HealthStream Inc (HSTM) 2025 Q4 Earnings Call Transcript

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Operator: Good morning and welcome to HealthStream's fourth quarter and full year 2025 earnings conference call. At this time, I would like to inform you that the conference is being recorded and that all participants are in listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation. I would now like to turn the conference over to Molly Condra, Head of Investor Relations and Communications. Please go ahead, Ms. Condra.

Molly Condra: Thank you. Good morning. And thank you for joining us today to discuss our fourth quarter and full year 2025 results. Also in the conference call with me is Robert A. Frist Jr., CEO and Chairman of HealthStream, and Scotty Roberts, CFO and Senior Vice President of Finance and Accounting. I would also like to remind you that this conference call may contain forward-looking statements regarding future events and the future performance of HealthStream that involve risk 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 10K, 10Q, and our earnings release. Additionally, we may reference certain non-GAAP financial measures relating to the company's past and future expected performance on this call. The most directly comparable GAAP financial metrics and reconciliations are included in the earnings release that we issued yesterday. So with that start, I'll now turn the call over to CEO Bobby Frist.

Robert A. Frist Jr.: Thank you, Molly. Good morning, everyone, and welcome to our fourth quarter and full year 2025 earnings call. We do have a lot to talk about this morning, and there's several topics. We'll definitely cover the topic of the emerging landscape with AI. We're going to talk about our financial performance for the quarter and the full year. We'll go through some business and product updates at the end and turn it back over to you guys for questions. So, you know, nothing like the numbers first. Let's just kind of jump in. We finished the full year 2025 with revenues up 4.3% and adjusted EBITDA up 7.5% year over year. For the fourth quarter, revenues were up 7.4%. and adjusted EBITDA was up 16.4% year over year. And then, you know, looking forward to 2026, probably the reason we're all on the call today, we expect Healthstream to show continued growth in each of the areas where we provide financial guidance, as we anticipate revenue between $323 million and $330 million, net income between $20.4 million and $22.8 million, and adjusted EBITDA between $73 and $77 million. These guidance ranges do not include any acquisitions we may complete during the year, though our strong cash balance of $57 million untapped line of credit and no long-term debt position us well to take advantage of M&A opportunities as they arise. Later in the call today, I'm going to describe some of the exciting developments on our application suites, which we've talked about for years, and our rather newer career networks, which we'll cover in a little bit of detail, the newest at the end of the call. But first, I want to talk a little bit about how Healthstream is positioned relative to the emerging context of AI and which trends we think or categories of trends we think help favorably position us in that landscape. There's four categories I'm going to kind of discuss that are really more broadly positioning categories. So we talk about relative strength to others as we enter this massive period of change. First category, because there's this concept of this SaaS Armageddon or SaaS Apocalypse is to think about how AI might affect our end users. And so this first category is talking about the expansion of the healthcare user base. I think unlike companies that fear seat compression due to AI agents minimizing the number of their human subscribers, our user base of healthcare providers is expanding. In fact, the number of healthcare providers is projected to increase significantly in the coming years, particularly in the nursing workforce, which is our greatest strength as a company. In January of 2026 alone, healthcare accounted for approximately 82,000 of the 130,000 new jobs added in the U.S. According to the Bureau of Labor Statistics, that trend will continue with roughly one quarter of all new jobs in the U.S. economy over the next decade being in healthcare. On average, hospitals hired 13,600 net new personnel each month in 2025. And nurses continue to be a strong component of this growth. From 2020 to 2024, registered nurses increased 9.4% overall, while nurse practitioners increased 38.5%, according to BLS. So this first trend translates into expanded opportunities for growth in our user base. And I just think fundamentally, you know, there's lots of areas of the market where there's lots of white papers, projections, futurists are saying, those jobs may be eliminated. And I think in our market, we're just not seeing those kind of projections. What we're seeing are projections of shortages and projections of increasing demand. And so at our core is the health care workforce, and at its core is the nursing workforce. And so we think that with our acute focus on that workforce pool, we have a relatively strong position as we enter the projections how change, how dynamic of change AI will impose on our marketplace. In fact, when we think about it, the positive dimension of AI in our workspace is I believe that AI will enhance the roles of nurses. It will make them more human and have more contact with patients as some of their paperwork and other functions get automated. And so kind of in a great irony, this is one of the skills jobs that I think survives the apocalypse. and in fact is enhanced by it, allowing the millions of nurses in our country to spend more time by the bedside with patients instead of less. So that's the first trend I want to talk about. The second is our data profile, and I think everybody has to get a grip around companies and organizations' data profile. And, you know, I think that that can be broken into two categories. The first is thinking about the role of the software plays for the organizations it serves, and I think For several of our solutions, our systems serve as a system of record, kind of a foundational source of truth. For example, in the learning space, we have an authoritative position maintaining the horizontal and longitudinal learning records of millions of healthcare workers over decades. And that strength of position as a system of record positions us well for the future of AI. AI is increasingly used to drive efficiencies and develop insights. The systems of record on which AI relies are becoming increasingly important. In terms of learning and compliance, I feel confident that we serve as a system of record for more healthcare organizations than any other company. Customers value having a single system of record for the whole of their learning program because it allows them to easily store, report, and gain actual insights into the development and assessment of their workforce, whether that is in the form of the use of AI or other tools. Traditionally, the data feeding into the learning system of record was generated solely from the use of one of our SaaS applications, such as the HLC, the Health Stream Learning Center. That continues to be the case, but encouragingly, we're also seeing customers push other learning records they have into their Health Stream system of record. They are accomplishing this through our learning API, which of course is included in their HStream subscription. So all that to say, just to reinforce that some of our core systems do serve as a system of record on behalf of our customers. And I think in a relative positioning world, I'd rather be there than just be a point solution. In terms of physician credentialing, our customers often refer to us as a single source of truth. And this means that we maintain the system of record status off which key functions, such as physician enrollment and privilege granting, those functions originate and are maintained and spin off of our system of record. So whether it is for learning or credentialing, Healthstream's customers trust us to maintain secure, reliable, and organized systems of record on their behalf. If AI is to make a true impact in healthcare, we believe and our company believes and I believe it will need to rely on these systems of record going forward. The second component of data, if you think about a data profile, when you enter this world of change is trying to determine whether an organization is an aggregator of kind of publicly available data or their originator of unique data about their customers and customer organizations. What is their relative data position? And I would say through our career networks, which we'll talk more about at the end, students, professionals like nurses, CNAs that interface directly with HealthStream for a variety of reasons, whether it is to find their first clinical rotation in a hospital as they're graduating or find their next shift or they're socializing with colleagues. These interactions create that access to this proprietary data that I would call original data. Take our virally growing nurse grid career network, for example. It's adding about 2,000 new nurses a week and now has over 670,000 monthly active users. That's a staggering one out of five nurses in the U.S., using NurseGrid, and they tell us who they like to work with, who they like to work for, when they want to work, how much monetary incentive will persuade them to pick up an extra shift. Healthstream is originating this proprietary data, and more importantly, we're using it to the mutual benefit of the individuals who provide it and the organizations that want to employ them. By connecting individuals with employers to help both realize their goals, healthcare itself improves. Everyone knows that AI requires data to be effective, and we believe that the data we are originating can be among the most valuable and beneficial for managing the healthcare workforce. That brings me to the third category, which is our platform and our platform strategy. We call it our HStream platform. Essentially, for over five years, we've been working diligently underneath the scenes and behind the scenes, investing in the creation of our platform. This is distinguished from our group of SAS applications. The platform is a series of capabilities, of which, by the way, AI is one of the 10 core elements of the HStream platform, that allows interoperability and allows our SAS applications to behave more like an ecosystem than separate, distinct SAS applications. And we're also, through this platform, able to connect to the backbone of these career networks. And so it's really an interesting kind of ecology that's evolving around the platform that we built. So I just want to remind you that the platform strategy we have is an advancing strategy. It puts us in a more primary situation with our customers as they use the APIs of the platform, the data of the platform, the data services of the platform, the interoperability they can enjoy between the different applications creates more of an ecology effect instead of just standalone kind of workflows. that we're excited about. And so, you know, for example, one of the core elements of the platform is the H-stream ID, which, you know, is a fundamental building block needed to drive interoperability and innovation in the healthcare workforce technology we're building. So what we observe is the number of APIs from the platform, their utilization by customers and industry partners,

Molly Condra: Give us one moment. We're having some technical difficulties. I'm sorry, participants, we're having some technical difficulties. If you just give us a few seconds while we try to sort this out. Okay, this is Molly Kondra. I'm going to pick up and finish off this section for Bobby while we...