HealthStream, Inc. Price & Performance (HSTM)

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 ks, 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 may refer to in this call. So with that start, I'll now turn the call over to CEO, Bobby Frist. Thank you, Molly. Good morning, everyone, and welcome to our fourth quarter and full year 2024 earnings call.

Definitely have lots to cover and look forward to getting to your questions at the end. I'll just start out with some financial overview. I'm pleased to report that we finished the full year 2024 with strong year over year increases across all of our key financial metrics. Full year revenues were up 4.5%, net income was up 31.5%, operating income was up 32.9%, adjusted EBITDA was up 9%.

Looking forward to 2025, as we think forward, we expect HealthStream to continue to deliver growth in each of the areas where we provide franchise [indiscernible] We anticipate organic revenue between $3.00 $2,000,000 and $3.00 $7,000,000 net income between $19,200,000 and $21,400,000 adjusted EBITDA between $70,000,000 and $74,000,000 These forward looks do not include any acquisitions that we may complete during the year.

Though our strong cash balance is $97,200,000 and our untapped line of credit and with no long term debt position us to take advantage of M and A opportunities as they arise. And I would say that as we think about 2025, we're going to focus on rekindling our M and A. Been a little bit quiet on that front and I do feel that both the pipeline of opportunities and those that are good fits for our business, there seems to be more available to look at and review. So look forward to 2025 being a rekindling of our M and A program. Since our last conference call, I'm pleased to report that our HStream platform has made some excellent progress as indicated some of our recent press releases. Internally, we've declared 2025 as the year of the platform and I know we've talked about the platform for a while now. But we're really starting to see it manifest in both our strategies, communications and customer benefit.

And we're going to continue to advance our platform as a service capabilities to create interoperability among our primary applications the ones that the healthcare workforce constantly uses. In fact, another way to think about the platform too, we've seen a material increase in our customers' accessing the features and functions of the platform directly through the developer portal. For example, in the developer portal, we've seen over 400 developers from across 184 customer accounts accessing the platform APIs to date. And it's really a really nice sign that the platform is beginning to mature into a useful toolset for our customers. Direct access to features and functions of the platform, from over 400 developers and 184 customer accounts I look forward to that someday being all customer accounts, We're seeing this nice expansion of utilization of these platform level APIs. Importantly, the interoperability we're enabling starts with our own application suites of learning, credentialing and scheduling. All of which are being powered at some level from the platform at the hStream platform level. From there, the hStream platform is designed to extend interoperability well beyond HealthStream's own proprietary applications as it begins to power third party applications as well.

So when we talk about the year of the platform, referring to the year when platform interoperability increases meaningfully among our own applications, also begins to manifest in third party applications. We believe that creating this type of network effect will help improve the quality of healthcare which is one of our fundamental purposes and to drive our business results over the next several years. While interoperability is a key feature, it's not the only benefit we're recognizing from moving to a single platform or the hStream platform strategy. Due to its API first design, HealthStream platform we call hStream, we is allowing us to develop new applications and functionality faster and more efficiently than ever Last quarter, we announced the release of the HealthStream learning experience. On top of the hStream platform itself. Excited about the HealthStream learning experience, which we call the HLX for a lot of reasons. Not only is our first application built on top of the hStream platform, is the only application of its kind designed specifically for HealthStream.

Using AI native design, the HLX offers the healthcare workforce personalized, self directed, intelligent learning and development pathways and incorporate a wide range of learning modalities from journals to VR simulations. Its modern design interface are built to provide the healthcare workforce with the unique learning they need in the way they want it and the way they want to experience their learning journey. Because it is built on top of the hStream platform, the HLX is interoperable the HealthStream Learning Center. Our learning management system. Three large HealthStream organizations that are longtime users of HealthStream Learning Center are launched partners and entering a pilot phase for the HLX. We're super excited about the HLX. It represents kind of a major refresh of our learning technologies and learner capabilities. Speaking of the HealthStream Learning Center, it kind of stole the spotlight last week. As G2 named it the number one software in all of healthcare across all types of software applications and products. G2 is the most trusted and largest review site around and their ratings are based on verified customer reviews which makes Honor all the more special [indiscernible] I have to admit it was fun to see the HLC recognized the NASDAQ electronic board in Times Square as the top software application in healthcare.

That's just not a category killer in learning, that's across all software applications in healthcare rated by G2. I want that to sink in for a minute for our teams too. They've done an amazing job building, maintaining and growing the HealthStream Learning Center. And now with the HLX, exciting new frontiers and learning for HealthStream. It's also great to see that in that same list, CredentialStream popped the charts ranking number five overall. Again, that's not just in Prudentialing Software, that's five overall in health care application software, which makes it the highest ranking credentialing application in health think a key reason for our learning and credential applications to rank as best in as the best because the innovation they are beginning to enjoy from HealthStream platform. Look forward to adding to that platform value. Throughout 2025. The year of the platform. Before we go further in our call, I want to briefly summarize our business for the benefit of anyone who is new to HealthStream's story. [indiscernible] Through SaaS based solutions, each of which are becoming more valuable because of the interoperability they're achieving through our hStream technology platform. The company holds 20 patents for its innovative products have been awarded over 40 brand and hall awards.

Historically, we saw our solution on a subscription basis under contracts that average three to five years in length. Which makes our revenues recurring and predictable. Fact, 96% of our revenues were subscription based. Students across the continuum of healthcare training. Are profitable, have no interest bearing debt and a strong cash balance of 97,200,000.0 We are solely focused on healthcare and more specifically the healthcare workforce, which The 12,600,000 healthcare professionals and nursing students in The United States comprised of core total addressable market for our SaaS solutions. Look, there's still a lot to talk about and I look forward to the second my second section But before I do that, I want to turn it over to Scotty Roberts, our Chief Financial Officer for some more detailed look our financial performance for the quarter, and the year. All right. Thanks, Bobby, and good morning. I look forward to discussing the financial results we achieved in 2024 and our outlook for 2025 with you today. Unless otherwise noted, the comparisons will be against the same period of last year. I'd like to start off by congratulating our teams on another successful year. The drive and dedication to building great products for our customers is paying off as evidenced by the accomplishments that Bobby just mentioned.

Let's get into the financial discussion. Revenues were $74,200,000 up 5.2% operating income was $4,700,000 up 10.2% Net income was 4,900,000.0 up 6.5% Earnings per share was $0.16 per share up from $0.15 per share and adjusted EBITDA was $16,200,000 and was up 1.3%. Our revenues increased by $3,700,000 dollars or 5.2% coming in at $74,200,000 compared to $70,600,000 in last year's fourth quarter. Revenues from our subscription products accounted for 96% of total revenues and were $71,200,000 increasing by $3,200,000 or 4.8%. And professional services revenues were $3,100,000 increasing by $400,000 or 15.7%. Subscription revenue growth contributors included CredentialStream, with 28% growth ShiftWizard with 17% growth, and the Conferency Suite with 8% growth. Partially offsetting this growth were declines of legacy products including the ANSOS product suite Echo and MSOW, which are often on premise as opposed to SaaS solutions. Taken together, the legacy products I just mentioned resulted in fourth quarter revenue declines of approximately 1,000,000 compared to the fourth quarter of last year. Our remaining performance obligations were $621,000,000 as of the end of the quarter compared to $541,000,000 for the same period of last year. This improvement is due to the strong fourth quarter performance we had.

We expect approximately 40% of the revenue backlog to be converted over the next twelve months. Gross margin came in at 66.2% compared to cloud hosting, software and labor costs contributed most of the increase in cost of revenues over the prior year quarter. Operating expenses excluding cost of revenues increased by 5%. Product development was up 6.3% and sales and marketing was up 9.3%. These increases primarily resulted from higher labor costs associated associated with additions to staffing levels in our product development area, over the prior year higher sales commissions associated with the growth in revenues and increased investments in marketing initiatives including the development of our e commerce channels. [indiscernible] G and A costs were up 4.3% primarily resulting from increased stock based compensation and higher bed debt charges which were primarily associated with customer bankruptcies. Depreciation and amortization declined by 0.6%. And adjusted EBITDA came in at $16,200,000 which was up 1.3% and adjusted EBITDA margin was 21.8% compared to 22.6% last year. Now let's move on and go over the balance sheet metrics. We ended the quarter with cash and investment balances of 97,200,000.0 up from $94,900,000 last quarter. During the quarter, we deployed $6,800,000 for capital expenditures, completed two acquisitions which were TCPS and the Clinical Hub, for combined outlay of 1,300,000.0 and paid $900,000 to shareholders, through our dividend program.

We also made $1,600,000 in income tax payments during the quarter. Our day sales outstanding improved to a record low of thirty five days compared to forty two days last year. As I mentioned just a moment ago, bad debt charges were up in the fourth quarter and they totaled $2,600,000 for the full year. Was up from 1,000,000 in the prior year. Approximately $1,800,000 of the bad debt charges that we incurred during 2024 resulted from three highly publicized customer bankruptcies. While these bankruptcies are unfortunate, we don't think this represents a broad trend across the industry. Here today our cash flows for from operations were down 9.9% or $6,300,000 from the prior year. They came in at $57,700,000 compared to $64,000,000 last year. Free cash flows were down $6,500,000 or 17.9% and were 29,500,000.0 compared to $36,000,000 last year. Want to provide some more context about our cash flows and why there was a decline this year. For many years, we've utilized net operating losses. And other deductions to help offset our cash tax liabilities. In 2024, the tax benefits from the NOLs were less impact and our cash tax liabilities were greater they were in the the past several years.

In fact, we had approximately $6,100,000 more of income tax payments in 2024 compared to 2023. In addition, just general timing of disbursements at the end of the year also played into the year over year decline in free cash flows.

Our balance sheet remains strong with $97,200,000 of cash no debt providing us with several options to strategically deploy available 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 and D plans. Second is pursuing acquisition opportunities which we have a long track record of executing including two small tuck ins during the fourth quarter. The third is returning it a portion of profits back to shareholders in the form of cash dividends and the fourth priority is that our Board may authorize share repurchase programs which we also have a successful track record of executing. From an M and A perspective, we maintain an active pipeline and continue to evaluate opportunities that fit our criteria include industry, product and financial among others.

While the M and A markets in healthcare technology have been slower than usual over the past eighteen to twenty four months, we expect to see them To begin, pick back up over the next twelve months. Now let's transition over to the financial guidance for 2025. Which we announced yesterday in our earnings release. We expect consolidated revenues to range between $3.00 $2,000,000 and $3.00 $7,000,000 We expect net income to range between $19,200,000 and $21,400,000 adjusted EBITDA to range between $70,000,000 and $74,000,000 and capital expenditures are expected to range between $31,000,000 and $34,000,000 This guidance does not include assumptions for any acquisitions that we may complete during the year. Our revenue guidance range implies a growth rate between 3.65.3% And we expect more of the growth will be concentrated in the second half of the year versus first half.

There was a couple of factors that we expect will impact comparisons in the first half of the year which include reduced revenues from the customer bankruptcies, and reduced revenues from perpetual license sales of legacy products. We expect gross margins to come in around 66% for the year. For expenses, we plan to ramp up hiring rates, so our labor costs are expected to increase steadily across the year We expect product development expense to increase in the 2% to 3% range sales and marketing expense to increase in the 4% to 6% range, G and A costs are expected to be flat to down 1%, and depreciation and amortization is expected to increase between 79%. We expect the effective tax rate will be in the 20% to 22% range.

Our capital expenditure forecast anticipates between $27,000,000 and $29,000,000 of capitalized software investments. Across the hStream platform and our three application suites to further differentiate and enhance our product offerings. It also includes approximately $4,000,000 to $5,000,000 for technology upgrades within our data centers. Which is where we host the majority of our learning application solutions. This includes firewalls, storage networks and servers which typically have a four to six year lifespan So every few years, we have to upgrade and replace these assets. In closing, I want to share the news that our Board of approved an increase in the cash dividend to be paid out to shareholders.

They approved a dividend payment payment of $0.031 per share which is an increase of 10.7% over the previous quarter's dividend of $0.028 per share. This is the second increase we've announced in our dividend since we began the program two years ago.

The upcoming dividend is payable on 03/21/2025 to holders of record on March 10, 2025. We continue to be confident in our ability to accomplish our innovative organic growth strategies while also returning cash to our investors in the form of a dividend. That wraps up my comments for this quarter's call. Thanks for your time this morning. And I'll now turn it to Bobby for some additional updates. Thank you, Scotty.

In this back third here, I'll look forward to updating some highlights related to our core I thought it'd be good to take a little time to focus on scheduling, credentialing and learning application suites and some of their accomplishments during the fourth quarter. First off, we'll start with scheduling. ShiftWizard. Is our core product and scheduling, I think you all know we're working really hard to make ShiftWizard have what we call feature parity with our legacy and we expect that here in the middle of the year. So excited about that advance. Fifth Wizard, the core product in scheduling, earned best in class award for software and services. For those of you keeping score at home, that means that each of our Choral And all those awards are based on customer feedback. Congratulations to our teams on earning these recognitions. Importantly, ShiftWizard continued to deliver strong revenue growth as well. Revenues grew 17% over the fourth quarter of last year and twenty five point one percent over the full year 2023. In the fourth quarter, sales were both from transitions from our legacy Ansauce application like Guthrie Clinic and St. Francis Health System and from competitive takeouts like Stormont Vail Healthcare and John Muir Health.

Among others. Let's move to credentialing here for a minute. We're really excited again. We put a lot of time, almost eighteen months of really hard effort into earning the HITRUST R2 sort of This is a gold standard of information security and compliance assurance. And we're happy to deliver that peace of mind to our CredentialStream customers CredentialStream also had a productive fourth quarter and full year in terms of growth. The full year 2023. These results included sales from both new customers and customer who chose to migrate from our legacy credentialing applications. [indiscernible] Kettering Health and Geisinger Medical Center, were among enterprise credentialing deals we closed in the fourth quarter. This brings us to our learning application suite. When I started the talk on that application suite, Again, it's gratifying to have HealthStream Earnings are named as G2's best software application in healthcare. And that's happening while we're in the midst of a major enhancement cycle that spans the entire learning application suite. Significant enhancements include innovations in our insights reporting, which is the core reporting and data architecture, and the introduction of the groundbreaking HealthStream learning experience We launched Insights Plus in the first quarter our new reporting analyst capability, of 2024 and it already has over 5,600 users across two fifty two organizations.

Launched the HealthStream learning experience in January, so just a few weeks ago. We've already implemented an AI powered search feature in the HLX. And as I mentioned, three exciting major early adopters are in the pilot phase with the HealthStream learning experience. With the advances being achieved in our emerging hStream platform, we've realigned our operations to better support growth. And so I want to turn a little attention to our internal structure and some updates to our leadership. First, as we move to the single HealthStream single platform strategy, we call it the One HealthStream initiative inside of our company. And we approached the year of the platform, which is this key year of integrating three applications with each other through the platform and connecting those applications to the social networks we're building through the platform. And so in an effort to better organize around those key initiatives and make this deal the platform, Senior Vice President, Kevin O'Hara has been promoted to Executive Vice President, Enterprise Workforce Platform. Through this promotion, we've integrated the management of the hStream platform and our three core application suites learning, credentialing and scheduling be under Kevin's leadership as our suite of suites.

And so we've now moved these three primary applications, learning, credential and scheduling to one leader and promoted him, Kevin O'Hara. And his job this year is to make it the year of the platform, to make those applications further connect to each other and to the platform itself. Congratulations to Kevin O'Hara and we look forward to his leadership on this important initiative. Executive Vice President, Michael Collier, has been promoted adding additional responsibilities to his current Executive Vice President role. Essentially, we're going to pull a lot of operations off of our product leaders like Kevin and Tricia Cody, we'll talk about in a minute and centralize them to Michael Collier. So Michael Collier is assuming, in addition to his corporate strategy development, a large part of the HealthStream's operations So responsibilities in this new role cover a broader scope of HealthStream's enterprise operations, which will now also include customer success management, implementations and onboarding for all the company's products and services. We instead of having separate onboarding and implementation groups, in separate under separate leaders, we we're pulling onboarding success management implementations under one leader, Michael Collier. Senior Vice President, Tricia Cote, based on her incredible performance across her workforce development solution sets, in the last year, delivering a lot of our growth managing over half of our revenue for the company has been promoted to Executive Vice President of Workforce Development Solutions.

She will continue to provide executive which includes our products in competency development like Jane, and our competency suite and resuscitation and quality and safety and revenue cycle. So she has a very broad suite of tools that are very relevant to the clinical workflows, clinical development of the clinical workforce. Michael Souza, who has served as Executive Vice President Enterprise Applications, be leaving the company at the March. For those twenty years. In fact, looking back on it when he joined, company was around 140 employees and $20,000,000 in revenue. And as he leaves, he can be proud that he's helped build a company with over 1,000 employees nearly $300,000,000 in revenue Great appreciation of Michael Sousa as he enters the next step in his exciting career. And what's really, really exciting is that both the parties are intending to find a way to work together in the future. So we'll have more announcements on that in the future. But we hope and expect that his future endeavors will lead to partnership with HealthStream and a partnership with our ecosystem. We'll see if we can pull that off, but it'll be really exciting. Again, congratulations to Michael Sousa. Thank you for his twenty years of service helping build the company.

And I look forward to seeing how Tricia Cody Michael Collier and Kevin O'Hara can continue to deliver the excellent results in their new roles as we lead the company forward. Corporate offices in Nashville, Tennessee. This event is called Thrive twenty five and we expect about three fifty of our CredentialStream customers to attend network and participate in roundtable discussions. They'll attend training sessions and learn more from one another in those two days, March 11 and twelve. We look forward to welcoming customers to Nashville and to HealthStream here in the coming weeks. Now my pitch to all of you as shareholders I like to think it this way. If you're interested in a small but growing profitable company with highly recurring revenue. Focus on the future of the SaaS and PaaS platform as a service powered company. We expect to deliver steady growth and we've determined to share some of our gains with Shellers in the form of a dividend, maybe HealthStream is the right stock for you. And so I can't stop myself from asking for the sale. We'd love to see you all listening this call become shareholders of HealthStream and go on the journey with us.

Work hard every day to deliver shareholder value. I'm just so excited about how our products are beginning to deliver in the marketplace. At this time, I'd like to turn it over to the operator to begin Q and A. Thank you, sir. At this time, we will conduct a question and answer session. Our first question comes from Matt Hewitt, Good morning and thank you for taking the questions and for all the details Maybe the first question is, last year you set out kind of some midterm targets for revenue growth, gross margins, and EBITDA margins. You've now hit two of those and hopefully that continues. The third one is the revenue growth. You've kind of pointed to a 7% to 10% top line growth. What's it going to take to achieve that type of a growth profile? It seems like the last couple of years you've kind of been in that the mid single digits. What's going to be the lever to kind of accelerate that growth rate? Yes, fair enough. I think, well, first of all, I just want to break down that number set. The 7% to 10% was composed of 5% to 7% organic, and 1% to 3% of inorganic.

And as I did mention, we do hope that see and we think we're good at executing M and A and have the resource to do it. So as far as that part, the 1% to 3% inorganic, I feel like over time, we'll be able to deliver that part of the growth profile. So that leaves the 5% to seven. We did give that guidance, I think, at the end of twenty twenty two as what in guidance was really a set of what we call medium term objectives and they were as aspiration was to get our organic growth in 5% to 7% range within the three year time. I will note that the fourth quarter was the first quarter we kind of pushed in. We did the 5.2 But as we looked at the forward year, we still see that we have this off SaaS applications that we mentioned in some of our legacy businesses. And so we did predict and look at another year where we have to handle that trade off between more rapidly growing SaaS applications. Eventually, of course, we'll work through that problem and then hope to return to more natural growth rates of the newer products.

Overall. In addition, in the meantime, we're working on improving our margin profiles I think the shift to the platform technologies enables us to be more efficient, in the way we deliver the revenues. And so we do look forward to staying in the range and pushing to the top of those ranges from our medium term objectives from a from measures of cash flow and particularly EBITDA which is a measured target that we focus on. And so I think it's a little more of continue the same progress. I think if we deliver award winning products, we factor out our legacy applications over time. We need to do a little better job of converting customers instead of losing some to the market. We're going to focus on that this year. A little better conversion rate would also boost the growth rate There are several priorities for our team to focus on to try to bump us back up into that 5% to 7% organic growth range. And we'll just keep working on them. Click of the wheel, click of the wheel. We'll keep advancing the business until we figure it out. And it is exciting to have great new products to take to market and see if we can outperform in those to get us into those gross ranges.

That's all I know to say is that we'll keep iterating until we get it right and get it better. That's incredibly helpful. And maybe just one point, the headwinds that you've been facing as you've been shifting cost customers from perpetual to SaaS, Is there any way to quantify what that headwind is? I think last year, if I'm not mistaken, it was like was like 1% to 2%, which in the end would have ultimately put you in that the lower end of that 7% to 10%. But as we look at '25 is it a similar magnitude, another 1% to 2% headwind this year?

I think those are the kind of details, especially when we talk about medium term objectives. I want to leave those for a potential Investor Day. We haven't committed to the date just yet, but we're trying to get one in the first half of the year. I think it's appropriate to separate annual guidance and our annual forward look from our medium term objectives, which are just that. They're objectives that we drive toward. And so I think I'd leave those kind of questions and specifically that one for an Investor Day. And our commitment to try to get one scheduled before the first half of this year.

Got it. And then maybe one final question. I think last quarter you had kind of noted that your pipelines were incredibly strong. And in fact, I think you even noted 3x coverage. I'm just curious your success rate in closing those What are you hearing from customers? Was there any hesitancy at the end of the year to maybe hold off until January? Just any color along the pipeline Yes. Actually, I think you could see that a little bit and we [indiscernible] really did move up a good bit. We had some really good sales performance in the fourth quarter. Multiyear contracts, of course, but remaining performance obligations had a really nice jump Doesn't always correlate directly to revenue growth because linked to term of contract matters and all that.

But it was nice to see some of that pipeline come rushing in. In particular, December was strong and even amazingly a meaningful percentage of our overall annual sales occurred in the last five days. So was an exciting to watch that pipeline. I think we saw a strong pipeline as we get into the year and so we're optimistic January was a tiny bit slow because we did so well in December, but I've already seen February start to turn it around and we're expecting great things this year and still maintain one of the strongest pipelines I've seen in our history. So we're excited and expect the sales team to deliver great results this year as well.

That's great. Thank you.

Our next question comes from John Pennney at Canaccord Your line is open.

Hi, John Penney on for Richard Close. Thanks for the questions.

So just to start with AI, are you using it in HLX. I'm just curious, are you seeing any like efficiencies to drive like efficiencies in product development or anything like that using AI internally?

It's really fascinating. We have bifurcated the problem even the Board level and the opportunity of AI. From both its internal application changes how we build and perform our work, everything from experimenting with AI to help us in our sales process, We have several pilots going to use AI to help us program and develop. And so yes, there are a lot of internal initiatives to try to learn to make us more efficient, make our workforce more efficient that are under that we're undertaking now. But I would say we're new to it. As is most everyone. And we're learning as fast as we can. I do expect productivity gains, but probably not in the short, short run. In fact, probably a little bit more added expense as you pay for the tools of AI before you get the Mac benefit from them is the way I would think about it for the next say six to nine months. But we have lots of exciting pilots internally. In our product design development, we've had we've used some AI for many years in our Jane products to help assess clinical reasoning ability use things like natural language processing with IBM Watson in the last several years.

And now we're further advanced our products with the large language model search capabilities in our new HLX. So we're seeing implementations now of AI in our products as well. So we're very excited about the potential for AI to change both how we work and how we build products. I would say probably in the is probably true of most organizations, probably see a bit of an increase in expenses before they see a bit of a decrease in expenses. Paying for all these tools and learning to use them will have a bit of a curve.

But I'm optimistic for the long run impacts to make us much more efficient. There are certain roles I think can almost be automated We're seeing that we have a pilot going on or researching software in this area in the paralegal space would help design the contract templates we think it's going to be incredibly effective at helping us in our contracting process. So hope that answers your questions. Lots of initiatives, probably a little bit increase of expense in this year. And then I'm expecting great things in the years to come though. From efficiencies benefit, product launches and customer benefit. Great. Thanks. And then one follow-up.

So I guess, with these new deals that you closed in fourth quarter, I guess, like an update on these pricing escalators, were you successful in getting pricing escalators in these contracts? Are you seeing like these new products making it easier to negotiate escalators into the contracts? Or any commentary you can provide there would be great. One of the things we're finding is that in a strange way, the customers have [indiscernible] then when you come up for renewal, there's a big jump and your budget isn't ready for it to reflect the changes in market.

So in a strange way and being a laggard in implementing escalators, but now fully deployed, meaning that every time we sell our new software, for example, as a learning customer comes for renewal, we've been very successful I would say, 95% plus hit rate of incorporating escalators into every renewal. And so I think it will be a multiyear process over thirty six months if you think of an average contract length of three years. Will be able to incorporate escalators into every base contract. We're just not getting any pushback yet. And we've rolled out the program now in our other two primary application areas. Once you implement escalator, it doesn't start till the next year. So kind of you think about three year average contract three point five year average contract at HealthStream as they come up for renewal, we renew them. We we insert the escalators and then their impact begins the next year, that first year of escalation in the new contract, so it will be a multiyear impact but I would say that we're in the process of fully deploying, meaning I expect as every contract renews, they have a very high success rate of incorporating base escalators in the contracts, which is very exciting and should provide within thirty six months a new base level of growth for the company.

Which maybe is a bit of an answer to a prior analyst question, about another positive element to getting us in the mid term objective growth range we articulated earlier 5% to 7%.

Great. Appreciate the color. Thanks.

Our next question comes from Ryan Daniels at William Blair.

Yes. Thanks for taking the question. Bobby, I was hoping you could go into a little more detail on HLX and when that might go to full launch. I think you said you're in three pilots now. So I'm curious when that might be a meaningful Sure. We've begun a demonstrations. The sales team was trained at this year's sales meeting just to a few weeks ago. And so we have pricing and it's available now. So we're beginning the sales process now. Of course, there's nothing like successful customers to point to when you're working on the sale. But we found several things. One, after watching this space for years, meaning the the HLX, the learning experience space, we finally launched our solution and we've seen it that it will have a material positive impact being healthcare focused. We think that the criticality of having well defined development pathways for people with this mixed media approach and self user guided learning is going to be very powerful for workforce development needs in healthcare, both helping with the themes of organization providing a better toolset other than kind of top down administrative of learning. Now you can put people on exploratory career journeys.

And so some of our early pilots I look forward to talking more about, but we have a a governmental entity looking to develop new categories of healthcare workers up in New York that is piloting and they're really excited about it because if they have a deficit of a certain type of worker, they think that HLX will help them guide people to those career paths. Which is similar to what we think employers might do. So to summarize, the product is live. It's available for sale. The sales force is trained on it. We're beginning to go to market And also as an add on or extension to the HealthStream Learning Center, think it provides tremendous additional value at a relatively small incremental cost especially compared to competitors. So again, efficiently built on the HealthStream HealthStream platform allowed for rapid development cycles, HealthStream tailored with some AI features that make it more healthcare specific And then it focused on the career development opportunities for healthcare workers we think fits a broader need in the market. So I think we'll start to see some sales of that in the first half of this year. And then once the pilot is successful, these larger organizations I expect sales to pick up in the second half.

Okay, perfect. Thank you for that. And then as a follow-up, I'm curious as you go to market with more interoperability between your three core application suites, are you starting to see more cross zone up sell opportunity emerge upon renewals? And is it driving up user satisfaction as well as they can tie things like credentialing and learning pathways together to really advance their workflows. Thanks.

Well, I'd still say this is a year that that manifests more. And so I would say is that the senior executive team is working to find our first, I guess I'd call them our enterprise workforce platform, our enterprise workforce suite suite of suites, kind of working with trying to find a couple of key customers that will go on that journey with us. So I'd say it's not broadly manifesting yet in cross selling, but think we're well positioned to see some of that also in the second half of the year. Of course, we already have amazing cross selling going on anyway even as independent applications because our nearly 60 people in account management are always working to cross introduce the product. So a big part of our long history effective cross selling and growing the value per person per year at our accounts and we're very good at it. Think when it becomes more technology enabled and they see the benefits as you pointed out, think there are concrete benefits to health systems and say, onboarding physicians when our learning and credentialing systems work together. And I think again by the middle of this year, we'll have more tangible benefits to show our customers about how that's progressing.

Okay, perfect. Thank you so much. Congrats on all the recent awards and all the product enhancements. Thanks.

Thank you. Well, we wanted you to see where some of our CapEx was going because we put a reasonable amount into product development in the form of of direct software investments and capitalized software investments. And good when those come out with winning products out the backside.

I'm showing no further questions at this time.

I would now like to turn it back to Bobby for closing remarks.

Thank you to everyone following us, especially to our employees, Congratulations to our three promoted senior executives and And also we wish the best with Michael Sousa. I look forward to our next meetings when we talk about the [indiscernible] all employees should take great pride in accomplishing our G2 rating number one and getting our systems through the security protocols that make us HITRUST certified amazing set of accomplishments. Thank you to all of nearly 1,100 employees for delivering a great year and look forward to 2025. And look forward to all of you on our next earnings call. Thank you much.

Thank you for your participation in today's conference.

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