Good morning, and welcome to HealthStream's Third Quarter 2025 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded. [Operator Instructions] I will now 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 third quarter 2025 results. Also on the conference call with me today is Robert A. Frist, Jr., CEO and Chair 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 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 we may refer to in this call. So with that start, I'll now turn the call over to CEO, Bobby Frist.

Good morning. Thank you, Mollie. Welcome to our third quarter 2025 earnings call. It's always good to start a quarter off with this. In the third quarter, we achieved record quarterly revenues. They were up 4.6% from the third quarter of last year. Operating income was also up 16.5%, while net income was up 6.3% and adjusted EBITDA was up 7.9%, all over the same quarter last year. Now with the first 3 quarters behind us, we updated our financial guidance for the full year 2025 by keeping the same midpoints as indicated in previous guidance while narrowing the range for each of the financial metrics. Later in the call, I'll provide some exciting developments in each of our learning, credentialing and scheduling enterprise application suites, but stay tuned because I'm also going to describe our career networks, which are an emerging part of our business that we're really excited about. First, I want to highlight our recent acquisition of Virsys12, which closed on October 8. Virsys12 is a health care technology company that offers payers and health plans an innovative provider data management suite for onboarding, credentialing and network management. Right from the start, Virsys12 strengthens and expands HealthStream's entry into the payer and health plan space, which we entered around 15 months ago with the launch of Network by HealthStream. Over that time, we have seen strong demand in the payer market for a dynamic provider data management solution, and we've also identified the need to expand HealthStream's payer-related expertise to better address this market. Not only does Virsys12 provide us with an excellent software solution and an expanded customer footprint, combined with our Network product, we now have over 25 active accounts, and it also brings world-class payer market expertise to HealthStream's leadership team. We're excited both…

All right. Thanks, Bobby, and good morning. Now let's go over the financial results for the third quarter. Unless otherwise noted, the comparisons will be against the same period of last year. Our revenues were a record high of $76.5 million, which is up 4.6%. Operating income was $7.6 million, which is up 16.5%. Net income was $6.1 million, up 6.3%. EPS was $0.20 per share, up from $0.19 per share, and adjusted EBITDA was also a new record high, coming in at $19.1 million and was up 7.9%. Revenues increased by $3.4 million or 4.6% and were $76.5 million compared to $73.1 million in last year's third quarter. Revenues from subscription products were up $4 million or 5.7%, while professional service revenues were down $0.6 million or 18.6%. Our subscription revenue growth was supported by continued strong performance from our core solutions with CredentialStream growing by 23%, ShiftWizard growing by 29% and Competency Suite growing by 18%. While a portion of the strong revenue growth in CredentialStream and ShiftWizard are associated with conversions from our legacy credentialing and scheduling applications, revenues from these legacy applications declined by $1.7 million compared to last year. Excluding the impact of the legacy products from the core business, the core business grew by 8%. Our remaining performance obligations were $621 million as of the end of the third quarter compared to $549 million for the same period of last year. We expect 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 65.3% compared to 66.5% in the prior year quarter, and gross margin was impacted by an increase in our cloud hosting costs and software licensing costs, primarily for the CredentialStream…

Thank you, Scotty. As we enter this last third here, I'm going to do things a little differently today. Typically, I follow Scotty's financial discussion with business updates on learning, credentialing and scheduling application suites, and we're going to do that. But before I do that, we want to reclassify and recharacterize some work we're doing. We've kind of coined this phrase career networks. And so I want to explain what we mean by that and what's happening there because it is actually very exciting. So let's talk about these emerging career networks, kind of what are they. It's an exciting new space for us. And after this update, I think you're going to share my excitement about that. So a quick framework. Our career networks provide value directly to the individuals who provide care. You can contrast that with our enterprise application suites, which provide value to the health care organizations, and then through them, to the individuals. So one set of solutions is geared to students and professionals, that's our career networks, and the other set of solutions is geared to businesses, that's our enterprise application suites. To really address the complex issues around today's health care workforce, we think you have to have both types of solutions. And I'll do one better. To really change the game, I think you have to connect those 2 in unique and powerful ways, and we're doing that through our common platform, which we call hStream. Those who follow us know that HealthStream has been steadily building robust solutions to support the lifelong development of individual clinicians, and we are now referring to those as our career networks. Prime examples of this include our myClinicalExchange network and our NurseGrid solutions, which empower individuals to build, track and evolve their professional identity,…

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

Maybe first up on the Virsys12 acquisition and just a little bit more color there. So you had made the move into the payer market a few months ago. And I'm just curious, what are the key differences in that market? What are the customers in that market using prior to you kind of getting in? And where do you see that opportunity going over the next few years?

Yes. I think we're learning that. We created a version that was tweaked for that market of our CredentialStream application suite, giving us some new capabilities and how they manage the payer -- the provider rosters and several other small details. I think we learned that there are still more things that, that market needed. And the acquisition of Virsys12 brings them more, the experience and the background. And so we'll look forward in the coming quarters for us to distinguish that. But now we have the team and some additional technologies, and just a more complete view of the customer needs set there. In the long run, we think there will be synergies between payers and providers using a similar architecture on the back end and particularly in the transfer of certain kind of core primary source verified data sets. So we're excited about that. But for now, it's a distinct market. It uses a mix of technologies from our acquisition and our adopted or adapted CredentialStream application. And we think we're going to be able to better meet the needs. And Tammy Hawes, the CEO of Virsys12, has joined us to help lead our efforts in this market, and her team are really deep in their knowledge of that market. So I think it's just going to add momentum to a market that has a clear need for better provider data management overall.

All right. And then maybe kind of a separate question, but you've shown some nice EBITDA -- adjusted EBITDA margin growth or expansion this year. Where do you think that could go over time, especially with kind of the shift a few years ago where you're owning more of your content? Is that -- is there an opportunity for that to become a 30% EBITDA margin line? Or just what are your thoughts over the next few years there?

Yes. I guess what I could say is that if you look at kind of the core of classic HealthStream, if you go back 10 years even, it was really a model built on a razor blade strategy where this learning system, which is a high-margin SaaS application, was subscribed to. And then we delivered a lot of content. A lot of that was, as you point out, third-party content. Third-party content has a cost of goods, which is royalties. And sometimes we -- they sell and we get a high-margin fee to deliver their content. And sometimes we sell their content, where we collect the revenue and we pay out a high cost of goods or a royalty. And so the nature of that model, again, if you go back before we focused on where we are today, had a lower gross margin profile. And so you're right to observe 2 things. One, in that model, we've increasingly signed more partnerships and on more favorable terms, and we've launched some of our own libraries that we own both the content and the data and the delivery mechanisms. And so we boosted our blended margin there. Now the relative growth rate of some of those products determines our overall blended margin. And I think it's also right to point out in the last, say, 3 or 4 years, we've moved from kind of the 55% to 65% sort of range in this margin measure. And that was due to this increasing mix shift, because most of the things we've been building in the last 5 years are higher-margin SaaS and PaaS applications. And so where do we end up? Sure, I think almost every quarter or 2, we introduce new things. Those things generally have an intrinsically higher gross margin…

[Operator Instructions] Our next question comes from the line of Richard Close from Canaccord Genuity.

Congratulations on a good quarter there. I got on the call late, but maybe wanted to hit on Virsys12 a little bit. I wasn't sure if you guys provided any revenue, I guess, details there on the business. I'm curious on the mix between maybe recurring and periodic revenue, maybe consulting, and the historical growth there. I don't know if you can provide any details.

Sure, Richard. The one number we did provide, and it doesn't mean -- there could be more when we guide next year. But the one number we did provide was our expected contribution of revenue in the fourth quarter. And that was -- it's approximately -- our estimate includes about $900,000. We did not break down the mix between subscription revenue and consulting. There is a decent component to consulting, which is really the implementation cycle. In fact, that's one of the things we like about the expertise of this group, is they seem to really know how to get enterprise class software implemented, and that should help us overall. But there is a decent mix between subscription revenue for their products and essentially consulting or configuration revenue. And so while we didn't break that down, just know it's a reasonable mix and the estimated quarter revenue in Q4 is about $900,000.

Okay. That's helpful. And then just -- since you spent some time on the career network here, I was just curious if you could go over the monetization of, I guess, the offerings in career networks. And then the expansion of the TAM or the opportunity that these provide in terms of expanding your TAM?

Sure, sure. Let me spend a few minutes on that. That's a great question, and we're working on it. I mean we're really excited about what we're seeing, this organic growth in the subscriber base for both products. In fact, NurseGrid, as we mentioned, which we now consider and call our career network for nurses, is growing about 2,000 a week in subscribers organically with a very low marketing budget. So it's essentially a viral app. It's super exciting. Now monetization, we have over 6 strategies for monetization, and each of them is at a different stage. Almost all of them are relatively new. The first was to start to offer education on a credit card purchase directly to nurses in NurseGrid Learn, and that was the first of 6 strategies. And it's trucking along and doing, I think, $40,000 a month or so in sales through the education channels that are commerce enabled. So super excited to see that start to get a little traction. It's fast pay and fast revenue recognition and fast value delivery. So we're really excited about that. On the other end of the spectrum, we just launched a jobs capability, a little bit like LinkedIn. And so we don't have our first customers for that yet, but we've begun the process of helping people, and we see great activity with the initial job opportunities that we posted in there. So we're excited about that. Hopefully, we'll get our first enterprise customer for that soon. Given the size of our network, we have a lot of excitement around that. It's also -- we think of it as a career development network because we're building it like an ecosystem itself and bringing value directly to nurses. We have a partnership with a company called Plenary and…

Maybe a follow-up on that. Whether it's either the career networks or some of the other parts of your platform, the enterprise side of it, do you see any opportunities to maybe monetize through something like how a Doximity does in terms of where there's some brand marketing, brand awareness from industry on the platform?

We do. I mean the clearest answer is if we had to say what we're modeling NurseGrid after, it would be LinkedIn or Doximity. And so we think -- I think it's fair to -- particularly NurseGrid, it's fair to think of it as the #1 social network for nurses and growing. And so again, we're new to that kind of monetization, but -- and nurses maybe have a different profile, value profile to industry than physicians like Doximity, where they're strong. But it is clear that they are valuable increasingly. Nurse practitioners, for example, are prescribing nurses. There's a shortage of nurses. So staffing. And large, large health systems have declared a lot of their strategy on building and strengthening their nursing core as central to their overall strategy for success. You see some of these large health systems even buying nursing schools. So I think it's an important audience, and we're going to learn how important in the coming years. But I do think it's fair to characterize our ambition there to be aligned with the way you would think of Doximity and LinkedIn. And of course, this is a big ambition for a small company, but we like it. And we're starting to see these multiple paths to monetizing it and start to have a little light at the end of the tunnel as we launch some of these services really in the last 6 months, a couple of them are brand new.

Okay. And my final question, just a point of clarification. With respect to the HLC CredentialStream and ShiftWizard, the numbers that you gave in terms of the -- I think it was 7% growth -- what was it? -- 23% for CredentialStream, 29% for ShiftWizard. Was that bookings like new wins in the quarter? Or was that revenue contribution year-over-year growth?

They're smaller products, but that is revenue contribution. Scotty, please verify and take it forward.

Yes, that's right. That's the growth in revenues Q3 of this year versus Q3 of last year.

Congratulations.

Our next call comes from Vincent Colicchio from Barrington Research.

Yes, Bobby, a nice quarter with ShiftWizard. I'm curious, is the product at the point -- it's ready to penetrate large organizations? Did you sell to any large organizations in the quarter?

We've got a good pipeline of medium to -- of the large enterprise, smaller -- it's still not -- and I thought it would be here by now. It's still not quite ready for the biggest of the big. But we're making progress, and we are winning some, I guess, you could call them the upper middle class. And so good-sized contracts, $1 million-plus contracts. So we're excited to see that. But we've got work to do around the data management still. We're trying to leverage our platform data services, we call the Insights infrastructure, into both credentialing, for example, and into scheduling, and we're just not quite there yet. But we're on it and we're making headway. And I would say that we've got a nice pipeline of these upper middle-class opportunities, if you will.

No, that's good to hear. Can you provide an update on the -- what you're seeing in the small hospital and rural hospital markets?

Yes. We're working on bundling strategies throughout to address kind of the overall challenge of the marketplace. You heard us mention that even at the big scale, when people cross purchase, we're working on bundling strategies. We want to be viewed as best-in-class and the most economical, especially when you're a big customer and you use more and more of our suites. And so in the small hospitals, this is also true. I think they're definitely under financial pressure. Our strategy there is to be the most complete, highest quality solution, but also with the way we're bundling and getting the features just right for those smaller hospitals, the most economical. And so you're going to see us move to more bundling strategies by market. We've launched our Critical Access bundle just a few months ago. And what it does, it's a blend of software and content. So instead of multiple decisions over time, like incrementally growing, we've kind of created a few opportunities to go a little bit more all -- not all in, but take a bigger chunk of our ecosystem under contract at a better price per unit, but a more complete selection of products. So the Competency Suite is another effort at bundling that has started to show success. It's kind of reflective of the current economic reality, but also it's just -- frankly, it's simplifying our product suites and making them easier, a one decision instead of 5 separate decisions. So in all cases, for both economic benefit to customers under stress, and because we think it's probably overall a better selling strategy, you're going to see an increase in our bundling efforts. So by way of example, in the small markets, we have our new Critical Access bundle, which we think kills the competition. We think it's got both software and content and multiple applications and a bundling of applications that our competitors don't have. And so instead of just buying like, for example, learning, which everyone has, we put in learning and a time management solution, which most of the competitors don't have. And if they have that, we add the policy management solution. So bundling is a key strategy and it reflects both, I think, a better selling strategy, but also addresses the economic pressures, we think, more effectively that the small hospitals are under.

I am seeing that this concludes the question-and-answer session.

Thank you. I do have a closing remark or 2. For the analysts that are still on, I just really want to point out our guidance. We tightened the ranges, but they stayed the same, and they factor in everything we know today, including the acquisition. And so one of the things you could note from our disclosure and our discussion was that you heard all these great growth rates and they're super exciting, but also a little caveat about the drop-off in legacy software up to $3 million in the fourth quarter. So remember to listen carefully to our guidance as you think about how to model our growth rate and know that we're still working through these legacy issues, and that needs to be factored in and modeled. Now it's a positive and a negative at the same time. Some of the legacies are migrating and some are lost to the market, but that number in the fourth quarter is estimated to be about $3 million, offsetting all this wonderful and exciting new core growth in both our career networks and our enterprise class applications. So all I'm doing is reemphasizing that in spite of all the excitement, you look at our actual guidance as we provided. We maintain the exact same midpoints as prior guidance and we narrowed the range. So we provided more clarity on the range of our expectations. With that, I want to conclude the call, and I look forward to reporting again as we report year-end results sometime late February, I believe. Thank you all for your participation and following the HealthStream story.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.