HealthStream Inc

NASDAQ:HSTM

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, and welcome to HealthStream Second Quarter 2024 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded [Operator Instructions]. I will now turn the conference over to Mollie Condra, Vice President of Investor Relations and Communications. Please go ahead, Ms. Condra.

[Mollie Condra, executive]

Thank you. Good morning, and thank you for joining us today to discuss our second quarter 2024 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 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 the net income attributable to HealthStream is included in the earnings release that we issued yesterday and may refer to in this call.

So at this time, I'll turn the call over to CEO, Bobby Frist.

[Robert Frist, executive]

Thank you, Mollie. Good morning, everyone, and welcome to our second quarter 2024 earnings call. We'll just jump right in and hit some of the key highlights. I'm pleased to report during the second quarter, our financial performance showed year-over-year increases in each of the major categories that we highlight in our earnings release. So we finished quarter with strong sales and solid sales pipeline, and we were able to reiterate our 2024 guidance ranges. In particular, we're seeing strong sales pipelines on CredentialStream in our credentialing area, ShiftWizard in our scheduling area and our new enterprise competency suite and learning, and we'll talk more about some of these later in the call, which we believe that emerging enterprise competency suite is the most complete offering of its kind in the industry.

I'm also excited about our ongoing progress towards key development milestones on our HealthStream platform. And as I promised last time, we're going to give a bit of a platform update, at least through the technical ends of developmental progress. We're beginning to see the first examples of interoperability between our applications, which is the kind of the great promise of the platform. And we're seeing how customers and partners utilize components of the platform to enhance interoperability with their other systems like ERPs and EHRs. Amid all those positive developments we're going to have to talk about and contend with 2 onetime customer-related events in the second quarter that resulted in some temporary headwinds that we're confident will push through over the course of the year. So let's address those kind of upfront here.

One, headwind impacting revenue growth in the quarter. was based on the timing anomaly at one of our larger customers. Importantly, we believe this anomaly will self-correct over the remainder of the year, such that it is not expected to negatively impact full year revenue. What happened was both simple and understandable. I would like to avoid it next time, but simple and understandable. Essentially, administrative responsibility for assigning and setting completion dates or completion requirements for a certain cohort of learners, it was obviously a big cohort because it's a big customer, changed and what happened was thousands of learners who are previously required to complete certain courses in 90 days, were given 365 days to complete the courses by the assignment.

And of course, if you're anything like me and someone says, "Well, you have to finish something in 90 days or you have to finish something in 365 days, what do most people do? They put it off. So that's exactly what happened here. Once the customer realized kind of what had happened in this administrative function in our system, we're both taking steps to address it because they don't -- they also don't want tens of thousands of employees rushing on the last day to do this. So it kind of overwhelms the system. They need to take it throughout the year. And so they're self-correcting this process.

And once we took steps when customer realized what had happened, we think that it will get the completion rates, will accelerate for the remainder of the year and come back in full year as originally forecasted despite the unexpected slowdown. And the reason this happened and why it's tied to economics is for a subset of content that we sell this customer, we bill and recognize revenue based on consumption that occurred in the quarter. So again, for a subset of content we sell to this customer, it is based on actual consumption. So that is why slower consumption of certain content in the quarter resulted in lower revenue.

And while accelerated consumption in the rest of the year is expected to normalize full-year revenue for the customer. This is the only instance of consumption-based billing that we have at scale and we do not plan to expand this type of billing model going forward. At any rate, we expect the revenue to catch up in the second half of the year. So we're not particularly concerned about it.

The second onetime customer event that is in front of us and also currently in the quarter had an impact in the quarter and also as we look forward, is due to the widely publicized bankruptcy of one of our strategic accounts, Steward Health Care System. Historically, great customer ran in some financial difficulties and declared bankruptcy during the second quarter. The impact of missed payments from periods prior to the bankruptcy filing had a negative impact on net income, adjusted EBITDA, earnings per share and operating income in the second quarter. We expect negative impacts to revenue and other financial metrics in the last half of the year as well. We've estimated these negative impacts and they are factored into our reiterated guidance.

At present, we believe that the impact from this bankruptcy may move us toward the lower end of our revenue guidance range, and we'll see how it impacts us as we move forward. Because that said, it's possible that the bankruptcy will allow the customer to make payments in the second half of the year and as we continue to provide services to them, and it's also possible that they've announced their divesting of facilities at some of those divested facilities and land and some of the places are places that also use our services, in which case we would be able to generate some of the business in the second half of the year. Those are potential mitigating factors, and we're not counting on them. We expect this customer bankruptcy to have an ongoing negative impact to our financials this year. And again, it's factored into our reiterated guidance. Although I did note that we believe the impact may move us towards the lower end of our revenue guidance range.

Before we get any further in the call, I want to summarize our business for the benefit of anyone who's new to HealthStream story. First and foremost, HealthStream is a health care technology company dedicated to developing, credentialing and scheduling health care workforce through SaaS-based solutions, each of which are becoming more valuable because of the interoperability they're achieving to our hStream technology platform. Historically, we sell our solutions on a subscription basis under contracts that average 3 to 5 years in length, which makes our revenues recurring and predictable. In fact, 96% of our revenues are subscription-based.

As I just mentioned, we've also started to open our sales channels directly to health care professionals and nursing students across the continuum of health care training. We are profitable. We have no interest-bearing debt and a strong cash balance of $83 million. We're solely focused on health care and more specifically the health care workforce, the 12.3 million health care professionals and nursing students in the United States comprise the core addressable market for our SaaS solutions.

Before turning it over to our CFO, Scotty Roberts, I'd like to highlight some successes that we've achieved in each of these core application areas, learning, scheduling, credentialing, accomplishments during the quarter made some really fantastic progress. Let's start with our learning application suite. We've got some exciting announcements in the second half of the year related to enhancing the capabilities of this very powerful area of our business, the learning application suite. The HealthStream Learning Center application is the flagship product and continues to be strong in the market. Importantly, when the HealthStream Learning Center is up for renewal, it frequently presents customers an opportunity to purchase multiple new solutions along with it.

This results in expanding wallet share. We've talked about that on previous calls. And I want to give an example of expanding wallet share that happened on HealthStream Learning Center renewal in the second quarter. One of our West Coast customers used their renewal of the HealthStream Learning Center as an opportunity to add additional products to those they were already using, including the adoption of our new insights plus reporting analytics tool. Due to the growth of the organization, they also added approximately 5,400 users to their base of 22,000. So meaningful growth there.

The new 5-year agreement includes 3.5% pricing escalator and that's new. We're really working hard now to work pricing escalators into renewal contracts. And in this case, we did is 3.5% annual pricing escalator. And that's going to give us some nice line of sight into year-over-year growth. The annual recurring revenue from this renewal increased 111% from approximately $376,000 to $795,000, making this a really good example of expanding wallet share in our existing customer base.

Let's move to our scheduling application suite. We believe that our SaaS application known as ShiftWizard is the best scheduling solution in health care and that it will only become more valuable to customers as it begins to integrate with other applications through our hStream technology platform. In the second quarter, revenues from ShiftWizard grew 34% over the prior year quarter as customers continue to report high customer satisfaction with this application. As of the second quarter of 2024, ShiftWizard has become the largest revenue generator in our portfolio of scheduling products and services. And that includes legacy applications like ANSOS and enterprise visibility. So it's a nice milestone during the second quarter for the go-forward application to become bigger in revenue mass than all the other legacy applications in the portfolio, the family of products we call our scheduling family of products.

So that's an exciting kind of milestone was achieved during the second quarter. We contracted a number of great new customers to ShiftWizard in the quarter such as Stillwater Medical Center, Mary Free Bed Rehabilitation, Roswell Park and Reid Hospital are really nice examples of the expansion of ShiftWizard.

I'll wrap up this portion of the call with an update on our credentialing solutions, also enjoyed a successful both in terms of competitive takeouts and conversions from our legacy solutions to CredentialStream. So as reported on the G2 website, CredentialStream is best-in-class solution for credentialing, privileging, enrolling physicians. In the second quarter, CredentialStream added 34 new customer organizations, where approximately 65% of these customers were new and 35% were migrations from our legacy credentialing applications, which we really like to see that when they move up from the legacy applications to the CredentialStream application suite.

Representative of these CredentialStream customers in the second quarter are many highly respected health care organizations like Baptist South Florida, Oregon Health & Science Medicine, Penn Medicine and Pine Rest Christian Mental Health. So a really nice broad spectrum of new customers, 34 in the quarter. And that's interesting because that kind of matches the growth profile of that application of 34% as well. So 34 and 34, it's fantastic. Good results team.

Turn it over to Scotty Roberts for the review of the financials, and they'll come back to me. And as promised, we'll give a platform update on hStream platform. And we'll talk about a new market that's emerging for one of our exciting products, CredentialStream. We'll hit both of those with me and I'll turn it over to Scotty for a few minutes.

[Scott Roberts, executive]

All right. Thanks, Bobby, and good morning, everyone. So I'd like to begin my comments about the quarter's results by quantifying the customer bankruptcy matter and the negative impact it had on our results for the quarter. As Bobby described a few moments ago, one of our customers filed for bankruptcy protection in the second quarter, and at the time, we had over $1 million of receivables owed by the customer, which led us recording an operating loss of approximately $1 million during the quarter. To be clear, there was no impact on revenue in the second quarter as the loss related to uncollected fees prior to their bankruptcy filings.

Due to the ongoing uncertainty about this customer's future and given they announced the plan to divest many of their facilities, we have factored the potential lost revenues of $1 million and lost profits of about $0.5 million into our financial expectations for the second half of the year. To recap, the customer bankruptcy negatively impacted the second quarter's operating income by $1 million, net income by $0.8 million, earnings per share by $0.02 per share and adjusted EBITDA by $1 million.

So now with that said, I'll now go over the results for the quarter. Unless otherwise noted, the comparisons will be against the same period of last year. Revenues for the quarter were $71.6 million, up 3.4%. Operating income was $4.4 million, up 10.1%. Net income was $4.2 million, up 0.8%. Earnings per share were $0.14 per share, up from $0.13 per share and adjusted EBITDA was $15.8 million and was up 3.3%.

Our revenues increased by $2.4 million or 3.4%, coming in at $71.6 million compared to $69.2 million in last year's second quarter. Revenues from our subscription products accounted for 96% of total revenues and were $69 million, increasing by $2.5 million or 3.8% and professional services revenues were $2.5 million and declined by $0.1 million or 5.5%.

There are a few puts and calls on revenues that I want to provide some more color on. First, the impact of the consumption variance from one of our larger accounts was approximately $0.5 million, specifically their consumption declined by this much compared to the first quarter, so it was a timing variance against the run rate that we expected. As Bobby mentioned earlier, we believe this decrease in consumption was an anomaly that will generally normalize and correct over the course of the last half of the year.

Overall revenue from our scheduling application ShiftWizard grew 34% over the prior year quarter. Our subscription revenue from ShiftWizard grew by 18% and its onetime implementation services revenue grew 145% over the last year. While we place a premium value on subscription revenue over time, strong services revenue from ShiftWizard is a positive indicator as it generally comes with implementation fees, meaning we were busy implementing new ShiftWizard customers in the quarter. And once these customers are implemented, that's when they begin contributing to the subscription-based revenue.

The counter to ShiftWizard strong growth is an ongoing attrition from the ANSOS scheduling products, which declined by $600,000 or 15% versus last year. For example, within our scheduling application suite, ANSOS attrition almost fully offset the solid growth that we achieved from ShiftWizard. And lastly, our initiative to sell directly to professionals through our e-commerce channels delivered approximately $0.8 million of revenue in the quarter, which is up by 41% over the first quarter. Our remaining performance obligations were $538 million as of the end of the second quarter which compares to $511 million for the same period of last year. And we expect approximately 43% of the revenue backlog to be converted over the next 12 months.

Gross margin came in at 66.8% compared to 65.9% last year. And this improvement is primarily due to the growth in revenues while our costs increased by less than 1%. Operating expenses, excluding cost of revenues, increased by 4.3%, and most of this year-over-year increase was from product development, which was up 9.5%, while G&A costs were up 5.4% and were primarily impacted by the bad debt charges that I previously mentioned. Adjusted EBITDA was $15.8 million, which is up 3.3% and adjusted EBITDA margin was 22.1%, compared to 22.2% last year.

Now let's take a look at the balance sheet metrics. We ended the quarter with cash and investment balances of $83 million, down slightly from $83.7 million last quarter. During the quarter, we deployed $6.7 million for capital expenditures and paid $0.8 million to shareholders through our dividend program. We also made $5.5 million of income tax payments in the quarter and for comparison purposes in last year's second quarter, our income tax payments were $2.5 million. Our days sales outstanding improved to 45 days compared to 50 days last year, which is a positive result despite the bad debt charges from the customer bankruptcy that we just mentioned earlier.

Year-to-date, our cash flows from operations were up 7% over the prior year, coming in at $27.4 million, and free cash flows improved by $2.1 million or 20% and were $12.9 million. With a strong balance sheet containing $83 million of cash and no debt, we are well positioned to deploy our available capital in a variety of ways to improve shareholder value, including pursuing acquisitions, paying dividends or making share repurchases.

From an M&A perspective, we maintain an active pipeline and continue to evaluate opportunities that fit our criteria, which include industry, product and financial among others. In respect to our dividend program, yesterday, our Board of Directors declared a quarterly cash dividend of $0.28 per share to be paid in August, and we currently don't have an active share repurchase program in place.

Now moving on to guidance. As I mentioned in my opening remarks, we factored in the expected lost revenue and profits associated with the customer bankruptcy into our assumptions. We continue to expect that consolidated revenues will range between $292 million and $296 million, though given what I just said, we expect the bankruptcy impact may tend to move us towards the lower end of our revenue guidance range. We expect net income to range between $16.7 million and $18.6 million, adjusted EBITDA to range between $64.5 million and $67.5 million and capital expenditures are expected to range between $28 million and $30 million. This guidance does not include assumptions for any acquisitions that we may complete during the year.

Now looking to the second half of the year, we expect sequential quarterly growth in our revenue, and the combination of working through the backlog of contracts that we've sold but not implemented, particularly within our credentialing and scheduling application suites, revenue contributions from strong bookings that we experienced at the end of the second quarter, a solid sales pipeline and the catch-up from the consumption shortfall in Q2 are factored into our revenue guidance range.

So that concludes my comments for this quarter's earnings call. Thanks for your time this morning, and I'll now turn it back over to Bobby for some additional updates.

[Robert Frist, executive]

Thank you, Scotty. We'll wrap up here with the platform update, as I mentioned, and a new market that we're beginning to pursue with our CredentialStream application. At this time, let's talk about some key hStream platform initiatives. If you think overall, our focus is to cement our position as healthcare's people platform. We believe there's a place alongside the ERP vendors, and the EHR systems for an integrated set of application suite, providing functionality specific to the needs of the health care organizations and their workforce, the management and development of their people.

At the center of our strategy is building a platform that we call hStream, that provides the foundation for these application suites as well as some applications and analytics that overlay and enrich those suites. The primary way we monetize this platform today is through 3 subscription products, one for each of our application suites in learning, credentialing and scheduling. We have sold hStream for learning and hStream for credentialing for several years, and we introduced hStream for scheduling in late 2023. Since then, we have been selling hStream for scheduling with our core scheduling product, ShiftWizard. Each of these subscription products provides customers access to the hStream platform and exclusive applications, services, content and other benefits that come with that subscription. We continue to add new benefits to each of these 3 stream packages.

A key component of both our platform strategy and the functioning of the platform itself is having a single identifier for all those individuals in our ecosystem. We call this their hStream ID. We continue to increase the number of individuals with hStream IDs in significant part by adding hStream ID functionality to more of our own applications. For example, in April 2023, we began requiring students using our myClinicalExchange application to create or add an hStream ID and we have added over 110,000 new hStream IDs through the myClinicalExchange app since that time.

Of our initial -- of our 23 internal applications, there are candidates for integration with hStream ID, 14 now have some integration using hStream ID as native login or enabling a user to link in hStream ID, 4 in the process of actively developing hStream integration and the remaining 5 have hStream integration on their near-term roadmaps.

Another key component of our platform strategy and the functioning of the platform itself is centralizing certain functional domains, particularly around people, into platform services and APIs. Currently, we have 3 of these services live, professional license service and API, professional certification service and API and learning transcript service and API. Each of these services and APIs acts as both a clearing house and a source of validation or verification for the data within. For example, all applications can write professional licenses to the professional licensed service or relicenses from it. The service is also connected to our validated service and API so that licenses may be primary source verified against thousands of official endpoints.

Rather than have this functionality scattered and managed by each individual application that is now shared service. We're adding large numbers of licenses, certifications and learning events to these services. And we are continuing to build out other services in the people domains like education history, work history, volunteer activities and others. We expose access to these services and APIs through our hStream developer portal. There are now 12 APIs and web books available on the portal, comprising hundreds of endpoints, enabling customers and partners to integrate and interact with most of our key applications.

Since its launch at the end of 2022, nearly 400 developers representing over 120 customer organizations have been permitted access to the developer portal. These developers and organizations have built nearly 30 live integrations with another 30 integrations in development. These integrations tire applications to other key applications like ERP and EHR systems in ways that make our applications mission-critical and essential to key workflows. We continue to add APIs to the portal and engage with more customers and developers in the portal.

Another -- shifting gears. Another exciting update today I want to share is that our credentialing business is expanding to address the health plan market. And some of you asked in previous quarters because we announced the win at Blue Cross Blue Shield, Arkansas, would we be pursuing the market? I guess I'm here today to say, yes. It's early stages, but we have signed 10 health plans in the last, say, 2 years, including the Blue Cross Blue Shield of Arkansas that I mentioned, but also some health plans attached to health systems like the Banner Health Plan, the Providence Health Plan and our tailored solution for this market is called Network by HealthStream, and it offers the industry's only network relationship management system we call NRM. In the future, we believe HealthStream will be in a unique position to connect payers and health care systems in a way that will enhance the credentialing and verification abilities of both.

We are planning an expanded marketing approach for network, the product by HealthStream later this year. And to the extent we begin to see greater market expansion in the health plan market, we'll update you later in the year. For now, I'll just note that we're excited to be addressing this new set of buyers. And obviously, we've made some progress with the 10 accounts that we've already secured or the network product. I will also note the large majority of the revenue from our sales to help plan customers is yet to be recognized as these are new sales and we're still in the process of implementing them. Again, another confidence factor as we enter the second half of the year.

As I think about summarizing, I'd say kind of the profile of our company and before we go to questions, if you the investors are interested in a profitable, highly recurring revenue, SaaS, PaaS health care technology company, who expect to deliver steady growth and is determined to share some of its gains directly to the shareholders in the form of a dividend, maybe HealthStream is a good company and stock for you to look at.

I want to close by sharing that in June, HealthStream was ranked as the ninth best company to work for among U.S. health services companies by U.S. News & World Report. The panel of experts who selected us for this prestigious recognition weighed the comments and sentiments from our employees heavily into their analysis. So I want to thank all of our employees for making HealthStream, our company culture a very positive one as we work together to improve the quality of health care by developing the people who deliver care.

Turn it back over to operator for Q&A, and Scotty is on board to help answer questions.

[Operator]

[Operator Instructions]. And our first question is going to come from the line of Matt Hewitt with Craig-Hallum.

[Matthew Hewitt, analyst]

Maybe first, just because it's front of mind for a lot of people on the CrowdStrike situation, Obviously, there's been a lot of commentary about hospitals being impacted. Was there any impact for HealthStream directly? And what are you hearing from customers? And are they able to get back up and running here quickly?

[Robert Frist, executive]

Great question. From our perspective, the impact was minimal on us. And therefore, I guess by extrapolation as it relates to our products, our customers we did find 1 or 2 or a few isolated cases where it was impactful, but I think we were able to work through that fairly quickly. And so I haven't gotten the full briefing for our team, but the first quick reports were that the impact on our base as it relates to the use of our products was minimal and almost nonexistent across our broader network.

[Matthew Hewitt, analyst]

That's great. And then kind of following up on your last commentary there about the Network by HealthStream, how much does that increase your end market opportunity? I mean, I think the last count, we were up to like $8 million potential employees that could be using one or more applications from HealthStream. This obviously expands that market, but how should we be thinking about size of that opportunity?

[Robert Frist, executive]

We haven't really scoped it yet. We're working on that as we recalibrate our launch. We've got initial success, as we mentioned in 10 locations, mostly health plans attached to health systems currently, but the Blue Cross Blue Shield of Arkansas and several in the pipeline, we feel good about our opportunity there. We'll work on quantifying. We intentionally didn't add it yet to our TAM. We want to see it progress a little more. But it's an official target of our marketing team. We've tailored the product and rebranded it. I guess we'll report on how it impacts the way we think about TAM in the coming quarters.

[Matthew Hewitt, analyst]

Got it. And maybe one last one and I'll hop back in the queue. But I think you mentioned the West Coast customer that you called out with the price escalator of 3.5% increase with the renewal, is it fair to look at broadly across your customers and maybe on an annualized basis, looking at those -- that price is a component and how should we be thinking about it? Is 3% is kind of a base growth for your revenues? And then obviously, the cross-selling and the new opportunities with new customers and all of that, that is what can get you back to maybe a double-digit type growth rate on the top line?

[Robert Frist, executive]

Well, it could be a component of, of course, adding to our growth. We've never really used escalators at any scale at all across all of our contracting. Our pricing models are based on term. They get a discount for term, a discount for volume commitments. So term and volume have been our primary drivers, which, as you can imagine, a tech firm generally has a slight downward pressure as people grow and add volume or agree to add terms to their contracts.

This is a new -- it took us over a year of planning to roll out the escalator model. It includes educating your sales teams, change your legal documents, teach them how to negotiate renewals that include price escalators. And what I'd say is that a very, very low sub single digit -- in the single digits, low single digits of our contracts even have escalators at all.

Now we sign 3- to 5-year agreements and so escalators can only be infused as renewals come up, and they take place over time. And so I think it's going to take several years to have a really meaningful impact, but it's nice that we're beginning to work it into our [ either ] the way we operate now. And we've been able to put dozens and dozens of contracts given our training and sales training and tools and automation and contracting fairly easily without much resistance from customers. I think they expect in some ways, it helps them plan their budgets better than going 3 years and then facing a bigger price increase. And so those 2 things will play off each other and help us move our prices forward. over time.

What I would think of as a long-term slow catalyst to growth. Not quite modellable yet now because it's such a low, low -- not just single digits, low single digit number of contracts of our 10 -- of our contract base have escalators built in. So -- but we're looking forward to make it a standard practice. And so far, it's been received by customers well. And again, as I mentioned, some ways, it helps them plan their budgets better in the coming years.

[Operator]

And our next question comes from the line of Stephanie Davis with Barclays.

[Anna Kruszenski, analyst]

This is Anna Kruszenski on for Stephanie. The first one, I was wondering if you could talk about how you're thinking about the evolution of your sales force as you move to more of this cross sales motion? And just what sort of investments that will take and how are you incentivizing your sales force.

[Robert Frist, executive]

Sure. Great question. We feel that we have the sales organization about the size we need. Now the nature of some of the positions may shift over time. For example, our current mix is, I believe, around, let's just say, 200 people that are focused on selling products, about 60 of them are what we call account managers and they focus on growing the accounts, revenue per account, the product mix in the accounts, identifying the multiple buyers in the accounts. And they, in turn, introduce the specialists that are about 140 strong spread across product categories. They tend to focus more on a specific buyer and they know which parts of our broad and growing platform portfolio are applicable to that buyer. And so the account managers bring the specialist.

To your question, I don't envision a future where we need really many more people. There are several trends that make me think that even if the sales pitch changes or the method changes, maybe we have a little higher ratio of account managers to salespeople over time. Maybe commerce, our new e-commerce capabilities built into our platform help relieve the burden say, on salespeople of renewals, so that the sales are going to focus on the new accounts more. But I think we have -- and so again, the shift as e-commerce comes to help people automate renewals, more focused by those 200 people on acquiring new business can be instead of focusing -- having a big part of the job doing renewals.

And so I think we're right -- at about the right investment level in our sales organization, marketing there's around 30 people, I believe, and fairly stable from a rate of investment. We are increasing investment a little bit in building our commerce teams as our commerce capabilities provided by the HealthStream platform take hold and you did just hear just 41% sequential growth in direct commerce sales, which we're super excited about going from $0.5 million to nearly $800,000 between the first quarter and second quarter in commerce. So we added, for example, a merchandiser in our commerce team, so our commerce team is growing now.

But overall, I'd say around the 230 head count personnel and talent is about right. You may see trade-offs over time, but between the types of roles we have I think that's about the right size for the markets and the 3 core products we have today.

[Anna Kruszenski, analyst]

Got it. That's super helpful. And then just as a follow-up. I was wondering if you could talk more about how you're approaching the move to a single sign on and where you guys are in terms of tech investments and just how you're rolling that out to clients.

[Robert Frist, executive]

Sure. As I mentioned, one of the core -- there are many, many exciting things about the platform we're building, probably the central feature of it, though, that's kind of most important. It'll distinguish us when it's fully deployed. Think of our software suites instead of a stand-alone SaaS applications as a suite of suites like integrated applications and data mobility across users across those suites. So we are super excited.

So one of the central themes of why we're building the platform is this ID service. And as I called out during the call, we're kind of midway through implementing this core service. There are other services I mentioned like credential management and others. But the ID is a central function. And I called out that I believe, let me look at the number again, but about 14 of our 27 apps are implemented on hStream ID, so halfway might be a fair way to think about, there's a lot to go there, but the tools are built. So it's your concept of investment.

We have a steady state of investment. We've built our platform development teams out. We've hired the senior leadership over the platform. platform kind of making Platform as a Service as a product. And so we have both the CTO and Senior Vice President, together over the platform, the development teams are in place. So we don't expect to have to add developers to further develop the platform. It's more of a sequencing of the features of the platform that we're adding that's maybe more important or building the platform in the right order.

But again, I don't think we need to add more CapEx or more to the platform. We can always use more. We'd love to build more faster, but I think we're at a steady state of releases and enhancements that I'm pretty excited about for the platform. Hope that answers your question, but there's a lot to do. The platform has many, many components and that ID is just one of them. It happens to be one of the more exciting pieces because it lets us know a lot more about the people in our network and allows us to do things like the commerce that we talked about, where we're able to grab a piece of data from one part of our network, identity, demographics from another, identify channel, in other words, an app that has high traffic of that type of user and then maybe target them with a message about a federal requirement and then ultimately use the commerce capability of the platform to sell them of course.

So ID management is very important. I'd characterize it's going to still be a multiyear journey to get fully where we want to be, but we are seeing exciting benefits of platform capabilities like ID as reflected in our commerce growth, 41% and some visibility by customers and the benefits of the hStream ID.

[Operator]

Our next question comes from the line of Jared Haase with William Blair.

[Jared Haase, analyst]

Maybe just to start, Bobby, I was hoping to get some additional color on the strong selling trends to close out the quarter. I guess are you seeing any kind of incremental improvement in the client base or anything that's changing from a competitive landscape perspective that's sort of driving the strength there. And then I'd be curious, I know it's early, but any thoughts on what that could imply just in terms of the growth set up for 2025.

[Robert Frist, executive]

Yes, we always look at the layer subscriptions, and it's a great thing to do when you build a layer, and we gave an example of an account where we were able to layer in more renewal. That's kind of the model that 60 account managers work on. And so we had been a little short of our desired outcomes in Q1 in sales pipeline. So it was really exciting and kind of a nail biter to watch that last month of the second quarter really perform well and make up for a lot of the earlier push deals, I guess, is what I'd say.

And so -- and the other thing, the nature of the pipeline has shifted. We're doing a better job of describing value propositions and bundling up products. I mentioned this competency suite, which is a really exciting way to position a group of our products as a complete tool set for managing workforce. And I think that's resonating. It's bigger dollar orders for a more complete set of tools, and they're -- we've got a really nice way of showing how they work together to manage the competency profiles of your workforce. And so what I'd say is also towards the end of the quarter, we're seeing a bigger pipeline of bigger deals.

Now as far as second half impact, we've already factored all that in, and it's been offset by the timing anomaly we talked about and the bankruptcy. And so some of our excitement is muted because of these what we call temporary headwinds. That said, it was great to see the last month of the quarter perform well. And also when we assess the pipeline on a go-forward basis, more larger deals possibly because of the way we're bundling now or just getting better at describing the value prop of the way these 2 or 3 applications work together to solve a problem.

Our competency suite is really exciting what's happening with that. We have probably the largest pipeline we've ever had on greatest mix of products in that area because of the way those tools work together to manage the workforce. I do think there's probably a macro trend of health care systems realize they need to invest more in their workforce to reduce turnover and to attract talent. And so as they compete for a limited resource pool of people, I think our tool sets are more relevant in the recruiting process and retention strategies.

[Jared Haase, analyst]

That's great. I appreciate that color. And then maybe just as a follow-up, I'll ask about the health plan opportunity in a slightly different way. Obviously, nice to add a new market opportunity to drive growth. And I know it's still early days here, but I'm wondering, does that have a sort of, I guess, compounding impact in terms of making your offerings for providers more attractive or strategic? It seems like there would be synergies just in terms of sort of sitting in between payers and providers with this network type of offering. So I'm wondering if you're seeing additional tailwinds to growth with sort of the core customer base.

[Robert Frist, executive]

Well, I think we're really excited about what it could mean if the data is easily portable between the plans and the health systems and they're using the similar CredentialStream system or another version of it, same architecture with some of the added features for the network product. So I do think there could be some medium and long-term applications in marketplaces where the plans have adopted nearly identical architecture for credential management as the health systems.

And so -- but what that impact is it's going to take time to play out because we're new to the plan market. But the -- obviously, the plans manage resource pool of doctors and the hospitals do as well and the plans overlap with some health systems and not others. And so you can envision a future where data sharing between those organizations to be easier if they're on this common architecture that we've been building.

So yes, I think we see promise for it, but not enough yet to model it. We need to make sure we can gain share in the health plan market and before we start touting the interoperability benefits between plans and health systems. So I think the hStream ID, we spend a lot of time talking about it. That will be a key as doctors and health plans, it will help us maintain rosters for the health plan using this hStream ID system that we've been talking about as it gets more deployed into our network. And so super excited about the interplay between plants and health systems, and so it's exciting to see us make some progress in this health plan market.

[Operator]

Our next question is going to come from the line of Richard Close with Canaccord Genuity.

[Richard Close, analyst]

Yes. Congratulations given the couple of headwinds there in the quarter. Bobby, just clarifying on the escalators, I want to make sure I understand that. Is that like a 3.5% each year of the term of the contract or just when the contract comes up for renewal?

[Robert Frist, executive]

Scott, do you want to comment on that?

[Scott Roberts, executive]

Yes, sure. Richard, it's an annual escalator. So each year, the price would increase by that 3.5%.

[Robert Frist, executive]

Richard, I do want to add some color to that because we're super excited about it. I think in the long run, analysts should be, too. But I want to caveat that less than 1% of our contracts had that built in. And again, as I mentioned, it's going to take several years to get through renewal cycles, and we have to have customer acceptance and all that.

So it's really early days. But what's exciting is it did take a year to modify contracts, train salespeople, enhance the accounting system, teach the negotiating strategies to deploy it. And the last several months, we've been including in almost every contract that's related to our learning business and our Workforce Development businesses, product lines. And so it's exciting to see, but I just want to caveat less than 1% of our contracts have escalators today.

[Richard Close, analyst]

Excellent. And then on the 34%, I guess, new bookings in ShiftWizard. Can you talk a little bit about how much of that is like net new customers versus, I guess, the replacement of legacy?

[Robert Frist, executive]

Yes, sure. So I think about -- we added 34 customers and 22 of them were new, like new from the market, new to HealthStream, they might have been a competitive takeout or been using pen and paper, but they were new. And the remaining, I guess, 12 of the 34 were transitioning customers. They were essentially moving from a legacy application that we have acquired to the new application. So I believe those are the numbers that we just gave. Hold on. Let me make sure I didn't just talk about -- I was talking about credentialing or scheduling?

[Scott Roberts, executive]

Yes, that's credentialing you just described. Richard was asking about ShiftWizard.

[Robert Frist, executive]

I am sorry. I just did everything wrong. That was all related to credentialing. So ShiftWizard, I'm not sure that we split it out like that. It is from migrating.

[Scott Roberts, executive]

It is mostly net new, Richard. It's mostly net new.

[Richard Close, analyst]

Okay. And then just a follow-up on ShiftWizard. Bobby, I think last quarter, you said you're really strong in the small and mid on the scheduling with ShiftWizard. Are you seeing any success moving upmarket at all to larger health systems?

[Robert Frist, executive]

Well, yes, I think we're doing monthly releases on ShiftWizard enhancing it every month, making it more what we call enterprise appropriate. And so I think it's getting more and more capabilities that can address the different needs that large enterprises have. It's competitive landscape, and we're positioning well and fighting hard. And I do expect progress at all levels. But you're right to point out our relative strengths are probably medium and small systems, not the super large ones yet.

But again, progress on both the future development, the rate of release and customer engagement is high. And just for clarity, I've just gotten some background info for ShiftWizard and I cited all the wrong numbers. The right numbers if you're listening to me for CredentialStream, 34 customers, 22 new and 12 migrating. But in this one, it was 8 new customers on ShiftWizard, all new, 34% revenue growth and included probably we mentioned Prime Health and Baptist Memorial and UF Health Shands. So I hope that helps clarify on the 8 new customers on ShiftWizard.

[Richard Close, analyst]

If I could slip one in, Scotty, well or Bobby, on this consumption headwind, you mentioned it should have been a 90-day requirement that ended up being 365 days. So just to be clear, was something done to make sure that it's done by the end of 2024 and that it doesn't slip into 2025.

[Robert Frist, executive]

Well, we have -- sure -- we don't make the settings, and so we can't change them. It's up to the customer to change them. But we have had more than a meeting with them, and they've -- they realize it's kind of an operational inefficiency for them. So they're working hard to correct it. So it's our expectation, but we don't have direct control of it. So I can't say that we did something other than make the customer aware of it. And they don't want to have it that way either. If you think about it, you really want to stack or such a large workforce to spread the work out over time both going from a planning standpoint, operational standpoint and a financial standpoint.

So we have no reason to believe it won't come back. And the fact the organization is growing as well. And so they're often ending up short and needing to have more subscriptions anyway. And so we expect a return to normalcy at that account. But to your question, we don't actually control it. And so I can't say we did something on the system that affirmatively make that change. We rely on the customer to make those corrections.

But again, I just -- I can't see how they would operate with that and the operating principle. In other words, they really need to spread the work out to get everybody compliant. So I think we're going to be good.

[Richard Close, analyst]

Would there be any opportunity to change them if this is the only consumption contract that you have, like change them to the normal contract?

[Robert Frist, executive]

Probably not in the short run. I think on this last collaborative purchasing, we allowed them to move to the consumption model and some of the courses they bought in the collaborative mainly for their own budget planning reasons and they're such -- they're strong customers, so we gave them that flexibility. But again, it's not a model we're promoting. We don't plan to expand it. I don't know if we'll change that customer, it will be probably up to that customer how we're working with them and their budget planning process.

But given the -- it is, of course, an anomaly, and it did make us have to explain this awkwardly in the quarter. But I just -- I see it as a true onetime anomaly. And I think their multiyear, 10-year-plus consumption history would indicate that this is an anomaly.

[Operator]

And our next question is going to come from the line of Constantine Davides with Citizens JMP.

[Constantine Davides, analyst]

Bobby, nice pick up there in the commerce revenue. I was wondering if you could just drill into what kind of activity that was in the second quarter, just given that the first quarter was more the way you guys kind of framed that as a little bit more onetime in nature with the DEA program. So just wondering if you can give us a little more color there and then tell us what kind of line of sight you have into the rest of 2024 on the commerce side.

[Robert Frist, executive]

Yes. It's interesting. We have 3 forms of commerce. We have the big collaboratives, which are some of our top accounts to annual purchase cycles of large content libraries and that's now getting more commerce enabled, meaning it's a more automated process than it was in the past. So we're excited about that. And then we have a new type of commerce that we're launching in the next month, which is what I'd call B2B commerce at the manager level. We believe there might be in entire budgets that are discretionary now at the manager level where they order more directly from competing vendors.

And we historically sell kind of at the enterprise level up to the CNO and the top officers when they want to buy something on behalf of all their employees. But we miss -- we think we miss a lot of budgets that might be discretionary or a little bit of a reimbursement budget for a manager to employees for education. And so we have this new, we'll be piloting next month is what, I guess, I'll call it manager level purchasing commerce, which we really haven't ever had. And so that will be interesting.

And then the third category is exciting and problematic at the same time because it's a little less predictable, as you point out, it's direct to professional marketing in our ecosystem, and we're getting better at it, which is cool. But it is way harder to project. And you're right to note that the primary driver of success right now is this federal requirement around opioid training for doctors to renew their DEA, their prescribing license basically with the DEA. And so we're doing our best to forecast what that would look like because we've gotten good at finding those doctors at the right time and offer them the right profit at the right place, and they're buying.

And so -- now we have a few other products that are really suitable for commerce, and we just launched 6 new packages in our nurse channels. So that's what we're talking about our physician channels at cmecourses.com, but our nurse channels are in Nursegrid Learn and revenue in NurseGrid Learn is growing as well. We just launched 6 new state-specific education packages, again, purchased by the individual as an individual.

And so these commerce, we're getting better at it, but it's harder to predict. And in the case of the biggest driver right now is still the DEA made opioids course. We think that has a year of being strong but still variable. It might have a strong quarter and a weak one, but we think it will take over a year for all the physicians to get through this renewal cycle essentially on their licenses which has a federal requirement. So we project a few more quarters strong on the DEA made or the DEA content. And meanwhile, we're growing in strength in our nurse channels, as I mentioned, and just getting better at commerce overall, adding to our digital marketing teams to strengthen our commerce abilities.

But just note, there's 3 forms of commerce, 2 are B2B and 1 is B2C or we call it B2P, business to professional direct. And Constantine, it will be just a little harder to project. So it's definitely a sign we're becoming an ecology where we have channels that we can sell content into inside our own application network. So it's exciting that way. It is good margin when we sell content that we own, in which case the DEA course we own it, so it has really good margin. That said, you've highlighted the problem on a go-forward basis as it grows, it becomes a little bigger and a little less predictable. But we'll take it. We call it money while we sleep, and we'll take money while we sleep. We think it's a good idea.

[Constantine Davides, analyst]

That's good color, Bobby. And then one just quick housekeeping item. The $1 million charge, I guess, associated with Steward, did that impact the P&L and the G&A line? Just wondering if you can give a little color there, Scotty.

[Scott Roberts, executive]

Yes, that's where our bad debt charges flow through on our income statement into that category.

[Constantine Davides, analyst]

Great. And then last one here. The share repurchase program expired in March and I don't think that's been renewed. Just wondering if you can give us an update there? And are you signaling more of a preference for the dividend? Or am I reading too much into that?

[Robert Frist, executive]

You're probably overthinking a little bit, but we've put a few buyback programs in over our 24 years as a public company. This last one was, I believe, for about $10 million worth and we are -- we view it opportunistically and in the money able to buy back shares. I think we bought about $8 million of the $10 million worth at an average price in the low $20s, like $22, $23. So far it looks effective. And that -- with that as a history, that makes all 3 of our buybacks, again, spread out over 24 years in the money for shareholders.

So we generally put a program in place and put the purchase requirements around it that reflect our Board's position on where we should be buying. And so the whole program didn't execute because of the discipline of our Board and creating the program itself. But it has expired, and the Board has not elected to put another program in place at this time. But the Board takes up these capital allocation discussions every quarter, and we're excited to see them approve another dividend consistent with the prior quarter and -- but did not put a share repurchase -- a new share repurchase program into place currently.

[Operator]

Our next question comes from the line of Vincent Colicchio with Barrington Research.

[Vincent Colicchio, analyst]

Yes, Scotty, you cited a 15% decline in ANSOS, so I wasn't clear on if that was for subscribers to revenue? And how does that compare to recent quarters? I'm wondering if things are worsening or stabilizing?

[Scott Roberts, executive]

So I guess that decline was 15% on last year's revenue. So it was about a $600,000 decline versus the same period last year. And I think the rate of attrition has kind of been at that rate for probably at least the past 4 to 6 quarters.

[Vincent Colicchio, analyst]

Okay. And then one more for me. Bobby, are there any other clients -- Bobby or Scotty, that are in financial distress, we should be concerned about?

[Robert Frist, executive]

I think on the whole, we're not seeing any change patterns in payments yet. We hope this is not a bellwether for the industry. It's just an isolated problem, and we have not seen any macro trends as reflected in our DSO or collectability that are any different than in the prior, say, 18 months. And so we hope it stays an isolated story. I would say maybe some of our submarkets, skilled nursing there's a lot more change in that market, not necessarily bankruptcies, but mergers and acquisitions, changing landscape, changing contracts.

And so maybe in that submarket of markets, there's a little bit more distress in what I guess I'd call the skilled nursing market or skilled nursing facility market. But our largest base of acute hospitals, we haven't seen any changes in patterns yet. I mean, obviously, this is a change in pattern itself, Steward. But other than that, our DSO remains good and consistent with the past couple of years.

[Operator]

And I'm showing no further questions, and I'd like to hand the conference back over to Robert Frist, CEO, for closing or further remarks.

[Robert Frist, executive]

Thank you, everyone, friends and family on the journey with our 1,100 employees working hard. It's fun to hear Trisha Coady's father listens in, one of our senior officers at our earnings calls, big fan shout out to the family participants that support our hardworking employees. We're trying to build a great company here and putting a lot of energy and time into it.

Appreciate our analysts that follow our stories and write about them so that we can tell the ups and downs. Business is never easy. There's puts and takes and this quarter had some. We have a long history of just fighting through them and moving on to the next exciting thing and trying to build that energy in our company and culture and shareholders, and we feel like we're doing that. So small incremental steps this quarter, but nonetheless, incremental and positive. So we'll take them and keep working hard into the next couple of quarters try to get us make solid in our commitments on our -- achieving our guidance. And I think we're positioned to do that. So we'll keep you guys posted, look forward to the next earnings call. Thank you to everyone involved.

[Operator]

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