HSTM - NASDAQ

Good morning, and welcome to HealthStream's First Quarter 2023 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 of 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 2023 results. Also in the conference call with me is, Robert A. Frist Jr., CEO and Chairman of HealthStream; and Scotty Roberts, CFO and Senior Vice President of Finance and Accounting. I would also like to remind you this morning that this conference call may contain forward-looking statements regarding future events and the future performance of HealthStream that 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. With that start, I'll now turn the call over to CEO, Bobby Frist.

Good morning. Thank you, Mollie. Lots to cover this morning, we'll get started. I think one of the first things is different and we're excited about is on this earnings call is our new dividend policy. It was announced on February 20, through which we'll be paying our first cash dividend on Friday of this week. I'm also pleased to share that our second dividend was announced yesterday in our earnings release and will be paid in June. Quarterly cash dividends are a new element of our shareholder return strategy and we're excited to make our first ever quarterly dividend payment under that policy, that new policy, and it's following a strong quarter of financial results and we're going to talk more about both of those throughout the course of this call. Let's turn to the financials and do a few highlights and then, of course, Scotty will do more detail. For the first quarter of 2023, we delivered a record amount of quarterly top line revenue $68.9 million that was up 5% over the same period of 2022. We had a solid quarter of profitability resulting in EBITDA $13.7 million which after accounting for a $1 million severance expense that was related to a restructuring announced in our call in February, we've gained some efficiencies on a go-forward basis. We believe that the efficiencies resulting from the restructuring will begin to have a positive impact on our financial performance beginning in the second quarter of this year. And of course, this has taken into consideration in our guidance, which we're reiterating today. More importantly, with the restructuring in place, we now operate and are organized as a single platform company. Our hStream technology platform is increasingly at the core of everything we do, where we used to be organized as two business segments. They were called workforce solutions and provider solutions. We are now unified as a single platform Company by our hStream technology platform. We refer to this internally as our one HealthStream approach and we're organizing our company around that approach. Under that approach, we'll continue to invest in our platform as a service technologies that power both our SaaS application suites as well as the applications of our customers and partners. By utilizing our hStream technology platform to create interoperability among our expanding array of SaaS solutions, we believe we will help improve healthcare, continue to grow our business and provide a growing value proposition to customers of more than one of our application suites. Before we move further into call, I'll take a minute to refresh everyone about our business. And I think this is helpful for those that are new to the HealthStream story, which I hope there are many of you on this call. First and foremost, HealthStream is a healthcare technology company dedicated to developing, credentialing and scheduling the healthcare workforce through SaaS based solutions. Each of which are becoming more valuable because of the interoperability they are achieving through our hStream technology platform. We sell our solutions on a subscription basis under contracts which average three to five years in length, that means our revenues are recurring and predictable. We are profitable and we have little to no debt. We are solely focused on healthcare and more specifically the healthcare workforce. 11.2 million healthcare professionals working in the United States of the end users of our SaaS solutions. Now let's take a look at our present and the things that are helping drive future growth. The launch of HealthStream's developer portal in the fourth quarter of 2022 marks an inflection point in our advancing capabilities to more rapidly build interoperability among our applications and third party applications from customers and partners. Key to this process is the access to our APIs which are smaller reusable services that can be assembled to quickly add features and functionality both to proprietary and third party applications. In the first quarter, this was demonstrated successfully through beta testing with three customers where primary source verified license data was shared between our Workforce Validate application and our learning center application. With the integration in place, managers will now, will be able to partner compliance and HR teams to ensure their staff are up-to-date on their licenses with data that has been primary source verified against the various state licensing boards. We have almost 100 customers that have already requested to have this new integration activated at the organizations during the second quarter. So again, those are customers of both Workforce Validate, which is relatively new product and HealthStream learning center, which is an established product in the market. And that integration allows for the shared data occurring between those two applications, which shares the information across the applications, and we think those are loving that feature. In fact, as I said, 100 of them have requested to activate that integration. So that is an example of seeing some power and value being added through the hStream platform technology. The number of customers contracting for Workforce Validate also increased in the first quarter. We added 31 new health organizations on the Workforce Validate application set. We think this is a great example of hStream creating interoperability that benefits customers and add value to our platform and applications. Examples like the one I cited give us confidence that our one HealthStream approach possesses us to deliver strong financial growth and market leading innovations going forward. Evidence of this can be seen in the 2023 financial outlook described in our earnings release and the mid-range financial goals discussed during our September 2022 Investor Day presentation. Both of which we believe we're on track to deliver in the coming months and years. As the macroeconomic forces of inflation and recession add challenges and uncertainty on a global scale, we remain confident that HealthStream will continue to provide strong and growing profits. Along these lines, we believe that the revenue impact from slower bookings during COVID will be behind us as the first half of this year closes, which gives us confidence to reaffirm the financial outlook we provided earlier in the year. And so at this time, I'll turn it over to Scotty Roberts, for a more detailed look at the financial performance and the expectations going forward. Scotty?

Alright. Thank you, Bobby, and good morning. Let's begin with the financial highlights for the first quarter, and unless otherwise noted, the comparisons that I will discuss will be against the same period of last year. We're pleased that delivered a solid quarter of financial results, which were as follows. Revenues were $68.9 million and were up 5%. Operating income was $2.9 million was down 28%. Net income was $2.6 million down 9%. Earnings per share was $0.09 per share for both the first quarter of 2023 and 2022. And finally, adjusted EBITDA was $13.7 million and was down 2%. I'd like to emphasize during the first quarter of 2023, our operating income, net income and adjusted EBITDA metrics were negatively impacted by $1 million severance charge. This $1 million severance expense resulted from the previously announced elimination of 33 positions that were made to further consolidate and streamline our operations under a single platform company strategy. Now back to the results for the quarter. Our revenues were $68.9 million and were up $3.5 million or a little over 5%. Revenues from subscription products were $66 million and increase by 6% while revenues from professional services were $2.9 million and they declined by 11%. Also revenues from the two acquisitions that we completed last year which was CloudCME and Eeds contributed about one-third of the year-over-year revenue growth. Gross margin was 65.4% compared to 66.3% last year. Margins were somewhat impacted by a portion of the severance charges I mentioned as well as increased royalties and cloud hosting costs. We expect our investments in cloud hosting will continue increasing for two primary reasons. The first is associated with growth from our SaaS based CredentialStream application suite. And the second, is due to an increase in hStream technology platform's capabilities. Our operating expenses excluding cost of revenues were up $2.9 million or 7% over last year's first quarter, of which approximately $900,000 or 31% relates to the two acquisitions we completed last year. We also experienced increases in sales, marketing and product development expenses, while G&A expenses declined compared to last year. Sales and marketing expenses increased by 13% due to a combination of growth in staffing levels and increased travel. Our travel costs were approximately $700,000 this quarter compared to less than $100,000 in last year's first quarter. With an increase in customer site visits as well as industry trade shows, we've been resuming customer and business travel for several quarters now, and for the first time in three years, we hosted our company-wide sales meeting in person at our Nashville office. It was a fantastic opportunity for our sales teams to convene, collaborate, and plan for the year ahead. Our product development cost increased by 12% which is net of labor cost that would capitalize for software development. Capitalized labor costs increased about $800,000 over the prior year quarter. The increase in product development as a result of investments towards our single platform strategy and suite of applications as well as the costs associated with the two acquisitions we made last year. General and administrative expenses declined by 3% as a result of reduced spending in several areas. Including reductions in outside recruiting services, lower professional service fees and other infrastructure related costs. And finally, our adjusted EBITDA was $13.7 million which was down 2% and adjusted EBITDA margin was 19.9% compared to 21.4% last year. But for the $1 million severance expense, our adjusted EBITDA would have increased over last year, and our adjusted EBITDA margin would have been approximately 21.4%. Now moving to the balance sheet metrics, we ended the quarter with cash and investment balances of $58.7 million. During the quarter, we deployed $6.6 million of cash for the acquisition of Eeds and $8.4 million towards capital expenditures and we did not have any share repurchases during the quarter. DSO increased to 51 days compared to 46 days last year and the increase in DSO was primarily related to a single customer with a multimillion dollar balance and they remitted payment in early April. Our cash flows from operations were down less than 1% versus last year, coming in at $20.5 million and free cash flows were $12.1 million compared to $13.7 million last year. Free cash flows were lower due to higher payments for capital expenditures, and the timing of cash collections. As announced in February, our Board of Directors adopted a dividend policy under which we intend to pay a quarterly cash dividend on our common stock at an initial rate of $0.025 per share per quarter. The first quarterly cash dividend, $0.025 per share will be paid on April 28, 2023 to shareholders of record as of April 17, 2023. And yesterday, our Board of Directors approved another cash dividend of $0.025 per share to be paid on June 23, 2023 to shareholders of record as of June 12, 2023. Further, the company intends to declare and pay two more quarterly cash dividends this year, which would equate to four dividends paid in the year. Now let's review our guidance expectations for 2023. We are reaffirming the financial expectations that were previously announced in February. To recap, we expect consolidated revenues to range between $277.5 million and $283 million. Adjusted EBITDA is expected to range between $57.5 million and $60.5 million. And capital expenditures are expected to range between $27 million and $29 million. Our guidance takes into account the operating expense reductions related to the previously announced restructuring including the 33 eliminated positions. While our guidance also includes the recently completed acquisition of Eeds, that does not include assumptions for any acquisitions that we may complete during the remainder of the year. Now that concludes my comments for this quarter's call. Thanks for your time this morning, and I'll now turn the call back over to Bobby.

Thank you, Scotty, for those details. I'm going to turn it back to kind of a business narrative and hit some highlights. Of course, our strategy overall is to continue to finally to grow the health and strength of business and of course grow revenues. And we have lots of ways that we can do that with our growing ecosystem. We want to grow subscriptions and we want to grow wallet share from our subscribers. In this quarter, we fell a little short in terms of growing our hStream subscriptions. It's a fairly immature metric and we're working on enhancing its definitions, for example, in the second half of this year, we expect to announce our hStream for scheduling product definition. So we'll have more products connected to hStream. And also we'll be having a new form of subscription under hStream, we're going to call individual memberships, which is different than enterprise memberships to hStream. So it's kind of a moving and volatile metric to begin with. And probably be much more meaningful next year. That said, we fell a little short in terms of growing hStream subscriptions this quarter Our subscription count dropped by 20000 versus last quarter, which is less than 0.5 percentage point of our 5.52 million subscription The slight dip was based on the timing of two non-renewals in the quarter, both of which we had already factored into our financial guidance. There were two customers that really only used one of our many solutions. They weren't particularly heavy users of the totality of our ecosystem. They're less wed to our business model and to our Company. And their non-renewals was obviously a disappointment we'd like to have renewed them. And what our experience is, is that over time those kind of customers tend to come back around and plug back into our ecosystem and then we began to grow them as subscriptions, subscribers and we continue to get more wallet count. So, I think we'll look forward to redeveloping those relationships and getting back into one of the many doors that we can enter at our customer base. Four of our five largest customers up for renewal for the remainder of the year have already renewed and is trending positive. So with that solid indicator for the rest of the year, we have confidence on the continued growth of hStream subscriptions on a go forward basis. And focusing on overall revenue growth, we did a nice job of winning wallet share from our subscribers in the quarter, which obviously drove our 5% top line growth. And that means that our -- that more of our subscribers purchased and used more of our products which is exactly how we want our marketplace approach to work. It also resulted in revenue growth for the quarter, which is in line with our forecast and while we haven't factored it into this year's guidance, I'm optimistic that our marketplace and solution is expanding rapidly enough and increasing in value to the point where we eventually win back the two customers that chose not renew in Q1. We'll look forward to welcome them back in the fall when that happens. A few other highlights that we want to cover for each of our product application suites, the learning, scheduling, credentialing application suites, and then course our platform itself. We saw competitive wins and growing interest in the marketplace concepts overall and the advantages of being a member of HealthStream’s hStream network are becoming more and more apparent. I'm going to give you a few examples. The HealthStream Learning Center is the most utilized learning management system in healthcare and continues to add new customers. In the first quarter, we announced in a press release that Ardent Health Services purchased our HealthStream Learning Center to support their workforce enterprise wide. Subsequent to that announcement, they have chosen to add several clinical content offerings. Moreover, as a member of our hStream network, they launched and HealthStream sales collaborative in March to conveniently offer content to the 15 hospitals in their system. The HealthStream sales collaboratives allow facilities within health system to optimize purchasing decisions in alignment with their education budgets and professional development objectives. And so here we have an example of a hospital system entering our ecology, our network by purchasing the learning center. And then almost immediately expanding the services through what we call our purchasing collaboratives, our sales collaboratives and expanding their purchasing across multiple products almost immediately. That's a good example of health system that buys into the value proposition and we grow share of wallet and get an increasing amount in this case of their educational budget. So we're excited about that as an example of how to continue to grow. We believe our staff scheduling solution that's known as ShiftWizard is the best in class solution and best of its kind and will only become more valuable to customers as it becomes more integrated with other applications through our HealthStream our hStream technology platform. In the first quarter, revenues from ShiftWizard grew 30% over the prior year quarter as customers continued to report high customer satisfaction with over 96% positive rating. We contracted new customers to ShiftWizard in the quarter, such as [Perm Health] (ph), Mercy Cedar Rapids and Catawba Valley Medical Center are examples of the new customers we're welcoming to the ShiftWizard application set. Our credentialing solutions also enjoyed a successful start to the year, both in terms of competitive takeouts and conversions from our legacy solutions to CredentialStream. Which we also believe is best in class solution for enrolling, credentialing and privileging physicians. In the first quarter, we contracted 29 new customers for a CredentialStream representing 33,000 new subscriptions, collectively. These new customers included many highly respected healthcare organizations like Summit Health, AMSURG, TriHealth and Valley Health System. In terms of our platform solutions, the early momentum we're seeing with regard to customers' use and adoption of our APIs is paving the way for an exciting future for the Company. As a reminder, we launched the developer portal in the fourth quarter of 2022, which delivers a powerful addition to our hStream platform capability. The portal provides access to modern, scalable, secure architecture with a growing collection of shared services, platform level applications and APIs to connect to and among all of these components. At the end of the first quarter, 32 health organizations had chosen to open an account on the developer portal where collectively 135 of the developers have account level access to the seven APIs currently available with more to come. That's a little bit of an update on our platform strategies. We're just seeing customers turn to our developer portal to get access to these platform level services at an increasing clip and I'm excited to provide that development kind of coming out of the beta stage and kind of the live utilization of the platform services. And I gave the example earlier of one of them that integrated the flow of data on verified credentials between two application sets at HealthStream. We're really excited about the potential represented in these APIs and our platform strategy and hStream developer portal as an access point to our infrastructure. We believe these customer wins and successful developments illustrate value our customers see from our ability to provide enterprise wide solutions, and we're confident they become more valuable as they become more integrated and more interoperable across multiple applications. And as I said, the second half of the year, expect more applications to come online connected to the hStream platform itself. Shifting gears in the first quarter, we announced the acquisition of Eeds, with this acquisition we expanded our ecosystem with innovative SaaS based continue education management system for healthcare organizations. Eeds represents the third acquisition in the specialty area that we completed within a 13 month period making us a market leader in this niche of healthcare technology. Importantly, we believe that the acquisition of Rievent Technology, CloudCME and Eeds, which are all CME application management businesses showcases how our platform is well positioned to empower new solutions that add our growing ecosystem and marketplace. Since we're into the second quarter of 2023 right now, I want to share that this is the last quarterly call with Eddie Pearson, HealthStream's President and COO, serving in his current position. As announced earlier this year, Eddie will be retiring from his current role at the end of the second quarter and assuming a new role. At that time, he plans to continue serving the Company in a multi-year part-time leadership position as Executive-in-Residence. And that's really excited about that new role while it will be less time with the Company, we expect for continued contributions for many years to come as he develops the leaders across HealthStream, global setting and global payment programs. Since joining the HealthStream in 2006, Eddie has played transformative role in completing, we were reflecting that when he joined the company had about $26 million in revenue. And Eddie Pearson, the President and COO, to Executive-in-Residence, were left last year with $265 million in revenue. So, 10 times the growth under Eddie's leadership, fantastic outcome. We're grateful for his years of service and dedication to HealthStream as he has helped shape our culture and our Company into what it is today. And we're also just excited that he's going to stay around and help coach and develop our leaders and future leaders of HealthStream. Thank you, Eddie. I’d like to also mention that Mike Shmerling, the HealthStream, the long standing HealthStream Board members since 2005, is not standing for re-election at our upcoming annual meeting. He's also decided to move into more retirement phase for his life, we're so appreciative of his service to our Board. He's been our audit of our chair. He's been the chair of our audit committee for many years now and successfully led that function. He's a veteran entrepreneur with a strong track record of growing companies and he's been a great contributor to HealthStream's growth story and leadership over our financial matters as chair of our audit committee. He's added independent experience perspective of the Board and again we're just appreciative. Terry Rappuhn, who joined the Board in January 2022, has become the new chair of our audit committee when Michael, service on the Board ends. So we've already planned for this to occur. And we want to thank Michael for his service and Terry for her continued service in this new capacity as chair of our audit committee. As we reached the close of this portion of the call today, I want to reiterate our dividend policy, which I mentioned at the opening of the call, we're pleased to have a strong balance sheet including reliable free cash flows and now we're sharing a portion of the free cash flows with our shareholders. And that's a return directly to shareholders. And I think in today's economy and time as companies are performing, sharing some of the gains is the right thing to do, and so we're excited to continue with the dividend policy during the second quarter and on throughout the year where we expect to make multiple payments one each quarter throughout the year. And so, I think as we think about the totality of the quarter, and the future that we're excited for HealthStream, we’ve got a strong profitable, highly recurring revenue SaaS application suite with new past services emerging. And so our senior leadership team and Board of Directors are excited for the future and continued growth into the future. If you're already a shareholder, you know that our Annual Shareholder Meeting is scheduled to take place virtually on Thursday, May 25th, at 2 PM, and notifications of the meeting and access to the proxy statement 10-K and Shareholder Letter were sent out on April 12. So you should have those in your mailbox or digitally. We encourage you to vote your shares, anticipate in the future of our Company. And now I'd like to turn it over to the operator, to go back to Q&A with our analysts.

Thank you, sir. The question-and-answer session will begin at this time. [Operator Instructions]. Your first question comes from the line of Matt Hewitt from Craig Hallum.

Good morning and thank you for taking the questions and for all the detail on the prepared remarks. Maybe the first one, what are you hearing from your customers regarding the employment trends I know HCA reported last week they actually had some pretty positive comments as far as seeing increasing headcount lowering or seeing a lower amount of contracted employees, but what are you hearing from customers, I guess, number one. And number two, how quickly does that translate to you, increased revenues to you? I mean is there kind of a waiting period when a customer hires some new employees before they get on the HealthStream roles or just kind of walk us through that process? Thank you.

Yes. I mean as our customers grow, we grow and so that is certainly good news and particularly the bellwether organization like HCA, hopefully they're an indicator for the rest of the market. Although, they're so well run that maybe not everybody is following the exact same trends that they are. And so I think -- but when our customers grow, we certainly grow and many of our products are add ours to their payroll. It generally adds to this options of our learning center, [technical difficulty] also too, just the quarter. I mean they sell a hospital, we might see it drop or subscription contracts allow for a certain flexibility based on direct divestitures of hospitals and we've seen of our customers [technical difficulty] sometimes, but the net benefit is payroll growth in the last quarter. And we continue to see that they try to build and grow say they're nursing core and rely less on temporary or contracted labor. Interestingly, we get business from the contracted labor pools as well, often we're direct partners with them to provide some of the basic training education services sometimes under a white label model. And so as the demand for healthcare grows just generally and there are more professionals in the market, regardless of whether they're on payroll hospitals or coming to market through the contracted group. That also still represents an opportunity for us to grow.

Got it. And then I guess maybe more specifically about HealthStream, how is your employment situation? Obviously, you had some restructuring but that was planned. As far as are you finding the employees that you need has your turnover maybe declined over the past couple of quarters and what is your expectations as we look out over the remainder of this year as far as your employees? Thank you.

We definitely were talking about in our Board Meeting yesterday and we have seen a material change in the turnover rate meaning fewer people left in the last quarter than in the prior say several quarters where attrition was much higher. So, I think there's -- at HealthStream anyway has been a material slowdown in voluntary departures. And also as you know, we had some involuntary departures that were intentional restructuring. So, the net effect is a fairly stable employee count. We're finding the people we need. And effectively as we invest in new areas, specifically in this restructuring, we eliminated some areas of where there is duplication or duplicative services because we had two segments and we were able to eliminate those duplications and then hire and invest in areas like around our platform and sales and marketing and other areas we're able to add the people we want to add. So, net effect that has been a fairly stable headcount, in-line with our plan and budget for the year and some permanently gained efficiencies from the restructuring that we undertook in the first quarter. So -- and we had comment on the financial impact of that restructuring in the quarter, but also the future benefit to come from the restructuring.

Got it. Alright. Thank you very much.

Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Richard Close from Canaccord Genuity.

Great. Thanks for the questions. Congratulations on the quarter. Just Bobby, maybe with respect to the two non-renewals, I understand that was factored into the guidance already, but can you just talk a little bit about like maybe why they decided not to renew?

Yes, sure. It's always a bummer when you lose something, but it's natural, especially on things like our learning platform that is so market leading that you get to really high market share and there's just kind of natural competition that takes place. In some cases and particularly in the learning case with the market share we have, occasionally someone that is not a big consumer I’d say all of the products of learning. So, they don't -- they buy the learning application, but they don't buy a lot of content. We have 75 partnerships have a lot of other tools. And they maybe years ago just bought the basic learning application set. Occasionally, we'll see them switch to I guess what I'd call an integrated application suite of services like Workday or an Oracle where they get a learning system with their integrated suite and they may be driven by the CIO or CTO that they want integrated out-paid suite instead of best-of-breed. And of course, we're working hard to integrate our own applications so there's material integration advantages to our own suite, the three primary ones credentialing, scheduling and learning. And so, we'll have our own value integration services to offer in the coming months and years. But occasionally, we'll see one switch back over. It's more likely when they're lower consumers of all the other products. As we mentioned kind of Ardent as a contrary argument to that. And so we don't like to see them go. We also have a long track record of getting them back. So sometimes they go to a lesser quality but more integrated application suite with their ERP, and move from our learning application. But we have a pretty good track record of within a year or two, they circle back around and rejoin the network. Sometimes through the very same application where they decide that it didn't meet their business needs and clinical needs and sometimes by acquiring a product like Red Cross that them has delivered best through our application set. So yes, we don't like losses, but they were known for some time and we're doing our best to get them more integrated using more of our products, but in that case we didn't. So it's kind of a timing issue. As we look forward to the year, four of our five largest renewals are already covered. The losses were already factored into our guidance. And we have a lot of confidence that hStream subscription metric will grow in the next three quarters throughout the year.

Okay. That's helpful. And then with respect to the, I think you said, the Workforce Validate and I didn't catch the other product or part of the platform application that those are integrated. Can you talk a little bit about -- a little bit more about that example and does that increase your wallet share at all? You talked about 100 customers looking through that integration?

Yes, sure. Let's talk about it for just a second. So at the platform level, we have a service that's API driven that can check and validate a license. So as a service, it's connected to over 2000 endpoints, which are locations where you validate the primary source license. So we've done all the work at the platform level to ping our own API and ask it if the license is current and then check these 2000 different endpoints and validate its current and then provide that feedback. So that service at the platform level is, of course, built into our application called Workforce Validate. And so we call customers and parts of Workforce Validate are included with your hStream subscription. So they're free and they displace competitors. And then there are buy up to Workforce Validate the application where you can do more than just verify license, you can verify sanctions and OIG and SAM various forms of sanctions you can validate as well if you do the buy up. So, Workforce Validate is an application that has a freemium version included with hStream that relies on that license service that we talked about. And then it has a buy up. And so we're starting to get the buy ups to happen. And then in the HLC, the learning center, there's a place called MyTeam, and that's where managers manage their staff. And now the customers can turn on the platform level service and when a manager sees the list of employees that report to them, they can have a little flag of red, green, or yellow about whether the license is current for that employee. So now the data service at the platform level is manifesting in both Workforce Validate, the application and the HealthStream Learning Center, the MyTeam dashboard application So both of them are leveraging that platform level service. And there are buy up opportunities for both the Workforce Validate and then there's incremental value provided in the HLC. So that's the platform service levers in two locations and gives -- creates a stickier platform displaces competitors in some case because it's viewed as a free service, the freemium version and then there's buy ups to grow revenue share. So it represents all those things. We're so excited about it. We kind of build it once, deploy it twice and sell enhanced versions of it down the road.

Okay. That's helpful. And my final question is, if you can just give us an update I believe it's called the digital network development unit in terms of finding ways to monetize stuff like NurseGrid and some other assets, any update there?

Yes, we're super excited about this. We finally kind of taken all of our what we call direct to professional opportunities. And put them in a bucket and put them under a leader that knows how to manage direct professional growth. And so while we're seeing organic growth of subscription to these currently at least one of the two products I want to talk about is free, which is NurseGrid, we're seeing a continuous organic growth of 2000 to 3000 nurses a week signing up for the service. So we're approaching 0.5 million monthly active users on NurseGrid. So the audience is both satisfied with a 4.9 star rating and growing at about 2000 to 3000 nurses a week. And so yes, it is incumbent on us to monetize that. We have several strategies that are being defined. Scott's been in the seat about six weeks now. And he is going to need little bit of time to kind of prioritize them. We have lots of examples. And probably the first example that will happen in the end of the year is we'll offer learning direct to them through the app. So we're working on a little capability inside of NurseGrid where we have 0.5 million monthly active users where we'll offer NurseGrid learning. It'd be a little section in the app that allow them to purchase continued education. We've never had a direct to consumer purchase mechanism. So as you can imagine, our platform team is busy building the commerce and as it will allow that kind of direct to consumer opportunity. It'll be very, very small in the beginning, but it represents a new channel and it represents a new opportunity to communicate directly to in this case a 0.5 million nurses. And there's another four or five ideas that are being incubated, some are kind of alpha stage. But I'll leave it at that and I think I look forward to this being a contributor next year financially. But we should have really good examples of -- and generate revenue in -- even the third and the fourth quarter we will generate some revenue. But probably as a story, it will be more impactful next year as we get all these monetization strategies into the market. But I did tell you the first one, it's likely to hit in Q3 is that first effort of launching education sales direct to professional. The second product in the category which already generates a few million in revenue is called myClinicalExchange. And again, it's direct to the nursing students. We estimate that about one in four nursing students uses myClinicalExchange they pay a small fee to profile themselves. Again, these are not nurses yet. They're nursing students. And what they do with the app is they profile themselves and they essentially offer themselves to hospitals to do the rotations that are required to gain some experience to get to graduate. And so this app is already used by one in four nursing students. We hope to grow that number. And it again represents another direct to, in this case, pre-professional. They're not quite graduates yet. But we're already seeing some commerce traction there And example, one of our exciting opportunities there would be to get them while they're still aspiring students or working to become a nurse to see if they would take something like the Red Cross program while they're a student and then they enter the marketplace as a nurse with a credential. So we're excited about that as an opportunity as well in the future. Right now we do generate a few million in revenue off of myClinicalExchange where they pay that small fee to help facilitate connecting them to a hospital rotation. Again, that's a direct to professional category product that's managed by Scott McQuigg. And we look forward to them growing those strategies of what we call direct to professional or digital network marketing.

Actually, I had one more question if I could slip it in.

Sure.

You know, I obviously, AIs all of the rage. It seems like it could be incorporated into your platform. Have you guys started thinking -- how are you thinking about that going forward I guess?

Yes. I mean, in fact, if you think of third generation learning AI, machine learning, expert systems are all critical to the future of learning and development. And so it's -- we've probably under marketed it, but Jane with its handful of patents, what we call our Jane application is really one of the first true expert systems that helps determine a nurse's critical thinking ability. And it uses various forms of machine learning and algorithms and language processing technologies from IBM Watson to do what it does. And so we've actually recently rebranded Jane as Jane AI to make sure people understand what we're building there. There's quite a lot of breakthroughs in that product about the methodologies and learning and training that incorporate fundamental technologies of AI, which include kind of a subset of things like natural language processing. The other thing that is critical as we think about the future of AI and its impact is that almost all of our application sets are accumulating interesting data and datasets. And in the second half of this year, we're going to really focus hard on organizing our business around those data sets. So we call them -- some of them are unique data sets, some of them are curated data sets that we maintain on our own. And I think data is the key to powering AI in the future. So I think we're also well positioned the way we've been thinking about building and the way we're currently building our platform to have the infrastructure we need, meaning the data assets we need to power various forms of AI. And so I think while there's nothing immediate now, I mean Jane is the most immediate and you'll actually see it rebrand as Jane AI in the next quarter. And it is an advancing technology that has several patents on it. We're also well situated for future as we organize what we call our curated datasets inside the Company, because again, data is the key to powering most forms of AI.

Okay. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Jack Melick from William Blair. Hi, good morning.

Hi, good morning. Thanks for taking our questions. Last quarter you mentioned that you had some contract wins for your credentialing and scheduling enterprise application that would materialize later in 2023 given their kind of slower moving nature. What kind of progress are you seeing on these contracts? Are any of them moving quicker than anticipated or are they about on par with what you expected?

I would say they're on par with expected and they were nice wins and we do expect them to roll in the second half, which is why we have confidence in our kind of the growth ranges that we gave. And so yes, I think our overall assessment would be that the wins are on track and we're delivering them into the application suites and getting them implemented. In general, both of those application suites have longer implementation cycles. If you take example on the learning application, we can get them up and running in less than 45 days. If you take a scheduling win or a credentialing win, those on a bigger customer would say a dozen or more hospitals, those can take anywhere from three months to nine months to implement or even longer if you're say 30 or 40 hospitals. So net more change management involved. But we are tracking, we feel good about both the wins and the status of the customers and their implementation cycle. And that's one of the reasons we have confidence in our guidance.

Okay. Great. I really appreciate the commentary there. And I guess, sort of to that point, a big theme recently has been the realignment to one HealthStream kind of becoming a unified platform and brand. And I guess now nearly four months into the new year. Could you speak to some of the reception you're seeing in the market to that new branding effort? Whether it's leading to smoother cross selling opportunities or maybe quicker conversions due to fewer service agreement? Any color there would be great.

Yes, all of its well underway including our own cultural kind of changes inside the Company. The impact is still in front of us, but it's starting to take hold. For example, we dropped the separate corporate identity of VerityStream. And so it took us some work, but all of the traffic to the websites that are under the VerityStream brand are now directed through the HealthStream main website. And so we're able to build more brand identity for the customers at VerityStream. And as you know, in the last several years, we've sold over 600 accounts on the VerityStream's application called Prudential Stream. And so now for all of those 600 accounts, it's becoming much more clear that that's really HealthStream. It's part of HealthStream because the VerityStream brand has been eliminated. The information support services are done through the HealthStream brand. And while we kept the application name CredentialStream, we've dropped that intervening brand of VerityStream. And so for those 600 customers I'm really excited. I think they'll understand more they're part of an ecology at HealthStream. Now to really get there though, the interoperability driven by the platform of hStream is what's key. And I think that's still a maturing process. So I'd say the next 12 months where we expect to see even more benefit. Our nearly 60 account managers are deep in the process of taking the message to customers about the future of how these applications will talk to each other and leverage each other. As I mentioned, we have over 100 customers interested in the integration that we talked about, which is a direct result of the platform service we built that allowed Workforce Validate the application. To benefit from the same platform services as the HealthStream learning center will. And so customers of both applications see more a better benefit and more integration and in this case a better use of a central service across the mobile applications they use. So I think it's kind of maybe a slow reveal and we're rolling out in all dimensions from account managers going into account, making sure they understand that you were VerityStream, but customer, but that's really part of HealthStream and kind of welcome to the family or whether it's shown up in the technology like the integration we talked about a couple of times, Workforce Validation and HealthStream Learning Center with the license service. I think there'll be more reveals every month and every quarter more integrations and more dialogue around it. So we're really excited about it. I think customers are going to receive it well and you know, the process is underway.

Great. Appreciate the comment and congrats again on the strong quarter.

Yes. So as account managers that will help us educate the customers about the power of the hStream infrastructure and the integration opportunities, and we mentioned earlier the competitive threat of the ERPs that have finance and accounting integrated with say learning in this case HR. But we're starting to have our own integration story now like eliminate vendors, you don't need, excess vendors say in verifying credentials, you may not need to hire that vendor anymore or if you just integrate platform service. And our applications have more intrinsic healthcare specific integrations that provide more operational value like moving a credential from a learning application to the credentialing application is a real kind of workflow advantage to having both our learning application and our credentialing application that will become more self-evident over time. So we'll be given dozens of examples like this both to our customers and to you guys, the analysts and our shareholders.

Thank you. One moment for our next question. Our next question comes from the line of Vincent Colicchio from Barrington.

Yes. Good morning, Bobby. Can you give us some color on the learning side in terms of what products had the best traction in the quarter?

Yes. A lot of the clinical education products are performing really well. In fact, we've had some shortcomings in scheduling. As you know, we've talked about some of the legacy applications having more attrition than we wanted with ANSOS for example, the old legacy brand. But that was more than offset as you saw through our growth. With growth in a lot of our clinical products, which are onboarding products, our clinical education products from our partners like AORN, are performing really well, which are perioperative nursing. Our products like the Red Cross continues to perform with some new wins in the market there. So, really a lot of the clinical, clinical education products are doing well. We also, as we know, that added an enterprise customer for the learning center which art and health came in. That was exciting. We did talk about two losses today, so that was unfortunate. But again, I think we'll circle back around with them in 12 months and try to win them back. So overall, just strength in clinical education is what I would say.

Thanks for that. In terms of contract renewals relative to last quarter, what does pricing look like?

Pricing is generally stable. We try to increase the prices in some areas where it makes sense. In other areas, when customers grow and they add subscribers, they expect a little lower price for higher volume or longer term commitments. So we've had a long standing kind of program where based on the length of your commitment and the scale of your commitment, you get better pricing. And so some customers that grow since their last renewal will pay for more people to be in, but might pay a slightly lower unit cost and that's generally been our philosophy. We're working on trying to figure out how to work price escalators into certain products so that they'll kind of automatically grow a little bit. That's a new practice for us. We generally have a model where we provide a discount for term and a discount for scale. And several of our big customers are growing in their scales, we expect a little better price. But overall, I'd say fairly stable pricing environment given our approach to pricing.

And then on the DSO increase, did I hear it right that that client has been slow in paying before? Is there any particular reason that they're slow and do you expect DSOs to come back in next quarter?

Bobby I will take that one. So Vince, we kind of highlighted one particular customer that had multimillion dollar net balance was paid in April. I think last year, the same customer paid their balance in March. So just a slight timing delay, just a few days kind of impacted the calculation of DSO for the quarter. But I'd say, overall, trends that we're seeing in collection behavior from customers are not changed significantly. We're always going to have a handful of it, are slower than we would like, but that's the overall no major trend changes that we're seeing. And it should continue to perform in the range that we've seen historically, which is generally below 50 days.

Thanks for answering my questions.

Thanks, Vince.

Thanks.

Thank you. At this time, I would like to turn the conference back over to Robert Frist for closing remarks.

Thank you to HealthStream employees who delivered this quarter and helped us organize and grow throughout this restructuring period. And thank you to our shareholders for following along our story and our analysts that tell the story. Particularly thanks to Eddie Pearson and Michael Shmerling for their long standing service and specific roles for the Company. And I look forward to their continued guidance and advice as we move forward, but in different capacities. Look forward to reporting the next quarter earnings and of course paying the dividend to you guys in a few days. See you. Thanks.