HSTM - NASDAQ

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. [Operator Instructions] I would now like to turn the conference over to Mollie Condra, Head of Investor Relations and Communications. Please go ahead, Ms. Condra.

Thank you. Good morning, and thank you for joining us today to discuss our fourth quarter and full year 2025 results. Also on 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 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 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.

Thank you, Mollie. 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 are 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 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 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 million 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 4 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 health care 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 health care providers is expanding. In fact, the number of health care 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, health care 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 1/4 of all new jobs in the U.S. economy over the next decade being in health care. 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, 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 our 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 of how change, how dynamic of change will -- 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 though this is one of the skills jobs that I think survives the apocalypse and in fact, is enhanced by 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 I think that can be broken into 2 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 the 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 health 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 health care 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 actionable 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 HealthStream Learning Center. That continues to be the case. But encouragingly, we're also seeing customers push other learning records they have into their HealthStream 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 is 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 of 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 health care, we believe and our company believes and I believe they -- 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's 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. You take our virally growing NurseGrid 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 1 out of 5 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, health care 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 health care 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 5 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 SaaS 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 SaaS applications to behave more like an ecosystem than separate distinct SaaS 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've 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 stand-alone kind of workflows that we're excited about. And so for example, one of the core elements of the platform is the hStream ID, which is a fundamental building block needed to drive interoperability and innovation in the health care workforce technology we're building. So what we observe is the number of APIs from the platform, their utilization by customers and industry partners [Technical Difficulty]

Okay. This is Mollie Condra. I'm going to pick up and finish off this section for Bobby while we figure out what's going on. I apologize for that. We were leading up to the fourth category, which is our ecosystem. And with that, you can have a great business vertical, a great data profile or a great platform. You can even have all 3. But if you don't bring them together at scale to form an ecosystem, then it really doesn't create durable value. There are many dimensions to HealthStream's business, all of which work together to form a whole that is greater than its individual parts. Something that AI cannot create is an ecosystem of millions of individual caregivers, like those choosing NurseGrid or myCNAjobs, the thousands of health care organizations, like those using our SaaS application suites and dozens of industry partners like the American Red Cross and world-class health care organizations. Combining those elements with our 30-plus years of experience and our hStream platform architecture, and you have something that's difficult to replicate. The organic life of such a thriving ecosystem is not something that AI can simply code, but it's something that AI can enhance and something that can turn and enhance AI. At least that's our strong belief. Now before we go further on the call, I want to briefly summarize our business for the benefit of anyone who's new to the HealthStream story. And this is something we do every quarter. First and foremost, keep in mind that HealthStream is a health care technology company dedicated to developing, credentialing and scheduling the health care workforce through SaaS-based applications, each of which are becoming more valuable because of the interoperability they are achieving through our hStream technology platform. We've also started to open our sales channels directly to health care professionals and nursing students through our 3 career networks for helping nurses, CNAs, and students throughout their career journey. The company holds 20 patents for its innovative products, which have been awarded over 40 Brandon Hall awards. Historically, we sell our solutions on a subscription basis under contracts that average 3 to 5 years in length, which makes our revenues recurring and predictable. In fact, 96% of our revenues are subscription-based. So we are profitable. We have no interest-bearing debt, and we reported a strong cash balance of $57 million at the end of the fourth quarter of 2025. This strong cash balance allows us to allocate capital to product development, to M&A, share repurchases and dividends, all of which we've done in the fourth quarter. We are solely focused on health care and more specifically, the health care workforce of those preparing to enter it. The 12.6 million health care professionals and nursing students in the United States comprise the core total addressable market for our solutions. So at this time, right now, we're going to turn our attention back to our results in this call. And Scotty Roberts, our CFO, will provide a more detailed discussion of the financial metrics in the fourth quarter and full year 2025, along with further comments about how we view our financial outlook for 2026. So I'll turn it over to you, Scotty.

Hi Scotty, Mollie. By the way, sorry, I didn't realize that dropped. So I was beautifully ad libbing on the script. But thank goodness, we had such a solid script. And Mollie, you jumped right in as needed. So fantastic. I just caught the last minute of your presentation. Nice job. We're fine. But I did do a lot of great ad libbing, which maybe people were grateful. I didn't go off script, at least those that helped develop it. So thank you, Mollie. And Scotty, we'll turn it over to you. I'll try to keep my iPad live, so I don't get cut off again. I'm not really sure where I dropped off. Sorry for that. I'll be available in the Q&A, and I'll pick it up in the last third as well. So Scotty, you're on.

All right. Sounds good. Thanks, Mollie, and thanks, Bobby, and good morning, everyone. Before going over the financial results, I want to first point out several exciting events that took place during the fourth quarter. We completed 2 acquisitions, Virsys12 in October and MissionCare Collective in December. Our Board of Directors authorized a $10 million share repurchase program in November with $5 million of the repurchases made in the fourth quarter and the remainder was purchased in January. In December, our CEO contributed $3.8 million of his personally owned stock to the company in order to facilitate the grant of equity to company employees in recognition of their contributions to the company and to further align the interest of those employees with our shareholders. The accounting treatment of this Stock Grant resulted in $3.5 million of non-cash compensation expense and $0.3 million of employer taxes and administrative costs, which negatively impacted our financial results for the quarter. It's also worth noting that this Stock Grant resulted in no dilution of shares to any existing shareholders of the company other than our CEO. Now with that backdrop, let me go over the financial results for the fourth quarter. Unless otherwise noted, the comparisons will be against the same period of last year. Additionally, I'll reference certain non-GAAP comparisons to adjust for the impact of the CEO Stock Grant. Revenues were a record of $79.7 million and were up 7.4%. Operating income was $2.4 million and was down 48.8%. Net income was $2.5 million, down 48.1%. Earnings per share was $0.09 per share, down from $0.16 per share and adjusted EBITDA was $18.8 million and was up 16.4%. On a non-GAAP basis, our non-GAAP operating income was $6.2 million and was up 31.7%. Non-GAAP net income was $5.4 million and was up 9.5% and non-GAAP EPS was $0.18 per share, and it was up $0.02 per share. Our revenues increased by $5.5 million or 7.4% and were $79.7 million compared to $74.2 million in last year's fourth quarter. Revenues from subscription products were up $5.8 million or 8.2%, while professional services revenues were down $0.3 million or 11.6%. Our subscription revenue growth was supported by continued strong performance from our core solutions. With CredentialStream growing by 21%, ShiftWizard growing by 31% and Competency Suite growing by 27%. Now while a portion of the strong revenue growth in CredentialStream and ShiftWizard are from conversions from our legacy credentialing and scheduling applications, revenues from those legacy applications declined by 27% compared to last year. Revenues from the 2 acquisitions that we recently completed were $1.6 million in the quarter. In addition, revenue increases from the annual pricing escalators that we began introducing into new contracts last year also benefited the year-over-year growth. Moving on, our sales team finished the year with strong contract bookings, which led to an 11.2% increase in our remaining performance obligations, which were $691 million as of the end of the fourth quarter, and that compares to $621 million for the same period of last year. We expect that approximately 39% of the remaining performance obligations will be converted to revenue over the next 12 months and that 67% will be converted over the next 24 months. Gross margin was 63.8% compared to 66.2% in the prior year quarter, and gross margin was impacted by an increase in our cloud hosting costs and software licensing costs, which primarily come from the CredentialStream application and the hStream Platform. The gross margin was also impacted by the non-cash compensation expense associated with the CEO Stock Grant. This grant reduced gross margin by $1.3 million or approximately 170 basis points. Our operating expenses, excluding cost of revenues increased by 9% or $4 million, of which approximately $2.5 million of the increase was associated with the CEO Stock Grant. We also incurred over $600,000 in transaction costs associated with the 2 acquisitions that we completed in the fourth quarter. Net income was $2.5 million and was down 4 (sic) [ 48.1% ] from $4.9 million last year. Again, this decline was significantly influenced by the non-cash compensation expense from the CEO Stock Grant. On a non-GAAP basis, net income was $5.4 million and was up 9.5% from the $4.9 million last year. And finally, adjusted EBITDA came in at $18.8 million, which was up 16.4%, and our adjusted EBITDA margin was 23.6% compared to 21.8% last year. Switching to the balance sheet. We ended the quarter with cash and investment balances of $57 million, which compares to $92.6 million last quarter. And during the quarter, we deployed $35.1 million for acquisitions. We paid $6.8 million for capital expenditures. We returned $0.9 million to shareholders through our dividend program, and we repurchased $5 million of our common stock under the share repurchase program that we announced in November. Our Days Sales Outstanding remained steady at 35 days for the quarter, which marks the sixth consecutive quarter that DSO is at or below 40 days. For the year, our cash flows from operations were $63.3 million compared to $57.7 million in the prior year, which is an increase of 9.8%. Free cash flows were $31.1 million compared to $29.5 million last year, an increase of 5.5% and our capital expenditures were $32.2 million compared to $28.1 million last year, an increase of 14.3%. Ending the quarter with $57 million of cash and investments, free cash flows and no debt, we are well positioned to deploy capital to improve shareholder value. We maintain a disciplined approach to capital allocation and how we prioritize our use of capital. Our utmost priority is making organic investments back into the business, which is evident by our annual capital expenditure and R&D plans. The second is pursuing acquisition opportunities, which we have a long track record of executing. The third is returning a portion of profits back to shareholders in the form of cash dividends and our fourth priority is that our Board may authorize share repurchase programs. In regard to M&A investments, on October 8, we announced the acquisition of Virsys12, a health care technology company focused on payer credentialing. The consideration paid for Virsys12 consisted of $11.4 million in cash, taking into effect customary purchase price adjustments and a post-closing working capital adjustment. And up to an additional $4 million of cash consideration may be paid over a 3-year period following closing, contingent upon achievement of certain financial targets. And then on December 15, we announced the acquisition of MissionCare Collective, a health care workforce company primarily focused on connecting nonmedical caregivers and CNAs with job placement and numerous job-related programs. The consideration paid for MissionCare consisted of $24.6 million in cash and $4 million in our common stock, which also takes into effect customary purchase price adjustments and is subject to a post-closing working capital adjustment. And up to an additional $10 million of cash consideration may be paid over a 3-year period following closing, which is also contingent upon achievement of certain financial targets. In respect to our dividend program, yesterday, our Board of Directors declared a quarterly cash dividend of $0.035 per share to be paid on March 20 to holders of record on March 9. This represents a 12.9% increase over the previous quarterly cash dividend. In November of 2025, our Board of Directors authorized a $10 million share repurchase program, of which $5 million of share repurchases were made in the fourth quarter of 2025 and the remaining $5 million were made in January of 2026. Also in May of 2025, the Board authorized a $25 million share repurchase program that was completed in the third quarter of 2025. To recap the full year, we achieved $304.1 million of revenue, $18.3 million of net income, $21.2 million of non-GAAP net income and adjusted EBITDA of $71.8 million. We made $30 million in share repurchases. We paid $3.7 million in dividends to shareholders, deployed $39.1 million of capital on M&A and $32.2 million of capital expenditures. We remain focused on consistently growing the business both organically and inorganically while remaining disciplined with our capital allocation strategy. I'll go ahead and wrap up my portion of the call this morning by going over our financial outlook for 2026. We expect that consolidated revenues will range between $323 million and $330 million, which equates to a growth rate range of 6.2% to 8.5%. And to begin the year, we estimate that the fourth -- the first quarter revenue growth rate will be approximately 8%. We expect quarterly revenues to improve sequentially across the year with higher growth rates in the first half of the year than in the second half, which is primarily due to the timing of the 2025 acquisitions. We expect that inorganic revenues will be approximately $13 million for the year. We expect that net income will range between $20.4 million and $22.8 million, that adjusted EBITDA will range between $73 million and $77 million, that capital expenditures will range between $31 million and $34 million, and we expect that our effective tax rate will be approximately 22%. This guidance does not include the impact of any acquisitions or dispositions that we may complete during the year, any gains or losses from changes in the fair value of nonmarketable equity investments or contingent consideration or impairment of long-lived assets. In closing, I'm excited about the opportunities we have in front of us and have confidence in our ability to deliver on another solid year of financial performance while continuing to create value for our stakeholders. Thanks for your time again this morning, and I'll now turn the call back over to you, Bobby.

Thanks, Scotty. Well, let's see. Let's pick up here with the business updates at the last third year. So I'll start off as I usually do with some core business updates that cover our learning, credentialing and scheduling application suites. And then we'll talk about the newest career network, myCNAjobs. So let's start with the learning product family, which includes kind of a subset of what we call our competency suite. Many customers are increasingly taking advantage of the opportunity to purchase a bundle of several of our most popular workforce applications and content libraries, which we call the Competency Suite. Customer purchases -- the customers purchased a subscription to the Competency Suite for all of their employees, which comes in an unlimited use format. Key sales of the Competency Suite during the fourth quarter include some of the nation's top health care organizations like Intermountain Health, Northside Hospital and Dartmouth Health. We think about our credentialing area where our flagship product, CredentialStream, also finished the year strong in terms of new sales, expansion sales and importantly, conversions from legacy products. Revenues from sales of CredentialStream in the fourth quarter were up approximately 21% over the same quarter last year, and we saw growth of approximately 23% year-over-year. Our largest sale in the quarter was a result of our winning a highly competitive RFP. Our next largest sale came from a referral from our partner, Virsys12 and represented a competitive takeout because the customer loves our comprehensive solution, API integration capabilities from our platform and the use of cutting-edge data infrastructure that allows them to get greater insights faster, things their previous system could not deliver. Additionally, we are pleased that an existing health system customer decided to expand their CredentialStream access. As they standardize on the CredentialStream across all their facilities and also invested in our case review and performance metrics products. The quarter for CredentialStream was not only about sales success. As a result of infrastructure enhancements we made earlier in the year, CredentialStream delivered excellent system performance and high reliability, both of which were recognized and lauded by our customers. We are also pleased that some of our large legacy credentialing customers completed their conversion from EchoCredentialing and MSOW. For example, UPMC Health System, a major health system, and Sutter Health being notable among those that successfully transitioned to our CredentialStream application. Through CredentialStream, we're committed to helping those customers speed time to revenue for the physicians they onboard, which will improve their financial performance and ability to provide quality care. To conclude my update on our credentialing business, I will say that 2025 saw total revenue contribution from CredentialStream edge out total revenue contribution from all of our legacy credentialing products combined. As customers continue to see the value of CredentialStream, we expect this trend to continue and accelerate in 2026. Now let's move to scheduling, where our core product, ShiftWizard, continues to deliver strong revenue growth, with fourth quarter revenues from sales up approximately 31% versus the fourth quarter of the previous year and up 24% year-over-year. It continues to be our top-performing product in our scheduling application suite. And in 2025, revenue contribution from ShiftWizard was greater than revenue contribution from all legacy scheduling products combined. This, too, is a trend we expect to continue in 2026. ShiftWizard is a good example of how vertically focused health care-specific applications benefit customers in ways that generic horizontally focused solutions simply cannot. In fact, our 2 largest sales last quarter were takeouts of a major provider in both the horizontal provider, and both customers selected ShiftWizard because of the health care-specific advantages that it offers. For example, both customers identified that the ability to gain greater visibility into and control over managing and engaging their clinical workforce is something that differentiated ShiftWizard over and above even the best horizontal solutions. Scheduling and staffing clinicians is simply different than scheduling a labor pool for retail or factory shifts. Increasingly, the market is realizing this fact and choosing ShiftWizard as a result. On our last call, I introduced an exciting new area of focus for the company, our emerging career networks like NurseGrid for nurses and myClinicalExchange for students. Remember, career networks provide value directly to the individuals who deliver care. You can contrast that with our enterprise application suites, which provide value to health care organizations. Also made an important point on the last call that bears reiterating to really address the complex issues of today's health care workforce, we think that you have to have solutions for both individuals and for organizations. And here's the more important part. To really change the game, you have to connect both of them together through a common platform, and that's exactly what we're beginning to do at HealthStream. On December 15 of last year, we acquired MissionCare Collective, whose primary offering is myCNAjobs.com, which we're introducing as our newest career network. MyCNAjobs helps recruit and retain a large set of providers that includes home health aides, home care providers and CNAs, which are also incredibly in high demand. And we also expect, for example, in the CNAs, the demand for them to increase, particularly in the post and pre-acute markets. MyCNAjobs originates data directly from individual caregivers, enriches that data through proprietary technology and then utilizes that data to help pair those caregivers with health care organizations that want and need to hire them. Both the individual and the organization benefit as a result. As we get the individuals using myCNAjobs issued an hStream ID, they're better able to help manage their data and longitudinal record across both applications and employers. I want to close by giving you an example of how our customers are increasingly turning to HealthStream as they manage the entirety of a clinician's journey from nursing school to retirement and everything in between. It's my view that many of the smartest health systems, and I'll name a few, like HCA and Intermountain Health, are putting nurses at a center of their workforce strategy. In some cases, these health systems are doing things like launching their own nursing schools. That's how much demand there is for these nurses and how much they realize the need to develop their competence and upskill them. They're actually getting into the nursing schools themselves. They're also purchasing our competency suite at scale, and they're engaging with our career networks so they can officially recruit -- be efficient in the recruitment, the development and that transitional onboarding that they do between the career network and to full-time employment. And they use our software then to recruit, retain, develop and onboard that professional staff. It's my belief that other hospitals and health systems will look at these market leaders and see their extreme focus on this nursing workforce and their investment in it. And they'll see that it's generating a competitive advantage for these thought-leading and market-leading health systems like HCA and Intermountain Health and that HealthStream's solutions are a central part of helping them achieve that strategic focus. I want to remind everyone that if you're interested in a profitable recurring revenue health care technology company that expects to deliver growth, then maybe HealthStream is the right investment for you. If you're interested in a company whose core user base, the clinical health care workforce is expanding faster than any other sector in the job market, then maybe HealthStream is the right investment for you. If you like a company whose software serves as a system of record on behalf of health care customers, then maybe HealthStream is the right company for you to invest in. If you favor ecosystems over point solutions, then maybe HealthStream is the right investment for you. For all of these reasons, I believe HealthStream is positioned for another exciting year helping the nation's top health systems find, develop, credential, schedule, onboard efficiently and then retain this growing health care workforce. And I think that maybe if those are traits that you value in an emerging health care technology company, then HealthStream is the right investment for you. I'll now put it back over to the operator so we can begin our question and answer.

[Operator Instructions] Our first question comes from Matt Hewitt from Craig-Hallum Capital Group.

Maybe first up, MissionCare, I think you noted that the inorganic contribution to revenues this year is roughly $13 million. I'm just curious what the MissionCare margins look like. Were those similar? Or is there an opportunity there to maybe get those in line with the corporate average and so we could see some incremental margin lift over the course of the year and into next year?

It's a fair question, Matt, but we don't report margins on a per product line basis. We've talked about our blended gross margins. And you could see a little bit of compression of that. I don't think that was due to the acquisitions, though. It's just due to how we're investing. Some of our cost of goods are going up on some of our application suites, which we're working on right now. In fact, we're conducting an RFP to consolidate some of our growing expense of our hosting services where we keep our content and our highly engaged applications. So we generally only comment on margins, not at a product level. But look, I think all of our products are trying to push for higher margins than our legacy applications or our legacy business, I'll say, which includes the high cost of goods of royalties. And so in general, all of these software businesses, I think, have the potential to pull our blended gross margin up over time. Even though right now, we're experiencing a bit of a surge in costs and things like our hosting costs as we expand the utilization of our applications, which is great news, but we probably need to negotiate a little better on these -- some of these core services, the cost of goods underneath them as well.

And then maybe a second question. Press release and in your prepared remarks talking quite a bit about AI and the impact that, that can have on the market, how you're more sticky. And I think during your prepared remarks, in particular, you talked about how some of your customers are actually pushing other records into the HealthStream platform. And I'm just curious, one, is that there's some M&A opportunities there with those other platforms that are now being pulled into your platform? And two, does that further highlight the stickiness of HealthStream, meaning that AI isn't going to displace HealthStream or your platforms, but rather it's a contributing factor and you should be able to not only weather any potential storm in the future, but quite frankly, survive better because of it.

Sure. What I tried to do is just give these categories where -- I mean, the world is changing, jobs are changing, business models are going to have to adapt. And there's definitely something real here to how AI changes everything. And so we first wouldn't say there's no threat to -- everything is, in my view, at risk of change and impact. That said on many key dimensions, you kind of have to think about how well a company is positioned in each of those types of positions. And I think this idea of being a system of record is an important concept to differentiate kind of long-term winners from losers. And so it's really encouraging for us to see our API libraries that are part of our hStream platform that our customers get access to, they're starting to use those APIs to push data from other third-party providers that's relevant to the system of record into our core datasets, which shows, again, it kind of emphasizes the difference between being a system of record and not being a system of record, being a point solution whose data is sucked into other systems of record. And so in several cases, like in our learning network, we see growing use of those import APIs, which means that they're saying, look, we would rather have our data on the learning journey about our workforce consolidated at the HealthStream platform level than spread across multiple systems or multiple point solutions. And so it's just one indicator of a relative strength of our company as we enter this ever-changing world that's changing at a really rapid pace. And so we can't say that we're going to conquer everything, but AI is a fundamental component of our 10 components of our hStream platform. So it's well in development. We are huge utilizers of the emerging AI tools ourselves in how we build our products more efficiently. And then on this one dimension, and we covered others, but on this one dimension of whether your software is a system of record or a point solution, we tend to lean towards being a system of record, which, by the way, is also true, for example, in our credentialing system. I think we made that point in the script as well. Although I'm not exactly sure where I got cut off on the script, so I apologize for that, Matt. It looks like my device timed out and cut me out of the conference, and I was waxing poetic about these ideas and didn't catch that until the end. But anyway, I think -- thanks for the question. On that one dimension, I just would say companies should -- when you evaluate companies for their viability and strength as they enter this change that being a system of record is one characteristic of a long-term survivor and grower instead of one under assault.

Our next question comes from Constantine Davides from Citizens.

Maybe, Bobby, just a question on career network, that strategy. With something like myClinicalExchange that you've owned now for 5 years or so, just give me a sense for what interoperability features are resonating most with customers and prospects in terms of integration between that legacy type of solution and the rest of the platform?

Yes, sure. So first of all, it's not a legacy application. It's a growing -- the business has tripled since we bought it in terms of just absolute revenue. I think it's around $2 million we bought it. It's pushing over $6 million or $7 million now. And so the myClinicalExchange has grown, its revenue contribution and margins to the company. So it's an exciting growth area for the company. The second is exactly what you pointed out is what is the idea of the link between this career network for students in this case and say, HR at a health system using, say, our learning record. And so one little example of interoperability, which is happening today. We found when we surveyed those students that very few of them, less than 25% or 30%, felt that the hospitals where they were doing their rotations were properly addressing their career opportunities and say, "Hey, we see you're doing your rotation in a hospital. We'd love for you to take a full-time job with us when you graduate. And so in other words, there's a huge disconnect between the hospital operations and the clinical student doing a rotation at that hospital. And so what we did was we built a little widget that goes on a product called MyTeam, where all the managers are in our network. And so we have this application that's broadly used by managers. And we were able to tell them that today, 3 students were doing rotations on the second floor of their hospital, and they'll be there the next 5 hours, and here's their names and their backgrounds, go say hi to them. And so we're able to directly connect these clinical rotating students that was kind of there as a previously almost a side thought hospitals kind of put that under their operations. But now we've turned it into a recruiting opportunity. We're giving information that Bobby Frist is on the floor as doing their clinical rotation today, maybe go say hi to them. And we found that large health systems are attributing that simple flow of information across the transom from the student who enrolled in that rotation using the myClinicalExchange software to their arrival on the hospital where then kind of the resume pops up in the application, my team on a little widget and says, "Hey, there are 3 students a day at the hospital, go say hi to them. It will improve our odds of hiring on them when they actually graduate and become a professional. And so that's an example of using the data as a tool. And it's just a simple data flow, but that reminder, we see health systems taking advantage of that function feeling they have a competitive advantage on recruiting those students when they graduate. That's one example of the workflows that expand to become more ecology like, like there you're crossing from the SaaS world through the platform to the student enrollment world on myClinicalExchange. So I hope that one little example gives you an insight to how we're thinking, but it's just a manifestation of the data across this platform transom, which gives a competitive advantage to recruiting that student in the future.

Just shifting gears a little bit to legacy product headwinds. I think you said legacy revenue was down 27% from the prior year in the quarter. How much legacy revenue is still left on the platform? And I guess, at what point do you start considering a sunsetting strategy is something that's viable? Like how low does revenue have to get for that to be in focus for you?

Yes. When we look at classifying legacy revenues, they are true legacy revenues, meaning they're on applications that we're no longer selling. And they're maintained and we allow our customers to renew on them. And they -- but we don't carry a quote on them. We don't sell them. And so they're effectively -- they maintain that legacy status. But they're supported. They're beloved applications. We do our best to keep customers happy on them until they decide to transition or our worst-case scenario, they leave for another solution in the market. And so that business, we were able to report the totality of the legacy portfolio in credentialing has been surpassed by the go-forward CredentialStream application. So at least in the credentialing space, if you take the total of all of our software tools, and the legacy revenues are combined across all the legacy applications, which are 2 or 3, they're now less than the revenue from CredentialStream. And that is also true in our scheduling business, where all the legacy businesses combined are less than the go-forward growing ShiftWizard revenue stream. And so we now have the majority of our work and growth is now on the go-forward application in both of those circumstances. Overall -- and this is a little tricky to provide this, but I'm going to go ahead and do it. Overall, our legacy revenues across the company and remember, these are good revenues. These are not -- legacy doesn't mean we don't want them. It just means that we're not selling any more of those products. And there's a good probability that those renew year-to- year and year. So this revenue stream could continue for a long time until it's either transitioned or lost. But approximately -- a little less -- around about 10% of our total revenues are in that bucket across the company. So we've now kind of scoped the size of that. And remember, it's important to remember that, that approximately, we'll just say a little bit over $30 million is desired revenue. Because we're calling it legacy, it doesn't mean it's not desired. It has a margin in most cases, has an EBITDA contribution. It's just not growing anymore, and we're waiting to encourage those customers to transition. And excitingly, in this quarter, we were able to talk about 2 very large credentialing customers that made that move, and we believe they're happy customers on CredentialStream, for example, we identified Sutter and I believe UPMC were successful migrations from that legacy category to, in that case, CredentialStream. So now we've kind of quantified it, but it's a tricky thing to quantify because, again, it doesn't mean that revenue is going away. It just means those products we're not selling anymore. And then you brought up the final question is, well, when do you start to force the decision? And we call that a sunset product. And in that bucket of revenue, a little over $30 million, we have not told those customers, and we have not picked a date to officially change it from legacy to a sunset product. And I would say, over the next few years, we'll evaluate that and certain of those products will achieve what I'll call sunset status. And at that point, customers have been notified of an end date when that technology will not be supported. So they need to start to plan and make a decision to move off of that legacy application. Again, we haven't done that yet, except in a few cases. And that's something we'll consider as the overall bucket of legacy becomes smaller and smaller. And by the way, it's getting much more compelling to move to the newer applications every day for reasons like we talked about that little widget, for example, that makes one application even more powerful. If you're on a legacy product, you're not getting the advances of the ecosystem that we're building that we mentioned in the earlier case. So I hope that helps kind of quantify it overall, scale it and scope it and tell our ambition with it. And again, that bucket of revenue is generally a happy set of customers that we're trying to maintain. We do product releases. We -- the customers there are in a good spot, but we want them to be in a better spot. We want them to migrate or transition or convert to the go-forward applications that are all plugged into the platform.

Our next question comes from Ryan Daniels from William Blair.

Bobby, thanks for all the conversation on AI. I really appreciate that. A question for you in regards to that and a bit of a follow-up from an earlier one. You mentioned data origination is kind of a key competitive advantage because you can create that proprietary data. And I'm curious if that changes your capital deployment mentality at all, whether it's either via internal product development or how you look at the M&A markets to kind of go forward and create more of that proprietary data such that you can withstand any future AI headwinds?

It certainly does. Super exciting. As I mentioned, AI is one of the 10 core elements of our platform that we're developing. And so there's capital already going into that to make it a fundamental kind of capability set, a framework for deploying AI into our product sets. And several exciting products, enhancements, extensions where we're deploying capital are underway now. And we'll have to wait to reveal some of those directly, but I couldn't be more excited about some of the advances we're seeing. And specifically as it relates to data, we really are focused on trying to identify catalog, manage. And so investments are increasing in the area of kind of data management, data classification, data rights management across all of our network. And so yes, capital is flowing into that area. Yes, organizing our data. For example, one of our core tenets of our platform is to get all of our data from all of our 27 applications updated nightly into Snowflake and getting that organized and then, of course, getting all that data relevant to each other through the hStream ID, another core tenet of the platform is critical. So yes, capital is flowing to this area. Yes, we're trying to distinguish, which data is kind of aggregated data, which data is proprietary data, which data can lend competitive advantage in the long run, which data might train AI, for example. And I think in all cases, there's an increased emphasis and awareness of that from our Board to our operators.

And then maybe another one just on the AI marketplace. Again, very rational conversation of why you're relatively well positioned. But I'm curious, if you talk to your sales team, are they seeing any hesitation in the market either with longer-term contracts with the elevated pricing each year, the inflationary pricing or any pause in buying decisions as the market CTOs kind of look at all the potential AI solutions out there? Or is it generally still business as usual on your sales cadence?

Well, let's see. I would characterize our fourth quarter as exceptionally strong. In some areas, it was just fantastic. And just remember, there are product sets in there that are just incredibly unique as they blend technology, content, data analysis together to solve a real problem. For example, our partnership with the American Red Cross is thriving. We think we have a really great partner there and a great product set. It's an interesting solution set that meets essentially a compliance-oriented need. And there are several of our products that are doing really well that are a complicated blend of SaaS technology, data and benchmarking, reporting capabilities, physical. In this case, the Internet connects to these physical manikins that evaluate the skill and then branded high-quality scientifically valid content. And so in that case, we're seeing that product growing very nicely and well positioned for continued growth. So in the fourth quarter, we saw wins in each of these areas, including things like our American Red Cross Resuscitation Suite, but we also saw some system wins on our Competency Suite at scale. Some of our largest deals, I guess, I'd say, in our history were closed in the fourth quarter. So I think there's hesitancy in thinking through all this, and CTOs. We're doing our best to educate the market about the emergence of our platform this year and make us more relevant as a consolidator of services, not just a point solution here and a point solution there. I think there's more and more potential every quarter for us to position as a core consolidation platform. And yes, it has SaaS capabilities. And yes, those can be more rapidly built by competitors. But I think it is this interesting dynamic that we talked about of more ecology-like behavior than point solution or SaaS workflow behavior that we're seeing. So I hope that gives a little bit more color on it. Overall, I believe there's a tremendous amount of change coming to all businesses to almost all workforces. But on these 4 or 5 dimensions we talked about today, I think we're relatively well positioned to learn, iterate provide value and capitalize on the value people expect to get from AI as it advances.

Our next question comes from John Pinney from Canaccord Genuity.

Yes. This is Richard Close. Just a quick question, maybe a housekeeping, Scotty, to begin with. We jumped on late. And just curious whether you gave the acquisition contribution Virsys12 and MissionCare for the fourth quarter. And then just to clarify, you said $13 million from the acquisitions in the '26 guidance?

Yes. So the -- I guess the fourth quarter impact for both acquisitions combined was $1.6 million. And then you're correct on the full year guide was $13 million.

And then, Bobby, maybe just on the AI front to continue to go down that rabbit hole. I'm just curious if you can provide some examples in terms of how you guys are integrating Gen AI, agentic AI and into various offerings that you have. Again, I apologize, we got on late, if we missed that.

Yes. I think that road map will unfold in more detail over the course of the year. But needless to say, every one of our products has an AI road map. and really interesting and fascinating projects underway to take advantage of the benefits that we would expect from AI. And so the workflows are being automated. We have an agentic framework around some of our learning capabilities that we're working on. We have this concept of the quantification of self-using a vector analysis for some of the individual profiles in our system, making it kind of a tokenizable unit. There's just so many interesting things happening. And I think we'll let that road map unfold over the course of the year. But every product manager is required to have an AI framework and an AI road map and all of our developers are now using AI. And many of you probably follow this in the last 30 days, there have been significant enhancements in the tool sets people are using to build applications, which just gets us more excited because we can get to more of our vision faster if we use these tools properly. But like everybody, we're learning to use the tools. So there's an internal application of them, there's the external extension of them. And I think what I can say today is that of the 10 elements that we use to define the hStream platform, AI is one of the 10, and it has been for some time now. So we're not -- we're also not new to the idea of AI and how it's going to impact workflows and applications. And so I hope -- I don't know I just have to give a generic answer now that it's in our road maps. It's part of our kind of our DNA. It's part of how we're thinking. And we're doing our best to learn and stay on the curve with everyone else. And then we've talked about, of course, these categories of impacts kind of are we better positioned or less better positioned to take advantage of the changes coming.

And then maybe just to expand on the AI front. Just I'm sure you're out in the market talking with various health system executives. And I'm just curious what their conversations with you is gleaning with respect to separate AI budgets versus looking for AI in -- you said the systems of record and whatnot. I'm just curious if you have any experiences that you can share on your -- the conversations you're having with clients and potential clients.

Yes. There's a lot of dimension to that. One is the CIOs of the country at these health systems are tired of having 400 point solutions. And so in that regard, if you're just a point solution and you're not a platform, I think there is a definite high degree of interest in moving to fewer platforms that work together than, say, as many as 400 point solutions. And this is true. If you ask a CIO of a health system, their software profile, I think they'll tell you they have 2 or 3 platform choices, EHR would be one choice where they pick between 1 of the 3 big ones. ERP would be another. And then they have 500 point solutions. So the first point of dialogue with, say, the executive suite, particularly the CIOs is, look, we need to make sense of these 500 point solutions. And I think that's exactly what HealthStream is trying to do with our hStream platform is take 3 or 4 of them that are core that are point solutions like scheduling, credentialing and learning and make them interoperable. And then we're bringing this other dimension, which is the second point is which problems are you solving for me? And if I have a nursing shortage, how are you helping me more efficiently onboard these nurses? How are you helping me move costs from those nurses from when they're employed to when they're pre-employed. And I think it's our theory of connecting this through the platform to these career networks that lets us have a business dialogue, not an AI dialogue, but a business dialogue about shortening the onboarding cycles and improving the value proposition of moving the cost from the health system, say, to the student period or getting the ready to work. This is a ready-to-work concept. So we're able to talk about business value propositions that are kind of universally the problems they're trying to solve, like with their labor pool size and the recruiting of nurses. And so our dialogue isn't so much about just whether your budget of AI is going to shift, it's about how you're going to consolidate point solutions and about whether the vendor standing in front of you, in this case, HealthStream can help solve a value proposition and do something more effectively. So I tend to lean into those. We can help onboard physicians more efficiently. We can help recruit nurses and find the future high-quality employees, the students that are going to be the best in your environment and help you match them. And so again, we just stick to the fundamentals of providing value to our customers on that journey. And then we can show how AI will facilitate those workflows.

So would you characterize the environment as not necessarily clients or potential clients being distracted by AI that they're still focused on these key areas of business improvement?

I think the smart ones are. I don't know how to say it the other way. I mean, yes, I mean, obviously, even just through this call, everyone is trying to understand the implications and impact of AI. And HealthStream is in that group, all the CIOs we talk to are in that group. So yes, it's a lot of discussion on it. At the end of the day, I think the leading health systems are focused on the fundamentals of providing better patient care. And then they come back to the fundamental questions like, well, what is our cost of finding and developing a talented workforce and retaining them at the expense of our competitors. How do we have a better, higher-quality workforce. And so we keep trying to steer the conversation there and then show how all of the tools of HealthStream, including the unique dimensions like our career networks bring value to that equation. So just doubling down on the fundamental values that we provide is what we need to do. It doesn't mean that the dialogue isn't all consuming about the future -- the impact of AI. But like I said, health care is a local business. It's a service provision business. It's a hands-on nurses and doctors on patients business as is surgery. And here, I think AI is kind of an augmentation process instead of an automation or replacement. Now there are plenty of back-office functions and efficiencies that can be gained with AI, and there are certain roles that we expect fewer of them. But at its core, as I mentioned earlier, the nursing workforce is expected to grow. And I think they're going to grow and be more human through the use of AI. And those are the things that we talk to our customers about.

Our next question comes from Vincent Colicchio from Barrington Research.

Yes. Most of mine have been asked, Bobby, just perhaps if you could just talk about the price accelerators. It was nice to see the contribution for the year. Has this mechanism played out as expected? What are your thoughts there?

Vince, it's so good that it took us about 3 years to put escalators in place. And we know it was kind of an industry norm. We had always focused on our negotiations around volume, commitment and term. And we didn't have these built-in escalators. So it took us a while to design the contractual infrastructure, the deployment, train the sales organizations. But now it is the norm and it is the norm across software to include inflationary level price escalators in contracts. And it helps everybody strangely. It helps the customers because if you're on a contract for 4 or 5 years with those small escalators, you don't get hit with a big price increase necessarily when you renew. And so the escalators are kind of a smoothing function for budget planning. They're negotiated, but generally accepted. And I would say that every renewal and every contract now in all 3 of our major application suites include escalators in the contract. And so yes, we were excited to see that it started to impact us financially. And it is a slow roll because if we do 3- to 5-year contracts, that means, let's say, on average, every 4 years, a contract. Every 3.5 years of contract comes up for renewal. And then the escalator takes effect on the second year of the renewal, right? Because it comes in year 1 and then year 2. So as we go through renewals and as we include escalators, it's having kind of an impact, but it's a slow movement through these thousands of customers. But it's underway and every renewal includes an escalator.

This concludes the question-and-answer session. I will now turn it back over to Robert Frist for closing remarks.

Thank you, everyone. I apologize for -- I was kind of head down and thinking about what I wanted to say, and I was telling this big story about AI. And I realized I looked up and my iPad had timed out. And I think Mollie Condra stepped in. Mollie, I know you did a great job. I hope we got all the questions done in Q&A. Thanks for listening. I look forward to reporting the next report. I'm proud of the contributions of 1,100 HealthStreamers in achieving these results. And we've got another tough year in front of us with full of opportunity and challenges, and we're ready to take it on. Thanks all. We'll see you on the next earnings call.