Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the health catalysts Inc. first quarter 2020 earnings conference call.
This time, all participants are in listen only mode.
After the speaker presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one on your telephone.
Please be advised the todays conference is being recorded.
Require any further assistance please press star zero.
It is now my pleasure to introduce senior Vice President of Investor Relations.
Brown.
Good afternoon, and welcome to help catalyst earnings conference call for the first quarter of 2020, which ended on March 31st 2020.
My name is Adam Brown, I am a senior vice President of Investor Relations for health catalyst.
And with me on the call it Dan burden, our Chief Executive Officer, and Patrick Mally, Our Chief Financial Officer.
Hey, complete disclosure of our results can be found in our press release issued today.
While isn't our related form 8-K furnished to the FCC.
Both of which are available on the Investor Relations section of our website <unk> IR Dot health catalyst dotcom.
As a reminder, today's call is being recorded and a replay will be available following the conclusion of the call.
During the call we will make forward looking statements pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 regarding trends strategies the impact of the cold in 19 pandemic on our business and results of operation and our general anticipated performance of the business.
These forward looking statements are based on management's current views and expectations as of today it should not be relied upon as representing our views as of any subsequent date.
We disclaim any obligation to update any forward looking statements for outlook actual results may materially differ.
Please refer to that risk factors and our form 10-K for 2019.
With the FCC on February 28, 2020 cannot form 10-Q for the first quarter 20.8, which will be filed with the FCC.
We've also refer to certain non-GAAP financial measures to provide additional information for investors.
A reconciliation of these non-GAAP measures treat their most comparable GAAP measures is provided in our press release.
During the call we may offer incremental metrics to provide a greater insight into bad dynamics of our business.
These details maybe onetime in nature, and we may or may not provide updates in the future.
Lastly, I note that we'd ask for everyone's patience should be running to any technical difficulties given the unique circumstances of hosting this call.
With that let me turn the call over to Dan for his prepared remarks, and Patrick will subsequently provide his prepared remarks denim Patrick will then take your questions.
Dan.
Thank you Adam and thank you to everyone who has joined US this afternoon.
Let me first take this opportunity to share that our thoughts and prayers are with all those impacted by the cobot 19 pandemic.
Especially those who lost loved ones.
We recognize that there are certainly a series of unprecedented challenges associated with the global spread I've covered 19.
Yeah. We also see reason for optimism and hope for the future in general and specifically as it relates to the mission of help catalyst.
Our mission to be the catalyst for massive measurable date informed health care improvement is needed now more than ever.
And Cobot night team has shined a light on the benefits of a robust scalable flexible and open data and analytics infrastructure that when combined with the right expertise.
Can lead to extraordinary outcomes, even in the face of a rapidly evolving global endemic.
As a reminder, hope catalyst places our team members at the center of our flywheel.
With the believes that when team members feel connected to our mission at an extraordinary level.
They will produce outstanding work for our customers.
And holding true to that thesis I want to think our team members who remain committed during this covered 19 endemic to working tirelessly to support our customers many of which are risking their lives to provide care with the goal of ensuring that their courageous efforts or as effect.
With that data informed as possible.
And to date, we're both grateful and honored that our hero. It helps system customers have a trusted us so meaningfully to support them in this time of great need.
I'll begin today's call by sharing our first quarter 2020 financial results.
As a reminder, in connection with our recent convertible senior notes offering on April 820, 20, we pre announced our preliminary estimated financial results for Q1 2020.
I'm happy to announce your are finalized Q1, 2020 <unk> financial results.
And to reiterate that I am pleased with our performance across the board.
Our total revenue for Q1 2020 was 45.1 million.
This represents an outperformance relative to the midpoint of our guidance and results in 28% growth relative to the first quarter of 29 team.
Total adjusted gross margin in the first quarter was 49%.
And our Q1 2020, adjusted EBITDA was a loss of 6.0 million.
Which represents an outperformance relative to the midpoint of our guidance and shows an improvement from a loss of 6.7 million for the same period in the prior year.
I will now focus much of my commentary on our response to the Coca 19 pandemic, both in our support of our customers and the corresponding impact cover 19 is having on our business.
First I'd sure that as the Koby 19 crisis has progressed.
We've been heartened to see our customers leveraging our existing technology now more than ever and meaningful and significant ways as they respond to cover Nike.
The benefit of a cloud based open and flexible data platform means the customers can rapidly build their own ad hoc analytics.
With minimal development time.
It's architectural design, coupled with our data platforms self service tool has proven instrumental in enabling our customers to quickly make data informed decisions as this crisis has rapidly unfolded.
In addition to customers utilizing our existing technology.
We have worked to quickly developed and deployed a series of Cobot 19 specific technology and services solutions.
We began developing or first three cobot 19 solution.
In the early days of the pandemic.
Based on a meaningful increase in direct customer dialogue and feedback which has persisted throughout this pandemic.
And we brought these foundational solutions to market over the course of just a few weeks inline with the timeline needed to enable our customers preparedness during the rapid onset of the pandemic.
Our next round of insights was gathered through frequent additional discussions with health system customers directly informing our next wave of token 19 development, culminating in the release of 10 total technology and services solutions in less than two months.
Importantly.
In our effort to support all or existing customers in an expedited timeframe.
The technology associated with these coping they teen solutions.
Is offered to helped catalyst customers at no incremental cost.
Additionally, in response to request from health systems, who are not currently helped catalyst customers.
We have made available a modular bundle consisting of a light version of our data platform bundled with our patient safety application suite inclusive of the cobot 19 specific public helps surveillance module.
This offering can be installed in as little as a few weeks and the technology is also being made available to any U.S. health care system.
The only fees charged and twentytwenty, including our direct costs to recuperate cloud hosting another implementation fees.
The adoption of these cobot 19th specific solutions has occurred at a much faster pace than we initially anticipated.
Why is the customer successes, we've witnessed utilizing these solutions have reinforced the significant value of advanced capabilities and data analytics and expertise.
Especially in the face of such complexity and uncertainty.
And with that I will now share some of the highlights we have witnessed over the last several weeks as customers have meaningfully leveraged our solutions in their response to kind of an 18.
First I'd comment that usage of our data and analytics solutions has never been higher.
Of particular note, our population builder, leading wisely and patient safety analytics applications.
Crucial components of our Kobin 18 technology response has seen a significant increase to usage, averaging greater than 20% increases in just the past several weeks since the onset of pandemic.
I'd also sure that we have greater than 115 active implementation to covert related analytics at our customers each leveraging one or more of our cobot 19 solutions.
Next I'd call out that our cobot 19 patient and staff Cracker solution.
Which is proving mission critical for customers because of its capabilities track Workovers 19 positive patients have been within their health system, setting and the staff with which they interact it.
He is already one of the most utilized analytics accelerators in our company's 12 year history.
I'd also highlight that are coordinating capacity planning tool.
And epidemiological approach to capacity management based on modeling an outbreak in local communities and the subsequent impact of infection rates on the health care systems ability to respond in terms of beds ventilators staff and personal protective equipment has resulted in.
Hundreds of users attending our training webinars and thousands of visits in views of our web based tool.
Lastly, I'd sure that we're fortunate to have one of the largest national repositories of health data in the world.
With our Touchstone application.
Listen data from our data operating system, which contains greater than 80 million de identified patient records and tens of thousands of facts per patient.
This application leverages its vast repository of clinically rich de identified patient data to produce real world Cobot 19 insights related to surveillance testing.
So the planning and treatment response, and we are sharing those findings with customers health systems public health authorities and Biopharma organizations.
I'll conclude my comments on this topic by sharing with you a real World example of our support of one of our longstanding customers. During the Koby 19 crisis, leveraging a subset of the solutions that I just described.
As the cobot 18 pandemic increasingly impacted aspects of organizational functioning.
Leaders at one of our large regional health system customers realize that their data requirements and the critical metrics they needed to track where beyond what their electronic medical record could provide.
This organization quickly pivoted to our das platform to integrate data from numerous diverse source systems, producing an integrated view of data across more than five hospitals and hundreds of clinics spread across more than 45 different locations.
In less than a week. It then to put our cobot 19 dashboard technology powered by our leading wisely analytics application to transform data into timely information to guide management.
This tool has allowed hundreds of employees, including this helps systems, most senior leaders and incident command teams to track greater than 60 trending metrics associated with Kobin testing employee health outpatient and virtual volumes inpatient volumes negative press.
Sure rooms pp inventory.
Ventilator availability length of stay and more while also delivering the ability to quickly add new data based on emerging needs.
Moving on from our technology and services respond to cover that team.
Let me now spend some time discussing the current and prospective business impact of this health crisis.
First from an internal operations perspective, we are fortunate to have extensive work from home operations experience as greater than half of our staff were already remote team members before the pandemic.
Additionally.
As a result of our solution being cloud base.
All of our professional services can be delivered remotely.
And thus we have not experienced any professional services disruptions due to the shift to a remote only model.
Lastly from an internal operations perspective, I'd sure that in response to the Coca 19 crisis. We quickly developed an internal task force utilizing this team to enable a rapid consistent and centralized response across our customer base.
With respect to the forward looking financial impact of coordinating let me first share that we view the process of issuing guidance has a significant commitment to the public markets to provide our anticipated forward looking performance with a very high level of confidence and accuracy.
Okay.
And as we've demonstrated by our financial performance relative to our guidance since becoming a public company.
We take this commitment seriously.
Later in our prepared remarks, Patrick will share our Q2 2020 guidance.
The fluidity and uncertain time line of the Cobot 19 pandemic. However.
Precludes our ability to provide the precise magnitude of its impact on our full year 2020 financial results.
As such consistent with our 8-K issued on April 820, 20 in conjunction with our convertible debt offering.
We have determined that at this time it is necessary to continue to wait to provide full year 2020 financial guidance.
With that being said I will now aim to provide as much color on our forward looking financials as possible.
First we are fortunate to have a highly recurring revenue model in which greater than 90% of our revenue is recurring in nature and as such we entered twentytwenty with greater than 90% revenue visibility relative to our initial full year total revenue guidance.
This revenue model helps curtailed a potential negative impact of the Coca 19 pandemic on our 2020 total revenue.
As it relates to our existing customer relationships I'd first share that our dialogue with the vast majority of customers has increased meaningfully as a result at the Coca 19 crisis.
Next I would share that we benefit from a high level of technology revenue predictability.
Especially our all access das subscription customers that have built in contractual technology revenue escalators.
I'm pleased to report that since the onset of the Coca 19 pandemic our customers overall usage of our data platform has never been higher.
Hi, letting the significant value of data and analytics in responding to this crisis.
As discussed earlier, we have developed a number of technology solutions designed specifically to support health care providers during the coded 18 pandemic.
We believe these solutions coupled with our open data platform.
Should help us continue to drive high levels of customer retention and technology expansion.
As it relates to our professional services relationship with our existing customers. We have seen the vast majority of our customers choose to divert their contracted ft ease away from other improvement oriented projects and focus these resources on supporting their response to cover 19.
And in certain cases, we've even seen customers expand their professional services relationships with us as we augment their staff in support of.
Slide 19 preparedness.
That being said, we're also observing that many of our health care provider customers are being challenged financially as a result of the cobot 19 pandemic.
As their higher margin elective procedures have been delayed or canceled, particularly during March and April of this year.
In light of this we anticipate that we will likely see lower levels of professional services revenue growth in 2020.
Importantly, we intend to support our customers through the near term financial strain. They may experience as such there have been situations and there may be additional situations, where we proactively and temporarily provider professional services to customers at a discounted rate.
Resulting in lower revenue and gross margin.
We believe this long term.
Customer partnership oriented approach is deeply consistent with our mission.
Reinforces our commitment to customers and will enable us to maintain and expand these customer relationships overtime.
As it relates to beginning new das subscription customer relationships I am pleased to share that a number of late stage deals have continued to move through our pipeline.
Including adding multiple new das subscription customers, even during the cold the 19 crisis.
In particular I would highlight our recently announced long term partnership with the Carl Foundation.
Meaningful customer relationship that began last month.
This new Das subscription relationship includes help catalyst serving both the Carl health system.
And Carlos helped Alliance Health plan.
More broadly related to new das subscription customer relationships, we have observed that the cobot 19 crisis has forced the majority of U.S. health care providers to prioritize their response to this health care pandemic as there are number one priority.
In many instances we anticipate this will lead to these organizations realizing a high level of distraction from beginning new vendor relationships.
As we've shared previously the majority of our new customer sales typically occur in the second and fourth quarters aligned with health system budgets.
This fact pattern coupled with the uncertain timeline of the Cobot 18 crisis has contributed to our need for additional time and data before we can speak to our 2020 net new das subscription customer metric with a high level of precision.
I would share however that we do anticipate seeing some near term negative impact on new das subscription customer additions the extensive which is likely proportionate to the length of time that cobot 19 is the main focal point of prospective customers.
On the other hand, we believe our rapid development of extensive technology and services solutions designed specifically to support health care providers. During the cold in 18 pandemic may provide a partial offset enabling us to acquire some level of new customers during the coded 18 pandemic.
While it is challenging at this point in time to forecast new customer sales. Following the Kobin 18 pandemic, we would anticipate some sales processes may accelerate from their normal timeline as a result of pent up demand, while others are likely to simply you long.
Gate proportionate to the length of the covert 18 crisis.
Importantly, the impact on our 2020 and 2021 revenue growth rate will largely depend on the rate at which we are able to acquire new customers during and show up shortly following the cover 19 crisis.
Patrick will spend some time in his prepared remarks, articulating how new customers flow through our finances this year and next.
To help provide a modeling framework for potential 2020, and 2021 income statement impact.
Lastly on this topic I would share that we cannot think of any event in recent history.
That is galvanized the awareness and importance of data and analytics more than covered that team.
Not only at the health care provider level.
But also at the state and National Health care infrastructure level.
As such we believed that we have reached an inflection point in our health care delivery model, which is likely to serve as a medium to long term tailwind in the industry's adoption of data and analytics.
In terms of adjusted EBITDA.
We plan to partially offset any negative revenue impact through selective cost containment efforts, thereby curtailing the adjusted EBITDA impact.
Importantly in our response to the Cobot 19 crisis, we remain centrally committed to our team members ensuring they stay at the center of the help catalyst flywheel.
As such any cost containment efforts implemented will have a bias towards non head count related items.
Now, let me comment on our senior convertible debt offering completed in April 2020.
I am pleased to share that we successfully executed against an upsize convertible debt offering of 200 million.
Just another 30 million greenshoe with pricing at the favorable end of our marketing rage.
This offering strengthened our cash position by over 140 million.
After retiring or or been bad debt facility.
Resulting in a total of over 340 million in cash cash equivalents and short term investments on our balance sheet at the end of April.
As we've shared previously prior to this convertible debt raise we anticipated we had plenty of coverage to reach cash flow breakeven.
As such we view this capital raise.
As enhancing our ability to opportunistically pursue M&A activities, especially at the analytics applications player of our technology stack.
Given the challenging environment imposed by Kevin 18.
We believe that many of these applications companies.
We will struggle to fund raise.
This will likely present us with a number of favorable situations where acquisition targets will be eager for their team members to join the best place to work.
And we will be in a position to benefit from accretive technology solutions, offering and enhance the value proposition to our existing and prospective customers.
Before I turn the call over to Patrick I'd like to share that we have taken steps to appoint a new member to our board of directors.
The effective June 15, 2020, Mark Templeton will join our board.
By way of background Mark most recently served as the CEO of digital Ocean, a cloud infrastructure provider.
Prior to digital Ocean, Mark spent 20 years of his career at Citrix systems incorporated.
Serving for 14 years as its president and CEO.
During his tenure Mark led the vision for a software defined virtual workplace to enable new ways for business and people to work together from anywhere.
Under Mark's leadership Citrix grew into a global enterprise with annual revenues of more than 3 billion.
With 100 million users worldwide.
Merck's tremendous depth of experience growing an organization through both the innovation of an extensive product portfolio.
And dramatic global expansion will be a valuable addition to our board.
And I am certain his world class expertise in leading scalable growth will contribute meaningfully to the maturation of our company.
Marks board appointment fills an upcoming vacancy after promote Hawks current term expires at our stockholder meeting on June 12 2020.
I want to take this opportunity to share my sincere gratitude for promote and his more than seven years of impactful service on our board.
Without promotes countless contributions to our company over many years starting in its early stages I am confident that we would not be where we are today.
Now I'll turn the call over to Patrick who will review, our first quarter 2020 financial results and our outlook for Q2 2020.
Patrick.
Thank you Dan.
Before diving into our quarterly financial results I want to Echo Dan sentiment.
I'd say that I'm pleased with our first quarter results, especially in light of the macroeconomic backdrop.
For the first quarter 2020.
We generated 45.1 million in total revenue.
As Dan mentioned this represents an outperformance relative to the midpoint of our guidance.
Represents an increase of 28% year over year.
The outperformance relative to the midpoint of our guidance was driven primarily by new customers and expansion contracts signing earlier in the quarter than expected increasing the revenue we were able to recognize within the quarter.
And this organic year over year growth was driven primarily by recurring revenue from new customer additions from existing customers paying higher technology access fees.
As a result of contractual built and escalators.
And from existing customers expanding their services relationships with us.
Technology revenue was 24.7 million.
An increase of 23% compared to the same period last year.
And professional services revenue was 20.4 million.
An increase of 36% year over year.
For Q1 2020.
We achieved total adjusted gross margin of 48.9% a decrease of approximately 280 basis points year over year.
On the technology side, our adjusted gross margin was 68.7% an increase of approximately 210 basis points year over year.
This year over year increase was mainly driven by existing customers paying higher technology access fees from contractual built in escalators without the corresponding increase in hosting cost.
Partially offset by headwinds due to the continued cost associated with transitioning a portion of our customer base to third party cloud who sit data centers in Microsoft Azure.
And on the professional services side, our adjusted gross margin was 24.8%.
This represents a decrease of approximately 670 basis points year over year, and a decrease of roughly 800 basis points relative to Q4 2019.
As mentioned on our Q4 2019 earnings call. We anticipated that we will continue to see quarterly fluctuations depending on the mix of services provided and our hiring patterns.
And as we noted on our Q4 2019 earnings call in the first half 2020.
We anticipated that the mix of services provided coupled with annual how catalysts team member pay increases would likely result in lower adjusted professional services gross margins in that period.
I also like to take this opportunity to reiterate dans prior comments that in order to support our customers during the cold at 19 crisis, there have been and they continue to be selected near term situations, where we provide professional services at a discounted rate, resulting in lower professional services gross.
Margin.
In Q1 2020, adjusted operating expenses totaled 28.0 million.
As a percentage of revenue adjusted total operating expenses were 62%, which compares favorably to 71% in Q1 2019.
Adjusted EBITDA in Q1, 2020 was a loss of 6 million.
Which compares favorably to an adjusted EBITDA loss of 6.7 million in the first quarter 2019.
As Dan mentioned earlier, we're pleased to report that we outperformed the midpoint of our guidance.
This adjusted EBITDA performance was mainly driven by the revenue outperformance mentioned previously.
Our adjusted net loss per share in Q1, 2020 was 16 cents.
The weighted average number of shares used in calculating adjusted net loss per share in Q1 was 37.1 million shares.
Turning to the balance sheet, we ended the first quarter of 2020.
205 million of cash and short term investments.
Compared to 228 million at year end 2019.
As of March 30, Onest 2020.
We had 48.5 million in total debt.
As Dan mentioned previously.
On April 14, 2020, we completed our convertible senior notes offering a 230 million inclusive of the Greenshoe.
The convertible note includes a coupon rate of 2.5% and conversion premium of 27.5%.
Concurrent with this offering we purchased a capped call option effectively increasing the conversion price to $42 a share.
This offering allowed us to retire are more expensive organ bad debt facility, which carried at 10% interest rate.
Keeping our annual interest payments.
Certainly the same as what we previously been paying for over four and a half times as much principle.
County for transaction fee.
The purchase of a capped call and to pay off of our order bad debt facility.
Our balance sheet cash cash equivalents and short term investments are greater than 340 million as of the end of April.
I'd also mention that consistent with our 8-K filing on March Thirtyth.
We entered into long term lease agreement.
With an initial term of 11 years for new headquarters.
This new lease will provide us with increased space.
On a meaningfully lower price per square foot relative to our current office space.
Additionally.
It will be capital expenditures associated with the office space remodel it will be realized over the next year or so.
This capex will support our anticipated growth.
And use of this new space over the next decade.
Next I'll share our guidance for the second quarter 2020.
Our guidance for total revenue.
Between 40.8 million.
And 43.8 million.
And our guidance for adjusted EBITDA loss.
It's between 7.8 million.
And 5.8 million.
As Dan mentioned previously given the fluid nature, and still unfolding timeline and impact related to cobot 19.
At this time, we are not sharing full year 2020 guidance.
Additionally, we are not sharing a specific update on our anticipated performance on our key metrics of net new das subscription customers and dollar based retention.
In light of death, I wanted to spend some time articulating how our revenue model works relative to existing customer dollar based retention and new dots subscription customers cells in order to help provide the audience with a modeling framework for any 2020 and 2021.
Income statement impact, resulting from cobot 19.
First.
I will comment on existing customer dollar based retention.
As a reminder, we calculate our dollar based retention rate by starting with the some of the annual recurring revenue for a are.
From all customers as of the day 12 months prior to the period in.
We didn't calculate to some of the aerostar from those same customers as of the current period end.
Current period Aerostar includes any upsells and.
And also reflects contraction or attrition over the trailing 12 month, but excludes revenue from new customers added in the current period.
We then divide the current period aerostar either prior period air are to arrive at our dollar based retention rate.
Our dollar based retention excludes the disti, but importantly, it includes both technology and professional services Aerostar.
Our historical dollar based retention rates have been driven roughly half by technology not expansion.
Roughly half like professional services net expansion.
On the technology side, the majority of the net expansion occurs as a result, a built in contractual revenue escalators.
Given the contractual nature of this expansion.
Coupled with the increased usage of our technology during that cobot Nike crisis.
We would anticipate minimal impact on our technology dollar based retention in 2020 as a result of code at night team.
The professional services side expansion comes from Upselling, a customer additional recurring ft ease or outsourced services.
Given the outsell nature of this expansion coupled with a ban shared at our customers are experiencing a high level of distraction and financial strain.
We would expect to see a more meaningful impact from kind of 19 on our professional services net retention.
On the flip side, we have received heightened interest in our staff augmentation services, which may help offset some of the negative impact of Coca 19 on our professional services dollar based retention.
Next I'll comment on net new das subscription customers.
As a reminder, an average das subscription customer start out and a little more than 1.5 million of annual revenue.
Roughly 50% in technology revenue and 50% in professional services revenue.
Following the signing of a contract customers annual subscription revenue is recognized ratably over the next 12 months.
Renewing on an annual basis thereafter.
As an example, if we work to sign a new das subscription customer on June Thirtyth 2020, we would recognize approximately half of that customers first year annual revenue in 2020.
And the other half in 2021.
For a customer might sign on December 30, Onest 2020, we would recognize all of their first year annual revenue in 2021.
Given our SAP subscription model.
The negative impact on new customer sales in 2020 as a result of coded 19 has the potential to impact both our 2020 and 2021 revenue growth rates.
To Dan's earlier comments, our ability to maintain our 2020 and 2021 revenue growth is largely a function of two factors.
Number one our ability to sell new customer contracts through the cobot 19 crisis.
And number two our ability following the cobot 19 crisis to accelerate new customer sell processes.
From their normal timeline as a result of pent up demand as opposed to simply allowing them to elongate proportionate to the length of the cobot 19 crisis.
I'll conclude my prepared remarks by echoing Dan's comments that we're honored that our health system customers have trusted us to meaningfully support them in this time of great need.
And we take that responsibility extremely seriously.
Likewise, we believe this global pandemic highlights the significant need for data and analytics, both at the healthcare provider level.
And the state and national healthcare infrastructure level.
Dan.
Thanks, Patrick I'll conclude my commentary by thinking are committed and highly engaged team members.
Teammates and colleagues have worked tirelessly over the last several weeks.
In support of our hero UC health system customers in response to cover that team.
And I have never been more proud to be associated with these teammates as we together work to fulfill the company's mission.
A mission that is more relevant an important now than ever.
And with that let's open it up for questions.
Thank you.
As a reminder to ask a question you will lead to press star one on your telephone.
To withdraw your question press the pound key.
Please standby, while we compiled the Q1 a roster.
And our first question comes from the line of Robert Jones with Goldman Sachs.
Great Great. Good evening, thanks for the questions and certainly worth acknowledging the admirable work the companies out there doing.
Helping systems on the front line, Yeah, I guess, just maybe maybe Dan one clarification question. You mentioned I think was 116 active implementations for the covert 19 offering I just wanted to clarify that those are specific to sites related to all access current all access das clients and then the other side.
Yeah. Thank you Bob appreciate those questions. So on the first question.
Fortunately, we have made are coping 19 specific technology available to both are all access and or non all access customers free of charge with no incremental charged so we're providing that technology assistance and those technology solutions to all of our clients without.
Any incremental charge.
On the second question with regards to interest from prospective clients in the Kobe 19 specific lights solution that we have seen increased interest from a number of health systems, and we are discussing and and and having conversations with them about the potential of that lighter.
Costs version, coupled with patient safety public health <unk> surveillance covert 19 specific module and we do believe that is a a positive development as it relates to the new client activity that we see as we mentioned in our prepared remarks, we also see some challenging elements, which.
Regards to some of the conversations of perspective helped systems, where they've they've turned more of a singular focus towards covered 19 in their response and in some cases, that's resulted in in a seeing pause point in our conversations with them.
No. That's that's helpful and I guess, maybe just one could follow up on the professional services side you get you guys have been talking about you know the tradeoff between potential churn versus maybe retaining some of those.
Customers through discounting yeah, and he just kind of real time update on where you stand where where clients have opted to go as far as you know pausing they use a disservice versus you know continuing it at a discounted rate.
Yes, the vast vast majority of our clients.
Have expressed and we have accommodated their desire to keep.
Those professional services resources directly engaged in the covet 19 response, so that than the vast majority of the discussions and we've understood the financial strain that they're experiencing in the near term and have proactively in a number of cases been willing to offer some near term discount and that by far the majority of the.
Conversations and the the vast majority of the professional services revenue and gross margin impact that we're seeing in the in the near term.
Okay, great. Thanks, so much.
Thanks, Bob.
Thank you and our next question comes from the line of and Samuel J.P. Morgan.
Hi, guys. Congrats on a next quarter in a in a tough environment.
You spoke about professional services revenue stream, it's a bit more variable above here, how should we think about any cost assets that you might have to stop remedies impacted.
Thinks any for that for that question.
As we mentioned in the prepared remarks, we are trying to be a careful imprudent in the way that we're monitoring our total business and specific to professional services. As we mentioned we are pro actively trying to be a good long term partners to our customers and in a number of cases.
We've been willing to provide near term discounts, which obviously does have a gross margin and a cost impact we've made a few decisions in the near term in in the spirit of Prudence to try to enable some cost containment taught partially offset some of.
Our decisions. They're importantly, those have not included layoffs of team members. We've instead decided to keep that you know long term commitment a team members that's consistent with our values as a company and also that enables us to forward deployed those team members to continue to provide really meaningful support for covered 19.
We have made some steps as it relates to modest curtailing of benefits, but we were fortunate before that modest curtailing of benefits to have a very competitive benefits package.
And so we've made it a few modest changes we've slowed down our growth in terms of the number of new hires that we're making a and those who have put us in that position that we feel comfortable with it. This time, but will continue to monitor the situation in the weeks and months ahead.
That's really helpful. And then maybe one on you know Patrick you were talking about how you know any shifts in the pipeline really have more of an impact on 2021.
How do we think about you know maybe pent up demand is 15 and she said decisions are delayed as opposed to you know not made and how quickly would you be able to to recover and a situation like that if if the pipeline chef.
Yeah of course, so as we mentioned we do believe there will be a delay.
New dots subscription ads in the first half of this year.
We are working very hard.
To make sure there's a catch up in the second half of this year. We do believe we will be able to catch up some of those deals in the second half of the year. We do believe others could elongate into 2021. So we are actively monitoring our pipeline currently and will continue to over them.
Months ahead, and we should have a pretty good pulled space on that pipeline.
How those deals are progressing to close.
I might just add any that with regards to existing clients also in the first half per discussion about the professional services discounts that we're offering we we do expect our professional services a dollar bayes net retention to be to be lower.
Than it otherwise would have but importantly on the technology side, we've seen anticipate a minimal impact tordella based retention.
Both in the first happened throughout the year and as Patrick mentioned, we do see many meaningful opportunities in the second half of the year. We're we're hopeful to catch backup and the extent to which were able to catch backup in both of those dimensions on the new client side and with existing clients will will really determine the way.
This place out in in 2021.
Very helpful. Thanks to the color.
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Thank you.
The next question comes from the line of Ryan Daniels with William Blair.
Thanks.
The question I'm curious if you could talk a little bit about one of your products I noticed that it was a miss product.
So it sounds like you've completed.
Asset nicely so.
Potential case study.
And acquiring.
Customer base, especially given your comments about.
For capital.
Yes. Thank you for the question Ryan the able help acquisition is a very good example, at the apps layer of our opportunity, which we believe will present itself. Many times in the coming months and years to acquire a meaningful technology capability and accelerate.
Or ability to offer that expanded technology in this case within a one of the eight areas that we had already identified as important to our customers in the in the measure space and accelerate what we can offer to them to those existing customers. The majority of which have an all access technology subscription.
Which which further smooths or ability to to roll this new technology out in a meaningful way and we are already seeing a meaningful and fast integration of able help post.
Post close of that acquisition and are making that available and finding.
Meaningful.
Customer interest within our existing customer base.
Mm.
Focused on the corporate culture.
You could speak to a little bit.
Internal workforce.
Some of the uncertainties in the marketplace.
Just.
Thank you.
Yeah, absolutely Ryan So our first focus when we began the proactive response to covet 19 back in the in the mid March time frame was.
The first focus on our team members and as we discussed as a leadership team the best way to respond in this situation. We identified a few principles. We would follow one that we want to make sure that our team member stay safe throughout this experiences or early on we went to a modified policy of remote only and we closed.
Offices, we also felt that as part of following that principle, we needed to dramatically increase the communication the two way communication with our team members. So we doubled the number of all team member meetings. We went from every other week to every week, we doubled the number of manager one on ones being held and ensure that they were all video one on one.
We went from every other week one on ones to every week, one on ones and we as a leadership team received reports from all the managers within the company on a weekly basis as to how our team members were doing we also increased the written communication with our team members to a few times a week that I sent out an email update that we then follow up in her altogether.
Member discussions all of these things have have enabled us coupled with the fact that we were already very remote friendly and accustomed to remote work before the pandemic with over half of our team members working remotely.
Has really contributed to our ability to to keep the focus on our team members and that in turn has resulted in the rapid development of those 10 covered 19 solutions and incredible dedication to her clients in her in hundreds of our team members being right there side by side, although virtually side by side.
With our clients in helping them respond had done it.
If you so much.
Thanks Ryan.
Thank you and our next question comes from the line of Sean Whelan with Piper Sandler.
Thank you very much so I'm thinking pass this pandemic I guess I have two it's the only way I can stay sane, how do you see data platforms, such as your D.B. prioritize relative to other spending needs that hospitals are going to have as they opened backup.
And how do you think you're messaging changes as you go to market.
Yeah, I think you've you that question, Sean we do believe that this pandemic is a significant milestone event and that in the mid to long term there'll be a meaningful increase in appreciation for a digital infrastructure as a fundamental part of the ecosystem.
And the effective response to Pandemics and viruses like Kobe 19, and we're already seeing evidence of this not only at the individual health system level, but also at a state and a national level really we can't think of any event in recent history that has highlighted the value of data and analytics.
In in real time, the way that covered 19 has and so we do anticipate that helped systems that an individual local level as well as state and federal government and regulatory bodies will significantly prioritize improving.
What has often been a patchwork digital infrastructure. So that we can be much better prepared in the future in response to potentially a second wave of covert 19 as well as other similar situations in the future.
As far as adjusting messaging, a large part of it would be emphasizing core tenets of our message to date.
Including the need for an open flexible platform to support varying needs as they come up.
And providing data for public health surveillance needs both at the local health system level as well as the state and federal level.
One other node I would add is I think this pandemic has highlighted the value.
Of broad and deep data repositories, so our national data repository.
With regards to the Touchstone applications Sweet I think is very much.
Come into the four as it relates to us more deeply understanding as a nation, what is happening and being able to understand and analyzed the data and subsegment that.
Analysis of the data both in terms of the way that helped systems can understand it states and the national government could understand what has happened as well as how we can better prepare for the future, including development of therapeutics development of vaccines across the healthcare delivery ecosystem.
Thanks to its comments.
Thank you.
Question comes from the line of Mikes, new shell with Evercore.
Thanks to follow up on the potential and many opportunities you're you're talking about as it is there any specific categories that solutions, you're focused on and or or deal size or development stage that you'd be looking at.
Yeah. Thanks to that question, Mike So as we think about the emoney opportunity the greatest opportunity that we see is really at the apps layer, which is the middle layer of the three parts of our solution. The data platforms. It's below the out player and the services expertise sits above the apps where.
But at the apps there there are hundreds of companies that have developed specific use cases, where they can solve a particular problem that may help on the revenue side of the health systems P.N.L. It could help on the cost side or on the quality side from a clinical perspective.
And they're often very effective at solving that one use case.
Where they are challenged is the ability to be a really long term strategic partner across multiple use cases, and that's where we see a really natural fit with our platform oriented business model so at that apps layer.
We do believe that many of those startup companies may struggle to raise capital in this new environment and when we think about opportunities we group them into categories. One those companies that operate in one of the eight at category areas that we've already identified with our costs.
Drummers that are a value and be able to help acquisition is a great example of enhancing one of those eight categories around measures. There are other companies that would fit within one of those they'd categories.
We would prioritize to accelerate our product road map. The second category would be companies that are operating in in new categories at the App Slayer that we believe our customers would would appreciate our ability to provide solutions to them in that category and there are some definite at categories that we.
We will want to enter into in the future and and the name may be a way of accelerating our entry into those new categories and promote financial perspective, they range from relatively smaller toxins that would have fairly minimal revenue to companies with tens of millions.
Recurring revenue.
Got it managed to ask for more just geographically is there anything notable about your current customer base in terms of concentration and heirs with the most called the cases are states reopening the earliest store or anything to say about that like relative financial strength to the average health system.
Yes, we would share that one of the reasons why our data repository. We believe it's very interesting and helpful is that it it cuts across the entire geographical area and each region of the U.S. and so we've had clients that have been at the earlier stage with earlier.
Spot experiences like in the northwest.
We've had other clients who are have not yet reached the peak and part of the value of that that experience base is our ability to to help across that spectrum of experience to be really well prepared and learn from those who have gone earlier and have that inform our client interactions in discussions with.
Other clients that are yet to to reach the peak.
Yeah, I could I much.
Yeah.
Thank you.
In our next question comes from the line of Stephanie Davis was S.V.B. Leerink.
Hey, guys. Thank you for taking my question.
Now of course first question I have is kind of same in line with a lot of other folks.
In my view the horses left the barn in terms of hospital I mean for analytic and then showed the need for a lot of new cases don't be operation died.
So when you look at the World cuts pandemic, where are you expecting the Greens traction among our modules and you expect the H.R. shifting front line module to another as our priorities objected.
Yeah. Thank you for that question, Stephanie I would agree with your assessment that the horse has left the barn.
And I believe the first place that we will see increased demand will be at the data platform layer, where the pandemic has shine a light on the fact that homegrown data warehouse just doesn't have this the scale ability and the flexibility.
That you get from a commercial grade alternative like help catalyst data operating system.
So we we're already seeing meaningful evidence of of health systems understanding that that home grown alternative which is the most common competitor to that we face in the in the data platform space is just not going to cut it and instead of a patchwork kind of digital infrastructure they need a commercial grade data.
And it looks infrastructure that can quickly pulled data from many different sources to support many different analytics use cases, and we've seen hundreds of analytics use cases, just specific to the covert 19 pandemic response, all pulling from many different data sources. So the first increasing demand that we believe we will see.
In the mid term to long term is an increased appreciation that homegrown datapop from solution is not going to cut it in the future. Then secondly at the apps. There I think there are specific application sweet categories.
That are a very natural set of use cases that are are very important in the response of of covert 19 and other pandemics. So one example is our population builder application, where we've seen the highest usage in our company's history in response to cover 19, where you can pro.
Actively and flexibly build registries of covert 19 types of patients. Another example is our leading wisely visualization, it's a dash boarding capability that many of our clients are using at every level in the organization to understand 50, 60 70 different metrics as it relates to.
With the available through that patient safety application suite.
So taking what you've said and shifting the financials a bit.
You've got the toughest quarter of the year coming up for for hospitals, then attention during the pandemic the whole thing.
Is there any reason given this demand and everything going on that QQ would not represent the lowest level of growth for the year.
That's a good question.
I'll share a few text given you haven't given essence high School 20 guide I'm, just going to ask about it anyway [laughter].
We do absolutely think about Q2 in the first half of the year as our unique situation and a unique circumstance where.
We believe for example on the professional services side.
This is the time, where our health system clients are feeling the most pain financially as it relates to the response, where we have seen for example in the month of April in particular that most of our provider clients had.
Counsel.
Or postponed many of their elective procedures, which had a very material financial impact we're starting to see most of our health system clients reschedule and start ramping back up even in the month of May and so much of the conversation that we've had with regards to professional services discounts help those costs.
Lionsgate through this had been focus on Q2, although I will share that we do expect some Q3 impact to the professional services discounting that it might continue into some of the month of Q3, so that would be one important note, but on the on the demand side I would share that.
We do believe that the first half of the unique circumstance, both with regards to new client additions.
As well as the way in which we think about existing client expansion and we do expect and we are working hard to really rally as a company in the second half of the year and catch back up to the original forecasts both from the new client side and the existing client side, but this is a fluid situation.
And we're monitoring it carefully and we're keeping a long term focus with regard, especially to to our existing clients, but also in the tone and tenor of our prospective client relationships, who want to be true our values.
First and foremost and believe that will help us to be successful long term.
I think the Super helpful. Thank you Dan.
Thanks, Stephanie Stephanie.
Thank you.
Our next question comes from the line of Sandy Draper with Suntrust.
Thanks, very much for taking my questions.
And also that kind of my congratulations on good first quarter.
And.
And thanks for everything you're doing to help the hospitals out there.
So maybe to actually just a different way of asking maybe stefani's question.
Is it sounds like what you're talking about in terms of the net dollar retention retention are you going on the real question on the technology revenue side is what the growth rate and whatnot sequential trend would be but am I correct in assuming it doesnt sound like there is any reason that revenue would.
The down sequentially at any point throughout the year. It's just a question of what sequential growth rate is that fair way to think about it.
Yes, and also your thought or two and then Patrick. Please also share your perspective. So thank you for that question Sandy.
As we mentioned in her prepared remarks.
We would expect minimal impact from a dollar base net retention perspective of our technology revenue.
And that's inclusive of Q2 is inclusive of the first half and throughout the year, we've seen that our technology is being utilized now more than ever.
And we believe that will continue in the month and quarters ahead, and so we would expect very robust technology.
Dollar based net retention and therefore technology revenue growth now the one impact.
The watching carefully is.
One thing that we do expect is in the first half we will likely signed fewer.
Net new dust subscription clients, which does impact our revenue for for the year for example.
The extent to which we catch back up in the second half of the year and see an acceleration in buying decisions, which we do expect in some cases, but in other cases, we may just delay in the decision, making and some decisions that otherwise would have been made in 2020 might spill over into the first part of two.
2021, so we're monitoring that impact.
Thank you that yes, Sandia a good way to think about tech sequential revenue growth. This is driven by three factors. One is our technology dollar based retention rate, which as we've shared we would expect minimal impact from coven. The second is the number of the US customers, we add in a period dry.
Perhaps the subsequent quarters technology revenue growth and the third would be medicinally as we've shared we would expect me to see to be flat to declining on an annual basis over the longer on that can add a little bit of noise on a quarterly basis to our technology revenue growth since.
Disti as more heavily weighted towards technology revenue burst professional services. So those are the three primary drivers.
Okay great.
Answers were very very helpful. So I appreciate that.
My follow up question about my second question.
And you may not be ready to comment on it yet.
Any thoughts we want one of things you guys do which is obviously fantastic customers. It's a great opportunity for for us as analysts to come out and to the healthcare analytics summit.
But when we think about modeling it so it's a notable sales and marketing number in the third quarter have you guys made the decision yet one way or the other whether that is that happens or not and or it goes virtual.
Any thoughts there just because that is a notable expense line that may or may not be happening in the third quarter.
Yes. Thank you for that question Sandy It has been a very important event for the company and really we believe for the industry as its build as the healthcare analytics on that and we invite participants.
To to present, who are both help catalyst clients and non help catalyst clients, who are doing innovative things as it relates to data and analytics, we're still studying the situation, but we're leaning towards holding a virtual only summit this fall, which will likely have some cost impacts and we're already seeing.
Some other examples as you might expect of have lowered expenses related to sales and marketing travel expenses. For example that that we would expect to continue in the months ahead as well, but we havent made an official announcement there, but in the coming weeks will likely make an announcement and I think we're tending toward.
Towards a virtual only event.
Okay, great well looking for whether its virtual in person looking forward to having the opportunity to attend again. So thanks very much guys.
Thank you Sandy.
Thank you.
Our next question comes from the line of Richard close with Canaccord Genuity.
Great. Thanks, I appreciate everything you guys are doing maybe a follow up to Sean's question earlier on the long term and Tailwinds and as we think about the government.
Opportunity just curious.
What are your relationships there at this point.
Do you have any customer relationships are either on the state or federal level, just wanted to check there and then maybe whats the playbook for cultivating those opportunities as we go forward.
Yes. Thank you Richard so we.
Do have some small relationships from.
Okay from a perspective that are already in place and we do believe there are low mid to long term tailwinds associated with an increased appreciation for the fact that at the state international level. The digital infrastructure that exist today is very much a patch work and that had.
Has affected our initial response to the covenant team pandemic, we've already had the opportunity to engage in a few statewide national coalitions and activities like the Mitre coalition Thats being co lead.
By John Hello.
The main Mayo clinic, and others, we're we're participating and contributing.
Analytics and insights as well as that de identified data set that I mentioned earlier.
To assist in.
Providing insights as we.
Try to identify effective therapies and vaccines and other treatments for coated 19.
We're also pursuing other avenues, where we can build deeper relationships and we do believe there will be some meaningful opportunities for us.
To establish deepened relationships at the state in the National level I would also share that we are relatively early in that process and would expect that this will unfold overtime.
Take some time.
To to materially unfold for us as a company and the only item I would add is in addition from a strategy perspective to going directly to state and federal organizations. The fact that we have very close strategic relationships with large health systems, who are very important stakeholders in their regions.
Provides us with another avenue to.
Pursued a strategy and I would share that that that maybe the most likely near term activity that we will absolutely be involved with our health system clients and in helping them for example to showcase the ways in which they are effectively utilizing some of the stimulus dollars that they've received to help.
To build a more robust digital infrastructure for the future and there are some requirements associated with those stimulus dollars that many of these health systems are receiving and we're already working with our health system clients to demonstrate how projects like data platform and and.
Robust analytics infrastructure really showcase that better preparedness for the future.
And on the discounting.
I think Dan you had said earlier the duration of that might lead into the third quarter.
Correct me if I'm wrong. There just curious whether you guys can provide any guide posts maybe on the degree of the discounting.
In terms of just the magnitude of that.
Yes, I'll share a few thoughts and then Patrick feel free to share as well. So we are.
Trying to be great long term partners to our clients, which is consistent with our values and our mission as a company and as such we are sensitive to the fact that in the near term.
Particularly in the month of April and in the month of May and in the month of June our health system clients are facing.
Very significant financial challenges, mostly related to their canceling or delaying those elective procedures. We are seeing those start to ramp back up starting as early as this month in the month of May but the ramp up is with specific guidelines around social distancing and and require.
There's a slower ramp and as such we do believe that that.
Their recovery will.
We'll take longer than just through the month of June for example, and as a result, as we're having these discussions while many of them have centered around discounting that might last through the month of may or through the month of May and June there are some instances, where we're starting the discounting.
A little bit later.
But the duration is similar it with regards to maybe one month or two months or something in that regard, but when they are starting a little bit later that would then include the early part of Q3 and that discussion and we want to be sensitive to the fact that this is a fluid situation and we want to keep the focus on on.
A really good long term relationship with our clients, but in many cases, our clients are considering ways to reduce their own expenses by 10%.
15%, 20% and so we've tried to think about.
US being part of that solution as well in providing discounts that are that are similar to what their overall goals are.
Like discounts of 10, 15, 20% something in that regard for a finite period of time.
And also from a magnitude perspective, our Q2 guidance, obviously incorporates those professional services discount so comparing that to Q1 should give you a sense of the magnitude.
Okay. Thank you.
Thank you.
Next question comes from the lineup, Sean Dodge with RBC capital markets.
Hi, Thanks, good afternoon.
So maybe Dan on on the sensitivity around cost for your clients.
And going back to the technology revenue really Craig you said no expected impact the tech revenue this year aside from maybe some potential disruption in the sales process.
I guess thinking longer term do you still expect you only get the same price increases next year from existing das clients. Despite.
Maybe some organizations you alluded to struggling a bit this year or everyone just not being able to make the same headway on their initiatives as they expected so not ready to take on another stack of modules.
Or anything else, we should be thinking about there that longer term effecting dollar based attention right.
Yes, thanks for that question, Sean So as as you alluded to.
Our assessment based on the data that we can see right now is that.
We expect a very minimal impact as it relates to our our technology dollar based retention, both now and in the future and Thats driven.
Merely because we've never seen higher usage of our technology, the data platform layer and as well.
At multiple of the application suite layers I mentioned three of them earlier, the population builder application, leading wisely as an application and our patient safety application each have real depth as it relates to the koby 19 specific respond very very useful and and includes.
Given that effective response, as our library of analytics accelerators, as well with our patient and staff tracker accelerator already having become among the most widely used in the company's 12 year history. Just in the last two months and so that increased usage of our technology, we have seen in.
That dialogue with customers is that also never been more frequent.
It is showcased the value of that technology infrastructure in such a way that we would not expect.
On a negative impact on our technology dollar based retention either in the near term or in the mid to long term.
Okay Thats great. Thank you.
You bet.
Thank you.
I'll now turn the call back over to CEO, Dan burden for closing remarks.
Thank you and thank you all for your interest in help catalyst and for the questions that you have submitted we appreciate your ongoing interest in the company we're grateful again.
For the work that our clients are performing at a heroic level and we're honored to participate in supporting them and I want to thank all of our team members once again.
For their incredible efforts over the last several weeks in particular, and we look forward to keeping you apprised of our progress in the future. Thank you very much.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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