HealthStream Inc

NASDAQ:HSTM

Earnings Call Transcript 2024-Q1

[Operator]

Good morning, and welcome to HealthStream's First Quarter 2024 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, Vice President of Investor Relations and Communications. Please go ahead, Ms. Condra.

[Mollie Condra, executive]

Thank you, and good morning. Thank you for joining us today to discuss our first quarter 2024 results. Also on the conference call with me today 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 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 may refer to in this call.

So with that start today, I'll turn the call over to CEO, Bobby Frist.

[Robert Frist, executive]

Thank you, Mollie. Good morning, everyone, and welcome to our first quarter 2024 earnings call. As our analysts sometimes say it was a solid print. In the first quarter, we achieved record revenue and record adjusted EBITDA. In fact, our quarterly financial performance showed year-over-year increases in each of the major categories we highlight in our earnings release.

I'm excited and be able to report of that type of performance. The first quarter revenues were $72.8 million, up 6% over the first quarter of last year, and adjusted EBITDA was $17.1 million, up 24% over the first quarter of last year. We were able to reiterate our financial guidance ranges for the full year of 2024. And right now, we have the full expectation that we'll be able to hit the ball right down the middle of the fairway. We're looking to the middle of the range and performance.

So we're excited to deliver these strong financial results and reiterate our financial [indiscernible] with an expectation of going right down the middle. Later in this call, after Scotty discussion about financials, I'm going to describe some of the developments in learning, credentialing and scheduling application suites that are helping drive these results.

I do want to back up a little bit and talk about an emerging trend we're seeing that I think it's worth calling out. The trend I'm referring to is the increasing amount of attention that healthcare organizations are paying to their workforce kind of broadly defined. Now more than ever, we believe that healthcare CEOs are embracing the fact that their workforce is their most valuable asset. And the staffing shortages that were exacerbated by the pandemic really served to reinforce the ongoing importance of taking care of your workforce.

And hopefully, from our point of view, investing in them to retain and develop them and their capabilities and capacity. And these are the things that HealthStream has been focused on for a long, long time. We're just laser-focused on workflow applications that improve both the quality, the knowledge of and the knowledge by these healthcare professionals. And of course, there's skill sets. We also make sure the right people are in the right place at the right time.

So there's a lot of things that we do that help organizations focus and bring deliver a focus on retaining and developing [indiscernible]. In fact, if you ask any HealthStream employee, I'd say they're proud to say that our vision has always been about improving the quality of healthcare through the people of healthcare by improving who they are and what their skills are. And so we've held that vision to improve the quality of healthcare by developing the people who deliver care for a long time. And based on our conversations with customers, it's just increasingly becoming a top priority for them as well, the healthcare workforce as a topic.

And you can look at that from any direction for workforce shortages, the needs to cross-develop competencies and skills. These are all emergingly kind of -- the hospitals are realizing their need to invest in these areas. Healthcare can be complex, but working together with our customers, we help them take care of these people and we know how to do that well. It's just something that benefits everyone.

So our 3 application suites, along with the HealthStream platform underpinning them now and our deep network of customers have helped position HealthStream as the workforce platform of choice or maybe sometimes we say the people platform for healthcare.

Moving on to more specific business topics. I want to share 2 updates that we believe are emerging parts of our business that could become growth drivers in future years. [indiscernible] To be clear, not material contributors today. But the expected growth results are -- we're excited to see the initial results in these areas that we're going to discuss. The first is, we're excited to advance our commerce capabilities. For the longest time, most all of our sales have been done facilitated by a field sales organization, which is wonderful.

And we built strong bridges and relationships with thousands of customers through this incredible sales organization. But increasingly, they're supported with e-commerce capabilities that are part of our hStream platform, and we're building out these capabilities for 3 areas of commerce. The first is kind of enterprise-level purchasing, we call collaborative purchasing, and we brought this up on prior calls, but our collaborative purchasing tools are now evolving with better e-commerce capabilities built in. And so that's exciting.

The second is, I guess, what we would call departmental level purchasing, it's business-to-business purchasing kind of at the departmental level. And we now have new tools that we're launching [indiscernible] the department heads and others manage their education training and development budgets through commerce tools, which is exciting.

And then finally, the one I'm going to talk about is actually the newest [indiscernible] focus on the individuals in our ecosystem with commerce -- direct to individual commerce purchasing. And during our last call, I mentioned to you that we have started selling [indiscernible] called the DEA-mandated opioid course. It's required a physician through kind of a federal mandate. So it has strong tailwinds. But through our e-commerce capabilities and through [indiscernible], we were able to present the opportunity to purchase this course in our own network and in some cases, promoting it inside of our own application areas.

I can now report that we had approximately $0.5 million in DEA core sales of direct-to-professional, direct to doctors sales of the DEA course during the first quarter alone. And so this is really an exciting kind of breakthrough moment as we use our new commerce tools to allow for direct purchasing by physicians in this case, this course.

Now again, this course, is a bit anomalous because, it's a unique opportunity based on a federal mandate, [indiscernible] time sensitive, and we happen to have just the right content for it. But nonetheless, wouldn't have been possible without being powered by our new commerce tools. So taken by itself, this represents one [indiscernible] selling the group of individuals. But in the greater scheme of things, we think it represents an opportunity to expand these direct-to-professional commerce capabilities. And as the people platform of healthcare, I think HealthStream is well positioned to know what individuals need when they need which course and when and then also how to get it to them. And so I feel well positioned to extend this commerce capability [indiscernible] as part of the platform for healthcare.

Well, the other channel where we're seeing expansion of direct commerce is through NurseGrid Learn. And you'll recall that our NurseGrid app is extraordinarily popular with nurses. We have over 0.5 million monthly active users. And if you ask almost any nurse, you're going to have a really high hit rate that they both like NurseGrid, the app, which helps them manage their personal schedules and work schedules. And they're beginning to appreciate some of its new features and capabilities like NurseGrid Learn. And so we began to see some recent transactional volume through NurseGrid Learn direct to nurses as well [indiscernible] to see that start to be powered by our new commerce tools.

Let's move on to the expansion of our total addressable market, which we announced in October of last year. Specifically, I want to provide you with some [indiscernible] that we're making around nursing schools. After completing our first major enterprise sale to one of the largest nursing school innovation, I'm pleased to announce that we have now fully implemented our HealthStream technology platform and the Red Cross [ Resuscitation Suite ] at over a dozen of their campuses, and we expect the full rollout during this quarter, the second quarter.

So an exciting rollout to one of the largest nursing schools in the nation, using [indiscernible] technology platform, the hStream ID, along with the Red Cross Resuscitation Suite. And now they're entering work when they get their first job after graduating and becoming nurses, they interwork with a Red Cross certificate, thanks to this new relationship with nursing school with this large nursing system. And so we're excited to see them enter the workforce with that ID and with that Red Cross credential. We'll be able to report more on our progress there financially, but the implementation wave has begun, and we're really excited about that.

Anyhow, really, the great opportunity is that the data on their completion of that certificate would carry forward with them into work if they land at a facility or health organization that uses our learning application suite. And so we're really excited about that advance, of course, also powered by [indiscernible] the hStream platform and its interoperability APIs. So again, excited to see both technical progress and financial implementation progress in the nursing school market.

Of course, with this is a working model, we'll work our best to figure how to expand sales opportunities in that channel as well. So those are the 2 opportunities I want to cover. The DEA made direct-to-professional and the nursing school, early developments there, [indiscernible] [ of entering ] the nursing market, nursing school market and nursing student market. And so we're excited to report progress in both of those areas. I do want to manage expectations. These are new areas, new channels. They're not material parts of our business, but we do see some light.

We're excited to see some light at the end of the development funnel and declaring these as an expanded market opportunity in our prior earnings call. So again, we're excited to see those developments. I want to describe just as a reminder for anybody new on the call, a base level description of our business, you can kind of take away the nature of our business.

First and foremost, HealthStream is a healthcare technology [indiscernible]. We're focused on the development of our technology platform, and we're dedicated to developing credentialing and scheduling the healthcare workforce. So three, kind of unique healthcare workflows [indiscernible] to their people that we provide to our SaaS-based application stacks. And increasingly, those 3 separate SaaS technology stacks that do credentialing, learning and development and scheduling are becoming interoperable through the hStream technology platform we've been building. Historically, we sell all of our solutions on a subscription basis under contracts that average [indiscernible] years which makes our revenues both recurring and predictable.

And we'd like to get some credit for that eventually. This is a recurring revenue SaaS subscription business. In fact, 96% of our revenues are subscription-based. As I mentioned, we have also started to open our sales channels directly to professionals and nursing students. We are profitable. We have no interest-bearing debt. We have strong cash balance, which did surge a good bit in Q1 to $83.7 million. That's up $12.6 million over the prior quarter. So good free cash flows and cash flows during the quarter.

We are solely focused on healthcare, more specifically the healthcare workforce. So it's important [indiscernible] especially given the trends I mentioned in the opening of this call. There are 12.3 million healthcare professionals and nursing students, which we define as our total addressable market. [indiscernible] over time, they'll engage with us through all 3 of our major primary application suites and all of our secondary applications as well. And we want them all -- we want to think of all 12.3 of the -- 12.3 million of them initially as members of our ecology of our ecosystem, and we're making good headwinds towards making it a network effect or an ecology through the hStream platform.

Well, [indiscernible] I'd like to turn it over to Scotty Roberts to take a little deeper dive into the numbers because I just hit the top couple. Thank you. Go ahead, Scotty.

[Scott Roberts, executive]

All right. Thanks, Bobby, and good morning. So I'll jump right in and go over the financial highlights for the first quarter. And unless otherwise noted, the comparisons will be against the same period of last year. I'm pleased to share that we continue to deliver solid performance for the first quarter, growing both top line and adjusted EBITDA. Revenues for the quarter were $72.8 million, up 6%. Operating income was $5.7 million, up 97%. Net income was $5.2 million, up 99%, earnings per share was $0.17 per share, up from $0.09 per share and adjusted EBITDA was $17.1 million and was up 24%.

Revenues increased by $3.8 million or 6%, coming in at $72.8 million compared to $68.9 million in last year's first quarter. Revenues from our subscription products accounted for 96% of total revenues and were $70.2 million, increasing by 6%. Subscription revenues, as we've defined them for some time, predominantly includes SaaS solutions, but also software license and maintenance fees.

Software licenses are associated with legacy products such as our ANSOS scheduling solution and are occasionally sold to existing customers. I'm calling this to your attention here because onetime license revenues were approximately $0.8 million in the first quarter and they increased by $0.5 million over the prior year. In fact, the $0.8 million of revenue in the quarter came exclusively from 1 ANSOS sale. We do not expect onetime license sales to continue at this level, and I want to remind you that the $0.8 million of first quarter license sales should not be modeled to repeat in upcoming quarters.

Additionally, our professional service revenues declined by $0.4 million or 13%. Last quarter, I discussed 2 products that are experiencing declines in revenues. So I want to give a quick update on those. The first are renewals of the ANSOS scheduling products; and the second is our quality manager solution. During the first quarter, these products collectively declined by $0.6 million or 13%. On the positive side, our initiative to sell directly to professionals through our commerce channels delivered over $0.5 million of revenue in the quarter.

Our remaining performance obligations were $514 million as of the end of the quarter compared to $504 million for the same period of last year, and we expect approximately 44% of the revenue backlog to be converted over the next 12 months. Gross margin was 66.2% compared to 65.4% last year. This improvement is primarily due to the growth in revenues. And from a cost perspective, our staffing costs were down due to last year's reorganization efforts while royalties, hosting and software grew over the prior year and more than offset the labor cost reductions.

As for operating expenses, we were able to maintain operating expenses, excluding cost of revenues, to a 1% increase. And most of this increase year-over-year was from depreciation and amortization, which was up 4%, and product development expenses were up 3%. Our G&A and sales and marketing expenses were down 6% and less than 1%, respectively. Adjusted EBITDA was $17.1 million, which was up 24% and adjusted EBITDA margin improved to 23.4% compared to 19.9% last year. As a reminder, last year's adjusted EBITDA was negatively impacted by $1 million of severance charges associated with the reorganization and our single platform strategy.

Now let's go over the balance sheet metrics. We ended the quarter with cash and investment balances of $83.7 million compared to $71.1 million last quarter. During the quarter, we deployed $7.8 million for capital expenditures and paid $0.8 million to shareholders through our dividend program. For receivables management, overall, it was a strong quarter of collections, which led to days sales outstanding of 46 days compared to 51 days last year. DSO has improved. Bad debt charges were not material. And generally speaking, the payment timeliness from our customer base remains fairly stable.

Now switching to cash flows. Our cash flows from operations were up slightly over the prior year, coming in at $20.9 million and free cash flows improved by $1.1 million or 9%. With a strong balance sheet containing over $83 million of cash and no debt, we are in a good position to strategically deploy our available capital in a variety of ways, including M&A, dividends and share repurchases.

Yesterday, our Board of Directors declared a quarterly cash dividend of $0.028 per share to be paid in May. Our share repurchase program expired on March 31, and there were no shares repurchased during the quarter. For this program, we repurchased $8.9 million out of the $10 million authorization. Now as for guidance, we are reaffirming the financial expectations that were previously announced in February. We expect consolidated revenues to range between $292 million and $296 million. We expect adjusted EBITDA to range between $64.5 million and $67.5 million and for capital expenditures to range between $28 million and $30 million. This guidance does not include assumptions for any acquisitions that we may complete during the year.

That wraps up my comments for this quarter's call. Thanks for your time this morning, and now I'll turn the call back over to Bobby.

[Robert Frist, executive]

Thank you, Scotty. I'm going to highlight a few of the areas where we saw some success in each of our 3 primary application suites and talk a little bit about some advances in our [indiscernible] core plan technology, we call hStream as well. So our HealthStream Learning Center is the application. It's kind of a flagship product of our learning application set, and it continues to be strong in the market. But importantly, when the HealthStream Learning Center customers are up for renewal, we frequently see customers purchase multiple new solutions along with it when they renew.

And this is kind of an example of expanding wallet share kind of a way to think about that. And one of our academic medical center customers use their renewal of the HealthStream Learning Center as an opportunity to evaluate how HealthStream might help them serve their entire clinical workforce. And this may be an example of the tailwind I mentioned earlier, the customer already purchased various HealthStream solutions for different subsets of their population. And when it came time to renew, they concluded that by pairing that with the renewal with a purchase of HealthStream Competency suite. And that would benefit their entire clinical workforce adding on the competency suite to the learning center.

The competency suite is a comprehensive and cohesive bundle of applications and content used to develop the clinical staff. And in this case, they added that kind of that entire bundle. The customer also added our nurse residency program, which onboard newly graduated nurses, which is kind of an important kind of continuum of service from some of the work we're doing now in nursing schools. And so we saw them add the nurse residency program to the account as well. So the net result was the ARR, the recurring revenue for that customer grew by 31% or approximately $100,000 in the first quarter, making this a good example of expanding wallet share and kind of cross-selling products.

In this case, adding on clinical competency bundles and the nurse residency program upon renewal of their base learning center contract.

[indiscernible] With our SaaS scheduling solution, shifting gears now known as ShiftWizard is a best-in-class solution of its kind. And we think it will only become more valuable to customers as it begins to integrate with [indiscernible] through hStream technology platform. In the first quarter, revenues from ShiftWizard grew 26% over the prior year quarter as customers continue to report high customer [ satisfaction ] with the ShiftWizard application. We [ contracted ] several new customers during the quarter, which we're excited about. Welcome to [indiscernible] Medical Center, [ base state ] Health and Hutchison Regional [indiscernible] all new customers for ShiftWizard were excited to add you to our customer list.

Our credentialing solutions also enjoyed a successful start to the year, both in terms of competitive takeouts and conversions from our legacy solutions. And you're going to see an increased focus by our sales team on these conversions this year. We think it's really time now as we tell our customers at the start of the year, time to migrate. So if you're on our older legacy platforms of HealthLine and Morrisey, you'll be hearing from HealthStream that we think that CredentialStream is right for you and it's time to get under the migration process. So this best-in-class solution for enrolled [indiscernible] privileging physicians is really just a market -- in a market-leading position, we believe.

One thing you may not know about CredentialStream one of its differentiator [indiscernible] is we believe it's the first credentialing solution that really engages with the physician and the credentialing process. We think of it as much more user-centered software, and we think that's a good thing. We see increasing traffic by physicians logging in and taking control of the credentialing process individually and professionally. And so we're proud that our [ Asian ] [indiscernible] suite is kind of physician centered in many ways. And we think that's consistent with being the people platform of healthcare.

We want to make that as pain-free or [indiscernible] process as possible for physicians, and we laser-focus on the Net Promoter Score from physicians on that particular application. So you may not have known that one of our twist is that our credentialing system has a lot of tools that are easy to use by the physicians themselves to take control of the process. In the first quarter, we contracted 33,000 new subscribers for CredentialStream, which is an exciting add. And we've now exceeded over 1 million subscribers on the CredentialStream application suite, which is really exciting.

And we welcome new customers like Arkansas, Blue Cross Blue Shield, which is really exciting because it's slightly different kind of customer profile than our acute care hospitals, [indiscernible] Medical Center, [indiscernible] Health and Littleton Regional Healthcare all added the CredentialStream application suite to their processes, and we're excited to welcome them as customers.

In terms of our platform solutions, the momentum we're seeing with regard to customers using adoption of our APIs is paving the way for an exciting future for the company. As a reminder, we launched the [indiscernible] portal in the fourth quarter of 2022. So it's fairly new. I think of this developer portal as a window into the actual platform. So we've talked now about the 3 application suites, but the platform we call hStream is driven by a growing library of APIs that we make available under license to our customers, and some of them get access based on the fees they've already paid like if you use the HealthStream Learning Center, you get access to learning APIs.

But over time, we also think these APIs and their capabilities and data sets that are in the platform will themselves become monetizable assets. So we're excited about that. And the developer portal, kind of as a sign of life or the sign that the platform strategy is working. We saw a doubling of different measures of utilization of these platform-level capabilities. So the portal provides [indiscernible] modern, scalable, secure architecture with a growing collection of shared services, platform-level applications and APIs to connect to and among all of these different components.

At the end of the first quarter of 2024, 104 healthcare organizations have chosen to open an account on the developer portal, which is kind of how you get access to these APIs. And collectively, 237 of their developers have account level access to a growing library of APIs, most of them currently in the learning area to then integrate our technologies into their broader technology environment, for example, into their intranet and other applications they may build.

And for example, in the first quarter, Stanford Healthcare built an internal app that provides easy access to Epic course completions. And so here is an example, using the developer portal at APIs by Stanford Health, who have licensed access to these APIs because they're a customer of the broader hStream platform, and they are incorporating those into this new app that helps them deliver access to Epic course completion. So it's really exciting.

And there are plenty of other exciting examples, a New England Life [indiscernible] app to conveniently retrieve course and assignment progress, and they're also using APIs in the developer portal. So as these APIs get more and more utilized, we feel we get more threaded into the broader [indiscernible] platforms of our customers. So we think that demonstrates the value of our platform strategies increasingly and hopefully provides more value and utility to our customers. And we think, again, as the platform expands, there'll be more and more capabilities in the platform, more reasons to use it and more interoperable.

And the long-range vision, of course, monetizing these capabilities directly is also an exciting possibility. So I think as I think about concluding, I'd say, if you're interested in profitable recurring revenue, SaaS and increasingly a PaaS, Platform-as-a-Service healthcare technology company, that for 2024, we expect to deliver steady growth kind of down the middle of the fairway of our guidance, in fact, and we've determined to share some of our gains directly to shareholders in the form of a dividend, one which we increased last quarter, maybe [indiscernible] and a good stock for you if you're a new investor.

If you're a shareholder, we welcome you to participate in and know, remind you that our annual shareholder meeting is scheduled to take place virtually [indiscernible] May 30 at 2:00 p.m., and notifications of the meeting and access to the proxy statement, 10-K and shareholder letter were sent out on April 15. So if you're a shareholder, we encourage you to vote your shares and participate in the future of our company.

I'll now turn it back over to the operator to begin the questions.

[Operator]

[Operator Instructions]

And our first question comes from Matt Hewitt with Craig-Hallum.

[Matthew Hewitt, analyst]

Congratulations on the strong start to the year. Maybe the first question, it appears that the employment situation at your customers' hospitals healthcare systems is improving since last year. And as that occurs, how are you seeing that change the purchasing decisions? I think you spoke a little bit about how you're seeing your customers are paying more attention to their workforce today than maybe they did pre-pandemic. But are you seeing them even starting to implement HealthStream applications and solutions right at the beginning with the onboarding process. And are you seeing, I guess, a greater wallet share with those customers starting on day 1 versus upon renewals and downstream from that initial hire.

[Robert Frist, executive]

To think through all that, there's a lot of [indiscernible] trends in purchasing and patterns. I think one of them is we've done a little better job of bundling some of our products into suites now that can result in a little higher order value. And I mentioned that competency suite sale as an add-on earlier.

The competency suite is kind of an aggregation of 2 or 3 products that used to be sold individually, and now they're viewed as a more comprehensive tool set to develop the competencies of staff. And so we're learning to position things in a little better way that's more consistent with the tailwinds I mentioned. I definitely think the pandemic created a greater, as I mentioned earlier, greater awareness of the need to invest directly in your workforce and make their lives better and help them do their jobs better and skill them up for new job opportunities inside the organization.

So I think there is an earlier [indiscernible] awareness in the need for investing in workforce development. You can't just outsource your workforce. I think people are now willing to invest, hopefully, a little more in the workforce and make that more of a priority discussion in the C-suite. And then as far as moving upstream, I think, yes, on the call, we demonstrated our strategies for moving upstream are getting to the workforce before they become workforce. So the nursing school market, we're just -- it's very early, but we're excited about what that can mean for us as we can catch people earlier in their career.

And in fact, I think we did release a white paper study, a press release not too long ago that talked about the workforce's increasing need for mobility and to retain -- define and develop and retain the nurses and that they were willing to take jobs at the place where they had kind of [ intern ] [indiscernible] or done their rotations. And hospitals need more help in recruiting those preceptive students [indiscernible] and making them full-time employees. And we think HealthStream might be in a good position to help with that problem over time. Again, it's really early in early research, but a lot of the students doing clinical rotations [indiscernible] nurses at hospitals, we think are great hiring candidates down the road. So another way we're going upstream, as you mentioned. So yes, in all those ways, I just -- I think a little better attitude [indiscernible] investing and a little better bundling strategies for us in our deal pipeline.

[Matthew Hewitt, analyst]

That's really helpful. And then maybe a separate question regarding the opioid course. Obviously, it's nice to have a tailwind like that, a government-mandated tailwind. How quickly are hospitals expected to implement that type of a course? And what could that mean? Is it a driver for this year? Or could it add 1% or 2% to revenues this year? Just trying to think of how to kind of factor that in.

[Robert Frist, executive]

A couple of things here, and you pointed out rightly. This is a kind of a unique opportunity. So we don't want to get -- I mean it's exciting, right, we did $0.5 million in the quarter. So if we can find a way to keep that rate up. And remember, that's direct to professional sales. So we don't necessarily see any institutional [indiscernible] of that course or certainly not much. But the direct opportunity to get to a physician has a renewing license where this is a requirement, drove a $0.5 million in sales in the quarter. So yes, I think if we can keep it up, it's going to be a nice small contributor. But we also want to be careful to not overextrapolate our capabilities of selling direct individuals [indiscernible] is that I think it's kind of a good fortune that requirement and the curriculum we already had and our ability to market now of these channels and our new e-commerce tools set us up to do well in the first quarter.

But it is a kind of a onetime mandate. So we don't -- again, at some point in the next 24 months, everyone will have met the requirement or not. And it was a unique set of circumstances. So we don't want to overexcited about that. So we just want to -- that's why I keep saying the middle of the fairway, middle of the fairway. We had -- and we also had an anomalous bit of revenue in the onetime license, which we don't -- obviously, we don't focus on selling the enterprise license like we mentioned on ANSOS. But we did -- we're not going to -- the customer wants to expand their use of ANSOS. We're going to take that business and [indiscernible] we don't want to overengineer the forecast based on that onetime license, which I think Scotty called out at about, I think, it's $700,000 or $800,000, and so we, [indiscernible] again, middle of the fairway, middle of the fairway is what we keep saying.

[Operator]

Our next question comes from Jared Haase with William Blair & Company.

[Jared Haase, analyst]

This is Jared on for Ryan -- for Ryan Daniels. Bobby, you talked a little bit, I think, in the credentialing segment about a win with a payer, and I'm curious, I think that's relatively new. So just be curious to hear a little bit more as to how we should think about the opportunity with payer customers. And then specifically, it sounded like that was a [indiscernible] plan. So I'm wondering if you see an opportunity here to sort of further penetrate the network of [indiscernible] plans nationwide.

[Robert Frist, executive]

Well, okay. So first, we're excited you picked up on that. And yes, it's a new type of customer for us. We think that our CredentialStream application and the way we built it might give unique benefits to that market segment over time, the way that it's been engineered to work and create data mobility, sometimes health plans are owned by health systems and that might create some interoperability benefits that we see potentially in the future.

So yes, it's an example of one kind of exciting new development if you're in the sales team in that area. And we do think we have a unique set of capabilities in the app that could be beneficial to health plans. That said, health plans are hard to sell to. It's new for us. We got a lot of work cut out for us. But if you think in terms of 2 or 3 years, I'd love to see that become a thing for us where we can have a presence in that segment as well.

So again, hopefully, the way we built the application and its interoperability and potential data mobility will provide some benefits to health plans, particularly when they're owned by hospitals and health systems.

So -- and yes, that was the Blues, but we don't claim to have any particular expertise of selling the Blues, that's new for us again and required some new modeling, new selling approach. But we'll see where it goes. I think we've got a shot at making that an opportunity that repeats more than once.

[Jared Haase, analyst]

Got it. Yes, makes sense and look forward to hearing more over the coming years. Maybe another follow-up just from the prepared remarks, Bobby, I think you talked a little bit about enterprise purchasing collaboratives. And I know it sounds like it's not a material part of the business today, but I was hoping, number one, if you could maybe just contextualize sort of what portion of bookings or ARR growth comes through a collaborative purchasing today and maybe where you expect that to get to over the next few years? And then it also sounded like that's evolving with some additional capabilities. So I would love to just hear a little bit more about that as well.

[Robert Frist, executive]

Yes. So the collaborative purchasing process [indiscernible] for enterprise is kind of benefits them the most. It's a way for them to organize and orchestrate their purchasing of certain of our offerings. So if they've got a dozen different things they're looking at. It's a really organized kind of 90-day way for them to see all the products in the bundle, organize demand for it across multiple, say if they have 30 or 40 hospitals, they want to figure out how much they need at each facility based on the CNOs at those facilities.

So it's an engagement model we've used for a long time, but it used to historically be very manual kind of led by people and our -- since our consultative sales process. But we've formalized that into digital tools that gives the organization visibility on how demand is growing in each as orders are kind of indicated on a product that kind of aggregates orders. So at the enterprise level, they can see that.

At the end, there's a discounting model that lets [indiscernible] get a discount based on the volume commitment levels as they grow. So it almost gamifies the purchasing process and it's budget aligned. So they can do the whole process aligned with their budget purchasing cycle. So product class is, again, not widely deployed, but we've increasingly built digital tools to facilitate it. So for example, now, the pricing models are connected directly to our price book capabilities in [indiscernible] stores and our sales tool sets that we have. So now the collaborative software will present, as you commit to higher volumes in the purchase process, you can see the discount is occurring automatically because of the way it's connected digitally to the price booking mechanism that we hold in Salesforce.

So I hope someday that we can extend these capabilities more broadly and they'll continue to get better and better and easier to use and more budget aligned and more products in the collaboratives but it's been a part of our purchase process for years. It does several million in orders -- in aggregate orders, but a small portion of overall orders are achieved through the collaborative purchase process. But we love it because it's enterprise-level purchasing on an increasingly automated tool set powered by the hStream platform.

And at the other end of that spectrum, you mentioned new capabilities [indiscernible] we believe that there are kind of untapped budgets at the departmental level because sometimes they orchestrate at the enterprise level, but our commerce tools are also now being [indiscernible] and we hope to launch this year. The ability for kind of managers, let's say, I have a department budget of $3,000 that I can spend on education for my department.

We typically -- those are areas we didn't [indiscernible] our sales team would go to enterprise level. And so now we have these commerce tools that may allow kind of at the department level people to shop and buy things. So we'll see where that goes this year. That's currently kind of at 0. The tools have been built. We have seen them and demonstrated them, but we haven't really released them. So we're excited about that. And then far into the spectrum is direct to professional commerce. We talked about the DEA make course.

We can now kind of open a little mini learnings stores, if you will, like a single course available to doctors and we can say, check out this course to meet this federal reg, they click on it and they can buy that one course directly as a professional in our network, wants to have an hStream ID on the platform. So we saw $0.5 million in sales and that revenue was recognized immediately in the quarter, which is kind of fun.

Now consumer rather a tiny, tiny fraction of our overall company, direct to professional. But I just think -- I call it money while sleep, it might be fun to fill a lot of gaps each quarter with individuals buying to their individual development needs with their own credit card. And again, we didn't do a lot of that in our past. So it's just -- it's fun to think that millions of customers may ultimately not just be customers through the organization, the B2B purchasing, but maybe someday, a lot of mobile services directly. And we do have an example of that now this DEA make course. So again, we don't want to overengineer these things and get too excited about.

They're all good promising signs for the future. The enterprise-level purchasing. We're not doing department level purchasing, but we have new tools for it. Direct to professional commerce is nascent, but kind of fun and exciting to point out. And more than anything, it's the interoperability of all these things that we're excited about as the platform features and functions grow, expand and add these kind of capabilities we're talking about. Some of us have better commerce. Some of them let customers move a credential earned in one to a location and another application, follow people around individually with their data. So emerging capabilities give us excitement for the future.

Thank you for the question. I guess I get such a long answer, I scared off the Q&A queue, but we're still here if you have more questions.

[Operator]

Our next question comes from Richard Close with Canaccord Genuity.

[Richard Close, analyst]

Congratulations. Maybe a follow-up to Matt's first question. A good example there with the 31% increase in ARR with the academic medical center. I'm just curious, when you look at your book of business for the SaaS offerings, like what percentage of customers come up to -- come up for renewal on an annual basis? And then maybe putting that 31% into perspective, is -- are you seeing an acceleration, I guess, growth in that percentage increase in ARR versus 1 to 2 years ago? Maybe any insight or perspectives on that would be great.

[Robert Frist, executive]

I think overall growth rate will be much higher if that was more prevalent. I think we obviously gave an exception here, which is one that bundled. But our sales team, our account manager focused on this kind of account expansion. We do see [indiscernible] give and take. So if they had 4 products up for renewal, they were new 3 of them, maybe they used one less and they added 2 new ones. So that's what account managers do. We have about 60 account managers that focus on this cross-sell, upsell. And there are puts and calls to the whole process. Again, if they have 4 products for new 3, they say, well, we didn't use that one as much, but our account managers if they're really good, they do what this group did here and they add 2 or 3 new products.

The other thing that's shifting, Richard, and so I would say we give the best example. We don't want to overengineer. It's not happening on every renewal yet. But it's, of course, our model and our objective, that's what we want to do. The other thing that's happening is, and so a bit is that we're doing a better job bundling things like if you take the [indiscernible] as example. So the initial order value can be a little greater. And that's resulted in a little delay in the Q1 pipeline, but more bigger deals in the pipeline than we've ever seen.

And so for example, in the [indiscernible] there's a lot of content that we used to sell separately. The checklist tool is in there. Jane is in there. And so there's a way now that instead of a CNO making an upstream 4x by 4 separate products, they can evaluate making a real investment in their workforce to buy the suite. And so that's some repositioning in the [indiscernible]. And the effect is more bigger deals in the pipeline than we've seen, but also in Q1, a little delay purchasing in some areas as we made that shift. So I'm excited about kind of hopefully where Q2 takes us through this bundling strategy.

And hopefully, that grows that ARR that you're talking about. But obviously, overall, with our overall growth rate we're not seeing every renewal come up and grow by 31%. That's a case study that we want to emulate more than it is an example of a broad occurrence.

[Richard Close, analyst]

Okay. That's helpful. And then maybe on the decline in renewals ANSOS, I understand. Is there anything to be concerned with on the quality manager that seems to be something new? Just want to make sure I understand that.

[Robert Frist, executive]

Yes, the quality manager was from an acquisition years ago. It's focused on the skilled nursing market. And that market is under a lot of stress financially and kind of reengineering and working on defining their space better, I think. So slowed purchasing there, tighter budgets, the quality manager, again, not overall a huge part of our business, but it's enough where we don't like to see declines. And so we'll fight to continue to position that product. But it's predominantly sold the skilled nursing market. We're building a version that could be sold to hospitals, but that's a more competitive space. So I think just in general, we have dozens of products. This is one of the smaller ones that may be facing kind of a market level challenge. And we'll do what we can to fight through. But we did note it as a decline along with ANSOS, not a bigger [indiscernible] so not as bigger risk.

[Richard Close, analyst]

Okay. That's helpful. And then I'd welcome your perspectives. You just talked about the pipeline, some bigger deals in there, maybe a little bit longer to get across the finish line, but it doesn't sound like you're too concerned about that. I'm just curious with respect to Change Healthcare and everything that's going on with that over the last several months, have you seen any impact in your book of business in terms of potential new business or renewals, people pulling back just based on everything that's going on with the Change Healthcare? I'm just curious.

[Robert Frist, executive]

No. I don't know, Richard, if I've been able to relate to Change Healthcare to any purchase patterns. Again, we saw a little lighter purchase patterns in Q1 than we wanted. I think that's due to some of our rebundling strategies. Some -- we had a great fourth quarter. So we pulled a bunch of deals in the fourth quarter. We're rebuilding for the second quarter. So we've got some work to do there. But I haven't been able to relate that to any macro trends or something like a Change Healthcare kind of challenge that occurred for the whole industry. I see a little bit more duress in like the skilled nursing market, a few more acute care systems are known in the public to be under financial stress.

But also I think tailwind, so that's the headwinds are kind of some macro condition things for customers. The -- but the -- the opposite, in fact, is the workforce trends that we're seeing, the interest in the workforce. So the bundling and the bigger deals and the more bigger deals in the pipeline is exciting, but hopefully, it doesn't take too much longer to close them.

But I think that is maybe a more direct result of the interest in both how we're bundling our products and the interest in investing in the workforce, which is a direct shift, I think, in their attitude about the value of retention and developing versus maybe pre-COVID and I think they got so tired of staffing nurses filling a lot of their positions, they want to develop their own employees now. So I hope that plays out over the next few years is what we're hoping.

[Richard Close, analyst]

Okay. That's helpful and good to hear. And then maybe Scotty, with respect to sales and marketing, as we think about the second quarter through the rest of the year, is there anything to keep in mind in terms of maybe seasonality or events or anything like that with respect to the remaining quarters.

[Scott Roberts, executive]

Yes. I think Richard in marketing, in particular, we've set an expectation, we planned our budget to attend more in-person event. So we actually had 1 in the first quarter that was our own customer conference for credentialing customers called Thrive. That was the name of that event. We also plan to continue to do more events throughout the course of the year. I think some of those tend to be scatter across the quarters, but I don't know if there's a particular quarter where we'd see kind of an outsized presence necessarily that would impact the P&L materially, but there should be some continuation of events that we -- expect hiring -- you can expect us to continue to hire sales positions as needed. So that should feather in across the year. But again, probably not going to impact any particular quarter significantly.

[Richard Close, analyst]

Okay. That's helpful.

[Robert Frist, executive]

Richard, I'd like to just reinforce the couple of things. The quarter was obviously strong, but there are a couple onetime comparators that we just need to make sure that's why we keep saying middle of the fairway. We don't want to overengineer the result. The ANSOS onetime license was a onetime benefit. And also on a year-over-year basis, the restructuring last year, which we did, it's kind of also an expense change that we got some benefit from, but we didn't do another reorg. And so we just want to be excited about the quarter, and it's the total result, but we also want to be -- and we point out some of the things that could impact our future in a positive way. But right now, we're sticking to our range and kind of pushing people to think about the middle of the range is where we think we are.

[Richard Close, analyst]

Okay. That's very helpful...

[Robert Frist, executive]

For the full year and for each quarter. Yes. Just kind of really strong exceptional first quarter, even from a free cash flow standpoint. Typically, for example, another trend would be in the second quarter, our free cash flows are not as strong. I think Scotty can comment on maybe more, but that's a quarter where we pay out a lot more royalties and commissions are, I think, usually higher in the Q2 and Q4. So maybe a little comment on that, except Q1 on free cash flow as well.

[Scott Roberts, executive]

Yes. I think if you look back at last year, in particular, and you probably look at several years of trend, you'll see that Q1 and Q3 are typically our strongest free cash flow quarters with that Q2 and Q4 tending to tail off. I think even last year's second quarter, flat to negative. And so another consideration is just timing of federal income tax payments, state income tax payments tend to not be on a quarterly recurring basis. So you should expect some of that to pop in the second quarter as well, a similar trend that we saw last year.

[Operator]

Our next question comes from Constantine Davides with Citizens JMP.

[Constantine Davides, analyst]

I apologize if I missed this, but reporting a consolidated ARR has been something you talked about previously in terms of a new way for us to understand the business better with an expectation that we'd get something around midyear. Can you just provide us with your latest thoughts there? And if there might be other potential KPIs you're also considering?

[Robert Frist, executive]

Yes. I mean we're trying to chase down everything from return on invested capital. And when we looked out, there's 30 ways to talk about it. We're -- looking at internally, we use ARR at account management level -- at the account level, but not the company level. And so figuring out how to calculate and reliably do it, we would probably have to commit to a metric internally for a few quarters and see how it plays out before we release it publicly. So we're probably now looking at Q3 at the earliest for new metrics.

And so no Constantine, nothing new to report today, but we're working on it because we retired a metric we're working on finding other new metrics.

Scotty, do you want to comment any more on the things we're looking at, at least to give a hint about it. But I do think we're several quarters away because, again, we would have kind of more adopted internally run it for a few quarters and then figure out how to talk about it, get our definitions straight, that we would want to use. Of course, we have our own internal definition of free cash flow and things that we monitor. But nothing planned to release right now.

Scotty, any more details?

[Scott Roberts, executive]

Yes. I think ARR is one that we're -- obviously, we've looked at and used internally, as Bobby mentioned, on more on an account-by-account basis. But Constantine, some other retention metrics, we're considering whether or not those are worth sharing publicly. We've obviously been focused on those internally as well, but just trying to get to the point where we want to share those publicly. So net retention, in particular, is a possible metric as well.

[Constantine Davides, analyst]

Great. That's helpful. And then, Bobby, the 104 organizations you called out hitting the portal, I just want to be clear, they're not paying at all for that kind of access. So I guess what is the expectation on maybe starting to monetize that? And what do you need to do to commercialize that or support it. And how -- is that sort of a later this year event? Is it a next year event? Just wondering how to think about that opportunity.

[Robert Frist, executive]

Yes, sure. So a couple of things. First of all, effectively, they are paying for it, and here's how. When you buy an application like HealthStream Learning Center, you also buy a subscription to a hStream for learning. HStream for learning is a license in your agreement that gives you access to some of the APIs that comes with you, right, and you do pay for that hStream for learning subscription. So those 2 subscriptions together are what give you the access to several of the APIs as a customer.

So most of those 104 [indiscernible] that are utilizing the rights they've gained by paying for the hStream for Learning license, for example.

That said, we have had some examples, commercial success of individual licensing some of the data sets, and we have some proposals out to other customers to license the functionality of the platform directly. And I think we've given some examples, but the -- as we get more and more of our data sets like our privilege library, our regulatory compliance library that are content libraries, directly accessing them through the platform for a license fee, for example, where we've also given an example of looking up a license validity.

We currently give our customers access to that function and applications. But we have an example of a third-party licensing that function to check a license validity on an API basis only. And we had a health system that didn't buy an application from us, they just pay for checking license [indiscernible]. And so we have some limited examples of directly monetizing both the data and the functionality of the platform. But mostly, the 104 people and [indiscernible] new developers in the portal are there by the right they gain by paying for their hStream for learning license. And they're utilizing those APIs to thread our technology more into their technical environment [indiscernible] for example. So it is paid for in a way. In fact, it's part of -- if you say what's the value proposition of hStream, the platform, customer would say, "Oh, I get access to developer portal, and I get to use some of these APIs. A lot of them are being engineered in a way where they could be sold to noncustomers directly to APIs.

And that will be the learning journey. And I hope of examples monetizing directly in that way in each category of data and APIs by the end of the year.

[Constantine Davides, analyst]

Got it. If I could just squeeze one last one in here. Obviously, you guys are in a really good cash position, no debt. In terms of just M&A opportunities, I'm just curious, are you pretty committed at least in the near term to the 3 application suites you currently have? Or is there a possibility you even start to sort of expand upon that prior to having the unified platform sort of fully realized?

[Robert Frist, executive]

Yes. I think, Constantine, we are already focused on expanding the kind of the 3 areas, the 3 application suites, meaning within their own context. So if we find something that bolsters our learning capability, that would be something look at our credentialing, our scheduling, but not adding a fourth dimension. The only fourth dimension we have is the platform itself, we call hStream. So we want to get all 4 of those, the 3 application suites and the hStream platform working together really well.

And I think this is the year where we want all these ways to demonstrate that interoperability. We just talked about one, which is when you license the learning center and you get a license hStream for learning, you had access to the APIs. That's a good example of adding value to our network. And so our M&A strategy is adding to those areas that already exist more than creating new areas of business and focused on the interoperability is kind of a key word for this year. And also focused on the migration of legacy customers. So if you're on a legacy credentialing application that we acquired to say the [indiscernible] in the modern application we've been building and selling now with over 750 accounts on it.

So you'll see this year is more of us on conversions from legacy to [indiscernible], which unfortunately don't have a lot of revenue growth -- I mean they do grow revenue a little bit when we convert, but what they really do is get people solidly on the new application suite. So that's a focus this year. And then our M&A strategy, specifically asked about is to bolster existing areas. So incremental add-ons to existing areas more than expanding the model into new areas. Now if we get it all work in the next 18 months, then maybe I think the fourth operational dimension to the network would be exciting. But right now, M&A would be focused on areas that strengthen the current lines of business.

[Operator]

Our next question comes from Vincent Colicchio with Barrington Research.

[Vincent Colicchio, analyst]

Yes, Bobby. Another strong quarter for ShiftWizard. You added a few new clients. Curious if they were mostly -- I assume they're mostly mid-market clients. And if that's correct, when may you be prepared to move up to larger enterprise clients?

[Robert Frist, executive]

Well, we're working on that. I think you're right. I mean generally, that product is great. We have some good examples of big system that are using it, but I think in general, the successes are coming in the mid-market right now, and that's the focus of our sales team. So we continue to try to expand its capability and make it more relevant. We have ambition to integrate properties like NurseGrid, the app to the ShiftWizard application, which would extend its functionality. And so I think right now, though, for the next 6 to 9 months, maybe even for the full year, the remainder of this year, our focus is at middle market.

[Vincent Colicchio, analyst]

And one last one. Anything in the competitive market worth calling out since last quarter?

[Robert Frist, executive]

No, I don't think anything particular. I mean, everyone, including HealthStream is working on their AI strategies. So we see different approaches to that [indiscernible] our Jane technology continues to evolve, we're excited. We have some things in the pipeline to refresh our learning technology stack. We're really excited about in the second half of this year. So we're working on our competitive positioning there and our thought leadership and our application leadership in that area, which hasn't been revitalized in quite some time.

So that's a little sneak peek that we've got [indiscernible] coming in our learning business that we hope to catch the competitors with. So -- but in general, it is a very competitive landscape with lots of [indiscernible] startups and big established companies as well. And we're just fighting for our piece of that or more than our fair share.

[Operator]

Our next question comes from Stephanie Davis with Barclays.

[Stephanie Davis, analyst]

I'll try to keep it brief [indiscernible] length of the call. But you've been talking a little bit more about sunsetting activity and being more proactive on that in the prepared remarks. Is there first, any way to tease out what your growth would look like excluding the sunset impact, can get a cleaner number for your go forward? And as a follow-up, could you talk to us more about maybe the pushback you're getting and any sort of updates on the time line for the process?

[Robert Frist, executive]

Yes. I think we've determined early this year, like in January, that we need to focus in some areas like we're [indiscernible], so credentialing and scheduling and both have legacy platforms that the message to our existing customers is twofold. We're not sunsetting. So that word, we need to tone a little bit because we're still, of course, supporting and releasing enhances to some of those legacy platforms and communicating frequently with customers how to better optimize their use. So you did see, for example, expansion of ANSOS. [indiscernible] had 2 big wins in ANSOS. We were able to convert another big contract into a more healthy model financially.

And then we had the big ANSOS license expansion. So we are supporting those. We're just not actively out selling. The customer wants to expand useful sell but we're not sunsetting. We are changing the tone of our message, though, beginning in January at that conference that we mentioned earlier, we said now is the year to migrate to the SaaS application stacks. And so that's different than stay comfortable with where you are and wait for migration. Now we're actively promoting to customers that now is the year to migrate.

And so the tone of [indiscernible] the tone of HealthStream is that. And as I mentioned, that does tamp down growth a little bit because you're kind of switching from $1 set to another. There is a bit an uplift in the annual recurring revenue when you go [indiscernible] application from the maintenance models that they're under. So it's positive, but it's not nearly the same and say, acquiring a wholly new customer. So yes, that does have a little bit of a dampening effect on -- to have that as a focus, has a bit of a dampening effect on the top line.

But look, it's the healthiest thing to do and the right thing to do is to begin a more aggressive migration strategy from the older. And so but we're not doing that by actually sunsetting. We're doing that by encouraging and stating and giving examples of where migrations are successful. We're just better at it. We're better at the tools. So you talk about barriers. We have better data migration tool sets. We have better methodologies. We've learned a lot from the early migrations. And overall, our teams are doing a great job.

And so we're communicating. We have more confidence we could handle migrations now, too, because of all that I just mentioned. So great question. It does -- it makes top line growth look a little less stellar to make that a focus, but it is absolutely the right thing to do for a 24-month horizon. And again, we're better equipped technologically to facilitate those and the marketing message has changed. So thanks for the question, and I hope I got to the answer.

[Operator]

There are no further questions at this time. I'd like to turn the call back over to Bobby Frist for any closing remarks.

[Robert Frist, executive]

Thank you, everyone, and congrats to our employees. A lot of hard work going on to make all this happen. Look forward to reporting the next earnings call to everyone, and we'll see you on the next call. Thanks, everyone.

[Operator]

Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.