shares of common stock to over 1,000 employees under our 2016 omnibus incentive plan, which resulted in a corresponding $2.4 million charge for stock-based compensation and related expense in the fourth quarter. Given that event, I'd like to extend a special welcome in this conference call to our employees, many of whom are new shareholders of the company and they might be listening to one of our quarterly conference calls for the first time. It's exciting to see [Indiscernible] of our employees realize the opportunity, become an owner of the company that they've helped to build. So with that start, I'll turn the call over to Bobby Frist.

Thank you, Molly. Good morning, everyone. Welcome to our fourth quarter and full-year 2021 earnings call. We got a lot to cover so jump right in. 2021 was a year of record setting revenue and record adjusted EBITDA for our company. Our employees achieved these records despite the challenges of the pandemic. Through it all we stayed focused on being the platform where partners and customers turn to empower the healthcare workforce. Throughout the pandemic that focus has continued to pay off for our company, our customers, and our partners. As we get into more detail about last year's results and this year's guidance, you will see why I'm more confident ever that it will continue to pay off. Let's look at a quick recap of financial and operating results before our CFO, Scotty Roberts, takes us deeper into the numbers. We ended 2021 with revenues up 5% and adjusted EBITDA up 15%. We ended the year with over 5 million hStream subscriptions contracted. We also completed two acquisitions, we were awarded two patents and our innovative products were recognized with four prestigious awards. In this call, we will elaborate further on how these and other developments lay the groundwork for what we believe will generate shareholder value. Before we do that we need to take note of the context in which we're operating. By most accounts, the pandemic in the United States appears to be in retreat. Even with the last Omicron spike, COVID-19 hospitalizations have decreased 18% nationwide over the last two weeks. On Thursday a White House official said the U.S. is getting closer to a time where COVID-19 is no longer a crisis. We are hopeful that that time arrives soon as those most greatly impacted tend to be the front-line workers in the health care…

Thanks, Bobby, I will jump right in and start with an overview of our financial results and then go over guidance expectations for 2022. First, as mentioned earlier, for the third time over the past seven years, our CEO gifted his personal stock to the company, which was used to facilitate a stock grant over 1,000 employees. This grant excluded executives and Vice President of the company. The financial impact of the stock grant was $2.25 million of non-cash compensation and $185,000 of employer taxes and administrative costs. Despite being fully funded personally by our CEO, GAAP requires this transaction to be accounted for as a compensation extent of the company. Which negatively impacted our financial results for the quarter by reducing operating income by $2.4 million, net income by $1.9 million. EPS about $0.06 per share, and adjusted EBITDA by $185,000. Please let me take a quick aside to put this into context. When I talk about Bobby's generous contribution negatively impacting our financial results, I want to be clear that I'm only talking about the accounting treatment. Bobby donated his own personal shares in an amount that offset the shares and related expenses that up characterized is having a negative impact. To be sure, we believe Bobby's contribution had a positive impact, both to shareholders and to employees. Shareholders benefit from having a CEO personally contribute his own stock in order to compensate, engage, and incentivize employees who are now owners and tied to the outcome of their company. Employees obviously benefit by becoming shareholders themselves, who will now enjoy the value of what they work so hard to create. Okay, now back to our financial results. For the fourth quarter, revenues were $64.3 million, which is up 4% over last year, and includes a $0.4 million reduction…

Thank you, Scotty. You've got several business updates I'd like provide and will look at that in just a second. But first I want to remind you how we're talking about our business today because it's changing. We've come along way since pioneering Internet-based training for fulfill governance, risk and compliance needs in health care. We obviously still do that, but how we do it along with many other things we do now continues to evolve. As you know, we've been developing the platform strategy as the foundation for our entire enterprise. We call the technology platform hStream. And increasingly it will be -- it will enable the applications and the platform strategy. We have three primary application suites. They are learning and development, credentialing, and privileging, and scheduling and capacity management. Let's walk through some updates on hStream and each of these three application suites. First, hStream we added about a 118,000 hStream subscriptions in the fourth quarter, bringing our total to 5.0 million subscriptions. This represents an increase of 21% over the same period last year. The growth in subscription is encouraging and another thing I want to highlight is the growing opportunity of the hStream ecosystem. On our last call, I described some of the innovative new technologies that are hStream platform, including how the hStream ID enables management of a persons’ license data across multiple applications. Today I want to talk about another critical element of our hStream platform strategy, the ecosystem itself. In general, I think of an ecosystem as a community of participants that interact with one another and their environment in order to prosper and grow. In terms of the hStream ecosystem, their participants are our partners and our customers. And our environment is the healthcare workforce space. How we interact together to…

[Operators Instructions]. Please stand by while we compile the Q&A roster. Our first question comes from the line of Matthew Hewitt from Craig-Hallum Cap. Your line is now open.

Good morning thank you for taking the questions and for all the details. In the prepared remarks maybe first up, as we start to exit COVID hopefully, the headlines have talked about the stress it is put on hospitals and healthcare providers from an employment standpoint, do you think that this is something that will be fixed or results relatively quickly this year so you should see a nice pop from a bookings perspective right away, or do you think that this is going to take some time? and therefore, the year might be more back-half-weighted.

I think there's a lot of ways the answer that question. if you're the CEO of a hospital, I think the stress remains in your workforce. It's almost post-traumatic what this workforce has been through, and you're still dealing with burnout and fatigue. And so I think if you think of it emotionally, the operators have a lot to deal with, to try to recruit and retain and develop employees. And so in that regard, I think that's going to persist for a while, so I don't think that'll be over. On the other side, the operations of hospitals and large health systems are having to find a way to operate. And I would say they've gotten better both systemically, operationally, logistically at operating during these types of crisis. So their workforce challenges persist but I think they're finding ways to get on with the business of healthcare. And so that's really a testament to their strength and their commitments to doing that. I think we'll still see pockets that are going to be slower. There are different types of issues like do you want to take on new products when there's so much stress in your workforce? We did see a little of that in the fourth quarter where we effectively felt really confident we were going to win the business. In fact, the Chief Medical Officers would say. This is something that we like to do, it's just not now the time to implement something that changes the work environment at all. And so it did cost us some business where it in that case, incumbency was favored just because the change management. So I think the impact will be lingering. We think we've factored that into our forecast, of the 4% to 6% revenue growth. So we think that we've handled what we -- how we think our sales will recover through the year. And as you know, this year's results are particularly heavily dependent on last year's selling results where we did see that negative impact. And the first say quarter or two of this year are what will determine the end-year impact on our forecast. So we will have a lingering effect, which again is already factored into the growth oriented guidance that we were able to give. But I would've been nice if the growth rate was a little higher. But we've -- we think we've accommodated the challenges will face in selling.

That's really helpful thank you. I guess, maybe a follow-up to that. For the customers that did differ decisions stayed with incumbents whatnot. Is that something where you could -- they could come back here in Q1 or in Q2 or are you typically waiting till the next renewal which could be a year to 3 years out? Maybe just walk us through that process.

Well, yeah, a lot of things there. I mean, that one I specifically referenced, so they just said, you know what, we just don't impose change right now during the fourth quarter on our workforce for one solution. They actually seemed very mostly committed to the change, meaning they preferred our product, and so I don't think we really lost the tail, we deferred it. And then the second thing was because they felt a little bit guilty about that deferral, in other words, they really had indicated they preferred our products and we're ready to move. We're excited to try them but just wanted time. They actually committed to reviewing other products from our company that might be a little work in more easily than the one we had shown. So I feel our customer relationships are strong, we've been flexible with our customers throughout the pandemic. We've tried to offer assistance to them where we could with some forms of free training and resource access. And I think eventually that will pay back. And so it's like in that one case that I gave. I really think they'll actually probably buy a different product from us early in the year and keep the one that was deferred on the schedule for the next renewal.

That's really helpful. Thank and maybe one last one and then I'll hop back into queue. Thank you for the update on Jane. I'm curious how many of your customers today are utilizing Jane? Obviously, it sounds like you've seen an acceleration in adoption of that platform, or that application but what is that currently from your installed base?

It's a great question. I was looking at the number of contracts, but I have to look at it from a market share perspective, which I don't have in handy, maybe next earnings call our team right now will take some notes and we'll try to come up with a market share assessment for you. I'll refer to the number of contracts, but I don't have right the tip of my fingers here because there's a large health system, there's different market share application. So let's put that on the slate for next quarter.

Sounds like a plan all right Thank you.

But you can see the contracting velocity and the key of the call was the contract and velocity went up about 60% from kind of one a week to 1.6 a week, which is good.

Thank you. Our next question comes from the line of Ryan Daniels from William Blair. Your line is now open.

Hey guys, this is Q - Jack Senft on for Ryan Daniels. Thanks for taking the question and congrats on the quarter. I know in previous quarters you are targeting; I think it was 65% gross margins over the long term. I'm just curious if you can provide any color on how we should think about what to assume on the '22 guidance for gross margins. If there's anything you need to call out in terms of investment integration, any additional information or color that you guys have on that would be appreciated. Thanks.

Thanks. I'll take it and then let Scotty add some color to that. I think that we have changed the gross margin profile and should be able to maintain that mid-sixties like 65% gross margin throughout the year. And so we feel really good that there's a fundamental shift based on our product mix and the new products we're introducing, frankly have higher gross margin. So we hope for over a long period of time, improving gross margins even from here. But I think throughout 2022, it's safe to plan around the 65% gross margin levels. Scotty, you want to add anything to that.

No, I think you've got it spot on Bobby. I think that's our guidance as mid 60% range and the fact that Bobby just mentioned are the ones that I would have stated as well.

Thank you.

Guys. And just very quick follow-up on guidance too. You mentioned the shortfall in bookings in your prepared remarks. I am just curious how this impacts the visibility for guidance or maybe if the shortfall due to more elevated levels of competition given the importance of workforce management. Guess anything you provide here you would also be great. Thanks.

Sure. I think as far as visibility, I mean, the contracts that came in were -- we didn't get quite as many as we had hoped. And so the forward revenue from the ones we did get are in our forecast and we've adjusted to what we think is our sales rate which is therefore also in the forecast. We think we've accommodated the conditions we faced last year in our forward guidance pretty thoughtfully. I think both conditions have been met meaning that last year's shorter than expected results are already in the guidance on a forward basis and then the on-going impact of slightly lower sales, although our staffing levels are returning, that was one negative contributor last year. And now our staffing levels are returning, which is good, particularly in the sales organization. So but we think we've factored both carefully into the guidance with this case. I think you already signed off on that, so we just opened up for other questions.

Thank you. Our next question comes from the line of Vincent Colicchio from Barrington Research. Your line is now open.

Yeah. Bobby, you had mentioned that you had a good hire and quarter in Q4 versus the prior three. Does that -- did you increase wage inflation wage increases. To do that versus the last quarter?

So far not so much. Although I think as we move into this year we're trying to plan possibly about how we'll increase. What we've been able to do is find eager and excited people to back fill, or a lot of internal promotions. If manager or six person department left, we've been able to find an internal candidate where it would be a promotion and a pay rate is for them to move up. So I think what's happened is some upward mobility within our organization resulting in higher pay for those individuals. While some of the individuals that left the company maybe find hire responsibility and higher pay by leaving and but the net impact so far on us has been fairly conservative. I think we're trying to factor into our budget in this year a little bit more pay increases in certain areas where that will be necessary to get what we need done. But so far we've been able hire people or promote from within to fulfill them. And the result has been fantastic, like 167 promotions inside of our company and people taking on more responsibility for more pay. But taking the position of their say, prior boss, who made made more than them. So they again, they got higher pay, but it was budget neutral for us.

And can you can you give us some color on the resuscitation of suites you plan to add in '22.

We've got a robust roadmap there over time we've added products like the stable product, which you may have heard us talk about in the past. We have a robust pipeline of innovations with the Red Cross that is scheduled and then a few other categories that I can't talk about, but watch for that this year, one of the tease out the watch for some additional innovations and resuscitation. So the theme would be to round out and complement the basic packages, which are ACLS, BLS, and PALs, hit more specific practice areas and more types of scenarios for learning. And maybe even broaden definition of what life-saving technologies and life saving methodologies are. Resations and the only thing that causes codes. And so there are other ways to address the problem, sorry for the vagueness, but we've already laid out a decent portfolio with stable American Red Cross and we expect innovations in both of those areas.

And then Scotty, I'm not sure I got the right number. So excluding the legacy resuscitation revenue, organic growth was that 2.8%?

I don't know consolidated basis. Once you back out, the $6.6 million from legacy that was down year-over-year. Organic grew by 6.2% and 10.4% from acquisitions for a total of 16.6%.

So organic 6.2% increase for the year is that right?

That's for the quarter, sorry. Not that full year.

Was fortune in the quarter new -- 6.2%. Thanks for that. A nice job on the quarter, guys. Thank you.

Thanks.

Thanks guys.

Thank you. As a reminder to ask a question, [Operator Instruction]. Our next question comes from the line of Richard Close from Canaccord Genuity, your line is now open.

Great. Thanks for the questions here. Bobby, I was wondering if you could give an example of the certified partners program on Health Stream and maybe how we should think about that as the revenue driver for the company longer term and I would assume it's much higher margin business for you?

Thanks, Richard. Yes, it actually is. A couple of exciting things there. A, we have the number of partnerships and revenues have doubled largely remember the -- a good example might be our relationship with Press Ganey, where Press Ganey uses our network to deliver education and training and development programming through our network. But they sell it as bundled with their own services under the Press Ganey contracts. So that's a good example of a multiyear agreements in place where we're effectively the distribution partner and it allows our customers, the hospitals, to manage the pressing content consistent with how they manage 75 other vendors content. So there's benefits for the customer, meaning the hospital that benefits the Press Ganey because it allows us to manage distribution and directing their content within our network to where they want it directed. And we've created a model or it's easy for them to -- they achieve the contracts. They recognized the top-line revenue, and they effectively past the technology and distribution fee to assist in the targeting of their content into our ecosystem. So that's an example of the Press Ganey relationship and those type of partnerships are growing. Often we use it to introduce more content in a given area where there may already exist competition inside of our network. And so in the clinical skills area, we've done that with a few partners where they sell their own, do their brand, but they fulfill it and distribute through our network. And yes, it is high-gross margin revenue because it's essentially a technology and access fee for an existing network and the revenue streams are growing. We'll probably break out some of that in the future, but we consider that attributable to the capabilities of the growing -- of our growing platform and ecosystem.

Okay. Helpful. And then on provider solutions I guess the guidance here is for 4.5% to 7% type of growth in 2022. And based on the comments of three sales per week, I would have thought that maybe gross would have accelerated. Is there a reason we're not seeing that sort of flow through those higher sales per week?

Yes. Interesting, the revenue side. So when you land a big system it takes a long time to implement and get to the revenue recognition or the change in revenue recognition. If you take a big system like Banner Health or Providence, which is just a massive multi-year projects. It takes time for that revenue to roll in and become solid base. On the other hand, we have light versions of our products that we sell at a high velocity, but they're very small and much simpler to implement and they handle the process for a group of physicians or a small clinic or a smaller organization. So the below the number of transactions maybe reflective of a mixture of the very small quick down implement and faster to revenue. And the overall growth rate though maybe impacted by those length of time it takes to roll out some of the larger enterprise wins.

Okay, that's helpful. And then just going back over the 2021 bookings and I appreciate that the commentary that it was below, but factored into guidance given you good visibility there. Can you just remind us maybe the progression of bookings throughout 2021 in terms of your versus your initial expectations, like how the first quarter, second quarter, third quarter compared to the fourth quarter.

Yeah. I mean, just in general the second and fourth quarters are generally expected to be higher than the first and third quarters. So if you think of a progression throughout the year, I'd say the second quarter is generally a higher period of closing contracts in the fourth quarter. Generally of those two the second and fourth, the fourth-quarter is the largest. And obviously, early fourth-quarter deals that can get implemented by January, February or March of next year have an impact on the revenue of the next year. So I would say our biggest relative miss because the way we budget is aligned with those patterns on a relative, maybe an absolute basis, the largest miss was the fourth-quarter. But that said it was a good quarter. It just again, relative to expectations, it's usually the biggest. It was still I believe the biggest, but it just -- we wanted more. So as you play that out, by January, we'd close out all those contracts. We know how to project the revenue from them very precisely. And we can layer that into our multiyear forecast and then come up with our, essentially our budget and our guidance. And so I would say that our biggest expectations, it'll generally be in the fourth-quarter.

Okay. And my final question is, Scotty talked about the contribution from acquisitions, I think it was 10% or so in the fourth quarter, can you -- talking maybe at a higher level in terms of the 2020 acquisitions in the to -- January and then December of last year, in terms of -- just remind us like how you view the growth longer-term growth profile, growth opportunities with those acquisitions from a cross-sell or up-sell perspective?

Sure, it takes time, but let's outline a little bit. If you think about last year's core acquisitions, they are more significant for us. They prepared us to enter in the scheduling kind of a new -- as we call it a leg of the stool. So holistically, when we bought and sourced ShiftWizard and NurseGrid all on pretty rapid succession. Those three have been formed into a new solution group or product family, for scheduling and capacity management. And I would say those three, therefore, are early stages of integration, technology, investment. and we would think the cycles of say, 24 months to 36 months to get real IRR return on a lot of those investments. But good momentum as I talked about in some of the core applications like NurseGrid. On the other hand, the prior four acquisitions that spread out over a lot longer period of time, but the created our credentialing and privileging and enrollment solution set. I believe we're beginning to get what I'll call the early return, where we're getting that early IRR, almost capital or return on the capital deployed through the strength of the EBITDA. Those programs and migration of customers to the newly created platform which has now been in the market two-years, wins like Banner Health and Providence Health System, major system commitment to the credential stream platform. And so they are -- they we're hitting that hitting stride on getting a return on those four acquisitions with probably over 140 million of investments over -- well over -- without the first one, over a five-year period but if you take the first one and account over a 10-year period. So I think if you take credentialing pillaging enrollment and think of it as hitting stride, meaning the replacement technology has been built and our customers are migrating, we're selling the newer software-only. and we're upgrading clients to it. Then we expect to start to see returns now and we're starting to see that in the EBITDA contributions and generally the growth rates as you can tell from the forecast, we're excited about that scheduling capacity management early-stage. We put together three things in the last 24 months and prior 24 months of investment.

And what about the 2021 acquisitions?

They were just a little tuck-ins that we're excited about. They add dimension to our ecosystem, for example, Ryzen is an interesting little company that has figured out very unique workflows in the CME office at hospitals. And so it's a unique dimension of education and training that we feel Health Stream should have a presence in our learning platform, should handle about 80% of those needs. But this little company tailored at software to the needs of some called the CME office. So I think of it as a niche workflow app that makes sure that we stay relevant to all the educational initiatives inside of hospitals. So it's a nice little tuck-in, won't require major investments to overhaul the software, rounds out more of our education, training development platform capabilities. And we're -- so we're excited about that little tuck-in, not terribly expensive and nice value add the customers.

Okay. Thank you, congratulations for closing 2021. Good luck [Indiscernible]

Thank you.

At this time, I am showing no further questions. I would like to turn the call back over to Robert Frist, jr CEO for closing remarks.

Thank you to everyone. This concludes our earnings call. I Look forward to the next report and see you all soon. Thanks to our employees for a great year and looking forward to this 2022.

And this concludes today's conference call. Thank you for participating. You may now disconnect.