Q2 2020 HealthStream Inc Earnings Call
Just Spencer in listen only mode. After the speaker presentation will be a question answer session asking question during the session you'll need to press star one your telephone please be advised the today's conference is being recorded.
Require any further assistance. Please press star zero I would not like 10 the conference over to your Speaker today, Mollie Condra, Vice President Investor Relations and Communications. Please go ahead.
Thank you and good morning, Thank you for joining us today to discuss our second quarter 2020 result.
Also in the conference call with me or Robert A., Frist Junior CEO and chairman of Health stream, that's got to Robert 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 I feel stream that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward looking statements information concerning these risks and other factors that could cause results to differ mature.
We're really from those forward looking statements are contained in the company's filings with the FCC, including forms 10-K, 10-Q, and our earnings release.
With that starts at this time I'll turn it over to Bobby Frist.
Thank you Molly good morning, everyone and welcome to our second quarter 2020, <unk> earnings Conference call.
Last conference call on April 28, we stated that the number of confirmed Cobi 19 cases in the U.S. was projected to soon reached over 1 million.
And that actually happened the following day on April 29.
Since that time, the number has more than quadruple now exceeding 4 million a number of death in the U.S. is now approximately 150000.
CDC reports over 500 to those data from healthcare workers.
That helps train we've never been more resolute in our mission to support U.S. healthcare workforce. The heroes, who are literally putting their lives it rest to provide care to others.
To start this call the same way we started our last call like acknowledging and sincerely thinking help your workers the world over thank you.
Unfortunately, many of the ways, we characterize the pandemic in our April call continue to apply.
Impact covert 19 has done watch spread rapidly evolving a generally characterized by uncertainty.
It sounds to contain spread of Cowen 19 authorities have implemented measures that have resulted in corn teams travel bans in restrictions shelter in place orders motion of social dispensing and limitations on business activity among other actions.
How many cities and states have elected to gradually let some of these restrictions results have been discouraging summer has progressed with 40 for the 50 states currently experiencing increasing rates infection.
However, with record high levels of hospitalizations in Dutch these measures and the pandemic.
Hi.
Continued to cause significant economic downturn, you asked and globally.
Directly relevant to our business is the adverse impact dependent because having him will likely continue to have on the health care industry. Our business is focused on providing workforce in provider solutions to the health care organizations, along the continuum of care.
That's an adverse impact on the healthcare organizations is likely to result in an adverse impact on our company.
We do not believe that code 19 had a significant negative impact on our revenues during the first six months of 2020.
We expect it will in the remainder of this year and potentially next due to lower expected sales volumes as customers delayed or deferred buying decisions.
As you know multiyear subscription models, such as ours decreased sales volumes and a current period generally lead to negative revenue impact future periods and that is what we currently expect.
Merger, showing receptivity to ship from on site visits to virtual meetings and product demonstrations and there continues to be interesting or product offerings.
Sales will continue to be impacted well the budgets of health care organizations are impacted by cobot 19.
Extent and duration of this impact continues to depend on the extent duration of the tandem.
It all starts with our customers helps organizations, who are being adversely affected by code my team on number of wells.
Clinically financially and operationally for much of this year a significant sources of revenue from services, such as elective surgeries, well grounded to a near Hawk due to restrictive measures, including core teams and shelter in place waters.
Although many organizations are now, allowing some elective surgeries. The recent surge is jeopardizing any financial come back on July 1st The American Hospital Association reported that hospital financial losses for the full year 2020 net of cares acts funding are projected to be 323 billion losses from July 2020 through December 2020 are expected to grow.
So by minimum of 120.5 billion.
Adding to the 202.6 billion in losses from earlier this year.
The new losses are lost revenue due to declining volumes of both inpatient 19, and half percent average decline and outpatient services, 34.5% average decline as well as absorption and additional cost for PV and other kobin related operating expenses. Many hospitals reporting that did not think that they would recover to pre cobot 19 baseline bar Lev.
By the end 2020.
According to backers health care more than 260 hospitals health systems and furloughed workers in recent months dozens of others have implemented layoffs Becker's health care also reported on July nine said only 6007 or hostile jobs were added Jim after seeing a 161000.
Thousand jobs lost in April and May and of course, this is relevant to us because our products our subscription base, we have to watch these numbers closely.
One consequence of hospital production employees may prove to be fewer number of employees contracted with us and the renewal contracts they gradually come up for renewal.
Unfortunately, it is unknown, how long conditions associated with the pandemic will persist or whether they will deteriorate further.
Why did these adverse developments experienced by health care organizations are kept continuing to monitor the ability or willingness of our customers to pay car solutions in a timely manner implement solutions. They have purchased from us and renew existing or purchase new products or services from us. So all three of those dimensions of the things that we monitor essentially weekly across.
Our customer base.
Scott, who will speak cash collections and implementation delays during the CFO report, but I would like to go out and talk about sales and renewals both continue but at a slower pace and with the uncertainty as to when customers and prospects will broadly returned to pre coded levels of buying decision making.
This should come as no surprise, given what our customers are dealing with during this time.
In fact, many customers are not allowing are still not allowed sales representatives onsite until code 19 can be better controlled.
While we have been able to close deals across all of our solution sales teams. We are experiencing person decisions being put on hold temporarily or deferred to later in the year.
Given the uncertainty surrounding the adverse impact a couple of my team is having on the healthcare industry and our business. We shared with you. Our last conference call. We have taken certain expense management measures, which have had a positive impact on our financial results in the second quarter.
These actions include indefinitely, postponing potentially foregoing increase at the base salaries, including exactly the base salaries.
Limited hiring on critical positions limiting the company's fall on K match.
Requesting keep hundreds of hours to allow payment term extensions without penalty.
We're continuing to monitor developments regarding cobot 19 pandemic undertake further expense management initiatives, if we deem them necessary.
Despite coping 19 business continues it is important to note that our direction on strategy remain the same.
Pandemic and its consequences necessarily slow the rate at which we might proceed otherwise, we're making progress along the same business strategy.
Therefore, I want to provide an update with regard to the three business transitions that we introduced I discussed in previous calls all three transitions are designed to move us towards being a higher margin more profitable company in coming years, even though the impact you can't 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 infestation products to a new simulation suite of offerings and expanding suite as well.
As a reminder, the new Red Cross we're supposed to take the Sweet program has come buys a BLS payless and pals competency based development curricula, we launched them in January 2019.
Brings the curriculum brings an updated highly adopted competency based development solution to health care professionals at all for certification to health care professionals successfully demonstrating proficiency in lifesaving resets taste knowledge and skills.
Our customers focus has necessarily shifted in the last several months to responded developments related to cope with my team and treating code at 19 patients. We have continued to see some new sales in the second quarter. For example artist Health services sign for the Red Cross enterprise wide for the 30 hospitals and 180 clinics, we had organizations.
The continued care contract for these solutions as well, including the minimally invasive surgery, a ball, Hawaii and strategic behavioral health organizations.
Given some customers preference to proceed with training and implementation our team created Intubated studio were virtual instruction could be provided.
Customer feedback on our ability to accommodate their preference to stay on schedule using virtual training as a component of their implementation has been positive development, where they branded these experiences an average of 4.5 out of five.
February we now see expansion of our resuscitation offerings with the stable program, a leading neonatal education solution. It's highly respected program is now available online exclusively through Healthstream encouraged to see buying activity during the second quarter of this wonderful program.
Additionally, stable program further diversifies our portfolio of simulation offerings.
Second transition ballsy adoption and migration of our new Verity stream platform and the first quarter 2018, we announced the launch of Baird Eastern our new platform for managing Credentialing, and privileging and health care organizations. During the second quarter 2000, 2030 customer accounts for contracted but a verity stream platform.
Again, our cumulative totaled 258 these customers represent a mix of new customers and existing customers, who chose to migrate from our legacy Credentialing privileging platforms. The new Verity stream platform sales success realized in the last half of 2019 create an implementation backlog, resulting in longer implementation cycles for our customers.
And our time to revenue from Baird stream.
Some of the customers we contracted second quarter include bomb to core multi mercy health PCL and Phoenix children's hospitals to name a few.
Third transition involves our customers upgrading to the H. stream platform, which is the essential technology working behind the scenes the powers all activity Healthstream ecosystem.
In the second quarter, we added approximately 87000 net new age streams subscriptions, bringing our cumulative total to approximately 3.5 million subscriptions on to remind everyone that these three business transitions all represent multiyear journeys back to provide perspective last quarter I said, we're about 15.
Funds into a 36 month journey, given the unknown and associated covered 19, especially its duration.
It is hard to predict with certainty how much time, we added to the journey, but at 18 Bucks and I can say, we continue to make real progress on all three transitions at the end of the journeys, we still expect higher margin more profitable company.
In fact, and Scotty's report, let's see reflection again of improvement in gross margins.
Scotty tell you more about that.
We are fortunate to have entered the pandemic with a solid balance sheet no debt $50 million credit facility that remains fully available to us.
Rather than being in the liquidity crisis, we believe that we're well positioned to continue allocating capital to invest in future company.
Hi, being that means maintaining capital investments in product development and pursuing an active M&A strategy I believe last quarter. We said, we were pausing or M&A program briefly and so this is kind of the official re announcement that.
Well, we always maintain relations and evaluate opportunities, we're going to work to be more active again.
In a strategy.
At this time and our investment strategy.
This time, Scotty Roberts will provide a more detailed discussion of the financial metrics for second quarter results along.
Further comments with how we view our financial outlook for 2020, given the cobot 19 pandemic.
Thank you Bobby good morning to everyone listening in today I'll begin with the highlights of our second quarter financial results and then cover the cut that 19 impact further.
For the second quarter revenues were down, 5% or 3.2 million to 60.6 million.
Operating income was up 90% to 4.3 million.
Net income was up 43% to 3.4 million.
Our S was 11 cents per diluted share compared to seven cents per diluted share in the prior year.
And adjusted EBITDA was up 2% to 12 million.
Revenues from the workforce solutions segment totaled 48.9 million for the second quarter.
And our down 7% versus the prior year.
This decline was primarily influenced by the expected production in the legacy resuscitation products.
Which decreased about 31% for 4.8 million and were 10.7 million this year compared to 15.5 million in the prior year.
We anticipate revenues from these products will continue declining and will approximate eight and a half million in the third quarter.
6 million in the fourth quarter.
And then become zero thereafter.
Revenues from our other workforce products increased by 1.3 million and included a 1.8 million or 5% increase from our platform and content subscriptions.
But this was offset by decline of half a million and professional services.
Revenues from the provider solutions segment were 11.7 million and grew by 3% over the prior year.
This growth came primarily from the December 2019 acquisition of credential My dock.
Well revenue growth from the new Verity stream product contributed as well said on them, but on a smaller scale.
The implementation backlog, we mentioned last quarter and began to improve the contributions to revenue from the backlog, we're not significant this quarters.
Our gross margins improved to 62.1% compared to 58% in the prior year.
Which marks the third consecutive quarter that our gross margin has exceeded 60%.
This improvement is primarily a result at the reduced revenues from the low margin legacy resuscitation products.
In revenue contributions from other higher margin products.
Operating expenses, excluding cost of revenues were down 4% for $1.4 million from the prior here.
In the prior year did include.
Stock grants over 800 of our employees that was facilitated by our CEO and that resulted in a $2.2 million stock compensation charge.
We experienced lower operating expenses, resulting from cost control measures and precautions in response to Kevin 19.
So to asked travel restrictions creases to employee salaries and lower tradeshow expenses due to the event cancellations.
We estimate the impact of our cost control measures benefited the second quarter by approximately 1.7 million.
Offsetting these favorable expense items, though were approximately 1.1 million of expenses related to the credential my dock and nurse grid acquisitions, which were not present in the prior year.
These factors led to our operating income improving by 90% to $4.3 million and adjusted EBITDA, improving by 2% to $12 million.
The impact of the 2.2 million dollar stock compensation charge and the second quarter up 29 team had a more positive impact on the growth in operating income for the second quarter of 2020.
On the growth in EBITDA.
And cash flows.
Our cash and investment balances ended the quarter at approximately 144.5 million, which is up from 142 million last quarter and working capital was approximately 106.2 million.
Cash flows from operations were 13.5 million compared to 36.6 million in the prior year.
Our day sales outstanding were 47 days, which is the same as in the prior year, but rose from 44 days in the first quarter of 2020.
As we've been experiencing slower payments from customers as a result, its cobot 19.
While our cash balances increased by two and a half million during the quarter or cash was from operations were impacted by lower collections compared to the to last year.
Which is due to the decline in legacy recess station revenues and billings as well as lower new sales some implementation delays and slower payments caused by the financial strain that covered 19 is having on customers.
Our capital expenditures during the quarter were approximately 4.3 million and or 8.3 million year to date.
We remain strategic in our approach to capital deployment during these uncertain economic conditions.
We continue to seek opportunities for capital investments that align with our initiatives and business principles, such as new product development and enhancing or eight stream capabilities.
Last quarter, we announced the authorization for share repurchase program, that's up to $30 million our outstanding common stock.
To date, we have repurchased approximately 10 million pursuant to the program.
Repurchase program will terminate on the earlier of March 12, 2021 for when the maximum dollar amount under the program has been extended.
We make suspended or discontinued 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'd like to provide some details on how the 'cause. It 19 pandemic has impacted our financial results in operations, thus far and our outlook going forward.
As a reminder, we decided to withdraw our 2020 financial guidance last quarter.
Because of the uncertainty about the extent time, inc. and duration of the Kevin 19 pandemic may have on our operating and financial results.
We continue to believe the extent timing and duration of cut that nineteens negative impact on our operating results and financial condition.
We will be driven by many factors, including the linked and severity of because of 19 pandemic.
And the impact of the pandemic on economic activity, particularly with respect to health care organization.
As a result of the unpredictable and evolving environment related to the cause a 19 pandemic.
At this time, we cannot reasonably quantified the impact that dependent will happen or operating and financial results in 2020.
Due to this continued uncertainty we're not reissuing 2020 guidance at this time.
During the first quarter pandemic began causing unprecedented disruption across the country as infections were spreading in major cities schools and universities closed.
Unemployment rates rose with their highest level since the 19 thirties Stakes, we're implementing shelter in place orders and many companies began working from home.
Many health care providers were restricted from performing elective surgeries and procedures were experiencing rising costs and even fertilizing their employees.
Now for months later after attempts to lift shelter in place orders and re up and businesses.
Great of infection seems to be growing faster each day and many of these trends are not showing signs of improvement.
How many pharmaceutical companies are developing and testing vaccines and medications to treat this disease, the timelines for a possible vaccine and antiviral drug or other successful treatment, it's difficult to predict.
So meaningful progress is made on this front social and economic impact may continue the stagnate for deteriorate further.
As Bobby mentioned earlier, the projected financial losses in the hospital segment of health care.
Our projected to exceed 300 billion in 2020.
This negative outlook is likely to have a downstream effect on other segments of health care and service providers within the healthcare industry.
Through the second quarter impact of Cobot 19 did not have a material negative impact on our revenues operating income or EBITDA.
Although we don't anticipate this will continue to be the case.
Our subscription revenues are mostly generated from sales that occurred in prior periods and from renewals of existing contracts.
Was it the contractual nature of our subscription revenues, which are generally for multiyear contracts.
We have not experienced significant significant declines resulting from 'cause igniting.
Since March we've been monitoring the impact that 'cause. It 19 is having on our customers how it impacts our sales activities implementation and collections.
Well, we have been able to achieve new sales and renewals our bookings are lower compared to both the prior year and versus our sales targets for this year.
Because our customers are under financial strain.
Become more focused on managing their expenses, including reducing discretionary expenses rather than taking on additional spend.
In some cases, they have also reduced their workforce through layoffs or furloughs.
Additionally, since mid March our sales teams have not been able to travel and conduct onsite meetings with customers for attend trade shows.
Although they have been successful conducting virtual meetings and remain an active dialogue with customers.
As a result, we're seeing delays and purchase decisions of our products, especially for products our customers view this discretionary to them.
Also it to lay offs and furloughs made by our customers become permanent may experience declines and subscriptions and revenues upon renewal of their contracts.
Well, we have experienced a negative impact from implementation delays related to Kevin 19.
These delays have not been consistent across products or across customers.
Our provider solutions business segment has in some instances than more sensitive to implementation delays.
Our workforce solutions segment.
As a result of complexities associated with implementing certain of the solutions offered for through the provider solutions business segment.
As I mentioned earlier, our Dsos increased to 47 days this quarter and our cash flows from operations were down compared to the prior year <unk>.
For the reasons previously stated.
We have experienced slower collections, we did not experience any material bad debts or customer bankruptcies this quarter.
If our customers financial condition continues to deteriorate, we expect it will negatively impact our cash flows.
On the expense side last quarter, we began implementing expense control measures such as freezing salary increases to all employees, including executives.
We deferred hiring most of new budgeted positions.
Restricted employee travel and rescheduled trade shows and customer conferences.
As a result of these cost control measures our operating expenses for the quarter were favorable compared to prior year.
By approximately $1.7 million.
We view these cost reductions as short term benefits to our operating performance.
We expect at a minimum them to extend into the third quarter.
That could be even longer.
We're not sure if and when these expenses will return to normal run rate.
We also believe the cost control measures taken today are prudent and are prepared to take additional cost saving measures should the circumstances deteriorate further.
We think it's important to responsibly manage expenses and maintain adequate access to capital y. striking a balance to pursue investment opportunities for growth and innovation.
To support these objectives, we maintained a strong balance sheet, including 144.5 million of cash and investments.
And full access to $50 million line of credit facility, which remains on tapped.
We continued to make internal investments and have several new products in development that are moving forward.
We also continue to evaluate M&A opportunities and minority investments.
While we did not have much share repurchase activity in the quarter plan remains active.
We believe these initiatives remain in the long term best interest to shareholders and the company.
So we will continue to evaluate them in connection with cobot 19 related development and adjust them if necessary.
That concludes my comments for today, Thanks for your time and amount and I will now turn the call back over to body.
Thank you Scott I'd like to close up a few quick remarks here first I'd like less than one though.
They focused on the safety and well being about 900 employees, we required our entire workforce across the country to begin working remotely from home on March 16.
And we continue to work remotely today, our employees doing it really fantastic job working from home as operations are continuing smoothly. So I wanted to know a great sense of accomplishment in our employees.
Keeping our operations smooth.
Current.
Credit there aren't any abilities and commitment and the strong culture, we built it held stream.
An important validation of our culture is our constitution, which includes the values that we call our employees reflected in their work customers and each other one such value is our streaming good value our constitution stage as good corporate citizens, we strive to create a positive social impact on the communities, we serve including our own workplace environment. We believe every employee at the response.
Luke do not good works for others.
During the second quarter I believe our value streaming good was realized companywide and at least a couple of important areas first beginning in February of this year, our customers began using our proprietary technology platform, the author and deliver cobot 19 training and education courses to their staff is that began to prepare for the Coca 19 patients in March as we paid.
Actually reported we made available to all caregivers free of charge, a curated library proprietary content and to our customers.
The bundle cross training courses to further their staff preparation to develop safe and effective care to covert 19 patients to date there have been over 2.3 men courses completed across our platform, which includes the self authored code 19 courses and this free library resources, So really an outstanding impact by our organized.
Based on our efforts and some of our partners that contributed to these free resources.
We believe we're having a positive impact and then clearly one thing we see the individual health care workers are seeking to self educate beyond even what their organizations required as they enroll in east coast 19 courses.
Nurses comprise the largest number of those taking these courses and the area within a hospital highs utilization as the emergency room emergency departments thought you'd find that interesting.
Obviously, where the crisis is.
It's gratifying to see our customers use these solutions in this way and at this scale repair and mobilize the healthcare workforce.
Our midstream good has also been demonstrated with our strong commitment to social Justice and racial quality during the second quarter as everyone knows the pandemic was the only major helpline.
Headlines in the news events Park in the death of George Floyd include nationwide protest and renewed national dialogue on racing diversity, our employees credited group called stream forward.
That is actively developing new initiatives to further support our commitment diversity quality and inclusion to employees and all other communities that we serve.
We consider the nation's health care providers, our customers to be one of those communities well, we already have several of course offerings related the diversity and cultural competency. We're currently looking to add quality content. This important area for our customers.
We believe there's significant needs in this area, we look forward to sharing updates with you on our programs with this effort in mind.
Both of these developments related to our employee streaming good is made possible by the strong culture, we built.
I'd like to ask Mollie Condra to tell you a little bit more about that and share some news with you.
Thank you Bobby during the second quarter, Bobby Frist challenged employees and a virtual town Hall meeting to go to comparably Dot com and for brought a review of our company.
Comparably Dot com is a publicly facing side for employees break their companies.
Over 530 reviews were submitted which included over 11500 ratings.
I was pleased to see that we scored an eight and work culture, where donnie 70% of Healthstream employees called her work environment positive and 99% of them say they look forward to interacting with their team every day.
Last week comfortably dot com announced their national Best Places to work awards.
I'm pleased to tell you that Healthstream was recognized with two awards the top CEO for diversity, where Bobby Frist ranked number 22 out of the top 25, Ceos and top CEO for women, where he rank number 37 out of the top 50.
These awards were based on over 60000 companies employee responses.
Our employees will honor that our company CEO was recognized in this way.
As he was listen longtime many other Ceos from some of the nations largest companies, including companies like Amazon, Google, Microsoft and AWS and ATP.
So with that in mind, I'll turn it over to Bobby to close.
As we continue working remotely healthstreams employs a rise to the occasion as we battle against the pandemic I began this call by thanking healthcare workers and I'd like to end this call by thinking hellstrom employees for the great job, they're doing and supporting those healthcare workers on the front lawn. Thank you all at this time I'd like to turn it over to questions for the Investor community.
Thank you as a reminder is asking question you'll need to press star one on your telephone to try to question first upon Keith Please standby we compound kuni roster.
Our first question comes from Ryan Daniels with William Blair. You May proceed with your question.
Hey, good morning, a this is Jerry Haas and for Ryan. Thanks for the question just wanted to ask one about the H. treme subscription metric. So it looks like that was up sequentially from the first quarter, but maybe a slower rate than what we had seen in recent periods. So could you maybe just talk a little bit more about that.
The mix there should we just think about that more as just kind of slower new additions.
Clients in health systems are sort of balancing other priorities at the moment in the short run versus maybe churn related to lay offs and things like that already starting to flow through the platform.
Yeah, I think it's a little hard to discern the exact reason, but definitely a a lowering in velocity.
Migrations or say switching from the older platform to the new one is an element of it.
It would be some churn in the number as well since the net number.
But I think that's maybe less significant than.
You know, there's just a a group of variables all grouped together.
I don't know how to tease out difference in the cobot impact.
Which would be more forward looking then them than the migration. So what I would say that maybe implementations have slowed and there's some churn in the number as well.
That helps with those those are both variables are part of the number of sits in that number.
Yeah, absolutely no that is helpful. Thanks for that and then maybe just a quick follow up so just.
Obviously, you talked a little bit about the challenges that persist in the selling environment implementations and that sort of thing I was hoping maybe we could just dig into little bit just on the trend line that you saw over the balance of the corridor, maybe how things shaped up.
In the June timeframe, and how things have continued to progress in July maybe relative to where we were back in the March April timeframe. When all this kind of started.
Yeah. It is really it's interesting as Scotty mentioned that we're kind of were below our prior year sales velocity from a contract Watergate standpoint, also obviously below our targets for this year as we sit here at the midpoint of year.
We feel like along that is delayed decisions, meaning our sales team and we look at the absolute told absolute value of the pipelines the pipeline still looks strong the skill.
No. One has said we are absolutely not going to do this feels more like deferrals to me.
But you just you just you don't know all we do know is that were behind our goals and were behind last year.
But again when we assess the total pipeline it feels like the opportunities are still in the pipeline across broadly across our solution sets.
So it was an abundance of caution we were essentially re forecasting and projecting a negative impact on sales velocity through the remainder of the year.
In the last month for the quarter, we saw some some good signs as we mentioned Klein seem more willing to take virtual meetings are getting more accustomed to it virtual training on implementations.
We did see a catch up in the backlog and implementations for Verity stream.
And so we're we're seeing some positive signs also we announced the system level purchasing the Red Cross solution by art in health and.
We thought that was a good sign of vitality and so you know, it's very regional as well that's another comment worth noting.
We have a strong presence across all states in the country, particularly strong in Texas and Florida.
So one kind of concern now is that Texas, and Florida to the most impacted stage.
In the last a month and so trying to figure out if their operations will be consume now and we have spoken of some Ceos and senior officers action that someone our board that operate inside a big health systems and one thing that she is a little different in the last month than say.
Say three months ago.
Was there is a bit more time to prop after watching what's happened in the east north eastern parts of the country.
They're trying to maintain some sense of operating at Red line consistently while maintaining some elective surgeries and so it seems to me that no. One is fully shutting down the elective components of their health system at least not right now and I view that as a different dimension to the problem then.
I'd say 90 days ago, where the initial reaction to stop all elective surgeries. So as you can tell it's a mixed bag.
Impact, which results in uncertainty and the withholding guidance.
But we did see some signs of life enterprise level purchasing increased receptivity to virtual meetings.
And in pockets of the company in return to some purchasing in general.
And catch up on implementation backlog, so hope that helps characterize it we're trying to keep our pulse and our finger on the pulse very closely.
Scott you talked a little bit about cash collections.
And we feel pretty good about that although there again down from the prior year.
Yeah that is a that's very helpful. Thanks for all that color.
Yeah.
Thank you. Our next question comes from Matthew with Craig Hallum. You May proceed with your question.
Good morning, and thank you for taking the questions I guess I wanted to follow up a little bit on the ardent health.
Contracted it obviously.
The situation with Covidien, you talked about some of the challenges that you're facing get you were able to sign a pretty notable when.
Could you talk a little bit about the sales process, maybe what made this one unique and is that something that you could replicate with other hospitals and health systems.
Well, we're doing what we can highlight the benefits of this this new program. That's exciting we think it uses a so you know a superior learning methodology.
We're trying to make sure that it's a economically beneficial as well.
And so.
Organizations have budget in this area historically, because its while it's not a mandate illegal mandate do this kind of training it's become a best practice on standard to make sure that everyone has these skills and so.
We think we have a very innovative.
Comprehensive solution that is economically viable and that can be part of the variable decision as well.
And so for all of those reasons, where we still have as I mentioned, we still have good pipelines in lots of areas, our business that product being one of them.
Getting everyone to sign has a different thing.
Then get into reviews opportunity and then getting them implemented as yet another challenge given they could get slumped in operations.
I would not be implementing new systems, but.
Like you we were encouraged by that time, because it seemed to be right financial decision the right quality improvement decision.
And the right initiatives for their organization at this time.
Understood. Thanks, and then maybe one separate question you pointed out in the press release and then you did address it on the call here today.
The lower travel and conference related expenses.
Obviously, we don't know where the the virus is going to go from here, but as you look out maybe over the next six to 12 months.
Is it your expectation that those expenses will stay at this lower level and has it almost created if you will a new normal more even the ones for past the pandemic, where many of these types of situations.
Could end up being conference calls are being zoo meetings or what have you versus going back to that the the face to face.
Yeah I you know they are so first of all on the continuation I guess in this call. We provided some clarity that that that expected savings run rate of about a million seven from those specific containment measures. We took would persist at least into the third quarter.
Can't project much further beyond that because it some opportunity presents to travel again, we might season.
And the reason for that is that we have a very strong account executive management program.
And we're really working hard to become trusted advisers to the you know the the.
The organizations as they train and develop and retain their critical workforce and so that trusted advisor role. We think is often best played out in person and we'd like to see the ability someday for our people to travel again.
So we don't know the new normal I would say there is because of the rapid adoption of the virtual tools Theres a lot more familiarity and receptivity that type of meeting so I will imagine that as we enter next year. The new normal will will result in an increased utilization of those technologies in the sales process the relationship building process.
And you're right, we may not return fully to the travel.
Levels that we had in the past, but I would expect traveled to return hopefully you know if we get through some of the pandemic and get some vaccines out there people have a little more confidence and travel.
It is I have no ability to forecast or predict that I would you say through Q3, we expect to maintain our prohibition on travel and we'll we'll announce again soon thereafter about how we're handling Q4 in Q1 based on then current conditions.
It will bring new normal, though that will probably resulted in less travel.
Eventually wants travel begins again.
Okay, great. Thanks.
Thank you. Our next question comes from Richard close with Canaccord Genuity. You May proceed with your question.
Great. Thank you.
Congratulations on the recognition you mentioned that the end.
With respect to the gross margin obviously strong performance. There are I think you said three quarters above 60% I'm. Just curious if you can sort of break out maybe not specifically, but through some commentary how much you think that is from the ramped down of Blair.
Oh I'm a.
Versus maybe the other higher margin products that you mentioned.
And are these products are higher margin products.
Just mostly the new resuscitation products or any others you can talk about.
Yes, certainly the primary dynamic is the roll off and as you saw I think about a 4.9 million decline year over year quarter to quarter.
Of the legacy or substation products that are some of the lowest margin products in our portfolio. So clearly the loss of those revenues is going to change gross margin.
That said there are many initiatives.
Small and large that contribute to the blended improvements and we've talked about some of them.
Lot of them will manifest for longer time periods. For example, the Verity stream migrations eventually consolidate into one platform will definitely have a lower cost operate single platform than five platforms.
So.
We anticipate a as we've mentioned.
Hopefully a constant improvement.
You know may bounce around a little bit quarter to quarter, but kind of a steady profile improvement of our gross margin capabilities as an organization, but you're right to point out the prime or dynamic is both the new sales of the Red Cross suite, where we enjoy a little better margin and the.
Drop off of the legacy resuscitation products.
Okay.
And then with respect to renewals I guess based on the commentary that you really haven't seen a negative impact from co bid yet on on revenue.
So I'm I'm on bookings Theirselves.
As we think about renewals is there anything to note in terms of renewals.
You know in terms of the lay out as you go from first quarter, the fourth quarter. Our remote most renewals do you have a greater percentage of renewals that maybe come up in the second half and then one say renewal is signed and let's say they sign.
For a lower number of employees does that you know immediately go into effect or is there some sort of slower ramp down.
Yeah, if they were to renew and signed a new contract. It usually is at the end of term and so usually would result in a shift to the new economic conditions or whatever they would be so theres, a lower account to be lower census billing.
At that time from a renewal pattern standpoint.
Historically, I think we've articulated our contracts ranged between three and five years and that's a broad range, but its important though not a one to two year cycle, which I mean, roughly you know.
Third of our base would come up each year. It's relatively you know there are some bigger accounts a top 10 accounts factor that maybe sometimes they're lumped a couple in one period or we skip here with a light relatively light real top 10 customer, but in general there pretty well distributed if there was a slight waiting would be to the SEC.
And fourth quarters, where we tend to get slightly increased sales. So overtime has opened a slightly higher renewal period second and fourth periods.
But in general it's fairly well distributed book across large accounts and across time or maybe a slight modeling of of a higher renewal periods in the second and fourth quarter.
And then.
And so that's probably the best I'd characterize it's fairly well I mean, the network has broad enough that it's fairly well distributed we might have an anomaly where say two of our top.
10 customers comp in the same quarter every once in awhile, but you know that might be once every 24 months instead of a set of.
Heavily weighted to any given quarter period.
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And then just thoughts on the M&A I know I'm, a good amount of the M&A over the last.
Three four years or so of Ben on the providers solution side.
So you had the nurse nurse grid.
In workforce here recently, but does he think about M&A and re engaging as you mentioned.
Beginning now I guess this quarter.
From a pause is there a preference I mean is the provider solutions fully flushed out now so you'd be focusing more on.
Adding on the workforce or just any thoughts in and around.
Yes sure. It interesting now we're finding through the upstream infrastructure. There are lots of logical extensions to how we defined our ability impact of workforce engaged workforce retention workforce development of course, maintaining the credentials and privilege is a certain area of expansion as well so I think in general.
As we get more and more of our organization migrating the extreme platform. It opens up our definition of how to extend our model and logical.
Not tangential the logical business extensions and so.
You know I've heard is moving to one overtime one common infrastructure that allows us to extend where credentialing privileging was this the first logical extension and.
You know some of the themes of course, it needs to relate to the healthcare workforce needs are like their retention engagement development.
And management of them or their workflows. So.
We think there a lot of interesting ways to extend the model.
Right now for example in workforce our investments are focused on on content development investment in companies that bring us some content assets, where we can co owned to help improve our margins we've mentioned on prior calls.
In fact, we did make a small minority investment in the quarter, we'll be talking about that coming is very small, but it's indicative of the tie that was the into kind of a content asset.
And so maybe more of those software applications that extend functionality that touch on the workforce. We're really excited about what we've done with nurse grid and how they ultimately complement our our E portfolio tool set that we're building.
And so I guess just have to wait and see but we have a lot of exciting ideas on how to extend this model as it relates to the U.S. healthcare workforce their management development retention.
And just in general their workflows, one slightly new dimension to the model is this nurse grid application. It's the business to professional direct so as we think about having millions of people in a network.
They have mostly been consumers through their organizations. So the organization has been our primary customer that employs them I think in the next several years.
You'll start to see us have the end user as a customer as well and so watch for that no secret is kind of the beginning of that concept.
Great. My final question is about a year or so ago, you guys talked about and this might be with.
H. stream, but.
I think moving from you know the hosting aspect of your business.
I forget whether it was as youre or Amazon, which which when you were using but there was some duplicate hosting costs and it can you just talked about when is that still ongoing or when that would be expected the and.
Yeah that would be one of the longer term say 24, 36 month improvements in gross margin right now would have to invest and ramp up in all areas. Both unfortunately, the hosted environment.
But are there still full web SaaS based but we manage them ourselves and the the pure SaaS pass environments in Azure and and and Amazon Web services, we use actually both of those so right now those duplicative costs are going to be in the model and probably persist for at least another year.
Okay, great. Thank you so much.
Thank you.
Thank you and I was there might ask a question you'll need to press star one of your telephone. Our next question comes from.
Vincent Colicchio with Barrington Research you May proceed with your question.
Yeah, Bob Im curious have you seen a significant increase from last quarter to sit now in terms of.
Portion of your client base looking for better payment terms.
I'll, let Scott Scotty kind of characterize that because he has been dealing with that but in general it hasn't been as up as much as I thought kind of overall, but maybe Scott if you could comment a little bit on on customers and their request for payment market.
Yes, Vince has been there we definitely have received requests from customers, but it's not bad widespread across our customer base then.
Concentrated to.
Smaller group and it's.
Sometimes its customers that are.
National account size customers, sometimes it's small customers.
It's not.
That's something we're seeing everyday that we have been very accommodating customers to kind of here the story listened to their.
Their concerns and try to work with them the best we can.
But it's definitely had a slight it you know.
Yeah downside to the collections in the quarter, but some of those are.
Accommodations, we've made in some of them are just customers continuing to slow paid because.
The conditions that are working with him.
Hey, thanks for that and no one more Bobby.
Wondering are you seeing better pricing in the M&A market orders.
[laughter] things, reflecting sort or the overall equity market.
I think there, reflecting overall equity market I haven't seen any material changes yet.
Yes, a lot of businesses are still assessing I mean, some absorb needle impacted by cold weather just you know.
Some types of business, but lot of the business, we look out or subscription businesses, it's a little hard to tease out the short medium to long term impacts on our businesses, so they're holding onto their their valuations from what I can tell miles best they can.
The next couple of quarters, I think could re synthesize the market to multiples, but I.
Don't know until we get there.
Thank you.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Robert first for any further remarks.
Thank you all participating in our second quarter earnings Conference call look forward reported third quarter and updating you on our business conditions. Thank you to all healthstream employees for delivering an amazing work result.
Financial result, and kind of hunkering down with us to get through this tough time appreciate their contributions to overall to our success and forward momentum.
You guys on the next earnings call. Thanks Bye.
Thank you ladies and gentlemen, this concludes todays conference call. Thanks for participating you may now disconnect.
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