Good morning and welcome to HealthStream’s First Quarter 2022 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 first quarter 2022 results. Also in the conference call with me are Robert A. 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. So with that start, I’ll now turn the call over CEO, Bobby Frist.

Thank you, Molly. Good morning, everyone and welcome to our first quarter 2022 earnings call. As I reflect on the first quarter, in the first quarter, management delivered several key results I’d like to review. First, we did deliver record top line revenue in the first quarter, lapping previous high watermarks set in Q1 of 2019 where legacy resuscitation revenue reached a peak of 17.3 million in Q1 of 2019. We’ve now replaced and grown through that amount with a nearly even mix of organic and inorganic growth strategies. Second, I told you that one of our multi-year goals was to become a higher gross margin company. Our gross margins for Q1 of 2022 were 66.3%, a 750 basis point improvement over Q1 of 2019. Third, our ecosystem and ecosystem strategy, as reflected in the hStream platform strategy, continues to expand. With hStream subscriptions now at 5.13 million, we believe that our platform strategy is well positioned for the future. I believe we’re delivering on some of the key promises that we’ve made on our key operational commitments over the last several years. Regarding a macro context for healthcare in the United States, it appears that COVID is significantly tapering off. Last week, the White House COVID czar said the data doesn’t point toward another full on COVID surge because hospitalizations are currently the lowest they’ve been in the entire pandemic. According to the CDC, the US is currently averaging just over 13 hospitalizations -- 1300 hospitalizations per day, which is a pandemic era low point. This means that our customers are no longer facing the threat of being overrun by COVID patients. This is good news for everyone. In fact, some of our customers are starting to invite sales representatives back on site as they return to more normalized…

Good morning, and thanks to everyone listening on today’s call. We delivered another solid quarter achieving year-over-year improvement across the board on our key financial metrics. Revenues were 65.4 million, up 3%; operating income was 4 million, up 22%; net income was 2.9 million, up 26%; earnings per share was $0.09 per share, up 29%; and adjusted EBITDA improved to 14 million, up 3%. Workforce Solutions revenues were 52 million and we’re up 1.5% and revenues from provider solutions were 13.3 million and were up 9.1%. Excluding the impact of legacy resuscitation revenues, our consolidated revenue growth was 5.8% and Workforce Solutions revenue growth was 5.1%. The impact of the legacy resuscitation revenues was a decline of $1.7 million this quarter. For the remainder of the year, we expect the year-over-year declines from legacy resuscitation revenues of 1.1 million in the second quarter, 500,000 in the third quarter, and 300,000 in the fourth quarter. Offsetting this decline, though, are several other products in our portfolio that are contributing to revenue growth, such as the American Red Cross Resuscitation Suite, Prudential Stream, Jane and hStream. With steady growth for products such as these combined with our M&A investments, quarterly revenues have now lapped the previous high point on the legacy resuscitation products hit at 17.3 million in the first quarter of 2019. This backfilling of lost revenues was nearly evenly split between organic and inorganic growth. Our gross margin was 66.3% compared to 64.2% last year, coming in ahead of our forecasted gross margin of 65%. Operating expenses, excluding cost of revenues, were up 5% or 1.9 million and reflect several areas of investment and some expense reductions, which I’ll go over. Our investments in product development increased by 9%, which is net of costs capitalized for software development. These investments…

Thank you, Scotty. As part of our business updates, I want to remind you of how we talk about our business today. We’ve come a long way since pioneering internet-based training to fill governance risk and compliance needs in health care. We obviously still do that and actually talked about the strong demand for those services as we speak. But we also have many new services that we offer and as the business model continues to evolve. As you know, we have been developing a platform strategy as the foundation for our entire enterprise. We call the technology underlying this platform hStream and increasingly it will enable applications and the platform strategy. We also 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 then I’ll give an update on one of the three application areas. So earlier I mentioned that we grew hStream subscription count to 5.13 million during the quarter. Another important way that we grow hStream ecosystem is through adding partners. I want to take a minute to remind you of the various ways hStream platform enable us to add partners. We have a long history of utilizing our 200 person sales team to sell our partners products, which we then deliver through our applications and increasingly to our emerging platform directly. Historically, we also handle all the contract negotiations, billing and collections, and customer support on behalf of our partners. In this model, which I’ll call our traditional partnership model, both customers and partners rely on us to consolidate all of their needs to a single full service platform. This is a thriving model with over 75 active partnerships, and we believe it brings unparalleled benefits to each of those…

[Operator Instructions] Your first question comes from the line of Ryan Daniels. You may answer your question. .

Yeah. Good morning. This is Jared Haase in for Ryan. Thanks for taking the question. I wanted to follow up on one of the comments in the prepared remarks, specifically that you’re seeing some hesitancy around some of the more elective clinical training products and I think burnout was sort of cited as a reason there. Given that burnout is both, I think, a near and longer term issue for clinical staff, do you think that some of those headwinds that are impacting those products will be temporary or is that kind of more reflective of the longer term cadence going forward?

I think they’re temporary. And we did try to suss that out in the discussion. It’s kind of hard, because you look at the temporary impact is just kind of like, well, let’s just not roll out change if we don’t need to. But even the medium and long term impact is kind of a broader realization that retaining and developing the workforce can be a key differentiator to your competitive advantage, or even your survival and growth. And so we tried to hint it, while there’s kind of a temporary kind of overwhelmed high turnover, let’s change only what we have to mentality. I think that products that can make a difference, either at a lower cost or return time to patient’s bedside, like we believe our Red Cross program does, or our Jane program. These are a little bit higher cost programs, they do require a change management process and we have seen some hesitancy in deploying them at the rate that we had seen kind of earlier. That said, I think those are the kinds of solutions that create higher engagement, in the long run, solve the workforce issues, instead of contributing to them. There’s just kind of an increased sensitivity to burn out and change management right now in some of these elective areas and I do think they’re temporary. So I think -- in fact, I think the more enlightened customers are already begun the investment journey, some even acquiring nursing schools, for example, as part of their development strategy. So I think in the long run, the roles of education and development and training will be strengthened. But temporarily, I think there’s just this, and we all read about here about this, this general fatigue, and those that have gone through this COVID battle and face that kind of work fatigue.

Got it. Yeah, I think that makes sense. And then just maybe a quick follow up, we’d love to just get your general sort of comments on the sort of health of the end market. And I know, you’ve kind of alluded to sort of progressing to this new phase of the pandemic, but the labor costs still remains elevated and that’s certainly a problem for hospitals. And I think we saw reports last week from one of the large public hospital operating chains that really kind of magnified that issue and pointing to both labor costs remaining elevated and that taking longer to normalize. So just -- we’d love to kind of get any more color on what you’re seeing more broadly in the client base, and how you’re kind of working with hospitals to help address the sort of continuing problem with elevated costs.

Certainly, the elevated costs are a real issue. The CEOs of the enlightened health systems are addressing it and they realize they may have to actually invest more to create better retention strategies and pay more to be competitive with, say, the travel agency. But at the heart of all this is figuring how to put these employees at the center of their journey. And a lot of our products, like our scheduling program are being built with that as a philosophy. If you look at our nurse grid application, it’s really taken off organically in the Apple App Store as the number one rated app in the Apple App Store, I think, because it allows the nurse to put their work schedule into an app, but also put their social calendar and their desired time off into the app. And so then they can coordinate with their friends’ times to meet and greet. So what’s happening there is that the nurse has become the center of the scheduling process not only driven by, say, business or financial incomes maybe as in the past. And so I do think that the labor issues are real, the cost issue is real, the turnover issues are real but the philosophy that HealthStream has is that you have to attack it head on, develop your workforce, promote them more frequently, invest in their career, and then build smart applications that incorporate their desired personal outcomes into your work and business outcomes, like our new scheduling approach with nurse grid application. And so I think the more of those organizations can do that, the better they’ll fight this battle, and they, like everyone, face inflation. And these burned out nurses that realize they can make a lot more and have more flexible lives by working in a travel concept, they’re just having to rehire them and invest more in them. So it’s a really interesting dynamic of kind of recalibrating around higher labor costs, but necessarily investing in that labor cost. Meanwhile, products that save time and money and do it more effectively, like our Red Cross Resuscitation Suite, I think can be a feature of how they combat higher labor costs, I mean the objective of these organizations to get their employees more time in front of patients. Now they want them to be competent when they’re with patients and so you’re trading out, you’re trying to assess the minimum amount to get the maximum competency at the lowest cost. I think, again, philosophically, that’s the point of HealthStream being a workforce ally, to credentialing and privileging, making sure the right people are in the jobs, are scheduling, helping put the nurse at the center of the scheduling process, and our learning and development helps retain and develop over time. I think all three of our core application suites are geared for a future where rising labor costs are a factor but these are the strategies to combat that, for these organizations.

That’s perfect. I appreciate all the details there and I’ll go ahead and hop back in the queue.

Thank you.

And your next question comes from the line of Matt Hewitt. Your line is open to answer your question.

Good morning, and congratulations on your progress on several fronts. Maybe the first question for me, you know, it sounds like there is going to be some savings, particularly on the lease side, but it also appears that some of your other operating expense lines came in a little bit lower, at least than we were anticipating, particularly in product development. Was that just a timing issue or now that you’ve kind of gotten these three major platforms launched and kind of out in the market over the past year to two years, have we kind of fallen back maybe to a little bit lower level?

Well, no, we still have some hiring to do. So I don’t want to say that they’re kind of permanently lowered. But I would say we’ve had much more attention on G&A. We’ve had a little cycle now kind of focusing on how we want to operate post pandemic. As you heard me say, we shifted from this concept of offices to resource centers that people can visit and work from, but it’s a different mentality. So we’re beginning to do our kind of post-COVID adjustments to how we want to operate and finding areas where we can save money. So another area, for example, is travel costs. So pre-pandemic, we spent about 5 million a year on travel, we do think -- and currently, we’re not putting any policy level restrictions on travel but we are asking our teams to use the newer technology. So instead of sending, say, four people on site to help close a deal, we may send one senior person on site and everyone else dials in by conference and everyone now is equipped to do that. And so we’ve seen the more intentionality in our selling strategies that don’t prohibit travel, but encourage almost a blended selling approach. And so, again, we haven’t put restrictions anybody wants to go and build a relationship with a customer, we’re encouraging that, but we’re also encouraging to think smarter. So in areas like travel, and lease expenses, we’re seeing a settle in on our post-pandemic kind of operating strategies, which we think can have inherently lower costs. In the area of product development, you can see that we started to be more successful in hiring, we still have high departure rates like everyone else right now. The great resignation is still going on but I’m hearing a…

Very much. So that was very helpful. Thank you. And then maybe one separate question, given that the portfolio and the platforms that you have today and all of the -- it was a combination of internal development, as well as M&A over the past, you know, several years. As you look out over the next couple of years, do you feel like you have the right pieces in place, at least from a platform perspective, where M&A maybe isn’t going to be play as big of a role in kind of building out some of these areas, or as you look out over the next couple of years and given the balance sheet and the strong cash flow that you’re going to continue to kind of find those tuck-in opportunities to kind of build out some of your platforms a little bit broader. Thank you.

Sure, I think what I would call stabilizing each of our three application areas and getting the investments, the components we need to be successful, we don’t feel there’s anything missing. So there’s nothing that we have to do from an M&A standpoint to fulfill the vision for each of those three primary application areas. So, again, there’s nothing we have to do. That said, the new platform strategy allows for new business opportunities. It allows for the smoother integration of third party apps, so maybe minority investments are acquiring an app that has a unique competitive advantage and integrating it with our hStream platform would make sense. And so, you know, M&A will continue to be a part of our strategy and we also talked about ways like our new partner and can be expanded through the platform strategy. So we’ve introduced now and defined a growing partnering program, we call it hStream Certified Partners. And so what I would say is that the opportunity for organic and then organic growth is expanded by our platform capabilities as they expand and it’ll be a judgment call in each case on whether it makes sense to build versus buy, or launch and develop versus adapt to or integrate with. And so I guess I would leave all those chips on the table. But say, just make it clear, there’s nothing that we feel we need to chase or have to do. And so we’ll be thoughtful and careful about the times we choose to build and the times we choose to buy.

That’s very helpful. Thank you.

[Operator Instructions] Your next question comes from the line of Vincent Colicchio. Your line is open.

Yeah, Bobby, so I’m curious on the hStream Certified Partner Program. What does your pipeline look like? Do you expect it to continue to grow in the in the near term?

We do. It’s an active program. We obviously first promote the tradition -- what we now call the traditional integration program where we take response for sales and marketing, customer support fulfillment, and have a higher margin -- higher revenue and then keep and pay a royalty out. But the integrated partner program is increasingly interesting because it allows partners to kind of choose where they want to be on that spectrum. If they want us to help shift market share to their product, they may want to fully engage with us and let our sales team do their magic and taking their message to market or if they just want to reach our network, our end users, our 5.1 end users, they may choose to do their own selling, marketing and support, and just simply use our growing ecosystem as a delivery vehicle. And so yes, the partner program is now eight, the integrated partner program, it is growing. So I expect additional announcements throughout the year and the revenue streams are growing from that as well. And we’re solidifying our service model and our growth model there. So without specifically commenting, I would say we intend to grow the number of partners from eight up, and we think it expands. One of the things it does, it allows us to reinforce the marketplace concepts, because not -- a lot of times these partners will compete in any given category and so it allows them to choose how they want to compete. They can use us for distribution or they can hire -- kind of effectively hire our sales and marketing teams to help them move market share. And so it allows for multiple products per category and makes us more like a marketplace, where we can offer integrated partnerships and hStream Certified Partnerships. So hope that helps understand, without specifically reporting, yes, we expand expect them to grow in both categories, frankly, as our marketplace strategies take hold.

And what do you -- what are you seeing in terms of pricing on contract renewals? Does the pricing help you offset a meaningful portion of your -- the wage pressures you’re seeing?

It’s interesting. We have a mixture of pricing strategies. Where we have proprietary advantage, like Jane and we have patents and we have really a market differentiated -- highly differentiated products, will we have a premium value placed on that product and I think they deliver premium value to customers. In other areas where it’s more important to maintain or bundle, you’ll have a little bit of an Amazon Prime like strategy with our hStream infrastructure where the idea is just get it in place and so sometimes we’ll bundle and provide discounts instead of price increases. And so it’s a judgment call but we have lots of places where we can drive both types of value, kind of more reach, which expands the ecosystem and then premium products which have high margins. And just importantly too, some of our new product concepts like our workforce validate are in very inherently high margin products so we can actually achieve both in that case. We can have a lower market price and still be well-positioned for market share gains because our cost of delivering that product is very, very low. So again, I know that doesn’t give you an exact answer but both strategies are pursued for different products and applications in our ecosystem.

Thanks for the color and thanks for answering my questions.

Thank you, Vince.

Your next question comes from the line of Richard Close. Your line is open.

Yeah, thank you. Can you hear me okay?

Yeah, Richard.

Okay. Great. Thanks. Congratulations on the report. Bobby, I apologize I had to jump off the call for a little bit. But I did hear you talk about Privia as a new customer. That seems to be somewhat of a new channel -- customer channel for you. Obviously, there’s been a lot of activity in that primary care physician marketplace. Can you talk a little bit about the Privia announcement and your thoughts on is that a good channel for you guys to, you know, expand into?

Yeah, I’ll. We obviously created the list to show some diversity of the types of customers we bring in. We have strong teams developing and what we call our continuum markets, which are kind of the non-acute markets for an oversimplification and so for most of our products sets we are beginning to figure out their applicability in additional channels but we haven’t really changed our channel definitions that would expand our audience beyond the 10.5 million that were previously defined as opportunities for us. And so I’m waiting for see if I get a text from the person over that area to see if they want me to add more color about how much they’re focusing on that channel. May or may not get one, I think they’re listening in. But I would just say that in general, we’re constantly examining the audience, and we’re adding sales channel expertise. For example, we’ve just found that a few of our products are applicable in the nursing school market and so we’re targeting a couple of hires to begin to test out our products into nursing school market. When we acquired myClinicalExchange, we got access to the student market as they onboard into hospitals for their rotations or we’re now reaching people when they’re at school. And so that would be kind of yet another new onboarding channel way people come into our ecosystem. And so in each of these cases, like Privia, or the application, like myClinicalExchange, which addresses students, we are beginning to hire a few dedicated salespeople in these areas to test them as channels. So I kind of leave it at that testing expanded channels, like nursing schools and organizations like Privia, without giving specifics. So they’re not the bulk of our sales organization yet, but we’re testing new channels.

Well, you beat me to the punch on that one. I was going to ask you about nursing and nursing schools and you have one right across the street from you there, so I was curious on that. Can you talk a little bit about nursing in terms of, obviously, that that’s been a hard area? What are customers telling you in terms of their thoughts, maybe how the nursing, a labor situation sort of plays out, maybe over the next year or so.

Oh, gosh, just continued pressure on nursing schools to help create more and interest people in the industry. So, more creative models for inducing people to become nurses and it’s hard thing, because if you talk to any existing nurses, they’re all burned out. Even though they’re making more money, and they’re traveling to make more money, there’s less team feeling to their jobs and they’re just more stressed. And so I think each organization is trying to be creative and addressing these -- the true labor challenges of an engaged workforce, with mature teams. When you have a team that’s 60%, 70%, and travel, and they’re all new, your clinical effectiveness goes down. So I think it also -- they beginning to recognize that labor isn’t just a cost issue, it could become a quality issue with so much change in the workforce. And so, again, enlightened organizations are trying to find paths to actually invest to correct that. So while there is temporary hesitancy in products, like we mentioned, like Jane at scale, again, we still see buying like, so we’re still selling one Jane contract a week. But the scale isn’t as big, they may pilot it more, instead of rolling out the whole workforce. They’re looking for strategies like Jane, to get people cross train more rapidly, engage them in a career development journey. They’re -- as I mentioned, some are buying nursing schools. They’re forming partnerships with nursing schools. They’re launching creative well being curriculum week. We’ve started to incorporate into some of our programming, some of the well being topics in curriculum that we have found effective. So they’re taking more interest in that dimension of their staff well being. And so I think it’s a clinical efficacy, patient outcome oriented problem, and a…

Okay, that’s very helpful. And then on the partnerships that you talked about, obviously, you guys are attractive from, you know, just the sheer scale of your customer list. I’m just curious is there any opportunity for you to cross sell into your partner’s existing book of business, is there -- from that perspective at all?

I don’t think I’ve really thought about it like that but I would say that we’re developing capabilities at the platform level that give us a lot more flexibility on how to provision services. And so if you use the think of a service as a whole application, like you need to build features, and an interface, a front end of the application, as we increasingly enhance the hStream platform to include, for example, a growing library of APIs, it does change the engagement model potential. And so you might find that some of our databases someday become licensable assets that are available through APIs where people can integrate some of our unique data into their applications or into their intranet or into their EHR. And so I do think part of Michael Collier’s promotion, is to help think through how to monetize some of these new capabilities, as they come on board. I don’t want to over represent their maturity. They’re still relatively immature but just, in general, as we bring, for example, our platform level license service into play, it not only enables products like workforce validate, it may enable an organization like a Workday, I guess I’ll call that appeal out there, to directly access the data that underlies that product on a transactional basis. So, you know, I think the platform strategy opens up the possibilities. I do want to be careful not over represent where we are on that curve, we’re actively investing to build those. We’re working on launching hopefully this year, what we would call our developer portal for the APIs that come with the hStream platform and once that’s open as a toolkit, the economic models for our business, we think, evolve and so really excited about that. But again, I don’t want to get too far in front of it. It’s a later this year kind of thing, not a right now thing.

Okay, thank you.

[Operator Instructions] And we have a follow up question from Richard Close. Your line is open.

Great. Thanks. Scotty, maybe a question for you. I mentioned I jumped off the call for a little bit, so if you answered this, I apologize. But can you talk a little bit about the EBITDA guidance, obviously, the strong performance in the first quarter, just your thoughts in terms of maintaining that guidance for the year?

Sure, sure. I’ll try to speak to that, Richard. First, obviously, first quarter, kind of fairly strong relative to where we kind of tailed off last year. So you look at sequential improvements. I think what -- and you compare that to what we got it to the course of the year, we’re expecting some of the investments that we’ve continued to make increasing our staffing levels, returning to travel, just those are some of the factors that we’ve included in our expectations for the remainder of the year. So I think the way it would play out is continued pressure on the EBITDA, I don’t think it’s a pressure from the negative perspective, it’s intended investments and so will likely smooth out and kind of land in the range that we forecasted. But in another kind of factor that we have each year, it’s just the labor cost increases that we expect for ourselves that will play out over the course of the year as well.

Okay. And then is there any -- are you guys planning your user conference, bringing that back or is that included at all or just thoughts there?

I have to double check. We did have a conference last year, although it was virtual. So we did bring it back last year in the fourth quarter. It was virtual. I’m not sure what our plans for this year, but we can check on that.

Okay, great. Thank you.

Excuse me, presenters, there are no more phone questions, you may continue.

Thank you. This concludes our earnings conference call. We look forward to our next report to all of you coming up soon. Thank you very much. Good bye.

This concludes today’s conference call. You may now disconnect.