HealthStream, Inc. Aktie

Good morning, and welcome to HealthStream's First Quarter 2026 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded. [Operator Instructions] I will now turn the conference over to Mollie Condra, Head of Investor Relations and Corporate Communications. Please go ahead, Ms. Condra.

Thank you, and good morning. Thank you for joining us today to discuss our first quarter 2026 results. Also in the conference call with me 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 the conference call may contain forward-looking statements regarding future events and the future performance of HealthStream that could involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements. Information concerning these risks and other factors that could cause the results to differ materially from those forward-looking statements are contained in the company's filings with the SEC, including Forms 10-K, 10-Q and our earnings release.

Additionally, we may reference certain non-GAAP financial measures relating to the company's past and future expected performance on this call. The most directly comparable GAAP financial metrics and reconciliations are included in the earnings release that we issued yesterday.

So with that start, I'll now turn the call over to CEO, Bobby Frist.

Good morning, everyone. We do have a lot to cover this morning, and I'll ask Scotty and Mollie on guard in case I have a coffee set, working off a bit of a cold. That's my issue. I'm going to get through it though, just in case Mollie ready.

All right. Well, good morning, everyone, to our first quarter 2026 earnings call. We have a lot to go over starting with the strong financial growth we delivered in the quarter, which included record-setting revenues of $81.2 million. That's up 10.5% year-over-year and record-setting adjusted EBITDA, which has just pushed through the $20 million to $20.1 million. That's up 24.1% year-over-year.

Operating income grew 71.6% year-over-year. The strong performance in Q1 is allowing us to increase investment kind of beyond our original plan as we started the year, including in growth initiatives related to our current products, new products on the horizon, and accelerated use of AI. I'm going to talk about some of those investments towards the end of my section.

We're reaffirming our 2026 full year guidance and continue to anticipate revenue between $323 million to $330 million, net income between $20.4 million and $22.8 million and adjusted EBITDA between $73 million and $77 million. Our strong cash balance of $66.5 million and untapped line of credit and no long-term debt continue to position us well to take advantage of M&A opportunities as they arise as well as other capital deployment strategies that we believe will benefit our shareholders.

As a reminder, last quarter, I described 4 reasons why HealthStream's sees real opportunity in today's rapidly expanding AI environment. As AI continues to develop, I am pleased to reaffirm our increasing belief in each of those 4 reasons today. First, our health care user base continues to expand. Unlike companies facing seat compression from AI agents, health care keeps hiring and keeps growing with roughly 1/4 of all new U.S. jobs over the next decade projected to come from the health care industry.

And nurses, our largest user base, are leading that growth. AI is not expected to reduce demand for nurses if anything, it should free them to spend more time with patients and less time documenting.

Second, our data profile remains a meaningful differentiator. Our customers utilize our enterprise applications as a system of record for managing their learning, credentialing and scheduling programs. The data in these applications serves as a source of truth for our customers as they carry out their operations. I believe they'll use that source truth and training their own AI.

Third, in parallel -- well, in addition, around the data profile, in parallel, our career networks, which is going to be an area of investment, generate proprietary individual-level data that we believe is valuable for finding, developing, retaining and engaging the health care workforce. NurseGrid alone, for example, now reaches roughly 1 in 5 U.S. nurses, telling us where, when and for whom they want to work.

Third, our HealthStream platform is built to incorporate AI as a core element rather than bolting it on. Platform elements like the hStream ID, which we've talked about extensively in the past. And our growing API footprint serve as essential infrastructure to help enable AI-driven innovation in health care workforce technology.

Fourth, our ecosystem ties it all together. Millions of caregivers, thousands of health care organizations and dozens of industry partners, combined with more than 30 years of domain experience and the hStream technology platform creates something difficult to replicate. AI cannot manufacture an ecosystem like HealthStream, but it can enhance it and turn our ecosystem. In turn, our ecosystem can enhance AI in what we believe will be a virtuous loop of value creation for our customers and investors alike.

Building on that foundation, I'm pleased to share that we have meaningfully expanded our internal rollout of AI across the company and are making great progress. Adoption is broadening across teams. Our employees are putting these tools to work in their day-to-day and we are encouraged by the early productivity and quality benefits we are already seeing. It's still early days in terms of realizing the benefits of AI and with driving innovation as one of our company's 6 constitutional values, I believe our employees are on the front foot of ensuring that HealthStream is an innovator in this promising area.

Before we go further in our call, I want to briefly summarize our business for the benefit of anyone who's new to the HealthStream story, and I hope there's lots of you on the call today. First and foremost, HealthStream is a health care technology company dedicated to developing, credentialing and scheduling the health care workforce through technology solutions, each of which are becoming more valuable because of the interoperability they're achieving through our hStream technology platform.

We have also started to open our sales channels directly to health care professionals and nursing students through our 3 career networks. These help nurses, CNAs and students throughout their career journey. The company holds 20 patents for its innovative products, which have been awarded over 40 Brandon Hall Awards. Historically, we sell our solutions on a subscription basis under contracts that average 3 to 5 years in length, which makes our revenues recurring and predictable. In fact, 97% of our revenues are subscription-based.

We are profitable, have no interest-bearing debt and reported a strong cash balance of $66.5 million at the end of the first quarter of 2026. This strong cash balance allows us to allocate capital to product development, M&A, share repurchases and dividends.

We are solely focused on health care and more specifically, the health care workforce and those preparing to enter it. The 12.5 million health care professionals and nursing students in the United States comprised the core total addressable market for our solutions.

At this time, I'll turn it over to Scotty Roberts, will turn our attention to our financials and hear a report from Scotty. Scotty, take a look at 2026 first quarter and give us your financial outlook.

All right. Thanks, Bobby, and good morning, everyone. I'll be happy to cover our financial results for the first quarter with you this morning. And for the first quarter, our revenues were a record of $81.2 million, which was up 10.5%, operating income was $7.5 million and it was up 71.6%. Net income was $5.9 million, up 36.4%. Earnings per share came in at $0.20 per share, which is up from $0.14 per share, and adjusted EBITDA was also a new record of $20.1 million, which was up 24.1%.

Our revenues increased by $7.7 million or 10.5% and were $81.2 million compared to $73.5 million in the prior year. Revenues from subscription products were up $7.6 million or 10.7%, while professional service revenues were up $0.1 million or 4.3%. Our organic revenue growth rate was 5.8%, and the inorganic growth rate was 4.7% in the first quarter.

Inorganic revenues are associated with the versus 12 and Mission Care collective acquisitions that we completed in the fourth quarter of 2025. The first quarter of 2026 is the first full quarter with both operating as part of HealthStream. I'm pleased to report that both post-acquisition integrations are progressing well. Versus 12 is extending our reach into payer credentialing, a meaningful expansion of our addressable market and my CNA jobs is building momentum, connecting CNAs and home care providers with the organizations that need them. Together, these 2 acquisitions contributed $3.4 million in revenue in the first quarter, and we continue to see compelling opportunities to cross-sell and integrate their capabilities into the broader HealthStream platform.

In addition to the revenue contributions from these 2 recent acquisitions, our core business was supported by strong subscription growth performance from CredentialStream, which grew by 19%; ShiftWizard Wizard, which grew by 29% and competency suite, which grew by 17%.

Revenues from our legacy credentialing and legacy scheduling products approximated $7.6 million of our first quarter revenues and declined by 16% compared to the first quarter of last year, as we continue our efforts to migrate customers from those solutions. Our remaining performance obligations were $687 million as of the end of the first quarter compared to $613 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 that 67% will be converted over the next 24 months.

Gross margin was 65.8% compared to 65.3% in the prior year quarter and this improvement was primarily related to the growth in revenues and including contributions from the recent acquisitions.

Operating expenses, excluding cost revenues, increased by 5.3% or $2.3 million and product development increased by $1.6 million or 12.9%. Sales and marketing increased by $0.8 million or 6.7%. Depreciation and amortization increased by $0.6 million or 5.7%, while G&A expenses declined by $0.7 million or 7.7%. These operating expense increases were partially impacted by the recent acquisitions, while the G&A expense decline resulted from our office sublease.

To wrap up, our net income was $5.9 million and was up 36.4% over the prior year, and adjusted EBITDA improved to a record high of $20.1 million and was up 24.1% and the adjusted EBITDA margin was 24.8% compared to 22% last year.

So we ended the quarter with cash and investment balances of $66.5 million compared to $57 million last quarter. And during the first quarter, we paid $7.5 million for capital expenditures. We returned $1 million to shareholders through our dividend program, and we repurchased $7.5 million of our common stock under the share repurchase program that we announced in November of 2025 and March of 2026. In addition, we made $1.8 million of the minority investments in companies that we expect to leverage our ecosystem and our platform.

Our days sales outstanding were 39 days for the first quarter compared to 37 days in the prior year first quarter. Our objective is to maintain our DSO in the 40- to 45-day range or better and I'm pleased with our continued progress in this area.

Cash flows from operations came in at $27.1 million for both the current year and the prior year first quarter. Cash flows were partially impacted by the minor increase in DSO that I just mentioned as well as higher payments for sales commissions following the strong bookings that we achieved in the fourth quarter of last year.

Our free cash flow was $19.7 million, which is up from $18.2 million from last year, which is an increase of 7.9% and our capital expenditures came in at $7.5 million compared to $8.8 million last year, ending the quarter with $66.5 million of cash and investments, free cash flows and no debt, we are well positioned to deploy capital to improve our shareholder value. As a reminder, 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 and our fourth priority is that our Board may authorize share repurchase programs.

Yesterday as announced in our earnings release, our Board of Directors declared a quarterly cash dividend of $0.035 per share to be paid on May 29 to holders of record on May 18. And during the first quarter, we made share repurchases of 7.5 million under 2 board authorized share repurchase programs. We repurchased the remaining 5 million under a $10 million share repurchase program that was authorized by the Board of Directors in November of 2025. And in March 2026, the Board authorized a new $10 million repurchase program, and we made 2.5 million of repurchases under this plan during the first quarter, and we've continued to make repurchases during the second quarter. This program will terminate on the earlier of September 12, 2026 or when the maximum dollar amount under the program has been extended. We may suspend or discontinue making purchases under the program at any time.

And I'll finish up this morning by just recapping our financial outlook for 2026, which we are reiterating the guidance that we previously announced in February. We continue to expect our consolidated revenues to range between $323 million and $330 million; net income to range between $20.4 million and $22.8 million; adjusted EBITDA to range between $73 million and $77 million; and capital expenditures to range between $31 million and $34 million.

For the second quarter, we expect our revenue growth rate will approximate 9.5% and adjusted EBITDA margin will approximate 23%. Consistent with our operating budget for the year, we have several planned operating expenses that will begin in the second quarter, including higher labor costs, higher marketing costs from trade show, sponsorship and attendance and new technology investments to support our infrastructure, among others.

In addition, our strong performance in the first quarter provides us with additional capacity to accelerate investments towards several initiatives, such as our career networks. These guidance expectations do not include the impact of any acquisitions or dispositions that we may complete during the year, gains or losses from changes in the fair value of nonmarketable equity investments or contingent consideration or impairment of long-lived assets that we may complete during the year.

That's all I have for today. Thanks for your time this morning. And Bobby, I'll go ahead and turn the call back over to you for some more updates.

Thank you, Scotty. I'm going to start this section of the call as we usually do with some business updates that highlight successes we've achieved in the learning credentialing and scheduling areas, along with updates on our career networks.

Let's start with the learning product family, which includes the competency suite. Many customers are increasingly taking advantage of the opportunity to purchase a bundle of several of our most popular workforce applications and content libraries, which we call the competency suite. Customers purchase a subscription of the competency suite for all of their employees that are applicable, particularly the clinical staff, which comes with unlimited use. We saw strong momentum of this product in the first quarter with a 17.3% increase in revenues achieved.

Our American Red Cross Resuscitation Suite continues to be in demand by customers. In the first quarter, we provided the marketplace with 18 updated courses, which included education content in our BLS, ALS and PALS programs. The updated content was deployed simultaneously across the entire customer network in a single day, all aligned to the new core science guidelines.

Among the sales successes we had in Q1 with the resuscitation suite was a decision by Cedars-Sinai Medical Center to renew and expand their number of users by 50%. We also informed us that the expansion will be beneficial as they have been named the official medical provider to the 2028 L.A. Olympic and Paralympic games. That's super exciting for our teams as well.

Now let's move to credentialing where our flagship product CredentialStream continued its strong menu in the first quarter. Revenues from sales of CredentialStream in the first quarter were up approximately 19% over the same quarter last year. One thing we love to see is to see our customers growing along with us and some of our customers meaningfully expanded through the M&A last year. In fact, 2 of our largest CredentialStream sales in the quarter were significant expansions due to M&A and enterprise-wide standardization, on CredentialStream.

We take it as a strong but of confidence on our customers trust and rely on CredentialStream so much as a system of record that they choose to stop using solutions from our competitors and standardize on CredentialStream when they expand their operations. We are dedicated to repaying that mode of confidence by helping these customers improve their operating results by reducing the time it takes to onboard enroll credential and privilege their physicians.

There's just huge economic benefit when a health system or one of our customers can show demonstrable improvement in the time to revenue on these physicians. We believe our software plays an essential role in getting that outcome.

Virsys12, which we recently acquired in order to expand our market share, that product offering and expertise in the payer credentialing space also delivered one of our top 3 credentialing wins in the quarter. We're still in the earlier phases of our expansion to the payer market, and we are pleased to see Virsys12 already contributing to that effort.

Let's move to scheduling, where our core product, ShiftWizard, continues to deliver strong revenue growth with first quarter revenues up approximately 29% versus the first quarter of the previous year. It continues to be our top-performing product in our scheduling application suite. Our top 2 ShiftWizard deals in the quarter were once again take out of a competitor that is horizontally focused that is only focused on health care. Our sales leaders attribute these wins to the fact that our growing ShiftWizard customer base is increasingly touting the value of the health care specific solution that ShiftWizard provides.

When the rubber hits the road, scheduling and staffing clinicians are simply different than scheduling, the labor pool for retail or factory shifts and the market is taking note of that.

Now let's turn to our career networks. They include my myClinicalExchange, NurseGrid and my CNA jobs. Importantly, career networks directly benefit both individual health care professionals as well as the health organizations seeking to employ and engage them. For individuals, HealthStream career network serve as a career catalyst through every stage of their pre-professional and professional journey. Last year alone, myClinicalExchange connected over 364,000 nursing and allied health students to clinical placements.

NurseGrid, the #1 app for nurses in the Apple App Store, engaged over 683,000 monthly active users and myCNA jobs, which connected approximately 70% of of America's direct care workforce in the home space. In doing so, these solutions guided caregivers through every stage of their career journey, helping them discover their path and build meaningful professional relationships, access focused learning and advance to what's next in their career.

For health care organizations, our career networks provide employers with direct access to the largest, most engaged audience of nurses and caregivers through targeted recruitment, development pathways and in-app promotion. myClinicalExchange served as the first touch point for helping over 715 health organizations and over 1,900 schools seeking to place nurses and allied health students into clinical rotations.

NurseGrid was utilized by nurses in approximately 37,000 unique clinical sites as NurseGrid users manage their professional calendars and engagement across those sites. Finally, myCNA jobs helped over 8,000 health care organizations access our home caregiver CNA community to promote work and learning opportunities. To date, the usage of our career networks has created over 450,000 hStream IDs and counting among students, nurses and allied health workers.

In aggregate, Career Networks contributed approximately $3.8 million in the quarter. While this is modest compared to the company's total revenue, we believe that growth potential, differentiation and diversification of Career Networks makes them an important area for incremental investment. We are already enrolling some of the profits from the quarter's outperformance into new sales hires for this area, the Career Networks and into scaling the 3 solutions.

I'm pleased to announce the promotion of Michael Collier as we wrap up this quarter's news from Executive Vice President, Corporate Strategy Development and Operations to Chief Operating Officer and Executive Vice President. In this expanded role, Michael will lead Enterprise Operations across HealthStream, including customer experience, corporate development and M&A, implementations, legal, human resources and other critical areas, he's taken on a lot. He also served as executive sponsor for the company's AI transformation, driving AI readiness across operational teams. Since joining HealthStream in 2011, Michael has been instrumental in our growth, including leading more than 2 dozen successful acquisitions. We look forward to his continued leadership in this expanded capacity.

Before we move on, I want to remind our shareholders and investors that if you're already a shareholder, then you know that our Annual Shareholders Meeting is scheduled to take place virtually on Thursday, May 28, at 2:00 p.m. Central. Notifications of the meeting and access to the proxy statement, 10-K and show a letter were sent out on April 13. We encourage you to vote your shares and participate in the future of our company.

And now I want to close the same reminder I share with you every quarter. If you are interested in a highly and recurring revenue, a profitable health care technology company that expects to deliver growth that HealthStream may be the right investment for you. If you're interested in a company whose core user base, the clinical workforce expanding faster than any other sector in the job market then maybe HealthStream is the right investment for you. if you like a company whose software serves in the system of record on behalf of health care customers in HealthStream may be a company for you. If you favor ecosystems over point solutions then maybe HealthStream is the right investment for you. For all of these reasons, HealthStream is positioned for another exciting year, helping the nation's top health systems find, develop, credential, schedule, onboard and retain this growing health care workforce. Maybe HealthStream is the right investment for you.

I'll turn it over to our sponsor and the operator to begin the Q&A session. Thank you.

[Operator Instructions] Our first question today is from Matt Hewitt with Craig-Hallum Capital Group.

Congratulations on the strong start of the year. Maybe first up, obviously, a nice pop in gross margin sounds like some of the acquisitions or the acquisitions we're aiding in that. Should we anticipate a little bit more lift here in Q2? And longer term, how could that play out? I mean, are you anticipating annual improvement in gross margins? Or is it more about driving operating leverage as you kind of go forward?

Scotty, I'll let you take that one to start.

Yes. Really, Matt, no significant expectation of improvement in gross margin. I think the 65.8% what we delivered in Q1 was probably a little bit ahead of where we expected to be in the quarter, and it's just revenue mix got a little bit of improvement in revenue in the first quarter, a variety of things. Some of that's timing things that we anticipated to come in and say, Q2 or Q3 kind of move forward in the year. Some of that's just early activations from customers that we had sold in Q4 some consumption-based revenue, things like that, we're pulling forward. So we got a little bit of improvement in margin because of that. Some other ambitions for moving to the cloud could compare margins a little bit over time as it makes some of those transitions, but that's still a good ways in front of us to see how that plays out, but that's just something that's on our to-do list for this year to begin this year anyway.

Got it. And then maybe a question for you, Bobby, since you addressed it in your prepared remarks, but you spoke to how AI is expected to drive increasing efficiencies with nurses. What do you think will be the downstream effect of that? Will that allow them more time to care for patients? Will that allow more time for them to work on their training and education and those types of things from a hospital's perspective? Does that mean if the nurses are becoming more efficient, maybe they don't need to hire as many? I'm just trying to think what the downstream effects of AI adoption by the nursing group would be.

Yes. Overall, we see a shortage of nurses and we see the early successes of the deployment of AI in our customer base are around ambient listening and ambient listening definitely frees up more time for the nurses and caregivers to spend with patients, which I think is greatly appreciated by all patients and helping the health systems put a more friendly face on their adoption of technology. So I think the early use and adoption is in areas that will directly impact the patient experience in a positive way.

As far as demand for nurses go, I and every report that I read, seem to think that there's far more demand than there will be supply for the next 5 years plus. And so I don't see fewer caregivers. I see more and a better opportunity to be more personalized in the care delivery. So we view that as an opportunity to be a close allied to all those health systems. We've kind of continued to expand the value that we provide by these career networks, helping house tools not just develop and retain the ones they have and, say, for example, through our learning capabilities, but now helping find, identify, match new talents for them to employ. So we're certainly seeing more of the continuum of the workforce need and at a time of great need for more workforce. So we think we're well positioned with the mixture of our product sets to be a great ally to these health systems.

Our next question is from John Pinney with Canaccord Genuity.

It's Richard Close here. Just Scott, maybe a question on the revenue, $3.4 million acquired revenue. I'm curious, is it okay to annualize that to get to $13.6 million expected contribution from the acquisitions this year? I'm just trying to get a sense of like the organic growth that is embedded in the annual guidance.

Yes. I believe our expectation we mentioned this, I think on last quarter's call was for the 2 acquisitions, we were targeting around $13 million for the full year. So maybe the annualization of Q1 might be slightly ahead of that $13 million, but I think $13 million is where we would still try to forecast it too.

Okay. Great. That's helpful. And then you've been providing some, I guess, commentary on the legacy license drag in the past. I'm just curious if there's any update in terms of what the impact there was in the first quarter?

Yes. I think let me pull up my remarks, but I think it was around total -- one thing we did disclose this quarter was the amount of revenue from those legacy applications in the quarter. I think it was around $7.6 million. The decrease was, I think, around just 16%, 17% versus first quarter of last year. So I'll try to give a little more color on the magnitude of that bucket of revenue relative to consolidated revenue and also the continued rate of decline. But again, we continue to look for opportunities to migrate those customers to the new applications. So we do see some trade-offs there in that decline. Some of that's moving into the credential stream and ShiftWizard, but there's still some attrition going on as well.

Okay. And then I guess my final question, clearly, if you annualize the first quarter EBITDA gets you above the high end of the annual range. So I appreciate you calling out investments. Maybe a little bit more details on those investments and the timing of them? Is it like spread out all throughout the year? Just trying to better understand like what the cadence of EBITDA will be 2Q through 4Q.

Yes, let me start and then Scotty can add some color to it. I think the first area of investment we looked at was we had a budgeted plan as we ended the year to hire in the sales organization. And specifically, we've decided after this Q1 performance that we're going to add to that original plan. And so -- and even more specifically in the Career Networks area, we think the products warrant a stronger and bigger sales organization. So we're going to go ahead and start building that in the first half of the year, particularly in Q2. So from a timing standpoint, we're going to post some new positions in the sales area around our Career Networks and try to hire them.

Secondarily, the area is a high-growth area for us. And to keep it current and stay with it, we're going to increase our planned investments in the technology infrastructure specifically around my clinical exchange. We've got some work to do there. That was an acquired product originally. We've continued to enhance it. This will give us a chance to enhance it even faster and expand it. The constituent base for that is growing rapidly. And we want to make sure that it meets the needs of that expanding market. We've had some unique opportunities in the market, where we think we're well positioned against some competitors there. And so now is the time to both invest in the sales organization and the technical infrastructure for that category of product and even more specifically -- so that's career networks in general, but more specifically, even my clinical exchange, we're looking for putting more into the tech stack there as well.

So remember, that's interesting software. It has 3 constituent audiences. The students are a user, the nursing schools are a user and the health care orgs are users. So it's an interesting kind of network effect piece of software that has a kind of a market effect as the school adopted by hospitals in the region adopted and not get the students to use it as well. So there's a lot there to do technologically, and we're going to go ahead and increase our rate of investment in that tech stack.

Is that front loaded into the second quarter? Or is all that spread out sort of through...

At that part of the spread out, it will include a mixture of CapEx and OpEx to enhance the platform, the application suite. The sales team will be as fast as we can hire and onboard them. So -- and we already have several open positions in the sales team, we're trying to fill. So we're we're using some outside recruitment to go faster there as well as our incredible internal teams to try to find the talent we need to staff it up. I'd like to see that be front half loaded on the sales organization so that we might get some back half benefit. Certainly, we'll get benefit early next year, but sales people take a little bit of time to ramp up and get productive and closing deals.

[Operator Instructions] And our next question comes from Vince Colicchio from Barrington Research.

Bobby, what differentiated ShiftWizard in the competitive takeout wins? And were any of the large -- any of the wins involving large enterprises of ShiftWizard in the quarter?

On a relative basis, we did have some larger wins. They're not massive systems, but a 10,000 employee system went are ShiftWizard in the quarter. That was a huge win. And so yes, we're seeing more of the larger to medium-sized -- medium, large, I'll call them, not the super sized health systems make that decision. That was nice to see a couple of wins there, yes. So just in general, we think the -- as I mentioned on the call, the vertical specific nature of the software, is just, we think, more appropriate for the environment.

And we have a great long-term vision for the software as well. We're starting to outline a little bit more of that on some of the work we're doing to work to integrate our career networks with our scheduling systems, which aren't done yet, but I think we're getting some excitement around the future direction of where we're going with this platform, integrating both our applications and hopefully, also our career networks. And so there's some positive energy around that messaging as well.

And can you give us an update on your bundling effort in the small hospital market and somewhat related, how is the competency suite doing in the competency center doing in that part of the market?

In the small market, we're seeing a little bit of uptake. We have -- we created several what we call market bundles. These are specific to the skilled nursing space, the long-term care space, the small hospital space that are called the critical access hospitals. We're seeing some uptake. We're wrapping. We're investing in the sales team there and getting some good bundle selling. And so we're pleased with that. It's the bigger bundle as you point out in the company suite that are really helping drive growth. But I like adding the users of those smaller clinics facilities because we're an ecosystem. We want all these health care professionals because they may change jobs over time.

We want them in our network even at the small hospitals, but the revenue growth is coming from, say, the bundling of the competency suite to the mid-market and bigger health systems where we're seeing an uptick in the resuscitation suite when we see a medium to large health system switch to the Red Cross solution. And so the actual -- I think the revenue growth contributions are coming from the mid-market and above. But the small markets are very important to us. We're getting much better at both having the appropriate mix of products for them. And we view the market holistically like I think a physician in an urban or rural market are important to have in our network as well as the nurses in these rural centers, because, again, they do -- they are mobile over their careers, and we think of it as servicing the totality of the health care workforce, not just the urban centers.

I'm showing no further questions at this time. So I would now like to turn it back to CEO, Bobby Frist, for closing remarks.

Well, thank you, everyone, and especially to our -- a little over 1,100 employees who are delivering these great results. We have an exciting year in front of us and look forward to reporting the next earnings report here in another 90 days or so. Thank you all. We'll see you throughout the quarter.

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

Good morning, and welcome to HealthStream's Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, I would like to inform you that the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Mollie Condra, Head of Investor Relations and Communications. Please go ahead, Ms. Condra.

Thank you. Good morning, and thank you for joining us today to discuss our fourth quarter and full year 2025 results. Also in the conference call with me 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 free performance of HealthStream that involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements.

Information concerning these risks and other factors that could cause the results to differ materially from those forward-looking statements are contained in the company's filings with the SEC, including Forms 10-K, 10-Q and our earnings release. Additionally, we may reference certain non-GAAP financial measures relating to the company's past and future expected performance on this call. The most directly comparable GAAP financial metrics and reconciliations are included in the earnings release that we issued yesterday.

So with that start, I'll now turn the call over to CEO, Bobby Frist.

Thank you, Mollie. Good morning, everyone, and welcome to our fourth quarter and full year 2025 earnings call. We do have a lot to talk about this morning, and there are several topics we'll definitely cover the topic of the emerging landscape with AI. We're going to talk about our financial performance for the quarter and the full year. We'll go through some business and product updates at the end and turn it back over to you guys for questions. So nothing like the numbers first. Let's just kind of jump in. We finished the full year 2025 with revenues up 4.3% and adjusted EBITDA up 7.5% year-over-year.

For the fourth quarter, revenues were up 7.4% and adjusted EBITDA up 16.4% year-over-year. And then looking forward to 2026, probably the reason we're all in the call today, we expect HealthStream to show continued growth in each of the areas where we provide financial guidance as we anticipate revenue between $323 million and $330 million. Net income between $20.4 million and $22.8 million and adjusted EBITDA between $73 million and $77 million. These guidance ranges do not include any acquisitions we may complete during the year, though our strong cash balance of $57 million untapped line of credit and no long-term debt position us well to take advantage of M&A opportunities as they arise.

Later in the call today, I'm going to describe some of the exciting developments on our application suites, which we've talked about for years and are rather newer career networks, which we'll cover in a little bit of detail, the newest at the end of the call. But first, I want to talk a little bit about how HealthStream is positioned relative to the emerging context of AI and which trends we think are category of trends we think help favorably position us in that landscape. There's 4 categories I'm going to kind of discuss that are really more broadly positioning categories. So we talk about relative strength to others as we enter this massive period of change.

First category, because there's this concept of this SaaS Armageddon or SaaS apocalypse is to think about how AI might affect our end users. And so this first category is talking about the expansion of the health care user base. I think unlike companies that fear seat compression due to AI agents minimizing the number of their human subscribers, our user base of health care providers is expanding. In fact, the number of health care providers is projected to increase significantly in the coming years, particularly in the nursing workforce, which is our greatest strength as a company.

In January 2026 alone, health care accounted for approximately 82,000 of the 130,000 new jobs added in the U.S. According to the Bureau of Labor Statistics, that trend will continue with roughly 1/4 of all new jobs in the U.S. economy over the next decade being in health care. On average, hospitals hired 13,600 net new personnel each month in 2025. And nurses continue to be a strong component of this growth. From 2020 to 2024, registered nurses increased 9.4% overall, while nurse practitioners increased 38.5% and according to BLS. So this first trend translates into expanded opportunities for growth in our user base.

And I just think fundamentally, there's lots of areas of the market where there's lots of white papers, projections, futures are saying those jobs may be eliminated. And I think in our market, we're just not seeing those kind of projections. What we're seeing are projections of shortages and projections of increasing demand. And so at our core, is the health care workforce and at its core is the nursing workforce. And so we think that with our acute focus on that workforce pool, we have a relatively strong position as we enter the projections of how change, how dynamic of change will AI will impose on our marketplace.

In fact, when we think about it, the positive dimension of AI in our workspace is I believe that AI will enhance the roles of nurses. It will make them more human and have more contact with patients as some of their paperwork and other functions get automated. And so kind of in a great irony though this is 1 of the skills jobs that I think survives the apocalypse and, in fact, is enhanced by allowing the millions of nurses in our country to spend more time by the bedside with patients instead of less. So that's the first trend I want to talk about. The second is our data profile. And I think everybody has to get a grip around companies and organizations data profile. And I think that can be broken into 2 categories.

The first is thinking about the role of the software plays for the organizations it serves. And I think for several of our solutions, our systems serve as a system of record, kind of a foundational source of truth. For example, in the learning space, we have an authoritative position maintaining the horizontal and longitudinal learning records of millions of health workers over decades. And that strength of position as a system of record positions us well for the future of AI. AI is increasingly used to drive efficiencies and develop insights. The systems of record on which AI relies are becoming increasingly important.

In terms of learning and compliance, I feel confident that we serve as a system of record for more health care organizations than any other company. Customers value having a single system of record for the whole of their learning program because it allows them to easily store, report an actual insights into the development and assessment of their workforce, whether that is in the form of the use of AI or other tools. Traditionally, the data feeding into the learning system of record was generated solely from the use of 1 of our SaaS applications, such as the HLC, HealthStream Learning Center. That continues to be the case, but encouragingly, we're also seeing customers push other learning records they have into their HealthStream system of record.

They are accomplishing this through our learning API, which, of course, is included in their HealthStream subscription. So all that to say, just to reinforce that some of our core systems do serve as a system of record on behalf of our customers. And I think in a relative positioning world, I'd rather be there than just be a point solution. In terms of physician credentialing, our customers often refer to as a single source of truth. And this means that we maintain the system of record status of with key functions such as physician enrollment and privilege granting those functions originate and are maintained and spin off of our system of record.

So whether it is for learning or credentialing HealthStream's customers trust us to maintain secure, reliable and organized systems of record on their behalf. If AI has to make a true impact in health care, we believe and our company believes and I believe they -- it will need to rely on these systems of record going forward. The second component of data, if you think about a data profile, when you enter this world of change is trying to determine whether an organization is an aggregator of kind of publicly available data or their originator of unique data about their customers and customer organizations.

What is their relative data position. And I would say through our career networks, which we'll talk more about at the end, students, professionals like nurses, that interface directly with HealthStream for a variety of reasons, whether it's to find their first clinical rotation in a hospital as they're graduating or find their next shift or they're socializing with colleagues. These interactions create that access to this proprietary data that I would call original data. If you take our virally growing NurseGrid career network, for example, it's adding about 2,000 new nurses a week and now has over 670,000 monthly active users. That's a staggering 1 out of 5 nurses in the U.S. using NurseGrid.

And they tell us who they like to work with, who they like to work for, when they want to work how much monetary incentive will purse them to pick up an extra shift. HealthStream is originating this proprietary data. And more importantly, we're using it to the mutual benefit of the individuals who provide it and the organizations that want to employ them. By connecting individuals with employers to help both realize their goals, health care itself improves.

Everyone knows that AI requires data to be effective, and we believe that the data we are originating could be among the most valuable and beneficial for managing the health care workforce. That brings me to the third category, which is our platform and our platform strategy, we call it our HealthStream platform. Essentially, for over 5 years, we've been working diligently underneath the scenes and behind the scenes, investing in the creation of our platform, -- this is distinguished from our group of SaaS applications. The platform is a series of capabilities, of which by the way, AI is 1 of the 10 core elements of the HealthStream platform. That allows interoperability and allows our SaaS applications to behave more like an ecosystem than separate distinct SaaS allocations.

And we're also, through this platform able to connect to the backbone of these career networks. And so it's really an interesting kind of ecology that's evolving around the platform that we've built. So I just want to remind you that the platform strategy we have is an advancing strategy. It puts us in a more primary situation with our customers as they use the APIs of the platform, the data of the platform the data services of the platform. The interoperability they can enjoy between the different applications create more of an ecology effect instead of just stand-alone kind of workflows that we're excited about.

And so for example, one of the core elements of the platform is the Atrium ID, which is a fundamental building block needed to drive interoperability and innovation in the health care workforce technology we're building. So what we observe is the number of APIs from the platform, their utilization by customers and industry -- [Technical Difficulty]

Give us a moment, we are having some technical difficulties. I'm sorry, participants, we're having some technical difficulties. If you could just give us a few seconds while we try to sort this out.

Okay. This is Mollie Condra. I'm going to pick up and finish off this section for Bobby Frist. We figure out what's going on. I apologize for that. We were leading up to the fourth category, which is our ecosystem. And in that, you can have a great business vertical, a great data profile or a great platform. You can even have all 3. But if you don't bring them together at scale to form an ecosystem then it really doesn't create durable value. There are many dimensions to HealthStream's business, all of which work together to form a hole that is greater than its individual parts.

Something that AI cannot create is an ecosystem of millions of individual caregivers, like those choosing nurse grid or my CNA jobs, the thousands of health care organizations like those using our SaaS application suite and dozens of industry partners like the American Red Boss and world-class health care organizations, combining those elements with our 30-plus years of experience at our hStream platform architecture, and you have something that's difficult to replicate. The organic life of such a thriving ecosystem is not something that AI can simply code, but it's something that AI can enhance is something that can turn and enhance AI. At least that's our strong belief.

Now before we go further on the call, I want to briefly summarize our business for the benefit of anyone who's new to the HealthStream story. And this is something we do every quarter. First and foremost, keep in mind that HealthStream is a health care technology company dedicated to developing credentialing and scheduling the health care force through SaaS-based applications, each of which are becoming more valuable because of the interoperability they are achieving through our hStream technology platform.

We've also started to open our sales channels directly to health care professionals and nursing students through our 3 career networks for helping nurses, CNAs and students throughout their career journey. The company owns 20 patents for its innovative products, which have been awarded over 40 Brandon Hall awards. Historically, we sell our solutions on a subscription basis under contracts that average 3 to 5 years in link, which makes our revenues recurring and predictable. In fact, 96% of our revenues are subscription-based. So we are profitable. We have no interest-bearing debt, and we reported a strong cash balance of $57 million at the end of the fourth quarter of 2025.

This strong cash balance allows us to allocate capital to product development to M&A, share repurchases and dividends, of which we've done in the fourth quarter. We are solely focused on health care and more specifically, the health care workforce of those preparing to enter at. The 12.6 million health care professionals and nursing students in the United States comprised the core total addressable market for our solutions. So at this time, right now, we're going to turn our attention back to our results in this call. And Scotty Roberts, our CFO, will provide a more detailed discussion of the financial metrics in the fourth quarter and full year 2025, along with further comments about how we view our financial outlook for 2026.

So I'll turn it over to you, Scotty.

Hi scott, Mollie, by the way, sorry, I didn't realize that drop. So I was beautifully ad living on the script. But thank goodness, we had such a solid script and Mollie, you jump right in as needed. So fantastically to talk about the last minute of your presentation, a nice job, we're fine. But I did do a lot of great ad living, which maybe people are great fluid and go off script at least those that help develop it. So thank you, Mollie, and Scott, we will turn it over to you. I'll try to keep my iPad live, so I don't get cut off again. I'm not really sure where I dropped off. Sorry for that, I'll be available in the QA and I'll pick it up in the last third as well. So Scotty, you're on.

All right. Sounds good. Thanks, Mollie, and thanks, Bobby, good morning, everyone. Before going over to the financial results, I want to first point out several exciting events that took place during the fourth quarter. We completed 2 acquisitions versus 12 in October and Mission Care Collective in December, our Board of Directors authorized a $10 million share repurchase program in November with $5 million of the repurchases made in the fourth quarter and the remainder was purchased in January. In December, our CEO contributed $3.8 million of his personally owned stock to the company in order to facilitate the grant of equity to company employees in recognition of their contributions to the company and to further align the interest of those employees with our shareholders. .

The accounting treatment of the stock grant resulted in $3.5 million of noncash compensation expense and $0.3 million of employer taxes and administrative costs, which negatively impacted our financial results for the quarter. It's also worth noting that this stock grant resulted in no dilution of shares to any existing shareholders of the company other than our CEO. Now with that backdrop, let me go over the financial results for the fourth quarter. Unless otherwise noted, the comparisons will be against the same period of last year.

Additionally, I'll reference certain non-GAAP comparisons to adjust for the impact of the CEO stock grant. Revenues were a record of $79.7 million and were up 7.4%. Operating income was $2.4 million and was down 48.8%. Net income was $2.5 million, down 48.1%. Earnings per share was $0.09 per share, down from $0.16 per share, and adjusted EBITDA was $18.8 million and was up 16.4%. On a non-GAAP basis, our non-GAAP operating income was $6.2 million and was up 31.7%. Non-GAAP net income was $5.4 million and was up 9.5% and non-GAAP ETS was $0.18 per share, and it was up $0.02 per share.

Our revenues increased by $5.5 million or 7.4% and were $79.7 million compared to $74.2 million in last year's fourth quarter. Revenues from subscription products were up $5.8 million or 8.2%, while professional service revenues were down $0.3 million or 11.6%. Our subscription revenue growth was supported by continued strong performance from our core solutions with Credential stream growing by 21%, ShiftWizard growing by 31% and competency suite growing by 27%.

Now while a portion of the strong revenue growth in Credential Stream and ShiftWizard are from conversions from our legacy credentialing and scheduling applications. Revenues from those legacy applications declined by 27% compared to last year. Revenues from the 2 acquisitions that we recently completed were $1.6 million in the quarter. In addition, revenue increases from the annual pricing escalators that we began introducing into new contracts last year also benefited the year-over-year growth.

Moving on, our sales team finished the year with strong contract bookings, which led to an 11.2% increase in our remaining performance obligations [indiscernible] $691 million as of the end of the fourth quarter, and that compares to $621 million for the same period of last year. We expect that approximately 39% of the remaining performance obligations will be converted to revenue over the next 12 months and that 67% will be converted over the next 24 months. Gross margin was 63.8% compared to 66.2% in the prior year quarter, and gross margin was impacted by an increase in our cloud hosting costs and software licensing costs, which primarily from the credential stream application and the hStream platform.

The gross margin was also impacted by the noncash compensation expense associated with the CEO stock grant. This grant reduced gross margin by $1.3 million or approximately 170 basis points. Our operating expenses, excluding cost of revenues increased by 9% or $4 million of which approximately $2.5 million of the increase was associated with the CEO stock grant. We also incurred over $600,000 in transaction costs associated with the 2 acquisitions that we completed in the fourth quarter. Net income was $2.5 million and was down from $4.9 million last year.

Again, this decline was significantly influenced by the noncash compensation expense from the CEO stock grant. On a non-GAAP basis, net income was $5.4 million and was up 9.5% from the $4.9 million last year. And finally, adjusted EBITDA came in at $18.8 million, which was up 16.4% and our adjusted EBITDA margin was 23.6% compared to 21.8% last year. Switching to the balance sheet. We ended the quarter with cash and investment balances of $57 million, which compares to $92.6 million last quarter. And during the quarter, we deployed $35.1 million for acquisitions. We paid $6.8 million for capital expenditures returned $0.9 million to shareholders through our dividend program, and we repurchased $5 million of our common stock under the share repurchase program that we announced in November.

Our days sales outstanding remained steady at 35 days for the quarter, which marks the sixth consecutive quarter that DSO was at or below 40 days. For the year, our cash flows from operations were $63.3 million compared to $57.7 million in the prior year, which is an increase of 9.8%. Free cash flows were $31.1 million compared to $29.5 million last year, an increase of 5.5% and our capital expenditures were $32.2 million compared to $28.1 million last year, an increase of 14.3%. Ending the quarter with $57 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, 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. Our fourth priority is that our Board may authorize share repurchase programs. In regard to M&A investments, on October 8, we announced the acquisition of Virsys12, a health care technology company focused on payer credentialing. The consideration paid for Virsys12 consisted of $11.4 million in cash, taking into effect customary purchase price adjustments and a post-closing working capital adjustments.

And up to an additional $4 million of cash consideration may be paid over a 3-year period following closing, contingent upon achievement of certain financial targets. And then on December 15, we announced the acquisition of Mission Care Collective, a health care workforce company primarily focused on connecting nonmedical care caregivers and CNAs with job placement and numerous job-related programs. The consideration paid for Mission Care consisted of $24.6 million in cash and $4 million in our common stock. It also takes into effect customary purchase price adjustments and is subject to a post-closing working capital adjustment. And up to an additional $10 million of cash consideration may be paid over a 3-year period following closing, which is also contingent upon achievement of certain financial targets.

In respect to our dividend program, yesterday, our Board of Directors declared a quarterly cash dividend of $0.035 per share to be paid on March 20 to holders of record on March 9. This represents a 12.9% increase over the previous quarterly cash dividend. In November of 2025, our Board of Directors authorized a $10 million share repurchase program of which $5 million of share repurchases were made in the fourth quarter of 2025 and the remaining $5 million were made in January of 2026. Also in May of 2025 the Board authorized a $25 million share repurchase program that was completed in the third quarter of 2025.

To recap the full year, we achieved [indiscernible] million of revenue, $18.3 million of net income, $22 million of non-GAAP net income and adjusted EBITDA of $71.8 million. We made $30 million in share repurchases and paid $3.7 million in dividends to shareholders, deployed $39.1 million of capital on M&A and $32.2 million of capital expenditures. We remain focused on consistently growing the business both organically and inorganically while remaining disciplined with our capital allocation strategy. I'll go ahead and wrap up my portion of the call this morning by going over our financial outlook for 2026.

We expect that consolidated revenues range between $323 million and $330 million, which equates to a growth rate range of 6.2% to 8.5%. And to begin the year, we estimate that the fourth -- the first quarter revenue growth rate will be approximately 8%. We expect quarterly revenues to improve sequentially across the year with higher growth rates in the first half of the year than in the second half, which is primarily due to the timing of the 2025 acquisition. We expect that inorganic revenues will be approximately $13 million for the year.

We expect that net income will range between $20.4 million and $22.8 million, that adjusted EBITDA will range between $73 million and $77 million. The capital expenditures will range between $31 million and $34 million, and we expect that our effective tax rate will be approximately 22%. This guidance does not include the impact of any acquisitions or dispositions that we may complete during the year, any gains or losses from changes in the fair value of nonmarketable equity investments or contingent consideration, or impairment of long-lived assets. In closing, I'm excited about the opportunities we have in front of us and have confidence in our ability to deliver on another solid year of financial performance while continuing to create value for our stakeholders.

Thanks for your time again this morning, and I'll now turn the call back over to you, Bobby.

Thanks, Scotty. Well, let's see. Let's pick up with the business updates at the last third year. So I'll start off as I usually do with some core business updates that cover our learning credential in scheduling application suites. And then we'll talk about the newest career network, job. So let's start with the learning product family, which includes kind of a subset of what we call our competency suite. Many customers are increasingly taking advantage of the opportunity to purchase a bundle of several of our most popular workforce applications and content libraries, which we call the competency suite.

Customer purchases -- the customers purchase a subscription to the comps suite for all of their employees, which comes in an unlimited use format. Key sales of the competency suite during the fourth quarter included some of the nation's top health organizations like Intermountain Health, Northside Hospital and Dartmanfill. We think about our credentialing area, where our flagship product, credential stream, also finished the year strong in terms of new sales, expansion sales and importantly, conversions from legacy products.

Revenues from sales of credential stream in the fourth quarter were up approximately 21% over the same quarter last year, and we saw growth of approximately 23% year-over-year. Our largest sale in the quarter was a result of our winning a highly competitive RFP. Our next largest sale came from a referral from our partner, Virsys and represented a competitive takeout because the customer loves our comprehensive solution, AP integration capabilities from our platform and the use of cutting-edge data infrastructure that allows them to get greater insights faster, things that our previous system could not deliver.

Additionally, we are pleased that an existing HealthSystem customer decided to expand their Credential Stream access. As they standardize on the Credential Stream across all their facilities and also invested in our case review and performance metrics and products. The quarter for Credential Stream was not only about sales success -- as a result of infrastructure enhancements we made earlier in the year, Credential Stream delivered excellent system performance and high reliability, both of which were recognized and lauded by our customers.

We are also pleased that some of our large legacy Credential customers completed their conversion from EchoCredentialing in MSOW. For example, UPMC Health System, a major health system and Sutter Health being notable among those that successfully transitioned to our Prudential stream application. Through Credential stream, we're committed to helping those customers speed time to revenue for the physicians they onboard, which will improve their financial performance and ability to provide quality care.

To conclude my update on our credentialing business, I will say that 2025 saw total revenue contribution from Credential stream edge out total revenue contribution from all of our legacy credentialing products combined. As customers continue to see the value of credential stream, we expect this trend to continue and accelerate in 2026. Now let's move to scheduling, where our core product ShiftWizard continues to deliver strong revenue growth with fourth quarter revenues from sales up approximately 31% versus the fourth quarter of the previous year and up 24% year-over-year. It continues to be our top-performing product in our scheduling application suite.

And in 2025, revenue contribution from ShiftWizard was greater than revenue contribution from all legacy scheduling products combined this, too, is a trend we expect to continue in 2026. ShiftWizard is a good example of how vertically focused health care-specific applications benefit customers in ways that generic horizontally focused solutions simply cannot. In fact, our 2 largest sales last quarter were takeouts of a major provider in both the horizontal provider and both customers selected ShiftWizard because of the health care specific advantages that it offers.

For example, both customers identified the ability to gain greater visibility into and control over managing and engaging their clinical workforce to something that differentiated ShiftWizard over and above even the best horizontal solutions. Scheduling and staffing clinicians is simply different than scheduling a labor pool for retail or factory shifts. Increasingly, the market is realizing this fact and choosing ShiftWizard as a result. On our last call, I introduced an exciting new area of focus for the company, our emerging career networks like NurseGrid for nurses and my clinical exchange for students.

Remember, career networks provide value directly to the individuals who deliver care. You can contrast that with our enterprise application suites which provide value to health care organizations. Also made an important point on the last call that bears reiterating to really address the complex issues of today's health care workforce. We think that you have to have solutions for both individuals and for organizations. And here's the more important part to really change the game. You have to connect both of them together through a common platform, and that's exactly what we're beginning to do at HealthStream.

On December 15 of last year, we acquired Mission Care Collective whose primary offering is mycnajobs.com, which we are introducing as our newest career network. My CNA jobs helps recruit and retain a large set of providers that includes home health aids, home care providers and CNAs, which are also incredibly in high demand. And we also expect, for example, the CNAs, the demand for them to increase, particularly in the post and pre-acute markets. My CNA jobs originates data directly from individual caregivers enriching that data through proprietary technology and then utilize that data to help pair those caregivers with health care organizations that want and need to hire them.

Both the individual and the organization benefit as a result. As we get to individuals using my CNA jobs issued in HStream ID, they're better able to help manage their data and longitudinal record across both applications and employers. I want to close by giving you an example of how our customers are increasingly turning to HealthStream, as they manage the entirety of a clinician's journey from nursing school to retirement and everything in between. It's my view that many of the smartest health systems, and I'll name a few, like HCA and internal health are putting nurses at a center of their workforce strategy.

In some cases, these health systems are doing things like launching their own nursing schools. That's how much demand there is for these nurses and how much they realize the need to develop their competence and upskill them. They're actually getting into the nursing schools themselves. They're also purchasing our competency suite at scale, and they're engaging with our career network so they can officially recruit -- be efficient in the recruitment the development and that transitional onboarding that they do between the career network and to full unemployment. And they use our software then to recruit, retain, develop and onboard that professional staff.

It's my belief that other hospitals and health systems will look at these market leaders and see their extreme focus on this nursing workforce and their investment in it. And they'll see that it's generating a competitive advantage for these thought-leading and market-leading health systems like HCA and Intermountain Health and that HealthStream solutions are a central part of helping them achieve that strategic focus. I want to remind everyone that if you're interested in a probable recurring revenue health care technology company that expects to deliver growth, then maybe HealthStream is the right investment for you.

If you're interested in a company who is core user base, a clinical health care workforce is expanding faster than any other sector in the job market, then maybe HealthStream is the right investment for you. If you like a company who software serves as a system of record on behalf of health care customers, then maybe HealthStream is the right company for you to invest in. If you favor ecosystems over point solutions, then maybe HealthStream is the right investment for you. For all of these reasons, I believe HealthStream is positioned for another exciting year, helping the nation's top health systems, find, develop credential, schedule, onboard efficiently and then retain this growing health care workforce.

And I think that maybe -- if those are traits that you value in an emerging health care technology HealthStream is the right investment for you. I'll now put it back over to the operator so we can begin our question and answer.

[Operator Instructions] Our first question comes from Matt Hewitt from Craig-Hallum Capital Group.

Maybe first up, Mission Care, I think you noted that the inorganic contribution to revenues this year is roughly $13 million. I'm just curious what Mission Care margins look like were those similar? Or is there an opportunity there to maybe get those in line with the corporate average and so we could see some incremental margin lift over the course of the year and into next year?

It's a fair question, Matt, but we don't report margins on a per product line basis. We talked about our blended gross margins. And you could see a little bit of compression of that. I don't think that was due to the acquisitions, though. It's just due to how we're investing some of our cost of goods are going up on some of our application suites, which we're working on right now. In fact, we're conducting an RFP to consolidate some of our growing expense of our hosting services where we keep our content and our highly engaged applications. So we generally only comment on margins, not at a product level.

But look, I think all of our products are trying to push for higher margin in our legacy applications or our legacy business, I'll say, which includes the high cost of goods of royalties. And so in general, all these software businesses, I think, have the potential to pull our blended gross margin up over time. Even though right now, we're experiencing a bit of a surge in cost and things like our hosting costs as we expand the utilization of our application, which is great news, but we probably need to negotiate a little better on these. Some of these core services, the cost of goods underneath them as well.

And then maybe a second question. Press release and in your prepared remarks talking quite a bit about AI and the impact that can have on the market, how you're more sticky. And I think during your prepared remarks, in particular, you talked about how some of your customers are actually pushing other records into the HealthStream platform. And I'm just curious, one, is that there's some M&A opportunities there with those other platforms that are now being pulled into your platform, and two, does that further highlight the stickiness of HealthStream, meaning that AI isn't going to displace stream or your platforms, but rather it's a contributing factor, and you should be able to not only weather any potential storm in the future, but quite frankly, survive better because of it.

Sure. What I try to do is just give these categories where -- I mean the world is changing. Jobs are changing. Business models are going to have to adapt. And there's definitely something real here to how AI changes everything. First, we wouldn't say there's no threat to everything in my view, at risk of change and impact. That said, on many key dimensions, you kind of have to think about how well a company is positioned in each of those types of positions.

And I think this idea of being a system of record is an important concept to differentiate kind of long-term winners from losers. And so it's really encouraging for us to see our API libraries that are part of our hStream platform that our customers get access to, they're starting to use those APIs to push data from other third-party providers that's relevant to the system of record into our core datasets, which shows, again, it kind of emphasizes the difference between being a system of record and not being a system of record, being a point solution whose data is such in to other systems of record.

And so in several cases, like in our learning network, we see growing use of those import APIs, which means that they're saying, look, we would rather have our data on the learning journey about our workforce consolidated at the HealthStream platform level then spread across multiple systems or multiple point solutions. So it's just 1 indicator of a relative strength of our company as we enter this ever-changing world. It's changing at a really rapid pace.

And so we can't say that we're going to conquer everything. But AI is a fundamental component of our 10 components of our hStream form, so it's well in development. we are huge utilizers of the emerging AI tools ourselves in how we build our products more efficiently. And then on this 1 dimension, and we covered others, but on this 1 dimension of whether your software is a system of record or a point solution, we tend to lean towards being the system of record, which, by the way, is also true, for example, in our credentialing system. I think we made that point in the script as well.

Although I'm not exactly sure where I got cut off on the script, so I apologize for that, Mike, it looks like my device timed out and cut me out of the conference, and I was waxing poetic about these ideas and didn't catch that until the end. But anyway, I think -- thanks for the question on that 1 dimension, I just would say companies should -- when you evaluate companies for their viability and strength as they enter this change that being a system of record is 1 characteristic of a long-term survivor and grower instead of 1 under assault.

Our next question comes from Constantine Davides from Citizens.

Maybe, Bobby, just a question on career network that strategy with with something like my clinical exchange that you've owned now for 5 years or so, just give me a sense for what interoperability features are resonating most with customers and prospects in terms of integration between that legacy type of solution and the rest of the platform.

Yes, sure. So first of all, it's not a legacy application. It's a growing -- the business has tripled since we bought it in terms of just absolute revenue. I think it was around $2 million. We bought it pushing over $6 million or $7 million now. And so the my clinical change has grown its revenue contribution and margins of the company. So it's an exciting growth rate for the company. The second is exactly what you pointed out is what is the idea of the link between this career network for students in this case and say HR at a health system using, say, our learning record.

And so 1 little example of interoperability, which is happening today. we found when we surveyed those students that very few of them, less than 25% or 30% felt that the hospitals where they were doing their rotations were properly addressing their opportunity and saying, "Hey, we see you're doing your rotation in our hospital. We'd love for you to take a full-time job with us when you graduate. And so in other words, there's a huge disconnect between hospital operations and the clinical student doing a rotation at that hospital. And so what we did was we built a little widget that goes on a product called my team where all the managers are in our network.

And so we have this application it's broadly used by managers, and we're able to tell them that today, three students were doing rotations on the second floor of the hospital and they'll be to the next 5 hours, here's their names and their background, go say hi to them. And so we're able to directly connect these clinical rotating students was kind of there as previously almost a side thought hospitals kind of put that under their operations. But now we've turned it into recruiting opportunity. We're giving the information that Bobby Frist is on the floor doing their clinical rotation today, maybe go say hi to them.

And we found that large health systems are attributing that simple flow of information across the transom from the student who enrolled in that rotation using the Miclinical Exchange software to their arrival on the hospital where then kind of the resume pops up in the application of my team or a little widget and says, "Hey, there are 3 students today at the hospital. Go say hi to them. It will improve our odds of hiring on them when they actually graduate and become a professional. And so that's an example of using the data as a tool and it's just a simple data flow.

But that reminder, we see health systems taking advantage of that function, feeling they have a competitive advantage on recruiting those students when they graduate. So that's 1 example of the workflows that expand become more ecology like, like there, you're crossing from the SaaS world through the platform to the student enrollment world on my clinical exchange. So I hope that 1 little example gives you an insight to how we're thinking but it's just a manifestation of the data across this platform trend, which gives a competitive advantage to recruiting that student in the future.

Just shifting gears a little bit to legacy product headwinds. I think you said legacy revenue was down 27% from the prior year in the quarter. How much legacy revenue is still left on the platform? And I guess, at what point do you start considering a sunsetting strategy is something that's viable? Like how low does revenue has to get for that to be in focus for you?

Yes. When we look at classifying legacy revenues, they are true legacy revenues, meaning they're on applications that we're no longer selling. They're maintained and we allow our customers to renew on them, and they -- but we don't care a quote on them. We don't sell them. And so they're effectively -- they maintain that legacy status, but they're supported, they're beloved applications. We do our best to to keep customers happy on them until they decide to transition or our worst case scenario, they leave for another solution in the market.

And so that business, we were able to report the totality of the legacy portfolio in credentialing has been surpassed by the go-forward credential stream application. So at least in the credentialing space, if you take the total of all of our software tools, and the legacy revenues are combined across all the legacy applications, which they are 2 or 3, they're now less than the revenue from credential stream. And that is also true in our scheduling business where all the legacy businesses combined are less than the go-forward growing Shipwizard revenue stream.

And so we now have the majority of our work and growth is now on the go-forward application in both of those circumstances. Overall, and this is a little tricky to provide this, but I'm going to go ahead and do it. Overall, our legacy revenues across the company. And remember, -- these are good revenues. These are not -- legacy doesn't mean we don't want them. It just means that we're not selling any more of those products.

And there's a good probability that those renew year-to-year and year. So this revenue stream could continue for a long time, until it's either transitioned or lost. But approximately -- will last around about 10% of our total revenues are in that bucket across the company. So we've now kind of scoped the size of that and remember, it's important to remember that, that approximately, we'll just say a little bit over $30 million is desired revenue because we're calling it legacy, it doesn't mean it's not desired. It has a margin, in most cases, has an EBITDA contribution. It's just not growing anymore, and we're waiting to encourage those customers to transition.

And excitingly, in this quarter, we were able to talk about 2 very large Credential customers that made that move. And we believe they're happy customers on credential stream, for example, we identified Sutter and I believe UPMC were successful migrations from that legacy category to, in that case, Credential Stream. So -- now we've kind of quantified it, but it's a tricky thing to quantify because, again, it doesn't mean that revenue is going away. It just means those products we're not selling the core. And then you brought up the final question is, well, when do you start to force the decision? And we call that a sunset product.

And in that bucket of revenue, a little over $30 million, we have not told those customers, and we have not picked a date to officially change it from legacy to a sunset product. And I would say over the next few years, we'll evaluate that and certain of those products will achieve what I'll call sunset status. And at that point, customers have been notified of an end date when those -- that technically will not be supported. So they need to start to plan and make a decision to move off of that legacy application. And again, we haven't done that yet, except in a few cases, and that's something we'll consider as the overall bucket of legacy becomes smaller and smaller.

And by the way, it's getting much more compelling to move to the newer applications every day for reasons like we talked about that the widget, for example, it makes 1 application even more powerful. If you're on a legacy product, you're not getting the advances of the ecosystem that we're building that we mentioned in the earlier case. So I hope that helps kind of quantify it overall, scale it and scope it and tell our ambition with it. And again, that bucket of revenue is generally a happy set of customers that we're trying to maintain. We do product releases. We -- the customers there are in a good spot, but we want them to be in a better spot. We want them to migrate or transition or convert to the go-forward applications that are all plugged into the platform.

Our next question comes from Ryan Daniels from William Blair.

Bobby, thanks for all the conversation on AI. I really appreciate that. A question for you in regards to that and a bit of a follow-up from an earlier one. You mentioned data origination is kind of a key competitive advantage because you can create that proprietary data. And I'm curious if that changes your capital deployment mentality at all, whether it's either via internal product development or how do you look at the M&A markets kind of go forward and create more of that proprietary data such that you can withstand any future AI headwinds?

It certainly does. Super exciting. As I mentioned, AI is 1 of 10 core elements of our platform that we're developing. And so there's capital already going into that to make it a fundamental kind of capability set a framework for deploying AI into our product sets. And several exciting products, enhancements extensions where we're deploying capital are underway now. And we'll have to way to reveal some of those directly, but I couldn't be more excited about some of the advances we're seeing.

And specifically, as it relates to data, we really are focused on trying to identify catalog, manage -- and so investments are increasing in the area of kind of data management, data classification, data rights management across all of our network. And so yes, capital is flowing into that area. Yes, organizing our data. For example, 1 of our core tenets of our platform is to get all of our data from all of our 27 applications updated nightly into nope and getting that organized and then, of course, getting all that data relevant to each other through the hStream ID, another core tenet of the platform is critical.

So yes, capital is flowing to this area. Yes, we're trying to distinguish, which data is kind of aggregated data, which data is proprietary data, which data can lend competitive advantage and long run, which data might train AI, for example, and I think in all cases, there's an increased emphasis and awareness of that from our board to our operators.

And then maybe another one just on the AI marketplace. Again, very rational conversation of why you're relatively well positioned. But I'm curious, if you talk to your sales team, are they seeing any hesitation in the market either with longer-term contracts with the elevated pricing each year, the inflationary pricing or any pause in buying decisions as the market CTOs kind of look at all the potential AI solutions out there? Or is it generally still business as usual on your sales cadence.

Let's see. I would characterize our fourth quarter is exceptionally strong in some areas, it was just fantastic. Just remember, it's the product sets in there that are just incredibly unique as they blend technology, content, data analysis together to solve a real problem. For example, our partnership with the American Red Cross is thriving. We think we have a really great partner there and a great product set. It's an interesting solution set that meets essentially a compliance-oriented need. And there are several of our products that are doing really well that that are a complicated blend of SaaS technology, data and benchmarking, reporting capabilities, physical.

In this case, the Internet connects to these physical manikins that evaluate the skill and then branded, high-quality, scientifically valid content. And so in that case, we're seeing that product growing very nicely and well positioned for continued growth. So in the fourth quarter, we saw wins in each of these areas, including things like our American Red Cross Resuscitation Suite. But we also saw some system wins on our comps suite at scale. Some of our largest deals I guess, I'd say, in our history, were closed in the fourth quarter.

So I think there's hesitancy in thinking through all the and CTOs. We're doing our best to educate the market about the emergence of our platform this year and then make us more relevant as a consolidator of services, not just a point solution here and a point solution there. I think there's more and more potential every quarter for us to position as a core consolidation platform. And yes, it has SaaS capabilities. And yes, those can be more rapidly built by competitors. But I think it is this interesting dynamic that we talked about of more ecology like behavior than a point solution or SaaS workflow behavior that we're seeing.

So I hope that gives a little bit more color on it. Overall, I believe there's a tremendous amount of change coming to all businesses to almost all workforces. But on these 4 or 5 dimensions we talked about today, I think we're relatively well positioned to learn, iterate provide value and capitalize on the value people expect to get from AI as it advances.

Our next question comes from John Pinney from Canaccord Genuity.

Yes. This is Richard Close. Just a quick question maybe housekeep and Scotty to begin with. We jumped on late. And just curious whether you gave the acquisition contribution Virsys12 in Mission Care for the fourth quarter? And then just to clarify, you said $13 million from the acquisitions and the '26 guidance.

Yes. So the I guess the fourth quarter impact for both acquisitions combined was $1.6 million. And then you're correct on the full year guide was $13 million.

And then, Bobby, maybe just on the AI front to continue to go down that rabbit hole. I'm just curious if you can provide some examples in terms of how you guys are integrating Gen AI, agenetic AI into various offerings that you have. Again, I apologize we got on late, if we missed that.

Yes. I think that road map will unfold in more detail over the course of the year. But needless to say, every one of our products has an AI road map and really interesting and fascinating projects underway to take advantage of the benefits that we would expect from AI. And so the workflows are being automated. We have an agentic framework around some of our learning capabilities that we're working on. We have this concept of the quantification of self using a vector analysis for some of the individual profiles in our system, making it kind of a tokenizable unit.

There's just so many interesting things happening. And I think we'll let that road map unfold over the course of the year. But every product manager is required to have an AI framework and an AI road map. And all of our developers are now using AI and any of you probably follow this within the last 30 days, there have been significant enhancements in the tool sets people are using to build applications, which just gets us more excited because we can get to more of our vision faster if we use these tools properly. But like everybody, we're learning to use the tools. So there's an internal application of them. There's the external extension of them.

And I think what I can say today is that -- of the 10 elements that we use to define the hStream platform, AI is 1 of the 10 and it has been for some time now. So we're not -- we're also not new to the idea of AI and how it's going to impact workflows and applications. And so I don't -- I just have to give a generic answer now that it's in our road maps. It's part of our kind of our DNA. It's part of how we're thinking. And we're doing our best to learn and stay on the curve with everyone else. And then we've talked about, of course, these categories of impacts kind of are we better positioned or less, better positioned to take advantage of the changes coming.

And then maybe just to expand on the AI front. Just I'm sure you're out in the market talking with various health system executives. And I'm just curious what their their conversations with you is gleaning with respect to separate AI budgets versus looking for AI in you said the systems of record, whatnot. I'm just curious if you have any experiences that you can share on your -- the conversations you're having with clients and potential clients.

Yes. There's a lot of dimensions to that. One is the CIOs of the country at these health systems are tired of having 400-point solutions. And so in that regard, if you're just a point solution, and you're not a platform. I think there is a definite high degree of interest in moving to fewer platforms that work together than, say, as many as 400-point solutions. So this is true. If you ask a CIO of a health system, their software profile. I think they'll tell you they have 2 or 3 platform choices EHR would be 1 choice where they pick between 1 of the 3 big ones. ERP will be another.

And then they have 500-point solutions. So the first point of dialogue with, say, the executive suite, particularly the CIOs, is look, we need to make sense of these 500-point solutions. And I think that's exactly what HealthStream is trying to do with our hStream platform is take 3 or 4 of them that are core, that are point solutions like scheduling credential and learning and make them interoperable. And then we're bringing this other dimension, which is the second point is which problems are you solving for me? And if I have a nursing shortage, how are you helping me more efficiently onboard these nurses? How are you helping to move costs from those nurses from when they're employed to when they're pre-employed.

And I think it's our theory of connecting this through the platform to these career networks that lets us have a business dialogue, not an AI dialogue, but a business dialogue about shortening the onboarding cycles and improving the value proposition of moving the cost from the health system, say, to the student period or getting the ready to work. This is a ready-to-work concept. So we're able to talk about business value propositions that are kind of universally the problems they're trying to solve, like with their labor pool side and the recruiting of nurses.

And so our dialogue isn't so much about just whether your budget of AI is going to shift, it's about how you're going to consolidate point solutions and about whether the vendors standing in front of you in this case, HealthStream can help solve a value proposition and do something more effectively. So I tend to lean into those. We can help onboard physicians more efficiently we can help recruit nurses and find the future high-quality employees. The students are going to be the best in your environment and help you match them. And so again, we just stick to the fundamentals of providing value to our customers on that journey. And then we can show how AI will facilitate those workflows.

So would you characterize the environment as not necessarily clients or potential clients being distracted by AI that they're still focused on these key areas of business improvement.

I think the smart ones are. I don't know to say it the other way. I mean, yes, I mean, obviously, even just through this call, everyone is trying to understand the implications and impact of AI. And HealthStream is in that group, all the CIOs we talk to are in that group. So yes, it's a lot of discussion on it. At the end of the day, I think the leading health systems are focused on the fundamentals of providing better patient care. And then they come back to the fundamental questions like, well, what is our cost of finding and developing a talented workforce and retaining them at the expense of our competitors, how do we have a better, higher quality workforce.

And so we keep trying to steer the conversation there and then show how all of the tools of HealthStream, including the unique dimensions like our career networks bring value to that equation. So just doubling down on the fundamental value that we provide is what we need to do. It doesn't mean that the dialogue isn't all consuming about the future -- the impact of AI. But like I said, Health care is a local business. It's a service provision business. It's a hands-on nurses and doctors on patients business as is surgery. And here, I think AI is kind of an augmentation process instead of an automation or replacement. Now there are plenty of back-office functions and efficiencies that can be gained with AI. And -- and there are certain roles that we expect fewer of them. But at its core, as I mentioned earlier, the nursing force is expected to grow. And I think they're going to grow and be more human through the use of AI, and those are the things that we talk to our customers about.

Our next question comes from Vincent Colicchio from Barrington Research.

Yes. Most of mine have been asked, Bobby. Just perhaps if you could just talk about the price accelerators, it was nice to see the contribution for the year. Has this mechanism played out as expected? What are your thoughts there?

Vince, it's so good that it took us about 3 years to put escalators in place. And we know it was kind of an industry norm. We had always focused on our negotiation around volume, commitment and term. And we didn't have these in escalators. So it took us a while to design the contractual infrastructure, the deployment, training the sales organizations. But now it is the norm, and it is the norm across software. To include inflationary level price escalators in contracts and it helps everybody strain. It helps the customers because if you're on a contract for 4 or 5 years with those small escalators, you don't get hit with a big price increase necessarily when you renew.

And so the escalators are kind of a smoothing function for budget planning. They're negotiated but generally accepted and I would say that every renewal and every contract now in all 3 of our major application suites include escalators in the contract. And so yes, we were excited to see that it started to impact us financially. And it is a slow role because if we do 3- to 5-year contracts, that means, let's say, on average every 4 years contract, every 2.5 years of contract comes up for renewal.

And then the escalator takes effect on the second year of the renewal, right, because it comes in year 1 and then year 2. So as we go through renewals and as we include escalators, it's having kind of a an impact, but it's a slow movement through the thousands of customers, but it's underway and every renewal includes an escalator.

Thank you. This concludes the question-and-answer session. I will now turn it back over to Robert Frist for closing remarks.

I was kind of head down and thinking about what I want to say, and I was telling the big story about AI, and I realized I looked up at my iPad had timed out -- and I think Mike under stepped in, Mollie,, I know you did a great job. I hope we got all the questions done in Q&A. Thanks for listening. I look forward to reporting the next report. I'm proud of the contributions of 1,100 health streamers and achieving these results -- and we've got another tough year in front of us with full of opportunity and challenges, and we're ready to take it on. Thanks all. We'll see you on the next earnings call. .

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

Good morning, and welcome to HealthStream's Third Quarter 2025 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded. [Operator Instructions]

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

Thank you. Good morning, and thank you for joining us today to discuss our third quarter 2025 results. Also on the conference call with me today is Robert A. Frist, Jr., CEO and Chair 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 could involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements. Information concerning these risks and other factors that could cause the results to differ materially from those forward-looking statements are contained in the company's filings with the SEC, including Forms 10-K, 10-Q and our earnings release.

Additionally, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HealthStream is included in the earnings release that we issued yesterday and we may refer to in this call.

So with that start, I'll now turn the call over to CEO, Bobby Frist.

Good morning. Thank you, Mollie. Welcome to our third quarter 2025 earnings call. It's always good to start a quarter off with this. In the third quarter, we achieved record quarterly revenues. They were up 4.6% from the third quarter of last year. Operating income was also up 16.5%, while net income was up 6.3% and adjusted EBITDA was up 7.9%, all over the same quarter last year. Now with the first 3 quarters behind us, we updated our financial guidance for the full year 2025 by keeping the same midpoints as indicated in previous guidance while narrowing the range for each of the financial metrics.

Later in the call, I'll provide some exciting developments in each of our learning, credentialing and scheduling enterprise application suites, but stay tuned because I'm also going to describe our career networks, which are an emerging part of our business that we're really excited about.

First, I want to highlight our recent acquisition of Virsys12, which closed on October 8. Virsys12 is a health care technology company that offers payers and health plans an innovative provider data management suite for onboarding, credentialing and network management. Right from the start, Virsys12 strengthens and expands HealthStream's entry into the payer and health plan space, which we entered around 15 months ago with the launch of Network by HealthStream. Over that time, we have seen strong demand in the payer market for a dynamic provider data management solution, and we've also identified the need to expand HealthStream's payer-related expertise to better address this market.

Not only does Virsys12 provide us with an excellent software solution and an expanded customer footprint, combined with our Network product, we now have over 25 active accounts, and it also brings world-class payer market expertise to HealthStream's leadership team. We're excited both by the quality of the Virsys12 solution and the quality of the expanded knowledge of leadership HealthStream has gained through this acquisition. We believe those things together position us well for success in this newly declared, about 15 months ago, market.

Before we go further in the call, I want to briefly summarize for those that are new to the business the business for the benefit of those that are hearing it for the first time. First and foremost, HealthStream is a health care technology company dedicated to developing, credentialing and scheduling the health care workforce through SaaS-based enterprise-class solutions, each of which are becoming more valuable because of the interoperability they are achieving through our hStream technology platform.

The company holds 20 patents for its innovative products, which have been awarded -- and we've been awarded over 40 Brandon Hall awards. Historically, we sell our solutions on a subscription basis under contracts that average 3 to 5 years in length, which makes our revenues recurring and predictable. In fact, 96% of our revenues are subscription-based.

Through our new career networks, and we've coined that phrase, we have started to open our sales channels directly to health care professionals and nursing students across the continuum of health care training. We are profitable. We have no interest-bearing debt, and we report a strong cash balance of $92.6 million at the end of the third quarter of 2025.

We are solely focused on health care, and more specifically, we're focused on the health care workforce and those preparing to enter it. The 12.6 million health care professionals and nursing students in the United States comprise the core total addressable market and target audience for our SaaS-based enterprise class solutions.

At this time, I want to turn the call over to Scotty Roberts, our CFO, for a more detailed look at the financial performance, and then we'll circle back and do some business updates. Scotty, it's all yours.

All right. Thanks, Bobby, and good morning. Now let's go over the financial results for the third quarter. Unless otherwise noted, the comparisons will be against the same period of last year. Our revenues were a record high of $76.5 million, which is up 4.6%. Operating income was $7.6 million, which is up 16.5%. Net income was $6.1 million, up 6.3%. EPS was $0.20 per share, up from $0.19 per share, and adjusted EBITDA was also a new record high, coming in at $19.1 million and was up 7.9%.

Revenues increased by $3.4 million or 4.6% and were $76.5 million compared to $73.1 million in last year's third quarter. Revenues from subscription products were up $4 million or 5.7%, while professional service revenues were down $0.6 million or 18.6%. Our subscription revenue growth was supported by continued strong performance from our core solutions with CredentialStream growing by 23%, ShiftWizard growing by 29% and Competency Suite growing by 18%.

While a portion of the strong revenue growth in CredentialStream and ShiftWizard are associated with conversions from our legacy credentialing and scheduling applications, revenues from these legacy applications declined by $1.7 million compared to last year. Excluding the impact of the legacy products from the core business, the core business grew by 8%. Our remaining performance obligations were $621 million as of the end of the third quarter compared to $549 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 that 67% will be converted over the next 24 months.

Gross margin was 65.3% compared to 66.5% in the prior year quarter, and gross margin was impacted by an increase in our cloud hosting costs and software licensing costs, primarily for the CredentialStream application and the hStream platform.

Operating expenses, excluding cost of revenues, increased by 0.6%. Product development expenses were flat compared to last year. Sales and marketing were up 5.6% and were primarily from additions to staffing. Depreciation and amortization was up 7.4%, and this was primarily from capitalized software amortization. And general and administrative was down 13.3%, and that's primarily due to the lower rent resulting from the sublease of a portion of our Nashville office space and also lower stock-based compensation expense. Our net income improved to $6.1 million and was up 6.3% over last year. And finally, adjusted EBITDA came in at $19.1 million, which was up 7.9%, and adjusted EBITDA margin was 25% compared to 24.2% last year.

And moving on to the balance sheet. We ended the quarter with cash and investment balances of $92.6 million compared to $90.6 million last quarter. And during the third quarter, we deployed $7.5 million for capital expenditures. We paid $0.9 million to shareholders through our dividend program, and we repurchased $6.9 million of our common stock under the share repurchase program that we announced in May. Our days sales outstanding improved to a record low of 33 days compared to 37 days last year, and this improvement resulted from more timely customer payments compared to the prior year.

On a year-to-date basis, cash flows from operations were $50.1 million, up from $46.5 million in the prior year, an increase of 7.8%. On a year-to-date basis, free cash flows were down about $0.5 million and came in at $24.7 million compared to $25.2 million last year, and that reduction is primarily due to a $4.1 million increase in payments for capital expenditures.

Ending the quarter with $92.6 million of cash and investments, free cash flows and no debt, we are well positioned to deploy capital to improve shareholder value. As a reminder, 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 the profits back to shareholders in the form of cash dividends. And the fourth priority is that our Board may authorize share repurchase programs, which they did earlier this year. In fact, in May, our Board of Directors authorized a $25 million share repurchase program. And during the third quarter, we repurchased $6.9 million of our common stock, completing the full $25 million program.

In regard to M&A investments, on October 8, we announced the acquisition of Virsys12 LLC, a health care technology company, which Bobby described earlier. The consideration paid for Virsys12 consisted of $11.2 million in cash, which takes into effect customary purchase price adjustments. It's also subject to a post-closing working capital adjustment. Up to an additional $4 million of cash consideration may be paid over a 3-year period following closing, which is contingent upon achievement of certain financial targets. In addition, we maintain an active M&A pipeline and continue to evaluate additional opportunities that align with our platform and product strategy.

Now let's go over our financial outlook, which has been updated as we enter the final quarter of the year. We expect consolidated revenues to range between $299.5 million and $301.5 million. We expect net income to range between $20.3 million and $21.5 million. We expect adjusted EBITDA to range between $69.5 million and $71.5 million, and we expect capital expenditures to range between $33 million and $34 million. This guidance also includes the recent Virsys12 acquisition but does not include assumptions for any additional acquisitions that we may complete during the remainder of the year. Our revenue estimate includes contributions of approximately $900,000 from the Virsys12 acquisition, offset by a $3 million expected decline in our legacy credentialing and scheduling products.

And finally, before I wrap up, in respect to our dividend program, yesterday, our Board of Directors declared a quarterly cash dividend of $0.031 per share, which will be paid on November 28 to holders of record as of November 17.

Now I'll stop here and turn the call back over to you, Bobby. Thanks.

Thank you, Scotty. As we enter this last third here, I'm going to do things a little differently today. Typically, I follow Scotty's financial discussion with business updates on learning, credentialing and scheduling application suites, and we're going to do that. But before I do that, we want to reclassify and recharacterize some work we're doing. We've kind of coined this phrase career networks. And so I want to explain what we mean by that and what's happening there because it is actually very exciting. So let's talk about these emerging career networks, kind of what are they. It's an exciting new space for us. And after this update, I think you're going to share my excitement about that.

So a quick framework. Our career networks provide value directly to the individuals who provide care. You can contrast that with our enterprise application suites, which provide value to the health care organizations, and then through them, to the individuals. So one set of solutions is geared to students and professionals, that's our career networks, and the other set of solutions is geared to businesses, that's our enterprise application suites. To really address the complex issues around today's health care workforce, we think you have to have both types of solutions. And I'll do one better. To really change the game, I think you have to connect those 2 in unique and powerful ways, and we're doing that through our common platform, which we call hStream.

Those who follow us know that HealthStream has been steadily building robust solutions to support the lifelong development of individual clinicians, and we are now referring to those as our career networks. Prime examples of this include our myClinicalExchange network and our NurseGrid solutions, which empower individuals to build, track and evolve their professional identity, skills portfolio and career over time.

This network includes over 250,000 clinical students using myClinicalExchange to prepare for their careers in health care and more than now 660,000 nurses using NurseGrid to manage and grow their career. myClinicalExchange streamlines the clinical rotation process for future clinicians, helping them match and schedule rotations required for graduation and licensure. These rotations not only deliver precepted experiential learning across nursing, allied health and medical disciplines, but they also expose students to diverse care settings and career opportunities within the organizations where they train.

NurseGrid is the #1 app for nurses with over 660,000 monthly active users and more than 3 million social connections and a 4.9 star rating from 150,000 reviews in the Apple App Store. You could really think of NurseGrid as a social network. We like to do an analog, and, of course, maybe everyone likes to say this, but it is becoming, we believe, the LinkedIn for nurses in health care.

I'll just give that as an example so you can kind of place it. It's a place for nurses to connect with colleagues, coordinate work and coordinate personal schedules. And that's a key interesting point there is they use it to coordinate their schedules, their personal calendars and their work calendars. They can also maintain a career portfolio. They can earn CEs directly as professionals. And similar to LinkedIn, users can discover learning that advance their careers, share career progress and explore work opportunities, full-time or part-time gig and travel assignments tailored to their specialty and location. And that's a relatively new capability in about the last 2 months.

Now let me give you an example of how our hStream platform is connecting our career networks with our enterprise software application suites in ways that make both of them more valuable. When a clinical student or a nurse joins myClinicalExchange or NurseGrid, they either log in with or they create an hStream ID. This unique identifier is the key to HealthStream's platform-level identity management, which connects users to applications and organizes their learning data throughout their career journey. To date, users in our career networks have created 391,000 hStream IDs with approximately 6,000 new IDs added each week.

A powerful example of hStream ID capabilities occurred just last month. We enabled users to automatically add their primary sourced verified credentials earned through the HealthStream Learning Center, our enterprise class learnings management application, directly to their portfolio, their career portfolio in NurseGrid. This seamless integration marks a significant step forward in empowering the health care professionals to manage and showcase their qualifications. It's a prime example of our hStream platform connecting the career network valued by the health care professionals to the enterprise application suite valued by the health care organizations.

Now let's take a break here and turn our attention to the enterprise application suites that provide the foundation for who we are today and where we're going. Let's hit some of the highlights of the third quarter, and I'll take them in order. The learning application suite -- and again, enterprise class is called the HealthStream Learning Center. It's our flagship product, and it continues to be preferred in the market. It was named #1 best software application in all of the health care industry by G2 at the start of 2025. The HLC, as we call it, the HealthStream Learning Center, grew approximately 7% in the third quarter of this year over the same period last year.

On the last day of the quarter, on September 30, we saw a record number of course and activity completions achieved by our customers. On that single day, 586,307 completions were accomplished through the HealthStream Learning Center. This milestone is a testament to the commitment of our teams in delivering reliable and powerful and scalable solutions to our customers. Importantly, when the HealthStream Learning Center is up for renewal, we frequently see customers purchase multiple new and additional products with it when they renew. This results in expanding wallet share from those customer accounts.

In the third quarter, for example, Jefferson Health chose to add CredentialStream, another enterprise class application, to their suite of products already contracted with HealthStream. Similarly, Premier Health chose to add the American Red Cross Resuscitation Suite to their account for their clinical staff enterprise-wide.

Many customers are increasingly taking advantage of the opportunity to purchase a bundle of several of our most popular applications and content libraries, which we call the Competency Suite. We bundle them together and the customer purchases a subscription to the Competency Suite for all of their nurse employees with unlimited use. The customer receives a discount compared to actual cost if all the applications and content have been purchased separately. This relieves the customer of having to go through the arduous process of making multiple one-off decisions and requests in the organizations and the budget process around separate products, while it is financially advantageous for HealthStream as well. Sales of our Competency Suite in the third quarter were up 18% over the same period last year. It is now one of our largest revenue drivers in our Workforce Development business.

The third quarter was strong for sales of CredentialStream application, which is our flagship application within our credentialing application suite. Revenues from sales of CredentialStream in the third quarter were up approximately 23% over the same quarter last year, while we're seeing growth of approximately 25% year-to-date. We believe 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 are enhancing CredentialStream to help health care organizations reduce the time it takes between a physician starting work and actually generating revenue from providing care.

Working together with our customers, we are developing solutions to reduce the approximately 120 days that it takes for a physician to onboard, enroll, credential and privilege a physician. We believe everyone benefits, including patients, from being able to expedite the time it takes to get physicians ready and available to deliver care.

Finally, let's turn our attention to ShiftWizard, our core enterprise class scheduling application. And it continued to deliver strong revenue growth in the third quarter, revenues from sales up approximately 29% over the third quarter last year. In terms of quarterly revenue contribution, we announced last quarter that ShiftWizard eclipsed our legacy ANSOS suite of products in the second quarter. It continues to be our top-performing product in our scheduling application suite. 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 on ShiftWizard came both from competitive takeouts as well as growth within existing customers.

I always like to remind everyone as we kind of summarize that if you're interested in a profitable recurring revenue, SaaS and now PaaS, Platform-as-a-Service health care technology company, that expects to deliver steady growth -- albeit incremental lately, but steady -- and is determined to share some of its gains directly with shareholders in the form of dividend, maybe HealthStream is a company and a stock for you to watch and invest in.

With that, as our conclusion, I look forward to delivering the next year-end summary. Of course, that will be early next year in February. But for now, let's turn it back over to the operator to begin the Q&A session.

[Operator Instructions] Our first question comes from the line of Matt Hewitt from Craig-Hallum Capital Group LLC.

Maybe first up on the Virsys12 acquisition and just a little bit more color there. So you had made the move into the payer market a few months ago. And I'm just curious, what are the key differences in that market? What are the customers in that market using prior to you kind of getting in? And where do you see that opportunity going over the next few years?

Yes. I think we're learning that. We created a version that was tweaked for that market of our CredentialStream application suite, giving us some new capabilities and how they manage the payer -- the provider rosters and several other small details. I think we learned that there are still more things that, that market needed. And the acquisition of Virsys12 brings them more, the experience and the background. And so we'll look forward in the coming quarters for us to distinguish that. But now we have the team and some additional technologies, and just a more complete view of the customer needs set there.

In the long run, we think there will be synergies between payers and providers using a similar architecture on the back end and particularly in the transfer of certain kind of core primary source verified data sets. So we're excited about that. But for now, it's a distinct market. It uses a mix of technologies from our acquisition and our adopted or adapted CredentialStream application. And we think we're going to be able to better meet the needs.

And Tammy Hawes, the CEO of Virsys12, has joined us to help lead our efforts in this market, and her team are really deep in their knowledge of that market. So I think it's just going to add momentum to a market that has a clear need for better provider data management overall.

All right. And then maybe kind of a separate question, but you've shown some nice EBITDA -- adjusted EBITDA margin growth or expansion this year. Where do you think that could go over time, especially with kind of the shift a few years ago where you're owning more of your content? Is that -- is there an opportunity for that to become a 30% EBITDA margin line? Or just what are your thoughts over the next few years there?

Yes. I guess what I could say is that if you look at kind of the core of classic HealthStream, if you go back 10 years even, it was really a model built on a razor blade strategy where this learning system, which is a high-margin SaaS application, was subscribed to. And then we delivered a lot of content. A lot of that was, as you point out, third-party content. Third-party content has a cost of goods, which is royalties. And sometimes we -- they sell and we get a high-margin fee to deliver their content. And sometimes we sell their content, where we collect the revenue and we pay out a high cost of goods or a royalty. And so the nature of that model, again, if you go back before we focused on where we are today, had a lower gross margin profile.

And so you're right to observe 2 things. One, in that model, we've increasingly signed more partnerships and on more favorable terms, and we've launched some of our own libraries that we own both the content and the data and the delivery mechanisms. And so we boosted our blended margin there. Now the relative growth rate of some of those products determines our overall blended margin. And I think it's also right to point out in the last, say, 3 or 4 years, we've moved from kind of the 55% to 65% sort of range in this margin measure. And that was due to this increasing mix shift, because most of the things we've been building in the last 5 years are higher-margin SaaS and PaaS applications.

And so where do we end up? Sure, I think almost every quarter or 2, we introduce new things. Those things generally have an intrinsically higher gross margin and EBITDA margin in their delivery because they're more SaaS and PaaS based. And so depending on the mix of sales, if we have a blowout quarter or 2 in partner products where we have a high cost of goods, it might pull that margin down a little bit. But I would say the overall trajectory would be upward pressure on the margins, meaning positive, moving towards a higher margin business because most of the new things we're introducing, and I talked about some of those today, are intrinsically higher-margin products than where we started as a business selling third-party content.

And so again, now, in any given quarter for the next year or 2, if we sell a lot -- and there's still a lot of market to go in products like the American Red Cross Resuscitation Suite, where we have a high cost of goods, but it's a beautiful product. It has a good EBITDA margin. It is, though, intrinsically a lower-margin product, obviously, because we have an incredible partner. In fact, the American Red Cross is the most recognized brand on the planet. I believe, by most measures, the #1 most recognized brand on the planet. So it's a great honor and a privilege to partner with them to take their products into the market. But as I point out, has a lower intrinsic gross margin profile for us.

But it's still exciting and it gains momentum. It's a unique product. But -- so the relative growth rate of that product versus CredentialStream and ShiftWizard and our policy management software and our now career networks, all of which are higher intrinsic margins, should in the future have a positive influence on our gross margin and EBITDA margins for the company.

[Operator Instructions] Our next question comes from the line of Richard Close from Canaccord Genuity.

Congratulations on a good quarter there. I got on the call late, but maybe wanted to hit on Virsys12 a little bit. I wasn't sure if you guys provided any revenue, I guess, details there on the business. I'm curious on the mix between maybe recurring and periodic revenue, maybe consulting, and the historical growth there. I don't know if you can provide any details.

Sure, Richard. The one number we did provide, and it doesn't mean -- there could be more when we guide next year. But the one number we did provide was our expected contribution of revenue in the fourth quarter. And that was -- it's approximately -- our estimate includes about $900,000. We did not break down the mix between subscription revenue and consulting. There is a decent component to consulting, which is really the implementation cycle. In fact, that's one of the things we like about the expertise of this group, is they seem to really know how to get enterprise class software implemented, and that should help us overall.

But there is a decent mix between subscription revenue for their products and essentially consulting or configuration revenue. And so while we didn't break that down, just know it's a reasonable mix and the estimated quarter revenue in Q4 is about $900,000.

Okay. That's helpful. And then just -- since you spent some time on the career network here, I was just curious if you could go over the monetization of, I guess, the offerings in career networks. And then the expansion of the TAM or the opportunity that these provide in terms of expanding your TAM?

Sure, sure. Let me spend a few minutes on that. That's a great question, and we're working on it. I mean we're really excited about what we're seeing, this organic growth in the subscriber base for both products. In fact, NurseGrid, as we mentioned, which we now consider and call our career network for nurses, is growing about 2,000 a week in subscribers organically with a very low marketing budget. So it's essentially a viral app. It's super exciting.

Now monetization, we have over 6 strategies for monetization, and each of them is at a different stage. Almost all of them are relatively new. The first was to start to offer education on a credit card purchase directly to nurses in NurseGrid Learn, and that was the first of 6 strategies. And it's trucking along and doing, I think, $40,000 a month or so in sales through the education channels that are commerce enabled. So super excited to see that start to get a little traction. It's fast pay and fast revenue recognition and fast value delivery. So we're really excited about that.

On the other end of the spectrum, we just launched a jobs capability, a little bit like LinkedIn. And so we don't have our first customers for that yet, but we've begun the process of helping people, and we see great activity with the initial job opportunities that we posted in there. So we're excited about that. Hopefully, we'll get our first enterprise customer for that soon. Given the size of our network, we have a lot of excitement around that. It's also -- we think of it as a career development network because we're building it like an ecosystem itself and bringing value directly to nurses.

We have a partnership with a company called Plenary and Plenary is a preferred and referred partner from inside of NurseGrid that helps nurses lower their cost of student debt. It's been amazing. We've helped over $2 million worth of loan consolidation already through our network where nurses have selected the Plenary services, and we revenue share with Plenary as they help nurses save money, consolidating their student debt. A really fascinating solution. We're trying to only build value-added services to the individual into the NurseGrid network. And I've just given 3 examples of monetization and many more to come.

We're working on a set of tools that will let enterprise customers communicate to the network and potentially finding former employees, for example, that we track now. We have -- now that we have a more longitudinal historical relationship through this app, where they use it even between jobs because of it's a social app. It's a way to find people and maybe communicate with them. And so look for more exciting opportunities there around the social and career network, as we call it, for nurses. It's getting exciting.

But again, all of them in their infancy and we're new to this kind of monetization, so we don't want to get too excited. But we want to just define it and explain it and show you some of the interesting things, too, because it's not a stand-alone network. Both myClinicalExchange, which I'll talk about in a second, and NurseGrid are connected through the hStream ID. And remember, the hStream ID is one of the core functions of the hStream PaaS or Platform-as-a-Service capability set that we have. And so what that means is that, as you heard me mention, we're adding thousands of new hStream IDs to our total ecology. And there's a lot -- and now they can get them. In fact, all the students in myClinicalExchange are issued an hStream ID. That's the only way they can use the software. So it's really exciting.

Both of those are using the platform service of the hStream ID, which essentially gives us a one-to-one relationship with those workers. Imagine they land in a hospital using other HealthStream products? They already bring a portfolio with them, which is super exciting. And some of those connections haven't been made, but that one is. The ID is used to log in now to both of those apps.

On myClinicalExchange, the student network, the initial monetization is a straight-up fee. It's about 50% of the time to the student -- about 50% of the time, it's paid for by the student. About 25% of the time, it's paid for by the nursing school. And about 25% of the time, it's paid for by the hospital. And so it's an election model, where the hospital and the nursing school can choose who pays the nearly $30.

And so typically -- and half of them are -- and it's grown about 0.25 million students. Pay about $30 to kind of register in the application, which then helps match them to rotations. And one of our bigger customers has learned now that they really need to pay attention to this network because a lot of those students doing rotations in hospitals are great future employees of those health systems. And frankly, from our research, hospitals and health systems do a really bad job currently of letting those students know that they're potentially valued future employees.

And so another example, we built a little set of tools that exist in our application called My Team that enterprises are beginning to use to communicate to the students. And so it's kind of like plugging HR into the network directly. So for example, when students are rotating at their hospital, a manager on the My Team application will get a little alert at that hospital saying, "Hey, we have 3 students from Belmont Nursing School today rotating on the second floor. Go say hi to them." That's going to improve their odds of recruiting that student when that student eventually becomes a professional.

And so little things like that where we're linking -- in that case, My Team is a feature of our platform as well, and that widget is a brand-new widget that lets them have an alert to know that, that student is in their hospital. And so we're connecting the enterprise to the individual, the individuals engaging through myClinicalExchange, the career network for students and the hospitals engaging through My Team, an application that ships with our platform.

So I hope that provides some clarity. Again, one is a subscription model and the other has a bunch of kind of LinkedIn style monetizations. And we're new to all of this, so we're learning. But we're learning rapidly, and we're really excited about their organic growth.

Maybe a follow-up on that. Whether it's either the career networks or some of the other parts of your platform, the enterprise side of it, do you see any opportunities to maybe monetize through something like how a Doximity does in terms of where there's some brand marketing, brand awareness from industry on the platform?

We do. I mean the clearest answer is if we had to say what we're modeling NurseGrid after, it would be LinkedIn or Doximity. And so we think -- I think it's fair to -- particularly NurseGrid, it's fair to think of it as the #1 social network for nurses and growing. And so again, we're new to that kind of monetization, but -- and nurses maybe have a different profile, value profile to industry than physicians like Doximity, where they're strong. But it is clear that they are valuable increasingly. Nurse practitioners, for example, are prescribing nurses. There's a shortage of nurses. So staffing. And large, large health systems have declared a lot of their strategy on building and strengthening their nursing core as central to their overall strategy for success. You see some of these large health systems even buying nursing schools.

So I think it's an important audience, and we're going to learn how important in the coming years. But I do think it's fair to characterize our ambition there to be aligned with the way you would think of Doximity and LinkedIn. And of course, this is a big ambition for a small company, but we like it. And we're starting to see these multiple paths to monetizing it and start to have a little light at the end of the tunnel as we launch some of these services really in the last 6 months, a couple of them are brand new.

Okay. And my final question, just a point of clarification. With respect to the HLC CredentialStream and ShiftWizard, the numbers that you gave in terms of the -- I think it was 7% growth -- what was it? -- 23% for CredentialStream, 29% for ShiftWizard. Was that bookings like new wins in the quarter? Or was that revenue contribution year-over-year growth?

They're smaller products, but that is revenue contribution. Scotty, please verify and take it forward.

Yes, that's right. That's the growth in revenues Q3 of this year versus Q3 of last year.

Congratulations.

Our next call comes from Vincent Colicchio from Barrington Research.

Yes, Bobby, a nice quarter with ShiftWizard. I'm curious, is the product at the point -- it's ready to penetrate large organizations? Did you sell to any large organizations in the quarter?

We've got a good pipeline of medium to -- of the large enterprise, smaller -- it's still not -- and I thought it would be here by now. It's still not quite ready for the biggest of the big. But we're making progress, and we are winning some, I guess, you could call them the upper middle class. And so good-sized contracts, $1 million-plus contracts. So we're excited to see that. But we've got work to do around the data management still. We're trying to leverage our platform data services, we call the Insights infrastructure, into both credentialing, for example, and into scheduling, and we're just not quite there yet. But we're on it and we're making headway. And I would say that we've got a nice pipeline of these upper middle-class opportunities, if you will.

No, that's good to hear. Can you provide an update on the -- what you're seeing in the small hospital and rural hospital markets?

Yes. We're working on bundling strategies throughout to address kind of the overall challenge of the marketplace. You heard us mention that even at the big scale, when people cross purchase, we're working on bundling strategies. We want to be viewed as best-in-class and the most economical, especially when you're a big customer and you use more and more of our suites. And so in the small hospitals, this is also true. I think they're definitely under financial pressure. Our strategy there is to be the most complete, highest quality solution, but also with the way we're bundling and getting the features just right for those smaller hospitals, the most economical. And so you're going to see us move to more bundling strategies by market.

We've launched our Critical Access bundle just a few months ago. And what it does, it's a blend of software and content. So instead of multiple decisions over time, like incrementally growing, we've kind of created a few opportunities to go a little bit more all -- not all in, but take a bigger chunk of our ecosystem under contract at a better price per unit, but a more complete selection of products.

So the Competency Suite is another effort at bundling that has started to show success. It's kind of reflective of the current economic reality, but also it's just -- frankly, it's simplifying our product suites and making them easier, a one decision instead of 5 separate decisions. So in all cases, for both economic benefit to customers under stress, and because we think it's probably overall a better selling strategy, you're going to see an increase in our bundling efforts.

So by way of example, in the small markets, we have our new Critical Access bundle, which we think kills the competition. We think it's got both software and content and multiple applications and a bundling of applications that our competitors don't have. And so instead of just buying like, for example, learning, which everyone has, we put in learning and a time management solution, which most of the competitors don't have. And if they have that, we add the policy management solution. So bundling is a key strategy and it reflects both, I think, a better selling strategy, but also addresses the economic pressures, we think, more effectively that the small hospitals are under.

I am seeing that this concludes the question-and-answer session.

Thank you. I do have a closing remark or 2. For the analysts that are still on, I just really want to point out our guidance. We tightened the ranges, but they stayed the same, and they factor in everything we know today, including the acquisition. And so one of the things you could note from our disclosure and our discussion was that you heard all these great growth rates and they're super exciting, but also a little caveat about the drop-off in legacy software up to $3 million in the fourth quarter.

So remember to listen carefully to our guidance as you think about how to model our growth rate and know that we're still working through these legacy issues, and that needs to be factored in and modeled. Now it's a positive and a negative at the same time. Some of the legacies are migrating and some are lost to the market, but that number in the fourth quarter is estimated to be about $3 million, offsetting all this wonderful and exciting new core growth in both our career networks and our enterprise class applications.

So all I'm doing is reemphasizing that in spite of all the excitement, you look at our actual guidance as we provided. We maintain the exact same midpoints as prior guidance and we narrowed the range. So we provided more clarity on the range of our expectations.

With that, I want to conclude the call, and I look forward to reporting again as we report year-end results sometime late February, I believe. Thank you all for your participation and following the HealthStream story.

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

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. [Operator Instructions]

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

Thank you, and good morning. Thank you for joining us today to discuss our second 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 could involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements. Information concerning these risks and other factors that could cause the results to differ materially from those forward-looking statements are contained in the company's filings with the SEC, and 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.

So with that start and that opening, I'll now turn the call over to CEO, Bobby Frist.

Good morning. Thank you, Mollie. Good morning, everyone. It does seem like a quarter of follow-ups. We've got some news to share about from our last earnings call related to our sales pipeline, macroeconomic conditions and, of course, financial results. So 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 shows we're moving up into 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. And so later in the call, Scotty, of course, will expand on each of those.

And there's 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. And those are the things we're most excited about and help driving 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 while we characterize them as medium or large-sized deals that were originally expected to close in the first quarter. And I'm pleased to report that 4 of the 5 deals that we were tracking were signed during the second quarter. And the average new order contract value of those was $2.2 million across each of the 4 deals that's closed. And also in good news, the fifth deal is expected to be signed here early in the third quarter. So I feel like that's a positive update on 5 deals that we -- while the timing wasn't as we expected the business outcome was solid and that it looks like we've landed 4 of the 5 and the fifth seems imminently, will be executed.

So the market conditions, we'll talk more about that here in a bit. But we're excited to have that be our follow-up on the 4 deals that we talked specifically referenced last quarter. Also, I think it's positive that those 5 deals were really nice balance across our broad portfolio of applications and suites. One of the deals closed, for example, was a multimillion dollar, multiyear 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. So we're very pleased to see a big win up in the Northeast for that product, again, multiyear, multimillion dollar contract. And now that they're a customer 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. So 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 multimillion dollar deal during the second quarter.

The third deal kind of rounding them out was a CredentialStream deal. So again, exciting to see progress from CredentialStream as well. It's another large health system and that selected CredentialStream to go enterprise-wide. And our Scheduling application was the fourth that's already been signed for ShiftWizard contracted by another top health organization as well. So these are 4 enterprise deals balanced across learning and development and our content offerings, our scheduling application and our CredentialStream application. So again, 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, 4 of the 5 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 AI to manage our business more efficiently, of course. And so there, we're looking at role augmentation, efficiency and development of the applications we build. And so we have lots of prototypes and pilots going on in the efficiency category. And then, of course, we're working hard to use AI to create competitive differentiation throughout all of our product suites and product offerings. And so a series of pilots spooling up using AI to reshape our future road maps.

So both those dimensions are well underway. And it's not like this is new for us. HealthStream has an established history of utilizing AI to improve health care. And in fact, beginning with the launch of our GenAI program over 5 years ago, our GenAI was one of the first solutions to use AI to assess the clinical competency and we'd say the clinical reasoning ability of nurses, and so it's a little different than a knowledge test that was using AI, natural language processing and machine learning to set out the clinical reasoning ability the kind of the quality of the clinical decisions being made from nurses. And so we think it's 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 GenAI and its use of natural language processing and deep learning to facilitate competency assessment of clinical staff, particularly in this. So we're excited to have earned yet another patent related to our GenAI technology as it continues to be kind of 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 and actually, in the back half of this presentation, we're going to give an update on the business associated with new advance. But the HealthStream Learning Experience application or the HLX, as we call it, was announced last quarter. The HLX is a modern health care specific application that offers the workforce personalized, and this is key self-directed intelligent learning and development pathways. And those incorporate a wide range of learning modalities. So we've kind of extended the dimensions of content available while we build these self-directed intelligent learning pathways for health care professionals using the HLX. And of course, it's engaging the individuals in a new way of a thoroughly modern user experience.

Also incorporated into the HLX is OpenAI's chat or GPT-40 LLM, and that's powering faster and more precise search capability for HLX users helping establish the foundation for powering smarter, more relevant recommendations based on the learner's profile of experience. Is kind of the more the HLX knows about you, the better recommendations it can make for your career development, skill development, comps development and testing and evaluations. And so super excited about the HLX and its advanced incorporation of OpenAI's GPT-40 LLM. And so I just want to give another example of our advances with AI.

We think that this together, GenAI and HLX are just a few of the examples of HealthStream's movement towards AI, getting our customers equipped to the latest tools in this case, in employee development and the assessment. I think central the successful implementation there is building a culture focused on AI. And we're working really hard to get all of our officers on board with everything from collecting the data they'll ultimately need 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, and so we're excited to get that out of the pilot mode and into kind of full production mode, we're excited to make those tools available to our developer -- our in-house developer capabilities.

Let's see, 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 and HealthStream is deep into that journey, setting up a really nice guidance structure over our AI projects and beginning to fund the use of these technologies and pilots and product development. So really excited about my team's advances there and the leadership of our tech leaders in the company helping us lead us forward in building a culture of incorporating into our business strategies and operations.

Before we go further on the call and before I turn it over to Scotty, I think it's useful in case we have new potential investors in HealthStream is just to kind of summarize to everyone the HealthStream story and reiterate what we are and we stand for. So first and foremost, HealthStream is a health care technology company dedicated to developing, credentialing and scheduling the health care workforce through SaaS-based solutions. And each of those are becoming, we believe, more valuable because of the interoperability that we are achieving through our hStream technology platform. We're kind of in this transition of trying to move from SaaS applications to a pass the 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 GenAI. I've been awarded over 40 Brandon Hall Awards in the recent years, showing our excellence in our learning, construction and development programs.

Historically, we sell our solutions on a subscription basis under contracts that average 3 to 5 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 health care professionals and nursing students across to the team with health care training. We are profitable, we have no interest-bearing debt and a strong cash balance of $90.6 million. We're solely focused on health care and more specifically the health care workforce and those preparing to enter it. The 12.6 million health care professionals and nursing students in the United States comprised the core total addressable market for our SaaS solutions and now, of course, our past-based ecology of applications.

At this time, I will 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. Unless 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 and 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 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 that 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 hStream 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 cost of revenues, declined by 2.9%. Sales and Marketing expenses were up 3.5% and was 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. And finally, 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. And finally, adjusted EBITDA came in at $17.6 million, and that was up 11.3%, and 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, $90.6 million compared to $113.3 million last quarter. And 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 days sales outstanding improved to 35 days compared to 45 days last year. And 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 midsized 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 flow improved by $1.3 million or 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. Third is returning a portion of our profits back to shareholders in the form of cash dividends. And 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. And 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 [ $3.01 ] per share to be paid on August 29 to holders of record on August 18.

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.

And 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 then this section, we'll jump into the business update, 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. HealthStream Learning Center continues to grow as do many of the solutions 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 health care specific application 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 point training where you push content to individuals. HLX helps shape educational pathways for individuals and it's more self-directed in nature. So the 2 together give a really rounded approach to learning and development. And it's a completely modernized built and one thing that is very excited about it, well, there's 2 things.

First, last month, the HealthStream Learning Experience went live with 47,000 users at a large health system. So it's moved, clearly, it's graduated from the pilot phase to a revenue-generating product in the quarter. So it's very exciting to go live with 47,000 users at a large health system. In response to the early -- an executive at that organization said, the utilization we are seeing thus far is incredible. And so we're excited to see it kind of move from the R&D labs and the pilot phase to a go-live billable product, and 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 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. And 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 health care.

The other thing about HLX is really our first hStream platform native application and that means it was built directly on and is fully integrated with our hStream platform. And 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. And this, of course, is a case in point. From Concept to now billable launchable product, enterprise-class product was about 18 months. And this is from whiteboard design to, again, a go-live billable event with a new customer, it was about 18 months. And I know that can seem like a long time, but it really is quite incredible to get that to happen. So again, we look forward to launching it into the broader market as an upsell opportunity to our large customer base and new customer acquisition.

Let's move to the Credentialing suite. It's a broad suite of applications, empowers health organizations to credential privilege and enroll, mostly their physician population. And last quarter, we did share with you we experienced some technology scaling issues with our CredentialStream product. And it is a happy report here that those issues have been resolved, and we're back on track with improved processes and expanded capacity. And Scotty mentioned that hitting our gross margin a little bit. So we've ramped up our capacity to handle what was then -- I think we're crossing over about 1 million subscriptions to the CredentialStream application suite. And so we had a capacity issue. We talked about it last quarter. We put our best [indiscernible] and minds on it in addition to scaling out our Azure infrastructure. And 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 3 primary application suites, CredentialStream was the strongest revenue grower versus the same period last year. So we're already benefiting from 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. And again, Scotty covered that. But I think there were wise investments. And of course, I wish we had been in front of it a little more and not have this response needed. But 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 portioned to innovate in ways that will drive profits and productivity for our customers. Specifically, we're enhancing our credential stream suite to help health organizations reduce the time it takes between a physician starting work are being hired offered a role and actually generating revenue by providing reimbursable care to patients. On average, we estimate based on a research, it takes about 120 days or more to onboard enroll Credential and privilege of position. And of course, if that's an important surgeon, every day that they're not doing surgery, as a day of lost revenue, we call it time to revenue for these hospital organizations, health care organizations.

And so for businesses -- from a caregiver standpoint and from a business standpoint, that's lost time and lost opportunity. And we're working with our customers and intent on collapsing that 120 days so that physicians can get to work faster. And we think that our suite of software, particularly as they're more integrated, for example, between our Learning applications and Credentialing, we're in a really good position to actually have an impact on a metric like that 120 days time to revenue, whereas nonintegrated learning functions like onboarding and HR separated from Credentialing we're less in a position. And so 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 separate applications, and 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 the 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 doing 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.

And then the backside of that is, unfortunately, the rate of decline in our legacy ANSOS 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 ANSOS legacy product suite revenue has diminished such that next year, we expect to start seeing less in terms of negative offset the ShiftWizard's strong growth performance. So 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 and health care policy. Exactly how the bill will shape health care 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 new health care policies, they have been preparing for several months now.

We believe that, that is one of the main reasons that the handful of deals I mentioned the first of the call, it 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 our 4 of our 5 customers, hopefully the fifth soon to follow, came to that same conclusion and decision.

We also believe that our hStream technology platform is beginning to produce results just in time, meaning the customers can begin to experience the benefits of interoperability. This is the year, as I declared, it's the year of the platform. And 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. So we're excited, we've kind of declared this is a 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 call, that 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 health care technology, and we're focused on the health care 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. And we think maybe HealthStream is that's the kind of profile you're looking for. Kind of a conservatively run but visionary aggressively on our visionary and what we're trying to build. Maybe a good company and stock for you to look at.

I'd like to conclude with those comments, and now I'll turn it back over to the operator to begin the question-and-answer session.

[Operator Instructions] The first call comes from the line of Matthew Hewitt of Craig-Hallum.

Maybe first up, on the gross margins, Scotty, you kind of 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 kind of get those back up the couple of hundred basis points that they were down?

Probably, we'll still can see it to have around the 65% mark for the remainder of the year. We still -- we'll 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. So we'll 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 kind of midterm objectives that we set forth several years back. So we're kind of falling to the bottom of that range, but we're still kind of in the 65% to 66% range.

Got it. And then regarding the HLX 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 for -- look like for that application? And what -- how should we be thinking about a ramp for that as we get into the back half of this year and look at '26?

Well, the first is that the ramp is forecasted in all of our guidance. So there's no exceptional change. Subscription businesses, steady incremental improvement is the way to grow a subscription business. I think the HLX gives us yet another opportunity to add that. It is an incremental add for base customers or a new entry point for new customers. And we've begun in the piloting phase for the last, say, 6 months, we've begun to tease it out with our sales team to seed the market with some educational materials about it. So I think now the pipeline building begins now that we have a live customer that, in fact, billing has begun for. So it is a revenue-generating product now. There's an incremental add-on. It is a subscription product and the business of building 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 kind of a paradigm shift that progressive organizations are more likely to adopt earlier. The ones that have a great interest in maintaining and developing the workforce and given 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 and so people can gain new skills and new areas. And so I think it's very relevant for today's workforce and to our customer base and the [indiscernible] business of building a pipeline is now beginning. We'll report on that in the coming quarters.

But again, I think it is an incremental opportunity, it's not something where we're changing our guidance based on the launch of the products. So I just want to -- I want to be careful. It's an exciting new subscription product that we hope to see incremental gains from.

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

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 like 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.

Sure. There wasn't a lot of detail, but I think 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. So in both cases, and we're kind of achieving new milestones where each quarter, the legacy applications a little smaller and a little less material to the overall financial outlook, while the subscription products as you heard, have good growth rates and are now the majority of the revenue in that category.

So I think that we did mention the offset this quarter. I think, Scotty, you mentioned, Scotty, it was about $1.8 million was the declines from the family of legacy products across Credentialing and Scheduling, and we didn't break it out by a specific line. But those declines for our overall growth rate down relative to the growth rates you're seeing on the subscription products. So we just, again, characterized it all. I think in ShiftWizard, we give a little bit more color just that the growth of ShiftWizard and the decline of ANSOS is hitting rates where in a couple more quarters, it will be even less material overall. And so maybe we can see a little more of the organic growth rate of ShiftWizard start to contribute as opposed to kind of almost fully offset growth when the loss is 1.8 and the gains are across subscriptions 2.9, you can see that it really affects growth.

Okay. That's helpful. And were you going to add something there?

No, I was just going to say Scotty, do you want to add more, but I think those are the highlights. And each quarter, we'll try to give a little more clarity as we progress.

Okay. That's helpful. And then on CredentialStream, I guess, through 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?

Well, 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 remain in high-level context, our account management programs and our executive leadership with all of our key customers. And 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, of course, factored into how we think about our overall guidance. So I don't think there'll be any major surprises. I would change how we changed 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. But I feel really good about how we responded and are working with all of our customers to get them all through it as well. And on the back side, just more capacity, more speed, more focused to do even better and to avoid this kind of problem in the future. So overall, nothing that would change our outlook for the year.

Okay. That's helpful. And then I guess my final question or final two. Just follow in all the health care related news sources and all that. There's been a decent not huge in terms of employment cuts by various hospitals and 100 here, 100 there, that type of thing. I guess, I'm curious how you think about that in terms of on overall subscriptions, I mean, you're -- you have such a deep penetration and maybe that's just modest cuts here and there, but how you're thinking about the whole health care employment market and any impact to HealthStream?

think overall, health care employment will continue to grow over the next 5 years and roles may change and 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 health care needs. And so -- and while if you look at research -- organizations are going through this reduction in funding from the federal government for research, sure their role position eliminations there. hopefully, the country finds a way to reinstigate its research programs and find new funding sources. But I think those are relatively small to the overall demand for health care 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 demand for skilled competent health care givers and we think we're part of that journey. So I don't see material changes certainly not downward in the employment numbers. Certain subsegments in 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. So 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 challenges. 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 on the new legislation.

For us, the macro conditions, I think employment will go up. And so that was the root of your question is around the number of people. I think over time, there'll be more health care providers. The way we would relate most closely, the macro uncertainty in the macroeconomic divisions are definitely 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. And right now, we're seeing record sized pipelines. But as you -- 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 and so what we'll be watching most and probably be more of a next year phenomenon is the impact of potentially slower purchasing. So I don't think it will be a lack of number of people or lack of demand for health care services.

For us, we'll have to see the downstream impact in purchasing patterns. And we clearly experienced a little of that in Q1 as deals move into Q2 and even part of that pipeline that was expected in Q1 delivered [indiscernible] we think will now deliver in early Q3. So that's a little bit of a lag effect, and that's the way we're most thinking about these macro conditions.

[Operator Instructions] One moment for your next question. The next question comes from the line of Vincent Colicchio of Barrington Research.

Yes, Bobby, curious, how are the price accelerators playing out? And were they included in the 4 large deals you just landed?

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 more an established pattern across all of [indiscernible]. So we're glad to have that model in place and Credentialing, Learning and Scheduling as contracts are gained and renewed we're working on price escalators. And they're, of course, negotiated, but we're actually finding it's reasonable negotiation. We're trying to get essentially as best we can close to cost of living level adjustments on an annual basis. So this will take 3, 3.5 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.

And could you provide an update on NurseGrid, in particular, I'm interested in the e-commerce performance?

Yes. I didn't -- I don't have the numbers right in front of me, but NurseGrid, we have 3 or 4 monetization strategies on NurseGrid and several of them are at play. The core one is we launched NurseGrid Learn in the application and I believe it's doing in excess of about 50,000 a month in collective commerce revenue. So 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 called Planary and business relationship with them and Planary is helping nurses consolidate student debt and save money. And so it's not really an advertising relation, 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. But while importantly, saving money for nurses. So it's really a fantastic kind of value add.

We launched a job function on the site, which is not yet generating revenue, but generating lots of interest. And so watch for the coming quarters as we learn to help our nurses see opportunities in front of them. And so -- and then finally, the audience for it to grow organically passing, I believe it's -- I should hope someone will tell me -- I think it's 640,000 monthly active users on nurses. And 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 NurseGrid is we've now shifted the app to use our platform identity management service. So all the nurses on NurseGrid are logging in with a hStream ID which is an identity capability issued by our Platform as a Service capabilities. And that's going to allow us to bring even more value because the nurses on NurseGrid as we're able to bring forward things like some of their credential like, for example, if they had earned an American Red Cross certificate, they can now show up in their portfolio on NurseGrid. So I think it will be even more useful to the nurses to be able to use and benefit from the platform identity service. And so watch for more announcements in that area as well. Lots of advantages with NurseGrid and more to come.

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

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

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