HealthStream - Earnings Call - Q2 2018

Transcript

Speaker 0

Good day, ladies and gentlemen, and welcome to the HealthStream Incorporated Second Quarter twenty eighteen Earnings Conference Call. At this time, all participants are in

Speaker 1

a listen only mode.

Speaker 0

Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Ms. Molly Condra, Vice President of Investor Relations and Communications. Ma'am, you may begin.

Speaker 2

Thank you, and good morning. Thank you for joining us today to discuss our second quarter twenty eighteen results. Also in the conference call with me are Robert A. Fritz, Jr, CEO and Chairman of HealthStream and Jerry 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 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 ks and 10 Q. So with that introduction, I'll turn the call over to Bobby Prist.

Speaker 3

Thank you, Molly. Good morning, everyone. Welcome to our second quarter twenty eighteen 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 is 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 Morrissey 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, we'll 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 OBRISS 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 June 2017, we announced that our current agreements with Laredo Medical for the HeartCode and RQI products, these are the resuscitation products, will expire on 12/31/2018. HealthStream retains the rights to and expects to continue selling HeartCode and RQI for the next five months.

And we will provide uninterrupted service to our customers for the duration of their contracts, which can extend through 12/31/2020. HeartCode and RQI generated approximately $48,400,000 of trailing twelve 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 twenty twenty. To be clear, we expect revenue from these two products to be zero in the 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 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 previously shared with you, we have already signed two seven 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 seven year plus agreement. HealthStream and our three partners are excited about the progress we are making to be ready for launch of the new solutions in early twenty nineteen.

Of course, as we prepare these new products and solutions, and good thing we had the solid first half performance, we'll 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.

Speaker 4

Thank you, Bobby, and good morning, everyone. Before reviewing our second quarter results, I'd like to note that, one, our results are from continuing operations only. For example, 2017 and 2018 results exclude the gain in the sale of our recently divested Patient Experience business segment and results of operations of that segment prior to the divestiture and 02/2018 results are presented in accordance with the new Accounting Standards Classification six zero six, revenue from contracts with customers, ASC six zero six, whereas results for 2017 are presented in accordance with ASC six zero five. Here's some highlights from our second quarter. Consolidated revenues were up 8% to 57,000,000 Operating income was $4,300,000 in the 2018, up from $2,800,000 in the same quarter last year, with a $339,000 positive impact in the 2018 from the application of ASC six zero six, the new standard.

Net income from continuing operations was $3,700,000 in the 2018, up from $2,200,000 in the 2017 with a $256,000 positive impact in the second quarter from the application of ASC six zero six. 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 $07 per share fully diluted in the 2017 year last year. Adjusted EBITDA from continuing operations was $10,700,000 in the 2018, up from $9,200,000 in the same quarter last year with a $339,000 positive impact in the 2018 from applying the new standard ASC six zero six. So our 2018 financial reporting includes two 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 six zero six, which is now the new GAAP standard for reporting revenue.

As you already know, the Patient Experience divestiture occurred on February 1238. 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 consists of our Workforce Development and provider solutions business segments. The second initiative reporting development is the implementation of ASC six zero six into our GAAP reporting. There are two areas affected by ASC six zero six, recognizing revenue and commission's accounting.

In the 2018, reported revenue in accordance with ASC six zero six was similar to historical ASC six zero five methods as it was in the first quarter of this year. The most significant difference between ASC six zero five and six zero six is that commissions are accounted for as capitalized costs and amortized under ASC six zero six, while the same costs would have been expensed under ASC six zero five. As we discussed on last quarter's call, a large number of twenty seventeen sales transactions went live during the 2018, resulting in commission payments being capitalized in accordance with ASC six zero six. The amortization of capitalized commissions recognized in the 2018 was lower than what would have been recognized as commission expense for the same period under ASC six zero five. However, commission expense for Q2 of this year, counted under both the ASC six zero five and ASC six zero six methods are virtually identical.

Now let's look at certain areas of our income statement, we'll touch on some highlights from each of our business segments. Revenues from our Workforce Solutions segment increased by $2,700,000 in the 2018. The 2018 includes no ICD-ten readiness revenues, while in the 2017 last year, we reported $231,000 of ICD-ten revenues. A variety of subscription products contributed to the increase in this quarter's workforce revenues. In the 2018, revenues from our Provider Solutions segment increased by $1,300,000 or 15%.

The Morpheus Associates acquisition represents approximately $606,000 of that increase. Revenues from other product solutions products increased $771,000 compared to the 2017. And now some look at our gross margins. Our gross margin was 59.2 percent this quarter and 59.8% for the same quarter last year, primarily due to increased revenues from our existing lower margin HeartCode products. However, as Bobby mentioned earlier, our gross margin is now 200 basis points higher than the Patient Experience segment was included in our operating results.

Our operating expenses. Operating expenses for the quarter were up 2.1% over the 2017. The combination of capitalized software investments 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 and 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 increased sales and marketing investments over the last February 2018. And as I mentioned earlier, commissions under both ASC six zero five and ASC six zero six 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 the Amoris acquisition in both the 2017 and 2018.

It is important to note that depreciation and amortization still reflects increased level of capitalized software development amortization. G and A expenses in the 2018 increased over the 2017 and grew by approximately 4.5% and were about 14.1% of revenues compared to fourteen point five percent of revenues in 2017. The growth in G and A expenses is primarily related to increases in software expenses and personnel costs. Operating income. Operating income was $4,300,000 in the second quarter of this year compared to $2,800,000 in the 2017.

The increase in operating income reflects the revenue growth, excuse me, leverage on our product development, sales and marketing and G and A expenses. Now let's look at our balance sheet. Our cash position and overall balance sheet remains strong. Our cash balance at June 30 was approximately $165,000,000 a $34,000,000 increase since December 3137. The $34,000,000 increase reflects the net cash proceeds from the Patient Experience divestiture in February, improved cash collections on accounts receivable and is offset by a special $1 per share dividend, which was paid this quarter on 04/03/2018.

We have no outstanding debt and our full $50,000,000 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. Financial expectations for 2018. Yesterday's earnings release included updated guidance. Given the switch from ASC six zero five to six zero six, let's go over how we presented our guidance in every instance of this year to date.

On February 20, we presented our original 2018 guidance utilizing ASC six zero five. For comparability purposes, on April 30, we provided guidance utilizing ASC six zero five and also utilizing ASC six zero six. We are now presenting our updated 2018 guidance utilizing only ASC six zero six in light of the fact that our 2018 operating results are being presented under ASC six zero six. For 2018, we anticipate that consolidated revenues will increase 6% to eight percent as compared to 2017. We expect that our revenue growth in our Workforce Solutions segment will be between 4% to 6% and our Provider Solutions segment to grow between 1020% when compared to 2017.

We anticipate operating income for 2018 to increase between 3545% as compared to 2017. We anticipate that capital expenditures will be approximately $20,000,000 during this year. We expect our annual effective income tax rate to range between 2022% for the full year of 2018. This represents an effective tax rate of 26% to 28% for the remaining two quarters of twenty eighteen. This guidance does not include the impact of any acquisitions or strategic investments we may complete through the remainder of 2018.

Thank you for your time. I'll turn the call back to Bobby.

Speaker 3

Thank you, Jerry. So to wrap up this section, I have two quick product updates. Sometimes I'd 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 benchmarking analytics components were created in collaboration with Juice Analytics. As a reminder, we invested in Juice Analytics about three years ago to build out our data visualization tool sets. Since its first sales in early twenty sixteen, over 2,000,000 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. 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 twelve 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 an enterprise wide multiyear agreement for the new nurse residency program. The average cost of replacing a nurse is very high. We've read and our references show it's approximately $85,000 to replace 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 two 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 broad range of $400 to $1,000 per student. And so it has a very much higher value proposition, 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 two 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 4,800,000 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 Stream. At this time, let's turn it over to questions.

Speaker 0

And our first question comes from the line of Ryan Daniels from William Blair. Your line is now open.

Speaker 5

Hey guys, thanks for taking the questions. 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 and 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, etcetera. So just any color there would be helpful.

Speaker 3

Sure. Most definitely in R and 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 by having lower expenses, and we're to try to catch up, maybe use some recruiters to backfill some technology positions. So 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 set aside some additional budget for launch in 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 technology that I just announced are well underway, and we're adding capabilities and people to build out those connectivity services.

Speaker 5

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

Speaker 3

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.

Speaker 5

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 until later on?

Speaker 3

Right. I think that maybe the most constructive way to think about it this time, there's several things going on 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 and 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. He's been with us about a year and it's approximately the anniversary of his arrival. And these new technologies are emerging in our toolkit 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 and D and this new technology stack that we're building.

Speaker 5

Okay. Thank you for the color.

Speaker 3

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 that all have subscriber counts. You heard our KnowledgeQ count at 2,000,000.

And lots of our I think last quarter, gave an update on our checklist product with hundreds and hundreds of thousands, 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. Think Ryan went ahead and signed off. And so I just led with that.

We can go to the next question.

Speaker 0

And our next question comes from the line of Scott Berg from Needham. Your line is now open.

Speaker 1

Hi, everyone. Congrats on a good quarter and thanks for taking my questions. 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 usually you have some variances that will go up and go down, but it's kind of been on a downward trend consistently.

Speaker 4

Yes. I guess 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 can affect the deferred revenue balance and so on. But I don't draw a whole I personally don't draw a large correlation between the deferred revenue balance and the momentum in the revenue on our P and L.

Speaker 1

Great. And my last follow-up question, I don't know if Bobby or Jerry wants to take it, but Bobby, you spoke a lot about some of the initiatives that are currently undertaking and will be undertaking over the next couple of 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 will look like as more of these software solutions develop and now patient experience is completely in the rearview mirror?

Speaker 3

Yes. Well, I mean, one thing we 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 software company and less and less having services components that obfuscate the gross margin opportunity.

So we talked about the two 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 will have a visible impact on gross margins in, I'd say, what you call the intermediate term, a couple of years. The move to this full SaaS platform for Verity, it will transpire over kind of, I'd say, three to four years, but have a positive pressure on gross margin. So it really is a little bit hard to project.

Of course, we have a three to five year model, but we don't guide out that far. We're trying to explain that we think that those two 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.

Speaker 1

Great. That's all I have. Thanks for taking my questions.

Speaker 0

And our next question comes from the line of Matt Hewitt from Craig Hallum. Your line is now open.

Speaker 6

Good morning. Congratulations on the good quarter.

Speaker 3

Thank you.

Speaker 6

A couple of 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?

Speaker 3

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 to use and 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 hard code and RQI products. We have quite a lot of work to do. The next five months, we expect to sell millions and millions of dollars of the hard code 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 encouraging them to buy that service out through 2020 because 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

Speaker 6

off

Speaker 3

the existing contracts and extending through 2020.

Speaker 6

Okay. And I think you may have just touched on my follow-up to that was, with ICD-ten, there was a period six months out from that kind of coming to a head where there was 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?

Speaker 3

We are seeing a little of that. I think the next five months are critical. Their final decision and behaviors are kind of due and there's only five months to make them. So I think the third quarter, we'll learn a lot more here. And then of course, there's always big orders in the last month 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.

Speaker 4

Then shifting gears around

Speaker 3

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

Speaker 6

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 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 envision being able to provide something along those lines? Thank you.

Speaker 3

Sure, sure. We don't know yet. Here's what we're thinking though, that the hStream technology stack as it becomes enabled will be we hope, as we work it into contracts and renewals and we're every part of the company will connect to it, It will represent kind of a new base technology that everyone needs access 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 two to three quarters, we'll work to better define it. We will launch a few products that leverage and you'll start to see that it can be a more common metric. Of course, the logical derivative from that would be revenue per subscriber of hStream, and that may become possible as 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.

Speaker 6

That's great. Thank you.

Speaker 0

And our next question comes from the line of Brian Hoffman from Canaccord. Your line is now open.

Speaker 7

Hi, this is Richard Close. I had a question on the $48,000,000 in trailing twelve month LARO 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 2019 and 2020? I guess by first quarter twenty twenty one, 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?

Speaker 3

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 run out 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 five months. And so there's just too much open variable to say how 2019 looks. I mean we know the beginning and end point, right?

The beginning point is the when revenue peaks right now, it probably will be in Q1 based on our graphs of next year. And then it will be zero in 2021. But the shape of that curve, we think, is highly dependent on the next five months of sales and maybe even particularly December, where every major system will face kind of the last opportunity to buy the 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 savings that will be some kind of straight line, and then we'll update every quarter between the beginning and end point. We'll update every quarter about more of the shape of that curve.

Speaker 7

Okay. And then as we think about the new products that we'll 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?

Speaker 3

Well, I mean, the future states, a lot of unknowns there. We have a lot of experience implementing, so I don't expect that will be issues. I think given that the first customer will see the product is January, 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 will be just adoption and acceptance, market education to the different product. And so it's but again, it's unknown. We have we're beginning to build our forecast, we're getting excited about it. But it definitely won't be a Q1 of next year, if that helps any.

Speaker 7

And do you know whether Lerno 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?

Speaker 3

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.

Speaker 7

Okay. And my final question, moving maybe on the 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?

Speaker 3

If you look at the growth rate this last quarter, about half was attributable to acquisition non comparability period and half to organic growth rate, and we reported 15% growth rate with those two 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.

Speaker 4

Okay. Thank you.

Speaker 0

And our next question comes from the line of Vincent Colicchio from Barrington Research. Your line is now open.

Speaker 8

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

Speaker 3

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

Speaker 8

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

Speaker 3

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 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.

Speaker 8

Okay. Nice job in the quarter. Thanks guys.

Speaker 3

Thank you.

Speaker 0

And I'm showing no further questions at this time.

Speaker 3

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

Speaker 0

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