Q3 2020 HealthStream Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to hold Strange third quarter 2020 earnings Conference call.
At this time, all participants are in listen only mode.
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It is now my pleasure to introduce Vice President Investor Relations and communications Mollie Condra.
Thank you and good morning, Thank you for joining us today to discuss our third quarter 2020 results also in the conference call with me today are Robert A., Frist Junior CEO, and chairman of Healthstream, and Scotty Roberts, CFO and senior Vice President.
I would also like to remind you that this conference call may contain forward looking statements regarding future events and the future performance of Healthstream that involve risk and uncertainties that could cause the actual results to differ materially from those projected in the forward looking statements.
Information concerning these risks and other factors that could cause results to differ materially from those forward looking statements are contained in the companys filings with the FCC, including forms 10-K, 10-Q, and our earnings release.
So with that start I'll turn it over to Bobby Frist.
Thank you Mollie good morning, everyone and welcome to our third quarter 2020 earnings calls like to start this morning by commenting on some exciting news on October 12, we announced our acquisition of shipped Wizard Raleigh, North Carolina based health care Technology Company, It's really exciting company provides award winning SAS based.
Enterprise class solution for scheduling and workforce management to health care providers and health care organizations really excited to welcome ship lizards customers and employees to Healthstream affective October 12th really exciting day for that in this new capability to help stream. The addition, I should check whether it expands our growing portfolio of solutions.
Nurse and staff scheduling, which began earlier this year with the acquisition of nurse grid, we believe the complimentary positioning shipped was or.
Nurse grid will enable integration that yield even smarter schedule management enhanced nurse engagement.
Together shipped Wizard and nurses could create a solid footprint in emerging area for the company the area enterprise nurses and staff scheduling I look forward to sharing our progress on that front in the coming months and in a moment Scotty Roberts will provide more details about the acquisition.
Let's back up a little bit in shifts a broader health care landscape in health care News just come contextual for all of these results are of course, an update on cobot and you know we're in a tough time right now the number of confirmed Koby 19 cases in the United States more than doubled since our last earnings call now over 8.6 million cases and over 226000.
Doubts which include over 1700 health care workers.
Yeah, and Healthstream, we continued our mission to support the U.S. healthcare workforce heroes, who are literally putting their lives at risk to provide care to others.
One way we live this mission during the third quarter was the host our first ever national nurse well be weak. This amazing virtual that was held September 28, two October 2nd and include a week of engaging activity speakers and sessions with profit buys from peers and experts about enhancing nurses wellbeing.
After learning from a survey conducted through our nurse grid out that 85% of the 12000 nurses who responded to the survey indicated they were struggling with burn out we knew that it was time holding.
Holding to that and began releasing content help improve their well being over.
Over 1400 nurses signed up and participated in nurse, while being weak and we want to thank each and every one of them for making it a success.
Unfortunately, many of the ways, we characterize the pandemic and our last few calls continue to apply the impact of Carbonite team continues to be widespread rapidly evolving a generally characterized by uncertainty.
Directly relevant to our business and the adverse impact of Pandick pandemic is having and will likely continue to have on the health care industry. Our business is focused on providing workforce in provider solutions to health care organizations, along the continuum of care.
An adverse impact on health care organizations is likely to result in an adverse impact on our company.
Well, we do not believe the Cobi 19 had a significant negative impact on our revenue during the first six months of 2020.
We began to see the impact in the third quarter and expect continued impact of the remainder of this year and potentially next year due to lower expected sales volumes as customers delay or defer buying decisions as.
As you know multiyear subscription models, such as ours decreased sales volumes in the current period, Jerry lead to negative revenue impact future periods and that is what we're beginning to see importantly, while sales have slowed in some instances. They have certainly not stopped customers are showing receptivity to ship from onsite visits.
Our sales organization to virtual meetings and product demonstrations and there continues to be interest in our product offerings, we like our customers continue to innovate and adapt as we meet the challenges of the pandemic head on.
I would not want to understate the challenges facing health care providers and those challenges are all too real nearly three fourths of hospital executives report moderate or extreme concern about the financial viability of their organizations without an effective treatment or vaccine for COVID-19. According to the National Survey published last week by Kaufmann Hall same survey reported that one third of health.
Okay executive Salt operating margin declines in the second quarter of 2020 compared to the same period of 2019.
At the same time I do not want to understate, our resolve all the resolve our customers to emerge from this pandemic our customers will continue to do what they do best provide quality care and we will continue to support them.
In some critical ways, the pandemic and serve to reinforce our continued direction and strategy of building a past ecosystem as evidenced by record volume utilization of our platform in the quarter.
Even as the pandemic and its consequences necessarily slow the rate at which we might proceed otherwise we are making steady progress I. Therefore want to provide updates with regard to the threed business transitions that we introduce and discussed in previous calls all three transitions are designed to move us towards being a higher margin more profitable company in the coming months and years.
There's.
First we have transitioned our sales and marketing efforts from the legacy resuscitation products to our new resuscitation offering.
As a reminder, the new Red Cross Resuscitation suite program is comprised the BLS Payless and Pals competency development curriculum and we launched it in January of 2019. It brings an updated Holly adaptive competency based development solution to health care professionals. It offers certification to health care professionals successfully demonstrating.
Fancy of life saving to process, the patient knowledge and skills.
Our customers focusing necessarily shifted in the last several months to responding to developments related to cope in 19 and treating COVID-19 patients. We have continued to see new sales in the third quarter. We added 57, new contracts for the Red Cross Resuscitation suite program.
Which included many hospitals and health systems like Piedmont Health Beaumont Health Lakeland reason, though.
In fact, we had organizations throughout the continuum of care contract for these solutions, including American addiction centers and outpatient imaging affiliates among many others.
So this transition we feel is going well and our teams are focused on making it successful 57, new accounts definitely something to celebrate in one quarter.
Second transition involves the adoption and migration of our new Verity stream platform.
In the first quarter of 2018, we announced the launch Verity stream, our new platform for managing Credentialing and privileging health care organizations. During the third quarter of 2000 2048 customer accounts were contracted for the Verity stream platform, bringing our cumulative told her total to over 300. These customers represent a mix of.
New customers and existing customers, who chose to migrate from our legacy Credentialing and privileging platforms to the new Verity stream platform.
Some of the customers we contracted in the third quarter include Ohio State University Health system University of Minnesota, Physicians, and the Whitehall Heights Medical Center importantly, all new customers, including the distinguished ones I, just mentioned came into our new enterprise platform solution severity stream platform.
So we're beginning to have growing confidence of course in the new platform. We're really excited about its progress in the marketplace.
Third transition involves our customers upgrading to the extreme platform, which is the essential technology working behind the scenes that powers all activity in the healthcare ecosystem.
And the third quarter, we added approximately 340000 net new H stream subscriptions, bringing our cumulative total to approximately 3.82 million subscriptions.
A quarterly updates with regard to these three business transition began at the start of 2019, approximately 22 months ago from today.
We are therefore pass the mid point of what I. Originally described as a likely 36 month journey.
As we think about the remainder of this journey. There are some challenges remain in front of US for example revenue from the legacy resuscitation products, which were $9.7 million in Q3.
And estimated to be 6 million in Q4 will drop to zero in Q1 of 2021, that's a $38 million year over year drop certainly challenging promise next year.
However, a lot of challenges previously associated with the three transitions are now behind US for example, we.
We now see strong market acceptance of the Red Cross suite and its certification as we now have customers in 49 states.
We've seen compelling product adoption of our Verity stream platform with over 300 customers and many people referenceable accounts.
We have seen from technology viability with our eight stream platform as evidenced by the large scale deployment of applications, which utilize the new age screen pass architecture.
So many key questions around the market acceptance product adoption and technology viability continued to be addressed positively.
I like it that we passed the mid point of these transitions in many of what I would call. The existential questions will these things be accepted will they work had been put behind us and.
And for now more execution phase of these transitions how fast will it be adopted how much can we sell and I think that's a much better place to be as we enter next year really selling secure in the three transitions, we're past the midpoint and we're talking about adoption acceptance and rate of sale.
So I'd like to highlight a few points about some key financial metrics. During the journey. Its first well operating income may be impacted by acquisition related amortization of deferred revenue write down accounting requirements from the acquisitions EBITDA and free cash flow have remained relatively strong during these transitions.
Second.
In the past quarters, we have seen an improvement in gross margins as expected and predictive indicating that our higher margin products are being received well in the market.
Finally, we are fortunate to have entered the threed transition and the pandemic with a solid balance sheet, no debt and a $50 million credit facility remains fully available to us.
We believe that we are well positioned to continue allocating capital to invest in the future of the company for the time being that means maintaining capital investments.
In product development and pursuing an active M&A strategy.
At this time I'd like to turn it over to Scotty Roberts, who will provide a more detailed discussion of financial metrics for the third quarter.
Scott.
Right.
Everyone listening in today.
The discussion of our financial results will be for continuing operations, only and comparisons will be against the prior year third quarter unless otherwise stated.
For the third quarter revenues were down, 3% or 1.6 million to 60.9 million.
Operating income was down 16% to 3.1 million.
Income from continuing operations was down 24% to 2.6 million.
EPS from continuing operations was eight cents per diluted share and was down from 11 cents per diluted share in the prior year.
And adjusted EBITDA from continuing operations was down 3% to 11.1 million.
Revenues from the workforce solutions segment totaled $49.2 million for the third quarter and were down 4% or 1.8 million compared to the prior year.
Revenues from the legacy resuscitation products declined by 3.7 million while.
While revenues from all other workforce products increased by $1.9 million or 5%.
This increase was comprised of $2.6 million or 7% from growth and platform and content subscriptions that was offset by declines in professional service revenues.
Point 7 million or 43%.
Revenue from the American Red Cross simulation suite program, which includes both subscriptions and stimulation equipment also contributed to the third quarter revenue growth.
Revenue from the provider solutions segment totaled $11.7 million for the third quarter and grew by 2% over the prior year.
This growth came primarily from the December 2019 acquisition, a credential my dock.
Our gross margin improved to 61.7% compared to 59.4% in the prior year.
The improvement in gross margin was due to changes in revenue mix, including growth and higher margin products and their workforce solutions segment.
Unless revenues from the low margin legacy recess cetacean products.
We are pleased to have achieved and exceeded the targeted gross margin, 60% that we set forth earlier this year.
Operating expenses, excluding cost of revenues were up 3% or 1.1 million over the prior year.
Expenses increased as a result of higher product development costs amortization expense due diligence costs associated with the acquisition of shift Wizard.
As well as incremental operating expenses, especially associated with two prior acquisitions credential, my Doc and nurse grid.
These two acquisitions increased our operating expenses by $1.2 million during the third quarter.
Yeah.
As mentioned last quarter the expense control measures put in place in response to cope in 19.
Such as reduced travel trade show cancellations foregoing employee and executive salary increases.
And limiting our form 10-K match have benefited our financial performance.
As a result third quarter expenses were lower by approximately $1.7 million in the year to date expenses were lower by approximately 3.4 million.
While we believe these expense control measures are prudent in light of current conditions, we intend to strike a balance to ensure that our operations are financially stable for the future.
And that we continue to achieve our growth objectives.
Several of the expense control measures have a direct impact on our employees are vital to our success.
Faced with the challenges caused by the pandemic our employees remain focused and if made numerous contributions to advance our company. During these unprecedented times.
Although we have forgotten salary increases for 2020, and previously limited the form 10-K match to 1%, we elected to provide our employees, except exactly executive officers, but.
The supplemental payroll payment and increase the form 8-K match from 1% to 2%.
The supplemental payroll payment approximates the amount of salary increases that were forgone.
The impact of these two items increased operating expenses and reduced operating income by approximately 1.9 million during the third quarter.
Okay.
These factors led to our operating income declining by 5.6 million or 16% to $3.1 million.
And adjusted EBITDA declining by $5.3 million or 3% to 11.1 million.
Our cash and investment balances ended the quarter at $149.7 million up.
Up from 144.5 million last quarter.
And working capital was 104.1 million.
Cash flows from operations were $30.8 million this quarter or this year compared to $52.5 million last year.
The reduction is due to lower collections at about 20 million, which is primarily a result of the reduction in legacy recession patient billings and receipt.
That said operating cash was more than doubled in the third quarter compared to the first and second quarters of this year.
And our day sales outstanding improved to 43 days versus 47 days in the second quarter.
It was up compared to 40 days in the prior year third quarter.
Our capital expenditures were 5.2 million during the quarter.
14.5 million year to date.
In the first quarter of this year, we announced the authorization of a share repurchase program.
The $30 million of our outstanding common stock.
Through the third quarter, we have repurchased $16.3 million pursuant to the program, which included approximately $6.3 million of repurchases in the third quarter.
In October on October 12, we announced the acquisition of shift Wizard, which offers a SaaS based solution to health care organizations.
The integrates key workforce management capabilities, including scheduling productivity and forecasting.
The consideration paid for shift Wizard was $32 million and we used cash on hand to fund it.
They play the report the operating results of shipped Wizard within our workforce solutions business segment.
Now I'd like to provide some details on health has been 19 pandemic has impacted our financial results and operations, thus far and their outlook going forward.
We continue to believe that the extent timing and duration of covered nineteens negative impact on her out on our operating results and financial condition will be driven by many factors incur.
Including the length and severity of the COVID-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 COVID-19 pandemic, we're not providing 2020 got it.
As Bobby mentioned the number of COVID-19 cases continues to rise to record levels throughout the country.
Leading more rural areas that were not significantly impacted several months ago.
Health care organizations across the country, many of whom are our customers continue to face this operational and financial challenges caused by the continued 'cause it 19 outbreak outbreaks and the oncoming flea season.
Well, we believe many healthcare providers are adjusting their operating models to manage such spikes in kind of a 19 cases. They may continue to experience financial strain as a result, which could also have an impact on our business.
The pandemics negative financial impact on our customers continues to cause uncertainty in their purchasing decisions for our products.
This quarter like last quarter, we experienced a slowdown in our bookings within both of our business segment.
The fourth quarter has historically been our strongest quarter for new bookings and with continued uncertainty about our customers purchasing decisions, we remain cautiously optimistic and our expectation.
To the extent conditions worsen or do not improve we expect it will have a negative impact on our sales activities and future revenues.
Although we have experienced lower sales from the beach and are beginning to see this translate into lower revenues, it's not caused a material negative impact on our financial results. So far this year.
And our operating income is better than expected.
The restriction of travel cancellation of trade shows and freezing employee salary increases resulted in lower operating expenses and helped improve our operating income as previously mentioned.
We expect these cost reductions to extend into the into the fourth quarter and likely into next year.
We view them as short term benefits to our operating performance. Although we are uncertain if or when these expenses will return to normal run rates.
During the third quarter, our cash flows and dsos improved compared to the first and second quarters.
Although this may be indicative of improved financial conditions of our customers, including the financial support customers may have received from the federal government economic conditions may worsen and our customers financial condition may deteriorate.
Which could negatively impact our future cash flows.
Although we're not providing guidance for 2020 I want to expand a little more on the shift Wizard acquisition and how that is expected to influence our financial results beginning in the fourth quarter.
Shift with it as a growing company with approximately 20 employees had trailing 12 months revenue of approximately 4 million and an operating loss of approximately 500000.
To help accelerate shift wizards growth and market penetration, we plan to make additional investments in sales and product development.
While we expect positive financial returns from ships Wizard over time in the near term, we anticipate the acquisition will be dilutive to our operating results.
As with past acquisitions that we've completed we expect operating income to be negatively impacted by deferred revenue write downs and the amortization of acquired intangibles.
We ended the quarter with approximately 150 million in cash and investments and as mentioned we completed the acquisition of shipped Wizard. This month for 32 million in cash.
We maintained our $50 million revolving credit facility, which provides us additional flexibility to deploy capital, including mergers and acquisitions share repurchases dividends and working capital needs.
We think it's important to responsibly manage expenses and maintain adequate access to capital, while balancing investment opportunities for growth and innovation.
We remain focused on allocating capital to support future growth initiatives, and improving shareholder value, including investing in new products and evaluating acquisition opportunities.
We also have approximately $14 million remaining under our share repurchase program.
We believe these initiatives remain in the long term best interest of shareholders and the company.
Though we will continue to evaluate them.
Connection with cobot, 19 related developments and adjust them if necessary.
That concludes my comments for today. Thank you for your time and now I'll now turn the call back over to Bobby.
Thank you Scott before we get to questions I'd like to take a few minutes to highlight how well hellstrom employees are managing our operations well working remotely due to the pandemic.
Whether it is selling without travel supporting customer using virtual technologies or closing an important acquisition. They have not missed a beat.
Our commitment to our vision and to our customers is a testament to their outstanding character and abilities to truly serves the sign of a thriving culture that they built across healthstream.
One example of our culture is incredible involvement in our corporate social responsibility program, which we call streaming good undeterred by the pandemic our employees were able to hold a virtual relay for life event in September which engage hundreds of our employees and raise money for the American cancer Society.
Please also demonstrate a strong commitment to social justice and racial quality. They have created an employee led group called stream forward that is actively developing new initiatives to further support our commitment to diversity equity and inclusion to employees and all the communities where we serve.
As an example, they have developed and are launching a new course called managing unconscious bias, which we are providing free customers.
As we continue working remotely healthstream employees are rising to the occasion as we battle against the pandemic.
I'd like to end this call by thanking all healthstream employees for the great job. They are doing supporting the health care workers on the front line I know, it's appreciated by the frontline workers, we hear from them and I'm appreciative of our employees, making this all happen.
At this time I'd like to turn it over for questions from the Investor community.
Thank you.
As a reminder, ladies and gentlemen to ask a question you will need to press star one on your telephone.
Draw your question first the bounty please stand by while we compile the culinary roster.
Your first question comes from the line of Ryan Daniels with William Blair.
Hi, Good morning. This is gerard in for Ryan Thanks for taking the questions.
Just curious obviously appreciate that it continues.
Continues to be a tough environment to sell into but was hoping to just get a little bit more color kind of on the sales cycle activity in front of the demand environment and maybe some of the trends over the course of the third quarter and then if you started to see any of that changed maybe more recently here to start the fourth quarter, just as Weve, obviously seen current buyers.
And it starts to pick back up in that sort of thing.
Yeah sure a couple of ways to characterize it and we did share a little bit earlier in the call first on the say the regards patient suite products really encouraged by the velocity and volume of the new sales. There. Our teams have adapted the virtual selling and virtual implementing very important not to sell but be able to get these products live believes we announced a 50 cents.
Other new accounts and the 90 day period, so good trajectory velocity on the Red Cross Resuscitation suite program.
You know some of the bigger purchases of elective products.
Which we're really excited about that bigger industry changing are getting deferred and pushed forward I don't think we're losing those opportunities I think they're getting pushed forward as they've dropped in priorities as hospitals execute cobot strategies and.
Adapt their operations. So we have seen some of the sales.
More elective products get pushed the future, but again the pipelines remain strong there just deferred delayed or not taking calls on those topics. At this time, so I think where the products line up directly with the current needs of we've seen a huge surge in use of our platform for the Cobra related courses and hopefully as well.
The diversity equity inclusion courses, so we see great utilization of our platform and network. During this time.
But related to the sales pipeline, some deferral or taking some of the deals and pushing them forward.
I think we also talked about the verity stream velocity and momentum I.
I believe I said 47, a near 50, new accounts in the quarter as well so really good velocity of new closings on the Credentialing and privileging platform.
With some big account wins, and we rattled off a few of those on the call to show.
Acceptance and adoption of the new platform.
That said you know across our broader suite, we see some deferral decision makings on some of the elective say continuing education programming.
We have our new Jane I platform, which we think is industry changing we've seen some good uptake on it but some of the bigger deals got pushed as they got pushed forward in time hope that helps characterizes it's a complicated time, because we're adopting and adapting our sales methodologies customers are adopting and adapting their implemented.
Jason methodologies and the Reprioritizing, the order in which they buy things and and we've seen a little of that in the deferred pipelines being pushed into the future.
Yeah, no that makes sense that makes sense. That's helpful color and then maybe just I'll tack on one quick modeling related question. So it looks like.
Appreciate the gross margins were up.
Year over year and sounds like most of that was due to kind of product mix and that sort of things did look like it was down slightly just a little bit sequentially from the second quarter.
Just curious if there's any kind of unique dynamics to call out there that's more just kind of revenue mix driven.
And anything worth calling out from a gross margin perspective for the third quarter.
Yes, it's going to be a revenue mix.
Issue, maybe a little more than expected.
Some product categories.
Like the old legacy products, I think performed a little better in the quarter than maybe we had forecast earlier as they run off to zero in Q1 of next year. So I think it's going to be a product mix that has a margin mix implication, but Scott do you want to add anything to that.
Yeah, probably just the other factor would be the the supplemental payroll payment and then you mentioned that was.
Taken as a charge in the third quarter that would have been dispersed throughout the PNM, but would have had an impact on.
The increase in cost of goods sold as well.
Okay, great thanks for that color.
Yes.
There are no other questions.
Thank you operator.
Yes, I'm showing our next question comes from the line.
Matt Hewitt with Craig Hallum.
Good morning, Thank you for taking the questions maybe.
Maybe first up on the ship Wizard.
If you look over the last few years you you've got nurse grid, you've got Credentialing now, you're adding shifts Wizard as you look out over the next call. It three to five years, how do you see or what's your vision for taking these these different programs applications.
Combining them how do you see this playing out.
Sure sure. So we're pretty excited about it I think if you think of our origin as a company and learning and development right were very strong we have a great learning platform, it's highly penetrated in the market and its a strong psas application.
And then we moved strongly through three or four acquisitions into Credentialing and privileging and then created the new platform to begin to move those customer to that so credentialing privileging kind of being.
Second leg of growth opportunity in defining our capabilities and opportunities and now I think scheduling being a third so nurse grid and shipped Wizard together are we think can feed one another's growth and create a third confidence a third leg of the stool. If you will.
Of our capabilities and in scheduling and kind of schedule management and so.
We're really excited about how those two play together because it's kind of taking the BDC application world that there seem to really appreciate helping these are scheduled to the nurse good out and bring it next to and hopefully connecting it to the B to B enterprise management capabilities of shipped Wizard that was noted gaining market share and had a really great.
Platform very excited about that so one way to think about as these three.
Areas are now competencies evolving competencies of the company and we're working our baskin hardest to connect them all through the H. Treme platform technology. You know this will take time, but what it will do is allow us to leverage data across the application suites. For example, nurses are probably the largest consumers of all three of those applications that's learning development.
We're really strong in nursing development and training.
Huh, Credentialing and privileging is more physician and provider, but overtime. There may be services that can target. The nursing Corp. And then scheduling of course is scheduling staff at this time focused on the nursing core. So we think things like in the future. We can envision a state where the competency profiles that are derived from learning and development.
Inform the scheduling and matching of a schedule of the skills of staff nurse to the acuity of the patients. For example, so we see potential long term leverage and the data mobility portability between and among the applications along with just logistical synergies of moving data between applications that are related.
Giving advantage teach platform for example, the Red Cross resuscitation suite.
Deliver certificates of confidence or certificates, which can now be automatically moved into the verity stream Credentialing platform, which is one of the many credentials that have to be validated and so customers that are on both platforms will enjoy the benefit of automating those procedures between the platforms. So I'd say the futures one of Interconnectivity.
Leveraging data sets that are common across the application sets, but also building award winning category, killing applications and each of these three areas learning and development.
Credentialing and privileging and scheduling and schedule management, so where new the scheduling it's got to have a long way to go.
But I think we've acquired two really exciting assets that in their own ways, where we're leading the market with their innovations. So.
Hopefully these are areas, we can gain ground.
That helps paint the picture at the end of the day, we like all of these platforms to connect.
Connect to one another through the extreme platform and leverage data mobility across our ecosystem.
Thank you that's really helpful shift.
Shifting gears the number of each stream subscribers accelerated sequentially that.
That was up almost 10% versus Q2 is.
There anything to read into that was that you know maybe some customer decisions have gotten deferred in the second quarter. They came back and I want to sign contracts and is there. Some type of a backlog that you have built up because of the pandemic or was this just more contracts that were up for renewal and it was a.
Unusually large quarter off that.
Yeah. It was it was a little more of the latter but it's also the fact that multiple.
Forms are connecting data stream and adding users in new ways and so for example, as we sell those new Verity stream platforms that includes access to certain eight stream through their contracts access to some of the upstream benefits and the extreme platform and so we're adding new users through more connectivity as we get more of these applications tied.
Some of the functionality of a stream or some of the benefits of that come with licensing date stream platform and.
So they're more ways to feed it and grow it but in addition, it's tied largely right now to the renewals.
Some of the older platform and the new contracts the newer platforms. So there's little bit of mix of both but I'd say, it's weighted towards their renewal cycles.
Understood all right. Thank you and then maybe one last one here quick.
Not sure. If this is right for Bobby your for Scotty, but.
The $1.9 million.
We really appreciate it I think it's important to recognize your employees are this time, but was there is.
Is there a tax benefit or is there a reason why it would just be a one time here, we're going to give you this payroll boost or versus doing a normal like pay raises that word forgone earlier. This year was it was there.
Yes, Brendan yes.
It's a little tricky to book communicating to employees, what's happening and why we're doing it in and explain to you guys as well so here's our philosophy and approach.
You know, we asked our employees and executives to forego their base merit raises the as we call them, that's generally a little better than Cola.
And so that as a run rate expense has been eliminated.
We didn't want to put those backend because they of course has a compounding effect as we enter next year and we're uncertain about next year. So we we but we looked at our financial performance in the short run and realized that we could afford to have the onetime payment without increasing the base run rate. So essentially will enter next year with the lower base rate, which I think is protective of the.
Sure, but we were able to financially afford to kind of.
Get some of that hard working.
Recognized by our employees that are doing such an incredible job during cobot. So in other words treating it as a onetime expense I think was the right thing to do for the quarter.
A lot of this incredible works done by by our teams, we've had restrictions on hiring and lower and lower there.
The Merit increase we took that away. This year. So we're trying to manage our run rate expenses keep him from compounding given the uncertain future, but also you know.
Recognized excellent work in the quarter. So we made it a one time expenses.
That makes sense all right. Thank you.
Thank you.
Our next question comes from the line of Steve Halper with cancer.
Your line is now open.
Just two questions going back to ship Wizard how.
How should we.
Think about the necessary investments that you need to make there and what sort of the timeline.
Do you get that onto the H. scream platform and narrow the losses and really start to.
Crank up.
The contribution from that from that business.
Yeah. Great question. So you know these two nurse grid and shipped was were both kind of growth stage relatively.
Relatively low revenue.
Compared to the rest of the organization and but nice.
Growth opportunity and we do have a lot of technical work to do there.
To get it to leverage a stream platform, but we're going to be able to grow up before that time core of occur. So the real short term investments will be in sales and marketing both those organizations had very small or relatively small sales efforts, even though they were gaining ground and market acceptance of growing monthly active users for nurse grid, which is by the way continue to gross.
Since the acquisition and and new customer acquisition for four shift Wizard through their award winning platform. So Steve I think the key is going to be in the short run we're going to try to double or triple the sales organizations, maybe I think cumulatively probably had four people across both Oregon, probably take that up to 10 to 12 by.
Year end.
You can talk to meaningful investment has long term benefit, but but short term hits there.
There will be increased technology investments as well.
He started to make some of those nurse grid.
And then over time have to increase those investments to essentially reconnect those platforms eight stream. So I can't give you that yet, but we will be working on that plan with our CTO goes across the company to come up with a good investment plan.
But I do think we can increase their their growth philosophy by adding salespeople and short on because the products are really wonderful products that are being well received by the market just a limited reach because they are smaller companies, we're going to try to give them more reach right.
Appreciate that and just switching back to Q3 trends.
In terms of bookings and the impact on 2021.
You can you sort of identify sort of what changed from Q2 to Q3, because I'm, assuming Q2 was pretty soft as well is just do you have one more core.
Of the current environment to say with some certainty now it's going to impact your 21 or did something specifically change yes.
Yeah, No. That's a great question I mean generally as Scotty pointed out the fourth quarter is a pretty big sales quarter and.
I think what we saw in the third quarter as some of the bigger I guess I'll call them elected deals got pushed into the fourth quarter and maybe even into the new year as hospitals way their budgets and the interest though we didn't see go down they are definitely a 90 day injection of a kind of a no talk zone, where revenue is figuring out like they wouldn't accept sales people into their places we weren't really also.
Tooled up to do the virtual demos.
And sell products and implement them virtually so that was definitely kind of I think of it as an injection delay where the pipelines all kind of got pushed in 90 days.
That's I think you're right I think fourth quarter.
Going to learn a lot about which how much normalcy has been achieved back in the health systems as far as purchasing patterns.
And so we weren't able to reinstate guidance, yet, but I hope that again.
Again fourth quarters little more heavily weighted for the year. So given those uncertainties. We just have to get through this fourth quarter and she heartlands.
We are projecting kind of well I guess relative to budget shortfalls in what we call new order value contract value for the fourth quarter just to be conservative the pipelines are there, but but again at the end of the third quarter. We started to see some of the I guess I'll call them elective deals get pushed forward.
And and so we are going to have another 60 days of uncertainty I think once we get that we'll have a better sense for what.
Next years and it looked like great.
Great. Thank you.
Thank you and our next question comes from the line of Vincent Colicchio with Barrington Research.
Yeah Bobby.
What does pricing look like on the option of your contract renewals.
I'd say, it's a it's holding steady we havent really commented on that but.
So we're getting better bundling services that have some discounting to them, but in general.
I think that the strength of an ecosystem and you can bundle up some value add it up but.
But in general I would say that the unit pricing on some of the core products is maintained and they're also competitive meaning there are already competitive with the market the price points, where we were entering so I feel pretty good about our pricing positioning.
And do you have any of the data on how employment trends how.
How about employment levels are trending within your client base.
Oh, that's a great question I haven't seen any updated data in a quarter or so.
You know, we're going through a little phase, where there were some active furloughing and and we've seen a lot of that return.
I think it's about 250 organization announced some form of Furloughing or layoffs.
That said some of these systems came through some of the bigger ones and and added people. So.
And also there is a.
The secondary markets or the ancillary or we call the continuum of care markets, the pre and post acute markets seeing a growth in payroll like the home health market. So those.
Those companies are growing so the blend of all of it I think we are adding health care workers across the board, there's little scare there for 90 to 100 days with furloughs and financial viability concerns but.
It feels to me like we're going to see employment growth in these spaces again.
Thanks.
Thank you.
I'm showing no further questions. So with that I will turn the call back over to CEO, Robert Frist for any closing remarks.
Thank you for participation in the call. Thank you to our employees for the incredible results in the last really really this this entire year, it's been amazing to watch them transition to work from home and bring customers along the journey. We'll see you guys in the next earnings call, which will be in February and look forward to exciting news even between now and then as we wrap up the year take care everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
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