Q1 2025 HealthStream Inc Earnings Call
Speaker Change: Good morning, and welcome to HealthStream's first quarter, 2025 Earnings conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for question and answers after the presentation.
Speaker Change: I will now turn the conference over to Mollie Condra, head of investor relations and communication. Please go ahead, Miss Condra.
Mollie Condra: Thank you, good morning, and thank you for joining us today to discuss our first quarter 2025 results. Also, in the conference call with me today is Robert A. Frist, Jr., CEO and Chairman of HealthStream, and Scottie Roberts, CFO and Senior Vice President of Johnson Accounting.
Mollie Condra: 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 risk and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements.
Mollie Condra: 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 10K, 10Q, and our earnings release.
Mollie Condra: Additionally, we may reference measures such as Adjusted EBITDAQ, which is a non-gout financial measure.
Mollie Condra: A table providing supplemental information of adjusted EBITDA and reconciling net income attributable to HealthStream is included in the earnings release that we issued yesterday and may refer to in this call. So with that start, I'll now turn the call over to CEO Bobby Frist.
Bobby Frist: Thank you, Mollie. Good morning, everyone. Welcome to our first quarter 2025 earnings call. There is certainly a lot of talk, a lot to talk about here on the call for the quarter. And before I hand it off to Scotty Roberts, our CFO , who's going to give us detail on the financial results. I want to do a couple of key things.
Bobby Frist: First, as I want to talk a little bit about the company's strengths [inaudible]
Bobby Frist: As we enter a time of uncertainty, I think a company with an experienced management team that knows what they're building, that builds incrementally strong and understands the market environment they're operating in and knows how to create value for customers. It's customer base during these times is the kind of company that people should want to invest in.
Bobby Frist: And so I want to talk a little bit about those drinks.
and our growth trajectory.
Bobby Frist: And then I also want to acknowledge a couple of items that are kind of a hitch in our step, some challenges that are we think temporary, that we're going to work our way through.
Bobby Frist: that have resulted in us trimming our guidance, our in-your-guidance a little bit. And we're going to talk about both those things in detail. It's an interesting period of kind of irony, but probably opportunity. And we're going to talk through that a little bit.
Speaker Change: I've seen a lot of cycles in health care and I can tell you why HealthStream generates growth and profitability throughout those cycles been doing this.
Speaker Change: They get demonstrably better every quarter, and that is why we continue to add both wallet share and market share across the board and why our bookings and sales pipelines are strong. It is also why we're forecasting both revenue and EBITDA growth on a year-over-year basis.
Speaker Change: Even amid some of the macroeconomic choppiness and recently addressed issues of technology scale with one of our products credential stream.
We're
Let's talk a little bit about the macroeconomic headwinds.
Speaker Change: We are seeing the manifests in a couple of areas and in some areas we have direct correlation where we can say, ah, that's a challenge, and others, they're less direct, maybe indirect, but maybe anticipated as more intelligent way to talk about the macroeconomic conditions that concerns that we may have, we need to factor into how we think about the next three to four quarters.
Speaker Change: You know, fund and cuts, for example, particularly to federally qualified health centers, FQACs.
Speaker Change: And academic medical institutions seem to be impacting renewal decisions on a nice to have content, you know, on the nice to have content
Speaker Change: The good news is a lot of our content is mandatory, but we do have a program such as our health, equity, and belonging content, which was a shining growth star last year.
which is really not on a growth trajectory this year.
Speaker Change: And so as we entered the year with the health equity and belonging curriculum, you know, we have seen a diminishing purchasing patterns of that and that may also have to do it kind of the political correctness of the environment.
Speaker Change: or trying to be in alignment with that, and also the macroeconomic conditions that pressure because it's more an elective type of content offering and are many content offerings.
Speaker Change: So we do believe that some customers may be delaying some purchasing decisions as precautionary measures to protect their businesses against potential policy-related impacts, as the example of this gate.
and supporting this belief.
Speaker Change: We saw a handful of medium-sized deals that were expected to close into one, plus to Q2.
Speaker Change: and you know, we're watching those very closely to determine, you know, why we think there might be a delay in the closing of those medium-sized deals. We do expect still.
Speaker Change: Those particular sales to close, they're all still in the pipeline, we're all still in active dialogue with the customers
Speaker Change: and there are nice, we would call the medium size, kind of the one to three million dollar deals, or even bigger, two to four million dollar deals. And we think they're all viable deals, they're all going to close here in Q2. But we're going to have to watch you really closely to see the timing of the close, because timing and delays.
Speaker Change: Have an impact about how we think about revenue in the year.
and so we do expect them to close.
Speaker Change: But the fact that they hadn't closed and they didn't close in Q-1.
Is this something we have to watch?
Speaker Change: It was good news that many of those solutions helped meet mandatory requirements. I did give the example.
Speaker Change: of the Health Equity and Belong and Content Libraries, which are a little more optional.
Speaker Change: But a lot of these are focused on their primary asset, their people, and their primary expense category, and developing their people to be more effective, retaining their people so they have a lower turnover, and it's good news that many of these solutions are focused on these mandatory requirements.
Speaker Change: and they help organizations optimize their their their expense and their around labor and their labor their workforce and so I think being workforce focused [inaudible]
Speaker Change: in a time of economic uncertainty is a good thing to be. And so I think a management team that understands that environment and tweaks its programs to align with those messages will be in a stronger position.
Speaker Change: So, I think the next thing to talk about is, you know, we do have this ongoing demand for application suites and current sales pipelines for learning, credentialing, and scheduling are all strong, and there's some irony that has such a strong pipeline that's a little delay that may affect the your revenue recognition.
Speaker Change: But it's interesting that it's almost an irony built into the quarter because during Q1 we did land sign and are beginning to execute on one of the largest deals that we've done in our history.
Speaker Change: It's a $14 million deal where we bundle the tremendous value proposition for a large, one of the country's larger health systems, and it included some of our key products like our new competency suite, which we've talked about in prior calls.
Speaker Change: And so it just does demonstrate that when you meet the need with this concept here of helping develop the confidence, cross-training people for other roles, you help retain the workforce with these development programs.
Speaker Change: that you can close deals. So again, a little bit of irony in the fact that we had a hand in flight, say about four deals, and we would call these medium sized deals, push.
Speaker Change: And then yet one of the largest deals in our history closed during first quarter of $14 million deal to a large health system, including our newer product bundles around competency development. So we're really excited about that.
So amid this market turbulence [inaudible]
Speaker Change: It is our diverse product offering and the nature of that offering meets mandatory needs.
and the fact that this major sale did close.
Speaker Change: gives us that confidence to deliver growth on the year despite some of these early indicators like some of the elected content purchasing may be dropping off. And so, overall, we still feel really well positioned, but some revenue may be pushed into the next year.
Speaker Change: It's just this corner as we reflect on it, there's a lot of these kind of mixed blessings, and can we experience a couple of those in others' areas of operations?
Speaker Change: and we're going to talk about those two. So, impacting our in-year outlook, you know, these mixed blessings they stem from recent success and closing larger deals with larger and longer contract terms in our three-year average.
Speaker Change: And so the result of that is that we secure a greater contract order value.
but we spread it over more time.
Speaker Change: And so as you heard in the story I just told, but these four deals that were kind of medium-sized and shorter run recognition pushed to have it closed yet, but we think they will will.
Speaker Change: Yeah, we land this really big deal. It's a five-year deal. It spreads the revenue a little longer.
Speaker Change: and so great reason for optimism. Of course, we'd rather close large deals that are over a longer period of time.
Speaker Change: and we just have to work that middle market and get those medium-sized deals that are short more around revenue recognition closed.
Speaker Change: in this quarter, but that would represent a delay from our expectations.
Speaker Change: So, the overall size of that bill put us well over our Q1 bookings expectations. So, if you asked our integral team how we did, we would say that our contract order value in sales for the quarter exceeded our total expectation.
Speaker Change: but the average time the revenue and the time over which that value is spread is stretched.
Speaker Change: And so, again, it's kind of this weird thing about long-term positive look at the sales pipeline, but some trepidation in it, some hesitancy to close. We'll just have to follow those four or five medium-sized deals and see if we bring them all in in Q2 as we now expect.
Speaker Change: So we do want to acknowledge that some of this hesitancy and some other operational issues which we think are temporary, which we are addressing, particularly some technology scaling issues with credential stream, which we do feel we've quickly addressed.
Speaker Change: But, you know, those kind of scaling issues, if you have some blips on the radar with customers, you know, create some uncertain impact where you have to kind of wait and recover confidence of your customers.
Speaker Change: We were able to put really good teams of people on the scale issues with the result of really great sales and building up a big implementation backlog.
Speaker Change: and then you have, you know, a little service quality delivery issues, you know, persisted for four or five weeks, but put our teams on it. We feel like the issues have been addressed.
Speaker Change: on this credential stream application. And as you'll hear in a minute, we still delivered the revenue growth on credential stream in the quarter. But again, in
You know, recognizing our experience we've been doing this a long time .
Speaker Change: We know that sometimes those kind of service problems can have a lag effect on your expectations and so we factored a little that into our revised guides but once again I would say that we feel we address the scaling issues.
Speaker Change: that were the result of bringing on so many customers. And we had to kind of reconfigure some of our tech stack to expand, in this case, very technically we took our server groups.
Speaker Change: from a few to almost a dozen, and so we're able to scale to hand the volume and redistribute load and get back to a place where we think we have the stability we need to recover the growth that we were delivering.
Speaker Change: So, you know, when we shifted our full attention to optimization of product performance, it did slow our credential stream implementation efforts. As you can imagine, if you're in the middle of an implementation,
and you have some service timing issues.
Speaker Change: then it delays that pipeline a little bit. So again, with the wisdom of experience, we think it's wise to expect those delays to play out in your revenue recognition a little bit. So again, you can see that in our revised downward guidance.
Speaker Change: But the nature of the problem we think was temporary, and we feel we've resolved it, and we're building the credibility side again with those customers.
Speaker Change: and you know, you don't recognize revenue until the products are fully implemented.
Speaker Change: And so the way those two things worked together had us resulting, we needed to push some of the revenue recognition into the future, maybe into Q1 of next year. And so again, those, those slight adjustments resulted in this revised downward guidance.
Speaker Change: as we think through, and those are factored in, of course, to why we trimmed our guidance expectations a little bit overall.
So our time to revenue was one of the factors.
Speaker Change: Overall, we see a credential stream implementation backlog as representing a strong source of potential revenue acceleration. I mean, again, in an erotic situation, you know, we
Speaker Change: While we did see that delayed person in the medium size bills, we had a really strong closing quarter in the fourth quarter and so we've got this great implementation backlog that we just need to get to to get to revenue and we're working through that of course we we have configured our company in different ways we've assigned new people to try to work into that backlog and so we can deliver revenue off of that really strong backlog of sold deals.
Speaker Change: It's one of our more successful products in our history from my growth perspective, so now we just have to do a better job of managing that growth and getting those customers live, which we'll do. We've been doing this a long time and work through a lot of different temporary challenges, and this is another one that we're going to tackle.
What summarized the...
Speaker Change: I'd like to just kind of take a pause and for people new to HealthStream and these times just kind of give a quick summary of our business structure and the why we think we're well positioned.
Speaker Change: First and foremost, HealthStream is a health care technology company dedicated to developing, credentialing, and scheduling the health care workforce, so we're focused on people in health care.
Speaker Change: And we do that by delivering SaaS-based solutions, each of which are becoming more valuable because the interoperability they're achieving to our emerging HStream technology platform.
of
Speaker Change: Strategic and Tactical and Operational Benefits of the platform as we see every quarter increased interoperability of our core applications which brings that additional benefit to our customers.
Speaker Change: The company holds 20 patents for its innovative products. We see our competitors emulating us and trying to catch up with our vision.
Speaker Change: The company holds these tabs. We've won over 40 Brandon Hall Awards. It's recognized excellence and innovation in the industry.
Speaker Change: And we sell our solutions on a subscription basis under contracted average three to five years.
Speaker Change: and actually that very statement reminds me to think about the ironic dynamic that occurred in Q1 where the three-year deals that were medium-sized are delayed in the pipeline, and yet the five-year, one of the biggest deals in history, did come in and get signed and is in the process of being executed.
Speaker Change: But that nature of three to five year recurring revenue contracts makes our revenues predictable. In fact, 96% of our revenues are subscription-based. As I just mentioned, we've also started to open our sales channels directly healthcare professionals.
and nursing students across the continuum of healthcare training.
Millionth
Speaker Change: and we're solely focused on health care and solely and we work to work towards the mandatory needs and the workforce need which are the trending hot topics is how to be more effective managing, retaining and developing your workforce. And so I think we're well positioned in this kind of environment.
Speaker Change: where the CEOs, these health systems are worried about their labor. They're trying to figure out their best ways to retain and develop their people. And we think increasingly, HealthStream's portfolio solutions is the answer to that question.
Speaker Change: We have about our target market is 12 and a half million healthcare professionals.
Speaker Change: which also now includes the nursing students in the United States and those.
Comprize a court dressable market for our SAF solutions. Is this...
Where health care is delivered?
Speaker Change: is where HealthStream wants to be and that's where these 12 and a half million people are and they can be in skilled nursing facilities, long-term care facilities, acute care facilities, those are the markets that we're going after with these workforce oriented solutions.
Scotty Roberts: Let's take a pause now, turn over to Scotty with the highlights.
Scotty Roberts: You know, we wanted to acknowledge that we did revise our guides downward.
that we thank the causes of that are temporary.
Scotty Roberts: that our vision remains strong, and we had some ironic occurrences in the quarter, winning the biggest deal in our history, but seeing a delay in some of the medium-sized deals. And we're just going to work through all this. We still put out a growth forecast, although revised downward a little bit.
Scotty Roberts: And well, of course, we're going to do everything we can on.
Scotty Roberts: As this quarter unfolds to get it back on track, and there's work hard to see if we can do that, get back on track, and maybe get out of this revised downward guidance. But right now, that's where we sit. Let's turn it over to Scottie Roberts for his summary of financial results.
Scottie Roberts: All right, thank you Bob being good morning everyone. I have several topics to cover today and I'll begin with our financial results for the first quarter. Unless otherwise noted the comparisons will be against the same period of last year.
Scottie Roberts: Our revenues were 73.5 million, they were up 1%, operating income was 4.4 million, it was down 23.1%
Net income was 4.3 million, and it was down 17.1%.
Scottie Roberts: EPS with 14 cents per share, down from 17 cents per share, and adjusted the EBITDA with 16.2 million and was down 5%.
Scottie Roberts: We indicated in our last earnings call that we expected more of our revenue growth for the year will be concentrated in the second half of the year versus the first half. And this was reflected in the 1% growth for the first quarter.
Scottie Roberts: I want to reiterate that our revised revenue forecast is still second half-weighted and is expected to build from quarter to quarter
Scottie Roberts: I also want to call out some items that impacted the first quarter according to expectations.
Scottie Roberts: The first one is a large perpetual license sale of approximately $0.9 million in our legacy scheduling business that occurred in the first quarter of 2024.
Scottie Roberts: We've not actively been selling perpetual licenses for several years, but occasionally an existing customer will purchase an expansion license, which is what happened last year.
Scottie Roberts: Given our focus on selling subscriptions to our SaaS application, shift wizard, as opposed to licenses to our legacy scheduling applications, we did not expect any license revenue in the first quarter of 2025, which was the case.
Scottie Roberts: The second one was caused by a large health care system bankruptcy during the second quarter of last year, which we've talked about on several calls in the past and which was well publicized.
Scottie Roberts: We had approximately 600,000 of revenue from this customer in last year's first quarter and we're not expecting any revenue from this customer this year.
Scottie Roberts: The full year revenue loss is about 1.6 million, and we'll see this variance begin to normalize into the fourth quarter of 2025.
Scottie Roberts: Finally, we also experienced lower revenues from our legacy products and credentialing and scheduling, which resulted in a $1.7 million decline in these products compared to last year.
Scottie Roberts: Attrition in both of these legacy product lines is negatively impacting the revenue growth rate.
Scottie Roberts: We believe our core business and go forward solutions are providing us with a solid foundation to achieve revenue growth and operating leverage.
Scottie Roberts: Now, let me highlight some of the solutions that help fuel our underlying growth, such as the potential strain with 25% growth.
Shift Wizard with 19% growth
and competency suite with 12% growth.
Scottie Roberts: Absent the impact of the legacy products and the customer bankruptcy from the core business, as the core business actually grew over 6%.
Scottie Roberts: Our remaining performance obligations were 613 million as of the end of the first quarter compared to 514 million for the same period of last year.
Scottie Roberts: We expect approximately 40% of the remaining performed obligations will be converted to revenue over the next 12 months and 68% over the next 24 months.
Scottie Roberts: Grace Martin was 65.3% compared to 66.2% in the prior quarter.
Scottie Roberts: Investments that we've made in our platform and SAS application suites resulted in higher labor costs for Cloud Inc.
for Cloud Hosting, Software and Labor.
Scottie Roberts: The changes in our revenue mix, in particular, the loss revenues from legacy applications, including perpetual licenses, and the impact of customer bankruptcies contributed to the change in gross margin.
Operating expenses excluding cost of revenues increased by 2.7%
Scottie Roberts: Sales and marketing were up 3.2%, general and administrative were up 4.3% and depreciation and was up 4.1%.
Scottie Roberts: These increases primarily resulted from higher labor costs associated with additions to staffing levels, higher sales commissions associated with growth and revenues, increased investments in marketing initiatives and higher software expense.
Scottie Roberts: Adjusted EBITDA with 16.2 million and was down 5% and adjusted EBITDA margin was 22% compared to 23.4% last year
Thank you.
Scottie Roberts: Moving on to the balance sheet, we ended the quarter with cash and investment balances of 113.3 million, up from 97.2 million last quarter.
Scottie Roberts: During the first quarter, we deployed 8.8 million for capital expenditures and paid 0.9 million to shareholders through our dividend program.
Scottie Roberts: Day sales outstanding improved to 37 days compared to 46 days last year, marking the third consecutive quarter that DSO was below 40 days
Scottie Roberts: Our cash metrics were strong for the quarter, leading to new records for cash flows from operations and free cash flows.
Scottie Roberts: Our cash flows from operations were 27.1 million compared to 20.9 million in the prior year in increase of 29.3%.
Scottie Roberts: These improvements are a result of growth in buildings over the prior year and improved cash collections.
Scottie Roberts: I would characterize that our balance sheet is strong and it's been my experience that companies with strong balance sheets are positioned.
Scottie Roberts: for long-term success, regardless of the economic environment in which they operate, with 113.3 million of cash and investments.
Scottie Roberts: A track record of generating positive free cash flows and no debt, we remain well positioned to deploy capital to improve shareholder value.
Scottie Roberts: We maintain a disciplined approach to capital allocation and how we prioritize our use of capital.
Scottie Roberts: Our utmost priority is making organic investments back into the business, which is evident by our annual capital expenditure and R&D plans.
Bye.
Scottie Roberts: The second is pursuing acquisition opportunities, which we have a long track record of executing.
Scottie Roberts: The third is returning a portion of profits back to shareholders in the form of cash dividends.
Scottie Roberts: And finally, the fourth priority is that our Board may authorize share repurchase programs which we also have a successful track record of executing.
Scottie Roberts: From an M&A perspective, we maintain an active pipeline and continue to evaluate opportunities that align with our platform and product strategy.
Scottie Roberts: In respect to our dividend program yesterday, our Board of Directors declared a quarterly cash dividend of .031 cents per share to be paid on May 30th to holders of record on May of the 19th. .031 cents per share to be paid on May of the 19th.
Scottie Roberts: We currently do not have an active Sherry Purchase Program in place, though the board continues to evaluate such programs as it deems appropriate.
Thank you.
Scottie Roberts: Now moving over to our financial outlook for the year, yesterday we announced a revision to our previously issued financial expectations.
Scottie Roberts: We now expect consolidated revenues to range between 297.5 and 303.5 million and net income to range between 18.6 million and 21 million.
Scottie Roberts: We now expect adjusted EBITDA to range between 68.5 and 72.5 million. We continue to expect capital expenditures to range between 31 and 34 million.
Scottie Roberts: This guidance does not include assumptions for any acquisitions that we may complete during the year.
Speaker Change: An earlier bobby at London, the key aspects impacting guidance and why we are confident in our ability to grow through them.
Speaker Change: That wraps up my comments for this quarter's call. Thanks for your time this morning and now I'll turn it back over to you Bobby for some additional updates.
Deferred.
Speaker Change: We talked about some delays we saw in the sales pipeline, but the irony of landing on our biggest deals in history, but the net effect of that is a link thing of the average time to revenue, to implement and then to close those sales and so pushing things a little bit out. [inaudible]
Speaker Change: And therefore, we have discussed the revised downward guidance. Although again, I think on the whole, it's a little over a point and a half change in the big picture. You know, we think it's a wise adjustment based on all the things we talked about in the macro conditions.
Speaker Change: That said, I think we should report through our core businesses real quick and talk about what's normal and what we're also excited about.
Scotty Roberts: So let's go through each of scheduling, credentialing, and learning briefly, and talk about some of the developments during Q1. First, we'll talk about shift wizard, which is our core product in scheduling. It continues to deliver strong revenue growth. So, you know, at Scotty, just announce that...
Revenues for ShiftWizard have eclipsed the legacy product and sauce.
Scotty Roberts: and the second quarter of 2024 has continued to be our top performing product in scheduling, so this was a revenues group 19% over the first quarter of last year.
in the first quarter sales for both from competitive takeouts.
Scotty Roberts: Like St. Tammany Parish Hospital and from growth within existing customers like children's Wisconsin and hospital for special care, among others.
This revenue growth was offset.
Scotty Roberts: in the overall scheduling application suite by an unexpected non-renewal of an and-sauce customer, so some continued challenges in the
Speaker Change: Legacy Application Answers, which we've discussed this over many quarters. You know, the good thing about that problem is it does continue, but it is also finite, I mean eventually.
We'll have customers either migrated.
Speaker Change: or they'll choose to stay where they are, or in the worst case, we may lose them to Markle, but either way, it's a finite problem and it's getting smaller as the quarters progress.
So, let's take a look now through the credentialing application suite
Speaker Change: and our primary application, CredentialStream. It also had a productive quarter, despite some of the issues I mentioned earlier, revenues on CredentialStream grew 25% over the first quarter last year. These results included sales from both new customers like BayCare Medical Group and customers expanding like Prisma Health and Duke Medical Center.
Speaker Change: In customers who chose to migrate from our legacy credentialing applications like Ridge View Medical Center and Door County Medical Center, all of which closed in the first quarter.
Speaker Change: So again, just kind of the normal course of business, you see some migrations from legacy applications, some new wins in the market.
Speaker Change: and overall, I'll put up 25% year-over-year growth in the quarter on the credential stream application. And as I mentioned, though, we do have some client recovery to do. We have some performance issues due to scale. And I feel like we've put those behind us, meaning we have good stability, we've expanded our server capacity.
and we're working on that client recovery confidence now.
Speaker Change: As I preview in our prior code, we also hosted our annual credentialing user group conference, which was really fantastic. It was called Drive 25 and we did that at our corporate office and in a hotel in Nashville. It was really an energizing event. The highlight for me was hearing customers talk about how they use credentialStream to reduce the time it takes.
Speaker Change: to get providers, credential pillage, and enrolls in generating revenues to the organization. I mean, if you think of the purpose of the credentialing applications is to keep the bad actors out.
Speaker Change: to grant them the privileges they need to do practice at a hospital. But ultimately, our software should help optimize the timed revenue on these physicians. We should help.
onboard them in an efficient way.
Speaker Change: vetting out the bad ones, of course, that don't meet the criterion and protecting the end consumer by that vetting, credentialing, and privileging process.
Speaker Change: But really, what's important to hospitals is does our software help manage the time from when you hire a doctor to when they can be productive and get them seeing patients and generate revenue. We think the answer to that is yes, and we're working hard to prove that. We think that we can affect.
Speaker Change: Positively, the timed revenue on newly hired physicians by accelerating credentialing
Speaker Change: And so some of that came out in the case studies at our Thrive 25 conference that
Speaker Change: Provider Time to Revenue was a topic and we heard customers share stories about their success.
Using CredentialStream.
Speaker Change: to achieve that outcome of shortening time to revenue opposition. So again, these workforce issues, sometimes you need to talk about how they relate to the economic well-being of the organizations we serve.
In this case, it's getting the right physicians . . .
Speaker Change: Insurderer, Seeing Patients, Productively, and so that their services are billed one. To do that, you have the credential, privilege, and enroll them in insurance programs. And our software, we think, is the best in the market at doing those things.
Speaker Change: So, we think that Cheryl will continue the growth and will work through these temporary issues and deliver continued results and we did see some of that growth that I talked about in Q1.
Speaker Change: That brings us to our learning application suite, and it's a broad suite, it's a market leading suite. We continue to innovate. We talked about those innovations last quarter, and I'm going to highlight a few of them now. One of the unique
Speaker Change: components of our learning application suite. We actually built through acquisition. It's our continuing medical education management programs and these are kind of the secondary programs that are used specifically for hospitals that are credited to develop their own content and issue credits for those contents. We have the best software in the world we think.
It helped in the manner that uniquely healthcare dimension.
to building accredited content, our cloud CME products.
Speaker Change: Sister having a great successful run and think of these as add-on modules of the core learning system.
Speaker Change: and we both did three acquisitions in the space over the years.
But we continue to see really great success
High Renewal Rates [inaudible]
Speaker Change: Adding new customers, but also this module that helps manage continuing medical education.
and a accreditation process at hospitals
Speaker Change: It's kind of one of those unique workflows in healthcare that makes us defensible kind of a moat around our learning business because it's not just an LMS, a learning management system. It's a learning management system that has modules that manages the continuing medical education accreditation process.
Speaker Change: And so we're really excited to see those acquired products be so successful with high renewal rates and it creates that differentiation overall for our learning suite, we call our learning application suite, which you know the foundation of that is our learning management system.
Speaker Change: We added sales for that product set, that module of learning, the continued medical education modules, and we just continue to invest in that area and further integrate it with our core applications and to our platform. So we're just excited that that area, kind of within the learning area. [inaudible]
Speaker Change: That area is both unique for us and uniquely successful right now in the market, so we're proud of the teams delivering those results.
Speaker Change: Let's talk a little bit about some of the newer solutions in learning, the Insights Plus, which is our new reporting and analyze capability. It's based.
Speaker Change: on our platform technologies. We've seen it continue to grow. It now has over 74 water views across 515 organizations.
those in the growth of insights plots.
Speaker Change: and expanding and we're experiencing good sales loss on Insights Plus, which is kind of an analytic suite in learning. It kind of gets that learning efficacy, something that you need to measure. You've got to invest in learning. You want to understand it's return on investment and Insights Plus.
Speaker Change: We think is the best in the industry in helping health systems understand their return on investment in learning and so it's great to see a new platform based data centric reporting an analytics tool set be selling well as an add on module to the learning application suites. [inaudible]
Speaker Change: I think, you know, now the time to shift recognition as we wrap up this call to some long serving and some relatively new members of leadership, particularly on our Board of Directors.
Speaker Change: We have been fortunate to have an outstanding board members, but today I want to highlight and thank one of them in particular After 27 years of service as a board member, Dr. Williams said
is choosing to not stand for re-election this year.
Speaker Change: We were excited to pull out that when he joined our board.
27 years ago. We had 41 employees.
Speaker Change: and 1.4 million annualized revenue. And so Dr. Stead has been on our board, overseeing the creation of a company that generates...
Speaker Change: Nearly 300 million in revenue, that's what we expect this year now.
Speaker Change: and Employees 1100 people. We're proud of his strategic contributions over the years.
Speaker Change: He's also handing us off in a really good position, because he waited till we found.
Speaker Change: essentially his replacement on the board, and so in addition to congratulating Dr. Stead, we want to welcome
Speaker Change: Our new board member, Mr. Charles Beard Jr., who joined our board of directors, is now a member of our audit committee.
Speaker Change: He serves on the Board of Directors of Prestel Monte. He serves on the Board of Directors, importantly, an OVA Health System. And so we're really excited he brings this really incredible background in technology. Thank you very much.
Governance.
Speaker Change: Security, and of course, healthcare expertise. So fantastic new ad with Charles Beard as we look for your vote to support him and join our board of directors here. He's active on the board now and I think that'll be affirmed here in the upcoming election, he's standing for election of this year's annual shadow meeting.
Speaker Change: So we're delighted to have Charles join the board and we're grateful for Dr. Bill Stead's contribution over the years guiding us strategically and tactically we couldn't be more proud of his contribution so thank you Dr. Stead and welcome Charles.
Speaker Change: As we wrap up, you know, I just want to kind of think through in times like this with so much uncertainty, just in general, I think it's really good to find a management team that knows who they are, knows where they're going, understand the [inaudible]
the environment they're operating on.
Speaker Change: and makes adjustments to that environment. And so our downward reflection here in our guidance is part of that.
Speaker Change: Again, we'll do everything we can to make that not come true.
Speaker Change: But we think that was the wisest thing to do. We think we achieve value by the way we approach our customers, focus on their core asset, their people.
Speaker Change: And in particular, we think it's a good time for bundling value that addresses real economic or mandatory requirements of these organizations. And you see that in our competency suite, we hope to emulate that strategy in other areas with bundling value to get more velocity in sales.
Speaker Change: So, if you're already a shareholder, we look forward to and we're inviting you to our annual shareholder meeting.
It takes place virtually Thursday, May 29th at 2 p.m.
notifications
Speaker Change: of the meeting and access to the proxy statement, 10K, and show the letter was sent out on April 14th.
Speaker Change: So we encourage you to vote your shares and participate in the future of our company. And if you're not a shareholder, we welcome you on the journey, times like this, warrant companies with strong balance sheets that build strong products.
Speaker Change: and navigate the challenges they face directly and take them on. And ultimately, of course, as we've done for nearly 35 years, we'll overcome these and get to the next growth plateau for the company, the next growth plane. Thank you for listening today. We'll now turn it over to questions from our analyst community.
Speaker Change: Thank you, sir. The question and the session will begin at this time. To ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from Matt Hewitt of Craig Haleum, Capital Group. Your line is now open.
Matt Hewitt: Good morning, and thank you for taking the questions. I apologize in advance if this has been answered I haven't happened between a couple calls, but maybe first up, you noted in the press release that you're seeing a little bit of hesitancy by customers to purchase, you know...
If you look at your portfolio of across the board,
Matt Hewitt: How much of your portfolio would you quantify or qualify as being required or government mandated versus elective? I assume it's over 50%, it falls into the prior bucket that mandated versus and required. Is that a safe assessment?
Matt Hewitt: We do. We think the majority of our products are tied to some kind of theme of requirement. They're not always legal requirements, but I'll give you two examples.
and some are requirements.
Matt Hewitt: but some requirements to achieve certain quality standards. So for example credentialing is a requirement to maintain accreditation and you need to be in accredited hospital to be a credible hospital
Matt Hewitt: And so the credentialing process is mandatory, of course our product is not mandatory but the credentialing process and privileging process
Matt Hewitt: It's an essential part of operation. So broadly speaking, we're meeting a need that is considered mandatory. Another one that's not quite legislative but is one of our top products from a revenue generation standpoint will be our resuscitation suite.
Matt Hewitt: And so, again, while it's not a legal requirement to train your staff on accreditation, I don't think you could achieve accreditation. In fact,
Matt Hewitt: It's become essentially a gold standard. I don't think you can get a job at a hospital as a position or a nurse.
without...
Matt Hewitt: having demonstrated confidence in resuscitation, and the demonstration commences achieved through a couple of different programs in industry that are the most high-quality programs, and of course, one of them is the American Red Cross, the one that we represent to the market most vocally.
Matt Hewitt: And so, while, again, it's not a mandatory, it kind of has become a gold standard and I really don't think you can get a job without flashing a current credential in resuscitation skills and confidence. So, and that being one of our largest single revenue lines.
within our content-selling universe, so probably our biggest.
Singular Product Across
Matt Hewitt: The content selling we do is that resuscitation product and it is mandatory. Of course, we have the market leading content product set, we call them safety queue and comply queue that help meet OSHA federal safety standards, so that's another example of requirement.
Matt Hewitt: and we have another bundle in our Jane products that delivers continuing education that are required by more than half of states for licensure maintenance.
Matt Hewitt: and so you can see any four that I've given.
Matt Hewitt: that there is an element of requirement. And then, of course, thematically everything we're doing is related to the workforce.
Matt Hewitt: which I think is the single biggest cost item on the on the
Income Statements for our customers.
and Managing Them Effectively Is A Priority. So...
Matt Hewitt: I think we're well aligned, you know, you can't say that 100% of our products are mandatory.
Matt Hewitt: But kind of categorically, the space we operate in has a high set of requirements, state, as we mentioned, state licensure, federal, like OSHA, accreditation requirements, like to be accredited.
Matt Hewitt: We talked about the cloud CME products which helps maintain ACCME accreditation and so these standards that are propagated in the industry, our products help meet them. So I don't know, definitely the majority.
Matt Hewitt: Probably, I would say, 80 or 90 percent are tied thematically to forms of requirement, like we talked about, and then a meaningful number, like the OSHA libraries. It is a requirement to do annual OSHA safety training. That's a kind of a federal requirement in these clinical settings. So...
Matt Hewitt: I think a strong mix, certainly the majority, and you can almost draw a line to forms of requirement for almost all of our products. We did bring up one that was clearly optional, and also now...
kind of a-
Matt Hewitt: Under a lot of scrutiny is diversity equity inclusion programs as you can probably imagine are not the hottest topic now in health care. And so our health equity and belonging solutions that we have seen a drop off and you can probably directly attribute that to the political environment.
Matt Hewitt: and so clearly not required, in some ways there's probably a movement against that kind of elective content and we have seen a drop-off in it. So that's a quick scan of the nature of the products we sell.
Speaker Change: That's incredibly helpful, Bobby. Thank you. And then maybe just to follow up and I apologize if I miss this, but regarding the noted the largest or one of the largest contracts in your history.
Speaker Change: What all was added? That's obviously an opportunity to cross sell and upsell and what else was included if in fact that was renewal. Yeah, no, in great news and I probably can't move out of it and say this.
Speaker Change: That was new business and so this was a big health system where we didn't really have a footprint.
Speaker Change: And of course, our learning system is infrastructure for the competency suite. And so effectively, with this bundle, tens of thousands of their employees are now going to be using our learning system. But the central theme was our competency suite, which is a bundle of a lot of products that focus on developing clinical staff competence.
Speaker Change: and they found it being exactly the right time. Effectively though, because of the way we bundled there be displacing half a dozen competitors that have, you know, this product or that product, but we put it together as a suite.
Speaker Change: And so, again, a highly effective bundling of products to create good share and it does represent an exciting new customer to HealthStream and through kind of coming through slightly different door than would be traditional like leading with a primary software cell like learning we sold the competency suite with learning bundled into it.
Speaker Change: Congratulations on that and thank you very much for taking the questions.
Speaker Change: Some of what related to your question, now let's add a little color because we did talk about a handful of deals I think there's about five that we considered important deals that were medium sized and shorter terms to revenue did push Well, but the nice thing about those five and so they're kind of a bill whether we're going to watch them this quarter and hope they hope and expect they come in.
Speaker Change: But right off the front end, and we talked about whether to mandatory or not was a very large pending win in resuscitation.
Speaker Change: and where a health system is a good size is we believe in contracting, or we know they're in contracting phase.
Speaker Change: to switch their vendor to American Red Cross. And so of the five yields, we hope that that is the first one to resolve itself and come in.
and so we'll watch these five deals to see if...
Speaker Change: that these are related to macroeconomic conditions, these delays where we pushed out of Q1 and Q2. But it also comes to that theme is that we believe that by switching,
Speaker Change: That institution will save money, so our program is, we believe, both stronger clinically and
and less expensive.
operationally, and so there is a good incentive.
for them to sign that deal and execute on it, so...
Speaker Change: Building on the team that we were just asked by Craig Hallum.
Speaker Change: Matthew Hewitt, one of these five bills has that kind of feel of compliance, but it also spoke on the workforce, and it also we think will save money for the hospital, so the message is well timed as well, so we'll see what happens in the report on that next
Sounds like a plan. All right. Thank you
Thank you. Our next question.
Speaker Change: Comes from John Penny of Canacor, Genuity, Your Line is Alopen
Speaker Change: You know, what do you expect the timeline is for that, you know, just sort of run off?
Speaker Change: Yeah, fair enough. There's definitely a category on our tracking sheet of legacy products,
Speaker Change: Morrisian Health Fund, and by definition, when we say legacy, we mean they're supported products, so we're still adding features and capabilities, although not quite as fast to pace as a growth product.
Speaker Change: or a mature product in our classification system. So, legacy means they're still expected to generate revenue. However, we're not selling any new ones, except we note occasional exceptions when a customer that is on a legacy product expands, we will accommodate the expansion by selling them more of the legacy.
Speaker Change: But in general, our sales teams, over 200 people, are not selling legacy products, so obviously, we do not expect growth from legacy products.
Speaker Change: And in fact, as you pointed out, there are kind of three outcomes for legacy products. And they're the biggest ones, or ANSOS, which we talked about a lot, Morrissey and Health Line. And I want, for the customers to hear, those are supported products.
What do we do? Quarterly releases of enhancements.
Speaker Change: and so then that points out some of the complexity in talking about this.
Speaker Change: As they exist they are great customers and some of these products are beloved products, meaning they like their legacy products.
Speaker Change: and they're both supported and we're passing them and fixing them and making them better.
Speaker Change: Not at the same rate as the end product, the SaaS products like Credential Stream and Ship
Speaker Change: But the some of the difficulty in reporting around this is there's kind of three outcomes for legacy product and and maybe this changes someday but the first is the customers can choose to stay where they are in which case you know we expect to service them generate some profits and EBITDA from that customer.
Speaker Change: And so, in this bucket of legacy, they're, until we decide to, and we have not decided this to sunset those products [inaudible]
Speaker Change: There is a logical outcome that many years from now, many of these customers could be still on that product.
Speaker Change: And if they're on that, they're not doing the two other options, which is
Speaker Change: is a migrate to one of the SaaS applications. And so we're encouraging but not requiring those migrations. And of course, that's a great outcome. If we can get them to migrate, we think at this point,
Speaker Change: They get a better product, we get a slight lift in revenue because the better products more robust has more modules and more capabilities and so migrating customers is a course our goal and we have a team of people working on migration.
Speaker Change: But that conversion rate has gone up and down, some choose to stay where they are and so we don't have a clear objective of migration. And of course the third thing that happened is the worst thing is we could lose that customer, they don't migrate and they don't stay but they go in the market and buy something else.
Speaker Change: And so some of these lost the COS report are that where we lose the account. We can either keep them where they are or migrate them and because there's three outcomes
Speaker Change: It's a little harder to tell what our expectations are because...
Speaker Change: You know, it kind of has an order of operations like math where our first preference is they migrate to our SAS application. Our second preference is they stay happy customers of their beloved legacy application. Our third option is the worst is they decide they don't want either of those and we lose them to the market. [inaudible]
Speaker Change: So, we can report on the losses as we did this quarter across these legacy applications. I think there's about 1.7 million. Maybe Scottie can verify that number.
Speaker Change: But we can't say the desired outcome or time frame because, you know, again, we could be four years from now and still have a nice profitable business on legacy applications.
So, you know,
Speaker Change: I guess you could say there could be an internal debate each year about whether we should change the status of these legacy products to the category we call Sunset.
Speaker Change: And once we're in a sunset mode, we notify customers of some end date, usually a year or two out, where we'll stop support, and then it forces the decision to either migrate or leave.
Speaker Change: And we have not done that, and so it does give us a little bit of a challenge.
Speaker Change: to talk about this issue because with three variables you can't really say exactly where everything's going to land.
Speaker Change: And, again, two of the three options are good. Like if they stay happy legacy customers, that's fine. They're, you know, they're profitable and we service them well and they like their product. If they migrate, they're probably more profitable.
and we can sell them more modules, they have more capabilities and so our goal is to build
Shift Wizard.
and CredentialStream to a place where it's [inaudible]
to self-evident that it's both the best market decision.
Speaker Change: and the best opportunity to enhance their business, improve their outcomes, go ahead and make that migration decision. And we have dozens of successful migrations, of course, every that we've reported on and every quarter, there are some migrations.
Speaker Change: We report on the losses but we have not quantified the total value of the legacy products because we don't want to give away the competitive information about what you know where people target and so we just haven't been able to put numbers forth but we do of course talk about our losses.
Speaker Change: which we think is the material an important part. I did point out it's a finite problem. I mean, we are not selling new legacy customers and so there's really
Speaker Change: These three options exist, but so that's as much color as I can give. We will report our losses as they occur, but the way you characterize the remainder is they're either staying where they are or they're migrating and both of those are good outcomes for the company.
Speaker Change: You saw in the quarter the 25% growth of their debt stream some of that and I named by account some of migrating customers plus the newly acquired customers delivered that growth
Speaker Change: Yeah, I guess my concern is that, you know, you're seeing really good growth in those newer products, like you just said, but
Speaker Change: One of the attractiveness of the newer products and the core learning management system is a platform play.
Speaker Change: You know, you have good visibility and then with this legacy it just reduces the visibility or how do you think about visibility?
Speaker Change: Yeah, it does create obviously a confusion at lower overall, blended growth rate when we have those losses.
Speaker Change: We did report, you know, 6% if you factor out those, so we gave a little visibility and the kind of the organic growth of each of the three core go forward applications. We have reported that in all cases that go forward applications are larger in scope size and revenue than the legacy applications. So you know that we're, you know, the legacy business are not bigger than that we have.
Speaker Change: the GoFord. And, you know, it's our hope that this is the year the platform so the ability to demonstrate the value of interoperability will be even a more compelling reason.
Speaker Change: to choose to migrate. And so we're working hard on making that reality, particularly in the second half of the year where we expect.
Speaker Change: things like feature parity of all these systems with the go-forward applications that feature the exceed and features actually the capabilities of legacy platforms. So we're getting closer Richard at a time.
Speaker Change: where we could make the decision to quantify it and essentially force the decision by reclassing the products as sunset products. Since we haven't done that, it makes guidance on a little confusing.
Speaker Change: and I apologize for that, but I think it's still the right decision because...
Speaker Change: We love our legacy applications. Some customers love them and staying on them is just fine with us until it's so compelling that they move to the full suite.
Speaker Change: The suite of suites. There should be so much benefit to learning, credentialing, and scheduling that you buy them together someday, and that's our goal as we end up the second half this year and next year.
Speaker Change: I'm sorry that it's vague, we will talk about the losses so you can see the offset. We have talked about the organic growth rates of the newer products, which are really exciting levels. Credential Stream is 25%.
and we'll quantify the losses and we also, this quarter,
Speaker Change: We bundled up the legacy products and told the organic growth rate factoring out those legacy products, non-reduals. And so, I think we're trying to give as much color as we can, but I think until we declare them sunset, it'll be hard to give a time frame.
and so I guess I'll just apologize for that part.
Speaker Change: Yeah, I appreciate that, but I still think it's the right business and so I kind of apologize for the optics.
Speaker Change: If you dig in deep enough, you can see the growth rates of the exciting GoFour products. I think also every quarter...
Speaker Change: The legacy problem gets smaller and it gets smaller relative to the success of the other product. So, you know, in the next several quarters it just continues to be a shrinking problem even in forecasting because you know relative to our other growth. [inaudible]
Speaker Change: The category is never going to get bigger and everything else has grown so eventually it overtakes itself.
I appreciate that. Thank you.
Thank you.
Our next question comes from Vincent.
Speaker Change: We always have we think good pricing and I think Vince we're getting better at what I would call bundling I mean we're realizing that our portfolio is really nice and broad [inaudible] I would call bundling I would call bundling I would call bundling
Speaker Change: and that, you know, set a selling content against conflict content providers.
Speaker Change: Selling content plus applications plus the secondary application and bundling is a better strategy. We see that for the competency suite
Speaker Change: We'll emulate that more. And so that allows us to get more breath and penetration and adoption and more competitive displacement and displacing competitors by bundling. And so I feel good about our pricing. Another thing related to pricing is
in the last really 18 months.
Speaker Change: We've been able to make it a normal due course process to add contract escalators in renewals.
Speaker Change: and so another element of pricing and as a change for our company is to include pricing escalators. They're not quite CPI level, we target three to five on annual price escalators on our products. And so all three of our core products.
Speaker Change: All the contracts we've been signing on now, all of them, and we staged it. We first released escalators in learning about a year ago, we released escalators in credentialing and now in scheduling. So all three primary products as a really a couple of months ago, all contracts go out with pricing escalators.
Speaker Change: software vendors in healthcare and maybe cost industries already had price escalators, so adding those has helped us. So another part of our future growth is it's a little bit of built-in, you know, inflationary offset with small pricing escalators built into our contracts.
Speaker Change: And I know you're looking to get more active in the acquisition market. Are you seeing any impact from the economic uncertainty and valuations?
Speaker Change: I'm not sure of that yet. I would say this. In the last quarter or two, we did bid on a couple of deals. We were not that prevailing bitter. We have a management team that is willing to pay a nice sum for a good business that we think fits.
Speaker Change: But not a ridiculous sum. And so I don't know if that's a dynamic. We think things are still overpriced, but we did make a couple of bids that were not successful.
Speaker Change: and didn't chase them. And so we are seeing more deal flow, we're getting more books to look at, and we find a management team that wants to be a part of HealthStream, that wants to be a part of our growth story, that is, you know, a nice premium. We want those owners to do well. They built good companies.
Speaker Change: But we're not going to chase things. There's just too much still cash on the sidelines and too much chasing. I think
Speaker Change: You know, some of our competitors did that for a while and paid, you know, really high moldables and that's sitting on a lot of debt and we're debt free with 113 million cash with the strongest pre-cashable generation in our history in the last quarter.
Speaker Change: And so, yeah, we're going to be active, but we're still the same, you know, somewhat conservative manager team, so we have to hunt a little longer to find deals that we think both fits strategically.
Speaker Change: Concervative Approach says we haven't done successful in two of the competitions, but more to come or we're TNF lots of opportunities and we'll find the right ones here in the coming quarters.
Thank you, Bobby.
Thank you.
Speaker Change: I am showing no further questions at this time. I would now like to turn it back to Robert Frist for closing remarks.
Speaker Change: Thank you to all of our health streamers. Welcome to our new Board Member Charles Bill. Thank you to Bill Stead for his 27 years of service and excellent strategic guidance.
Speaker Change: 1100 employees working hard in one boat rowing in the same direction.
Speaker Change: through troubled waters. We're going to get there. So thank you to those. And then, Sheryl, if you're thinking about investing...
You know, I think sometimes [inaudible]
Speaker Change: in tough economic times, you know, finding a good, consistent management team in those where they're going and what they're building is a good bet. And so maybe, maybe these times present investing opportunities for those of you that think, HealthStream is one of those which I do believe myself.
Speaker Change: So, thank you all. See you on the next earnings call and we'll keep our tins up and keep making incremental progress. Thank you.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.