HEALTHSTREAM INC Q2 FY2025 earnings call

• Financial results: Record quarterly revenue, with operating income up 33.4%, net income up 29.3%, and adjusted EBITDA up 11.3% year-over-year. - Sales pipeline: 4 of 5 medium/large deals tracked from the last earnings call were signed in Q2, with the 5th expected in early Q3. - AI initiatives: GenAI with a new patent, and the HealthStream Learning Experience (HLX) learning application went live with 47,000 users at a large health system. - Product updates: HLX is a revenue-generating subscription product, CredentialStream's scaling issues resolved, and ShiftWizard eclipsed legacy ANSOS suite in quarterly revenue contribution.

In the second quarter, HealthStream achieved record quarterly revenue of $74.4 million, up 4% from the second quarter of last year. Subscription products saw a $2.9 million (4.2%) increase, while professional service revenues decreased by $0.1 million (3.5%). Core solutions: CredentialStream grew by 26%, ShiftWizard by 21%, and the competency suite by 18%. Legacy products in credentialing and scheduling declined by $1.8 million. Remaining performance obligations were $618 million as of the end of the second quarter, with 39% expected to convert to revenue in the next 12 months and 68% in the next 24 months. Gross margin was 64.6% compared to 66.8% in the prior year quarter, impacted by cloud hosting costs and product mix changes.

• Increased net income outlook for full year 2025. - Consolidated revenues expected to range between $297.5 million and $303.5 million. - Adjusted EBITDA expected to range between $68.5 million and $72.5 million. - Capital expenditures expected to range between $31 million and $34 million. - HLX is an incremental subscription product with steady incremental growth in the pipeline.

• CredentialStream scaling issues led to unplanned operating costs impacting EBITDA and gross margin. - Macro conditions causing sales pipeline expected close dates to be pushed. - Challenges in the skilled nursing market and small rural hospitals affecting potential sales and market dynamics.

Q: Should we anticipate gross margins to bounce back up?

A: Probably, we'll still see it around the 65% mark for the remainder of the year, with ongoing costs managed but taking a few quarters to reach midterm objectives.

Q: What's the pipeline look like for the HLX application?

A: It's an incremental add for base customers or new entry point for new customers, with pipeline building beginning now that it's a live, revenue-generating product.

Q: Talk about ShiftWizard and legacy products offsetting growth?

A: Legacy products' offset will decrease next year, with ShiftWizard's growth trajectory continuing and legacy drag diminishing.

Q: Impact of health care employment on HealthStream?

A: Overall health care employment will continue to grow, but sales pipeline timing is affected with expected close dates pushed due to macro conditions.

Q: Price accelerators and NurseGrid?

A: Price escalators are in every new and renewed contract, and NurseGrid Learn is doing in excess of $50,000 a month in collective commerce revenue with 640,000 monthly active users.