HealthStream - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered record revenue with EPS and adjusted EBITDA growth; revenue of $74.4M (+4.0% YoY), diluted EPS $0.18 (+29.3% YoY), and adjusted EBITDA $17.6M (+11.3% YoY).
• Versus S&P Global consensus, HSTM modestly beat on EPS by $0.01 and was essentially in line on revenue (+$0.03M), a clean print with limited estimate revision risk thereafter (values marked with * from S&P Global)*.
• Management raised full-year net income guidance to $19.5–$22.4M (from $18.6–$21.0M), while maintaining revenue, adjusted EBITDA, and capex guidance; rationale: lower expected D&A.
• Key operational color: credentialing growth (CredentialStream +26% YoY) despite margin headwinds from Azure scaling and royalties (GM 64.6% vs 66.8% LY; CFO expects ~65% for rest of year).
• Capital deployment is supportive: $18.1M Q2 buybacks (program completed in July with an additional $6.9M) and a $0.031 per-share dividend declared.

What Went Well and What Went Wrong

What Went Well

• Broad-based deal momentum: four of five delayed “medium/large” deals closed; average new order contract value ~$2.2M; fifth expected early Q3.
• Product growth: CredentialStream +26% YoY, ShiftWizard +21% YoY, Competency Suite +18% YoY; core business grew >8% excluding legacy drag.
• Strategic AI push: HLX integrates OpenAI GPT-4o for faster search and personalized learning pathways; Jane AI secures another patent—“foundational for our moves in AI”.

Quotes:

• CEO: “Record quarterly revenues of $74.4 million… up four percent” and solutions “well positioned to continue helping healthcare organizations achieve greater workflow efficiencies”.
• CFO: “Adjusted EBITDA margin was 23.7%… compares to 22.1% last year”.
• CEO: “CredentialStream… strongest revenue grower versus the same period last year”.

What Went Wrong

• Gross margin compression from cloud hosting (Azure capacity expansion for CredentialStream) and higher royalties; GM 64.6% vs 66.8% LY, expected to hover ~65% this year.
• Legacy product attrition (credentialing and scheduling) reduced revenue by ~$1.8M YoY, pulling down headline growth despite strong core momentum.
• Reputation and implementation cadence: credentialing scale issues in Q1 created client frustration and slowed time-to-revenue though issues were resolved; residual impact acknowledged in guidance and operations.

Transcript

Speaker 5

Good morning and welcome to HealthStream's second 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.

Speaker 6

Thank you and good morning. Thank you for joining us today to discuss our second quarter 2025 results. Also in 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 in the future performance of HealthStream that could 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. These include forms 10-K, 10-Q, and our earnings release. Additionally, we may reference measures such as Adjusted EBITDA, which is a non-GAAP financial measure.

A table providing supplemental information on Adjusted EBITDA and reconciling to net income attributable to HealthStream is included in the earnings release that we issued yesterday and that we may refer to in this call. With that start and that opening, I'll now turn the call over to CEO Bobby Frist.

Speaker 0

Good morning. Thank you, Mollie. Good morning, everyone. It does seem like a quarter of follow-ups. We've got some news to share, follow-ups from our last earnings call related to our sales pipeline, macroeconomic conditions, and of course, financial results. I'm going to hit highlights first of the financial results, which we feel good about the quarter and the results we'll be reporting. In the second quarter, we achieved record quarterly revenue, which is always an exciting milestone. It shows we're moving up and to the right. I like that, which is up 4% from the second quarter of last year. Operating income was up 33.4% and net income was up 29.3%, while adjusted EBITDA was up 11.3%. All those are over the same quarter last year.

We increased our expectations for net income for full year 2025 in our financial guidance and reiterated our expectations for revenue, adjusted EBITDA, and capital expenditures. Later in the call, Scotty, of course, will expand on each of those. There are some exciting developments in all of our core application suites, learning, credentialing, and scheduling, which we'll provide in the back half of this presentation. Those are the things we're most excited about to help drive our business results. First, let's look back to our prior quarterly call. In our last call, we mentioned we were tracking a handful of, well, we characterize them as medium or large-sized deals that were originally expected to close in the first quarter. I'm pleased to report that four of the five deals that we were tracking were signed during the second quarter.

The average new order contract value of those was $2.2 million across each of the four deals that closed. Also in good news, the fifth deal is expected to be signed here early in the third quarter. I feel like that's a positive update on the five deals that we, you know, while the timing wasn't as we expected, the business outcome was solid in that it looks like we've landed four of the five, and the fifth, it seems imminently will be executed. The market conditions, you know, we'll talk more about that here in a bit, but we're excited to have that be our follow-up on the four deals that we specifically referenced last quarter. Also, I think it's positive that those five deals were a really nice balance across our broad portfolio of applications and suites.

One of the deals closed, for example, was a multi-million dollar, multi-year contract from a very prestigious health system for our American Red Cross Resuscitation Program. That's one of our leading partnerships and content offerings in our whole ecosystem. We're very pleased to see a big win up in the Northeast for that product. Again, multi-year, multi-million dollar contract. Now that they're a customer of HealthStream, we're pleased to have them in the network, and we hope to continuously grow that account over time as they drive more and more value from a growing library of our solutions. Another deal included a wide range of our products, including our Competency Suite, which is demonstrating the success of our new bundling strategy and how our customers value our ability to handle the end-to-end needs of their competency program.

I really like that this new bundling strategy around staff development here, competency assessment and development, which includes a broad swath of our competency-oriented products, won a multi-million dollar deal during the second quarter. The third deal, kind of rounding them out, was a CredentialStream deal. Again, exciting to see progress from CredentialStream as well. It's another large health system that selected CredentialStream to go enterprise-wide. Our scheduling application was the fourth that's already been signed for ShiftWizard, contracted by another top health organization as well. These are four enterprise deals balanced across learning and development and our content offerings, our scheduling application, and our CredentialStream application. I think the diversity of the wins was as important as the size of the wins, and it was nice to see them all come through here. Four of the five come through again with the fifth still expected.

I think another topic that's probably on the top of mind for everybody is AI, and it seems like no earnings call is complete without talking about AI and AI strategies, and I think this call should be no exception. At HealthStream, there are multiple dimensions of AI, its impact, and we're focused on utilizing that to manage our business more efficiently, of course. There we're looking at role augmentation, efficiency, and development of the applications we build. We have lots of prototypes and pilots going on in the efficiency category. Of course, we're working hard to use AI to create competitive differentiation throughout all of our product suites and product offerings. A series of pilots are spooling up using AI to reshape our future roadmaps. Both those dimensions are well underway. It's not like this is new for us.

HealthStream has an established history of utilizing AI to improve health care. In fact, beginning with the launch of our Jane AI program over five years ago, our Jane AI was one of the first solutions to use AI to assess the clinical competency, and we'd say the clinical reasoning ability of nurses. It's a little different than a knowledge test. It was using AI, natural language processing, and machine learning to suss out the clinical reasoning ability, the quality of the clinical decisions being made from nurses. We think it is a pioneering product, and it's just getting smarter and more effective over the years. In fact, we were just awarded another patent in connection with our Jane AI and its use of natural language processing and deep learning to facilitate competency assessment of clinical staff, particularly nurses.

We're excited to have earned yet another patent related to our Jane AI technology as it continues to be foundational for our moves in and towards AI. AI is playing an important role in our new learning application. That application is called the HealthStream Learning Experience. In the back half of this presentation, we're going to give an update on the business associated with this new advance. The HealthStream Learning Experience application, or the HLX, as we call it, was announced last quarter. The HLX is a modern healthcare-specific application that offers the workforce personalized, and this is key, self-directed intelligent learning and development pathways. Those incorporate a wide range of learning modalities. We've expanded the dimensions of content available while we build these self-directed intelligent learning pathways for healthcare professionals using the HLX. It's engaging the individuals in a new way, a thoroughly modern user experience.

Also incorporated into the HLX is OpenAI's GPT-4o LLM. That's powering faster and more precise search capability for HLX users and helping establish the foundation for powering smarter, more relevant recommendations based on the learner's profile and experience. It's kind of the more the HealthStream Learning Experience knows about you, the better recommendations it can make for your career development, skill development, competency development, and testing and evaluations. We're super excited about the HealthStream Learning Experience and its advanced incorporation of OpenAI's GPT-4o LLM. I just wanted to give another example of our advances with AI. We think that together Jane AI and the HealthStream Learning Experience are just a few of the examples of HealthStream's movement towards AI and getting our customers equipped with the latest tools, in this case in employee development and competency assessment.

I think central to a successful implementation of AI is building a culture focused on AI. We're working really hard to get all of our officers on board with everything from collecting the data they'll ultimately need to potentially train agentic AI to envisioning pilot programs and equipping our teams with tools. For example, during this quarter, all of our developers will have a choice of being equipped with either Cursor AI or Copilot. We're excited to get that out of the pilot mode and into full production mode. We're excited to make those tools available to our in-house developer capabilities. I think every company is going to have to go on a journey of working to define how all the roles in the company will be augmented with the power of AI.

HealthStream is deep into that journey, setting up a really nice governance structure over our AI projects and beginning to fund the use of these technologies in pilots and product development. I'm really excited about my team's advances there and the leadership of our tech leaders in the company helping us lead us forward and building a culture of incorporating AI into our business strategies and operations. Before we go further in the call and before I turn it over to Scotty, I think it's useful in case we have new potential investors in HealthStream to kind of summarize to everyone the HealthStream story and reiterate what we are and what we stand for. First and foremost, HealthStream is a healthcare technology company dedicated to developing, credentialing, and scheduling the healthcare workforce through SaaS-based solutions.

Each of those are becoming, we believe, more valuable because of the interoperability that we're achieving through our H-stream platform. We're kind of in this transition of trying to move from SaaS applications to a PaaS, a platform as a service architecture, to power up and make those SaaS applications interoperable. The company holds 20 patents for its innovative products, and I just announced a new one in our Jane AI. We've been awarded over 40 Brandon Hall Awards in the recent years, showing our excellence in our learning, instruction, and development programs. Historically, we sell our solutions on a subscription basis under contracts that average three to five years in length, which makes our revenues recurring and predictable. In fact, about 97% of our revenues are subscription-based.

As I just mentioned, we have 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 and a strong cash balance of $90.6 million. We're solely focused on healthcare and more specifically the healthcare workforce and those preparing to enter it. The 12.6 million healthcare professionals and nursing students in the United States comprise the core total addressable market for our SaaS solutions and now, of course, our PaaS-based ecology of applications. At this time, I'll turn it over to Scotty Roberts, our CFO, for a more detailed look at our financial performance here in the quarter with a forward look as well. All right. Thanks, Bobby, and good morning. Let's go over the financial results for the second quarter.

As otherwise noted, the comparisons will be against the same period of last year. Revenues were a record of $74.4 million, up 4%. Operating income was $5.9 million, up 33.4%. Net income was $5.4 million, up 29.3%. Earnings per share was $0.18 per share, up from $0.14 per share. Adjusted EBITDA was $17.6 million and was up 11.3%. Revenues increased by $2.8 million, or 4%, and were $74.4 million compared to $71.6 million in last year's second quarter. Revenues from subscription products were up $2.9 million, or 4.2%, while professional service revenues were down $0.1 million, or 3.5%. Our core solutions continued to deliver strong subscription revenue growth, with CredentialStream growing by 26%, ShiftWizard growing by 21%, and Competency Suite growing by 18%. Offsetting the strong growth in these solutions were declines from legacy products and credentialing and scheduling, totaling $1.8 million compared to last year.

Excluding the impact of the legacy products from the core business, the core business grew over 8% in the quarter. Our remaining performance obligations were $618 million as of the end of the second quarter. That compares to $538 million for the same period of last year. We expect approximately 39% of the remaining performance obligations will be converted to revenue over the next 12 months, and 68% will be converted over the next 24 months. Gross margin came in at 64.6% compared to 66.8% in the prior year quarter. Gross margin was impacted by an increase in our cloud hosting costs, which are primarily for the CredentialStream application and the H-stream platform. As noted on the last earnings call, to improve the scalability and performance of CredentialStream, we added more capacity in our Azure hosting environment.

In addition, changes in product mix resulted in higher royalty costs in the quarter. Operating expenses excluding costs to revenues declined by 2.9%. Sales and marketing expenses were up 3.5% and were primarily from additions to our staffing. Depreciation and amortization was up 4.8%, and that was primarily from capitalized software amortization. Our general and administrative expenses were down 22.6%, and that's due to lower bad debt charges and lower rent resulting from the commencement of the sublease for a portion of our Nashville office space. Product development expenses were flat compared to last year. Net income improved to $5.4 million, and that was up 29.3% over last year. Adjusted EBITDA came in at $17.6 million, and that was up 11.3%. Our adjusted EBITDA margin was 23.7%, and that compares to 22.1% last year.

Moving on to the balance sheet, we ended the quarter with cash and investment balances of $90.6 million compared to $113.3 million last quarter. During the second quarter, we deployed $9 million for capital expenditures. We paid $0.9 million to shareholders through our dividend program, and we repurchased $18.1 million of our common stock under the share repurchase program that we announced in May. Our day sales outstanding improved to 35 days compared to 45 days last year. This improvement resulted from more timely customer payments compared to the prior year. As I mentioned just a moment ago, our bad debt charges were lower compared to last year, although we did have a mid-sized customer file bankruptcy resulting in an increase to our allowance for doubtful accounts in the quarter of approximately $150,000.

On a year-to-date basis, cash flows from operations were $32.1 million compared to $27.4 million in the prior year, an increase of 17.2%. Also, on a year-to-date basis, free cash flows improved by $1.3 million, were 10.1%, and were $14.2 million compared to $12.9 million last year. This improvement is a result of the growth in our billings and improved cash collections, but was partially offset by a $3.4 million increase in payments for capital expenditures. With $90.6 million of cash and investments, free cash flows, and no debt, we are 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 our profits back to shareholders in the form of cash dividends. The fourth priority is that our board may authorize share repurchase programs, which they did last quarter. Speaking of, in May, our board of directors authorized a $25 million share repurchase program. During the second quarter, we repurchased $18.1 million of our common stock, and we've made $6.9 million of share repurchases during the month of July, completing the full program. From an M&A perspective, we maintain an active pipeline and continue to evaluate opportunities that may align with our product and platform strategy. In respect to our dividend program, yesterday, our board of directors declared a quarterly cash dividend of $0.03 per share to be paid on August 29th to holders of record on August 18th.

Now, I'll wrap up my comments this morning with a recap of our financial outlook for the year, which is mostly unchanged except for a refinement to our net income outlook. We continue to expect that consolidated revenues will range between $297.5 million and $303.5 million. We now expect that net income will range between $19.5 million and $22.4 million, mainly because we now expect lower depreciation and amortization. We continue to expect that adjusted EBITDA will range between $68.5 million and $72.5 million and 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. That concludes my comments for this quarter's call. As always, thanks for your time, and I'll now turn the call back over to Bobby for further updates. Thank you, Scotty.

I think in this section, we'll jump into the business updates, highlight the successes we've achieved in our learning, credentialing, and scheduling application suites during the second quarter. As many of you know, our learning business includes our flagship application, HealthStream Learning Center, along with many other applications, assessment tools, and content libraries, including our clinical content products. The HealthStream Learning Center continues to grow, as do many of the solutions that are delivered through it. Today, however, I want to focus on our brand new learning application, HealthStream Learning Experience, and we brought that up in the first half of the call. We call it the HLX. As I mentioned, it is a modern healthcare-specific application that offers the workforce personalized, self-directed intelligent learning and development pathways.

This is a nice contrast to the HealthStream Learning Center, which is really more of an assignment-driven, helps organize compliance-oriented training where you push content to individuals. The HLX helps shape educational pathways for individuals, and it's more self-directed in nature. The two together give a really rounded approach to learning and development. It's a completely modernized, built, and one thing that is very exciting about it, there are two things. First, last month, the HealthStream Learning Experience went live with 47,000 users at a large health system. It's moved, clearly, it's graduated from the pilot phase to a revenue-generating product in the quarter. It's very exciting to go live with 47,000 users at a large health system.

In response to the early success, an executive at that organization said, "The utilization we are seeing thus far is incredible." We're excited to see it move from the R&D labs and the pilot phase to a go live, a billable product. We look forward to building out a strong pipeline for this application. It's important to note that the application is bought alongside or in conjunction with the HealthStream Learning Center, so it extends the capabilities and the learning models and the forms of content that can be delivered instead of replacing it. They work together through their APIs, which are available in our platform services to create a really powerful set of enterprise-class learning tools for large organizations, specifically in healthcare. The other thing about the HealthStream Learning Experience, it's really our first H-stream platform-native application.

That means it was built directly on and is fully integrated with our H-stream platform. We've been talking about this for a long time. One of the benefits you'd expect from becoming a platform company is more rapid development of scaled enterprise-class applications. This, of course, is a case in point. From concept to now billable, launchable product, enterprise-class product was about 18 months. This is from whiteboard design to, again, a go live billable event with a new customer was about 18 months. I know that that can seem like a long time, but it really is quite incredible to get that to happen. We look forward to launching it into the broader market as an upsell opportunity to our large customer base and a new customer acquisition. Let's move to the credentialing suite.

It's a broad suite of applications that empowers healthcare organizations to credential, privilege, and enroll mostly their physician population. Last quarter, we did share with you we experienced some technology scaling issues with our CredentialStream product. It is a happy report here that those issues have been resolved and we're back on track with improved processes and expanded capacity. Scotty mentioned that hitting our gross margins a little bit, but we've ramped up our capacity to handle what was then, I think we were crossing over about 1 million subscriptions to the CredentialStream application suite. We had a capacity issue. We talked about it last quarter. We put our best and brightest minds on it in addition to scaling out our Azure infrastructure. We believe that those issues are resolved and we're back on track with both improved processes and expanded capacity that will facilitate ample future growth.

In fact, of our three primary application suites, CredentialStream was the strongest revenue grower versus the same period last year. We're already benefiting from the extra capacity as we continue to add customers. I should note that the rapid and comprehensive measures we deployed to eliminate our scaling issues did result in some unplanned operating costs in the quarter, which did have a drag on EBITDA and gross margin. Scotty covered that. I think they were wise investments. Of course, I wish we had been in front of it a little more and not had this response needed. Our response was excellent. Our teams responded, and we feel like we've tamped down and eliminated the capacity-related issues with CredentialStream. We believe that credentialing is a key area where we are well positioned to innovate in ways that will drive profits and productivity for our customers.

Specifically, we're enhancing our CredentialStream suite to help healthcare organizations reduce the time it takes between a physician starting work or being hired or offered a role and actually generating revenue by providing reimbursable care to patients. On average, we estimate, based on our research, it takes about 120 days or more to onboard, enroll, credential, and privilege a physician. If that's an important surgeon, every day that they're not doing surgery is a day of lost revenue. We call it time to revenue for these hospital organizations, healthcare organizations. For businesses from a caregiver standpoint and from a business standpoint, that's lost time and lost opportunity. We're working with our customers and intent on collapsing that 120 days so that physicians can get to work faster.

We think that our suites of software, particularly as they're more integrated, for example, between our learning application credentialing, we're in a really good position to actually have an impact on a metric like that 120 days time to revenue. Whereas non-integrated, with learning functions like onboarding and HR separated from credentialing, we're less in a position. As the features of the platform manifest in interoperability, we think we'll be able to help our customers achieve true business outcomes like shortening the time to revenue on newly hired physicians, which is a little hint of the future of the power of becoming a platform company instead of just separate applications. We're well underway in developing and delivering on those capabilities. Finally, I do want to touch on scheduling a bit. Our core product in scheduling is ShiftWizard. We continue to deliver strong revenue growth from ShiftWizard.

In terms of quarterly revenue contribution, we are pleased that ShiftWizard eclipsed our legacy and soft suite of products in the second quarter and continues to be our top-performing product in scheduling. We think the growth trajectory of ShiftWizard really speaks to the market viewing it as a best-in-class solution for clinical staff scheduling. Like previous quarters, our sales of ShiftWizard came both from competitive takeout as well as growth within existing customers. The backside of that is, unfortunately, the rate of decline in our legacy and soft suite of products is still dragging down the overall growth rate in our scheduling suite of applications. We've talked about this legacy drag before. Part of the positive news is that the tail of the soft legacy product suite revenue has diminished such that next year we expect to start seeing less in terms of negative offset to ShiftWizard's strong growth performance.

Just a few quarters away, we feel we'll have made material progress in this particular challenge with the legacy products. Switching gears, I want to briefly address the signing of the One Big Beautiful Bill, which is a landmark event in healthcare policy. Exactly how the bill will shape healthcare is something that will continue to unfold and something that will present various opportunities and challenges to our customers over time. Fortunately, we believe that HealthStream is uniquely well positioned to help customers more efficiently and effectively accomplish their workflow needs at a time when doing so is the top focus for CEOs across the nation. Regardless of the relative advantages or disadvantages customers are expecting from the new healthcare policies, they have been preparing for several months now.

We believe that was one of the main reasons that the handful of deals I mentioned in the first of the call took a little longer to close than we originally expected. Customers are taking a little more time to make the right purchasing decisions. We believe that HealthStream's innovative solutions are the right solutions, and we're pleased that four of our five customers, hopefully with the fifth soon to follow, came to that same conclusion and decision. We also believe that our H-stream platform is beginning to produce results just in time, meaning that customers can begin to experience the benefits of interoperability. This is the year, as I've declared, it's the year of the platform.

What we mean by that is not necessarily a platform delivering incremental revenues just yet, but that the benefits of interoperability are beginning to manifest visibly to our customers, which, again, I think represents kind of a fundamental shift from individual applications to really an ecology of interoperable SaaS applications. We're excited. We've declared this is the year of the platform, and we expect to spend the rest of this year educating and demonstrating to our customers the benefits of that emerging interoperability. I'd like to remind everyone that in our calls, if you think of the profile of our company, we're obviously looking to appeal to the investor community, and we're profitable. We're highly recurring revenue. We're a SaaS with an emerging path in healthcare technology, and we're focused on the healthcare workforce industry.

We expect to deliver steady growth, and we've determined to share some of the gains directly to shareholders in the form of a small dividend. We think maybe HealthStream, if that's the kind of profile you're looking for, kind of a conservatively run but aggressively visionary in what we're trying to build, may be a good company and stock for you to look at. I'd like to conclude with those comments and now turn it back over to the operator to begin the question and answer session.

Speaker 5

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A route. The first call comes from the line of Matthew Hewitt of Craig-Hallum Capital Group. Matthew, please go ahead.

Good morning, and thanks for taking the questions. Maybe first up on the gross margins, Scotty, you explained what the headwinds were there in the quarter. Should you or should we anticipate the gross margins kind of bouncing back up here in Q3, or is it going to take a few quarters to get those back up the, you know, a couple hundred basis points that they were down?

Speaker 4

Currently, we still can see it to have around the 65% mark. For the remainder of the year, we still will see those ongoing costs related to the scale and performance improvements that we put in place, but we're also trying to take measures to manage that cost line item for us overall. It will take a few quarters to get there, but we'll kind of see it hover around 65%-ish. It's kind of still in line with our, you know, kind of midterm objectives that we set forth several years back. We're kind of falling to the bottom of that range, but we're still kind of in the 65% to, you know, 66% range.

Got it. Regarding the HealthStream Learning Experience platform, congratulations on some of the early success that you're seeing there. Bobby, I think you mentioned 47,000 users are now live. You got some positive feedback from that account. Maybe a little bit of color on what does the pipeline look like for that application and how should we be thinking about a ramp for that as we get into the back half of this year and look at 2026? Thank you.

The first is that the ramp is forecasted in all of our guidance. There is no exceptional change. You know, subscription businesses, a steady incremental improvement is the way to grow a subscription business. I think the HealthStream Learning Experience gives us yet another opportunity to add that. It is an incremental add for base customers or a new entry point for new customers. We've begun, in the piloting phase for the last, say, six months, to tease it out with our sales team to seed the market with some educational materials about it. I think now the pipeline building begins, and now that we have a live customer that, in fact, billing has begun for. It is a revenue-generating product now. It is an incremental add-on. It is a subscription product.

The business of building an interest and pipeline for it begins now as we go to the live product and equipping the sales team with the tools they need to promote its availability. I think it's an important product. It's a kind of a paradigm shift that progressive organizations are more likely to adopt earlier, the ones that have a great interest in retaining and developing their workforce and giving them the tools for self-development, again, which is different than kind of a command and control model of regulatory compliance training. This is more oriented towards development and retention and maybe cross-training so people can gain new skills in new areas. I think it's very relevant for today's workforce and to our customer base. The serious business of building a pipeline is now beginning. We'll report on that in the coming quarters. I think it is an incremental opportunity.

It's not something where we're changing our guidance based on the launch of the product. I just want to be careful. It's an exciting new subscription product that we hope to see incremental gains from.

Understood. Thank you.

Speaker 5

One moment for our next question. The next question comes from the line of John Pinney of Canaccord Genuity. John, please go ahead.

Hi, this is Richard Close. I had a question. Bobby, can you talk a little bit more about the comments with respect to ShiftWizard and the legacy products offsetting some of that growth and just maybe a little bit more detail in terms of the timing? You said next year, essentially, that offset is essentially going away. Just walk me through that. We got on a little late here, so I just want to go over that again, make sure I understand.

Speaker 4

Sure. There wasn't a lot of detail, but I think that the tone of both is that the go forward SaaS applications have superseded, in terms of absolute value and growth rates, the revenue of the legacy applications from which we're trying to migrate. In both cases, then we're kind of achieving new milestones where, you know, each quarter, the legacy applications get a little smaller and a little less material to the overall financial outlook, while the subscription products are, as you heard, have good growth rates and are now the majority of the revenue in that category. I think that we did mention the offset this quarter. I think Scotty mentioned it was about $1.8 million was the kind of the declines from the family of legacy products across credentialing and scheduling.

We didn't break it out by a specific line, but those declines, you know, pull our overall growth rate down relative to the growth rates you're seeing on the subscription products. We just, again, characterize it all. I think in ShiftWizard, we gave a little bit more color just that the growth of ShiftWizard and the decline of Ansoss is hitting rates where, in a couple more quarters, it'll be even less material overall. Maybe we can see a little more of the organic growth rate of ShiftWizard start to contribute as opposed to kind of almost a fully offset growth. When the loss is $1.8 million and the gains are across the subscription products of $2.9 million, you can see that, you know, it really affects growth.

Okay, that's helpful. Were you going to add something there?

I was just going to say if Scotty wanted to add more, but I think those are the highlights. Each quarter we'll try to give a little more clarity as we progress.

Okay, that's helpful. On CredentialStream, you know, I guess you threw some costs at that to get back on track, as you said. Was there any reputational damage or anything to call out with respect to retention or anything like that based on what happened in the first quarter?

Certainly, when your services aren't as you would expect, at the level of excellence you demand of yourself and your customers demand, there's frustration. We continue to maintain high-level contacts for our Account Management programs and our Executive Leadership with all of our key customers. Of course, there's some frustration in there. We think we can get through it all with minimal impact. There's always some consequence to it, but that's factored into how we think about our overall guidance. I don't think there'll be any major surprises that would change how we change our outlook on the year. It's hard to go through 25 years of history like this and occasional bumps in the process as you expand. In this case, an expansion-related growth problem caught us a bit off guard.

I feel really good about how we responded and are working with all of our customers to get them all through it as well. On the backside, just more capacity, more speed, more focus to do even better and to avoid this kind of problem in the future. Overall, nothing that would change our outlook for the year.

Okay, that's helpful. I guess my final question or final two, just following all the healthcare-related news sources and all that, there's been a decent amount, not huge in terms of employment cuts by various hospitals, 100 here, 100 there, that type of thing. I guess I'm curious how you think about that in terms of overall subscriptions. I mean, you have such a deep penetration and maybe that's just modest cuts here and there. How are you thinking about the whole healthcare employment market and any impact to HealthStream?

I think overall healthcare employment will continue to grow over the next five years. Roles may change and, you know, more nurse practitioners, less primary care doctors. There may be overall relative shortages to demand, but I think overall there's just going to be more healthcare needs. If you look at research organizations that are going through this, the reduction in funding from the federal government for research, sure, there are role position or eliminations there. Hopefully, the country finds a way to reinstigate its research programs and find new funding sources. I think those are relatively small. The overall demand for healthcare services, the new types of roles being created and growing rapidly, like nurse practitioners and the supply of new nurses, I think the capitalistic market is responding to try to fill the demands for skilled, competent healthcare givers. We think we're part of that journey.

I don't see material changes, certainly not downward in the employment numbers. Certain subsegments of the market are particularly challenged financially right now, like the skilled nursing market. It kind of has good years and bad years. I'd say these are more challenging years in that market. We're present in that market. As they change both ownership models, private equity, and experience potentially less access to federally funded patient-insured patients, there's going to be pockets of challenge. The small rural hospitals may face challenges, but that almost depends on things we can't tell yet, which is like the state's response to the new legislation. For us, these macro conditions, I think employment will go up. That was the root of your question, was around the number of people. I think over time there'll be more healthcare providers.

The way we would relate most closely to the macro uncertainty in the macroeconomic conditions are definitely, you know, the legislation is known, the impact is unknown, and kind of downstream and depends on a lot of interactions that are yet to be seen, like state responses to the federal funding changes. For us, that would manifest in how we think about the sales pipeline. Right now we're seeing record-sized pipelines. As we clearly noted, expected close dates are getting pushed. It seems that customers maybe have more committees deciding the wisdom and timing of purchases. What we'll be watching most, and probably be more of a next-year phenomenon, is the impact of potentially slower purchasing. I don't think it'll be a lack of number of people or a lack of demand for healthcare services. For us, we'll have to see the downstream impact in the purchasing patterns.

We clearly experienced a little of that in Q1 as deals moved into Q2. Even part of that pipeline that was expected in Q1 delivered, we think will now deliver in early Q3. That's a little bit of a lag effect, and that's the way we're most thinking about these macro conditions.

Okay, thank you.

Speaker 5

As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. One moment for your next question. The next question comes from the line of Vincent Calicchio of Barrington Research. Vincent, please go ahead.

Yeah, Bobby, I'm curious, how are the price accelerators playing out? Were they included in the four large deals you just landed?

Speaker 4

Yes, I need to check specifically those, but I believe we're now officially working them into every new and renewed contract and generally being accepted as, you know, as more an established pattern across all of healthcare IT. We're glad to have that model in place. In credentialing, learning, and scheduling, as contracts are gained and renewed, we're working in price escalators. They're, of course, negotiated, but we're actually finding it's a reasonable negotiation. We're trying to get essentially as best we can close to cost of living level adjustments on an annual basis. This will take three, three and a half more years to play out fully, but it's exciting to be layering it in with every single renewal of new contract. In fact, I think it would be an exception to not have them at this point.

Could you provide an update on Nurse Grid? In particular, I'm interested in the e-commerce performance.

I don't have the numbers right in front of me, but Nurse Grid, we have three or four monetization strategies on Nurse Grid, and several of them are at play. The core one is we launched Nurse Grid Learn in the application, and I believe it's doing in excess of about $50,000 a month in collected commerce revenue. We're generating revenue now through that network. It's exciting. We're also meeting needs for the nurses. We have a strategic partnership with a group called Planary and a business relationship with them. Planary is helping nurses consolidate student debt and save money. It's not really an advertising relationship. It's a business relationship, but their services are highly valued by our nurses, and we're beginning to refer business to them and share in that business outcome, while importantly saving money for nurses. It's really a fantastic kind of value add.

We launched a jobs function on the site, which is not yet generating revenue, but generating lots of interest. Watch for that in the coming quarters as we learn to help our nurses see opportunities in front of them. Finally, the audience for Nurse Grid continues to grow organically, passing, I believe it's, oh shoot, I hope someone will text me, 600, I think it's 640,000 monthly active users on Nurse Grid. I'll watch my text and correct that if I'm off a little bit, but I think it's growing around 1,500 to 2,000 a week. One other important point about Nurse Grid is we've now shifted the app to use our platform identity management service. All the nurses on Nurse Grid are logging in with an H-stream ID, which is an identity capability issued by our platform as a service capabilities.

That's going to allow us to bring even more value to the nurses on Nurse Grid as we're able to bring forward things like some of their credentials. For example, if they'd earned an American Red Cross certificate, it can now show up in their portfolio on Nurse Grid. I think it'll be even more useful to the nurses to be able to use and benefit from the platform identity service. Watch for more announcements in that area as well. Lots of advances with Nurse Grid and more to come.

Thank you, Bobby.

Speaker 5

This does conclude the question and answer portion of our call. I would now like to hand it back over to Robert Frist for closing remarks.

Speaker 4

Thank you, everyone, for participating in this earnings call. We look forward to the next quarter. Thank all HealthStreamers who made this all possible. I love being the spokesperson for your excellent work, and I look forward to reporting out on the next quarterly earnings call. Thank you, everyone, and see you next time.

Speaker 5

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