HealthStream - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 was mixed: revenue grew 1.0% to $73.5M, but EPS fell to $0.14 and adjusted EBITDA declined 5%; management trimmed full‑year guidance on macro headwinds and CredentialStream scaling issues now addressed.
• Results missed Wall Street consensus: EPS $0.14 vs $0.17*, revenue $73.5M vs $74.9M*, and adjusted EBITDA $16.2M vs $17.2M*; headwinds included legacy product attrition (-$1.7M), prior-year perpetual license compare (-$0.9M), and customer bankruptcy impacts (-$0.6M).
• Strategic positives: signed one of the largest deals in company history (~$14M, 5-year competency suite bundle), strong RPO ($613M; 40% next 12 months), record cash from operations ($27.1M), and DSO improved to 37 days.
• Capital return and catalysts: dividend raised to $0.031/share; new $25M share repurchase program authorized May 8, 2025, providing buyback capacity as guidance resets.

What Went Well and What Went Wrong

What Went Well

• Closed one of the largest contracts in company history (~$14M over 5 years) anchored by the Competency suite, displacing multiple competitors; bookings exceeded internal expectations despite timing delays elsewhere.
• Strong product momentum: CredentialStream revenue +25% YoY, ShiftWizard +19% YoY, Competency suite +12% YoY; core business ex-legacy and bankruptcy grew >6%.
• Execution on cash metrics: RPO reached $613M (40% converting in 12 months, 68% in 24 months), DSO improved to 37 days, CFO highlighted record cash flow from operations ($27.1M) and free cash flow ($18.2M).

What Went Wrong

• CredentialStream scaling/performance issues caused implementation delays and slower time to revenue recognition; guidance trimmed to reflect timing lag and client confidence recovery needs (issues now addressed).
• Macro pressure on elective content (e.g., health equity/belonging) plus funding challenges at FQHCs and academic institutions drove hesitancy and deal pushouts (4–5 medium-sized deals slipped from Q1 to Q2).
• Legacy runoff and tough prior-year compares: -$1.7M from legacy credentialing/scheduling attrition, -$0.9M from 2024 perpetual license sale not repeating, and -$0.6M from a bankrupt customer pressured revenue/margins; gross margin fell to 65.3% (vs 66.2% LY) and adjusted EBITDA margin to 22% (vs 23.4%).

Transcript

Operator (participant)

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 questions and answers after the presentation. I will now turn the conference over to Mollie Condra, Head of Investor Relations and Communications. Please go ahead, Ms. Condra.

Mollie Condra (VP - Investor Relations and Communications)

Thank you. Good morning, and thank you for joining us today to discuss our first quarter 2025 results. Also, on the conference call with me today is Robert A. Frist Jr., CEO and Chairman of HealthStream, and Scotty Roberts, CFO and Senior Vice President of Finance and Accounting. I would also like to remind you that this conference call may contain forward-looking statements regarding future events and the future performance of HealthStream that involve risk and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements. Information concerning these risks and other factors that could cause the results to differ materially from those forward-looking statements are contained in the company's filings with the SEC, including Forms 10-K, 10-Q, and our earnings release. Additionally, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure.

A table providing supplemental information 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. With that started, I'll now turn the call over to CEO Robert Frist.

Robert A Frist Jr (CEO and Chairman)

Thank you, Mollie. Good morning, everyone. Welcome to our first quarter 2025 earnings call. There is certainly a lot to talk about here on the call for the quarter. 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. First is I want to talk a little bit about the company's strengths. 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, its customer base during these times, is the kind of company that people should want to invest in. I want to talk a little bit about those strengths and our growth trajectory.

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, that have resulted in us trimming our guidance, our in-your-guidance a little bit. We're going to talk about both those things in detail. It's an interesting period of kind of irony, but probably opportunity. We're going to talk through that a little bit. You know, I've seen a lot of cycles in healthcare, and I can tell you why HealthStream generates growth and profitability throughout those cycles being doing this quite a long time. The experience of our team that knows how to bundle and create value for customers in times of uncertainty, it's really a good time to rise and shine.

The value of our core application suites in learning, credentialing, and scheduling, as well as our emerging HStream platform, they get demonstrably better every quarter. 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. That is also why we're forecasting both revenue and EBITDA growth on a year-over-year basis, even amid some of the macroeconomic choppiness and recently addressed issues of technology scale with one of our products, CredentialStream. Let's talk a little bit about the macroeconomic headwinds. We are seeing them manifest in a couple of areas.

In some areas, we have direct correlation where we can say, you know, that's a challenge. In others, they're less direct, maybe indirect, but maybe anticipated is more an intelligent way to talk about the macroeconomic conditions that concerns that we may have that we need to factor into how we think about the next, you know, three or four quarters. You know, funding cuts, for example, particularly to federally qualified health centers, FQHCs, and academic medical institutions seem to be impacting renewal decisions on a nice-to-have content, you know, on the nice-to-have content. You know, 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, you know, last year, which is really not on a growth trajectory this year.

As we entered the year with the Health Equity and Belonging curriculum, you know, we have seen diminishing purchasing patterns of that. That may also have to do with kind of the political correctness of the environment 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 in our many content offerings. 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 I just gave. Supporting this belief, we saw a handful of medium-sized deals that are expected to close in Q1 pushed to Q2. You know, we're watching those very closely to determine, you know, why we think there might be a delay in closing those medium-sized deals.

We do expect still those particular sales to close. They're all still in the pipeline. We're all still in active dialogue with customers. There are nice, we would call them medium-sized, kind of the $1-$3 million deals or even bigger, $2-$4 million deals. We think they're all viable deals, and they're all going to close here in Q2. We're going to have to watch it really closely to see the timing of the close, because timing and delays have an impact about how we think about revenue in the year. We do expect them to close, but the fact that they haven't closed and they didn't close in Q1 is just something we have to watch. You know, it's good news that many of those solutions help meet mandatory requirements.

I did give the example of the Health Equity and Belonging content libraries, which are a little more optional. A lot of these are focused on their primary asset, their people, and their primary expense category, and, you know, developing their people to be more effective, retaining their people so they have lower turnover. It's good news that many of these solutions are focused on these mandatory requirements, and they help organizations optimize their expense and their around labor and their labor, their workforce. I think being workforce-focused in a time of economic uncertainty is a good thing to be. I think a management team that understands that environment and tweaks its programs to align with those messages will be in a stronger position.

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. There's some irony to that, to have such a strong pipeline, but see little delays that may affect the in-year revenue recognition. 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. It's a $14 million deal where we bundled a tremendous value proposition for a large, one of the country's larger health systems. It included some of our key products, like our new Competency Suite, which we've talked about in prior calls.

It just does demonstrate that when you meet the need with this concept here of helping develop the competence, cross-training people for other roles, you help retain the workforce with these development programs, that you can close deals. Again, a little bit of irony in the fact that we had a handful, I'd say about four deals that we would call these medium-sized deals push. Yet one of the largest deals in our history closed during the first quarter, a $14 million deal to a large health system, including our newer product bundles around competency development. We're really excited about that.

Amid this market turbulence, it is our diverse product offering and the nature of that offering, meaning it meets mandatory needs, and the fact that this major sale did close gives us that confidence to deliver growth on the year, despite, you know, some of these early indicators, like some of the elective content purchasing may be dropping off. Overall, we still feel really well positioned, but some revenue may be pushed into the next year. It's just this quarter, as we reflect on it, there's a lot of these kind of mixed blessings. We've experienced a couple of those in other areas of operations, and we're going to talk about those too. Impacting our in-year outlook, you know, these mixed blessings, they stem from recent success in closing larger deals with larger and longer contract terms than our three-year average.

The result of that is that we secure a greater contract order value, but we spread it over more time. As you heard in the story I just told, these four deals that were kind of medium-sized and shorter-run recognition pushed, they have not closed yet, but we think they will. Yet we land this really big deal. It is a five-year deal. It spreads the revenue a little longer. It is a great reason for optimism. Of course, we would rather close large deals that are over a longer period of time, and we just have to work that middle market and get those medium-sized deals that are shorter-run revenue recognition closed in this quarter. That would represent a delay from our expectations. The overall size of that deal put us well over our Q1 bookings expectations.

If you asked our internal team how we did, we would say that our contract order value in sales for the quarter exceeded our total expectation. The average time, the revenue, and the time over which that value is spread is stretched. Again, it's kind of this weird thing of a 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. 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 CredentialStream, which we do feel we've quickly addressed.

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. 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. You have, you know, little service quality delivery issues that, you know, persisted for four or five weeks, but put our teams on it. We feel like the issues have been addressed on this CredentialStream application. As you'll hear in a minute, we still delivered the revenue growth on CredentialStream in the quarter. Again, in recognizing our experience, we've been doing this a long time.

We know that sometimes those kind of service problems can have a lag effect on your expectations. We factored a little of that into our revised guidance. Once again, I would say that we feel we've addressed the scaling issues that were the result of bringing on so many customers. We had to kind of reconfigure some of our tech stack to expand. In this case, very technically, we took our server groups from a few to almost a dozen. We were able to scale to handle volume and redistribute load and get back to a place where we think we have the stability we need to cover the growth that we were delivering. You know, when we shifted our full attention to optimization of product performance, it did slow our CredentialStream implementation efforts.

As you can imagine, if you're in the middle of an implementation and you have some service timing issues, then it delays that pipeline a little bit. 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. You can see that in our revised downward guidance. The nature of the problem, we think, was temporary, and we feel we've resolved it and we're on the, you know, building the credibility side again with those customers. That shift in focus did have the effect of slower time to revenue. You know, you don't recognize revenue until the products are fully implemented.

The way those two things worked together had us resulting that we needed to push some of the revenue recognition into the future, maybe into Q1 of next year. Again, those slight adjustments resulted in this revised downward guidance. As we think through, you know, those, and those are factored in, of course, to, you know, why we trimmed our guidance expectations a little bit kind of overall. Slower time to revenue was one of the factors. Overall, we see a CredentialStream implementation backlog as representing a strong source of potential revenue acceleration. I mean, again, in an ironic situation, you know, while we did see that delayed purchasing of the medium-sized deals, we had a really strong closing quarter in the fourth quarter. We have this great implementation backlog that we just need to get to, to get to revenue.

We're working through that. Of course, we have configured our company in different ways. We've assigned new people to try to work into that backlog so we can deliver revenue off of that really strong backlog of sold deals. It's one of our more successful products in our history from a growth perspective. Now we just have to do a better job of managing that growth and getting those customers live, which we'll do. You know, we've been doing this a long time and worked through a lot of different temporary challenges. This is another one that we're going to tackle. Let's summarize. I'd like to just kind of take a pause. For people new to HealthStream in these times, just kind of give a quick summary of our business structure and why we think we're well positioned.

First and foremost, HealthStream is a healthcare technology company dedicated to developing, credentialing, and scheduling the healthcare workforce. So we're focused on people in healthcare. And we do that by delivering SaaS-based solutions, each of which are becoming more valuable because of the interoperability they're achieving through our emerging HStream technology platform. As you know, we've been talking about this for a long time, but we've declared this is the year of the platform. And what we mean by that is it's the emergence of 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. The company holds 20 patents for its innovative products. You know, we see our competitors emulating us and trying to catch up with our vision. The company holds these patents.

We've won over 40 Brandon Hall Awards, which recognize excellence and innovation in the industry. We sell our solutions on a subscription basis under contract that averages three to five years. Actually, that very statement reminds me to think about that ironic dynamic that occurred in Q1, where the three-year deals that were medium-sized are delayed in the pipeline. 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. 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 to healthcare professionals and nursing students across the continuum of healthcare training. We are profitable. We have no interest-bearing debt. We have a strong cash balance of $113 million.

We're solely focused on healthcare and solely, and we work to work towards the mandatory needs and the workforce needs, which are the trending hot topics, is how to be more effective managing, retaining, and developing your workforce. I think we're well positioned in this kind of environment where the CEOs of these health systems are worried about their labor. They're trying to figure out their best ways to retain and develop their people. We think increasingly HealthStream's portfolio of solutions is the answer to that question. We have about our target market is 12.5 million healthcare professionals, which also now includes the nursing students in the United States. Those comprise the core addressable market for our SaaS solutions. Is this where healthcare is delivered is where HealthStream wants to be. That's where these 12.5 million people are.

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. Let's take a pause now. Turn it over to Scotty. We'll hit the highlights. You know, we want to, I wanted to acknowledge that we did revise our guidance downward, that we think the causes of that are temporary, that our vision remains strong. 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. We're just going to work through all this. We still put out a growth forecast, although revised downward a little bit. Of course, we're going to do everything we can as this quarter unfolds to get it back on track.

There's, you know, we'll work hard to see if we can do that, get back on track, and maybe get out of this revised downward guidance. Right now, that's where we sit. Let's turn it over to Scotty Roberts for his summary of financial results.

Scotty Roberts (CFO and SVP of Finance and Accounting)

All right. Thank you, Robby. 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. Our revenues were $73.5 million. They were up 1%. Operating income was $4.4 million, and it was down 23.1%. Net income was $4.3 million, and it was down 17.1%. EPS was $0.14 per share, down from $0.17 per share. Adjusted EBITDA was $16.2 million and was down 5%. 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. This was reflected in the 1% growth for the first quarter.

I want to reiterate that our revised revenue forecast is still second half weighted and is expected to build from quarter to quarter. I also want to call out some items that impacted the first quarter according to expectations. 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. 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. 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 2024, which was the case.

The second one was caused by a large healthcare 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. 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. 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. Finally, we also experienced lower revenues from our legacy products in credentialing and scheduling, which resulted in a $1.7 million decline in these products compared to last year. Attrition in both of these legacy product lines is negatively impacting the revenue growth rate. We believe our core business and go-forward solutions are providing us with a solid foundation to achieve revenue growth and operating leverage.

Now let me highlight some of the solutions that help fuel our underlying growth, such as CredentialStream with 25% growth, Shift Wizard with 19% growth, and Competency Suite with 12% growth. Absent the impact of the legacy products and the customer bankruptcy from the core business, the core business actually grew over 6%. 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. We expect approximately 40% of the remaining performance obligations will be converted to revenue over the next 12 months and 68% over the next 24 months. Gross margin was 65.3% compared to 66.2% in the prior year quarter. Investments that we've made in our platform and SaaS application suites resulted in higher labor costs for cloud hosting software and labor.

The changes in our revenue mix, in particular, the lost 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%. Sales and marketing were up 3.2%. General and administrative were up 4.3%. Depreciation and amortization was up 4.1%. These increases primarily resulted from higher labor costs associated with additions to staffing levels, higher sales commissions associated with growth in revenues, increased investments in marketing initiatives, and higher software expense. Adjusted EBITDA was $16.2 million and was down 5%. Adjusted EBITDA margin was 22% compared to 23.4% last year. Now 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.

During the first quarter, we deployed $8.8 million for capital expenditures and paid $0.9 million to shareholders through our dividend program. Days sales outstanding improved to 37 days compared to 46 days last year, marking the third consecutive quarter that DSO was below 40 days. Our cash metrics were strong for the quarter, leading to new records for cash flows from operations and free cash flows. Our cash flows from operations were $27.1 million compared to $20.9 million in the prior year, an increase of 29.3%. Free cash flows improved by $5 million, or 38.3%, and were $18.2 million compared to $13.2 million last year. These improvements are a result of growth in billings over the prior year and improved cash collections.

I would characterize that our balance sheet is strong, and it's been my experience that companies with strong balance sheets are positioned for long-term success regardless of the economic environment in which they operate. With $113.3 million of cash and investments, a track record of generating positive free cash flows and no debt, we remain well positioned to deploy capital to improve shareholder value. We maintain a disciplined approach to capital allocation and how we prioritize our use of capital. Our utmost priority is making organic investments back into the business, which is evident by our annual capital expenditure and R&D plans. The second is pursuing acquisition opportunities, which we have a long track record of executing. The third is returning a portion of profits back to shareholders in the form of cash dividends.

Finally, the fourth priority is that our board may authorize share repurchase programs, which we also have a successful track record of executing. From an M&A perspective, we maintain an active pipeline and continue to evaluate opportunities that align with our platform and product strategy. In respect to our dividend program, yesterday, our board of directors declared a quarterly cash dividend of $0.031 per share to be paid on May 30 to holders of record on May 19. We currently do not have an active share repurchase program in place, though the board continues to evaluate such programs as it deems appropriate. Now moving over to our financial outlook for the year, yesterday we announced a revision to our previously issued financial expectations. We now expect consolidated revenues to range between $297.5 million and $303.5 million and net income to range between $18.6 million and $21 million.

We now expect adjusted EBITDA to range between $68.5 million and $72.5 million. We continue to expect capital expenditures to range between $31 million and $34 million. This guidance does not include assumptions for any acquisitions that we may complete during the year. Earlier, Bobby outlined the key aspects impacting guidance and why we are confident in our ability to grow through them. That wraps up my comments for this quarter's call. Thanks for your time this morning. I will now turn it back over to you, Robby, for some additional updates.

Robert A Frist Jr (CEO and Chairman)

Thanks, Scotty. We do have kind of now the normal business updates. We've talked about some of the challenges in the quarter, a little bit of delay in the implementation pipeline, so time to revenue was deferred. We talked about some delays we saw in the sales pipeline, the irony of landing on our biggest deals in history, but the net effect of that is a lengthening of the average time to revenue to implement and then to close those sales. Pushing things a little bit out. 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.

That said, you know, I think we should pour through our core businesses real quick and talk about what's normal and what we're, you know, also excited about. 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 continued to deliver strong revenue growth. You know, as Scotty just announced, revenues for Shift Wizard have eclipsed the legacy product and SOS in the second quarter of 2024. It's continued to be our top performing product in scheduling. Shift Wizard revenues grew 19% over the first quarter of last year. In the first quarter, sales were both from competitive takeouts 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 in the overall scheduling application suite by an unexpected non-renewal of an ANSOS customer. So some continued challenges in the legacy application ANSOS, 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 or they'll choose to stay where they are, or in the worst case, we may lose them to market. 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 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. Customers who chose to migrate from our legacy credentialing applications like Ridgeview Medical Center and Door County Medical Center, all of which closed in the first quarter. Just kind of the normal course of business, you see some migrations from legacy applications, some new wins in the market, and overall put up 25% year-over-year growth in the quarter on the CredentialStream application. As I mentioned, though, we do have some client recovery to do. We had 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 of confidence now.

As I previewed in our prior code call, 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 to get providers credentialed, privileged, and enrolled and generating revenues for the organization. I mean, if you think of the purpose of the credentialing applications, it is to keep the bad actors out by verifying they are who they say they are and to grant them the privileges they need to practice at a hospital. Ultimately, our software should help optimize the time to revenue on these positions.

We should help onboard them in an efficient way, vetting out the bad ones, of course, that do not meet the criterion and protecting the end consumer by that vetting, credentialing, and privileging process. Really, what is 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 generating revenue? We think the answer to that is yes, and we are working hard to prove that. We think that we can affect positively the timed revenue on newly hired physicians by accelerating the credentialing privileging process. Some of that came out in the case studies at our Thrive 25 conference. The provider timed revenue was a topic, and we heard customers share stories about their success using CredentialStream to achieve that outcome of shortening timed revenue on physicians.

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 in surgery or seeing patients productively and so that their services are billable. To do that, you have to credential, privilege, and enroll them in insurance programs. Our software, we think, is the best in the market at doing those things. We think this area will continue to grow, and we'll work through these temporary issues and deliver continued results. We did see some of that growth that I talked about in Q1. 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 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 accredited to develop their own content and issue credits for those contents. We have the best software in the world, we think, at helping them manage that uniquely healthcare dimension to building accredited content. Our Cloud CME products just are having a great successful run. Think of these as add-on modules of the core learning system.

We both did three acquisitions in this space over the years, but we continue to see really great success, high renewal rates, adding new customers, but also this module that helps manage continuing medical education and an accreditation process at hospitals is 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. We are 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.

We added sales for that product set, that module of learning, the continuing medical education modules, and we just continue to invest in that area and further integrate it with our core applications and to our platform. We're just excited that that area kind of within the learning area, that area is both unique for us and uniquely successful right now in the market. We're proud of the teams delivering those results. Let's talk a little bit about some of the newer solutions in learning, the Insights Plus, which is our new reporting and analytics capability. It's based on our platform technologies. We've seen it continue to grow. It now has over 7,400 users across 515 organizations.

Those and the growth of Insights Plus, which is a purchased system, it's driven by significant data engineering and product development work we've done on our new data stack in the HStream platform. Our Insights and Insights Plus reporting engines that are tied to our learning application suites are robust, expanding, and we're experiencing good sales velocity on Insights Plus, which is kind of an analytics suite in learning. It kind of gets that learning efficacy, something that you need to measure. If you're going to invest in learning, you want to understand its return on investment. Insights Plus, we think, is the best in the industry at helping health systems understand their return on investment in learning. It is great to see a new platform-based, data-centric reporting and analytics toolset be selling well as an add-on module to the learning application suites.

I think, you know, now is 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. We have been fortunate to have 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. William Stead is choosing to not stand for reelection this year. We are excited to point out that when he joined our board 27 years ago, we had 41 employees and $1.4 million in annualized revenue. Dr. Stead has been on our board overseeing the creation of a company that generates nearly $300 million in revenue. That is what we expect this year now and employs 1,100 people. We are proud of his strategic contributions over the years.

He's also handing us off in a really good position because he waited till we found essentially his replacement on the board. In addition to congratulating Dr. Stead, we want to welcome our new board member, Mr. Charles Beard Jr., who joined our board of directors and is now a member of our audit committee. He's standing for election at this year's annual shareholder meeting, and Charles brings a wealth of experience to our board. You guys can all be excited if you're on this call listening. You know, he was the co-founder and chief operating officer of GuideHouse, a global consultancy. He serves on the board of directors of Fresh Del Monte. He serves on the board of directors, importantly, of Innova Health System. We're really excited he brings this really incredible background in technology, governance, security, and of course, healthcare expertise.

Fantastic new add with Charles Beard as we look for your vote to support him in joining 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 at this year's annual shareholder meeting. 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. Thank you, Dr. Stead, and welcome, Charles. 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, understands the environment they're operating in, and makes adjustments to that environment.

You know, our downward reflection here in our guidance is part of that. Again, we'll do everything we can to make that not come true, 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 assets, their people. In particular, we think it's a good time for bundling value that addresses real economic or mandatory requirements of these organizations. 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. 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 2:00 P.M.

Notifications of the meeting and access to the proxy statement, 10-K and shareholder letter were sent out on April 14th. We encourage you to vote your shares and participate in the future of our company. 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 and navigate the challenges they face directly and take them on. 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.

Operator (participant)

Thank you, sir. The question-and-answer session will begin at this time. To ask a question, you will need to press *11 on your telephone and wait for your name to be announced.

To withdraw your question, please press *11 again. Please stand by while we compile the Q&A roaster. Our first question comes from Matt Hewitt of Craig-Hallum Capital Group. Your line is now open.

Matthew Hewitt (Senior Research Analyst)

Good morning, and thank you for taking the questions. I apologize in advance if this has been answered. I've been hopping between a couple of calls. Maybe first up, you noted in the press release that you're seeing a little bit of hesitancy by customers to purchase, you know, elective-type applications. If you looked at your portfolio across the board, how much of your portfolio would you quantify or qualify as being required or government-mandated versus elective? You know, I assume it's over 50%. It falls into that prior bucket, that mandated versus required. Is that a safe assessment?

Robert A Frist Jr (CEO and Chairman)

We do.

We think most, the majority of our products are tied to some kind of theme of requirement. Now, they're not always legal requirements, but I'll give you two examples. And some are requirements, but some are requirements to achieve certain quality standards. For example, credentialing is a requirement to maintain accreditation. You need to be in an accredited hospital to be a credible hospital. The credentialing process is mandatory. Of course, our product is not mandatory, but the credentialing process and privileging process is an essential part of operations. Broadly speaking, we're meeting a need that is considered mandatory. Another one that's not quite legislated, but is one of our top products from a revenue generation standpoint, would be our Resuscitation Suite. Again, while it's not a legal requirement to train your staff on accreditation, I don't think you could achieve accreditation.

In fact, it's become essentially a gold standard. I don't think you can get a job at a hospital as a physician or a nurse without having demonstrated confidence in resuscitation. The demonstration of confidence is achieved through a couple of different programs in the industry that are the most high-quality programs. Of course, one of them is the American Red Cross, the one that we represent to the market most vocally. While again, it's not 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. That being one of our largest single revenue lines within our content selling universe, probably our biggest singular product across 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. That is another example of requirement. We have another bundle in our JANE products that delivers continuing education that are required by more than half of states for licensure maintenance. You can see in these four that I have given that there is an element of requirement. Of course, thematically, everything we are doing is related to the workforce, which I think is the single biggest cost item on the income statements for our customers. Managing them effectively is a priority. I think we are well aligned.

You know, you can't say that 100% of our products are mandatory, 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. We talked about the CloudCME products, which helps maintain ACCME accreditation. These standards that are propagated in the industry, our products help meet them. I don't know if definitely the majority, probably I would say 80% or 90% are tied thematically to forms of requirement like we talked about. A meaningful number like the OSHA libraries, it is a requirement to do annual OSHA safety training. That is kind of a federal requirement in these clinical settings. 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 under a lot of scrutiny is diversity, equity, and inclusion programs. As you can probably imagine, are not the hottest topic now in healthcare. Our health, equity, and belonging solutions that we have seen a drop off. You know, you can probably directly attribute that to the political environment. Clearly not required. In some ways, there's probably a movement against that kind of elective content. We have seen a drop off in it. That's a quick scan of the nature of the products we sell.

Matthew Hewitt (Senior Research Analyst)

That's incredibly helpful, Robby. Thank you.

Maybe just to follow up, and I apologize if I missed this, but regarding the noted, the largest or one of the largest contracts in your history, was that a renewal or was that a greenfield win? And if it was, in fact, a renewal, I'm assuming you saw an increase versus the last time they signed. What all was added? You know, that's obviously an opportunity to cross-sell and upsell. What else was included if, in fact, that was a renewal?

Robert A Frist Jr (CEO and Chairman)

Yeah, yeah. No, it was great news. I probably, I can't believe I didn't say this. That was new business. This was a big health system where we didn't really have a footprint. By way of example, they did not use our learning management system at all. Of course, our learning system is infrastructure for the Competency Suite.

Effectively, with this bundle, tens of thousands of their employees are now going to be using our learning system. The central theme was our Competency Suite, which is a bundle of a lot of products that focus on developing clinical staff competence. They found it being exactly the right time. Effectively, though, because of the way we bundled, they're displacing half a dozen competitors that have, you know, this product or that product, but we put it together as a suite. Again, a highly effective bundling of products to create good share. It does represent an exciting new customer to HealthStream. Through kind of coming through a slightly different door than would be traditional, like leading with a primary software sale like learning, we sold the Competency Suite with learning bundled into it.

Matthew Hewitt (Senior Research Analyst)

Congratulations on that.

Thank you very much for taking the questions.

Robert A Frist Jr (CEO and Chairman)

Somewhat related to your question, I'll just 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-term to revenue. Did push. The nice thing about those five, and so they're kind of a bellwether, we're going to watch them this quarter and hope and expect they come in. Right off the front end, and we talked about whether to mandatory or not, was a very large pending win in resuscitation. Where a health system is of good size is, we believe, in contracting, or we know they're in contracting phase to switch their vendor to American Red Cross. Of the five deals, we hope that that is the first one to resolve itself and come in.

We will watch these five deals to see if these are related to macroeconomic conditions, these delays where we pushed out of Q1 into Q2. It also comes to that theme that we believe that by switching, that institution will save money. Our program is, we believe, both stronger clinically and less expensive operationally. There is a good incentive for them to sign that deal and execute on it. Building on the theme that we were just asked by Craig-Hallum, Matt Hewitt, one of these five deals has that kind of feel of compliance, but it also is focused on the workforce. It also, we think, will save money for the hospital. The message is well timed as well. We will see what happens and report on that next quarter.

Matthew Hewitt (Senior Research Analyst)

Sounds like a plan. All right, thank you.

Operator (participant)

Thank you.

Our next question comes from John Pinney of Canaccord Genuity.Your line is now open.

Richard Close (Managing Director-digital and Tech-enabled Health Equity Research)

Good morning. This is Richard Close. Robby, just can you talk a little bit about the legacy? And you mentioned, I guess, ShiftWizard is, you know, more revenue than ANSOS now. And just talk a little bit about what is left on the legacy products and, you know, what do you expect the timeline is for that to, you know, just sort of run off?

Robert A Frist Jr (CEO and Chairman)

Yeah, fair enough. There is definitely a category on our tracking sheet of legacy products that include ANSOS, Morrissey, and HealthLine. And by definition, when we say legacy, we mean they are supported products. So we are still adding features and capabilities, although not quite as fast a pace as a growth product or a mature product in our classification system. So legacy means they are 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'll accommodate the expansion by selling them more of the legacy. In general, our sales teams, over 200 people, are not selling legacy products. Obviously, we do not expect growth from legacy products. In fact, as you pointed out, there are kind of three outcomes for legacy products. The biggest ones are ANSOS, which we talked about a lot, Morrissey, and HealthLine. I want for the customers to hear those are supported products. We do quarterly releases of enhancements. That points out some of the complexity in talking about this. As they exist, they are great customers. Some of these products are beloved products, meaning they like their legacy product.

They're both supported and we're patching them and fixing them and making them better. Not at the same rate as the end products, the SaaS products like CredentialStream and Shift Wizard. Some of the difficulty in reporting around this is there's kind of three outcomes for a legacy product. Maybe this changes someday. 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. In this bucket of legacy, until we decide to, and we have not decided this, to sunset those products, there is a logical outcome that many years from now, many of these customers could be still on that product.

If they're on that, they're not doing the two other options, which is our preferred option now until the last 18 months is they migrate to one of the SaaS applications. We are encouraging, but not requiring those migrations. Of course, that's a great outcome if we can get them to migrate. We think at this point, they get a better product. We get a slight lift in revenue because the better product is more robust, has more modules, and more capabilities. Migrating customers is, of course, our goal. We have a team of people working on migration. That conversion rate has gone up and down. Some choose to stay where they are. We do not have a clear objective of migration. Of course, the third thing that happens is the worst thing is we could lose that customer.

They do not migrate and they do not stay, but they go in the market and buy something else. Some of these lost accounts report are that where we lose the account. We can either keep them where they are or migrate them. Because there are three outcomes, it is a little harder to tell what our expectations are because, you know, it kind of has an order of operations like math where our first preference is they migrate to our SaaS application. Our second preference is they stay happy customers of their beloved legacy application. Our third option, which is the worst, is they decide they do not want either of those and we lose them to the market. We can report on the losses as we did this quarter across these legacy applications. I think there is about $1.7 million. Maybe Scotty can verify that number.

We can't say the desired outcome or timeframe because, you know, again, we could be four years from now and still have a nice profitable business on legacy applications. You know, 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. 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. It forces the decision to either migrate or leave. We have not done that. It does give us a little bit of a challenge to talk about this issue because with three variables, you can't really say exactly, you know, where everything's going to land. 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. Our goal is to build Shift Wizard and CredentialStream to a place where it's just self-evident that it's both the best market decision and the best opportunity to enhance their business, improve their outcomes, to go ahead and make that migration decision. We have dozens of successful migrations, of course, that we've reported on. Every quarter, there are some migrations. 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 will target.

We just have not been able to put numbers forth. We do, of course, talk about our losses, which we think is the material and important part. I did point out it is a finite problem. I mean, we are not selling new legacy customers. There are really these three options that exist. That is as much color as I can give. We will report our losses as they occur. The way you characterize the remainder is they are either staying where they are or they are migrating. Both of those are good outcomes for the company. You saw in the quarter the 25% growth of CredentialStream. Some of that, and I named by account, some of migrating customers plus the newly acquired customers delivered that growth.

Richard Close (Managing Director-digital and Tech-enabled Health Equity Research)

Yeah, I guess my concern is that, you know, you're seeing really good growth in those newer products, like you just said. But, you know, one of the attractiveness of the newer products and the, you know, the core Learning Management System is, you know, it's a platform play. You know, you have good visibility. And then with this legacy, it just, it reduces the visibility or how do you think about visibility?

Robert A Frist Jr (CEO and Chairman)

Yeah, yeah, that's fair.

Richard Close (Managing Director-digital and Tech-enabled Health Equity Research)

Going forward, that's just sort of hard.

Robert A Frist Jr (CEO and Chairman)

Yeah, it does create, obviously, confusion. It lowers our overall blended growth rate when we have those losses. We did report, you know, 6% if you factor out those. So we gave a little visibility in the kind of the organic growth of each of the three core GoFord applications.

We have reported that in all cases, the GoFord 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 the GoFord. And, you know, it's our hope that this is the year of the platform. The ability to demonstrate the value of interoperability will be even a more compelling reason to choose to migrate. We're working hard on making that a reality, particularly in the second half of the year, where we expect things like feature parity of all these systems with the GoFord applications. They have feature, they exceed in features actually the capabilities of legacy platforms. We're getting closer, Richard, to a time 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 it a little confusing. I apologize for that, but I think it's still the right decision because we love our legacy applications. Customers, some customers love them. Staying on them is just fine with us until it's so compelling that they move to the full suite, the suite of suites. You know, there should be so much benefit to learning, credentialing, and scheduling that you buy them together someday. That's our goal as we enter the second half of this year and next year. You know, I'm sorry that it's vague. We did try to, we will talk about the losses so you can see the offset. We will, we have talked about the organic growth rates of the newer products, which are, you know, they're really exciting levels. CredentialStream was 25%. We'll quantify the losses.

We also, this quarter, bundled up the legacy products and told the organic growth rate, factoring out those legacy products, non-renewals. I think we're trying to give as much color as we can. I think until we declare them sunset, it'll be hard to give a timeframe. I guess I'll just apologize for that part. I appreciate that. I still think it's the right business decision. I kind of apologize for the optics. If you dig in deep enough, you can see the growth rates of the exciting GoFord products. I think also every quarter, the legacy problem gets smaller and it gets smaller relative to the success of the other products.

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, the category is never going to get bigger and everything else is growing. Eventually, it kind of overtakes itself.

Richard Close (Managing Director-digital and Tech-enabled Health Equity Research)

I appreciate that. Thank you.

Operator (participant)

Thank you. Our next question comes from Vincent Corricchio of Barrington Research. Your line is now open.

Vincent Alexander Colicchio (Managing Director)

Yeah, Robby, are you seeing any pushback on pricing in the current environment?

Robert A Frist Jr (CEO and Chairman)

We always have, we think, good pricing. 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 and that, you know, instead of selling content against content providers, selling content plus applications plus a secondary application and bundling is a better strategy. We see that with the Competency Suite. We'll emulate that more.

That allows us to get more breadth and penetration and adoption and more competitive displacement, displacing competitors by bundling. I feel good about our pricing. Another thing related to pricing is in the last really 18 months, we've been able to make it a normal due course process to add contract escalators and renewals. Another element of pricing, and it's a change for our company, is to include pricing escalators. They're not quite CPI level. Kind of, you know, we target 3-5% on annual price escalators on our products. All three of our core products, 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.

All three primary products as of really a couple of months ago, all contracts go out with pricing escalators. Ironically, that gives the customers something to negotiate and allows us to maintain a little bit more pricing control of the base of the product prices. That's been an interesting dynamic. Most software vendors in healthcare and maybe across industries already had price escalators. Adding those have helped us. Another part of our future growth is just a little bit of built-in, you know, inflationary offset with small pricing escalators built into our contracts.

Vincent Alexander Colicchio (Managing Director)

I know you're looking to get more active in the acquisition market. Are you seeing any impact from the economic uncertainty in valuations?

Robert A Frist Jr (CEO and Chairman)

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 the prevailing bidder. You know, we have a management team that is willing to pay a nice sum for a good business that we think fits, but not a ridiculous sum. I do not know if that is a dynamic that we think things are still overpriced, but we did make a couple of bids that were not successful and did not chase them. We are seeing more deal flow. We are getting more books to look at. When we find a management team that wants to be a part of HealthStream, that wants to be part of our growth story, that is, you know, a nice premium. We want those owners to do well if they built good companies. We are not going to chase things. There is just too much still cash on the sidelines and too much chasing.

I think, you know, some of our competitors did that for a while and paid, you know, really high multiples and sitting on a lot of debt. We are debt-free with $113 million in cash, with the strongest free cash flow generation in our history in the last quarter. Yeah, we are going to be active, but we are still the same, you know, somewhat conservative management team. We have to hunt a little longer to find deals that we think both fit strategically and have the right economic return opportunity. Our discipline, now we are more active looking. There are definitely bigger pipelines to look at, but our consistent, you know, either diligence or conservative approach has we have not been successful in two of the competitions. More to come.

We're teeing up lots of opportunities and we'll find the right ones here, you know, in the coming quarters.

Vincent Alexander Colicchio (Managing Director)

Thank you, Robby.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Robert Frist for closing remarks.

Robert A Frist Jr (CEO and Chairman)

Thank you to all of our HealthStreamers. Welcome to our new board member, Charles Beard. Thank you to Bill Stead for his 27 years of service and excellent strategic guidance. 1,100 employees working hard in one boat rowing in the same direction through troubled waters. We're going to get there. So thank you to those. And then Cheryl, if you're thinking about investing, you know, I think sometimes in tough economic times, you know, finding a good, consistent management team that knows where they're going and what they're building is a good bet.

Maybe these times present investing opportunities for those of you that think HealthStream is one of those, which I do believe myself. Thank you all. See you on the next earnings call and we'll keep our chins up and keep making incremental progress. Thank you.

Operator (participant)

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.