HealthStream Inc (HSTM) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the HealthStream second-quarter 2015 earnings conference call. (Operator Instructions). As a reminder, today's conference may be recorded.

I would like to introduce your host for today's conference, Ms. Mollie Condra, Vice President of Investor Relations and Communications. Ma'am, please go ahead.

Thank you and good morning. Thank you for joining us today to discuss our second-quarter 2015 results. Also on the conference call with me are Robert A. Frist, Jr., CEO and Chairman of HealthStream, and Gerry Hayden, Senior Vice President and CFO.

I would also like to remind you that this conference call may contain forward-looking statements regarding future events and future performance of HealthStream that 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 and 10-Q.

And I'd like to start off today by noting that we had an exciting event at the end of the second quarter that we highlighted as our first bullet in the earnings release. The bullet stated, and I quote, CEO contributed $1.65 million of his personally held HealthStream stock to the Company in order to facilitate stock grants to over 600 employees, which resulted in a charge of $1.65 million for compensation and related expense in the second quarter.

Following that event, I'd like to extend a special welcome to this conference call to our employees, many of whom are new shareholders of the Company and may be listening in to one of our quarterly conference calls for the first time. It's really exciting to see so many of our employees realize the opportunity to become an owner in the Company that they helped build.

With that opening comment, I'll turn the call over to Bobby Frist.

Thank you, Mollie. Good morning, everyone. Welcome to our second-quarter 2015 earnings conference call.

I'd like to start by echoing Mollie's welcome to new investors who are joining us for the conference call for the first time. In addition to new shareholders who are employees, we may also have many new institutional investors. As you know, in May we completed a public offering of our common stock where we received net proceeds of $98 million. Through the offering, we added many new institutional investors as well to HealthStream. And we are always pleased to have existing and new investors and our new employee owners on us with the calls and participating in our quarterly conference calls.

With that introduction, welcome to our many new shareholders.

I'd like to get started into the business details. As you may recall from our earnings release this quarter, we have updated the nomenclature used for our business segments. This is largely driven by our recent acquisitions and we are now reporting on three segments -- workforce solutions is the first segment; patient experience solutions, formerly known as research; and our newly established provider solutions, comprised of the HealthLine Systems company and the Sy.Med company that were both acquisitions that have been put together now into provider solutions.

The workforce solutions segment performed well again in the second quarter of 2015. This business segment is comprised of applications and content solutions for customers, which are primarily SaaS subscription based and are targeted at improving the healthcare workforce.

In the second quarter, workforce solutions' annualized revenue per implemented subscriber, which we call ARIS, increased to $35.35, representing a $0.71 increase over the first quarter of 2015.

Many of our new products in the workforce solutions segment are performing well and it's also a period of great introduction of new products. One that we mentioned last quarter is CECenter, which I described to you as a Netflix-like subscription product designed to meet state license requirements for nursing and allied health professionals.

We continue to see considerable momentum with this new product. We added 39 new accounts in the second quarter, with an aggregate contract value, which we call new order value, of approximately $3 million for the quarter. And we don't often talk about the new order value, but that's kind of the total contract value. So a two-year contract would be the dollar value of those two years, for example.

So year to date in 2015, we now have 65 contracts for CECenter, representing about $3.7 million in new order value. So you can see in the second quarter a really strong uptick in the sales and consumption and order value on the CECenter, a very exciting new product that really leverages our network and the breadth of our network. Easy to activate, easy to turn on, and a great value proposition.

Our patient experience solutions segment increased revenues by 8% in the second quarter over the second quarter of 2014. Revenues from Patient Insights surveys, a survey research product that generates recurring revenues, it increased about 10% over the second quarter of 2014.

In this segment, we've added new talent to our leadership team. In April, we hired [Greg Loffman] as VP of patient experience strategy and innovation. It's a newly created position and we're looking forward to Greg's contributions to the overall planning and strategy to try to get the growth back on a stronger trajectory for this area of our Company. Greg will develop, plan, and execute the strategic direction of all of our patient experience solution set.

Last November, we also hired [Bill Rubino] as VP of our interview center operations and Bill is helping grow our operation to scale for the growth, and you may recall we've talked about opening our new interview center here in Nashville, Tennessee, and it's coming up to speed and fully operational. We're adding capacity at that center. And Bill has been an instrumental part in making that happen, along with many other team members, but we are excited to have some new leadership to come and add to the existing leadership in the patient experience solution area.

Our newly formed provider solutions business segment is very exciting as well. The second quarter was our first full quarter with the HealthLine acquisition under our belt. We're about 120 days into the integration of that business and really celebrating our progress. In 120 days, we've made tremendous progress in the integration of HealthLine Systems.

If you think back to our acquisition of Sy.Med in September 2012, you'll recall our entry into the credentialing and provider enrollment business. As we reported on March 16, we completed the acquisition of HealthLine Systems, the leading healthcare credentialing and privileging company, based in San Diego. And it's the combination of Sy.Med and HealthLine through which we're meaningfully strengthening and expanding our business presence in this area.

The new unit, provider solutions unit, provides software that is used to validate the professional credentials of potential employees. HealthLine Systems' Echo products serve therefore as the gatekeeper for workforce quality. So we view those set of applications as a broader set of applications, broader than talent management, really workforce management and workforce development in healthcare. So we are excited to expand our definition of talent management into workforce management for healthcare through the new provider solutions segment.

The second-quarter 2015 revenues from HealthLine Systems were $2.3 million. With our provider solutions business including customers from both HealthLine Systems and Sy.Med, we serve over 2,000 healthcare organizations.

And now that we are getting our arms around this customer base, we can break it down a little bit. That includes about 1,200 hospitals and approximately 800 physician practices that now use the services of the new provider solutions segment. So we're very excited to get our arms around the strength of this unit and prepare it for continued growth in this exciting workforce management area.

Together, our three business segments, we think, help ensure that hospitals and healthcare organizations in the postacute and the acute settings surround their patients with the very best possible workforce. We are very much a mission and vision driven company, and all of these applications and capabilities are all about improving the quality of care for patients ultimately by developing and assessing and ensuring the highest qualified workforce is surrounding that patient. So it's these three segments together that help us achieve our vision as a Company.

I'd like to take a moment here and turn it over to Gerry Hayden to take a look at the numbers which were reported in our release last night. There's a lot of numbers to cover, and so we look forward to some of the details from Gerry and then we'll swing it back to me for a few more business line updates.

We're very excited. You know, each quarter we dive into a few business lines and give a deep dive. I gave you a little bit of insight a moment ago into some of the market conditions around the HealthLine and Sy.Med area, and, of course, the CECenter progress, but there's more to come. I'll turn it over to Gerry.

Thank you, Bobby, and good morning, everyone. I'll try to provide some color to our financial results, including certain items that have impacted the quarter.

For the quarter, consolidated revenues were up 23% to $52.1 million. Adjusted EBITDA was up 21% to $8.8 million. Operating income and net income were both down 38% to $2.6 million and $1.5 million, respectively. Both measures were adversely impacted by the $1.65 million charge related to Bobby's stock contribution and $2.7 million resulting from the deferred revenue write-down associated -- related to the HealthLine and HCCS acquisitions.

Fully diluted earnings per share were $0.05 in the second quarter of 2015, compared to $0.08 in the second quarter of 2014.

Let's now look forward to the income statement -- revenues, gross margin, operating expenses, and operating income.

Revenue, revenue within our workforce solutions segment grew by 23% over the first six months of 2014, with compliance solutions, clinical development solutions, and resuscitation solutions, as well as enterprise talent applications, serving as major drivers. For example, clinical development solutions grew by 46% over the first six months of 2014, while our competency application grew by 76% on a year-to-date basis.

Our ICD-10 solutions are also part of our workforce solutions. In the second quarter, our ICD-10 readiness solutions contributed $6.8 million to revenues, compared to $7.2 million in last year's second quarter. The full-year guidance for ICD-10 readiness products is approximately $26 million, which has been in the previously announced range of $26 million to $28 million.

Patient experience solution revenues grew by 8% in this year's second quarter. As Bobby mentioned, revenues from our Patient Insights surveys grew by 10%, but that growth was offset by lower growth in our patient experience coaching business. Point-in-time products, such as the annual or biannual surveys, posted strong second-quarter results. However, unlike the recurring patient-related surveys, these products do not usually carry momentum in subsequent quarters until the same cycle occurs in the next year.

Also, as we had mentioned earlier this year, this business segment lost a meaningful patient survey account when it consolidated its services with another vendor. This account has now completed its final survey cycle with us and we'll experience the lost business impact for the remainder of this year and is therefore reflected in our guidance.

In the product solution segment, the HealthLine acquisition, which closed in March of this year, is certainly performing well to our expectations and contributed approximately $2.3 million to revenue in the second quarter of 2015. This $2.3 million is net of approximately $2.7 million of deferred revenue writedowns, which is the accounting convention that requires us to write down beginning balances to fair value, as defined in GAAP.

So in addition to strong performance in both the HealthLine and ACCS acquisitions, our organic business was solid in second quarter, with a growth rate of 18%. Gross margins, for the third consecutive quarter gross margins showed improvement over the same period in the prior year. The gross margin in this year's second quarter was 57% versus 55.9% in the second quarter of 2014. Higher gross margins from owned solutions by way of the HealthLine and ACCS acquisitions were key contributors to this gross margin trend.

In operating expenses for the second quarter of 2015, product development expenses were 11.2% of revenue and represented a 35% increase over the second quarter of 2014. In addition, we incurred $1.5 million in capitalized software development costs in the second quarter. So on a combined basis, income statement expense and capitalized software development, we invested 14% of revenues in product development in this year's second quarter.

Product development is an area we expect to accelerate and intensify our investments over the rate we see in the first half of 2015.

G&A expenses were 12.9% of revenue and, once again, reflect the first full quarter of HealthLine G&A in our income statement. Deferred revenue write-down, which reduces reported revenues, increases this common size and measure of G&A expenses, but nevertheless G&A continues this trend below 13% of revenues to a continued progress versus our recent historical results.

Operating income, as you already know, our second-quarter results include several key items that adversely impacted operating income. We've mentioned the $1.65 million expense related to Bobby's stock contribution. This year, we had our summit in the second quarter of 2015 and that cost $550,000. We did not have a summit in 2014, so there's no comparable to the prior year for that expense. And once again, the $2.7 million of deferred revenue writedowns we've already mentioned several times.

On the balance sheet, our cash position and overall balance sheet remain very strong and we are reinforced by the net proceeds of the equity offering we completed back in May. Our cash balance at June 30 was $140 million. We have no outstanding debt and our full $50 million line of credit available to us.

We believe our capital position is likely to support our organic and inorganic growth opportunities, and we continue to review and evaluate a variety of potential acquisitions and business development opportunities in terms of strategic fit and valuation.

Yesterday's earnings release contains updated guidance for the full year for 2015 and we anticipate consolidated revenues will grow between 18% and 21% as compared to 2014 and will be derived from changes in the following three areas.

First, we expect revenue growth in workforce solutions to increase in the 15% to 18% range. This workforce solutions growth range excludes Sy.Med, which had revenues of approximately $4.5 million in the 2014 full-year results. Sy.Med is now part of the provider solution segment.

Second, we expect our patient experience solutions revenues to grow by approximately 1% to 3% for the reasons we discussed a few minutes ago.

Third, we anticipate our new segment, [fios] solutions, which consists of our recent HealthLine acquisition and Sy.Med, to contribute between $11 million and $14 million in revenues. We expect the HealthLine Systems' portion to be between $7 million and $9 million of this total, which is estimated to be the amount at the write-down of deferred revenues as required by GAAP.

We expect our full-year 2015 operating income will decrease between 25% to 35% over 2014 as our guidance takes into account, among other things, the impact of the recent HealthLine acquisition and our plans to intensify and accelerate our rate of investment in second half of this year, 2015.

Associated with the acquisition of HealthLine Systems, we expect to incur $6.5 million to $7.5 million of deferred revenue write-downs, of which we recognized approximately $2.7 million in the second quarter of this year. Also, amortization of intangibles related to the transactions, as well as planned investments in sales and product development, will affect the results of HealthLine Systems. This operating income guidance also anticipates increased investments in other areas, such as product development and sales force expansion, once again, particularly in the second half of this year.

Because we repaid the $28 million of borrowings from the line of credit related to the HealthLine closing with a portion of the equity proceeds, we do not expect to incur further interest expense on the line of credit related to the HealthLine acquisition.

We expect that our 2015 capital expenditures will be between $11 million and $14 million and our effective tax rate will be between 42% and 44%.

And finally, this guidance does not include the impact of any other acquisitions that we may complete during 2015. Thank you for your time. I'll turn the call back to Bobby.

Thank you, Gerry. At this time, I think it might be fun to dive into a few deeper areas or product areas and give a few detailed updates in some of our exciting product areas.

So first, let's look at our new product, Checklist Management. It was launched in the second quarter of 2014 and we continue to add thousands of subscribers to this part of our platform. To date, we have approximately 320,000 contracted subscribers for Checklist Management and over 240,000 of those contracted subscribers are now fully implemented and another 80,000 are in the process of being implemented.

As you may recall, the Checklist Management tool is kind of an open platform. It allows powerful utilization of replacing paper-based checklists with digital ones. And we're seeing a myriad of uses for this product. It can be used in compliance, it can be used for a form of competency validation. So we've really seen some great success with this incremental application and kind of a broad use application.

Let's turn our attention to ICD-10. We talked a lot about the both opportunities and risks around ICD-10 for our business. Obviously, it was a great growth driver for the past several years. As we approach the deadline, a new type of risk is created that again we've talked about for over two years now, the ultimate passing of the federal deadline and the movement towards the need for continuous training, but away from what we'll call orientation or readiness training.

So let's take a look at that area and all the products involved in that area and a little bit of the dynamic now because each quarter we get more detail on how the revenues will decline from the ICD-10 preparedness product, and hopefully we'll see a strong uptake in some of the new products in this new category of products, and so let's take a look.

DNA is the follow-on product to Precyse's ICD-10, as we call it, readiness solution. After this quarter when we discuss ICD-10 related revenue, we will do so in terms of a category we're going to call revenue cycle management solutions. And in that category, it will include the ICD-10 readiness solution, which is the historical get ready for the deadline solution from Precyse. And the DNA, the new DNA product we are very excited about, we're going to give you some detail on that and additional revenue cycle management products that are targeted to this new buyer that we've identified through our success with the ICD-10 readiness platform and content, which is really in the financial office area, the Chief Financial Officer and all the people that work in that department.

So let's talk about DNA's performance. What is DNA? DNA is a data-driven product that leverages our partner Precyse's coding expertise and HealthStream's proprietary control center technology and it offers a one-of-a-kind solution for maintaining revenue cycle management competence. By offering customers the ability to assess and compare their level of competence against national benchmarks, DNA empowers hospitals to manage their coding workforce in a new and powerful way, really getting an outcome and improving their capabilities.

Customers can now select their desired level of competence, set the goals in the DNA platform, and manage through testing and evaluation the competence levels of their coding workforce.

So how's DNA performing? Well, we now have 35 contracts on the DNA product, again the successor and, in some ways, the replacement product for the ICD-10 readiness product. 29 of those 35 were signed during the second quarter, accounting for $6.4 million in order value.

So we're really excited to see this new data-driven advanced version, one that meets the more ongoing needs of the coding workforce and certainly at a higher price point, and it's a great potential offset for some of the declines we're seeing in the ICD-10 readiness solution, which has a known taper and decline in its revenue stream, as we saw actually in this quarter.

So customers that switch from ICD-10 readiness to the DNA product will be in a position not only to be ready for the deadline, but also to have this ongoing competence maintenance in their workforce.

So in addition to the strong sales performance, we're excited for other reasons as well. DNA fills the ongoing need to maintain ICD-10 coding competence well beyond the federally mandated deadline. So as we mentioned, it's the transition -- it's a transition product to move to more recurring demand.

DNA also offers us another opportunity. As we approach the October 2015 adoption deadline for ICD-10, we face some potential headwinds with regard to our platform subscriber count, since approximately 8% or 360,000 of our platform subscribers use only our ICD-10 readiness solution. Again, that's of the about 1.8 million that signed up for it. So about 360,000 of the 1.8 million subscribe only to the ICD-10 readiness solution, which is about 8% of our 4.5 million subscribers.

So DNA gives us a chance to roll those subscribers from one-time subscribers, those 8% or 360,000, to a new product, and so we were really excited to see in this quarter the largest customer for the ICD-10 readiness product preemptively, before the deadline, move to the DNA product, which was part of that great success we mentioned, the $6.4 million in orders shifted to the more permanent base in the DNA product.

So, in fact, during the quarter, approximately 20,000 of the ICD-10 readiness subscribers that -- they were only subscribed that did fall off, which put some pressure on our net new subscriber number we reported this quarter. So about 20,000 of them did fall off. We did not convert them to other HealthStream products, and so a big emphasis for the next two years will be to try to convert as many of those to other products.

Remember, the vast majority of ICD-10 readiness customers are already subscribers to other products. So even as revenue stream winds down from ICD-10 readiness, the vast majority will remain customers of HealthStream and be a factor, a positive factor, in our ARIS calculation.

So overall, it was very exciting to see the DNA product make great progress. And so we provided -- Gerry provided some of the updates in terms of revenue. We expect revenue cycle management solutions now to be approximately in the $28 million range. $26 million from the declining ICD-10 readiness product. $2 million now with great affirmation we can say will come from the DNA product, which puts the category -- and we have new products introduced throughout the year -- the category is now around $28 million, which is essentially on par with last year's performance of ICD-10 readiness. So we're beginning to make and have a strong case to try to continuously backfill with the new DNA product the ICD-10 readiness challenge.

Our Resuscitation Solutions continued to perform strongly. They've been a steady contributor to our growth for many years and the steadiness of their contribution continues.

The HeartCode suite of products is a strong brand in the market, and as we mentioned, I believe last quarter, we renewed and extended our agreements to sell and distribute the HeartCode suite of products and the exciting new RQI products, which are the next-generation resuscitation products, the next generation to the HeartCode.

So through our agreements with Laerdal Medical and overall relationship with American Heart Association through Laerdal, we have extended our opportunity to continue growing in this segment. As of June 30, 2015, approximately $1.8 million cumulative CPR training certifications have been completed through our network, through HealthStream, so very exciting continued growth.

And over 50 new HeartCode contracts were signed in the second quarter alone, and so we're excited to see just a continued uptake of this powerful new model of assuring better trained workforce in the area of resuscitation, and ultimately with the goal of achieving better clinical outcomes when resuscitation events occur in these clinical and non-clinical settings.

I'll take a moment to wrap up here before we head into questions to congratulate a few both in this case of our customers. Kettering Health Network was selected in June as a top five finalist for the prestigious WhatWorks Award. The award comes from Bersin by Deloitte and they're a leading talent management research firm.

The story they submitted in their application is a prime example of how HealthStream's workforce solutions are making a difference for our customers in delivering strong outcomes. Their new approach to talent management incorporated several of our solutions, including resuscitation, managing your talent to a better resuscitation outcome; competency management; clinical skills development; and using all of these tools in a better model for nurse orientation. And so, Kettering reported their resuscitation rates improved from 14% to 27% and their nurse training costs were reduced by more than 80% and their overall patient experience scores increased by 4%.

Congratulations to Kettering Health Network, a shining example of when you utilize a greater proportion of the HealthStream ecosystem, our partners, our content solutions, our enterprise talent management platform, you can actually get your talent to deliver outcomes that matter. And so, congratulations to Kettering Health Network, making a difference in healthcare and HealthStream and our employees in our product solutions for being a part of both winning that award and, more importantly, getting to that outcome, that real outcome with talent. Not just removing the paperwork from talent management, but moving talent to get outcomes.

I think, with that, I'll conclude. And there's many more details to come, but let's turn it over to questions. And so, I'll now open it up for questions from our analyst and investor community.

(Operator Instructions). Matt Hewitt, Craig-Hallum.

Good morning and congratulations on the strong second quarter.

Thank you, Matt.

A couple of questions on ICD-10. First of all, the $6.8 million that you generated in the second quarter, does that include DNA revenues or are those separate within workforce development solutions?

No, the $6.8 million in NOV was the number I think we called out, let me make sure.

It would be the revenue you're talking about.

You're talking about revenue, not order value? Because we gave a new number today. So the revenue number, the $6.8 million --

It was all readiness.

-- is almost all readiness revenue. So that revenue declined from, I believe, $7.2 million to $6.8 million. And that's the readiness product.

But the good and offsetting and new number we gave was the sales order value on the new DNA product in the last 90 days has started to really accelerate. And so, we saw -- what was that number -- over $6 million in new sales orders. Now that's not revenue; it will materialize in revenue over three years.

So the other thing to note is that these agreements, the new DNA agreements, are three-year and four-year longer-term agreements than the older readiness product, which were generally two-year agreements, if you recall. And so, again, an overall positive trend, but it's -- the new sales order will be spread over a greater period of time, but we are beginning to see it as an offset to the decline in the readiness revenue category.

Okay, and then if I heard you correctly during your prepared remarks, you said that starting next quarter you would actually be giving us a full revenue cycle management type number, so that would incorporate not only the readiness revenues, but as well as DNA and some other revenues that are yet to start. Did I hear you correctly?

That's right, so what we are doing is we're backing up from a little bit. We found a new buyer when we launched the ICD-10 readiness solution, which is in the financial area, and now we're both signing partners and building new products with Precyse in addition to the new DNA product.

So what we did say here was if you recall our prior guidance, it specific to this area was $26 million to $28 million. That was working through all the issues mostly associated with the readiness solution. What we have now decided, as of today, is that the readiness solution will do about $26 million, which is the bottom of that range. But we've said that the DNA product we now think will do at least $2 million.

So as a category, we're back up to the $28 million, which includes the DNA and the readiness and we hope to launch a few additional products later in the year. And so, we'll start talking about this as a category and we'll try to work as hard as we can to offset the declines of the $26 million as we enter into 2016.

So we expect $26 million from readiness in 2015 and then it will continue to decline into 2016. We've already got $2 million in DNA, so as a category we are at $28 million, and we'll report on that combined category, hopefully launching some additional new products in addition to DNA and hopefully continue to strengthen DNA. So as a category, we're building our offset strategy to the decline in the readiness revenue stream.

Okay. Maybe one more for me and then I'll hop back in the queue. Obviously your summit last quarter, 2014, you had a year off, you were doing different meetings last year. But regarding the summit, what was the feedback? What were you hearing from your customers that attended? What are some areas where you see opportunity there? They are having issues and you see opportunity either with existing programs or solutions or potentially with new solutions that you could launch later this year and into next year. Thank you for taking the questions.

Sure, so the summit is approximately on an 18-month cycle, so it's a little hard to plan for and it'll almost never be year-over-year comparable because it lands a month off or a quarter off and we've been doing these 18-month cycles, giving us and our customers more time to gear up, get ready, and make it a wonderful event.

It was a hugely successful event this year. We use summit and the gathering of nearly 600 customers to conduct R&D, so we had over -- about 250, 300 HealthStream employees involved in summit. And that included, by the way, over 60 of our development staff who were meeting with customers to design and develop new products, but also our entire -- a lot of our sales organization and market organization is active in summit showcasing new products.

So one of the highlights of summit was, of course, the new control center technologies, which are slowly being evolved through our investment with Juice. And the exciting -- one of the exciting products was the DNA product, of course, because it showcased our partner's growing strength and the growing strength of the use -- our ability to use data in our products to make them more meaningful and useful, in this case introducing through the DNA product the ability to perform national benchmarking in the area of coding competence.

And so, it's kind of unprecedented in our network, but we hope and expect to launch more control center enabled products, which essentially brings the power of the network's data and information in our network and puts them into the product categories.

We think on the whole this elevates talent management. Instead of thinking of talent management as just software, we think of talent management of using data and network, peer groups, the content solution, and applications all to achieve real measurable outcomes, and often we talk about this as managing talent initiatives to get to outcomes.

So a lot of our themes were around that, were around not just automating the workflow and paperwork of HR through talent management, but really through workforce management and enhanced talent management getting to real business and clinical outcomes. And so, a lot of our talk was about making -- getting to real outcomes in healthcare and talking about these control center technologies.

96% of people that attended, by the way, in our post-survey said that they thought it was a worthwhile investment of their time and energies, and it was great. We had over 75 breakout sessions with great levels of detail in all these areas of talent and patient experience and all kinds of thought leader events. So it is an expensive event, but you have to realize it's used for everything from research and development, sales and marketing, new partner introductions, so we thought it was a wildly successful event.

Great, thank you.

Peter Heckmann, Avalon Partners.

Good morning, everyone. Thanks for all the detail. Bobby, I wanted to dive in a little bit deeper on the patient experience and the uptick you saw in surveys. Was there a seasonal aspect to that or is there something else within that number that was more one-time in nature, given your commentary of still expecting about 1% to 3% total revenue growth in the segment for the year?

Yes, it was two things, and one is that part of that definition of our research business includes the employee surveying. And it can be a bit cyclical, with heavy cycles in the end of the second quarter, and so there's a nice contribution from that. And for some of those bigger accounts that went through that cycle, they may not do it again for another year. And so, there is that element of having some of our bigger customers doing their employee engagement surveys in the first half of the year. So that's one element.

Let's see, what's the --

The lost business we'll see (multiple speakers)

Oh, yes, so you're new or relatively new in helping cover our Company, but a quarter or so ago we announced that we had one account that got consolidated away from us and it was an account we would rather not have lost. And that revenue won't start coming out, that loss won't be reflected, until the second half of the year. And so, we got a little bit of revenue from that account even in the second quarter, even though we announced the loss in the first quarter.

So it will be fully out, unfortunately, as a customer in the second half, which is also contributing to that lower projected growth rate of 1% to 3%. So there was some optimism in there. You saw the patient experience, HCAHPS and CG-CAHPS performing well and growing at 10%. But, unfortunately, a couple of offsets bring the total guidance down to 1% to 3%.

Okay, and then just a follow-on there. Within the survey business, are there any other CAHPS modules that are rolling out from CMS that you would call out over the next 18 months or so that you think can be additive or helpful?

Yes, so one area is the ED CAHPS area, and so the home health CAHPS is in the past, so that's a category that's already in play. The ED CAHPS is maybe on the horizon.

Okay, great. I'll get back in the queue, thanks.

Ryan Daniels, William Blair.

Yes, thanks for taking the questions, guys. Another quick follow-up on the ICD-10 product. Bobby, I'm curious when you're able to convert a client from the readiness solution into the longer-term DNA engagement, what is the like-for-like revenue impact for that? So are you seeing kind of stability in the revenue? Does it uptick? Does it downtick modestly? Any color there?

That's a great question, Ryan. I don't have the answer. The best -- I need to do the math on that, but the best thing to look at would be this one big conversion we did because it would be telling. So we'll have to look at that and put that out there probably next quarter for everyone.

Let's see, probably in aggregate the contracts stay the same, although -- it's interesting. On a per-person basis, it probably went up, but it probably targeted fewer people, yet it was a longer term. And so the total sales order value, the net of those three movements, we'll have to calculate that and disclose that next quarter because I didn't come into the meeting with that number. I should have; that's a good question.

It did have the impact of reducing, because we -- essentially, they early moved from the readiness product to the DNA product. So some of the former expectations around readiness kind of went down as it increased and moved business into the DNA products. Remember, we had a $26 million to $28 million range on readiness is now a $26 million, and moved $6 million of sales value that might have gone into readiness into DNA.

And so, we think overall it's a very, very positive occurrence, but I don't have the end-year revenue impact. But we've made some notes here and maybe we'll do that 90 days now.

Okay, that would be helpful. And then, just another follow-up on the summit. You mentioned kind of getting to real outcomes in healthcare. And I'm curious as there's more of a consumerism movement more broadly, more of a public search for data on the quality of healthcare providers. Do you think any of your data on competency or training could be used by providers to drive transparency about the success within their systems? And is that a potential product for you longer term?

I do, and in fact, there is already some visions of that and actually some new products being built in the provider solution segment of our business, where we're going to see some of the use of the caps data potentially in things like provider scorecards. Some of that will be derivative, new products coming off of our provider solution segment, the credentialing and privileging business, where we have that wonderful base of customers I mentioned to now create new products from.

So there is a bit of a vision and a roadmap to use data from one segment of our business to populate and power up new products in other segments. And in fact, that very specific one I mentioned is well underway and nearing a place where we can offer it as a new product offering.

So I probably jumped the gun from my president just a bit of that new unit, Michael Sousa, but you asked the question and I know there's some excitement about the cross-pollenization between our segments and the potential use and movement of data to empower new solutions.

Okay, good color. Thank you. And then, one final one and I'll hop off. Just for Gerry, quick housekeeping. To be clear, does the updated guidance for operating income now include the stock compensation expense from Bobby giving the shares, thus implying stronger profitability in the core business, or is that excluded?

No, that guidance includes the effect of the $1.65 million in the full-year results.

Okay, and are you then effectively taking up guidance just because of strength in this quarter versus expectations or lower spending assumptions in the second half of the year? Thanks.

I guess it's a little of both, right? We were trying to deploy the capital that we've intended to deploy in the second half, so we still plan to and have a meeting later today, actually, to focus on accelerating development in lots of areas of the Company and deploy the investments that we had indicated we plan to make this year.

If you took it on its face value, the first half of the year would probably indicate the need to raise guidance. However, most of the investments, like if you look at where we are with HealthLine, we're 120 days in and we're just getting in the position to make the investments we had planned in the year. So, probably heavily weighted to the last four months of the year will be the planned investments we had talked about early this year, driving our guidance for operating income down to the 25% to 35% negative range over prior year.

And so, the heavy investing, we kind of have to be in a position to make the investments, and we think we're now in that position 100 days into the acquisition, 120 days into the acquisition, and into our core business as well.

So we are going to do everything we can to make the planned investments and stick to our guidance ranges. Even with that and this new expense, we probably won't get to all the investing that we planned. So, guidance does factor in the $1.65 million from that unique or that compensation expense.

And so, overall, you would say that profitability has improved, but the actual guidance remains the same. It's just there's this new factor in it, which is that $1.65 million in expense for compensation.

Okay, perfect. Congrats on the strong first half of the year. Thanks, guys.

Steve Rubis, Stifel.

Thanks for taking my questions. First, can you talk about how annualized revenue per implemented subscriber compares to the aspirational clients' pricing you typically talk about in your corporate presentations? What do you need to do to close the gap between ARIS today and the aspirational pricing of your example clients? And part of this, I understand, is that the ARIS is not that full number, so what portion of that aspirational price is the annualized revenue per implemented subscriber?

I think I understand your question, that in our road shows we occasionally show clients where the ARIS for those clients is meaningfully above the average; sometimes $80, $90, $100, $110 per client. And so in those cases for those accounts, we've been able to get into that account and cross-sell and upsell the mix of products that would move their account's revenue per implemented subscriber upwards to those numbers, upwards of $100. And, of course, our network average is at 35 -- you know, about 35.5%.

So I think I understand your question is how do we move the average up, and, of course, the answer is just continued execution, introduction of new products, getting better at cross-selling.

I'll also note that in our provider solution segment, we haven't yet figured out how to take that revenue, which is increasingly going to be material overall, which generates revenue per facility -- it's a little harder to ascribe to per subscriber, and that revenue is not in the ARIS. So we have some discussion going on about adjusting the metrics someday to revenue per facility and trying to grow it.

But overall to move to the more aspirational numbers of $100 plus, we need to see the continued cross-selling. And in that vein, we have this wonderfully organized sales organization that have these specialist sales teams that -- an account planning model that brings in each sales team to the different buyers. So for example, today, we kind of have declared a new buyer. We've known about it for a while, but we've talked about revenue cycle more broadly than just ICD-10, and because the CFO and their entire department is now a target for solutions from HealthStream.

And historically, we have had just really one product to offer that buyer, the readiness product. Now we have DNA and we have some new products in the pipeline for that buyer and a 10-person dedicated sales team going to that buyer.

So we continue to add solution groups, find new buyers, and cross-sell to move the aspirational numbers of $100 plus over time. Clearly, we have dozens, if not hundreds, of accounts that are meaningfully above the average and then some that are brand-new subscribers. They come in and they buy one product and they are at $15 a year.

And one of our challenges is in the last year we've added a lot of these low-cost initial entry customers. They come in for one product at $15, which pulls that average down. So as we get more penetration, and penetration someday will slow, the ARIS will start to move up by the cross-selling.

Got it, thank you. And then, in terms of credentialing, are you -- should you be concerned that EHR vendors might focus on providing these types of solutions or do you think that ultimately if they ever go in that direction that you'll be their partner vendor?

I don't know. I haven't seen any real movement in that direction from the true EHR vendors, if you mean the big systems, EPIC and Cerner's. And so, we feel like we've got a nice strong niche app and a market-leading position in that segment.

We're also rounding it out with additional capability sets. Privileging is an even more specific process. Provider enrollment is another specific process. So it's kind of a complement of suite of products that now we're rounding out a little bit in an unprecedented way.

And so, I think we're in a good position. You know, I'll continue to watch that, and if you're aware of any particular trends in that area, we'd appreciate that information. But right now, we think we're really well positioned for the next several years to grow that new segment.

Great, and this is my last question. In the past, you've talked about areas of focus regarding M&A and how we should think about the ways that you'll build out your business. Can you talk a little bit about your appetite for purchasing, say, digitized versus undigitized assets? I know some of the acquisitions you've done recently are a combination of both. How do you think about that and especially how do you think about that in terms of targets? Thank you.

Yes, and so that's a great question. We now are in a real strong balance-sheet condition with $140 million in cash, approximately, and a $50 million line. So deploying capital is a responsibility we have to do it in an intelligent way.

Of course, we now have these three segments and we plan to spread our emphasis across the segments, adding tuck-in and additional product sets and capabilities to each area over time. We certainly prefer the recurring-revenue, subscription-based, technology-based, as you called them, digital products. And we even favor more application products over content products in general because we partner for the content expertise while we provide the technology infrastructure in a lot of cases. So just preferentially, we prefer the digitized products, and even within that category, we prefer application products.

It doesn't preclude us from doing other types. So, for example, our BLG was really more of a consulting practice. We hoped to monetize their IP over time and add strength to our overall patient experience solutions. It hasn't, obviously, turned out quite as planned and we've got a lot of execution issues to get that back on a growth track, but the vast majority -- if you look at our last six or eight acquisitions, A, the bigger they are, generally the more successful we feel they've been, and so that's kind of a good thing. And two, the more successful they've been, they tend to favor the recurring-revenue products or the technology-based products as a position.

We're also in a position now to launch new data products or products that are based on data, data derived from our network. And so, our investments in Juice Analytics, which were minority investments, as we've talked about in the past, are another type of investment that I'm excited about.

We've really had great success making a minority investment in about three companies now, getting the technologies that we need for our marketplace while allowing those companies to grow in other markets. And so, I think we'll also see more investments like that. And again, those favor the technology over, say, the consulting, which again we felt was a good capability add to that unit, but obviously not as successful yet financially as the other acquisitions. So that's a little bit about our M&A thoughts and process.

Great, thank you very much.

Scott Berg, Needham.

Hey, Bobby and Gerry, congrats on a good quarter. Two quick ones for me. First, Bobby, as you've had a chance to begin digesting HealthLine Systems here after roughly a quarter or so, can you give us maybe an update in terms of how you're seeing your plan maybe around sales headcount or additions or other opportunities there? Does it give you an opportunity to expand that sales force maybe more so or not as much as you'd originally planned postacquisition?

Sure, sure. A couple of things. One, we are in the exciting position now to begin making the investments that we had mentioned in our guidance in February, both in HealthLine and across our whole business.

So, for example, we just approved and posted seven new sales positions not related to provider solutions, but across our other segments, strengthening some of our sales ability in, for example, our DNA product category and in that area of the business. So we've just posted in the last month or so seven new sales positions irrespective of the HealthLine.

Also, our President of that group, Michael Sousa, is about to conclude his integration phase, as we've called it, the first 120 days, where all the systems and email and back office and accounting have all been integrated. And he's moving on, delivering to our Board his investment plan for the second half of the year, which will include, we expect, robust additions relative to that size of that business in sales and product development technology.

So, the second half is going to be an exciting period of investing both across the broader business, led by me and our other executive team, and in the new provider solutions segment, led by Michael Sousa. We expect to see increased investments really across the board.

We wanted to secure the capital and we wanted to get our guidance out there in February. We wanted to renew our biggest content partnerships, which we secured with Laerdal and Lippincott, and others were renewed earlier in this year, so we are excited to get a lot of those issues all out of the way. And then as we enter the second half, it's really time for investing and we're going to do what we can to hit our investment objectives in the second half.

Thanks, and then I guess last question for me, Gerry, on the cash flows in the quarter. They were low on a year-over-year basis. It looks like in particular deferred revenue additions were lower. My assumption is part of that is from the 20,000 ICD-10 subscribers that, of course, did not renew. But how much of that difference is related to those individuals versus, say, just normal timing differences of how you invoice customers in this quarter relative to last quarter?

Yes, the fluctuation is almost all invoicing, invoice timing and billing cycles. That's the primary fluctuation in deferred revenue. Does that help?

Great, that's all I have.

Richard Close, Canaccord Genuity.

Great, thank you. Congratulations on a great quarter here. Bobby, I was just wondering if you could update us on the talent management platform competency and performance center. You didn't seem to mention those in the prepared remarks. Just any update there on the subscriber additions on those platforms?

Yes, so I gave a couple updates. One, financially it was up 76% year over year on the competency performance. So financially, we're getting good implementations.

I'll also mention the checklist management subscriber count, which I don't think we've given in the past. And we put it in that same bucket. It's often used for competency validation. And so, we did get some real progress from a subscriber count in that area.

And so, between those two, we gave an update on the progress there. We continue to see progress across all areas, and, as you know, we've added some new capabilities to our enterprise talent management platform recently and there's more to come in the second half.

And so, the updates we provided on competency was the 76% year-over-year financial improvement and the subscriber count. I believe over 320,000 subscribers on Checklist Management, which again we put in that category of often used for competency management.

Okay, and just on the Checklist Management, just thinking about that, is the potential there, the 4 million subscribers, is that the total market opportunity there within that product?

Yes, I think probably so over time because the checklists are used for everything for compliance to competency in workforce management areas. Some of our initial focus is using it as part of the competency validation process. So, a lot of our go-to-market messaging is around automating and reducing paperwork around competency validation, which our competency center also does as well, so those products are kind of complementary.

But overall, I think in general checklists are used in a lot of areas across healthcare, and as we develop new partners that provide new content into the checklists, there will be more and more uses for it. So I see no reason to preclude the market.

I think the whole market, it could be one of those products that ultimately would be used at least once a year by everyone in our network. It may take us time to get there as we -- because it's one of those things where a checklist needs content. A lot of customers buy just the checklist capability and put their own content in it. But, also, partners are beginning to think about including medical device companies publishing a checklist for product use, clinical content partners publishing checklists to check off competencies, and then, maybe ultimately, compliance-oriented checklists to do spot checks on processes. So, there's a lot of great uses for that technology as it evolves.

Okay, and I guess one of the final questions I would have is you seem to -- on the provider solution, obviously you gave us the customer account -- customer numbers between hospitals and physicians. I think on CECenter, you talked about the number of new accounts. Is there a time here in the near future or at some point where maybe you get away from the subscriber adds and I guess the focus there? I know you've shifted us towards annual revenue per subscriber, but is there at some point in time where, I guess, we deemphasize subscriber numbers?

Probably not for a little while because the story will continue to play out. And what we are thinking about, and we appreciate everyone's feedback, including our analyst community, is some time -- and we'd take a long time and do this. We'd talk about it way in advance, many, many quarters usually in advance. But to better reflect the growing revenue per unit, there is some thought that maybe the unit could move to a facility or an organization instead of subscriber.

For example, our provider solutions products are sold based on the size of the organization using proxies other than the number of subscribers. And so, it's not really targeted to all employees. It's sometimes done on an institutional license.

And so, the revenues from provider solutions segment are not factored into ARIS. Whereas if we had an overarching metric, like revenue per facility or per hospital, we would have an all-in metric showing revenue growth per unit and the unit might be facility or healthcare organization, instead of individual.

So we have some thinking there to more broadly include other revenue streams that are being excluded from ARIS that would be driving its growth, because those are growth areas, and finding a way to incorporate them. But for now, the SaaS subscription products continue to add subscribers. We think it's a good way to evaluate our performance and I appreciate any feedback you have on the comments I just had, as we will take them into consideration as we try to continue to improve the metrics we use to report on.

Okay, and my final question, Gerry, obviously a lot of the new products you guys have been rolling out are more platform based rather than content. Can you talk a little bit about the gross margins on a go-forward basis? I know you emphasized that you've had three quarters in a row of improved gross margin.

Yes, I think we discussed in the past as a general rule you'll find the platform type products have a higher gross margin, and the primary reason is more of the content solutions have royalty expense we share with our partners. So the way it works out is the platforms usually have a bit higher gross margin for that reason, primarily that reason.

Okay, so expect improved gross margins as those products ramp over time?

It's a little trickier than that because when we do define a solution, like resuscitation, we try to blend all of the technology products. The checklist and maybe the competency center and learning center are all critical to delivering that. And so, in general, we define a solution to include platform content and now maybe data and analytics.

And so, it's a little hard to say because we don't usually just purely sell a piece of technology. We usually bundle it in. It's capabilities into a solution. And so, it's been a favorable trends lately because the net mix we do, the net mix has improved, but it will probably move -- bounce around up and down as we build true solutions, it still always include some component of a third-party contribution, we believe. It just requires (multiple speakers)

Thanks a lot. Congratulations.

Nicholas Jansen, Raymond James.

Thanks for taking the questions. First on the ICD-10, just going back to that 20,000 customers that fell off and didn't convert, I just wanted to kind of get a better sense of what you're thinking about for the back half of the year and the implied $26 million of readiness ICD-10 revenue. Just wanted to make sure that we are all modeling subscriber growth in the back half of the year accordingly, considering that there could be some takedown or less growth, given the fact that some of those customers could be rolling off.

Right, and so what we have done is now you've got the first-half numbers on that, and we've said that the number for that product, we believe, will be about $26 million. So you can have two more -- you have the first-half numbers, you can just divide the balance of the $26 million and you'll know roughly we're expecting kind of sequential declines in that product for a long time now, all the way through 2016 and early 2017. And you see the rate of decline from last quarter of $7.2 million to $6.8 million.

And some of those customers will wholly roll off the platform, meaning that that limited subset where that's the only product they license and they haven't licensed any other product from us, if they leave us, they come out of the ARIS calculation.

But if you think of finishing your model for this year, we believe the number is $26 million on the readiness product and $2 million currently on the DNA product, bringing the category total to $28 million and you have all the first-half numbers. So you should be able to model it pretty well. If you do a little bit of sequential decline in the readiness product and a little bit of sequential growth in the DNA product and you use those benchmarks for the full annualized estimates of $26 million and $2 million, you should have a pretty complete model.

Yes, I was just more going on subscriber growth, not the revenue number, but just trying to get a sense of if you lost 20,000 and you had a sequential decline of about 300,000, I just wanted to get a better sense of making sure that we're not modeling subscriber growth too aggressively in the back half if there are 30,000, 40,000, 50,000 potentially embedded into that number of the revenue decline. Does that make sense?

The declines we are expecting overall from the category are already baked into the guidance. And so, there's no additional color to provide on it because the expected nonrenewals or roll off has already been projected and it's in the numbers we just gave. And so, there'd be no additional way to think about how it'd add to decline.

Now, and so maybe over a three-year period, you might want to know if none of the 360,000 and so that are only ICD-10 buy any other products, what's the value of that. And the value of that is roughly, I think we've guided in the past, at the low end of a price range is usually about $15 to $18 per subscriber for those customers that are only on the ICD-10 product and that will be rolling off.

Okay, that's helpful, thanks. And then, lastly on patient experience, I just wanted to kind of get a sense of maybe some of the investments, the product development acceleration that you are expecting in the back half of the year. I think you talked about HealthLine and others. But just wanted to get a better sense of how you're viewing the patient experience opportunity for you guys. Is there a willingness or a desire to make that a bigger component of the business longer term? So do you need to invest in things like e-surveying capability or things along those lines? Thanks.

Succinctly to that question, we actually have put e-surveying capability in. And it's in utilization in addition to our phone center operations and we actually do some mail operations as well. So all of those are increasing in our use and capacity from an investment standpoint.

Our new interview center is capable of all three modalities. So if you visit it, it looks predominantly like a call center, but it also has a mail center built into it and we have an e-surveying platform that we put in about, what, six or eight months ago? Six months ago?

Nine months ago.

Okay, about nine months ago we put in our e-surveying platform. So we continue to make investments in that business extending its modalities and capabilities.

As I mentioned, we already just in the last few weeks approved seven new sales positions, and that is prior to getting the business strategic steps we want to take through Michael Sousa and the provider solution segment, where we'll see additional adds coming probably into his sales organization and into his development organization.

And in fact, just this afternoon we're going to meet with all of our leadership team and allocate project work to try to accelerate product development in dozens of areas. So, today is a really important meeting this afternoon with our leaders to figure out how to deploy -- effectively deploy increased capital spending in many, many product areas.

Nice job in the quarter. Thanks for the color.

And capital and expense (multiple speakers). I'm sorry, capital and expense investments, contractors and new employees, all that will take place in the remaining five months of the year.

Great, thanks for the color. Nice job, guys.

Matthew Gillmor, Robert Baird.

This may be somewhat far afield, but I wanted to ask about how you view the international opportunity for HealthStream. I would think several of your workforce products would translate well outside of the US. So I just wanted to hear your updated thoughts on the non-US opportunity.

We have a little bit of exploration going there, but really our focus remains in the US and some contiguous area, but I think -- so I think there's not a whole lot of ambition. Certainly not in 2015, there's nothing expected or planned in 2015. A little bit of talk in 2016 about a pilot here and there, but I think on the whole you could think of the next 18 months as being a US-based and US-focused organization.

Through our partnerships, we have built some products for international consumption. So in our sim venture with Laerdal Corporation, which is a Norwegian company, we are delivering and driving some revenues in that venture from six different -- the platform is actually delivered in six different languages. And we are seeing -- through their sales in other companies, we are seeing some of our sim ventures revenues are coming from international sources. But we don't operate and have people in those countries; we do it through our partnership with Laerdal, which has operations in 23 different countries.

So I would say limited ambition in the next 18 months in the international markets.

Okay, thanks. And just one more, Bob. I didn't hear anyone ask, but I wanted to touch on the equity grant you made. Can you maybe give us some background on your decision and maybe a little more color on why this is important for the Company?

Yes, we've had the good fortune of having just an incredible employee base, and our options program over the last decade has been limited to a leadership group and I really had just been processing over the last year with our success in many areas and the challenges we face and how our workforce has helped us overcome them that feeling like an owner and being an owner is an important part of the journey.

And many of our long-standing employees that are directors or managing groups of people are delivering great product development, some of them have been along my side for as much as 20 years and haven't had the same equity opportunities were they to be leaders in the Company. I thought it was the right time to make some of them owners and start them on that journey. Recognizing their past contribution, the deployment model tenure was a very important dimension of it, people that have been loyal contributors and helped get us where we are and through the many challenges over the last 10 or 15 years. I thought it was the right time to make them shareholders.

And the way I went about it, I did it from my personal holdings because I didn't want it to be an issue where our Board had to consider the dilutive impact across all shareholders. I was personally willing to take the dilution to make them shareholders because they've been colleagues of mine, in many cases, up to 15 or 20 years.

And so, it felt like the right time, and hopefully existing shareholders, since they weren't diluted, will see it as a great benefit to have 600 new shareholders that are also employees of the Company pulling all in the same direction. And so, it seemed like the right move to make at the right time and I was excited to do it. And it seemed to be very well received and hopefully an effective way to recognize past contributions to our success today.

Okay, great. Thanks very much.

Matt Hewitt, Craig-Hallum.

Thanks, just two quick follow-ups. Postacute, could we get an update on the status with that market opportunity?

Yes, it's folded into our ARIS and our subscriber count. It's a continuing source of adding subscribers. We continue to have good business development in that area.

It's still rather small, but we are adding personnel, people, and capabilities steadily and it will be a continuing part of our story now and just kind of factored into our continuing opportunity to add subscribers to our network. And so, we don't break it out as a segment because it's really just taking our market -- our products into a broader group of potential subscribers, but it continues to perform.

It's got a good pipeline, not a great pipeline. We want to keep growing it and we're still kind of seeing the applicability of each of our product sets, which are more robust every quarter, into that market. But we remain excited about it and we think it's an important part of our overarching strategy. The models of accountable care organizations are driving a lot of business collaboration between acute and postacute settings.

We also have an exciting new partnership. I guess I'll go ahead and announce it. It's signed, sealed, and delivered, but in development with Duke School of Medicine. We're building out new products that focus on that transitional care moment between acute and postacute settings and expect by early next year to launch new product sets that will focus on ACOs to help them reduce readmissions and manage transitional care and risk moments when, say, frail or elderly patients are discharged from an acute setting, ER, into a postacute setting, like homecare.

So we have new investments going into this area that will be the bridge area between acute and postacute settings and exciting new products on the way, say, early next year that focus on that bridge.

That's great. You know what, that's a good way to end. I'll leave it there. Thank you very much.

Thank you and I'm showing no further questions and I'd like to turn the conference back to Mr. Robert Frist for any further remarks.

Thank you, everyone. Welcome, new shareholders, both from our equity offering and our employee shareholders. We are excited.

There's plenty of challenges ahead. This ICD-10 challenge remains. We expect a continued decline of that revenue stream, but that's why we're girding for it and making new investments, strengthening our balance sheet, and have robust opportunities around investing in minority investments and acquisitions, investing in our workforce. So I want to thank everybody for following our story, being part of our journey, and we look forward to our next quarterly-earnings report. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.