HealthStream, Inc. (HSTM) Earnings

Management highlights

CEO mentioned strong financial growth in Q1, reaffirmed 2026 full-year guidance. Stated four reasons for Healthstream's看好AI in the rapidly expanding AI environment: healthcare user base expansion, meaningful data profile differentiator, career networks generating proprietary data, HStream platform built to incorporate AI as core. Scotty reported financial results, acquisition progress, core business subscription growth, remaining performance obligations, gross margin, operating expenses. Business updates included learning product family performance, CredentialStream's strong momentum, ShiftWizard's revenue growth, career networks' user data and contributions, and promotion of Michael Collier.

Guidance

Reiterates 2026 consolidated revenues to range between $323 million to $330 million, net income between $20.4 million and $22.8 million, adjusted EBITDA between $73 million and $77 million. Expects second quarter revenue growth rate to approximate 9.5 percent and adjusted EBITDA margin to approximate 23%. Mentions planned operating expenses in second quarter and additional capacity to accelerate investments in initiatives like career networks.

Segment performance

First quarter revenues reached a record $81.2 million, up 10.5% year-over-year. Adjusted EBITDA set a new record at $20.1 million, up 24.1% year-over-year. Operating income grew 71.6% year-over-year. Subscription product revenues increased $7.6 million or 10.7%, while professional service revenues increased $0.1 million or 4.3%. Organic revenue growth rate was 5.8%, inorganic growth rate was 4.7%. Acquisitions Versus 12 and MyCNAjobs contributed $3.4 million in revenue in the first quarter. CredentialStream grew 19%, Shift Wizard grew 29% and Competency Suite grew 17%. Revenues from legacy credentialing and legacy scheduling products were approximately $7.6 million, down 16% compared to the first quarter of last year.

Analyst Q&A

• Q: Maybe first up, obviously a nice pop in gross margins sounds like some of the acquisitions were 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?

  A: Yeah, 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 from a variety of things. Some of that's timing, things that we anticipated to come in in, say, Q2 or Q3, kind of move forward in the year. Some of that's just you know, early activations from customers that we had sold in, say, Q4, you know, some consumption-based revenue, things like that we're pulling forward. So, got a little bit of improvement in margin because of that. You know, some of our ambitions for, you know, moving to the cloud could compress margins a little bit over time and make some of those transitions, but that's still, you know, 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.

• Q: 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.

  A: Yeah, 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, in every report that I read, seem to think that there's far more demand than there will be supply for the next five 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 ally to all those health systems. We've kind of continued to expand the value that we provide by these career networks, helping hospitals 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 a mixture of our product sets to be a great ally to these health systems.

• Q: Maybe a question on the revenue, 3.4 million acquired revenue. I'm curious, you know, 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, you know, the organic growth that is embedded in the annual guidance.

  A: Yeah, I believe our expectation, we mentioned this, I think, on last quarter's call was for the two 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 to.

• Q: you've been providing some, I guess, commentary on, you know, the legacy license drag issue. in the past. I'm just curious if there's any update in terms of what the impact there was in the first quarter.

  A: Yes, I think, let me pull up my remarks, but I think it was around, you know, 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, you know, 7.6 million. The decrease was, I think, around just 16, 17% versus first quarter of last year. So try to give a little more color on the magnitude of that bucket of revenue relative to our consolidated revenue and also kind of 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 shift wizard, but there's still some attrition going on as well.

• Q: clearly if you annualize the first quarter EBITDA gets you above the high end of the annual range. 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.

  A: I think first, the first area of investment we looked at was, you know, we had a budgeted plan at the end of the year to hire investors. in the sales organization. And specifically, we've decided after this Q1 performance that we're going to add to that original plan. And even more specifically, in the career networks area, we think that 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. 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 continue 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 presented 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 now remember, that's interesting software. It has three constituent audiences. The students are a user. The nursing schools are a user. and the healthcare 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 adopts it, the hospitals in the region adopt it, and that gets the students to use it as well. So there's lots 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? That part will be spread out. It will include a mixture of CapEx and OpEx to enhance the platform, the application suite.

• Q: Hey, Bobby, what differentiated ShiftWizard in the competitive takeout wins, and were any of the wins involving large enterprises of a ShiftWizard in the quarter?

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

• Q: can you give us an update on your bundling effort in the small hospital market and somewhat related, how's the competency there? suite doing in that, competency center doing in that part of the market?

  A: In the smallest market, we're seeing a little bit of uptake. We've 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 bundles, though, as you point out, in the competency suite that are really helping drive growth. But I like adding the users of those smaller clinic facilities because, you know, we're an ecosystem. We want all these healthcare 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 uptake 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 are mobile over their careers, and we think of it as servicing the totality of the healthcare workforce, not just the urban centers.