Healthstream Inc Q3 FY2024 Earnings Call

Good morning, and welcome to HealthStream's Third Quarter 2024 Earnings Conference Call. This conference is being recorded. I will now turn the call over to Mollie Condra, Vice President of Investor Relations and Communications. Please go ahead, Ms. Condra.

Thank you, and good morning. Thank you for joining us today to discuss our quarter 2024 results. Also on the conference call is Robert A. Frist Jr., CEO and Chairman of HealthStream; and Scotty Roberts, CFO and Senior Vice President of Finance and Accounting. I would also like to remind you that this conference call may contain forward-looking statements regarding future events and the future performance of HealthStream that involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements. Information concerning these risks and other factors that could cause the results to differ materially from those forward-looking statements are contained in the company's filings with the SEC, including Forms 10-K, 10-Q and our earnings release. Additionally, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HealthStream is included in the earnings release that we issued yesterday and may refer to in this call. So at this time, I'll turn the call over to CEO, Bobby Frist.

Thank you, Mollie. Good morning, everyone, and welcome to our third quarter 2024 earnings call. We have a lot to cover today, so I'll dive right in. To begin, I am happy to report that our financial performance in the third quarter showed year-over-year increases across all major categories highlighted in our earnings release. We achieved record quarterly revenues of $73.1 million and record quarterly adjusted EBITDA of $17.7 million. Additionally, we are experiencing strong sales pipelines on CredentialStream and in credentialing, ShiftWizard in scheduling, and our new reporting, analytics, and API-related products that enhance our leading HealthStream learning center. I am particularly excited about an ongoing product rollout. We are gaining traction in new markets, including the nursing school sector, where we are developing two expanding communities: one for students and another for nurses. I’ll provide more details on this shortly. I want to emphasize our progress towards key development milestones in our hStream platform. This foundational technology, into which we have invested significant time and resources, is beginning to show results, ensuring interoperability among our three main application suites. As we kick off the call, I'll briefly summarize our business model for anyone who may be new to HealthStream. We are a healthcare technology company focused on providing credentialing and scheduling solutions for the healthcare workforce through SaaS-based offerings that are becoming more valuable thanks to the interoperability achieved through the hStream platform. Typically, we sell our solutions via subscription contracts averaging 3 to 5 years, making our revenues recurring and predictable, with 96% derived from subscriptions. We have also started to directly reach healthcare professionals and nursing students throughout the continuum of healthcare training. We are profitable, have no interest-bearing debt, and maintain a strong cash balance of $94.9 million. Our commitment is solely to healthcare, particularly the healthcare workforce, which encompasses 12.3 million healthcare professionals and nursing students in the United States and represents our core total addressable market for SaaS solutions. Before turning the call over to Scotty, our CFO, for a detailed financial discussion, I want to highlight some achievements in our learning, credentialing, and scheduling application suites during the quarter. First, in the learning application suite, our flagship product, the HealthStream Learning Center, is currently undergoing a key product launch. In recent weeks, we have started to roll out our Insights Plus solution. We have rebuilt our data, reporting, and analytics technology stack using leading technologies, such as Snowflake and Sigma, to enhance our base reporting tool for learning data. This upgrade is critical, as our learning data is one of our most essential assets, and our previous reporting infrastructure required modernization. After nearly two years of development, we are excited to announce the launch of Insights Plus and its new technology stacks. Insights Plus offers customers an enriched experience, including analytics tools designed to assess the impact of their learning initiatives. It has now replaced two legacy solutions: learning analytics and the initiative management dashboard. Our customers have responded positively, generating just over $2 million in bookings in the first three quarters of the year. We are actively positioning and demonstrating Insights Plus, with customers currently receiving access to the application set. The current pipeline reflects bookings nearly six times greater than those of the predecessor products during the same period last year and four times our bookings target for FY 2024. This is an area we are particularly excited about as we start leveraging the hStream platform's development for growth opportunities, including our new cutting-edge analytics and reporting tool sets. Additionally, I would like to provide an update on customer adoption of our developer portal and APIs, particularly our learning API, which is robust and capable of emulating many key functions of our learning management system at the HealthStream Learning Center. We're pleased to report that the number of customers utilizing the learning API continues to grow, with access to the developer portal more than doubling in the last 12 months. The number of third-party developers has also nearly doubled, and the integrations customers have built and put into production have tripled. The developer portal serves as the entry point for our hStream platform, and its increased activity underscores the significance of integration capabilities and interoperability for us. A noteworthy example is a large East Coast customer who, during their contract renewal for the HealthStream Learning Center, added Insights Plus along with other products. This customer has created integrations to their ERP, EHR, and HealthStream using the learning API, such as automating EHR activation training. As a result, the annual recurring revenue from this renewal has risen by 29%, from approximately $1.76 million to about $2.27 million. Notably, they not only renewed their base products but expanded their agreement by including Insights Plus and other products. We are thrilled to see this 29% growth, part of which can be attributed to the launch of Insights Plus, indicating our ability to deepen our relationships with existing customers in our learning suite. They also added around 13,000 users to their base contract, bringing their total to over 100,000 subscribers on our network, which is exciting for us. This is a five-year agreement, and we are now implementing annual pricing escalators to facilitate sustainable growth over time. Rather than keeping our prices flat, we have begun inserting annual pricing escalators into new contracts, including a 2.5% increase in this five-year agreement. Historically, we seen annual price increases of 1% or 2%. Moving forward, I encourage you to monitor the impact of these escalators over the next three years, generating consistent growth in our contracts. Now, let's turn to the credential application suite, where we see equally exciting developments. In the third quarter, revenues from CredentialStream grew 34% compared to the same period last year. This growth stemmed from both new customers and those transitioning from legacy applications, including some acquired companies that helped us develop the CredentialStream suite. Notable health organizations that secured CredentialStream for their entire enterprise in the third quarter include UPMC, Sutter Health, and the University of Virginia Health System. We are thrilled to see this progress. On September 30, we issued a press release announcing three new and exciting developments in credentialing. We focus on capital efficiency in deployment, and it’s gratifying to be at this stage in the fourth quarter and Q1, where we are launching many of our long-term investments that took up to 24 months to develop and bring to market. Here are those developments. First, in recognition of our innovative and differentiated approach to privileging, our privileged solution received a notable patent. We are excited to see our intellectual property deliver unique products, leading to another patent. We now hold over a dozen patents due to the value we are bringing to the market. Second, when a customer purchases our CredentialStream application suite, they also gain a subscription to the hStream for credentialing package. This now includes a pre-validated provider data wallet called the provider portfolio, removing the need for providers to enter or verify their credentials, as this data is pre-populated when accessed via the provider portfolio. This capability will significantly streamline credentialing processes for both providers and credentialing departments. Lastly, we introduced the My Learning feature in CredentialStream, enhancing integration with the HealthStream Learning Center. This allows us to notify physicians when they have required learning in the physician hub, demonstrating the interoperability between our learning and credentialing suites. These announcements were well-received at a major conference. In the third quarter, revenues from ShiftWizard grew 17% year-over-year. New healthcare organizations, such as Grady Health System and Memorial Health, have contracted for ShiftWizard, indicating positive momentum in a competitive landscape. ShiftWizard was also recognized by Workday as the first and only certified integration partner and gold tier innovation partner in healthcare scheduling, highlighting our applications' competitiveness alongside larger ERPs. Additionally, we have seen unprecedented growth in customer reviews for ShiftWizard on Capterra, illustrating positive feedback on our product and the advances we've made in our technologies. I believe I've addressed all the key points in my introduction, and now I'll hand it over to Scotty Roberts for a comprehensive overview of our financials.

Thanks, Bobby, and good morning, everybody. Let's begin with the financial highlights for the third quarter. After that, I'll go over the updated financial expectations as we head into the final quarter of the year. Unless otherwise noted, the comparisons will be against the same period of last year. Revenues for the quarter were $73.1 million, and they were up 3.9%. Operating income was $6.5 million, which was up 33.6%. Net income was $5.7 million, and it was up 48%. Our earnings per share was $0.19 per share, which is up from $0.13 per share, and adjusted EBITDA was $17.7 million, which was up 9%. Revenues increased by $2.8 million or 3.9%, coming in at $73.1 million compared to $70.3 million in last year's third quarter. Revenues from our subscription products accounted for 96% of total revenues and were $69.9 million, increasing by $2.5 million or 3.6% while professional services revenues were $3.2 million, an increase of $0.3 million or 10.8%. Subscription revenue growth was led by a variety of our innovative solutions such as CredentialStream with 34% growth, ShiftWizard with 17% growth. The stable solution had 38% growth and the DEA make course, a new solution that we launched in Q4 of last year. Growth in these products, among others, helped overcome some declines of our legacy products, such as the ANSOS product suite, Echo, and MSOW, which are often on-premises as opposed to SaaS solutions. Taken together, the products I just mentioned, along with Quality Manager, resulted in third-quarter revenue declines of approximately $2 million compared to the prior year third quarter. Finally, revenues from professional services included approximately $0.4 million from a onetime payment associated with the customer acquisition. Our remaining performance obligations were $549 million as of the end of the quarter compared to $511 million for the same period of last year, and we expect approximately 43% of the revenue backlog to be converted over the next 12 months. Gross margin was 66.5% for both the current quarter and the prior year quarter. Our cloud hosting and software costs contributed most of the increase in cost of revenues over the prior year quarter, and growth in these 2 areas reflect investments in our technology infrastructure, including the hStream platform as well as some other solutions that we're moving from data centers to the cloud. Operating expenses, excluding cost of revenues, increased by 0.6%, with most of this year-over-year increase from product development, which was up 11% and sales and marketing, which was up 1.8%. G&A costs declined by 9% and depreciation and amortization declined by 3.2%. Both of these declines primarily resulted from the recovery of sales taxes that we paid in prior years. The impact on G&A was the reduction of expense of approximately $0.4 million and a reduction of depreciation and amortization expense of approximately $0.2 million. These are nonrecurring transactions that positively benefited the third quarter. Adjusted EBITDA, as I mentioned earlier, came in at $17.7 million, which was up 9%, and adjusted EBITDA margin was 24.2% compared to 23.1% last year. Now let's move over to our balance sheet metrics. We ended the quarter with cash and investment balances of $94.9 million, which is up from $83 million last quarter. During the quarter, we deployed $6.8 million for capital expenditures and paid $0.9 million to shareholders through our dividend program. We also made $1.5 million of income tax payments in the quarter. Our days-sales outstanding improved to 37 days compared to 43 days last year. Year-to-date, our cash flows from operations were down 7.3% or $3.7 million from the prior year, coming in at $46.5 million compared to $50.2 million last year, and free cash flows were down 12.4% or $3.6 million and were $25.2 million compared to $28.8 million last year. The primary reason for the decline in both cash flows from operations and free cash flows resulted from about $3.6 million more of income tax payments compared to the prior year. Our balance sheet remains strong with $94.9 million of cash and no debt, providing us with several options to strategically deploy available capital to improve shareholder value. Let me take a moment here to describe our capital allocation approach and how we prioritize our use of capital. Our utmost priority is making organic investments back into the business, which is evident by our annual capital expenditure and R&D plans. The second is pursuing acquisition opportunities, which we have a long track record of executing. The third is returning a portion of our profits back to shareholders in the form of cash dividends. Our fourth priority is that our Board may authorize share repurchase programs, which we also have a successful track record of executing. Now from an M&A perspective, we maintain an active pipeline, and we continue to evaluate opportunities that fit our criteria, which include industry, product, and financial, among others. While the M&A markets in healthcare technology have been slower than usual over the past 18 months, we expect to see them begin to pick back up in the next 12 months. In respect to our dividend program, our Board of Directors declared a quarterly cash dividend of $0.08 per share to be paid in November. We currently do not have an active share repurchase program in place, though our Board continues to evaluate such programs as it deems appropriate. Now moving on to guidance. In our earnings release yesterday, we provided updated financial expectations for revenues, net income, and adjusted EBITDA. We now expect consolidated revenues to range between $290 million and $292 million. We expect net income to range between $18.5 million and $19.5 million, and for adjusted EBITDA to range between $66 million and $67.5 million. We still expect capital expenditures to range between $28 million and $30 million. This guidance does not include assumptions for any acquisitions that we may complete during the remainder of the year. As noted during our call last quarter, we expect the revenues to be around the lower end of the range or about $292 million for the year but we've revised our full-year range to potentially come in a little lower than that, probably around $1 million or so lower. One of the main reasons influencing a revised forecast is a larger customer that is built based on consumption of certain content, and this customer had a lag in consumption during the second quarter. We expected that they would return to the normal rate of consumption in the second half of the year, but their consumption did not accelerate above the normal level as we had been expecting. For this reason, we are now estimating revenue to come in a little lower than we previously projected for the year. We believe we are well positioned for adjusted EBITDA to come in favorably, which is why we've raised the midpoint and narrowed the range to now be between $66 million and $67.5 million. That concludes my comments for this quarter's call. Thanks for your time, as usual. I'll now turn it over to Bobby for some additional updates.

Thank you, Scotty. I'm going to dive into a few more areas and turn it over to questions. I want to remind start by reminding everyone that our hStream technology platform is the center of our Platform as a Service strategy. Increasingly, our own application suites are being powered at the platform level by hStream, and third parties are beginning to use our platform and its growing set of APIs to build or enhance their own solutions. Each of our subscription-based core applications in learning, credentialing, and scheduling is provided to customers via the hStream platform. Additionally, an hStream membership package that comes in the form of a subscription and is tailored to each of the 3 core application suites is concurrently purchased with the respective products. Each of these packages provides customers access to the hStream platform and defines access to APIs, exclusive applications, services, content and other benefits that come with that value package. Each quarter, we're just getting better at adding value to those bundles. Last quarter, we shared the news that our credentialing business is expanding to address the health plan market. I'm proud to share that our growing momentum and positive market receptivity in that area. First, we officially announced our solution, Network by HealthStream, at the NAMSS conference in late September. Our news plus our marketing efforts helped us quickly generate a pipeline of opportunities at more than 3 dozen organizations. We expect that several of the opportunities will convert into sales over the next few months. Secondly, we formally partnered with the Verisys Corporation, who has a large footprint in the health plan market segment. The rationale behind this exciting partnership is to bring to market an innovative solution that is specifically tailored for health plans. Many health plans want a SaaS solution to manage their network provider data, but they also want to outsource the actual credentialing work. We believe that only the combined Network by HealthStream and the Verisys solution can seamlessly fulfill both of these needs for health plans with 25,000, 50,000 or more network members. We think we're really well positioned with our new Network by HealthStream product set and our new partnership announced recently with Verisys. Third, we have built the industry's first marketplace of CVO services, service providers for health plans. Our CVO marketplace is launching with 2 initial members, the HealthStream CEO, we have a small built-in CVO, credential verification organization and Verisys for large health plans. We expect this marketplace to grow by adding both CVO members as well as customers in the quarters ahead. I also want to note that we've built a data portability feature within Network by HealthStream, which allows health plans to send provider data via one click to the marketplace, and the applicable marketplace member can send the verified information back to the health plans CredentialStream system. This unique data exchange is enabled by the hStream platform. Now let's move to our direct to professional and pre-professional markets. I mentioned that we're managing these growing communities; one is actually a true social network, and the other is semi-social, but it's more of a community of students and a community of nurses. Our market expansion strategy over the last 18 months has included selling directly to end users like nurses, physicians or nursing students. One of the ways we reach individual nurses is through our NurseGrid app, which has the NurseGrid Learn capabilities. This is a great example of using our platform technologies to power essentially a little learning store in NurseGrid, the app. The learning NurseGrid app is now linked to a commerce-enabled learning store called NurseGrid Learn. NurseGrid is the number one most popular app for nurses based on ratings and downloads in the Apple Store, and it now has over 600,000 monthly active users. It is truly a growing and thriving social network. We think it's the largest social network for nurses on the planet or at least in the United States, and it's growing at a very good pace. Since we acquired it, it has grown from about 180,000 monthly active users to 600,000. Look for some exciting announcements around NurseGrid. The NurseGrid Learn was one of the first efforts to provide value to those nurses in that growing social network, and it's doing well. E-commerce sales through the NurseGrid Learn channel increased approximately 117% over the prior year quarter. I’ll give you an example of a product that is being provided through the NurseGrid Learn channel that historically was only sold B2B. The stable program is a neonatal education program created by Dr. Chris Carlson, a world-renowned program for neonatal care. Before this year, our sales and marketing efforts for the stable program were focused on business-to-business sales to healthcare organizations. The NurseGrid Learn and NurseGrid app have allowed us to expand our reach by marketing stable to individual nurses whose specialties align with those critical life-saving knowledge and skills for sick infants. In the latter part of 2023, we launched an initiative to begin selling directly to nursing students and nursing schools. Our application called My Clinical Exchange provides a useful gateway within HealthStream's ecosystem to reach nursing students as they seek to fulfill their clinical rotation requirements to graduate. You can think of My Clinical Exchange as a bridge between students, schools, and hospitals that host them for rotations. Each of these groups uses the application to identify, schedule, and manage clinical rotations, including facilitating important credentialing and onboarding functions for students. Year-to-date, my clinical exchange students have either completed or scheduled over 285,000 clinical rotations. Every student who takes rotations through My Clinical Exchange becomes an individual member within HealthStream's ecosystem. Third quarter 2024 revenues from My Clinical Exchange were up 11% over the same period last year. We believe that both sets of healthcare professionals and nursing students will reap many benefits from accessing HealthStream directly throughout their careers, which is now made possible with our e-commerce-enabled hStream platform enabling capabilities like we've just talked about inside of My Clinical Exchange and NurseGrid, the social phenomena app. So kind of we'll summarize by saying that if you're interested in a profitable, highly recurring revenue SaaS past healthcare technology company that expects to deliver steady growth and is determined to share some of those gains directly with shareholders in the form of a dividend, maybe HealthStream is a company for you to look at. That's my sales pitch. I'm sticking to it. We're excited about the accomplishments of our team. I want to tell you just a little bit about our culture here by talking about our streaming good value that we work into the fabric of our company. In our attempts to assist in education during COVID, nationally, our attempts to facilitate learning and development during the horrible hurricanes where we provide ongoing access to materials and information. We're living our streaming good value throughout our employee base. Each year, we select a charitable organization to support as a company. Right now, 1,100 employees are supporting the Alzheimer's Association. In our recent HealthStream Olympics challenge, we raised over $22,000 to fight Alzheimer's and other forms of dementia. We're honored to join thousands of others nationwide committed to this worthy goal, and I'm really proud of our 1,100 health streamers for living that value of streaming good. We embed it into our fabric, both in our innovation with the new market releases, our customer service, and our focus on charitable efforts. I'm proud of our accomplishments during the quarter. Thank you to HealthStreamers listening. Our analysts will now turn it over for Q&A to get the session started.

Our first question is going to come from the line of Matt Hewitt with Craig-Hallum.

Maybe first up on the top line with revenue growth particularly, your 3-year kind of objectives that you've rolled out previously, you've talked about getting to 7% to 10% growth with the new accelerators on the pricing side, that's going to add a little bit of a boost to the top line. But what else could you do or what else do you see that could drive a little bit faster growth on the revenue side?

Yes. Let me explain our objectives and then provide comments on each. The first objective was shared during our Investor Day in November 2022, where we set a growth target of 7% to 10%. We're planning another Investor Day early next year, likely in late January or early February. In November, we communicated an organic growth target of 5% to 7%. This year, it appears we'll achieve around 4%, which puts us close to the lower end of that range. While we aim for the top of the range, our organic growth profile shows we'll finish the year at around 4%. The enthusiasm surrounding our new products is tangible. To improve our performance, we need to maintain the momentum with these offerings. Some products are entirely new, like the Insights Plus application, contributing to new revenue, and that's invigorating. However, the growth rate isn't higher because many of our market share gains have come from acquisitions, which sometimes means we inherit legacy application suites. We've tackled significant offerings like the ANSOS legacy suite and aim to retain those customers while transitioning them to our modern applications. This process can be challenging and may hinder growth. Reducing attrition from these legacy systems would enhance our growth rate. We'll keep launching new products, and our pricing escalators will significantly impact us. Our future applications, such as CredentialStream, ShiftWizard, and the HealthStream Learning Center powered by Insights Plus, are gaining market share and demonstrating strong year-over-year growth. Next year, we'll prioritize retention and migration strategies to see if we can improve in those areas. We expect to finish this year at about 4% growth and will begin generating positive cash flow for the year.

That's super helpful. And then maybe shifting gears here a little bit. The macro environment, the customer spending environment was pretty challenging last year. I think you noted it on several calls, sounds like that's starting to show signs of improvement. Is that, in fact, what's happening? Are you seeing some improvement on the customer spending side? Is it your expectations that will continue, maybe even accelerate as we get into '25?

We did open this call by talking about our pipelines, and we feel good about our pipelines in credentialing and scheduling and with the new products in learning as well. So we feel positive about the plan. They need to materialize and to close deals both in Q4, we have really good expectations in Q1 and Q2. But the pipelines are strong. The way to work on this growth rate is to focus on retention in these legacy applications and be successful in what I'll call retention strategies. We'll turn our attention to that next year and see if we can improve in those areas. We opened the call by talking about our confidence in the pipeline. Those aren't closed deals. But they look good. We measure our pipelines as multiples of your objectives. Typically, what you want to hear from a measured pipeline is 2x, 3x, and 4x coverage of the quotas you're setting essentially. In those pipelines, we see 3x coverage, which is kind of a healthy sign of opportunity. Again, they do need to matriculate and turn into actual contracts, but it feels good.

Our next question is from Stephanie Davis with Barclays.

First one I have, you've been really bullish about the expansion in the health plan channel. Given some of the NCO earnings that we've been seeing lately, could there be maybe a step back in spend as they focus more internally?

I'm not quite as close to that. We have teams focused on that, and they're excited about our positioning in that market. From a cost standpoint, you did hear about some things like the interoperability between our CredentialStream application used on the hospital side and then used on the payer side. We think those will provide efficiencies. We believe we are positioned to gain share perhaps being the more efficient provider in those areas. Even if they have some kind of pressure on them, my goal has always been take regulatory training. It's a mandate, lose regulatory training, be the lowest cost, highest quality provider, then you'll be selected even in a down market. So I'm less remitted to the overall pressures in that space. There is a new one for us. We have a team of people that are familiar with that. They're excited about their pipeline.

Helpful color. Another one on the sales channel. You're just rolling out a ton of new products recently. How are you thinking about having cohesive messaging to your clients as you have many new products that you're coming out with? How does that play into the sunsetting of some of these legacy platforms?

It's a great point. We’re trying to create cohesive understanding of the hStream platform and its capabilities first, so we’re repositioning at the product level now to showcase the enhanced capabilities. You're right about the new products. We have been working for many years on something like we've been working on Insights Plus for about 18 months. The watches start to roll out and be in customers' hands in the last 3 weeks is exciting. We are essentially able to retire older reporting engines, some of which were sold and some of which were included in our base subscriptions. Watching those get sunset and replace the new one generates higher new order value or contract value is exciting. Of course, there’s hope. Another announcement by year-end, we'll announce yet another new product. The platform strategy enables more rapid development of products and generally a lower internal cost. We're excited to show the strategic and operational benefits of our application suites that truly work together.

Our next question comes from Jared Haase with William Blair.

Maybe I'll ask one on the new reporting tool sets for the learning application suite. Nice to hear about the positive rollout there. I was just hoping to hear a little bit more about any incremental functionality that's now available with this next-gen version of reporting tool. Can you clarify if this is something you'll be pushing out as contracts come up for renewal over the next couple of years? Or can you actually go to clients a bit more proactively?

Great. I'm glad to comment. We're excited for many reasons. The architecture of this new reporting capability for learning will be the same architecture we will use to enhance reporting data analytics for all of our products across the company. When you talk about a platform strategy, you expect leverage to not only obtain efficiencies but superior capabilities. This is the first rollout of new enterprise class reporting capabilities, analytics capabilities, benchmarking capabilities. The performance benchmarks are multiples better than our older engines. The older methods were slow getting people their data harder to extract, less configurable, less able to integrate multiple data sources, and now we can pull data in from other applications into reporting capabilities. The flexibility is significantly greater as we release essential insights that come with the HLC replacing the prior reporting capabilities. Not only is it faster, better, smarter, more flexible based on newer tech stack, these customers look to those outputs for compliance and competency profiles. So, we're excited and expect announcements over the next 3 quarters on new reporting capabilities for other products built on the same new technical architecture. So watch for that by the middle of next year, and I expect we’ll see that across our whole ecosystem.

Great. That's great to hear. And then a follow-up on capital allocation and the M&A environment, can you share what’s driving the inflection in your view? Is it just stability in the macro environment or something else that's catalyzing some of those incremental opportunities?

I do think that the macro conditions are improving for strategic buyers like us, meaning a little bit of a price recalibration. But there are currently some highly sought-after companies with private equity money on the side. Overall, I believe that the macro conditions for us through our lens are improving. We're working hard to try to make that a reality. Earlier, we talked about the 7% to 10% growth. I failed to talk about the second piece. While we've been quiet on the M&A front, we've teed up some deals and decided they weren't the right fit. I've decided to focus on the core 3 apps and the platform technology for 24 months. But now we're getting to where we feel we can fold things in. You will likely see small tuck-ins, but they will support existing lines of business. Over the next couple of quarters, we expect to do small deals that would be technically immaterial but supportive of credentialing. Our first minor investment in a few weeks ago was about $1 million into a company that will bolster our business opportunities with NurseGrid Learn.

Our next question comes from the line of Richard Close with Canaccord Genuity.

Congratulations on this success. Bobby, I think it's been 2 quarters in a row now. You've given some examples of pretty significant growth in a customer on renewal, but you were saying that's not necessarily completely normal in all cases. Do you think that these larger renewals or expansions are going to become more prevalent?

Of course, it's our focus, and we have 60 account managers that look at blending new products into every renewal. We are getting better at showcasing more products at renewal, and they make more sense when they’re interoperable. I hope so. You look at our sales organization; it's roughly 200-plus people. It's about 130 or so quota-carrying specialists and about 60 account managers, account managers that work to create a better blend. They focus on annual recurring revenue and aim to drive that number up. We're working hard to showcase more products at renewal, although these cases, which show growth, have been critical. They feature the adoption of the platform technology and the API.

Yes. I mean I think that's kind of what I explained on the call that they did pick up in the third quarter versus the second quarter, but they just don't see the pathway to get to a strong rebound. So they didn't like over consume the amount that would push through that deficit. We're forecasting that to continue to be a little off.

On the product declines, when does that sort of move to the rearview mirror? Is there any timeline we can set?

Not yet, Richard. We're kind of carefully classifying our revenue lines by growth products, new products, and legacy products, which are supported and maintained. The ANSOS product, for example, is a legacy product, but it's not sunsetted. We’re not in the phase of sunsetting yet. So I think next year, we will get closer to some of these trajectories, ultimately leading to a migration phase. It’s a long journey where we keep customers informed and maintain them including quarterly updates. We're actually slowing our loss of customers to the market. Most of them are legacy customers who contribute to our EBITDA and cash flows. We'll better quantify those and have a path for them. Once they're designated as sunsetting products, we know that we'll provide migration strategies, but that's going to take some time.

Our next question comes from the line of Constantine Davides with Citizens JMP Securities.

First, could you provide an update on how many users have claimed their hStream ID at this point? Secondly, when you're on the other side of this platform initiative, do you see it helping more in terms of accelerating top-line growth or just margin improvements?

We haven't released claimed ID numbers yet. That's something we could consider for our Investor Day. However, I want to emphasize it’s a complex topic. We discuss the number of IDs issued, claimed, and keys on the keychain. Having a unique ID is one thing; having unique IDs for each of our 27 applications is a different matter. The platform has been designed to drive growth and enhance operational leverage and shorter product development cycles. So growth is a focus. We are excited this year to finally see tangible benefits from the platform.

Is the growth of ShiftWizard starting to eclipse the attrition of the legacy product?

It might be a good discussion to take a few of these cases and talk about when we look at trends in the market. We are excited to show net growth of 4% even during the transition from legacy applications. The attrition does impact our overall growth. We have plans to manage those migrations in the coming years to stabilize those products.

Thank you. I would now like to hand the conference back over to Robert Frist, CEO, for any further remarks.

Thank you. I think we've covered everything I want to cover today. We look forward to reporting our year-end results, which will be later early next year, probably at the end of February. That will be a while since we talked to you guys, and we'll work on an Investor Day to be held before that. Thank you, everyone, for participating in our earnings call, and we look forward to continued dialogue with investors in the coming days. Thanks. Bye.

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