HEALTHSTREAM INC Q4 FY2024 earnings call

• Financial overview: Full year 2024 saw strong year-over-year increases in key metrics: revenues up 4.5%, net income up 31.5%, operating income up 32.9%, and adjusted EBITDA up 9%.
• HStream platform: 2025 is the Year of the Platform, with progress made, including over 400 developers from 184 customer accounts accessing platform APIs. The HealthStream Learning Experience (HLX) launched in January 2024, with AI-powered search and pilots with large health organizations.
• Awards: HealthStream Learning Center was named G2's number one software in healthcare, and CredentialStream ranked 5th overall in healthcare application software.
• Executive promotions: Kevin O'Hara promoted to Executive Vice President, Enterprise Workforce Platform; Trisha Coady promoted to Executive Vice President of Workforce Development Solutions; Michael Collier added additional responsibilities. Michael Sousa to leave the company by end of March.
• Upcoming event: Annual Credentialing User Group Conference 'Thrive25' in Nashville, TN on March 11-12, 2025.

Full year 2024 revenues were up 4.5%. Subscription products accounted for 96% of total revenues, with $71.2 million in subscription revenue, up 4.8%. Professional Services revenues were $3.1 million, up 15.7%. Subscription revenue growth contributors included CredentialStream with 28% growth, ShiftWizard with 17% growth, and the Competency Suite with 8% growth. Legacy products like ANSOS, Echo, and MSOW had revenue declines, totaling approximately $1 million in the fourth quarter compared to the prior year.

• 2025 organic revenue expected between $302 million and $307 million.
• 2025 net income expected between $19.2 million and $21.4 million.
• 2025 adjusted EBITDA expected between $70 million and $74 million.
• Capital expenditures expected between $31 million and $34 million.
• Dividend increase: Board approved $3.1 per share dividend, a 10.7% increase from previous quarter.

• Customer bankruptcies: Led to increased bad debt charges, with $1.8 million of bad debt in 2024 from three highly publicized customer bankruptcies.
• M&A market conditions: Healthcare technology M&A markets have been slower than usual over past 18-24 months, though expecting pick-up in next 12 months.

Q: Last year set mid-term targets for revenue growth, gross margins, and EBITDA margins. What's needed to achieve 7%-10% top-line growth?

A: 7%-10% growth composed of 5%-7% organic and 1%-3% inorganic. Focus on converting customers better, advancing platform technologies to be more efficient, and factoring out legacy applications over time.

Q: Can you quantify headwinds from shifting customers from perpetual to SaaS?

A: Left for potential Investor Day, with commitment to schedule one first half of 2025.

Q: Pipeline strength and closure rate?

A: Remaining performance obligations jumped, strong sales in fourth quarter including multiyear contracts, December strong with meaningful sales in last five days.

Q: AI usage and efficiencies?

A: Lots of internal AI initiatives, likely a bit of expense increase in 2025 with long-term efficiency benefits.

Q: Pricing escalators in new contracts?

A: High success rate in incorporating escalators into contracts, customers appreciate escalators as they provide budget predictability over multiyear contracts.

Q: HLX launch and interoperability cross-sell?

A: HLX is live, available for sale, sales force trained; interoperability cross-sell expected to manifest more in 2025, with senior team working on enterprise workforce platform and cross-sell opportunities emerging upon renewals.