HealthStream Q1 2025 Earnings Report

HealthStream EPS Results

• Actual EPS: $0.14
• Consensus EPS: $0.16
• Beat/Miss: Missed by -$0.02
• One Year Ago EPS: $0.17

HealthStream Revenue Results

• Actual Revenue: $73.49 million
• Expected Revenue: $74.93 million
• Beat/Miss: Missed by -$1.44 million
• YoY Revenue Growth: N/A

HealthStream Announcement Details

• Quarter: Q1 2025
• Date: 5/5/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, May 6, 2025
• Conference Call Time: 9:00AM ET

HealthStream (NASDAQ:HSTM) provides Software-as-a-Service (SaaS) based applications for healthcare organizations in the United States. The company's solutions help healthcare organizations in meeting their ongoing clinical development, talent management, training, education, assessment, competency management, safety and compliance, and scheduling, as well as provider credentialing, privileging, and enrollment needs. It offers hStream, a technology platform that powers a range of healthcare workforce solutions. The company provides its solutions to customers across a range of entities within the healthcare industry, including private, not-for-profit, and government entities, as well as pharmaceutical and medical device companies through its direct sales teams. The company was incorporated in 1990 and is headquartered in Nashville, Tennessee.

HealthStream Q1 2025 Earnings Call Transcript

Key Takeaways

• Q1 revenues of $73.5 million (up 1% YoY) and adjusted EBITDA of $16.2 million (down 5%), with full-year guidance revised to $297.5 million–$303.5 million in revenues and $68.5 million–$72.5 million in adjusted EBITDA.
• Management cited temporary delays from five medium-sized deals pushed into Q2 and scaling issues in CredentialStream implementations as reasons for trimming guidance.
• Secured a landmark $14 million, five-year contract with a major health system bundling core application suites including the new competency suite, underscoring robust market demand.
• Core SaaS products drove strong growth—CredentialStream +25%, Shift Wizard +19%, Competency Suite +12%—yielding a 6% underlying growth rate when excluding legacy product declines.
• Leveraged a strong balance sheet with $113.3 million in cash, no debt, record free cash flow, and welcomed Charles Beard Jr. to the board as Dr. Bill Stead retires after 27 years.

Presentation

[Operator]

Good morning, and welcome to HealthStream's First Quarter twenty twenty five Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen only mode. At the request of the company, we will open the conference up for question and answers after the presentation. I will now turn the conference over to Molly Condra, Head of Investor Relations and Communications. Please go ahead, Ms.

[Operator]

Condra.

[Mollie Condra, Vice President of Investor Relations & Communications at HealthStream]

Thank you. Good morning, and thank you for joining us today to discuss our first quarter twenty twenty five results. Also on the conference call with me today is Robert A. Frist, Jr, CEO and Chairman of HealthStream and Scottie Roberts, CFO and Senior Vice President of Finance and Accounting. I would also like to remind you that this conference call may contain forward looking statements regarding future events and the future performance of HealthStream that involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward looking statements.

[Mollie Condra, Vice President of Investor Relations & Communications at HealthStream]

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 ks, 10 Q and our earnings release. Additionally, we may reference measures such as adjusted EBITDA, which is a non GAAP financial measure. A table providing supplemental information of adjusted EBITDA and reconciling net income attributable to HealthStream is included in the earnings release that we issued yesterday and may refer to in this call. So with that start, I'll now turn the call over to CEO, Bobby Frist.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

Thank you, Molly. Good morning, everyone. Welcome to our first quarter twenty twenty five earnings call. There is certainly a lot to talk about here on the call for the quarter. And before I hand it off to Scottie Roberts, our CFO, who's going to give us detail on the financial results, I want to do a couple of key things.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

First is I want to talk a little bit about the company's strengths as we enter a time of uncertainty. I think a company with an experienced management team that knows what they're building, that builds incrementally strong and understands the market environment they're operating in and knows how to create value for customers, its customer base during these times, is the kind of company that people should want to invest in. And so I want to talk a little bit about those strengths and our growth trajectory. And then I also want to acknowledge a couple of items that are kind of a hitch in our step, some challenges that are, we think, temporary that we're going to work our way through that have resulted in us trimming our our in year guidance a little bit. And we're going to talk about both those things in detail.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

It's an interesting period of irony, but probably opportunity. And we're going to talk through that a little bit. I've seen a lot of cycles in health care. And I can tell you why HealthStream generates growth and profitability throughout those cycles. I've been doing this quite a long time.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And the experience of our team that knows how to bundle and create value for customers in times of uncertainty, it's really a good time to rise and shine. The value of our core application suites in learning, credentialing, and scheduling, as well as our emerging hStream platform, they get demonstrably better every quarter. And that is why we continue to add both wallet share and market share across the board and why our bookings and sales pipelines are strong. But it's also why we're forecasting both revenue and EBITDA growth on a year over year basis, even amid some of the macroeconomic choppiness and recently addressed issues of technology scale with one of our products credential stream. Let's talk a little bit about the macroeconomic headwinds.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

We are seeing them manifest in a couple of areas. In some areas, we have direct correlation where you can say, ah, that's a challenge. In others, they're less direct, maybe indirect, but maybe anticipated is more an intelligent way to talk about the macroeconomic conditions, the concerns that we may have that we need to factor into how we think about the next three or four quarters. Funding cuts, for example, particularly to federally qualified health centers, FQACs, and academic medical institutions seem to be impacting renewal decisions on a nice to have content on the nice to have content. And the good news is a lot of our content is mandatory.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

But we do have a program such as our health equity and belonging content, which was a shining growth star last year, which is really not on a growth trajectory this year. And so as we entered the year with the health equity and belonging curriculum, we have seen a diminishing purchasing patterns of that. And that may also have to do with the political correctness of the environment or trying to be in alignment with that, and also the macroeconomic conditions that pressure it because it's more an elective type of content offering in our many content offerings. So we do believe that some customers may be delaying some purchasing decisions as precautionary measures to protect their businesses against potential policy related impacts, as the example I just gave. And supporting this belief, we saw a handful of medium sized deals that are expected to close in Q1 push to Q2.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And we're watching those very closely to determine why we think there might be a delay in the closing of those medium sized deals. We do expect still those particular sales to close. They're all still in the pipeline. We're all still in active dialogue with customers. And they are nice, we would call the medium sized, kind of a 1,000,000 to $3,000,000 deals or even bigger, dollars 2,000,000 to $4,000,000 deals.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And we think they're all viable deals. They're all going to close here in Q2. But we're going to have to watch it really closely to see the timing of the close, because timing and delays have an impact about how we think about revenue in the year. And so we do expect them to close. But the fact that they haven't closed and they didn't close in Q1 is just something we have to watch.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

It's good news that many of those solutions help meet mandatory requirements. I did give the example of the health equity and belonging content libraries, which are a little more optional. But a lot of these are focused on their primary asset, their people, and their primary expense category, and developing their people to be more effective, retaining their people so they have lower turnover. And it's good news that many of these solutions are focused on these mandatory requirements. And they help organizations optimize their expense around their workforce.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And so I think being workforce focused in a time of economic uncertainty is a good thing to be. And so I think a management team that understands that environment and tweaks its programs to align with those messages we'll be in a stronger position. So I think the next thing to talk about is we do have this ongoing demand for application suites. And current sales pipelines for learning, credentialing, and scheduling are all strong. And there's some irony to that.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

It has such a strong pipeline, but see little delays that may affect the end year revenue recognition. But it's interesting that it's almost an irony built into the quarter because during Q1, we did land, sign, and are beginning to execute on one of the largest deals that we've done in our history. It's a $14,000,000 deal where we bundled a tremendous value proposition for one of the country's larger health systems. And it included some of our key products like our new competency suite, which we've talked about in prior calls. And so it does demonstrate that when you meet the need with this concept here of helping develop the confidence, cross training people for other roles, you help retain the workforce with these development programs, that you can close deals.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And so again, a little bit of irony in the fact that we had a handful, I'd say about four deals that we would call these medium sized deals, push. And then yet one of the largest deals in our history closed during the first quarter, a $14,000,000 deal to a large health system, including our newer product bundles around competency development. So we're really excited about that. So amid this market turbulence, it is our diverse product offering and the nature of that offering, meaning it meets mandatory needs. And the fact that this major sale did close gives us that confidence to deliver growth on the year despite some of these early indicators, some of the elective content purchasing may be dropping off.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And so overall, we still feel really well positioned. But some revenue may be pushed into the next year. It's just this quarter, as we reflect on it, there's a lot of these mixed blessings. And we've experienced a couple of those in other areas of operations. And we're going to talk about those too.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

So impacting our in year outlook, these mixed blessings, they stem from recent success in closing larger deals with larger and longer contract terms in our three year average. And so the result of that is that we secure a greater contract order value, but we spread it over more time. And so as you heard in the story I just told, that these four deals that were medium sized and shorter run recognition pushed. They haven't closed yet, but we think they will. Yet we land this really big deal that's a five year deal.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

It spreads the revenue a little longer. And so it's great reason for optimism. Of course, we'd rather close large deals that are over a longer period of time. And we just have to work that middle market and get those medium sized deals that are shorter run revenue recognition closed in this quarter. But that would represent a delay from our expectations.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

So the overall size of that deal put us well over our Q1 bookings expectations. So if you ask our internal team how we did, we would say that our contract order value and sales for the quarter exceeded our total expectation. But the average time to revenue and the time over which that value is spread is stretched. And so again, it's kind of this weird thing of a long term positive look at the sales pipeline, but some trepidation in it, some hesitancy to close. We'll just have to follow those four or five medium sized deals and see if we bring them all in Q2 as we now expect.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

So we do want to acknowledge that some of this hesitancy and some other operational issues, which we think are temporary, which we are addressing, particularly some technology scaling issues with credential stream, which we do feel we've quickly addressed. But those kind of scaling issues, if you have some blips on the radar with customers, create some uncertain impact where you have to kind of wait and recover confidence of your customers. And we were but we were able to put really good teams of people on the scale issues with the result of really great sales and building up a big implementation backlog. And then you have a little service quality delivery issues that persisted for four or five weeks, but put our teams on it. We feel like the issues have been addressed on this CredentialStream application.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And as you'll hear in a minute, we still delivered the revenue growth on Credential Stream in the quarter. But again, recognizing our experience we've been doing this a long time we know that sometimes those kind of service problems can have a lag effect on your expectations. And so we factored a little of that into our revised guidance. But once again, I would say that we feel we've addressed the scaling issues that were the result of bringing on so many customers, and we had to kind of reconfigure some of our tech stack to expand. In this case, very technically, took our server groups from a few to almost a dozen.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And so we were able to scale to handle volume and redistribute load and get back to a place where we think we have the stability we need to cover the growth that we were delivering. So when we shifted our full attention to optimization of product performance, it did slow our credential stream implementation efforts. As you can imagine, if you're in the middle of an implementation and you have some service timing issues, then it delays that pipeline a little bit. So again, with the wisdom of experience, we think it's wise to expect those delays to play out in your revenue recognition a little bit. And so again, you can see that in our revised downward guidance.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

But the nature of the problem, we think, was temporary. And we feel we've resolved it. And we're building the credibility side again with those customers. So shift in focus did have the effect of slower time to revenue. And you don't recognize revenue until the products are fully implemented.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And so the way those two things work together had us resulting we needed to push some of the revenue recognition into the future, maybe into Q1 of next year. And so again, those slight adjustments resulted in this revised downward guidance. As we think through and those are factored in, of course, to why we trimmed our guidance expectations a little bit overall. Slower time to revenue was one of the factors. Overall, see a credential stream implementation backlog is representing a strong source of potential revenue acceleration.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

I mean, again, in an ironic situation, while we did see that delay purchasing the medium sized deals, we had a really strong closing quarter in the fourth quarter. And so we've got this great implementation backlog that we just need to get to to get to revenue. And we're working through that. Of course, we have configured our company in different ways. We've assigned new people to try to work into that backlog so we can deliver revenue off of that really strong backlog of sold deals.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

It's one of our more successful products in our history from a growth perspective. So now we just have to do a better job of managing that growth and getting those customers live, which we'll do. We've been doing this a long time and worked through a lot of different temporary challenges. And this is another one that we're going to tackle. Let's summarize I'd like to just take a pause.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And for people new to HealthStream in these times, just give a quick summary of our business structure and why we think we're well positioned. First and foremost, HealthStream is a health care technology company dedicated to developing, credentialing, and scheduling the health care workforce. So we're focused on people in health care. And we do that by delivering SaaS based solutions, each of which are becoming more valuable because the interoperability they're achieving through our emerging hStream technology platform. As you know, we've been talking about this for a long time, but we've declared this is the year of the platform.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And what we mean by that is it's the emergence of strategic and tactical and operational benefits of the platform as we see every quarter increased interoperability of our core applications, which brings that additional benefit to our customers. The company holds 20 patents for its innovative products. We see our competitors emulating us and trying to catch up with our vision. The company holds these patents. We've won over 40 Brandon Hall awards, which recognize excellence and innovation in the industry.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And we sell our solutions on a subscription basis under contract that average three to five years. And actually, that very statement reminds me to think about that ironic dynamic that occurred in Q1, where the three year deals that were medium sized are delayed in the pipeline. Yet the five year, one of the biggest deals in history, did come in and get signed and is in the process of being executed. But that nature of three to five year recurring revenue contracts makes our revenues predictable. In fact, 96% of our revenues are subscription based, as I just mentioned.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

We've also started to open our sales channels directly to health care professionals and nursing students across the continuum of health care training. So we are profitable. We have no interest bearing debt. We have a strong cash balance of 113,000,000 And we're solely focused on health care. And we work to work towards the mandatory needs and the workforce need, are the trending hot topics, is how to be more effective managing, retaining, and developing your workforce.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And so I think we're well positioned in this kind of environment where the CEOs of these health systems are worried about their labor. They're trying to figure out their best ways to retain and develop their people. And we think increasingly HealthStream's portfolio solutions is the answer to that question. We have about our target market is 12,500,000 health care professionals, which also now includes the nursing students in The United States. And those comprise a core addressable market for our SaaS solutions.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

Where health care is delivered is where HealthStream wants to be, and that's where these 12,500,000 people are. And they could be in skilled nursing facilities, long term care facilities, acute care facilities. Those are the markets that we're going after with these workforce oriented solutions. Let's take a pause now, turn it over to Scottie. We'll hit the highlights.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

I wanted to acknowledge that we did revise our guides downward, that we think the causes of that are temporary, that our vision remains strong, and we had some ironic occurrences in the quarter, winning the biggest deal in our history but seeing a delay in some of the medium sized deals. And we're just going to work through all this. We still put out a growth forecast, although revised downward a little bit. And of course, we're going to do everything we can as this quarter unfolds to get it back on track. And we'll work hard to see if we can do that, get back on track, and maybe get out of this revised downward guidance.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

But right now, that's where we sit. Let's turn it over to Scottie Roberts for his summary of financial results.

[Scott Roberts, CFO and SVP - Accounting & Finance at HealthStream]

All right, thank you Bobby and good morning everyone. I have several topics to cover today and I'll begin with our financial results for the first quarter. Unless otherwise noted, the comparisons will be against the same period of last year. Our revenues were $73,500,000 they were up 1%. Operating income was $4,400,000 and it was down 23.1%.

[Scott Roberts, CFO and SVP - Accounting & Finance at HealthStream]

Net income was $4,300,000 and it was down 17.1%. EPS was $0.14 per share, down from $0.17 per share and adjusted EBITDA was $16,200,000 and was down 5%. We indicated on our last earnings call that we expected more of our revenue growth for the year will be concentrated in the second half of the year versus the first half and this was reflected in the 1% growth for the first quarter. I want to reiterate that our revised revenue forecast is still second half weighted and is expected to build from quarter to quarter. I also want to call out some items that impacted the first quarter according to expectations.

[Scott Roberts, CFO and SVP - Accounting & Finance at HealthStream]

The first one is a large perpetual license sale of approximately $900,000 in our legacy scheduling business that occurred in the first quarter of twenty twenty four. We've not actively been selling perpetual licenses for several years, but occasionally an existing customer will purchase an expansion license, which is what happened last year. Given our focus on selling subscriptions to our SaaS application, Shift Wizard, as opposed to licenses to our legacy scheduling applications, we did not expect any license revenue in the first quarter of twenty twenty five, which was the case. The second one was caused by a large healthcare system bankruptcy during the second quarter of last year, which we've talked about on several calls in the past and which was well publicized. We had approximately $600,000 of revenue from this customer in last year's first quarter and we're not expecting any revenue from this customer this year.

[Scott Roberts, CFO and SVP - Accounting & Finance at HealthStream]

The full year revenue loss is about $1,600,000 and we'll see this variance begin to normalize into the fourth quarter of twenty twenty five. Finally, we also experienced lower revenues from our legacy products in credentialing and scheduling, which resulted in a $1,700,000 decline in these products compared to last year. Attrition in both of these legacy product lines is negatively impacting the revenue growth rate. We believe our core business and go forward solutions are providing us with a solid foundation to achieve revenue growth and operating leverage. Now let me highlight some of the solutions that help fuel our underlying growth, such as Credential Stream with 25% growth, Shift Wizard with 19% growth, and Competency Suite with 12% growth.

[Scott Roberts, CFO and SVP - Accounting & Finance at HealthStream]

Absent the impact of the legacy products and the customer bankruptcy from the core business, the core business actually grew over 6%. Our remaining performance obligations were $613,000,000 as of the end of the first quarter compared to $514,000,000 for the same period of last year. We expect approximately 40% of the remaining performance obligations will be converted to revenue over the next twelve months and 68% over the next twenty four months. Gross margin was 65.3% compared to 66.2% in the prior year quarter. Investments that we've made in our platform and SaaS application suites resulted in higher labor costs for hosting, software and labor.

[Scott Roberts, CFO and SVP - Accounting & Finance at HealthStream]

The changes in our revenue mix, in particular the lost revenues from legacy applications, including perpetual licenses and the impact of customer bankruptcies contributed to the change in gross margin. Operating expenses excluding cost of revenues increased by 2.7%. Sales and marketing were up 3.2%, general and administrative were up 4.3% and depreciation and amortization was up 4.1%. These increases primarily resulted from higher labor costs associated with additions to staffing levels, higher sales commissions associated with growth in revenues, increased investments in marketing initiatives and higher software expense. Adjusted EBITDA was $16,200,000 and was down 5%, and adjusted EBITDA margin was 22% compared to 23.4% last year.

[Scott Roberts, CFO and SVP - Accounting & Finance at HealthStream]

Moving on to the balance sheet, we ended the quarter with cash and investment balances of $113,300,000 up from $97,200,000 last quarter. During the first quarter, we deployed $8,800,000 for capital expenditures and paid $900,000 to shareholders through our dividend program. Days sales outstanding improved to thirty seven days compared to forty six days last year, marking the third consecutive quarter that DSO was below forty days. Our cash metrics were strong for the quarter, leading to new records for cash flows from operations and free cash flows. Our cash flows from operations were $27,100,000 compared to $20,900,000 in the prior year, an increase of 29.3%.

[Scott Roberts, CFO and SVP - Accounting & Finance at HealthStream]

Free cash flows improved by $5,000,000 or 38.3% and were $18,200,000 compared to $13,200,000 last year. These improvements are a result of growth in billings over the prior year and improved cash collections. I would characterize that our balance sheet is strong and it's been my experience that companies with strong balance sheets are positioned for long term success regardless of the economic environment in which they operate. With $113,300,000 of cash and investments, a track record of generating positive free cash flows and no debt, we remain well positioned to deploy capital to improve shareholder value. We maintain a disciplined approach to capital allocation and how we prioritize our use of capital.

[Scott Roberts, CFO and SVP - Accounting & Finance at HealthStream]

Our utmost priority is making organic investments back into the business, which is evident by our annual capital expenditure and R and D plans. The second is pursuing acquisition opportunities, which we have a long track record of executing. The third is returning a portion of profits back to shareholders in the form of cash dividends. Finally, the fourth priority is that our board may authorize share repurchase programs, which we also have a successful track record of executing. From an M and A perspective, we maintain an active pipeline and continue to evaluate opportunities that align with our platform and product strategy.

[Scott Roberts, CFO and SVP - Accounting & Finance at HealthStream]

In respect to our dividend program, yesterday, our Board of Directors declared a quarterly cash dividend of $0.031 per share to be paid on May 30 to holders of record on May 19. We currently do not have an active share repurchase program in place, though the Board continues to evaluate such programs as it deems appropriate. Now moving over to our financial outlook for the year, yesterday we announced a revision to our previously issued financial expectations. We now expect consolidated revenues to range between $297,500,000 and $303,500,000 and net income to range between $18,600,000 and $21,000,000 We now expect adjusted EBITDA to range between 68,500,000.0 and 72,500,000.0 We continue to expect capital expenditures to range between $65,000,000 This guidance does not include assumptions for any acquisitions that we may complete during the year. And earlier, Bobby outlined the key aspects impacting guidance and why we are confident in our ability to grow through them.

[Scott Roberts, CFO and SVP - Accounting & Finance at HealthStream]

That wraps up my comments for this quarter's call. Thanks for your time this morning. And now I'll turn it back over to you, Bobby, for some additional updates.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

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

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And therefore, we have discussed the revised downward guidance. Although again, I think on the whole, it's a little over a point and a half change in the big picture. We think it's a wise adjustment based on all the things we talked about in the macro conditions. That said, I think we should pour through our core businesses real quick and talk about what's normal and what we're also excited about. So let's go through each of scheduling, credentialing, and learning briefly and talk about some of the developments during Q1.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

First, we'll talk about Shift Wizard, which is our core product in scheduling. It continued to deliver strong revenue growth. As Scottie just announced, that revenues for Shift Wizard have eclipsed the legacy product and sauce in the second quarter of twenty twenty four, has continued to be our top performing product in scheduling. So Shift Wizard revenues grew 19% over the first quarter of last year. In the first quarter, sales were both from competitive takeouts like St.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

Tammany, Parish Hospital, and from growth within existing customers like Children's Wisconsin and Hospital for Special Care, among others. This revenue growth was offset in the overall scheduling application suite by an unexpected nonrenewal of an ANSOS customer. So some continued challenges in the legacy application ANSOS, which we've discussed this over many quarters. The good thing about that problem is it does continue, but it is also finite. Eventually, we'll have customers either migrated, or they'll choose to stay where they are.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

Or in the worst case, we may lose them to market. But either way, it's a finite problem, and it's getting smaller as the quarters progress. So let's take a look now through the credentialing application suite and our primary application credential stream. It also had a productive quarter despite some of the issues I mentioned earlier. Revenues on credential stream grew 25% over the first quarter last year.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

These results included sales from both new customers like BayCare Medical Group and customers expanding like Prisma Health and Duke Medical Center. And customers who chose to migrate from our legacy credentialing applications like Ridgeview Medical Center and Door County Medical Center, all of which closed in the first quarter. So again, just kind of the normal course of business, you see some migrations from legacy applications, some new wins in the market, and overall put up 25% year over year growth in the quarter on the credential stream application. And as I mentioned, though, we do have some client recovery to do. We had some performance issues due to scale.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And I feel like we've put those behind us, meaning we have good stability. We've expanded our server capacity. And we're working on that client recovery of confidence now. As I previewed in our prior call, we also hosted our annual credentialing user group conference, which is really fantastic. It was called Thrive twenty five.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And we did that at our corporate office and in a hotel in Nashville. It was really an energizing event. And the highlight for me was hearing customers talk about how they use CredentialStream to reduce the time it takes to get providers credential privileges enrolled in generating revenues for the organization. I mean, if you think of the purpose of the credentialing applications is to keep the bad actors out by verifying they are they say they are and to grant them the privileges they need to do practice at the hospital. But ultimately, our software should help optimize the time to revenue on these physicians.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

We should help onboard them in an efficient way, vetting out the bad ones, of course, that don't meet the criterion, and protecting the end consumer by that vetting, credentialing, and privileging process. But really, what's important to hospitals is, does our software help manage the time from when you hire a doctor to when they can be productive and get them seeing patients and generate revenue? And we think the answer to that is yes. And we're working hard to prove that. We think that we can affect positively the time to revenue on newly hired physicians by accelerating credentialing privileging process.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And so some of that came out in the case studies at our Thrive twenty five conference. The provider time to revenue was a topic, and we heard customers share stories about their success using Credential Stream to achieve that outcome of shortening time to revenue on positions. So again, these workforce issues, sometimes you need to talk about how they relate to the economic well-being of the organizations we serve. In this case, it's getting the right physicians in surgery or seeing patients productively so that their services are billed. And to do that, you have the credential, privilege, and enroll them in insurance programs.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And our software, we think, is the best in the market at doing those things. So we think this area will continue the growth, and we'll work through these temporary issues, and deliver continued results. And we did see some of that growth that I talked about in Q1. That brings us to our learning application suite. And it's a broad suite.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

It's a market leading suite. We continue to innovate. We talked about those innovations last quarter. And I'm going to highlight a few of them now. One of the unique components of our learning application suite we actually built through acquisition, it's our continuing medical education management programs.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And these are kind of the secondary programs that are used specifically for hospitals that are accredited to develop their own content and issue credits for those contents. We have the best software in the world, we think, in helping to manage that uniquely health care dimension to building accredited content. And our Cloud CME products just are having a great successful run. Think of these as add on modules as a core learning system. And we both did three acquisitions in this space over the years, but we continue to see really great success, high renewal rates, adding new customers.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

But also, this module that helps manage continuing medical education and an accreditation process at hospitals is one of those unique workflows in health care that makes us defensible, a moat around our learning business because it's not just an LMS, a learning management system. It's a learning management system that has modules that manages the continuing medical education accreditation process. And so we're really excited to see those acquired products be so successful with high renewal rates. And it creates that differentiation overall for our learning suite we call our learning application suite, which the foundation of that is our learning management system. So we added sales for that product set, that module of learning, the continuing medical education modules.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And we just continue to invest in that area and further integrate it with our core applications and to our platform. We're just excited that that area, within the learning area, that area is both unique for us and uniquely successful right now in the market. So we're proud of the teams delivering those results. Let's talk a little bit about some of the newer solutions in learning. The Insights Plus, which is our new reporting and analytics capability, it's based on our platform technologies.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

We've seen it continue to grow. It now has over 7,400 users across five fifteen organizations. Those and the growth of Insights Plus, which is a purchase system, it's driven by significant data engineering and product development work we've done on our new data stack in the hStream platform. So our Insights and Insights Plus reporting engines that are tied to our learning application suites are robust, expanding, and we're experiencing good sales velocity on Insights Plus, which is kind of an analytic suite in learning. It kind of gets that learning efficacy, something that you need to measure.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

If you've to invest in learning, you want to understand this return on investment. And Insights Plus, we think, is the best in the industry at helping health systems understand their return on investment in learning. And so it's great to see a new platform based data centric reporting and analytics tool set be selling well as an add on module to the learning application suites. I think now is the time to shift recognition as we wrap up this call to some long serving and some relatively new members of leadership, particularly on our board of directors. We have been fortunate to have an outstanding board members.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

But today, I want to highlight and thank one of them in particular. After twenty seven years of service as a board member, Doctor. Williamstead is choosing to not stand for reelection this year. We are excited to point out that when he joined our board twenty seven years ago, we had 41 employees and $1,400,000 in annualized revenue. And so Doctor.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

Stead has been on our board overseeing the creation of a company that generates nearly $300,000,000 in revenue. That's what we expect this year now and employs 1,100 people. We're proud of his strategic contributions over the years. He's also handing us off in a really good position because he waited till we found essentially his replacement on the board. And so in addition to congratulating Doctor.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

Stead, we want to welcome our new board member, Mr. Charles Beard, Jr, who joined our board of directors and is now a member of our audit committee. He's standing for election this year's Annual Shareholder Meeting. And Charles brings a wealth of experience to our board. And so you guys excited if you're on this call listening.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

He was the co founder and chief operating officer of Guidehouse, a global consultancy. He serves on the board of directors of Fresh Del Monte. He serves on the board of directors, importantly, of Inova Health System. And so we're really excited. He brings this really incredible background in technology, governance, security, and of course, health care expertise.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

So fantastic new ad with Charles Beard as we look for your vote to support him in joining our board of directors here. He's active on the board now, and I think that'll be affirmed here in the upcoming election. He's standing for election of this year's Annual Shareholder Meeting. So we're delighted to have Charles join the board. And we're grateful for Doctor.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

Bill Stead's contribution over the years guiding us strategically and tactically. We couldn't be more proud of his contribution. So thank you, Doctor. Stead. And welcome, Charles.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

As we wrap up, I just want to think through in times like this with so much uncertainty just in general. I think it's really good to find a management team that knows who they are, knows where they're going, understands the environment they're operating in, and makes adjustments to that environment. And so our downward reflection here in our guidance is part of that. Again, we'll do everything we can to make that not come true. But we think that was the wisest thing to do.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

We think we achieve value by the way we approach our customers, focus on their core assets, their people. And in particular, we think it's a good time for bundling value that addresses real economic or mandatory requirements of these organizations. And you see that in our competency suite. We hope to emulate that strategy in other areas with bundling value to get more velocity in sales. So if you're already a shareholder, we look forward to and we're inviting you to our Annual Shareholder Meeting.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

It takes place virtually Thursday, May 29 at 2PM. Notifications of the meeting and access to the proxy statement 10 ks and shareholder letter were sent out on April 14. So we encourage you to vote your shares and participate in the future of our company. And if you're not a shareholder, we welcome you on the journey. Times like this warrant companies with strong balance sheets that build strong products and navigate the challenges they face directly and take them on.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And ultimately, of course, as we've done for nearly thirty five years, we'll overcome these and get to the next growth plateau for the company, the next growth plane. Thank you for listening today. We'll now turn it over to questions from our analyst community.

[Operator]

Thank you, sir. The question and answer session will begin at this time. To ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile the Q and A roster.

[Operator]

Our first question comes from Matt Hewitt of Craig Hallum Capital Group. Your line is now open.

[Matthew Hewitt, Senior Research Analyst at Craig-Hallum]

Good morning and thank you for taking the questions. I apologize in advance if this has been answered. I've been hopping between a couple of calls. But maybe first up, noted in the press release that you're seeing a little bit of hesitancy by customers to purchase elective type applications. If you looked at your portfolio across the board, how much of your portfolio would you quantify or qualify as being required or government mandated versus elective?

[Matthew Hewitt, Senior Research Analyst at Craig-Hallum]

And I assume it's over 50% falls in that prior bucket that mandated versus and required. Is that a safe assessment?

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

We do. We think most the majority of our products are tied to some kind of theme of requirement. Now they're not always legal requirements, but I'll give you two examples. And some are requirements, but some are requirements to achieve certain quality standards. So for example, credentialing is a requirement to maintain accreditation.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And you need to be an accredited hospital to be a credible hospital. And so the credentialing process is mandatory. Of course, our product is not mandatory, but the credentialing process and privileging process is an essential part of operation. So broadly speaking, we're meeting a need that is considered mandatory. Another one that's not quite legislated, but is one of our top products from a revenue generation standpoint, would be our resuscitation suite.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And so again, while it's not a legal requirement to train your staff on accreditation, I don't think you could achieve accreditation. And in fact, it's become essentially a gold standard. I don't think you can get a job at a hospital as a physician or a nurse without having demonstrated confidence in resuscitation. And the demonstration of confidence is achieved through a couple of different programs in the industry that are the most high quality programs. And of course, one of them is the American Red Cross, the one that we represent to the market most vocally.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And so while, again, it's not a mandatory, it has become a gold standard. And I really don't think you can get a job without flashing a current credential in resuscitation skills and confidence. And that being one of our largest single revenue lines within our content selling universe, so probably our biggest singular product across the content selling we do is that resuscitation product, and it is mandatory. Of course, we have the market leading content product set. We call them SafetyQ and ComplyQ that help meet OSHA, federal safety standards.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

So that's another example of requirement. And we have another bundle in our Jane products that delivers continuing education that are required by more than half of states for licensure maintenance. And so you can see in these four that I've given that there is an element of requirement. And then of course, thematically, everything we're doing is related to the workforce, which I think is the single biggest cost item on the income statements for our customers. And managing them effectively is a priority.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

So I think we're well aligned. You can't say that 100% of our products are mandatory. But categorically, the space we operate in has a highest set of requirements, state, as we mentioned, state licensure, federal, like OSHA, accreditation requirements, like to be accredited. We talked about the Cloud CME products, which helps maintain AC CME accreditation. And so these standards that are propagated in the industry, our products help meet them.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

So I don't know. Definitely the majority, probably I would say 80% or 90% are tied thematically to forms of requirement, like we talked about. And then a meaningful number, the OSHA libraries, it is a requirement to do annual OSHA safety training. That's a federal requirement in these clinical settings. So I think a strong mix, certainly the majority, and you can almost draw a line to forms of requirement for almost all of our products.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

We did bring up one that was clearly optional and also now under a lot of scrutiny is diversity, equity, and inclusion programs, as you can probably imagine, are not the hottest topic now in health care. And so our health equity and belonging solutions set, we have seen a drop off. And you can probably directly attribute that to the political environment. And so clearly not required, and in some ways, there's probably a movement against that kind of elective content. And we have seen a drop off in it.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

So that's a quick scan of the nature of the products we sell.

[Matthew Hewitt, Senior Research Analyst at Craig-Hallum]

That's incredibly helpful, Bobby. Thank you. And then maybe just a follow-up, and I apologize if I missed this, but regarding the noted, the largest or one of the largest contracts in your history, Was that a renewal or was that a greenfield win? And if it was in fact a renewal, I'm assuming you saw an increase versus the last time they signed. What all was added?

[Matthew Hewitt, Senior Research Analyst at Craig-Hallum]

That's obviously an opportunity to cross sell and upsell, and and what else was included if in fact there was a renewal?

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

Yeah. Yeah. No. It was and great news, and I probably I can't believe I didn't say this. That was new business.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And so this was a big health system where we didn't really have a footprint. By way of example, they did not use our learning management system at all. And of course, our learning system is infrastructure for the competency suite. And so effectively, with this bundle, tens of thousands of their employees are now going to be using our learning system. But the central theme was our competency suite, which is a bundle of a lot of products that focus on developing clinical staff competence.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And they found it being exactly the right time. Effectively though, because of the way we bundle, they're displacing half a dozen competitors that have this product or that product, but we put it together as a suite. And so again, a highly effective bundling of products to create good share, and it does represent an exciting new customer to HealthStream. And coming through a slightly different door than would be traditional, like leading with a primary software, so like learning, we sold the competency suite with learning bundled into it.

[Matthew Hewitt, Senior Research Analyst at Craig-Hallum]

Well, congratulations on that, and, thank you very much for taking the questions.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

Somewhat related to your question, I'll just add a little color because we did talk about a handful of deals. I think there's about five that we considered important deals that were medium sized and shorter term to revenue did push. But the nice thing about those five and so they're kind of a bellwether. We're going to watch them this quarter and hope and expect they come in. But right off the front end, and we talked about whether they're mandatory or not, was a very large pending win in resuscitation.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And where a health system is of good size is, we believe, in contracting, or we know they're in contracting phase to switch their vendor to American Red Cross. And so of the five deals, we hope that that is the first one to resolve itself and come in. And so we'll watch these five deals to see if these are related to macroeconomic conditions, these delays where we pushed out of Q1 into Q2. But it also comes to that theme is that we believe that by switching, that institution will save money. So our program is, we believe, both stronger clinically and less expensive operationally.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And so there is a good incentive for them to sign that deal and execute on it. So building on the theme that we were just asked by Craig Hallum, Matt Hewitt, one of these five deals has that kind of feel of compliance, but it also is focused on the workforce, and it also, we think, will save money for hospitals. So the message is well timed as well. So we'll see what happens and report on that next quarter.

[Matthew Hewitt, Senior Research Analyst at Craig-Hallum]

Sounds like a plan. All right, thank you.

[Operator]

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

[Richard Close, Managing Director at Canaccord Genuity Group]

Good morning. This is Richard Close. I had Bobby, just can you talk a little bit about the legacy? And you mentioned, I guess Shift Wizard is more revenue than Ansof now. And just talk a little bit about what is left on the legacy products?

[Richard Close, Managing Director at Canaccord Genuity Group]

And what do you expect the time line is for that to just sort of run off?

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

Yeah. Fair enough. There's definitely a category on our tracking sheet of legacy products. They include, Ansos, Morrissey, and Healthline. And by definition, when we say legacy, we mean they're supported products.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

So we're still adding features and capabilities, although not quite as fast a pace as a growth product or a mature product in our classification system. So legacy means they're still expected to generate revenue. However, we're not selling any new ones, except we note occasional exceptions when a customer that is on a legacy product expands. We'll accommodate the expansion by selling them more of the legacy. But in general, our sales teams, over 200 people, are not selling legacy products.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

So obviously, we do not expect growth from legacy products. And in fact, as you pointed out, there are kind of three outcomes for legacy products. And the biggest ones are Ansos, which we talked about a lot, Morrissey, and Healthline. And I want for the customers to hear, those are supported products where we do quarterly releases of enhancements. So that points out some of the complexity in talking about this.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

As they exist, they are great customers. And some of these products are beloved products, meaning they like their legacy product. And they're both supported, and we're passing them and fixing them and making them better. Not at the same rate as the end products, the SaaS products like CredentialStream and ShiftWizard, but the the some of the difficulty in reporting around this is there's kind of three outcomes for a legacy product. And And maybe this changes someday.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

But the first is the customers can choose to stay where they are, in which case we expect to service them, generate some profits and EBITDA from that customer. And so in this bucket of legacy, until we decide to and we have not decided this to sunset those products, there is a logical outcome that many years from now, many of these customers could be still on that product. And if they're on that, they're not doing the two other options, which is our preferred option now, until the last eighteen months, is they migrate to one of the SaaS applications. And so we're encouraging but not requiring those migrations. And of course, that's a great outcome.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

If we can get them to migrate, we think at this point, they get a better product. We get a slight lift in revenue because the better product's more robust, has more modules and more capabilities. And so migrating customers is, of course, our goal. And we have a team of people working on migration. But that conversion rate has gone up and down.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

Some choose to stay where they are, and so we don't have a clear objective of migration. And of course, the third thing that happens is the worst thing is we could lose that customer. They don't migrate and they don't stay, but they go in the market and buy something else. And so some of these lost accounts report are that, where we lose the account. We can either keep them where they are or migrate them.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And because there's three outcomes, it's a little harder to tell what our expectations are, because it has an order of operations like math, where our first preference is they migrate to our SaaS application. Our second preference is they stay happy customers of their beloved legacy application. Our third option is the worst, is they decide they don't want either of those and we lose them to the market. And so we can report on the losses, as we did this quarter, across these legacy applications. I think there's about $1,700,000 Maybe Scotty can verify that number.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

But we can't say the desired outcome or time frame, because again, we could be four years from now and still have a nice profitable business on legacy applications. So I guess you could say there could be an internal debate each year about whether we should change the status of these legacy products to the category we call sunset. And once we're in a sunset mode, we notify customers of some end date, usually a year or two out, where we'll stop support. And then it forces the decision to either migrate or leave. And we have not done that.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And so it does give us a little bit of a challenge to talk about this issue, because with three variables, you can't really say exactly where everything's going to land. And again, two of the three options are good. Like if they stay happy legacy customers, that's fine. They're profitable, and we service them well, and they like their products. If they migrate, they're probably more profitable, and we can sell them more modules.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

They have more capabilities. And so our goal is to build Shift Wizard and Credential Stream to a place where it's just self evident that it's both the best market decision and the best opportunity to enhance their business, improve their outcomes, to go ahead and make that migration decision. And we have dozens of successful migrations, of course, that we've reported on. And every quarter, there are some migrations. We report on the losses, but we have not quantified the total value of the legacy products because we don't want to give away the competitive information about where people will target.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And so we just haven't been able to put numbers for it. But we do, of course, talk about our losses, which we think is the material and important part. I did point out it's a finite problem. We are not selling new legacy customers. And so really, these three options exist.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And so that's as much color as I can give. We will report our losses as they occur. But the way you characterize the remainder is they're either staying where they are or they're migrating. And both of those are good outcomes for the company. You saw in the quarter the 25% growth of Credential Stream, some of that, and I named by account, some of migrating customers plus the newly acquired customers delivered that growth.

[Richard Close, Managing Director at Canaccord Genuity Group]

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

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

Yeah.

[Richard Close, Managing Director at Canaccord Genuity Group]

Going forward? That's just sort of hard.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

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

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

We have reported that in all cases, the Go Forward applications are larger in scope, size, and revenue than the legacy applications. So you know that the legacy businesses are not bigger than go forward. And it's our hope that this is the year of the platform. So the ability to demonstrate the value of interoperability will be even a more compelling reason to choose to migrate. And so we're working hard on making that a reality, particularly in the second half of the year, where we expect things like feature parity of all these systems with the go forward applications that have feature they exceed in features, actually, the capabilities of legacy platforms.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

So we're getting closer, Richard, to a time where we could make the decision to quantify it and essentially force the decision by reclassing the products as sunset products. Since we haven't done that, it makes guidance on it a little confusing. And I apologize for that. But I think it's still the right decision because we love our legacy applications. Some customers love them.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And staying on them is just fine with us until it's so compelling that they move to the full suite the suite of suites. There should be so much benefit to learning, credentialing, and scheduling that you buy them together someday. And that's our goal as we enter the second half of this year and next year. I'm sorry that it's vague. We did try to we will talk about the losses so you can see the offset.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

We have talked about the organic growth rates of the newer products, which are really exciting levels. Credential Stream is 25%. And we'll quantify the losses. And we also, this quarter, we bundled up the legacy products and pulled the organic growth rate factoring out those legacy products, non renewals. And so I think we're trying to give as much color as we can.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

But I think until we declare them sunset, it'll be hard to give a time frame. So I guess I'll just apologize for that, but I that. But I still think it's the right business to do. So I apologize for the optics. If you dig in deep enough, you can see the growth rates of the exciting go forward products.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

I think also every quarter, the legacy problem gets smaller, and it gets smaller relative to the success of the other products. So in the next several quarters, it just continues to be a shrinking problem even in forecasting because relative to our other growth, the category is never going to get bigger and everything else is growing. So eventually, it kind of overtakes itself.

[Richard Close, Managing Director at Canaccord Genuity Group]

I appreciate that. Thank you.

[Operator]

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

[Vincent Colicchio, Managing Director at Barrington Research Associates]

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

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

We always have, we think, good pricing. And I think, Vince, we're getting better at what I would call bundling. We're realizing that our portfolio is really nice and broad and that instead of selling content against content providers, selling content plus applications plus the secondary application and bundling is a better strategy.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

We see that with the competency suite. We'll emulate that more. And so that allows us to get more breadth and penetration and adoption and more competitive displacement, displacing competitors by bundling. And so I feel good about our pricing. Another thing related to pricing is in the last really eighteen months, we've been able to make it a normal due course process to add contract escalators and renewals.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And so another element of pricing as a change for our company is to include pricing escalators. They're not quite CPI level, kind of we target three to five on annual price escalators on our products. And so all three of our core products, all the contracts we've been signing on now, all of them, and we staged it. We first released escalators and learning about a year ago. We released escalators and credentialing, and now in scheduling.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

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

[Vincent Colicchio, Managing Director at Barrington Research Associates]

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

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

I'm not sure of that yet. I would say this. We, in the last quarter or '2, we did bid on a couple of deals.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

We were not the prevailing bidder. We have a management team that is willing to pay nice sum for a good business that we think fits, but not a ridiculous sum. And so I don't know if that's a dynamic. We think things are still overpriced, but we did make a couple of bids that were not successful and didn't chase them. And so we are seeing more deal flow.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

We're getting more books to look at. And when we find a management team that wants to be a part of HealthStream, that wants to be part of our growth story, that is a nice premium, we want those owners to do well. They built good companies. But we're not going to chase things. There's just too much still cash on the sidelines and too much chasing.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

I think some of our competitors did that for a while and paid really high multiples and sitting on a lot of debt. And we're debt free with $113,000,000 in cash with the strongest free cash flow generation in our history in the last quarter. And so yeah, we're going to be active, but we're still the same, somewhat conservative management team, so we have to hunt a little longer to find deals that we think both fit strategically and have the right economic return opportunities. So our discipline, now we're more active looking. There are definitely bigger pipelines to look at.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

But our consistent either diligence or conservative approach, as we haven't been successful in two of the competitions. But more to come. We're teeing up lots of opportunities, and we'll find the right ones here in the coming quarters.

[Vincent Colicchio, Managing Director at Barrington Research Associates]

Thank you, Bobby.

[Operator]

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

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

Thank you to all of our HealthStreamers. Welcome to our new board member, Beard. Thank you to Bill Stead for his twenty seven years of service and excellent strategic guidance. 1,100 employees working hard and one boat rowing in the same direction through troubled waters. We're gonna get there.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

So thank you to those. And then shareholders, if you're thinking about investing, I think sometimes in tough economic times, finding a good consistent management team that knows where they're going and what they're building is a good bet. And so maybe these times present investing opportunities for those of you that think HealthStream is one of those, which I do believe myself. So thank you all. See you on the next earnings call.

[Robert Frist, Co-Founder, Chairman of the Board & CEO at HealthStream]

And we'll keep our tins up and keep making incremental progress. Thank you.

[Operator]

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

Participants

Executives

• Mollie Condra, Vice President of Investor Relations & Communications
• Robert Frist, Co-Founder, Chairman of the Board & CEO
• Scott Roberts, CFO and SVP - Accounting & Finance

Analysts

• Matthew Hewitt, Senior Research Analyst at Craig-Hallum
• Richard Close, Managing Director at Canaccord Genuity Group
• Vincent Colicchio, Managing Director at Barrington Research Associates