HealthStream Inc (HSTM) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the HealthStream, Inc. Second Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Ms. Mollie Condra, Vice President of Investor Relations and Communications. Ma'am, you may begin.

Thank you, and good morning. Thank you for joining us today to discuss our second quarter 2018 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 the 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 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.

So with that introduction, I'll turn the call over to Bobby Frist.

Thank you, Mollie. Good morning, everyone. Welcome to our second quarter 2018 earnings call. We'll just jump right in. Our second quarter performance was positive on the financial metrics. Revenues were generally in line with our expectations, and we did deliver solid operating income growth. That income growth will enable us to increase our investment in the second half of this year in preparation for the launch of exciting, new, higher-margin products early next year.

Improving gross margins continues to be a theme for the company over the next several years. As we announced in February, HealthStream divested of its Patient Experience business, which was our business segment with the lowest gross margins given its labor-intensive call center operations. In the second quarter, which was the first full quarter without the PX business, we did see an increase of 200 basis points in our overall gross margins over the prior year.

And then if we think about our Provider Solutions segment, we launched our new SaaS-based platform called Verity last quarter. Over the next several years, we expect that existing HealthLine and Morrisey legacy platform customers -- those were through acquisitions -- will choose to upgrade and migrate to this new Verity SaaS-based platform.

Once those migrations are complete and the legacy platforms have been retired, we expect another positive impact on gross margins, but that will be a kind of a several-year process. But again with this focus on enhancing gross margins, the move to the SaaS platform will see yet another boost over time after migrations and after platforms have been retired.

In our workforce development segment, we are investing in products, like our OB Risk curriculum and our new resuscitation solutions which carry higher gross margins than the legacy products that they will replace. In fact, as we've said previously, the new resuscitation solutions will carry approximately double our existing resuscitation product margins. In the coming months and years, as these products and the solutions that we've talked about are adopted by customers, we expect to see a positive impact on gross margins from those product investments as well.

As a reminder, at the end of June 2017, we announced our current agreements with Laerdal Medical for the HeartCode and RQI products -- these are the resuscitation products -- will expire on December 31, 2018. HealthStream retains the rights to and expects to continue selling HeartCode and RQI for the next 5 months. And we will provide uninterrupted service to our customers for the duration of their contracts, which can extend through December 31, 2020.

HeartCode and RQI generated approximately $48.4 million of trailing 12-month revenue. At the end of this year, we will stop selling those products and expect the revenue from them to decline in 2019 and to run out over the course of 2020. To be clear: We expect revenue from these 2 products to be 0 in the first quarter of 2021.

We are committed to creating a marketplace that brings more choice and selection to our customers for a wide range of critical solution areas, including resuscitation. In fact, we are on track to launch new resuscitation solutions in January of 2019. The new resuscitation solutions will feature multiple new strategic partners, each with individual areas of expertise and focus, areas of focus like science, credentialing, curriculum, hardware and software technologies.

As we've previously shared with you, we have already signed 2 7-year-plus partnership agreements to develop new, innovative, high-quality resuscitation solutions. We are pleased to announce that in the second quarter we signed our third 7-year-plus agreement. HealthStream and our 3 partners are excited about the progress we are making to be ready for launch of the new solutions in early 2019.

Of course, as we prepare these new products and solutions, and good thing we had the solid first half performance, we will be able to invest and increase our expenses and capital investments, which will increase throughout the second half of this year, gearing up for the launches in early next year.

At this time, Gerry Hayden will provide a more detailed discussion of the financial metrics for the second quarter results.

Thank you, Bobby, and good morning, everyone. Before reviewing our second quarter results, I'd like to note that, one, all results are from continuing operations only. For example, 2017 and 2018 results exclude the gain on the sale of our recently divested Patient Experience business segment and results of operations of that segment prior to the divestiture. And two, 2018 results are presented in accordance with the new accounting standards codification 606, Revenue from Contracts with Customers, ASC 606, whereas results from 2017 are presented in accordance with ASC 605.

Here's some highlights from our second quarter: Consolidated revenues were up 8% to $57 million. Operating income was $4.3 million in the second quarter of 2018, up from $2.8 million in the same quarter last year, with a $339,000 positive impact in the second quarter of 2018 from the application of ASC 606, the new standard. Net income from continuing operations was $3.7 million in the second quarter of 2018, up from $2.2 million in the second quarter of 2017, with a $256,000 positive impact in the second quarter from the application of ASC 606.

Earnings per share, or EPS, from continuing operations was $0.11 per share fully diluted in the second quarter of this year compared to EPS from continuing operations of $0.07 per share fully diluted in the second quarter of 2017 last year. Adjusted EBITDA from continuing operations was $10.7 million in the second quarter of 2018, up from $9.2 million in the same quarter last year, with a $339,000 positive impact in the second quarter of 2018 from applying the new standard ASC 606.

So our 2018 financial reporting includes 2 developments that originated in the first quarter and continue to be reflected in our operating results for the second quarter and remainder of this year. One is the Patient Experience divestiture. And the other is the mandatory adoption of ASC 606, which is now the new GAAP standard for reporting revenue.

As you already know, the Patient Experience divestiture occurred on February 12, 2018. Our income statement continues to segregate the gain on the sale and the income or loss from discontinued operations from continuing operations. Our comments today focus on continuing operations, which consist of our workforce development and Provider Solutions business segments.

The second financial reporting development is the implementation of ASC 606 into our GAAP reporting. There are 2 areas affected by ASC 606: recognizing revenue and commissions accounting. In second quarter of 2018, recorded revenue in accordance with ASC 606 was similar to historical ASC 605 methods as it was in the first quarter of this year. The most significant difference between ASC 605 and 606 is that commissions are accounted for as capitalized costs and amortized under ASC 606, while these same costs would have been expensed under ASC 605.

As we discussed on last quarter's call, a large number of 2017 sales transactions went live during the first quarter of 2018, resulting in commission payments being capitalized in accordance with ASC 606. The amortization of capitalized commissions recognized in the first quarter of 2018 was lower than what would have recognized as commission expense for the same period under ASC 605. However, commission expense for Q2 of this year calculated under both the ASC 605 and 606 methods are virtually identical.

Now let's look at certain areas of our income statement, we will touch on some highlights from each of our business segments. Revenues. Revenues from our Workforce Solutions segment increased by $2.7 million in the second quarter of 2018. The second quarter of 2018 includes no ICD-10 readiness revenues, while in the second quarter of 2017, last year, we reported $231,000 of ICD-10 revenues. A variety of subscription products contributed to the increase in this quarter's workforce revenues.

In the second quarter of 2018, revenues from our Provider Solutions segment increased by $1.3 million or 15%. The Morrisey Associates acquisition represents approximately $606,000 of that increase. Revenues from other provider solutions products increased $771,000 compared to the second quarter of 2017.

And now some -- look at our gross margins. Our gross margin was 59.2% this quarter and 59.8% for the same quarter last year primarily due to increased revenues for existing lower-margin HeartCode products. However, as Bobby mentioned earlier, our gross margin is now 200 basis points higher than when the Patient Experience segment was included in our operating results.

Our operating expenses. Operating expenses for the quarter were up 2.1% over the second quarter of 2017. The combination of capitalized software divestments and product development expenses increased 4.5% between this quarter and last year's second quarter. Software development remains a priority, and we have maintained our development capacity. We also plan to increase our rates of R&D investments throughout the remainder of this year.

Sales and marketing expenses are down about $150,000 from last year's second quarter due to some nonrecurring marketing costs included in last year's second quarter. We expect to increase sales and marketing investments over the last 2 quarters of 2018. And as I mentioned earlier, commissions under both ASC 605 and 606 for the second quarter of this year are virtually identical with each other.

Depreciation and amortization were flat with last year's second quarter. This is primarily due to the full inclusion of amortization of acquired intangible assets through the Morrisey acquisition in both the second quarters of 2017 and 2018. It is important to note that depreciation and amortization still reflect increased levels of capitalized software development amortization.

G&A expenses in the second quarter of 2018 increased over the second quarter of 2017 and grew by approximately 4.5% and were about 14.1% of revenues compared to 14.5% of revenues in Q2 of 2017. The growth in G&A expenses is primarily related to increases in software expenses and personnel costs.

Operating income. Operating income was $4.3 million in the second quarter of this year compared to $2.8 million in the second quarter of 2017. The increase in operating income reflects the revenue growth, leverage on our product development, sales and marketing and G&A expenses.

Now let's look at our balance sheet. Our cash position and overall balance sheet remain strong. Our cash balance at June 30 was approximately $165 million, a $34 million increase since December 31, 2017. The $34 million increase reflects the net cash proceeds from the Patient Experience divestiture in February of this year, improved cash collections on accounts receivable, and is offset by the special $1 per share dividend, which was paid this quarter on April 3, 2018. We have no outstanding debt, and our full $50 million line of credit capacity is available to us.

We believe our overall capital position is likely to support our organic and inorganic growth opportunities and support other capital structure optimization and shareholder value maximization strategies as may be appropriate.

Finally, financial expectations for 2018. Yesterday's earnings release included updated guidance. Given the switch from ASC 605 to 606, let's go over how we've presented our guidance in every instance of this year to date. On February 20, we presented our original 2018 guidance utilizing ASC 605. For comparability purposes, on April 30 of this year, we provided guidance utilizing ASC 605 and also utilizing ASC 606. We are now presenting our updated 2018 guidance utilizing only ASC 606 in light of the fact that our 2018 operating results are being presented under ASC 606.

For 2018, we anticipate that consolidated revenues will increase 6% to 8% as compared to 2017. We expect that our revenue growth in our Workforce Solutions segment will be between 4% to 6% and Provider Solutions segment to grow between 10% and 20% when compared to 2017.

We anticipate operating income for 2018 to increase between 35% and 45% as compared to 2017. We anticipate that capital expenditures will be approximately $20 million during this year. And we expect our annual effective income tax rate to range between 20% and 22% for the full year of 2018. This represents an effective tax rate of 26% to 28% for the remaining 2 quarters of 2018. This guidance does not include the impact of any acquisitions or strategic investments we may complete during the remainder of 2018. Thank you for your time.

I'll turn the call back to Bobby.

Thank you, Gerry. So to wrap up this section, I have 2 quick product updates. I sometimes like to give insights into a few products in the company and then information about a new initiative to share as well. And so let's dive right in.

With our Workforce Solutions segment, we continue to see steady adoption of our KnowledgeQ solution. KnowledgeQ represents HealthStream's third-generation solution that is utilized by hospitals to manage their annual mandatory training program. KnowledgeQ is a data-driven solution that includes curriculum and games, benchmarking and analytics and software. In fact, KnowledgeQ's benchmark and analytics components were created in collaboration with Juice Analytics. As a reminder, we invested in Juice Analytics about 3 years ago to build out our data visualization tool sets.

Since its first sales in early 2016, over 2 million subscribers have contracted for KnowledgeQ. They've kind of upgraded from the second- and first-gen products to this third-gen product, which has the data analytics curriculum and some games built into it. So really excited about our progress with KnowledgeQ and its continued adoption in the market.

And it's definitely a leading product in our Workforce Solutions segment.

At the start of the year, we also announced the launch of our new Nurse Residency Pathway program, which is an innovative, comprehensive approach to improve nurse onboarding, thereby reducing nurse turnover. It's a 12-month blended learning program that closes the academic-to-practice gap for nurses while improving their confidence to practice.

In our last call, we shared with you the success an early adopter, a large health system, was having in their pilot. I'm pleased to report that in the second quarter that health system contracted to expand the nurse residency program enterprise-wide, across all hospitals in their health system. So we're excited to enter a enterprise-wide multiyear agreement for the new nurse residency program.

The average cost of replacing a nurse is very high. It's we've read and a reference has showed it's approximately $85,000 to replace a nurse that chooses to leave your organization. And because HealthStream's nurse residency program is designed to reduce turnover for new nurses, we believe it has a higher value proposition. There's a lot of turnover in that first year or 2 of employment.

And since it has a higher value proposition, it warrants a higher price point, so we're excited to bring this new, high-impact, high-value program to the market at approximately -- in a bar range of $400 to $1,000 per student. And so it has a very -- a much higher value proposition and a higher price point, and it's a nice blend of a lot of the technologies and services that HealthStream can provide to impact turnover and improve confidence of new nurses.

With those 2 products -- product updates, let's turn to an exciting, new initiative at HealthStream. As we've discussed before, our HealthStream network is made up of 4.8 million users approximately and 75 or more partnerships. Recently, on April 30, we introduced internally a new and improved way for customers and partners to access and participate in our network.

We call that new way of connecting hStream. Our new hStream technologies represent an enhancement in our platform capabilities and the beginning of our new "platform as a service" capabilities. We look forward to providing more details in the coming months regarding new products that are enabled by hStream, new partnerships that leverage hStream and new services that are powered by hStream.

At this time, let's turn it over to questions.

(Operator Instructions) And our first question comes from the line of Ryan Daniels from William Blair.

Maybe I'll start with one on the uptick in investments in the back half of the year ahead of the new resuscitation products. Can you speak a little bit, outside of R&D, to where those dollars will be dedicated? I'm curious if it's a ramp-up in the sales force, if you'll have kind of new salespeople exclusively focused on that, et cetera. So just any color there would be helpful.

Sure. Most definitely in R&D we're a little behind in our hiring expectations in a few areas. And so we saw a little overperformance in some of those areas behind lower expenses. And we're going to try to catch up, maybe use some recruiters, to backfill some technology positions. We're going to be more aggressive in backfilling things we had kind of hoped to hire a little earlier in the year.

But you're exactly right. We just came out of a series of internal meetings authorizing the increase in the size of our sales organization, with particular focus on resuscitation products. We probably won't hire a lot of those folks until the fourth quarter and then train them and get them ready for January, but we think these new products will be appropriate in multiple channels, and so we plan to add to sales.

In addition, we've set aside some additional budget for launch and marketing, and so we'll have increased marketing expenses in alignment with the planned launch. Not all of this is geared -- the increased investments, are geared to just the launch of the new resuscitation products. We're also increasing investments in our platform. The new hStream technologies that I just announced are well under way, and we're adding capabilities and people to build out those connectivity services.

Okay, great. And you discussed some of the new products being ready in early 2019. Is that a January 1? Are you still on track to kind of launch those 1/1 of '19, or are some of the development you're -- going to lead you into the first quarter or so?

No. We do expect at this time that everything is targeted towards a January 1 launch, where we can begin selling the products into the market on January 1.

Okay. And then I don't know how much detail, last question here, on hStream you want to provide, but any more color on kind of the revenue model for that offering and if it's available for clients today to kind of move over to that? Is that an upsell opportunity? Or is it -- is hStream something that you're kind of introducing but not ready to launch actively till later on?

Ryan, I think that maybe the most constructive way to think about at this time is several things going on around here. One, it is an enabling set of technologies, more "platform as a service" type of technologies that will allow new products to be built based on the capabilities of that technology, new partnerships to connect to us in different ways.

And so I think the best way to talk about hStream is that over the second half of this year you can watch for new product announcements, some of which may be given to customers as enhancements that are driven by our investments in hStream; some of which may be sold because it represents a new product powered by hStream; and some will create new revenue stream opportunities or provide freemium services to lead-gen for our other subscription products.

So the most constructive way to think about it right now is kind of emerging out of R&D as a package of new capabilities that will power new products and new functions and features, some of which will be free, some of which will drive increased adoption and some of which will be sold into the marketplace.

So we just wanted to put it out on the table that it kind of represents some of the great progress by our new CTO, Jeff Cunningham, who has been with us about a year, and it's approximately the anniversary of his arrival. And these new technologies are emerging in our tool kit for growth in the future. We do expect to have announcements of new products and capabilities that will be contextualized by they're being powered by this new R&D and this new technology stack that we're building.

One other thing about that, Ryan, since -- is that it's the foundational technology and we do expect over the coming years, everyone to benefit from it. It might create an opportunity to create a new measurement metric. In other words, it is a unifying technology across Verity and HealthStream products, and it may represent the opportunity we've been looking for, for a new metric that shows our trajectory and adoption of kind of a core set of technologies.

We have a hard time communicating the subscriber counts because we have a dozen products in our subscriber counts. You heard our KnowledgeQ count at 2 million. And lots of our products -- I think last quarter, we gave an update on our checklist product with hundreds and hundreds of thousands, I think 600,000 or maybe more. And the HLC is a platform with a lot of subscribers as well.

We're hopeful that, as we roll out hStream, it may create an opportunity for a unifying metric that will show the broad penetration of our core technologies.

And our next question comes from the line of Scott Berg from Needham.

Congrats on a good quarter. I guess first question is for Gerry. Gerry, if you look at your deferred revenue, it's been down on a year-over-year basis for the last several quarters. Can you help us kind of reconcile that with revenue growth? I know it's never been a perfect proxy to kind of look at your sales but you usually have some variances that'll go up and go down, but it's kind of been on a downward trend consistently.

Yes. I think it's more billing cycles and timing of billing and so on. There's no real -- I don't find any real pattern between recognized revenue and the real change in deferred revenue. We have people who go on annual billing cycles, come off that to monthly, and that then affects the deferred revenue balance and so on. But I don't draw a whole -- my -- I personally don't draw a large correlation between the deferred revenue balance and the momentum in the revenue on our P&L.

Great. And my last follow-up question. I don't know if Bobby or Gerry wants to take it, but, Bobby, you spoke a lot about some of the initiatives that are currently undertaking and will be undertaken over the next couple years in terms of raising the gross margin profile of the business.

If you look at an intermediate-term or a long-term model, what do you think gross margins look like as the -- as more of these software solutions develop and now Patient Experience is completely in the rearview mirror?

Yes. Well, I mean one thing we -- I can clearly articulate is the change in gross margins with the divestiture of PX; 200 basis points seems like the minimum improvement we're going to get. But there's still a lot of migrations happening in the company that affect gross margins.

The good news is we're looking more and more like a recurring-revenue subscription and software company and less and less having services components that obfuscate the gross margin opportunity. So we talked about the 2 big things happening. It would be the rate of decline in the resuscitation products. The rate of growth in the higher-margin resuscitation products. That'll have a visible impact on gross margins in, I'd say, what you would called the intermediate term, a couple years.

The move to this full SaaS platform for Verity, it'll transpire over kind of, I'd say, 3 to 4 years, but have a positive pressure on gross margin. So it really is a little bit hard to project. Of course, we have a 3- to 5-year model, but we don't guide out that far. We're trying to explain that we think that those 2 have kind of overlapping positive dynamics, and we think we can pick up a few points here and there in gross margins in the coming years.

And our next question comes from the line of Matt Hewitt from Craig-Hallum.

Congratulations on a good quarter. Got couple questions. First, what type of feedback have you been garnering from your customers regarding the anticipated switch on the resuscitation side?

Obviously you can't talk about the new products that you're rolling out, but as you have the discussions to at least give them a heads-up that those changes are coming, what questions are you getting from them? What kind of conversations are you having? And do you anticipate a pretty smooth transition?

Well, no. So it's a tricky situation. We're able to say the facts, which are, "We won't be offering the current products you use, and then we'll have a new one," but beyond that there really can be no dialogue. There really -- especially with customers, there is -- I mean, we're in development mode, working with development partners, but there is no dialogue with customers.

And so it is challenging, but I would say our teams are laser focused on selling the HeartCode and RQI products. We have quite a lot of work to do. The next 5 months looks -- we expect to sell millions and millions of dollars of the HeartCode and RQI products. And I would say the sales teams are fully focused on selling those products 100%, and topping off customers. What they're really working on doing now is getting those contracts extended through 2020, which would give us the longest runway to introduce new products.

And so right now there really is no dialogue with customers. We'll get questions that we literally defer and say, "Look, we can talk about that in January. Right now what we need to do is -- to secure the excellent service you've gotten of the fully integrated product through 2020, you need to top off your order." And that is the extent of our dialogue with customers.

And I think they're taking that. They understand there's change coming. A lot of them want the stability of the collective service. They do have a hard time envisioning how they'll get service beyond that, so that's encouraged them to buy the service out through 2020 because it's -- if it's not fully integrated, which is the current where we stand, it will be more difficult for them to use those products. But everyone's attitude right now is focused on renewal, topping off the existing contracts and extending through 2020.

Okay. And I think you may have just touched on -- my follow-up to that was, with ICD-10 there was a period, 6 months out from that kind of coming to a head, where there were significant extensions of contracts. And it sounds like you are seeing some of that right now with resuscitation just to give the customers a little bit more time to maybe see what your products look like, figure out how they can get them integrated and all that. So you are seeing that right now, correct?

We are seeing a little of that. I think the next 5 months are critical. Their final decisions and behaviors are kind of due, and there's only 5 months to make them. So I think, the third quarter, we will learn a lot more here.

And then of course, there's always big orders in the last -- even the last week of the year. And so it seems to be playing out that way right now, but the second half of this year is weighted much more extensively than the first half to determine what their ultimate decisions will be.

Okay. And then shifting gears a little bit...

(inaudible) we really don't know, but the current trend is that it does look like people are buying out through 2020, of the ones that we've talked to.

Okay, good. Okay, shifting gears real quick, and then I'll hop back in the queue. It sounds like at the end of your prepared remarks you were talking about maybe with hStream being able to provide a more -- a fully encompassing metric regarding active users.

Would that -- would there also be an opportunity with that type of metric to, I guess, reinstate or provide some type of an ARPU metric? It was one that you had previously provided. And obviously given the growth and the breadth of your products, it had become a little more complicated, but do you envision being able to provide something along those lines?

Sure, sure. We don't know yet. Here is what we're thinking, though, that the hStream technology stack, as it's become enabled, we'll be -- we hope as we work it in the contracts and renewals and we're -- every product in the company will connect to it, it will represent kind of a new base technology that everyone needs access to, to power their solutions, whatever the solution is they buy. And of course, it's taking time to connect everything to it and decide what value is in it.

And so we do think it will be the unifying technology that we can measure how many people have access to components of hStream versus reporting subscriber counts on specific products that have different levels of penetration in the market. And so if you look at our long history, we reported subscriber counts around a product, that learning center, and it has more ins and outs, ups and downs now, but there are a dozen other products that have subscribers, some of which are growing faster, have more significant wins in front of them and behind them than that older metric.

So I think, over the next 2 to 3 quarters, we'll work to better define it, we will launch a few products that leverage hStream, and you'll start to see that it can be a more common metric. And of course, a lot still driven from that would be revenue per subscriber of hStream; and that may become possible as it -- if the model works that we're working on, that we're building.

I think we wanted to put a stake in the sand today that kind of represents launch of these new enabling technologies, and you will see in the second half of this year new products that rely on that new technology stack.

And our next question comes from the line of Brian Hoffman from Canaccord.

This is Richard Close. A question on the $48 million in trailing 12-month Laerdal HeartCode revenue. Have you guys done any analysis in terms of how the step-down occurs, how you think about the step-down occurring in '19 and '20? I guess by first quarter 2021, you expect no revenue, but it sounds like, if you're pushing on the extension, that there's really not -- maybe not that much of a step-down in 2019.

Well, we have analyzed this in detail one contract at a time across hundreds of contracts and have full spreadsheets built. We know the existing runout for the existing contracts, and we know the shape of that curve.

However, tremendous shape of that curve will be largely shaped by the next 5 months, and so there's just too much open variable to say how '19 looks. I mean, we know the beginning and end point, right? The beginning point is the where -- when revenue peaks. Right now it probably will be in Q1, based on our graphs of next year, and then it will be 0 in Q1 of 2021.

But the shape of that curve, we think, is highly dependent on the next 5 months of sales; and maybe even particularly December, where every major system will face kind of the last opportunity to buy a fully integrated product. And some may not buy that product. They may just take what they've got and see how it plays out in the marketplace. Some may renew to 2020. So there's just too many unknowns.

As I said, the second half sales to the shape of that curve are the most heavily weighted. The safest of that will be some kind of straight line, and then we'll update every quarter between the beginning and end point. And we'll update every quarter about more of the shape of that curve.

Okay. And then as we think about the new products that will launch, what's the, like, timing of revenue on the new products or duration of those contracts? What will those look like? And then how quickly, if someone buys the product, does it get implemented and they start using it, you start recognizing revenue?

Well, I mean, it's obviously a future space, so a lot of unknowns there. We have a lot of experience implementing, so I don't expect that will be an issue. And I think, given that the first a customer will see the product is January of next year, it will be hard to imagine purchase decisions being made very quickly. I mean you're going to have a ramp-up time of exposure and demonstration and budget cycles.

And so I think the ramp is going to take some time, but the gate probably won't be implementation. It'll be just adoption and acceptance, market education to a different product. And so it's -- but again, it's unknown. We have -- we're beginning to build our forecasts and we're getting excited about it, but it definitely won't be Q1 of next year, if that helps any.

And do you know whether Laerdal has entered into any additional partnerships so like, when your partnership ends, they have someone else to step in? Or are they doing that themselves?

We don't. They have announcements pending later this week that we'll be watching, announcing how they're reforming their strategies. And we'll follow that along as close as we can, and so -- but right now, no, we don't know their ultimate strategies.

Okay. And my final question, moving maybe onto Provider Solutions. What do you think the sustainable growth rate is in that business? Definitely appreciate the comments on the Verity platform and higher margin there, but how do you think with respect to the sustainable growth rate on Provider Solutions?

So if you look at the growth rate this last quarter, about half was attributable to acquisitions, noncomparability creating half, so organic growth rate. And we report a 15% growth rate with those 2 together. We hope to improve on that and -- but right now that's where the growth rate stands. And we'll provide guidance next year, in February.

And our next question comes from the line of Vincent Colicchio from Barrington Research.

Yes, Bobby, I'm curious. Have there been other significant efforts in the market of note to compete with Laerdal in recent years?

There really are none that I know of that I would characterize as a significant effort. There's really -- again, it's a great product. We spent a -- nearly a decade selling and taking it to market. And it is the American Heart Association product with Laerdal together, and it's a really good product.

And for the longest time, there just simply weren't strong alternatives, particularly for our market. There have been alternatives in submarkets but really no major push to have competition, in my view, in the markets that HealthStream is currently in that we're aware of.

Okay. And then sort of a macro question: Are you seeing any impact from consolidation in the hospital market?

Yes, some positive and negative in any given quarter now. Generally given our share on several of our platforms, consolidation favors HealthStream. Occasionally if someone consolidates to a company, a health system that's not in our network, it can cost us subscribers.

And so we have seen the ins and outs. I'd say, in this quarter, no material impact, but the landscape, as it shifts, does result in wins and losses that are not directly related to sales. They're just shifting with the market consolidation. Some of our bigger customers have been actively growing and acquiring. We've had some divestitures that have resulted in lost business as well. So I would say it is a factor but hard to quantify.

Nice job in the quarter.

(Operator Instructions) And I'm showing no further questions at this time.

Thank you very much. We'll conclude our comments and look forward to reporting our next quarter.

Thank you.

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