Good morning, and welcome to HealthStream's First Quarter 2024 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions-and-answers after the presentation. I will now turn the conference over to Mollie Condra, Vice President of Investor Relations and Communications. Please go ahead, Ms. Condra.

Thank you and good morning. Thank you for joining us today to discuss our first quarter 2024 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, including forms 10-K, 10-Q, and our earnings release. Additionally, we may reference measures such as the 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 may refer to in this call. So with that start today, I'll turn the call over to CEO, Bobby Frist.

Thank you, Mollie. Good morning, everyone, and welcome to our first quarter 2024 earnings call. As our analysts sometimes say, it was a solid report. In the first quarter, we achieved record revenue and record adjusted EBITDA. In fact, our quarterly financial performance showed year-over-year increases in all major categories highlighted in our earnings release. I'm excited to report this hyper-performance. The first quarter revenues were $72.8 million, a 6% increase over last year, and our adjusted EBITDA was $17.1 million, up 24% from last year. We have reaffirmed our financial guidance ranges for 2024 and expect to stay on track. We're focused on delivering strong financial results and reiterating our objectives with an aim to stay in the middle of our guidance range. Later in this call, following Scotty's discussion on financials, I will share developments in our learning, credentialing, and scheduling application suites that are driving these results. I want to highlight an emerging trend where health organizations are increasingly focusing on their workforce. Healthcare CEOs now recognize their workforce as their most valuable asset, and the staffing shortages highlighted by the pandemic have underscored the significance of supporting and investing in their employees. HealthStream has long been dedicated to improving the quality and skills of healthcare professionals. We're committed to ensuring that the right individuals are in the right positions at the right times. If you ask any HealthStream employee, they take pride in our vision of enhancing healthcare quality through its workforce by improving their skills and capabilities. Conversations with customers reveal that the healthcare workforce is becoming a priority topic for them as well. Hospitals are recognizing the necessity for investment in areas such as workforce shortages and skill development. Collaborating with our customers, we effectively support workforce care, which benefits everyone involved. Our three application suites, along with the HealthStream platform, position us as the preferred workforce platform for healthcare. Shifting to specific business updates, I want to discuss two emerging areas that could drive growth in the coming years. While they are not material contributors currently, we are excited about the initial progress in these areas. The first is our evolution in commerce capabilities. Traditionally, a field sales organization has facilitated most of our sales, allowing us to establish strong connections with our customers. However, we are increasingly supplementing this with e-commerce capabilities. We are developing these capabilities in three commerce areas: first is collaborative purchasing at the enterprise level, where our tools are now evolving with improved e-commerce capabilities. The second area is departmental-level purchasing, where we have launched new tools that allow department heads to manage their education, training, and development budgets through e-commerce. Lastly, we are focusing on individual commerce purchasing. Recently, we began selling the DEA-mandated opioid course required for physicians. This offering generated approximately $0.5 million in sales during the first quarter, marking a significant achievement in direct commerce through our new tools. Another channel expanding our direct commerce capabilities is NurseGrid Learn, which has seen growing use among nurses, with over 0.5 million monthly active users. The NurseGrid app helps nurses manage their schedules, and we're noticing increased transactional activity through NurseGrid Learn, powered by our commerce tools. Turning to the expansion of our total addressable market announced in October, I want to update you on our nursing school initiatives. We have successfully completed our first major enterprise sale to one of the largest nursing schools in the country and implemented our HealthStream technology platform across over a dozen of their campuses. Full implementation is expected this quarter, supporting nursing students as they enter the workforce with a Red Cross certificate. We are eager to see both technical and financial progress in the nursing school market. While these two initiatives — direct to professional commerce and nursing school developments — are still emerging and not yet material to our business, we are optimistic about their growth potential. To recap the nature of our business, HealthStream is dedicated to healthcare technology focused on developing, credentialing, and scheduling the healthcare workforce through our SaaS application stacks. These technology solutions, which include credentialing, learning, development, and scheduling, are increasingly becoming interoperable. We primarily sell our solutions on a subscription basis, averaging three-year contracts, resulting in predictable revenues. Currently, 96% of our revenues are subscription-based. We have initiated direct sales channels to professionals and nursing students, maintain profitability, incur no interest-bearing debt, and our cash balance rose to $83.7 million in Q1. In summary, we are solely concentrated on healthcare, specifically the healthcare workforce involving 12.3 million healthcare professionals and nursing students, who we consider part of our ecosystem. We aim to enhance engagement across our application suites and drive a network effect with the hStream platform. Now, I’d like to turn it over to Scotty Roberts for a deeper dive into the numbers. Thank you. Go ahead, Scotty.

All right. Thanks, Bobby, and good morning. So, I'll jump right in and go over the financial highlights for the first quarter and unless otherwise noted, the comparisons will be against the same period of last year. I'm pleased to share that we continue to deliver solid performance for the first quarter, growing both topline and adjusted EBITDA. Revenues for the quarter were $72.8 million, up 6%. Operating income was $5.7 million, up 97%. Net income was $5.2 million, up 99%. Earnings per share was $0.17 per share, up from $0.09 per share, and adjusted EBITDA was $17.1 million and was up 24%. Revenues increased by $3.8 million or 6%, coming in at $72.8 million, compared to $68.9 million in last year's first quarter. Revenues from our subscription products accounted for 96% of total revenues and were $70.2 million, increasing by 6%. Subscription revenues, as we've defined them for some time, predominantly include SaaS solutions, but also software license and maintenance fees. Software licenses are associated with legacy products such as our ANSOS scheduling solution and are occasionally sold to existing customers. I'm calling this to your attention here because one-time license revenues were approximately $0.8 million in the first quarter, and they increased by $0.5 million over the prior year. In fact, the $0.8 million of revenue in the quarter came exclusively from one ANSOS sale. We do not expect one-time license sales to continue at this level, and I want to remind you that the $0.8 million of first quarter license sales should not be modeled to repeat in upcoming quarters. Additionally, our professional service revenues declined by $0.4 million, or 13%. In the last quarter, I discussed two products that are experiencing declines in revenues, so I want to give a quick update on those. The first are renewals of the ANSOS scheduling products, and the second is our quality manager solution. During the first quarter, these products collectively declined by $0.6 million or 13%. On the positive side, our initiative to sell directly to professionals through our commerce channels delivered over $0.5 million of revenue in the quarter. Our remaining performance obligations were $514 million as of the end of the quarter, compared to $504 million for the same period of last year and we expect approximately 44% of the revenue backlog to be converted over the next 12 months. Gross margin was 66.2%, compared to 65.4% last year. This improvement is primarily due to the growth in revenues and from a cost perspective, our staffing costs were down due to last year's reorganization efforts while royalties, hosting and software grew over the prior year and more than offset the labor cost reductions. As for operating expenses, we were able to maintain operating expenses, excluding cost of revenues to a 1% increase and most of this increase year-over-year was from depreciation and amortization, which was up 4% and product development expenses were up 3%. Our G&A and sales and marketing expenses were down 6% and less than 1% respectively. Adjusted EBITDA was $17.1 million, which was about 24%, and adjusted EBITDA margin improved to 23.4%, compared to 19.9% last year. As a reminder, last year's adjusted EBITDA was negatively impacted by $1 million of severance charges associated with the reorganization under our single platform strategy. Now let's go over the balance sheet metrics. We ended the quarter with cash and investment balances of $83.7 million, compared to $71.1 million last quarter. During the quarter, we deployed $7.8 million for capital expenditures and paid $0.8 million to shareholders through our dividend program. For receivables management, overall it was a strong quarter of collections, which led to days sales outstanding of 46 days, compared to 51 days last year. DSO has improved, bad debt charges were not material and generally speaking, the payment timeliness from our customer base remains fairly stable. Now switching to cash flows, our cash flows from operations were up slightly over the prior year, coming in at $20.9 million and free cash flows improved by $1.1 million or 9%. With a strong balance sheet containing over $83 million of cash and no debt, we are in a good position to strategically deploy our available capital in a variety of ways, including M&A, dividends, and share repurchases. Yesterday, our Board of Directors declared a quarterly cash dividend of $2.8 per share to be paid in May. Our share repurchase program expired on March 31st and there were no shares repurchased during the quarter. For this program, we repurchased $8.9 million out of the $10 million authorization. Now, as for guidance, we are reaffirming the financial expectations that were previously announced in February. We expect consolidated revenues to range between $292 million and $296 million. We expect adjusted EBITDA to range between $64.5 million and $67.5 million, and for capital expenditures to range between $28 million and $30 million. This guidance does not include assumptions for any acquisitions that we may complete during the year. That wraps up my comments for this quarter's call. Thanks for your time this morning, and now turn the call back over to Bobby.

Thank you, Scotty. I'm going to highlight a few of the areas, where we saw some success in each of our three primary application suites and talk a little bit about some advances in our technology, we call hStream as well. So, our HealthStream Learning Center is the application, it's kind of a flagship product of our learning application set and it continues to be strong in the market. But importantly, when the HealthStream Learning Center customers are up for renewal, we frequently see customers purchase multiple new solutions along with it when they renew. And this is kind of an example of expanding wallet share is kind of a way to think about that. And one of our academic medical center customers used their renewal of the HealthStream Learning Center as an opportunity to evaluate how HealthStream might help them serve their entire clinical workforce. And this may be an example of the tailwind I mentioned earlier. The customer already purchased various HealthStream solutions for different subsets of their population, and when it came time to renew, they concluded that by pairing that with the renewal with a purchase of HealthStream competency suite and that would benefit their entire clinical workforce, adding on the competency suite to the learning center. The competency suite is a comprehensive and cohesive bundle of applications and content used to develop the clinical staff, and in this case they added that kind of that entire bundle. The customer also added our nurse residency program, which onboard newly graduated nurses, which is kind of an important kind of continuum of service from some of the work we're doing now in nursing schools. And so, we saw them add the nurse residency program to the account as well. So, the net result was the ARR, the recurring revenue, for that customer grew by 31% or approximately $100,000 in the first quarter, making this a good example of expanding wallet share and kind of cross selling products, in this case adding on clinical competency bundles and the nurse residency program, upon renewal of their base learning center contract. With our SaaS scheduling solution, shifting gears now known as ShiftWizard is a best-in-class solution of its kind, and we think it will only become more valuable to customers as it begins to integrate with other applications through our hStream technology platform. In the first quarter, revenues from ShiftWizard grew 26% over the prior year quarter as customers continue to report high customer satisfaction with the ShiftWizard application. We contracted several new customers during the quarter, which we're excited about. Welcome Samaritan Medical Center, Bay State Health, and Hutchison Regional Medical Center, all new customers for ShiftWizard, we're excited to add you to our customer list. Our credentialing solutions also enjoyed a successful start to the year, both in terms of competitive take outs and conversions from our legacy solutions, and you're going to see an increased focus by our sales team on these conversions this year. We think it's really time now, as we tell our customers at the start of the year, time to migrate, so if you're on our older legacy platforms of HealthLine and Morrisey, you'll be hearing from HealthStream that we think that credential stream is right for you and it's time to get under the migration process. So, this best-in-class solution for enrolling and privileging physicians is really just in a market leading position, we believe. One thing you may not know about credential streaming, one of its differentiating characteristics is we believe it's the first credentialing solution that really engages with the physician and the credentialing process. We think of it as much more user-centered software, and we think that's a good thing. We see increasing traffic by physicians logging in and taking control of the credentialing process individually and professionally. And so, we're proud that our credentialing suite is kind of physician-centered in many ways, and we think that's consistent with being the people platform of healthcare. We want to make that as pain-free a process as possible for physicians, and we laser focus on the net promoter score from physicians on that particular application. So, you may not have known that one of our twists is that our credentialing system has a lot of tools that are easy to use by the physicians themselves to take control of the process. In the first quarter, we contracted 33,000 new subscribers for credential stream, which is an exciting add and we've now exceeded over 1 million subscribers on the credential stream application suite, which is really exciting. And we welcome new customers like Arkansas Blue Cross Blue Shield, which is really exciting, because it's slightly different kind of customer profile than our hospitals. Tufts Medical Center, Dartmouth Health and Littleton Regional Healthcare, all added the credential stream application suite to their processes, and we're excited to welcome them as customers. In terms of our platform solutions, the momentum we're seeing with regard to customers using adoption of our APIs is paving the way for an exciting future for the company. As a reminder, we launched the hStream developer portal in the fourth quarter of 2022, so it's fairly new. I think of this developer portal as a window into the actual platform. So, we talk now about the three application suites, but the platform that we call hStream is driven by a growing library of APIs that we make available under license to our customers, and some of them get access based on the fees they've already paid, like if you use the HealthStream Learning Center, you get access to learning APIs. But over time, we also think these APIs and their capabilities and datasets that are in the platform will themselves become monetizable assets. So, we're excited about that. In the developer portal, kind of, as a sign of life or a sign that the platform strategy is working, we saw a doubling of different measures of utilization of these platform level capabilities. So, the portal provides access to modern, scalable, secure architecture with a growing collection of shared services, platform-level applications and APIs to connect two and among all of these different components. At the end of the first quarter 2024, 104 healthcare organizations have chosen to open an account on the developer portal, which is kind of how you get access to these APIs and collectively 237 of their developers have account level access to a growing library of APIs, most of them currently in the learning area to then integrate our technology into their broader technology environment, for example into their intranets and other applications they may build. For example, in the first quarter, Stanford Healthcare built an internal app that provides easy access to epic course completions. And so, here's an example using the developer portal, the APIs by Stanford Health, who have licensed access to these APIs, because they're a customer of the broader you know hStream platform and they are incorporating those into this new app that helps them deliver access to epic course completion, so it's really exciting. And there are plenty of other examples, New England Life Care app to conveniently retrieve course and assignment progress, and they're also using the APIs in the developer portal. So as these APIs get more and more utilized, we feel we get more threaded into the broader platforms of our customers. So, we think that demonstrates the value of our platform strategies increasingly and hopefully provides more value and utility to our customers. And we think again, as the platform expands, there'll be more and more capabilities in the platform, more reasons to use it and more interoperable, and then in the long-range vision, of course, monetizing these capabilities directly is also an exciting possibility. So I think, as I think about concluding, I'd say if you're interested in profitable, recurring revenue SaaS and increasingly a PaaS, a platform-as-a-service healthcare technology company, that for 2024 we expect to deliver steady growth, kind of down the middle of the fairway of our guidance in fact, and we're determined to share some of our gains directly with shareholders in the form of a dividend, one which we increased last quarter, maybe HealthStream is a company and a good stock for you if you're a new investor. If you're a shareholder, we welcome you to participate in and know remind you that our annual shareholder meeting is scheduled to take place virtually on Thursday, May 30 at 02:00 p.m. and notifications of the meeting and access to the proxy statement 10-K and shareholder letter were sent out on April 15. So, if you're a shareholder, we encourage you to vote your shares and participate in the future of our company. I'll now turn it back over to the operator to begin the questions.

Thank you. The question-and-answer session will start now. Our first question comes from Matt Hewitt with Craig-Hallum. Your line is open.

Good morning and congratulations on the strong start to the year. Maybe the first question, it appears that the employment situation at your customers, hospitals, healthcare systems is improving since last year. And as that occurs, how are you seeing that change the purchasing decisions, I think you spoke a little bit about how you're seeing, your customers are paying more attention to their workforce today than maybe they did pre-pandemic, but are you seeing them even starting to implement HealthStream applications and solutions right at the beginning with the onboarding process and are you seeing, I guess, a greater wallet share with those customers starting on day-1 versus upon renewals and downstream from that initial hire?

I don't need to overthink this. There are various trends in purchasing and spending patterns. One trend we've noticed is that we've improved our ability to bundle some of our products into suites, which can lead to a higher order value. I mentioned the competency suite sale earlier, which combines two or three products that were previously sold separately into a more comprehensive toolset aimed at enhancing staff competencies. We're learning to present our offerings in a way that aligns better with the positive market trends I've referenced. The pandemic has certainly heightened awareness of the importance of investing in the workforce, making their lives better, helping them perform their jobs more effectively, and preparing them for new opportunities within the organization. There is now a greater realization that investing in workforce development is essential; companies can't just outsource their workforce. I believe organizations are increasingly willing to prioritize this investment in their workforce discussions at the executive level. Regarding moving upstream, we are making strides in reaching the workforce before they officially enter it. Our focus on the nursing school market is still in the early stages, but we're optimistic about the potential impact. We've even released a white paper highlighting the growing need for mobility among nurses and the importance of attracting and retaining them. The findings indicate that nurses are inclined to accept jobs where they completed internships or rotations. Hospitals face challenges in recruiting these precepted students as full-time employees, and we believe HealthStream is well-positioned to address this issue over time. Again, this is early research, but many students undergoing clinical rotations or nurses at hospitals are promising candidates for future hiring. Overall, I think there's a better attitude among customers towards investing, coupled with improved bundling strategies in our deal pipeline.

That's really helpful. Thank you. And then maybe a separate question regarding the opioid course. Obviously, you know, it's nice to have a tailwind like that, a government mandated tailwind. How quickly are hospitals expected to implement that type of a course? And what could that mean? Is it a driver for this year or could it add 1% or 2% to revenues this year, just trying to think of how to kind of factor that in?

We have a unique opportunity here, and you're right to point it out. It's exciting that we achieved $0.5 million in sales this quarter. If we can maintain that level, it’s primarily driven by direct sales to professionals. There isn't much institutional purchasing involved. The chance to connect with physicians who need to renew their licenses, which makes this course a requirement, led to those sales. If we can keep this momentum going, it could be a nice small contributor, but we have to be cautious about overestimating our ability to sell directly to individuals. It's fortuitous that the requirement coincides with our existing curriculum and our improved marketing channels and e-commerce tools that helped us succeed in the first quarter. However, this is a one-time mandate, so soon everyone will have either met the requirement or not. We don’t want to get overly excited about it. It's important to stay grounded. Additionally, we had some unusual one-time revenue from the license, which isn’t our focus like it is with ANSOS. If a customer wants to expand their use of ANSOS, we will take that business, but we shouldn't base our future forecasts too much on this one-time license sale, which was around $700,000 to $800,000. Staying grounded is key, and that’s why I keep emphasizing the importance of maintaining a realistic outlook.

Thank you. Our next question comes from Jared Haase with William Blair and Company. Your line is open.

Yes. Good morning. Thanks guys for taking the questions. This is Jared on for Ryan Daniels. Bobby, you talked a little bit, I think, in the credentialing segment about a win with a payer. And I'm curious, I think that's relatively new. So just be curious to hear a little bit more as to how we should think about the opportunity with payer customers. And then specifically, it sounded like that was a blues plan, so I'm wondering if you see an opportunity here to sort of further penetrate the network of blues plans nationwide.

Well, okay. So, first, we're excited you picked up on that. And, yes, it's a new type of customer for us. We think that our credential stream application and the way we built it might give unique benefits to that market segment over time, the way that it's been engineered to work and create data mobility, sometimes health plans are owned by health systems, and that might create some interoperability benefits that we see potentially in the future. So, yes, it's an example of one kind of exciting new development if you're in the sales team in that area. And we do think we have a unique set of capabilities in the app that could be beneficial to health plans. That said, health plans are hard to sell to. It's new for us. We got a lot of work cut out for us. But if you think in terms of two to three years, I'd love to see that become a thing for us, where we can have a presence in that segment as well. So, again, hopefully, the way we built the application, and its interoperability and potential data mobility will provide some benefits to health plans, particularly when they're owned by hospitals and health systems. And, yes, that was a blues, but we don't claim to have any particular expertise in selling the blues. It's new for us again, and required some new modeling, new selling approach, but we'll see where it goes. I think we've got a shot at making that an opportunity that repeats more than once.

Got it. Yes, that makes sense and look forward to hearing more over the coming years. Maybe another follow-up just from the prepared remarks. Bobby, I think you talked a little bit about enterprise purchasing collaboratives and I know it sounds like it's not a material part of the business today, but I was hoping, number one, if you could maybe just contextualize sort of what portion of bookings or ARR growth comes through a collaborative purchasing today, and maybe where you expect that to get to over the next few years and then it also sounded like that's evolving with some additional capabilities. So we'd love to just hear a little bit more about that as well.

The collaborative purchasing process is designed to benefit enterprises significantly. It allows them to organize and manage their purchasing across various offerings. When evaluating multiple products, it provides a structured 90-day timeframe for them to assess all items in a bundle and gauge demand across different facilities, for instance, if they operate several hospitals. Historically, this process was manual and driven by a consultative sales approach, but we have transitioned to digital tools that enhance visibility into demand fluctuations for specific products as orders are placed. This model allows enterprises to see aggregated orders and benefit from a discounting structure tied to their volume commitments, essentially gamifying the purchasing experience while aligning with their budgeting cycles. Although this collaborative pricing method is still not widely implemented, we've introduced digital tools to support it. Our pricing models are now integrated directly with our sales tools, allowing customers to see automatic discounts as they commit to higher volume purchases. Our goal is to broaden these capabilities further, improving usability and product offerings in the collaborative purchasing space. This process has garnered several million in orders, but it represents a small fraction of total orders. However, we value it for facilitating enterprise-level purchasing through an increasingly automated system powered by the hStream platform. Additionally, we see potential untapped budgets at the departmental level. Traditionally, our sales teams engaged with enterprises, but we are developing commerce tools enabling managers to purchase within their departmental budgets. These tools are ready but have yet to be launched, and we are excited about their future prospects. At the other end, we are exploring direct commerce options for professionals. For instance, we can offer mini learning stores for courses that comply with federal regulations. We've already seen $0.5 million in sales from a DEA-mandated course, which was recognized immediately in our financials. While consumer revenue is a minor part of our income, it opens possibilities for professionals to purchase services directly, which could diversify our customer base. We are cautious not to overestimate these developments, but we see promising indicators for the future, especially regarding enterprise purchasing, departmental purchasing tools, and direct professional commerce, which is still in the early stages. The interoperability of these systems excites us as we continue to enhance our platform's features and functions, eventually allowing customers to leverage their credentials across different applications and manage their data more efficiently. Thank you for the question. I realize I provided a lengthy answer, but we're open to any further inquiries.

Thank you. Our next question comes from Richard Close with Canaccord Genuity. Your line is open.

Good morning. Thanks for the questions and congratulations. Maybe a follow-up to Matt's first question. A good example there with the 31% increase in ARR with the academic medical center. I'm just curious, when you look at your book of business for the SaaS offerings, like what percentage of customers come up for renewal on an annual basis and then maybe putting that 31% into perspective, are you seeing an acceleration, I guess growth in that percentage increase in ARR versus one to two years ago, maybe any insight or perspectives on that would be great.

I think overall growth rate would be much higher if that was more prevalent. I think we obviously gave an exception here, which is one that bundled, but our sales team, our account manager, focused on this kind of account expansion. We do see some give and take, so if they had four products up for renewal, they renewed three of them, maybe they used one less and they added two new ones, so that's what account managers do. We have about 60 account managers that focus on this cross-sell, upsell. There are puts and calls to the whole process. Again, if they have four products, renew three, they say, well, we didn't use that one as much. But our account managers, if they're really good, they do what this group did here, and they add two or three new products. The other thing that's shifting, Richard, and so I would say we give the best example. We don't want to overengineer, it's not happening on every renewal yet, but it's of course, our model and our objective. That's what we want to do. The other thing that's happening is and so a bit is that we're doing a better job bundling things, like if you take these companies examples, so the initial order value can be a little greater, and that's resulted in a little delay in the Q1 pipeline, but more bigger deals in the pipeline than we've ever seen. And so, for example, in the comp suite is a lot of content that we used to sell separately, the checklist tool is in there, Jane is in there. And so, there's a way now that instead of a CNO making an argument upstream four times to buy four separate products, they can evaluate making a real investment in their workforce to buy the suite. And so that's some repositioning that we've won. And the effect is more bigger deals in the pipeline than we've seen, but also in Q1, a little delay purchasing in some areas as we made that shift. So, I'm excited about kind of hopefully where Q2 takes us through this bundling strategy and hopefully that grows that ARR that you're talking about. But, you know, obviously, overall, with our overall growth rate, we're not seeing every renewal come up and grow by 31%. That's a case study that we want to emulate more than it is an example of broad occurrence.

Okay, that's helpful. And then maybe on the decline in renewals. ANSOS, I understand. Is there anything to be concerned with the quality manager, that seems to be something new, just want to make sure I understand that.

Yes, the quality manager was from an acquisition years ago. It's focused on the skilled nursing market. And that market is under a lot of stress financially and kind of re-engineering and working on defining their space better I think, so slowed purchasing there, tighter budgets. The quality manager, again, is not overall a huge part of our business, but it's enough where we don't like to see declines, and so we'll fight to continue to position that product, but it's predominantly sold to the skilled nursing market. We're building a version that could be sold to hospitals, but that's a more competitive space. So, I think just in general, we have dozens of products. This is one of the smaller ones that may be facing kind of a market level challenge, and we'll do what we can to fight through it, but we did note a decline along with ANSOS, not as big as ANSOS, so not as big a risk.

Okay, that's helpful. And then, you know, I'd welcome your perspectives. You just talked about the pipeline, some bigger deals in there, maybe a little bit longer to get across the finish line, but it doesn't sound like you're too concerned with that. I'm just curious, with respect to change healthcare and everything that's gone on with that over the last several months, have you seen any impact in your book of business in terms of potential new business or renewals, people pulling back just based on everything that's going on with the change healthcare, I'm just curious.

No, I don't know, Richard, if I've been able to relate the change healthcare to any purchase patterns. Again, we saw a little lighter purchase patterns in Q1 than we wanted. I think that's due to some of our re-bundling strategies. We had a great fourth quarter, so we pulled a bunch of deals in the fourth quarter. We're rebuilding for the second quarter, so we've got some work to do there. But I haven't been able to relate that to any macro trends or something like the change healthcare, kind of, challenge that occurred for the whole industry. I see a little bit more duress in the skilled nursing market, a few more acute care systems are known in the public to be under financial stress, but also, I think tailwind, so the headwinds are kind of some macro condition things for customers. But the opposite, in fact, is the workforce trends that we're seeing, the interest in the workforce. So the bundling and the bigger deals and the more bigger deals in the pipeline is exciting, but hopefully it doesn't take too much longer to close them. But I think that is maybe a more direct result of the interest in both how we're bundling our products and the interest in investing in the workforce, which is a direct shift, I think, in their attitude about the value of retention and developing versus maybe pre-COVID. And I think they got so tired of staffing nurses filling most of their positions, they want to develop their own employees now. So I hope that plays out over the next few years, is what we're hoping.

Okay, that's helpful and good to hear. And then maybe, Scotty, with respect to sales and marketing, as we think about the second quarter through the rest of the year, is there anything to keep in mind in terms of maybe seasonality or events or anything like that with respect to the remaining quarters?

Yes, we have set an expectation to participate in more in-person events this year, starting with our own customer conference named Thrive that took place in the first quarter. We plan to host additional events throughout the year, although they may be spread out across different quarters. I don't anticipate any specific quarter having a significant effect on our financials, but we do expect to continue with our events. Regarding hiring, we will keep filling sales positions as needed throughout the year, but this likely won’t materially impact any specific quarter.

Okay, that's helpful. Thank you very much.

Hey, Richard, I'd like to just reinforce a couple of things. The quarter was obviously strong, but there were a couple one-time comparators that we just need to make sure, that's why we keep saying middle of the fairway, you know, we don't want to overengineer the result. The ANSOS one-time license was a one-time benefit. And also, on a year-over-year basis, the restructuring last year, which we did, it's kind of also an expense change that, you know, we got some benefit from, but we didn't do another reorg. And so, we just want to be excited about the quarter, and it's the total result. We also want to be, you know, and we point out some of the things that could impact our future in a positive way. But right now, you know, we're sticking to our range and kind of pushing people to think about the middle of the range is what where we think we are.

For the full year and for each course, we had a remarkably strong first quarter, even in terms of free cash flow. Typically, during the second quarter, our free cash flows are not as robust, and we tend to pay out significantly more in royalties and commissions, which are usually higher than in the second and fourth quarters. So, maybe Scotty can provide more insights on the first quarter's free cash flow as well.

Yes. Sure. Yes, I think if you look back at last year, in particular, and probably look at several years of trend, you'll see that Q1 and Q3 are typically our strongest free cash flow quarters, with Q2 and Q4 tending to tail off. I think even last year, second quarter was flat to negative. And so, another consideration is just timing of Federal income tax payments, state income tax payments tend to not be on a quarterly recurring basis. So, you should expect some of that to pop in the second quarter as well. Similar trend that we saw last year.

Thank you.

Thank you. Our next question comes from Constantine Davides with Citizens JMP. Your line is open.

Hi, good morning. I apologize if I missed this, but reporting a consolidated ARR has been something you talked about previously in terms of a new way for us to understand the business better with an expectation that we get something around midyear. Can you just provide us with your latest thoughts there and if there might be other potential KPI's you're also considering?

Yes, I mean, we're trying to chase down everything from return on invested capital. And when we looked at it, there's 30 ways to talk about it, we're looking at internally, we use ARR at our account management level, at the account level, but not the company level. And so, figuring out how to calculate and reliably do it, we would probably have to commit to a metric internally for a few quarters and see how it plays out before we release it publicly. So, we're probably now looking at Q3 at the earliest for new metrics. And so, no Constantine, nothing new to report today, but we're working on it, you know, because we retired a metric, we're working on finding other new metrics. Scotty, do you want to comment any more on the things we're looking at, at least to give a hint about it, but I do think we're several quarters away because again, we would have kind of more adopted internally, run it for a few quarters, and then figure out how to talk about it, get our definitions straight that we would want to use, you know, of course we have our own internal definition, free cash flow and things that we monitor, but nothing planned to release right now.

Yes, I think ARR is one that we're obviously, we've looked at and used internally, as Bobby mentioned, on a more an account-by-account basis, but you know, Constantine, you know, some other retention metrics, we're considering whether or not those are worth sharing publicly. But, you know, obviously been focused on those internally as well, but just trying to get to the point where we want to share those publicly. So net retention in particular is a possible metric as well.

Great, that's helpful. Bobby, regarding the 104 organizations that accessed the portal, I want to clarify that they’re not paying for that access at all. What are the expectations for starting to monetize this, and what steps do you need to take to commercialize or support it? Is this something we should anticipate later this year, or is it more likely to happen next year? I'm just trying to understand how to view that opportunity.

Sure. There are a couple of points to clarify. Firstly, they are indeed paying for access. When a customer purchases an application like HealthStream Learning Center, they also acquire a subscription to hStream for Learning. This subscription includes a license that provides access to specific APIs, and customers do pay for this hStream for Learning subscription. These two subscriptions together grant access to the various APIs available. Most of the organizations utilizing the 104 APIs are leveraging the rights they obtained through their hStream for Learning license. We have seen some success in individually licensing certain data sets and have proposals out to other clients for direct licensing of platform functionality. We have provided examples of this progression. As we continue to develop our data sets, such as our privilege library and regulatory compliance library, customers can access these libraries through the platform for a licensing fee. Additionally, we've seen instances of third parties licensing specific functions, like checking license validity, on an API basis. An example of this is a health system that didn't purchase an application from us but used our service solely for checking licenses. While we have some limited examples of directly monetizing both the data and functionality of the platform, most of the 104 users and 200 new developers on the portal are there due to the rights acquired through their hStream for Learning license, and they are integrating these APIs into their technical environments, like intranets. So, in a sense, it is paid access. In fact, when considering the value proposition of the hStream platform, customers appreciate access to the developer portal and the use of these APIs. Many of these APIs are designed to be marketable to non-customers, and we aim to showcase examples of direct monetization across each category of data and APIs by the end of this year.

Got it. Thanks. If I could just squeeze one last one in here. Obviously, you guys are in a really good cash position, no debt. In terms of just M&A opportunities, I'm just curious, are you pretty committed, at least in the near term, to the three application suites you currently have or is there a possibility you even start to sort of expand upon that prior to having the unified platform sort of fully realized?

Yes. I think we are already focused on expanding within the three application suites. If we find something that enhances our learning capability, we will consider it for our credentialing and scheduling without adding a new area. The only additional aspect we have is the platform we call hStream, and we want to ensure that the three application suites and the hStream platform work well together. This year, we aim to demonstrate interoperability in various ways. For example, when you license the learning center, you also get access to the hStream license and APIs, adding value to our network. Our M&A strategy focuses on strengthening existing areas rather than creating new business lines. This year, we are particularly focused on interoperability and migrating legacy customers to our modern credentialing application, which currently has over 750 accounts. As we convert these customers, we will see some revenue growth, but the primary goal is to transition them to the new application suite. Therefore, we are mainly looking to strengthen our current lines of business through M&A. If we achieve effective integration in the next 18 months, we may consider adding a new operational dimension to the network, but for now, our focus will remain on bolstering existing areas.

Yes, Bobby, another strong quarter for ShiftWizard. You added a few new clients. Curious if they were mostly, I assume they're mostly mid-market clients. And if that's correct, when may you be prepared to move up to larger enterprise clients?

Well, we're working on that, I think you're right. I mean, generally that product is great. We have some good examples of big systems that are using it. But I think in general, the successes are coming in the mid-market right now and that's the focus of our sales team. So, we continue to try to expand this capability and make it more relevant. We have ambition to integrate properties like NurseGrid, the app, to the ShiftWizard application, which would extend its functionality. And so, I think right now, though, for the next six to nine months, maybe even for the full year, the remainder of this year, our focus is at middle market.

And one last one. Anything in the competitive market worth calling out since last quarter?

Well, you know, no, I don't think anything particularly, I mean, everyone, including HealthStream is working on their AI strategies, so we see different approaches to that, you know, with our Jane Technology continues to evolve, we're excited. We have some things in the pipeline to refresh our learning technology stack that we're really excited about for the second-half of this year, so we're working on our competitive positioning there and our thought leadership and our application leadership in that area, which hasn't been revitalized in quite some time. So that's a little sneak peek that we've got coming in our learning business that we hope to catch the competitors with. So but in general, it is a very competitive landscape with lots of good startups and big established companies as well. And we're just fighting for our piece of that or more than our fair share.

Hey, guys, thank you for taking my question. I'll try to keep it brief, given the length of the call, but you've been talking a little bit more about sunsetting activity and being more proactive on the prepared remarks, is there first any way to tease out what your growth would look like excluding the sunset impacts and get a cleaner number for your go forward? And as a follow-up, could you talk to us more about maybe the pushback you're getting and any sort of updates on the timeline for the process?

Yes, we identified early this year, in January, that we needed to concentrate on certain areas such as credentialing and scheduling, both of which have legacy platforms. The message to our existing customers is two-fold. We are not sunsetting these platforms; we need to adjust that term because we continue to support and enhance some of these legacy systems. We're also communicating frequently with customers on how to optimize their use. For instance, we experienced significant growth with ANSOS, converting a major contract into a more financially healthy model and achieving a substantial license expansion. We support these platforms but are not actively pursuing sales for them. If a customer wants to expand, we will assist, but we are not exiting these legacy models. We are shifting our messaging; at the conference we mentioned earlier, we announced that this is the year to migrate to the SaaS application stacks. This is a change from advising customers to remain comfortable and wait for migration. We are now actively encouraging our customers that this is the time to make the move. This shift in focus does slightly reduce growth, as transitioning involves changing from one revenue model to another. However, there is an increase in annual recurring revenue when moving customers from maintenance models, which is positive but not as impactful as acquiring new customers. This approach has a slight dampening effect on topline growth, but it is essential for our long-term strategy. We are not simply sunsetting; we are promoting migrations by sharing successful examples. We have improved our data migration tools and methodologies, having gained valuable experience from earlier migrations. Overall, our teams are doing well, and we are more confident in handling additional migrations now. While this focus may make topline growth appear less impressive, it is the right strategy for the next 24 months. We are technologically better equipped to facilitate migrations, and our marketing message has evolved. Thank you for the question; I hope this answers it.

Thank you.

Thank you. There are no further questions at this time. I'd like to turn the call back over to Bobby Frist for any closing remarks.

Thank you, everyone, and congrats to our employees a lot of hard work going on to make all this happen. Look forward to reporting the next earnings call to everyone and we'll see you on the next call. Thanks everybody.

Thank you for your participation. This does conclude the program and you may now disconnect. Everyone, have a great day.