HealthStream, Inc. (HSTM) Q2 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the HealthStream Second Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [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 in 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 today’s special welcome to this conference call to our employees, many of whom are new shareholders to the company and maybe listening into one of our quarterly conference calls for the first time. It’s really exciting to see so many of employees realize the opportunity to become an owner in the company that they help build. With that opening comment, I’ll turn the call over 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 this 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 call 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 a 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 comprise of the HealthLine Systems Company and the SyMed 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, 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 CE center, 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 and 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. And so, year-to-date, in 2015 we now have 65 contracts for CE center representing about $3.7 million in new order value. So you can see in the second quarter really strong uptick in the sales and consumption order value on the CE center. 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 Insight Survey, 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 talents or leadership team. In April, we hired Greg Lasman as VP of Patient Experience Strategy and Innovation. It’s a newly created position and we are 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 or we are 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 are about a 120 days into the integration of that business and are 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 SyMed in September of 2012, you’ll recall our entry into the credentialing and provider enrollment business. As reported on March 16, we completed the acquisition of HealthLine Systems, a leading healthcare credentialing and privileging company based in San Diego. It’s the combination of SyMed and HealthLine through which we are 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 credential of potential employees. HealthLine System’s eco products serve therefore as the gatekeeper for workforce quality. And 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 and through the new Provider Solutions segment. The second quarter of 2015 revenues from HealthLine Systems were $2.3 million with our Provider Solutions business including customers from both HealthLine Systems and SyMed, we serve over 2000 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 1200 hospitals and approximately 800 physician practices that now use the services of the new Provider Solutions segment. So we are 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 post-acute and the acute settings surround their patients with the 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 awesomely by developing and assessing and ensuring that 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 is a lot of numbers to cover and so, we look forward to some of the details from Gerry and then will swing it back to me for a few more business-line updates. We are very excited to 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 SyMed area and of course the CE center progress, but there is 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 stock contribution and $2.7 million resulting from the deferred revenues write-down related to HealthLine in 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 at four areas of 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, 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 Consulting 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 solution contributed $6.8 million to revenues compared to $7.2 million in last year’s second quarter. Full year guidance for ICD-10 readiness product is approximately $26 million, which is within the previously announced range of $26 – pardon me $26 to $28 million. Patient Experience Solution revenues grew by 8% in this year’s second quarter. As Bobby mentioned, growth from our Patient Insight surveys grew by 10%, but that growth was offset by a lower growth in our Patient Experience Coaching business. Frequent time products such as the annual and bi-annual surveys posted strong second quarter results. However, unlike the recurring patient-related surveys, these products do not usually carry momentum in the subsequent quarters until the same cycle occurs in the next year. Also as we have mentioned earlier this year, this business segment lost a meaningful patient survey account when it consolidated its sources with another vendor. This account is now completed to final survey cycle with us and we’ve experienced a lost business impact for the remainder of this year and is therefore effected in our guidance. In the Provider Solutions segment, the HealthLine acquisition which closed in March of this year is certainly performing well to our expectations and included 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 write-downs which is the accounting convention which requires to write-down beginning fair – balances to fair value as defined in GAAP. So let’s turn to strong performance in both the HealthLine and HCCS acquisitions, our organic business was solid in the second quarter with a growth rate of 18%. Gross margins, for the third consecutive quarter, gross margins shows 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 own solutions by way of the HealthLine and HCCS acquisitions were key contributors to this gross margin trend. In operating expenses, since 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 cost 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. And product development is an area we expect to accelerate and enter with higher investments over the rate we’ve seen in the first half of 2015. G&A expenses were 12.9% of revenue and once again reflected the first full quarter of HealthLine G&A in our income statement. Deferred revenue write-down which reduced as reported revenues, increases this common size in measure of G&A expenses, but nevertheless, G&A continue this trend below 13% of revenues, so we continue progress with the 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 that $1.65 million expense related to Bobby stock contribution, this we had our summit in the second quarter of 2015 at a net cost of $550,000, which we don’t had a summit in 2014, there is no comparable to the prior year for that expense and once again, the $2.7 million of deferred revenue write-downs we’ve already mentioned since that time. On the balance sheet, our cash position in overall balance sheet remains 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 in our full $50 million line of credit available to us. We believe that our capital position is likely to support our organic and inorganic growth opportunities and we continue to review and evaluate a variety of potential acquisition and business development opportunities in terms of strategic fit and evaluation. Yesterday’s earnings release contains updated guidance for the full year for 2015 and we anticipate that 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 SyMed which had revenues of approximately $4.5 million in the 2014 full year results. SyMed is now part of the Provider Solutions segment. Second, we expect our Patient Experience Solutions revenues to grow by approximately 1% to 3%, this we discussed a few minutes ago. The third, we anticipate our new segment, Provider Solutions which consists of our recent HealthLine acquisition and SyMed to contributing $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 after the – which is estimated to be the amount of asset write-down deferred revenues as required by GAAP. We expect our full year 2015 operating income will decrease between 25% and 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 the second half of this year 2015. Associated with the actions of the HealthLine Systems, we expect to incur $6.5 million to $7.5 million, the deferred revenue write-downs of which recognized approximately $2.7 million in the second quarter of this year. Also amortization of intangibles related to the transaction 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 contributing to the second half of this year. Because we repaid the $28 million of borrowings from the letter of credit related to HealthLine closing with the portion of the equity proceeds, we do not expect to incur further interest expense on the letter of credit related to 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’d like to turn the call back to Bobby.

Thank you, Gerry. At this time, I think it might be fine to dive into a few deeper areas of 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 1000 subscribers to this part of our platform. Today 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 a kind of an open platform. It allows powerful utilization of the replacing of paper-based checklist with digital ones and we are 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 a kind of a broad use application. Let’s turn our attention to ICD-10. We’ve 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; again, we’ve talked about for over two years now, is the ultimate passing of the Federal deadline and 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 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-one product to Precyse’s ICD-10 as we call it readiness solution. After this quarter, when we discuss ICD-10-related revenue, we’ll do so in terms of a category we are 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 to the deadline solution from Precyse. And the DNA, the new DNA product, we are very excited about; we are going to give you some detail on that. And additional revenue cycle management products that are targeted to this new buyer that we have identified through our success with the ICD-10 readiness platform and content which is really in the financial office area that see financial offshore in all the people that works 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 the 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 confidence and set the goals in the DNA platform and manage through testing and evaluation, the competence levels of their coding workforce. So how is 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 are 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 are seeing in 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 have this ongoing confidence maintenance in their workforce. So in addition to this strong sales performance, we are excited for other reasons as well. DNA fills the ongoing need to maintain ICD-10 coding confidence well beyond the federally mandated deadline. And so as we mentioned, it’s the 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 subs about 1.8 million that signed up for, 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 are really excited to see in this quarter the largest customer for the ICD-10 readiness product preemptively before the deadline moved to DNA product which was part of that great success we mentioned, the $6.4 million in order 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, 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. And so, even as the revenue stream winds down from ICD-10 readiness, the vast majority will remain customers with 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 will provide a – 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 to introduce throughout the year, the category is now around 28 and which is essentially on par with last year’s performance of ICD-10 readiness. So we are 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 continue 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 product, 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 to grow 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 a very exciting, continued growth and over 50 new HeartCode contracts were signed in the second quarter alone and so we are excited to see just the 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 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 finalists for the prestigious WhatWorks Award. The award comes from Bersin by Deloitte and they are a leading talent management research firm. The story they submit in their application is a prime example of how HealthStream’s Workforce Solutions are making a difference for our customers and 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 that the resuscitation rates improved from 14% to 27% and their nurse training cost 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, and our products and 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 is many more details to come, but let’s turn it over to questions and so I’d now open it up for questions from our analysts and investor community.

[Operator Instructions] Our first question comes from the line of Matt Hewitt with Craig Hallum. Your line is open. Please go ahead.

Good morning and congratulations on the strong second quarter.

Thank you, Matt.

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, separate within Workforce Development Solutions?

Well, it’s – all right.

No, the $6.8 million in NOV was the number, I think we called out. Let me make sure, the revenues we are talking about.

Well, we are talking about revenue not order value, because we gave a new number today, but – so the revenue number, the $6.8 million…

It was all with readiness.

Is almost all readiness revenue. So that that revenue declined from I believe, $7.2 million to $6.8 million and that’s the readiness product. But the good and offsetting, a new number we gave was the sales order value on the new DNA product in the last 90 days that started to really accelerate. And so we saw, what was that number, that’s 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 and four year longer term agreements than the older readiness product which were generally two year agreements if you recall. And so, again, overall positive trend, but 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. Is that, did I hear you correctly?

That’s right. So, what we are doing is we are 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 are both signing partners and building new products with Precyse in addition to the new DNA product. And so, what we did say here was, if you recall our prior guidance, it’s 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’ve 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 and so, as a category, we are 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 will 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 million and that will continue to decline into 2016. We’ve already got $2 million in DNA, so as a category, we are $28 million. And we will report on that combined category hopefully launching some additional new products in addition to DNA and hopefully continued strength in DNA. So as a category, we are building our offset strategy to the decline in the readiness revenue stream.

Okay. Maybe one more for me then I hop back into queue. Obviously, your summit last quarter, last 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 that are having issues and you see opportunity either with the 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, summit is approximately on an 18 month cycle. So, it’s a little hard to plan for and almost never be year-over-year comparable, because it lands a month off or a quarter off and we’ve been doing this 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 in the gathering of nearly 600 customers to conduct R&D. So we had over – about 250, 300 HealthStream employees involved in summit. And that include by the way, over 60 of our development staffs who are meeting with customers to design and develop new products, but also our entire – lot of our sales organization and marketing organization is active in summit showcasing new products. So one of the highlights at summit was of course the new control center technologies which are slowly being evolved through our investment with Juice. And one of the exciting products was the DNA product of course, because it showcased our partners’ growing strength and the growing strength of the use – our ability to use data in our products to make them more meaningful and useful. And 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 an unprecedented in our network, but we hope and expect to launch more control center enabled products which essentially brings the power of the networks’ data and information in our network and puts them into the product categories. We think that 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 solutions 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 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 and our post-survey said that they thought it’s 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’s a wildly successful event.

Great. Thank you.

Thank you. And our next question comes from the line of Peter Heckmann with Avondale Partners. Your line is open. Please go ahead.

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 is some other thing 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’s 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 is a nice contribution from that, 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 having that some of our bigger customers doing their employee engagement surveys in the first half of the year. And so that’s one element. Let’s see, what’s the…

The lost business will…

Yes, and so, you are newer, relatively new 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’d 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 1% to 3%. And so, there was some optimism in there. You saw the patient experience HCAPS and CGCAPS performing low 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 caps modules that are rolling out from CMS that you would call out over the next 18 months or so that you are thinking be additive or helpful?

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

Okay. Great. I’ll get back in the queue. Thanks.

Thank you.

Thank you. And our next question comes from the line of Ryan Daniel with William Blair. Your line is open. Please go ahead.

Yes, thanks for taking my questions guys. Another quick follow-up on the ICD-10 product. Bobby, I am curious when you are 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 down tick 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 contract stay the same although on a –and 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 we haven’t – I haven’t – I didn’t come into the meeting with that number. I should have that. It’s a good question. It did have the impact of reducing because we essentially, they early move 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 product. Remember we had a 26 to 28 range on readiness, it’s now at 26. 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 in-year revenue impact. But we’ve made some notes here and maybe we’ll do that 90 days from 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 am curious as there is 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 vision to that and actually some new products being built in the provider solutions segment of our business where we are going to see some of the use of the caps data potentially in things like provider scorecards and some of that will be derivative of new products coming off of our provider solutions segment that 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 in the 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 present just a bit of that new unit Michael Sousa, but you asked the question and I know there is some excitement about the cross-pollinization between our segments and the potential use in movement of data to empower new solutions.

Okay, good color. Thank you and then one final 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.

Well, I guess, it’s little both, right. We are trying to deploy the capital that we had 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 the areas of the company and deploy the investments that we had indicated we plan to make this year. If you took it on the safe side, 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 are 120 days in and we are 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 that we talked about early this year driving our guidance for operating income down to the lower – 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 are 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 in this new extents we probably won’t get to all of the investment that we plan and 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 as this new factor and which is at $1.65 million in expense for compensation.

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

Thank you.

Thanks, Ryan.

Thank you. And our next question comes from the line of Steve Rubis with Stifel. Your line is open. Please go ahead.

Thanks for taking my questions. First, can you talk about how annualized revenue per implemented subscriber compares to the aspirational client’s pricing? You typically talk about in your corporate presentations, what 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 with 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 accounts revenue per implemented subscriber upwards to those numbers, upwards of $100 and of course our network average is at $35, about $35.5. And so, I think, I understand your question is, how do we move from the – move the average up and of course the answer is just continued execution, introduction of new products, getting better cross-selling. Also note that in our Provider Solutions 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. And so, we have some discussion going on about adjusting the metric some day 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 vain, we have this wonderfully organized sales organization that have the specialist sales teams that account planning model that brings in each sales team to different buyers. And so, for example today, we kind of declared a new buyer, we’ve known about for a lot, but 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’ve 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, 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 some day 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 the HR vendors might focus on providing these types of solutions? Or do you think that ultimately a favor going in that direction that you’ll be their partner vendor?

Well, I don’t know – I haven’t seen any real movement in that direction from the true HR vendors, if you mean the big systems, or Epic and Cerners and so we feel like we’ve got a nice strong niche app and a market-leading position in that segment. We are also rounding it out additional capability sets, privileging is even more specific process. Provider enrollment is another specific process. So, it’s a kind of a complement, a suite of products that now we are rounding out, little bit in an unprecedented way and so, I think we are in a good position. I’ll continue to watch that and if you are aware of any particular trends in that area, we’d appreciate that information but right now, we think we are 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 $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 base, technology base, as you call them digital products and even favor more application products over content products in general, because we partner for the content expertise while we provide the technology and 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 BLE, our BLG was really more of a consulting practice. We hoped to monetize their IP over time and add strength of overall Patient Experience Solutions. It hasn’t obviously turned out quite as planned and we’ve got 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 are 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 or another type of investment that I am 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.

Thank you and our next question comes from the line of Scott Berg with Needham. Your line is open. Please go ahead.

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 hereafter roughly a quarter or so, can you give us maybe an update in terms of how you are seeing your plan maybe around sales headcounts or additions or other opportunities there, to give you an opportunity and expand that sales force maybe more so or not as much as you had originally planned post-acquisition?

Sure, sure. 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 and 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 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 is moving on delivering to our board his investment plan for the second half of the year which will include we expect, robust additions related to that side 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 are going to do what we can to hit our investment objectives in the second half.

Thanks. And then I guess, the last question for me, Gerry, on the cash flows in the quarter, they were low on a year-over-year basis, it looks like a 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?

Fluctuations are with all invoicing, invoice timing and billing cycles. That does the primary fluctuation in deferred revenue. Does that help?

Thanks, that’s all I have.

Yes, all right. Thanks.

Thank you and our next question comes from the line of Richard Close with Canaccord Genuity. Your line is open. Please go ahead.

Great. Thank you. Congratulations on a great quarter here. Bobby, I was wondering if you could update us on the talent management platform’s competency and performance center. You didn’t seem to mention those in the prepared remarks. So 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 and performance. So financially we are getting good implementations. I also mentioned 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 gave 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 is more to come in the second half. And so, those – the updates we provided on comps was 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 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 everything for compliance to competency and 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 checklist, there will be more and more uses for it. And 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 things where a checklist needs content. A lot of customers buy just the checklist capability and put their own content in. But also partners are beginning to think about including medical device companies, publishing a checklist for products used, clinical content partners publishing checklist to check off competencies and then, maybe ultimately compliance-oriented checklist to do spot checks on processes. So, there is a lot of great uses for that technology as it evolves.

Okay. And then I guess, one other final question if I would have is, you seem to – on the Provider Solutions, obviously gave us the customer account – customer numbers between hospitals and physicians, I think on the CE center 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 a way 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 de-emphasize the subscriber numbers?

Well, 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 take a long time, I knew as we 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 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 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’ll take them in a 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 that the platform type products have higher gross margin and the primary reason is, more of the content solutions have royalty expense that we share with our partners. And 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?

Well, it’s a little trick in that because, we – when we define a solution like resuscitation, we try to blend all of the – both technology products, the checklist and maybe the competency center and learning center 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 its capabilities into a solution. And so, it’s been a favorable trend 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 that will always include some component of a third party contribution we believe.

That’s great. Thanks you.

That acquires the royalties.

All right. Thanks a lot. Congratulations.

Thank you.

Thank you. And our next question comes from the line of Nicholas Jansen with Raymond James. Your line is open. Please go ahead.

Hey guys. Thanks for taking the questions. First on the ICD-10, just going back to that 20,000 customers fell off and didn’t convert, I just wanted to kind of get a better sense of what you are 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 were 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 got the first half numbers on that, and we’ve said that the number for that product we believe will be about $26 million. And 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 are 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 to 6.8 and some of those customers will wholly roll off the platform meaning that that limited subset where that’s the only product they licensed and they haven’t licensed any other product from us. If they leave us they come out of the ARIS calculation. But I think, 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 it as benchmarks for that full annualized estimates of $26 million and $2 million you should have a pretty complete model.

Yes, I was just more going on the 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, and I just wanted to get a better sense of making sure that we are 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?

Well, the declines we are expecting overall from the category are already baked into the guidance. And so, there is no additional color to provide on it, because the expected non-renewals or roll-off is already being projected and it’s in the numbers we just gave. And so there would be no additional way to think about how to add the decline now. And so, maybe over a three year period, you might want to know if none of the 360,000 or so that are only ICD-10 readiness by any other products, what’s the value of that. And the value of that is roughly, I think we’ve got in the past, at the low end of our price range, it’s 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, 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 are viewing the patient experience opportunity for you guys? Is there a willingness or desire to make that a bigger component of the business longer-term? So do you need to invest in things like e-survey and capabilities or things along those lines? Thanks.

Well, so simply to that question, we actually have e-serving capability in and it’s in utilization in addition to our phone center operations and we exited 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 looks prominent 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 six or eight months ago, six 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 Solutions segment where we will see additional adds coming into the – probably into his sales organization and into his development organization. So, and in fact, just this afternoon we are going to meet with all of our leadership team and allocate project work to try to accelerate product developments in dozens of areas. And 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 guys.

Capital and expense – I am sorry, capital and expense investments and contractors and new employees, all of that will take place in the remaining five months of the year.

Great. Thanks for the color. Nice job guys.

Thank you. And our next question comes from the line of Matthew Gillmor with Robert Baird. Your line is open. Please go ahead.

Hey, thanks and thanks for taking the question. Just maybe somewhat more I feel, 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.

Well, 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 is not a whole lot of ambition, certainly not in 2015. There is nothing expected or planned in 2015. A little bit of talk in the 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 cells and 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, Bobby, I didn’t hear anyone ask, but I wanted to touch on the equity grant you make. Can you may be give us some background on your decision and maybe a little bit more color on why this is important for the company?

Yes, I – we’ve had the good fortune of having a just an incredible employee base and our options program over the last decade has been limited to a leadership group and I really just have been processing over the last year with our success in many areas and the challenges we faced and how our workforces help us overcome them that feeling like an owner and being an owner is an important part of the journey and many of our longstanding 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 or they to be the leaders in the company had thought it was the right time to make some of them owners and start them on that journey recognizing their past contribution of - the deployment model was – tenure was a very important dimension of it. People that have been loyal contributors and help get us where we are 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, 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 and 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 we’ll 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 seem like the right move to make at the right time and I was excited to do it and it seem to be very well received and hopefully an effective way to recognize past contributions to our success today.

Okay, great thanks very much.

Thank you. And I am showing our last question as a follow-up from Matt Hewitt with Craig Hallum. Your line is open. Please go ahead.

Hi, thanks. Just two quick follow-ups, post-acute, 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 kind of 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 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 are 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 post-acute settings. We also have an exciting new partnership. I guess, I’ll go ahead and announce it. It’s science field and delivered but in development with Duke School of Medicine, we are building out new products that focus on that transitional care moments between acute and post-acute settings and expect by early next year to launch new product sets that will focus on ACOs to help them reduce re-admissions and manage transitional care and risk moments when say, frail elderly patients are discharged from an acute setting ER into a post-acute setting like home care. So we have new investments going into this area that would be the bridge area between acute and post-acute 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 am 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 and plenty of challenges ahead. This ICD-10 challenge remains, we expect a continued decline of that revenue stream, but that’s why we are guarding for it and making new investments to strengthen our balance sheet and have a robust opportunities around investing in minority investments and acquisitions, investing in our workforce. So I want to thank everybody for following our story being a part of our journey and 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.