Good day, ladies and gentlemen, and welcome to the HealthStream, Inc. second quarter 2018 earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Ms. Mollie Condra, Vice President of Investor Relations and Communications. Ma'am, you may begin.
Thank you, and good morning. Thank you for joining us today to discuss our second quarter 2018 results. Also 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 the future events or future performance of HealthStream that involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements. Information concerning these risks and other factors that cause the results to differ materially from those forward-looking statements are contained in the company's filings with the SEC, including Forms 10-K and 10-Q. With that introduction, I'll turn the call over to Bobby Frist.
Thank you, Mollie. Good morning, everyone. Welcome to our second quarter 2018 earnings call. We'll just jump right in. Our second quarter performance was positive on the financial metrics. Revenues were generally in line with our expectations, and we did deliver solid operating income growth. That income growth will enable us to increase our investment in the second half of this year in preparation for the launch of exciting new higher margin products early next year. Improving gross margins continues to be a theme for the company over the next several years. As we announced in February, HealthStream divested of its patient experience business, which is our business segment with the lowest gross margins given its labor-intensive call center operations.
In the second quarter, which was the first full quarter without the PX business, we did see an increase of 200 basis points in our overall gross margins over the prior year. Then if we think about our Provider Solutions segment, we launched our new SaaS-based platform called Verity last quarter. Over the next several years, we expect that existing HealthLine and Morrisey legacy platform customers, those were through acquisitions, will choose to upgrade and migrate to this new Verity SaaS-based platform. Once those migrations are complete and the legacy platforms have been retired, we expect another positive impact on gross margins. That will be a kind of a several-year process, but again, with this focus on enhancing gross margins, the move to the SaaS platform will see yet another boost over time after migrations and after platforms have been retired.
In our workforce development segment, we are investing in products like our Quality OB curriculum and our new resuscitation solutions, which carry higher gross margins than the legacy products that they will replace. In fact, as we've said previously, the new resuscitation solutions will carry approximately double our existing resuscitation product margins. In the coming months and years, as these products and the solutions that we've talked about are adopted by customers, we expect to see a positive impact on gross margins from those product investments as well. As a reminder, at the end of June 2017, we announced that our current agreements with Laerdal Medical for the HeartCode and RQI products, these are the resuscitation products, will expire on December 31, 2018.
HealthStream retains the rights to and expects to continue selling HeartCode and RQI for the next five months, and we will provide uninterrupted service to our customers for the duration of their contracts, which can extend through December 31, 2020. HeartCode and RQI generate approximately $48.4 million of trailing 12-months revenue. At the end of this year, we will stop selling those products and expect the revenue from them to decline in 2019 and to run out over the course of 2020. To be clear, we expect revenue from these two products to be zero in the first quarter of 2021. We are committed to creating a marketplace that brings more choice and selection to our customers for a wide range of critical solution areas, including resuscitation. In fact, we are on track to launch new resuscitation solutions in January 2019.
The new resuscitation solutions will feature multiple new strategic partners, each with individual areas of expertise and focus. Areas of focus like science, credentialing, curriculum, hardware, and software technologies. As we previously shared with you, we have already signed two seven-year-plus partnership agreements to develop new, innovative, high-quality resuscitation solutions. We are pleased to announce that in the second quarter, we signed our third seven-year-plus agreement. HealthStream and our three partners are excited about the progress we are making to be ready for launch of the new solutions in early 2019. Of course, as we prepare these new products and solutions, and good thing we had the solid first half performance, we'll be able to invest and increase our expenses and capital investments, which will increase throughout the second half of this year, gearing up for the launches in early next year.
At this time, Gerry Hayden will provide a more detailed discussion of the financial metrics for the second quarter results.
Thank you, Bobby, good morning, everyone. Before reviewing our second quarter results, I'd like to note that, one, all results are from continuing operations only. For example, 2017 and 2018 results exclude the gain in the sale of our recently divested Patient Experience business segment and results of operations of that segment prior to the divestiture. Two, 2018 results are presented in accordance with the new Accounting Standards classification 606, Revenue from Contracts with Customers, ASC 606, whereas results for 2017 are presented in accordance with ASC 605. Here's some highlights from our second quarter. Consolidated revenues were up 8% to $57 million. Operating income was $4.3 million in the second quarter of 2018, up from $2.8 million in the same quarter last year with a $339,000 positive impact in the second quarter of 2018 from the application of ASC 606, the new standard.
Net income from continued operations was $3.7 million in the second quarter of 2018, up from $2.2 million in the second quarter of 2017, with a $256,000 positive impact in the second quarter from the application of ASC 606. Earnings per share or EPS from continued operations was $0.11 per share, fully diluted in the second quarter of this year, compared to EPS from continued operations of $0.07 per share, fully diluted in the second quarter of 2017, last year. Adjusted EBITDA from continued operations was $10.7 million in the second quarter of 2018, up from $9.2 million in the same quarter last year, with a $339,000 positive impact in the second quarter of 2018 from applying the new standard ASC 606.
Our 2018 financial reporting includes two developments that originated in the first quarter and continue to be reflected in our operating results the second quarter and remainder of this year. One is the Patient Experience divestiture, and the other is the mandatory adoption of ASC 606, which is now the new GAAP standard for reporting revenue. As you already know, the Patient Experience divestiture occurred on February 12th, 2018. Our income statement continues to segregate the gain on the sale and the income or loss from discontinued operations from continuing operations. Our comments today focus on continuing operations, which consist of our Workforce Solutions and Provider Solutions business segments. The second financial reporting development is the implementation of ASC 606 into our GAAP reporting. There are two areas affected by ASC 606, recognizing revenue and commissions accounting.
In the second quarter of 2018, reported revenue in accordance with ASC 606 was similar to historical ASC 605 methods, as it was in the first quarter of this year. The most significant difference between ASC 605 and 606 is that commissions are accounted for as capitalized costs and amortized under ASC 606, while the same costs would have been expensed under ASC 605. As we discussed on last quarter's call, a large number of 2017 sales transactions went live during the first quarter of 2018, resulting in commission payments being capitalized in accordance with ASC 606. The amortization of capitalized commissions recognized in the first quarter of 2018 was lower than what would have been recognized as commission expense for the same period under ASC 605. However, commission expense for Q2 of this year, calculated on both the ASC 605 and 606 methods, are virtually identical.
Now, let's look at summary of our income statement. We'll touch on some highlights from each of our business segments. Revenues. Revenues from our Workforce Solutions segment increased by $2.7 million in the second quarter of 2018. The second quarter of 2018 includes no ICD-10 readiness revenues, while in the second quarter of 2017, last year, we reported $231,000 of ICD-10 revenues. A variety of subscription products contributed to the increase in this quarter's workforce revenues. In the second quarter of 2018, revenues from our Provider Solutions segment increased by $1.3 million or 15%. The Morrisey Associates acquisition represents approximately $606,000 of that increase. Revenues from other Provider Solutions products increased $771,000 compared to the second quarter of 2017. Now, some look at our gross margins.
Our gross margin was 59.2% this quarter and 59.8% for the same quarter last year, primarily due to increased revenues from our existing lower-margin HeartCode products. However, as Bobby mentioned earlier, our gross margin is now 200 basis points higher than when the Patient Experience segment was included in our operating results. Our operating expenses. Operating expenses for the quarter were up 2.1% over the second quarter of 2017. The combination of capitalized software investments and product development expenses increased 4.5% between this quarter and last year's second quarter. Software development remains a priority, and we have maintained our development capacity. We also plan to increase our rates of R&D investments throughout the remainder of this year. Sales and marketing expenses are down about $150,000 from last year's second quarter due to some non-recurring marketing costs included in last year's second quarter.
We expect increased sales and marketing investments over the last two quarters of 2018. As I mentioned earlier, commissions under both ASC 605 and ASC 606 for the second quarter this year are virtually identical with each other. Depreciation and amortization were flat with last year's second quarter. This is primarily due to the full inclusion of amortization of acquired intangible assets from the Morrisey acquisition in both the second quarters of 2017 and 2018. It is important to note that depreciation and amortization still reflects increased level of capitalized software development amortization. G&A expenses in the second quarter of 2018 increased over the second quarter of 2017 and grew by approximately 4.5% and were about 14.1% of revenues compared to 14.5% of revenues in Q2 of 2017. The growth in G&A expenses is primarily related to increases in software expenses and personnel costs. Operating income.
Operating income was $4.3 million in the second quarter of this year compared to $2.8 million in the second quarter of 2017. The increase in operating income reflects the revenue growth, excuse me, leverage on our product development, sales and marketing, and G&A expenses. Now let's look at our balance sheet. Pardon me. Our cash position and overall balance sheet remain strong. Our cash balance as of June 30th was approximately $165 million, a $34 million increase since December 31st, 2017. The $34 million increase reflects the net cash proceeds from the Patient Experience divestiture in February of this year, improved cash collections on accounts receivable, and is offset by the special $1 per share dividend, which was paid this quarter on April 3rd, 2018. We have no outstanding debt, and a full $50 million line of credit capacity is available to us.
We believe our overall capital position is likely to support our organic and inorganic growth opportunities and support other capital structure optimization and shareholder value maximization strategies as may be appropriate. Financial expectations for 2018. Yesterday's earnings release included updated guidance. Given the switch from ASC 605 to ASC 606, let's go over how we presented our guidance in every instance of this year to date. On February 20th, excuse me, we presented our original 2018 guidance utilizing ASC 605. For comparability purposes, on April 30th of this year, we provided guidance utilizing ASC 605 and also utilizing ASC 606. We are now presenting our updated 2018 guidance utilizing only ASC 606 in light of the fact that our 2018 operating results are being presented under ASC 606. For 2018, we anticipate the consolidated revenues will increase 6%-8% as compared to 2017.
We expect that our revenue growth in our Workforce Solutions segment will be between 4% and 6% and our Provider Solutions segment to grow between 10% and 20% when compared to 2017. We anticipate operating income for 2018 to increase between 35% and 45% as compared to 2017. We anticipate that capital expenditures will be approximately $20 million during this year. We expect our annual effective income tax rate to range between 20% and 22% for the full year of 2018. This represents an effective tax rate of 26%-28% for the remaining two quarters of 2018. This guidance does not include the impact of any acquisitions or strategic investments we may complete through the remainder of 2018. Thank you for your time. I'll turn the call back to Bobby.
Thank you, Gerry. To wrap up this section, I have two quick product updates. Sometimes I like to give insights into a few products in the company, and then information about a new initiative to share as well. Let's dive right in. With our Workforce Solutions segment, we continue to see steady adoption of our KnowledgeQ solution. KnowledgeQ represents HealthStream's third-generation solution that is utilized by hospitals to manage their annual mandatory training program. KnowledgeQ is a data-driven solution that includes curriculum and games, benchmarking and analytics, and software. In fact, KnowledgeQ's benchmarking analytics components were created in collaboration with Juice Analytics. As a reminder, we invested in Juice Analytics about three years ago to build out our data visualization tool sets. Since its first sales in early 2016, over two million subscribers have contracted for KnowledgeQ.
They've kind of upgraded from the second and first-gen products to this third-gen product, which has the data analytics curriculum and some games built into it. We're really excited about our progress with KnowledgeQ and its continued adoption in the market. It's definitely a leading product in our Workforce Solutions segment. At the start of the year, we also announced the launch of our new Nurse Residency Pathway program, which is an innovative, comprehensive approach to improve nurse onboarding, thereby reducing nurse turnover. It's a 12-month blended learning program that closes the academic to practice gap for nurses while improving their confidence to practice. In our last call, we shared with you the success an early adopter, a large health system, was having in their pilot.
I'm pleased to report that in the second quarter, that HealthStream contracted to expand the nurse residency program enterprise-wide across all hospitals in their health system. We're excited to enter an enterprise-wide multi-year agreement for the new nurse residency program. The average cost of replacing a nurse is very high. We've read, and our references show it's approximately $85,000 to replace a nurse that chooses to leave your organization. Because HealthStream's nurse residency program is designed to reduce turnover for new nurses, we believe it has a higher value proposition. There's a lot of turnover in that first year or two of employment. Since it has a higher value proposition, it warrants a higher price point. We're excited to bring this new high-impact, high-value program to the market at approximately, in a broad range, but $400 to $1,000 per student.
It has a much higher value proposition, a higher price point, and it's a nice blend of a lot of the technologies and services that HealthStream can provide to impact turnover and improve competence of new nurses. With those two product updates, let's turn to an exciting new initiative at HealthStream. As we've discussed before, our HealthStream network is made up of 4.8 million users approximately, and 75 or more partnerships. Recently, on April 30th, we introduced internally a new and improved way for customers and partners to access and participate in our network. We call that new way of connecting hStream. Our new hStream technologies represent an enhancement in our platform capabilities and the beginning of our new platform as a service capabilities.
We look forward to providing more details in the coming months regarding new products that are enabled by hStream, new partnerships that leverage hStream, and new services that are powered by hStream. At this time, let's turn it over to questions.
Ladies and gentlemen, if you have a question at this time, please press star then one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, to ask a question at this time, please press star then one. Our first question comes from the line of Ryan Daniels from William Blair. Your line is now open.
Yeah, guys. Thanks for taking the questions. Maybe I'll start with one on the uptick in investments in the back half of the year ahead of the new resuscitation products. Can you speak a little bit outside of R&D to where those dollars will be dedicated? I'm curious if it's a ramp-up in the sales force, if you'll have kind of new salespeople exclusively focused on that, et cetera. Just any color there would be helpful.
Sure. Most definitely in R&D, we're a little behind in our hiring expectations in a few areas. We saw a little overperformance in some of those areas by having lower expenses, and we're going to try to catch up, maybe use some recruiters to backfill some technology positions. We're going to be more aggressive in backfilling things we had kind of hoped to hire a little earlier in the year. You're exactly right. We just came out of a series of internal meetings authorizing the increase in the size of our sales organization, with particular focus on resuscitation products. We probably won't hire a lot of those folks until the fourth quarter, and then train them and get them ready for January. We think these new products will be appropriate in multiple channels, and so we plan to add to sales.
In addition, we set aside some additional budget for launch in marketing. We'll have increased marketing expenses in alignment with the planned launch. Not all of this is geared, the increased investments are geared to just the launch of the new resuscitation products. We're also increasing investments in our platform. The new hStream technologies that I just announced are well underway, and we're adding capabilities and people to build out those connectivity services.
Okay. Great. You discussed some of the new products being ready in early 2019. Is that a January 1st? Are you still on track to kind of launch those 01/01 of 2019, or some of the development you're going to lead you into the first quarter or so?
We do expect at this time that everything is targeted towards a January 1 launch where we can begin selling the products into the market on January 1.
Okay. I don't know how much detail, last question here on hStream you want to provide, but any more color on kind of the revenue model for that offering and if it's available for clients today to kind of move over to that? Is that an upsell opportunity, or is hStream something that you're kind of introducing but not ready to launch actively till later on?
Right. I think that maybe the most constructive way to think about it this time, there's several things going on here. One, it is an enabling set of technologies, more platform as a service type of technologies that will allow new products to be built based on the capabilities of that technology, new partnerships to connect to us in different ways. I think the best way to talk about hStream is that over the second half of this year, you can watch for new product announcements, some of which may be given to customers as enhancements that are driven by our investments in hStream, some of which may be sold because it represents a new product powered by hStream, and some will create new revenue stream opportunities or provide premium services to lead gen for our other subscription products.
The most constructive way to think about it right now is kind of emerging out of R&D as a package of new capabilities that will power new products and new functions and features, some of which will be free, some of which will drive increased adoption, and some of which will be sold into the marketplace. We just wanted to put it out on the table that it kind of represents some of the great progress by our new CTO, Jeffrey Cunningham, who's been with us about a year. It's approximately the anniversary of his arrival, and these new technologies are emerging in our toolkit for growth in the future. We do expect to have announcements of new products and capabilities that will be contextualized by their being powered by this new R&D and this new technology stack that we're building.
Okay. Thank you for the color.
One other thing about that, Ryan, is that it's foundational technology. We do expect over the coming years, everyone to benefit from it. It might create an opportunity to create a new measurement metric. In other words, it is a unifying technology across Verity and HealthStream products. It may represent the opportunity we've been looking for a new metric that shows our trajectory and adoption of kind of a core set of technologies. We have a hard time communicating the subscriber counts because we have 12 products that all have subscriber counts. You heard our KnowledgeQ count at 2 million. I think last quarter, we gave an update on our Checklist product with hundreds and hundreds of thousands, I think 600,000 or maybe more. The HLC is a platform with a lot of subscribers as well.
We're hopeful that as we roll out hStream, it may create an opportunity for a unifying metric that will show the broad penetration of our core technologies. I think Ryan went ahead and signed off. I just led with that. We can go to the next question.
Our next question comes from the line of Scott Berg from Needham. Your line is now open.
Hi, everyone. Congrats on a good quarter, and thanks for taking my questions. I guess first question is for Gerry. Gerry, if you look at your deferred revenue, it's been down on a year-over-year basis for the last several quarters. Can you help us kind of reconcile that with revenue growth? I know it's never been a perfect proxy to kind of look at your sales, but usually you have some variances that'll go up and go down, but it's kind of been on a downward trend consistently.
Yeah. I think it's more billing cycles and timing of billing and so on, there's no real. I don't find any real pattern between recognized revenue and the real change in deferred revenue. We have people who go on annual billing cycles, come off that to monthly, and that can affect the deferred revenue balance and so on. I personally don't draw a large correlation between the deferred revenue balance and the momentum of the revenue on our P&L.
Great. My last follow-up question, I don't know if Bobby or Gerry wants to take it, but Bobby, you spoke a lot about some of the initiatives that are currently undertaking and will be undertaken over the next couple of years in terms of raising the gross margin profile of the business. If you look at an intermediate term or a long-term model, what do you think gross margins look like as more of these software solutions develop and now patient experience is completely in the rear view mirror?
Yeah. Well, one thing we can clearly articulate is the change in gross margins with the divestiture of PX, 200 basis points seems like the minimum improvement we're going to get. There's still a lot of migrations happening in the company that affect gross margins. The good news is we're looking more and more like a recurring revenue subscription software company, and less and less having services components that obfuscate the gross margin opportunity. We talked about the two big things happening, it would be the rate of decline in the resuscitation products, the rate of growth in the higher margin resuscitation products, that'll have a visible impact on gross margins in, I'd say, what you'd call the intermediate term, a couple of years.
The move to this full SaaS platform for Verity, it'll transpire over kind of, I'd say, three to four years, but have a positive pressure on gross margin. It really is a little bit hard to project. Of course, we have a three to five-year model, but we don't guide out that far. We're trying to explain that we think that those two have kind of overlapping positive dynamics. We think we can pick up a few points here and there in gross margins in the coming years.
Great. That's all I have. Thanks for taking my questions.
Our next question comes from the line of Matt Hewitt from Craig-Hallum. Your line is now open.
Good morning. Congratulations on the good quarter.
Thank you.
Yeah. A couple questions. First, what type of feedback have you been garnering from your customers regarding the anticipated switch on the resuscitation side? Obviously, you can't talk about the new products that you're rolling out, but as you have the discussions to at least give them a heads up that those changes are coming, what questions are you getting from them? What kind of conversations are you having, and do you anticipate a pretty smooth transition?
Well, no. It's a tricky situation. We're able to say the facts, which are, we won't be offering the current product to use, and we'll have a new one. Beyond that, there really can be no dialogue. Especially with customers, we're in development mode working with development partners, but there is no dialogue with customers. It is challenging, but I would say our teams are laser-focused on selling the HeartCode and RQI products. We have quite a lot of work to do the next five months. We expect to sell millions and millions of dollars of the HeartCode and RQI products. I would say the sales teams are fully focused on selling those products 100% and topping off customers.
What they're really working on doing now is getting those contracts extended through 2020, which would give us the longest runway to introduce new products. Right now, there really is no dialogue with customers. We'll get questions that we literally defer and say, "Look, we can talk about that in January. Right now, what we need to do is to secure the excellent service you've gotten of the fully integrated product through 2020. You need to top off your order." That is the extent of our dialogue with customers. I think they're taking that. They understand there's change coming. A lot of them want the stability of the collective service.
They do have a hard time envisioning how they'll get service beyond that. That's encouraging them to buy that service out through 2020 because, if it's not fully integrated, which is the current where we stand, it will be more difficult for them to use those products. Everyone's attitude right now is focused on renewal, topping off the existing contracts and extending through 2020.
Okay. I think you may have just touched on my follow-up to that was, with ICD-10, there was a period, six months out from that kind of coming to a head where there was significant extensions of contracts. It sounds like you are seeing some of that right now with resuscitation just to give the customers a little bit more time to maybe see what your products look like, figure out how they can get them integrated and all that. You are seeing that right now, correct?
We are seeing a little of that. I think the next five months are critical. Their final decision and behaviors are kind of due. There's only five months to make them. I think the third quarter we'll learn a lot more here. Of course, there's always big orders in even the last week of the year. It seems to be playing out that way right now. The second half of this year is weighted much more extensively than the first half to determine what their ultimate decisions will be.
Okay. Switching gears a little-
We really don't know, but the current trend is that it does look like people are buying out through 2020, of the ones that we talk to.
Okay. Good. Okay. Shifting gears real quick, then I'll hop back in the queue. It sounds like at the end of your prepared remarks, you were talking about maybe with hStream being able to provide a more fully encompassing metric regarding active users. Would there also be an opportunity with that type of metric to, I guess, reinstate or provide some type of an ARPU metric? It was one that you had previously provided and obviously given the growth and the breadth of your products, it had become a little more complicated. Do you envision being able to provide something along those lines? Thank you.
Sure. We don't know yet. Here's what we're thinking, though, that the hStream technology stack, as it become enabled, will be, we hope, as we work it into contracts and renewals, every product in the company will connect to it. It will represent kind of a new base technology that everyone needs access to power their solutions, whatever the solution is they buy. Of course, it's taking time to connect everything to it, and decide what value is in it. We do think it will be the unifying technology that we can measure how many people have access to components of hStream, versus reporting subscriber counts on specific products that have different levels of penetration in the market.
If you look at our long history, we reported subscriber counts around a product, that Learning Center, and it has more ins and outs, ups and downs now. There are a dozen other products that have subscribers, some of which are growing faster, have more significant wins in front of them and behind them than that older metric. I think over the next two to three quarters, we'll work to better define it. We will launch a few products that leverage hStream, and you'll start to see that it can be a more common metric. Of course, a logical derivative from that would be revenue per subscriber of hStream, and that may become possible if the model works that we're working on, that we're building.
I think we wanted to put a stake in the sand today that it kind of represents launch of these new enabling technologies and you will see in the second half of this year, new products that rely on that new technology stack.
That's great. Thank you.
Our next question comes from the line of Richard Close from Canaccord. Your line is now open.
Hi, this is Richard Close. I had a question on the $48 million in trailing 12 months Laerdal HeartCode revenue. Have you guys done any analysis in terms of how the step down occurs? How you think about the step down occurring in 2019 and 2020? I guess by first quarter 2021, you expect no revenue. It sounds like if you're pushing on the extension, that there's really maybe not that much of a step down in 2019.
Well, I mean, we have analyzed this in detail one contract at a time across hundreds of contracts and have full spreadsheets built. We know the existing run out for the existing contracts, and we know the shape of that curve. However, tremendous shape of that curve will be largely shaped by the next five months. There's just too much open variable to say how 2019 looks. I mean, we know the beginning and end point, right? The beginning point is when revenue peaks. Right now, it probably will be in Q1, based on our graphs of next year. Then it will be zero in Q1 of 2021. The shape of that curve, we think is highly dependent on the next five months of sales, and maybe even particularly December, where every major system will face the last opportunity to buy the fully integrated product.
Some may not buy that product. They may just take what they've got and see how it plays out in the marketplace. Some may renew to 2020. There's just too many unknowns. As I said, the second half sales to the shape of that curve are the most heavily weighted. The safest bet would be just some kind of straight line, we'll update every quarter, between the beginning and end point, we'll update every quarter about more of the shape of that curve.
Okay. As we think about the new products that we'll launch, what's the timing of revenue on the new products or duration of those contracts? What will those look like? How quickly, if someone buys the product, does it get implemented and they start using it, you start recognizing revenue?
Well, I mean, obviously a future state, so a lot of unknowns there. We have a lot of experience implementing, so I don't expect that will be issues. I think, given that the first a customer will see the product is January of next year, it'll be hard to imagine purchase decisions being made very quickly. I mean, you're going to have a ramp-up time of exposure and demonstration and budget cycles. I think the ramp is going to take some time. The gate probably won't be implementation. It will be just adoption and acceptance, market education to the different product. Again, it's unknown. We're beginning to build our forecasts and we're getting excited about it, but it definitely won't be at Q1 of next year, if that helps any.
Do you know whether Laerdal has entered into any additional partnerships? Like when your partnership ends, they have someone else to step in, or are they doing that themselves?
We don't. They have announcements pending later this week that we'll be watching, announcing how they're reforming their strategies and we'll follow that along as close as we can. Right now, no, we don't know their ultimate strategies.
Okay. My final question, moving maybe onto Provider Solutions. What do you think the sustainable growth rate is in that business? Definitely appreciate the comments on the Verity platform and higher margin there, how do you think with respect to the sustainable growth rate on Provider Solutions?
If you look at the growth rate this last quarter, about half was attributable to acquisition, non-comparability period, and half to organic growth rate. We reported 15% growth rate with those two together. We hope to improve on that, right now that's where the growth rate stands, we'll provide guidance next year in February.
Okay, thank you.
Our next question comes from the line of Vincent Colicchio from Barrington Research. The line is now open.
Yeah, Bobby, I'm curious, have there been other significant efforts in the market of note to compete with Laerdal in recent years?
There really are none that I know of I would characterize as a significant effort. Again, it's a great product. We spent nearly a decade selling it and taking it to market. It is the American Heart Association product with Laerdal together. It's a really good product. For the longest time, there just simply weren't strong alternatives, particularly for our market. There have been alternatives in some markets, but really no major push to have competition, in my view, in the markets that HealthStream is currently in, that we're aware of.
Okay. Then sort of a macro question. Are you seeing any impact from consolidation in the hospital market?
Yeah, some positive and negative in any given quarter now. Generally, given our share on several of our platforms, consolidation favors HealthStream. Occasionally, if someone consolidates to a company, a health system that's not in our network, it can cost us subscribers. We have seen the ins and outs. I'd say this quarter, no material impact, but the landscape as it shifts does result in wins and losses that are not directly related to sales. They're just shifting with the market consolidation. Some of our bigger customers have been actively growing and acquiring. We've had some divestitures that have resulted in a loss of business as well. I would say it is a factor, but hard to quantify.
Okay. Nice job in the quarter. Thanks, guys.
Thank you.
Once again, if you have a question at this time, please press star then one. I'm showing no further questions at this time.
Thank you very much. We'll conclude our comments and look forward to reporting our next quarter. Thank you.
Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.