HealthStream - Earnings Call - Q1 2020

Transcript

Speaker 0

to the HealthStream First Quarter twenty twenty Earnings Conference Call. At this time, all participant lines are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Molly Ponder, Vice President, Investor Relations and Communications.

Thank you. Please go ahead, ma'am.

Speaker 1

Thank you, and good morning. Thank you for joining us today to discuss our first quarter twenty twenty results. Also on the conference call with me are Robert A. Frist, Jr, CEO and Chairman of HealthStream and Scotty Roberts, CFO and Senior Vice President. 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. So with that start, at this time, I'll turn the call over to Bobby Frist.

Speaker 2

Thank you, Molly. Good morning, and welcome to our first quarter twenty twenty earnings conference call. Normally, the team and I will be speaking to you from a conference room in our headquarters. Instead, we're out and about in our homes and and calling you from remote places. I hope that call facilitates well.

And the COVID the COVID pandemic has changed a great deal since our last earnings call, which is only ten weeks ago. Since that time, over 56,000 people in The US have died due to COVID nineteen, and the number continues to grow. If this trend holds, The US will soon reach over one million documented cases of COVID nineteen, many of which are health care workers themselves. As of April 14, the CDC said that between ten and twenty percent of all US coronavirus cases are among health care professionals. At HealthStream, we've never been more resolute in our mission to support The US health care workforce, the heroes, who are literally putting their lives at risk to provide care to others.

I wanna start this call by acknowledging and sincerely thanking the health care workers the world over for their attention to our needs and their selfless giving to take care of us all. Thank you. The impact of COVID nineteen has been widespread, rapidly evolving, and generally characterized by uncertainty. In an attempt to contain the spread of COVID nineteen, authorities have implemented measures that have resulted in quarantines, travel bans and restrictions, shelter in place orders, the promotion of social distancing, and limitations on business activity among other actions. These measures and the pandemic have caused a significant economic downturn in The US and globally.

Directly relevant to our business is the adverse impact the pandemic is having and will continue likely continue to have on the health care industry. Our business is focused on providing workforce and provider solutions to health care organizations along the continuum of care such that an adverse impact on health care organizations is likely to result in an adverse impact on our company. Though COVID nineteen did not have a significant impact on our first quarter financial results based on what we are now seeing, the COVID-nineteen pandemic will begin to negatively impact our financial results in the 2020. The extent, timing and duration of such impacts on our business remain uncertain and will depend, among other things, the length and severity of the COVID nineteen pandemic, especially with respect to its impact on health care organizations. Anyone watching the news knows that health organizations are being adversely affected on a number of levels, clinically, financially, and operationally.

Significant sources of revenue from services such as elective surgeries have ground to a near halt due to restrictive measures, including quarantine and self shelter in place orders. Orders. At the same time, the cost of providing emergency care to COVID nineteen patients has sharply increased. Unfortunately, it is unknown how long these conditions will persist or whether they will deteriorate. A week ago today, on April 21, Vectrus HealthCare reported that nine 39 hospitals had just received negative S and P rating, noting that they each had about one hundred days cash on hand or less.

No health care provider seems exempt as evidenced by a few examples of challenges reported by some of our larger customers. For example, Quorum Health, a HealthStream customer, which operates 23 hospitals in 13 states, announced on April 7 that it has filed chapter 11 bankruptcy protection. In its quarterly earnings release on April 21, citing the uncertainties associated with COVID-nineteen, HCA, another large HealthStream customer, announced that it will suspend its quarterly dividend program and was withdrawing its previously issued guidance for 2020. On the same day, Southlow Michigan based Beaumont Health, another HealthStream customer, which has 38,000 employees, announced that it will temporarily lay off 2,400 employees and permanently eliminate about 450 positions and cut executive pay due to financial effects from the coronavirus. Similar stories are being reported across many of our customers.

In light of these adverse developments experienced by health organizations, we are continuing to monitor the ability and willingness of our customers to pay for our solutions in a timely manner, implement solutions they have purchased from us, and renew existing or purchase new products or services from us. We monitor our cash position and credit exposure primarily measuring weekly cash receipts, customer requests to modify payment or contract terms, and bankruptcy notices. Since March, each of these areas has begun to show signs of slowing or deferral, but we are unable to quantify the future impacts of such negative indicators or know whether and to what extent they may increase over time. Any further deterioration in the collectability of our accounts receivable or the timing of payments for customers will adversely impact our financial results. In fact, customers are currently making requests for extensions of time to pay their bills without incurring penalties, and we are working with each one of these customers to assess their need and provide them with such as much flexibility as we reasonably can.

The timing of implementations is also relevant to our business because our software solutions do not result in revenue recognition or billings until they are implemented. To the extent our customers delay or fail to implement products they have previously purchased, our financial results will be adversely impacted. While customer implementation projects are continuing, several customers have delayed starts or have put implementation projects on hold that were already in progress, making it difficult to project the number of implementation delays that we will ultimately receive. For example, two large implementations of the Red Cross Resuscitation Suite program have been impacted. One has been put on hold, and the second has been partially delayed.

In terms of sales and renewals, both continue but at a slower pace and with uncertainty as to when customers and prospects will broadly return to pre COVID nineteen levels of buying decisions. This should come as no surprise given what our customers are dealing with during this time. In fact, many customers are not allowing sales representatives on-site until COVID nineteen can be better controlled. Our sales representatives and account managers remain active in a dialogue with our customers, but their primary focus over the past several weeks has shifted more towards maintaining relationships and providing support where we can. While we've been able to close deals across our solution sales teams, we are experiencing purchasing decisions being put on hold temporarily or deferred to later in the year.

Given the uncertainty surrounding the adverse impact that COVID nineteen is having on the health care industry and our business, we have taken certain expense management measures. These include indefinitely postponing and potentially foregoing increases to base salaries, including executive base salaries, limiting hiring hiring to critical positions, limiting the four zero one k match, the company's four zero one k match. And we've been negotiating with key vendors of ours to allow payment term extensions without penalty. We're continuing to monitor developments regarding the COVID nineteen pandemic and may undertake further expense management initiatives if we deem necessary. Despite COVID nineteen, business does continue.

So I want to provide updates with regard to the three business transitions that we introduced and discussed in previous calls. All three transitions are designed to move us toward being a higher margin, more profitable company in the coming years. Even though the impact of the pandemic is likely to extend these transitions longer than we had previously thought. First, we have transitioned our sales and marketing efforts from the legacy resuscitation products to our new resuscitation offering. As a reminder, the new Red Cross Resuscitation Suite program is comprised of BLS, ALS, and PALS competency development curricula, and we launched it in January 2019.

It brings an updated, highly adaptive competency based development solution to health care professionals. It offers certification to health care professionals successfully demonstrating proficiency of life saving resuscitation knowledge and skills. We announced at our last conference call, for the full year 2019, we had signed over 38,800,000 in contract order value for HealthStream's new resuscitation offerings. These new contracts are from a mix of over 3,000 of our hospitals and health care facilities, and they are from across the Continuum of Care, including new and transitioning customers. While our customers' focus has necessarily shifted in the last several weeks to responding to developments related to COVID nineteen and treated co treating COVID nineteen patients, we have continued to see some new sales.

Some given some customers' preference to proceed with training implementation, our team created an innovative studio where virtual instruction could be provided. Customers' feedback on our ability to accommodate their preference to stay on schedule using virtual training as a component of their implementation has been a positive development. In February, we announced the expansion of our resuscitation offerings with the STABLE program, a leading neonatal education solution. This highly respected program is now available online exclusively through HealthStream. We're encouraged to see buying activities activities and surrounding activities.

In fact, we hosted a webinar on April 7. We had over 813 attendees show up and 30 385 follow-up requests for information. We've already closed a handful of contracts shortly after the webinar. The addition of the STABLE program further diversifies our product portfolio of simulation offerings. Second transition involves the adoption of and migration of our new VerityStream platform.

In the 2018, we announced the launch of VerityStream, our new platform for managing credentialing and privileging in health organizations. During the 2020, over 20 new customer accounts were contracted for the VerityStream platform, bringing bringing our cumulative total to over 220. These 220 customers represent a mix of new customers and existing customers who chose to migrate from our legacy credentialing and privileging platforms to the new VerityStream platform. Sales of the VerityStream platform were exceptionally strong during the 2019, but below our expectation for the first quarter. Additionally, the sales success realized in the 2019 created an implementation backlog resulting in longer implementation cycles for our customers and time to revenue for VerityStream.

To address the backlog and accelerate the implementation cycle, we have hired additional staff. These two factors, lower new sales and slower implementation, even without factoring the impact of COVID nineteen, will likely result in lower revenues and operating income than we anticipated for the Provider Solutions segment for this year. The third transition involves our customers upgrading to the hStream platform, which is the essential technology working behind the scenes that powers all activity in the HealthStream ecosystem. In the first quarter, we added approximately 240,000 hStream subscriptions, bringing our cumulative total to approximately 3,400,000 subscriptions, which is up from 3,150,000 contracted subscriptions at the end of the 2019 and up 85% since the 2019. I want to remind everyone that these three business transitions all represent multiyear journeys.

In fact, to provide perspective, last quarter, I said that we were about twelve months into a thirty six month journey. Given the unknowns associated with COVID nineteen, especially its duration, it's hard to predict with certainty how much time will be added to the journey. But at fifteen months in, I I can say we continue to make real progress on all three transitions. At the end of these journeys, we still expect a higher margin, more profitable company. We are fortunate to have entered the pandemic with a solid balance sheet, no debt, and a $50,000,000 credit facility that remains fully available to us.

Rather than being in a liquidity crisis, we believe that we are well positioned to continue allocating capital to invest in the future of company. For the time being, that means keeping our share repurchase authorization in place and maintaining capital investments in new and existing product development. Should circumstances deteriorate, we're prepared to curtail or discontinue one or both of these initiatives but do not believe it is in the best interest of shareholders or the company to do so at this time. At this time, Scotty Roberts will provide a more detailed discussion of the financial metrics for first quarter results, along further comments with how we view our financial outlook for 2020 given the COVID-nineteen pandemic. Scotty?

Speaker 3

Thank you, Bobby, and good morning. Today, I plan to cover our financial results for the first quarter and provide some additional thoughts about how the COVID-nineteen pandemic is impacting our business and financial outlook. Consistent with past quarters, the discussion of our results today will be for continuing operations only, and our comparisons will be against the prior year first quarter unless otherwise stated. Let's begin with an overview of our first quarter highlights. Revenues were down 6% or $3,600,000 to 61,600,000.0 Operating income was up 35% to $7,200,000 which was positively impacted by a $3,400,000 favorable contractual adjustment to cost of revenues.

Income from continuing operations was up 48% to $7,100,000 which was also positively impacted by $2,600,000 from the favorable adjustment to cost of revenues. EPS from continuing operations were $0.22 per diluted share compared to $0.15 per diluted share in the prior year. EPS was positively impacted by $08 per share from the favorable adjustment to cost of revenues. Our adjusted EBITDA from continuing operations was down 6% to $11,800,000 In the quarter, we completed the acquisition of NurseGrid on March 9. And on March 13, we announced the approval of a $30,000,000 share repurchase authorization.

Revenues from the Workforce Solutions segment totaled $49,800,000 for the first quarter and are down 8% compared to the prior year. This decline was primarily influenced by the expected reduction in the legacy resuscitation products, which decreased by 35% or $6,100,000 and were $11,200,000 this year compared to $17,300,000 in the prior year. Revenues from all other workforce products experienced modest growth of 4.5% over the prior year. Revenues from the provider solutions segment were 11,700,000.0 and grew by 8%. This growth came from professional services for client implementations and new VerityStream subscriptions.

Revenues from the recent acquisition of CredentialMyDoc, which was completed in in December 2019, were approximately 400,000 in the quarter. Margins increased to 66.9 compared to 58.8% in the prior year. Gross margins were positively impacted by a $3,400,000 favorable contractual adjustment to royalty expense resulting from the resolution of a mutual disagreement over various elements of the past partner contract. Excluding the impact of this favorable adjustment, gross margins would be 61.3% for the first quarter, an increase of two fifty basis points over last year. This improvement is primarily a result of the reduced revenues from the low margin legacy resuscitation products and revenue contributions from other higher margin products.

Operating expenses excluding cost of revenues were up 3% or $1,000,000 over the prior year and includes approximately $650,000 of expenses from the Credential MyDoc and NurseGrid acquisitions. Our investments over the past year in product development, capitalized software and our corporate office relocation, which occurred during the second quarter of last year, contributed to the increase in product development and depreciation and amortization compared to the prior year. Operating income improved by 35% to $7,200,000 and was positively impacted by the $3,400,000 favorable adjustment to cost of revenues, while adjusted EBITDA declined by 6% to $11,800,000 And as a point of clarification, the $3,400,000 favorable adjustment to cost of revenues is excluded from the calculation of adjusted EBITDA. While revenues experienced declines versus last year's first quarter, we were able to mostly overcome the lost revenues and margin associated with the $6,100,000 decline in the legacy resuscitation products. Now let's turn to the balance sheet and cash flows.

Our cash and investment balances ended the quarter at approximately $142,000,000 and working capital was approximately $98,000,000 During the quarter, we completed the acquisition of NurseGrid, utilizing $21,400,000 of cash to acquire the remaining equity in NurseGrid. We had previously acquired a 10% minority interest in NurseGrid during the 2019. As part of the accounting for the acquisition, we also recorded a $1,200,000 gain due to a change in the fair value of this minority investment. Cash flows from operations were 6,100,000 compared to $16,100,000 in the prior year. Lower cash collections and higher payments of royalties contributed to this reduction.

Q1 was our strongest quarter of collections last year. Cash collections were also strong in Q1 of this year, actually exceeding receipt levels during the 2019, but were lower than the bar we set in last year's first quarter. Our days sales outstanding for the first quarter were forty four days, which is favorable compared to fifty two days in the prior year first quarter, but is unfavorable compared to the thirty nine days in the 2019. Our capital expenditures incurred during the quarter were approximately $4,000,000 and were primarily comprised of software development and content. On March 13, we announced the authorization of a share repurchase program of up to 30,000,000 of our outstanding common stock.

Between the announcement date on March 13 through the present, we've acquired shares valued at approximately $10,000,000 pursuant to the program. Repurchase program will terminate on the earlier of 03/12/2021, or when the maximum dollar amount under the program has been expended. We may suspend or discontinue making purchases under the program at any time, and we plan to closely monitor factors such as market conditions, our liquidity, working capital and cash flow projections when making decisions regarding the program. Now I'll discuss our forward looking expectations, including the financial impact of COVID-nineteen on our business and how we are responding. As announced in our earnings release yesterday, we have decided to withdraw our previously issued financial guidance for 2020 due to the uncertainty and inability to reasonably quantify how the COVID-nineteen pandemic will impact our operations and financial results.

We entered 2020 with optimism regarding our plans and delivered a solid first quarter. We completed an acquisition, initiated a share repurchase program, began executing against our product development roadmaps and started filling open positions to support our growth initiatives. Over the past six weeks though, we've seen several emerging indicators affecting our operations, which could have an adverse impact on our business. Although our financial performance during the first quarter was strong with minimal impact from COVID-nineteen, we anticipate several headwinds for the remainder of the year, which will be strongly influenced by the impact the pandemic has on our customers. As Bobby mentioned earlier, our customers who are all health care organizations are not only focused on serving their communities faced with COVID nineteen infections, but they are also being faced with financial challenges resulting from lost revenues and higher operating costs.

Many health care providers have been unable to provide their full range of services and are losing revenue. For example, they are performing fewer elective medical procedures as a a result of quarantines and shelter in place mandates, and they are incurring higher operating costs on medical supplies such as PPE. Many are faced with decisions to reduce their operating expenses, reduce their workforce, or even close their facilities. Because our revenues and cash flows are directly impacted by the strength of our customers, to the extent they continue to experience these disruptions, it is likely to negatively impact our business. Because of these factors, we anticipate slower sales, especially in the second quarter, and we expect longer or delayed customer implementation cycles.

Several customers have already elected to defer or hold their implementations, which will result in delays in our revenue recognition and billings. Failure to achieve our sales goals or continuation or acceleration of implementation delays will have a negative impact on our revenues for the remainder of the year. We may also experience lower cash collections, higher credit losses, and fewer renewals. We've already begun to see slower customer payment patterns, and at least one multi facility hospital system recently filed for bankruptcy. We anticipate that some of customers will receive federal aid under the CARES Act, but we don't know if they will deploy those funds towards our solutions.

These factors, among others, make it difficult to estimate the impact that COVID nineteen will ultimately have on our operations, our financial performance, and our financial condition. On March 16, we required all of our employees to begin to begin working from home, and we restricted all business travel. We don't anticipate incurring any significant incremental cost to facilitate these employ our employees' work from home arrangements as nearly all of our employees already had the necessary equipment and resources to make this transition, and we had already virtualized the systems which we use to run our business. In anticipation of revenues and cash flows being negatively impacted from COVID-nineteen, we have already taken several actions to manage our expenditures. Our executive salary increases, which were approved by our Board of Directors in early March and would be effective May 1, have been placed on hold.

And annual merit increases to all to all other employees have been paused as well. We are reviewing all budgeted new positions and have deferred hiring most of them until we have more clarity on the future. We have rescheduled several customer conferences until 2021 and are cutting back on other nonessential business expenses. We believe the precautionary measures taken to date are prudent. We are prepared to take additional cost saving measures should the circumstances deteriorate further.

We believe we have adequate access to capital, which will provide sufficient liquidity to manage our business through this crisis over at least the next twelve months. We entered these challenging times with a strong balance sheet, including 142,000,000 of cash and investments and full access to a $50,000,000 line of credit facility, which remains untapped. As Bobby discussed earlier, based on the relative strength of our balance sheet and what we believe to be an iterative plan to responsibly manage expenses, we have several projects relating to the development of new products underway that we intend to continue. Additionally, we have decided not to suspend our share repurchase program at this time. We believe these initiatives remain in the long term best interest of shareholders and the company, though we will continue to evaluate them in connection with COVID-nineteen related developments and adjust them if necessary.

Thank you for your attention this morning. Now now turn the call back over to you, Bobby.

Speaker 2

Thank you, Scotty. I'd like to make a few closing remarks. First, I'd like everyone to know that we're focused on the safety and well-being of our 900 employees. We required our entire workforce across the country to begin working remotely from home as of 03/16/2020, and we continue to work remotely to date. We were particularly focused and we're particularly well positioned to have all employees work from home as approximately 30% of our employees worked remotely prior to COVID nineteen, and and the approximately 400 employees that work in our headquarters in Nashville worked remotely for almost a month last year when we were making the transition to our new corporate office.

So we've kinda had some practice in the remote work, and I've seen amazing productivity and camaraderie online. Our workforce has been truly amazing in the last several weeks.

Speaker 3

So

Speaker 2

we already had our technology and processes in place, and they were proven out. So we were confident that we were ready to just go virtual, and and we were able to very seamlessly virtualize our entire workforce. And and it's been, it's really been great to watch their effectiveness in getting things done. To support health care organizations and their employees on the frontline, we have made available a curated library of courses relevant to COVID nineteen free of charge to all, of our existing customers and all caregivers in support of their preparation to provide safe and effective care to COVID nineteen patients. The courses in this bundle include a wide range of relevant content topic like hand hygiene, ventilator safety, protecting yourself with personal protective equipment, contact and droplet transmission based precautions, things on controlling transmission of infection.

Those are just a few of the courses that we've curated in the library and provided free and easily available through our platform and made available in other mechanisms to even non customers. Our platform has seen record utilization on some of the days during the pandemic while performing consistently without disruptions. And so again, we've been able to operate seamlessly, through this period, serving customers and applications up as needed. Also announced earlier this month, HealthStream, in partnership with the state of Tennessee Office of the Governor, is providing its COVID nineteen Rapid Response Program, which includes training bundles and its workforce platform along with other workforce resources to support the state's efforts to rapidly train new, returning, and current caregivers who are all volunteering to work in the alternative health care facilities being set up across the state. So this program has been very exciting great receptivity by Governor Lee and was made available in a matter of days to the organizations as needed.

It's been really, again, amazing to watch our team respond and and provision these resources as needed. We've become a a key communication channel for lots of current information and news across our broad network of about 5,000,000 subscribers. One of the most consumed pieces of content is a is a rapidly updated, set of documents from the CDC that we post into our network as well along with the curated libraries that we provision. So you can tell we've turned a lot of our attention to just service right now, taking care of customers, working with them on their everything from their bill payment, to to, making sure they have the educational resources they need to fight, this pandemic. So in in addition, what we've seen is interesting in our network.

The free to the free resources that we provided made available, our customers are using our learning platform to deploy what we call self authored courses. And, what's really interesting to see is the trends we're seeing in our data. On January 9, for example, the first course with coronavirus in the title was taken by a radiologist at a hospital in Jackson, Wyoming. So it's just fascinating to see inside of our data. The very the most prescient organization was in Jackson, Wyoming that created a self authored course and started to distribute it to their staff in January on January 9.

Since that time, our customers have assigned over 1,100,000 courses with coronavirus or COVID nineteen in the title. Taken together with the approximately 300,000 enrollments of the free curated courses we provided, our customers have assigned over 1,400,000 courses to more than 760,000, unique learners across our network. It's gratifying to see our networks bring to action. In fact, some of our partners have also added their content to these free bundles as well. And, again, they're met with sometimes even emotional response in equipping people that may otherwise have never been in the situation of providing care to someone that is infected like this.

In March, we expanded our growing ecosystem of health care professionals through the acquisition of NurseGrid, a Portland, Oregon based technology company that is known for their NurseGrid mobile app. This app has a growing community of over 260,000 nurses as monthly active users, and it's the number one rated app for nurses in the Apple App Store with a 4.9 star rating and over 44,000 reviews. We believe that NurseGrid provides us an opportunity to further engage, support, and connect the community of nurses across The US. In fact, just about forty eight hours ago, we announced the results of an in app survey for over 15,000 nurses who have used NurseGrid responded about providing care during the pandemic. I personally think it's one of the most authoritative and current surveys of the nurse, opinions and thoughts and concerns, during the pandemic that that exists.

And you can see it on our website. Go to nursegrid.com, and you can see the just published results of that survey. What was amazing to me was that 15,000 nurses responded to these 10 questions in about three days. And, again, this is some of the most accurate and recently published data about nurse opinions as it relates to COVID-nineteen. It shows the power of our ecosystem and the power to collect quick opinions and publish them out in support of improving outcomes overall.

In the survey, seventy nine percent of nurses reported that one of their top three concerns was infecting family and friends with the coronavirus. And I think this being their top concern of all other concerns mentioned shows what a thoughtful group of people are serving us as their health care providers. About sixty four percent of nurses are experiencing a change in their work assignment due to the pandemic, and approximately eighty four percent of nurses still report shortages in n 95 masks. And so again, when we look into the activities in our ecosystem from the first course taken on coronavirus on January 9, this ability to instantly pulse survey 15,000 nurses of their concerns and opinions shows the power of our ecosystem in its efforts to support the health care organizations through this pandemic. As we continue to shelter in place and working remotely, HealthStream's employees are rising to the occasion as we battle against the pandemic.

I began this call by thanking health care workers. I'd like to end the call by thanking HealthStream employees for the great job they're doing. Thank you to all of our nearly 950 employees. As we wrap up this part of the conference call, I'd like to remind you that our Annual Shareholder Meeting, which will be held on Thursday, May 21, at 2PM Central Time, will be virtual this year as a result of the COVID-nineteen pandemic. I hope many of you will be able to participate in the meeting this year.

At this time, I'd like to turn it over to questions from the investor community.

Speaker 0

Our first question comes from Matt Hewitt with Craig Hallum Capital.

Speaker 4

Customers. And you've talked about some of the disruptions that they're facing, some of them even dealing with bankruptcy. And I'm curious, given well, I guess there's two questions here. Number one, a number of hospitals have been furloughing employees. And I'm curious, are they still on the roles as far as as you look at them from a customer perspective, are they if you're furloughed, are you still counted as being active user, and therefore, is the hospital charged?

And then the second piece to the question is, you know, I recall that and this goes back probably six, seven years ago, but I recall a situation where hospital customer of yours that was going through bankruptcy, they were still able to acquire your platform. And I'm curious under the current situation if those types of events are still happening where hospital budgets are definitely have been impacted, but are they still buying your products even even if at a lower level, but they're still buying? Thank you.

Speaker 2

Yeah. Sure. Thanks, Matt. And I think that was insightful the way you asked the question because, you know, our customers, if they do layoffs and and, I've seen a half dozen announcements of actual layoffs, clearly reduces their customer accounts. A a lot of our platforms are based on subscribers, and so we would expect them to want to, draw down the payment where they wouldn't pay for those that were gone.

The furloughed workers are still in the platform, but I can expect. And and although, again, this has happened in the last few weeks, you know, I imagine the health system will want to negotiate to if if those furloughed workers are not accessing the system to not pay for them. And so those are two examples where there's a direct correlation to the size of the workforce, whether they're actively working, whether we're actively billing. And while our contracts, in most cases, are subscription based and and more fixed, I think it would be wise to provide flexibility in how we bill them through these times and unwise, in fact, to bill for, say, furloughed employees or laid off employees, certainly. So you're right to draw this correlation of one of our concerns.

Now it's just been a few weeks here, so we haven't really seen that in the negotiation discussions yet, but we're we're expecting it. And, we want to be flexible to maintain healthy relationships with our customers. The second question is we are seeing some buying, which you know? So it hasn't completely stopped. It's it is lower than expected, but, you know, we've we've closed, you know, half dozen more Red Cross, solutions in the last month.

We've, we've signed up, as I mentioned, new contracts in the stable program, a few of them. I think it would be many, many more if it weren't for COVID-nineteen, but it's a really beautiful product and it's going to have a major impact, on neonatal care. We've seen, other forms of contracts being more creative. For example, a large health system that had partially adopted our platform wanted continuous access to our free COVID bundles. We actually signed a free access to our full platform for ninety days, but at the end of ninety days, they'll need to assess for their other tens of thousands of employees.

And at the end of that term, they'll have to decide whether they want to have continued access to our platform for all employees, not just a partial subscription. So there are some signs that we may get growth. And in that particular case, about a third of the workforce, which was in the tens of thousands, were using our platform under contract. And they and when they saw the free COVID bundles we provided, they said, look. We need to provide this out to tens of thousands more people immediately through the same platform.

And, and, again, they they did sign an agreement to have free use of the platform for the other two thirds of the workforce, and then, maybe that will convert into a full time contract. I can't I can't know that, but the but we were able to sign an agreement around around that program. So, you know, there there are so many conflicting signs. Right? Essential services are being purchased to regulatory, components.

Nonessential or elective things, as you can imagine, are completely on hold. Implementations are you know, they just can't go through software implementations right now. Don't know what you're seeing with your other vendors, but, they're asking for delays or or waiting. And and and it is mixed. We we have a few that they're taking advantage of our virtual implementation services, and and a few that are asking for deferrals in implementation.

As you know, our revenues are tied to successful activation of an account. We don't start billing when we sign a contract. We start billing when we implement in most cases. And so, delays in implementation will affect our revenue recognition. So I think you've called out a really important, relationship between our customers' health and how they're treating their employees furloughed or layoff.

The subscriptions that we sell are based on those counts potentially being negatively impacted. And and then the unknown of it all, how fast will furloughed workers come back on, How many will go through layoffs and then go rehiring? Now fundamentally, underneath all this, I believe that the health care services broadly will keep expanding. The shift to companies that are home care provided, There's gonna be more of that. Overall needs for health care are gonna go up.

Elective surgeries, this is my personal opinion, have been deferred. We'll come back online because, people that need those surgeries to walk better are gonna come back into the system. So I I think, you know, I think that and and the health system just has to survive. And so the government is providing specific financial support to hospitals and health care organizations to make sure that they remain viable and can service our population. So, while the nature of care delivery may change and the care settings may accelerate to more home care and other settings where, again, we have growth going on in those markets, Overall, eventually, this has to come back and normalize again.

Speaker 4

Understood. Thank you.

Speaker 0

Thank you. Our next question comes from Ryan Daniels with William Blair. Your line is open. Okay. Yeah.

Speaker 5

Good morning. This is Jared Haas in for Ryan. Thanks for the questions. I wanted to ask another question on the implementation actually. It sounds like you've seen maybe a few pockets here and there of customers that have relied on some of the virtual training services, virtual implementation services.

Speaker 2

I

Speaker 5

was just curious. Are there anything is there anything unique in those instances, or is that something that could conceivably be applied across, you know, all types of implementations for all customers? And then maybe as a quick follow-up, I'm just curious if there's anything that you've seen there that suggests maybe once things sort of normalize beyond COVID nineteen, is that something that could maybe persist as a more efficient way to conducting implementation either at a lower cost or maybe speed up the time to revenue, something like that?

Speaker 2

Yeah. That's great. Great questions and good insights, actually. Some services are this blended like, the the Red Cross solution has this blended nature to it where it has a physical component, these mannequin technologies and the Apple app that uploads the system to the cloud to our systems. And they're not just pure software implementations.

And and, historically, we've had a little bit more of a hands on sales effort to both demonstrate the product and implementation process to just kinda physically demonstrate components of that solution that that, again, is a subscription based but has a physical dimension to it as well as a software dimension. And so the virtual implementation of those, it's been fascinating. And I think it it could result in kind of a new set of options and and over time favoring these virtual support mechanisms. It still has a tangible product dimension to it. So I think it it it is important to get that sales team back out in the field when they're able to to demonstrate the differences and the capabilities.

But, that that said, I think you're you're right. There there'll be customers that will grow to favor this form of implementation. Now elective implementations, say the VerityStream platform, where you have a working, credentialing and privileging platform, you, have selected hours, even contracted for it because it's superior. And and and, you know, now is not gonna be the time to undertake a switch, You know, even though you contracted for it in our platform in in the view of the customer is superior, you know, have eventually, more benefits to you to do it. Whether it's in person or, remote, it's likely that those kind of systems would be delayed because, you know, what they have may be functional even though what they bought from us may be superior.

And so, you know, we're refining our implementation methodologies there on systems like that that are pure software deploys. And and I think I think you're right. I think we may see some favoritism come up to these new, virtual models for deploying. We can certainly support them operationally. As as I've noted, our whole company, almost without a hitch over a 48 period, went completely office less and virtual.

And, fortunately, in the year prior, we had essentially been homeless waiting for our new office space to be developed and had stress test every infrastructure system for a full month to make sure we were virtually able to service. And so, I think you're gonna see delays in implementation for selected products that they already know they favor because they just can't pay attention to them now. And in the long run, I think you're gonna see, on balance, a little bit of a shift to more virtual implementations for for lots of our product sets. I hope that it gave you enough color to see direction. I think you're accurate in in your assessment.

Speaker 5

Absolutely. Yeah. Very good color. Thank you.

Speaker 0

Thank you. Our next question comes from Richard Close with Canaccord Genuity. Your line is open.

Speaker 6

Yes. Thanks. Hope everyone is safe and healthy. With respect to, Bobby, you've obviously been running this company for a long time, been through some ups and downs. Obviously, the current situation, dealing with your customers specifically.

If you just take us back in terms of some of the downs, what have you guys seen in terms of customer attrition in the past? You know, maybe if you can sort of give us some perspectives on that, whether it's the, you know, 02/2008, 2009 time frame or, the early two thousands, just some perspectives?

Speaker 2

Yeah. A couple of things about that, Richard. We definitely, have thought through a couple of things over our twenty eight year history, twenty nine year history. One was a long time ago, this is reaching back, over twenty years, We upgraded our core platforms, through a whole upgrade cycle and hit some capacity issues, and we were very small then. This is twenty years ago.

And we had to ask our customers for favors. Like, would they agree to some of our bigger customers, we had to say, would you not use our system on Thursday and Friday so others can have the capacity? And we built strong relationships through that period, and and our software struggled for, gosh, almost six months. But we eventually stabilized it. And, we the way we had managed our accounts, obviously, you can see the result of this twenty years ago.

We've we've grown quite a lot since then and didn't lose a lot of customers. We we went to a direct communication mode. We told them exactly what was happening and, learned a lot of lessons there about about periods when our own platforms and technologies were struggling. And, obviously, it results in grown from that period. In the two thousand eight financial kind of crisis and meltdown, we saw shift shifts in usage patterns and delays in purchasing.

But, ultimately, there were still financial benefits to moving to our platforms of of managing costs overall downward. Being the low cost provider on required federal training, for example, still was a competitive advantage. And so if they were doing classroom training, for example, they still needed to shift their training to online. And so we were able to grow through that period as well. I think we're gonna see a little of that here.

You know, we we believe a material part of the resuscitation market is still done in classrooms, believe it or not. You know, maybe as much as half of the market still doing their training in classrooms with instructors. You know, this could be the thing that pushes an inflection point in in continuing to move that kind of instruction online and and through mannequin and self certification and not instructor led. In fact, I I think we'll see that. Now in this time, we're not really willing to implement new technologies that may favor incumbencies, more so.

But, again, I think, overall, this will be an inflection point to shift even more to online training. And we're seeing that in our platform. We use hospitals use our system to manage classroom training as well. And and the registration on the classroom portions of our, you know, self self created classrooms and lectures, those registrations are are really dropping down, dramatically while we just talked about the nearly one point four minute assignments of online courses. So, then what do we do?

Our main lesson on this time, I think, is focus on customer need and flexibility to win hearts and minds. So all of our nearly 150 salespeople are really in an account management mode, calling up and asking what do you need and trying to get it to customers. Some customers are returning that with, you know, emotional responses and appreciation. And my thought is that that will result in stronger relationships with our customers over time and and turn more to us for broader solution sets over time. We're trying to do the right thing first and and and, you know, of course, protect the business.

You've heard some of the actions we've taken on expense management. But do the right thing first about our customers is my experience with the prior two crises spanning over 25. And it'll return ultimately, in growth. And so that's what we're doing, and we're doing it for all the right reasons, we're seeing great uptake. We're also learning the power of an ecosystem.

Our partners are responding with us. I think that's building relationships for them as they offer up some of their content and curriculum for free with us. You know, we're just meeting the needs, and we're gonna worry about the contract signings here a little bit later, a few months. And and and like I said, I gave that one example of a large health system that actually expanded their data feeds to us so that all of their employees have access to our platform for ninety days for free. And, you know, my hope is they'll end up appreciating the power of that platform and and turning it into a real relationship.

But if they don't, we will have also helped their short term needs and built a stronger relationship. The problem with all this is it's nonquantifiable, And, I've characterized the lessons learned from when once our platform struggled and once when there's financial and economic, near recession. And in both cases, the actions we took, we came out a stronger company on the back end. I do think, the great news for us is we're not in a liquidity crisis. We actually have capital, need to figure out how to deploy it.

But if we have to rightsize our operations to match what's happening in the market on the purchase decision, delayed implementations, you see we've taken some actions to do expense management to make sure that operationally, we're aligned with what's happening financially. But that doesn't, slow my desire to also be active making sure we're building new products. We have a couple new products throughout this year, and we're actually trying to accelerate capital investment in in those products, to come out with those. One of them actually deals with the social well-being of the workforce, which, probably never been a more relevant topic. Wish that product were ready now.

It's still probably mid year later. I hope that gives a little color, but a lot of lessons learned, and we're trying to react with those accordingly.

Speaker 6

Great, thanks. As a follow-up, I'm curious, you sort of dived into this with the new products, but I'm sure other organizations that deal with hospitals are probably struggling as well. As you think about M and A, obviously, you don't want to spend all your capital given the situation. But how are you thinking about where this might accelerate opportunities for you guys to broaden the platform?

Speaker 2

Yeah. That's really a great question. And, actually, it's a complicated answer because here's what I'd say. Our desire and ability remain active. We were in the middle of a very small deal, which we decided to not consummate because I wanted to get our you know, take sixty days and get our hands around everything, take some actions, as we mentioned, related to the raises and the other some other deferrals we've done to get to make sure we have good financial controls.

But our desire to, reengage, deploy capital is still in place. And in some ways, having a strong balance sheet, in troubled times could be a good time to think about investing. It's complicated because, you know, it's kinda like a ninety day pause for me, but realizing we have a strong balance sheet and seeing the balance of how things play out in the next ninety days on DSO and collections. We don't perceive, as I mentioned, any liquidity issues at our company. And in fact, we have a full line of credit that we didn't draw down on.

We have 142,000,000 in cash. So maybe in the second half of the year, there'll be a way to actively deploy that capital. But we do have a a short term pause on it, but an active interest and still intelligently deploying it. I think we need a little wait and see here on biz dev to make sure I'm right about all that. But and and we did enter the year with a very active pipeline, and we're maintaining that activity.

And we're telling people we need ninety days get our hands around things instead of, you know, moving towards negotiations, for example. So I hope that helps characterize it. I call it a an active desire to deploy capital, but a ninety day pause is probably the best way to describe it.

Speaker 6

Alright. Thank you.

Speaker 0

Thank you. Our next question comes from Vincent Colicchio with Barrington Research. Your line is open.

Speaker 7

Yeah. Bobby, I was wondering if you could give us some insights on how April has trended versus March, maybe the year ago period.

Speaker 2

Yeah. Vince, let me think about that. So some of the things we're seeing, I mentioned, shift in usage patterns of our platform, for example, is a good example. The shift away from classroom towards online is is is is is very apparent. We've seen in the last few weeks, so the April, more accounts obviously call us and ask to renegotiate their their implementation schedules or or some have asked for, and we have granted their ability to pay us later or slower.

And so those are new in the last three weeks, the April, where we have, you know, discrete negotiations with some, accounts that that help them facilitate slower payments or delayed implementations. And so, you know, not not much of that had happened in the March, but in the last three weeks of April, those are three shifts that we've kind of mentioned on the call here that occurred really, if you think about it, from about April 5 till today.

Speaker 7

Okay. And then you'd mentioned that one bankrupt client. Are there any others? And do you have any sense for what portion of revenue is associated with the bankrupt clients at this point?

Speaker 2

Yes. Unfortunately, a very large and very diverse and not over reliant on any number of accounts. We've begun tracking, our top 100 accounts for furloughs, layoffs, and, and bankruptcies. You know, even through bankruptcy, we're expecting them to continue operating and continue using our platforms, and, you know, may have some collection issues on on billed to that date. But in general, as as Scotty noticed, and even this is true even to the last week, we've had decent cash collections, in some ways surprising.

And so I don't know if these the delayed payments are gonna come later or not. And and so even some of those that that we would be concerned about paying have made reasonable and large payments against their our accounts receivable, their their accounts payable to us. So, you know, again, it's this mixed bag of of of the public disclosures we're seeing, furloughing and layoffs and what we're anticipating to be, potentially lower subscriber count at some accounts or request for deferred payments. And and I would say only a few of those have materialized in the first few weeks of April and we believe more to come. It's our inability to quantify those things that has resulted in us obviously having to pull guidance.

We just we just don't know.

Speaker 7

Thanks for answering my questions.

Speaker 2

Thank you, Vince.

Speaker 0

Thank you. And I'm currently showing no further questions at this time. I'd to turn the call back over to Robert Frist for closing remarks.

Speaker 2

Thank you to everyone. I hope everyone listening to call stays safe. I wanna thank our employees. Their work has been amazing. Not missing a beat through going fully virtual.

Just outstanding, outstanding work. The surge efforts to provide the state of Tennessee and all of our customers nationally with these free supporting resources have been amazing. The calls and coordination with the CDC and others to help distribute much of this information. The team at HealthStream has really rallied around our purpose, which is to improve the quality of health care by developing the people that deliver care, and we are busy, busy, busy doing that. I think that will eventually turn around and and result in business growth again and renewed optimism.

But for now, the right thing to do is to do the right thing, and that's what we're doing at HealthStream. And I appreciate everybody listening to the call. I look forward to the next update where hopefully we'll have a little more clarity than we do today. Thank you all.

Speaker 0

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.